AUSTRALIAN INVESTMENT

ACTIVITYALIA

Dumbrava Tatiana
EMREI 144
 Foreign investment is integral to the Australian economy but the
benefits of foreign investment are often poorly understood. While
foreign investment into Australia has attracted a great deal of
attention, there has been relatively little work undertaken on the
nature and distribution of foreign investment into Australia. This
paper aims to provide further insights into foreign investment in
Australia by examining the trends, the sources and the contribution
of foreign investment to Australia. The data on foreign investment in
Australia is incomplete but available data suggests a fairly
consistent trend over time despite increases in the number of foreign
investment applications received by the Foreign Investment Review
Board (FIRB).
 WHYAUSTRALIA?MAINREASONS:
1.GROWTH
Australias demonstrated economic resilience, adaptability and record
of steady growth provide a safe, low-risk environment in which to do
business.
Now in its 26th year of consecutive annual economic growth, the

Australian economy is underpinned by strong institutions, an

exceptional services sector and an ability to respond to global changes.
Australias economy is:
the worlds 13th largest

rated AAA by all three global rating agencies

forecast to realise average annual real GDP growth of 2.9 per cent over

the next five years the highest among major advanced economies
characterised by high productivity levels, with 15 out of 20 industries

rating above the global average.

 WORLDS13 TH
LARGESTECONOMY
Global forecasts predict Australia will maintain its position as the worlds
13th largest economy (in US dollar terms) in 2017. Australias nominal
GDP is estimated at US$1.3 trillion (A$1.7 trillion) and accounts for 1.7 per
cent of the global economy. Australia has almost tripled the value of its total
production from two decades ago.
 26THYEAROFCONSECUTIVE
ANNUALECONOMICGROWTH
TheAustralianeconomyremainsresilient,sustainedbysound
macroeconomicpolicies,stronginstitutionsandsolidtradeties
withtheAsiaPacificregion.Growingmorethanthreepercenton
averageeachyearsince1992,Australiaistheonlymajor
developedeconomytohaverecordednoannualrecessionsfrom
1992to2016andisnowinits26thyearofconsecutivegrowth.
 HIGHESTGROWTHAMONG
ADVANCEDECONOMIES
Australias economic growth has outperformed its peers for the past two
decades and the fundamentals are in place for this trend to continue.
According to IMF forecasts released in October 2016, Australia is expected
to realise average annual real GDP growth of 2.9 per cent between 2017 and
2021 the highest among major advanced economies and up from an
average growth rate of 2.7 per cent between 2012 and 2016.
 2.INDUSTRIES
Australia has the capacity and capabilities to provide high-quality products
and services to the world.
The countrys mineral and energy resources continue to power Asias
industrialisation, and its agricultural commodities and premium food are
meeting the regions demand for clean, green and safe products.
Australias services-based economy is also well equipped to provide wealth

management, healthcare, education, tourism and professional services to

Asias growing middle classes.
Australia is:
a world-leading producer of gold, iron ore and uranium and the worlds

second largest LNG exporter

a global top 10 producer of major agricultural commodities

a regional leader in investment management, with the largest pool of funds

under management in Asia
the worlds third most popular destination for students

the 11th largest international tourism market.

GLOBALLY SUCCESSFUL IN FIVE KEY
INDUSTRIES
Australia is a globally successful provider of products and services
that are in high demand. The country is a major producer of natural
resources, including significant LNG reserves that are about to come
into production, and clean, green agricultural commodities and
premium food. Australia has large, liquid financial markets,
including the biggest pool of managed fund assets in the Asia-
Pacific region. It is also a leading destination for education and
tourism.
SERVICESATTRACTGROWINGFDI
Miningandmanufacturingcontinuetoaccountforover50per
centofforeigndirectinvestment(FDI)stockinAustraliaby
value.AroundathirdofAustraliasA$735billionofFDIstockis
inservicedrivensectors.Theservicesectorsexperiencingthe
mostsignificantgrowthinFDIstockbetween2014and2015were
professional,scientificandtechnicalservices(23percent)and
financialandinsuranceservices(20percent).
ABUNDANTRESERVESOFMINERAL
ANDENERGYRESOURCES
Australia is richly endowed with natural resources, enabling it to
play an important role in supplying the worlds energy needs. The
country has the worlds largest uranium resources and fourth-largest
black coal resources, as well as large gas reserves. Australia is a
global top five producer of major minerals including gold, iron ore,
lead, zinc and nickel.
 3.LOCATION

Australia is well positioned as a trade and investment base for

international companies doing business with Asia.
The countrys trade agreements facilitate the smooth flow of goods,
services and investments with major economies across Asia, Europe
and North America.
Australia has an open trading economy where:
10 of the countrys top 12 export markets are within the Asian
region
two-way trade in goods and services totalled A$661 billion in 2015
16
foreign investment stock totalled more than A$3 trillion as at June
2016
inward foreign direct investment stock reached A$735 billion in
2015.
 SUCCESSFULTRADINGECONOMY
Australiasexportvolumeshaveincreasedasthestronginflowof
foreigndirectinvestmentoverthepastdecadehasbeguntranslating
intonewproductioncapacity.TheAustraliandollarsdepreciation
hasalsosupportedtradeexposedindustriesincludingagriculture,
manufacturingandtourism.Totalfoodexportsvaluegrewby
aroundtwopercentin201516toA$40billion.Servicescontributed
A$68billiontoexportearningsin201516,thankstostronggrowth
ineducationandtourismexportvalues(upninepercentand17per
centrespectively).
 STRONGTWOWAYTRADEWITH
MAJORASIANNATIONS
Australiastwowaytradeingoodsandservicesin201516
totalledA$661billion,makingupabout40percentof
nominalGDP.TradewithAsiaPacificEconomic
Cooperationcountriesremainedstrong,withatotalvalue
ofaroundA$476billion,oraround72percentof
Australiastotaltrade.TheASEANregionisemergingasa
significantmarket,withtotalexportvaluesreachingA$93
billion,oraround14percentofAustraliastwowaytrade,
in201516.
AUSTRALIASTOP12EXPORT
MARKETS
AustraliasintegrationwiththedynamicAsianregionis
drivingwealthcreationandoverallgrowth.Ofthetop12
exportmarketsin201516,10wereintheAsianregion
andallwereratedaboveinvestmentgrade.Their
combinedvaluewasaroundA$212billion,makingupmore
thantwothirds(68percent)ofAustraliastotalgoodsand
servicesexportearningsofA$312billionin201516.
 3.BUSINESS

Australias political stability, transparent regulatory system, and

sound governance frameworks underpin its economic resilience.
Ranked in the global top five on the Index of Economic
Freedom, Australias effective governance provides
multinationals with a safe, secure business environment.
Australia offers:
a business environment that is ranked 15th out of 190
economies for ease of doing business
a robust regulatory system noted for its stable institutional
frameworks and strong finance and banking regulations
competitive rates for office space and the remuneration of
professionals
a quality of life that is rated the seventh highest in the world.
 FIFTHINTHEWORLDFOR
ECONOMICFREEDOM
Australia is ranked fifth in the world for overall economic freedom
in the 2016 Index of Economic Freedom. The Index states the
economy has benefited from lasting entrepreneurial development
facilitated by an effective system of government, a well-functioning
legal system and an independent bureaucracy. It stresses that
Australia continues to be an attractive and dynamic investment
destination, with almost all industries open to foreign competition
and a skilled workforce readily available.
RANKED15THFOREASEOFDOING
BUSINESS
Australiaisranked15thoutof190economiesforeaseof
doingbusiness,andfifthwhencomparedtoeconomieswith
asimilarorlargerpopulation.Inparticular,Australias
qualityofjudicialprocessesindexisratedtheworldsbest.
Australiaalsorankswellfordealingwithconstruction
permits(2ndglobally),enforcingcontracts(3rd),easeof
gettingcredit(5th)andstartingabusiness(7th).
COSTCOMPETITIVELOCATIONFOR
OFFICESPACE
Prime office space in Australia (using an average of all major cities)
is among the most competitively priced in the world, and compares
favourably to global and regional business centres. The cost of
prime office space in Sydney is less than a third of the cost of Hong
Kong (Central) and half of that in Beijing (Finance Street).
 4.TALENT
Australia offers a highly educated workforce with the skills to service a
diverse range of industries. The country is ranked particularly well for its
overall education system, secondary and tertiary education enrolment rates,
student mobility and ready availability of skilled labour and finance skills.
 Around 80 per cent of Australians are employed in the services sector. Forty per cent of
people work in sectors where tertiary education is standard for many employees,
including education and training; professional, scientific and technical services;
financial and insurance services; healthcare; information media and telecommunications;
and public administration.
MAJORMACROECONOMIC
INDICATORS
COUNTRYRISKOFAUSTRALIA:
INVESTMENT
Of all the OECD countries, Australia is the most open to foreign direct investment
(FDI). FDI represents over a third of the country's GDP. This is because of its
economic liberalism, stability, the 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. In 2015, Australia declared that
the legal framework concerning FDI in the agricultural sector could evolve in order
to make it more attractive.
After an economic slowdown due to the international financial crisis, FDI flows
have been strong since 2011, driven by the energy sector. In 2015, Australia received
USD 75.6 billion of FDI flows. However, after placing in the top 10 economies
receving the most FDI in 2014, Australia lost this distinction. Indeed, the FDI flows
diminished due to a fall in investments in the mining sector. Australia was ranked
fifteenth out of 190 countries in the World Bank ranking for business climate
Doing Business 2017. Furthermore, starting in 2016,
Australia launched a gas project, the North West Shelf, which will require USD 2
billion, partially financed by foreign companies. In 2015, China won the tender for
the management of the Port of Darwin, strengthening its position as a key investor in
Australia. Furthermore, an Chinese-Australian consortium declared that it would
invest USD 1.7 billion in a medical expertise programme. However, the Government
is rather suspicious of certain Chinese investments: two large-scale projects, financed
by the Chinese, were rejected in 2016.
 INVESTMENTCLIMATE

Australia is generally welcoming to foreign investment, and

Australia's investment climate is conducive to investment from the
United States. In 2014, the United States was Australias largest
source of Foreign Direct Investment (FDI) stock, totaling USD159
billion of investment or approximately 24% of all FDI in Australia.
Australia is the United States 15th largest export market and third
largest trading partner. U.S. direct investment in Australia is led by
mining, finance and insurance, and manufacturing sectors.
Australia has an AAA international credit rating with a well-
developed, deep and sophisticated financial market, regulated in
accordance with international norms. Australias four leading banks
are highly ranked in terms of financial security and international
rankings.
 FDI
Net inflows of direct FIA
were valued at $29.6 billion
in 2015. The quantum of
new direct investment
(gross inflows of new direct
investment) was valued at
$117.9 billion. The largest
sources for new direct
investment flows were the
United States ($27.2
billion), Singapore ($22.2
billion) and the European
Union ($14.8 billion)
POLITICALENVIRONMENT
InarecentreportbyTheEconomistIntelligenceUnitAustraliaachieved
oneofthehighestrankingsofanycountryintheworldforpoliticalstability.
Thisthendirectlytranspirestoeaseofdoingbusinessinthecountry,with
lowcorruption,andhighgovernmentsupport.
Australia'ssystemofGovernmentisafederalparliamentarydemocracyand
aCommonwealthrealm,basedonliberaldemocraticvaluesofreligious
tolerance,freedomofspeechandassociation,andtheruleoflaw.Thelegal
systemiscommonlawsystembasedtheEnglishmodel.
TheAustralianConstitutionof1901establishedafederalsystemof
government.Underthissystem,powersaredistributedbetweenafederal
government(theCommonwealth)andthesixStates.TwoTerritoriesthe
AustralianCapitalTerritoryandtheNorthernTerritoryhavemorelimited
powers;therearealsoanumberofoffshoreterritories,ofwhichthemost
significantareNorfolkIslandandtheAustralianAntarcticTerritory.
TheParliamentisattheheartoftheAustraliangovernmentandconsistsof
TheQueen(representedbytheGovernorGeneral)andtwoHouses:the
SenateandtheHouseofRepresentatives.Australiaisthusaconstitutional
monarchy,afederationandaparliamentarydemocracy.Membersofthe
HouseofRepresentatives(LowerHouse)servethreeyearterms.Senators
servefixedsixyearterms(from1July).ItisusualtoholdafullHouseof
RepresentativesandahalfSenateelectionsimultaneouslyeverythreeyears.
 CONCLUSION
So,InAustraliawehaveasophisticated,competitiveandprofitable
financialsectorandastrongregulatorysystem.
Thefourmajorbanksareamongtheworldslargestbanksbymarket
capitalisationandallrankinthetop25globallyforsafestbanks.
Theyarealsosomeofthemostprofitableintheworld.
Wehavethefourthlargestpoolofinvestmentfundassetsinthe
worldandthelargestinAsia.
TheWorldEconomicForumFinancialDevelopmentIndexof2015
ratedAustraliaasoneoftheworldsbestperformingfinancial
centres,partlyduetoourstrengthinfinancialintermediationand
ourfinancialstability.
Australiahasfavourableeconomicfundamentalswithannual
economicgrowthcurrentlydoubletherateofcomparable
commodityfocussedeconomyCanada,higherthantheaverage
acrossG7economies(France,Germany,Italy,Canada,UK,US,
Japan)andabovetheOECDaverage.Andtherearemanyother
reasonsWhytoinvestinAustralia