Answers to frequently asked questions concerning
FDI statistics collected by the OECD.
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How are FDI statistics measured? What is the relation between FDI transactions, positions (stocks) and income? How to interpret negative values for FDI flows and positions?
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The OECD Benchmark Definition of Foreign Direct Investment provides operational guidelines on how foreign direct investment (FDI) activity should be measured and sets the world standard for direct investment statistics. The 4th edition was completed in 2008 and, since September 2014, the OECD has been collecting FDI statistics from member countries according to the updated benchmark definition. These statistics are being processed and validated and will be available in Q2 2015.
FDI financial transactions refer to those cross-border transactions which qualify as direct investments recorded during the reference period (year, quarter, or month). FDI positions represent the value of the stock of direct investments held at the end of the reference period (year, quarter, or month). Direct investment positions are affected not only by financial transactions recorded prior to and during the period but also by other changes in price, exchange rates, and volume. FDI income data, closely linked to the stocks of investments, are used for analysis of the productivity of the investment, and are also used as part of the calculation of the rate of return on the total funds invested.
Negative values in transactions may indicate disinvestment in assets or discharges of liabilities. In the case of equity, the direct investor may sell all or part of the equity held in the direct investment enterprise to a third party; or the direct investment enterprise may buy back its shares from the direct investor thereby reducing or eliminating its associated liability. If the financial movement is in debt instruments between the direct investor and the direct investment enterprise, it may be due to the advance and redemption of inter-company loans or movements in short term trade credit. Negative reinvested earnings indicate that, for the reference period under review, the dividends paid out by the direct investment enterprise are higher than current income recorded (if that is the decision of the board of managers) or that the direct investment enterprise is operating at a loss.
The changes in FDI positions are affected by the accumulated flows and hence may also result in negative values, but mainly for other capital (e.g. when the loans from the direct investment enterprise to the parent exceed the loans – or even the original capital – given by the parent to the direct investment enterprise. It could be the case where conduits or treasury companies are involved). This is particularly important when FDI statistics are presented on a directional basis given the significance of inter-affiliate transactions and positions in debt.
In order to serve users requiring timely data, the compilers of FDI statistics make initial estimates for some components on preliminary information available at that time. It is especially difficult to have timely and at the same time complete data on the accrued income when the results are first published, as these values are only known once the direct investment enterprise has closed its books and the current operating income and earnings distributions have been determined for the reference period.
Consequently, when more complete data are provided for the reference period, data compilers revise the estimates for the previous periods. However, compilers are recommended to provide to the public at large a description of the revisions.
The recommendation is to provide inward and outward FDI data on the basis of the economic activity of both the direct investment enterprise and that of the direct investor. However, if this is not feasible, it is recommended that the priority is to compile the data according to the activity of the direct investment enterprise, for both inward and outward investments (i.e. economic activity of the resident direct investment enterprise for inward investment and that of the non-resident direct investment enterprise for outward investment).
Multinational enterprises frequently have recourse to SPEs for their inward and outward direct investments, including the large amounts of capital in transit, passing through entities in jurisdictions which may offer advantages, e.g. for tax purposes. Even though transactions/positions with SPEs are included in assets and liabilities of direct investment enterprise, they are no longer included in FDI statistics by partner country or by industry classification. In other words, detailed FDI statistics exclude resident SPEs and look through non-resident SPEs in the analysis of source/destination of FDI. The purpose of looking-through SPEs is to reduce the overstatement of FDI statistics and to provide more realistic analysis and hence estimates of real source/destination of FDI.
The statistics on direct investment include cross-border investments made with the objective of establishing a lasting interest to exercise an influence in the management of the direct investment enterprise (the target entity) which is evidenced by the ownership of at least 10% of the voting power by the direct investor. Control by the direct investor of the direct investment enterprise is not necessary to qualify as FDI. The Framework for Direct Investment Relationship establishes the chains of relationships between direct investors and their direct investment enterprises and includes qualifying cross-chain relationships between direct investment enterprises. As such, FDI statistics compiled using the FDIR include certain transactions and positions between fellow enterprises which are not linked through a direct 10% or more ownership of voting power. FDI statistics only record the financial value of the investments. The geographical allocation is based on the debtor/creditor principle.
The statistics on AMNE (also referred to as FATS) cover affiliates which are controlled by an enterprise resident in another economy. The OECD Handbook on Economic Globalisation Indicators recommends that AMNE statistics cover the majority owned affiliates. In principle, AMNE data cover a sub-set of the entities involved in FDI. The AMNE present detailed data on the foreign affiliates, e.g. on the employment, turnover, value added, etc. Nevertheless, the geographical attribution of the units is based on the ultimate controlling (investing) country (for inward investment) or the ultimate hosting country (for the outward data).
In theory FDI and AMNE statistics are very closely related and, therefore, complementary. However, methodologies applied to current FDI and AMNE statistics are not consistent and render difficult the analysis of financial and income flows and positions along with the economic impact of the AMNEs. Introduction of new supplemental FDI inward positions allocated to the ultimate controlling parent is expected to reduce these discrepancies to the extent that samples of enterprises are also harmonised.
Several International organisations compile and disseminate FDI data. These include the OECD, Eurostat, the European Central Bank (ECB), IMF, and UNCTAD. FDI statistics of the OECD and Eurostat are essentially based on a common framework for reporting detailed FDI statistics. IMF and ECB compile and disseminate FDI as a functional category of balance of payments. The data released by the OECD and Eurostat are generally very consistent, as the same data framework is used. Data regarding the Euro-zone is consistent between Eurostat and the ECB. OECD and IMF research demonstrated that the main differences between their aggregate FDI statistics are largely due to the timing of revisions. UNCTAD data are in a number of cases different due to adjustments.
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