direct investment how to compile flows and positions course on balance of payments and international...
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Direct InvestmentHow to compile Flows and Positions
Course on Balance of Payments and International Investment Position Manual
(BPM6)
IMF-PFTACNadi
November 22-December 1, 2010
BP10
Introduction
Identifying DIEs and DIs Information kept by DIEs and DIs Measuring equity & debt, positions & flows Treatment of SPEs, land and resources and
direct investment abroad Data availability Compiling a worksheet
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Identifying DIEs and DIs
Banks & insurances enterprises Oil distribution branches Foreign owned businesses Public enterprises with direct investors Real estate Special purpose entities (SPEs) Direct investment abroad
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Information kept by DIEs and DIs
Annual balance sheet and profit and loss reports
Quarterly operating data
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Annual balance sheet
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Balance sheet for ABC Company $'000 2009 2010 2009 2010Liabilities AssetsLoans payable 24 22 Bank deposits and cash 10 13Accounts payable 5 4 Accounts receivable 5 7Provisions 12 13 Inventories 66 63Total liabilities 41 39 Building & equipment
Purchase priceShareholders' funds Less depreciation 105 107Common stock/issued capital 20 20Surplus (reinvested earnings) 125 131
Net equity 145 151 Total assets 186 190
Annual balance sheet
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Balance sheet for ABC Company $'000 2009 2010 2009 2010Liabilities AssetsLoans payable 24 22 Bank deposits and cash 10 13Accounts payable 5 4 Accounts receivable 5 7Provisions 12 13 Inventories 66 63Total liabilities 41 39 Building & equipment
Purchase priceShareholders' funds Less depreciation 105 107Common stock/issued capital 20 20Surplus (reinvested earnings) 125 131
Net equity 145 151 Total assets 186 190
NOTE: Change in surplus = 6
Annual profit and loss statement
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Income & expenditure (profit & loss) statement $000
2010
Sales (revenue) 83
Cost of goods sold 45
Administrative costs 10
Operating profit 28
Other income payable and receivable 10
Profit before tax 18
Tax 8
Net profit after tax 10
Dividends paid 4
Retained earnings 6
How to measure equity
Level of DI Net equity of shareholders x DI’s share
Equity Flow New investment (less withdrawal of investment)
(Change in paid up capital) x DI’s share
+ Reinvestment of earnings (Income statement = Change
in Balance Sheet) x DI’s share Other changes (Change in level minus flow)
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How to measure equity Cont.
Investment income Dividends x DI’s share Reinvested earnings x DI’s share
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Net equity in branch (quasi corporations)
Branches are unincorporated enterprises (quasi corporations) wholly owned by the DI Branches may operate like subsidiaries
In which case their accounts will look a lot like those of incorporated companies Net equity in quasi corporation (replaces net equity of
shareholders) Reinvestment of earnings (finance) and reinvested earnings
(investment income) ‘Withdrawals of income from quasi corporations’ replaces
‘dividends’04/21/23 10
Net equity in branch (quasi corporation) Cont.
Branches may be operational only Accounting detail less & usually no retained earnings
Net equity in quasi corporation (replaces net equity of shareholders)
Reinvestment of earnings (finance) and reinvested earnings (investment income) - likely to be nil
‘Withdrawals of income from quasi corporations’ replaces ‘dividends’
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How to measure debt
Banks Deposits and loans with and from nonresidents
are not treated as direct investment Possibly accounts receivable an payable to
parent/head office for services - DI Insurance enterprises
Claims on and liabilities to DI are treated as DI
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How to measure debt Cont.
Oil distribution branches, Foreign owned businesses, Public enterprises with direct investors Claims on and liabilities with nonresident DI is
treated as DI. Real estate and other resources
Value of land (Net equity in quasi corporation)
Income earned less expenses (withdrawals of income from quasi corporate enterprises)
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Special purpose entities (SPEs)
Are flexible corporate structures with little or no physical presence Described as shell companies, shelf companies,
and brass plate companies Often offered various benefits - low or
concessional tax rates, speedy and low-cost incorporation, limited regulatory burdens and confidentiality.
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Special purpose entities (SPEs) Cont.
No internationally standard definition but typically their owners are not residents of the territory of
incorporation their balance sheets are largely claims/liabilities vis-à-
vis non-residents few or no employees have little or no physical presence
Treated as resident of country of incorporation04/21/23 15
Direct investment abroad
While no so obvious, it is rather common Businesses owned by individuals abroad Land owned by residents abroad Enterprises owned by public enterprises abroad SPEs owned abroad
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Data availability
Some entities have good data, e.g. banks and foreign owned organisations
Accounts may be out-of-date Accounts may be held abroad Little data on SPEs Concerns over collection authority and
confidentiality
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Compiling a worksheet
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Opening position
Financial flow
Volume change
Valuation change
Closing position
Investment income
Issued capital
Reinvestment of earnings
Assets - Debt
Liabilities - Debt