BEA 09-23

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Foreign Direct Investors’ Outlays to Acquire or Establish
U.S. Businesses Increased in 2008

Outlays by foreign direct investors to acquire or establish U.S. businesses increased 3 percent in 2008, to $260.4 billion. Outlays in 2008 were the third-largest on record and the sixth consecutive increase since a falloff in outlays in 2001-2002.

Outlays for New Investment in the United States
by Foreign Direct Investors, 1980-2008
Outlays for New Investment in the United States by Foreign Direct Investors, 1980-2008

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.

Among major industries, there was a substantial increase in outlays in manufacturing, which accounted for the majority of the spending by investors in 2008. Outlays were also large in information and in finance. Outlays in real estate fell sharply.

Outlays increased from investors in Europe, Latin America and Other Western Hemisphere and in the Asia and Pacific region. As in previous years, the largest share of outlays was from European investors. Outlays by investors from Canada and the Middle East fell.

Outlays in 2008

In 2008, as in previous years, most outlays by foreign direct investors were to acquire existing businesses. These outlays were $242.8 billion, compared with $17.6 billion to establish new U.S. businesses. Outlays made by, or through, existing U.S. businesses were $213.3 billion, much greater than the outlays of $47.1 billion made directly by foreign investors.

Outlays in manufacturing rose to $141.1 billion from $118.4 billion and accounted for more than half of total outlays in 2008. Within manufacturing, the increase was more than accounted for by beverages and tobacco products, where outlays were boosted by a large transaction. Among other manufacturing industries, spending was also substantial in chemicals, especially in pharmaceuticals. Outside manufacturing, outlays continued to be high in financial industries such as securities and commodities brokers, insurance, and depository institutions (banking).

By country of ultimate beneficial owner, outlays by European investors rose to $157.9 billion and represented 61 percent of total outlays in 2008. Much of the increase in European investment was accounted for by Belgium and Finland. Outlays by investors from the United Kingdom, which in previous years has often been the largest investing country, fell sharply. Outlays from Asia and Pacific rose, with Japanese investors more than accounting for the total increase and for over 60 percent of the region’s outlays. Outlays by Japanese investors were boosted by acquisitions in pharmaceuticals manufacturing, in wholesale trade and in finance. Spending by investors from Latin America and Other Western Hemisphere also rose in 2008.

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 have been revised down 9 percent from the preliminary estimates published last year.

Employment and assets of newly acquired or established businesses

In 2008, U.S. businesses that were newly acquired or established by foreign direct investors had 368,500 employees, compared with 496,600 employees in 2007. Employment at newly acquired or established firms was largest in manufacturing (146,600) followed by finance (except depository institutions) and insurance (95,700). The total assets of newly acquired or established businesses were $895.7 billion, up from $411.8 billion in 2007. Newly acquired businesses in finance (except depository institutions) and insurance accounted for the largest share of assets in 2008. 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.

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Estimates in this report are based upon a Bureau of Economic Analysis survey that covered (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 2008 will appear in the June issue of the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis.

Replacement of New Investment Series

BEA has eliminated the survey of new foreign direct investment in the United States but is designing a new survey of new investments by foreign direct investors to better capture greenfield investments. The new survey will collect data on the construction of new plants and other new business facilities in the United States by existing U.S. affiliates of foreign direct investors as well as the data previously collected on foreign investors’ acquisitions of existing U.S. companies and establishment of new U.S. affiliates. The new survey is currently being developed and comments or suggestions are welcome; send them to be13@bea.gov.

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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.