EXECUTIVE SUMMARY
Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis (BEA), the stock of U.S. FDI totaled USD 167 billion in 2021. The Australia-United States Free Trade Agreement (AUSFTA), which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment. While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process.
Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. The Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries now require screening, regardless of their value or national origin. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States being rejected in recent years, although some U.S. companies have reported greater scrutiny of their investments in Australia.
Australia has increased funding for clean technology projects and both local and international companies can apply for grants to implement emission-saving equipment to their operations. Australia legislated both a national net-zero emissions target and an interim 2030 target in June 2022. Australia’s eight states and territories have similarly adopted net-zero targets and a range of interim emission reduction targets, accompanied by various incentive schemes available to U.S. investors.
The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. The pandemic and the ongoing conflict in Ukraine have also seen the Australian government implement measures to secure critical supply chains. These have included grants and other funding support – such as the National Reconstruction Fund, passed into law in March 2023 – to new investments in these supply chains. U.S. involvement and investment in these fields is welcomed.
Although Australia has not experienced shortages of energy or other critical products, its inflation is at the highest level in 30 years, in part due to rising costs in international supply chains and logistics. Inflation sits at close to seven percent as of early 2023 and official forecasts show it returning only slowly to more normal levels. Australia’s labor market is also tight, with the unemployment rate at a record low 3.4 percent in early 2023. This has contributed to a skills shortage, with businesses across the economy complaining of a lack of access to suitable employees. Despite these challenges, Australia’s central bank forecasts the economy to grow by 1.5 percent in 2023.
Measure | Year | Index/Rank | Website Address |
---|---|---|---|
TI Corruption Perceptions Index | 2022 | 13 of 180 | http://www.transparency.org/research/cpi/overview |
Global Innovation Index | 2022 | 25 of 132 | https://www.globalinnovationindex.org/analysis-indicator |
U.S. FDI in partner country ($M USD, historical stock positions) | 2021 | USD 166 billion | https://www.bea.gov/data/intl-trade-investment/direct-investment-country-and-industry |
World Bank GNI per capita | 2021 | USD 57,170 | http://data.worldbank.org/indicator/NY.GNP.PCAP.CD |