When it comes to selling itself, France does not have the most difficult of tasks, thanks in no small part to its beautiful countryside, fine food and wine, magnificent architecture, cross-sector innovation, high-quality education, skilled workforce and enviable way of life. However, it also suffers from having a reputation for high taxation, industrial unrest and a reluctance to reform – something the country's current government has struggled to shrug off.

So how is this impacting on France's ability to attract FDI? The country paints a mixed economic picture. In its August 2013 country survey, the International Monetary Fund reported that while France’s economy is recovering, it needs a stronger and sustained boost to investment and job creation to reduce unemployment, which hit 10.9% in May. In the short-term, the IMF predicted that France's economy will shrink by 0.2% in 2013 and bounce back to grow by 0.8% in 2014.


The ratings agencies have also posted a pretty gloomy outlook for France. In July 2013, the country lost the last of its major AAA ratings when Fitch downgraded it to AA+ because of deteriorating debt prospects and uncertainty about its economy. This followed similar decisions by Standard & Poor's and Moody’s in 2012. 

The bad news

Analysts have been highlighting France's deteriorating competitiveness, which has led to a decline in manufacturing and exports. The ongoing eurozone crisis has not helped either, with critics arguing that the country's government urgently needs to introduce more reforms. However, Christian Gillet, a partner at Deloitte Paris, says: “The eurozone crisis has surprisingly had a very small impact in France, as there are still a lot of Middle Eastern and Far Eastern investors who are considering investing in our safe-looking country.”

President Francois Hollande’s sabre rattling on tax has done little to encourage people to invest in the country. His cause has not been helped by the actions of high-profile names such as actor Gerard Depardieu, who very publicly shifted his country of residence in response to rumours of a huge hike in tax for the super rich. And with UK prime minister David Cameron offering to roll out the red carpet to business people fleeing France’s high tax rates for the "entrepreneur-friendly" UK, the tax debate has remained in the headlines. The IMF has also added its voice to the discussion, arguing that rather than raising taxes, France should do more to rein in local authority spending and social security spending.

Taxation is only part of the problem, however, as Mr Gillet points out: “The main reason the investment market is frozen is that prices are still high."

The good news

But it is not all doom and gloom. There were glimmers of hope for France in the second quarter of 2013 when economic activity grew by 0.5% after six months of decline. The CAC 40 – a benchmark French stock market index – has also been steadily climbing over the past 12 months, standing at about 4200 in September 2013, a 24% increase on September 2012's 3500. This compares favourably with other European indices over the same period, such as Germany’s Deutsche Boerse, which increased by about 17%, and the UK’s FTSE 100, which recorded growth of approximately 13%.

Recent FDI stats for France also reveal that the country still has its admirers. According to Ernst & Young’s 2013 European Attractiveness Survey, France is in the top three for FDI projects in 2012, alongside UK and Germany; and in the top five for jobs created by FDI. However, there is room for improvement as the number of jobs and projects created fell compared with 2011.

According to Ernst & Young's 2013 investment attractiveness survey for Europe, France remains the leading destination for manufacturing projects. The survey also reveals that although US companies launched more projects in France in 2012, their peers in Germany and the UK announced fewer French projects than in 2011, as did companies from Switzerland, Belgium, Sweden and the Netherlands. Overall, France ranks fifth in the EU for FDI, attracting $25bn in 2012 according to a 2013 Unctad report. The fDi Report 2013, based on greenfield investment data from fDi Markets, shows a 12% decline in project numbers for France, with the country trailing behind Germany, Spain and Russia.

Although France's government does not have the most pro-business reputation, supporters argue that it is taking steps in the right direction. Its National Pact for Growth, Competitiveness and Employment, launched in 2012, aims to cut taxes and business costs, provide access to effective and tailored funding, offer greater incentives for innovation, and create a simpler and more stable regulatory, administrative and tax environment. One of its first actions has been to create the Public Investment Bank, which has €42bn in its coffers to back small and medium-sized enterprises.

Other initiatives include the Grand Paris project, which includes policies to promote research, innovation and industrial development, as well as a €32bn programme to modernise and expand existing transport networks.

Established successes

Despite the mixed picture, France seems to have plenty of reasons to be cheerful. As the second largest economy in Europe and the world’s fifth largest, the country continues to offer opportunities to investors requiring links to a vast consumer market. Its location and historical links also have the potential to make it an attractive springboard for entry into the wider European, African and Middle Eastern markets.

In addition, France is a leader in the aerospace and nuclear industries in Europe. Its agri-food and chemical industries are the second largest in Europe and its ICT and pharmaceuticals sectors the third largest.

France enjoys excellent transport connections with the rest of the world, and these are being enhanced by a host of new routes. Air France, for example, returned to Malaysia after a 20-year break earlier this year, with low-cost carriers continuing to create links between minor airports and destinations throughout the rest of Europe. Regional airports are also getting in on the act by introducing new routes, such as a direct flight from Lyon to Dubai. And while there are still some gripes about the frequency of strikes causing delays or cancellations for business travellers, growth in the country’s aviation sector has helped to create more opportunities for investors throughout France. 

According to figures from Eurostat, the country saw a 3% increase in passenger numbers between 2011 and 2012, compared with a 2% rise in Germany, 1% in Italy and UK, and a 3% decline in Spain.

Continued investment in the country's road and rail network is further boosting opportunities for FDI in logistics. A number of high-speed rail lines have either been completed recently or are in the pipeline, including LGV Perpignan to Figueres, LGV EstEuropéen to Strasbourg, LGV Sud Europe Atlantique, LGV Bretagne to Pays de la Loire and the Nîmes/Montpellier bypass. Such developments show that France is still a country of rich potential. Convincing would-be investors of this is another matter, however.