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Benchmark Definition of FDI, 4 edition (BMD4)

OECD revises international standards

for FDI statistics

by Ayse BertrandManager, International Investment Statistic

Investment Division, Directorate for Financial and Enterprise Affairs, OECD

ayse.bertrand@oecd.org

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OECD Benchmark Definition

Prepared under the auspices of the OECD Investment Committee

Technical work conducted by the OECD experts of the Workshop of International Investment Statistics (of the Investment Committee)

First issued in 1983 and revised twice Fourth edition – forthcoming in 2008

Prepared in close co-operation with OECD Member countries, IMF, and other international institutions

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Objectives of Benchmark Definition

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

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BMD4

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)

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What do we want to measure?

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

properly2) How can we obtain FDI by type

• (M&As, greenfields, extension of capital, financial restructuring)

3) FDI according to ultimate investing/ultimate host country4) Research agenda

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Challenges for BMD4

BOPFinancial Acc.

FDI (aggr)

IIPFDI (aggr)

BMD4FDI statistics

HEGIAMNE’s

BOPCurrent Acc.

Invest. Income Development

of new

Methodologies

USERS’ PRIORITY

- Pass through investment-M&As

- UIC/IHC

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BMD4

Results of the revision1. 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

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BMD4

Selected topics

1. FDIR

2. Valuation

3. Scope of FDI statistics1. Standard features

Asset/liability principle

Directional principle and excluding SPEs

2 Supplemental featuresM&As

UIC/UHC

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FDIR

FDIR (successor of FCS) - method to identify and to determine the extent and type of DI relationships.

FDIR is based on equity investment only.

FDIR - to determine the population of direct investors and direct investment enterprises

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FDIR

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).

The ownership of 10 % or more of the voting power of a resident enterprise by a non-resident investor in a resident enterprise is the evidence of such a relationship.

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FDIR

A foreign direct investor is an entity (an institutional unit) 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:i. an individual;ii. a group of related individuals;iii. an incorporated or unincorporated enterprise;iv. a public or private enterprise;v. a group of related enterprises;vi. a government; vii. an estate, trust or other societal organisation; orviii. any combination thereof.ix. In the case where two enterprises each own 10% or more of each

other’s voting power, each is a direct investor in the other.

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FDIR

New entities included in FDIR if they meet 10% criteria.

Treatment of Collective Investment Institutions in FDI (CII)

Treatment of Non-Profit Institutions Serving Households (NPISH).

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FDIR

Basic types of affiliates:– A controlled affiliate is an enterprise in which the

investor has control of more than 50% of the voting power. (subsidiary)

– A non-controlled affiliate is an enterprise of which the investor owns of at least 10% of the voting power and no more than 50%.(associate)

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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

A

B

C

8 0 %

8 0 %

E c o n o m y 1

E c o n o m y 2

E c o n o m y 3

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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

A

B

CEc o n o m y 3

6 0 %

3 0 %

Ec o n o m y 1

Ec o n o m y 2

3 0 %

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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.

A

B

C F

E

E c o n o m y 1

E c o n o m y 2

E c o n o m y 3

3 0 %8 0 %

3 0 %

8 0 %

8 %

8 %

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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

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Scope of FDI Statistics

1) Two sets of data:

a) Aggregate FDI statistics [BPM Fin. account & OECD BMD]

b) Detailed FDI statistics = OECD BMD 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/UHC

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Genuine FDI

FDI according to immediate counterpartyProblems:

- Overstatement (Inflation) of FDI- Analytical interpretation of

origin/destination countryorigin/destination industryorigin/destination of country/industry

FDI excluding funds passing through– SPEs – according to national definition and as a part of DP

– (a typology of SPEs : under development in co-ordination with SNA

– Operating affiliates [Research agenda]

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Supplemental series

FDI by type1. 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

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Ultimate investing/host country

Example of IIC and UCIC

 

100%

100%

100%

Country C1Enterprise E1

Country C2Enterprise E2

Country C3Enterprise H1

Country C4Enterprise E3

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THANK YOU