Benchmark Definition of FDI, 4 edition (BMD4) OECD revises international standards for FDI statistics

1. Benchmark Definition of FDI, 4 edition (BMD4)OECD revises international standards for FDI statistics by Ayse Bertrand Manager, International Investment Statistic Investment Division, Directorate for Financial and Enterprise Affairs, OECD ayse.bertrand@oecd.org

2. 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

3. 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

4. BMD4 • Guiding principles for the revision • Need to consider evolving user requirements • Need for clarity • Need for continued international co-ordination to achieve harmonised standards (BPM, SNA, HEGI, MSTS, etc)

5. What do we want to measure? • Traditional FDI series - do they meet user needs? • New challenges developing meaningful presentations of FDI • Are we treating pass-through funds and capital in transit properly • How can we obtain FDI by type • (M&As, greenfields, extension of capital, financial restructuring) • FDI according to ultimate investing/ultimate host country • Research agenda

6. Challenges for BMD4 BOP Current Acc. Invest. Income HEGI AMNE’s BMD4 FDI statistics Development of new Methodologies IIP FDI (aggr) • USERS’ PRIORITY • - Pass through investment • -M&As • - UIC/IHC

7. BMD4 • Results of the revision • Existing recommendations remain unchanged and/or are reinforced, improved, clarified • Existing recommendations are modified • Replacement/removal of existing recommendations. • Introduction of new recommendations. • Research agenda

8. BMD4 Selected topics • FDIR • Valuation • Scope of FDI statistics • Standard features Asset/liability principle Directional principle and excluding SPEs • Supplemental features M&As UIC/UHC

9. 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

10. 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.

11. FDIR • Aforeign 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: • an individual; • a group of related individuals; • an incorporated or unincorporated enterprise; • a public or private enterprise; • a group of related enterprises; • a government; • an estate, trust or other societal organisation; or • any combination thereof. • 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.

12. 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).

13. 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)

14. 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

15. 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

16. 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.

17. 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) • Recent transaction price • Market capitalisation method • Net asset value (NAV) • Present value • Own funds at book value (OFBV) • Apportioning global value

18. Scope of FDI Statistics • Two sets of data: • Aggregate FDI statistics [BPM Fin. account & OECD BMD] • Detailed FDI statistics = OECD BMD • By partner country • By industry • Standard features • Asset/liability principle (Aggregate FDI) • Directional prin. & excluding funds passing through SPEs (FDI by partner and by industry ) • Supplemental features • M&As • UIC/UHC

19. Genuine FDI • FDI according to immediate counterparty Problems: - Overstatement (Inflation) of FDI - Analytical interpretation of origin/destination country origin/destination industry origin/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]

20. Supplemental series • FDI by type • M&As • Non-resident purchase /sale of existing equity (10% to 100% of the voting power) • Sub-category (above 50% of the voting power) • Other types of FDI – Research agenda • Issuance of new equity • Greenfield investment • Extension of capital • Financial Restructuring

21. Ultimate investing/host country • Example of IIC and UCIC

22. THANK YOU