For the fifth straight year, France has trumped Germany and the UK to become Europe’s foreign investment hub.
Overseas funding was used to finance 1,194 projects in France last year, according to a new attractiveness survey published by Ernst & Young (EY).
This represents an annual decline of 5%, but still allows France to outflank its European peers.
Investment projects dropped 4% across Europe last year, with the UK and Germany noting declines of 6% and 12% respectively.
The UK was home to 985 projects financed by foreign direct investment (FDI) in 2023, whilst Germany recorded a total of 733.
The big three – France, Germany, and the UK – attracted more than 51% of FDI on the continent.
Why is France an investment magnet?
“France’s recent performance is largely the result of successive waves of reform, which have accelerated over the last ten years,” said EY’s report.
Among other regulations, it specifically noted changes to labour legislation and the introduction of the PACTE law in 2019, designed to make it easier to set up companies in France.
“Skills, infrastructure, and the market are the bedrock of France’s attractiveness,” added EY.
“Despite criticism surrounding the complexity of the administrative system, France’s legal and regulatory environment is no longer a major handicap.”
When French President Emmanuel Macron took office in 2017, one of his main pledges was to revitalise the country’s economy through pro-business initiatives.
Seven years on, the results of EY’s report have been celebrated by the French government.
Finance Minister Bruno Le Maire tweeted: “We are determined to continue along this path with major economic projects to come such as the simplification of business processes, the reform of unemployment benefits and initiatives to increase Paris’ financial attractiveness.”
Can France hold on to its title?
Despite France’s success, this doesn’t mean there aren’t challengers for the FDI crown.
Hot on the Élysée’s heels comes the UK, with London being named the top European region for overseas investment, despite the fact that the country as a whole lags behind its neighbour.
“While France has undoubtedly also benefited from the feared consequences of Brexit and Germany’s difficulties, there is nothing to suggest that it will be able to rely on the procrastination of its main competitors in the years ahead,” said EY.
In 2022, political instability in the UK led to a 6% drop in FDI.
This is despite the pull of the country’s advantageous tax systems and London’s resilience as a financial and tech hub.
Last year’s figures show signs of improvement, although the number of projects in the UK remains significantly below pre-Brexit levels.
ADVERTISEMENTInvestment rivals are also coming from across the Atlantic.
Last year, the number of European projects funded using US money was 1,058, representing a 15% year-on-year decline – and a drop of 29% compared to 2019.
EY argued that this was “without a doubt” the result of the Inflation Reduction Act, a policy that created a raft of tax incentives for projects in the US.
France’s victory should equally be qualified by stating that many of its FDI projects are extensions to existing ventures.
Last year, 36% of projects using overseas funding in France were started from scratch.
ADVERTISEMENTThis is compared to 75% in the UK and 77% in Germany.