Benchmark methodology for foreign direct investment (FDI)
The Banque de France uses the official methodology for measuring foreign direct investments (FDI).
The manuals setting out the rules and standards for recording cross-border transactions and international investment positions are drafted under the guidance of the International Monetary Fund (IMF).
The Organisation for Economic Co-operation and Development (OECD) has published a benchmark manual on direct investment.
Different principles can be applied to compile and present foreign direct investment (FDI) statistics. Without changing the overall balance, the chosen presentation may symmetrically affect flows, revenues and stocks of foreign direct investments, either from French residents abroad or from non-residents in France.
The assets and liabilities principle involves adding all the assets and liabilities (equity or debt) within a multinational group according to the direction of the investment: for example, an asset held by an affiliate owed by its parent company is considered an investment by the affiliate in the parent company. The assets and liabilities principle is the standard reference for balance of payment presentation under the current international methodology (BPM6). Thus, monthly and quarterly releases of French balance of payments are prepared in compliance with this principle.
The extended directional principal presents the transactions and positions according to the economic decision centre: assets (equity or debt) between enterprises within the same multinational group are not classified according to the direction of the asset but according to the residence of the parent company or head of group. A loan by an affiliate to its parent company or an investment in equity (for less than 10% of the total equity), deemed as decided by the parent company, is categorised as a reverse investment and reclassified as a divestment by the parent company in the affiliate (the subsidiary). By extension, the treatment based on the directional principle is also applied to relationships between fellow enterprises (sister companies), i.e. enterprises within the same multinational group without any direct equity link between them. When a French resident enterprise holds an asset in a non-resident fellow enterprise, if the head of group is also resident, the asset is deemed an investment abroad; if the head of the group is non-resident, the asset is reclassified as a non-resident divestment in France.
In its reference manual on foreign direct investment, the OECD encourages countries to enhance and expand their FDI statistics with statistics compiled under the extended directional principle, which better reflects globalisation. For this reason, the Banque de France favours analyses based on the extended directional principle.
Updated on: 04/09/2020 12:17