Foreign Direct Investment

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

After an economic slowdown, FDI flows to Australia have been strong thanks to the energy sector. According to the World Investment Report 2021 published by UNCTAD, following the Covid-19 pandemic, FDI inflows halved to USD 20 billion in 2020 from USD 39 billion in 2019, as a result of low cross-border sales targeting chemicals and the financial sector. Australia was the 14th largest economy in the world in terms of FDI inflows in 2020, with FDI stocks reaching USD 790 billion.

The main investing countries in Australia are the United States, the United Kingdom, Belgium, Japan, Hong Kong, Singapore, the Netherlands, Luxembourg, China, and New Zealand. These investments are mainly oriented towards the mining sector, manufacturing, finance and insurance, real estate and trade. While Australia’s resources sector, which has traditionally been attractive for foreign investment, continues to receive investor interest,  the services sector is now receiving greater attention.

Australia was ranked 14^th out of 190 countries in the last World Bank's 2020 Doing Business report, in a significant increase from 2019, when it ranked 18^th. The country is one of the most open to foreign direct investment among OECD member states, with FDI representing over a third of GDP. FDI through both majority and minority ownership supports 1 in 10 jobs in Australia (DFTA, 2022). That is thanks to its economic liberalism, stability, transparency of its legal system and strong economic growth over the last 25 years, which compensate for the narrowness of its market and its geographic isolation. The business environment is attractive, and the trading environment is conducive considering the strategic positioning of the economy within the Asia-Pacific region and the political links that it has with the United States. Australia recently introduced a series of changes to its foreign investment framework by simplifying the existing regulation. The new legislation is designed to ensure that foreign investment is appropriately assessed, and that national interest factors are properly considered.  Australia is also involved in mega trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership. The government supports a case-by-case approach to considering foreign investment proposals, and in case proposals are found to be contrary to the national interest they can be either rejected or asked to be modified. This flexible approach is preferred to hard and fast rules, because the government believes that rigid laws that prohibit a class of investments can stop valuable investments. For that reason, they believe their approach maximises investment flows and protects Australia’s interests.

The latest United Nations Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in Australia and Asia-Pacific in 2021 and 2022.