4.1 The BPM5 and the Benchmark define the concept of foreign direct investment as international investment by an entity resident in one economy in an enterprise resident in another economy that is made with the objective of obtaining a lasting interest. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction that establishes the relationship between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.
4.2 According to the Benchmark and the BPM5, a direct investment enterprise is an incorporated or unincorporated enterprise in which a direct investor that is resident of another economy has 10 percent or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). The direct investor may be an individual, an incorporated or unincorporated private or public enterprise, a government, or an associated group of individuals or enterprises that has a direct investment enterprise in an economy other than that in which the direct investor resides. The ownership of 10 percent of ordinary shares or voting power is the criterion for determining the existence of a direct investment relationship.
4.3 Although the 10 percent equity ownership is specified in the Benchmark and the BPM5, some countries have chosen to permit two types of qualifications to that criterion. First, if a direct investor owns less than 10 percent of an enterprise but has an effective voice in management, the transactions between the investor and the enterprise are included in the FDI statistics. Second, if the investor owns 10 percent or more of the equity of the enterprise but does not have an effective voice in management, the enterprise is excluded from the FDI statistics. The application of these two qualifications is not recommended by the Benchmark or by the BPM5.
4.4 The next two sections present information on the extent to which the 61 countries that participated in the 2001 SIMSDI update follow the international standards for identifying direct investment enterprises and direct investors resident in the reporting economy. The third section provides information on the ways in which the countries account for indirectly owned direct investment enterprises in their FDI statistics. In these sections and the rest of the report, the practices of specific countries are compared against the international standards. The survey instrument provided no basis for determining the materiality (or significance) of any particular country's deviation from the standards. In some cases, a deviation may seriously impair international comparisons; in others, it may have little impact.
4.5 Table 4.1 shows the number of countries in 1997 and 2001 that use the 10 percent ownership threshold to identify direct investment enterprises resident in their economy (the inward FDI statistics), as well as those countries that use other qualifications to identify direct investment enterprises, and indicates the changes since 1997. Tables 15 and 16 of Appendix I provide details by country for 2001 for the inward transactions and inward position data.
4.6 The results of the 2001 update indicate that while an additional five countries now apply the 10 percent ownership threshold as their basic criterion, nine countries still use a criterion different from this to identify direct investment enterprises resident in their economies-the same number as in 1997. The table also indicates that 10 countries still include enterprises in which the nonresident direct investor owns less than 10 percent but has an effective voice in manage- ment-a decrease of only two countries since 1997. However, only three countries now exclude those enterprises in which the direct investor owns more than 10 percent but does not have an effective voice in management, and only six still use a value threshold. Five countries still treat unincorporated enterprises differently from incorporated enterprises (the same number as in 1997).
Table 4.1. Definitions Used for Identifying Direct Investment Enterprises Resident in the Reporting Economy (Inward FDI Transactions Data)
|Countries That Apply the 10% Ownership Threshold but Use an Additional Qualification to the Threshold|
|Number of Countries||Countries That Apply the 10% Ownership Threshold as Their Basic Criterion||Countries That Apply a Percentage of Ownership Different from the 10% Threshold||Countries that include enterprises in which the investor owns less than 10%, but has an effective voice in management||Countries that exclude enterprises in which the investor owns more than 10%, but has no effective voice in management||Countries That Apply a Value Threshold to Identify FDI Enterprises||Countries That Apply Different Treatments for Incorporated and Unincorporated FDI Enterprises|
|Total 2001 (61)||55||9||10||3||6||5|
|Total 1997 (61)||50||9||12||5||12||5|
|OECD 2001 (30)||28||2||6||2||4||2|
|OECD 1997 (29)||24||6||7||2||4||3|
|Other 2001 (31)||27||7||4||1||2||3|
|Other 1997 (32)||26||3||5||3||8||2|
4.7 Table 15 of Appendix I shows that although 28 of the 29 OECD countries that compile inward FDI transactions data use the 10 percent equity ownership threshold as their basic...