DFAT Office of the Chief Economist: How Did COVID-19 affect investment in Australia?

The economic impacts of the COVID-19 pandemic resulted in lower cross-border investment around the globe. Australia has remained a comparatively attractive place to invest, as a result of good management of the pandemic and corresponding rapid economic recovery, along with price growth for many commodities. While foreign direct investment flows into Australia fell by 48 per cent in 2020 compared with 2019, this was smaller than UNCTAD’s estimated average fall of 69 per cent for developed economies. Despite the decrease in inflows, the total value of the stock of foreign investment in Australia grew by 2.5 per cent in 2020, to $4 trillion, a rise of $97 billion (or 2.5 per cent) compared with the end of 2019. Of our biggest investors, the total value of the stock of investment held by investors from the UK, Japan and Belgium increased in 2020, while the value of the stock held by investors from the US decreased. The value of the stock held by Chinese investors remained steady.

The rise in the stock of foreign investment reflects the positive net inflow in FDI and a change in the real value of the assets. While this year-on-year growth rate was the smallest observed on record (with the current series beginning in 2001), given the uncertain economic climate associated with the COVID-19 pandemic, Australia’s performance was resilient compared to many other economies worldwide.

Climate Change and Sustainability Division: Sustainable Investment

Responsible and sustainable investment in Australia is growing as the Australia’s financial sector seeks to respond to increasing global demand for financial products that incorporate environmental, social and governance (ESG) standards. These include diversity and gender balance on company boards, human rights and labour standards, greenhouse gas emissions and climate risk. Emerging international data indicates a positive link between ESG and higher financial returns with funds rating higher on ESG reportedly faring better in the COVID-19 induced market downturn. More information can be found here. DFAT initiatives – the Emerging Markets Impact Investment Fund (EMIIF) and Australian Climate Finance Partnership (ACFP) – provide useful entry points for Australian investors looking to enhance their sustainable finance engagement as well as increasing their exposure in fast growing economies across the region. EMIIF and ACFP use overseas development assistance funds to mobilise greater investment and financial flows to partner countries across Southeast Asia and the Pacific, by offering concessional finance to de-risk investment opportunities for private investors. Further information on EMIIF and ACFP can be found here.