US money propping up France’s investment allure, but will it last?

Foreign investment projects in France are on the rise for the third year in a row, confirming the country as global business’ favourite within the EU, new data released on Thursday (29 February) showed – although managers from its largest investor, the US, voiced growing concerns over its labour costs and administrative complexity.

Figures published by the French government today showed 1,815 new foreign direct investment (FDI) projects were confirmed in 2023 – which are in turn expected to create or maintain 59,254 jobs over the next three years.

About a third of those projects will flow into strategic industries under the ‘France 2030’ €54-billion investment plan, including AI, quantum, and green-transition projects. Other key industries targeted by FDIs include car manufacturing, health, and agri-food.

“Our attractiveness contributes to economic sovereignty,” a ministerial source told reporters on Thursday.

France has been number one FDI recipient in the EU for four consecutive years – and new numbers show that President Emmanuel Macron’s “willingness to turn France into a pro-business country […] is paying off,” the Elysée told reporters.

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Slumping US investor trust

There is a more nuanced story to tell, however.

Some 17% of all new 2023 investment projects stem from the US, making it the number-one FDI source for the country, ahead of Germany (15%) and the UK (10%) – but things could be about to change.

Thursday’s fresh numbers come just a day after a new annual survey of US investors’ confidence in the French economy revealed a general slump in confidence that the country will fare as well as it did a few years ago.

The perception of France by US corporates as either ‘excellent’ or ‘good’ slid by 12% over the past two years, to 52%, the American Chamber of Commerce–Bain 2024 barometer for the country found.

Still, 36% of respondents are positive about France’s economic outlook – up from 22% in 2022, but below the average perception in the late 2010s.

“[I]n view of the inflationary context and the timid recovery in consumption, we prefer to make conservative predictions,” an unnamed chief financial officer was quoted as saying in the survey.

Concerns run particularly high on workforce cost, applicable labour legislation, and administrative complexity – all perceived to hamper legal certainty.

“This reflects France’s historical weaknesses, which continue to worry investors, and which are not compensated enough by France’s strengths,” the report said.

The Elysée has dismissed these criticisms, pointing instead to a number of other metrics that showcase France’s pro-innovation stance, and the quality of its labour force.

The Elysée also cited significant reforms ever since Macron’s arrival in office in 2017 to lower labour costs, implement a 30% flat tax on dividends, cut corporate tax from 33% to 25%, and, more recently, introduce new tax credits for green industry investments.

“We’ve pushed through reforms in spite of crises,” it added, aiming to step up regulatory visibility to investors, all the while building “trust between CEOs and the [French] president”.

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Wavering support for CMU boost

Growing concerns from US investors feed into a wider EU conversation over capital movement frictions in the EU’s single market, amid mounting appetite to resuscitate Capital Markets Union (CMU) plans, which have ebbed and flowed since they were first introduced almost ten years ago – in 2015 – under the Juncker Commission .

“We must unchain European growth,” Economy Minister Bruno Le Maire told an informal gathering of the bloc’s 27 Economic and Finance ministers in Ghent last week.

He deplored the lack of available cash to drive private investment, which only the introduction of the CMU “without delay” can solve: “€3,000 billion is available [in French savings], a large part of which is dormant, and the other part finances Asian and US growth. Do you deem that acceptable?”

EU capitals have been invited, on a voluntary basis, to start working on the contours of the CMU, in the hope of simplifying private cash flows across the bloc – in what could become one of the most significant economic reforms in decades.

At several talks taking place in Brussels last week, however, the general expectation for member states’ willingness to revive CMU implementation was less upbeat.

During two Single Market events organised by the European Parliament Financial Sector Forum (EPFSF) and the European Roundtable of Industrialists (ERT), high-profile officials including Enrico Letta – former Italian Prime Minister in charge of the EU High Level Report on the Single Market due next month – and Vice President of the European Commission Margrethe Vestager highlighted a continued risk of losing capital flows to other jurisdictions due to internal EU market fragmentation.

Failing to overcome some stubborn resistance, at the national level, to truly embrace EU-wide capital markets and speed up the unification of the bloc’s 27 financial sectors would pose considerable headwinds to European financial markets’ competitiveness, Letta warned.

[Edited by Zoran Radosavljevic / Anna Brunetti]

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