Foreign direct investment - rates of return


Data extracted in May-June 2017

Planned article update: June 2019

Highlights

The rate of return on EU direct investment abroad fell from 7.0 % in 2011 to 4.4 % in 2015.

In 2014, the highest rate of return for EU investment abroad was for accommodation and food services.


Extra-EU foreign direct investment, rates of return, EU-28, 2008-2015
(%)
Source: Eurostat (bop_fdi6_pos), (bop_fdi6_inc) and (bop_fdi_main)


Globalisation patterns in EU trade and investment is an online Eurostat publication presenting a summary of recent European Union (EU) statistics on economic aspects of globalisation, focusing on patterns of EU trade and investment.

While the first three articles in this section (chapter 4) have provided information on the levels and shares of foreign direct investment (FDI) flows and stocks, this final article analyses the returns that investors obtain from their foreign investments.

As with all enterprises, economic theory suggests that enterprises which invest abroad will seek to maximise their profits. However, if they are based in more than one country then multinational enterprises have a degree of flexibility that may allow them to adapt their global strategy to reflect the economic conditions in different markets. Their behaviour is further complicated by an opportunity to engage in complex financial flows and transfers between different cost centres (often designed to lower their exposure to, among other things, corporate taxation).

Full article

General overview

The rate of return on EU-28 direct investment abroad fell from 7.0 % in 2011 to 4.4 % in 2015

With the EU-28’s stock of outward FDI growing continuously in recent years, levels of investment income also needed to increase if the rate of return on FDI was to remain unchanged. The level of net income received from non-member countries on outward stocks of FDI decreased in 2015 to EUR 302.9 billion. Figure 1 reveals that the rate of return on EU-28 investment abroad stood at 4.4 % in 2015. As such, the rate of return on the EU-28’s outward investment fell for the fourth consecutive year, down from a peak of 7.0 % in 2011.

Net income paid to non-member countries on their FDI positions in the EU-28 increased to EUR 218.6 billion in 2015. However, as this income grew at a slower pace than the stock of inward FDI it did not prevent the rate of return on inward FDI falling to 3.8 % in 2015 (having stood at 4.4 % a year before).

Figure 1: Extra-EU foreign direct investment, rates of return, EU-28, 2008-2015
(%)
Source: Eurostat (bop_fdi6_pos), (bop_fdi6_inc) and (bop_fdi_main)

EU-28 FDI rate of return by activity

In 2014, the highest rate of return for EU-28 investment abroad was for accommodation and food services

In 2014, the EU-28’s highest rates of return for outward FDI [1] were recorded for accommodation and food service activities (10.3 %), mining and quarrying (8.2 %) and administrative and support service activities (8.1 %) — see Figure 2. Positive rates of return were recorded for each of the remaining activities, with the lowest rate of return for agriculture, forestry and fishing (1.5 %).

The highest rates of return for foreign investors in the EU-28 were recorded by those having invested in information and communication services (11.3 %) and mining and quarrying activities (10.5 %). Electricity, gas, steam and air conditioning supply was the only activity where foreign investors faced a negative rate of return in 2014, albeit very small (-0.1 %).

Figure 2: Extra-EU foreign direct investment, rates of return by economic activity, EU-28, 2014
(%)
Source: Eurostat (bop_fdi6_pos) and (bop_fdi6_inc)

EU-28 FDI rate of return by investor

Among the EU Member States, the Czech Republic and Lithuania provided the highest rates of return for foreign investors in 2015

While the average rate of return for the EU-28 on investment abroad was 4.4 % in 2015, this ratio rose to 12.9 % for outward investment from Latvia and was also relatively high for outward FDI from the Czech Republic, Greece, Finland, Slovakia, Sweden and Denmark; note these figures for the individual EU Member States are based on both foreign investment with non-member countries and with other Member States. By contrast, in Bulgaria, Croatia and particularly Romania, the rate of return on outward FDI was negative (see Figure 3; note that the information presented may be subject to revisions).

In 2015, the highest rates of return for foreign investors (made by extra-EU investors and investors from other EU Member States) were recorded in relation to inward investment in the Czech Republic (12.2 %) and Lithuania (11.2 %). Foreign investors in 21 of the Member States recorded a rate of return for their inward investment that was higher than the EU-28 average (3.8 %), suggesting that the returns enjoyed by investors from other Member States outperformed those for extra-EU investors.

Figure 3: Foreign direct investment, rates of return, 2015
(%)
Source: Eurostat (bop_fdi6_pos) and (bop_fdi6_inc)
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Balance of payments - International transactions (BPM6)


Balance of payments - International transactions (BPM6)
European Union direct investments (BPM6)


= Notes

  1. As for FDI stocks, the ranking of rates of return by activity may be of lower quality for outward investment than comparable information pertaining to inward investment, as not all of the EU Member States are able to provide a breakdown according to the activity of non-resident enterprises.