Direct investment for 2009-2011: detailed historical-cost positions and related financial and income flows.

Lowe, Jeffrey H.

THIS article presents detailed statistics on direct investment positions at historical cost (book value) and related financial and income flows for U.S. direct investment abroad--or "outward direct investment"--and for foreign direct investment in the United States--or "inward direct investment." Summary statistics on services transactions with foreign affiliates and foreign parent companies are also presented. (1) (For definitions, see the box "Key Terms.") These statistics complement the statistics presented in two articles in the July 2012 SURVEY OF CURRENT BUSINESS by providing more detail by country, industry, and account. (2) For 2009-11, the statistics reflect the incorporation of new or revised data from BEA's quarterly surveys of transactions between parents (both U.S. and foreign) and their affiliates, and annual surveys of financial and operating data of U.S. parent companies and their foreign affiliates and of U.S. affiliates of foreign companies.

The statistics in this article differ from some of the counterpart statistics in the international investment position and international transactions accounts. (3)

* These statistics are presented at historical cost, which is the only valuation method for which detailed statistics by country and industry are available. In contrast, the aggregate statistics on the direct investment position in the international investment position accounts are presented at current cost and at market value.

* These statistics are presented without a current-cost adjustment. In contrast, the statistics on direct investment income (in the current account) and direct investment financial flows (in the financial account) in the U.S. international transactions accounts are presented with a current-cost adjustment.

Direct Investment Tables

Following this article, two sets of tables are presented--one set for outward direct investment (tables 1-16) and one set for inward direct investment (tables 1-17). In each set, tables 1-15 present similar data.

* Table 1 shows the direct investment positions and rates of return at historical cost, current cost, and market value.

* Table 2 presents the positions and related financial, income, and services flows for 2000-2011 at historical cost and as they are presented in the international investment position accounts and international transactions accounts.

* Tables 3-16 present direct investment positions and international transactions by country of foreign affiliate or foreign parent, by industry of affiliate, and by account. For outward direct investment, table 16 presents statistics that are classified not only by industry of affiliate but also by industry of U.S. parent. For inward direct investment, table 16 presents statistics that are classified not only by country of foreign parent but also by country of ultimate beneficial owner (UBO).

* Table 17 (for inward direct investment) provides a breakdown of the foreign direct investment position in the United States by industry of the UBO of the U.S. affiliate. It shows the value of investments owned by private entities (businesses and individuals, estates, and trusts) and the value owned by foreign governments and government-related entities.

Revisions

Outward direct investment

The revised statistics on the U.S. direct investment position abroad at yearend, financial flows, and income reflect the incorporation of revised data from quarterly surveys of transactions between U.S. parents and their foreign affiliates and information from annual surveys of financial and operating data of foreign affiliates.

As noted in the July 2012 SURVEY article on direct investment positions, the total outward direct investment position at historical cost for all areas was revised down $28.4 billion for 2009 and $117.3 billion for 2010 (table A). The downward revision for 2009 resulted from similar-size downward revisions to financial outflows without current-cost adjustment and to valuation adjustments. (4) The downward revision for 2010 resulted from a sizable downward revision to 2010 valuation adjustments, the downward revision to the position for 2009, and a downward revision to 2010 financial outflows.

Financial outflows without current-cost adjustment were revised down $15.7 billion for 2009 and $24.5 billion for 2010, and they were revised up $12.8 billion for 2011. For 2009, the revision resulted from downward revisions to reinvested earnings and to equity investment. For 2010, almost half of the downward revision was accounted for by a downward revision to intercompany debt investment; the remainder was almost equally divided between equity investment and reinvested earnings. For 2011, the upward revision was more than accounted for by an upward revision to intercompany debt investment that was partly offset by a downward revision to equity investment.

Data Availability

Detailed statistics on the outward direct investment position and related financial and income flows for 1982-2011 and detailed statistics on the inward direct investment position and related financial and income flows for 1980-2011 are available on BEA's Web site at www.bea.gov under "International" and "Direct Investment and Multinational Companies."

Income without current-cost adjustment was revised up for all 3 years--albeit only slightly for 2009, up $13 million. It was revised up $11.0 billion for 2010 and $2.7 billion for 2011. In all 3 years, the revisions resulted from upward revisions to earnings; interest receipts were revised down in 2009 and 2010 and revised up only slightly in 2011.

Inward direct investment

The revised statistics on the foreign direct investment position in the United States at yearend, financial flows, and income reflect the incorporation of revised data from the quarterly surveys of transactions between U.S. affiliates and their foreign parents and information from annual surveys of financial and operating data of U.S. affiliates.

As noted in the July 2012 SURVEY article on direct investment positions, the total inward direct investment position at historical cost for all areas was revised down $45.1 billion for 2009, and down $78.4 billion for 2010 (table B). For 2009, the downward revision was mainly attributable to a downward revision to valuation adjustments and, to a lesser extent, a downward revision to financial inflows. (5) For 2010, the downward revision was the result of the downward revision to the 2009 position, a downward revision to financial inflows for 2010, and a much smaller downward revision to valuation adjustments for 2010.

Financial inflows without current-cost adjustment were revised down $9.3 billion for 2009 and $30.3 billion for 2010, and they were revised up $7.0 billion for 2011. For 2009, the downward revision resulted from downward revisions to both intercompany debt investment and equity investment that were partly offset by an upward revision to reinvested earnings. For 2010, the downward revision reflected downward revisions to reinvested earnings and intercompany debt investment that were partly offset by an upward revision to equity investment. For 2011, the upward revision was more than accounted for by an upward revision to equity investment; intercompany debt investment was also revised up, but to a much lesser extent.

Income without current-cost adjustment was revised up $9.7 billion for 2009 and it was revised down $5.2 billion for 2010 and $1.1 billion for 2011. For 2009 and 2010, the revisions were almost entirely attributable to revisions to affiliates' earnings. For 2011, the downward revision mostly reflected a downward revision to interest payments.

Acknowledgments

The statistics on the U.S. direct investment position abroad and related financial and income flows are based largely on data from BEA's quarterly surveys of transactions between U.S. parent companies and their foreign affiliates. The surveys were conducted under the supervision of Mark W. New, who was assisted by Iris Branscome, David L. Grayton, Marie K. Laddomada, Sherry Lee, Louis C. Luu, Leila C. Morrison, Elizabeth A. Ocalan, and Dwayne Torney. Computer programming for data estimation and tabulation was provided by Marie Colosimo and Kevin R. Smith.

The statistics on the foreign direct investment position in the United States and related financial and income flows are based largely on data from BEA's quarterly survey of transactions between U.S. affiliates of foreign companies and their foreign parents. The survey was conducted under the supervision of Jessica M. Hanson, who was assisted by Eric A. Bryda, Peter J. Fox, Edward J. Kozerka, Susan M. LaPorte, Robert L. Rosholt, and Helen P. Yiu. Computer programming for data estimation and tabulation was provided by Karen E. Poffel and Paula D. Brown.

The statistics on royalties and license fees and other private services (shown in table 2) are based largely on data from BEA's quarterly surveys of transactions in selected services and intangible assets with foreign persons. The surveys were conducted under the supervision of Christopher J. Emond, who was assisted by Pamela Aiken, Suhail Ally, Felix Anderson, Stacey Ansell, Damon C. Battaglia, Annette Boyd, Faith M. Brannam, Jamela Des Vignes, Hope R. Jones, Eddie L. Key, Kiesha Middleton, Steven J. Muno, Mark Samuel, and Clifton Tillman. Computer programming for data estimation and tabulation was provided by Tracy Leigh. Jeffrey Bogen, Lori Chang, Anne Flatness, C. Omar Kebbeh, John Sondheimer, and Gregory Tenentes were also involved in the preparation of the estimates.

Key Terms

For a more detailed discussion of the terms in this box, see the methodologies in Foreign Direct Investment in the United States: Final Results From the 2007 Benchmark Survey and U.S. Direct Investment Abroad: Final Results From the 2004 Benchmark Survey. These methodologies are available on BEA's Web site at www.bea.gov. Under "International," click on the "Methodologies" tab, then click on the "Direct Investment and MNCs" tab.

Direct investment

This is investment in which a resident (in the broad legal sense, including a person or company) of one country obtains a lasting interest in, and a degree of influence over, the management of a business enterprise in another country. In the United States and in the international statistical guidelines, the criterion used to define direct investment is ownership of at least 10 percent of the voting securities of an incorporated business enterprise or the equivalent interest in an unincorporated business enterprise.

U.S. direct investment abroad (outward direct investment) represents the ownership or control, directly or indirectly, by one U.S. resident, the U.S. parent, of at least 10 percent of a foreign business enterprise, which is called a foreign affiliate.

Foreign direct investment in the United States (inward direct investment) represents the ownership or control, directly or indirectly, by one foreign resident, the foreign parent, of at least 10 percent of a U.S. business enterprise, which is called a U.S. affiliate. Foreign direct investment includes net equity and net debt investments by the foreign parent, and net debt investment by any other members of the foreign parent group. The foreign parent group consists of (1) the foreign parent, (2) any foreign person (including a company), proceeding up the foreign parent's ownership chain, that owns more than 50 percent of the person below it, up to and including the ultimate beneficial owner (UBO), and (3) any foreign person, proceeding down the ownership chain(s) of each of these members, that is owned more than 50 percent by the person above it.

The UBO of a U.S. affiliate is the first person, proceeding up the affiliate's ownership chain, beginning with the foreign parent, which is not more than 50 percent owned by another person. The UBO ultimately owns or controls the affiliate and derives the benefits and assumes the risks associated with ownership or control. Unlike the foreign parent, the UBO of a U.S. affiliate may be located in the United States.

Direct investment position

This is the value of direct investors' equity in, and net outstanding loans to, their affiliates. The direct investment position may be viewed as the direct investors' net financial claims on their affiliates. BEA reports statistics on the positions for outward direct investment and inward direct investment at historical cost, current cost, and market value. This article features the historical-cost measure, which is principally derived from the financial accounting records of affiliates and generally reflects the acquisition cost of the investments, cumulative reinvested earnings, and cumulative depreciation of fixed assets. For additional information, see the box "Alternative Measures of the Direct Investment Positions" in Barefoot and Ibarra-Caton, 20.

Direct investment financial flows result from transactions that change financial claims (assets) and liabilities between U.S. parents and their foreign affiliates or between U.S. affiliates and their foreign parents. Financial outflows result from transactions that increase U.S. assets or decrease U.S. liabilities. Financial inflows result from transactions that decrease U.S. assets or increase U.S. liabilities. Direct investment financial flows consist of equity investment, intercompany debt investment, and reinvested earnings.

Equity investment is the difference between equity increases and decreases, Equity increases result from parents' (1) establishments of new affiliates, (2) payments to unaffiliated parties for the purchase of capital stock or other equity interests when they acquire an existing business, (3) payments to acquire additional ownership interests in their existing affiliates, and (4) capital contributions to their existing affiliates. Equity decreases are the funds parents receive when they reduce their equity interests in their affiliates.

Intercompany debt investment results from changes in outstanding loans between parents (or for inward investment, other foreign parent group members) and their affiliates, including loans by parents to affiliates and loans by affiliates to parents.

Reinvested earnings (without current-cost adjustment) are the parents' share of the current-period operating earnings of their affiliates, less distributions of earnings that affiliates make to their parents. In the international transactions accounts, reinvested earnings include a current-cost adjustment that reflects current-period prices. The current-cost adjustment converts depreciation charges to a current-cost, or replacement-cost, basis; it adds charges for depletion of natural resources back to income and reinvested earnings because these charges are not treated as production costs in the national income and product accounts; and it reallocates expenses for mineral exploration and development across periods so that they are written off over their economic lives rather than all at once.

Various valuation adjustments to the historical-cost position are made to account for the differences between changes in the historical-cost positions, which are measured at book value, and direct investment financial flows, which are measured at transaction value. However, unlike the positions on current-cost and market-value bases, the historical-cost position is not usually adjusted to account for changes in the replacement cost of the tangible assets of affiliates or in the market value of parent companies' equity in affiliates.

Valuation adjustments to the historical-cost position consist of currency-translation adjustments and "other" adjustments. Currency-translation adjustments account for changes in the exchange rates used to translate affiliates' foreign-currency-denominated assets and liabilities into U.S. dollars. "Other" valuation adjustments account for (1) differences between the proceeds from the sale or liquidation of affiliates and their book values, (2) differences between the purchase prices of affiliates and their book values, (3) writeoffs resulting from uncompensated expropriations of affiliates, (4) the reclassification of investment positions between direct investment and other investment, and (5) capital gains and losses on transactions, excluding currency-translation adjustments, such as the sale of assets, excluding inventories, or capital gains and losses that represent the revaluation of the assets of ongoing affiliates for reasons other than exchange-rate changes, such as the write-down of assets. In addition, if an affiliate's industry classification changes, offsetting valuation adjustments are made to move the position from the former to the current industry. Offsetting adjustments are also made when the political boundaries of a country change and results in the change in the country of the affiliate, and for inward direct investment, when transactions between foreign residents result in a change in the country of the foreign parent.

Direct investment income (without current-cost adjustment)

This is the return on the direct investment position. It consists of (1) earnings, that is, the parents' shares in the net income from the operations of their affiliates, and (2) net interest received by parents (or foreign parent groups) from affiliates from outstanding loans and trade accounts. As in the case of reinvested earnings (see above), in the international transactions accounts, direct investment income includes a current-cost adjustment that reflects current-period prices.

Services transactions

These are receipts and payments between parents and their affiliates for services provided by one to the other. They consist of royalties and license fees for the use, distribution, or sale of intangible property or rights (including patents, trademarks, copyrights, and other intellectual property) and other private services (consisting of service charges, including management fees and allocated expenses, and rentals for tangible property).

(1.) Global totals (all countries and all industries) for royalties and license fees and other private services are shown in table 2 (for U.S. direct investment abroad, see page 33 and for foreign direct investment in the United States, see page 68). Breakdowns by country and by industry are not included in this presentation. Country detail and detail by type of service or intangible asset will be available in the October SURVEY OF CURRENT BUSINESS article on U.S. international services.

(2.) See Kevin B. Barefoot and Marilyn Ibarra-Caton, "Direct Investment Positions for 2011: Country and Industry Detail," SURVEY 92 (July 2012): 19-34 and Jeffrey R. Bogen and Jessica M. Hanson, "Annual Revision of the U.S. International Transactions Accounts," SURVEY 92 (July 2012): 35-46.

(3.) See Elena L. Nguyen, "The International Investment Position of the United States at Yearend 2011," SURVEY 92 (July 2012): 9-18 and Sarah P. Scott, "U.S. International Transactions: First Quarter of 2012," SURVEY 92 (July 2012): 50-97.

(4.) Financial flows without current-cost adjustment consist of reinvested earnings without current-cost adjustment and equity and intercompany debt investment. Financial outflows increase the U.S. direct investment position abroad and financial inflows reduce the position.

(5.) Financial inflows increase the foreign direct investment position in the United States and financial outflows reduce the position.

Table A. U.S. Direct Investment Abroad: Comparison of Previously
Published and Revised Estimates by Area, 2009-2011

[Millions of dollars]

 Direct investment position
 on a historical-cost basis

 Previously
By area published Revised Revision

 2009

 All areas 3,547,038 3,518,655 -28,383
Canada 266,577 265,326 -1,251
Europe 2,005,931 1,987,278 -18,653
 Of which:
 United Kingdom 458,536 487,604 29,068
Latin America and Other Western
 Hemisphere 676,183 695,754 19,572
Africa 43,575 43,018 -557
Middle East 36,257 35,004 -1,253
Asia and Pacific 518,516 492,275 -26,241

 2010

 All areas 3,908,231 3,790,918 -117,313
Canada 296,691 289,535 -7,155
Europe 2,185,898 2,102,834 -83,064
 Of which:
 United Kingdom 508,369 514,887 6,518
Latin America and Other Western
 Hemisphere 724,405 747,784 23,380
Africa 53,522 53,412 -109
Middle East 36,573 34,739 -1,834
Asia and Pacific 611,143 562,613 -48,530

 2011 (1)

 All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
 Of which:
 United Kingdom ... ... ...
Latin America and Other Western
 Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...

 Financial outflows without
 current-cost adjustment
 (inflows (-))

 Previously
By area published Revised Revision

 2009

 All areas 282,686 266,955 -15,731
Canada 12,038 10,170 -1,868
Europe 162,971 159,387 -3,584
 Of which:
 United Kingdom 23,930 27,638 3,708
Latin America and Other Western
 Hemisphere 69,899 60,596 -9,303
Africa 8,652 9,447 795
Middle East 4,742 4,870 128
Asia and Pacific 24,384 22,484 -1,900

 2010

 All areas 328,905 304,399 -24,505
Canada 27,085 28,398 1,313
Europe 175,260 186,857 11,597
 Of which:
 United Kingdom 49,989 47,087 -2,903
Latin America and Other Western
 Hemisphere 51,923 44,533 -7,390
Africa 8,314 9,281 968
Middle East -63 -276 -213
Asia and Pacific 66,386 35,606 -30,780

 2011 (1)

 All areas 383,836 396,656 12,820
Canada 42,532 40,410 -2,122
Europe 202,233 224,295 22,062
 Of which:
 United Kingdom 29,189 36,799 7,610
Latin America and Other Western
 Hemisphere 87,169 84,540 -2,629
Africa 5,728 5,127 -601
Middle East 3,328 846 -2,482
Asia and Pacific 42,846 41,439 -1,407

 Income without
 current-cost adjustment

 Previously
By area published Revised Revision

 2009

 All areas 335,283 335,297 13
Canada 16,772 15,409 -1,363
Europe 178,380 175,828 -2,552
 Of which:
 United Kingdom 26,605 29,329 2,725
Latin America and Other Western
 Hemisphere 75,497 76,665 1,168
Africa 5,183 5,409 226
Middle East 4,933 4,988 54
Asia and Pacific 54,518 56,998 2,480

 2010

 All areas 409,555 420,566 11,011
Canada 29,586 30,326 741
Europe 198,567 209,893 11,326
 Of which:
 United Kingdom 26,359 28,182 1,823
Latin America and Other Western
 Hemisphere 89,883 91,843 1,959
Africa 7,305 7,221 -84
Middle East 9,168 9,224 56
Asia and Pacific 75,046 72,059 -2,987

 2011 (1)

 All areas 454,847 457,562 2,715
Canada 39,333 40,729 1,396
Europe 208,811 212,760 3,950
 Of which:
 United Kingdom 28,517 31,798 3,281
Latin America and Other Western
 Hemisphere 100,880 99,603 -1,277
Africa 8,525 8,520 -5
Middle East 15,663 15,226 -437
Asia and Pacific 81,635 80,723 -912

(1.) The only accounts for which 2011 statistics were previously
available by country were financial outflows without current-cost
adjustment and income without current-cost adjustment, The estimates
of the direct investment positions for 2011 are preliminary and were
first published in the July 2012 SURVEY OF CURRENT BUSINESS.

Table B. Foreign Direct Investment in the United States: Comparison
of Previously Published and Revised Estimates by Area, 2009-2011

[Million of dollars]

 Direct investment position
 on a historical-cost basis

 Previously
By area published Revised Revision

 2009

 All areas 2,114,501 2,069,438 -45,062
Canada 202,303 188,943 -13,360
Europe 1,516,268 1,504,727 -11,541
 Of which:
 United Kingdom 416,139 414,590 -1,549
Latin America and Other Western
 Hemisphere 48,300 32,961 -15,339
Africa 1,205 1,225 20
Middle East 16,949 18,177 1,228
Asia and Pacific 329,475 323,404 -6,071

 2010

 All areas 2,342,829 2,264,385 -78,445
Canada 206,139 188,350 -17,789
Europe 1,697,196 1,652,599 -44,596
 Of which:
 United Kingdom 432,488 387,163 -45,325
Latin America and Other Western
 Hemisphere 60,074 59,638 -437
Africa 2,010 2,265 256
Middle East 15,407 16,452 1,045
Asia and Pacific 362,003 345,080 -16,923

 2011 (1)

 All areas ... ... ...
Canada ... ... ...
Europe ... ... ...
 Of which:
 United Kingdom ... ... ...
Latin America and Other Western
 Hemisphere ... ... ...
Africa ... ... ...
Middle East ... ... ...
Asia and Pacific ... ... ...

 Financial outflows without
 current-cost adjustment
 (inflows (-))

 Previously
By area published Revised Revision

 2009

 All areas 152,892 143,604 -9,287
Canada 35,549 30,366 -5,183
Europe 92,154 99,073 6,919
 Of which:
 United Kingdom 20,419 18,373 -2,046
Latin America and Other Western
 Hemisphere 14,344 7,990 -6,355
Africa -780 -672 107
Middle East 618 1,366 748
Asia and Pacific 11,006 5,482 -5,524

 2010

 All areas 228,249 197,905 -30,344
Canada 10,488 5,522 -4,966
Europe 173,220 150,286 -22,934
 Of which:
 United Kingdom 37,022 23,931 -13,091
Latin America and Other Western
 Hemisphere 8,637 14,545 5,908
Africa 846 1,081 235
Middle East -234 -295 -61
Asia and Pacific 35,292 26,766 -8,526

 2011 (1)

 All areas 219,957 226,937 6,980
Canada 15,809 18,661 2,852
Europe 142,067 132,568 -9,499
 Of which:
 United Kingdom -1,370 46,799 48,169
Latin America and Other Western
 Hemisphere 16,305 18,373 2,068
Africa 2,244 2,060 -184
Middle East 2,777 9,098 6,321
Asia and Pacific 40,754 46,176 5,422

 Income without
 current-cost adjustment

 Previously
By area published Revised Revision

 2009

 All areas 88,336 97,990 9,654
Canada 6,848 4,755 -2,093
Europe 74,073 83,184 9,111
 Of which:
 United Kingdom 22,162 22,302 140
Latin America and Other Western
 Hemisphere 827 2,622 1,795
Africa -30 91 121
Middle East -228 -173 55
Asia and Pacific 6,846 7,512 666

 2010

 All areas 143,384 138,223 -5,162
Canada 11,718 11,636 -82
Europe 104,699 101,751 -2,949
 Of which:
 United Kingdom 28,983 24,978 -4,005
Latin America and Other Western
 Hemisphere 2,514 2,983 469
Africa 44 117 74
Middle East 422 -18 -440
Asia and Pacific 23,988 21,754 -2,234

 2011 (1)

 All areas 152,642 151,508 -1,134
Canada 10,099 11,082 983
Europe 113,531 112,027 -1,505
 Of which:
 United Kingdom 28,475 27,507 -968
Latin America and Other Western
 Hemisphere 4,086 4,518 432
Africa 587 512 -75
Middle East 347 1 -346
Asia and Pacific 23,992 23,368 -624

(1.) The only accounts for which 2011 statistics were previously
available by country were financial inflows without current-cost
adjustment and income without current-cost adjustment. The estimates
of the direct investment positions for 2011 are preliminary and were
first published in the July 2012 SURVEY Of CURRENT BUSINESS.