What is foreign investment?

Foreign investment occurs when an individual, business or investment vehicle (such as a superannuation or pension fund) from outside Australia decides to establish a new business in Australia or purchases property or shares in an Australian-owned business.

There are two main ways in which foreign residents or companies can invest funds in the Australian economy – Portfolio Investment and Foreign Direct Investment.

Portfolio Investment refers to the purchase of Australian securities (such as stock or bonds) or equity and debt transactions which do not offer the investor any control over the operation of the enterprise. Common examples include the purchase of property, shares in Australian companies or government bonds by foreign superannuation or pension funds.

Foreign Direct Investment (FDI) is when an individual or entity from outside Australia establishes a new business or acquires 10 per cent or more of an Australian enterprise, and so has some control over its operations. Common examples include the establishment of Australian branches of multinational companies or joint ventures between Australian and foreign companies.

At end 2016, portfolio investment accounted for 52 per cent of total foreign investment in Australia. Direct investment made up a further 25 per cent, while other investments (such as trade credits) accounted for around 23 per cent of total foreign investment.

Foreign investment has been critical to the development of Australia’s economy for over 200 years. Investment from the United Kingdom during the 19th century saw the development and expansion of the Australian wool industry. Wool was our first major export and is still an important export today.

During the 20th century, international investment helped grow Australia’s financial services and manufacturing sectors, while over the past 25 years foreign investment has provided the injection of capital necessary to develop Australia’s mineral and energy resources.

Today Australia is attracting new sources of foreign investment to help establish new industries that will contribute to our ongoing prosperity.