ANNUAL REPORT THE FRENCH BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION

Transcription

1 2013 ANNUAL REPORT THE FRENCH BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION

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3 BANQUE DE FRANCE DIRECTORATE GENERAL STATISTICS Balance of Payments Directorate Sectoral Surveys and Statistics Directorate

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5 Contents Overview 7 Chapter 1 Current account 15 1 Goods General merchandise Goods procured in ports by carriers and merchanting 18 2 Services Transport services Travel Other services 20 3 Primary income Direct investment income Portfolio investment income Income from other investment and reserve assets Other primary income and compensation of employees 22 4 Secondary income 22 Chapter 2 Financial account 23 1 Direct investment Direct investment abroad Direct investment in France 25 2 Portfolio investment Liabilities (non-residents transactions in securities issued by residents) Assets (residents portfolio investment in securities issued by non-residents) 27 3 Financial derivatives 27 4 Other investment (loan-deposit position) Loan-deposit position of monetary financial institutions (MFIs) Loan-deposit position of sectors other than MFIs 28 5

6 CONTENTS Chapter 3 International investment position 29 1 Direct investment Direct investment abroad Direct investment in France 32 2 Portfolio investment Assets (residents portfolio investment in securities issued by non-residents) Liabilities (non-residents transactions in securities issued by residents) 34 3 Financial derivatives 35 4 Other investment (loan deposit position) 35 5 Reserve assets and 2013 Balance of payments detailed presentation 37 Appendices Part I Glossary Part II Definition of geographical zones Part III Balance of payments Revisions of 2011 and 2012 data Part IV International Investment Position Revisions of 2011 and 2012 data A1 A9 A11 A15 Further information about the new methodology and its implementation in France can be found on the Banque de France website: The supplementary statistical tables are not included in the French Balance of Payments and International Investment Position Annual Report. However, they can be found on the Banque de France website at the following address: Boxes 1 Implementation of the new international balance of payments standards 8 2 Trade in goods: from customs data to the balance of payments 9 3 Trade in goods: from customs data to balance of payments data 17 4 Trade in goods: market shares 18 5 Transfers with European Union institutions 22 6 Direct investment stocks in France by the country of residence of the ultimate controlling parent 33 6

7 Overview

8 OVERVIEW In 2013, France s current account, which records C0-1 Current account imports and exports of goods and services, as well as income flows between residents and non residents, showed a deficit of EUR 30.3 billion. This is equivalent to 1.4% of GDP and compares to deficits of 1.5% of GDP in 2012 and 1.1% of GDP in T0 1 Main current account components Current account (% of GDP) Goods a) Services Primary income Secondary income a) Trade in goods is compiled on the basis of customs statistics and supplementary measurements (see Box 2). The implementation of new international balance of payments standards meant that the current account deficit had to be revised downwards by 0.4 percentage point of GDP in 2011, 2012 and More specifically, the change in methodology led to improved treatment of data collected on trade in services (0.1 point), incorporation of Eurostat data on the balance of payments of European Goods Primary income Services Secondary income Current account institutions (0.1 point) and improved calculation of portfolio investment income (0.1 point). 2 After deepening in 2011 and 2012, the 2013 current account deficit was smaller than before the 2008 crisis. 1 Based on the GDP published by Insee on 15 May See Appendix (Part III) for a more detailed description. Box 1 Implementation of the new international balance of payments standards The need has long been felt for a standardised frame of reference in order to achieve international harmonisation of statisticians practices. The IMF recently introduced new standards (the 6 th edition of the Balance of Payments Manual or BPM6). The European Union countries balances of payments and international investment positions must be compiled under the new standards by November 2014 at the latest, with back data series covering several years. In France, the first data release in the new format came out in March 2014 and related to the data for January The Banque de France website presents the main features of the international statistical reform: The BPM6 statistical data will provide a better picture of the global chain of international trade in goods and services, where a growing share takes the form of successive contributions from several countries. The main changes concern trade in goods and services (merchanting, goods for processing, insurance services), income from activities in other countries and financial transactions (direct investment). The new method is based on the principle of the change of economic ownership between residents and non residents, which is also used for calculating GDP. This change does not necessarily correspond to the flow of goods across borders or the completion of cross border services, or even to payments (intragroup flows). The revisions are explained in detail in the Appendix (Part III). BPM6 also requires more precise calculation of countries international investment positions. Reliable knowledge of international investment positions has proven to be essential for recognising potential macroeconomic imbalances. 8

9 C0-2 Exports and imports of goods and services (balance in EUR billions) Goods balance (left-hand scale) Services balance (left-hand scale) Goods and services balance (left-hand scale) Goods payments (right-hand scale) Goods receipts (right-hand scale) Services payments (right-hand scale) Services receipts (right-hand scale) (flows in EUR billions) Box 2 Trade in goods: from customs data to the balance of payments Trade in goods is primarily measured on the basis of customs data on merchandise transactions and Banque de France surveys on merchanting. According to international standards for balance of payments statistics, trade in goods is measured in FOB FOB terms (free on board). This means that freight costs to the French border are classified under transport services. The Banque de France then subtracts transactions with no payment, which are nearly always intragroup transactions, so that trade in goods covers only physical flows with an actual change of economic ownership. It then adds goods procured in ports by carriers and merchanting, which covers transactions where ownership of goods changes even though they may pass through France only briefly, if at all. OVERVIEW The European Commission s alert threshold is breached when the 3 year backward moving average of the current account balance shows a deficit that is greater than 4% of GDP or a surplus that is greater than 6% of GDP. The European indicator for France, calculated using the data from this report and the national accounts compiled under the new international standards, shows a deficit equal to 1.3% of GDP. The improvement in trade in goods and services seen in 2012 continued in The deficit shrank by 5.7 billion in 2013, after falling by 11 billion in The smaller deficit on goods and services stems from the stability of goods imports in The 5.8% fall in oil prices in euro in 2013 made a big contribution to reducing France s CIF FOB energy bill by 6.9%, according to customs data. More generally speaking, imports of most broad categories of goods decreased. The decline in imports stems primarily from weak domestic demand in France. More specifically, business investment, particularly in tangible assets, declined in Imports account for a large share of this GDP component. Exports of goods were stable in nominal value in 2013, with a slight decline towards the end of the year. The world market shares of France and the United Kingdom have particularly shrunk in recent years. T0 2 Exports and imports of goods and services Goods Exports Growth in % Imports Growth in % Services Exports Growth in % Imports Growth in % C0-3 Market shares of European countries (base: 2000 = 100) France Germany Italy Spain Source: IMF; calculations by Banque de France. United Kingdom 9

10 OVERVIEW Trade in services grew more rapidly than trade in goods. Several factors explain this, including the possibilities offered by information technology for selling services remotely. The gap between the growth of trade in goods and trade in services was particularly stark in 2012 and Exports of services were up by 4%, but imports of services increased by 9%. Receipts for technical, trade related and other business services rose by 13 billion and payments increased by 11 billion. Travel was still a major component of service exports. Net receipts were virtually stable in 2013, after growing by 3 billion between 2011 and 2012 to reach 10 billion. Payments for telecommunication, computer and information services increased by 4 billion, deepening the deficit on this item. Similarly, transport services continued to post a deficit, as payments increased by more than 2 billion, or some 7%. Finally, receipts from charges for the use of intellectual property fell by 2 billion over 2 years, shrinking by 21%. This decline made a clear contribution to the decline in the surplus on this item. Part of the decline stems from the expiry of royalties and licence fees in the pharmaceutical sector, with no new inventions to pick up the slack. Most of France s deficit on trade in goods stems from the deficit on its trade with the euro area, which accounts for 31 billion of the aggregate 42 billion deficit, especially its trade with Germany. France also has a large deficit on its trade with China, standing at 21 billion, whereas its trade deficit vis à vis the United States stands at 4.5 billion. On the other hand, France has a large surplus of 8 billion on its trade with the United Kingdom. France s largest bilateral surpluses on trade in services are with Switzerland, the United Kingdom and Germany. More generally speaking, France shows surpluses in its trade in services with most countries, but these surpluses are often quite small. Furthermore, the bilateral surpluses on trade in services are often largest with the countries with which France has the largest deficits on trade in goods. Nearly half of France s trade consists of transactions with euro area countries. There are few countries with which France trades in a wide range of goods and services. They are usually close neighbours. Income also plays a significant role in the current account. It stems in particular from the profits earned on the international activity of French groups, income from financial investments and, in the opposite direction, interest payments on debts towards non residents. After rising from 2008 to 2011, C0-4 Geographical structure of the balance of trade in goods and services in 2013 (Main countries) DE Spain Belgium GB Non EU China Russia India Italy NL EA PL CH US Japan Brazil Goods Services DE: Germany NL: Netherlands GB: United Kingdom EA: Euro area EU : European Union PL: Poland CH: Switzerland US: United States Note: By country of origin of goods. T0 3 Geographical structure of trade in goods and services (%) Goods a) Services a) Germany Belgium Netherlands Italy Spain Euro area United Kingdom European Union United States Switzerland China Japan Brazil Russia India World a) Exports + imports. 10

11 Geographical structure of France s trade OVERVIEW Value Less than 5 billion 70 to 100 billion 5 to 10 billion More than 100 billion 10 to 40 billion France 40 to 70 billion Note: Sum of imports and exports of goods and services by country. the primary and secondary income balance 3 fell sharply in After showing an aggregate surplus in 2011, the balance was slightly negative in 2012 and the deficit was even a bit deeper in This deficit stems from the decline in holdings of debt securities issued by non residents and smaller returns, as well as an increase in external debt. France s financial sector has largely divested itself of foreign high yield bonds. Furthermore, the increase in external debt, incurred mainly by the government sector, has increased the interest payable, even though this increase has been tempered by falling long term yields. 3 Primary income covers compensation derived directly from a production activity, which is why it is called primary, from working (wages) and from capital invested (investment income). Secondary income covers distribution transactions that are not related to means of production (non-production related taxes, social benefits, etc.). C0-5 Primary and secondary income C0-6 Financial account Direct investment income Compensation of employees Other primary and secondary income (private sector) General government primary and secondary income Income from other investment and reserve assets Portfolio investment income Total primary and secondary income Direct investment Financial derivatives Reserve assets Other investment Portfolio investment Financial Account 11

12 OVERVIEW On the other hand, the balances on compensation of employees (primarily for border workers), income from direct investment and other investment (loan deposit position) have improved slightly since The current account deficit is financed by capital inflows measured in the financial account. The financial account balance since 2008 shows that: the largest flows were in portfolio investment and other investment (loan deposit position); net direct investment flows reached a historic low in Since 2008, portfolio investment, which covers securities transactions (bonds and short term securities), has been a key source of capital inflows. Its counterpart, other investment, which consists primarily of the loan deposit position, has shown a net asset position since In 2013 the downward trend in outward direct investment seen since 2009 continued. This decline largely explains the unusual situation where the direct investment balance shows a net inflow in 2013, instead of an outflow. Equity capital transactions in other countries, including real estate investment, resulted in a net capital inflow of 1.5 billion, 4 which means that disposals of foreign assets were greater than new investment and capital contributions to non resident subsidiaries. cross border intercompany transactions. Real estate investment accounts for 5 billion of this total. France s net international investment position, which represents France s net assets or liabilities vis à vis other countries, showed a larger net foreign liability of 351 billion, 5 or 16.6% of GDP, compared to a net foreign liability of 236 billion or 11.3% of GDP in The international investment position records net cumulative investment flows, but also valuation effects (changes in the euro exchange rate, changes in the market value of bonds and changes in share prices). The deterioration of the French international investment position, which slid by 115 billion between 2012 and 2013, stems primarily from the increase in the general government sector s external debt and changes in exchange rates, including reserve assets. Direct investment, which represents strategic equity interests in enterprises, showed a net foreign asset position: outward direct investment exceeded inward direct investment by 389 billion in Except for the reserve assets managed by the Banque de France, which posted a structural net foreign asset position 4 Under the extended directional principle see Glossary: this valuation offsets cross-border debit and credit flows within the same group. 5 Measurement in mixed value : under this measure, listed equities are valued at their market value and unlisted equities are recognised at their book value. This is the benchmark used in the European scoreboard for the excessive imbalance surveillance procedure. Inward direct investment also declined, but to a lesser degree, standing at 13 billion, after consolidating C0-7 Direct investment flows according to the extended directional principle Net direct investment outflow Net direct investment inflow Net direct investment balance T0 4 France s international investment a) Direct investment Abroad In France Portfolio investment Assets (residents transactions in securities issued by non-residents) 1,991 2,095 Liabilities (non-residents transactions in securities issued by residents) 2,612 2,820 Financial derivatives Other investment Reserve assets Net international investment position as % of GDP Net external debt b) as % of GDP a) Mixed value see Note 5 and Glossary. b) Net external debt is the sum of debt instruments in each of the main items in the table above (the other types of instruments include equities, gold, foreign currency, SDRs and financial derivatives). 12

13 of 105 billion in 2013, the other international investment position components showed a net liability. The net liability on securities and on loans and deposits deepened. Over the long term, this change has resulted mainly from periodic sales of debt securities to foreign investors, since domestic borrowing requirements exceed domestic savings. Net external debt measures debt financing provided for the economy by non residents (money market securities, bonds and loans and deposits). It stood at 32.6% of GDP in 2012 and in France s net liability position stems from non residents ownership of more than 1,000 billion in French government securities. This is offset only partially by the net foreign assets of other sectors (619 billion) and those of the Banque de France (116 billion). The banking sector s international investment position is in balance. The ratio of the net international investment position to GDP was revised upward by 3.3 points T0 5 Net international investment position in 2013 by major economic sectors Net position -351 Banque de France 116 General government -1,085 Banks 0 Other sectors 619 for 2011, 2012 and 2013, as a result of the new international and European standards and improved statistical data collection. France s international investment position, with a net foreign liability equal to 16.6% of GDP, was still well below the 35% threshold set by the European Commission for all Member States. Market fluctuations influence the annual change in the position, but this influence is usually fleeting. However, the underlying trend is a growing net foreign liability stemming from the persistent current account deficit. OVERVIEW 13

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15 Chapter 1 current account

16 CHAPTER 1 current account T1 1 Current account Receipts Payments Balance Receipts Payments Balance Current account Goods Services Goods and services Primary income Secondary income Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. France s current account showed a deficit of EUR 30.3 billion in 2013, equivalent to 1.4% of GDP, following a current account deficit of 31.8 billion that was equivalent to 1.5% of GDP in Changes in the current account balance stem from two opposing developments that are explained in detail in the rest of this chapter: a 12.1 billion reduction in the deficit on trade in goods; a 6.4 billion decrease in the surplus on trade in services and a 1.4 billion drop in the primary income surplus, along with a 2.7 billion increase in the secondary income deficit. 1 Goods Trade in goods includes merchandise transactions and merchanting. Merchandise transactions include customs transactions, adjusted for transactions that do not give rise to payment, 2 goods procured in ports by carriers and transactions related to the coordinated production of Airbus (Box 3). In 2013, the deficit on trade in goods shrank substantially as a result of a fall in imports. 1 1 General merchandise 3 The value of France s exports in constant euro declined by 1.4% in 2013, while the value of its imports fell by 2.3%. 4 These declines are in contrast to the 3.1% rise in exports and the 1.2% increase in imports in The newfound equilibrium of France s balance of trade on goods stems largely from a 6.9% decrease in payments for energy (Table T1 2). The deficit on trade in other manufactured goods, covering textiles, wood, chemicals, pharmaceuticals, metals and miscellaneous manufactured goods, shrank by 3.1 billion, following a 2.6% decrease in imports. The surplus on trade in the agricultural sector was virtually unchanged at 11.4 billion. 1 Based on the 2010-base GDP published by Insee on 15 May For example, an intragroup transaction. 3 Excluding goods procured in ports by carriers. 4 Customs data, FOB, i.e. excluding insurance and freight costs. C1 1 Current account Gross balances C1 2 Global export market shares (%) Current account Goods Services Primary income Secondary income France Germany Italy Spain Source: International Monetary Fund (IMF); calculations by Banque de France. 16

17 T1 2 Total trade in goods and trade in goods by sector Amount in 2013 Exports Imports Balance Change 2013/2012 (in %) Amount in 2013 Change 2013/2012 (in %) Amount in 2013 Change 2013/2012 Trade in goods CIF FOB a) of which: Agriculture and agri food Energy products Mechanical, electrical and computer equipment Transport equipment Other manufactured goods a) Excluding military equipment. Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. Source: DG of Customs and Excise, estimated data; calculations by Banque de France. CHAPTER 1 current account This sector saw parallel increases in exports, which were up by 3.2%, and imports, which increased by 4.1%. On the other hand, the mechanical, electrical, electronic and IT equipment sectors made a negative contribution to the balance of trade, with a 2.9% decrease in exports and a 1.3% reduction of imports. France s trade deficit stems primarily from its transactions with its euro area partners, with which it posted a 41 billion deficit in Its deficit on trade with Germany stood at 16.3 billion (Chart C1 3). 5 However, its balance of trade with the euro area improved, with a 2.6 billion decrease in the deficit in 2013, as imports declined by more than exports. France s trade with Asian countries also showed a large deficit of 22.2 billion, with China and Hong Kong accounting for 21.8 billion. As in the case of the euro area, imports shrank more than exports, leading to a 1.0 billion improvement in the balance of trade. France s trade deficits with the United States and with the new Member States of the European Union were relatively stable. Its trade surplus with the United Kingdom increased slightly. More detailed data are available in Statistical Table 1.2 in the supplement to the Annual Report on the Banque de France website. 5 These data are presented by country of origin and not by the last country the goods passed through on their way to France. Box 3 Trade in goods: from customs data to balance of payments data Trade in goods is primarily measured on the basis of customs data on transactions in merchandise and Banque de France surveys on merchanting. These data are generally published CIF FOB, which means that imports include the cost of insurance and freight, while exports are measured at their value when they cross the border (free on board). However, the international standards require the balance of trade on goods to be presented FOB FOB. For this purpose, the cost of insurance and freight to the French border are subtracted from the value of imports and reclassified as payments for services. Transactions where no payment is made, which are nearly always intragroup transactions, are then subtracted so that trade in goods records only flows that correspond to actual changes in economic ownership. Then goods procured in ports by carriers are added. Finally, merchanting is included. Trade in goods in 2013 Receipts Payments Balance Goods Merchandise Customs data Net errors and omissions Goods procured in ports by carriers Merchanting Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. 17

18 CHAPTER 1 current account Box 4 Trade in goods: market shares France s share of export markets is shrinking, against the backdrop of waning market shares for the industrialised countries as a whole, while emerging countries shares of global markets are growing. On average, OECD countries lost 2.1% of their market shares each year from 2006 to the beginning of 2013, while the shares of non-oecd countries increased by 3.7%. The leading countries saw different developments in their market shares: the United Kingdom s share shrank by 6%, France s by 4.1%, Spain s by 1.5%, Germany s by 2.7% and the United States by 0.3%. France started losing market shares more rapidly than the leading euro area countries after 2000, but this trend started to ease in C1 3 Geographical structure of trade in goods Germany Italy Spain Other euro area countries United Kingdom New EU Member States United States Americas excluding the United States Japan China and Hong Kong Other Asian countries Middle East Exports Imports Source: DG of Customs and Excise; calculations by Banque de France. 1 2 Goods procured in ports by carriers and merchanting The deficit on goods procured in ports by carriers shrank slightly to 2.4 billion as a result of a slight increase in exports and a decline in imports. Merchanting transactions produced a surplus of 21.6 billion in 2013, up from 17.8 billion in 2012 (see the tables for 2013 and 2012 on pages 38 to 41 for more details). This is the main positive contribution to the balance of trade in goods. Merchanting transactions are carried out by major trading, energy and agri food companies. They are also the result of growing intercompany transactions. The latter transactions involve intermediate goods, industrial components, spare parts, etc. and have grown with the development of global production chains. 2 Services France s trade in services continued to show a large surplus, although it shrank from 24.7 billion in 2012 to18.3 billion in 2013 (Table T1 3). This was similar to the surplus recorded in The smaller surplus is primarily due to charges for the use of intellectual property ( 2.1 billion), telecommunications, computer and information services ( 1.6 billion) and transport services ( 1.4 billion). 2 1 Transport services The deficit on trade in transport services stood at 1.7 billion in 2013, compared to 0.3 billion in This change stems from a smaller surplus on sea transport and a larger deficit on air transport. T1 3 Services Receipts Payments Balance Receipts Payments Balance Services Transport services Travel Other services a) a) See Statistical Table 1.6 Other services on the Banque de France website for more details. Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. 18

19 C1 4 Transport services Sea transport Air transport Road transport Other transport a) Rail transport Space transport Receipts Payments a) Inland waterways, pipelines, mail, etc. 2 2 Travel The travel surplus decreased by 0.3 billion, after posting virtually steady growth since The surplus stood at 10.4 billion in 2013 (Table T1 3 and Chart C1 5). The smaller surplus stems from a 4% increase in spending by French residents abroad, which outstripped the 2% increase in spending by foreign visitors in France. Residents spending abroad posted strong growth again, particularly in countries outside the euro area. French residents spending in the United Kingdom grew by 7%, after declining in Their spending in the United States and Switzerland continued the rising trend seen since French residents spending in the CHAPTER 1 current account The surplus on sea transport shrank by 0.4 billion. This decline stems mainly from freight and other transport expenses (harbour services, chartering, etc.). The deficit on air transport increased by 1.1 billion to 1.7 billion in 2013 as a result of an 8% decline in receipts, particularly for passenger transport. Air freight and airport services also posted a larger deficit. Road transport posted a deficit of 3.5 billion in 2013, with a 4 billion deficit on freight transport. The surplus on space transport persisted, but was smaller at 0.9 billion in After remaining stable in 2011 and 2012, the balance on rail transport showed a 0.2 billion surplus in C1 5 Travel Spending by foreign visitors in France Spending by French residents abroad Balance C1 6 Travel receipts From euro area countries From non-euro area countries Germany Belgium Spain Italy Netherlands Other euro area countries United Kingdom Americas Switzerland Africa Europe Asia and Oceania (excluding the euro area, the United Kingdom and Switzerland) 19

20 CHAPTER 1 current account countries south of the Mediterranean (Algeria, Egypt, Morocco, Tunisia, Turkey) was stable, after declining in In the euro area, French residents spending declined by 8% in Spain, which remains the leading destination for French tourists. This decline was more than offset by the 11% rise in spending in Germany, the 3% rise in Belgium and the 1% rise in Italy. The long term rising trend in foreign visitors spending in France stalled after the financial crisis of 2007 and Growth resumed in 2011, gained strength in 2012 and was even higher in 2013: foreign visitors spending is estimated at 42.7 billion, which is a historical record. In line with the trend seen since 2010, German visitors continued to increase their spending in France, which was up by 10% (Chart C1 6). The pattern was the same for Belgian and Dutch visitors, whereas Italian and Spanish visitors reduced their spending. Spending by visitors from the United Kingdom, France s leading source of travel receipts outside of the euro area, was up by 7%, while visitors from Switzerland (second largest source of travel receipts) increased their spending by 1%. Spending by other European visitors from outside the euro area grew even more rapidly, rising by 24%. On the other hand, visitors from the Americas reduced their spending by 4%, and visitors from Asia and Oceania spent 5% less in France. Travel receipts from Africa were stable Other services The other services item mainly covers other business services (research and development services, professional and management consulting services, technical, trade related and other business services). The surplus on trade in these services shrank sharply from 14.4 billion in 2012 to 9.6 billion in Imports rose by nearly 14%, outstripping exports, which grew by 7%. More specifically, the surplus was reduced by charges for the use of intellectual property ( 2.1 billion) and telecommunications, computer and information services ( 1.6 billion). The smaller surplus on charges for the use of intellectual property stems in part from the expiry of pharmaceutical patents and licences that have not been offset by new inventions. 6 See Statistical Table 1.4 in the supplement to the Annual Report available on the Banque de France website. C1 7 Other services Government services n.i.e. a) Personal, cultural and recreational services Other business services b) Telecommunication, computer and information services Charges for the use of intellectual property n.i.e. Financial services Insurance and pension services Construction Maintenance and repair services n.i.e. Manufacturing services on physical inputs owned by others Receipts Payments a) n.i.e.: not included elsewhere. b) Research and development services, professional and management consulting services, technical, trade-related and other business services. 3 Primary income Primary income covers compensation for means of production, labour (compensation of employees) and capital (investment income). In 2013 and 2012, the primary income surplus stood at nearly 40 billion (Table T1 4). Direct investment income makes a key contribution to the primary income surplus. T1 4 Primary income 2013 Balance Compensation of employees 15.9 Investment income 14.1 Direct investment income 34.2 Dividends 29.4 Reinvested earnings 6.6 Interest on intercompany lending -1.7 Portfolio investment income of which dividends -8.0 Other investment income (loans and deposits) -3.3 Reserve asset income 0.5 Other primary income 9.3 Total 39.3 Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. 20

21 3 1 Direct investment income The estimated direct investment income surplus stood at EUR 34.2 billion in 2013, down by nearly 5 billion compared to Equity capital income posted a surplus of 35.9 billion, including 29.4 billion in dividends and 6.5 billion in reinvested earnings. This surplus was down by 5.7 billion from Interest income on intercompany lending showed a deficit of 1.7 billion, which was much smaller than the 2.6 billion deficit in The surplus on direct investment income from equity capital stems primarily from the fact that residents investment abroad is two times greater than non residents investment in France. The surplus can also be explained by the apparent return on outward direct investment in 2013, which was 2 percentage points higher than the return on inward direct investment. 7 The small deficit on interest income from intercompany lending stems from the difference of some 12% between the amount of intercompany debts and claims, and a small positive difference between the average interest rates paid on debts and those received on claims. According to the estimated data, European Union countries accounted for some 46% of France s outward direct investment income in 2013, with other industrialised countries contributing 19% and the emerging countries 35%. 8 The main sources of direct investment income are France s leading trading partners (United Kingdom, United States, Germany), and the countries where cash management centres are located (Netherlands, Belgium, Switzerland). The main sources of direct investment income among the emerging countries are Indonesia, Russia, Brazil, Singapore, and China. C1 8 Investment income balance (including reinvested earnings) Direct investment income Portfolio investment income Reserve asset income Other investment income Total C1 9 Direct investment income Receipts Payments Direct investment income net balance Notes: Provisional results. Receipts correspond to income from outward direct investment and payments correspond to income from inward direct investment. Starting in 2012, direct investment income has included interest on intercompany lending. The geographical structure of income from inward direct investment in France is similar to the previous structure, but with stronger contrasts. The Netherlands, Belgium, Luxembourg and Switzerland receive a total of 54% of the direct investment income from France, far more than Germany, the United States and the United Kingdom, which share 34%. 3 2 Portfolio investment income The deficit on portfolio investment income was slightly smaller in 2013, standing at 17.2 billion, compared to 18.7 billion in 2012 (Table T1 4). 9 Income from equity securities and investment fund shares/units and from debt securities (mainly bonds) all contributed to the reduction in the deficit. 10 Receipts and payments related to debt securities shrank, as interest rates declined in Income from other investment and reserve assets The balance on income from other investment, meaning the current loans and deposits, showed a 7 The apparent return on direct investment is the ratio of equity capital income for the year to the book value of direct investment in equity capital (excluding real estate) at the end of the previous year. 8 See Statistical Table 1.8 in the supplement to the Annual Report on the Banque de France website. 9 See Statistical Table 1.7 in the supplement to the Annual Report. 10 The balance of equity securities and investment fund shares/units showed a deficit of 8.0 billion in 2013, compared to 9.2 billion in 2012, the balance of debt securities showed a deficit of 9.2 billion, following a deficit of 9.5 billion in CHAPTER 1 current account 21

22 CHAPTER 1 current account deficit of 3.3 billion in 2013, compared to a deficit of 4.1 billion in Indeed, the balance of external debt and claims arising from other investment showed a smaller deficit in 2013 than in Income on reserve assets posted a surplus of 0.5 billion, under the effect of historically low interest rates. 3 4 Other primary income and compensation of employees The surplus on compensation of employees includes resident border workers compensation, minus compensation that resident employers pay to non resident employees. The surplus was unchanged at 16 billion in (Table T1 4). The other general government primary income covers some of France s transactions with European institutions (Box 5). 4 Secondary income Secondary income covers distribution transactions that are not related to means of production (non production related taxes, social benefits, etc.). 11 Employees income rose from 2008 to 2012, stemming primarily from changes in the exchange rate of the euro against the Swiss franc. The secondary income deficit deepened in 2013 to reach 45.3 billion (Table T1 5). The general government sector accounts for most of the deficit. The bulk of France s contributions to European institutions are recorded under secondary income (Table T1 5 and Box 5). Workers remittances are another major component of secondary income. These remittances are transfers that workers resident in France make to their countries of origin. T1 5 Secondary income 2013 Balance General government secondary income Social benefits -6.4 International cooperation -4.2 of which operating expenses for international organisations -0.8 European Union institutions own resources Other general government transfers 1.4 Other secondary income of which miscellaneous current transfers of which workers remittances -8.4 Total Note: Rounding differences mean that aggregate totals may not be exactly equal to the sum of their components. Box 5 Transfers with European Union institutions The deficit on France s transfers with the European Union institutions stood at 8.5 billion in France s payments into European budgets reached 23.7 billion in The payments included primary income from customs duties (1.7 billion) and secondary income (22 billion). Secondary income can be broken down as follows: France s contribution of 21.2 billion to the European Union budget, including 17.1 billion calculated on the basis of gross national income (GNI), 2.8 billion from value added tax (VAT) and 1.3 billion in financial compensation paid to certain Member States (primarily the United Kingdom); in addition, France contributed 0.6 billion to the European Development Fund (EDF). France s receipts from the European Union institutions stood at 15.2 billion. Primary income records subsidies received under the common agricultural policy (CAP), which stood at 11.1 billion. Secondary income mainly covers 1 billion in payments from the European Social Fund (ESF). The capital account (2.2 billion) mainly includes 1.6 billion in assistance allocated by the European Regional Development Fund (ERDF). Finally, general government receipts stood Transfers with European Union institutions at 0.4 billion. These receipts represent 25% of the amount of customs duties and correspond to the compensation for expenses incurred by the Member States when they collect taxes on behalf of the European Union Receipts Payments Balance General government Primary income Taxes Subsidies Secondary income of which own resources of which European Development Fund (EDF) Capital account Total Sources: European Union and Eurostat. 22

23 Chapter 2 financial account

24 CHAPTER 2 financial account T2 1 Financial account Financial account Direct investment 14 5 Portfolio investment Financial derivatives Other investment 2 79 Reserve assets 4 1 C2 1 Direct investment flows according to the extended directional principle Direct investment Direct investment refers to capital investment in enterprises where the investor holds at least 10% of the equity, along with flows of funds (deposits and loans) and reinvested earnings (see glossary) between companies in such relationships. In 2013, the direct investment item showed a net inflow of capital. It was the first inflow recorded since the 1990s. 1 1 Direct investment abroad French direct investment abroad declined by nearly EUR 20 billion in 2013 to stand at 7 billion. This figure incorporates prior consolidation of financial flows into and out of France within each group of companies (this calculation and presentation method is called the extended directional principle in balance of payments terminology). T2 2 Direct investment flows Abroad 26 7 Equity capital, including real estate 35 2 Reinvested earnings Other transactions (intercompany loans) 20 2 Memorandum item: Other transactions (assets) 8 9 In France Equity capital, including real estate 9 13 Reinvested earnings 3 4 Other transactions (intercompany loans) 0 5 Memorandum item: Other transactions (liabilities) Net direct investment balance 14 5 Note: Flows are determined according to the extended directional principle, which is explained in the glossary Outward direct investment Inward direct investment Net direct investment balance Acquisition of equity interests in foreign enterprises resulted in a negative balance of 2 billion, since disposals were greater than new investment and capital contributions to pre existing subsidiaries. However, the balance in the real estate sector was positive, with net outward investment of slightly more than 4 billion. The situation in other sectors was one of contrasts, with net outflows in mining industries, wholesale and retail trade and telecommunications, and net inflows in the other sectors in larger amounts, since the aggregate investment balance was negative. One off equity transactions concern different business areas, depending on the years. Therefore, we should not read too much into the year to year variations in a specific sector. The amount of foreign subsidiaries earnings that is retained and reinvested abroad was stable at 11 billion. Finally, French groups claims on their foreign subsidiaries were down by nearly 2 billion. Two geographical areas accounted for all French direct investment abroad in 2013: the euro area countries, for 13 billion; emerging and developing countries (6 billion). On the other hand, the European Union countries outside of the euro area saw net disposals of French direct investment equal to 1 billion and, more significantly, the other industrialised countries saw net disposals of French direct investment equal to 11 billion. 24

25 C2 2 Outward direct investment flows C2 3 Inward direct investment flows CHAPTER 2 financial account Equity capital, including real estate Reinvested earnings Intercompany loans and trade credits Total Equity capital, including real estate Reinvested earnings Intercompany loans and trade credits Total Note: The data for 2013 are provisional. Note: The data for 2013 are provisional. The leading destinations for French direct investment abroad were Belgium (nearly 11 billion, largely due to intercompany cash transfers to Belgium), Spain (3 billion), Russia and Norway (2 billion each), along with Brazil (1 billion). On the other hand, disposals of direct investment interests were largest in the Netherlands (2 billion), the United States (10 billion) and Switzerland (1 billion). 1 in France and the large proportion that such enterprises pay out in dividends. They stood at 4 billion in 2013, up from 3 billion in Intercompany lending showed a negative balance of 5 billion in This means that, on the whole, foreign groups were net recipients of loans or loan repayments from affiliated French companies. 1 2 Direct investment in France Foreign direct investment in France was unchanged in 2013, standing at 13 billion. 2 Portfolio investment Portfolio investment 2 posted a net capital inflow of 70 billion. Equity capital transactions, at 13 billion, were up from the very low figure of 9 billion in The sector attracting the most direct investment in 2013 was real estate (5 billion), as was the case in previous years. It was followed by the finance and insurance sector, including holding companies (3 billion), wholesale and retail trade (2 billion) and communications. On the other hand, foreign direct investors disposed of 3 billion in French assets in several sub sectors. Reinvested earnings are usually weak because of the relatively low earnings of direct investment enterprises 1 The structure of French direct investment abroad by geographical area and by sector from 2010 to 2013 is available in the statistical appendix to this report on the Banque de France website. 2 See glossary. Non residents acquisitions of French securities increased from 25 billion in 2012 to 136 billion in French residents net acquisitions of foreign securities were positive at 66 billion, after being negative from 2010 to Capital inflows primarily took the form of non residents purchases of bonds and short term securities. Capital outflows consisted mainly of purchases of foreign equity securities and investment fund shares/units. Non residents resumed their acquisitions of short term securities, with an increase of 28 billion. They bought 82 billion in long term securities and maintained their position in equity securities and investment fund shares/units. French residents made net acquisitions of 36 billion in foreign bonds and similar securities, after carrying out net disposals of 80 billion in bonds in They also sold off foreign short term securities. They acquired 49 billion in equity securities and investment fund shares/units. 25

26 CHAPTER 2 financial account T2 3 Portfolio investment by instrument Assets Liabilities Balance Assets Liabilities Balance Equity securities Investment fund shares/units Total equity securities and investment fund shares/units Long term debt securities Short term debt securities Total debt securities Total Note: Assets: net flows of residents purchases of securities issued by non residents. Liabilities: net flows of non residents purchases of securities issued by residents. C2 4 Net portfolio investment flows by issuing sector Monetary authorities General government Monetary financial institutions Other sectors Two sectors accounted for virtually all of the net liability resulting from the balance of aggregate foreign portfolio investment in France and French portfolio investment abroad: general government received 53 billion out of 70 billion and the rest went to monetary financial institutions (primarily credit institutions and money market funds). 2 1 Liabilities (non residents transactions in securities issued by residents) Non residents net acquisitions of French government securities generated a capital inflow of EUR 81 billion in 2013, compared to an inflow of 18 billion in Foreign investment in securities issued by resident monetary financial institutions generated an inflow of 14 billion and investment in securities issued by other sectors generated an inflow of 41 billion (Table T2 4). T2 4 Portfolio investment by issuing sector Assets 2 66 Monetary authorities 1 1 General government Monetary financial institutions Other sectors a) Liabilities General government Monetary financial institutions 8 14 Other sectors Balance Monetary authorities 1 1 General government Monetary financial institutions Other sectors a) Non financial corporations, non monetary financial intermediaries (other financial intermediaries and investment funds other than money market funds), insurance companies. C2 5 Non residents net purchases of French securities by issuing sector General government Monetary financial institutions Other sectors Total liabilities Note: The inclusion of Société de financement de l économie française (SFEF) in the other sectors category, in accordance with the statistical classification, does not fully reflect the economic reality of the situation; this entity s issuance should actually be classified with that of MFIs. 26