Archive:Foreign direct investment statistics

Data from September 2009, most recent data: Further Eurostat information, Main tables and Database.

Table 1: Foreign direct investment, 2008 (1)

Foreign direct investment is the category of international investment made by an entity resident in one economy (direct investor) to acquire a lasting interest in an enterprise operating in another economy (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 area like the European Union, and all other countries.

This article discusses patterns of FDI in the European Union (EU), examining the inward flows and outward flows, the origin and destination of these flows, and the chief components of FDI.

Main statistical findings

Graph 1: Foreign direct investment inward stocks by main extra-EU investor, EU, end-2007 (1) (% of extra-EU FDI stocks)

Graph 2: Foreign direct investment outward stocks in main extra-EU partners, EU, end-2007 (1) (% of extra-EU FDI stocks)

Table 2: Foreign direct investment stocks for selected partner countries, end-2007 (1) (EUR 1 000 million)

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 growth while disinvestment is more likely during periods of recession as companies focus on core activities in their domestic market.

The EU Foreign Direct Investment (FDI) flows have been severely affected by the global economic and financial crisis. Their peak reached a record level in 2007, but in 2008 a sharp drop both in inward and outward FDI flows was recorded (34% for outflows, 52% for inflows). A slight recovery took place in 2009 in the incoming FDI flows, whereas the EU investments abroad continued to decline (by 24%).

In 2007, EU foreign direct investment flows to the countries outside the European Union had reached the record level of EUR 530.7 bn mainly as a result of major cross-border mergers and acquisitions and reinvestment of earnings. In 2008, the reinvested earnings paid to extra-EU investors dropped by 50% and continued to decline in 2009. Equity capital, mainly mergers and acquisitions activity, showed a similar trend dropping by one third in 2008 and continuing to go down resulting in total EUR 263.3 bn EU outward investments in 2009.

The income received from the investments abroad has also come down from the record level of 2007, meaning that the rate of return on EU outward stocks fell to its lowest level since 2004.

Data sources and availability

Annual EU foreign direct investment statistics give a detailed presentation of FDI flows and stocks, showing which Member State invests in which countries and in which sectors. The EU statistical agency Eurostat collects FDI statistics for quarterly and annual flows, as well as for stocks at the end of the year. FDI stocks (assets and liabilities) are part of the international investment position of an economy at the end of the year.

Outward flows and stocks of FDI (or FDI abroad) report investment by entities resident in the reporting economy in an affiliated enterprise abroad.

Inward flows and stocks of FDI report investment by foreigners in enterprises resident in the reporting economy.

FDI flows are new investment 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 section, for both flows and stocks, is that investment is always recorded with a positive sign, and a disinvestment with a negative sign.

Context

In a world of increasing globalization, 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 firms 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. FDI is a type of international investment where an entity that is resident in one economy (the direct investor) acquires a lasting interest (at least 10 % of the voting power) in an enterprise operating in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise, and a significant degree of influence by the investor on the management of the enterprise.

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, with European services becoming increasingly international.

Further Eurostat information

Publications

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)

Other information

Balance of payments and international investment position manual (BPM6)