MAJORITY-OWNED foreign affiliates of U.S. companies plan to
increase capital expenditures 13 percent in 1985, to $42.5 billion,
following a planned 4-percent increase in 1984 (table 1 and chart 2).
Spending grew at an annual compound rate of 21 percent in 1977-80,
leveled off in 1981-82, and declined sharply in 1983. The leveling-off
of spending in 1981-82 resulted from sluggish economic conditions abroad
and high interest rates. The decline in 1983–the sharpest since at
least 1957, when this expenditure series began–reflected the same
factors that depressed spending in 1981-82, as well as the cumulative
effects of appreciation of the U.S. dollar. If the increases now
planned for 1984 and 1985 are realized, 1985 spending would be about
equal to 1980 spending.
The latest estimate of spending for 1981, based on a survey taken
last December, is significantly lower than the estimate based on the
survey taken 6 months earlier, which indicated expenditures would
increase 12 percent (table 2). The latest estimate for 1985 is also
lower than the earlier one; however, the 1985 percentage increase is
larger, because the downward revision for 1984 was proportionally larger
than for 1985. In each year, petroleum affiliates account for most of
Estimates of 1984 and 1985 spending levels have been revised
downward in each successive semiannual survey of spending intentions.
The revisions suggest that the business recovery suggest that the
business recovery abroad may be more gradual than previously expected.
By area, affiliates in developed countries plan a 12-percent
spending increase in 1985, to $30.5 billion, following an 8-percent
increase in 1984 (tables 3-5). In developing countries, a 17-percent
increase, to $11.5 billion, is planned, following a 2-percent decline.
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 to
increase spending 22 percent, to $0.5 billion, following a 37-percent
Petroleum affiliates plan to increase spending 7 percent, to $17.3
billion, following a 4-percent increase in 1984. Spending had declined
21 percent in 1983.
The recovery of spending in 1984 and 1985 may be restrained by the
reduction in worldwide demand for oil. Despite the availability of
relatively low-cost crude oil, some refining and marketing affiliates
are sustaining losses. These losses, which have led to the closing or
sale of some affiliates, are largely due to low rates of capacity
utilization–a condition exacerbated by heightened competition from
newly established downstream operations of some oil-producing countries.
The small increases in petroleum spending now planned for 1984 and
1985 would result in spending remaining below the 1982 level. In
developed countries, spending is expected to increase 2 percent, to
$10.9 billion, after a 20-percent increase in 1984. Spending had
declined 21 percent in 1983. The 1985 increase is concentrated in
Canada and the Netherlands. In the former, the new administration is
seen as being more receptive to investment by foreign-owned companies;
in the latter, the increased spending is largely for refinery expansion.
Partly offsetting these increases is a decline in Norway, where an
affiliate is planning sizable expenditures in 1984, but not in 1985, for
pipelines and gas compression facilities.
In developing countries, affiliates plan a 16-percent spending
increase, to $6.0 billion, following a 16-percent decline in 1984. Much
of the increase is in Indonesia, largely for crude oil extraction and
for development of alternative energy sources, such as coal and
Affiliates in “international” plan a 26-percent increase
in spending in 1985, following a 38-percent decline in 1984. In both
years, the changes are concentrated in spending on mobile offshore
Manufacturing affiliates plan to increase spending 22 percent, to
$17.7 billion, in 1985, following a 6-percent increase. In 1985, the
largest increase is in transportation equipment, although affiliates in
every industry within manufacturing, except primary and fabricated metals, also plan increases.
In developed countries, a 21-percent increase, to $14.3 billion, is
planned, after a 4-percent increase. Canadian affiliates plan a
31-percent increase, to $3.6 billion, after a 6-percent increase. About
one-half of the 1985 increase is in transportation equipment, mostly for
production of a new automobile model; increases are also expected in
most other manufaturing industries.
In Europe, German affiliates plan a 24-percent increase, to $2.7
billion, after a 1-percent increase. The 1985 increase is centered in
transportation equipment, for production of a new automobile model, and
in chemicals, for plant modernization.
In developing countries, affiliates plan a 28-percent increase, to
$3.5 billion, after a 16-percent increase in 1984. In each year, the
largest increase is in Mexico. Spending by Mexican affiliates had
fallen sharply in 1982 and 1983 because of adverse economic conditions,
including exchange controls and devaluation of the peso. If the
increases now planned for 1984 and 1985 are realized, spending in 1985
will still be below the 1981 level.
Affiliates in all other industries combined plan to increase
spending 10 percent, to $7.5 billion, after almost no change in 1984.
Affiliates in trade account for much of the increase; their expenditures
are to increase 12 percent, to $3.9 billion, after no change. The
increase is spread across many areas, and reflects expectations that the
economic recovery will continue.
Mining affiliates plan a 33-percent spending increase, to $0.8
billion, from a relatively low base. The increase is centered in
Australia, where a bauxite-mining affiliate is planning to resume
smelter construction. In finance (except banking), insurance, and real
estate, affiliates plan to increase spending 12 percent, to $0.4
billion, after an 18-percent reduction. Affiliates in “other
industries”–agriculture, construction, public utilities, and other
services–plan small reductions in spending in both years.