Australia's foreign investment relationship with partner countries


17 November 2009

Kali Sanyal
Economics Section


Introduction

This note explores the trend of Australia s share of the global foreign direct investment inflows (FDI) and its investment relationship with partner countries since 2001. The note also attempts to explain the dynamic of investments in Australia.

Global FDI Inflows Australian Share

The 2009 World Investment Report (WIR2009) published by the United Nations Conference on Trade and Development (UNCTAD) on 19 September 2009 indicates that the share of Australia s global FDI inflows has increased to 2.76 per cent in 2008 (up from 2.24 per cent in 2007 and from 1.91 per cent in 2006) despite overall downward trend of FDI inflows across the globe in 2008 due mainly to the global financial crisis (Figure 1 and Figure 2). Foreign companies undertook US$34 billion worth of cross border mergers and acquisitions (M&As) in Australia in 2008 (down from US$44 billion in 2007) while Australian companies spent US$17 billion in overseas M&As in 2008 (down from US$43 billion in 2007).[1]

Figure 1: Australia s share of Global FDI Inflows (%)

Figure 2: Global FDI Inflows

Figure 1: Australia’s share of Global FDI Inflows (%)

Figure 2: Global FDI Inflows

Source: UNCTAD, World Investment Report, various years, Annex B Tables

Australia has received on average US$26 billion of FDI inflows each year since 2001 (except in 2005 due to the News Corp HQ relocation to the United States). While the share of global FDI inflows show mixed signs, it has started to rise again since the 2005 aberration.

Unlike previous years, in 2008 the United Kingdom dominated the stock of total investment in Australia and accounted for 25 per cent (A$427 billion), followed by the USA with 24 per cent (A$418 billion), Japan with 5.2 per cent (A$89 billion), Hong Kong with 3.3 per cent (A$56 billion), Singapore with 2.5 per cent (A$43 billion), and Switzerland with 2.2 per cent (A$38 billion) (Figure 3, Table 2). Since 2003, the USA has dominated Australia s inward stock of total investment with a share of more than 25 per cent until 2007. However, for the long term investment market, the US still dominates the stock of FDI in Australia accounting for 24 per cent (A$95 billion) in 2008, followed by the UK with 15 per cent (A$60 billion), Japan with 9 per cent (A$36 billion), Netherlands with 6.4 per cent (A$25 billion), and Switzerland with 5 per cent (A$20 billion) (Figure 4, Table 3).

It is worth noting that in 2008, the level of both total and direct investment increased, albeit modestly. While US companies withdrew about $12 billion from the stock of total investment from Australia (a fall of 3 per cent), they increased the long term FDI stock by $2.4 billion (an increase of 3 per cent) in 2008. Most significant was the increase from Japanese companies in both total investment (up 40 per cent) and FDI stock (up 16 per cent). The ABS withholds data on investment from Chinese and Indian companies for some years due to confidentiality reasons, and hence the trend from these emerging markets cannot be compared over the years. The momentum from these two markets however appears to be growing in recent years.

Figure 3: Stock of Total Investment from Major Partners in Australia, A$ billion

Figure 4: Stock of FDI from Major Partners in Australia, A$ billion

Figure 3: Stock of Total Investment from Major Partners in Australia, A$ billion

Figure 4: Stock of FDI from Major Partners in Australia, A$ billion

Data source: Australian Bureau of Statistics, Balance of Payments, Supplementary Statistics, Cat. No. 5352.0, Time series spreadsheet, 15 May 2009

In 2008, Australia received A$150 billion total inflows from partner countries, down by 7 per cent from the previous year (in A$ terms). The United States accounted for about 18 per cent (A$27 billion) of total investment inflows followed by the UK with 17 per cent (A$26 billion), Japan with 14 per cent (A$20 billion), Germany with 10 per cent (A$15 billion), and Hong Kong with 8 per cent (A$12 billion) (Figure 5, Table 4).

Figure 5: Inflows of Total Investment by Major Partners in Australia, A$ billion

Figure 6: FDI Inflows from Major Partners in Australia, A$ billion

Figure 5: Inflows of Total Investment by Major Partners in Australia, A$ billion

Figure 6: FDI Inflows from Major Partners in Australia, A$ billion

Data source: Australian Bureau of Statistics, Balance of Payments, Supplementary Statistics, Cat. No. 5352.0, Time series spreadsheet, 15 May 2009

In the same year, Australia received A$56 billion FDI inflows from partner countries, up by 5 per cent from the previous year (in A$ terms). The United Kingdom accounted for about 31 per cent (A$18 billion, up from A$2 billion in 2007) followed by the US with 20 per cent (A$11 billion), Switzerland with 14 per cent (A$8 billion), Japan with 11 per cent (A$6 billion), Belgium with 5 per cent (A$3 billion), and China with 5 per cent (A$3 billion) (Figure 6, Table 5). It is worth mentioning that caution is needed when reading from the ABS data on Chinese investment in Australia, as it tends to border on conservative estimates of real world events.

Table 1: Foreign Investment Overview (Value in A$ Million)*

Category

2002

2003

2004

2005

2006

2007

2008

Total Investment Stock in Australia (Inward Tot Inv Stock)

906,424

988,331

1,144,487

1,224,696

1,459,542

1,657,509

1,724,444

Change %

6.7

9

15.8

7

19.2

13.6

4

Total Investment Flow in Australia (Inward Tot Inv Flow)

78,264

84,469

84,700

37,236

172,901

160,044

148,998

Change %

50

7.9

0.3

-56

364.3

-7.4

-6.9

FDI Stock in Australia
(Inward FDI Stock)

249,269

265,787

338,113

291,031

329,713

387,541

392,862

Change %

13.9

6.6

27.2

-13.9

13.3

17.5

1.4

FDI Flow in Australia
(Inward FDI Flow)

31,295

12,293

50,748

-42,008

37,003

52,978

55,763

Change %

94.9

-60.7

312.8

-182.8

-188.1

43.2

5.3

Total Investment Stock Abroad (Outward Tot Inv Stock)

513,869

553,913

657,796

691,715

863,358

1,002,422

1,010,642

Change %

1.5

7.8

18.8

5.2

24.8

16.1

0.8

Total Investment Flow Abroad (Outward Tot Inv Flow)

48,798

42,015

32,414

-16,286

121,310

94,142

100,785

Change %

26.8

-13.9

-22.9

-150.2

-844.9

-22.4

7.1

FDI Stock Abroad
(Outward FDI Stock)

202,911

215,932

261,587

239,253

284,947

328,398

281,064

Change %

-5.5

6.4

21.1

-8.5

19.1

15.2

-14.4

FDI Flow Abroad
(Outward FDI Flow)

14,458

24,980

13,943

-49,864

31,098

20,084

42,845

Change %

-37.5

72.8

-44.2

-457.6

-162.4

-35.4

113.3

*Total investment includes portfolio, direct (FDI) investment, financial derivatives and other investments

Source: ABS, International Investment Position, Supplementary Statistics 2008, Cat. No. 5352.0, 15 May 2009

Commonwealth of Australia 2009

Table 2: Inward Total Investment Stock by Source Countries (A$ million)

Table 2: Inward Total Investment Stock by Source Countries (A$ million)

Table 3: Inward FDI Stock in Australia by Source Countries (A$ million)

Table 3: Inward FDI Stock in Australia by Source Countries (A$ million)

Table 4: Inward Total Investment Flows by Source Countries (A$ million)

Table 4: Inward Total Investment Flows by Source Countries (A$ million)

Table 5: Inward FDI Flows by Source Countries (A$ million)




[1]. UNCTAD, World Investment Report 2009, Country Fact Sheet Australia.

 

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