A research report from Australia’s Productivity Commission has found the country’s system for regulating foreign direct investment largely “works well” – but there is room for improvement.
The report describes Australia’s foreign investment policy as “broadly open” while acknowledging it is more restrictive than many other advanced economies in some areas.
Foreign investment policy has grown in prominence Down Under in recent years, particularly as concerns over national security have heightened and Australia’s main trading partner has become China – a country described by the PC as “not a democracy or a military ally.”
Agriculture is singled out in the report for analysis, which highlights four main public perceptions of overseas investment in ag and argues that “none are well-supported by evidence.”
- foreign ownership of assets reduces Australia’s food security (Australia produces twice as much food as it consumes, reports the PC);
- foreign investment creates a ‘land grab’ and loss of control over prime agricultural land (land use is regulated and the Australian government retains sovereign control over all land use);
- foreign labor may displace Australian jobs and reduce employment in rural areas (locals have a competitive edge over foreign labor due to the skills and experience they possess, plus many agribusinesses are already reliant on temporary migrants anyway);
- and it is generally a bad thing for agribusinesses, particularly iconic companies, not to be in Australian hands (many ‘icons’ are already foreign-owned, while foreign investment is sometimes the only thing that stops these companies from collapsing, the PC notes).
Despite limited evidence to support these perceptions, the belief in them among many is real and, the PC argues, has been reflected in tightening foreign investment policies as they specifically apply to agriculture.
In 2015, for example, the government lowered screening thresholds for agricultural land from A$252 million ($174 million; €155 million) to A$15 million and created a register of foreign-owned agricultural land, the latest update to which was published this week.
Market sources have reported not being too concerned by recent further tightening of FIRB restrictions to cover all transactions regardless of value, as Agri Investor has reported, because most foreign direct investment into land was already subject to FIRB review.
What was of more concern, though, was that the tightened rules would lead to a greater burden on FIRB, and thus longer processing times for applications.
The PC found that these concerns are not unfounded, even before the impact of the covid-19 restrictions are considered.
FIRB has a statutory time frame of 30 days to process applications. In practice, the PC found the median processing time for FIRB in 2018-19 was 45 days, which is surely set to increase this year given the statutory time frame has been temporarily lengthened.
“Long time frames, particularly where they are uncertain, can act to discourage foreign investment. They add to legal costs and disrupt business preparations for a merger or investment,” the report says.
The PC also recommends greater transparency in decision-making to provide more certainty.
The latest figures in the Register of Foreign Ownership of Agricultural Land showed the amount of land held by foreign investors fell from 2018 to 2019, by just 0.9 percent, with a decrease in overall agricultural land helping to ensure the percentage in foreign hands remained almost flat. Appetite from overseas institutions for prime Australian land does not appear to be diminishing.
As Commissioner John Coppel says in the foreword to the report, foreign investment into Australia “will be more crucial than ever” as the country charts its recovery out of the pandemic.
“Many struggling Australian brands will be shielded from damage by foreign investment, while other businesses and employers will be able to recover faster if they have access to foreign funding and expertise,” Coppel said.
He added that while government policy has a duty to manage the risks associated with some investments, it must “continue to recognize and facilitate” the benefits of FDI.
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