* French Q2 FDI inflows third biggest after China, U.S.
* France top European destination for new foreign plants
* Government sending foreign investors mixed messages
By Leigh Thomas
PARIS, Dec 18 While its rich decamp to lower tax
neighbours and a government minister pulls the welcome mat from
under the world's top steel tycoon, France is nevertheless
taking a growing share of investment from undeterred foreigners.
That includes firms such as Chicago-based biotech Novian
Health, lured to a technology park outside Paris by generous tax
credits for research and development.
"For early-stage companies it's a really big plus because
you can recoup a lot of your R&D expenses," Novian Health's Vice
President Gene Bajorinas told Reuters. "It's an ideal scenario."
According to auditors Deloitte, France offers the most
generous such incentives among OECD countries, with a tax credit
worth 30 percent of companies' research and development spending
below 100 million euros ($130 million) and 5 percent above that
The rates are even higher for companies in the first two
years they use the credits, and there are further advantages
when research is carried out in partnership with public bodies.
That goes part way to explaining why $18.6 billion of
foreign direct investment flowed into France in the second
quarter, ranking it third among the 41 developed and emerging
market countries tracked by the OECD, with only China and the
United States attracting more.
FDI inflows so far this year stand at 42.5 billion euros as
of October, better than the 29.5 billion euros seen in the whole
of 2011. That puts France on course for the best year since a
peak of 70 billion in 2007 just before the financial crisis
broke, despite a reputation for high and rising taxes and
over-protective labour laws.
Offsetting that reputation is an educated labour force,
world-class infrastructure, cheap nuclear-powered electricity
and relatively affordable land.
Such advantages have helped attract big groups such as
Google, which has its headquarters for southern Europe
in Paris, and Amazon, which opened a new logistics
centre in June and has plans for another site.
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.
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
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.
But his efforts to revive competitiveness are being drowned
out by a stand-off with global steel giant ArcelorMittal
over its idled Florange steelworks, which the
government threatened to nationalise. That threat followed
minister for industrial recovery Arnaud Montebourg's blunt
assertion that CEO Lakshmi Mittal was "no longer welcome" in the
All of which compounds some business leaders' concerns about
the government's attitude to business after it earlier announced
plans to hike taxes on big firms and levy a temporary tax of 75
percent on personal incomes upwards of 1 million euros a year.
Economists said it could take several months or years to see
what impact such concerns might have on foreign investment.
"If you're thinking of investing in Europe or in France and
then this new government comes along, you might put plans on
hold and see how things go," said senior OECD economist for
France Peter Jarrett.