Beating Australia on FDI

Published in Insights, The New Zealand Initiative’s newsletter, 10 August 2012

Few things in politics look more certain than a change of government after the next Australian election in 2013. The Gillard Labor government is polling abysmally and plagued by constant leadership quarrels.

In these circumstances, it is worth paying attention to opposition leader Tony Abbott, the likely next prime minister of Australia.

A fortnight ago, Abbott visited China where he talked about Australia’s trade relationship with Asia’s dominant economy. To the consternation of his hosts, he announced a more restrictive approach to Chinese investment.

“It would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business,” Abbott said, knowing fully well that state-owned enterprises account for a large share of Chinese foreign direct investment.

This was not an unguarded populist remark by the gaffe-prone Abbott. A few days later, his coalition parties released a discussion paper asking for submissions on toughening the rules for foreign direct investment in agricultural land.

The message was clear: Australian hostility to capital flows will increase under an Abbott government. Australia will be more reluctant in its international business dealings, particularly with China.

If Abbott implemented what he alludes to, the economic consequences for Australia would be dire. For decades, Australia has invested more than it saved, plugging the gap by importing foreign capital. Since it is investment that powers growth, Australia’s high standards of living are the direct result of it being an attractive destination for foreign capital. Unwittingly or recklessly, Abbott is taking the axe to Australian prosperity by shutting the door to foreign investment.

Australia is often brash and arrogant in dealing with its Asian neighbours. It blocked the merger of the Australian and Singapore stock exchanges, and dragged its feet over exporting uranium to India. Under (prime minister) Abbott, such behaviour is likely to continue, and may even get worse.

As economically illiterate as Abbott’s plans are, they provide New Zealand with an opportunity to outcompete the Australians in the race for foreign direct investment and wealth-generating capital flows. If Abbott’s Australia enters a new era of capital xenophobia and investment racism, New Zealand could present itself as a more open and welcoming nation to Asian investors.

It’s not enough for New Zealand to compete with Australia in the battle for Olympic gold. We now have to beat the Australians in the battle for foreign investment to grow the Kiwi economy. Thanks to Gillard and Abbott, New Zealand’s chances are better than ever.

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