The Need for High Quality Data on FDI in the International and National Economic Accounts Meeting of Group of Experts on the Impact of Globalization on National Accounts May 11-13, 2009, Geneva, Switzerland Agenda item 9 Issue paper 8

What is Direct Investment? Investment in which investor in one economy obtains interest in enterprise in another economy so as to confer significant degree of influence (often control) Investment in which investor in one economy obtains interest in enterprise in another economy so as to confer significant degree of influence (often control) Operational definition: direct investor holds/acquires at least 10 percent of voting power in direct investment enterprise Operational definition: direct investor holds/acquires at least 10 percent of voting power in direct investment enterprise

Economic role of direct investment Generally perceived to be more stable than other types of cross-border investment Generally perceived to be more stable than other types of cross-border investment In addition to finance, direct investment brings additional dimensions In addition to finance, direct investment brings additional dimensions such as technology transfersuch as technology transfer managerial know-howmanagerial know-how access to marketsaccess to markets May prompt concern about investment in “strategic industries” May prompt concern about investment in “strategic industries”

Direct investment is one of five functional categories in international accounts framework Functional categories show economic role of investment (assets and liabilities) Functional categories show economic role of investment (assets and liabilities) Direct investmentDirect investment Portfolio investmentPortfolio investment Financial derivativesFinancial derivatives Other investmentOther investment Reserve AssetsReserve Assets Unlike SNA, functional categories primary classification, before instrument classification Unlike SNA, functional categories primary classification, before instrument classification

Direct investment in National Accounts Framework Reinvested earnings of direct investment enterprises (credit and debits) part of the Entrepreneurial Income and Allocation of Other Primary Income Account Reinvested earnings of direct investment enterprises (credit and debits) part of the Entrepreneurial Income and Allocation of Other Primary Income Account Reinvestment of income included in financial account Reinvestment of income included in financial account Direct investment transactions recorded separately as memorandum items in financial account Direct investment transactions recorded separately as memorandum items in financial account One of elements differentiating between Gross Domestic Product and Gross National Income One of elements differentiating between Gross Domestic Product and Gross National Income

Top 10 inward direct investment countries 1997 and 2007 (billions of US dollars) Economy Value of inward DI in 1997 Economy Value of inward DI in 2007 United States 824 2,423 France400France1,617 United Kingdom 287Luxembourg1,482 China: Hong Kong 249 United Kingdom 1,348 Germany191 China: Hong Kong 1,185 Canada136Germany857 Belgium129Belgium747 Netherlands122 China, PR, Mainland 742 Australia101Netherlands705 Spain100Spain571 Total top ten 2,539 11,677

Top 10 outward direct investment countries 1997 and 2007 (billions of US dollars) Economy Value of outward DI in 1997 Economy Value of outward DI in 2007 United States 1,068 3,333 France599France2,449 United Kingdom 384 1,705 Germany296Luxembourg1,460 Japan272Germany1,218 China, Hong Kong 236 1,027 Netherlands199Netherlands846 Switzerland165Spain687 Canada153Switzerland595 Italy131Belgium593 Total of top ten 3,502 13,913

Need for better quality data on direct investment As can be seen, value of DI transactions grown substantially As can be seen, value of DI transactions grown substantially Discrepancies between inward and outward financial transactions and between income credits and debits also grown sharply Discrepancies between inward and outward financial transactions and between income credits and debits also grown sharply In addition, many countries do not produce positions data In addition, many countries do not produce positions data

New Statistical Standards on Direct Investment Standards set in: Standards set in: Balance of Payments and International Investment Position Manual, sixth edition (BPM6)Balance of Payments and International Investment Position Manual, sixth edition (BPM6) OECD Benchmark Definition of Foreign Direct Investment, fourth edition (BD4)OECD Benchmark Definition of Foreign Direct Investment, fourth edition (BD4) 2008 SNA follows these standards2008 SNA follows these standards

Coordinated Direct Investment Survey (CDIS) CDIS designed to improve quality of statistics on direct investment positions, for both inward and outward CDIS designed to improve quality of statistics on direct investment positions, for both inward and outward Data for end 2009 Data for end 2009 To be broken down by: To be broken down by: Equity and debtEquity and debt Counterpart countryCounterpart country Improved data expected to lead to better quality data on transactions and income Improved data expected to lead to better quality data on transactions and income

Coordinated Direct Investment Survey (CDIS) (continued) 130 jurisdictions indicated a willingness to participate (though actual participation may be lower) 130 jurisdictions indicated a willingness to participate (though actual participation may be lower) Preliminary data to be reported to IMF by end September 2010 Preliminary data to be reported to IMF by end September 2010 In some cases, only regional totals may be availableIn some cases, only regional totals may be available Expected initial release end-2010/early 2011 Expected initial release end-2010/early 2011 Revised data to be reported to IMF end-March 2011 Revised data to be reported to IMF end-March 2011 Expected release mid-2011 Expected release mid-2011 Decision to conduct on annual basis yet to be taken Decision to conduct on annual basis yet to be taken

Coordinated Direct Investment Survey (CDIS) (continued) IMF formed Task Force on CDIS, with other I/Os and 10 jurisdictions IMF formed Task Force on CDIS, with other I/Os and 10 jurisdictions Task Force provided advice to IMF in preparation of CDIS Guide Task Force provided advice to IMF in preparation of CDIS Guide Guide placed on IMF website at: ndex.htm Guide placed on IMF website at: ndex.htm ndex.htm ndex.htm Available in Arabic, Chinese, French, Russian, and Spanish, as well as English Available in Arabic, Chinese, French, Russian, and Spanish, as well as English

Coordinated Direct Investment Survey (CDIS) (continued) Guide sets out: Guide sets out: conceptual bases of direct investmentconceptual bases of direct investment valuation principles to be usedvaluation principles to be used For equity: For equity: market value for listed enterprises market value for listed enterprises own funds at book value for unlisted enterprises own funds at book value for unlisted enterprises For debt securities: market price For debt securities: market price For all other debt: nominal value For all other debt: nominal value provides model survey forms and other practical suggestions for countries new to conducting surveysprovides model survey forms and other practical suggestions for countries new to conducting surveys

Coordinated Direct Investment Survey (CDIS) (continued) Problems in undertaking CDIS include: Problems in undertaking CDIS include: Development of business registerDevelopment of business register BRs used in most business surveys may not be appropriate for direct investment as they do not collect data to determine whether entity is in direct investment relationship BRs used in most business surveys may not be appropriate for direct investment as they do not collect data to determine whether entity is in direct investment relationship Business records may not be maintained on basis to readily extract data requiredBusiness records may not be maintained on basis to readily extract data required Many countries rely on banking transactions data to develop statistics on direct investment so are unaccustomed to conducting surveys and do not have BRsMany countries rely on banking transactions data to develop statistics on direct investment so are unaccustomed to conducting surveys and do not have BRs

Coordinated Direct Investment Survey (CDIS) (continued) CDIS should provide better data on “fellow” enterprises, that is, those without a 10 percent equity investment in each other but which are in a direct investment relationship because they have a common investor CDIS should provide better data on “fellow” enterprises, that is, those without a 10 percent equity investment in each other but which are in a direct investment relationship because they have a common investor

Coordinated Direct Investment Survey (CDIS) (continued) Use of different concept of units may pose statistical comparability problems Use of different concept of units may pose statistical comparability problems Enterprise or Local enterprise group Enterprise or Local enterprise group For fellows, where ultimate controlling parent is nonresident, direct investment considered to be inward, even if negativeFor fellows, where ultimate controlling parent is nonresident, direct investment considered to be inward, even if negative Where ultimate controlling parent is resident, direct investment considered to be outward, even if negativeWhere ultimate controlling parent is resident, direct investment considered to be outward, even if negative Depending on which unit used, direct investment may be reported as either inward or outward Depending on which unit used, direct investment may be reported as either inward or outward