Written by: Danny O. on 10 May 2021
Global foreign direct investment (FDI) took a nose dive in 2020 due to uncertainty in the global economy caused by the COVID-19 pandemic. According to preliminary estimates released by the United Nations Conference on Trade and Development (UNCTAD) in an Investment Trends Monitor report published in January 2021, global FDI flows plummeted by 42% in 2020, from $1.5 trillion in 2019 to $859 billion. The report estimated that to be the lowest yearly flows of FDI since the 1990s.
The advanced capitalist economies saw large decreases in FDI flowing to them with the UNCTAD suggesting a 69% drop on the previous year. On the other hand, it reported that the developing countries, which includes China by the UNCTAD definition, captured the largest share of global FDI flows on record at 72%. China surpassed the USA as the single largest recipient of FDI in 2020, recording a modest 4% increase while the USA saw a decline of 49%.
Foreign investment in Australia
While the UNCTAD report was based on preliminary estimates, figures released this week by the Australian Bureau of Statistics (ABS) give credence to the global trend locally.
Total foreign investment* stock in Australia’s economy reached a new high of $3,990.9 billion ($3.99 trillion) at the end of 2020 according to the ABS. This was an increase of $97.1 billion for the year. However, that figure was a significant decrease from the previous year’s increase of $316 billion before the pandemic.
Foreign direct investment** showed an even bigger hit. According to the ABS, at the end of 2020 total FDI stock in Australia was $1,026.5 billion ($1.03 trillion), a decrease of $17.1 billion on the total at the end of 2019 ($1,043.6 billion or $1.04 trillion). By comparison, 2019 had seen an increase of FDI worth $50 billion. In other words, according to the ABS there was actually slightly less FDI in Australia at the end of 2020 than there was in 2019 before the pandemic.
Who’s investing?
The list of foreign countries with the most capital in Australia remained largely the same at the end of 2020.
Countries by Total Foreign Investment stock in Australia:
1. USA (23.3%)
2a. *EU (19.5%)
2. UK (18.5%)
3. Belgium (10.2%)
4. Japan (6.6%)
5a. China + Hong Kong (5.5%)
5. Hong Kong (3.5%)
6. Singapore (2.9%)
7. Luxembourg (2.6%)
8. Netherlands (2.1%)
9. China (mainland only) (2.0%)
10. New Zealand (1.7%)
Countries by Foreign Direct Investment stock in Australia:
1. USA (19.1%)
2. Japan (12.8%)
3. UK (12.0%)
4a. *EU (10.9%)
4b. China + Hong Kong (5.9%)
4. Netherlands (5.1%)
5. Canada (4.5%)
6. China (mainland only)(4.3%)
7. Singapore (3.9%)
8. Germany (2.1%)
9. Hong Kong (1.6%)
10. France (1.2%)
nb. These lists ignore tax havens such as Cayman Islands and Bermuda
US decline?
The US remains the largest foreign investor in Australia, and the largest holder of FDI in Australia. However, according to the ABS statistics 2020 saw a sizeable drop in the US’s holdings in Australia.
The stock of total foreign investment held by the US in Australia dropped by $84.1 billion to $929.4 billion from $1,013.5 billion ($1.01 trillion) at the end of 2019. This has resulted in the US’s total share dropping from 26.0% to 23.3%.
In terms of FDI, the US’s stock dropped by $25.1 billion to $196.3 billion from a record high of $221.4 billion in 2019. This takes US FDI back to below 2018 levels. As a share of the overall FDI in Australia, the US has dropped to 19.1%. The ABS statistics date back 20 years to 2001. This is the only time it has dropped below 20.0% and is the lowest level recorded in those 20 years.
In remains to be seen if that downward trend will continue or if it is an aberration as a result of the pandemic. Nonetheless, Australia remains well and truly joined at the hip to US imperialism.
Australian capital on the rise?
Australia has always been a net importer of foreign capital. That is, more foreign capital is invested in Australia than Australian capital is invested overseas. This remained the case at the end of 2020 with the country recording a net International Investment Position (IIP) liability of $947.2 billion. In other words, there was $947.2 billion more invested in Australia from foreign sources than there was Australian capital invested overseas. This works out to be a difference of 23.7% between foreign investment in Australia and Australian investment abroad. A fairly sizeable difference.
However, the statistics for the last 20 years do show an interesting trend in this regard. Taking the difference in Australia’s IIP as a percentage for the last 20 years shows a steady narrowing of the gap, particularly in the last eight or so years. This suggests that more and more capital originating in Australia is being invested overseas.
However, when we hone in only on the Investment Position in regards to direct investment in Australia and abroad, the same trend isn’t noticeable. Instead, we see the differences fluctuate up and down regularly over the last 20 years. In 2020, the difference was 20.6%, just above the average of 19.97% for the last 20 years.
As the IIP trend in regards to FDI doesn’t correlate with the steady trend in total investment, this would suggest that the increase in Australian capital going abroad is not capital of Australian companies taking a controlling share of foreign companies or assets. Instead, it is likely to be mostly portfolio investment. Though more investigation is needed, my suspicion is that the increasingly massive amounts of capital tied up in Australian superannuation funds is likely to be a significant source of the increasing Australian investment abroad.
What’s in store for 2021?
The pandemic is far from over and global uncertainty for investment is likely to remain for most of the year. Whether the same trends shown in last year’s statistics continue or start to return to pre-pandemic levels remains to be seen. Capital’s drive for ever expanding profit will continue regardless. Unable to easily find new sources of profit, it will attack the rights, wages and conditions of the working class to get it. The growing threat of war between the imperialist countries is a reflection of the competition for control of sources of profit. Uncertainty may be lingering in the global economy but one thing is certain – capitalism has nothing to offer working people!
Notes
*Total foreign investment refers to all forms of investment including direct investment and portfolio investment, as well as others.
** Foreign direct investment is defined as ownership of 10% or more of a company or asset. It implies a much more direct involvement in the management of a company. Portfolio investment is defined as ownership of less than 10% of a company, or ownership of a stock, bond, or other financial asset with the expectation that it will earn a return or grow in value over time, or both. It entails passive or hands-off ownership of assets as opposed to direct investment.
Caution on Statistics: Statistics like those compiled by the ABS are a valuable tool to help us analyse what is going on in the economy and can point to important changes and trends. However, they cannot be relied on to paint the whole picture. By the ABS’s own admission “Care should be exercised in interpreting country data. The country allocation of financial transactions and levels is based on the immediate country of residence of the creditor in the case of Australia's foreign liabilities, or of the debtor in the case of Australia's foreign assets. The country of residence of the ultimate beneficial owner/recipient is not identified.”
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