France defies critics with foreign investment paradox

FP

According to Ernst and Young, France is also the favourite choice for companies setting up industrial plants in Europe, despite the long-term decline in France's manufacturing base.

Ernst and Young counted 171 new manufacturing plants set up by foreign firms in France last year, well ahead of Germany, with 121, and Britain, with 92.

LONG-TERM UNATTRACTIVENESS

But the figures are still "paradoxical", says Ernst and Young partner Marc Lhermitte.

"Many foreign investors, and even French firms, are asking themselves what role France is going to play in this phase of globalisation," he said.

"France's attractiveness as a site for some industrial jobs and plants does not make up for its long-term unattractiveness due to price competitiveness," he added.

Labour costs have been rising more quickly than in Germany over the last decade, gradually making it more expensive to produce in France, helping push it from second to third place behind Britain and Germany in Ernst and Young's survey of attractiveness for foreign firms to do business.

And 9.9 billion of the 29.5 billion euros invested in France last year went into real estate and mergers and acquisitions,

while investment in greenfield projects, at 2.2 billion euros, was the lowest since 2003, according to Bank of France figures.

"There's not a lot of the inflow that creates new production capacity," said economist Denis Ferrand at think-tank

COE-Rexecode.

Moreover, French firms invest more than double abroad what foreign companies invest in France. W hile that might reflect a healthy push for foreign market share, it could also be driven by a desire to avoid high labour costs at home.

"The question is whether the foreign investments reflect a decision not to invest in France," Ferrand said.

President Francois Hollande has pledged to reverse France's long-term decline in international competitiveness with a package that aims to cut companies' labour costs and an overhaul of labour market restrictions next year.

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