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Foreign direct investment (FDI) in Australia

FDI in Figures

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

After an economic slowdown, FDI flows to Australia have been strong thanks to the energy sector. According to the World Investment Report 2021 published by UNCTAD, following the Covid-19 pandemic, FDI inflows halved to USD 20 billion in 2020 from USD 39 billion in 2019, as a result of low cross-border sales targeting chemicals and the financial sector. Australia was the 14th largest economy in the world in terms of FDI inflows in 2020, with FDI stocks reaching USD 790 billion.

The main investing countries in Australia are the United States, the United Kingdom, Belgium, Japan, Hong Kong, Singapore, the Netherlands, Luxembourg, China, and New Zealand. These investments are mainly oriented towards the mining sector, manufacturing, finance and insurance, real estate and trade. While Australia’s resources sector, which has traditionally been attractive for foreign investment, continues to receive investor interest,  the services sector is now receiving greater attention.

Australia was ranked 14th out of 190 countries in the last World Bank's 2020 Doing Business report, in a significant increase from 2019, when it ranked 18th. The country is one of the most open to foreign direct investment among OECD member states, with FDI representing over a third of GDP. FDI through both majority and minority ownership supports 1 in 10 jobs in Australia (DFTA, 2022). That is thanks to its economic liberalism, stability, transparency of its legal system and strong economic growth over the last 25 years, which compensate for the narrowness of its market and its geographic isolation. The business environment is attractive, and the trading environment is conducive considering the strategic positioning of the economy within the Asia-Pacific region and the political links that it has with the United States. Australia recently introduced a series of changes to its foreign investment framework by simplifying the existing regulation. The new legislation is designed to ensure that foreign investment is appropriately assessed, and that national interest factors are properly considered.  Australia is also involved in mega trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership. The government supports a case-by-case approach to considering foreign investment proposals, and in case proposals are found to be contrary to the national interest they can be either rejected or asked to be modified. This flexible approach is preferred to hard and fast rules, because the government believes that rigid laws that prohibit a class of investments can stop valuable investments. For that reason, they believe their approach maximises investment flows and protects Australia’s interests.

The latest United Nations Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in Australia and Asia-Pacific in 2021 and 2022.

 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 68,47739,22420,146
FDI Stock (million USD) 701,316731,176790,655
Number of Greenfield Investments* 438433321
Value of Greenfield Investments (million USD) 18,29217,06118,587

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Australia OECD United States Germany
Index of Transaction Transparency* 8.0 6.5 7.0 5.0
Index of Manager’s Responsibility** 2.0 5.3 9.0 5.0
Index of Shareholders’ Power*** 8.0 7.3 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Australia

Strong Points

Economic conditions in Australia are excellent.  Australia's main assets are:

  • Strong growth
  • Stable and judicially reassuring business environment
  • Large reserves of natural resources
  • Good quality business climate and infrastructure
  • Strategic location close to Asia
  • Low public debt
  • An attractive tourism destination
Weak Points

Disadvantages for FDI in Australia are:

  • Reduced competition in some sectors can limit returns on scale
  • Lack of investment in transport and telecommunication infrastructure
  • High household debt (185% of gross disposable income)
  • Australia is vulnerable to variation in commodity prices
  • High dependence on Chinese demand (although the Australian economy has shown its resilience)
  • Particular vulnerability to climate change
  • Lack of qualified workforce
Government Measures to Motivate or Restrict FDI
The Australian Government provide support to assist investors set up and run a business in Australia. The form of assistance available will vary by location, industry, and the nature of the business activity. Foreign companies get assistance, especially for productive investment, R&D, professional training and job creation. Foreign investors benefit from the same rights as nationals.

The Australian government has a proactive policy towards FDI. Several agencies are working to implement its affect on the regional level. Austrade provides coordinated government assistance to attract and facilitate productive foreign direct investment (FDI) into Australia.

Consult the Australian government website, which outline aid available to investors.
Bilateral investment conventions signed by Australia
Australia has signed bilateral investment treaties (BITs) with numerous, amounting to a total of 24 BITs currently in force. To see a list of participating countries, consult UNCTAD website.

Find out more about Investment Service Providers in Australia on GlobalTrade.net, the Directory for International Trade Service Providers.

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Latest Update: June 2022

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