Foreign Direct Investment In Australia

Australia is a first world nation that has a crucial global presence in terms of trade and coexistence. Australia benefits from foreign direct investments, FDI, that emanate from the foreign nations. It has opportunities that align with the economy, the strategic location, the ties, and the level of innovation. The nation sources most of its FDI from the developed countries and makes its investments abroad in the same state. The industries in Australia that benefit from the FDI include the communication, software, and IT services. On the contrary, the nation’s outward investment focuses on insurance, mining, and the manufacture industry. Since Australia is a first world country that may encounter a decline in the returns from investment as it reaches the saturation stage, it should shift the outward FDI to the virtual world to maintain a balance of payment.

Opportunities in Australia

World Bank rates Australia as a land of opportunity for investors, due to the economy, location, and the international trade ties. Furthermore, investors are interested in Australia, because of the level of innovation that has been outstanding in the past decade. The Australian nation is a first world nation, which implies that the economy is stable and a leader in the world. World Bank predicts that Australia will overtake world leaders in the next decade, which will align with the transition of westernization to the dominance of the East, for instance, the Chinese nation will be crucial for the development of the new order in the world. The World Economic League anticipates Australia to shift from the 13th position in 2018 to 11th position in the world by 2025. The Centre for Economics and Business Research associates, CEBR, connects the growth of the Australian economy to the immigration of persons and entities. The Australian kingdom is a strategic location for business, since it has an open economy system. In addition, it lies in the Asia pacific region that promises growth in the future (Ishikawa and Horiuchi). The Asia-Pacific region hosts 10 of the export markets for Australia out of the 12. The nation participates in a regional trade of over AUD 600 million by the fiscal year 2015 to 2016. The Australian nation reported growth in the foreign investment with relation to stock to about AUD 3 trillion by the start of the 2017 business year.

It has recorded over AUD 700 billion in FDI from the year 2015 to present (Department of Foreign Affairs and Trade, 2018). Australia has a peaceful political environment that benefits the economy and the ease of business within the borders. It has a peaceful tie with other countries. For example, Australia is a player in the business with China, Japan, South Korea, and New Zealand. Moreover, it has truces with nations in the diaspora such as European nations. Also, has an investment in the United Kingdom and Spain. Australia trades with North America, which is the lead destination for investments. The African continent has relations with Australia, which completes the global connection. As a result, the nation has a global flow of services and goods critical for the excellence of business.

Australia is a leader in the global innovation, which is an incentive for business. The Australian service sector employs about 80% of the human resource and leads in the creation of jobs. Furthermore, Australia has diversity in the innovation activities. For example, it has made advancement of the first ever immunization for cancer under the name of Gardasil.

Issues Faced by FDI in Australia

The Australian government does not hold regulations that limit the companies that enter the market on the nature of business to invest in. As a result, Australia experiences the impact of FDI across multiple industries that reach out to elastic and inelastic products. However, the nation should create sanctions on the investments made to the mining industry as they lead to the degradation of the land. More so, the World nations wish to shift from the natural resources to the digital world that may create value to the dealers and the customers.

Impact of Globalization on FDI

Additionally, the nation supports global technology such as the information and communication tech. The company invites the mobile technology and internet, which allows the population to connect to the world. For instance, the IPhone is a population commodity in Australia as people wish to transform their office to the mobile technology and network. Australia accepts technology and the population can afford the yearly changes in the commodities, which makes it an important location for business.

Effect of Tariffs on FDI

The nation has a plan to eliminate the protectionism Act to align with the global changes in business. It wishes to support the companies to invest in the distant nations, which requires the hospitable invitation to foreign companies to enter. While the local small-scale entrepreneurs may suffer from the change in the protectionism Act, they may benefit from the influx of technology, information, and funds from the FDI programs.

Nature of the Environment that affects FDI in Australia

The Australian government made changes in the construct of the FDI in 2018, which was to reduce the regulations and allow investors to understand the shifts. The government put forward that it had to operate on the world level, which would have a positive impact on the FDI. The nation attained the 14th position in the World Bank list of 190 countries with relation to the possibility of success in business. It allowed the companies from foreign states to abide with laws that are similar to the companies within the country. Consequently, Australia is a global center for business.

Level of Foreign Direct Investment

Australia is a world destination in the FDI, especially from the super power nation such as the United States. It showed a value upsurge of over AUD 100 billion in FDI by the end of 2013. The investment covers the 10% power control of companies by external corporations in the nation. The multinational companies that invest in Australia purchase about 10% of the shares in a company listed in the stocks exchange, which coincides with the level of power. Australia has United States and United Kingdom as the biggest origin of direct investments, whereby they had investments of over $30 billion and $10 billion respectively. Australia receives investments from the emerging economy of Singapore that surpasses the investment by United Kingdom. Japan invests about $10 billion in Australia. Australia sources from nations such as Switzerland, Hong Kong, China, and Canada (Department of Foreign Affairs and Trade, 2018). The Australian nation has recorded growth in the FDI stock from 2015 to 2017 with about $100 million. Similarly, it has improved the inward flow of the FDI into the borders from 2015 to 2016, although the value reduced in the year 2017. Also, it has developments in the Greenfield Investments that have increased to over $400 million by 2017.

FDI Stock in Australia FDI by Partner

The Australian government benefits from the partnership of developed nations that are the sources of the FDI. The government reports that about 50% of the FDI in the nation belongs to the developed countries that include USA and UK. Moreover, the investors in Australia are the top destinations of the outward investment by Australia. In fact, the department of foreign affairs maintains that almost 50% of the Australian invests in the diaspora is in the developed nations. Most of the companies in Australia prefer to enter the first world nations, since they have a high probability to succeed in business. The department of foreign affairs in Australia put forward a growth in the FDI from the Chinese nation. China made about $5 billion investments in 2013, which grew annually to over $10 billion by the end of 2017.The department ranks US and UK as the leaders and places Japan, Belgium, and Hong Kong as the runners up. However, the officials place china at the 9th position in the FDI, since the country holds about 2% of the aggregate FDI. The department forecasts the leadership of Chinese and Hong Kong investments in the future that will surpass the value of the other nations prevalent in the market.

FDI by Industry

The Australian economy benefits from the FDI, which affects various industries. The department of Trade mentions five industries that are the lead benefactors of the FDI in Australia. IT services and Software sector is amongst the top industries that have a share in the FDI in the past decade. The business services industry benefits from the FDI, which has a connection with the IT sector. Moreover, the nation’s communications, financial services, and mining industries benefit from the FDI. The industries maintain an annual growth in the amount of funds injected by foreigners.

Australia’s Investment Abroad

The Australian government makes FDI in the diaspora, which is an opportunity to increase the revenue over time. Furthermore, the nation aims to maintain the balance of payment to allow for a sustainable trade relation with the globe. Australia has the largest FDI in USA that amounts to stock worth over $450 billion by the start of 2014. Secondly, UK is the recipient of over $250 billion. Australia diversifies the investments to nations such as New Zealand, Japan, Germany, and Canada. The Australian government favors the insurance and finance industry in the investments abroad. It made about 60% of the total FDI to the finance and insurance industry overseas. The Australian nation second investment is the mining industry that holds about 10% of the FDI. Thirdly, the country invests in the manufacturing industry that is worth approximately 5% of the total FDI. Therefore, it has the largest share of the FDI in the service sector, which is good for the growth of the share and the type of skills available from home. The Australian government presented the exchange of investment by the end of 2018. The state had increased the investments to the US to more than $660 billion and $330 billion in UK. Furthermore, the nation increased the investments in the Asian nations of China and Hong Kong. Australia increased the investments from $100 billion in 2007 to over $350 billion, although the investment consists of multiple nations in Asia-Pacific region.

Recommendations

The nation should reinstate the Protectionism Act, since the small-scale holders may create jobs for the population. However, the nation should factor in exemptions for players that enter the nation. For instance, Australia could impact levies for goods that exceed a particular amount within a period. The officials should consult with the foreigners and the locals to come up with a limit that is fair and allows growth not only for the immigrants, but also for the indigenous businesses. The Australian nation should reduce the investment in the natural resources, particularly the mining industry in the foreign countries. Whilst the state benefits from the coal and minerals industry, the globe has a different perspective of renewable energy by 2030. Subsequently, Australia stands to be amongst the greatest looser, if the world transforms to renewable sources only.

It should focus on industries such as information and communication that present vast opportunity to the investor and value to the consumer and should move from the physical investments to the virtual world that interconnects the world. Australia could enable the local businesses to log into the world platform at an affordable rate and reach to the world.

The country should shift its investments in the first world countries and venture in the developing nations. The World Bank shows the development of emerging economies in Africa, such as Kenya in East Africa, Singapore, and China. On the other hand, the World Bank warns of economic stagnation in the developed nation as they reach as a state of saturation that follows the maturity of the economy. Australia could tap to the population in India and China that hosts billions of potential consumers that value foreign goods with comparison to citizens in developed nations that prefer local items.

Australia should fund the local companies that may have difficulties in the global platform. For instance, Australia may have to fund the Myers Retail company that has declined in sales, which may relate to the inability to venture into the world market. Subsequently, the government can strike equilibrium when it funds Myers, since the firm would be able to compete with immigrant firms such as Wal-Mart in Australia and America. In conclusion, Australia is a destination FDI from leaders in the world Economy. The nation has reduced the laws that bar the entry of firms into the country, which has led to the influx of immigrant plants. The nation records a large amount of the FDI from USA and UK. In return, Australia holds over 60% of the outward FDI in USA and UK. However, World Bank predicts a shift in the world economic order as the East grows its economic. Australia has shifted over 200 billion worth of FDI from the west to the Asia- Pacific region. The nation receives investment from Asia that may surpass the western states in the next decade. Nonetheless, Australia may have to make shifts in the nature of the industry that it makes it FDI. It should reduce its dependence on the mining and manufacturing industries that may not be as rewarding in the current era as in previous periods and should invest in digital technology rather than on the natural resources. It should empower the local companies to compete with the multinational companies on the global platform.