Three reasons why Australia is a magnet for investors

Date: 19 Feb 2021

Edmund Tang : International Investment

I recently reported on Australia’s excellent record for attracting investment from overseas.

To re-cap: Australia’s share of total global investment keeps rising – and has just hit 3.2 per cent according to UN data. Australia now attracts roughly A$50 billion per year of global, investment-hungry cash.

This investment helps power our economy. But what keeps that foreign cash coming?

Reason 1. Australia’s pro-business policies

Each year, the World Bank publishes a comparative index on the ease of doing business in countries around the world. The index shows that Australia’s performance is steadily improving.

This year, Australia’s global ranking has improved four places to 14th position. When comparing economies with a population of more than 20 million, Australia now ranks an astonishing fifth, behind Korea (1st), the US (2nd), the UK (3rd) and Malaysia (4th).

But what precisely makes Australia a good place to do business?

Legal, financial and regulatory factors predominate. Currently, Australia ranks fourth out of 190 economies in terms of gaining credit. It also ranks sixth for the ability of businesses to enforce contracts, and seventh for ease of starting a business (see chart below).

Again, note Australia’s position within the Asia-Pacific region. Among all the metrics for ease of doing business, only Hong Kong, Malaysia, South Korea and Singapore perform better in the Asia region. Currently, Australia out-performs Taiwan, Thailand, Japan, China, India, Vietnam, Indonesia and the Philippines.

So, one reason why global investors decide to commit money to Australia is simply because we have created an enterprising commercial environment.

Reason 2: A sound legal and regulatory environment

Another way to attract global investment is to lower business risk.

According to World Economic Forum data (see below), Australia has one of the world’s most independent judicial systems (10th). And perceptions of judicial independence are vitally important. Overseas companies need confidence that competition is fair or they will expand elsewhere.

Australia also ranks highly in terms of trade openness and the soundness of our banks. In 2019, Australia topped the US, the UK, Japan and Korea in these two measures. Across the Asia-Pacific, only two economies match Australia’s performance in terms of trade openness and sound banking – Hong Kong SAR and Singapore.

The IMD World Competitiveness Center also has some interesting metrics. Specifically, Australia is highly rated in terms of the probity of public sector contracts (5th globally), justice (7th), government protectionism (8th), competition legislation (8th) and central bank policy (9th).

These rankings demonstrate that Australia is a secure destination for foreign capital. They give investors confidence. It may sound old-fashioned, but good governance, strong institutions and the rule of law are vitally important in today’s globalised international economy.

Reason 3: High living standards & a low cost of living

The third reason we have so many global investors on our doorstep is that people like living in Australia.

Each year, hundreds of companies – from tech startups to multinationals – establish offices and regional headquarters in Australian cities. In global surveys, Australia’s lifestyle cities outshine Asia’s commercial hubs and that’s why Australia is often chosen as a commercial springboard into Asia.

But the win-win for Australia is that our cities are not too expensive to live in. According to Mercer’s 2020 Cost of Living Index, Australia’s lifestyle cities have recently become more internationally competitive, with a lower cost-of-living rating than most major cities in the Asia-Pacific region.

And then there’s the digital factor. At Austrade, we’ve analysed an index called the Surfshark 2019 Digital Quality of Life Rankings. It gives Australia first place out of 65 countries.

Again, it’s interesting to dive below the surface. In this case, Australia’s top ranking is due to technological, legal and regulatory factors: strong data protection laws; high content availability; an affordable mobile internet; fast mobile internet speeds; a well-developed e-government system; and a solid level of cyber security.

Keeping the money coming in

So, Australia’s ability to attract foreign investment rests of three foundations: an entrepreneurial economy; low business risk; and high liveability. Together, they keep investment capital flowing into Australia – helping us to stay competitive and resilient.

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