Pro-business reforms reflect change in French public understanding

Out-Law Analysis | 08 Jun 2015 | 9:55 am | 3 min. read

FOCUS: Ernst and Young released an annual study (link in French) this month on the 'attractiveness' of European countries, which has hit the headlines and been widely discussed here in France. 

The number of new investment projects in France rose by 18% to 608 in 2014, showing growth higher than both the UK (growth of 11% to 887 projects) and Germany (up 8% to 763) and putting it in third place for foreign investment. France is also the top European country in terms of investments related to industrial projects, and 68% of foreign investors declare they are satisfied with France as a destination for their investments – up 6% from 2013.

On a less positive note, the number of new jobs created by each project is lower in France: in the UK, there are 71 new jobs per project; in Germany there are 39 – while in France the number is only 25.

Asked what would encourage them to invest further in France, investors said: lower labour costs; a more positive business environment, and less business taxation.

Clearly some work still needs to be done, so what is needed to help business? There has been a great deal of discussion about what should be done by French president François Hollande's government.

The government has shifted focus since it came into power in 2012,  and has begun to make changes to the law that reflect the need for reform as it recognises the need for a more pro-business agenda.  

Initially the changes by Hollande's left-wing government were along the expected lines of 'social justice', designed to protect workers, consumers and other weaker parties.

The Hamon law, for example, created the right to bring class actions in France. This is limited in scope, to avoid the excesses of the US system, but it allows consumers groups to file claims.

Changes to the real estate law, too, are very 'left-leaning', bringing in limitations on the rent that can be charged in certain areas, and protection of tenants from eviction.

However, we have seen a shift in policy in 2013 and 2014 towards liberalising and giving more flexibility to the French economy. Public spending is being cut, and pro-business reforms introduced.

The Florange law, introduced in early 2014, was designed to create stability in the economy and industry. It does have a social side, protecting some employee rights, but it also helps companies to defend themselves against hostile takeovers. Some aspects of this law, particularly on 'double voting' rights for longer term investors, have caused controversy but it is generally seen as being on the side of strong business.

One change to a principle of public law perhaps exemplifies the new attitude more than any other. Previously, the principle of public law said that if a request was made to French administration and no reply was received, then the request was deemed to have been rejected. Now that has been reversed: if the administration does not reply within a specified timeframe, the request is considered to be accepted.

That reversal is revealing: the older, bureaucratic mentality is really starting to shift, and people recognise the need for it to change.

Tax law reforms have also reduced the tax and social charges paid by business, and a new 'Macron' law has a broad scope, reforming opening hours for businesses, and giving more flexibility to sectors like transport, real estate, and legal professionals including bailiffs and notaries.

The Macron law caused a furore when it was 'pushed through' in February this year. Prime minister Manuel Valls bypassed parliament and pushed the package of economic reforms through without a vote, saying he was not willing to "take any risks" of it being voted down because it was too important. There were threats at the time of a vote of no confidence to undermine the bill, but opposition has died down and the Macron law is likely to be passed in the next month or so.

The government needs to help with international investment, too. Many companies in the infrastructure and construction industries have recognised that international development is vital to the future viability of their businesses, as can be seen in recent moves by Bouygues into the UK housing market and Vinci's acquisition of Indonesian company PT Istana Karang Laut. The top four French construction companies are in the top 15 in Europe – they are important to the economy and it's vital that the government does what it can to help them to thrive.

Looking back to the Ernst & Young report, the thinking behind the latest reforms appears to closely reflect the main priorities identified by foreign investors: lower labour costs, a positive business environment, and business taxation.

Certainly, the Hollande government is not going to risk votes by giving up too much of the social side of its agenda, and many of its reforms will not be popular with business, but on the whole there is a move to steer France in the right direction.

This has been a difficult balancing act for the government, but it has had no choice. The recent survey results paint quite a morose picture, and if reforms are not pushed through then the next year or two may see a darker picture for France.

But out of that negativity there could come a great deal of positivity. The country has begun to recognise the need to for these pro-business changes, and for France to become more competitive, so if the various measures are implemented well then we are heading in the right direction to escape the current crisis.

Peter Rosher is a contract law expert at Pinsent Masons, the law firm behind