Draft OECD Benchmark Definition of FDI 4 th

Draft OECD Benchmark Definition of FDI, 4 th edition Main concepts and definitions Roger De Boeck Balance of payments © National Bank of Belgium Istanbul, 9 November 2006

Draft OECD Benchmark Definition of FDI, 4 th edition 1. Why a revision? - better reflection of the economy - better definition of FDI as an element of macro economic statistics - illustration of the impact of FDI on the economy © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition 2. Main purposes Reliable and detailed statistics Interpretability Quality Detail Practicability Costs Confidentiality © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition Clarification of the definitions/concepts User friendly Accessibility Comprehensiveness Utility Illustration Examples Practices © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition Consistensy with other International aggregates Balance of payments Manual - IMF System of National accounts - UN © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition 3. Basic concepts and definitions What is a foreign direct investment? BMD 3 Influence lasting interest > 10 % voting rights direct investor direct investment enterprise ordinary shares + identified deviations Draft BMD 4 Influence lasting interest > 10 % voting power + strict application © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the operational framework of FDI statistics? Direct links + Indirect links A B C A N 1 st level B 2 nd level D 3 d level C E G N F X Y N level © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the operational framework of FDI statistics? Indirect links Vertical chains Horizontal chains A A B B C C © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the operational framework of FDI statistics? BMD 3 draft BMD 4 Full consolidated system FCS Control x > 50% Influence 10% < x < 50% Ordinary shares / Voting rights Subsidiaries + Branches Associate companies Framework of direct investment relationships FDIR Control Influence Joined Control x > 50% Voting power 10% < x < 50% Voting power x > 50% Voting power Subsidiaries + Branches Subsidiaries Associate companies © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the frame of FDI statistics? Principles : • control on control = control C on C = C • influence on control = influence I on C = I • control on influence = influence C on I = I • influence on influence = EXCLUDED I on I = nihil © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the frame of FDI statistics? {} excluded © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the frame of FDI statistics? 2 accepted proxy's the equity multiplication method Multiplication of subsequent % of voting power the influence/control method 1 st level > 10% of voting power other levels : > 50% of voting power © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What is the frame of FDI statistics? Multiplication of subsequent % of voting power 1 st level > 10% of voting power other levels : > 50% of voting power A 90 % 60 % A 60 % B 15 % 90 % C 54 % D 21, 6 % E 4, 32 % 40 % 80 % D B 20 % E 80 % F C 40 % G 20 % Excluded © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition 4. Measurement of FDI What does FDI statistics contains? FDI abroad Outward FDI in the reporting economy Inward Vertical chain - Direct investor to direct investment enterprise = Assets - Direct investment enterprise to direct investor = Liabilities Horizontal chain - Direct investment enterprise to direct investment enterprise = Assets/Liabilities © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What does FDI statistics contains? Includes Initial equity transaction / position All subsequent transactions / positions © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What does FDI statistics contains? Main components Flows Reinvested earnings Dividends Interests Equity capital Loans/deposits Long term Short term Debt instruments Other assets/liabilities Positions Retained earnings Reserves © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What does FDI statistics contains? Reinvested earnings = Profit of year t - dividends paid in year t positive or ! negative ! = Retained profits + reserves in the long run © National Bank of Belgium

Draft OECD Benchmark Definition of FDI, 4 th edition What does FDI statistics contains? Country breakdown Activity breakdown Resident Non resident © National Bank of Belgium