2. Under the ‘extended directional’ principle, the direction of the direct investment relationship between a sister company, known as a fellow enterprise⁶ (FE), and an Irish resident DIE is determined by the residency of their ultimate controlling parent (UCP). If the UCP is resident in Ireland, FDI is classified as outward investment. If the UCP is not resident in Ireland, FDI is classified as inward investment. Where investment flows in the opposite direction, from an FE in the country where the UCP is not resident to an FE in the country where the UCP is resident, it is subtracted from the outward and inward positions, respectively.

 

 

The largest netting occurs in the reverse investment of debt securities, i.e., DIEs lending to DIs. This is often observed where large Non-Financial Corporations (NFC) lend to other group companies where interest payments can be deducted from revenue in these countries, and reduce taxable profits.

4. Selecting the appropriate FDI presentation

When FDI values are presented using the asset/liability presentation, it allows for more accurate comparisons with other macroeconomic statistics published by the CSO, and other National Statistics Institutes (NSI) globally. This is because FDI values presented in this way follow the same logic as other statistical categories of investment found in the Balance of Payments and the International Investment Position. These other measures of investment include portfolio investment, reserve assets, financial derivatives, and “other” investment.

FDI values published using the directional presentation, however, are more useful when attempting to analyse the drivers of FDI and its effect on the Irish economy such as multinational exports. Given the more detailed nature of FDI values presented with this method, with breakdowns by country and region of foreign resident MNCs, this form of presentation makes it easier for researchers to identify the countries investing in Ireland. This method also breaks down investment by foreign resident MNCs by the sector of economic activity, allowing for more accurate analysis of the economic sectors that attract FDI into Ireland.

The CSO provides Irish FDI data to a number of international bodies. The data is provided quarterly on an asset/liability basis to the ECB, Eurostat, the OECD, the UNCTAD, and the IMF. The data is also provided on a quarterly basis using a directional presentation to the OECD and the UNCTAD. FDI figures are provided on an annual basis to Eurostat, the OECD and the IMF using a directional presentation.

Figure 4 below, shows the stock of direct investment in Ireland for the year 2016, with positions classified by the country of investor.

5. Example of Differences Found in FDI Values Published by the CSO

One of the clearest examples of where differences arise in FDI values published by the CSO can be found when comparing FDI figures found in the CSO’s International Investment Position release and the CSO’s Institutional Sector Accounts release. FDI figures found in the International Investment Position are compiled using the directional presentation, while FDI figures compiled in the Institutional Sector Accounts use the asset/liability presentation. These FDI estimates are presented in Table 1 below.

Although both presentations provide differing values for investment positions, flows and earnings, they are identical in terms of net FDI. This can be seen in Table 1 above.

The €588 billion difference between Total Foreign Assets in the International Investment Position release and Total Foreign Assets in the Institutional Sector Accounts is almost entirely as a result of the different methods used to present FDI figures. When the International Investment Position is presented using the asset/liability presentation the difference falls to less than €1 billion. 

 6. Conclusion

Differences in FDI figures published by the CSO and other international organisations can be explained by whether these figures are being reported with the asset/liability presentation or the directional presentation.

As well as explaining the different ways in which FDI figures are calculated using each method, this document also briefly discussed situations in which each method of presentation is best used for the purpose of analysis.

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¹ Investment originating abroad, resulting in the establishment by a non-resident direct investor of a direct investment enterprise resident in the compiling economy

² Investment originating in the compiling economy, resulting in the establishment by a resident direct investor of a direct investment enterprise abroad

³ An entity or group of related entities that is able to exercise control or a significant degree of influence over another entity that is resident of a different economy (IMF, 2009)

⁴ An entity which is subject to control, or a significant degree of influence, by a direct investor (IMF, 2009)

⁵ Provided it does not own equity comprising 10% or more of the voting power in that direct investor

⁶ Enterprises that are under the control or influence of the same immediate or indirect investor, however, neither fellow enterprise controls or influences the other fellow enterprise (IMF, 2009)