April 18, 2024

DealBook: France Sees Surge in Foreign Investments

Christine Lagarde, France's economy minister.Munshi Ahmed/Bloomberg News Christine Lagarde, France’s economy minister, says 2010 was a “record-breaking year” for foreign investment.

PARIS — The French economy is popularly viewed as sclerotic and sheltered, but government data released Monday — as well as the testimony of a number of global chief executives — suggest the opposite.

Italians, though, might beg to differ.

A report from the government’s Invest in France Agency showed that the number of foreign direct investments rose 22 percent last year from 2009, to 782 projects creating 31,000 jobs. It was the highest number in 15 years and came after stagnation for the two previous years.

Christine Lagarde, the economy minister, described 2010 as a “record-breaking year” for investments, most of which came from Germany, followed by the United States, Britain and Italy.

She said the government had become more attentive to the needs of foreign-owned companies and had improved the investment environment through means including the creation of research tax credits; the elimination of a local business tax; the establishment of a tax-free overtime system; the investment in infrastructure, especially around Paris; and the promotion of so-called centers of excellence where companies in related fields can work side by side.

And at a reception Monday in Paris, a number of foreign executives joined Ms. Lagarde in extolling the virtues of France as more than a vacation destination.

One of those — Robert Lu, chairman of China National BlueStar, a chemical company — said he had found France far more welcoming than Germany. “The French government are very open to attract investment,” he said. “That is the difference compared with Germany.”

He said his company had invested 200 million euros, or about $280 million, in France over the past four years and intended to spend an additional 130 million euros this year.

But Italian executives have long complained that France has thrown up roadblocks to their efforts to expand into France, and a battle now going on between companies from the two countries has revived memories of past clashes.

Lactalis, a privately held company based in Normandy and the largest cheese and milk producer in Europe, has been accumulating shares in the giant Italian food company Parmalat. And now Lactalis is starting to encounter barriers to extending its control. Lactalis said last week that it planned to buy a 15.3 percent stake in Parmalat from a group of activist investors and then to increase its stake to 29 percent.

Soon after, however, it emerged that the Milan prosecutor was investigating Parmalat’s recent stock movements. In addition, Rome has issued a decree allowing Parmalat to delay a shareholder meeting scheduled for April, during which Lactalis was expected to consolidate its control. The Italian government has also called for an “Italian solution” for Parlamat, and a consortium of domestic companies is being pulled together to make a bid for the company.

The defensive stance stems from the belief among many Italian executives and politicians that when it comes to investment and mergers involving France, the traffic is all one way.

In 2006, the French government engineered a merger between the water utility Suez and Gaz de France to prevent Suez from being acquired by Enel, the Italian energy giant.

That same year, BNP Paribas of France bought Italy’s Banca Nazionale del Lavoro. In 2009, Air France-KLM took a minority stake in the Italian flag carrier Alitalia. And this month, LVMH Moët Hennessy Louis Vuitton, the French luxury goods conglomerate, announced that it would buy the Italian jeweler Bulgari.

Several other French companies, including the electric utility EDF and the insurance company Groupama, are also looking into expanding their holdings in Italian rivals.

Ms. Lagarde denied there was an agenda at work. “We haven’t barred any Italian from investing in France,” she said. “There might be frustration regarding the level of foreign direct investment in flagship companies, and that is perfectly understandable. It’s a matter of really having a dialogue.”

But there remains a lingering sense among many analysts that France does not always open its arms to foreign investors, whether from Italy or elsewhere, if it means giving up control of well-known French companies.

In 2005, rumors that PepsiCo would bid for Danone, the big French food and drink company, set off a backlash, with Dominique de Villepin, then prime minister, calling for “economic patriotism.”

A few months later, the French government published a list of 11 sectors deemed vital to national security, and said it would protect companies in those areas from foreign takeovers. The list includes casinos. PepsiCo never made a bid.

In 2009, Areva, the state-controlled French nuclear company, sold its electrical grid business to a group of French companies rather than to General Electric of the United States and Toshiba of Japan, even though the foreign companies had offered sweeter deals.

Ms. Lagarde said that when it came to foreign takeovers, France differed from other countries only in its approach. “Compared with other countries we are specific, we don’t have leeway, we don’t have discretion,” she said.

It is not only French data that show that the country has become a top player in global investment flows. According to the United Nations Conference on Trade and Development, in 2009 France ranked third globally for foreign investment inflows, behind the United States and China. It slipped to fourth place in 2010, when Hong Kong pulled ahead.

Data from the U.N. body also show France as the second-largest provider of foreign direct investment in 2009, at $147 billion, ranking behind the United States, at $248 billion, but ahead of Japan, Germany and China.

Among the foreign companies that have expanded in France in the past year are Amazon.com and General Electric, Bertelsmann of Germany and Nestlé of Switzerland.

While France retains a reputation for a rigid labor market, many of the executive said Monday that this was often outweighed by positive factors, including a large domestic market, low-cost energy, good infrastructure and well-trained workers.

“We decided to stay here for the full picture,” said Luiz Fuchs, chief executive of the European operations of Embraer, the Brazilian aircraft company, which has been operating in France for almost 30 years. “Yes, we would like to have more flexible labor laws, but I think the overall picture fits very well.”

Hans-Paul Bürkner, chief executive of the Boston Consulting Group, said most of Europe, not only France, “has a challenge” and must overcome the “mentality” of protecting old jobs rather than creating new ones.

“You may, with flexibility, lose some jobs short term, but in the long term you create more opportunities,” he said. “We have to overcome that dilemma.”

Stephen A. Schwarzman, chief executive of the private equity firm Blackstone Group, said he would like to hold more French assets. “It’s not the easiest place to buy,” he said. “It’s a good place to own.”

He estimated that France’s labor costs were lower than those of Germany, where “they take plenty of vacation and they seem to do quite well as a manufacturing economy.”

Article source: http://dealbook.nytimes.com/2011/03/28/france-sees-surge-in-foreign-investments/?partner=rss&emc=rss

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