OECD Review of Foreign Direct Investment Statistics of Libya

The records and accounting statements of direct investment enterprises are a major source of data for the compilation of FDI statistics. It is possible to derive foreign direct investment positions from the balance sheet of enterprises supplemented with additional information on ownership shares and related party transactions. Table A ‎A.1 presents a generic balance sheet, and the following paragraphs discuss how it can be combined with other information to compile FDI positions.

The first point is that it is very important that the balance sheet of the direct investment enterprise be used for the compilation of FDI positions. The balance sheet of the direct investment enterprise will reflect the value of non-distributed profits and losses, including for the current year, which may not be reflected in the books of the direct investor. For inward FDI, this is straightforward as the data collection will be from the resident direct investment enterprise. For outward FDI, data are usually collected from the resident direct investor, so it is necessary to request that they report data from their direct investment enterprise’s books rather than their own.

The shareholders’ equity is the difference between the value of the direct investment enterprise’s assets and liabilities; in the generic balance sheet above, the owner’s equity is USD 950, which is equal to USD 4 350 of assets less USD 3 400 of liabilities. It represents the amount that would be returned to the owners of the enterprise if it were liquidated and all of its debts paid off.

Companies follow financial accounting standards in preparing their records and financial statements. Among the most common financial accounting standards followed by multinational enterprises are International Financial Reporting Standards (IFRS), promulgated by the International Accounting Standards Board, and United States Generally Accepted Accounting Principles (U.S. GAAP). However, many countries continue to have national Generally Accepted Accounting Principles (national GAAP). Many countries, including the United States, have made changes to align their national GAAP more closely with the IFRS.1 If the enterprise uses IFRS or a national GAAP that has been aligned with IFRS regarding the valuations of assets and liabilities, then the shareholders’ equity from the balance sheet measures the value of the equity according to the Own Funds at Book Value (OFBV) method. OFBV is one of the preferred methods for valuing equity in direct investment enterprises in BPM6 and BD4 and is the recommended method for valuing equity in the IMF’s Coordinated Direct Investment Survey.

There is an additional piece of information that is needed to calculate the FDI equity position: the percentage ownership of the direct investor in the direct investment enterprise. If this is a wholly owned subsidiary (100 percent owned by the direct investor), then the FDI equity liability position would be USD 950. It is a liability position because the non-resident direct investor has a claim on a resident enterprise. On the other hand, if the direct investor owned 80% of the direct investment enterprise, then the FDI equity position would be 80% of USD 950, or USD 760.

In addition to equity, any lending between the direct investor or its other affiliates and the direct investor enterprise should be included in the FDI debt position. To use the balance sheet to derive the FDI debt position is more difficult because it requires information on the relationship between the direct investment enterprise and its debtors and creditors. There are several debt items in the balance sheet above:

• Claims the direct investment enterprise has on others in the form of accounts receivable, and

• Debt the direct investment enterprise owes to others in the form of loans payable, accounts payable and long-term debt.

The balance sheet does not usually show if the debt transactions are with related parties although the enterprise will usually be able to provide that information when asked.

If the loans payable included a loan of USD 300 that the DIE received from its parent, then this loan would be included in the FDI debt liability position. Similarly, if USD 200 of the accounts payable were due to other affiliates of the direct investor, then this amount would be included in the FDI debt liability position. The direct investment enterprise may not only receive loans, but it could also make loans to its direct investor or to other affiliates of the direct investor. When a direct investment enterprise makes a loan to its direct investor, it is called reverse investment. Therefore, if USD 400 in the accounts receivable were due from the direct investor, this would be a FDI debt asset of the direct investment enterprise; it is an asset because it is a claim that the resident direct investment enterprise has on the non-resident direct investor.

If the FDI position were presented in the international investment position (IIP), it would show all of the assets and liabilities of the direct investment enterprise. In the case of a wholly owned subsidiary with the inter-company debt described above, the FDI liability position would be equal to the equity liability position plus the debt liability positions, or USD 950 + USD 300 + USD 200 = USD 1 450. The FDI asset liability position would be equal to the claims of the direct investment enterprise on its direct investor, or USD 400.

If the position is compiled under the directional principle (see ‎Annex B on the asset/liability and directional presentations of FDI statistics), then the inward FDI position could be compiled from the information above. The directional principle is used for detailed statistics by partner economy and reflects the net investment according to the direction of the influence or control of the direct investor. To calculate the inward FDI position the reverse investment is subtracted from the total investment received from the direct investor. In this case, the inward FDI position would be USD 1 050, which is the total FDI liability position of USD 1 450 less the reverse debt investment of the DIE to its direct investor of USD 400. There is no outward FDI in this case because the direction of influence is into Libya.