Foreign Direct Investment Fact Sheet 

Key Points

• As at December quarter 2009, Australia's foreign direct liabilities exceeded its foreign direct assets by about $86.1 billion.¹ This means that the value of Australian assets directly owned by foreign residents was greater than the value of offshore assets directly owned by Australian residents. The value of Australia's foreign direct assets was $414.6 billion and the value of its foreign direct liabilities was $500.6 billion (See Table 1).
• Net changes in the values of offshore assets directly owned by Australian residents and Australian assets directly owned by foreign residents indicate whether more direct capital was invested in Australia or abroad, over a period. During 2008–09, Australia's net foreign direct liabilities fell from $94.7 billion as at December quarter 2008 to $86.1 billion in the December quarter 2009.² This represents a net reduction of about $8.6 billion in the direct foreign ownership of Australian assets over the year.
• The value of offshore assets directly owned by Australian residents increased by $23.3 billion, while the value of Australian assets directly owned by foreign residents increased by $14.7 billion over the year.
• Net changes in the values of assets and liabilities reflect not only on transactions but also changes in market values, changes in exchange rates, and other adjustments. In terms of actual transactions, Australia’s net foreign direct liabilities actually increased, by $5.3 billion. Exchange rates also increased net foreign direct liabilities, by $34.3 billion. Changes in prices were the primary factor driving the fall in Australia net foreign direct liabilities, decreasing them by $44.7 billion, while other adjustments reduced net foreign direct liabilities by $3.5 billion.³ See Attachment A for more detail.

Facts and Figures

Regarding foreign direct transactions alone, foreign residents invested about $5.3 billion more into Australian assets than what Australian residents invested offshore during 2009. Foreign direct investment outflows from Australia totalled $28.9 billion in 2009, down from $55.7 billion in 2008, while foreign investment inflows to Australia totalled $23.6 billion, down from $39.1 billion in 2008. Direct investment transactions can be disaggregated into equity capital, reinvested earnings and investment in debt instruments.

Net equity capital transactions increased sharply from a net inflow of $6.0 billion in 2008 to a net outflow of $16.2 billion in 2009.Transactions relating to net reinvested earnings represented a net outflow of $7.6billion in 2009, up by $2.5 billion on the previous year. Transactions relating to debt instruments increased sharply from a net inflow of $18.6 billion in 2008 to a net outflow of $17.4 billion in 2009, due to a significant fall in foreign investment in Australian debt instruments and an increase in Australian investment in foreign debt instruments.⁴

During 2009, Australia’s major sources of FDI capital were the European Union (40.9 per cent of total), Japan (26.6 per cent of total), China (13.6 per cent of total), Singapore (13.2 per cent of total), and Canada (8.7 per cent of total).  The top destinations for Australian FDI in 2009 were the United Kingdom (65.0 per cent of total), United States (17.4 per cent of total), Canada (7.1 per cent of total), Papua New Guinea (4.9 per cent of total), and Hong Kong (3.7 per cent of total).⁷

As at the end of 2009, most of Australia's FDI assets were located in the United States of America (28.9 per cent of total), the United Kingdom (18.7 per cent of total), New Zealand (12.2 per cent of total), the European Union (8.5 per cent of total) and Hong Kong (3.3 per cent of total).⁸ Australia's FDI liabilities were mostly held by the United States of America (22.7 per cent of total), the European Union (19.1 per cent of total), the United Kingdom (14.5 per cent of total), Japan (10.3 per cent of total), and Switzerland (4 per cent of total).⁹

Australia's most important FDI partners are the OECD. Table 2 summarises the details.

Table 1: Stock of Australia's FDI assets and liabilities, $ billion

Source: RBA Bulletin, Australia's Assets and Liabilities, Table H04

Table 2: Major contributors to Australia's FDI transactions, assets and liabilities, 2008 (latest available), $ billions and per cent share of total

* EU26, excl. United Kingdom Source: ABS Cat. No. 5352.0, Tables 1, 2, 4, 5

Attachment A

Definitions

The balance of payments measures the transactions between Australia's residents and the rest of the world, drawing a series of balances between inward and outward transactions between Australia's residents and the rest of the world, and how that flow is funded. These transactions are recorded in two groups of accounts: the current account and the capital and financial account.

The capital account includes capital transfers and net acquisition or disposal of non-produced, non-financial assets. The financial account of Australia's balance of payments covers all transactions associated with change of ownership in foreign financial assets and liabilities during a period —including the creation and liquidation of financial claims.

In contrast, the international investment position (IIP) is the balance sheet of the stock of foreign financial assets and liabilities at a point in time and could be seen as a reconciliation statement showing the levels of Australia's international assets and liabilities at two successive periods of time and the components of change, namely financial transactions (as recorded in the financial account) and non-transaction changes (price changes, exchange rate changes and other adjustments).

International investments can be inwards—made by foreigners investing in Australia, or outwards—made by Australians investing overseas. The analysis in this brief focuses on Australia’s net international investment flow, which is defined as the flow of foreign investments into Australia less the flow of Australian investments overseas. The former refers to the net impact of foreign acquisitions of Australian assets less foreign divestments of Australian assets, while the latter represents the net impact of Australian investments in foreign assets less Australian divestments in such assets.

International investment (inwards or outwards) can in turn be disaggregated into direct, portfolio and other forms of investment.

'Direct investment' broadly includes capital invested in an enterprise by an investor having a significant influence—either potentially or actually exercised—over the key policies of the enterprise. Since June 1986, this means ownership of 10 per cent or more of the ordinary shares or voting stock of that enterprise. Net foreign direct investment balances the stock of foreign assets directly owned by Australian residents with the stock of Australian assets directly owned by foreign residents.

'Portfolio investment' covers capital invested in an enterprise by an investor that is assumed to not significantly influence key policies of that enterprise. Since June 1986 this has signified ownership of less than 10 per cent of the ordinary shares or voting stock of that enterprise. Portfolio investment can take place through the purchase of equities on the share market, or of debt securities. The latter includes investment in bonds and notes (such as bank, government or company securities) and money market instruments (such as treasury bills, commercial paper and bankers' acceptance bills). Portfolio investment is often volatile and subject to market sentiment and the main drivers are typically:

• Interest yields
• Perceived opportunities for capital gains on bonds and other instruments and dividend yields
• Perceived opportunities for capital gains on shares.

'Other forms of investment' is the residual category covering finance not classified as either direct or portfolio investment. This includes investments in trade credits, currencies, loans, Reserve Bank transactions and financial derivatives.

Measurement issues

Transactions in the current account and capital account are generally shown on a gross basis (gross debits and credits separately), at market prices and are not seasonally adjusted.

These transactions reflect the market value (actual or imputed) of trade between Australian residents/entities and overseas residents/entities.

Price changes refer to the change in valuation of an already acquired asset (such as publicly traded shares or bonds).

Exchange rate changes reflect the impact of changes in the value of the Australian dollar relative to the currencies in which foreign assets and liabilities are denominated.

Other adjustments can reflect many other valuation changes such as the write-off of bad debts, changes to official gold stocks (as part of a Reserve asset) and changes to IMF Special Drawing Rights (SDRs).

Transactions in the financial account are mainly recorded on a net basis, are expressed in current prices and are also not seasonally adjusted.

The balancing item in the financial account comprises the capital account and net errors and omissions.

References:

1. RBA Bulletin, Australia's Assets and Liabilities, Table H04
2. RBA Bulletin, Australia's Assets and Liabilities, Table H04
3. ABS Cat. No 5302.0, Tables 117 and 118
4. ABS Cat. No. 5302.0, Table 25
5. EU26, excl. United Kingdom
6. ABS Cat. No. 5352.0, Table 1
7. ABS Cat. No. 5352.0, Table 4
8. ABS Cat. No. 5352.0, Table 5
9. ABS Cat. No. 5352.0, Table 2