Global investors stay keen as Australia’s FDI stock reaches A$970 billion

14 May 2019

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  • Edmund Tang
  • FDI

Overseas investment in Australia grew by 9.5% in 2018 according to the latest report from the Australian Bureau of Statistics. Australia’s stock of foreign direct investment (FDI) is now worth A$968 billion, having grown by an average 8.5% per year since 2011 – an exceptional performance by international standards.

Australia’s ability to attract foreign capital is reflected in global economic rankings. A. T. Kearney, the Chicago-based management consulting firm, released its 2019 investment Confidence Index on 7th May, and placed Australia ninth – globally – of countries most likely to attract foreign direct investment (FDI) over the next three years.

A.T. Kearney’s report shows Australia outranking Singapore (placed 10th), South Korea (17th) and Taiwan (22nd). The United States is currently the world’s most attractive destination for direct investment.

Strong investment helps raise growth prospects

Strong FDI is helping to raise expectations for Australia’s economy. The International Monetary Fund (IMF) now forecasts that Australia’s real GDP will grow by an average rate of 2.7% a year from 2020 to 2024, up from an average rate of 2.5% a year from 2015 to 2019. The latest projected growth rate is the highest among major advanced economies.

This stellar performance reflects economic fundamentals that have powered 27 years of uninterrupted growth: our strategic location; liberalised trade with fast-growing economies; an openness to investment; and a business friendly environment. Strong FDI data is a global vote of confidence in our workforce and our strategic posture as a springboard for exports to Asia.

Europe and North America remain big investors but Asia is growing fast

The European Union (EU) and North America contribute almost half of all the investment that arrives on Australian shores. FDI from the EU surged by 14% to A$226 billion in 2018. Investment from the US rose 11% to A$214 billion, while Canadians increased investment by 15% to A$37 billion.

Japan is Australia’s second largest investor. With a total FDI stock of over A$106 billion in 2018, Japanese investors now hold 11% of the total stock of overseas investment in Australia. Japan has been Australia’s second largest source of FDI since 2015, when it overtook UK – traditionally Australia’s number two investor.

 

Main Sources of FDI

 

Since 2011, China, Hong Kong and Malaysia have each clocked up double-digit increases in FDI into Australia. China is now Australia’s fifth largest direct investor, with a total stock value of A$40 billion. Although Chinese FDI grew just 5% in 2018, average annual FDI growth since 2011 remains high at 15.7%.

Australian mines a magnet for overseas investors

But where is the investment going? In 2018, Australia’s mining sector garnered an astonishing 38% of the total stock value of FDI in Australia. This means that overseas investors have stock worth A$366 billion invested in Australian mining. In turn, this investment stokes Australia’s exports. As I shall highlight in a forthcoming analysis, iron ore remained Australia’s largest source of export revenue in 2017–18 worth A$61.4 billion, closely followed by coal worth A$60.4 billion.1

Next most popular among overseas investors are Australia’s manufacturing and financial services sectors, followed by real estate. Together, these three sectors account for one third of total FDI stock value. Some of the less traditional destinations for overseas capital are also exciting interest. Australia’s utilities sector holds A$22 billion in overseas owned assets. Meanwhile, foreign investors hold stakes worth A$9 billion in Australia’s vibrant accommodation and food services sector.

The vital importance of FDI to Australia’s economy & exports

Over the past two decades, strong FDI has helped Australia increase its economic potential by injecting capital into emerging industries and increasing efficiency in existing ones. This investment is vital: Since 2005, Australia’s resources sector has absorbed almost 40% of all FDI in Australia – and this sector now delivers approximately more than half of Australian exports of goods and services.2

Robust FDI is also a catalyst for change. Fresh investors bring new ideas, and innovation delivers better services for Australian consumers. FDI naturally seeks opportunities to increase efficiency, which in turn makes Australian companies more competitive in world markets. And FDI also creates business connections in new markets, especially in the Asia Pacific region which is the most dynamic region of the world’s economy.

 


1 Department of Foreign Affairs and Trade, Composition of Trade Australia, 2017-2018. Released 4th February 2019.

2 Source: Department of Industry, Innovation and Science, Office of the Chief Economist, Resources and Energy Quarterly, March 2019 Forecast Data, total value of resources and energy was A$228 billion in 2017–18.