Printer Friendly

Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1987 and 1988.

Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies, 1987 and 1988

MAJORITY-OWNED foreign affiliates of U.S. companies plan to decrease capital expenditures 1 percent, to $33.4 billion, in 1988, following a planned 3-percent increase in 1987 (table 1, chart 4).1 For the years 1983-87, total spending has been relatively flat; increases in spending by meanufacturing affiliates offset decreases by petroleum affiliates. In 1988, in contrast, spending is expected to increase in petroleum and decrease in manufacturing --by 6 percent and 2 percent, respectively. The increase in petroleum may reflect expectations that the rise in oil prices, which began in the spring of this year, will be maintained.

1. Capital expenditures 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 resources 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 also 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 currenties, because the necessary data are unavailable.

The spending estimates for the years 1985-88 have been affected by dollar depreciation. Depreciation of the dollar boosts actual and planned capital spending by raising the dollar value of a given amount of expenditures denominated in foreign currencies. This effect may be offset, however, to the extent that depreciation improves U.S. competitiveness and shifts expenditures from abroad to the United States.

Actual spending for 1986 and planned spending for 1987 are both 5 percent below levels reported 6 months earlier (table 2). The most recent estimates for both years are based on a survey conducted in June; the earlier estimates are based on a survey taken in December 1986. In the most recent survey, the downward revisions in both years were predominately in petroleum. In terms of year-to-year changes in total spending, the December 1986 survey showed a 2-percent decrease for 1986, whereas the most recent survey shows a 7-percent decrease. Although the most recent plans for 1987 were revised down, the planned increase in spending--3 percent --shows no change because of the downward revision in 1986 spending.

By area, affiliates in developed countries plan a 1-percent decrease in spending, to $25.7 billion, in 1988, following a 4-percent increase in 1987. Affiliates in developing countries plan a 1-percent increase, to $7.4 billion, following a similar increase in 1987. Affiliates in "international'--those that have operations in 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 3-percent decrease, to $0.3 billion, following a 16-percent decrease.

Petroleum

Petroleum affiliates plan to increase spending 6 percent, to $10.0 billion, following a 1-percent decrease in 1987. The 1988 increase, if realized, will make the first year-to-year spending increase in petroleum since 1982. Despite the increase, the level currently planned for 1988 remains only about one-half as large as that in 1982. In 1983, spending fell 23 percent, to $15.9 billion. In 1984 and 1985, spending declined moderately; then, in 1986, it plunged 30 percent, to $9.6 billion, as firms sharply curtailed exploration and development projects in response to the drop in oil prices that began in late 1985. Later estimates for 1987 and 1988 will also be affected by changes in the price of oil. If prices remain at high levels, petroleum companies may increase their exploration and development budgets. If prices fall, however, companies may postpone or scale down projects planned on the basis of higher prices.

Affiliates in developed countries plan to increase spending 4 percent, to $6.3 billion, in 1988, following virtually no change in 1987. The increase is more than accounted for by Canadian affiliates, which plan to increase spending 16 percent, to $1.9 billion, following an 11-percent increase. Both of these increases largely reflect expenditures for development projects that were deferred or stretched out from 1986. Later estimates for 1988 may be revised upward if the Canadian Government's recent efforts to attract foreign capital into the oil industry result in increased U.S. investment there or if a U.S. company's proposed acquisition of one of Canada's largest oil companies takes place.

Affiliates in the United Kingdom and Italy also plan spending increases in 1987 and 1988. In the United Kingdom, affiliates plan a 3-percent increase in 1988, to $1.9 billion, following a 4-percent increase. In both years, the increases reflect expenditures for exploration and development projects in the North Sea that were stretched out because of low oil prices. In Italy, a sharp increase, to $0.2 billion, follows a small increase. Both increases are largely the result of a refining affiliate's expenditures to expand gasoline production facilities.

Partly offsetting these increases are decreases planned by affiliates in Norway and the Netherlands. Norwegian affiliates plan to decrease spending 3 percent, to $0.6 billion, following a 7-percent increase. The change partly reflects the completion of an offshore platform repair project in 1987. In the Netherlands, affiliates plan to decrease spending 23 percent, to $0.2 billion, following a 31-percent decrease. The 1987 decrease is primarily due to the completion of pipeline projects in 1986. The 1988 decrease largely reflects reduced construction of drilling rigs.

In developing countries, affiliates plan to increase spending 9 percent, to $3.5 billion, following a 1-percent decrease. The increase is widespread by area. Indonesian affiliates plan a 27-percent increase, to $1.0 billion, following a 10-percent decrease. Nigerian affiliates plan a large increase, to $0.2 billion, following a similar increase. In both countries, the 1988 increases reflect expenditures for exploration and development. Brazilian affiliates plan a sharp increase, to $0.2 billion, following virtually no change in 1987. The increase reflects expenditures for the development of a natural gas field.

Affiliates in "international' plan to increase spending 5 percent, to $0.2 billion, following a 25-percent decrease. Spending has been weak in recent years due to an oversupply of tankers and mobile offshore drilling rigs. The partial recovery of spending in 1988 may reflect expectations of higher crude oil prices.

Manufacturing

Manufacturing affiliates plan to decrease spending 2 percent, to $17.1 billion, in 1988, following a 6-percent increase. Decreases are planned in all manufacturing industries except nonelectrical machinery and transportation equipment. In 1987, in contrast, increases are planned in all manufacturing industries except electrical equipment and primary and fabricated metals.

Large decreases in 1988 are planned by affiliates in food products and in "other manufacturing.' The 14-percent decrease in food products, to $1.3 billion, follows a 16-percent increase and largely reflects the completion of plant construction projects in 1987. In "other manufacturing,' the 9-percent decrease, to $2.9 billion, follows a 15-percent increase and largely reflects expenditures by manufacturers in the paper and plastic products industries. In chemicals, primary and fabricated metals, and electrical equipment, affiliates plan small spending decreases. If realized, the 2-percent decrease in chemicals, to $3.2 billion, will be the first year-to-year decrease in that industry since 1983. It largely reflects the completion of plant expansion projects in 1987.

Partly offsetting these decreases are increases planned by affiliates in nonelectrical machinery and transportation equipment. Affiliates in nonelectrical machinery plan to increase spending 5 percent, to $3.2 billion, following a similar increase in 1987. The increases largely reflect expenditures by a few manufacturers of agricultural equipment to consolidate production and improve cost efficiency. Despite excess capacity and slumping sales in the agricultural machinery industry, these manufacturers hope to lower their costs and sales prices enough to increase their market shares. The increases in nonelectrical machinery also reflect expenditures by computer manufacturers for facilities to produce improved or diversified product lines in an effort to maintain their market shares in the highly competitive computer market.

Affiliates in transportation equipment plan to increase spending 4 percent, to $4.3 billion, following a 1-percent increase. The increases in both years are much smaller than the 26-percent increase in 1986, partly due to the completion of plant expansion and modernization projects in that year. The level of spending planned in 1988 is the highest since 1981 and largely reflects expenditures (such as those for automated assembly systems and the introduction of new car models) undertaken in an effort to meet strong worldwide competition. Increased competition for global market share has stemmed from the expansion by foreign producers, especially the Japanese, into new markets and the entrance of newly industrialized countries, such as Korea, into the export business.

By area, manufacturing affiliates in developed countries plan to decrease spending 1 percent, to $14.4 billion, following a 6-percent increase. Affiliates in the Netherlands, France, and Australia plan large decreases after sizable increases in 1987. In the Netherlands, affiliates plan to decrease spending 15 percent, to $0.6 billion, following a 14-percent increase. The increase in 1987 and subsequent decrease are mostly in "other manufacturing.' They reflect expenditures for plant expansion in 1987 by an affiliate that manufactures plastic products. French affiliates plan a 7-percent decrease, to $1.3 billion, in 1988, following a 10-percent increase. The changes are mostly in chemicals and reflect the completion of a new plant in 1987. In Australia, affiliates plan a 21-percent decrease, to $0.6 billion, following a 20-percent increase in 1987. The changes are largely in transportation equipment; they reflect expenditures in 1987 for a facility to manufacture a new car model.

Large spending increases in 1988 are planned by affiliates in Japan and Spain. In Japan, affiliates plan a 21-percent increase, to $0.8 billion, following an 8-percent decrease. The increase, centered in nonelectrical machinery, mainly reflects expenditures for facilities to manufacture computers. Spanish affiliates plan large increases in both years--28 percent, to $0.6 billion, in 1988, following a 45-percent increase. The increases are largely in transportation equipment and reflect expenditures by one affiliate for facilities to manufacture a new engine and by another for facilities to manufacture a line of small automobiles.

Affiliates in the United Kingdom, Germany, and Canada also plan to increase spending in 1988. In the United Kingdom, a 2-percent increase, to $2.5 billion, follows an 11-percent increase. The 1988 increase largely reflects spending by a transportation equipment affiliate for facilities to manufacture engines and transmissions. German affiliates plan a 4-percent increase, to $2.7 billion, following a 7-percent decrease. The increase is mostly in chemicals and nonelectrical machinery. In Canada, affiliates plan to increase spending 1 percent, to $3.4 billion, following a 1-percent decrease. The increase, which is in transportation equipment, reflects an affiliate's expenditures for plant conversions to produce new car models.

In developing countries, affiliates plan a 5-percent decrease, to $2.7 billion, following a 7-percent increase. Decreases are widespread by area but are largely in Brazil, Argentina, and Venezuela. In Brazil, affiliates plan to decrease spending 2 percent, to $1.1 billion, following a 17-percent increase; small increases in chemicals and transportation equipment are more than offset by small decreases in all other manufacturing industries.

Mexican affiliates plan a 2-percent decrease, to $0.6 billion, following a 7-percent decrease. In 1988, affiliates in all manufacturing industries except chemicals and transportation equipment plan decreases. In 1987, the decrease is concentrated in transportation equipment. It partly reflects the completion of projects--the contruction of a new plant and the expansion of another--in 1986. In both years, decreases may also reflect the devaluation of the peso relative to the dollar, which lowered the cost, in dollar terms, of a given amount of capital investment in Mexico.

Other industries

Affiliates in all other industries combined plan a 7-percent spending decrease to $6.4 billion, in 1988, following a 3-percent increase.

Affiliates in wholesale trade plan to decrease spending 7 percent, to $2.6 billion, following an 8-percent increase. The 1988 decrease is centered in Canada. It reflects decreased expenditures by an automobile wholesaler for a new building that is nearing completion. The 1987 increase is largely in Switzerland, Japan, and Germany. In Switzerland, the increase mainly reflects the 1987 purchase of shipping vessels by a grain wholesaler.

Spending by affiliates in finance (except banking), insurance, and real estate is expected to decrease 8 percent, to $0.4 billion, following a 5-percent decrease. The 1988 decrease is mostly in the United Kingdom and reflects the completion of building modernization projects in 1987.

Affiliates in services plan a 4-percent decrease, to $1.3 billion, following a 1-percent increase. The decreases are largest in Australia and France.

Affiliates in "other industries'--agriculture, construction, public utilities, mining, and retail trade--plan a 7-percent spending decrease, to $2.0 billion, following a 1-percent decrease. In both years, the largest decreases are in Hong Kong. They reflect the winding down of a project to construct power generating facilities. Colombian affiliates also plan a sizable spending decrease in 1987 due to the completion in 1986 of a mine-to-port railway system.

Table: 1.--Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies, 1983-88

Table: 2.--Revisions to Capital Expenditures Estimates, 1986-87

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

Table: 3.--Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1986

Table: 4.--Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1987

Table: 5.--Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1988
COPYRIGHT 1987 U.S. Government Printing Office
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Herr, Ellen M.
Publication:Survey of Current Business
Date:Sep 1, 1987
Words:2307
Previous Article:Plant and equipment expenditures, the four quarters of 1987.
Next Article:U.S. international transactions, second quarter, 1987.
Topics:


Related Articles
Plant and equipment expenditures, the four quarters of 1988.
Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1988 and 1989.
The international investment position of the United States in 1988.
U.S. direct investment abroad: detail for position and balance of payments flows, 1988.
U.S. direct investment abroad: detail for position and balance of payments flows, 1989.
Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1991.
Capital expenditures by majority-owned foreign affiliates of U.S. companies, latest plans for 1991.
Valuation of the U.S. net international investment position.
The international investment position of the United States in 1990.
U.S. direct investment abroad: 1989 benchmark surveys results.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters