During the first nine months of 2007, Foreign Direct Investment flow in Malta amounted to Lm275.9 million (e642.6 million), whereas direct investment abroad resulted in a net outflow of Lm1.9 million (e4.5 million), the National Statistics Office said yesterday.

As from 2004, data started to be collected on a country and economic activity breakdown basis for balance of payments purposes.

The fifth edition of the IMF balance of payments manual defines Direct Investment as “the category of international investment that reflects the objective of a resident entity in one economy (i.e. direct investor) obtaining a lasting interest in an enterprise resident in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and significant degree of influence by the investor on the management of the enterprise. Direct investment comprises not only the initial transaction establishing the relationship between the investor and the enterprise but also all subsequent transactions between them and among affiliated enterprises, both incorporated and unincorporated.”

Direct Investment is sub-divided into two categories:

Foreign Direct Investment (FDI) in Malta – where a foreign investor owns 10 per cent or more of the ordinary shares (or voting power) of an enterprise in Malta; and

Direct Investment Abroad – where a Maltese resident entity (or an individual, government or association) owns 10 per cent or more of the ordinary shares of an enterprise in another economy. These companies can be subsidiaries, affiliates or branches.

Direct Investment is made up of three basic components:

• Equity Capital - comprising equity investment in subsidiaries, associates and branches.

Capital contributions (e.g. provisions of machinery) and purchase of immovable property are also classified under equity capital.

• Reinvested Earnings – consisting of the direct investor’s share (i.e. attributed to the shareholding of the company) of earnings not distributed as dividends by subsidiaries, associates and branches not remitted to the direct investor. Losses are regarded as negative reinvested earnings.

• Other Capital – including inter-company transactions such as borrowing and lending of funds; and trade debits and credits between direct investors and direct investment enterprises. Transactions between enterprises in different economies that share the same direct investor are also considered as direct investment and included under other capital.

Direct Investment flows include transactions occurring during a particular period. Besides accumulated flows, the Direct Investment Stock Position takes into account any market value revaluations, reclassifications and exchange rate changes prevailing at the end of the reporting period.