Three reasons why Australia is a magnet for investors

28 Oct 2020

Tags

  • Edmund Tang
  • International Investment

I recently reported on Australia’s excellent record for attracting investment from overseas.

To re-cap: Australia’s share of total global investment keeps rising – and has just hit 3.2 per cent according to UN data. Australia now attracts roughly A$50 billion per year of global, investment-hungry cash.

This investment helps power our economy. But what keeps that foreign cash coming?

Reason 1. Australia’s pro-business policies

Each year, the World Bank publishes a comparative index on the ease of doing business in countries around the world. The index shows that Australia’s performance is steadily improving.

This year, Australia’s global ranking has improved four places to 14th position. When comparing economies with a population of more than 20 million, Australia now ranks an astonishing fifth, behind Korea (1st), the US (2nd), the UK (3rd) and Malaysia (4th).

But what precisely makes Australia a good place to do business?

Legal, financial and regulatory factors predominate. Currently, Australia ranks fourth out of 190 economies in terms of gaining credit. It also ranks sixth for the ability of businesses to enforce contracts, and seventh for ease of starting a business (see chart below).

Key indicators of ease of doing business1

Notes 1. Doing Business 2020 is the 17th in a series of annual studies measuring the regulations that enhance business activity and those that constrain it. The survey covers 12 areas of business regulation. Ten of these areas—starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency—are included in the ease of doing business score and ease of doing business ranking. Doing Business also measures regulation on employing workers and contracting with the government, which are not included in the ease of doing business score and ranking. Data in Doing Business 2020 are current as of May 1, 2019. The indicators are used to analyse economic outcomes and identify what reforms of business regulation have worked, where and why. The Australian city covered by the 2019 report is Sydney.
Sources: World Bank Group, Doing Business 2020–Sustaining the pace of reforms (released 24 October 2019); Austrade

  Ease of Doing Business Getting credit Enforcing contracts Starting a Business Dealing with Construction Permits
Economy Overall Ranking Out of 190 Economies Rank Strength of legal rights index (0-12) Depth of credit information index (0-8) Rank Time (days) Quality of judicial processes index (0-18) Rank Procedures (number) Time (days) Rank Procedures (number) Time (days)
New Zealand 1 1 12 8 23 216 9.5 1 1 0.5 7 11 93
Singapore 2 37 8 7 1 164 15.5 4 2 1.5 5 9 35.5
Hong Kong SAR 3 37 8 7 31 385 10.0 5 2 1.5 1 8 69
Denmark 4 48 8 6 14 485 14.0 45 5 3.5 4 7 64
South Korea 5 67 5 8 2 290 14.5 33 3 8 12 10 27.5
USA 6 4 11 8 17 444 14.6 55 6 4 24 16 81
UK 8 37 7 8 34 437 15.0 18 4 4.5 23 9 86
Malaysia 12 37 7 8 35 425 13.0 126 8 17 2 9 41
Australia 14 4 11 8 6 402 15.5 7 3 2 11 11 120.5
Taiwan 15 104 2 8 11 510 14.0 21 3 10 6 10 82
UAE 16 48 6 8 9 445 14.0 17 2 3.5 3 11 47.5
Thailand 21 48 7 7 37 420 8.5 47 5 6 34 14 113
Germany 22 48 6 8 13 499 12.5 125 9 8 30 9 126
Canada 23 15 9 8 100 910 11.0 3 2 1.5 64 12 249
Japan 29 94 5 6 50 360 7.5 106 8 11 18 12 108
China 31 80 4 8 5 496 16.5 27 4 9 33 18 111
France 32 104 4 6 16 447 12.0 37 5 4 52 9 213
Italy 58 119 2 7 122 1120 13.0 98 7 11 97 14 189.5
India 63 25 9 7 163 1445 10.5 136 10 17.5 27 15 106
Vietnam 70 25 8 8 68 400 7.5 115 8 16 25 10 166
Indonesia 73 48 6 8 139 403 8.9 140 11 13 110 18 200
South Africa 84 80 5 7 102 600 8.5 139 7 40 98 20 155
Philippines 95 132 1 7 152 962 7.5 171 13 33 85 22 120

 

Again, note Australia’s position within the Asia-Pacific region. Among all the metrics for ease of doing business, only Hong Kong, Malaysia, South Korea and Singapore perform better in the Asia region. Currently, Australia out-performs Taiwan, Thailand, Japan, China, India, Vietnam, Indonesia and the Philippines.

So, one reason why global investors decide to commit money to Australia is simply because we have created an enterprising commercial environment.

Reason 2: A sound legal and regulatory environment

Another way to attract global investment is to lower business risk.

According to World Economic Forum data (see below), Australia has one of the world’s most independent judicial systems (10th). And perceptions of judicial independence are vitally important. Overseas companies need confidence that competition is fair or they will expand elsewhere.

Australia also ranks highly in terms of trade openness and the soundness of our banks. In 2019, Australia topped the US, the UK, Japan and Korea in these two measures. Across the Asia-Pacific, only two economies match Australia’s performance in terms of trade openness and sound banking – Hong Kong SAR and Singapore.

Business efficiency and environment - 2019

1. Debt dynamics measures the change in public debt-to-GDP ratio, weighted by a country’s credit rating and debt level in relation to its GDP; 2. Social capital measures national performance in three areas: social cohesion and engagement (bridging social capital), community and family networks (bonding social capital), and political participation and institutional trust (linking social capital); 3. Trade openness comprises of indicators of Prevalence of Non-tariff Barriers, Trade Tariffs %, Complexity of Tariffs and Border Clearance Efficiency.
Sources: (a) World Economic Forum (WEF), Switzerland and Harvard University, Global Competitiveness Report 2019 (released 9 October 2019, 141 economies); (b) Institute for Management Development (IMD), Switzerland, World Competitiveness Yearbook 2019 (released May 2019, 63 economies); Austrade

  Australia USA UK China India Japan Korea Hong Kong SAR Singapore
WEF Global Competitiveness Report 2019 Ranking(a) in:                  
  Debt dynamics1 =1 38 =1 41 43 42 =1 =1 39
  Social capital2 2 6 8 119 93 90 72 47 15
  Trade openess3 3 14 25 71 131 9 67 2 1
  Soundness of banks 5 25 52 95 89 33 62 3 2
  E-participation =5 =5 =5 29 15 =5 1 n/a 13
  Time to start a business (days) 6 31 21 56 90 70 14 =2 =2
  Energy efficiency regulation 7 12 8 21 33 31 3 n/a 19
  Property rights 9 22 25 58 65 5 39 4 3
  Non-performing loans % of Gross Total Loans 10 14 8 26 106 15 3 6 17
  Judicial independence 10 25 26 47 51 5 69 8 14
IMD World Competitiveness Yearbook 2019 Ranking(b) in:                  
  State ownership of enterprises not a threat to business activities 4 8 17 47 29 14 49 15 27
  Strong resilience of the economy to economic cycles 5 12 29 3 16 50 40 13 18
  Public sector contracts sufficiently opening to foreign bidders 5 40 13 47 34 58 41 6 8
  Unemployment legislation providing an incentive to look for work 7 5 14 23 30 27 40 4 1
  Justice is fairly administered 7 23 18 30 31 20 49 8 10
  Stock markets providing adequate financing to companies 7 1 6 40 26 18 34 3 14
  Government protectionism not impairing the conduct of your business 8 43 22 37 34 40 54 7 10
  Competition legislation efficient in preventing unfair competition 8 20 16 37 35 12 48 15 10
  Central bank policy having a positive impact on the economy 9 23 24 36 32 50 35 19 2

 

The IMD World Competitiveness Center also has some interesting metrics. Specifically, Australia is highly rated in terms of the probity of public sector contracts (5th globally), justice (7th), government protectionism (8th), competition legislation (8th) and central bank policy (9th).

These rankings demonstrate that Australia is a secure destination for foreign capital. They give investors confidence. It may sound old-fashioned, but good governance, strong institutions and the rule of law are vitally important in today’s globalised international economy.

Reason 3: High living standards & a low cost of living

The third reason we have so many global investors on our doorstep is that people like living in Australia.

Each year, hundreds of companies – from tech startups to multinationals – establish offices and regional headquarters in Australian cities. In global surveys, Australia’s lifestyle cities outshine Asia’s commercial hubs and that’s why Australia is often chosen as a commercial springboard into Asia.

But the win-win for Australia is that our cities are not too expensive to live in. According to Mercer’s 2020 Cost of Living Index, Australia’s lifestyle cities have recently become more internationally competitive, with a lower cost-of-living rating than most major cities in the Asia-Pacific region.

And then there’s the digital factor. At Austrade, we’ve analysed an index called the Surfshark 2019 Digital Quality of Life Rankings. It gives Australia first place out of 65 countries.

Again, it’s interesting to dive below the surface. In this case, Australia’s top ranking is due to technological, legal and regulatory factors: strong data protection laws; high content availability; an affordable mobile internet; fast mobile internet speeds; a well-developed e-government system; and a solid level of cyber security.

Keeping the money coming in

So, Australia’s ability to attract foreign investment rests of three foundations: an entrepreneurial economy; low business risk; and high liveability. Together, they keep investment capital flowing into Australia – helping us to stay competitive and resilient.