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Working Group on International Investment Statistics Paris, October 20, 2015 The Brazilian Experience on Estimating Reinvested Earnings Camila Maia Carneiro Costa Department of Economics Central Bank of Brazil
Outline 1. Introduction 2. Data Sources 3. Reinvested Earnings on Expenditures 4. Reinvested Earnings on Revenues 5. Reinvested Earnings Incorporation Impact 6. Challenges
Introduction The main source of Brazil s monthly BoP statistics is an International Transaction Reporting System (ITRS), called Exchange Contract System; The ITRS is reminiscent, as in many countries, from a FX control system. Although controls were lifted years ago, the exchange registration structure was kept mainly for statistical purposes; The ITRS captures all exchanges between domestic and foreign currencies due to transactions occurred between Brazil and the rest of the world; As reinvested earnings don t affect exchange rates flows, they could not be compiled using information from ITRS. As a result, Brazil stopped compiling statistics on Reinvested Earnings in 1999.
Data Sources First release of monthly data on Reinvested Earnings in April 2015, as part of BPM6 edition adoption; Establishment of two main surveys: Census of Foreign Capital and Brazilian Capital Abroad: Census of Foreign Capital: focus on domestic invested enterprises. Carried out in 1995, 2000, 2005 and 2010, as a population survey, and since 2011 as an annual sample survey; Brazilian Capital Abroad: purpose of evaluating the stock of foreign assets held by Brazilian residents abroad. It s been an annual population survey since 2001 and also a quaterly sample survey since 2011.
Reinvested Earnings on Expenditures - Direct Investment Liabilities Census of Foreign Capital: information on enterprises profits 2010: population survey 2011 and beyond: sample survey Extrapolating sample data to estimate population data Survey and Estimated Data Profits in Foreign Direct Investment US$ miillions $90,000.00 $70,000.00 $50,000.00 $30,000.00 $10,000.00 -$10,000.00 2010 2011 2012 2013 2014 Survey Data Extrapolation Total Profit
Reinvested Earnings on Expenditures - Direct Investment Liabilities ITRS: dividends data for FDI enterprises Extreme volatile series Smoothing process Six Months Moving Average R$ millions 10,000.00 9,000.00 8,000.00 7,000.00 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 -
Sectorization and monthly estimation Annual data on profits, which source is Census, and monthly data on dividends, provided by ITRS challenge of constructing monthly series on profits through annual survey data; Economy sectorization to better reflect actual scenarios; Monthly distribution/estimation of profits according to sector indicators. US$ Telecommunications $1,000,000,000.00 $500,000,000.00 US$ Financial Services $2,000,000,000.00 $- May-10 May-11 May-12 May-13 May-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 $1,500,000,000.00 $1,000,000,000.00 Vehicles $500,000,000.00 US$ $800,000,000.00 $- May-10 May-11 May-12 May-13 May-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 $600,000,000.00 -$500,000,000.00 $400,000,000.00 $200,000,000.00 $- Sep Sep Sep Sep Sep Jan- Jan- Jan- Jan- Jan- Jan- Ma Ma Ma Ma Ma
Reinvested Earnings on Expenditures - Direct Investment Liabilities Reinvested Earnings - Annual Data US$ millions 40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 - 2010 2011 2012 2013 2014 2015* data till august US$ millions Reinvested Earnings - Foreign Direct Investment in Brazil 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 - Mar-10 May-10 Mar-11 May-11 Mar-12 May-12 Mar-13 May-13 Mar-14 May-14 Mar-15 May-15 Jan-10 Nov-10 Jan-11 Nov-11 Jan-12 Nov-12 Jan-13 Nov-13 Jan-14 Nov-14 Jan-15 Jul-10 Sep-10 Jul-11 Sep-11 Jul-12 Sep-12 Jul-13 Sep-13 Jul-14 Sep-14 Jul-15 (500.00) (1,000.00)
Reinvested Earnings on Expenditures - Direct Investment Liabilities Census series just comprehends data until 2014, as the survey is conducted with a eight month delay from year-base. Thus, the estimation process on profits for the current year is constructed using the sectors profits forecast. Leading indicators are sector s performance indicators, activity level indicators and firms and consumers expectations. Finally, currents dividends, extracted from ITRS, are subtracted from estimated profits in order to get reinvested earnings.
Reinvested Earnings on Revenues - Direct Investment Assets Brazilian Capital Abroad (CBE): information on profits from investment abroad: Annual population survey no extrapolation needed; Monthly distribution/estimation based on PMI index, as the U.S. is a major investment destination for Brazil; Current estimation is a forecast based on global economic indicators; Dividends are the smoothed current series, provided by ITRS.
Reinvested Earnings on Revenues - Direct Investment Assets US$ millions Reinvested Earnings - Brazilian Investment Abroad 1,500.00 1,000.00 500.00 - May-10 May-11 May-12 May-13 May-14 May-15 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Jan-10 Nov-10 Jan-11 Nov-11 Jan-12 Nov-12 Jan-13 Nov-13 Jan-14 Nov-14 Jan-15 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 (500.00) (1,000.00) Net Earnings Distributed Earnings Reinvested Earnings Reinvested Earnings - Annual Data US$ millions 14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 0.00 2010 2011 2012 2013 2014 2015* data till august -2,000.00 -4,000.00
Reinvested Earnings Incorporation Impact Primary income deficit / GDP 6.0% 5.0% 4.0% 2.9% 2.7% 2.6% 3.0% 3. 2.2% 2.0% 2.0% 2.5% 1.9% 1. 1.9% 1.8% 1.6% 1.0% 0.0% -1.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 BPM5 BPM6 Direct investment liabilities - 2014 US$ million Direct investment assets - 2014 US$ million 96 851 100 000 Reivested earnings: US$ 10.7 billion 25 736 30 000 25 000 80 000 20 000 62 495 Reivested earnings: US$6 billion 60 000 15 000 10 000 40 000 5 000 - 20 000 - 5 000 - 3 540 - - 10 000 BPM5 BPM6 BPM5 BPM6
Reinvested Earnings Incorporation Impact 5.0% Current account deficit / GDP 4.4% 4.5% 3.8% 4.0% 4.2% 3.6% 3.5% 3.5% 3.5% 3.0% 2.8% 2.5% 2.4% 2.0% 2.2% 2.1% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% 2005 2006 2007 2008 2009 2010 BPM6 2011 2012 2013 2014 BPM5
Challenges Brazilian external public is not used to revisions on BoP data, as statistics provided by ITRS are rarely revised. On the other hand, reinvested earnings published series will be periodically revised, as new surveys results are produced; Our methodology subtracts current dividends from estimated profits, although these variables don t originate from the same economic period; Retroact reinvested earnings series until 1995.
Thank you for your attention. camila.maia@bcb.gov.br
