Immediate and Ultimate Foreign Direct Investment
In 2023, for the 11 EU Member States that reported inward Ultimate Investing Economy (UIE) in Foreign Direct Investment positions, the top UIE was Germany, (12.1% of total value of UIE FDI positions of the 11 reporting countries), followed by the United States (11.9%). Romania is included in the reporting EU Member States, alongside Austria, Czechia, Denmark, Estonia, Spain, Finland, France, Greece, Italy and Portugal, which reported inward UIE FDI positions to Eurostat.
Eurostat collects inward Foreign Direct Investment (FDI) positions according to the Ultimate Investing Economy (UIE) on a voluntary basis. The standard FDI statistics laid down in the Regulation (EC) No 184/2005 are compiled by immediate investing economy (country) whereas the UIE FDI positions facilitate the users’ analysis in determining the location of the ultimate source of control of the FDI positions in their direct investment enterprises. While the identification of the immediate investing economy is generally straightforward, that of the UIE is more complex and requires an overview of the ownership links of the Multinational Enterprises.
In FDI statistics by ultimate investing economy the FDI position in the enterprise is allocated to the ultimate investor that has control over the investment decision to have an FDI position in the enterprise. In these statistics the reporting country can also be the ultimate investor, which is not possible in FDI statistics by immediate investing economy.
The top investors were concentrated among a relatively small number of developed countries. In terms of proportional ownership, the top UIE was Germany (12.6% of the total value of UIE FDI positions of the 11 reporting countries), followed by the United States (12.5%), France (10.9%), the United Kingdom (8.9%) and Switzerland (6.5%).
Luxembourg was the top investor by immediate investing economy (16.9% of the total FDI positions of the 11 reporting countries), followed by the Netherlands (15.4%), Germany (11.1%), the United Kingdom (8.9%) and France (7.1%). This shows that Luxembourg and the Netherlands are often used as “pass-through” countries in international investment chains.
But why are two statistics, similar but not identical, presented on the same subject? There are two generally recommended methodological approaches to compile UIE FDI statistics: the “winner takes it all” approach and the “proportional ownership” approach (described in the OECD Benchmark Definition of FDI, 4th edition, 2008, Annex 10).
The proportional ownership approach has the advantage that it is more consistent with FDI statistics, where the values of the variables reported are based on each foreign investor’s claim on the direct investment enterprise. However, many countries prefer to compile UIE FDI statistics using the “winner takes it all” approach, as it is often easier to obtain information about the controlling investor of the enterprise than the minority investors.
As opposed to the standard FDI statistics, the UIE FDI allows for the reporting economy to also invest in itself (so-called “round-tripping”). This happens frequently in international investment chains for various reasons such as tax and fiscal advantages and property right protection.
With a total balance of €17,100 million (14.5% of total FDI, down 0.5 pp), Germany is followed by Austria (€13,871 million, 11.7%), France (€12,917 million, 11%), the US (€8,232 million, 7%), the Netherlands (€6,885 million, 5.8%), Italy (€6,246 million, 5.4%, from 7.8% previously, after the sale of substantial assets, -23.4% nominal), and Greece (€4,207 million). Very interestingly, among the countries of residence of final investors with a high volume of FDI, Romania itself appears in seventh position, with an amount of €3,920 million. This is explained by the foreign direct investments that residents have made in their own country through subsidiaries registered abroad (‘round tripping’ phenomenon).
The picture differs if we take into account the main countries through which foreign capital entered Romania (the immediate investor). This includes the Netherlands (20.5 percent of the total FDI balance), Germany (12.6 percent), Austria (12.4 percent), France (7.3 percent), Cyprus (6.8 percent) and Italy (5.6 percent). The distribution was made according to the country of residence of the direct holder of at least 10 percent of the share capital of FDI enterprises in Romania.
Photo source: PxHere.com.
