Why Australa is open for foreign investors . . .

IT IS the privatisation of Australia’s critical infrastructure that has led to consideration of national security implications when foreign investors seek to acquire such assets, says David Irvine, Chair of the Foreign Investment Review Board . . .
 
SYDNEY — David Irvine, the former Head of Australia’s spy agencies, acceded to the Chair of the Federal Government’s Foreign Investment Review Board In the wake of a number of controversial rulings against foreign investors.
 Not unexpectedly, the commentariat in the media looked at his appointment as the Government shifting its emphasis to national security.
 But this could not be further from the truth, Irvine told an audience attending a CEDA (Committee for Economic Development of Australia) event in Sydney.
 Irvine said a lot was said at the time of his appointment suggesting that, given his background, FIRB was shifting its focus to national security to the exclusion of all other considerations.
  “Frankly, national security issues only impinge on a very, very small number of advisory notes provided by FIRB to the Treasurer (Scott Morrison),” he said.
 Indeed, the composition of the FIRB decision-making process includes people with experience on taxation issues, resource investment, agriculture investment and so on, he added.
 In recent times, national security has become an issue in a number of proposed acquisitions – more so than in the past because of privatisation and sale of public assets.

 Irvine said privatisation of critical infrastructure, meaning electricity transmission and distribution networks and generation, does have national security implications for Australia.
 The Government recently knocked back an application by Hong Kong-based Cheung Kong Infrastructure and China’s State Grid to buy Ausgrid, NSW largest electricity distribution company.
 Irvine said the Government has established a Critical Infrastructure Centre in a realisation that Australia’s critical infrastructure needs special attention so that the public can be assured of continuity and reliability of the services provided.  The Centre is another source of advice for the Treasurer to help decide on a sensitive sale.
 Critical infrastructure and agriculture are the two most politically-sensitive areas.
 In two other equally controversial decisions in recent times, FIRB has rejected applications by a US company, Archer Daniels Midlands, to buy GrainCorp, and by S Kidman & Co, which controls 100,000 square miles of pastoral leases, to sell to a Chinese investor, Shanghai Pengxin.
 On Kidman, Irvine said the sale was initially rejected solely on national security grounds. Later, the vendor excised land to enable a local farming family to acquire defence-sensitive Anna Creek Station, removing the national security risk. But Irvine said the sale was still rejected because it would be to a single foreign buyer.
 The Kidman holdings were eventually sold to a consortium, including Gina Reinhart’s Hancock Prospecting and her Chinese partner, Shanghai CRED Real Estate.
 Despite such high profile cases, Irvine said the level of foreign ownership of Australian farms has not increased. According to the first report issued by the Australian Land Register in July 2016, foreign investors own 13.6% of Australian farmland.
 Of that, he added, the UK accounted for half and the US had substantial holdings. The Netherlands, Singapore and China are behind the UK and the US, but the Chinese are the fastest-growing group of foreign investors in Australia’s agricultural sector.
 Irvine said 2015/16 approvals in agriculture land sales totalled AUD4.6 billion, which was a “substantial” increase over previous years.
 In 2015/16, he said, there were 227 approvals for agricultural land purchased or part-purchased by foreign interests.  Aside from one high-profile case, he noted, all applications were approved.
 “We want to see the FIRB approval process continue to facilitate investment”, Irvine told the audience.
 Australia has relied on foreign investment for its economic development and growth for the past 200 years, he said, and, going forward, its reliance on foreign investment to supplement domestic investment will increase.
 On agriculture, Irvine said that, even as a layman, he could see the huge potential for Australian agricultural exports to Asia.  Already, these account for 10% of total exports.
 For Australia to maintain this level, he said, it will need to improve productivity through innovation, expansion and diversification.
 It has been estimated that Australia may need AUD3 trillion in investment to harness its export potential by 2030. So, capital – foreign and domestic – will be needed to finance production growth to meet higher demand for food.
 Irvine said a layman could see that, with rising populations and prosperity, demand for food will grow globally. The former Australian Ambassador to China said China will account for half of the increase in global food demand, followed by Southeast Asia.
 “This creates a golden opportunity for Australia,” he said. “(But) we will need investment to do that - and we will need foreign investment in the agriculture sector.
 “We encourage early discussions with investors and sellers to ensure that all the issues are understood before the application comes through.”
 Early interaction with FIRB meant that all-important issues such as community impact, taxation, and, of course, national security, could be worked out. And for approval of agriculture investment, FIRB will also take into consideration, among other things, environmental impact, water usage, land access, and production.
 Irvine repeatedly stressed the importance of foreign investment to Australia over the past 200 years and even more so in the future if the country is to grow and to increase productivity, and to develop new initiatives in areas such as Northern Australia.
 Without foreign investment, he said, the country would be poorer, bogged down by lower productivity, unemployment and income.
  The number of FIRB approvals has gone up by 80%, he said. Last year, there were 41, 000 applicants.
The US has the largest number of applications, followed by Japan and China. The weight of investment has shifted from resources to real estate and the critical infrastructure sector. The finance and insurance sectors are also increasing.
 “While foreign investment in agriculture has always been important - and has created public debate – the actual level of investment has remained relatively steady for the last five or six years at about four per cent in the overall mix,” Irvine said.
 “The advice I would give to the Chinese is exactly the same as that I would give to investors from any country.  Australia is open for investment.”