BACKGROUND


ABOUT THIS PUBLICATION

This publication presents the results from the Survey of Outward Finance and Insurance Foreign Affiliate Trade in Services (SOFI FATS), which was conducted by the Australian Bureau of Statistics (ABS) in respect of the 2009-10 reference period. Outward foreign affiliates of Australian resident enterprises are affiliates domiciled outside of Australia’s economic territory. The survey collected detailed information on these affiliates, in particular their number, principal activities, sales and purchases.

The ABS conducted this survey with the financial support of the Department of Foreign Affairs and Trade (DFAT).


EXPERIMENTAL RESULTS

This is the second survey of outward foreign affiliate trade conducted by the ABS. The first survey covered all industries, while this survey focused on finance and insurance. The results from SOFI FATS should be treated as experimental because:

• validating the information was difficult due to the lack of a time series and the lack of alternative data
• concepts such as output are more complicated to measure for finance and insurance industries than for industries like manufacturing or mining.

Please refer to the Explanatory Notes for information on the methodology used to develop these estimates. The ABS invites feedback on these estimates and the methods used to compile them. Any comments should be addressed to:

The Director, Balance of Payments and International Trade Section, Australian Bureau of Statistics, Locked Bag 10, Belconnen ACT 2616, Australia or international.trade@abs.gov.au.


FRAMEWORK

In 2003, the ABS conducted the Survey of Outward Foreign Affiliates Trade (SOFAT) which measured the economic activity of foreign affiliates of Australian enterprises for all industries. The results were published in Australian Outward Foreign Affiliates Trade, 2002-03 (cat. no. 5495.0). Additionally, the publication Economic Activity of Foreign Owned Businesses in Australia, 2000-01 (cat. no. 5494.0) measured the economic activity of foreign owned affiliates in Australia in 2000-01.

The results from the 2003 SOFAT revealed that the finance and insurance division was one of the most significant for foreign affiliates in terms of employment and revenue. Due to the significance of the division, the interest in developing markets for services industries and the cost of conducting a full FATS survey, the ABS and DFAT jointly decided to focus a foreign affiliate trade survey specifically on the outward activities of the finance and insurance division. The results will provide free trade agreement negotiators and other analysts with a more complete picture of the reach of Australian enterprises beyond Australia’s economic territory.

It is difficult to capture the activities of foreign affiliates of Australian enterprises and their effects on their host economies and their own parent enterprises. Only a few countries collect comparable statistics at present, including the United States of America, Canada and a limited number of European countries.

The ABS compiles economic indicators for foreign trade and foreign direct investment within the framework defined in the Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). While these statistics include some financial and physical transactions between foreign affiliates and their parent enterprises, the ABS does not regularly compile separate statistics on the economic activity of Australian foreign affiliates.

The concepts and definitions for FATS statistics are articulated in the Manual on Statistics of International Trade in Services (MSITS), published in 2010. The General Agreement on Trade in Services (GATS) describes four modes of supply for Trade in services. These modes provide a useful analytical framework for analysing the activities of foreign affiliates. The modes of supply are: cross border supply (mode 1); consumption abroad (mode 2); commercial presence (mode 3); and presence of natural persons (mode 4). For details on mode of supply, refer to paragraphs 14-17 of the Explanatory Notes.

Balance of Payments (BOP) statistics measure transactions between residents and non-residents of an economic territory. Residence is a key concept based on the transactor’s centre of economic interest being within an economic territory.
Diagram 1 shows a simplified model of the transactions measured in the BOP between two economic territories defined by residency, in this example Australia and New Zealand. The light shading represents Australia’s economic territory (including New Zealand owned foreign affiliates residing in Australia). The dark shading represents New Zealand’s economic territory (including Australian owned foreign affiliates residing in New Zealand). Flow (1) shows economic transactions between the two economic territories, i.e. between residents of Australia (including New Zealand owned foreign affiliates residing in Australia) and residents of New Zealand (including Australian owned foreign affiliates residing in New Zealand), and vice versa. These economic transactions are measured in the BOP.


Key:

AUS FAs refer to Australian owned foreign affiliates
NZ FAs refer to New Zealand owned foreign affiliates
(1) Flow (1) represents trade between Australia (including New Zealand owned foreign affiliates residing in Australia) and New Zealand (including Australian owned foreign affiliates residing in New Zealand). This trade represents modes of supply 1, 2 and 4. This flow is presented as ‘exports’ and ‘imports’ in Table 4a and Table 4b and is obtained from International Trade in Services by Country, by State and by Detailed Services Category, Financial Year, 2009-10 (cat. no. 5368.0.55.003) and is therefore on a BPM6 basis.

The residents of the economic territories defined for BOP purposes can be regrouped on an ownership basis using the same units, concepts and rules. This is consistent with the approach outlined in MSITS.

In Diagram 2, the economic territories of Australia and New Zealand are regrouped to reflect units under common ownership. The light-shaded group consists of Australian resident enterprises that are owned by Australia and Australian owned foreign affiliates residing in New Zealand. The dark-shaded group consists of New Zealand resident enterprises that are owned by New Zealand and New Zealand owned foreign affiliates residing in Australia.

In this context, Australian/New Zealand ownership refers to enterprises that are majority owned by the Australian/New Zealand resident enterprises (more than 50% of the ordinary shares or voting stock). This includes offshore subsidiaries, branches and majority-owned foreign joint ventures.

The foreign affiliates of Australian enterprises (AUS FAs) have Australian ownership. Trade between these affiliates and the residents of Australia is included in the residency-based BOP (Diagram 1) but is excluded from flows measured in the ownership-based FATS (Diagram 2). However, trade between these affiliates and other residents of New Zealand and New Zealand affiliates in Australia, is included in FATS.



Key:

AUS FAs refer to Australian owned foreign affiliates
NZ FAs refer to New Zealand owned foreign affiliates
(1) Flow (1) represents trade between Australia (including New Zealand owned foreign affiliates residing in Australia) and New Zealand (including Australian owned foreign affiliates residing in New Zealand). This trade represents modes of supply 1, 2 and 4. This flow is presented as ‘exports’ and ‘imports’ in Table 4a and Table 4b and is obtained from International Trade in Services by Country, by State and by Detailed Services Category, Financial Year, 2009-10 (cat. no. 5368.0.55.003) and is therefore on a BPM6 basis.
(2) Flow (2) represents trade between Australian owned foreign affiliates in New Zealand and the rest of the world (including Australia). This is presented as ‘non-resident’ in all tables (modes of supply 1, 2 and 4).
(3) Flow (3) represents trade between Australian owned foreign affiliates residing in New Zealand and other residents of New Zealand. This is presented as ‘local resident’ in all tables (mode 3).

Data by mode of supply include flows from both the residence-based grouping and the ownership-based grouping in Diagrams 1 and 2. In both diagrams, from the Australian perspective, flow (1) represents modes of supply 1, 2 and 4, i.e. exports to and imports from the rest of the world (including New Zealand). In Diagram 2, from Australia’s foreign affiliate’s perspective, flow (2) represents modes of supply 1, 2 and 4. Flow (3) represents mode of supply 3, i.e. commercial trade between Australian owned foreign affiliates residing in New Zealand and other New Zealand residents.

While the ownership and modes of supply presentations are useful for some analytical purposes, they can be misleading if they are seen as an alternative view of the balance of payments. Including the sales by foreign affiliates as exports (outward trade) without including imports from resident foreign affiliates (inward trade) is asymmetrical and leads to an illusory improvement in trade balances. This publication only provides statistics on an outwards basis and only for finance and insurance foreign affiliates. For a broader perspective of Australia’s economic relationship with the rest of the world, refer to the balance of payments.
REFERENCE PERIOD

The 2009-10 financial year is the reference period for the SOFI FATS survey. This period was characterised by global instability. Major economies around the world (including the US, UK and NZ) experienced sharp declines in Gross Domestic Product (GDP) in 2009. As a consequence, the results of the 2009-10 SOFI FATS may be neither typical for other periods nor reflective of the performance of Australian resident enterprises over the same period (see Graph A).



Reporting units were asked to report for their most recent financial year for which financial accounts were available. The nominal reference period was the 2009-10 financial year, with the reference period for respondents varying from financial years ending 31 December 2009 to financial years ending 30 September 2009. No adjustment was made for estimates to account for differing financial year reference periods.