The big chill

By M.S.

COMPETITION for job-creating foreign direct investment (FDI) is brutal these days in the European Union. Although it used to be the world's biggest recipient of FDI, its global share has now fallen from almost 29% in 2011 to 17% in 2013, according to UNCTAD. With European investment subdued, banks reining in lending and economies struggling to grow, foreigners with fat wallets are more than usually needed. Even France has engaged this year in a charm offensive to lure them in. So a study made public on October 23rd suggesting that only 12% of American companies with operations in France rate it positively as an investment destination is ruffling feathers.

The American Chamber of Commerce in France (AmCham) takes its members’ temperature on the subject each year, aided by Bain & Company, a consultancy. Fans of France made up 56% of all respondents as recently as 2011 but the proportion has sunk each year since then. No one disputes that France is a delightful place to live, with wonderful food, art, health care, transport and even rural broadband. The quality of the workforce is good. The focus on research is appreciated by firms. The rest of Europe is easy to get to from it.

But companies are increasingly hard-headed in deciding where to put their money, the survey suggests. The pleasures of a new Picasso exhibition no longer compensate for the very high employment taxes firms must pay on salaries, restrictive labour laws, and tax rates that strike Americans, at least, as confiscatory. Worries about the cost of labour and the unpredictability of the corporate-tax regime have pushed their way into respondents’ top five investment concerns. Of the other three—the economic environment, the social climate (broadly, political instability and strikes) and the quality of the workforce—only the third is seen more favourably this year than last.

The problem, says Clara Gaymard, the president of AmCham and of General Electric in France, is that France’s neighbours have been swifter to reform. Germany and Britain are increasingly seen as more attractive destinations, with Spain and the Netherlands rating a mention too.

For all its 15-year history, the AmCham survey must be taken with a pinch of salt. Only 83 American companies of the 4,200 currently operating in France participated in it. Statistics showing a massive falling off in actual investment, as opposed to sentiment, are slippery. UNCTAD found an 80% drop between 2012 and 2013 but it measures foreign investment very broadly, to include inter-country transfers within an enterprise. France’s central bank says FDI was very slightly higher in 2013, and figures from the French Agency for International Investment (AFII), which measures job-creating investment, showed the number of FDI projects slightly down but the employment they produced slightly up. A Europe-wide study by EY, a consulting firm, found that the number of foreign investment projects in France had risen by 9% in 2013, although that was much slower growth than in Britain and Germany. Morever, even the relatively gung-ho investors EY surveyed took a dimmer view of France than previously.

Optimists can point to plenty of conspicuous individual investments. In January, PSA, the maker of Peugeot and Citroen cars, has received a capital injection from Dongfeng, a Chinese company. Then in April, Altice, a Luxembourg holding company, announced it was planning on buying SFR, a telecoms firm, for at least €13.5 billion ($17.1 billion). And in June, Mrs Gaymard’s own company pulled off a deal to buy parts of a French power and transport group, Alstom, for €12.4 billion.

So the AmCham survey may indicate irritation rather than firm intention to cut off capital to France. It is useful nonetheless. For the plaintive voices of unhappy investors who want the government to get cracking on structural reforms—and Americans are not the only dissatisfied customers—have caught the ear of theÉlysée Palace. In February, President François Hollande summoned businessmen to a Strategic Council of Attractiveness and promised change, with a second held on October 19th. Many were also impressed by his government reshuffle in August that pushed out Arnaud Montebourg, an industry minister given to sounding off against foreign capitalists. But whether Mr Hollande will actually deliver the substantial reforms investors want is another question.