AIBS 2016: A look at our data on investment flows

26 Aug 2016

Tags

  • Mark Thirlwell
  • AIBS 2016
  • International Investment

In my previous post I reviewed the breadth of international business activities engaged in by our AIBS 2016 respondents. Those activities included cross-border investment, with about 29 per cent of survey participants saying they had been involved in investment flows of some kind over the previous year – either in receiving inward investment or in making outward investment.

In this year’s survey we decided to dig into these numbers in a little more detail, and asked our respondents about the sources and destinations of their capital flows, and their assessment of the motives behind them.

Starting with outward investment, over the past three years China was the most popular target market for investment by AIBS 2016 respondents, closely followed by the United States and the United Kingdom.1

AIBS 2016 investment from Australia

According to our respondents, the main motive for this outward investment was to secure better access to the market in question, with the next most popular reasons including to build brand and to get better access to the global market. Investment aimed at reducing production costs or increasing efficiency was seen as relatively less important.

The survey data also allow us to cut these answers by market, although the small sample sizes involved at this level of detail mean that these results have to be taken with a large dose of salt. Still, consistent with the overall findings, they show that the most popular motive for outward investment for all three top destinations was to better access the target market, while the second most popular choice for the United States and United Kingdom was to better access global markets generally, and for China to develop the investing firm’s brand.

AIBS 2016 investment into Australia

In the case of investment into Australia, for our survey respondents the most important source markets over the past three years were China, the United States and Singapore (although note that the UK’s share was very close to that of Singapore).2

According to the recipients of this capital, the chief motives for investors into Australia were to access particular skills or technologies owned by the Australian firm, and for financial returns.

By source market, AIBS respondents said that US investors had financial returns as their most common motive, while Chinese investors were assessed as relatively more interested in accessing skills or technology, and Singaporean investors were judged to be more interested in accessing other Pacific or Asian markets.3

 

1 By way of comparison, according to the Australian Bureau of Statistics (ABS), data showing the stock of outward foreign direct investment (FDI) in 2015 have the United States as Australia’s largest destination for FDI with more than 19 per cent of the total stock, followed by the United Kingdom with 15 per cent. China is in joint fifth place, with a bit less than three per cent. While the official Australian Bureau of Statistics (ABS) numbers therefore show the United States and United Kingdom as much more important destinations overall than China, our survey results are consistent with the marked rise in the relative importance of China as an investment destination for Australian business in recent years.

2 Here the ABS shows the top three source economies (by share of the total stock) for FDI in 2015 were the United States (a bit less than 24 per cent of the total stock), Japan (almost 12 per cent) and the United Kingdom (ten per cent). China was in fifth place (less than five per cent), followed by Singapore (about four per cent). The high rankings for China and Singapore are consistent with data showing a shift to the sourcing of FDI from East Asia, although the absence of Japan from our list is surprising in this context.

3 Again, note the caveat about small sample size for the individual country results.