European Union

Foreign direct investment statistics

FDI flows experience recovery in 2011 after a downturn in 2008-2010
In 2011, EU-27 FDI flows showed signs of recovery following the recent financial and economic crisis. Outward flows of FDI increased for the first time in four years, rising by 154 % when compared with 2010. At the same time, inward flows of FDI also more than doubled compared with the previous year — up 117 %. Nevertheless, despite the large increases in EU-27 FDI flows in 2011, these gains only partially compensated the considerable declines that were recorded during the crisis (2008 to 2010). As a result, EU-27 FDI flows with the rest of the world still remained, in 2011, well below their record peaks of 2007 for both inward and outward flows.
In 2011, EU-27 investment vis-à-vis the rest of the world (extra-EU-27 flows) increased, which may reflect the start of a global economic recovery. FDI flows channelled through special purpose entities (SPE) played a significant role (as in previous years) when analysing the results for 2011.
In 2009, EU-27 FDI outflows dropped by 17 %, mainly due to a decrease of 'other capital'. This pattern continued and strengthened in 2010, as outflows fell by a further 54 %, as a result of a sharp drop in equity capital invested outside the EU-27.
Following a slight recovery in 2009, EU-27 inward flows declined sharply in 2010, falling by 56 % compared with the year before, mirroring the losses that were recorded for outflows (see Figure 1). Equity and other capital both contributed to the negative development in 2010, while reinvested earnings continued to follow a positive trend (a pattern that has been observed since 2008).
The rate of return on FDI stocks for both EU-27 outward and inward investment rose in 2010 when compared with the previous year, but remained well below the record levels of 2007 (see Figure 3).
During the period 2008 to 2010, EU-27 FDI flows were largely affected by the global financial and economic crisis. In 2010, both outward and inward flows of FDI halved when compared with the previous year. As in 2009, the decline in EU-27 investment abroad was mainly due to a sharp drop in transactions with the EU-27's main partners — the United States (down 75 % to EUR 20.9 billion) and Switzerland (down to EUR 0.9 billion — for the purpose of this article a billion is defined as a thousand million). In 2010, outward flows of FDI to offshore financial centres (OFC) also fell sharply to EUR 5.3 billion, in part due to disinvestment in central America, where some OFCs are located.
The same three partners (the United States, Switzerland and OFCs) also played a prominent role when analysing the development of inward FDI flows into the EU-27 in 2010. Flows from the United States and Switzerland declined by 51 % and 67 % respectively, while OFCs recorded a disinvestment of EUR 7.8 billion. SPEs played an important role in all of these developments.
On the other hand, there was some evidence of new partners gaining in importance for EU-27 investment. For example, EU-27 FDI outflows to Brazil tripled from 2008 to 2011 and in 2010, Brazil became the main destination for EU-27 outflows of FDI, ahead of the United States (see Table 1).
Provisional figures for 2011 show signs of a recovery in EU-27 outflows to all of the EU’s main partners, aside from Russia, where the EU-27 recorded a disinvestment of EUR 2.3 billion. EU-27 FDI with the United States, Switzerland and OFCs grew substantially, to account for 54 % of total outflows to the rest of the world in 2011 and for 73 % of total inflows.
Outward FDI to Canada dropped into disinvestment in 2010, but recovered in 2011 when investment of EUR 12.4 billion was recorded. In 2010, Canada was the second largest investor in the EU-27 (EUR 23.9 billion), but this figure was down to EUR 6.8 billion in 2011.
EU-27 investment flows with economies in south east Asia were less affected by the financial and economic crisis. There were indications of a recovery in investment levels in 2010, except for Japan, where the EU-27 recorded disinvestment in both directions (inward and outward FDI). Preliminary results for 2011 show that levels of EU-27 FDI rose further, with China (EUR 17.5 billion) and India (EUR 12.0 billion) being the main destinations for outward FDI, and Hong Kong (EUR 6.5 billion) and Japan (EUR 5.4 billion) being the main sources of inward FDI.
In 2010, Australia attracted 10 % (EUR 14.9 billion) of the EU-27’s total investment abroad, but withdrew (disinvestment) some EUR 1.9 billion of FDI from the EU-27, reversing the pattern of bilateral FDI relations that had been recorded in 2009.

EU-27 outward FDI
FDI flows can vary considerably from one year to another, as they are often influenced by large mergers and acquisitions. Luxembourg reported a large share (36 %) of EU-27 FDI outward flows (when averaged over a three-year period from 2009 to 2011), largely as a result of the importance of special purpose entities (some 85 % of Luxembourg’s total direct investment). SPEs also played an important role in some other EU Member States, especially the Netherlands and Hungary; note that the data for these two countries exclude SPEs.
Luxembourg's outgoing FDI halved in 2010 compared with 2009, though Luxembourg remained the leading EU investor in non-member countries. Bermuda, the United States and Switzerland were the three top destinations for FDI from Luxembourg, showing the importance of the financial sector for this country.
The United Kingdom recorded a sharp drop in its investment in non-member countries. In 2010, there was even disinvestment for a number of its traditional partners like the United States and Canada, though its investment levels increased in south east Asia, Australia and Brazil.

EU-27 FDI stocks with moderate growth in 2010
EU-27 outward and inward FDI stocks (or positions) grew steadily in 2010: outward stocks rose by 13 % and inward stocks by 12 %, compared with gains of 10 % and 6 % respectively in 2009.

North America continues to hold the biggest share of outward stocks of FDI among non-member countries
At the end of 2010, North America had the biggest share (34 %) of outward FDI stocks from the EU-27. The United States accounted for some 28 % (EUR 1195.0 billion) of the total, although there was some evidence of a slowdown in the pace of growth of outward FDI stocks from the EU-27 (up 5.7 % during the year to the end of 2010). The main holders of outward stocks of FDI in the United States were the United Kingdom (18 % of the EU-27 total), France (14 %) and Germany (14 %).
Switzerland was the second most important destination for outward stocks of EU-27 FDI in 2010, accounting for 14 % of the total; the main area of activity was the financial and insurance activities sector. Canada was the third largest destination for outward stocks of EU-27 FDI, with a 4.8 % share of the total.
EU-27 stocks of FDI in Brazil grew by 73 % during the period from 2008 to 2010, underlining the growing activity of EU-27 investors in this country.
In Asia, the most important destinations for outward stocks of EU-27 FDI were Singapore, Hong Kong and Japan, together accounting for half of the EU-27’s positions in Asia in 2010. The relative importance of China as a destination for EU-27 FDI has grown steadily over recent years, and outward FDI stocks reached EUR 75.1 billion by the end of 2010, which was higher than in South Korea, India and Indonesia (the next largest partners).
In Africa, the main destinations for outward stocks of EU-27 FDI were South Africa (EUR 92.2 billion), Nigeria (EUR 34.5 billion) and Egypt (EUR 24.4 billion). EU-27 stocks in South Africa grew by 19 % to the end of 2010, and South Africa remained among the top ten partners for outward stocks of EU-27 FDI (see Table 2).

The United States was the main holder of inward FDI stocks in the EU-27
At the end of 2010, the United States accounted for 41 % (EUR 1 201.4 billion) of the EU-27’s inward stocks of FDI from the rest of the world. The United States thus consolidated its position as the major holder of FDI stocks in the EU-27, having invested mostly in financial and insurance activities and manufacturing (one third of the latter being in metal and machinery manufacturing).
Switzerland was the second largest holder of inward FDI stocks in the EU-27 with EUR 365.4 billion in 2010 — this was 10 % more than in 2009.
Other countries with significant shares of inward FDI stocks in the EU-27 included Canada, Japan, Brazil, Singapore, Hong Kong and Russia. Canada and Japan held 14 % and 4 % more FDI stocks respectively in 2010 compared with the previous year. In 2010, the highest annual growth among these partners was achieved by Hong Kong (51 %), followed by Singapore (34 %) and Brazil (21 %).

Continued activity dominance for the services sector
The sectoral structure of EU-27 FDI stocks (analysed according to the NACE Rev. 2 classification) remained more or less unchanged in 2009. The EU-27 had a positive FDI balance vis-à-vis the rest of the world for all major sectors.
Services made by far the largest contribution to both outward (57 %) and inward (63 %) stocks of extra-EU-27 FDI by the end of 2009, and this sector’s respective shares were slightly greater than at the end of 2008; this is in keeping with the relative weight of services within the whole economy and also its gradually increasing share of total economic activity. Almost two thirds of EU-27 outward and inward stocks of services FDI were held in financial and insurance activities at the end of 2009, and the relative weight of this economic activity grew substantially when compared with 2008. Almost all services subsectors contributed to the positive development, except for distributive trades (including repair of motor vehicles) and information and communication, where both outward and inward stocks of EU-27 FDI decreased.
EU-27 FDI stocks in manufacturing declined in 2009 both outward (-4 %) and inward (-5 %), reducing the importance of these activities to around 20 % of total stocks. FDI stocks in construction shrank by almost a quarter during the year to the end of 2009, to record the largest annual fall among the main economic activities shown in Table 3.

EU net income recovers in 2010
Following successive declines in 2008 and 2009, the EU-27’s net income from FDI recovered somewhat in 2010, as rates of return on FDI stocks rose to 6.9 % for outward FDI and 5.2 % for inward FDI.
EU-27 investment income grew by 36 %, almost fully cancelling out the reductions that were recorded during the previous two years. The income paid to non-member countries increased to EUR 139.5 billion, exceeding the record level of 2007. The resulting net income from the rest of the world amounted to EUR 111.6 billion — which was 43 % more than in 2009. The EU-27’s income balance for FDI in 2010 was equal to 0.91 % of GDP, compared with 0.61 % in 2009.

Data sources and availability
Foreign direct investment statistics in the EU are collected in accordance with Regulation (EC) No 184/2005 of the European Parliament and of the Council on Community statistics concerning balance of payments, international trade in services and foreign direct investment.
The methodological framework used is that of the OECD benchmark definition of foreign direct investment - third edition, which provides a detailed operational definition that is fully consistent with the IMF’s balance of payments manual (fifth edition).
This article is based on FDI data that were available in Eurostat’s database at the beginning of June 2012. The series in the database cover the period from 1992-2010, analysed by partner, activity and type of investment (equity capital, loans and reinvested earnings). More aggregated FDI figures that are presented in this article for 2011 are provisional results based on annualised quarterly balance of payments data.
EU-27 aggregates include special purpose entities (SPEs), which are a particular class of enterprises (often empty shells or holding companies) not included in all countries’ national statistics. Consequently, EU-27 aggregates are not simply the sum of national figures.

Context
In a world of increasing globalisation, where political, economic and technological barriers are rapidly disappearing, the ability of a country to participate in global activity is an important indicator of its performance and competitiveness. In order to remain competitive, modern-day business relationships extend well beyond the traditional foreign exchange of goods and services, as witnessed by the increasing reliance of enterprises on mergers, partnerships, joint ventures, licensing agreements, and other forms of business cooperation.
FDI may be seen as an alternative economic strategy, adopted by those enterprises that invest to establish a new plant/office, or alternatively, purchase existing assets of a foreign enterprise. These enterprises seek to complement or substitute external trade, by producing (and often selling) goods and services in countries other than where the enterprise was first established.
There are two kinds of FDI: namely, the creation of productive assets by foreigners, or the purchase of existing assets by foreigners (for example, through acquisitions, mergers, takeovers). FDI differs from portfolio investments because it is made with the purpose of having control, or an effective voice, in the management of the enterprise concerned and a lasting interest in the enterprise. Direct investment not only includes the initial acquisition of equity capital, but also subsequent capital transactions between the foreign investor and domestic and affiliated enterprises.
Conventional trade is less important for services than for goods. While trade in services has been growing, the share of services in total intra-EU trade has changed little during the last decade. However, FDI is expanding more rapidly for services than for goods, and is increasing at a more rapid pace than conventional trade in services. As a result, the share of services in total FDI flows and positions has increased substantially, as the service sector has become increasingly international.