Part III. Sector Accounts Arij in ‘t Veld 28-2-2019 REST OF THE WORLD Arij in ‘t Veld

Part III. Sector Accounts 28-2-2019 Introduction S.11 Non-financial corporations S.12 Financial corporations S.13 Government S.14 Households S.15 Non-profit institutions serving households S. 2 Rest of the world

Part III. Sector Accounts 28-2-2019 Contents Rest of the world in ESA Geographical breakdown Concept of residency Important transactions From GDP to GNI Data sources Challenges regarding ROW

ROW in ESA No real sector; non-resident units that have economic relationships with resident units Rest of the World accounts: overall view of the economic relationships between the national economy and the rest of the world From point of view of the rest of the world! (ESA 2010 1.117)   S.2 S.15 S.14 S.13 S.1 S.12 S.11

Geographical breakdown

Concept of residency

Concept of residency What is a resident unit? Resident units are those units which have a centre of economic interest on the economic territory of that country (ESA 2010 2.04)

Concept of residency Centre of economic interest A location (e.g. land or building) within the economic territory from which economic activities are engaged producing, financing, insuring, redistributing consuming owning land or buildings over a period of at least one year

Concept of residency Economic territory Geographic territory, administered by a government, within which persons, goods, services and capital can move freely Also included are for example: national air-space territorial enclaves (e.g. embassies, military bases, etc.) territorial waters part of the continental shelf (North Sea)

Concept of residency

Concept of residency So, a resident unit is a unit that has a centre of economic interest on the economic territory of that country Exceptions: Units primarily engaged in consumption (households) that go abroad for short periods (less than a year). They include: - border workers - seasonal workers - tourists, patients, students - staff of international organisations that have headquarters in extra-territorial enclaves - representatives of the government (including their households) established in territorial enclaves

EXERCISE

Exercise Dutch citizen or not? The Dutch ambassador in Latvia Resident / Non-resident His Latvian secretary A Dutch married couple that spends the summer months in Latvia A Dutchman who works at Statistics Netherlands but lives in Germany A subsidiary of a large Dutch multinational in Latvia A Japanese company (without legal status) on one of the Dutch isles A Dutch student who works in the summer months on a farm in France A Dutch student who studies (and lives) a couple of years abroad A very small country office of a Dutch aid organisation in Ethiopia Philips, the Dutch multinational, located in the Netherlands which equity capital is in foreign hands (more than 50 percent)

Important transactions Part III. Sector Accounts 28-2-2019 Important transactions Financial assets and liabilities Imports and exports of goods and services Property income flows Foreign direct investment (FDI)

Financial assets and liabilities

Imports and exports Trade in goods and services: Change of ownership of goods between residents and non-residents All services rendered by residents to non-residents and vice versa Problems: Transit trade (Rotterdam) Internal transfer pricing (within multinationals) Asymmetries between countries

Property income flows Income (interest, dividend, reinvested earnings) as a result of: Portfolio investment income: S.128 / S.129: Insurance corporations and Pensionfunds have large technical reserves S.124: Mutual funds Direct investment income: S.11: Non-financial corporations Other investment income: S.122: Interbanking positions

Foreign direct investment

Foreign direct investment An enterprise in which a non-resident investor owns 10% or more of the voting power or vice versa. Main transactions related to FDI: Financial accounts: AF.41 (Short term loans) AF.42 (Long term loans) AF.5 (Shares and other equity (real estate)) Non-financial accounts: D.41 (Interest) D.42 (Distributed income of corporations (= dividend)) D.43 (Reinvested earnings on FDI)

Foreign direct investment

Foreign direct investment The amount of profit that is distributed and the amount that is reinvested is a decision of the direct investor: therefore, all profit (D.42 and D.43) is attributed to the parent company When not 100% of the shares is owned by one company, then the dividend payments and RIE are divided proportionally among the shareholders D.43 has direct relationship with AF.5: RIE is actually an increase of the FDI

Foreign direct investment

Foreign direct investment

EXERCISE

Exercise FDI D.41 – interest D.42 – dividend D.43 – reinvested earnings AF.42 – long term loans AF.5 – shares

Exercise FDI Current acc. A Current acc. B Financial acc. A AF.5 AF.42 A L Financial acc. B AF.42 AF.5 A L

From GDP to GNI (1) From GDP to GNI 2013* Output (basic prices) 1.236.446 Intermediate consumption (excl. Deductible VAT) (-) 657.910 Value added (gross, basic prices) 578.536 Taxes on products 65.869 Subsidies on products (-) 3.023 Difference imputed and paid VAT 1.469 Domestic product (gross, basic prices) 642.851 Net current transfers from the rest of the world 1.380  1 National income (gross, basic prices) 644.231

From GDP to GNI (2) Net Current transfers 2013* Resources Uses Compensation of employees 5.610 1.015 Taxes on product and imports 2.463 - Subsidies RoW (-) 1.041 - Property income RoW 170.783 178.180  2 Total Current transfers 177.815 179.195 Net current transfers from the rest of the world : 1.380 ( = 179.195 minus 177.815)  1

From GDP to GNI (3) Property income 2013* Resources Uses Interest 64.407 60.493 Dividends 77.885 123.121 Withdrawals from income of quasi-corporations 1.407 276 Reinvested earnings on direct foreign investments 26.191 -8.215 Other investment income 893 2.505 Total Property income 170.783 178.180  2

Data sources Main source: Other sources: Balance of payments (transactions) Internatioal Invenstment Position (stocks) Other sources: Financial corporations (S12) Government statistics (S13) International trade statistics (goods and services) Finance of non-financial corporations (S11)

Challenges regarding ROW Blank spots (f.i. foreign assets of individuals) Asymmetries between countries Different counterpart sector information Continuous basis vs. actual basis Globalisation: What is a resident entity and what is not? Accounting by multinationals (transfer pricing, intercompany services) SPEs

Part III. Sector Accounts Thanks for your attention 28-2-2019 REST OF THE WORLD Thanks for your attention