The Need for High Quality Data on FDI in the International and National Economic Accounts

1. Agenda item 9 Issue paper 8 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

2. 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) • Operational definition: direct investor holds/acquires at least 10 percent of voting power in direct investment enterprise

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

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

5. 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 • Reinvestment of income included 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

6. Top 10 inward direct investment countries 1997 and 2007 (billions of US dollars)

7. Top 10 outward direct investment countries 1997 and 2007 (billions of US dollars)

8. Need for better quality data on direct investment • 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 • In addition, many countries do not produce positions data

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

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

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

12. Coordinated Direct Investment Survey (CDIS) (continued) • IMF formed Task Force on CDIS, with other I/Os and 10 jurisdictions • Task Force provided advice to IMF in preparation of CDIS Guide • Guide placed on IMF website at: http://www.imf.org/external/np/sta/cdis/index.htm • Available in Arabic, Chinese, French, Russian, and Spanish, as well as English

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

14. Coordinated Direct Investment Survey (CDIS) (continued) • Problems in undertaking CDIS include: • Development 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 • Business 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 BRs

15. 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

16. Coordinated Direct Investment Survey (CDIS) (continued) • Use of different concept of units may pose statistical comparability problems • Enterprise or Local enterprise group • For 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 negative • Depending on which unit used, direct investment may be reported as either inward or outward