The new government has come into office with a strong message and mandate that Australia is open for business. This is the right approach and the words need to be followed up with actions.
Decisions we make on foreign investment over the next 12 months will demonstrate that we’re serious. Make no mistake, the rest of the world will be watching.
As Australia takes over the chair of the G20 on December 1, we have an opportunity to both influence the global economic agenda, and demonstrate through action our commitment to the G20’s focus on promoting open trade and investment.
It is equally important that Australia set a domestic example for the open investment regime we would like to see our own firms encounter when they look to invest offshore.
Australia can and should remain open in its dealings with the region and the rest of the world. It is in Australia’s interests to do so.
Throughout our history, Australia has benefited from international engagement – across trade in goods and services; the movement of people and workers; and of course investment, both inwards and outwards.
Our relatively high rates of economic growth have depended on significant inflows of foreign capital.
A consistent story for Australia has been to utilise overseas capital to supplement domestic levels of saving. This has allowed a greater number of productive investment opportunities to be financed than otherwise would have been the case.
The more open our economy is, the more successful we will be.
Recently in Australia there has been a growing awareness of the potential residing in Australia’s agricultural sector.
Estimates from the ANZ Bank’s Greener Pastures report last year suggest that harnessing the full extent of agricultural opportunities in Australia could result in higher export incomes of $700 billion to $1.7 trillion over the next four decades.
But this report found our agricultural sector is not as well capitalised as it could be, with an estimated $600 billion in additional capital needed to generate growth and profitability. It is not clear that domestic sources of capital for farmers will be sufficient. Capital from foreigners is a logical contributor to meeting any shortfall.
While there is a strong economic case for foreign investment, the community’s questions about it must be heard and answered respectfully. This requires an honest discussion of real, rather than perceived, concerns.
From a pragmatic perspective, it’s important to understand that investment screening by our Foreign Investment Review Board provides the Australian people with confidence that foreign investments are in the national interest.
Australia is not alone in reviewing foreign investment proposals, on a case-by-case basis, to ensure they are not contrary to the national interest. Canada, China and other countries also exercise an approval system for foreign investment.
But as with most regulatory systems the approach to reviewing foreign investment policy needs to be balanced and proportionate. The approach should also recognise that Australia has rules and regulations in place for businesses that prevail regardless of business ownership arrangements or ownership origins.
All companies operating in Australia – whether they are domestically owned, foreign owned or with mixed ownership – need to comply with our laws, including our competition laws and our tax laws.
Most of the time it should not be necessary to impose additional conditions on foreign investors.
In fact, markets tend to work well in Australia and around the world because of the discipline imposed on businesses through the formal device of the law and the informal device of reputation. Businesses and business people with a poor reputation do not have much success.
The same applies to investors with operations in Australia. Preserving a good reputation by being a good corporate citizen will invariably feature highly in the motivation of foreign investors with interests here.
One way of maintaining community support for foreign investment is for investors, no matter what their ownership, to work closely with communities in Australia. This can help overcome any sensitivities and also build sustainable investments in the future.
This has been the experience following the foreign acquisition of Cubbie Station. Although foreign-owned, Australia’s largest cotton farm is operated and managed by an Australian family-owned wool processor and trader, and its on-site management team has remained in place. And injections of capital by the new owners into local infrastructure, such as a new cotton gin, provide flow-on benefits for other growers in the region.
In the coming weeks and months the Treasurer will be required to make judgements on the national interest in relation to a number of important foreign investment proposals, including in the agriculture sector.
Australian policymakers have made sensible and well-thought through decisions over the past 30 years, to improve our competitiveness by removing the vast majority of protectionism in agriculture.
As a result the sector has attracted a huge amount of investment from global leaders like Cargill, Glencore and others. Likewise, our farmers are now world leaders in innovation and market responsiveness and far better placed to play their role in meeting growing global demand for food.
The sectors of our economy that will compete successfully in a globalised world will be those that have the capital to embrace change and innovation on an ongoing basis. Foreign investment is the key to realising our potential and being truly open for business.