The Trocadero in front of France's Eiffel tower on May 13. - REUTERS
PARIS (Reuters):
FRANCE, OFTEN regarded as hostile to foreign take-over bids, displaced the United States as the world's biggest investor abroad in 2005, the Organisation for Economic Cooperation and Development said on Wednesday.
Britain, widely regarded as a place to buy companies without government objections, drew in the most foreign direct investment (FDI), the Paris-based OECD said in a report.
STRONG RISE
FDI into the 30 mostly industrialised OECD countries rose 27 per cent to US$622 billion in 2005, and the rise was strong in non-OECD countries such as China and India.
"This ... is the highest level of inflows since the previous investment boom petered out in 2001," the OECD said.
Last year was also the fourth-best on record, with direct inward investment buoyed by high company profits, low interest rates, high liquidity and corporate share prices as well as a penchant for cross-border investment in property, it said.
OECD countries account for roughly 60 per cent of world-wide economic output.
The organisation said the outlook remained positive but "some risks cloud the horizon" for FDI - investment in ownership of corporate assets, be it purchases of companies or stakes in companies, or profits reinvested by subsidiaries outside home base. Among the risks were signs that governments were keener to curb foreign take-overs and above all the prospect now of higher interest rates, which could in turn dent equity valuations and reduce companies' investment appetite as a consequence.
TOP SPOT
France took top spot among OECD countries as an investor abroad after a surge inflated by four big take-overs, while the United States lost pole position in large part because of the sizeable accounting impact of changes in tax law.
Hans Christiansen, an economist at the OECD investment unit, said tax breaks encouraged U.S. firms to repatriate more profits than before from foreign subsidiaries in 2005. It remains to be seen if the tax breaks, agreed for one year, will be renewed.
French direct investment in other countries totalled US$116 billion, of which US$48 billion was spent on four take-overs - such as the US$17.8 billion acquisition of British distiller Allied Domecq by Pernod Ricard.
Britain was the biggest magnet for foreign direct investment with inflows tripling from 2004 levels to a record US$165 billion.
"The high figure reflects, in part, the fact that many of the world's largest cross-border take-overs in 2005 targeted UK-based companies," the OECD report said.
INVESTMENT OUTSIDE OECD
In recent years, much investment has also poured into places outside the OECD club of mostly mature free-market democracies, such as China, India and Brazil.
China attracted an estimated 72.4 billion euros in FDI last year, and India 6.6 billion, but the OECD said both were probably under-reporting. India may be understating by as much as 50 per cent, said Christiansen.
Foreign money going to China was traditionally directed to manufacturing investment but was now starting to swing towards services, notably the high-tech side, the OECD said.
In eastern Europe, the Czech Republic drew a record US$11 billion of direct inward investment in 2005, the OECD said.
Christiansen said half of this figure was due to a telecoms sell-off and much of the rest was probably due to more reinvestment in a banking sector where the Germans and Austrians have a major presence than to money for new projects.
