Archive:Foreign affiliates statistics - FATS
Foreign Direct Investment (FDI) has increased consistently in recent decades, which has resulted in the growing role of foreign-owned multinationals in the economy of many developed and developing countries. Affiliates of foreign multinationals are known to contribute to the welfare of the host economy, and thus there is competition between countries to attract FDI.
Commercial presence on the territory of another country is one of the modes of delivery of economic activities abroad. Foreign Affiliates Statistics (FATS) describe the overall activity of foreign affiliates. FATS measure the commercial presence, as clarified by the General Agreement on Trade in Services (GATS), through affiliates in foreign markets.
Foreign direct investment (FDI) and FATS reflect two different aspects of the role of multinationals in the global economy. While FDI provides data on the monetary value of investment flows and stocks, FATS describe the economic activity of companies receiving the investment.
FATS encompass inward and outward FATS data. Similarly, FDI contains inward and outward investment.
Inward FATS describe the overall activity of foreign affiliates resident in the compiling economy. A foreign affiliate within the terms of inward FATS is an enterprise resident in the compiling country over which an institutional unit not resident in the compiling country has control. In simpler terms, inward FATS describe how many jobs, how much turnover, etc. are generated by foreign investors in a given EU host economy. While FDI statistics give an idea of the total amount of capital invested by foreigners in the EU economy, FATS add to that information by providing insight into the economic impact those investments have in the EU in terms of job creation, etc.
Control – in this context – is the ability to determine the general policy of an enterprise by choosing appropriate directors, if necessary. However, control is often difficult to determine and, in practice, the share of ownership is often used as a proxy for control. FATS thus focus on the affiliates that are majority-owned by a single investor or by a group of associated investors acting in concert and owning more than 50% of ordinary shares or voting power. However, other criteria may also be relevant for defining foreign control, and thus other cases (multiple minority ownership, joint ventures, and qualitative assessment determining control) should be covered as regards assessment of control.
Outward FATS describe the activity of foreign affiliates abroad controlled by the compiling country. Foreign affiliate within the terms of outward FATS is an enterprise not resident in the compiling country over which an institutional unit resident in the compiling country has control. In simpler terms, outward FATS data describe, for example, how many employees work for affiliates of EU enterprises based abroad? In this case outward FATS give an idea of the economic impact of EU investments abroad (e.g. how many employees work for affiliates of German enterprises in China, what the exports of affiliates of British firms based in India are, etc.).
Contents of this chapter on Balance of payments-FATS refers only to outward FATS.
Main statistical findings
.PNG)
The scale of activities of EU-controlled foreign affiliates was bigger within the EU than outside it. For the reference year 2004, the intra EU-27 share of the number of persons employed was 57.7% (the figures ranged from 34.5% for Portugal to 81.2% for Austria) and the share of turnover was 54.5% (ranging from 50.9% for Germany to 89.8% for Czech Republic). The only exception was in relation to the number of persons employed in Portuguese-controlled foreign affiliates, where the extra-EU share was 65.5%.
It should be noted that the most substantial activity by foreign affiliates takes place in the neighbouring countries (France for Belgium, Slovakia for Czech Republic, Cyprus for Greece, Germany for Austria, Spain for Portugal or Sweden for Finland). The United States was the principal destination in terms of both turnover and number of persons employed only for German foreign affiliates.
The activity of the European affiliates outside the EU was highest in North America, with shares of 38.6% for number of persons employed and 57% for turnover (USA counting for 91% of the total). In terms of turnover, the services sector was the main field of activity for EU affiliates in 2004 with 54.7% of total, followed by manufacturing with 40.9%. Only in Finland did manufacturing take a higher share of total turnover than services. However, the manufacturing sector accounted for 54.8% of the total number of persons employed in foreign affiliates, compared with 41% for services.
Among the activity categories of the services sector, ‘Trade and Repairs’ had the biggest share in terms of both number of persons employed and turnover (47.6% and 67.2% respectively). However, this share differed from country to country, ranging from 10.4% in Greece to 62.5% in Finland for number of persons employed and from 12.9% in Greece to 88.3% in Czech Republic for turnover. ‘Trade and Repairs’ was followed by ‘Transport and Communication’ in terms of employments and by Financial Intermediation in terms of turnover.
The impact of foreign affiliates on the labour market differs significantly from country to country, being substantial in some countries and almost negligible in others. German affiliates were by far the biggest employer abroad, but compared against total employment within the compiling country Finland had the highest ratio with the total number of persons employed in foreign affiliates accounting for 13.9% of total employment in the country. It was followed by Austria and Germany, both with a ratio of about 11%. On the other hand, the ratio for Czech Republic is only 0.3% and for Portugal 0.6%. Taking only affiliates outside the EU into account, these figures ranged from 5% for Finland and Germany to 0.1% for Czech Republic and 0.4% for Portugal.
Data sources and availability
FDI VERSUS FATS
FDI and (outward) FATS are closely related statistical domains. Their subject of interest is the same – businesses internationalising by investing abroad in other business units, existing ones and/or newly founded ones. This similarity in substance is also expressed in compilation practice, as outward FDI stock and outward FATS data are often compiled with the help of the same survey. Yet, despite all these similarities there are a number of important methodological differences between them. These differences limit the scope of comparability between the two datasets. The most important methodological differences are:
50% (FATS) rule versus 10% (FDI) rule
FATS comprises all affiliates that are foreign-controlled (more than 50% of voting rights) while FDI statistics include all foreign interests amounting to 10% or more of the voting power. Broadly speaking, it could be said that the outward FATS population is a sub-group of the population of foreign direct investments relevant for FDI statistics.
The principle of the Ultimate Controlling unit (UCI) versus Immediate Counterparty Country
FATS, including outward FATS, are based on the concept of control when assigning statistical values to institutional units. According to Eurostat’s FATS recommendations manual, control is defined as “the ability to determine the general policy of an enterprise by choosing appropriate directors, if necessary.” Typically, equity-ownership is taken as a proxy to determine control and, whilst cases of minority ownership are also acknowledged, the ownership of more than 50% of the voting power or of the shares (directly or indirectly) is generally taken as an indication of effective control over another institutional unit. As control and ownership chains often extend across a number of institutional units, FATS statistics according to the FATS recommendations manual are always assigned to the Ultimate Controlling Institution (UCI), which is colloquially (although less accurately) referred to as the ‘parent company’. The core FDI statistics, on the other hand, are based on the immediate counterparty country principle. FDI flows and positions are attributed to the country of the immediate investor or recipient of the investment, even if the capital may be passing through to a third country.
Context
The European Union (EU) is one of the world’s biggest investors, and foreign affiliates of European companies play a very important role in the global economy. Therefore, Outward Foreign Affiliates Statistics (FATS), which can be defined as statistics describing the activity of foreign affiliates abroad controlled by the compiling economy, are increasingly relevant to the formulation of the EU economic policies, as they provide information on the role that European capital groups play in the world’s economy, especially in terms of sales and employment.
Reporting of outward FATS data in Europe still takes place on a voluntary basis only, and for most countries the variables covered are turnover and number of persons employed. For 2004, which is the most recent year for which figures are available, seven Member States provided data.
Further Eurostat information
Publications
- [{{{title}}} Recommendations Manual on the Production of Foreign Affiliates Statistics]
Tables, graphs and maps
Database
- Balance of payments - International transactions, see European Union Foreign Affiliates Statistics (Outward FATS)
Dedicated section on web site
Other information
- Balance of Payments and International Investment Manual (BPM6)
- OECD Handbook of Economic Globalisation Indicators (HEGI) (OECD Book shop))