Who invests in Australia? Analysing 2020’s $4 trillion record for foreign investment

26 May 2021

Tags

  • Edmund Tang
  • Benchmark Report
  • International Trade

Australia’s investment performance in 2020 was impressive. Despite drought, bushfires and COVID-19 lockdowns, foreign investment still grew by 2.5%.

This result caps an equally amazing two-decade track record. Over the past 20 years, investment has grown by about 8.0% per year.

The takeaway is that overseas investment is playing an ever-larger role in Australia’s economic story. Investment powers our Dynamic Industries and confidence in our economy’s Strong Foundations keeps that capital coming.

This blog digs into the investment data to answer some key questions: who invests in Australia; and where do they put their money?

Direct investment in Australia passes $1 trillion in 2020

Australia continues to be a highly attractive destination for foreign direct investment (FDI) – which is when an overseas company sets up, buys or increases its stake in an Australian business.

The total stock of FDI in Australia has risen, on average, by about 8% per year since 2000. It reached A$1 trillion in 2020. This record is an international vote of confidence in how we have run our economy over the past two decades.

 

Figure 1: Total foreign investment stock in Australia, 2000 to 2020

Total value in 2020: A$4 trillion

Total foreign investment stock in Australia, 2000 to 2020

Notes: 1. Other investment is the balance of total investment less direct investment. As such, it represents portfolio investment, financial derivatives and other investment categories from the source ABS data.
Sources: Australian Bureau of Statistics, 2021, International investment position, Australia Supplementary Statistics 2020, Table 2; Australian National Accounts: National Income, Expenditure and Product, Table 3; Austrade

 

Global investment powers Australian mining, manufacturing and finance

Back in 2000, total foreign investment in Australia as a percentage of GDP stood at 120%. Last year, this measure – which includes stocks and shares – was 203%.

This means the Australian economy is more dependent on overseas investors than it was two decades ago. Our major industries depend on this vast stock of foreign investment, as the Benchmark Report (Global Ties) makes clear:

  • 35.3% of FDI (worth A$360 billion) is invested in our mining industries.
  • 12.9% of FDI (worth A$131 billion) in invested in Australian manufacturing.
  • 11.1% of FDI (worth A$113 billion) is invested in financial services and insurance.

Other forms of investment – including portfolio investment – grew by 8.4% per year from 2000 to 2020. This took total foreign investment to A$4 trillion in 2020.

The US, UK and Europe remain major investors

Our investors come from all around the world. The distribution helps keep the international side of our economy balanced, as between North America, Europe and Asia.

The European Union (EU) and North America have contributed almost half of all the FDI to arrive on Australian shores over the past decade. Compound annual growth rates (CAGRs) were about 6% and 7% respectively.

The UK remains a major investor in Australia. Japan and the UK have jostled for second place over the past decade. It will be interesting to see whether the upcoming Australia–UK Free Trade Agreement boosts incentives for bilateral investment.

Asian capital increases investment in Australian business

An important recent trend is the solid rise in capital inflows from Asia, albeit from a low base. China is now Australia’s sixth largest direct investor with investment growing by a CAGR of 13% since 2010.

Other Asian economies are also emerging as fast-growing sources of FDI. In the decade to 2020:

  • investment from ASEAN countries (including Singapore) rose by 9% per year
  • investment from Hong Kong by rose by 10% per year
  • investment from Korea rose by 15% per year.

 

Figure 2: Australia's main sources of foreign direct investment stock, 2010–2020

Total value in 2020: A$1 trillion

Rank 2020 Economy 2010 A$billion 2019 A$billion 2020 A$billion % Share 2020 % Change 2019–2020 % CAGR 2010–2020 Growth ($bn) 2010-2020 % of Australian GDP, 2020
1 US 110.3 221.4 196.3 19.1 -11.4 5.9 -25.1 10.0
2 Japan 51.1 115.9 131.8 12.8 13.7 9.9 15.9 6.7
3 UK 53.7 127.5 123.5 12.0 -3.2 8.7 -4.1 6.3
4 Netherlands 27.6 56.6 52.8 5.1 -6.7 6.7 -3.8 2.7
5 Canada 14.9 46.1 46.2 4.5 0.1 12.0 0.1 2.3
6 China 12.9 46.9 44.3 4.3 -5.4 13.1 -2.5 2.3
7 Singapore 18.7 36.2 39.9 3.9 10.4 7.9 3.8 2.0
8 Bermuda 7.5 41.9 39.9 3.9 -4.9 18.2 -2.1 2.0
9 Virgin Islands, British np 22.2 22.5 2.2 1.6 np 0.4 1.1
10 Germany 16.8 23.1 21.7 2.1 -6.0 2.6 -1.4 1.1
11 Hong Kong SAR 6.6 17.3 16.8 1.6 -3.4 9.7 -0.6 0.9
12 Malaysia 3.7 14.7 13.6 1.3 -7.3 14.0 -1.1 0.7
13 France 13.0 12.7 12.1 1.2 -4.8 -0.7 -0.6 0.6
14 Switzerland 20.9 11.6 11.6 1.1 0.0 -5.7 0.0 0.6
15 Luxembourg 1.5 9.3 9.1 0.9 -2.9 20.0 -0.3 0.5
16 Korea 2.1 7.1 8.0 0.8 12.4 14.6 0.9 0.4
  Other economies 158.1 233.0 236.6 23.0 1.5 4.1 3.6 12.0
FDI stock – all economies 519.3 1,043.6 1,026.6 100.0 -1.6 7.1 -17.1 52.1
  OECD 340.6 653.1 635.9 61.9 -2.6 6.4 -17.2 32.3
  APEC 231.0 517.1 508.7 49.6 -1.6 8.2 -8.4 25.8
  EU (excl. UK) 80.2 117.0 112.3 10.9 -4.1 3.4 -4.8 5.7
  ASEAN 25.8 56.1 59.0 5.7 5.0 8.6 2.8 3.0
FDI stock as a percentage of GDP 38.1 52.2 52.1

Notes: ASEAN = The Association of Southeast Asian Nations. CAGR = compound annual growth rate. np = not available for publication but included in totals where applicable, unless otherwise indicated. SAR = Special administrative region of China.
Sources: Australian Bureau of Statistics, 2021, International Investment Position, Australia: Supplementary Statistics 2020, Table 2; Australian Bureau of Statistics, 2021, Australian National Accounts: National Income, Expenditure and Product, Table 3; Austrade

 

It’s clear that Australia’s investment is highly diversified. We are well connected to some of the world’s fastest-growing economies. But our global reach gives us balance. That balance is a huge source of strength to a liberalised trading economy.

Look out for the next Benchmark analysis, where we take an in-depth look at Australia’s strong business foundations. This is a key source of competitive advantage as global capital seeks the greatest returns on investment.

Access the Benchmark Report 2021 to see detailed charts and analysis, and to download the Report.