German businesses in France

At the start of 2020, the French economy was more attractive than ever. In 2019, France became the leading country in Europe for foreign direct investment (FDI); it was also the top European destination for German investments, with German investors equating to 2,500 businesses and 320,000 jobs in France.

Before the health crisis, German investments were viewed very favorably in the first quarter of 2020. Ninety-two percent of German businesses established in France judged their pre-crisis revenues to be “satisfactory” or “good”, up five points on 2018, while 45% of respondents saw an increase in their profits in 2019 and 81% of them were satisfied with their firms’ results.

German investors have been hit hard by the COVID-19 crisis, with 90% of respondents having experienced a fall in revenues, while 17% of respondents had to completely shut down their business during the lockdown. Rapid state aid from the French government has been welcomed by German firms; business leaders reacted favorably to the short-time working system, state-guaranteed loans and the possibility of postponing loan repayments, with some highlighting that such measures have been more effective than those in Germany.

One in five executives say they are continuing with the same investment plan as before the crisis and one in three are maintaining the same hiring plan. After a relative return to stability in 2021, investments and hiring of personnel should resume by 2022.

France remains the preferred destination for German FDI, thanks to a number of key strengths: the size of its internal market, its engineers’ expertise and skilled workforce, its infrastructure, the Research Tax Credit and, in particular, the country’s innovation and creativity that have resulted in the creation of many tech startups.

The only negative aspects as highlighted by these business leaders are the country’s excessive red tape, social security contributions and heavy taxation for businesses. Some investors expect more clarity from the reforms and a long-term view of the changes to come.

For further information, click here to consult the EY survey (in French).