Statistics Explained

Archive:Foreign direct investment statistics

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Data from September 2015. Most recent data: Further Eurostat information, Main tables and Database. Planned article update: July 2016.

This article gives an overview of foreign direct investment (FDI) statistics for the European Union (EU) in relation to year-end stocks, annual flows and income. The analysis mainly covers the period 2010 to 2013 for the EU-28; note that the 2013 figures are based on new methodological standards — the balance of payments manual, sixth edition (BPM6), and the benchmark definition of FDI, fourth edition (BD4) — and consequently the results are not directly comparable with previous years.

Main statistical findings

Key points

EU foreign direct investment (FDI) has been recovering after the global financial and economic turmoil that started around 2008. In 2013, both EU-28 outward and inward flows were substantially higher than in 2012, although it should be noted that a new compilation methodology was introduced for 2013. Furthermore, EU-28 FDI flows in 2013 stood above the peak levels of 2011 in terms of both inward and outward investment relations with the rest of the world (see Figure 1). The income rates of return from both EU-28 outward and inward investment in 2012 were slightly down from the previous year but remained above the rates of 2008 and 2009 (see Figure 3). As in earlier years, FDI flows channelled through special-purpose entities (SPE) [1] played a very significant role in the results.

FDI flows

FDI flows declined in 2012

Between 2008 and 2010 EU-28 FDI outward flows fell for two consecutive years, while inward flows rose by more than 50 % in 2009, after which they fell by almost one fifth in 2010. Total EU-28 FDI outflows increased by 55 % in 2011, mainly due to a substantial increase for equity capital and reinvested earnings, while inward flows increased by 89 %. In 2012, outward flows of FDI dropped, down 32 %, due to a sharp decline in equity capital invested outside the EU-28, though partially compensated by an increase in reinvested earnings; other capital remained steady. Inward flows also decreased, down 27 %; all FDI instruments contributed to this negative change.

The figures for 2013 have been compiled according to the new international standards (BPM6 and BD4) and therefore cannot be directly compared with previous years. EU-28 outward flows of FDI were valued at EUR 478 billion in 2013, while inward flows were somewhat higher, at EUR 523 billion. As such, this was the first time (over the period under consideration) that inward flows of FDI had a higher value than outward flows.

EU-28 direct investment abroad in 2012 declined mainly due to reduced FDI activity with some traditional partners: the United States, down 23 % to EUR 125.2 billion; Switzerland, moving from investment in 2011 to disinvestment of EUR 1.9 billion in 2012. The central American countries (down 80 % to EUR 8.3 billion in 2012) also contributed to the negative change, mainly due to decreased EU FDI activities with offshore financial centres (OFC) located in this area, where special-purpose entities play an important role. In 2012, EU-28 FDI in Asia shrank to EUR 47.8 billion from EUR 79.8 billion the year before, and this decrease was not restricted to the EU’s main partner countries.

The United States remained the most important player in relation to EU-28 inward direct investment flows in 2012. Flows from the United States into the EU-28 (EUR 119.6 billion) more than halved from the previous year but still accounted for more than one third of total EU-28 inward FDI. FDI from other traditional partners also shrank; Switzerland (down 49 %), Brazil (down 56 %), Japan (down 83 %) and the Arabian Gulf countries (moving from investment in 2011 to a small disinvestment of EUR 0.7 billion in 2012). The increased level of inward FDI flows in 2012 from Canada (EUR 12.4 billion), Russia (EUR 8.0 billion), offshore financial centres (EUR 84.9 billion) and some Asian partners (China, Singapore and South Korea) only partially compensated for the reductions elsewhere, such that there was an overall downturn in the EU-28’s inward FDI flows.

The EU-28’s FDI activity with Australia was relatively volatile throughout the period studied. In 2012, this partner attracted a relatively large share (3.3 %; EUR 10.5 billion) of the EU’s outward FDI but made a negative contribution (disinvestment of EUR 14.6 billion) to the EU’s inward flows.

The figures for 2013 have been compiled according to the new international standards (BPM6 and BD4) and therefore cannot be directly compared with previous years.

In 2013, EU-28 direct investment to the United States accounted for almost half of its total outward flows of FDI to the rest of the world. The EU-28’s outward flows of FDI were also substantial to Switzerland (EUR 28.5 billion), Brazil (EUR 37.8 billion), Mexico (EUR 20.3 billion) and offshore financial centres (EUR 76.6 billion), some of which are located in Central America. The EU-28’s direct investment activity was relatively low in Turkey (EUR 0.9 billion), Russia (EUR 4.7 billion), Norway (EUR 8.0 billion), Hong Kong (EUR 10.0 billion), the Arabian Gulf countries (EUR 6.6 billion), Egypt (EUR 1.8 billion) and Canada (EUR 8.1 billion).

The United States remained the main source of incoming FDI, accounting for four fifths of total inflows into the EU-28 in 2013. Inward flows of FDI from Switzerland (EUR 29.4 billion), Japan (EUR 14.8 billion), Canada (EUR 13.6 billion) and Brazil (EUR 9.6 billion) also contributed noticeably, while Australia, Hong Kong, India and South Africa saw their flows turn to investment in 2013 after the disinvestment registered in 2012. Inward FDI flows from Central America, South Korea, Africa, Norway and China into the EU-28 were relatively low in 2013, while those from offshore financial centres turned negative (a disinvestment); this was also the case for inward flows from Russia.

EU’s main sources of outgoing FDI

FDI flows can vary considerably from one year to another, influenced mainly by large mergers and acquisitions. In the period 2011–13, Luxembourg had the largest average share (41 %) of EU-28 FDI outward flows; special-purpose entities handle most of Luxembourg’s total direct investment. Special-purpose entities also play an important role in other EU Member States, especially the Netherlands, Austria, Belgium, Hungary and Cyprus.

Luxembourg’s outgoing FDI almost doubled in 2013 compared with 2011, whereby Luxembourg remained the leading EU investor in non-member countries. The United States was the top recipient attracting almost 80 % of Luxembourg’s outward FDI in non-member countries in 2013. Offshore financial centres were the second most common destination, showing the importance of the financial sector for this EU Member State.

The Netherlands’ outward FDI flows to non-member countries were also very high during the period 2011–13 (29 % of the EU-28 total), pushing it into second place among the EU Member States, ahead of the United Kingdom (9 %).

FDI stocks

Slower growth in 2012

In 2012, growth in EU-28 outward and inward FDI stocks (or positions) slowed to around 5 % for each direction; this can be compared with 16 % growth for outward stocks and 18 % growth for inward stocks in 2011. The data for 2013 are not comparable with the previous years due to the implementation of a revised international methodology.

North America remained the main location for the EU-28’s FDI outward stocks in non-member countries

At the end of 2013, North America had the biggest share (39 %) of EU-28 FDI stocks abroad (see Map 1). The United States alone accounted for some 34 % (EUR 1 687 billion) of total EU-28 stocks in non-member countries (see Table 2). The main EU-28 holders of FDI stocks in the United States were the Netherlands (32 %), Luxembourg (22 %) and the United Kingdom (14 %).

Switzerland was the second most important location for EU-28 outward FDI positions at the end of 2013, accounting for 14 % of total stocks, the main activity being financial intermediation. At the end of 2013, Brazil was the third main location with a 6 % share of EU-28 FDI outward stocks, ahead of Canada. Russia remained the fifth most important location for EU-28 outward FDI positions at the end of 2013, while China overtook Australia to move into sixth place.

In Asia, the main locations for EU-28 outward FDI stocks were China, Singapore, and Hong Kong, together accounting for almost half of the EU-28’s FDI positions in Asia at the end of 2013. Japan (EUR 78.9 billion) did not feature among the top three Asian partners for EU-28 FDI outward positions, but still remained ahead of India, South Korea and Indonesia.

In Africa, the main destinations for EU-28 FDI stocks were Egypt (EUR 42.2 billion), South Africa (EUR 41.8 billion) and Nigeria (EUR 29.6 billion).

The United States was the main holder of inward FDI stocks in the EU-28

At the end of 2013, the United States held close to half (44 %; EUR 1 652 billion) of the EU-28’s FDI inward stocks from the rest of the world (see Table 2). The United States thus maintained its position as the main holder of FDI stocks within the EU-28, having invested, as of the end of 2012, mostly in the financial services sector, followed by manufacturing; one third of the latter was in the manufacture of petroleum, chemical, pharmaceutical, rubber and plastic products, and another third in the manufacture of food products, beverages and tobacco products.

Similar to the ranking for the EU-28’s FDI outward positions, Switzerland was the second biggest FDI stock holder in the EU-28 in 2013, with stocks valued at EUR 431 billion.

Other countries with considerable shares in the EU-28’s FDI inward positions at the end of 2013 included Japan (4 %) and Canada (3 %), followed by Norway, Brazil, Hong Kong, Singapore and Russia. As of the end of 2013, China did not feature among the top 10 investors (in terms of inward FDI positions) in the EU-28.

Continued dominance of financial services

At the end of 2012, the EU-28 had a positive FDI balance, in other words, outward stocks of FDI exceeded inward stocks (see Table 3). The structure of the EU-28’s FDI stocks remained relatively unchanged in 2012 when analysed by economic activity, with the services sector maintaining a negative balance following sharp growth in inward stocks in financial and insurance activities in 2011, which more than doubled from the previous year. At the end of 2012, almost all of the other services subsectors in the EU-28 registered a positive balance.

Services made by far the largest contribution to both outward (58 %) and inward (86 %) FDI stocks for the EU-28, and their respective shares of total stocks at the end of 2012 remained steady when compared with 2011. Around three fifths of inward stocks of services and more than four fifths of outward stocks of services were held in financial and insurance activities, which themselves grew during 2012. Several other services subsectors contributed to these positive developments, the highest growth being recorded for accommodation and food service activities (outward stocks) and professional, scientific and technical activities (inward stocks). On the other hand, EU-28 inward stocks decreased sharply for information and communication services, and for accommodation and food service activities.

EU-28 outward stocks in manufacturing grew moderately by 2 % in 2012, the highest growth among the manufacturing subsectors being registered for the manufacture of vehicles and other transport equipment (23 %). On the other hand, inward stocks remained almost unchanged following counterbalancing sharp falls and increases across its subsectors. The contributions of all other sectors (other than manufacturing and services) to total EU-28 stocks at the end of 2012 increased from 14 % to 15 % for outward stocks and from 3 % to 4 % for inward stocks.

Income from FDI

EU-28 net income decreased moderately in 2012

The EU-28’s investment income from and to non-member countries increased in 2012 to EUR 354 billion of income received (from outward FDI) and EUR 200 billion of income paid (from inward FDI). The EU-28’s resulting net income from the rest of the world decreased to EUR 154 billion in 2012, 6 % lower than the record level of 2011. The balance for the EU-28’s investment income (from FDI) in 2012 was 1.19 % of GDP, compared with 1.30 % in 2011.

Following a recovery in 2010 and 2011, the slow increase in FDI income in 2012 brought rates of return [2] down to 7.3 % for EU-28 FDI outward stocks (in other words, inflows of income) and 5.4 % for EU-28 FDI inward stocks (in other words, outflows of income) — see Figure 3.

Data sources and availability

FDI statistics in the EU are collected in accordance with Regulation (EC) No 184/2005 of the European Parliament and of the Council on Community statistics concerning balance of payments, international trade in services and foreign direct investment, and the amending Commission Regulation (EU) No 555/2012.

The methodological framework used for statistics over the period 2008–12 is that of the OECD 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). For 2013, there was a considerable change in the methodological framework and statistics on FDI for this reference year are based on new international standards, namely: the IMF’s balance of payments manual, sixth edition (BPM6), and the OECD’s benchmark definition of FDI, fourth edition (BD4).

This article is based on FDI data that were available in Eurostat’s online database in July 2015. The series in the database covered the period from 1992 to 2013 (although only the period 2008–13 is shown here); these statistics are analysed by partner, activity and type of direct investment (equity capital, loans and reinvested earnings).

EU-28 aggregates include special-purpose entities, which are a particular class of enterprises (often empty shells or holding companies) not included in all countries’ national statistics. Consequently, EU-28 aggregates are not simply the sum of 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 international 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 cooperation.

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 international 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: the creation of productive assets by foreigners, or the purchase of existing assets by foreigners (for example, through acquisitions, mergers, takeovers). FDI differs from portfolio investments because it is made with the purpose of having control, or an effective voice, in the management of the enterprise concerned 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 international 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, and is increasing at a more rapid pace than international trade in services. As a result, the share of services in total FDI flows and positions has increased substantially, as the service sector has become increasingly international.

See also

Further Eurostat information

Main tables

European Union direct investments (t_bop_fdi)

Database

European Union direct investments (bop_fdi)
European Union direct investments (BPM6) (bop_fdi6)

Dedicated section

Methodology / Metadata

Source data for tables, figures and maps (MS Excel)

Other information

External links

Notes

  1. ↑ Special-purpose entities are mainly financial holding companies, foreign-owned, and principally engaged in cross-border financial transactions, with little or no activity in the Member State of residence.
  2. ↑ The FDI rate of return is measured here as (FDI income of year t) / (stock of FDI at the end of year t-1).


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