Australia’s inward investment tops A$1 trillion

14 May 2020

Tags

  • Edmund Tang

Despite the dislocation in world trade caused by pandemic lockdowns, Australia’s record on attracting investment helps keep our economy on strong foundations. Indeed, Foreign Direct Investment (FDI) is vital to the Australian economy – as a source of external finance for investment, and an engine for economic and employment growth.

A strong, pre-COVID-19 track record

Australia’s inward FDI stock totalled A$1.02 trillion in 2019, up by three per cent from 2018.  This means the stock value of FDI in Australia has more than doubled over the past decade.

Australia enjoys an almost unique place in the world: our ability to attract foreign investment is due to a highly resilient economy and a diverse mix of industries. Until this year, Australia had notched up nearly three decades of uninterrupted economic growth – which is longer than every other major developed country.

So, Australia is now entering the global health crisis from a position of strength. With a low public sector debt, Australia can afford the extra spending required to keep the economy moving. In its latest World Economic Outlook, the International Monetary Fund predicted that Australia will likely experience a V-shaped rebound of 6.1 per cent next year after experiencing a major recession this year.

Strong fundamentals

Underpinning our economic resilience is Australia’s excellent economic management, sound financial system, strong fiscal position and relatively low public sector debt. In addition, Australia’s business-friendly environment will continue to attract strategic investment in future industries and infrastructure.

In the post-virus global economy this makes Australia a rock-solid destination for FDI. In 2019, FDI in Australia grew by 3 per cent according to the latest report from the Australian Bureau of Statistics. Australia’s stock of FDI is now worth over one trillion dollars, having grown by an average eight per cent a year since 2009.

This is an exceptional performance by international standards. As a percentage of gross domestic product (GDP), Australia’s inward FDI stock exceeded 50 per cent in 2019, up from 39 per cent a decade ago.

North America and Europe are major investors

The European Union (EU) and North America have contributed almost half of all the investment to arrive on Australian shores.

Following an exceptional growth rate of about 14 per cent per year from 2016 and 2018, FDI from the EU rose by 6 per cent to A$238 billion in 2019.

  • FDI from the US fell 6.5 per cent to A$205 billion in 2019, while Canada continued to increase investment activity by 17 per cent to exceed A$47 billion (see table below).
  • The UK has now overtaken Japan as Australia’s second largest investor. With a total FDI stock of over A$127 billion in 2019, British investors now hold 12.5 per cent of the total stock value of FDI in Australia.
  • Japan is now Australia’s third largest source of FDI, with a total stock value of A$116 billion in 2019.

Increased inflows from Asia

In recent years, there has been a solid rise in capital inflows from Asia, a trend that reflects Australia's close ties to these fast-growing economies.

  • China is now Australia’s sixth largest direct investor with a total stock value of A$46 billion. Chinese FDI in Australia grew by 10 per cent in 2019 and has experienced a compound annual growth rate (CAGR) of 18 per cent since 2009.
  • Other Asian economies are also emerging as fast-growing sources of FDI (in CAGR measures). Investment from ASEAN countries has risen by 10 per cent a year to A$57 billion (including Singapore, up eight per cent A$36 billion), Hong Kong by 12 per cent to A$16 billion and South Korea by 19 per cent to A$8 billion.

Mining investment takes 35%

By industry, the mining sector has received the highest value of FDI, at A$360 billion. This accounts for 35 per cent of total FDI stock value in Australia.

Next is Australia’s manufacturing sector at A$131 billion, then financial services at A$113 billion and real estate at A$111 billion. Together, these three sectors accounted for slightly over a third of total FDI stock value (12.9 per cent, 11.1 per cent and 10.9 per cent, respectively).

Other industries with active direct investor activities in 2019 were wholesale and retail trades (A$60 billion) and information and communication (A$30 billion).

Main sources foreign direct investment stock Australia 2009-2019