Foreign Direct Investment

After an economic slowdown, FDI flows to Australia have been strong thanks to the energy sector. According to the World Investment Report 2024 published by UNCTAD, FDI inflows decreased to USD 29.8 billion (from 63.3 billion one year earlier), making the country the 12th-largest recipient worldwide. At the end of the same period, the total stock of FDI reached USD 807.4 billion. Meanwhile, outflows from Australia stood at USD 9.8 billion. The main investing countries in Australia are the United States (25.1%), the United Kingdom (18.9%), Belgium (8.1%), Japan (5.7%), Hong Kong (3.1%), and Singapore (3%). These investments are mainly oriented towards the mining sector (33.2%), finance and insurance (12.6%), real estate (11.8%), manufacturing (9.7%), and trade (6.5% - data Department of Foreign Affairs and Trade as of end-2023). 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. Furthermore, investments in battery storage have also been on the rise. The latest figures from the OECD show that investment inflows decreased to USD 25 billion in the first half of 2024, up from USD 7.5 billion in the same period one year earlier.

Australia 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). 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 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 new legislation is designed to ensure that foreign investment is appropriately assessed and that national interest factors are properly considered. 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. Moreover, the country revised the 2015 Foreign Acquisitions and Takeovers Regulation to clarify specific elements of the foreign investment review system and simplify the procedures for less sensitive investment categories. Furthermore, updates were made to the Guidance Notes pertaining to agriculture, commercial land, mining, residential land, securities, and other investment sectors. On 1 May 2024, the Australian Government updated its foreign investment policy, introducing a 'streamlined approach' for lower-risk investments and a 'strengthened approach' for high-risk ones. The latter includes transactions in sensitive sectors such as critical minerals, infrastructure, and technology, as well as acquisitions of businesses with sensitive data and real estate near defence or other sensitive government sites. Australia ranks 23rd among the 133 economies on the Global Innovation Index 2024 and 13th out of 184 countries on the latest Index of Economic Freedom. The country also stands at the 10th position in AT Kearney’s Foreign Direct Investment Confidence Index 2024.