This statistical bulletin provides estimates of Foreign Direct Investment (FDI) flows during the year, positions and earnings involving UK companies. The investment figures are published on a net basis, that is, they consist of investments net of disinvestments. The estimates in this bulletin are broken down by continent and country. A more detailed analysis of the data, including breakdowns by industry, will be published in the FDI Business Monitor to be released on 2 February 2012.
The net flow of direct investment abroad by UK companies (outward investment) fell slightly to £23.4 billion in 2010, a decrease of £1.7 billion on the amount invested in 2009 and the smallest net outward flow since 1996. Between 1996 and 2010 outward flows have varied considerably, with peaks in 2000 and 2007 of £154.2 billion and £159.1 billion respectively. Flows of direct investment into the UK by foreign companies (inward investment) also fell, to their lowest since 2004, with net inflows of £32.8 billion in 2010, a decrease of £16.1 billion on the amount invested during the previous year.
Earnings from direct investment by UK companies abroad (outward earnings) amounted to £79.1 billion in 2010, an increase of £11.2 billion on the amount earned 2009, although still below the peak reported in 2007. Earnings by foreign companies from direct investment in the UK (inward earnings), also rose in 2010, up to £37.5 billion, an increase of £10.9 billion on the amount reported in 2009.
|Direct investment abroad||Direct Investment in the UK|
|Flows in 2010||Positions at end of 2010||Earnings in 2010||Flows in 2010||Positions at end of 2010||Earnings in 2010|
|Australasia & Oceania||9.3||28.5||6.0||-2.4||9.7||<0.1|
In total, net direct investment abroad by UK companies in 2010 fell slightly compared with the previous year. The 2010 figure of £23.4 billion was £1.7 billion lower than the investment of £25.1 billion reported in 2009, and was the lowest outflow reported since 1996. Between 1996 and 2010 outward flows have varied considerably, with peaks in 2000 and 2007 of £154.2 billion and £159.1 billion respectively.
The overall figure for net outflows from the UK masks some significant variation in outward direct investment flows by geographic region and country. While outward investment flows to Europe, Australasia & Oceania and Africa were all positive, UK investment in the Americas fell to a net disinvestment of £14.8 billion in 2010 from a net disinvestment of £2.2 billion in 2009. This negative flow for the Americas principally reflects net disinvestments in the USA and Canada of £10.4 billion and £8.5 billion respectively. These figures were primarily a consequence of a reduction in the net debt owed to UK parent companies by their overseas subsidiaries. These reductions may occur due to the advance and redemption of inter-company loans or movements in short-term trade credit.
Outward investment flows to Europe were £12.5 billion in 2010, a decrease from £15.7 billion the previous year. Again, this overall figure masks some variation by country. Within Europe, Belgium was the primary destination in 2010 for direct investment from the UK, accounting for £7.6 billion of net outward investment flows. The next biggest destination within Europe was Luxembourg, accounting for net flows of £5.8 billion during the year. In contrast, there was a net disinvestment of £7.7 billion from the Republic of Ireland in 2010. The flows to Belgium were driven largely by significant net changes in inter-company debt, while the investment in Luxembourg primarily reflects reinvestment of earnings.
The largest increase in outward investment flows in 2010 was to Australasia & Oceania, where UK investment rose to £9.3 billion, an increase from a net disinvestment of £3.5 billion in 2009. This was the largest outflow to Australasia & Oceania since records began, and primarily reflects a net flow to Australia of £9.1 billion, which itself was due to both significant levels of reinvested earnings and a large net change in inter-company debt positions.
At the end of 2010, the book value level of direct investment abroad by UK companies stood at £1,048.7 billion (£1.05 trillion), an increase of £67.2 billion on the level of £981.5 billion at the end of 2009, although still lower than the previous peak at the end of 2008 of £1,073.6 billion (£1.07 trillion). The year-on-year change in the level of outward investment differs from the net outward flows as the levels figures take account of additional factors such as the revaluation of assets and exchange rate variations.
Europe accounts for 58.9 per cent of the UK's outward investment position, with the value of investment in Europe increasing by £66.3 billion since the end of 2009. Within Europe, the two biggest locations for direct investment by the UK were the Netherlands and Luxembourg, accounting for £147.4 billion (14 per cent of the world total) and £138.4 billion (13 per cent of the world total) respectively. The relative importance of the Netherlands and Luxembourg as destinations for direct investment by UK companies may partly reflect the presence of so-called Special Purpose Entities (SPEs) in these countries. The term SPE is used to refer to entities such as financing subsidiaries, shell companies and conduits, which typically do not conduct any significant operations in the country in which they are resident other than to pass through investment from their parent company to an affiliate in another country.
The USA remains the single most favoured location for UK direct investment abroad with a net position of £184.3 billion, although this was down by £40.6 billion compared with the previous year. This is the lowest level of direct investment in the USA by the UK since 2006 and is equivalent to 18 per cent of the overall level of direct investment abroad at the end of 2010 compared with 23 per cent in 2009.
The levels of investment in Asia and Australasia & Oceania both rose during 2010, by £19.6 billion and £9.6 billion respectively.
The earnings of UK-owned companies operating abroad in 2010 were £79.1billion, an increase of £11.2 billion from the 2009 figure of £67.9 billion although lower than in some other recent years (£92.2 billion in 2007; £83.6 billion in 2006).
The largest change came from the Americas, where earnings from direct investment by UK companies increased by £7.8 billion. Earnings from Asia, Africa and Australasia & Oceania also increased slightly, by £3.2 billion, £2.6 billion and £1.7 billion respectively. These increases were partially offset by a decrease in earnings from Europe of £4.1 billion.
UK-owned companies resident in USA were the single largest source of earnings, accounting for £14.5 billion (18.3 per cent of the overall total), followed by those resident in Luxembourg, contributing £10.4 billion. These were offset by net losses of £10.1 billion by UK owned companies resident in the Republic of Ireland.
One useful indicator related to direct investment earnings is the rate of return. This is normally defined as income on direct investment equity as a percentage of the overall direct investment position. As rates of return increase, it implies that direct investment enterprises are more profitable and the rates can be used, in combination with consideration of many other factors, in drawing inferences about the competitiveness of different economies. Overall, the implied rate of return for outward direct investment abroad by UK companies was 7.3 per cent in 2010, an increase on both 2009 (6.8 per cent) and 2008 (6.5 per cent), although lower than in 2007 (10.3 per cent).
There was some significant variation in rates of return across geographic areas and countries. Implied rates of return for UK outward investment in both Africa and Australasia & Oceania were around 20 per cent in 2010, while the overall rate of return from direct investment in Europe was considerably lower at 5 per cent.
Net direct investment by foreign companies in UK companies amounted to £32.8 billion in 2010, a decrease of £16.2 billion on the inward flows of £49.0 billion in 2009 and the smallest net inflow since 2004.
The largest decrease in investment flows into the UK was from Europe, where flows fell from £32.1 billion in 2009 to investment of £1.8 billion in 2010, the lowest value since comparable records began in 1988. Within Europe, there was a net disinvestment in UK companies by several countries, including the Netherlands (£4.8 billion) and France (£4.7 billion). The low value of net inward investment from Europe reflects a number of factors. These include a relatively low level of acquisitions of equity capital, some significant disposals (including the £2.8 billion disposal of Axa Sun Life Holdings by Axa SA), and reductions in inter-company loans. One possible reason for this change in inter-company debt may be European multinationals looking to strengthen their balance sheets.
In contrast, investment in UK companies from the Americas rose from £16.8 billion in 2009 to £28.2 billion in 2010. This largely reflects an increase in investment in the UK by the USA, with net investment flows into the UK of £23.3 billion during the year. The largest proportion of this came from flows of equity capital, with significant transactions including the acquisition of Cadbury Plc by Kraft Foods Inc for approximately £11.5 billion, along with the acquisition by Kohlberg Kravis Roberts & Co LLP of the Pets at Home group for around £1.0 billion.
Inward investment from Australasia & Oceania fell from a net investment of £2.5 billion in 2009 to a net disinvestment of £2.4 billion in 2010, a fall of £4.9 billion. Asian investment in the UK increased from a net disinvestment of £2.3 billion to a net investment of £5.1 billion, while investment from Africa also increased to £0.2 billion from less than £0.1 billion.
At the end of 2010, the total level of direct investment in the UK from overseas companies stood at £731.6 billion. This was an increase of £50.3 billion from the position of £681.3 billion at the end of 2009, and is the highest inward investment position since ONS began producing annual positions estimates in 1987.
The rise in the overall level of inward investment in the UK principally reflects an increase in the value of investment in the UK by the Americas of £29.7 billion and Europe of £11.1 billion. Investment from Asia also rose to £54.5 billion, an increase of £12.0 billion from the level the previous year. This increase was partially offset by a decrease in the level of investment in the UK by Australasia & Oceania of £3.0 billion.
The USA remains the primary source of inward investment into the UK, with companies from the USA holding £200.2 billion of investment in the UK at the end of 2010, accounting for 27 per cent of the overall inward investment position. This was an increase of £30.0 billion from the previous year, mainly due to the significant inflows reported above, as well as other non-transactional factors.
The UK's largest inward investment positions within Europe are with the Netherlands (£114.7 billion), France (£67.8 billion) and Luxembourg (£65.2 billion), accounting for 16 per cent, 9 per cent and 9 per cent of total inward investment respectively. International reporting standards require inward direct investment to be reported according to the immediate investing country rather than the ultimate source of investment. As noted in the section on outward investment positions, a consequence of this is that the relative importance of certain countries such as the Netherlands and Luxembourg may be partly due to the presence of relatively high numbers of 'Special Purpose Entities' (companies whose primary purpose is to 'pass through' investment) in those economies.
In 2010, the net earnings from direct investment in the UK were £37.5 billion, an increase of £10.9 billion from the 2009 figure of £26.6 billion. This reflects a continuation of the rise in direct investment earnings since the recent low of 2008, though the figures remain below those seen in 2006 and 2007.
The overall increase in earnings principally reflects a rise of £10.1 billion in the earnings of UK companies with parents in Europe, from £9.4 billion in 2009 to £19.6 billion in 2010. Net earnings of UK companies with parents in Asia also increased though still remained negative, up by £3.0 billion to a net loss of £0.7 billion.
The net earnings of UK companies with parents in Africa were around £0.1 billion, while net earnings for those with parent companies in Australasia & Oceania were negligible.
UK companies owned by parents in the USA reported the highest earnings in 2010, with net earnings of £16.3 billion, followed by Germany, with net earnings of £5.0 billion.
As noted in the section on outward investment, one useful indicator related to direct investment earnings is the rate of return. Overall the implied rate of return for inward investment into the UK increased to 4.2 per cent, up from 2.7 per cent the previous year. However, the rate of return remains lower then the 2007 value of 6.1 per cent.
Basic quality information.
The Summary Quality Report (284 Kb Pdf) for Foreign Direct Investment describes, in detail, the intended uses of the statistics presented in this publication, their general quality and the methods used to produce them.
Key issues specific to this release.
The estimates in this Statistical Bulletin are based on annual surveys into foreign direct investment for 2010. Provisional estimates for 2010, derived from quarterly surveys, have already been published in the quarterly Balance of Payments Statistical Bulletins but the annual surveys provide firmer and more detailed figures. The aggregates for 2010 will be included in the quarter three 2011 balance of payments statistical bulletin to be published on 22 December 2011. Further details from the 2010 annual surveys, including analyses by industry and by components of direct investment, will be published within the next three months in the publication MA4 - Foreign Direct Investment 2010.
Key concepts and definitions
Associates: Associates are incorporated companies which are not subsidiaries, but companies in which the investing company participates in the management without having a controlling interest: That is a holding of less than 50 per cent of the equity capital.
Branches: Branch means a permanent establishment as defined for UK corporation tax and double taxation relief purposes.
Direct Investment: Foreign Direct Investment (FDI) refers to investment that adds to, deducts from or acquires a lasting interest in an enterprise operating in an economy other than that of the investor where the investor's purpose is to have an effective voice in the management of the enterprise. For the purposes of FDI statistics, an effective voice is taken as equivalent to holding 10 per cent or more of the equity share capital in the direct investment enterprise. Other investments in which the investor does not have an effective voice in the management of the enterprise are mainly portfolio investments and these are not covered in this release. From the 2005 survey, cross-border investment by public corporations and private property investments are included, as in the Balance of Payments data.
Direct investment is a financial concept and is not the same as capital expenditure on fixed assets. It covers only the money invested in a related enterprise by the parent company with the enterprise having the discretion on how to use it. A related enterprise may also raise money locally without reference to the parent company. The investment figures are published on a net basis, that is, they consist of investments net of disinvestments by a company into its subsidiaries
Direct investment earnings: Direct investment earnings (or income) provide information on the earnings of direct investors. These can arise from both equity and debt.
Direct investment flows: Direct investment flows (or transactions) show the net inward and outward investments made during any given reference period. FDI flows comprise of:
acquisitions/disposals of equity capital
reinvestment of earnings
inter-company debt. FDI inward flows provide a useful indicator in relation to the attractiveness of economies but such interpretations require additional information on which to base sound conclusions.
Direct investment positions: Direct investment positions (also known as levels or stocks) provide information on the total level of investment made abroad/received from abroad for a given reference date
Inward direct investment: From a UK perspective, inward direct investment is investment in a UK resident subsidiary, associate or branch by a non-UK parent company or head office. Can also be referred to as direct investment in the UK.
Outward direct investment: From a UK perspective, outward direct investment is investment by a UK resident company in a non-UK subsidiary, associate or branch. Can also be referred to as direct investment abroad.
Reinvested earnings: Reinvestment of earnings or reinvested earnings refer to earnings on equity accruing to direct investors less the value of distributed earnings. Reinvested earnings are included in direct investment income because the earnings of the subsidiary, associate or branch are deemed to be the income of the direct investor (proportionate to the direct investor's holding of equity), whether they are reinvested in the enterprise or remitted to the direct investor. Reinvested earnings are also treated as a flow of direct investment from the direct investor to their overseas enterprise.
Special Purpose Entities (SPEs): The term SPE is used to refer to entities such as financing subsidiaries, shell companies and conduits, which typically do not conduct any significant operations in the country in which they are resident other than to pass through investment from their parent company to an affiliate in another country.
Subsidiaries: Subsidiaries are as defined in section 258 of the Companies Act 1989 and in the main are companies in which the parent company owns more than half of the equity share capital.
Relevance to users
The UK's FDI statistics are produced according to the agreed international standards set out in the 3rd edition of the OECD’s Benchmark Definition of FDI (BD3) and the 5th edition of the IMF’s Balance of Payments Manual (BPM5). The definitions and standards set out in BD3 and BPM5 were adopted in 1997. The changes made since 1997 are detailed in the Summary Quality Report linked in background note 2 above. Complying with these standards ensures that the FDI statistics produced by the UK are comparable with those from other countries, something that is critical to many users of these estimates.
The OECD and IMF have recently released new versions of their manuals concerning FDI statistics (BD4 and BPM6). These revised manuals reflect the changes that have occurred in international finance since the previous updates. Along with other countries, the UK is currently working to implement these manuals. In line with the Code of Practice for Official Statistics, the Office for National Statistics will consult fully with data providers and users of the statistics regarding any changes that occur as a result of the adoption of the new manuals.
FDI estimates are essential for measuring the UK's Balance of Payments and the UK’s international investment position. FDI earnings figures feed into the Balance of Payments current account, while FDI flows form an integral part of the financial account.
FDI statistics are also of great interest in their own right. By its very nature, FDI is seen as promoting stable and long-lasting economic links between countries. It is generally believed that FDI can assist host countries in developing local enterprises, promote international trade through access to markets and contributes to the transfer of technology and know-how. FDI can also have an impact on the development of labour and financial markets. Regular analysis of FDI trends and developments is therefore an integral part of most macro-economic and cross-border financial analysis. Identifying partner countries and industries is central to most such analysis.
Within the UK, FDI estimates are used by a large number of government departments for briefing and policy formation purposes, including HMRC, Cabinet Office, HM Treasury, UK Trade and Investment, the Bank of England, the Department for Business, Innovation and Skills and the Department for International Development.
UK FDI figures are also extensively used for policy, analysis and negotiations by international organisations, including Eurostat, UNCTAD, OECD and IMF, as well as a number of foreign embassies. More widely the FDI estimates are used by commercial companies, academics and independent researchers.
Guidance on interpreting foreign direct investment statistics:
FDI by country: The analysis of inward investment is based on the country of ownership of the immediate parent company. Thus, inward investment in a UK company may be attributed to the country of the first foreign parent, rather than the country of the final ultimate parent. As an example, to the extent that foreign direct investment in the UK is channelled through holding companies in the Netherlands, the flow of investment from this country is overstated at the immediate parent level and the underlying inflow from the ultimate parent level is understated. However, attribution on the basis of the immediate level is in accordance with the internationally agreed definition of foreign direct investment and allows for international comparability of data.
The same principle also applies on the outward survey where, in accordance with international standards, outward investment is attributed to the country of the immediate subsidiary rather than the ultimate destination of the investment.
|Other European Countries|
|Albania||Andorra||Belarus||Bosnia & Herzegovina|
|Croatia||Faroe Islands||Gibraltar||Macedonia, Former Yugoslav republic of|
|Moldova, Republic of||Montenegro||Russia||Serbia|
|Turkey||UK Offshore Islands (Guernsey, Jersey, other Channel Isalnds & Isle of Man||Ukraine||Vatican City State|
|Anguilla||Antigua & Barbuda||Argentina||Aruba|
|Bolivia||Brazil||British Virgin Islands||Canada|
|Caymen Islands||Chile||Columbia||Costa Rica|
|El Salvador||Falkland Islands||Greenland||Grenada|
|Puerto Rico||St Kitts & Nevis||St Lucia||St Vincent|
|Suriname||Trinidad & Tabago||Turks & Caicos Islands||Uraguay|
|US Virgin Islands||USA||Venezuela|
|Near & Middle East Countries|
|Armenia||Azerbaijan||Gaza & Jericho (Pelestinian Territories)||Georgia|
|Iran, Islamic Republic of||Isreal||Jordan||Lebanon|
|Syrian Arab Republic|
|Gulf Arabian Countries|
|Kuwait||Oman||Other Gulf States||Qatar|
|Other Asian Countries|
|Cambodia (kampuchea)||China||Hong Kong||India|
|Indonesia||Japan||Kazakhstan||Korea, South (Republic of)|
|Kyrgyzstan||Lao, Peoples democratic republic of||Macoa||Malaysia|
|Taiwan||Tajikistan||Thailand||Timor - Leste|
|Australasia & Oceania|
|American Samoa||Antarctica||Australia||Bouvet Island|
|Christmas Islands||Cocos (Keeling) Islands||Cook Islands||French Polynesia|
|French Southern Territories||Fiji||Guam||Heard Island & Macdonald Islands|
|Kiribati||Marshall Islands||Micronesia, Federated states of||Naura|
|New Caledonia||New Zealand||Niue||Norfolk Islands|
|Northern Mariana Islands (excl Guam)||Palau||Papua New Guinea||Pitcairn|
|Solomon Islands||South Georgia & South Sandwich Islands||Tokelau||Tonga|
|Tuvalu||US Minor Outlying Islands||Vanuatu||Wallis & Fortuna Islands|
|British Indian Ocean Territory||Burkina Faso||Burundi||Cameroon|
|Canary Islands||Cape Verdi||Central African Republic||Chad|
|Comoros||Congo||Democratic Rep of the Congo (Zaire)||Djibouti|
|Guinea Bissau||Ivory Coast (Cote d'Ivorie)||Kenya||Lesotho|
|Liberia||Libyan Arab Jamahiriya||Madagascar||Malawi|
|Rwanda||Soa Tome & Principe||Senegal||Seychelles & dependancies|
|Sierra Leone||Somalia||South Africa||St Helena & Dependencies|
|Sudan||Swaziland||Tanzania, United Republic of||Togo|
|Irish Republic||Italy||Japan||Korea, South (Republic of)|
|Norway||Poland||Portugal||Slovakia (from 2001)|
|Central & Eastern Europe|
|Albania||Bosnia and Herzegovina||Bulgaria||Croatia|
|Lithuania||Macedonia, former Yugoslav republic of||Montenegro||Poland|
Valuation of equity: Enterprises were asked to return values in sterling, as entered in their accounts, rounded to the nearest £0.1 million. Where conversion from a foreign currency was involved, they were asked to use the same rate of exchange as in their own accounts. Book values are likely to be significantly different from current market values as book values tend to reflect values at earlier periods when assets were acquired or subsequently revalued.
Sampling and non-sampling error: Sampling error is the error caused by observing a sample instead of the whole population. While each sample is designed to produce the 'best' estimate of the true population value, a number of equal sized samples covering the population would generally produce varying population estimates.
Sample surveys are employed rather than censuses, because the process is too lengthy and costly to be viable for these surveys. Standard errors are an estimate of the sampling error and provide a measure of the precision of the estimate. A low standard error indicates a precise estimate. A table summarising the standard errors for the 2010 FDI survey will be included in the MA4 publication, to be released on 2 February 2012.
In addition to sampling errors there is the potential for non-sampling error that cannot be easily quantified. One potential source of non-sampling error is non-response, which relates to the failure to obtain data from some businesses selected in the sample.
Various efforts are made to minimise non-response. Written reminders are sent to non-responding businesses. These are followed up with telephone, fax and email reminders. In addition, there is the possibility of using the legal powers of the Statistics of Trade Act to force a response, though ONS prefers to work together with businesses to produce the necessary information.
The response rates for the 2010 annual surveys are shown below:
|Reference Period||2010 (Outward FDI)||2010 (Inward FDI)|
|Selected Sample Size||1611||2445|
|Numbers co-operating fully or partially||1203||2116|
|Overall response rate (%)||74.7||86.5|
Imputation techniques are used to estimate values for those members of the population where data are not available, either due to the enterprise being outside the sample or a non-respondent. The imputation process accounts for the following figures and percentages of the final published figures:
|2010 surveys||FDI Investment Flows||FDI International Investment Positions||FDI Earnings|
|FDI Outward||1937.2 (8.3%)||37428.9 (3.7%)||2630.5 (3.3%)|
|FDI Inward||9052 (27.7%)||41162 (5.5%)||1819.1 (4.9%)|
Revisions to earlier years are one indication of the reliability of the key indicators in this release; these can be obtained by monitoring the size of revisions. The table below records the size of revisions for the last five years. The information was revised taking into account new information received. This is mainly due to respondents to the surveys revising the values they have already returned and also late returns replacing data that were initially imputed or constructed for. The revised data may themselves be subject to sampling or other sources of error.
|Revisions between first publication and estimates three years later|
|Value in latest period||Average revision over the last five years (bias)||Average over the last five years without regard to sign (average absolute revision)|
|Outward flows (CDQD)||23370||3099||4732|
|Outward positions (CDOO)||1048652||-8639||17523|
|Outward earnings (GLAB)||79101||-427||1618|
|Inward flows (CBDH)||32822||1956||6204|
|Inward positions (CDPZ)||731552||5022||9703|
|Inward earnings (CBEV)||37469||-499||1595|
A statistical test is applied to the average revisions to find out if there is bias in the estimates. The revisions are considered to be biased if the mean revision is significantly different from zero. In 2010, these tests were not statistically significant for any of the key variables, implying that any observed bias was due to chance.
Notes to tables
The sum of the constituent items in tables may not always agree exactly with the totals shown due to rounding of the figures.
Office for National Statistics
The Office for National Statistics (ONS) is the executive office of the UK Statistics Authority, a non-ministerial department, which reports directly to Parliament. ONS is the UK government's single largest statistical producer. It compiles information about the UK's society and economy, and provides the evidence-base for policy and decision-making, the allocation of resources, and public accountability. The Director General of ONS reports directly to the National Statistician who is the Authority's Chief Executive and the Head of the Government Statistical Service.
The Government Statistical Service (GSS)
The Government Statistical Service is a network of professional statisticians and their staff operating both within the Office for National Statistics and across more than 30 other government departments and agencies.
National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.
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