Home > Statistics > Foreign direct investments > 2016 > Quality description: Foreign direct investments

Quality description: Foreign direct investments

• 1. Relevance of statistical information
• 2. Methodological description of the survey
• 3. Correctness and accuracy of data
• 4. Timeliness and promptness of published data
• 5. Accessibility and transparency/clarity of data
• 6. Coherence and comparability of data
• 7. Coherence and consistency/uniformity

1. Relevance of statistical information

1.1. Data content and purpose of use

The statistics on annual foreign direct investments describes investment activities that are based on considerable influence or control in the investment target. In practice, the statistics depict financial transactions between domestic and foreign units in multinational groups and the assets and liabilities these generate, as well as international mergers and acquisitions. The statistical data can also be used to assess the degree of globalisation in the economy. Foreign direct investments are part of the balance of payments statistics framework but the data are published once a year as separate statistics.

The statistics compilation is based on Regulation (EC) No 184/2005 of the European Parliament and of the Council on Community statistics concerning balance of payments, international trade in services and foreign direct investment. The International Monetary Fund's (IMF) balance of payments manual (Balance of Payments and International Investment Position Manual, 6th ed. [BPM6]) and the Organisation for Economic Co-operation and Development 's (OECD) manual on foreign direct investments (Benchmark Definition of Foreign Direct Investment, 4th ed. [BD4]) are applied in the compilation.

The statistics on foreign direct investments have been published as part of the balance of payments statistics by the Bank of Finland since 1968. The main responsibility for the balance of payments statistics was moved to Statistics Finland on 1 January 2014 and Statistics Finland publishes the statistics on foreign direct investments as a separate set of statistics once a year starting from 2014. With the new statistical standards direct investments are published in net terms in the statistics on foreign direct investments and in gross terms as part of the balance of payments and international investment position statistics.

1.2. Key concepts and definitions

The classifications used in the statistics are the country classification, the Standard Industrial Classification (TOL 2008) and the Classification of Sectors (2012).

The key concepts of the statistics are:

• Direct investment: A direct investment relationship exists between an investor (direct investor) and an object (direct investment enterprise) located in another country when the investor has control (over 50% of the voting power) or influence (from 10% to 50%) over the object. The direction of the investment (either inward or outward) is determined in the statistics on the basis of the direction of the control/influence between parties. Direct investments refer to financial transactions between parties in a direct investment relationship.

  The capital of direct investments is divided into equity and debt-based items. The counter item of reinvested earnings presented in the current account is recorded in equity. Equity includes transactions with shares in corporations, share subscriptions in rights issues and other investment of basic capital. For listed companies, the value of equity capital is recognised at market value and for other enterprises at book value. In connection with corporate acquisitions the value of equity is valued based on the market value and the actual transaction price is utilised in determining the market value. The debt-based capital of direct investments includes individual loans, leasing credits, deposits in consolidated accounts, subordinate loans comparable to equity, trade credits, accrued charges/credits and deferred credits/charges, bonds, and money market instruments. If both the creditor and debtor practise other financial intermediation than insurance, only so-called perpetuals are classified as debt-based capital of direct investments.

  The statistics on foreign direct investments are published according to the so-called extended directional principle. The new statistical standards (BPM6/BD4) recommend that the asset/liability principle is applied to direct investments in statistics on balance of payments and international investment position. Similarly, the extended directional principle in net amounts is recommended to be applied in connection with examinations of direct investments by country or sector. Due to divergent ways of presentation, the figures for direct investments given in the statistics differ from one another.

• Reverse investment: Reverse investment refers to the acquisition by a direct investment enterprise of a financial claim on its direct investor.

• Pass-through investment: Investments where a domestic investment enterprise receives capital from a foreign direct investor and then reinvests it in its own direct investment enterprises abroad. The same pass-through investment item increases both inward and outward foreign direct investments. When pass-through investments are negative, foreign investors have unwound their foreign investments channelled through Finland, which decreases both Finland’s inward and outward direct investments.

• Local enterprise group: Enterprises owned by the same controlling enterprise in the same country belong to a local enterprise group. Foreign affiliates and those domestic affiliates where the ownership chain goes through foreign countries are not included in the local enterprise group in question.

• Ultimate direct investor: An institutional unit located abroad or in the home country using control in a foreign company that is topmost in the ownership chain of the direct investor. The ultimate direct investor is not controlled by any other institutional unit. The ultimate direct investor can also be a private person permanently living abroad or in the home country.

• Capital inflow/outflow: In inward foreign direct investments, the capital invested on net by a foreign direct investor in Finnish direct investment enterprises in a given period. Correspondingly, in outward investments, the capital invested on net by a Finnish direct investor in foreign direct investment enterprises in a given period.

• Asset/liability principle: According to the asset/liability principle, financial transactions included in direct investments are presented according to the data given on the assets in the balance sheet of the reporting corporations either as assets from abroad or as liabilities to abroad. The asset/liability principle does not take into consideration reverse investments according to the directional principle. Treatment of investrments between fellow enterprises is also different. Direct investments are recorded in the balance of payments according to the asset/liability principle.

• Stock, position: The value of the capital invested by a foreign direct investor in Finnish direct investment enterprises at a given moment (inward direct investments). Correspondingly, the value of the capital invested by a Finnish direct investor in foreign direct investment enterprises at a given moment (outward direct investments).

• Fellow enterprise: Fellow enterprises are connected to one another through a shared parent company.

• Directional principle: Financial assets and liabilities are netted in direct investments data according to the directional principle by the direction of the control//influence between the direct investor and investment target. Direct investments to Finland describe the capital that a foreign investor has invested directly in an enterprise located in Finland under the investors' control or influence. Direct investments abroad describe the capital that a Finnish investor has invested directly in an enterprise located abroad under the investors' control or influence. Reverse investments, or financial assets of the direct investment enterprise from direct investors and investments between affiliates are taken into account in the data according to the directional principle. The financial assets and liabilities of affiliates whose ultimate control is located in Finland are netted and recorded as outward direct investments. Correspondingly, the financial assets and liabilities of affiliates whose ultimate control is located abroad are netted and recorded as inward direct investments. Data on direct investments according to the directional principle are published in the statistics on foreign direct investments.

• Reinvested earnings: Reinvested earnings are calculated as the difference between investment income on equity and dividends paid. The counter item of reinvested earnings presented in the current account is recorded in equity in the financial account..

• Immediate direct investor: The institutional unit located abroad that is first in the enterprise's control and influence chain.

1.3. Laws and regulations

Statistics Finland's mandate for data collection is based on the Finnish Statistics Act (280/2004, amended 361/2013). Finland has statutory obligations to produce and report balance of payment statistics/direct investments to the European Central Bank (ECB) (ECB's guidelines ECB/2004/15, revised ECB/2007/3, and ECB's guidelines ECB/2011/23, revised ECB/2013/25) and to Eurostat, the Statistical Office of the European Union (Regulation (EC) No 184/2005 of the European Parliament and of the Council, revised (EC) No 707/2009 and Commission Regulation 555/2012), as well as to the International Monetary Fund (IMF).

2. Methodological description of the survey

The main data sources for the statistics on foreign direct investments are the annual balance of payments survey on foreign financial assets and liabilities (BOPA) and the monthly survey on foreign financial assets and liabilities (BOPM). Until 2017, the data collection has been a joint data collection between Statistics Finland and the Bank of Finland. Starting from the beginning of 2017, full responsibility for the data collection was transferred to Statistics Finland. In connection with this, the monthly data collection on foreign financial assets and liabilities (BOPM) was replaced by the quarterly inquiry on financial assets and liabilities (BOPQ). The data are collected with web questionnaires implemented in Statistics Finland's data collection system.

The annual inquiry is based on a cut-off sample, where the respondents are selected so that around 95 per cent of the value of the portfolio of direct investments is covered. The framework of the inquiry is based on the Business Register and its additional data on foreign ownership, the Group Register and its data on affiliates, and the data of the Tax Administration. The inquiry includes yearly some 1,100 local enterprise groups. The annual inquiry data are available in September of the year following the statistical reference year as part of the annual publication of the balance of payments and international investment position and in November as part of the publication of the statistics on foreign direct investments. In figures published prior to this, the data collected in the annual inquiry have been estimated based on the latest available annual inquiry.

3. Correctness and accuracy of data

Only financial transactions between institutional units located in Finland and abroad are recorded in the balance of payments and international investment position and thus also in direct investments. If a foreign investor buys the target enterprise under the name of a holding company to be established in Finland and the holding company finances half of the transaction price with money received from the foreign investor and the rest with a bank loan withdrawn in Finland, only the capital invested by the foreign investor in the holding company is recorded in direct investments.

The statistics on foreign direct investments do not describe real investments. If, for example, a company under foreign control makes a factory expansion investment in Finland and does not receive financing for this directly from a foreign investor, nothing is recorded in the statistics on direct investments.

The main sources of error in the statistics are related to non-response and undercoverage. If a response is missing, the statistics are supplemented with the data from the previous year if possible. Otherwise the missing data are patched with imputations. The coverage of the questionnaire survey refers to the correctness of the survey frame in relation to the group one wishes to cover with the survey. In case of this survey, undercoverage is a possible source of error because the survey sample is based on the balance sheet data in the year preceding the statistical reference year and on the data from the enterprise and enterprise group registers. In addition, undercoverage may occur related to missing data concerning international mergers and acquisitions.

The definitions of direct investments and the data providers' ability to deliver data in accordance with these definitions are also a fundamental source of errors. Misunderstandings occur concerning the definitions of direct investments, which means that the responses may be deficient or are to some extent recoded in wrong items. In addition, it is in some cases difficult for the data providers to collect the correct data from the enterprise's information systems in which case the data are based on the enterprise's estimates.

The reliability of the statistics is also affected by the quality of the data collected with electronic questionnaires. The Bank of Finland combined three former annual balance of payment surveys (the surveys SSU = direct investment abroad, SSS = direct investment into Finland and SVA = foreign assets and liabilities) into a single survey Balance of payments annual survey on foreign financial assets and liabilities (BOPA). The reform enables compilation of FDI statistics in compliance with the new statistical standards, and the data for the statistical reference year 2012 are the first set of data collected in line with the new standards. The reform aims at lowering enterprises’ reporting burden and clarifying and harmonising the reporting process. Starting from 2017, the responsibility for data collections has been transferred to Statistics Finland.

4. Timeliness and promptness of published data

The statistics on foreign direct investments are published once a year. The data for the statistical reference year are published around ten to eleven months after the end of the statistical reference year. The published figures become final at the latest three years after the end of the statistical reference year.

The monthly net FDI flows are released around six weeks after the end of the month as part of the statistics on balance of payments and international investment position. Quarterly investment portfolios of direct investments are also released two-and-a-half months after the end of the quarter as part of the statistics on balance of payments and international investment position. The distributions by sector and country are carried out only on annual data and are released in the statistics on foreign direct investments. A link to the release schedule for the statistics on balance of payments and international investment position can be found at: http://www.tilastokeskus.fi/til/mata/tjulk_en.html .

5. Accessibility and transparency/clarity of data

The statistics on foreign direct investments are released annually on Statistics Finland's website. Both the capital stock and capital flow data are published by sector, country and country group so that the data of an individual enterprise cannot be identified.

6. Coherence and comparability of data

Statistics Finland is committed to following the international statistical standards. The statistics on foreign direct investments are compiled in accordance with the OECD Benchmark Definition of Foreign Direct Investment, 4th Edition (BD4) and the IMF Balance of Payments and International Investment Position Manual, 6th Edition (BPM6).

Country and sector-specific stock and flow data on direct investments are available on Statistics Finland’s website starting from 2004. Similar direct investment data in accordance with international statistical standards are available for several countries in the world.

The renewal of the statistical standards causes a break in the time series of direct investments. Starting from the statistical reference year 2013, items between fellow enterprises are reported in accordance with the extended directional principle, which decrease the stocks of both inward and outward FDI. For the period prior to 2013, the Bank of Finland has assessed the FDI stock and fellow enterprise items in accordance with the extended directional principle for the years 2009 to 2012. The estimates have been compiled for the IMF's Coordinated Direct Investment Survey (CDIS) and the data are available on IMF's website at: http://cdis.imf.org/Default.aspx . In line with the new statistical standards, direct investments will be published in connection with the balance of payments and international investment position statistics according to the asset/liability principle and the statistics on foreign direct investments according to the extended directional principle, which results in the figures on direct investments presented in the statistics differing from one another.

Inward Foreign Affiliate Trade Statistics [FATS]) and outward FATS statistics published by Statistics Finland are closely related to the statistics on foreign direct investments.

7. Coherence and consistency/uniformity

The data for the statistics on foreign direct investments are delivered at aggregate level following the confidentiality principle to Eurostat, the Statistical Office of the European Communities, the OECD, the IMF and the UN. The organisations publish the data of the statistics in several printed and Internet publications.

More information on the balance of payments and international investment position statistics can be found on Statistics Finland´s website at: http://www.tilastokeskus.fi/til/mata/index_en.html .

Source: Foreign direct investments 2016, Statistics Finland

Inquiries: Kristian Taskinen 029 551 2238, Johannes Nykänen 029 551 3641, balanceofpayments@stat.fi

Director in charge: Ville Vertanen

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Updated 30.11.2017