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Viewing cable 06PARIS1129, French Investment Flows Double in 2005

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Reference ID Created Released Classification Origin
06PARIS1129 2006-02-23 16:30 2011-08-24 00:00 UNCLASSIFIED Embassy Paris
This record is a partial extract of the original cable. The full text of the original cable is not available.

231630Z Feb 06
UNCLAS SECTION 01 OF 02 PARIS 001129 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT:   French Investment Flows Double in 2005 
 
Refs:  (A) 05 PARIS 7771 
 
       (B) PARIS 755 
 
1. SUMMARY.  Based on preliminary data, direct investment 
flows both to/from France doubled in 2005.  French companies 
continued to invest twice as much abroad than foreign 
companies invested in France.  France plans to intensify 
economic relations with countries with high investment 
potential, namely, the United States, Japan, India, China 
and Russia, and introduce measures to improve its own 
investment climate.  END SUMMARY 
 
Direct Investment Inflows and Outflows Rebounded in 2005 
--------------------------------------------- ----------- 
2.  Based on Bank of France's balance of payments data, both 
French direct investment abroad and foreign direct 
investment (FDI) in France rebounded in 2005 after 
decreasing in the previous four years.  French direct 
investment outflows more than doubled to 79.7 billion euros 
in 2005, from 38.3 billion euros in 2004.  Lafarge, the 
world leader in construction materials; Suez, a large 
industrial and services group; and Saint-Gobain, a materials 
mega group, were major contributors to the increase in 
investment abroad.  Similarly, FDI inflows doubled to 38.3 
billion euros in 2005, from 19.6 billion euros in 2004. 
2004 was a year marked by a number of public exchange offers 
that resulted in disinvestments.  In 2005, France benefited 
from the worldwide recovery in merger and acquisition 
activity.  It should be noted that BOP data is preliminary; 
in its May 2006 annual review, the French Agency for 
International Investment ("Agence Francaise pour les 
Investissements Internationaux" - AFII) will provide more 
details on the largest projects that were completed in 2005. 
The Bank of France will provide comprehensive data on 2005 
investment flows in September 2006. 
 
Investment Authority Argues France is an Open Economy 
--------------------------------------------- -------- 
3.  Clara Gaymard, the head of AFII, welcomed the FDI 
rebound.  She emphasized that France is "an open economy", 
which has remained among the top five recipients of FDI in 
the last few years.  Quizzed about the impacts of unrest in 
suburbs on foreign investment (ref A) and about a recent 
apparent example of protectionism (the Arcelor affair, ref 
B), she argued that the best proof that the French economy 
is not protectionist is that about 900 French companies 
(worth 350 billion USD) were purchased by foreign investors 
in the last five years.  She mentioned "a paradox", despite 
French efforts to eliminate obstacles to FDI (citing 
professional tax, tax on high incomes, or the 35-hour work 
week) and to implement reforms (pensions), investors still 
have a "distorted image" of France.  Too many people think 
that France is not developing enough new technologies, and 
fear that France has a social and economic model that is out 
of control.  In recent statements, she reaffirmed that 
improving France's attractiveness was increasingly becoming 
a government priority.  In December 2005 for example, she 
indicated that 10 new measures would be adopted by March 
2006 to improve France's economic attractiveness.  AFII 
usually focuses on "attractiveness", which is a different 
concept than competitiveness, which concentrates on 
empirical evidence provided by international capital and 
investment flows, and moves of highly skilled managers and 
workers into France. 
 
Government Intensifies Economic Relations with Promising 
Economies 
--------------------------------------------- ----------- 
4.  The government plans to intensify economic relations 
with five countries with high investment potential, namely 
the United States, Japan, India, China and Russia.  During 
her second visit to India in December 2005, Gaymard 
personally invited Indian companies to continue to invest in 
France.  Significantly, AFII had no office in India until 
2004, but now joins other countries in recognizing the 
potential in the region.  In a February visit to India and 
Thailand, President Chirac took a group of 40 businessmen to 
improve investment and economic relations.  France is only 
the 12th largest foreign investor in India, well behind the 
United States, the U.K., Germany, the Netherlands, Japan and 
South Korea, and the 7th largest foreign investor in 
Thailand.  On February 22, Foreign Trade Minister Christine 
Lagarde visited Japan to encourage Japanese investment in 
France, and helped arrange meetings between executives.  A 
social security bilateral agreement to avoid double taxation 
of executives has been ratified by the Japanese government, 
but still has to be passed by the French Parliament. 
President Chirac plans to return to China in September 2006 
to develop economic ties with that country.  Around 100 
Chinese businesses have established in France, accounting 
for a total investment of about 60 million dollars.  An 
association of Chinese businesses in France is expected to 
be created in the first quarter of 2006. 
 
Comment 
------- 
5.  Although the strong growth in investment flows is good 
news, the fact that French direct investment outflows still 
were double the FDI flows to France will not reassure those 
who are concerned about French companies moving jobs 
overseas.  France's future success in both investing further 
abroad and attracting foreign direct investment at home will 
heavily depend on maintaining or improving its international 
competitiveness.  Measures the government might announce in 
March may improve France's attractiveness, but probably not 
its general competitiveness, since no major reform projects 
are in the pipeline. 
HOFMANN