Direct investment abroad

Definition of the IDE

OECD defines the Direct investment abroad as follows: “the IDE is an activity by which an investor residing in a country obtains a durable interest and a significant influence in the management of an entity residing in another country. This operation can consist to create a entirely new Entreprise (Investissement of creation) or, more generally, to amend of property of the existing companies (by the means of fusion S and Acquisition S). Are also defined like direct foreign investments of other types of financial affairs between connected companies, in particular the reinvestment of the benefit of the company having obtained the IDE, or other transfers in Capital”. The latter include in particular the loans granted by a head office to its subsidiary company established abroad.

Contrary to the investments of wallet, the IDE imply a takeover on behalf of the foreign firm. The threshold from which control is exerted is arbitrary, the the IMF uses a value of 30%.

Evolution of flows of IDE

The evolution of flows of IDE, which depends in particular on the stability of the land of welcome and the prospects that it seems to offer in the long term, reflects to some extent confidence that the foreign investors in a country or an area carry.

Flows of IDE between the European Union, the the United States and the Japan (flow North-North) are most important, even if their shares in the world total is rather in fall. Thus, one observes these last years a strong increase in flows towards the Asia of south-east and particularly bound for the China.

Generally, the African continent attracts little IDE even if some countries like the South Africa, the Morocco, the Tunisia or the Egypt constitute exceptions. For the other African countries, the IDE is primarily concentrated in the mining.

The direct investments, whose IDE (direct investments abroad), known as also “productive”, are used directly with acquisition or creation of companies or an acquisition of a holding in a company. Nearly 60% of the entering IDE concentrate in North America, Europe and with the Japan. The Developing country thus call 40% of them. Only 7 countries accommodate 65% of the world stock of IDE, primarily of the industrialized countries, and 30 States accommodate 90% of the IDE. The United States collects three times more IDE than the unit of the DEVELOPING COUNTRIES. The only true rupture of these last years comes from the striking down emergence of China which becomes the second State of reception with 12% of world stock.

The IDE are the fact of very large industrial firms (multinational) or of services originating in the industrialized countries.

causes of the explosion of the IDE since the Eighties

international flows of capital exploded since the Années 1980 thanks to the Dérégulation. This deregulation of the IDE consists in removing a certain number of restrictions on entering flows of IDE, the such Trims ( trade related investment measures : for example, rule of balance of the foreign trade, regulates of local contents). Thus affirm yourself a revival of the functions of the State: it is the development of the State mondialisator, which not only endeavors to take part in the internationalization of the national firms, but which also tries to attract the foreign investors by emphasizing the attractivity of the territory (infrastructures of quality, presence of industrial Districts, quality of the labor, competitiveness-cost, etc). It is then the end of a collusion between the States and the multinational firms which consisted of a certain protectionism which benefitted the firms (reduction from the risk from entering potential, advantages of the first arrived on the market ( first mover ): " winner takes all"). The other aspects of the deregulation such as privatizations with the withdrawal of the State of the productive sphere increases the entering and outgoing IDE relating to fusion-acquisitions.

flows of IDE also explode after 85 with the rise of the European IDE (in particular German) and Japanese, because of the appreciation relative to the dollar (it drops in a way concerted after the agreements of Plazza) of the mark and the yen, which is favorable to the internationalization of the German and Japanese firms. That breaks with the situation of the Sixties characterized by the importance of the American IDE because of a technological variation favorable (the apogee of the fordism and high expenditure of research and development).

This explosion is carried by the rise of the IDE in the service sector, because of the tertiarisation and the disindustrialization of the developed countries (which is also the result partly flows of IDE having for finality the Délocalisation), of the deregulation of this sector (following the multilateral trade negotiations of OMC and the deregulation of the finance departments).

flows of IDE make considerable great strides with new destinations: the emergent Pays (and particularly the Far East) drain capital more and more, within the framework of a world redistribution of the productive activities. The Eastern European countries become also a new gravitational land of welcome with their entry in the European Union, pledge of stability macro-economic and political, institutional reforms and a modification of the economic policies.

Stakes of the IDE

the IDE take part in the construction of the comparative advantages of an economy. It is thus crucial for the States to avoid a " déconstruction" of these comparative advantages by supporting the anchoring of these investments, i.e. their durability. That is possible in incentive to create interdependences between the foreign firm and the local producers (exchanges, technological co-operation…).

The IDE is vector of Technology transfer, which is crucial for the takeoff and the increase of the dies towards productions with stronger technological contents or of high-end.

IDE and employment.

Some values

In 2002:

European Union: 380 billion Dollar S (light increase),
the United States: 30 billion Dollar S (in fall),
Africa: 10 billion dollars (stagnation),
Latin America: 50 billion dollars (stagnation),
Asia Western and central: 8 billion dollars (stagnation),
Southeast Asia: 98 billion dollars,

of which China (52 billion) and Japan (9 billion),

Oceania 14,5 billion,

of which Australia (13,9 billion).

In 2005:

the United Kingdom: 165 billion dollars
the United States: 99 billion dollars (- 19%)
China: 74 billion dollars (+ 13%)
France: 64 billion dollars

In 2006: (UNCTAD, 2006)

European Union = 421 Mds €
the United States = 136 Mds €
the United Kingdom = 131 Mds €
France = 68 Mds €
China = 54 Mds €
HongKong = 31 Mds €
Singapore = 24 Mds €
Italy = 23 Mds €
Russia = 22 Mds €
India = 7 Mds €

During the first half of 2006, the Indian multinational firms bought 76 European, Asian competitors or American for a total of 5,2 billion dollars on the whole. In 2005, the IDE of the emergent Pays were assembled to 117 billion dollars is 17% of the world total against 10% in 1982.

See too

Investment Map Database on line of UNO including flow and stocks of IDE, like commercial flows and information on the subsidiary companies in the developing country

Random links: