Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1984 and 1985.
The planned 1984-85 increases follow relatively flat spending in 1981-82 and a decline in 1983. Spending in 1981-82 was constrained by depressed economic conditions worldwide and high interest rates. The 1983 decline--18 percent--was the sharpest since at least 1957, when this expenditure series began. The decline reflected, in addition to the factors that depressed 1981-82 spending, the cumulative effect of appreciation of the U.S. dollar. The dollar's sharp appreciation in recent months is not fully reflected in the current estimates for 1984-82, because the estimates were prepared earlier. Thus, estimates of spending for 1984-85 may be revised downward in the next survey.
Although respondents to the current survey plan to increase spending in both 1984 and 1985, the rate of increase is expected to slow in 1985. The slowing, which is widespread by area and industry, probably reflects concerns about the sustainability of the economic recovery abroad.
Actual spending for 1983 and spending as now planned for 1984 both fall short of what was planned earlier. The latest estimate of spending for 1983, based on a survey taken in June, has been revised downward from the estimate based on the survey taken 6 months earlier, which showed a 14-percent decline (table 2). The latest estimate for 1984 is also lower than the earlier one; the year-to-year percentage increase is only slightly smaller, however, because it is calculated from the lower 1983 base.
By area, affiliates in developed countries plan a 9-percent spending increase in 1985, to $31.5 billion, compared with a 14-percent increase in 1984 (tables 3-5). In developing countries, affiliates plan a 7-percent increase, to $11.9 billion, after a 10-percent increase. Affiliates in "international"--those that have operations spanning more than one country and that are engaged in petroleum shipping, other water transportation, or operating oil and gas drilling equipment that is moved from country to country during the year--plan a small increase in 1985 after a decline, from a low base, in 1984. Petroleum
Petroleum affiliates plan to increase spending 8 percent in 1985, to $19.2 billion, following a 15-percent increase in 1984. The 1985 increase reflects expections that the business recovery now underway in the United States and some major foreign countries will continue, but at a slower pace than in 1984. Spending had declined sharply--21 percent--from 1982 to 1983, largely as a result of the world oil glut and depressed business
In developed countries, spending is expected to increase 9 percent, to $12.1 billion, after a 25-percent increase, to $4.0 billion, compared with a 30-percent increase in 1984. In addition to the economic recovery, the increases in both years may reflect generally favorable changes in British taxation of offshore operations. In contrast, spending decined in 1982 and 1983, after rising strongly--from $0.5 billion to $4.1 billion--during 1973-81. Spendign in 1982-83 was dampened by British Government policies to conserve oil reserves and, especially in 1983, by the world oil glut. Norwegian affiliates plan to increase spending 19 percent, to $1.8 billion, in 1985, following a 27-percent increase. Spending had declined since development begain in this sector of the North Sea. Contributing to the decline were the general economic slowdown mentioned earlier and, perhaps, high taxes on petroleum operations. The strong increases planned for 1984 and 1985, despite continuing high taxes, may partly reflect changes in Norwegian Government policies, including the granting of permits to foreign companies to explore for oil above the Arctic Circle. The rapid pace of development in the Norwegian sector of the North Sea reflects the perception that it is the most promising area outside the Middle East in which to explore for and develop oil and gas fields.
In contrast to affiliates in the North Sea area, Canadian affiliates plan to reduce spending 4 percent, to $3.1 billion, after a 22-percent increase. The strong increase in 1984, largely for upstream activities, follows a sharp decline in 1983.
In developing countries, affiliates plan a 6-percent spending increase, to $6.7 billion, in 1985, after a 3-percent increase. Next year's increase is concentrated in Indonesia, where spending by a large affiliate engaged in crude oil production, is expected to climb from this year's relatively low level.
Affiliates in "international" plan a small spending increase in 1985, after a large cut in 1984. In both years, the change is concentrated in spending on mobile offshore drilling rigs. Manufacturing
Manufacturing affiliates plan to increase spending 10 percent, to $17.1 billion, in 1985, following a 14-percent increase this year. In 1984, increases are planned in every industry except nonelectrical machinery. In 1985, the increase is concentrated in nonelectrical machinery, mainly computers; some of the increase may be due to deferrals from 1984.
In developed countries, manufacturing affiliates plan to increase spending 12 percent, to $14.1 billion, in 1985, following an 11-percent increase. Canadian affiliates plan a 16-percent increase, to $3.4 billion, following a 14-percent increase. Next year, the largest increase is expected in nonelectrical machinery; it is mainly accounted for by a computer manufacturing affiliate. This year's increase, centered in primary and fabricated metals, reflects an affiliate's plan to increase capacity.
In Europe, French affiliates plan to increase spending 24 percent in 1985, to $1.4 billion, after a 12-percent reduction this year. In both years, the changes are centered in nonelectrical machinery and are consequences of low spending in 1984 compared with spending in 1983 and 1985 by a computer manufacturer. British affiliates expect to increase spending 12 percent next year, to $2.7 billion, following a 16-percent increase in 1984. Next year's increase is centered in nonelectrical machinery, whereas this year's increase is more widespread.
In developing countries, affiliates plan a 2-percent increase, to $3.1 billion, after a 29-percent increase in 1984. Despite these increases, spending in 1985 is expected to remain well below the 1981 and 1982 levels. The strong 1984 increase follows declines in 1982 and 1983, when spending was curtailed by adverse economic conditions and, particularly in 1983, by external debt repayment problems in several Latin American countries. For 1985, the largest increase is in Mexico, where spending is expected to increase is expected in Brazil. In both centuries, the increases, which reflect general economic improvement, are spread through most industries. Other industries
Affiliates in all other industries combined plan to increase spending 8 percent, to $7.6 billion, in 1985, after a 4-percent increase. The planned 1985 increase is largely accounted for by mining affiliates. Their expenditures are expected to double, to $0.8 billion, after an 8-percent decline. Next year's increase is centered in Chile, where a copper mining affiliate plans a major expansion.
Affiliates in finance (except banking), insurance, and real estate plan to increase spending 10 percent, to $0.5 billion, following a 6-percent increase in 1984. Trade affiliates plan a 2-percent increase to $3.8 billion, after a 7-percent increase. In "other industries"--agriculture, construction, public utilities, and other services--affiliates plan small increases in both years.
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|Publication:||Survey of Current Business|
|Date:||Sep 1, 1984|
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