Archive:Foreign direct investment statistics

Data from May 2011, most recent data: Further Eurostat information, Main tables and Database.

This article examines the developments of foreign direct investment (FDI) in the European Union (EU), through an analysis of inward and outward flows, information on the origin and destination of these flows, important investment activities, as well as stocks of FDI at the end of the year.

FDI is the category of international investment made by an entity resident in one economy (the direct investor) to acquire a lasting interest in an enterprise operating in another economy (the direct investment enterprise). The lasting interest is deemed to exist if the direct investor acquires at least 10 % of the voting power of the direct investment enterprise. FDI is a component of the balance of payments, showing all financial transactions between one country or areas – such as the EU-27 – and all other countries.

Main statistical findings

Table 1: FDI outward flows by main partner, 2010 (1)
(EUR 1 000 million) - Source: Eurostat (bop_fdi_main)

Table 2: FDI inward flows by main partner, 2010 (1)
(EUR 1 000 million) - Source: Eurostat (bop_fdi_main)

Figure 1: FDI flows and stocks, EU-27, 2004-2010
(EUR 1 000 million) - Source: Eurostat (bop_fdi_main)

Table 3: Foreign direct investment, EU-27, 2007-2010 (1)
(EUR 1 000 million) - Source: Eurostat (bop_fdi_main)

Figure 2: FDI outward flows, 2007 to 2009 average
(% of total EU-27 outward flows) - Source: Eurostat (bop_fdi_main)

Table 4: Top 10 countries as extra EU-27 partners for FDI positions, EU-27, 2007-2009
(EUR 1 000 million) - Source: Eurostat (bop_fdi_pos)

Map 1: Outward stocks of FDI, EU-27, end 2009 - Source: Eurostat (bop_fdi_pos)

Table 5: Extra EU-27 FDI stocks by economic activity, EU-27, end 2008
(EUR 1 000 million) - Source: Eurostat (bop_fdi_pos)

Figure 3: FDI income and rates of return, EU-27, 2004-2009 (1) - Source: Eurostat (bop_fdi_inc)

Effects of the financial and economic crisis

Flows of FDI (new investments made during the reference period) fluctuate considerably from one year to the next, partly as a function of economic fortunes. FDI flows generally increase during times of rapid economic growth, while disinvestment is more likely during periods of recession as businesses are more likely to focus on core activities in their domestic market.

In 2008, total EU-27 FDI outflows dropped by 30 %, mainly due to a sharp decline in equity capital and reinvested earnings. A similar trend was observed in 2009, as all types of FDI flows contributed to a negative development, with outflows falling by a further 28 %.

Following a sharp decrease of 60 % in 2008, EU-27 FDI inflows recovered in 2009 (up 26 %) largely as a result of growth in equity capital and reinvested earnings.

Provisional figures for 2010 show a sharp drop in EU-27 FDI, for both outward and inward flows of investment, thereby confirming the continued impact of the global financial and economic crisis. EU-27 outward flows of FDI decreased for the third consecutive year, falling by 62 % in 2010 when compared with the year before. At the same time, EU-27 inward flows of FDI decreased by 75 %. FDI flows channelled through special-purpose entities (SPEs) played a significant role in the results for 2010.

EU-27 FDI flows by partner country

EU-27 FDI flows with a range of economic partners have been considerably affected by the global financial and economic crisis. The decline in EU-27 outflows in 2009 could be largely attributed to a fall in investment to the United States — from EUR 148 200 million in 2008 to EUR 79 200 million in 2009. During the same period, investment from the United States in the EU-27 recovered, rising to EUR 97 300 million, which was more than twice the figure recorded in 2008 (EUR 44 400 million). Provisional figures for 2010 show a considerable decrease in both flows with respect to the United States.

EU-27 outward FDI to Canada fell to such a degree that there was disinvestment in both 2009 and 2010. Incoming FDI from Canada, after decreasing by 14 % in 2009, seems to have recovered in 2010, rising to EUR 27 700 million.

EU-27 investment flows to emerging economies, such as China, were generally less affected than flows to other economic partners. Having fallen to EUR 5 200 million in 2008, EU-27 outward FDI flows to China rose by 11 % in 2009. Preliminary results for 2010 suggest that FDI flows from the EU-27 to China fell by 16 %. Outward flows of FDI from the EU-27 to Brazil decreased for three successive years after peaking in 2007; however, the pace of decline was less marked than the average reduction in outflows for all EU-27 partners.

There was some evidence of an increase in inward investment into the EU-27 from Asia in 2010, as inward FDI flows from China (EUR 900 million) and Hong Kong (EUR 11 300 million) rose in relation to 2009. In a similar manner, there was a considerable increase in the level of inward flows from Brazil in 2010.

EU-27 outward investment in Russia dropped considerably in 2009 and then fell again in 2010, such that there was slight disinvestment in 2010. There was a similar pattern as regards Russian investment in the EU-27: having peaked in 2007 (EUR 10 500 million) much lower levels were recorded during the period 2008 to 2010, with a modest degree of disinvestment in 2010 (EUR 400 million).

EU-27 FDI outflows to Africa remained relatively unchanged during the period from 2007 to 2009, averaging EUR 20 707 million; this pattern was in stark contrast to that recorded for the other continents, where EU-27 outflows of FDI were considerably reduced.

There was a wide variation from one year to the next as regards the development of FDI for offshore financial centres. These played a considerable role in FDI flows in 2007 both with respect to outward and inward flows – accounting for around one quarter of the total flows to and from extra-EU partners. The financial and economic crisis saw the role played by offshore financial centres being reduced considerably, such that in 2008 they accounted for around one tenth of EU-27 inward and outward FDI flows. Although there was an increase in FDI flows to offshore financial centres in 2009, this was immediately reversed in 2010.

Principal EU Member States for outward flows of FDI

FDI flows can oscillate considerably from one year to the next, influenced mainly by large mergers and acquisitions. Luxembourg’s share (24 %) of EU-27 outward flows of FDI during the period 2007 to 2009 may be explained by the activities of special-purpose entities (SPEs), that represented about 85 % of total direct investments. SPEs also played an important role in a number of other EU Member States; this was especially the case in the Netherlands and Hungary. There was a 42 % increase in outward flows of FDI from Luxembourg between 2008 and 2009. As a result, Luxembourg became the principal EU-27 investor in non-member countries. The four main partner destinations of FDI from Luxembourg included Switzerland, the United States, Bermuda and the Bahamas, thereby revealing the importance of the financial sector.

Although the United Kingdom accounted for the second highest share of outward FDI among the EU Member States between 2007 and 2009, outward investment to non-member countries from the United Kingdom was almost cut in half in 2009. The reduction in investment flows was particularly marked for traditional partners such as the United States, Canada or Australia, while higher levels of investment were destined for the United Arab Emirates, New Zealand, Japan and India.

Changes in FDI positions (stocks)

EU-27 outward and inward stocks (or positions) grew in 2009: outward stocks rose by 10 % and inward stocks by 7 %. In 2008, both inward and outward stocks had increased at a slower pace, rising by 3 % (see Table 4).

At the end of 2009, the biggest share (30.9 %) of EU-27 outward stocks of FDI was recorded for the United States, valued at some EUR 1 134 000 million. The services sector represented 70 % of EU-27 stocks held in the United States, and most of these were from financial intermediation (39 %), real estate and other business activities or manufacturing (both 22 %); for the latter, the main area of investment activity was the manufacturing of chemicals and chemical products. At the end of 2009, the main holder of EU-27 FDI stocks in the United States continued to be the United Kingdom, accounting around one quarter of the total. Switzerland was the second most important outward partner as regards EU-27 FDI positions in 2009, accounting for 14 % of total stocks; financial intermediation was the main activity for EU-27 investment in Switzerland. EU-27 stocks of FDI in Russia grew by 24 % between 2007 and 2009. Financial intermediation and manufacturing were the main areas of EU-27 investment in Russia, and FDI stocks in these two sectors were maintained during the period under consideration.

In Asia, the main positions for EU-27 stocks of FDI were found in Singapore, Hong Kong and Japan, while EU_27 stocks of FDI in China continued to grow in 2009 (up 11 % on the 2008 figure); the fastest expansions in EU-27 outward stocks of FDI across Asia were recorded in Malaysia, India and Indonesia (up by 82 %, 56 % and 22 % respectively between the end of 2008 and the end of 2009).

In Africa, the main positions for EU-27 stocks of FDI were found in South Africa (EUR 77 000 million), Nigeria (EUR 30 300 million) and Egypt (EUR 26 400 million). EU-27 outward positions in South Africa grew by 40 % between the end of 2008 and the end of 2009, such that South Africa became one of the EU-27’s top ten FDI partners.

In 2009, the United States held 39 % of inward stocks of FDI in the EU-27; this share was valued at EUR 1 044 100 million at the end of 2009. The United States therefore consolidated its position as the main investor in the EU-27, with the main area of investment being the services sector, which accounted for 79 % of investment positions held by the United States in the EU-27 at the end of 2008. Switzerland was the second biggest holder of EU-27 FDI stocks, with EUR 347 900 million at the end of 2009, which was 10 % higher than a year before. Other countries with significant shares of EU-27 inward stocks included Japan, Canada, Brazil and Singapore. The relative importance of EU-27 FDI inward stocks was 10 % higher for Japan and 11 % higher for Canada at the end of 2009 (compared with a year before). The position of Brazilian investment in the EU-27 also rose, climbing 7 % between the end of 2008 and the end of 2009 – although this was a relatively modest increase when compared with far higher growth rates recorded during the period from the end of 2006 to the end of 2008.

Analysis of FDI by economic activity

The structure of the EU-27’s FDI stocks according to economic activity is shown in Table 5. Services provided by far the largest contribution both to outward (72 %) and to inward (83 %) stocks of FDI at the end of 2008; almost two thirds of the stock of EU-27 FDI in services was held in the financial intermediation sector (for both inward and outward FDI).

Income and rates of return

The financial and economic crisis had a persistent impact on the EU-27’s income from FDI, with the income from inward and outward FDI stocks falling in 2008 and 2009. The EU-27’s investment income from stocks of FDI in non-member countries fell by 13 % between the end of 2008 and the end of 2009 to stand at EUR 169 000 million, while the income paid to non-member countries remained relatively unchanged, falling just 2 %, to EUR 104 000 million. The resulting net income from the rest of the world amounted to EUR 65 300 million, which was 27 % lower than at the end of 2008. As such, the EU-27’s net income from FDI was valued at 0.55 % of GDP in 2009, compared with 0.72 % in 2008.

The rate of return from stocks of EU-27 outward investment declined for the third consecutive year to the end of 2009, reaching 5.1 %; the return from inward investments remained relatively stable at 4.1 %. As a result, the latest rates of return on outward and inward FDI stocks fell to their lowest level in recent years (see Figure 3).

Data sources and methodology

FDI statistics in the EU are collected according to Regulation 0184/2005 on Community statistics concerning balance of payments, international trade in services and foreign direct investment.

The methodological framework used is that of the OECD’s benchmark definition of foreign direct investment (third edition), which provides a detailed operational definition that is fully consistent with the IMF’s balance of payments manual (fifth edition).

Annual EU FDI statistics give a detailed presentation of FDI flows and stocks, showing which Member States invest in which partner countries and in which economic sectors. Eurostat collects FDI statistics for quarterly and annual flows, as well as for positions/stocks at the end of the year. FDI stocks (assets and liabilities) are part of the international investment position of an economy.

Through outward FDI flows, an investor country builds up FDI assets abroad (outward FDI stocks). Correspondingly, inward FDI flows cumulate into liabilities towards foreign investors (inward FDI stocks). However, changes in FDI stocks differ from FDI flows because of the impact of revaluation (changes in prices and, for outward stocks, exchange rates) and other adjustments such as catastrophic losses, cancellation of loans, reclassification of existing assets or liabilities.

FDI flows are components of the financial account of the balance of payments, while FDI assets and liabilities are components of the international investment position. FDI income consists of the income accruing to the direct investor from its affiliates abroad. Income earned from outward FDI is recorded among credits in the current account of the balance of payments, while income paid to foreign owners of inward FDI stocks is recorded among debits.

FDI flows and positions are recorded according to the immediate host/investing country criterion. The economic activity for both flows abroad and flows in the reporting economy are classified according to the economic activity of the resident enterprise; the same applies to FDI positions.

FDI flows are new investments made during the reference period, whereas FDI stocks provide information on the position, in terms of value, of all previous investments at the end of the reference period. The intensity of FDI can be measured by averaging the value of inward and outward flows during a particular reference period and expressing this in relation to GDP. The sign convention adopted for the data shown in this article, for both flows and stocks, is that investment is always recorded with a positive sign, and a disinvestment with a negative sign.

European aggregates (such as the EU-27) include special-purpose entities (SPEs), which are a particular class of enterprises (often empty shells or holding companies) not included in all countries’ national statistics. Therefore, European aggregates (for the EU or euro area) are not simply equal to the sum of the requisite national figures.

Context

In a world of increasing globalisation, where political, economic and technological barriers are rapidly disappearing, the ability of a country to participate in global activity is an important indicator of its performance and competitiveness. In order to remain competitive, modern-day business relationships extend well beyond the traditional foreign exchange of goods and services, as witnessed by the increasing reliance of enterprises on mergers, partnerships, joint ventures, licensing agreements, and other forms of business co-operation.

FDI may be seen as an alternative economic strategy, adopted by those enterprises that invest to establish a new plant/office, or alternatively, purchase existing assets of a foreign enterprise. These enterprises seek to complement or substitute external trade, by producing (and often selling) goods and services in countries other than where the enterprise was first established.

There are two kinds of FDI: namely, the creation of productive assets by foreigners or the purchase of existing assets by foreigners (acquisitions, mergers, takeovers, etc.). FDI differs from portfolio investments because it is made with the purpose of having control or an effective voice in management and a lasting interest in the enterprise. Direct investment not only includes the initial acquisition of equity capital, but also subsequent capital transactions between the foreign investor and domestic and affiliated enterprises.

Conventional trade is less important for services than for goods. While trade in services has been growing, the share of services in total intra-EU trade has changed little during the last decade. However, FDI is expanding more rapidly for services than for goods, increasing at a more rapid pace than conventional trade in services. As a result, the share of services in total FDI flows and positions has increased substantially, as the service sector within the EU-27 has become increasingly international.

Further Eurostat information

Publications

OECD benchmark definition of foreign direct investment - third edition

Main tables

Balance of payments - international transactions (t_bop), see:

European Union direct investments (t_bop_fdi)

Database

Balance of payments - international transactions (bop), see:

European Union direct investments (bop_fdi)

Methodology / Metadata

European Union direct investments (ESMS metadata file - bop_fdi_esms)

Other information

Balance of payments and international investment position manual (BPM6)

Source data for tables and figures (MS Excel)

Foreign direct investment: tables, figures and map