Australia jumps two spots on Kearney's FDI Confidence Index

For the eight year in a row, the US is the world’s most attractive country for foreign direct investment, according to latest FDI Confidence Index from Kearney. Reflecting steady investor confidence in the country, Australia managed to jump from ninth to seventh globally. 

Now in its 22nd year, the Kearney Foreign Direct Investment Confidence Index is an annual survey of business executives that ranks markets that are likely to attract the most investment in the next three years. The index is based on a survey of 500 senior executives, including C-level executives and regional and business leaders, working at large companies (excess of $500 million in annual revenues) in 30 countries. 

Across the board, the findings of the 2020 study are consistent with the previous editions. The top 10 countries on the Index remain unchanged, save for Switzerland joining the top group and Singapore falling to the 12th spot. Canada retakes the number two position, and Germany falls to third. Meanwhile, Brexit pushed the United Kingdom to sixth place, while France maintains its fifth place. European and Asia Pacific countries – Italy, Japan, China, and Australia – round off the top ten. 

Australia

Australia has ranked among the top 10 counties on the Index for a decade now, but in the latest edition, the country managed to overtake China and Italy. The country’s biggest draw is its overall stable business environment, which ranks according to Kearney among the best worldwide. 

Another driver of advancement has been improved access to credit information. Illustrating this progress, the authors pointed out that Australia was ranked 14th out of 190 countries in the World Bank's Doing Business 2020 report, up from a ranking of 18th the previous year. 

Furthermore, to prevent a perceived lack of fairness in how it treats multinationals with regard to tax issues, the Australian government continues to promote and enforce anti-tax avoidance legislation, particularly within its oil and gas industry.

Despite a drop in FDI inflows from 2018 to 2019, amounting to $39 billion as per UNCTAD data, some notable deals took place – especially with Japan. Beverage company Anheuser-Busch InBev sold its Australian business to Japan's Asahi Group Holdings for $11.3 billion. And Nippon Paint Holdings purchased Australian paint manufacturer Dulux Group for $2.7 billion. 

One aspect which may impact foreign direct investment is Australia’s temporary tightening of its rules on foreign takeovers, which were implemented mid-March. The government is concerned that strategic assets – especially in the aviation, freight, and health industries – could be sold off cheaply to foreign buyers in the midst of Covid-19. As such, all foreign takeover and investment proposals are being scrutinised by the foreign investment review board. And the timeframe to review such proposals has been be extended from 30 days to six months. If this temporary tightening is extended, it may weigh on investor sentiment, warned Kearney.

Covid-19’s impact on FDI

Because the survey for Kearney’s FDI Confidence Index was held January 27 and March 3, the study presents a tale of two different worlds. One of them de facto lasted into January of this year and suggested economic growth prospects were strengthening. Developed markets, including the United States and major EU economies, were on track to grow, and stronger growth was expected among emerging markets, including countries in Latin America and the Middle East.

Towards the end of the survey period the environment had changed dramatically, and a second, new world emerged. The relatively optimistic outlook was turned upside down by the accelerating global spread of Covid-19. Countries started to introduce more government-mandated lockdowns and other restrictions to contain the epidemic. Within the space of two months, most large economies had plummeted into a recession.

These two worlds obviously have had a profound impact on investor confidence. Between the first two weeks of the survey (January 17 - February 6) and the last two weeks (February 19 - March 3), scores for developed, emerging, and frontier markets all fell 25 to 33 percent. 

Along the same lines, the biggest concern reported by investors in all regions changed between the beginning and the end of the survey period. In the first two weeks of the survey, investors ranked commodity price increases as the biggest risk. In the last two weeks of the survey, by contrast, investors told Kearney that a potential economic crisis in a developed market was their biggest concern. 

In related news, the United Arab Emirates managed to re-enter the top 20 of Kearney’s annual FDI list.