Partaking in regional prosperity requires investment
14 Sep 2020
This week, long-awaited data on Australia’s international economic footprint was released. Australian Foreign Affiliates Trade 2018-19 details the location and economic characteristics of majority Australian-owned subsidiaries, branches and joint ventures overseas.
The last comprehensive survey of ‘Australian parent’ enterprises and their ‘foreign child’ enterprises was conducted in respect of 2002-03. Since that time there have been significant changes to the international economy including:
- the rise of Asian economies – now host to global manufacturing hubs, and home to 70% of the world’s 30 largest cities;
- the direction, size and composition of Australian trade and investment flows;
- greater digital adoption by industries; and
- an increasing number of preferential trade agreements that cover over 70% of Australian trade.
Although this new data reflects the world in 2018-19 it is published at an important time, when Australian governments and companies are reviewing their international economic risk and exposure.
Rewards from trusted ties of history and culture
The data reports that Australia-based parent companies have a majority interest[i] in 5,176 foreign affiliates.
In 2018-19 these companies sold $213 billion of goods and services[ii]. This is equivalent to 45% of Australia’s exports in that year, signifying that outward investment plays a significant role in the international business activity of Australian companies.
Australian equity in foreign affiliates in United Kingdom, United States, New Zealand and Canada account for 65% ($344bn) of total Australian equity overseas ($530bn).
The industry value-add contributed by Australian foreign affiliates globally was $159.7 billion, of which 54% ($86.2bn) is attributed to the markets of New Zealand, the United States and United Kingdom.
The global employment of Australian foreign affiliates totalled 412,000. New Zealand (66,000), ASEAN (64,000) and the United States (62,000) lead for the number of people employed by Australian foreign affiliates. Though Indonesia is the 14th ranked market for the number of affiliates, it is 4th ranked individual market for the number of employees, an important sign that Australian companies have already made strong human resource investments, a necessary precursor to building closer economic ties with the large emerging market. The Manufacturing sector accounted for 77,000 employees or 19% of the total number of employees of affiliates globally, followed by Financial and insurance services 74,000 employees (18%), Mining, 59,000 employees (14%) and Professional, scientific and technical services, 49,000 employees (12%).
The key country markets in which Australian affiliates are present are the United States (932 registered enterprises) United Kingdom (608) and New Zealand (561).
- If we take regions into consideration, Europe (EU-27 minus UK) takes second place behind the US with 633 enterprises. Australian equity of between $6bn and half a billion is invested in Netherlands, France, Belgium, Switzerland and Luxembourg[iii]. ASEAN takes fifth place with 517 enterprises (of which Singapore accounts for 187). Australian equity of between $35bn and half a billion is invested in Singapore, Indonesia, Vietnam, Malaysia, Thailand and Philippines.
Foreign investors embrace Australia as a base for operations in Asia and Oceania
The release highlights how Australian firms are using foreign affiliates to take advantage of long‑term shifts in the global economy. There are promising signs of strong engagement in ASEAN, through investment and employment. However the release highlights Australia’s outward FDI profile for majority-owned enterprises reflects our historic connections with the United States, United Kingdom and New Zealand.
Interestingly, this data release splits Australian parent firms into two groups – those that have majority Australian ownership, and those with majority foreign ownership (foreign investor parents).
It is clear that foreign investor parents see Australia as a reinvestment decision-maker for operations in Asia and Oceania. Eighty percent of their child enterprises have been set up in Asia (303, 44%) and Oceania (249, 36%).
In contrast, majority Australian parents have selected the Americas and Europe as top destinations, both of which account for 65% of their total foreign affiliates.
It is also possible the difference in company decision-making between Australian‑owned and foreign‑owned parents, reflects cultural capabilities and preferences of management as well as business assessments of long‑term risk and return.
Corporate taxation and other international policy settings also play a part in location decisions. The United States, United Kingdom and New Zealand markets account for 46% ($99bn) of total goods and services sales by affiliates overseas ($213bn), and 53% ($23bn) of taxable profit ($44bn) and 65% ($10bn) of total profit returned to Australia ($15bn).
The foreign affiliate data released this week suggests there is ongoing opportunity for Australian parent enterprises to invest in Asia-based foreign affiliates to take advantage of long-term global economic trends.
[i] Interest of at least 50% in ordinary shares or the voting stock of an incorporated enterprise, and the equivalent for an unincorporated enterprise.
[ii] $2.1 bn in services were sold back to the Australian parent, and the value of goods sold back to the Australian parent is not disclosed.
[iii] Australian equity in Germany, the EU-27 country with the highest number of Australian affiliates, has not been published.