On 8 December, Corrs Partner and CEO John W.H. Denton AO participated in a panel session entitled ‘Global FDI: What is New?’ at the BOAO Forum for Asia Melbourne Conference: The Future of Globalisation.
Below are John’s speaking notes.
Progress towards an open, modern global foreign direct investment (FDI) regime is under increasing threat.
The battle is now on two fronts:
To defend what we have achieved so far through cross-border reforms and multilateral agreements towards an open global trade and investment environment; and
To make progress on the ‘behind the border’ reforms that will facilitate foreign investment, while ensuring continuing public support for it (or at least, mitigating public opposition).
Three factors to bear in mind are:
There is currently a strong element of risk aversion in the FDI market globally. Capital is flowing to wealthy nations despite their low growth and high debt, because safety is seen as more important than growth potential. An interesting example of this is the preference for Canada over Australia in global rankings, presumably because Canada is seen as a safer destination than Australia, perhaps because of its proximity to the US.
The second factor is President-elect Donald Trump. He has promised tax incentives for US companies to bring capital home, while threatening to punish any company that tries to move investment out of the US. And this is at a time when the US is already, and for the last four years, ranked number one on the A T Kearney Confidence Index for FDI. If President Trump follows up on his promises (and obviously at this stage it is a big if) that could significantly reduce the pool of FDI available to most of the world. So a global imbalance of FDI is a real threat. It will require serious efforts by governments and leadership by business if it is to be avoided.
The third point is that the Brexit vote and the Donald Trump victory can be seen, in part, as votes by citizens for an ideal of perfect national sovereignty against the trend towards a globalised world. They represent a visceral citizens’ revolt against perceived foreign incursions into their national rights, assets, and way of life. The future of FDI perhaps faces its biggest threat from democratic electorates.
Part of the solution has to be more reform ‘behind the borders’. This should do two things:
It should make the FDI regimes more transparent, efficient and effective; and
It should rebuild public confidence that FDI can be a net benefit to economic growth and prosperity without compromising national sovereignty.
In Australia, we all know that when it comes to reviewing prospective FDI by companies associated with foreign governments, for too long we have been shifting our policy parameters.
We lose credibility and appeal as any investment nation would if its decision-making processes are long-drawn-out, unwieldy and the outcome is entirely unpredictable, or even made, then overturned.
We need clear and comprehensive protocols. We need to create an FDI regime that makes sense for a modern era, when foreign investors increasingly represent societies with very different political systems and values to our own.
And secondly, we need a concerted effort in Australia and beyond to explain and convince the public of the benefits of FDI.
If that means putting further safeguards in place, then so be it.
In short, we need stability and predictability more than ever, both as a solid base for convincing the electorate that the system is working properly, and as the means to attract FDI in an environment of uncertainty and risk aversion.