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Foreign Direct Investors’ Outlays to Acquire or Establish U.S. Businesses Increased in 2006

Outlays by foreign direct investors to acquire or to establish U.S. businesses were $161.5 billion in 2006, up substantially from $91.4 billion in 2005. Outlays in 2006 were the fourth largest recorded and the highest since 2000, when new investment outlays were at a historical peak of $335.6 billion.

Outlays for New Investment in the United States by Foreign Direct Investors, 1980-2006

Outlays increased substantially in manufacturing and finance (except depository institutions) and insurance. Together, these two sectors accounted for half of total investment outlays in 2006. Outlays were also sizable in several other sectors, including real estate and rental and leasing, information, depository institutions, and wholesale trade.

Outlays from investors in most major geographic areas increased. By far the largest increase was attributable to European investors, whose outlays grew by $53 billion. Overall, outlays from Europe accounted for approximately two-thirds of the worldwide total. Investments from the Middle East, Asia and Pacific, and Latin America also rose considerably. Outlays from Canada declined further following a sharp decline in 2005.

Outlays in 2006

In 2006, as in previous years, outlays by foreign direct investors to acquire existing U.S. businesses (at $147.8 billion) were significantly larger than outlays to establish new U.S. businesses (at $13.7 billion). Outlays made by, or through, existing U.S. affiliates of foreign investors were $110.6 billion, more than twice the $50.9 billion in outlays made directly by foreign investors.

Outlays in manufacturing increased to $56.6 billion from $34.0 billion in 2005. The largest increases within manufacturing were in computers and electronic products (mostly for acquisitions of communications equipment manufacturers) and in chemicals (mostly for acquisitions of pharmaceuticals and medicines manufacturers). Outlays in finance (except depository institutions) and insurance increased sharply to $25.3 billion from $5.5 billion in 2005. Outlays in “other industries” more than doubled to $31.2 billion in 2006, the most sizable of which were in transportation and warehousing, mining, and health care and social assistance.

By country of ultimate beneficial owner, outlays by European investors almost doubled, increasing to $109.9 billion from $56.4 billion in 2005. Outlays in manufacturing and the nonbank finance and insurance sectors fueled much of the growth. Expenditures by investors from Germany, France, Switzerland, and Spain grew substantially. German investment of $22.7 billion was the highest among individual countries, followed by British investment of $21.9 billion. Stepped-up investment from Japan and Australia contributed to a rise in overall investment from the Asia and Pacific region, while higher investment from Israel contributed to increased investment from the Middle East.

The ultimate beneficial owner is the investor, proceeding up a U.S. affiliate’s ownership chain, beginning with the foreign parent, that is not owned more than 50 percent by another investor. The data on new investment outlays are classified by country based on the location of the UBO; thus, they are shown against the country of the investor that ultimately owns or controls the affiliate, even though the investor may have channeled the funds for the investment though another country, such as a financial center.

The estimates of outlays for 2006 are preliminary. The estimate of outlays for 2005 has been revised up 5 percent from the preliminary estimate published last year.

Employment and assets of newly acquired or established businesses

Newly acquired or established businesses employed 215,300 people in 2006, down 9 percent from 235,900 in 2005. The movement of employment and outlays in opposite directions occurred as new investments became more concentrated in industries with relatively low employment and relatively high acquisition values. Manufacturing accounted for the largest share of employment, with 91,400 employees. The total assets of newly acquired or established businesses were $356.5 billion, up considerably from $181.8 billion in 2005.

Estimates in this report are based upon a Bureau of Economic Analysis survey that covers (1) existing U.S. business enterprises in which foreign investors acquired, either directly or through their U.S. affiliates, at least a 10 percent ownership interest and (2) new U.S. business enterprises established by foreign investors or their U.S. affiliates, also using the 10 percent ownership interest threshold.

Additional details on the new investments by foreign direct investors in 2006 will appear in the June issue of the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis.

BEA’s national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available without charge on BEA’s website at www.bea.gov. By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.