Foreign Investment into Australia

McKissack, Adam; Xu, Jessica Working Paper Foreign Investment into Australia Treasury Working Paper, No. 2016-01 Provided in Cooperation with: The Treasury, The Australian Government Suggested Citation: McKissack, Adam; Xu, Jessica (2016) : Foreign Investment into Australia, Treasury Working Paper, No. 2016-01, ISBN 978-1-925220-30-8, The Australian Government, The Treasury, Canberra This Version is available at: https://hdl.handle.net/10419/210389 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/3.0/au/legalcode FOREIGN INVESTMENT INTO AUSTRALIA Foreign Investment and Trade Policy Division1 Treasury Working Paper2 2016-01 Date created: January 2016 Date modified: January 2016 1 Adam McKissack and Jessica Xu, Foreign Investment and Trade Policy Division, Markets Group, The Treasury, Langton Crescent, Parkes ACT 2600, Australia. Correspondence: Adam McKissack, [email protected]. We thank Renae Liang, Shibani Iyer, Stewart Nixon, Philip Hu, Derrick Calder, Paul Fischer and Owen Freestone for their significant contribution to the paper. The paper also benefits from comments and suggestions by John Lonsdale, Rob Donelly, Rupert Jolley, David Earl and Jeremy Curtis. 2 The views expressed in this paper are those of the authors and do not necessarily reflect those of The Australian Treasury or the Australian Government. © Commonwealth of Australia 2016 ISBN 978-1-925220-30-8 This publication is available for your use under a Creative Commons BY Attribution 3.0 Australia licence, with the exception of the Commonwealth Coat of Arms, the Treasury logo, photographs, images, signatures and where otherwise stated. The full licence terms are available from http://creativecommons.org/licenses/by/3.0/au/legalcode. Use of Treasury material under a Creative Commons BY Attribution 3.0 Australia licence requires you to attribute the work (but not in any way that suggests that the Treasury endorses you or your use of the work). Treasury material used 'as supplied' Provided you have not modified or transformed Treasury material in any way including, for example, by changing the Treasury text; calculating percentage changes; graphing or charting data; or deriving new statistics from published Treasury statistics — then Treasury prefers the following attribution: Source: The Australian Government the Treasury Derivative material If you have modified or transformed Treasury material, or derived new material from those of the Treasury in any way, then Treasury prefers the following attribution: Based on The Australian Government the Treasury data Use of the Coat of Arms The terms under which the Coat of Arms can be used are set out on the It’s an Honour website (see www.itsanhonour.gov.au) Other uses Enquiries regarding this licence and any other use of this document are welcome at: Manager Media Unit The Treasury Langton Crescent Parkes ACT 2600 Email: [email protected] Foreign Investment into Australia Foreign Investment and Trade Policy Division 2016-01 January 2016 ABSTRACT Despite the essential contribution of foreign investment to Australia’s economic growth and prosperity, the benefits of foreign investment are not well understood. This paper aims to provide further insights into foreign investment in Australia by examining the trends, the sources and the positive effects of foreign investment into Australia. The available data on foreign investment in Australia suggests a fairly consistent trend over time despite increases in the number of foreign investment applications received by the Foreign Investment Review Board. JEL Classification Numbers: F21, O56 Keywords: Foreign direct investment, Australia Foreign Investment and Trade Policy Division Markets Group The Treasury Langton Crescent Parkes ACT 2600 1 1. INTRODUCTION Foreign investment is integral to the Australian economy but the benefits of foreign investment are often poorly understood. While foreign investment into Australia has attracted a great deal of attention, there has been relatively little work undertaken on the nature and distribution of foreign investment into Australia. This paper aims to provide further insights into foreign investment in Australia by examining the trends, the sources and the contribution of foreign investment to Australia. The data on foreign investment in Australia is incomplete but available data suggests a fairly consistent trend over time despite increases in the number of foreign investment applications received by the Foreign Investment Review Board (FIRB). The remainder of the paper is organised as follows. Section 2 describes the trends in foreign investment into Australia. Section 3 analyses the sources of foreign investment. Section 4 discusses the foreign investment data collected by the FIRB. Section 5 considers the benefits of foreign investment to Australia. Section 6 concludes. 2. TRENDS IN FOREIGN INVESTMENT There is no single authoritative source of foreign investment data. Apart from the data collected by the FIRB, the Australian Bureau of Statistics (ABS) is the primary source of data on foreign investment into Australia. The ABS international investment statistics provide data, captured on a quarterly basis, on investment activity into and out of Australia. According to the data from the ABS, foreign investment as a share of total Australian assets has remained reasonably steady in the last decade (Chart 1). There is no clear evidence that Australia has become more dependent on foreign capital since the mid-1990s. 2 Chart 1: Foreign held equity as a proportion of total national assets Source: ABS. Foreign investment in Australia is largely undertaken in the form of portfolio investment. Over half of Australia’s total stock of foreign investment is portfolio investment, with only around one-quarter being foreign direct investment (FDI) (Chart 2). 3 3 Under ABS definitions, portfolio investment involves participation of less than 10 per cent of interest assumed to have no influence in the operation of the enterprise. Direct investment involves financial transactions and positions where shareholding or voting power is greater than 10 per cent. Other investment is a residual category that captures transactions not classified as direct investment, portfolio investment, financial derivatives, employee stock options or reserve assets of the compiling economy. 3 Chart 2: Level (stock) of foreign investment in Australia Source: ABS. The ABS also publishes foreign investment data by industry (Chart 3). Between 2010 and 2014, there was a significant inflow of FDI into Australia in mining and quarrying, and real estate.4 In 2014, the FDI stocks in mining and quarrying, and real estate were $264.7 billion and $47.7 billion, respectively. 4 The ABS derives data on real estate investment via businesses surveys. However, where foreign investors own real estate directly without investing through an Australian corporate structure, there is no Australian resident to survey. The value of this investment is modelled based on investment intentions collected from FIRB, media reports and industry-specific periodicals. 4 Chart 3: FDI (stock) in Australia by industry Source: ABS. Agriculture is an important sector with the potential for significant future growth in foreign investment flows, but our understanding of foreign investment in this sector has been limited. The ABS Agricultural Land and Water Ownership Survey (ALWOS) was established to provide a clearer picture of foreign agricultural land ownership. In 2010 and 2013 an ALWOS collection was undertaken to address a known data gap for national-level information on foreign ownership of agricultural land. Chart 4 and Chart 5 show that agricultural assets in Australia are still largely locally owned. In 2013, local ownership of agricultural businesses across all the states and territories exceeded 96 per cent. For agricultural land, just under 90 per cent of Australia’s farmland is fully Australian owned. Chart 4: Ownership of Australian agribusinesses in 2013 Chart 5: Ownership of Australian agricultural land in 2013 Source: ABS. The Government has also established the Foreign Ownership Land Register to further improve our understanding of foreign ownership of Australian land. From 1 July 2015, the Australian Taxation Office (ATO) began collecting information such as the location and size of property and size of interest acquired on new foreign investment in agricultural land. This data will be made available on an aggregated basis to the public from 2016. From 1 July 2016, the register will be expanded to include residential real estate. Lower screening thresholds for agricultural land and agribusiness will also mean that more of agricultural investment is seen by the FIRB. 2010 2014 5 In contrast to the level of foreign ownership in agriculture, the overall foreign ownership of Australian companies is significantly higher (Chart 6). Foreign ownership of financial corporations in Australia is more than 50 per cent. Chart 6: Foreign ownership of Australian companies Source: ABS. Note: Financial corporations do not include the central bank and central borrowing authorities. 3. SOURCES OF FOREIGN INVESTMENT ABS data by country indicates that the United States remains the largest source of FDI into Australia, followed by the United Kingdom and Japan. China remains a relatively minor source, at 4.4 per cent of the total, but is growing rapidly from a low base (Chart 7). Chart 7: Total stock of foreign direct investment by country Source: ABS. 12 REFERENCES Access Economics (2010) Foreign Investment in Australia, (Report prepared for the Business Council of Australia). Australian Bureau of Statistics (2011) Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods, ABS. Cat. No. 5331.0. Gali, J and Taplin, B, (2012) The macroeconomic effects of lower capital inflow, Economic Roundup Issue 3, 2012, Australian Treasury. 13 APPENDIX A: DATA SOURCES Australian Bureau of Statistics (2015) Australian System of National Accounts – 2014-15. ABS Cat. 5204.0. Australian Bureau of Statistics: Canberra. Australian Bureau of Statistics (2015) Australian National Accounts: Finance and Wealth - September Quarter 2015. ABS Cat. No. 5232.0. Australian Bureau of Statistics: Canberra. Australian Bureau of Statistics (2014) International Investment Position, Australia: Supplementary Statistics. ABS Cat. No. 5352.0. Australian Bureau of Statistics: Canberra. Australian Bureau of Statistics (2013) Agricultural Land and Water Ownership Survey – June 2013. ABS Cat. No. 7127.0. Australian Bureau of Statistics: Canberra. International Monetary Fund (2015) Coordinated Direct Investment Survey. International Monetary Fund: Washington, D.C. International Monetary Fund (2015) World Economic Outlook Database – October 2015. International Monetary Fund: Washington, D.C. The Foreign Investment Review Board statistics (2015). The Foreign Investment Review Board: Canberra. The Australian Treasury statistics (2015). The Australian Treasury: Canberra. Australian Bureau of Statistics (2015) Balance of Payments and International Investment Position – September Quarter 2015. ABS Cat. No. 5302.0. Australian Bureau of Statistics: Canberra’.