Executive Summary
According to France's Minister of Economy and Finance, the role of the government is to make the country the most attractive and competitive economy in Europe. Over the last decade, France has been focused on investing in research, its education system, innovation capabilities, and its ability to attract foreign investment. Despite the uncertainties in the global market, the French economy is showing signs of improvements: since the financial crisis, employment rates have remained low, the growth prospects and the country's GDP (Gross Domestic Product) stayed at 1.3 percent in 2019/2020. Despite a slight rebound in 2017/2018, real wage growth and productivity have experienced little growth but have not returned pre-crisis levels. In 2017, France embarked on aggressive reforms that included lowering labor costs, reducing corporate and income taxes, investments in technology and research, and removing obstacles to business growth. Despite the financial crisis, France has been the leading country in the European Union for hosting industrial projects for over fifteen years in addition to being the most attractive country in continental Europe for investments in R&D and production activities.
In a globalized market economy, I would recommend investing in France based on its profound market strengths and government support in transport, technology, and energy infrastructure, as well as its efficient airport and rail network, which gives it a competitive edge in Europe.
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France's Macroenvironment
France is centrally located in Europe with a GDP of $2.7 trillion in 2019 and is the fifth-leading economy in the world 1 . Thus, the GPD value of the country represents 2.26 percent of the world's economy, according to official data from the World Bank. In the second quarter of 2020, the French economy shrank to 13.8 percent compared to 5.9 percent in the previous quarter 2 . The GDP in the second quarter was at $562 665 million 3 . Following the coronavirus pandemic, France's economy shrank sharply, which reduced household consumption and investment activity (-10.3 vs. -17.8%) as the country battled new infection rates and weak fiscal metrics clouding the outlook further. Government consumption (-10.3% vs -8%) and household spending (-11.5% vs – 11%) fell more than anticipated 4 . The drag was also experienced in foreign trade (-2.5 percentage points vs. -2.3 percentage points, exports fell at 25 percent, and imports shrank (-16.4% vs. 17.3%). According to projections from the French Central Bank, the market is expected to decline by ten percent in 2020 and bounce back by seven percent in 2021 and four percent in 2022.
France boasts as a country with one of the most sophisticated infrastructures in the world that have been made possible by the country's massive investment in the field and made possible by advanced technology 5 . France is covered by air, land, and rail transportation. The French National Railways operates more than 19,486 miles of rail in the country 6 . France has approximately 514,605 miles of paved roads, 474 airports, most of which serve international traffic, and about 47 percent of its waterways are used. The communication infrastructure in France is advanced as the country has the 3 rd largest telecoms market in Europe, estimated to worth €31 billion annually 7 .
France boasts of advanced technology with successful startups such as Deezer, which is a precursor of Spotify. France has invested heavily in innovations such as Images et reseaux for communication networks systems for generic software and complex systems, and Minalogic for intelligent miniaturized products and solutions for the industry 8 . There are more than 73 million phone contracts in France, which is remarkable for a country of its population and size.
According to the nation's national investment program, €2 billion were set aside for internet infrastructure, including optical fiber and digital transmission, my satellite, and very high-speed mobile bandwidth that are to cover to the country by 2025. €2.25 billion is to be spent supporting innovative digital services, applications, and content, and €250 million to implement smart grids.
France is ranked as third in Europe in terms of enterprise startup rates, which has been ranked at 9 percent since 2008 and 7 percent in manufacturing over the last decade. In 2017, there were nearly 200,000 startup enterprises, which increased by 5 percent 9 . The death rate in France is one of the lowest among European countries. Corporate financing has surged, with the country being ranked second in venture capital after the United Kingdom. Corporations in France has experienced an improvement in the cost of competitiveness since 2008 10 . The hourly labor productivity index grew by + 2.2 percent in 2018, and the increase in Unit labor costs was lowest in the same year. France is the least country affected by strikes compared to the United States and Germany.
France provides a stable ecosystem for businesses and a steady opportunity for foreign investments. Direct Foreign Investments (FDI) in France is considerable, although they seem to be unstable during certain political environments 11 . According to the 2020 World Investment Report, the FDI streams to France reduced by 11 percent to reach $34 billion contrasted to $38 billion in 2018. According to the Investment Trend Monitor, France was ranked as the 4 th country in receiving FDI streams in the first quarter of 2019, receiving $33 Billion. According to the Doing Business 2020 report by the World Bank, France is ranked 32 nd out of 190 countries 12 . France's assets, such as its highly qualified workforce, world cultural reputation, vast industrial base, and geographic location, position the country as the third European power 13 . The easing of capital taxation and reforms to the nation's labor markets helped employment and investment grow, resulting in greater productivity and competitiveness gain.
In 2018, France was the sixth-largest economy in the world after the United Kingdom, China, United States, Germany, and Japan. The nation's location and high-quality, multimodal transport infrastructure makes the country a potential hub for investment 14 . In 2018, France had a GDP of $2,775 billion after the United States with $20.497 billion, China with $13,407 billion, Germany with $4,000, and the United Kingdom with $2,829 15 . In addition, the European Union was considered the world's second-largest market, with its GDP estimated to be $19 613, compared with $22,310 billion in North America. France's growth continued to be resilient in 2018 (+1.7 after a noteworthy performance in 2017 (+2.4%). In 2017, France experienced an increase in exports and investments from both households and businesses that pushed growth to +2.4 percent, which is unequaled 16 . The global outlook with a collection of uncertainties resulted in a slowdown in activities in 2018 due to social movements in France.
Factor Endowments
Frank has a highly productive and qualified human capital, and it continues to invest in education to maintain its competitive edge and consolidate on the nation's scientific knowledge. In the past decade, research and tertiary education have been the country's critical drivers to investment and competitiveness attractiveness. Tertiary education in France enables students to acquire a broad range of skills, attitudes, and knowledge that helps build the society's future 17 . France has made it a priority to invest in the country's human capital through education.
The investment in high tech, knowledge, and innovation provide a stiff competition between developed countries. An increase in productivity can be achieved by disseminating new technology and innovation, thus supporting competitiveness and growth in the economy.
Dynamic innovation and research operations in France have yielded growth and created value. These are the key factors that attract knowledge-intensive and international mobile technology investment projects 18 . In 2017, France invested $64.7 billion in research and development. Local and international business investments in France accounted for 65 percent of the gross domestic expenditure on research and development in 2017 19 .
Infrastructure is vital to the economic activity of a country. The most strategic sectors for France to the economy are energy, transport, and telecommunications. The quality of these network infrastructures are vital facilitators to the competitiveness and attractiveness of France. As an investment country, France boasts of world-class infrastructure supporting cost-effective and rapid links to the rest of the world, especially Europe, the Middle East, and Africa 20 . An effective transport network is key to the distribution of manufacturing activities and for the movement of people and goods. Businesses in France also benefits from state-of-the-art communication infrastructure, electricity, and an extensive broadband network available at stable and competitive rates. France has invested heavily in developing and maintain high levels of network infrastructure. In 2018, France's investment (3.4% of GDP) was higher than that of the United States (3.1%) in 2017, Germany (2.3%) in 2018, and the United Kingdom (2.7%) in 2018 21 .
France's regulatory and administrative environment has undergone significant reforms in recent years. According to the 2020 Doing Business Report from the World Bank, France holds a middle position among major world economies for business environments. France has experienced an increase in rankings in a number of categories, including starting a business, obtaining a construction permit, enforcing contracts, and trading across borders.
Analysis
In recent years, the French government has invested in numerous reforms to improve the business environment. The market in France is characterized by robust financial intermediation – insurance, banks, and asset managers. In addition, the country has internationally recognized equity players and the capital venture industry 22 . The availability of financial incentives in France is advantageous to international businesses as they have access to funding.
The growth and profitability of any investment largely depend on the cost of human capital and the prevailing taxation regime in the parent country. Although the labor costs in France are higher than in other countries in the European Union, they correspond to the world's highest hourly Protiviti levels. Higher labor costs in France lead to increased productivity, which makes up the country's economic productivity.
The quality of life in France makes it ideal for investment. In assessing the quality of life, factors such as access to health care, life expectancy, and the availability of cultural activities have to be taken into consideration. The government of France offers a range of free services such as education and healthcare, in addition to supporting household living standards. This has made France to be regarded as one of the world's leading countries in access to healthcare, personal time, and leisure time 23 . In 2017, the life expectancy in France was 82.6 years at birth, ahead of Germany (81.1), United Kingdom (81.3), and the United States (78.7) in 2016, France was the 5 th best healthy life expectancy in the world 24 .
Barriers to investment in France are very minimal. Firstly access to finances is a crucial barrier to international companies as an investment is only available to very-fast growing companies or break-through innovation. Labor and market regulations also discourage international firms from investing in France.
Recommendations and Conclusions
After a thorough analysis of the macro-environment and factor endowments, I highly recommend that the organization invests in France. Although its economy has been stagnant in the second quarter of 2020 due to the coronavirus pandemic, France's economy is expected to increase by 7 percent in 2021. The government in France is also working extensively at reforms designed at decreasing the high rates of unemployment, improving foreign investors' opposing views on the economic environment, and improving competitiveness.
Various improvements have been made in simplifying the country's tax regime for conducting business and eliminating inefficient taxes. In contrast, minimal progress has been made in reducing taxes on production levied companies. Progress is also being made to reduce administrative and regulatory burdens to increase competition in the services sector and foster the growth of businesses.
Bibliography
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