Executive Summary
Foreign Direct Investment has been rated by economists as one the most vibrant and stable forms of capital inflow into an economy (Kalfadelis, Gray & Freeman 2006). This is mainly because it involves the establishment of infrastructure that supports the business into the country and hiring of personnel from the local human resource base. However, this is dependent on the level of profitability that such investment have. The Australian people have relied on foreign direct investment for over 200 years in order to meet domestic investment needs because of its relative plenty in terms of resources (Vasek, 2011). Furthermore, the emergence of the country as a regional economic giant and a Middle power in geo-politics implies that it has to increase the competitiveness of its industries by exposing them to international standards and global market competition.
Introduction
The assertion by the Secretary of the treasury that foreign investment is an important factor in Australia’s national interest has some validity due to various reasons (Ludwig and Shorten, 2011). The country is seeking to establish itself as a middle power and as such requires not only to expose its domestic markets to global competition but also to grow economically through external involvement. Secondly, the country needs to improve its export potentials by encouraging more foreign investors to come and invest in the manufacturing sectors as well as the extraction industries. Furthermore, the need to create more employment for Australian citizens and immigrants from the neighboring developing countries requires huge and long term investments in order to maintain the system. However, in spite of these advantages, nationalistic feelings have emerged from people who believe that it is not in the best interests of the country to have domestic service sectors in the control of foreigners (Khouri & Norman, 2011). These sentiments have particularly expressed in areas such as water services and large scale food production.
Expansion of private Investment
The need to expand private investment is necessitated by technological, market access, business training, and capital based factors (Khouri & Norman, 2011). Australia’s domestic capital base or savings is mostly determined by household savings and public savings. Household savings have, for instance, increased in the recent times as people have become weary of the economic decline. This has led to insufficient capital for investment as local Banks also tighten rules on lending. Additionally, Sanyal (2011, p. 4) the government’s commitments in terms of administrative, regulatory, and foreign affairs issues leaves little capital to undertake domestic industrial expansion. Furthermore, the needs of a free market system limit the government’s options. In light of such challenges, foreign investment is viewed as a means to build the local potential by expanding the private sector (Sanyal, 2011). For instance, the most important need to increase the energy production capacity of the country’s energy sector necessitates such investments in order to spur economic activity and thus employment opportunities.
The country has various commitments to the region in terms of peace keeping missions and economic Aid. These commitments enable Australia to maintain a strategic influence in order to bridge the cultural and political gap between its citizens and the East Asian neighbors. In order to accomplish such goals it is necessary for the government to undertake proper investment policies that can lead to increase in government revenue and thus develop the potential of the private sector to also invest in the neighboring developing countries.
Export oriented Industrialization
The export market is an important sector in terms of raising international demand for a country’s products (Kalfadelis, Gray & Freeman 2006). Australia has comparative advantage in terms of natural resources that enables it to obtain more investors in the country. The national interest of Australia with regards to establishing itself as a middle power in geopolitics necessitates the expansion of trade boundaries. This is mostly assured through foreign direct investment since the domestic savings capacity is too low to satisfy the needs of the neighbors or even other continents. Furthermore, the key to competitiveness is the availability of quality products that can compete well in the post industrial global market (Kalfadelis, Gray &Freeman 2006).
The agricultural sector has witnessed the highest investment opportunities (Ludwig and Shorten, 2011). This is because Australia is an efficient producer of high quality food. This advantage implies that the country can increase its production. Ludwig and Shorten (2011) have argued that the need to make good policy frameworks for encouraging exports over anxious politics is urgent. This is mainly because areas such as agriculture and energy sectors are the main drivers of industrial production that can increase exports. Furthermore, the stability of political decisions has an impact on foreign reception of the products. Finally, it is worthwhile noting that the volume of bilateral trade depends on how accessible the partner has to the local economy.
Creation of Employment Opportunities
The unemployment rates in Australia had been estimated at 5.1% as at July 2011 which was lower by 5% as compared to previous months. Economists have predicted that this state of affairs is set to increase as most business entities reduce their hiring capacity. However, Australia’s ability to attract employment reflects the country’s capacity to expand despite the slowed growth rates. Furthermore, Kalfadelis, Gray & Freeman (2006), Ludwig & Shorten (2011), Sanyal (2011), Vasek (2011), Khouri & Norman (2011) have argued that unemployment has become one of the most important policy issues in Australian politics and governance. This is because the reduction in employment opportunities as well as the minimum wages for some sectors has led to drastic reduction in household savings. For instance, Kalfadelis, Gray & Freeman (2006) argue that the general decline from 5.1 to -5 in 2006 was worsened by the credit crisis which reduced public savings and household savings. In 2011, this led to a decline in employment with the figures rising up to 8% in May. Researchers, policy makers, and scholars have attributed this state of affairs especially the chronic unemployment rates to the small capacity of the economy to create jobs (Khouri and Norman, 2011). The national interest of Australia is therefore to ensure that the policy debate encouraged by the employment crisis is addressed. Vasek (2011) believe that foreign investment plays an important role in finding the solution.
Exploitation of Natural Resources
Exploitation of natural resources has an impact on the environment and the level of managing exchange rates. While the impact on the environment is mostly negative, the impact on exchange rates as well as expansion of processing industries is positive in countries where strong institutions are meant to work in. Australia has strong institutions and trading partners like China have invested in order to obtain a permanent source of natural resources to maintain food production (Vasek, 2011). Natural resources have also increased income for most laborers who are employed in the mines, farmers who work in their fields, and processing industries that produce exports, in addition to the intermediaries and foreign trading partners. This level of output has been fundamental in increasing welfare thus providing the citizens with more opportunities in terms of savings and investments. In addition, the taxation and regulation policies ensure that the federal government is able to benefit from such foreign investments.
Australia’s natural resources are its economic potentials and the determinant of its increased capital inflow (Vasek, 2011). The capacity of the economy in terms of innovation is also increased through investment in scientific infrastructure. Furthermore, the development of the country’s human capital ensures that it is ready for the benefits of increased mineral resource exploitation (Khouri & Norman, 2011). Furthermore, it has been established that growth in natural resource productivity is also as high as other sectors. Australia’s national interests are therefore achieved or protected if the sector is encouraged through foreign direct investment in other sectors in order to ensure that the resources that are invested in resource extraction do not benefit the home countries of the investors.
Criticisms of Foreign direct investment
In spite of the various advantages of foreign direct investment, there are a number of issues that have led to sharp debates about the extent to which the local economy is exposed to foreign intervention. While some people have argued that some sectors can be handled well by local companies, others have maintained that the influx of foreign nationals in the country has the potential of compromising the country’s ability to make important national policy decisions (Sanyal 2011). This is because of the complexity of the concept of national interests. Some people view foreign direct investment as detrimental to the country’s national interest due to the fact that most countries that venture into Australia are global powers whose interests far outnumber and outsmart the interests of the Australian people or government. Countries such as China, United States of America and the United Kingdom are examples whose multinationals have high claims in the country (Sanyal 2011). The country’s position in the community of nations is therefore lowered.
The economic nature of the investments has also raised questions. Sanyal (2011) argues that the economic health of Australia cannot be left at the mercy of foreign investors who are attracted only by the need to make profits. This argument is supported by many calls to have foreign investors excluded from important sectors such as agriculture, water provision, and energy production. This situation further complicates a volatile political situation since the government is constantly fighting to reduce its impediments to growth which are the most paralyzing among OECD countries. However, with a general trend in the flow of foreign capital, Australia’s stand on direct investment needs to change and more liberalization needs to take place since most investors have identified the country as economically well placed.
Conclusion
Australia is strategically located in the East Asian region and is one of the few developed countries among developing countries. This implies that it has some of the best well placed institutions that have the capacity to tap into the benefits of foreign investments. However, in order to successfully exploit such resources, it is important that foreign direct investment is encouraged. This will develop the country’s private sector, the successful exploitation of the resource potential, and the creation of employment for the population (Sanyal 2011). Therefore, restrictive policies need to be reviewed since the image of the country as a trading partner determines the nature of the economic and social environment within which businesses and individual investors join the local economy. The Treasury secretary’s assertion that foreign investment is vital is therefore true since the country’s national interests extend beyond its borders and include the complete satisfaction of both the domestic and the international market.
REFERENCES
Kalfadelis, P., Gray, J., and Freeman, S., 2006. The national Interest and the
Screening of Foreign Direct Investment in Australia [pdf] Melbourne: Monash University. Available at
http://www.buseco.monash.edu.au/mgt/research/working-papers/2006/wp14-06.pdf
Khouri, F., and Norman, P., 2011. Australia: Reforms encouraging investment into
Australian funds and appointment of Australian managers. Finance and banking: Connecting Knowledge and People [Online] (Updated on 6 February 2011) Available at http://www.mondaq.com/australia/article.asp?articleid=122154
Ludwig, J., Shorten, B., 2011. Senate inquiry into foreign investment in rural land.
(Ministry of Agriculture, fisheries and Forestry) [Online] (Updated on 6 July 2011) Available at: http://www.maff.gov.au/media_office/media_releases/media_releases/2011/july/senate-inquiry-foreign-investment-rural-land
Sanyal, K., 2011. Foreign Investment in Australia: Recent developments [pdf]
Parliament of Australia: parliamentary Library Available at http://parlinfo.aph.gov.au/parlInfo/download/library/prspub/665635/upload_binary/665635.pdf;fileType%3Dapplication%2Fpdf#search=%22library/prspub/665635%22
Vasek, L., 2011. Treasury chief issues warning over the push against foreign
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