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FDI COMPILATION GUIDE

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STATISTICAL OFFICE September 2008

OF THE EUROPEAN COMMUNITIES

Directorate C: National and European Accounts

Unit C4: Balance of Payments

2008 Edition


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This document has been created by the BOP Foreign Direct Investment team, under the guidance and supervision of Ms Merja HULT, head of FDI projects of the Unit C4 ([email protected]). The Members of the BOP FDI Team are: Ms Anne Foltete Ms Arja Kärkkäinen Mr Huber Berthold Ms Konstantia Petridou


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Table of Contents

Chapter I. Methodological background........................................................................ 5

I–1 Definition of direct investment and statistical units involved in it .......................6

a) Definition of direct investment...................................................................................... 6

b) Definition of a foreign direct investor .......................................................................... 7

c) Definition of a direct investment enterprise................................................................. 7 Subsidiaries, Associates and Branches ..................................................................................7 → Subsidiary (ownership > 50%) .........................................................................................7 → Associate (ownership between 10% and 50%) .................................................................7 → Branch (wholly or jointly owned).....................................................................................7

d) Definition of the so-called Special Purpose Entities (SPEs) ....................................... 8

e) Definition of indirect participation in direct i nvestment enterprises ........................ 8

I-2 Definition of FDI income .......................................................................................8 →Dividends (including distributed branch profits) ...............................................................9 →Reinvested earnings (RIE) .................................................................................................9 →Interest on inter-company debt ..........................................................................................9

I-3 Definition of the FDI flows components of the financial account part..............10

a) Direct Investment Flows .............................................................................................. 10 →Equity capital...................................................................................................................10 →Reinvested earnings (RIE) ...............................................................................................10 →Other direct investment capital (or inter-company debt transactions) .............................10 I. For subsidiary and associate companies.....................................................................10 II. For branches...............................................................................................................10

b) Definition of Assets/liabilities and directional principle for FDI flows .................. 11

c) Definition of the geographical and sectoral allocation of FDI flows........................ 11

I-4 Definition of the FDI positions ............................................................................11

I-5 The basic method for calculating FDI positions .................................................12

Chapter II. FDI compilation process overview-up to harmonisation tasks ........ 14

II.1 Global description ................................................................................................14

II.2 Reception of MSs’ data and the harmonisation process....................................22 II.2.1 Reception of Member States data (task 1 to 5 of step 1).................................................22 II.2.2 Harmonisation process (tasks 6 to 10 of step 2).............................................................24

Chapter III. Treatment of confidential/non-publishable data ............................... 26

III.1 Brief description of the security aspects during the Gesmes transmission......26

III.2 The current treatment of disclosive information ..............................................28

Chapter IV. FDI compilation process-estimation..................................................... 33

IV.1 Why?....................................................................................................................33

IV.2 How to proceed?..................................................................................................34

IV.3 Conclusion ..........................................................................................................43


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List of Tables

Table 1.1 Direct investment components within the framework of the IMF 5th Manual 7 Table 1.2 FDI positions within the framework of the IMF 5th Manual 14 Table 2.1 Main steps of the FDI compilation process 17 Table 2.2 BOPFDI: Example of input and output tables 21 Table 2.3 Format used by reporting institutions for transmission of BOP data 23 Table 3.1 Equations employed to hide additional values 31 Table 4.1 Estimation of missing values via additional information 37 Table 4.2 Estimation of missing values via additional information No2 37 Table 4.3 Alternative solutions 38

List of Flowcharts

Flowchart 2.1 Steps in the FDI production process 16 Flowchart 2.2 Circulation of FDI information transmitted by the MSs to Eurostat 20 Flowchart 3.1 Circulation of FDI information transmitted by the MSs to Eurostat: Issues of confidentiality 27


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Chapter I. Methodological background Foreign Direct Investment (FDI) statistical series are compiled within the ESTAT BOP Unit C4, under the theoretical framework of the IMF Balance of Payments Manual, Fifth Edition, and the OECD Benchmark definition of Foreign Direct Investment, Third Edition-Paris 1996. Foreign Direct Investment (FDI) statistical series are compiled by ESTAT BOP Unit C4, under the theoretical framework of the IMF Balance of Payments Manual, Fifth Edition, and the OECD Benchmark definition of Foreign Direct Investment, Third Edition-Paris 1996. In the IMF 5th Manual, the chapters dealing directly with FDI issues are:

• Chapter XIV page 70, for direct investment income.

• Chapter XVIII page 86, for direct investment transactions, Capital and Financial Account part.

• Chapter XXIII, page 104, for direct investment positions. The first part of the Compilation Guide (CG) presents the official definition of the direct investment together with the most important statistical units. The second part deals with the contents of FDI income, FDI flows and FDI positions. A brief introduction the geographical and activity allocation principles is presented next.


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Table 1.1 Direct investment components within the framework of the IMF 5th Manual Current account Goods Services Income Direct investment income

Income on equity

Dividends & distributed branch profits

Reinvested earnings & undistributed Branch profits

Income on debt

Current transfers Cap. and Fin. Account Capital account Financial account Direct investment Direct investment abroad

Equity capital

Claims on affiliated enterprises

Liabilities to affiliated enterprises

Other capital



Reinvested earnings & undistributed branch profits

Direct in the reporting economy

Equity capital

Claims on direct investors

Liabilities to direct investors

Other capital



Reinvested earnings & undistributed branch profits

Portfolio investment Other Investment Reserve assets Errors and omissions

I–1 Definition of direct investment and statistical units involved in it a) Definition of direct investment The direct investment concept refers to the category of international investment made by a resident entity (direct investor) to acquire a lasting interest in an entity operating in an economy other than that of the investor (direct investment enterprise). The direct investment involves both the initial transactions between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.


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b) Definition of a foreign direct investor A direct investor is an individual, an incorporated or unincorporated public or private enterprise, a government, a group of related individuals, or a group of related incorporated and/or unincorporated enterprises which have a direct investment enterprise that is, a subsidiary, associate or branch - operating in a country other than the country/ countries of residence of the direct investor/ investors.

c) Definition of a direct investment enterprise A direct investment enterprise is an incorporated or unincorporated enterprise in which a foreign investor owns 10% or more of the ordinary shares or voting power of an incorporated enterprise, or the equivalent of an unincorporated enterprise, or has an effective voice in the management of the enterprise. Some countries may feel it necessary to treat the 10% limit with flexibility to fit circumstances.

Subsidiaries, Associates and Branches

A direct investment enterprise may be an incorporated enterprise - a subsidiary or associate company - or an unincorporated enterprise (branch):

→ Subsidiary (ownership > 50%)

A subsidiary is an incorporated enterprise in which

i) The foreign investor controls directly or indirectly (through another subsidiary) more than 50% of the shareholders' voting power, or

ii) The foreign investor has the right to appoint or remove a majority of the members of this enterprise's administrative, management or supervisory body.

→ Associate (ownership between 10% and 50%)

An associate is an enterprise where the direct investor and its subsidiaries own 10% (or more) of the voting shares, or where the concerned enterprise is an associate of any other enterprise that is a subsidiary of the direct investor.

→ Branch (wholly or jointly owned)

A branch is an unincorporated enterprise that is

i) A permanent establishment or office of a foreign direct investor; or

ii) An unincorporated partnership or joint venture between a foreign direct investor and third parties or

iii) Land, structures and immovable equipment and objects directly owned by a foreign resident (e.g. holiday and second homes) or


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iv) Mobile equipment operating within an economy for at least one year if accounted for separately by the operator (e.g. ships, aircraft, gas and oil drilling rigs).

d) Definition of the so-called Special Purpose Entities (SPEs) The IMF 5th Manual (§365) recommends to consider SPEs as direct investment enterprises if they meet the criteria stated above. SPEs of multinational enterprises are units established in economies other than those in which the parent companies are resident and engaged primarily in international transactions but in few or no local operations. The SPE is a generic label applicable to such organisational structures which are also variously referred to as financing subsidiaries, conduits, holding companies, base companies and regional headquarters.

e) Definition of indirect participation in direct investment enterprises Statistics based on these definitions should cover all enterprises in which the direct investor has directly or indirectly a direct investment interest (Fully Consolidated System). In particular, this means that:

a) Reinvested earnings of indirectly participated enterprises should be included in the statistics

b) Direct investment flows within a group of related enterprises should be included in the statistics without consideration of the percentage of equity held by these enterprises in each other.

I-2 Definition of FDI income

The direct investment income consists of income on FDI equity and on inter-company debt (interest). The direct investment income components are recorded in the current account part, both on the credit and debit side. Income on equity covers two sub-components, namely “dividends and distributed branch profits” and “reinvested earnings and undistributed branch profits” for incorporated enterprises. The OECD recommends calculating the FDI income on the basis of the current operating performance concept. Thus, unlike for the all-inclusive concept, capital gains and losses, and other valuation changes are excluded.

The credit side of the balance records FDI income receivable by the resident direct investors as the result of the activity of their non-resident direct investment enterprises. The FDI income receivable (credit side) is equal to the direct investors’ income received from their direct investment enterprises less FDI income paid (by the direct investors) to their foreign affiliates, resulting either from loans previously granted by the concerned affiliate to its parent company (reverse loans) or from cross participation (below 10%). As a result, negative figures might be observed on the credit side of the Member States’ national data.


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Respectively, income of inward FDI comprises income flowing from the direct investment enterprise to the direct investor less income and vice versa.

→Dividends (including distributed branch profits)

Dividends that are due for payment in the recording period and branch profits remitted to the direct investor, gross of any withholding taxes. Dividends cover payments due on common and preferred shares.

→Reinvested earnings (RIE)

Consist of the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. For a given year n, the RIE are obtained by subtracting from the total profits made in year n (calculated on the basis of the current operating performance concept) all the dividends due for payments in the same year. With regards to RIE, the following points should be emphasized:

• The RIE are allocated to the period when they have been generated.

• Unlike other BOP components, the RIE are not “real transactions” as no-cross-border payments are associated with them. The BOP framework records in fact two “fictive transactions”, assuming that, once the dividends distribution is decided (by the direct investor management) the non-distributed profits are firstly received by the direct investor (a fictive income transaction) and immediately re-routed to the concerned affiliate (a fictive direct investment transactions).

• RIE can be either positive or negative. Negative RIE mean either that the activity of the concerned affiliate has generated net losses (for the given year) and/or amounts to be paid in the form of dividends are higher than the total earnings of the period (the dividends distribution rely also on previous years results of the affiliate).

• An affiliate having a cross participation (less than 10%) can benefit from the profits made by the parent company, but only in the form of dividends. The decision to reinvest part of the profit made by the parent company depends only to the majority shareholders of the parent company.

→Interest on inter-company debt

Interest accrued in the recording period, gross of any withholding tax. Dividends due for payment on no participating preference shares are recorded under interest.


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I-3 Definition of the FDI flows components of the financial account part a) Direct Investment Flows →Equity capital

Equity capital comprises equity in branches, all shares in subsidiaries and associates (except non-participating, preferred shares that are treated as debt securities and are included under other direct investment capital) and other capital contributions (e.g. provision of machinery).

→Reinvested earnings (RIE)

RIE consist of the direct investor's share (in proportion to direct equity participation) of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to the direct investor. To be consistent with the direct investment income part, these earnings are added to the direct investment equity capital part in amount equal to (and with opposite sign) the corresponding entry recorded under direct investment income.

→Other direct investment capital (or inter-company debt transactions)

Covers the borrowing and lending of funds, including debt securities and trade credits between direct investors and direct investment enterprises. Intercompany debt transactions between affiliated financial intermediaries recorded under direct investment capital flows are limited to permanent debt.

Consequently, total direct investment flow is calculated as follows:

I. For subsidiary and associate companies

i) The direct investor's share of the company's reinvested earnings

ii) Plus the direct investor's net purchases of the company's shares, debt securities (bonds, notes, money market and financial derivative instruments) and loans (including non-cash acquisitions made against equipment, manufacturing rights, etc.)

iii) Less the company's net purchases of the direct investors' shares, debt securities and loans

iv) Plus the net increase in trade and other short-term credits given by the direct investor to the company.

II. For branches

i) The increase in reinvested profits plus the net increase in funds received from the direct investor.


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b) Definition of Assets/liabilities and directional principle for FDI flows Under the assets/liabilities principle, all assets’ transactions are recorded under "direct investment abroad" and all liabilities’ transactions under "direct investment in the reporting economy", regardless of the status of the enterprise (direct investor, direct investment enterprise).

Under the directional principle (recommended by the IMF 5th Manual, §330) the enterprise’s status is taken into account. The direct investor's country records all the capital transactions with foreign direct investment enterprises (including reverse loans and cross participation below the 10% threshold) under the "direct investment abroad", whereas the direct investment enterprise’s country records all the capital transactions with foreign direct investors under the "direct investment in the reporting economy".

For cross-participation above the 10% on each side two separate direct investment relationships are established. The enterprises are simultaneously direct investors and direct investment enterprises. Thus, all capital flows are covered. The flows for which the directional principle gives different results to the assets/liabilities principle are cross-participation below the 10% threshold and reverse loans carried out in this constellation. Only if the status of the direct investment enterprise is known can these reverse flows be recorded in line with the directional principle.

c) Definition of the geographical and sectoral allocation of FDI flows In the geographical allocation, there are two principles that may be applied: the 'debtor/creditor principle' (which is recommended) and the 'transactor principle' . Under the debtor/creditor principle, investment flows are allocated to the country of residence of the non-resident debtor or creditor. Under the transactor principle, flows are allocated to the country of residence of the non-resident party to the transaction.

When the debtor/creditor principle applies, the country of residence of the debtor/creditor to which the transaction is allocated can be the immediate host (or investing) country or the ultimate host (or investing) country down the ownership chain. The IMF and the OECD recommend to record FDI flows by using the immediate host/investing country criterion.

With respect to the allocation of FDI flows by sector, the Eurostat/OECD questionnaire requires a breakdown into 11 major branches and further activity desegregation for manufacturing and services. The classification used is consistent with NACE Rev.1 and ISIC Rev.3 (please refer to the correspondence table in annex). Both outward and inward flows are classified according to the activity of the resident statistical unit.

I-4 Definition of the FDI positions

The direct investment position makes part of a country's overall international investment position (IIP). The net position of FDI assets and liabilities determines the IIP together with the corresponding net positions in portfolio and other investment and reserve assets. FDI positions are conceptually fully consistent with flows and comprise of stocks of equity capital (including reinvested earnings) and other capital (including inter-company debt) at the end of the reference year.


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The IMF (BPM5, §467) recommends that positions should be calculated at market prices of the period under consideration. Positions derived from the balance sheets of direct investors and direct investment enterprises (book values) come close to market values only under certain circumstances. Thus, in most cases two sets of stocks data (book value and market value) might be appropriate. The accounting principles described above for flows are equally applicable to stocks. In contrast with what has been seen for flows though, a geographical allocation according to the ultimate beneficial owner (UBO) concept is recommended for stocks. Moreover, the sectoral breakdown of positions abroad considers the non-resident economic activity.

I-5 The basic method for calculating FDI positions

Within the BOP IIP framework, the FDI position at end of year n is obtained by adding to the FDI positions at end of year (n-1) all the changes that occurred in year n due to FDI flows, price changes, exchange rate changes an other adjustments. Table 1.2 summarises the general presentation of the IIP table, which is an extract from the IMF 5th Manual (page 110).

All the net components can also be negative. In the FDI flows disinvestments may occur. Hence, also for positions, negative assets and liabilities can appear. This is, for example, the case if accumulated uncovered losses exceed equity and other capital. The item 'other adjustment' comprises of changes in the volume of assets/liabilities that usually may derive from:

-debt/equity swaps,

-capital transfers (loan forgiveness)

-unilateral cancellation of liabilities

-rescheduling of loans and

-crossing the threshold from portfolio to direct investment.

The case of crossing to direct investment might need some illustration: If an investor's initial participation was for example 5% of the equity of an enterprise in an earlier period and another participation of 5% is acquired in the period under consideration, then the investor becomes a direct investor and the enterprise becomes a direct investment enterprise. Only the second participation has to be recorded as direct investment flow of the current period. The first transaction was recorded as portfolio investment in the earlier period. Thus, it is included in the current period's portfolio investment position. As the entire 10% stake is now direct investment, the earlier period's 5% stake has to be deducted from the portfolio investment position and to be included in the direct investment position. This is done by corresponding entries under the ‘other adjustment’ item.


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Table 1.2 FDI positions within the framework of the IMF 5th M anual Position at

beginning of

the year

Flows Price changes Exchange rate

changes

Other

adjustments

Position at

the end of

year

A. ASSETSs

Direct Investment abroad

Equity capital and RIE



Other capital

Portfolio investment

Other investment

Reserve Assets

B. LIABILITIES

Direct investment in the reporting economy

Equity capital and RIE



Other capital

Portfolio investment

Other investment


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Chapter II. FDI compilation process overview-up to harmonisation tasks

II.1 Global description

In 2001 the ESTAT Bop Unit has prepared and achieved a detailed description of the FDI/FATS data processing and dissemination procedure. This document presents all the prerequisite steps that need to be followed so that the strategic goals of the BOP Unit are reached in the field of FDI and FATS statistics. Eurostat’s C4 FDI outputs (data availability on New Chronos, the SIF and Yearbook publications), as well as the FDI input (MSs’ data, the vademecum, timetable for the FDI production), actually depend on these steps.

Chapter II tackles with the processing steps starting from inputting the data until the final output, which in this case is the dissemination of FDI data in New Chronos. The other type of outputs, such as the SIF and the FDI Yearbook publications are not dealt with at this point.

The Flowchart 2.1 presents all the tasks that need to be executed during the FDI production process in a chronological order.

These tasks can be grouped as follows:

1. Reception and storage of MSs’ data in MDT (tasks 1-5) 2. Harmonisation of tasks to make the data comparable and commensurable between

MSs( tasks 6-10) 3. Estimation of missing values to compile the EU/EMU aggregates (tasks 11-13) 4. Final checks on the EU and MSs’ tables before making them available to public

users (tasks 14 -16).


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Flowchart 2.1 Steps in the FDI production process

Oracle is the working environment for the production and the storage of ESTAT Bop statistical series. The MDT interface (1) has been developed to facilitate the management of the BOP database and to make the production more user-friendly. Therefore, all FDI statistical tables are stored in the Oracle environment and all the tasks to be realised during the FDI process are made under Oracle using the MDT interface.

1 MDT has been developed internally by Mr. Capaccioli, official of ESTAT.

Final checking

Estimation of the missing

values

Harmonisation of the data

Data reception and storage in

MDT

FDI Production

Process


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Table 2.1 Main steps of the FDI compilation process


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1 Collect data

4 Receive and make available the excel data on the database

6 Cross-checking of data with ECB

2 Receive data via Stadium

3 Make available GESMES data on the working database (MDT)

5 Control the input table and load into the expert source table

- Vade mecum - Calendar

8 Apply confidentiality rules

7 Analyse the integrity rules output by country, correct data

9 Compile harmonisation letter by country 10 Reply to harmonisation letter

11 Correct data


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20 Send data to New Cronos

12 Define the EU aggregates to publish and their level of detail

15 Compile fdi_harm_pubxx and fdi_stock_harm_pubxx and the REF tables

13 Estimate missing data for calculating EU aggregates

14 Calculate and check EU aggregates

16 Validate the REF tables (cross checks)

17 Building derived table main indicators

18 Building derived table structural indicators

19 Create or update metadata

- Data ready for paper publication

- Data available on New Cronos


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As a result of the Gentleman’s Agreement between the MSs, the ECB and Eurostat BOP Unit, all the FDI information has to be sent in electronic format using the GESMES/CB format (The Central Bank time series data exchange message).The circulation of FDI information transmitted by the MSs to Eurostat C4 can be summarised in the presentation below:

Flowchart 2.2 Circulation of FDI information transmitted by the MSs to Eurostat Commission__________________

↓ ↓

MSs National > Eurostat Unit

Institutes (2) C4

(1)

> Stadium Server

↑_____ Eurostat_____↑

(1) MSs’ data are transmitted under the GESMES/CB format to the edamis by e-mail https://webgate.ec.europa.eu/edamis). The data set identification (DSI) for the FDI flows transmission is BOP_FDI, whereas it is BOP_POS for FDI positions.

(2) These two DSIs , BOP_FDI and BOP_POS, allow the Stadium Server to recognise the type of data transmission, and therefore to direct the files in the ESTAT Bop Unit environment.

Once in the Eurostat C4 Unit’s environment, a temporary input file is created in the BOP production database to allow the storage and the treatment of these data. The production database contains:

• The central database BOPFDI, in which the input files are temporarily stored. BOPFDI also contains the final outputs of the production, that is the reference tables to be transferred in New Chronos [one for the FDI flows (bopfdi.fdi_ref ) and one for the positions (bopfdi.fdi_ref _stocks)].

• The other databases (four in our example below), where harmonisation and estimation tasks are made for each reporting country. All the data reported by a given country X are directed to one of these databases.


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Table 2.2 BOPFDI: Example of input and output tables BOPFDI: Input tables *: Output tables for flows Output tables for stocks

bop_fdi_gesmes_cc_id Fdi_ref ** fdi_ref_stock **

bop_pos_gesmes_cc_id

Fdi_input_cc_id

Production Database 1




Agreed name for FDI flows of country X:

Agreed name for FDI flows of country Y

Agreed name for FDI flows of country Z:

Agreed name for FDI flows of country T:

Fdi_source_xx Fdi_source_yy Fdi_source_zz Fdi_source_tt

Fdi_harm_xx Fdi_harm_yy Fdi_harm_zz Fdi_harm_tt

Fdi_estim_xx Fdi_estim_yy Fdi_estim_zz Fdi_estim_tt

* Several input tables are possible for a single reporting country.

** FDI_ref contains data reported by all MS once these data have been harmonised and validated by them. FDI_ref also contains the EU/EMU aggregates comprising of the sum of all MSs estimated table.

The central database BOPFDI can be viewed as a place to store all the outputs produced by the FDI team during each production cycle. Fdi_ref and fdi_ref_stock represent the FDI flows and FDI positions outputs of the current production cycle. These two tables correspond to the data to be transferred in the Eurostat NewChronos for public users. They are loaded from the fdi_pubyy_harm and fdi_pubyy_stock_harm tables, yy representing the most recent processed year.

� fdi_pub2008_harm contains all the harmonised MSs FDI flows tables (plus the EU aggregates) accomplished in 2008, covering the period up to 2007. fdi_pub2008_estim contains the related estimates done in 2008 to compile the 2007 EU FDI flows, plus the 2006 revisions.

� fdi_pub2008_stock_harm contains all the harmonised MSs FDI positions tables (plus the EU aggregates) done in 2008, covering the period up to 2007. fdi_pub2008_stock_estim contains the related MS estimates done in 2008 to compile the 2007 EU FDI positions, plus the 2006 revisions.

�In a similar way, BOPFDI also contains “fdi_pub2008_source”, “ fdi_pub2008_stock_source”,“ fdi_pub2008_harm”,“ fdi_pub2008_harm”,


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“ fdi_pub2008_stock_harm”, “ fdi_pub2008_estim” and “fdi_pub2008_stock_estim”, outputs done in 2008.

Therefore a kind of traceability exists and it is always possible to remember, at any time, the information that has been sent to New Chronos in the past. It is also possible to evaluate the impact of revised data, and to compare past series with other institutions such as the European Central Bank (ECB).

BOPFDI contains other kind of tables such as:

• “ecurate” (yearly average exchange rate of the ECU/EUR vis-à-vis national currency) and “ecurate_end” (exchange rate of the ECU/EUR vis-à-vis national currency, at the end of the given period). The ecurate table is used to convert (or to browse) the MSs FDI flows table in ECU/EUR, whilst the ecurate_end refer to the conversion of FDI position data.

• The official dictionary dimensions (and labels), which manages the structure of all tables, whether it is in BOPFDI or in another production database. It would not be possible to create any fdi_harm_cc table using a non validated partner code, that is a partner code not defined in the dictionary dimension.

The other production databases contain not only the MSs source/harm/estim tables but also all the functions necessary to:

1. Load the temporary input table (from BOPFDI) into the source one.

2. Build and finalise the harmonisation tables while hiding additional cells

3. Estimate the MSs’ missing data.

These functions are executed to modify the initial FDI data either in the harmonised tables or the estimated ones.

In the other production databases, the user can also find the so-called integrity rules. An integrity rule is a list of equations, defined for a specific dimension, which can be used at each level of the production process to check the consistency of the table. Similar to a function, its execution will browse a kind of “True/False” statement, cells by cells and for each of the listed equations (in fact, only the “False” statements are printed).


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II.2 Reception of MSs’ data and the harmonisation process

II.2.1 Reception of Member States data (task 1 to 5 of step 1)

The reference document is the BOP vademecum, which contains the requested FDI data to be provided by the MSs. Questionnaires Y5, Y6 relate to FDI flows data and are transmitted under the DSI: BOP_FDI, whereas questionnaires Y7 and Y8 concern the FDI positions and are consigned under the DSI: BOP_POS.

The BOP vademecum also specifies the transmission deadline (no latter than T+6 months for FDI flows and positions, T+21 months for revised FDI flows and positions), the coverage on the geographical breakdown together with countries’ and geographic codes (level 3 for FDI) and the coverage on the sectoral breakdown (with a classification of activity according to the NACE Rev 1).

Even if the majority of the MSs provides FDI flows data via the Gesmes/CB format, few of them continue on sending their FDI flows on excel spreadsheet or CD-Rom. Table 2.3 exhibits the format used by each reporting institution for the 2006 production cycle.

Country data that are not submitted to Eurostat C4 via Stadium, require a “pre-treatment” in excel, before being loaded in the BOPFDI database. This treatment even though it is not complicated, as it regards the presentation of data in a standardised form to allow the loading in the production database, is time consuming.

Table 2.3 Format used by reporting institutions for transmission of BOP data

FDIflows

Austria ONB OK OKBelgium BNB OK OKDenmark DS / DNB OK (DNB) OK (DNB)

Finland BOF OK OKFrance BDF OK OKGermany BANKBUND OK OK

Greece BOG OK OKIreland CSO OK OKLuxembourg

STATEC /BCL

OK (BCL) OK

Netherlands

DNB OK OK

Portugal BDP OK OKSpain BDE OK OK

Country Institution FDI positions

Legend: OK Gesmes/TS

Excel

No data received, in any format


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FDIflows

Sweden SRB OK OK

United Kingdom

ONS OK OK

Iceland CBI

Norway STNO

Switzerland

SNB

Bulgaria BNB OK OKCyprus CBC OK OKCzech republic

CNB OK OK

Estonia EPBE OK OKHungary NBH OK OKLatvia BOL OK OKLithuania BLI OK OK

Malta NSO OK OKPoland NBP OK OKRomania NBR OK OKSlovakia NBS OK OKSlovenia BSI OK OKTurkey CBRT OK OK

Country Institution FDI positions

Whatever the entry in the BOPFDI environment (Gesmes/CB via stadium, excel sheet send by mail or paper (end by fax)), an input file is created for each country, which constitutes the starting point of the production process. However, it is very common to observe several input files for a same country X. In theory, the National Institutions of MSs should be able to present (under Gesmes/CB) one set of data relating to their country. The input tables normally have the following dimensions (the list is not exhaustive) to identify the value of a transaction:

1. The declaring entity (name of the dimension=reporter).

2. The time period on which the data refer to (name of the dimension=time).

3. The monetary unit in which the transaction is expressed (name of the dimension=currency).

4. The partner concerned with the transaction (name of the dimension= partner).

5. The activity sector, which is in general the resident sector of the entity involved in the transaction (name of the dimension=activity). The dimension nr_activity also exists.

6. The nature of the transactions (name of the dimension=post).

7. The type of recording (name of the dimension=flow).


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8. The status of the value (publishable, non-publishable, confidential

In practise, several input files are sent to Eurostat Unit C4 relating to a same reporter X. For example, it is very common to observe the following situation:

a) One transmission relating to the 2007 period, FDI flows abroad.

b) A second transmission relating to the 2007 period, FDI flows in the country

c) A third transmission relating to the 2006 period, FDI flows abroad.

d) A fourth transmission relating to the 2006 period, FDI flows in the country

e) Finally, a last transmission relating to FDI income for both the 2007 and 2006 periods.

Therefore the main task at this stage is to create and load a unique source table named as “fdi_source_xx”, in the appropriate production database. In doing this, the person responsible of the country X makes some preliminary checks to enter the data in a proper way.

It can also be the case that the original data are inconsistent when compared to other available information (usually it is the publications of the MSs’ National Institutions), have incorrect reference periods, strange or inconsistent values with regard to past observations, the credit – debit values not matching the net one, inconsistent geographical or sectoral breakdown etc. Several consistency checks are available in the BOP production database, for each dimension and annually updated whenever a new production cycle starts (please refer to 2.3“sources tables”). These checks are helpful to decide whether the observed inconsistencies can be directly and easily solved or a new transmission set has to be asked to the MS. The decision relies entirely on the person responsible of the treatment.

II.2.2 Harmonisation process (tasks 6 to 10 of step 2)

The harmonisation steps mainly consist of presenting the MSs’ figures in a more convenient form to eliminate the residual errors that might appear in the MS initial transmission. Thus, data comparability and understanding of the ultimate FDI figures is facilitated. The next sections exhibit some concrete examples of issues tackled with during the harmonisation process:

• Because of frequent changes in the content of the requested geographic zones (Eurozone, OECD, Candidate countries , ASEAN nations etc.), or the implementation


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of new geographic ones, Eurostat C4 Unit needs to constantly follow up and check whether these changes are taken into account at the MSs’ initial transmission level.

• In the initial MSs’ data transmission, some non-available information can be estimated, directly or indirectly, using the available information with other partner cells. Whenever such a situation appears, Eurostat C4 ensures through the validation letter at the end of the process, whether the MSs’ estimated values are publishable or not to the external users.

• The BOP convention signs are sometimes not followed in the initial data transmission

• A common case is also the one in which the Total FDI flows (excluding the reinvested earnings) are provided by the MS under the code corresponding to the total FDI flows, including the reinvested earnings. The same remark applies to the total income.

• Some reporters record, according to their National System, a specific sub-sector of the manufacturing activities under another aggregate not belonging to the manufacturing sector.

• The “not allocated” codes (all codes starting with “Z+number)” are not always used in the same way by the MS.

The list is not exhaustive. Needless to pinpoint that these amendments need to be done in the harmonised table (task 6).

Eurostat C4 launches the confidentiality procedure in order to have the secondary confidentiality at the finalisation of the harmonised table. (task 7).

As a general rule and with the purpose of keeping the MSs always informed on what the amendments on their FDI/FATS data have been and what Eurostat intends to do with their figures, the data verification letter is systematically sent to the MSs together with a complete set of the final tables to be disclosed to the public. In this letter the MSs are asked whether they agree with the suggested data changes (in case that inconsistencies in the original data transmission were observed), and/or with the estimation of some missing values with the use of the available information (task 8).

In the data harmonisation process, additional information exchange with the MS is deemed frequent as the ultimate scope is to arrive at the end with common views on how to understand, interpret and (eventually) hide some figures (tasks 9 and 10).

Because of the “sensitivity” and increasing importance of the FDI/FATS data confidentiality, the next chapter will focus on the current statistical treatment of confidential data in the Eurostat C4 Unit.


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Chapter III. Treatment of confidential/non-publishable data This part will go into great depth regarding the description of the FDI compilation process, highlighting the main differences between the current treatment of the so-called “non publishable” data, and the “real” confidential ones. The description will focus both on the security aspects of the current transmission and the statistical treatment to hide secondary confidentiality data.

III.1 Brief description of the security aspects during the Gesmes transmission The starting point is the FDI data(including confidential data) transmitted by National Institutes via the GESMES/CB format which are going directly to the Eurostat Server called Stadium. This Eurostat server receives any data (i.e. not only BOP data) coming from outside and distributes them to the relevant Eurostat Units. Therefore, the data entry within the Commission is directly Eurostat, and not any other Directorate General.

Flowchart 3.1 Circulation of FDI information transmitted by the MSs to Eurostat. Issues of confidentiality

The current Eurostat/Bop data flows defined in the Gesmes/CB format are as follows:

Acknowledge Letter

Mail

Modification

Mail

Conf Data Stadium

UNIT C4 IT Stadium

MS Eurostat


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Data flow = name of data collection.

Type of data Data flow

Euro-indicators BOP_EUR

Euro-sics BOP_SICS

Key items BOP_KEY

Quarterly data BOP_Q

International Trade in Services BOP_ITS

Foreign Direct Investments (flows income)

BOP_FDI

Foreign Direct Investments (positions) BOP_POS

Foreign Affiliate Trade Statistics BOP_FATS

In the field of the FDI statistics, the MSs’ data transmission is identified either with the DSI: BOP_FDI (for FDI flows/income) or with the DSI: FDI_POS (for the positions).

A MS can ask Eurostat to protect the FDI information sent via Gesmes. Such a request needs to be done in a written form (a letter or a mail addressed to the Eurostat BOP Unit), in which the concerned MS has to specify (for the stadium server) which types of data flows need to be considered as officially confidential. If, for example, BOP_FDI is declared as being a confidential transmission, then all the files arriving at Eurostat, via the Stadium server and under the label “Data flow=BOP_FDI” will be automatically routed to a machine located in the Secure Eurostat Area. After the successful transfer, the transmission is deleted from any intermediate machine, including the Stadium server.

In most cases, the transmissions of BOP_FDI and BOP_POS do not have a confidential status, which means that a copy of the transmission stays in the Stadium server. Even if not declared as confidential, the transmission might contain values (or empty cells) flagged either with a “C” (for a confidential cell) or a “N” (for a non-publishable one). The corresponding input/source/harm/estim tables are stored in the production database and treated according to the normal procedure. These data can be browsed and copied by Eurostat C4, unless the access is granted to the BOP FDI team only. Nevertheless, once the harmonisation tasks are achieved, the concerned table (fdi_harm_xx) needs to be corrected by hiding additional values to avoid any possible (direct or indirect) recalculations. The statistical treatment of the so-called secondary confidentiality is identical whatever the transmission has been declared as (entirely) confidential or not.


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III.2 The current treatment of disclosive information The automatic procedure currently used to hide additional cells relies on automatic crosschecks throughout the partner, post, activity and flow dimensions. The equations used are those available in the BOP vademecum. Whenever a “C” flag is encountered, the procedure has to indicate the supplementary cells to be hidden. For each dimension, a first choice is given to hide another cell. If the first choice corresponds to the initial value flagged with “C”, then the procedure will hide the value of the component corresponding to the second choice. Therefore, the initial confidential data are being preserved in the Oracle environment, and strengthened by the calculation of secondary confidential cells (“S” flags added by Eurostat C-4 internal program). The first and second choice should be defined with the perspective to minimise the number of additional hidden cells. These criteria need to be adapted for each country, taking into account which components of the concerned dimension are most sensitive for the concerned MSs in their FDI transmission to Eurostat. Below are some examples based on the flow and post dimensions:

Example 1: The flow dimension has only three components. For a given (partner, period, post and activity) cell, a confidential value is detected on the net component (dim_flow=4). Then the value shown on the credit side will be also hidden, as it corresponds to the first choice. But if the confidential value was located in the credit side then the procedure would have hidden the second choice, which is the debit side.

Dimension Components Equation(s) First choice Second choice

Flow Credit (2), Debit (3), net flows (4) 4= 2-3 =2 (credit) =3 (debit)

Therefore, to run the procedure, you need to indicate, for each dimension, the target, the “first” choice, the "second” choice, and the Equation components. For the flow dimension, the function name in bopfdi is set_conf_flow_main, and the command is:

bopfdi.set_conf_flow ( target_table, "2", "3", ("2","3","4") ) ;

It might be the case that the number of additional cells hidden could be reduced by switching credit and debit side in the first choice.

In MDT, the command “Query-> function count-> where confidentiality=R” gives the number of additional hidden cells.

Example 2: The second example concerns the post dimension and six equations, several of which are being interconnected. In Eq1 and Eq3, priority has been given to hide either the “other capital” or the “equity capital” component, whenever a confidential value appears in this equation. It means that we want to favour the sum “equity+other capital” in our system, given that this component is also used for the sectoral breakdown estimates. In Eq2 and Eq4, an option have been taken to hide first the ‘total capital flow’, for the same reason as expressed before, but also because the RIE components are also used in other equations. In Eq5 and Eq6, the same first choice has been defined (331) to restrict the number of additional hidden cells to the necessary ones: If the post 332 is confidential in Eq5, then post 331 will be hidden, and it will not be necessary to hide either post 330 or post 334 in Eq6.


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Dimension Components Equation(s) First choice Second choice

Post 510,530, 541, 525, 505, 560, 580, 591, 575, 555, 330, 331, 332, 333, 334

Eq1: 541=510+530

Eq2: 505=525+541

Eq3: 591=560+580

Eq4: 555=575+591

Eq5: 331=332+333

Eq6: 330=331+334

Eq7: 330=335+333

Eq8 (net flows):

333+525+575=0

=530

=505

=580

=555

=331

=331

=335

=525

=510

=525

=560

=575

=332

=334

=333

=575

For the post dimension, the function name in bopfdi is set_conf_post_main. If complete information has been transmitted by the MS, you have to execute the following sequences:

1- bopfdi.set_conf_post ( target_table, "331", "332", ("331","332","333") ) ;








In practise, some kind of “flexibility” is deemed necessary. Regarding the income components, several countries provide Eurostat with data relating only to the dividends (332) and the reinvested earnings (333) regional distribution. In such a case, the second equation (with 331,334 and 330) does not need to be executed. Some countries could prefer to hide, as a first choice and for the above-mentioned equations 6 and 7, the 541/591 components instead of the 505/555 ones: This might be the case when, in their national publication, the geographical breakdown of FDI flows is shown only for the sum of equity and other capital (i.e. the geographical breakdown of RIE is not available). Thus, to be consistent with the content of the MSs’ national publications, it is better to substitute equations 6 and 7 by the following ones:



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Table 3.1 presents the list of equations that could be used to hide additional cells on the partner dimension. This list is an adaptation of the equations shown in the BOP vademecum, with a slight divergence for a few of them. For example, North America (E8) normally includes the USA, Canada and Greenland. But MSs’ data frequently present North America as being only the sum of USA and Canada. Therefore we need to implement “E8=USA+CA” in our list, that is the “real” relation used by the MS.

In the case of the partner dimension, the application of a unique set of relations is less easy to adopt, and the presentation below does not reflect the exact treatment in use for each reporting country. The first choice can be influenced by the availability (or not) of some information in the MSs’ Website: For example, most MSs do not publish, at their national level, FDI information with the total EFTA, Near&Middle East countries, total NAFTA, total NICs1, total NICs2 (Asia, Latin America) and the total Baltic countries. In this case, it seems more appropriate to use the above-mentioned zones as a first choice.

Furthermore, the second choice does not need to be different from the first one, especially if we (voluntarily) want to reduce the amount of additional hidden cells. Below is an example where the first choice is equal to the second choice, in equation 1 (=Z6). In the case of equation 1 below, our judgement is to consider that it is not necessary to hide any information vis-à-vis a given MS partner, even if a confidentiality cell is detected: Within the EU reporting entities, the tendency is to publish all FDI transactions with individual EU partners.

An example of an equations list for the dimension partner :

Table 3.1 Equations employed to hide additional values

1. bopfdi.set_conf_partner(target_table,"Z6","Z6", ("D2","A3","GR","DE","ES","FR","IE","IT","NL","AT", "PT","FI","SE","GB") ) ;

2. bopfdi.set_conf_partner(target_table,"U2","U2",("U2","A3","DE","ES","FR", "IE","IT","NL","AT","PT","FI") ) ;

3. bopfdi.set_conf_partner ( target_table, "IS", "LI", ("A5","NO","CH","IS", "LI") ) ;

4. bopfdi.set_conf_partner ( target_table, "IS", "LI", ("A6","NO","D2","IS", "LI") ) ;

5. bopfdi.set_conf_partner ( target_table, "E2", "A5", ("E1","A5","D2", "E2") ) ;

6. bopfdi.set_conf_partner ( target_table, "E5", "E6", ("E4","E5","E6") ) ;

7. bopfdi.set_conf_partner ( target_table, "E8", "CA", ("E8","US", "CA" ) ) ;

8. bopfdi.set_conf_partner ( target_table, "E9", "F1", ("E7","E8", "E9","F1" ) ) ;

9. bopfdi.set_conf_partner ( target_table, "IL", "IR", ("F3","IL","F4","F5", "IR") ) ;

10. bopfdi.set_conf_partner ( target_table, "F3", "F6", ("F2","F3", "F6") ) ;

11. bopfdi.set_conf_partner ( target_table, "B1", "MX", ("US","B1","CA", "MX") ) ;


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12. bopfdi.set_conf_partner ( target_table, "B9", "SG", ("B9","SG","HK","KR", "TW") ) ;

13. bopfdi.set_conf_partner ( target_table, "C1", "PH", ("MY","PH","C1", "TH") ) ;

14. bopfdi.set_conf_partner ( target_table, "C2", "MX", ("C2","AR","BR","MX", "CL") ) ;

15. bopfdi.set_conf_partner ( target_table, "B7", "B8", ("B5","B6","B7", "B8") ) ;

16. bopfdi.set_conf_partner ( target_table, "U3", "U3", ("U3","SE","GB", "GR") ) ;

17. bopfdi.set_conf_partner ( target_table, "U2", "U2", ("D2","U2","U3") ) ;

18. bopfdi.set_conf_partner ( target_table, "U2", "U4", ("U2", "U4","A1") ) ;

19. bopfdi.set_conf_partner(target_table,"IS","B1",("A8","D2","CH","NO","B1","JP","AU","NZ","CZ","TR","HU","PL","KR", "IS") ) ;

20. bopfdi.set_conf_partner ( target_table, "LV", "LT", ("EE","LT","LV", "E3") ) ;

21. bopfdi.set_conf_partner ( target_table, "Z5", "Z5", ("A1","E4","E7","F2","F7","E1", "Z5") ) ;

22. bopfdi.set_conf_partner ( target_table, "D4", "D2", ("A1","D2","D4" ) ) ;

23. bopfdi.set_conf_partner(target_table,"Z8","F7", ("D4","A5","E2","E5","E6","E8","E9","F1","F3","F6","F7", "Z8") ) ;

The following equations are used for the confidentiality treatment along the activity sector dimension (extract from set_conf_activity, in bopfdi domain):

bopfdi.set_conf_activity ( target_table , "1490" , "1100" , ( "1495" , "1100" , "1490" ) ) ;


bopfdi.set_conf_activity ( target_table , "2500" , "2400" , ( "2595" , "2300" , "2400" , "2500" ) ) ;




bopfdi.set_conf_activity ( target_table , "3990" , "1605" , ( "3995" , "1605" , "2295" , "2595" , "2995" , "3295" , "3595" , "3990" ) ) ;







bopfdi.set_conf_activity ( target_table , "9996" , "9995" , ( "9999" , "9998", "0595" , "1495" , "3995" , "4195" , "4500" , "5295" , "5500" , "6495" , "6895" , "7395" , "9995" , "9996" ) ) ;



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Once all the equations have been defined and adapted to the concerned country, the confidentiality procedure is an iterative one. Below is a model applied to the treatment of 2003A FDI flows, reported by Member State XX. Once the data are harmonised, the first step is to ensure the transfer of confidential flags “C” from the source table to the harmonised one. Then the confidentiality procedure is applied on the harmonised table, in the form of several iterations. In this example, it is assumed that three rounds (please refer to the model presented below) were necessary to make sure that the number of secondary confidential cells was enough.

1. After the first round, we count the number of secondary hidden cells (N1). If N1=0 we stop the procedure, otherwise we continue with a second round

2. After the second round, we count the number of secondary hidden cells (N2). If N2=N1 we stop the procedure (no additional hidden cells between the first and the second round), otherwise we continue with a third round etc…

Procedure (set_conf_flow: a model)

// CONFIDENTIALITY

filter period (2003A) ;

bopfdi . conf_copy_from_source ( fdi_source_xx , fdi_harm_xx );

// 1st round

set_conf_flow_main ( fdi_harm_xx ) ;

set_conf_post_main_xx ( fdi_harm_xx ) ; // adapted for country xx

set_conf_partner_main_pos_xx ( fdi_harm_xx ) ; // adapted for country xx

set_conf_activity ( fdi_harm_xx ) ;

// 2nd round




set_conf_activity ( fdi_harm_xx ) ;

// 3nd round




etc.


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Chapter IV. FDI compilation process-estimation

IV.1 Why? Eurostat is asked by the Commission via its various Directorate Generals (DG RELEX, DG ECFIN, DG Competition, DG internal market, DG trade, DG ENLARG, DG Co-operation etc.) to produce detailed annual information about FDI flows and positions made by the EU as a whole entity (i.e. as a reporter). For the moment, it is not possible to collect the FDI transactions directly at the EU level. The Council and Parliamen Regulation 184/2005 stipulates the requirements for transmission of FDI data by the Member States. Several questionnaires are implemented in the ESTAT BOP Vademecum reflecting these requirements: questionnaires Y5, Y6 expressing the official ESTAT requests on FDI flows, and questionnaires Y7 and Y8 on FDI positions. All MSs are requested to provide Eurostat with the FDI information reported by their respective country, as stated in the BOP vademecum. Not all of them are able to fulfil entirely all the Y5/6/7/8 questionnaires, either due to confidentiality reasons or because their current data collection system do not permit such a collection. Therefore, Eurostat is obliged by the circumstances to compute estimates and fill in the missing values observed in each reporting country transmission. Before a new production cycle starts, a decision is taken within the BOP Unit to portray the list of cells to be estimated.


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IV.2 How to proceed? Given the various situations observed in practice, it is very difficult to synthesise all the methods used at the moment to estimate the missing values. It might be useful though to provide a harmonised approach about how to organise the estimation process. The first part of this chapter will present the most current estimations done to fill in the remaining missing values on the geographical breakdown. The second part will summarise the estimations to be computed on the sectoral breakdown. Finally the third part will present the so-called special cases when, for example, a complete component is missing (i.e. the reinvested earnings for Spain, the interest components for several MS countries). In all cases, the starting point is to estimate the missing values observed in the harmonised tables. The first step to be done, once the estimation table has been created, is to copy there all the values of the respective harmonised table. First estimation task = update fdi_estim_xx with fdi_harm_xx IV.2.1 Estimations on the geographical breakdown (General case) The term ‘General Case’ refers to the most current situation when it comes to the geographical breakdown estimation, which is also the most time-consuming exercise. A non-negligible number of MSs provide Eurostat with partially incomplete information in all questionnaires (Y6-1/2/3, Y5-1/2/3, Y7-1/2, Y8-1/2). We assume that the MSs are able to deliver the FDI information (or to measure the FDI information) on all the IMF FDI components (510, 530, 525, 505, 560, 580, 575, 555, 332, 333, 334, 330), at least for the world total. For the sake of easiness and clarity only the posts 541, 591, 331,335, which are intermediary post items, are going to be incorporated into the analysis.

IV.2.1.1 FDI FLOWS The FDI flows tables comprise two parts; one reflecting the FDI transactions within the capital and financial account framework (questionnaires Y6-1/2 for the geographical breakdown, Y5-1/2 for the sectoral breakdown), and the second one that deals with the FDI income transactions (Y6-3 questionnaire).


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The link between the FDI flows part (outward + inward) and the income part is exhibited in the following equation: 525-42 + 575-4 + 333-4 = 0. This relation makes explicit that the two parts are linked via the reinvested earnings (RIE) components. The RIE from abroad (post 525, net flows in table 1) has to be equal to the RIE income received from abroad (post 333-Credit side of table 2) having the opposite sign. Furthermore, the RIE component in the reporting country has to be equal with the RIE income paid to the non-resident parent companies (in this case net flows of post 575=debit side of post 333). It is essential that the person in charge of the estimation procedure of a country XX checks and ensures that these two equations are identical, a task that should normally be done at the harmonisation stage. Second estimation task = Check that 525-4= 333-2 *(-1) and 575-4 = 333-3. (If not, correct in the harm_file and redo the first estimation task) Then, it might be possible to reduce the number of estimated cells if:

• Some of them are confidential/non-publishable, but have been sent to Eurostat under a “C” or “N” flag. Such a situation is relevant mainly for Denmark, Sweden, Finland (flag “C”), few cells for Germany, and Austria (flag “N”).

• The missing values have not been transmitted to Eurostat, but can be found in the MSs’ national publication, or website. Such a situation is relevant mainly for the United Kingdom, the Netherlands and, to some extent, Germany and Sweden (few cells).

The acquisition of a missing value could reduce significantly the volume of missing data to be estimated, as other cells could be deduced by crossing the different available equations both on posts and partners dimensions. Below is a small example to illustrate the helpfulness of an additional piece of information. Let us assume that, for the reporting country X, the value for Mexico is available (i.e. in the website of country X) for post 525 (of table1 below) or 332-credit side (table 2 below). Then the following estimates can be made easily available: (2) debit= credit- net flows (within post 333, partner MX). (3) 332=330–333–334 (dim. post, credit side, partner MX). (4) 510=505–530–525 (dim. post, partner MX). (5) 580=555–560–575 (dim. post, partner MX). (6) CA=B1–US–MX (equation along dimension partner) In our example, the acquisition of an additional piece of information could lead to the easy estimation of 14 cells…and maybe more if one bears in mind that along the partner dimension, Mexico belongs to other economic groups defined in our vademecum, such as the OECD or the NICs2 LA. In some cases (UK for example), the person responsible for the estimation process might not have additional information on the RIE components but on the total FDI profits (dividends + RIE). Of

2 4 here indicates the Net amount of flows, which is equal to Credit minus Debit


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course this piece of information has to be used to improve the reliability of the estimates done. Table 4.1 Estimation of missing values via additional information 510 530 525 505 560 580 575 555 B1 X X X X X X X X US X X X X X X X X CA (6) X (6) X X (6) (6) X MX (4) X (1) X X (5) (2) X Table 4.2 Estimation of missing values via additional information 332 333 334 330 Cd Dt Net Cd Dt Net Cd Dt Net Cd Dt Net B1 X X X X X X X X X X X X US X X X X X X X X X X X X CA (6) (6) (6) X X X X X MX (3) (1) (2) X X X X X Third estimation task=Whenever possible, try to reduce the number of estimated cells by using the maximum of information a priori (confidential) The estimation method needs to be selected and applied in order to continue with the estimation process of the missing values. The most widespread one comprises the most appropriate structure of weights to fill in the remaining missing values. For Y6-1/2 questionnaires, the application of a method based on a structure of weights might not be theoretically satisfactory, because the estimations are computed directly for the net flows (i.e. the figures can be either negative or positive). For the FDI income questionnaire, the same problem is relevant largely for the RIE and the income on debt components. As far as the dividends are concerned, they are in principle positive or nil. Exceptionally negative dividends have already been observed in some MSs’ figures. Because of its positive sign, it is suggested to continue estimating the missing values firstly by applying an appropriate structure of weights on the dividend components, both for the credit and debit side. The credit side of the dividends component corresponds to the dividends paid by non-resident foreign affiliates to their resident shareholders located in the reporting country. The debit side of the dividends component corresponds to the dividends paid by resident foreign affiliates to their foreign shareholders located abroad. Therefore, it seems natural to allocate the dividends according to regional distribution of foreign assets held abroad (for the credit side), or regional distribution of the


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liabilities (for the debit side) if such information is available. The subsequent table summarises the most appropriate solutions when the reporting country has available FDI position data relating to the corresponding missing cells. Table 4.3 Alternative solutions Post 332, credit

Post 332, debit

First best solution Update missing data using a structure of weights based on equity FDI assets (Y8, post 506).

Update missing data using a structure of weights based on equity FDI liabilities (Y8, post 556).

Second best solution Update missing data using a structure of weights based on total FDI assets (Y8, post 505).

Update missing data using a structure of weights based on total FDI liabilities (Y8, post 555).

Third best solution (rarely used)

Update missing data using a structure of weights based on outward FATS (Y10-1).

Update missing data using a structure of weights based on inward FATS (Y10-2).

In practice, Eurostat’s official request is to receive the FDI flows questionnaire within a T+6 months delay and the FDI positions questionnaire after T+18 months. Therefore, the amount of dividends received/paid in year n is frequently estimated using the regional distribution of FDI positions at end of year (n-1). It is advisable to group the missing cells according to the smallest geographical/or economic zones in which they belong to. Let us assume that, along the credit side of the dividends component and among the CEECs’, the information is missing for partner Hungary, Romania, Croatia and Yugoslavia. But the reporting country X has a complete geographical breakdown of its FDI assets held in all the individual CEECs’. In this case, the relative importance of each of the four above-mentioned countries will be measured on the stocks data. If the total FDI assets held in Hungary represents 50% of the total FDI assets held by the X country within “Hungary + Romania + Croatia + Yugoslavia”, then the 50% of the dividends received from those four countries should be allocated to Hungary. If the reporting country X has no information about its external FDI positions, we can apply the same method once the FDI positions are estimated. In our regular production process, MSs’ FDI positions estimated tables (year n-1) are processed before the FDI flows ones (year n). By doing so, the risk of applying two different methods (one to estimate the regional distribution of the positions, the other for the regional distribution of the income) is avoided. Fourth estimation task = Estimate the missing values on dividends components, using a regional distribution based on the FDI positions data. For a reporting country X: The dividends of year n are being estimated with a structure of weights based on FDI positions at end of year n-1. The information is available in fdi_stock_harm_xx. Dividends of year n-1 (revisions) are also being estimated with FDI positions data at end n-1.


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If the FDI positions data information is not available, then the usage of a structure of weights based on previously estimated FDI positions data is highly recommended. This information is available in fdi_stock_estim_xx. Once all the dividend components have been estimated (332-2 and 332-3), the next step is to complete the FDI income estimates on the RIE (333) and interest components (334). As stated earlier, the use of a structure of weights is feasible, carrying at the same time the risk of ending up with unreliable results (for example, reinvested earnings can be negative on the credit side in case of losses generated by the activity of a foreign affiliate). Unless having additional information to restrict the size of the reinvested earnings and/or to identify precisely the partner countries with whom negative RIE have been observed, it is unlikely to obtain reliable estimates for all the remaining missing values by using directly a weighted structure. If, within a group of partner countries, it is expected (with high probability) that the reporting country recorded negative RIE vis-à-vis one of these partners (partner Y), then it is advisable to organise the estimation in two steps. Firstly the evaluation of the negative RIE has to be done for the partner country Y and, secondly, the remaining amount has to be reallocated among the other partner countries. Unless the information is disclosed by the MS, the detection of negative amounts of RIEs is not obvious. There are two possible types of information that might lead us to suspect negative RIEs.

• Sometimes, in MSss national publications (or website), information about the total profit with a regional distribution can be found, however without its breakdown into dividends and RIE. If the total profit is negative, one might assume that no dividends distribution occurred during this period and allocate all the losses to the RIE component.

• The analysis of the “Equity and RIE” FDI positions series could also be very helpful, especially if a decrease is observed between the level of stocks at end of year n and at the end of year n-1. In theory, a decrease between the “Equity and RIE” of FDI stocks at end of year n and at the end of year n-1 could be explained either by a disinvestment in equity capital component (transactions on posts 510 or 560), and/or the recording of negative RIE (transactions on posts 525 or 575), and/or a negative value in the valuation of other adjustment (decrease of existing assets held abroad due to a decrease in the price valuation, or in the exchange rate, etc..).

Otherwise, it is always possible to apply a structure of weights in a similar way as described for dividends. One should bear in mind that the reinvested earning are part of the total profits not distributed to foreign shareholders (i.e. the profit which remain in the balance sheet accounts of the company). Therefore, it is also natural to adopt a structure of weights based on FDI positions data. But in case of serious doubts:


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• We should also remember that, within the European Union, the countries belonging to the OECD (i.e. the countries having the capacity to invest abroad) initiate most inward FDI transactions. Apart from our so-called offshore entities, it is unlikely to observe a significant amount of reinvested earnings on the debit side and for a partner country not belonging to the OECD area.

• An alternative way could be the usage of a proxy value, available for another economic or geographic zone. As an example, it might be possible to have a proxy value of the RIE made by Egypt in the reporting MS country using the difference between the total North Africa and the Total Maghreb. A more detailed list of possible approximations is presented in annex Y6 (estimation methods).

Fifth estimation task = Achieve the estimation of the missing values on the income questionnaire Y6-3, that is on the RIE and interest components. Try to achieve entirely, firstly the RIE, and then the interest components can be obtained by the difference of Total income – Dividends - RIE. When estimating the RIE for a given group of partner countries try to isolate and estimate firstly the partner country towards which negative values are likely to be recorded. This is sometimes feasible if the MS has additional information such as the evolution of the total profits of foreign affiliates (by country) or “Equity capital and RIE” FDI assets/liabilities. Similar to dividends, use a structure of weights based on FDI positions data. If solution 1 or 2 is not satisfactory, make a rough estimate using a proxy of a value available for the smallest (closest) identifiable economic zone containing the estimated partner country.

IV.2.1.2 FDI POSITIONS The estimation steps for the FDI positions data are similar to the respective ones presented in the FDI flows part. It is wise to use the maximum of available information revealed by the MSs, but which are not sent to Eurostat. The following section will concentrate on the estimation methods currently applied to fill in the missing values on FDI stock data. In most of the cases it is better to organise the estimation procedure in two parts (Assets side/Liabilities side) and, within each one, to start with the estimation of the total FDI assets or liabilities before going on with the breakdown of these totals into “Equity capital & RIE” and “Other capital”. This way of proceeding though is not compulsory. Once the regional distribution of the total assets/liabilities is entirely estimated, the computations of missing values on the sub-post components (506 and 530 for assets, 556 and 580 for liabilities) is easier. For this reason, only the estimation methods on posts 505 and 555 will be presented in detail. Let us assume that the total assets held (year n) by the MS reporting country X in a given partner country Y need to be estimated. The most current situations are:


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1. The reporting country X has a regional distribution of its external FDI assets, including available FDI time series vis-à-vis the partner country Y. FDI positions data with partner Y is missing, for the concerned year n, and is “directly” estimated.

2. The reporting country X has a regional distribution of its external FDI assets, including available FDI time series vis-à-vis partner country Y. FDI positions data with Y is missing, for the concerned year n, and is “indirectly” estimated, or estimated simultaneously with other partners belonging to the same aggregate.

3. The reporting country X has a regional distribution of its external FDI assets, but has never produced any information with partner Y, both for FDI positions and FDI flows.

4. Specific cases: The reporting country X has no regional distribution of its external FDI assets. Only the total external FDI assets/Liabilities can be provided by the MS.

Case 1: The value for partner Y is approximated directly using the following formula: FDI Stock (X, Y, n) = FDI Stock (X, Y, n-1) + FDI flows (X, Y, n). • This relation implies availability of FDI flows data at year n, otherwise it is

preferable to apply the method described for case 2. Furthermore, this approximation leaves aside the issue of “other factor adjustments”. For this last point, no information is available at a detailed level. Sometimes, the relative importance (the size) of “other adjustments factors” presented in some MSs’ publications can be utilised constructively.

In the absence of FDI flows information other alternatives could be employed to estimate directly Y:

1. FDI Stock (X, Y, n) with FDI Stock (X, Y, n-1) or, 2. FDI flows (Y, X, n) with FDI flows (Y, X, n) (mirror figures, if available). 3. FDI Stock (X, Y, n) = ( FDI Stock (X, Y, n-1) + FDI Stock (X, Y, n+1) ) / 2. None of these three methods could be strongly recommended. The first one relies on a strong assumption (FDI flows =0), the second one uses mirror statistics (i.e. asymmetry problems), and the last one assumes a constant evolution of FDI stocks over the [n-1, n+1] period, an assumption which is not always representative of the real situation.

Case 2: The estimation of the missing values for partner Y is approximated indirectly with a structure of weights. The estimation for partner Y is computed simultaneously with missing values for other partner counties belonging to the same economic zone. The best solution is to use a structure of weights based on the previous year’s distribution (i.e. The FDI positions at end of year n-1). FDI Stock (X, Y, n) = FDI Stock (X, Y, n-1) *

FDI Stock (X, (Aggregate -∑available partner countries), n) / FDI Stock (X, (Aggregate -∑available partner countries), n-1).

If the FDI positions data for past years are not available and if the MS has long and detailed series (at least 10 years) about its FDI flows, then a structure of weights using cumulated FDI flows data can be used instead (the second best solution).


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Case 3: None of the above-mentioned formulae can be applied due to the total absence of additional information/ time series data, as well as no data availability on the FDI flows data. Alternative ways of proceeding with the estimation procedure could be: • The use of FATS statistics if more detailed (geographical) breakdown is available

on the turnover (T) and employment (E) variables. This method has been utilised once to estimate the missing values for the Greek FDI positions (1998 and 1999), but it is a time-consuming exercise, especially if the amounts to be estimated are small or negligible.

The use of a proxy of a value available on the smallest (closest) identifiable economic zone containing partner country Y. Specific cases: Spain: The Bank of Spain does not compile any FDI positions data, but has an estimation of total Spanish FDI assets/liabilities based on cumulated flows. Regarding FDI transactions, the Bank of Spain has a detailed breakdown, both on equity and other capital components. Thus, Spanish FDI positions are estimated in two steps: 1. A structure of weights is constructed based on the cumulated FDI flows (from

1992). 2. The geographical breakdown of Spanish FDI positions is then estimated by

distributing the total assets/liabilities according to the weighted structure (previously) built in 1.

IV.2.2 Estimations on the sectoral breakdown (General case) This part will present briefly the estimation procedures on the sectoral breakdown as the way is rather similar to the one presented in the previous chapter regarding the geographical breakdown. At the beginning of each estimation step, the number of missing values can be reduced by the use of either confidential available data or additional information available in MS website. Then, the selected estimation method is conceptually identical to those established for the geographical breakdown. However, there are some specific situations where it is difficult to take the “right” decision. In the following simulation, how could we estimate direct investment made by Japan in the “Telecommunication and financial intermediation” sectors (in grey)? Reporting country: X Post 591 Questionnaire: Y5 �� Official ESTAT request �� Addit.inform �� USA CA JP A1 EU Ext

EU EFTA CCs*+

MX AU, NZ, KR

A8

0595 100 100 0 100 0 100 1495 300 0 500 100 400 400 3995 800 -200 500 2500 1500 1000 300 2200 4195 100 0 900 800 100 1100 4500 0 0 0 500 400 100 100 -100 5295 0 100 500 200 300 100 600 5500 100 0 500 600 -100 -100 200


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6495 500 100 -1000 1000 -2000 500 0 0 -1400 6895 400 600 6300 500 5800 100 500 6200 7395 300 500 200 300 800 9995 0 0 0 0 0 0 9996 0 100 500 0 0 0 200 150 100 0 9998 0 0 0 0 0 0 0 0 0 0 9999 2600 700 1000 11300 5300 6000 1200 150 600 10100 * Here CCs means all the Candidate countries belonging to OECD (=PL, CZ, HU, and SK). 1) In this simulation, additional information is available on the breakdown by activity crossed with OECD partners such as the CEECs, Mexico, South Korea, Australia and New-Zealand. If we assume that, apart from the so-called offshore centres all significant direct investors in the EU belong to the OECD area, it seems better to estimate the Japanese direct investment in the telecommunication sector using the difference OECD-EU-EFTA-USA-CA-(CCs+MX)-(AU,NZ, KR). 2) If the previous year’s FDI stocks distribution is applied to allocate the Japanese transactions (500 in our example), it is likely that we will obtain positive values (all of them being inferior to 500) for activities 6495 and 6895. 3) A third solution could be the use of another structure constructed on the sectoral breakdown crossed with the (Extra EU–USA) area that is the closest area for which a complete sectoral breakdown is provided. Sectoral breakdown estimates of Japanese direct investment made in reporting country X: comparisons’ results. First method

(additional info.) Second method (last year’s stocks dist.)

Third method (FDI flows of D4-US)

0595 0 10 0 1495 0 10 16 3995 500 500 500 4195 0 30 0 4500 0 0 0 5295 0 0 48 5500 0 50 -32 6495 -3500 100 -403 6895 4000 200 871 7395 0 100 0 9995 0 0 0 9996 0 0 0 9998 0 0 0 9999 1000 1000 1000 In this example, the first method is probably the best one. The third one based on the (D4-US) structure also identifies the disinvestment observed in the telecommunications sector. The second method provides results which are far though from the economic reality.


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IV.3 Conclusion The purpose of this part was to present some guidance steps whenever MSs missing values have to be estimated. The following Y6 and Y8 annexes present a list of methods already applied in the regular estimation process, under MDT. Some of them are out of date due to increasing and continuous evolution of the data sent to Eurostat. These methods are just presented to provide additional ideas, or to help the users make some estimates. These methods also portray the current breakdown within the post sub-components (510/530 or 560/580, or 506/530, or 556/580), which were not discussed earlier. As already said, this list has to be updated on a regular basis, taking into account the evolution of FDI requests, and the increasing number of data received from the MS (which tend to make some of the suggested methods useless).

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Estimation methods on Post=510/530 (abroad) or Post=560/580 (inward) Independent estimates: For a given partner country and for a given post, the value is estimated using information a priori or by making a hypothesis. M1: The value is confidential and/or non-publishable, but available for estimates. M2: The value has not been transmitted to Eurostat, but found in the MS national publication. M3: The value has been estimated with nil, because past observations always indicated a nil value. M4: Estimate made as a proxy of a value available for another economic or geographic zone. Examples:E5 (North Africa) estimated as being equal to C7 (Maghreb) + EG.

E6 (Other African countries) estimated as being equal to B6 (African ACP). E9 (Other African countries) est. as being equal to B2 (Latin America)–F1 (South America). F1 (South America) estimated as being equal to C9 (Mercosur) +VE+CO+CL. F4 (Gulf Arabian) estimated as being equal to B4 (OPEC) minus IR minus ID minus VE minus [E5 (North AfricaI) – EG – MA]� estimation of (Algeria + Libya). minus [B6(African ACP) – C5(French franc zone)]�estimation of Nigeria. F5 (Other Near&Middle East) estimated as being equal to C8 (Mashrek) -EG minus (optional) [C6 (CIS c.) – RU – BY - UA]� proxy of (Armenia+Georgia +Azerbaijan). F7 (Oceania) estimated as being equal to AU + NZ + B8 (Pacific ACP countries) C6 (CIS) estimated as being equal to RU + BY + UA. A9 (CEEC) estimated as being equal to D6 (CCs, be careful only with Cyprus) minus TR. B3 (Asean) estimated as being equal to C1 (Nics2A) + ID + SG.

M5: Hypothesis of a nil value based on other economic information, like for example no (or marginal) external

trade relationship between the reporter and the partner country. Vertical estimates: For a given partner country y, a ratio or a weighted structure is used to distribute the total of missing values along the post dimension. For example, the ratio firstly allows the calculation of either post 510 or 530. The remaining post is calculated by difference. M6: Ratio “Equity capital” / “Equity capital+Other capital” available in the previous year data (year n-1). M7: Ratio “Equity capital” / “Equity capital+Other capital” available in previous years’ data. This ratio is built

on cumulated FDI flows (year n-1,n-2, n-3,…,1). M8: Ratio “Equity capital” / “Equity capital+Other capital” (year n) available on the nearest aggregate (i.e. an

economic or geographic zone) in which country y is included. For example, if country y is a MS, the nearest aggregate is D2 (EU).

M9: Ratio “Equity capital” / “Equity capital+Other capital” (year n) is available on the nearest aggregate A (i.e.

an economic or geographic zone) in which country y is included. But, in addition, the same ratio is also available on other partner country(ies) belonging to the same aggregate A. Therefore: Step1� Equity capital (year n) is calculated for partner economic zone (A- Σavailable partner countries). Step2� “Equity capital+Other capital” (year n) is calculated for partner economic zone (A- Σavailable partner countries). Step3� The weighted structure is Value of step 1 divided by Value of step 2.

M10: Use of FDI positions at end of the previous year. The ratio “Equity capital and Reinvested earning assets” / “Total FDI assets” (year n-1) is available for the estimated cell.

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M11: Use of FDI positions at end of the previous year. The ratio “Equity capital and Reinvested earning assets” / “Total FDI assets” (year n-1) is available for the nearest aggregate A in which partner country y is included.

M12: Use of FDI positions at end of previous year. The ratio “Equity capital and Reinvested earning assets” /

“Total FDI assets” (year n-1) is available for the partner economic zone (Aggregate A- Σavailable partner countries belonging to aggregate A). Step1� Equity capital is calculated for partner economic zone (A-Σavailable countries). Step2� “Equity capital+Other capital” is calculated for partner economic zone (A- Σavailable countries). Step3� The weighted structure is Value of step 1 divided by Value of step 2.

M13: Use of the partner’s country information available for the current year. For 510/530 estimates, the ratio

560/591 (inward side of partner’s FDI flows declarations) is applied: Equity capital acquisition in partner country j (510) = Total FDI flows made by reporter I in country j (541, excluding the RIE) * [ Equity capital acquisition by country i in country j, declared by partner country j (560) / Total FDI flows received from country i in country j, declared by partner country j (591) ] M14: Use of the Partner’s country information on positions available at the end of the previous year. In this case,

the ratio “Equity capital + reinvested earnings liabilities” divided by “total liabilities” (year n-1), that is 556/555, is applied.

Equity capital acquisition in partner country j (510) = Total FDI flows made by reporter I in country j (541, excluding the RIE) * [ ”Equity capital&RIE” liabilities vis-à-vis country i, declared by partner country j (556) / Total FDI liabilities vis-à-vis country i, declared by partner country j (555) ] Horizontal estimates: For a given (unique) post, the missing values are simultaneously estimated for a group of partner countries. M15: Amounts involved are likely to be marginal, and therefore “uniformly” distributed among the missing

partner’s countries values. M16: Use of FDI positions at end of previous year. The total “Equity capital” (year n) for partners countries X, Y

and Z is available, but not the value for each one. Therefore, for partner country X, the ratio: “Equity capital and reinvested earning assets of country X” (year n-1)/ “Equity capital and Reinvested earning assets of Σ partners countries X, Y, Z” (year n-1) is used to distribute the total “Equity capital” (year n) of partners countries X, Y and Z.

M17: Use of FDI positions at end of previous year. The total “Equity capital” (year n) for partners countries X, Y and Z is available, but not the value of each one. Therefore, for partner country X, the ratio: “ Total FDI assets of country X ” (year n-1) / “ Total FDI assets of Σ partners countries X, Y, Z ” (year n-1) is used to distribute the total “Equity capital” (year n) of partners’ countries X, Y and Z.

M18: Use the distribution of total FDI flows (either 541 or 591) of the current year n. The total “Equity capital”

(either 510 or 560) for partners countries X, Y and Z is available, but not their individual value. Therefore, for partner country X, the ratio: “Total FDI flows (541) of country X”/“Total FDI flows (541) of Σ partners countries X,Y, Z” is used to distribute the total “Equity capital” of partners countries X, Y and Z.

Estimation methods for Reinvested earnings (RIE) Post = 525 or Post=575 Reminder: According to the IMF 5th Manual, Reinvested earnings is a balancing item deducted from the formula: RIE (yearn) = Total profits earned during year n – Dividends distributed during year n.

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The total profits should, in principle, be calculated on the basis of the current operating performance concept. This means that before applying the above-mentioned formula, the company should exclude from its profits and loss accounts the exceptional capital gains or losses. Assuming that MSs applies this formula, the total profit could be seen, our income questionnaire (Y6-3) as being: • (Post = 332, Flow = 2) + (Post = 333, Flow = 2) for profits resulting from the activity of direct investment

companies located abroad. • (Post = 332, Flow = 3) + (Post = 333, Flow = 3) for profits resulting from the activity of direct investment

companies located in the declaring country. Independent estimates: For a given partner country and for a given post, the value is estimated using information a priori or by making a hypothesis. BR1: The value is confidential and/or non-publishable, but available for estimates. BR2: The value has not been transmitted to Eurostat, but is available in MS national publication. BR3: The value has not been published in the financial account part, but is available in the current account/income

part, that is in questionnaire Y6-3. Therefore, 525-4 = -333-2, 575-4 = 333-3. BR4: The reporting country does not compile the RIE. Therefore, estimations are done using directly the value

given by the partners’ country declaration: 525-4 = 575-4 or 525-4 = 333-3, extracted from the partner data source (mirror data).

BR5: Estimates of total RIE abroad using one of the following ratio, available in others MSs questionnaires: Step 1: selection of one of the following ratio from each MSs.

• RIE abroad / total income received from the rest of the world. • RIE abroad / total FDI flows abroad. • RIE abroad / total FDI assets held abroad in the form of equity (post 506). • RIE abroad / total FDI assets held abroad.

Step 2: For each MS, a simple average ratio is calculated. Ratio (MS) = Σ (Ratio (MS, year t) / n, n equal number of observed years. Step 3: A simple average ratio is calculated for all MSs I. Ratio = Σ (Ratio (MS) / p, p equal number of observed partners. Step 4: The ratio obtained in step 3 is used to estimate the total RIE of the reporting Member State. BR6: The reporting country does not compile the RIE. Therefore, the value is estimated to nil. BR7: Estimate made as a proxy of a value available for another economic or geographic zone. Examples:E5

(North Africa) estimated as being equal to C7 (Maghreb) + EG. E6 (Other African countries) estimated as being equal to B6 (African ACP). E9 (Other African countries) est. as being equal to B2 (Latin America)–F1 (South America). F1 (South America) estimated as being equal to C9 (Mercosur) +VE+CO+CL. F4 (Gulf Arabian) estimated as being equal to B4 (OPEC) minus IR minus ID minus VE minus [E5 (North AfricaI) – EG – MA]� estimation of (Algeria + Lybia). minus [B6(African ACP) – C5(French franc zone)]�estimation of Nigeria. F5 (Other Near&Middle East) estimated as being equal to C8 (Mashrek) -EG minus (optional) [C6 (CIS c.) – RU – BY - UA]� proxy of (Armenia+Georgia +Azerbaïdjan). F7 (Oceania) estimated as being equal to AU + NZ + B8 (Pacific ACP countries) C6 (CIS) estimated as being equal to RU + BY + UA. A9 (CEEC) estimated as being equal to D6 (CCs, be careful only with Cyprus) minus TR. B3 (Asean) estimated as being equal to C1 (Nics2A) + ID + SG.

BR8: Hypothesis of a nil value based on other economic information, like for example no (or marginal) external

trade relationship between the reporter and the partner country.

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Estimation of a weighted structure based on past observations of reporting country X vis-à-vis partner country Y

BR9: The following series is available in the reporting country data collection system:

RIE(year t) / [ RIE + Equity capital ] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. BR10: The following series is available in the reporting country data collection system:

RIE(year t) / [ Total FDI flows ] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. BR11: The following series is available in the reporting country data collection system:

RIE(year t) / [ RIE + Dividends distributed ] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. BR12: The following series is available in the reporting country data collection system:

RIE(year t) / [ Total FDI income ] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. BR13: The following series is available in the reporting country data collection system:

RIE(year t) / [Tot. Equity capital and RIE assets or liabilities] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. BR14: The following series is available in the reporting country data collection system:

RIE(year t) / [Total FDI positions] (year t) for t =1 to n-1 An average value is used to estimate the RIE of year n with partner country j. Estimation of a weighted structure based on EU partners’ countries observations. For each MS partner country J, the following information is available vis-à-vis reporter MS I (Country I is the country on which estimates are made). As far as possible, partners J should significant FDI relationships with MS I BR15: The following series can be extracted from partners’ J sources, vis-à-vis MS country I:

RIE(J, I, t) / [ RIE + Equity capital ] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate the RIE of year n reported by I. BR16: The following series can be extracted from partners’J sources, vis-à-vis MS ountry I:

RIE(J, I, t) / [ Total FDI flows ] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate RIE of year n reported by I. BR17: The following series can be extracted from partners’ J sources, vis-à-vis MS country I:

RIE(J, I, t) / [ RIE+Dividends distributed ] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate RIE of year n reported by I. BR18: The following series can be extracted from partners’J sources, vis-à-vis MS country I:

RIE(J, I, t) / [ Total FDI income ] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate RIE of year n reported by I. BR19: The following series can be extracted from partners’J sources, vis-à-vis MS country I:

RIE(J, I, t) / [Tot. Equity capital and RIE assets or liabilities] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate RIE of year n reported by I. BR20: The following series can be extracted from partners’J sources, vis-à-vis MS country I:

RIE(J, I, t) / [Total FDI positions] (J, I, t) for t =1 to n-1 An average value of this series is used to estimate RIE of year n reported by I.

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Estimation based on regional distribution of previous year’s positions data BR21: All the RIE missing values of Group j are simultaneously estimated using the previous year’s distribution of stocks. Firstly, the total RIE missing is calculated. Secondly, within the group of partners’ countries for which the RIE has to be estimated, this total is distributed according to their relative weight measured with regards to the stock data. RIE(partner country i, year n) = RIE [Σ (partner countries), year n] * [[[[ Stocks (partner country i, year n-1) /stocks [Σ (partner countries), year n-1

Estimation methods on Post=506/530 (Assets) or Post=556/580 (Liabilities) S1: The value is confidential and/or non-publishable, but available for estimates. S2: The value has not been transmitted to Eurostat, but found in the MS national publication. S3: The value has been estimated with nil, because past observations always indicated a nil value. S4: Estimate made as a proxy of a value available for another economic or geographic zone. Examples:E5 (North Africa) estimated as being equal to C7 (Maghreb) + EG.

E6 (Other African countries) estimated as being equal to B6 (African ACP). E9 (Other African countries) estimated as being equal to B2 (Latin America)–F1 (South America). F1 (South America) estimated as being equal to C9 (Mercosur) +VE+CO+CL. F4 (Gulf Arabian) estimated as being equal to B4 (OPEC) minus IR minus ID minus VE minus [E5 (North AfricaI) – EG – MA]� estimation of (Algeria + Lybia). minus [B6(African ACP) – C5(French franc zone)]�estimation of Nigeria. F5 (Other Near&Middle East) estimated as being equal to C8 (Mashrek) -EG minus (optional) [C6 (CIS c.) – RU – BY - UA]� proxy of (Armenia+Georgia +Azerbaïdjan). F7 (Oceania) estimated as being equal to AU + NZ + B8 (Pacific ACP countries) C6 (CIS) estimated as being equal to RU + BY + UA. A9 (CEEC) estimated as being equal to D6 (CCs, be careful only with Cyprus) minus TR. B3 (Asean) estimated as being equal to C1 (Nics2A) + ID + SG.

S5: Hypothesis of a nil value based on other economic information, like for example no (or marginal) external

trade relationship between the reporter and the partner country. S6: Use of FDI positions at end of the previous year. The ratio “Equity capital and Reinvested earning assets” /

“Total FDI assets” (year n-1) is available for the estimated cell. S7: Use of FDI positions at end of the previous year. To estimate the “Equity capital and Reinvested earning”

position reported by country X vis-à-vis partner country Y, at end of year n: the ratio “Equity capital and Reinvested earning assets” / “Total FDI assets” (year n-1) is available for the nearest aggregate A in which partner country y is included.

S8: Use of FDI positions at end of previous year (n-1). To estimate the “Equity capital and Reinvested earning” position reported by country X vis-à-vis partner country Y, at end of year n: The ratio “Equity capital and Reinvested earning assets” / “Total FDI assets” (end of n-1) is calculated for the nearest aggregate A minus Σ of available partners countries). This is done in three steps:

Step 1: “Equity capital and Reinvested earning assets” (year n-1) is calculated for (A - Σavailable partners countries).

Step 2: “Total assets” (year n-1) is calculated for (A - Σavailable partners countries). Step 3: the ratio used is value of step 1 divided by value of step 2. S9: Use of the Partner’s country information on positions available at the end of the year n. In this case, and for

post = 506 or 530, the ratio “Equity capital + reinvested earnings liabilities” divided by “total liabilities”, that is 556/555 from the partner country, is applied.

S10: Amounts involved are likely to be marginal, and therefore “uniformly” distributed among the missing

partner’s countries values.

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S11: Use of FDI positions at end of previous year (n-1). The total “Equity capital and reinvested earnings” (year n) for partners countries X, Y and Z is available, but not the value for each of them. Therefore, for partner country X, the ratio: “Equity capital and reinvested earning assets of country X” (year n-1) / “Equity capital and Reinvested earning assets of Σ partners countries X, Y, Z” (year n-1) is used to distribute the total “Equity capital and reinvested earnings” (year n) of partners countries X, Y and Z.

S12: Use of FDI positions at end of previous year (n-1). The total “Equity capital and reinvested earnings” (year

n) for partners countries X, Y and Z is available, but not the value of each of them. Therefore, for partner country X, the ratio:

“ Total FDI assets of country X ” (year n-1) / “ Total FDI assets of Σ partners countries X, Y, Z ” (year n-1) is used to distribute the total “Equity capital and reinvested earnings” (year n) of partners’ countries X, Y and Z.

S13: General estimate: Position (year n) = Position (year n-1) + FDI flows (year n). S14: Same as S13, but the assets side of Position (year n-1) is re-evaluated using the exchange rate, at year n,

between the currency of the reporting country and the currency of each partner country j. Therefore: FDI assets (year n, partner country j) =FDI assets (year n-1, partner country j) x ( exchange rate of the

national currency in partner currency at n-1 / exchange rate of the national currency in partner currency at n )+ FDI flows (year n).

A total (or partial) use of this method implies a systematic conversion of MS reporting data in partners’ countries currencies.

S15: General estimate: Position (year n) = Σ Cummulated FDI flows (year n-1, n-2,…,1). S16: Same as S15, but the cummulated flows abroad (year n-1,n-2,…,1) is reevaluated using the exchange rate

between the currency of the reporting country and the currency of each partner country j. Therefore, for t= 1, 2,…,n-1:

FDI flows aborad (year t, partner country j) =FDI flows abroad (year t,partner country j) x ( exchange rate of the national currency in partner currency at t / exchange rate of the national currency in partner currency at n )

A total (or partial) use of this method implies a systematic conversion of MS reporting data in partners’ countries currencies.

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