Benchmark Definition of FDI, 4 edition (BMD4) OECD revises international standards for FDI statistics

Transcription

1 Benchmark Definition of FDI, 4 edition (BMD4) OECD revises international standards for FDI statistics MENA-OECD TASK FORCE ON FOREIGN DIRECT INVESTMENT STATISTICS FOR POLICY MAKING Training Seminar Bahrain Investment Center 12 December 2007 by Ayse Bertrand Manager, International Investment Statistic Investment Division, Directorate for Financial and Enterprise Affairs, OECD ayse.bertrand@oecd.org 1

2 Introduction OECD Benchmark Definition of Foreign Direct Investment (BMD4) - Introduction Main concepts/definitions Statistical units Institutional units FDI, DIE, DI FDI components Equity, RE, debt FDI Breakdowns New FDI series 2

3 OECD Benchmark Definition ¾ Who is responsible in the OECD? ¾ Prepared under the auspices of the OECD Investment Committee ¾ Technical work conducted by the OECD experts of the Workshop of International Investment Statistics (of the Investment Committee) ¾ First issued in 1983 and revised twice ¾ Fourth edition forthcoming in 2008 ¾ Prepared in close co-operation with OECD Member countries (30), observers, IMF, and other international agencies 3

4 OECD Benchmark Definition Objectives are to provide a single point of reference for FDI statistics; clear guidance for individual countries international standards considering the effects of globalisation; the basis for a comparable international economic analysis an objective basis to identify methodological differences across countries practical guidance to users of FDI statistics FDI as measures of globalisation 4

5 OECD Benchmark Definition, 4 th editions Guiding principles for the revision 1. Need to consider evolving user requirements 2. Need for clarity 3. Need for continued international co-ordination to achieve harmonised standards (BPM, SNA, HEGI, MSTS, etc) 5

6 Benchmark Definition, 4 th edition Main features Consistency with IMF BPM6 Clarification of concepts to avoid mis-interpretations Preserving reasonable degree of historical continuity New concepts, breakdowns responding to user needs New sections: uses, globalisation Glossary Transparent revision process Research agenda 6

7 OECD Benchmark Definition, 4 th edition ¾ What do we want to measure? ¾ ¾ Traditional FDI series - do they meet user needs? New challenges developing meaningful presentations of FDI 1) Are we treating pass-through funds and capital in transit properly? 2) Is it useful to improve the directional principle? 3) How can we obtain FDI by type? (M&As, greenfields, extension of capital, financial restructuring) 3) FDI according to ultimate investing/ultimate host country 4) Research agenda 7

8 Challenges for BMD4 BOP Current Acc. Invest. Income BOP Financial Acc. FDI (aggr) BMD4 FDI statistics Development of new Methodologies HEGI AMNE s IIP FDI (aggr) USERS PRIORITY -Pass through investment -Extended DP -M&As -UIC/IHC 8

9 BMD4 Results of the revision 1. Existing recommendations remain unchanged and/or are reinforced, improved, clarified 2. Existing recommendations are modified 3. Replacement/removal of existing recommendations. 4. Introduction of new recommendations. 5. Research agenda 9

10 Statistical units Economic territory & Concept of residence Same concepts as SNA and BPM Residence: fundamental for FDI Between a resident and non-resident Based on economic territory Resident of one and only one economic territory 10

11 Statistical units Economic territory What is an economy? Is it a country? Is it a legal definition? Physical presence Physical location Jurisdiction Government Centre of predominant economic interest Resident of a single econ. territory Economic or currency unions 11

12 What is considered as economic territory? Included Land area, airspace, territorial waters (incl. jurisdiction over fishing rights and rights to fuel or minerals), islands Enclaves in ROW: embassies, consulates, military basis, scientific stations, information or immigration offices, aid agencies, central bank representative offices, etc. Special zones (eg off-shore centres) Excluded Territorial enclaves used by foreign gvt. Decision needed Disputed zones 12

13 Predominant centre of economic interest Economic interest production, consumption, acquisition of assets and incurrence of liabilities, asset-holding, place of incorporation or registration, and the origin of applicable taxation and regulation. Existence of location, dwelling, place of production, or other premises Within the territory even if location is not fixed Location for 1 year or more Some entities have little or no physical presence - SPEs 13

14 Statistical Units Institutional units An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities. (SNA93 c 4.2) households (formed by persons or group of persons); legal and social entities corporations (including quasi-corporations), non-profit institutions, and government units 14

15 Enterprises An enterprise is as an institutional unit engaged in production An enterprise may be a Corporation ancillary corporation is a wholly-owned subsidiary providing services to the parent corporation: transportation, purchasing, sales and marketing, various kinds of financial or business services, computing and communications, security, maintenance, and cleaning. Unincorporated enterprise Non-profit institution, 15

16 Unincorporated business An unincorporated enterprise is a producer unit which is not a legal entity separate from the owner Its assets belong to the owner uasi-corporation unincorporated business that operates as an entity separate from its owners. branches land ownership partnerships (both limited and unlimited liability) trusts, and resident portions of multi-territory enterprises 16

17 Branch A branch is statistically identified as a quasi-corporation when it has operations over a significant period in an economic territory Features for a branch to be recognised: If the production process involves physical presence, then the operations should be physically located in that territory. If the production does not involve physical presence, operations should be recognised as being in the territory by virtue of registration or legal domicile of those operations in that territory; having substantial operations in the entity s own right subject to the income tax system existence of a complete set of accounts 17

18 Notional unit Notional unit (a kind of a quasi-corporation) is identified for statistical purposes for direct nonresident ownership of immobile non-financial assets such as land and buildings. can only be used for production in the territory in which they are located. owned by a non-resident - treated as owned by a resident notional institutional unit that is in turn owned by non-resident unit holding the legal title. 18

19 Foreign Direct Investment Foreign direct investment reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise resident in an economy other than that of the investor (direct investment enterprise). lasting interest = long-term relationship = influence on the management of the enterprise. Ownership of 10% or more of the voting power Other criteria not accepted 19

20 Foreign Direct Investment Direct investment involves both the initial equity transaction that meets the 10% threshold and all subsequent financial transactions includes inward and outward financial transactions/positions between directly and indirectly owned incorporated and unincorporated enterprises Borderline cases 20

21 Foreign Direct Investor A foreign direct investor is an entity that has acquired at least 10% of the voting power of a corporation, or equivalent for an unincorporated enterprise, resident in an economy other than its own. A direct investor could be from any sector of the economy and could be any of the following: an individual; a group of related individuals; an incorporated or unincorporated enterprise; a public or private enterprise; a group of related enterprises; a government; an estate, trust or other societal organisation; or any combination thereof 21

22 Foreign Direct Investment Enterprise A direct investment enterprise is an enterprise in which a non-resident investor owns 10% or more of the voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise Fellow enterprises : common parent but little or no equity ownership in each other 22

23 Foreign Direct Investment Relationship FDIR ¾ FDIR (successor of FCS) - method to identify and to determine the extent and type of DI relationships. ¾ FDIR is based on equity investment only. ¾ FDIR - to determine the population of direct investors and direct investment enterprises 23

24 FDIR ¾ New entities included in FDIR if they meet 10% criteria. ¾ Treatment of Collective Investment Institutions in FDI (CII) ¾ Treatment of Non-Profit Institutions Serving Households (NPISH). 24

25 FDIR Basic types of affiliates: A subsidiary is an enterprise in which the investor has control of more than 50% of the voting power. (controlled affiliate) A associate is an enterprise of which the investor owns of at least 10% of the voting power and no more than 50%.(non-controlled affiliate) 25

26 FDIR: Principles for extending the relationship through indirect ownership A series of controlled affiliates can continue as long as control exists at each stage in the ownership chain Economy 1 Economy 2 Economy 3 A B C 80% 80% 26

27 FDIR: Principles for extending the relationship through indirect ownership: Any controlled affiliate can extend the relationship to a non-controlled affiliate by owning from 10% to 50% of the voting power of that enterprise Economy 1 Economy 2 Economy 3 B 60% 30% A 30% C 27

28 FDIR: Fellow enterprises An direct investor may control or influence two enterprises which have no or little equity ownership in each other Economy 1 Economy 2 Economy 3 B 80% A 20% C 28

29 FDIR: Basis for extending the relationship through joint ownership investor and its controlled affiliates combined own +50% of the voting power of an enterprise, the owned enterprise is a controlled affiliate of the investor. Economy 1 Economy 2 Economy 3 E 30% 30% A 80% B 80% C 8% 8% F 29

30 Valuation of equity Market value = basic principle Listed equity: Listing in an organised market provides a good basis for valuing listed equity Unlisted equity (6 methods to estimate market value) i. Recent transaction price ii. Market capitalisation method iii. Net asset value (NAV) iv. Present value v. Own funds at book value (OFBV) vi. Apportioning global value 30

31 FDI components FDI positions (stock of FDI) Equity & reinvested earnings Debt (intercompany loans) FDI Financial Flows Equity Reinvestment earnings Debt instruments FDI Income Flows Earnings on equity Distributed earnings Reinvested earnings Interest (on debt instruments) 31

32 FDI Earnings according to COPC Gains or losses from valuation changes, such as inventory write-offs, write-downs, or writeups; on plant and equipment from the closure of business; writing-off of intangible assets; research and development expenditures provisions for losses on long-term contracts; X-rate gains and losses unrealised gains or losses from the revaluation of fixed assets, investments and liabilities realised gains or losses through the disposal of assets or liabilities.standard amoritization of intangible assets 32

33 FDI Components Equity Common & preferred shares (excl. nonparticipating shares) Equity in branches Capital contributions Retained earnings Debt (intercompany loans) 33

34 Scope of FDI Statistics 1) Two sets of data: a) Aggregate FDI statistics [BPM Fin. account & OECD BMD] b) Detailed FDI statistics = OECD BMD ¾ ¾ By partner country By industry 2) Standard features i. Asset/liability principle (Aggregate FDI) ii. Directional prin. & excluding funds passing through SPEs (FDI by partner and by industry ) 3) Supplemental features i. M&As ii. UIC 34

35 FDI Assets/Liabilities Direct investment assets : by a resident direct investor in its non-resident DIE reverse investment by a resident DIE in its non-resident direct investor(s) investment by a resident DIE in non-resident fellow enterprises Direct investment liabilities investment of non-resident direct investor in resident DIE reverse investment of non-resident DIE in resident direct investors investment of non-resident direct investment fellow enterprises in resident fellow enterprises 35

36 Genuine FDI FDI according to immediate counterparty Problems: - Overstatement (Inflation) of FDI - Analytical interpretation of origin/destination country origin/destination industry origin/destination of country/industry FDI excluding funds passing through SPEs according to national definition and as a part of DP (a typology of SPEs ) Operating affiliates [Research agenda] 36

37 Partner country allocation According to directional principle Reverse investment Loans between fellows enterprises Debtor/creditor principle Residence/Economic Territory/Predominant Center of Economic Interest Immediate host/investing country [IHC/IIC] Ultimate host/investing country [UHC/UIC] 37

38 Industry classification Two classifications According to the activity of the direct investment enterpries [main recommendation] According to the activity of the direct investor ISIC4 Confidentiality Parner country/industry Top top 38

39 Supplemental series FDI by type 1. M&As Non-resident purchase /sale of existing equity (10% to 100% of the voting power) Sub-category (above 50% of the voting power) 2. Other types of FDI Research agenda i. Issuance of new equity Greenfield investment Extension of capital ii. Financial Restructuring 39

40 Ultimate investing/host country Example of IIC and UCIC 100% 100%, 100% 40

41 THANK YOU 41