By Peter Gumbel
In France these days, every new industrial investment is welcomed with open arms, so when the Japanese machine-tools manufacturer Amada announced in mid-September that it was putting an additional $50 million into its existing production facilities, no fewer than two government ministers showed up for the signing ceremony. Much to their embarrassment, however, the chief executive officer of Amada, Mitsuo Okamoto, gave an interview that morning to a national French daily in which he castigated the national business climate, and said that if the company hadn't already been in France for 40 years, "we would think twice about investing here for the first time."
Chalk it up, one more time, to France's investment paradox. Okamoto is just the latest example of a foreign CEO who moans and groans about the difficulties of doing business in France, even as he pours in money, in the form of fresh investment.
There's certainly a lot to complain about. The law reducing the official workweek to 35 hours, passed in 2000, is still on the books. The outsized labor code that governs hiring, firing and everything in between is regularly cited by organizations from the World Bank to the World Economic Forum as a significant impediment to doing business; its printed version runs to 3,371 pages, or more than three times the size of the German equivalent. Unions are famously feisty, and labor costs, already high, have continued to rise at a faster rate than productivity, even after the 2007-08 financial crisis.
Yet France — at least until now — has weathered the criticism with panache. For years, it has enjoyed a flood of direct investment that has made it a regular fixture near the top of the list of recipient nations in the world, alongside the U.S., China and the UK. According to estimates by the United Nations Conference on Trade and Development, France received $59 billion in incoming investment in 2012, far ahead of larger nations such as Australia or Russia, and just behind Britain and Brazil. According to the government's Invest in France Agency, whose job is to woo potential foreign investors, there were almost 700 new investment projects in 2012, which together created or safeguarded about 26,000 jobs.
But 17 months after the election of Socialist President François Hollande, there are some signs that this French paradox is now being sorely tested. The most startling is a survey by consultants Bain and Co. for the American Chamber of Commerce in France, released this week, that shows an utter collapse in U.S. corporate sentiment about France as a place to invest.
Executives from the French subsidiaries of U.S. companies were asked about how their bosses at corporate headquarters viewed France. Slightly fewer than 13 percent said the perception was positive, a dramatic drop from the 56 percent positive rating of just two years ago, before Hollande was elected. It followed a sharp drop in 2012, when only 22 percent gave a favorable rating.
The euro zone crisis and France's sluggish economic prospects are part of the problem; only 10 percent of those polled saw the overall economy improving this year, and 60 percent foresaw a decline in their sector of activity.
But the biggest factors explaining the disastrous poll results are political; the U.S. firms said they couldn't understand the direction of the government's economic policy, and that recent decisions on fiscal policy and labor laws simply made France's already complex legislation even more burdensome and opaque.
Chief among the gripes was the announcement by Hollande himself during his presidential campaign that people earning more than one million euros per year would be hit with a new 75 percent marginal income tax rate. The government has since had to tone down the measure after its constitutionality was put into question; the 75 percent tax band still applies, but now companies can pay it for their executives. The American Chamber of Commerce survey included anonymous quotes from some senior executives, including the finance director of a hotel company who complained that "monumental communication errors were made about the measures taken, including the 75 percent tax."
Investment bankers separately report that some international investors have been scared off by the aggressive rhetoric of some government ministers, especially Arnaud Montebourg, the Minister for Productive Renewal, in charge of industry, who has been involved in several ill-tempered clashes with foreign business executives, including the UK-based steel magnate Lakshmi Mittal, and Maurice Taylor, the CEO of U.S. tire maker Titan International, who complained that, "the French workforce gets paid high wages but works only three hours."
It's not just foreigners who are complaining. The newly elected head of MEDEF, the French Employers' Association, Pierre Gattaz, has been on the offensive, chastising the government for its high taxes and urging massive cuts in public spending in order to create jobs.
It's still too early to know whether the French investment paradox will remain in place, ensuring that, despite the complaints, the foreign investment will hold up. The first reliable statistics for this year are due to be collated in January. Government officials concede that some projects were put on hold already before the election, and that in general, since the financial crisis, the trend has been for investments to shrink in size, if not in number. Still, some significant new investments have been announced over the past 12 months, including the opening of a big new Amazon distribution center that is slated to employ 2,500 people by 2015, and an investment by Coca-Cola in a new recycled bottle plant. But in the American Chamber of Commerce survey, 26 percent of the U.S. companies polled predicted they would reduce their French staffing levels in 2014-15, whereas only 19 percent foresaw an increase.
What U.S. business thinks is critically important for France, as American companies are the single largest foreign investors in the nation, accounting for almost one quarter of the total. Germany, Italy, Switzerland and the UK follow, at some distance, and then comes Japan. Okamoto, the Amada CEO who threw a bomb at French protocol when he came out with his blunt comments, was probably speaking for all foreign investors when he ended his interview with a plea: "France needs to think about the question of its workweek." So far, there's no sign of that happening under the Hollande administration.
(Peter Gumbel is an award winning journalist and author who has lived in Paris since 2002. The views expressed here are his own.)