Foreign direct investment

Foreign Direct Investment

Foreign direct investment refers to investments in enterprises across national borders, where the investing enterprise aims to establish a long-term economic relationship and exert significant influence over the operations of a foreign enterprise. This definition aligns with international guidelines in this area.

The investing enterprise is often referred to as the investor.

Since SSB’s data collection is based on accounting information, we define an investment as a direct investment if the company holds at least a 20 percent ownership share, in order to distinguish between direct investments and portfolio investments. International statistical guidelines recommend a threshold of 10 percent, but as this statistic follows the Accounting Act, we deviate from that recommendation.

A foreign direct investment includes:

• the investor’s share of contributions and acquired equity in the foreign enterprise they invested in, as well as the investor’s assets and liabilities related to the investment enterprise
• other asset and liability relations between enterprises within the same enterprise group, such as loans between a Norwegian enterprise and a foreign fellow enterprise

Fellow enterprises

Fellow enterprises are enterprises that are directly or indirectly controlled or influenced by the same parent company within the ownership hierarchy, but neither fellow enterprise controls nor influences the other.

Investments between fellow enterprises can include investments in assets, debt instruments and income, such as dividends and interest.

The directional principle: Inward and outward investments

We calculate the foreign direct investment statistic according to the directional principle and the revised directional principle.

The directional principle

The directional principle presents direct investment data organized according to the direction of the direct investment relationship, meaning that financial assets and liabilities between the investor and the investment enterprise are netted. This implies that:

• An inward foreign direct investment is the foreign investor’s investment in a Norwegian enterprise, minus any investment from the Norwegian enterprise in the foreign enterprise. We call this foreign direct investment in Norway
• An outward foreign direct investment is the Norwegian enterprise’s investment in a foreign enterprise, minus any investment from the foreign enterprise in the Norwegian enterprise. We call this Norwegian foreign direct investment

The revised directional principle

The revised directional principle relates to the treatment of investments between fellow enterprises.

The principle is only partly applied in the foreign direct investment statistic, as we only cover debt instruments between fellow enterprises.

Distribution of income from foreign direct investment

The distribution of income from direct investments can be divided into three parts:

• Distributed earnings (dividends): Payments made to investors from the company.
• Income in debt (interest): Payments for loans provided to the company.
• Reinvested earnings: The portion of profits that is not distributed as dividends but retained within the company. This is also considered a return on directly invested capital. SSB classifies reinvested earnings as a transaction in equity from the owner to the company, in line with international recommendations for direct investment statistics.

In the Balance of Payments, reinvested earnings are recorded as income, while in the Financial Accounts, they are recorded as retained earnings.

Other changes

Other changes consist of exchange rate revaluations and other market and price related revaluations.

A revaluation is a new assessment of the value of assets and liabilities when prices and exchange rates have changed. It is thus a new valuation that comes without the enterprises having made any new transactions.

The exchange rate revaluations are calculated while other types of revaluations are taken from the data collection.

Ultimate investor country

The ultimate investor country is the country where the “last” enterprise or person in the ownership chain is registered or has registered address. That is, the enterprise that is not controlled by another enterprise or the last person in the ownership chain. According to the guidelines for Direct Investments, it is possible to have more than one ultimate investor country by following the ownership chain for each direct investor. However, for practical reasons, we have adopted the Winner-Takes-All (WTA) approach, which means that we follow the ownership chain of the majority owner, resulting in only one ultimate investor country per enterprise.

Asset/liability principle

The asset/liability principle records all foreign direct investment claims on and obligations to non-residents using the normal balance sheet, and the stocks and income are presented as gross assets and liabilities. I.e. the direction of the investment does not affect whether it is recorded as assets or liabilities.

Industry Classification

The industry code is based on the sector of the Norwegian portion of the investment, covering both the asset and liability sides.

The industry classification is from the reference year 2010 in line with the revised Norwegian Standard industrial classification (SN07), which is based on the EU’s industry standard NACE Rev. 2. Prior to the reference year 2010, the industry classification was based on Norwegian Standard industrial classification (SN94), which is based on the EU’s industry standard NACE Rev 1.

The transition to a new industrial classification (SN07) has little significance for the industry breakdown in the foreign direct investment statistic. This is because the statistic is aggregated to a relatively high level.

Limited companies with operations in several industries are, in principle, classified according to the operation that makes the largest contribution to the company’s total value added. You can find further details on SN07 in the publication NOS Standard industrial classification (C 182) and on Statistics Norway’s website at Standard Industrial Classification.