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Introduction

1 This section outlines the main statistical concepts associated with measuring the economic activity of foreign-owned businesses from the Economic Activity Survey, using data derived from the Survey of International Investment and other sources (such as the Internet) to identify foreign-owned businesses.

Scope and coverage

2 The main ABS data sources used in this study are the Economic Activity Survey and the Survey of International Investment.

Economic Activity Survey

3 The scope of the 2000-2001 EAS consisted of all business units in the Australian economy except for:

• all businesses classified to the Agriculture, forestry and fishing industry.
• non-employing businesses in all other industries, i.e. businesses which had not registered as group employers with the ATO.
• businesses classified to the General Government sector (note: government-owned public corporations were included).

5 The ABS Business Register provided the population frame from which EAS units were selected using stratified random sampling techniques. All management units employing 200 or more units were automatically selected in the sample. It should be noted that the sample was designed for the purpose of providing data about business and industry performance. It was not designed for providing data about foreign ownership characteristics of businesses. Therefore the results of the present study should be interpreted with some caution.

6 Although the ABS presents data about foreign investment by industry in Balance of Payments and International Investment Position, cat. no. 5302.0, the information relates to the industry of the enterprise group rather than to the industries of the specific management units where the funds are used, which often have very different industry profiles.

Classification by Industry

7 This publication presents statistics classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 1993, cat. no. 1292.0. Each business unit is classified to a single industry based on the primary activity of the management unit, irrespective of any secondary activity.

Survey of International Investment

8 The Survey of International Investment (SII) is the main source of international investment statistics. It measures international investment activity between residents of Australia and residents of the rest of the world (non-residents). All corporations (including publicly-owned ones) known to have foreign investment activity are included in the survey.

Matching Statistical Units

9 In establishing ownership, EAS units have been matched with SII units. The reporting unit of the SII is the top enterprise of the enterprise group. This is a unit within the enterprise group covering all legal entities classified to the same subsector within the Standard Institutional Sector Classification of Australia (SISCA). When a management unit in the EAS was found to be a member of an enterprise group in the SII, the matched unit was classified to the country that owned the enterprise group and was assigned the industry of the EAS unit.

Source of Investment Funds

10 Foreign investment can take the form of equity or debt (e.g. loans and bonds). Foreign equity investment provides an indication of the level of foreign influence on Australian enterprises. Foreign equity investment takes two forms - direct investment (10% or more) and portfolio investment (less than 10%). The direct investment group consists of subsidiaries, sub-subsidiaries and associates (unless the direct investment enterprise is itself an associate). The draft OECD Manual on Economic Globalisation Indicators (MEGI) recommends that globalisation indicators be compiled for enterprises under effective foreign control, defined as enterprises where majority voting power (over 50%) is held by a single direct foreign investor or by a group of associated investors acting in concert. In practice, almost all majority foreign-owned businesses in Australia are controlled by just one single direct foreign owner. Enterprises under foreign control include subsidiaries of majority foreign-owned enterprises.

Previous Foreign Participation Studies

11 During 1970s and 1980s the ABS conducted a number of foreign participation studies. These studies measured the following concepts: foreign ownership, defined as direct foreign ownership by direct investment enterprises plus other identified foreign ownership; and control.

12 Direct investment enterprises were defined as: enterprises incorporated in Australia in which 25% or more of the ordinary shares or voting stock are held by a single foreign resident or 50% or more are held by residents of one foreign country; branches of enterprises incorporated in foreign countries; and their wholly or partly-owned subsidiaries.

13 Other identified foreign ownership referred to those enterprises where one or more foreign residents owned 10% or more of the voting stock, but whose status as a direct investment enterprise had not been confirmed.

14 The definition of the direct investment enterprise was wider than the present study's concept of majority foreign ownership (50% or more), but in practice there are likely to have been only a small number of cases in which a single foreign investor owned between 25% and 50% of the shares, or between 10% and 25%. In the foreign ownership studies, the amount of foreign ownership of a business activity was determined by multiplying, for each business, the total value of the activity by the proportion of foreign ownership for that business. This is not the approach adopted in this study.

15 The foreign participation studies identified four categories of control: foreign control; joint foreign and Australian control; naturalised or naturalising; and Australian control. The four categories were determined by the Government's foreign investment policy at the time. In some publications, the first three categories were combined to form a single category, referred to as foreign control. For units categorised to a particular control category, their entire economic activity was assigned to that category, similar to the approach adopted in the present study. In general, foreign control as broadly measured in the foreign participation studies could be expected to be a little higher than majority foreign ownership as measured in the present study.

Immediate Foreign Owner/Ultimate Beneficial Owner

16 The Survey of International Investment publishes data showing the immediate foreign owner (first across the economic frontier). However, MEGI recommends that, where possible, globalisation indicator data should be compiled on an ultimate beneficial owner (UBO) basis. In the present study, we have compiled the data on the recommended basis to the best of our ability (it is sometimes impossible to ascertain the identity of the UBO).

Operating Businesses

17 The counts of operating businesses included in this publication should be used with some caution. Over and above the sampling error associated with these estimates, they are more affected than are other estimates presented by factors such as internal restructuring of businesses (e.g. changes in divisional structure), mergers, takeovers and changes in the quality of the ABS Business Register. Because of these influences, estimates of the number of businesses have been smoothed, using a three-year moving average in Businesses Operations and Industry Performance, Australia (cat. no. 8140.0). As foreign ownership data are only available for 2000-01, the smoothing process has not been applied in this publication and estimates for the number of businesses will differ from those in Businesses Operations and Industry Performance, Australia (cat. no. 8140.0).

Finance and Insurance industry

18 The application of the standard formula for Industry Value Added (IVA) is known to result in an understatement of the value added for businesses which do not charge directly or do not charge full commercial value for the services they provide to their clients. These include financial intermediaries, insurance and superannuation businesses and not for profit organisations.

19 Due to difficulties in collecting data to measure the output of financial intermediaries and insurance enterprises IVA has not been estimated for the Finance and Insurance industry.

Businesses with Unknown Ownership Status

20 When conducting this study, it was not possible to establish the ownership of a significant number of businesses, nor the country of residence of the owners. Estimates for these units are provided in tables classified to "Unknown". The majority of businesses classified to unknown were relatively small and were probably majority Australian-owned.

Relative Standard Errors

21 Since the estimates in this publication are based on information obtained from a sample drawn from units in the surveyed population, the estimates are subject to sampling variability. That is, they may differ from the figures that would have been produced if all the units had been included in the survey. One measure of the likely difference is given by the Standard Error (SE) which indicates the extent to which an estimate might have varied by chance because only a sample of units was included. The relative standard error (RSE) provides an immediate indication of the percentage errors likely to have occurred due to sampling and thus avoids the need to refer to the size of the estimate. There are two chances in three that the true estimate will lie within one RSE of the survey result and 19 chances in 20 that it will lie within two RSEs.

22 Since the EAS sample was designed to measure economic activity in Australia, the sampling strategy was not designed to obtain foreign ownership information. Consequently some estimates in this publication have high standard errors and should be used with caution.

23 The size of the RSE may be a misleading indicator of the reliability of some of the estimates for operating profit before tax, gross fixed capital formation and industry value added. This situation may occur where an estimate may legitimately include positive and negative values reflecting the financial positions and acquisitions/disposals of different businesses. In such cases the aggregate estimate can be small relative to the contribution of individual businesses, resulting in a SE large relative to the estimate.

Non-sampling Error

24 The imprecision due to sampling variability, which is measured by the SE, is not to be confused with inaccuracies that may occur because of inadequacies in available sources from which the population frame was compiled, imperfections in reporting by providers, errors made in collection such as in recording and coding data, and errors made in processing data. Inaccuracies of this kind are collectively referred to as non-sampling error and they may occur in any enumeration, whether it be a full count or a sample.

25 While it is not possible to quantify non-sampling error, every effort is made to reduce it to a minimum. Collection forms are designed to be easy to complete and assist businesses to report accurately. Efficient and effective operating procedures and systems are used to compile the statistics.

ABS Confidentiality Restrictions

26 The ABS is not permitted to publish any data which allows the identification of any business. For this reason it has been necessary to suppress some cells of the published tables (denoted np). To allow publication of the maximum amount of data, where a cell relating to a particular country has been suppressed, the suppressed data have been included in the Other countries estimate for that indicator.


Abbreviations