Date: 19 Aug 2020
Australia was one of the top 10 global destinations for foreign direct investment (FDI) from 2017–2019, according to the UN Conference on Trade and Development’s (UNCTAD) World Investment Report 2020.
Over the three-year period to 2019, Australia attracted an average value of US$50 billion per year in FDI inflows. This was an increase of 9.6 per cent from the US$45 billion of FDI that flowed into Australia over the prior three-year period.
The impressive growth of FDI into Australia has raised Australia’s share of global FDI flows to 3.2 per cent in 2017–19 from 2.5 per cent in 2014–16.
FDI an indicator of global competitiveness
Australia’s strong performance reflects a competitive position in the global economy. Multiple factors position Australia as an attractive investment destination: the country’s economic resilience; strategic location; increased global trade and investment ties in the Asian region; the ease of doing business here; and a proven record of innovation.
In global terms, the average value of inflows of FDI fell by 13 per cent to US$1.6 trillion per annum in 2017–19, from US$1.8 trillion per annum in 2014–16. Australia was the tenth largest recipient of FDI inflows in the world in 2017–19.
In terms of total stock value, FDI in Australia was estimated at US$714 billion (around A$1 trillion) in 2019. The sum represents a 9 per cent compound annual compound growth (CAGR) rate since 1999, which exceeds the CAGR for FDI among developed economies (7.7 per cent) and approaches the CAGR achieved by developing economies (10.5 per cent).
Australia’s share of global FDI keeps rising
As noted above, the average value of Australia’s inflow of FDI stood at US$50 billion during the period 2017–2019. This is significantly larger than the pre-global financial crisis annual average (2005–07) of US$13 billion. At 3.2 per cent of global inflows, this means Australia now attracts a greater share of FDI than many major developed and developing economies, including Canada, France, Spain, Italy, India and Indonesia.
The US, with US$259 billion of FDI inflows per year, remained the most popular destination for FDI in the three-year period. Neverthless, its average value fell over 30 per cent from the previous three-year average (US$380 billion).
With reported inflows reaching an all-time high, China was the second largest investment recipient, with an annual average of US$139 billion per year in the period of 2017–19. This was a rise of 4.5 per cent from US$133 billion per year in 2014–16. Hong Kong (US$94 billion) came third, while the Netherlands (US$86 billion) and Singapore (US$85 billion) were the fourth and fifth largest FDI recipients in the world respectively.
FDI inflows to the ASEAN-10 group of countries rose to a record level of US$152 billion (a 29 per cent or US$34 billion increase) on the back of high investment flows into Singapore (US$18 billion), Indonesia (US$7 billion) and Vietnam (US$4 billion), in that order. This was the first time FDI inflows in Southeast Asia have exceeded FDI inflows into China since 1990–92 (the earliest UNCTAD data available).
COVID-19 to take its toll on FDI in 2020
Looking forward, UNCTAD warned that the COVID-19 crisis would cause a dramatic fall in FDI in 2020.
The organisation predicts that global FDI inflows will fall by up to 40 per cent in 2020 from their 2019 value of US$1.5 trillion. This would bring global inflows below US$1 trillion for the first time since 2005. Global FDI inflows are forecast to decline by a further 5 to 10 per cent in 2021.
The United Nations report does predict a gradual, ‘U-shaped’ recovery in the longer term, however, as a global value chains become more resilient and capital stock increases. It anticipates a rebound in 2022, with the possibility of FDI reverting to the pre-pandemic trend. The report concludes:
‘The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical and financial risks, and continuing trade tensions add to the uncertainty.’
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