The Net International Investment Status (“NIIP”) is a very important, but rarely used, indicator of a country’s financial health, Les Nemit examines in his latest corporate finance column.
NIIP is the difference between a country’s external financial assets (including assets owned by overseas residents and its subsidiaries) and its liabilities (including public and private debt and corporate shares of foreigners).
You could say that NIIP reveals the net financial value of a country. A positive balance indicates that the country is a lender; A negative balance indicates that it is a credit country. It is often expressed as a percentage of a country’s GDP.
The NIIP chart identifies countries that are of interest to readers. What does scanning these numbers tell us?
There are many NIIP superstars, countries with NIIP above 100%. This includes Hong Kong, Singapore, Norway and the Netherlands. These countries are not just rich; It also provides resistance to increased NIIP weather crises.
NIIP extremists such as Montenegro, Greece and surprisingly Ireland have less than 100% NIIP. (Ireland is a special case, where it is driven by the decisions of multinational corporations to find intellectual property.) In times of crisis, especially when foreigners dissolve their positions on the country’s assets, the performance of these countries can be very negative.
Situation in Central and Eastern Europe
It is interesting to note that Central European countries are usually found from the middle to the bottom, with Austria slightly positive (13.4%), Czech Republic and Slovenia slightly negative (-9.6% and -12.5%), followed by Hungary and Poland and Croatia (-40 to -50%). , Followed by Bulgaria and Romania.
Japan has a respectable NIIP as a percentage of GDP (62.8%), with the full size of its economy making it the largest NIIP in absolute terms (US $ 3.376 trillion).
The position of the major powers: China, Russia and the United States are also interesting. Russia and China both have positive NIIP scores, while the United States has the highest NIIP score of 64.9%.
This may come as a surprise considering the massive debt and equity holdings of US companies abroad (including multinationals), but the amount of foreign debt in the U.S. and the presence of foreigners in U.S. stocks are very important.
While a significant negative US NIIP is unlikely to be worrying in the future, the positive spread between US investors earning overseas and foreign investors earning in the US could push the country into a more difficult position. . Determine if the interest rate will rise abruptly.
Moreover, the trend of the US NIIP has been negative over time. If this trend continues, foreign investors may lose confidence. If you look at the chart, the sheer number of indirect investment plans in the United States is huge (about $ 14 trillion) and the loss of confidence will have global repercussions.
NIIP may be an interesting tool or statistic for the future. For example, in an acquisition or investment, it may be helpful to know the NIIP of the country in which you are investing from a risk management perspective. A measure of government efficiency is a percentage of GDP. NIIP is probably at least an effective measure.
Nemeti is not the CEO of Euro-Phoenix Financial Advisors Limited. (www.europhoenix.com), a corporate finance company based in Central Europe. He is a former banker, business exit planning (www.businessexitplanningbook.com) and former chairman of the American Chamber of Commerce in Hungary.
This article was first published in the October 8, 2021 issue of Budapest Business Journal in print.
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