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U.S. Businesses Increased in 2007
Outlays by foreign direct investors to acquire or to establish U.S. businesses increased sharply in 2007 after also increasing strongly in 2006. Outlays reached $276.8 billion in 2007, the second largest recorded and the highest since 2000, when new investment outlays peaked at $335.6 billion.
Outlays for New Investment in the United States
by Foreign Direct Investors, 1980-2007
NOTE.—Outlays consist of expenditures by foreign investors to acquire or establish U.S. business enterprises (U.S. affiliates) in which they own at least 10 percent of the voting securities, or the equivalent. Outlays differ from financial flows for foreign direct investment in the United States as recorded in the international transactions accounts (balance of payments). Unlike financial flows, outlays can reflect domestic as well as foreign sources of funding and are limited to transactions involving new U.S. affiliates. Financial flows, in contrast, include financing of both existing and new U.S. affiliates and reflect sell-offs and other subtractions from investment as well as additions.
Outlays increased most substantially in manufacturing, which accounted for nearly half of total investment outlays in 2007. Outlays were also sizable in “other industries” (mostly in transportation and warehousing, utilities, and mining), finance (except depository institutions) and insurance, real estate and rental and leasing, and depository institutions.
Outlays by investors from most major geographic areas increased. Outlays from Europe increased substantially. Overall, the outlays from Europe accounted for more than half of the worldwide total. Outlays from Canada, Asia and Pacific, and the Middle East also rose considerably.
Outlays in 2007
In 2007, as in previous years, most outlays by foreign direct investors were to acquire existing U.S. businesses. These outlays totaled $255.0 billion, compared with $21.9 billion in outlays to establish new U.S. businesses. Outlays made by, or through, existing U.S. affiliates were $174.5 billion, compared with $102.3 billion in outlays made directly by foreign investors.
By industry, outlays in manufacturing more than doubled to $135.2 billion in 2007 from $56.3 billion in 2006. Within manufacturing, the largest increase was in chemicals; nearly half of the 2007 outlays in chemicals were to acquire pharmaceuticals and medicines manufacturers. Outlays also increased substantially in transportation equipment (mostly for acquisitions of motor vehicle parts manufacturers), primary metals (mostly for acquisitions of companies manufacturing steel products), and machinery (mostly for acquisitions of manufacturers of engines, turbines, and power transmission equipment). Outlays in retail trade, depository institutions, real estate, and “other industries” also increased. In retail trade, most of the outlays were to acquire food and beverage stores, health and personal care stores, and clothing and clothing accessories stores. In “other industries,” most of the outlays were in transportation and warehousing, utilities, and mining.
By country of ultimate beneficial owner, outlays by European investors increased 37 percent to $146.5 billion in 2007, and accounted for more than half of total outlays. Outlays in manufacturing, depository institutions, retail trade, and “other industries” fueled much of the growth. The increase in spending by European investors was more than accounted for by British investors; most of the 2007 outlays by British investors were in manufacturing. Outlays by Canadian investors more than tripled, reflecting stepped-up investments in manufacturing, finance (except depository institutions) and insurance, and “other industries,” particularly in transportation and warehousing. Outlays by investors from the Asia and Pacific region rose substantially in 2007, as outlays by investors from Australia, Singapore, and Korea increased significantly. Outlays by investors from Australia in the real estate and rental and leasing industry more than tripled. Outlays from the Middle East also rose substantially, reflecting higher spending from Saudi Arabia and the United Arab Emirates. In 2007, more than half of the outlays by investors from the Middle East were in manufacturing.
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 2007 are preliminary. The estimates of outlays for 2006 have been revised up 3 percent from the preliminary estimates published last year.
Employment and assets of newly acquired or established businesses
U.S. businesses that were newly acquired or established by foreign direct investors employed 487,600 people, more than double the 223,400 people employed by businesses that were newly acquired or established in 2006. Manufacturing and retail trade—with 147,500 and 143,600 employees, respectively—accounted for the largest shares of employment. Combined, these industries accounted for 60 percent of total employment by U.S. businesses that were newly acquired or established by foreign direct investors. Professional, scientific, and technical services accounted for 29,500 employees. The total assets of newly acquired or established businesses were $455.9 billion, up from $375.8 billion in 2006. Total assets of the firms acquired or established differ from outlays. Because assets can be financed not only by funds from foreign direct investors but also by funds from other owners and lenders, assets of the newly established or acquired U.S. affiliates generally will exceed the related investment outlays.
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 investors in 2007 will appear in the June issue of the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis.
In order to align its programs with available funding, BEA is eliminating the survey of new foreign direct investment in the United States. The last release in this series, which will present data on new investment by foreign direct investors in 2008, will be in June 2009. BEA will continue to collect extensive data on foreign direct investment in the United States, but it will no longer be able to separately identify the portion accounted for by investments in newly acquired or established U.S. affiliates.
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.