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FDI can be broken down by certain characteristics in to further components which allow for additional analysis. A distinction is often drawn between Greenfield FDI and other types of FDI transactions (mergers & acquisitions, extension of capital and financial restructuring). The rationale behind drawing this distinction is that the transfer of ownership (merger & acquisition investment) will usually have a significantly different economic impact than the purchase or sale of new shares (greenfield investment), the extension of capital or financial restructuring.
Greenfield FDI can be described as ex nihilo investment: the establishment of a subsidiary “out of nothing”. As recommended by Eurostat, Greenfield statistics in this chapter are compiled using FDI transactions data; recognizing that the intent of an FDI transaction relates more closely with greenfield investment than FDI stock data. Specifically, transactions of FDI equity including reinvestment of earnings have been used to compute the figures for greenfield FDI in this new method. Debt transactions have been excluded. Furthermore, under the transactions approach an enterprise would also be classified as “greenfield” for 3 years after the initial investment to reflect the average time involved in establishing new functioning fixed capital in the host economy.
In Figure 3.1 Greenfield FDI transactions are shown between 2014 and 2019. The spike in 2015 coincides with a significant increase in Irish FDI inward in that year. The negative figure in 2017 is as a result of disinvestment of funds from some firms that began operating in 2015 and 2016.
| Greenfield FDI | |
| 2014 | 10.474508747 |
| 2015 | 29.839360799 |
| 2016 | 5.283523236 |
| 2017 | -26.82932779 |
| 2018 | 1.386731008 |
| 2019 | 3.658894 |
Figure 3.2 displays the contribution which Greenfield has had on overall inward FDI transactions in Ireland.
| Non-Greenfield FDI Transactions | Greenfield FDI | |
| 2014 | 25.8429081 | 10.474508747 |
| 2015 | 166.523287901 | 29.839360799 |
| 2016 | 30.324497106 | 5.283523236 |
| 2017 | 73.599017915 | -26.82932779 |
| 2018 | 12.243268992 | 1.386731008 |
| 2019 | 68.791106 | 3.658894 |
| Table 3.1 Greenfield in Total FDI | ||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
| % Greenfield in Total FDI Transactions | 28.84% | 15.20% | 14.84% | -57.36% | 10.17% | 5.05% |
A broader definition of greenfield FDI proposed by Eurostat[1] would be to say that greenfield FDI is both investment in new FDI enterprises and new capital injections into existing enterprises. The rationale for including extension of capital into the greenfield definition is that a capital injection which is used to extend the capacity of an existing direct investment enterprise would have a similar effect on the host economy as a traditional greenfield investment would have.
The figure for “Broad Greenfield” is comprised of:
Figure 3.3 shows the components of Greenfield FDI under the broader definition applied to our data for years 2014-2019. In 2019, Greenfield FDI was €135 billion, of which €3.66 billion was made of FDI flows in foreign multinationals no more than 3 years old and €131.3 billion was comprised of follow-up investments within existing enterprises that were used to acquire fixed assets. The extension of capital component is large in recent years due to the on-shoring of IP and aircraft.
Due to an internal classification issue specific to firms in the aircraft leasing sector, it was imprecise to maintain the assumption that all tangible fixed assets for firms in this sector were financed by their reported FDI. Therefore, a significant amount of tangible fixed assets in the aircraft leasing sector were excluded from the analysis.
| Greenfield | Extension of Capital | |
| 2014 | 10.474508747 | 23.76513662 |
| 2015 | 29.839360799 | 14.748777449 |
| 2016 | 5.283523236 | 25.672454159 |
| 2017 | -26.82932779 | 75.294683197 |
| 2018 | 1.386731008 | 75.939236035 |
| 2019 | 3.658894 | 131.29069145 |
Figure 3.4 shows the same new method used to calculate Greenfield FDI but with some features of MNE activity unique to Ireland removed. Namely, the FDI financing of intangible assets, intellectual property and tangible fixed assets in the aircraft leasing sector. These features have been removed from the extension of capital component; recognizing that this activity in Ireland can result in the figures for Greenfield being difficult to interpret. Only investments used to acquire tangible fixed assets are included in the extension of capital component in this “modified broad greenfield” analysis. In 2019, modified broad greenfield was €15 billion.
| Greenfield | Extension of Capital | |
| 2014 | 10.474508747 | 6.311402948 |
| 2015 | 29.839360799 | 7.140890014 |
| 2016 | 5.283523236 | 11.003723177 |
| 2017 | -26.82932779 | 8.191043006 |
| 2018 | 1.386731008 | 10.388748041 |
| 2019 | 3.658894 | 11.306563331 |
Figure 3.5 compares the figures for broad and narrow greenfield. Here, narrow greenfield refers to greenfield without the extension of capital component (shown in figure 3.1).
| Broad Greenfield | Narrow Greenfield | Modified Broad Greenfield | |
| 2014 | 34.239645367 | 10.474508747 | 16.785911695 |
| 2015 | 44.588138248 | 29.839360799 | 36.980250813 |
| 2016 | 30.955977395 | 5.283523236 | 16.287246413 |
| 2017 | 48.465355407 | -26.82932779 | -18.638284784 |
| 2018 | 77.325967043 | 1.386731008 | 11.775479049 |
| 2019 | 134.94958545 | 3.658894 | 14.965457331 |
Figure 3.6 displays the contribution that the modified broad greenfield figure has on overall FDI transactions. In 2017, disinvestment of existing enterprises resulted in a negative figure for the modified Greenfield statistic. The aforementioned disinvestment in 2017 by firms established in 2015 and 2016 outweighed the positive change in fixed assets less intellectual property for the year.
| Modified Broad Greenfield | Non-Greenfield FDI Transactions | |
| 2014 | 16.785911695 | 19.531505152 |
| 2015 | 36.980250813 | 159.382397887 |
| 2016 | 16.287246413 | 19.320773929 |
| 2017 | -18.638284784 | 65.407974909 |
| 2018 | 11.775479049 | 1.854520951 |
| 2019 | 14.965457331 | 57.484542669 |
| Table 3.2 Broad Greenfield in Total FDI | ||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
| % of Broad Greenfield In Total FDI Transactions | 94.3% | 22.7% | 86.9% | 103.6% | 567.3% | 186.27% |
| % of Modified Broad Greenfield In Total FDI Transactions | 46.2% | 18.8% | 45.7% | -39.9% | 86.4% | 20.66% |
It is important to highlight a key assumption made in order to apply this broader greenfield definition to our data. Since extension of capital refers to an additional investment made to an affiliate which results in the extension of capacity of that affiliate, transactions of fixed assets were used as a proxy for follow-up investments that increased the capacity of the enterprise. The assumption is therefore that the additional direct investment is equal to the transaction in fixed assets.
References
1Eurostat, Balance of Payments Working Group 2-3 Dec 2019
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