UPDATED July 2019 – Since initial publication in April 2019, this article has been revised to include investment statistics and graphs from 2018.
By Michael Dean, Director, Free Trade Agreement Outreach Section
For over two hundred years, foreign investment has played a crucial role in delivering higher rates of economic growth, employment and standards of living to Australians, and this will remain the case for the foreseeable future.
Foreign investment does much more than make up for a domestic shortfall of available Australian investment. This article highlights the broader range of important benefits Australia gets from foreign investment, and explores other foreign investment issues.
What is foreign investment?
Foreign investment occurs when a person or business from outside Australia establishes a new business here, or buys property or shares in an Australian business. It also covers a range of other financial transactions, such as loans. The two main types of foreign investment are:
- foreign direct investment: where a foreign individual or business establishes a new Australian business or buys at least 10 per cent of an Australian business, and so has some influence over its operations.
- portfolio investment: where a foreign person or business buys Australian securities, equity or debt transactions that do not offer the investor any control over the business.
What does foreign investment in Australia do for us?
Foreign investment plays a vital role in supporting levels of economic activity and employment in Australia. Other benefits to Australia from foreign investment include:
- providing a source of finance to establish or enhance existing Australian businesses;
- tax payments by foreign businesses increase the funds available to the government
- delivering higher spending on Australian infrastructure;
- providing better access for Australian businesses to global supply chains; and
- greater access to new ideas, technologies and know-how for Australia boosts competition, productivity and innovation.
An Australian Bureau of Statistics study, titled the Economic Activity of Foreign-owned Businesses in Australia 2014-15, provides a refreshing reminder that foreign investment delivers a number of significant benefits to Australia (refer to the Snapshot below for more information).
Economic Activity of Foreign-owned Businesses in Australia 2014-15: Snapshot
- Foreign direct investment in Australia (combined majority and minority foreign-owned businesses) accounted for 1 in 10 jobs in Australia. On a sectoral basis, foreign direct investment supported about one in four mining jobs, one in five in information media and telecommunications jobs, one in six manufacturing jobs, and one in eight professional, scientific and technical services jobs.
- Foreign-owned businesses, on average, paid higher wages than Australian-owned businesses.
- Foreign-owned businesses accounted for almost 30 per cent of Australia’s exports of goods and services.
- Majority foreign-owned businesses in Australia accounted for 0.5 per cent of total businesses. Of these majority foreign-owned businesses, 6,471 were small businesses (0-19 employees), 2,596 medium (20-199 employees) and 879 large (200 & over employees).
- (For more information, refer to: Economic activity of foreign-owned businesses in Australia 2014-15)
What makes Australia an attractive destination for foreign investment?
Factors that contribute to Australia being an attractive destination for foreign investment include our:
- vibrant economy;
- highly skilled workforce;
- close relationships with countries in the fast growing Indo-Pacific region;
- stable political, legal and regulatory environment; and
- growing network of trade agreements that give foreign investors better access into other countries in our region for their Australian made goods and services.
Foreign Investment Review Board
The Federal Government continues to review major foreign investment proposals on a case-by-case basis through the Foreign Investment Review Board to ensure investment is in the national interest.
Case study: Melbourne based company benefiting from foreign investment
Swisse is a vitamin, supplement, and personal care product company based in Australia. Swisse’s Managing Director, Oliver Horn, reflects on the various benefits foreign investment in this video
Foreign investment in Australia: Where does it come from and which industries attract investment?
Total foreign investment in Australia was $3,514 billion at the end of 2018. The top five source countries for Australian foreign investment, and their percentages of total foreign investment, were: the United States (26.7%), United Kingdom (16.4%), Belgium (9.0%), Japan (6.5%) and Hong Kong (3.4%). In 2018, the top five Australian sectors benefiting from foreign direct investment and their percentages of total foreign direct investment were: mining and quarrying (37.8%), manufacturing (11.1%), financial and insurance activities (11.1%), real estate activities (10.6%), and wholesale and retail (5.9%). For more information, refer to the following graphs.
For more information, refer to DFAT’s web pages on foreign investment https://dfat.gov.au/trade/investment/Pages/about-foreign-investment.aspx