Australia a top 10 foreign investment target, UNCTAD report shows

16 Jul 2020

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  • Edmund Tang
  • FDI

Australia was one of the top 10 global destinations for foreign direct investment (FDI) from 2017–2019, according to the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2020.

Over the three-year period to 2019, Australia attracted an average value of US$50 billion per year in FDI inflows. This was an increase of 9.6 per cent from the US$45 billion of FDI that flowed into Australia over the prior three-year period.

The impressive growth of FDI into Australia has raised Australia’s share of global FDI flows to 3.2 per cent in 2017–19 from 2.5 per cent in 2014–16.

FDI an indicator of global competitiveness

Australia’s strong performance reflects a competitive position in the global economy. Multiple factors position Australia as an attractive investment destination: the country’s economic resilience; strategic location; increased global trade and investment ties in the Asian region; the ease of doing business here; and a proven record of innovation.

In global terms, the average value of inflows of FDI fell by 13 per cent to US$1.6 trillion per annum in 2017–19, from US$1.8 trillion per annum in 2014–16. Australia was the tenth largest recipient of FDI inflows in the world in 2017–19.

In terms of total stock value, FDI in Australia was estimated at US$714 billion (around A$1 trillion) in 2019. The sum represents a 9 per cent compound annual compound growth (CAGR) rate since 1999, which exceeds the CAGR for FDI among developed economies (7.7 per cent) and approaches the CAGR achieved by developing economies (10.5 per cent).

Australia’s share of global FDI keeps rising

As noted above, the average value of Australia’s inflow of FDI stood at US$50 billion during the period 2017–2019. This is significantly larger than the pre-global financial crisis annual average (2005–07) of US$13 billion. At 3.2 per cent of global inflows, this means Australia now attracts a greater share of FDI than many major developed and developing economies, including Canada, France, Spain, Italy, India and Indonesia.

The US, with US$259 billion of FDI inflows per year, remained the most popular destination for FDI in the three-year period. Neverthless, its average value fell over 30 per cent from the previous three-year average (US$380 billion).

With reported inflows reaching an all-time high, China was the second largest investment recipient, with an annual average of US$139 billion per year in the period of 2017–19. This was a rise of 4.5 per cent from US$133 billion per year in 2014–16. Hong Kong (US$94 billion) came third, while the Netherlands (US$86 billion) and Singapore (US$85 billion) were the fourth and fifth largest FDI recipients in the world respectively.

FDI inflows to the ASEAN-10 group of countries rose to a record level of US$152 billion (a 29 per cent or US$34 billion increase) on the back of high investment flows into Singapore (US$18 billion), Indonesia (US$7 billion) and Vietnam (US$4 billion), in that order. This was the first time FDI inflows in Southeast Asia have exceeded FDI inflows into China since 1990–92 (the earliest UNCTAD data available).

COVID-19 to take its toll on FDI in 2020

Looking forward, UNCTAD warned that the COVID-19 crisis would cause a dramatic fall in FDI in 2020.

The organisation predicts that global FDI inflows will fall by up to 40 per cent in 2020 from their 2019 value of US$1.5 trillion. This would bring global inflows below US$1 trillion for the first time since 2005. Global FDI inflows are forecast to decline by a further 5 to 10 per cent in 2021.

The United Nations report does predict a gradual, ‘U-shaped’ recovery in the longer term, however, as a global value chains become more resilient and capital stock increases. It anticipates a rebound in 2022, with the possibility of FDI reverting to the pre-pandemic trend. The report concludes:

‘The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical and financial risks, and continuing trade tensions add to the uncertainty.’

1 Excluding the financial centres in the Caribbean.

Source: United Nations Conference on Trade and Development (UNCTAD), World Investment Report: Annex Table 01; Austrade

World Foreign Direct Investment (FDI) Inflows by Economy

Rank in 2017 to 2019 Region/economy Inflow Average (US$ billion) 2014-16 to 2017-19 % Change Three-year average share %
2005-2007 2014-2016 2017-2019 2005-2007 2014-2016 2017-2019

1 Excluding the financial centres in the Caribbean.

Source: United Nations Conference on Trade and Development (UNCTAD), World Investment Report: Annex Table 01; Austrade

World 1,414 1,810 1,579 -13 100.0 100.0 100.0
Developed economies 936 1,070 837 -22 66.2 59.1 53.0
Developing economies 419 686 695 1 29.6 37.9 44.0
Transition Economies 59 54 46 -13 4.2 3.0 2.9
1 USA 186 380 259 -32 13.1 21.0 16.4
2 China 76 133 139 5 5.4 7.3 8.8
3 Hong Kong, China 45 135 94 -30 3.2 7.5 6.0
4 Netherlands 56 85 86 2 3.9 4.7 5.5
5 Singapore 33 67 85 27 2.3 3.7 5.4
6 UK 169 108 75 -30 12.0 5.9 4.8
7 Brazil 23 56 66 18 1.6 3.1 4.2
8 British Virgin Islands 14 46 58 25 1.0 2.6 3.7
9 Germany 61 14 57 296 4.3 0.8 3.6
10 Australia 13 45 50 10 0.9 2.5 3.2
11 India 18 41 44 8 1.3 2.3 2.8
12 Canada 68 46 40 -13 4.8 2.6 2.5
13 Ireland -4 102 34 -66 -0.3 5.6 2.2
14 Mexico 27 32 34 5 1.9 1.8 2.2
15 France 41 24 32 36 2.9 1.3 2.0
16 Spain 40 21 32 53 2.8 1.2 2.0
17 Italy 37 24 28 17 2.6 1.3 1.8
18 Cayman Islands 21 65 25 -62 1.5 3.6 1.6
19 Russian Federation 36 26 24 -9 2.5 1.4 1.5
20 Indonesia 7 14 22 52 0.5 0.8 1.4