Do foreign investors to Australia have to now worry about political risk? CLC Asia investigates how the Rudd government may be adding confusion and uncertainty to foreign investment in Australia.
New FIRB investment ‘Guidelines’
It was long accepted policy that foreign investment into Australia was readily permitted except where it clearly was against the “public interest”. The term “public interest” in itself was down to the discretion of the Treasurer of the day, as we saw several years ago with former Treasurer Peter Costello’s decision against Shell’s approach to Woodside several years ago.
Since the election of the Rudd Labor government in 2007 however, there have been two significant changes to the approach to foreign investment in Australia.
In September of this year, the CEO of the Foreign Investment Review Board (FIRB) Patrick Colmer made the following comments about foreign investment in Australia. He stated that:
• The federal government and the FIRB are not disposed to see the control of companies pass downstream to consumers of its products;
• For smaller companies Mr Colmer has stated that there is a preference that foreign ownership in general remains below 50%. Commentators familiar with the situation have interpreted this rule to be aimed at state-owned buyers, particularly Chinese miners with large government shareholdings; and
• For larger companies, a foreign ownership threshold of 15% will be applied, above which the buyer must seek permission from the FIRB.
Higher sovereign risk in Australia as a result..
These September 2009 considerations for foreign investment are in addition to the Treasurer statement in February 2008 which outlined considerations for foreign state-owned or state-controlled enterprises such as Sovereign Wealth Funds or government-backed investment funds seeking to invest in Australia. These were in addition to the existing ‘national interest’ tests which were already in place under previous governments.
These six additional principles outlined factors that are also considered for proposals involving foreign governments and their agencies. Thus, proposed investments by foreign governments and their agencies will be evaluated having regard to whether:
• an investor’s operations are independent from the relevant foreign government;
• an investor is subject to and adheres to the law and observes common standards of business behaviour;
• an investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned;
• an investment may impact on Australian Government revenue or other policies;
• an investment may impact on Australia’s national security; and
• an investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community
As a result of these changes over the past two years, an environment has been created that is relatively new to investors in Australia, and where foreign investors must now operate in an environment where sovereign risk, as represented by the newly revealed FIRB’s thinking, prevails.
About CLC Asia
CLC Asia is a political and market intelligence advisory firm. We specialise in:
• political risk analysis
• market intelligence
• government relations
• policy advisory