The key attributes that make Australia a global investment hot spot

05 Jun 2019

Tags

  • Australian Economy
  • International Investment

I recently reported on Australia’s excellent record for attracting investment from overseas. But what keeps the money coming? What makes Australia outperform as an investment destination in the Asia-Pacific region?

One big reason is governance. Healthy oversite institutions make our markets fair and transparent [1]. Also, Australia’s ‘Triple A’ credit rating helps make us a low-risk economy. Third, our corporate regulations strike a careful balance between legal security and commercial freedom.

But there’s another side to Australia’s success: economic freedom, and the general ease of doing business. This blog post will analyse how Australia stacks up in the global rankings for governance and economic freedom. And I will show how Australia’s performance makes us a rock-solid destination for investors in the Asia-Pacific region.

Australia scores 5th place for economic freedom

The Heritage Foundation, a U.S.-based research organisation, rates Australia fifth in the world for economic freedom, according to its 2019 Index [2] . Established in 1994, the Economic Freedom Index tracks the relative freedom of labour and capital across the world. This year, Australia ranks well above most major economies including the UK (7th globally), Canada (8th), the US (12th), Germany (24th), Japan (30th) and France (71st).

This is an important result. It indicates that Australia’s free market democracy facilitates vibrant entrepreneurial development. According the 2019 Index publication:

Australia’s regulatory environment is one of the world’s most transparent and efficient, and is highly conducive to entrepreneurship. The labour market is well supported by the modern and flexible employment code .’

Top marks for global governance

According to the IMD World Competitiveness Center [3] (see below), Australia scores highly in some of the key metrics for governance. In particular, Australia is highly rated in terms of central bank policy (8th globally), rule of law (8th) and equal opportunity (10th).

Australia’s economic growth is viewed as one of the world’s most stable, while the overall risk relating to the investment environment is among the lowest (11th globally).

According to World Economic Forum data (see below), Australia has one of the world’s most independent judicial systems (7th). This is important, since it measures the degree to which there is fair competition between local and foreign companies.

As reported in our most recent Benchmark Report, Australia outranks the US, the UK and Japan in most metrics of business efficiency and environment. Across the Asia-Pacific, the only economies that generally match Australia’s performance in terms of efficiency and competitiveness are Hong Kong and Singapore.

business_efficiency_environment

Australia’s pro-business policies pay off

The World Bank has also published a global comparative index on the ease of doing business in countries around the world. In 2019, Australia is ranked 18th out of 190 economies – and sixth when compared to economies with a similar or larger population.

According to the report, it only takes around 2.5 days and three procedures to start a business. The country also ranks particularly well for enforcing contracts (5th globally), getting credit (8th) and dealing with construction permits (9th) (see chart below).

key-indicators-ease-doing-business

Again, what’s interesting is how well Australia compares to its peers in the Asia-Pacific region. Among all the metrics for ease of doing business, only Singapore, Hong Kong and South Korea perform markedly better in the Asia-Pacific region. Australia out-performs Thailand, Japan, China, Vietnam, Indonesia and the Philippines.

So, Australia’s ability to attract foreign direct in investment rests on rock solid foundations. Australia successfully balances strong governance with an open economy. But the country’s great achievement is to do it in a way that puts us near the top of global and regional rankings in each of the different factors that contribute to this delicate, evolving balance.

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[1] For example, the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC).
[2] 2019 Index of Economic Freedom was released in January 2019 after Austrade’s 2019 Benchmark Report was completed late December.
[3] The World Competitiveness Yearbook