Direct Investment Capital

Pages:35-42
SUMMARY

Components of Direct Investment Capital. Items Included in Equity Capital. OECD countries. Other countries. Items Included in Other Capital. OECD countries. Other countries. Transactions Between Affiliated Banks and Between Affiliated Financial Intermediaries. OECD countries. Other countries. Reverse Investment. Treatment of Reverse Investment When the FDI Relationship Is in One Direction Only.... (see full summary)

 
INDEX
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6.1 Direct investment capital is capital provided by a direct investor, either directly or through other direct investment enterprises related to that investor, to a direct investment enterprise. Conversely, direct investment capital is capital received by a direct investor from a direct investment enterprise. Direct investment capital includes equity capital, reinvested earnings, and other capital involving various inter-company debt transactions. Direct investment capital includes only funds actually provided; funds for which the direct investor merely makes the arrange-ments or guarantees repayment are not considered to be direct investment capital.

Components of Direct Investment Capital

6.2 Equity capital covers equity in branches, shares (whether voting or nonvoting) in subsidiaries and associates, and other capital contributions (such as the provision of machinery by a direct investor to a direct investment enterprise) that constitute part of the capital of the direct investment enterprise. Equity capital also covers the acquisition by a direct invest-ment enterprise of shares in its direct investor. How-ever, nonparticipating preference shares are not part of equity capital but are treated as debt securities and classified as other direct investment capital. Purchas-es and sales of land and buildings by nonresidents are also included in the equity capital component.

6.3 Reinvested earnings are the direct investors' shares (in proportion to equity held) of the undistrib-uted earnings of the direct investment enterprises. Reinvested earnings are considered to be additional capital of the direct investment enterprises. They are recorded as direct investment income, with an offset-ting capital transaction.

6.4 Other capital (or intercompany debt transac-tions) covers the borrowing and lending of funds, including debt securities and trade credits, between direct investors and direct investment enterprises, and between two direct investment enterprises resident in different countries that share the same direct investor. Debt claims on the direct investor by the direct invest-ment enterprise are also included as direct investment other capital. As indicated above, nonparticipating preference shares are treated as debt securities and are therefore classified as other capital.

Items Included in Equity Capital

6.5 Table 6.1 shows the numbers of countries in 1997 and 2001 that include the recommended items in their inward FDI equity capital transactions data. Table 28 of Appendix I shows the details for 2001 by country for the inward and outward transactions data, while Table 29 of Appendix I shows the coun-try details for the inward and outward position data. Table 6.1 indicates that since 1997 there has been a small increase in the number of countries that include both voting and nonvoting shares and a more marked increase in the number of countries that include noncash acquisitions of equity, such as through the provision of equipment.

Table 6.1. Equity Capital: Items Included in the Inward FDI Transactions Data

Number of Countries Transactions in Voting and Nonvoting Stocks (Shares) Noncash Acquisition of Equity
Total 2001 (61) 52 51
Total 1997 (6l) 51 40
Change + 1 +11
OECD 200l (30) 28 24
OECD l997 (29) 28 19
Other 200l (3l) 24 27
Other 1997 (32) 23 21

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OECD countries

6.6 Of the 29 OECD countries that compile FDI transactions data, all except Korea include both vot-ing and nonvoting shares in their inward equity capital transactions data. Korea includes listed and unlist-ed voting shares but not other nonvoting stocks, including participating preference shares. Twenty-four of the 29 OECD countries that compile transac-tions data also include noncash acquisitions of capi-tal-an increase of 5 countries. The five countries that still do not include these acquisitions are the Czech Republic, Greece, Hungary, New Zealand, and Turkey. A similar situation applies for the outward transactions data and for the inward and outward position data. The exceptions are that (1) Greece and Hungary, which do not include noncash acquisitions of equity for their FDI transactions data, nevertheless include them in their FDI position data; (2) Mexico does not compile outward FDI transactions and posi-tion data; and (3) Korea and Turkey do not compile inward or outward FDI position data.

Other countries

6.7 All but 1 of the 29 countries that compile inward FDI equity capital transactions data include listed and unlisted voting shares in their data. The excep-tion is Guatemala. In addition, the data for the Philippines cover only direct purchases of shares not transacted through the stock exchange. Four coun-tries that include both listed and unlisted voting shares do not include other nonvoting shares, includ-ing participating preference shares-these countries include Croatia, Ecuador1, and Kazakhstan. Twenty-seven of the 29 countries also include noncash acqui-sitions of capital-an increase of 6 countries and a higher proportion of the total than for the OECD countries (93 percent compared with 83 percent). The two countries that still do not include these non-cash acquisitions in their inward FDI equity capital transactions data are Guatemala and Thailand. For the outward transactions data, one country (Guatemala) does not include listed or unlisted voting stocks, three countries (including Croatia and Peru) do not include other nonvoting shares,1 and four countries (Guatemala, Peru, the Philippines, and Thailand) do not include noncash acquisitions of capital.

6.8 All of the 21 countries that compile inward FDI position data include noncash acquisitions of equity and listed voting shares. One country, Bolivia, does not include unlisted voting shares, and five do not include other nonvoting shares (including Croatia, Ecuador, Kazakhstan, and Peru). All but 3 of the 21 countries that compile outward FDI equity capital position data include noncash acquisitions of equi-ty-the exceptions being Bolivia, Peru, and Thai-land-and four countries (including Bolivia, Croatia, and Peru) do not include other nonvoting shares. All but 1 of the 21 countries (Bolivia) include listed and unlisted voting shares.

Items Included in Other Capital

6.9 Table 6.2 gives the results of the 2001 update regarding the items that countries include in their inward FDI transactions data on other capital and compares these numbers with the situation in 1997. Tables 30 through 33 of Appendix I give the details by country for the inward and outward FDI transactions and position data.

Table 6.2. Other Capital: Items Included in the Inward FDI Transactions Data

Number of Countries Bonds and Money Market Instruments Long-Term Loans Short-Term Loans Financial Leases Trade Credits Financial Derivatives
Total 2001 (61) 32 56 51 34 40 13
Total 1997 (61) 25 45 41 23 32 12
Change 7 11 10 11 8 1
OECD 2001 (30) 17 28 27 16 20 7
OECD 1997 (29) 14 25 23 13 17 6
Other 2001 (31) 15 28 24 18 20 6
Other 1997 (32) 11 20 18 10 15 6

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OECD countries

6.10 As indicated in Table 6.2, there have been improvements for all items since 1997, and now all of the 28 OECD countries that compile inward FDI statistics on other capital transactions include long- term loans in their data, and all but Korea include short-term loans. Korea is the only OECD country that includes only long-term loans in both its inward and outward FDI statistics on other capital transactions, but two other OECD countries (Denmark and France) include only long-term and short-term loans in their inward and outward FDI transactions data. In addition, 8 countries do not include trade credits, 10 of the 27 countries for which these transactions are applicable do not include bonds and money market instruments, and 12 do not include financial leases in their inward FDI transactions data. As Table 30 of Appendix I indicates, only 12 OECD countries include in their inward transactions data on other capital all the relevant debt instruments 2 -Australia, Canada, Finland, Greece, Ireland, Italy, New Zealand, Portugal, the Slovak Republic, Sweden, Switzerland, and the United States. Table 30 also indicates that 1 of the 28 OECD countries (Canada) does not follow the recommendation of the international standards to exclude loans that have been merely guaranteed and that three countries (Canada, Ireland, and the United States) do not follow the recommendation to exclude insurance company technical reserves.

Other countries

6.11 As with the OECD countries, there have been improvements for all applicable items since...

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