US Direct Investment Abroad - September 2009

US Direct Investment Abroad

In July 2009 the US Bureau of Economic Analysis published the revised direct investment positions for 2007 and the preliminary figures for 2008. In 2008 US investment abroad, valued at historical-cost (the book value of US direct investors' equity in, and net outstanding loans to, their foreign affiliates), grew 8 percent worldwide. This marked a slowdown in growth compared to 2007 when the outward position rose some 18 percent. The US position in the Netherlands grew by 13 percent from 2007 to 2008. As in previous years, three host countries - the Netherlands, the UK and Canada - accounted for over a third of the total position. Positions in the Netherlands and the UK were more than twice as large as the positions of all other countries except Canada.

In 2008, the Netherlands surpassed the UK as the largest host country, with a US position of $442.9 billion, or 14 percent of the total. In the Netherlands, most of the position increase was accounted for by holding companies, which may have invested the funds in other countries or industries. The position of the UK was $420.9 billion (13 percent), and the position of Canada (in third position) was $227.3 billion (7 percent).

Equity capital increases for the acquisition or establishment of new affiliates were largest in Europe, particularly in the Netherlands and the UK. In the Netherlands, the largest increase was in holding companies whose holdings include retail trade affiliates in Europe and wholesale trade and professional, scientific, and technical services affiliates in Europe and "Latin America and Other Western Hemisphere."

Reinvested earnings accounted for more than 90 percent of the increase in the outward position and nearly three-fourths of the capital outflows. By region, reinvested earnings were largest in Europe with 56 percent of the total. Reinvested earnings were particularly large in five European countries: the Netherlands, Ireland, Switzerland, the UK and Luxembourg.

The Netherlands has become a clear leader within Europe of holding activities, with 41% of holding activities of US companies in Europe - more than three times that of the UK, almost thrice that of Luxembourg, and over four times that of Switzerland.

The US direct investment position in Europe rose $150.4 billion in 2008.  The largest component of the increase was reinvested earnings, which accounted for 85 percent of the increase. The largest increase was in the Netherlands - $53.5 billion (over a third of position increase in Europe).
 

U.S. Direct Investment in the Netherlands 

(billions of dollars, historical-cost basis)

d = suppressed to avoid disclosure of data of individual companies
§ = figure is the unrevised figure as published in 2003; given here only as indication
* = not defined previous to 2003

Source: U.S. Department of Commerce, Bureau of Economic Analysis, July 2008
 

Holding Companies in the Data on US Direct Investment Abroad 

For the past twenty five years, US parent companies have funneled an increasing share of their direct investments abroad through holding company affiliates. Foreign affiliates classified as holding companies accounted for 36% of the US direct investment position abroad in 2008. In 1982, this figure was 9% and by 2000, the figure grew to 23%. The upward trend of the holding company share is part of a broader trend of indirect ownership in which US parents own foreign affiliates that, in turn, own other foreign affiliates. One consequence of the rising use of indirect ownership arrangements is that US direct investment abroad estimates of the position and related flows show industry and country patterns that are increasingly different from the industries and countries in which the production and sales of goods and services by foreign affiliates occurs.

A comparison of the statistics on the outward direct investment position with the statistics on the assets and the net property, plant and equipment (PP&E) of foreign affiliates for 2006 (the latest year for which detailed operations estimates are available) illustrates the differences in distribution between the position statistics and the statistics of the operations. In that year, manufacturing's share of the outward position, 18%, was similar to its 15% share of assets, but much lower than its 40% share of the PP&E of the foreign affiliates in manufacturing. By country, the share of the direct investment position accounted for by the Netherlands was 11%, compared with a 9% share of assets and a 3% share of PP&E.