Archive:Foreign direct investment statistics
- Data from May 2010, most recent data: Further Eurostat information, Main tables and Database.
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
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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 methodology
Foreign Direct Investment statistics in the EU are collected according to 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.
The methodological framework used is that of the OECD Benchmark Definition of Foreign Direct Investment Third Edition, a detailed operational definition fully consistent with the IMF Balance of Payments Manual, Fifth Edition (BPM5).
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 office 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.
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. Finally, 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 in the reporting economy while FDI positions abroad are classified according to the activity of the non-resident enterprise.
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.
EU aggregates 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, the EU aggregates are not simply the addition of national figures.
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
- European Union direct investments (t_bop_fdi)
Database
- European Union direct investments (bop_fdi)
Other information
External links
- OECD Benchmark Definition of Foreign Direct Investment
- United Nations Conference on Trade and Development (UNCTAD) - FDI Statistics