Capital expenditures by majority-owned foreign affiliates of U.S. companies, 1984 and 1985 Essay

MAJORITY-OWNED foreign affilates of U.S. companies plan to increase
capital expenditures 9 percent, to $44.0 billion, in 1985, following a
planned 12-percent increase in 1984 (table 1 and chart 5). If the
increases are realized, spending in 1985 will be approximately equal to
the levels in 1980-82.

The planned 1984-85 increases follow relatively flat spending in
1981-82 and a decline in 1983. Spending in 1981-82 was constrained by
depressed economic conditions worldwide and high interest rates. The
1983 decline–18 percent–was the sharpest since at least 1957, when
this expenditure series began. The decline reflected, in addition to
the factors that depressed 1981-82 spending, the cumulative effect of
appreciation of the U.S. dollar. The dollar’s sharp appreciation
in recent months is not fully reflected in the current estimates for
1984-82, because the estimates were prepared earlier. Thus, estimates
of spending for 1984-85 may be revised downward in the next survey.

Although respondents to the current survey plan to increase
spending in both 1984 and 1985, the rate of increase is expected to slow
in 1985. The slowing, which is widespread by area and industry,
probably reflects concerns about the sustainability of the economic
recovery abroad.

Actual spending for 1983 and spending as now planned for 1984 both
fall short of what was planned earlier. The latest estimate of spending
for 1983, based on a survey taken in June, has been revised downward
from the estimate based on the survey taken 6 months earlier, which
showed a 14-percent decline (table 2). The latest estimate for 1984 is
also lower than the earlier one; the year-to-year percentage increase is
only slightly smaller, however, because it is calculated from the lower
1983 base.

By area, affiliates in developed countries plan a 9-percent
spending increase in 1985, to $31.5 billion, compared with a 14-percent
increase in 1984 (tables 3-5). In developing countries, affiliates plan
a 7-percent increase, to $11.9 billion, after a 10-percent increase.
Affiliates in “international”–those that have operations
spanning 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
small increase in 1985 after a decline, from a low base, in 1984.

Petroleum affiliates plan to increase spending 8 percent in 1985,
to $19.2 billion, following a 15-percent increase in 1984. The 1985
increase reflects expections that the business recovery now underway in
the United States and some major foreign countries will continue, but at
a slower pace than in 1984. Spending had declined sharply–21
percent–from 1982 to 1983, largely as a result of the world oil glut and depressed business

In developed countries, spending is expected to increase 9 percent,
to $12.1 billion, after a 25-percent increase, to $4.0 billion, compared
with a 30-percent increase in 1984. In addition to the economic
recovery, the increases in both years may reflect generally favorable changes in British taxation of offshore operations. In contrast,
spending decined in 1982 and 1983, after rising strongly–from $0.5
billion to $4.1 billion–during 1973-81. Spendign in 1982-83 was
dampened by British Government policies to conserve oil reserves and,
especially in 1983, by the world oil glut. Norwegian affiliates plan to
increase spending 19 percent, to $1.8 billion, in 1985, following a
27-percent increase. Spending had declined since development begain in
this sector of the North Sea. Contributing to the decline were the
general economic slowdown mentioned earlier and, perhaps, high taxes on
petroleum operations. The strong increases planned for 1984 and 1985,
despite continuing high taxes, may partly reflect changes in Norwegian
Government policies, including the granting of permits to foreign
companies to explore for oil above the Arctic Circle. The rapid pace of
development in the Norwegian sector of the North Sea reflects the
perception that it is the most promising area outside the Middle East in
which to explore for and develop oil and gas fields.

In contrast to affiliates in the North Sea area, Canadian affiliates plan to reduce spending 4 percent, to $3.1 billion, after a
22-percent increase. The strong increase in 1984, largely for upstream activities, follows a sharp decline in 1983.

In developing countries, affiliates plan a 6-percent spending
increase, to $6.7 billion, in 1985, after a 3-percent increase. Next
year’s increase is concentrated in Indonesia, where spending by a
large affiliate engaged in crude oil production, is expected to climb
from this year’s relatively low level.

Affiliates in “international” plan a small spending
increase in 1985, after a large cut in 1984. In both years, the change
is concentrated in spending on mobile offshore drilling rigs.

Manufacturing affiliates plan to increase spending 10 percent, to
$17.1 billion, in 1985, following a 14-percent increase this year. In
1984, increases are planned in every industry except nonelectrical
machinery. In 1985, the increase is concentrated in nonelectrical
machinery, mainly computers; some of the increase may be due to
deferrals from 1984.

In developed countries, manufacturing affiliates plan to increase
spending 12 percent, to $14.1 billion, in 1985, following an 11-percent
increase. Canadian affiliates plan a 16-percent increase, to $3.4
billion, following a 14-percent increase. Next year, the largest
increase is expected in nonelectrical machinery; it is mainly accounted
for by a computer manufacturing affiliate. This year’s increase,
centered in primary and fabricated metals, reflects an affiliate’s
plan to increase capacity.

In Europe, French affiliates plan to increase spending 24 percent
in 1985, to $1.4 billion, after a 12-percent reduction this year. In
both years, the changes are centered in nonelectrical machinery and are
consequences of low spending in 1984 compared with spending in 1983 and
1985 by a computer manufacturer. British affiliates expect to increase
spending 12 percent next year, to $2.7 billion, following a 16-percent
increase in 1984. Next year’s increase is centered in
nonelectrical machinery, whereas this year’s increase is more

In developing countries, affiliates plan a 2-percent increase, to
$3.1 billion, after a 29-percent increase in 1984. Despite these
increases, spending in 1985 is expected to remain well below the 1981
and 1982 levels. The strong 1984 increase follows declines in 1982 and
1983, when spending was curtailed by adverse economic conditions and,
particularly in 1983, by external debt repayment problems in several
Latin American countries. For 1985, the largest increase is in Mexico,
where spending is expected to increase is expected in Brazil. In both
centuries, the increases, which reflect general economic improvement,
are spread through most industries. Other industries

Affiliates in all other industries combined plan to increase
spending 8 percent, to $7.6 billion, in 1985, after a 4-percent
increase. The planned 1985 increase is largely accounted for by mining
affiliates. Their expenditures are expected to double, to $0.8 billion,
after an 8-percent decline. Next year’s increase is centered in
Chile, where a copper mining affiliate plans a major expansion.

Affiliates in finance (except banking), insurance, and real estate
plan to increase spending 10 percent, to $0.5 billion, following a
6-percent increase in 1984. Trade affiliates plan a 2-percent increase
to $3.8 billion, after a 7-percent increase. In “other
industries”–agriculture, construction, public utilities, and other
services–affiliates plan small increases in both years.


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