According to a study published by the EY company, which interviewed the intentions of two hundred managers of foreign-invested companies in October, one in two believes that the attractiveness of France has “decreased in the last six months”. Top reasons given: “political uncertainty resulting from the dissolution of the National Assembly” (61%), “uncertainty relating to corporate taxation in France” (42%) and “deterioration of public finances in France” (37%).
Consequence: one in two (49%) decided to reduce planned investments in France in 2024, after the dissolution of the National Assembly. 59% of those holding back mention “regulatory and legislative uncertainty”, 47% “the slowing down of the reform agenda” and 40% “the questioning of previously made public decisions, particularly in key sectors” .
“Despite love”
For Marc Lhermitte, partner at EY, the dissolution of the National Assembly marks, for foreign companies, the end of a “long period in which the course was set and constantly maintained, with what some have defined as a supply-side policy In any case, a true pro-business policy that has re-established trust.”
Who will benefit from this air gap, if it is confirmed? EY believes that “the UK could be the first beneficiary of this French disruption, in a context where Europe is threatened by American protectionism and Chinese ambitions”. 42% of the managers interviewed believe that “in the last six months the United Kingdom has gained in attractiveness compared to France”, compared to 29% who think the opposite.
READ ALSO “It’s a blast”: Macron, the strange end of his reign Will the dissolution have the same effect on France as Brexit has on the United Kingdom? Since 2017, the number of foreign direct investments has fallen by 18% across the Channel. “It is still too early to say whether there will be a shift in favor of the United Kingdom,” comments Marc Lhermitte.
“It is a country that still has a big problem with inflation, or the quality of public services. But it has advantages for American companies, with a super-flexible job market that resembles what they find at home. » Main advantage compared to the current situation in France: “The rules of the game are clear. » Germany, for its part, is evaluated even more negatively than France by foreign investors. But “challenger countries, such as Spain, Italy or the Netherlands, where the rules of the game are clear, could take the chestnuts out of the fire”.
“First expectation: taxation”
What could permanently convince these investors to continue choosing France? “Their first expectation is taxation,” estimates Marc Lhermitte. “If we asked them to contribute, in an exceptional way, to the public deficit and debt repayment, this contribution would have to be measured in time and in its amount. » They want to pay well, but expect “give and take”, with “optimization of public spending” and “simplification of their daily lives”.
Second expectation on their part: “They want more Europe. » “The Draghi report has helped to outline a true European course, which resembles the one that French leaders have been “buying” for several years. » They would also like “a clearer deployment of decarbonisation and the ecological transition”.
When asked about the fate of unrealized investments in 2024, 84% of managers responded that they will be postponed until at least 2025. Over 60% plan to develop research and development or services activities in France by 2027, but only 49% plan to create or expand factories within three years.
And just 15% plan to develop decision-making centers in France. The next EY barometer will tell, at the beginning of 2025, whether or not the foreign investment curve in France has inverted this year. And if so, which countries will have benefited from it.
How could political stability impact France’s appeal to foreign investors in the future?
Interview: The Changing Landscape of Foreign Investment in France
Editor of Time.news: Welcome, Marc Lhermitte, partner at EY. It’s a pleasure to have you here to discuss the recent findings regarding foreign investment in France. Based on the study conducted in October, we see a notable decline in the attractiveness of France to foreign managers. What are the primary factors contributing to this perspective?
Marc Lhermitte: Thank you for having me. Indeed, the study highlights some significant concerns among foreign investors. Approximately 50% of managers believe France’s attractiveness has diminished in the last six months. The top reasons include political uncertainty following the dissolution of the National Assembly, which was cited by 61% of respondents. Additionally, uncertainties surrounding corporate taxation and the state of public finances also play critical roles in shaping these sentiments.
Editor: Political instability can be disconcerting for investors. How do you see this uncertainty specifically affecting investment decisions for 2024?
Marc Lhermitte: It’s quite telling that 49% of those surveyed indicated a reduction in planned investments in France for the upcoming year. Many are particularly concerned about regulatory and legislative uncertainties, which 59% reported. This anxiety is compounded by the slowdown in the reform agenda, with 47% pointing to that as a deterrent, along with worries about the potential reversal of previously made public decisions in key sectors.
Editor: It sounds like a ripple effect is occurring. Who do you think stands to benefit from this shift in investor sentiment?
Marc Lhermitte: From our analysis, the UK is likely to gain from this turbulence in France. It seems that 42% of the managers interviewed believe that the UK has become more attractive in comparison to France within the last six months. However, we should approach this with caution. While the UK provides a flexible job market that appeals to American companies, it still grapples with inflation and public service quality challenges.
Editor: How would you compare the current situation in France to the repercussions of Brexit on the UK?
Marc Lhermitte: That’s an important question. We can draw parallels in terms of investor caution. Since Brexit, the UK saw a decline of about 18% in foreign direct investments. However, it’s still premature to say whether a similar trend is imminent in France. The context is different, but the underlying sentiment of uncertainty can drive investors to hesitate.
Editor: Considering these dynamics, what can France do to restore investor confidence?
Marc Lhermitte: Restoring investor confidence would require clear communication and a stable political environment. It would also entail a commitment to uphold and advance reforms that have been put on hold. By addressing regulatory uncertainties and ensuring that past public decisions in crucial sectors remain intact, France could re-establish the trust that many investors previously felt.
Editor: Thank you for providing such insightful analysis, Marc. It seems there is a challenging path ahead for France to navigate amidst global competition. Any final thoughts?
Marc Lhermitte: Indeed, while there are challenges, there is also an opportunity. French policymakers need to act decisively to reassure foreign investors. With the right steps, France can not only regain its attractiveness but also position itself as a leader in the European investment landscape.
Editor: Thank you once again, Marc. It has been a pleasure discussing these important issues with you. We look forward to seeing how the situation evolves in the coming months!