Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1985.
Spending grew at an annual compound rate of 21 percent in 1977-80, leveled off in 1981-82, and declined sharply in 1983. The leveling-off of spending in 1981-82 resulted from sluggish economic conditions abroad and high interest rates. The decline in 1983--the sharpest since at least 1957, when this expenditure series began--reflected the same factors that depressed spending in 1981-82, as well as the cumulative effects of appreciation of the U.S. dollar. If the increases now planned for 1984 and 1985 are realized, 1985 spending would be about equal to 1980 spending.
The latest estimate of spending for 1981, based on a survey taken last December, is significantly lower than the estimate based on the survey taken 6 months earlier, which indicated expenditures would increase 12 percent (table 2). The latest estimate for 1985 is also lower than the earlier one; however, the 1985 percentage increase is larger, because the downward revision for 1984 was proportionally larger than for 1985. In each year, petroleum affiliates account for most of the revision.
Estimates of 1984 and 1985 spending levels have been revised downward in each successive semiannual survey of spending intentions. The revisions suggest that the business recovery suggest that the business recovery abroad may be more gradual than previously expected.
By area, affiliates in developed countries plan a 12-percent spending increase in 1985, to $30.5 billion, following an 8-percent increase in 1984 (tables 3-5). In developing countries, a 17-percent increase, to $11.5 billion, is planned, following a 2-percent decline. 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 to increase spending 22 percent, to $0.5 billion, following a 37-percent decline.
Petroleum affiliates plan to increase spending 7 percent, to $17.3 billion, following a 4-percent increase in 1984. Spending had declined 21 percent in 1983.
The recovery of spending in 1984 and 1985 may be restrained by the reduction in worldwide demand for oil. Despite the availability of relatively low-cost crude oil, some refining and marketing affiliates are sustaining losses. These losses, which have led to the closing or sale of some affiliates, are largely due to low rates of capacity utilization--a condition exacerbated by heightened competition from newly established downstream operations of some oil-producing countries.
The small increases in petroleum spending now planned for 1984 and 1985 would result in spending remaining below the 1982 level. In developed countries, spending is expected to increase 2 percent, to $10.9 billion, after a 20-percent increase in 1984. Spending had declined 21 percent in 1983. The 1985 increase is concentrated in Canada and the Netherlands. In the former, the new administration is seen as being more receptive to investment by foreign-owned companies; in the latter, the increased spending is largely for refinery expansion. Partly offsetting these increases is a decline in Norway, where an affiliate is planning sizable expenditures in 1984, but not in 1985, for pipelines and gas compression facilities.
In developing countries, affiliates plan a 16-percent spending increase, to $6.0 billion, following a 16-percent decline in 1984. Much of the increase is in Indonesia, largely for crude oil extraction and for development of alternative energy sources, such as coal and geothermal energy.
Affiliates in "international" plan a 26-percent increase in spending in 1985, following a 38-percent decline in 1984. In both years, the changes are concentrated in spending on mobile offshore drilling rigs.
Manufacturing affiliates plan to increase spending 22 percent, to $17.7 billion, in 1985, following a 6-percent increase. In 1985, the largest increase is in transportation equipment, although affiliates in every industry within manufacturing, except primary and fabricated metals, also plan increases.
In developed countries, a 21-percent increase, to $14.3 billion, is planned, after a 4-percent increase. Canadian affiliates plan a 31-percent increase, to $3.6 billion, after a 6-percent increase. About one-half of the 1985 increase is in transportation equipment, mostly for production of a new automobile model; increases are also expected in most other manufaturing industries.
In Europe, German affiliates plan a 24-percent increase, to $2.7 billion, after a 1-percent increase. The 1985 increase is centered in transportation equipment, for production of a new automobile model, and in chemicals, for plant modernization.
In developing countries, affiliates plan a 28-percent increase, to $3.5 billion, after a 16-percent increase in 1984. In each year, the largest increase is in Mexico. Spending by Mexican affiliates had fallen sharply in 1982 and 1983 because of adverse economic conditions, including exchange controls and devaluation of the peso. If the increases now planned for 1984 and 1985 are realized, spending in 1985 will still be below the 1981 level.
Affiliates in all other industries combined plan to increase spending 10 percent, to $7.5 billion, after almost no change in 1984. Affiliates in trade account for much of the increase; their expenditures are to increase 12 percent, to $3.9 billion, after no change. The increase is spread across many areas, and reflects expectations that the economic recovery will continue.
Mining affiliates plan a 33-percent spending increase, to $0.8 billion, from a relatively low base. The increase is centered in Australia, where a bauxite-mining affiliate is planning to resume smelter construction. In finance (except banking), insurance, and real estate, affiliates plan to increase spending 12 percent, to $0.4 billion, after an 18-percent reduction. Affiliates in "other industries"--agriculture, construction, public utilities, and other services--plan small reductions in spending in both years.
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|Publication:||Survey of Current Business|
|Date:||Mar 1, 1985|
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