The World Investment Report 2020 from the UN Conference on Trade and Development (UNCTAD) showed a slowing of foreign direct investment (FDI) inflows in 2019, which saw Australia drop five places in the global table, from seventh in 2018 to 12th for its inflows last year. In correlation with this, the value of cross-border mergers and acquisitions in Australia had significantly decreased. Their value dropped by approximately 47% in Australia, according to the report, from $68bn in 2018 to $36bn in 2019.
This slowdown came before the Covid-19 pandemic, and Australia has since put in place new screening regulations and investment restrictions. The country has also introduced stricter investment reviews to protect national interests and local assets from aggressive acquisitions.
With global FDI markets now under a cloud of uncertainty, Australia has already felt the repercussions. On 20 March 2020, Canadian retail giant Alimentation Couche-Tard withdrew plans worth an estimated $5.9bn to acquire the share capital of Caltex Australia, a petroleum refinery operation based in Sydney. Couche-Tard cited uncertainty over the global economic outlook as the reason for its withdrawal.
Another factor creating uncertainty for Australia’s FDI landscape is the UK’s exit from the EU. The UK is Australia’s second largest source market for foreign investment (after the US, which invested $205bn in FDI alone in 2019) with an overall investment attributed to FDI of $127bn. Australia has entered into negotiations with the UK over a free-trade agreement. AusTrade has reported that it hopes “this will build on existing strengths in two-way trade and investment, and will support the post-Covid economic recovery in both countries”.
Key sectors for FDI in Australia have come under pressure following the Covid-19 pandemic’s impact on supply chains. In 2019, mining and quarrying took the bulk of FDI in Australia with 35.3% of the total capital investment, coming to $360.1bn. Manufacturing was second with 12.9% and a value of $131.4bn. Both have faced supply chain, worker capacity and capital issues since the onset of Covid-19, and as a result inbound investment figures in these sectors are likely to drop in 2020.
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