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Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1985 and 1986.

Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies, 1985 and 1986

MAJORITY-OWNED foreign affiliates of U.S. companies plan to increase capital expenditures 2 percent, to $40.9 billion, in 1986, following a planned 15-percent increase in 1985 (table 1 and chart 2).(1) The strong 1985 increase is from a relatively low base, and, even if the increases planned for both years are realized, spending in 1986 will be below the levels of 1980-82.

1. Capital expenditure estimates are for majority-owned nonbank foreign affiliates of nonbank U.S. parents. (An affiliate is majority owned when the combined ownership of all U.S. parents exceeds 50 percent.) For affiliates other than those engaged in natural resource exploration and development, capital expenditures include all expenditures that are charged to capital accounts and that are made to acquire, add to, or improve property, plant, and equipment. For affiliates engaged in natural resource exploration and development, capital expenditures include the full amount of exploration and development expenditures, whether capitalized or expensed. Capital expenditures are on a gross basis; sales and other dispositions of fixed assets are not netted against them. They are reported to BEA in current dollars; they are not adjusted for price changes in host countries or for changes in the value of foreign currencies, because the necessary data are unavailable.

The sharp increase in spending expected in 1985 probably reflects lower interest rates and the moderate economic recovery abroad; however, based on recent experience, the 1985 spending estimate may be revised downward in later surveys. The much smaller increase planned for 1986 may partly reflect conservative estimates by investors. Factors that would tend to boost 1986 spending are expectations that the business recovery abroad may continue and that there will be a further decline in the foreign currency value of the dollar; those that would depress spending are excess capacity in some industries, and affiliates' loss of market share, particularly in Europe, because of heightened competition from companies in the Far East, particularly in Japan.

Actual spending for 1984 and spending now planned for 1985 are well below previously planned levels. The latest estimates for both years are based on the survey conducted in June; the previous estimates are based on the survey taken 6 months earlier. In terms of year-to-year changes, the earlier plans for 1984 showed a 4-percent increase, whereas the latest estimates show a 4-percent decline (table 2). In contrast, for 1985, the percentage increase is now larger than previously planned, because the downward revision in the level of spending for 1984 was proportionally larger than that for 1985.

By area, affiliates in developed countries plan a 3-percent spending increase in 1986, to $29.8 billion, compared with a 15-percent increase in 1985. In developing countries, affiliates also plan to increase spending 3 percent, to $10.7 billion, after a 15-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 to cut spending 17 percent, to $0.4 billion, in 1986, after a 21-percent increase.

Petroleum

Petroleum affiliates plan to increase spending 3 percent, to $17.2 billion, after an 18-percent increase in 1985 (tables 3-5). However, largely due to the oil glut and weak prices in recent years, spending in 1986 is expected to be well below the 1982 level. In developed countries, affiliates plan to increase spending 5 percent, to $11.4 billion, after an 18-percent increase. In both years, Canadian affiliates account for much of the higher spending; their expenditures are expected to increase 12 percent in 1986, to $3.9 billion, after a planned 33-percent increase. The increases reflect that country's decontrol of oil prices and lower tax rates.

Elsewhere in developed countries, British affiliates plan to increase expenditures 10 percent, to $4.0 billion, following a 17-percent increase. The increases, which are for development of offshore oilfields, reflect, in part, the increased costs associated with developing smaller or deeper fields, as production from many larger or shallower fields is expected to peak. In contrast to the increases in spending planned by affiliates in Canada and the United Kingdom, affiliates in the Netherlands plan to reduce spending 37 percent, to $0.5 billion, in 1986, after a 56-percent increase; the bulge in expenditures in 1985 was primarily for refinery expansion.

In developing countries, affiliates plan a 1-percent increase, to $5.4 billion, following a 17-percent increase. In both years, the increases are largely accounted for by Indonesian affiliates engaged in offshore gasfield and oilfield development.

Affiliates in "international' plan a small dollar (but sizable percentage) increase in spending in 1985 and a small dollar (but sizeable percentage) decrease in 1986. Reflecting an excess supply of mobile offshore drilling rigs and tankers, spending is expected to continue at depressed levels.

Manufacturing

Manufacturing affiliates plan to increase spending 1 percent, to $16.5 billion, in 1986, after a 16-percent increase in 1985. In 1985, affiliates in every industry except primary and fabricated metals plan increases; in 1986, only affiliates in chemicals and nonelectrical machinery plan increases.

In developed countries, affiliates plan to increase spending 2 percent, to $13.2 billion, following a 15-percent increase in 1985. The 1986 increase reflects small increases in spending by affiliates in several European countries, largely offset by a decline in spending by affiliates in Canada.

In Europe, the largest increase in 1986 is planned by German affiliates. They expect to increase spending 6 percent, to $2.4 billion, following a similar increase in 1985; affiliates in nonelectrical machinery, mostly computer manufacturers, account for virtually all of the increase. In Canada, affiliates plan to reduce expenditures 9 percent, to $3.2 billion, following a 30-percent increase. The largest decline in spending in 1986 is by an affiliate in primary and fabricated metals; it reflects the expected completion in 1985 of a capacity expansion project. The sharp increase in Canadian affiliates' 1985 spending is concentrated in transportation equipment, and is largely for expansion and modernization of vehicle manufacturing and assembly facilities.

In developing countries, affiliates plan a 1-percent increase, to $3.2 billion, in 1986, after a 20-percent increase in 1985. The largest dollar increase in 1986 is planned in Brazil; the largest in 1985 is planned in Mexico. The increases reflect general economic improvement in both countries.

Other industries

Affiliates in all other industries combined plan to increase spending 3 percent in 1986, to $7.3 billion, after a 7-percent increase. Affiliates in mining account for most of next year's increase; their expenditures are expected to increase 19 percent, to $0.9 billion, after a 24-percent increase. Next year's planned increase is largely by a copper mining affiliate in Chile; in contrast, this year's increase is largely by a bauxite mining affiliate in Australia that is building a refinery.

Trade affiliates plan to increase spending 1 percent, to $4.0 billion, after a 12-percent increase in 1985. The 1986 increase results from small, nearly offsetting changes in spending in many areas, and may reflect investor concerns about the extent of the recovery abroad. Affiliates in finance (except banking), insurance, and real estate plan to maintain spending at $0.2 billion in both years. Partly offsetting the increases in mining and trade are small reductions in spending in both years by affiliates in "other industries'--agriculture, construction, public utilities, and other services.

Table: 1.--Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies, 1978-86

Table: 2.--Revisions to Capital Expenditure Estimates, 1984-85

Table: 3.--Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies in 1984

Table: 4.--Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies in 1985

Table: 5.--Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies in 1986

Photo: CHART 2 Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies
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Author:Kozlow, Ralph
Publication:Survey of Current Business
Date:Sep 1, 1985
Words:1319
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