ACBC Victoria was pleased to provide a timely briefing on newly released, significant reforms to Australia’s foreign investment framework to ACBC members and friends.
The success of Thursday’s (18 June) online event was in no small part due to the knowledge and experience of FIRB representatives Roger Brake and Andrew Deitz who introduced us to the range of reform measures to be put in place for Jan 2021. ACBC Vic would also like to thank Malcolm Brennan (KWM) for sharing his expertise and, together with Roger and Andrew, for responding to the range of questions from our online audience.
Australia’s inward FDI stock totalled A$1.02 trillion in 2019 (Austrade), almost doubling over the last decade. This upwards trend represents the importance of new reforms put in place with emphasis on a streamlined process, clearer procedural guidelines and defined national security tests.
Australia’s business-friendly environment will continue to attract strategic investment in future industries and infrastructure and ACBC Victoria is well-positioned to support the development of a successful and robust Australia China investment relationship.
Key takeaways from our speakers included:
- Australia relies heavily on FDI for growth, technology, access to markets investment etc. This is important now and will be important in the future.
- Reforms reflect the need for Australia’s foreign investment to evolve to meet (pre-COVID) international trends and changes brought on by the COVID-19 pandemic, bringing us more in line with other countries in various areas, eg. Privatisation of assets, national security assessments, technological advancements etc.
- Reforms must balance the above factors with national public confidence and safeguarding our national interests.
- Prior to COVID-19, FDI streamlining was already happening around the world – US, EU, Japan, NZ, China.
- 2017-2019 saw 9 out of the 10 largest world economies introduce new measures to monitor foreign investment.
- Framing Australia’s foreign investment market as open, transparent and welcoming is critical to the reforms.
- Reforms will maintain that every investor is treated equally, no matter where they come from. “Every case is treated on its merits”.
- No part of the Australian economy is off limits for investment – this remains an important part of system, however, measures are put in place to protect Australia’s critical industries and safeguard the economy.
- Announced 29 March 2020.
- Review time shifted to 6 months from 30 days. The 6-month timeline saw people believe there would be a 6-month wait on investment processing. This is not the case and streamlining has meant faster approvals.
- Foreign investors must seek approval for investments over a certain threshold.
- This was done to ensure increased scrutiny in the heightened risk environment of COVID-19.
- Updated triage methods were put in place to delegate investments.
- New thresholds of $0 for public investors. This was put in place to protect Australia’s economy due to the onset of COVID-19 and related economic downturn. This will return to normal in due course.
- Private thresholds higher. Reduced for FTA partner countries.
- Guidance on the temporary thresholds on the FIRB website.
National Security Test for Sensitive Foreign Investments
- Reforms to introduce a refreshed national security test: Analyses of the character of investor, impact on community, national security risk, etc.
- Various Australian sector businesses will be marked as sensitive national security business where it will be mandatory to notify the government of their overseas acquisition.
- This reform recognises that there are some areas of national investment that are more exposed to national security risks than others (converging with the US and NZ).
- There may be businesses that aren’t in this special group but are still a risk area. Option to voluntary declare foreign investment/acquisition.
- Treasurer has calling power to call the investment/acquisition in for review.
- This is a common feature of foreign investment regimes in other countries.
- There will be a safe harbour for investors who are unsure if their investment will trigger a national security concern.
- This means it won’t be mandatory, but open and up to the business to notify the government.
- This removes the possibility of them being called in for review afterwards, thereby providing an incentive to declare to avoid wasting time on low probability investments.
- “If you go to FIRB then you will not be involved in any anti avoidance issues later down the track”.
- Last resort power – where approval has been given, there will be an avenue to review the acquisition on strictly national security grounds.
- Further details of the national interest test can be found on FIRB website and the summary booklet.
- Reforms will see more penalties and the addition of infringement notices as the current penalties are blunt.
- “Greater compliance but greater streamlining – smoother overall process”.
- Legislation will be introduced to parliament later this year with implementation planned for the start of next year (2021).
- What will reforms mean for specific sectors? Mining, energy, infrastructure, roads, transport etc.
- Depends on the security concern of your business. Mandatory reporting – sensitive national security business – will be defined during consultation – will give as much certainty as they can as to what businesses fall into this category.
- The reforms are not targeted at specific industries.
- An Australian fund manager can become a foreign person in the eyes of FIRB if they are controlled by foreign money. They will remain an important aspect of Australian foreign investment.
- “Fund managers will be critical for bringing investment back into Australia post-COVID-19”.
- Fund manager reform has been happening over time to avoid situations where members are unaware where their money is going.
- FIRB case processing times – Median time of 45 days. FIRB is working with investors to shorten this timeline.
- FIRB will prioritise investments that support Australia’s jobs, infrastructure and economy.
- Where Australian jobs are at risk or continuity of business is threatened, increased priority will be placed by FIRB.
- What sectors are investors looking at now?
- “There continues to be a lot of interest into Australia across a wide range of areas including services, mining, commercial property and renewables all having significant investor interest.”
- Reforms will continue to nurture the conducive investment environment FIRB has created.
- Virtual due diligence and other technological shifts are helping Chinese FDI during COVID-19, given that potential Chinese investors can no longer come to the country. Important as China makes its recovery ahead of Australia.
- FIRB is receiving more calls than ever from people who are not usually in the system, which is helping broaden their scope.
- The significant time given to prepare these reforms and the great degree of stakeholder engagement will prove instrumental to the successful development of Australia’s foreign investment framework.