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

Capital Expenditures by Majority-Owned Foreign Affiliates of U.S. Companies, 1988 By ELLEN M. HERR

MAJORITY-OWNED foreign affiliates of U.S. companies plan to increase capital expenditures 15 percent, to $38.9 billion, in 1988, following a planned 4-percent increase in 1987 (table 1, chart 1). 1 The 1988 increase, if realized, will be the largest since 1980. Spending leveled off in 1981-82; it decreased sharply in 1983 and remained soft throuhgout 1984-87 due to sluggish economic conditions abroad and weak petroleum markets. Despite the planned increase, spending in 1988 remains below the 1982 level. Spending currently planned by petroleum affiliates, although up 20 percent from 1987, is 60 percent lower than in 1982. Spending currently planned by manufacturing affiliates is up 16 percent from 1987 and, in contrast to petroleum, is 17 percent higher than in 1982.

In all industries, depreciation of the dollar against other major currencies since 1985 has raised spending estimates, because depreciation raises the dollar value of a given amount of expenditures denominated in foreign currencies. The 20-percent increase in spending planned by petroleum affiliates also reflects expectations that the spring 1987 rise in oil prices would be maintained. Because oil prices have softened considerably since late 1987, when these plans were formulated, the increase may not be realized. The 16-percent increase in spending planned by manufacturing affiliates reflects, in addditon to dollar depreciation, expenditures to improve products and production facilities in response to increased competition for global market share (especially in the automobile and computer industries) and expenditures to expand capacity in the primary metals industry.

In total, planned spending for 1988 is substantially higher than the level reported 6 months earlier (table 2). In contrast, the spending estimate for 1987 is little changed. The most recent estimates for both years are based on a survey conducted in December 1987; the earlier estimates were based on a survey taken in June. The large upward revision in planned 1988 spending mostly reflects further dollar depreciation in the fall of 1987. The revision also reflects additional spending planned, since June, for exploration and development projects by petroleum affiliates. Finally, the earlier estimate was made before the spring 1987 oil price increase could be fully incorporated into spending plans; the most recent estimate reflects the increase. (As mentioned earlier, the increase may not be realized if the softening of oil prices late in 1987 causes affiliates to scale back spending plans.)

By area, affiliates in developed countries plan a 15-percent increase, to $30.0 billion, in 1988, following a 5-percent increase. Affiliates in developing countries plan a 13-percent increase, to $8.4 billion, following a 1-percent increase. 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 sharp increase, to $0.5 billion, following a small decrease.

Petroleum

Petroleum affiliates plan to increase capital spending 20 percent, to $12.3 billion, in 1988, following a 7-percent increase. The increase is widespread by area. Affiliates in developed countries plan a 19-percent spending increase, to $8.0 billion, following an 11-percent increase. The largest dollar increases are in the United Kingdom, Norway, and Canada. In the United Kingdom, affiliates plan an 18-percent increase, to $2.9 billion, following a 39-percent increase. Norwegian affiliates plan a 39-percent increase, to $1.0 billion, following an 11-percent increase. In both countries, the increases in both years reflect stepped-up exploration and development projects in the North Sea. In Canada, affiliates plan a 19-percent increase, to $2.0 billion, following a 14-percent increase. In addition to increased exploration and drilling activity, the 1988 increase reflects expenditures planned by a Canadian oil company acquired in 1987 by a U.S. company.

In developing countries, affiliates plan to increase spending 19 percent, to $3.9 billion, after little change in spending in 1987. The increase is mostly in Indonesia, Malaysia, Nigeria, and Brazil. Increases in Indonesia, Malaysia, and Nigeria are for exploration and development; the increase in Brazil is mostly for development of a natural gas field.

In contrast to most areas, affiliates in the Middle East plan a sizable spending decrease, which mostly reflects the winding down of a pipeline project in Yemen.

Affiliates in "internationals" plan to increase spending sharply, to $0.4 billion, following a 7-percent decrease. The increase is primarily for offshore oil rigs and reflects recovered demand following several years of oversupply.

Manufacturing

Manufacturing affiliates plan to increase capital spending 16 percent, to $19.6 billion, in 1988, following a 3-percent increase. Affiliates in all industries within manufacturing plan sizable increases. The largest dollar increases are in transportation equipment, "other manufacturing," and chemicals.

Affiliates in transportation equipment plan to increase spending 20 percent, to $4.6 billion, following an 8-percent decrease. Strong competition for global market share among automobile manufacturers has led to expenditures for advanced manufacturing systems and product development. Recently, competition has been especially strong in the market for luxury automobiles. The 1987 decrease is centered in Canada and partly reflects reduced retooling expenditures due to a plant closing by a transportation equipment affiliate.

Chemical affiliates plan a 15-percent increase, to $3.8 billion, following a 9-percent increase. In general, the increases in both years reflect continued strong demand for chemical products.

In "other manufacturing," affiliates plan to increase spending 17 percent, to $3.7 billion, following a 15-percent increase. Both increases largely reflect capacity expansion by manufacturers of paper products.

Affiliates in primary and fabricated metals and in nonelectrical machinery also plan large increases. In primary and fabricated metals, affiliates plan to increase spending 26 percent, to $1.0 billion, following a 17-percent decrease. The increase partly reflects expenditures for capacity expansion to meet increased demand for aluminum products. In nonelectrical machinery, affiliates plan to increase spending 17 percent, to $3.4 billion, following no change. The increase mostly reflects spending plans by computer manufacturers. As in transportation equipment, intensified competition among computer manufacturers has led to expenditures for facilities to produce new and diversified product lines.

by area, manufacturing affiliates in developed countries plan to increase spending 16 percent, to $16.3 billion, following a 2-percent increase. The largest dollar increases are in Germany, the United Kingdom, and Japan. German affiliates plan to increase spending 29 percent, to $3.3 billion, following a 6-percent decrease. The increase, mostly in transportation equipment, reflects retooling assembly lines and development of a new automobile model.

British affiliates plan to increase spending 19 percent, to $2.8 billion, following a 7-percent increase. The largest increases are in transportation equipment and in primary and fabricated metals. In transportation equipment, the increase partly reflects expenditures planned by a British manufacturer of luxury automobiles recently acquired by a U.S. company. In primary and fabricated metals, sizable spending increases are planned in both years to finance expansion by a manufacturer of aluminum containers.

Japanese affiliates plan a 53-percent increase, to $1.0 billion, following a 5-percent decrease. The increase, centered in nonelectrical machinery, mainly reflects expansion by a computer manufacturer.

Large increases are also planned by Spanish and Canadian affiliates. Spanish affiliates plan a 59-percent increase, to $0.7 billion, following a 40-percent increase. The increases in both years mostly reflect expenditures by an affiliate in transportation equipment for facilities to manufacture a line of small automobiles. Canadian affiliates plan a 10-percent increase, to $3.3 billion, following an 11-percent decrease. The increase is mostly in "other manufacturing" and reflects capacity expansion by manufacturers of paper products.

In developing countries, manufacturing affiliates plan to increase spending 17 percent, to $3.3 billion, following a 6-percent increase. The 1988 increase is mostly in Brazil and Mexico. Brazilian affiliates plan a 16-percent spending increase, to $1.4 billion, following a 20-percent increase. The 1988 increase is widespread and is largest in transportation equipment and in "other manufacturing." In Mexico, affiliates plan a 22-percent increase, to $0.7 billion, following a 13-percent decrease. The increase is widespread by industry and reflects the construction of new U.S. assembly plants and capacity expansion. In recent years, the U.S. presence in Mexico has expanded due to: The devalued peso; the maquiladora program, which allows favorable trade concessions on U.S. assembly operations in Mexico; and the removal of restrictions on 100-percent ownership by foreigners in several manufacturing industries. The 1987 decrease reflects completion of a transportation equipment plant in 1986.

Other industries

Affiliates in all other industries combined plan a 4-percent spending increase, to $7.1 billion, in 1988, following a 3-percent increase. Increases are planned in all industries except finance (except banking), insurance, and real estate, where affiliates plan a 4-percent decrease, to $0.6 billion. The decrease mostly reflects the 1987 completion of building modernization projects in the United Kingdom.

Affiliates in wholesale trade plan to increase spending 3 percent, to $3.0 billion, following a 10-percent increase. Large increases are planned by affiliates in Japan, the increase partly reflects construction of an inspection center by an automobile wholesaler. In Germany, the increase reflects expenditures by a computer wholesaler; in France, it reflects expenditures by a wholesaler of farm machinery.

Affiliates in services plan to increase spending 6 percent, to $1.5 billion, following a similar increase in 1987. The increase in 1988 is mostly in the United Kingdom and Japan. In the United Kingdom, the increase reflects expenditures by an affiliate in computer services; in Japan, it reflects expenditures by an affiliate in management and consulting services.

Affiliates in "other industries" -- agriculture, construction, public utilities, mining, and retail trade -- plan a 3-percent increase, to $2.0 billion, following a 14-percent decrease. The largest increases are in Germany and the United Kingdom. In Germany, an affiliate in freight transportation plans a capacity expansioin. In Japan, a food retail chains plans restaurant upgrades.

NOTE. -- Smith W. Allnutt designed the computer programs used in generating the estimates.

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 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 nautral resources 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 currencies, because the necessary data are unavailable.

Note. -- Estimates are for majority-owned nonbank foreign affiliates of nonbank U.S. parents.

Tables 3-5, which provide detailed country-by-industry estimates of capital expenditures for each year 1986-88, follow.

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

TABLE: Percent change from preceding year
 TABLE: Actual Most Earlier
 TABLE: expenditures recent plans 2
 TABLE: plans 1
 TABLE: 1984 1985 1986 1987 1988
 TABLE: 1987 1988
 TABLE: Billions of dollars
 TABLE: Actual expenditures Most Earlier
 TABLE: recent plans 2
 TABLE: plans 1


TABLE: 1983 1984 1985 1986
 TABLE: 1987 1988
 TABLE: 1987 1988


Table 2. -- Revisions to Capital Expenditures Estimates, 1987-88

TABLE 3. -- Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1986 (1)

(Millions of dollars)

TABLE 4. -- Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1987 (1)

(Millions of dollars)
 TABLE: Manufacturing
 TABLE: Primary Ma-
 TABLE: Food Chem- and chinery,
 TABLE: All Petro- and cals and fabri- except
 TABLE: industries leum Total Kindred allied cated elec-
 TABLE: products products metals trical
 TABLE: Finance
 TABLE: Electric (except)
 TABLE: and Trans- Whole- banking, Serv- Other
 TABLE: elec- portation Other sale insur- ices indus-
 TABLE: tronic equip- manu- trade ance tries
 TABLE: equip- ment facturing and real
 TABLE: ment estate


TABLE 5. -- Capital Expenditures by Majority-Owned Affiliates of U.S. Companies in 1988 1

(Millions of dollars)
 TABLE: Manufacturing
 TABLE: Primary Ma-
 TABLE: Food Chemi- and chinery,
 TABLE: All Petro- Total and cals and fabri- except
 TABLE: industries leum kindred allied cated elec-
 TABLE: products products metals trical
 TABLE: Finance
 TABLE: Electric (except)
 TABLE: and Trans- Whole- banking, Serv- Other
 TABLE: elec- portation Other sale insur- ices indus-
 TABLE: tronic equip- manu- trade ance tries
 TABLE: equip- ment facturing and real
 TABLE: ment estate


TABLE: Long-Term Perspective: January 1968 to February 1988
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Author:Herr, Ellen M.
Publication:Survey of Current Business
Date:Mar 1, 1988
Words:2102
Previous Article:Reconciliation and other special tables.
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