Australia—Investment abroad remains concentrated in developed economies

Australia’s total offshore direct investment, which does not include shorter-term portfolio investments, rose 9.4% to A$695 billion in 2018. The EU, the US, New Zealand, Canada and Singapore account for 57% of the total, down from 68% in 2008. Interestingly, Australian trade with these economies only accounts for 30% of total goods and services trade.

Australia’s major trading partners China, Korea, Japan, India and ASEAN (ex-Singapore) were responsible for 62% of total trade in 2017-18. But this group accounts for a mere 5% of Australian offshore investment, little changed from the 2% registered a decade ago. A report from CEDA suggests that Australian firms need to increase their engagement with fast-growing Asian countries. This includes more outbound investment in China, India and ASEAN to better deliver their higher quality goods and services to these growth markets.

Free trade agreements with ASEAN, China, Japan and Korea are allowing for greater investment. The data does suggest that investment in Korea, up 35% between 2017 and 2018, and Japan, up 48%, are on the rise. But Australian investment into its major regional trading partners will need to grow at 30% per annum over the next 10 years to challenge the established investment destinations.

Fig 5 Australian Offshore Investment