France is a big hitter when it comes to attracting FDI, but it experienced a drop in inflows in 2019, and its prospects look bleaker still as Covid-19 makes its impact felt. Lara Williams reports.

France is ramping up its foreign direct investment (FDI) regulation as global trade protectionism grows in the wake of the Covid-19 crisis, all while inward investment flows into the country continue to fall.

European Commission guidelines issued in March urged member states to use all available mechanisms to protect critical health infrastructure and other important business sectors from opportunistic foreign investors looking to buy distressed assets.

Existing rules maintain that foreign investors in France can maintain up to 25% of voting rights within a corporate entity. A law instituted on 22 July this year temporarily lowered the threshold to 10% until 31 December. The French government has been progressively strengthening FDI screening rules, including a round of reforms in December 2019 to protect sensitive assets such as activities relating to national security including crypto and data storage, research and development and biotech activities.

FDI decrease

This tightening of FDI screening regulations comes at a time when FDI flows into France decreased by 11% to $34bn in 2019, from $38bn in 2018, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2020. According to UNCTAD, the decline was mainly due to a fall in cross-border merger and acquisition sales of assets, and made France the 13th largest recipient of global FDI.

Data from UNCTAD shows that the country’s main FDI source countries are Luxembourg, the Netherlands, the UK and Switzerland, which represent more than 50% of the country’s total FDI stock.

In response to the release in August of France’s foreign trade results for the first half of 2020, which stood at $40.16bn compared with $34.25bn in the first half of 2019, Franck Riester, minister delegate for foreign trade and economic attractiveness, said, “The prospects for the second half of the year and for 2021 remain uncertain, and will depend on how the pandemic develops, on the outlook for a recovery in global business, and also on changing trade tensions and protectionist risks. International organisations are predicting a slowdown in global trade of the order of 10% in 2020, followed by a rebound in 2021, which would nevertheless not be sufficient to restore the pre-crisis level of trade.”