On 5 June 2019, the Australian Trade and Investment Commission (Austrade) reported that Australia is currently one of the most attractive investment destinations, both regionally and globally. Austrade noted that Australia's strong performance regarding foreign direct investment is driven by the general ease of doing business in Australia, economic freedom, and a governance framework which is robust yet commercial. The net effect of these attributes is that Australia's corporate regulations are able to effectively balance legal security with commercial freedom, making Australia a prime destination for foreign investment.
Notable ease of doing business in Australia
The notable ease of doing business in Australia is largely owed to Australia's pro-business policies, which Austrade reports has enabled Australia to outperform its regional counterparts including Thailand, Japan, China, Vietnam, Indonesia and the Philippines. Australia's strong performance in this area is also demonstrated by:
- the World Bank's Doing Business 2019 report which ranks Australia as 18 out of 190 economies based on a global comparative index on the ease of doing business in countries around the world; and
- Austrade's most recent Benchmark Report which reported that Australia outranks the US, the UK and Japan in most metrics of business efficiency and the environment.
Australia ranked 5th in the world for economic freedom
Australia has also performed well according to an economic freedom index which measures the relative freedom of labour and capital across the world. The Heritage Foundation, a US-based research organisation, ranks Australia as 5th in the world for economic freedom according to its 2019 Index of Economic Freedom report, ahead of most major economies of the world including the UK (7th), Canada (8th) and the US (12th). The report notes that the strong ranking is due to Australia’s regulatory environment being one of the world’s most transparent and efficient, and Australia's labour market being well supported by a modern and flexible employment code.
Australia's effective governance framework also fares favourably on the world stage, as demonstrated by its performance in the following key governance metrics:
- the Institute for Management Development's World Competitiveness report ranks Australia's governance highly for its central bank policy (8th), rule of law (8th), equal opportunity (10th), and low overall risk regarding its domestic investment environment (11th); and
- the World Economic Forum's Global Competitiveness Report 2018 notes that Australia has the 7th most independent judicial system in the world and ranks Australia especially well for enforcing contracts (5th), obtaining credit (8th) and dealing with construction permits (9th).
Australia's corporate and financial regulators also play a prominent role in developing and maintaining a strong governance framework in Australia, as complemented by the overhaul of Australia's banking and financial sector currently on foot following the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
What this means for foreign and Australian businesses
With the conditions ripe for investment into Australia, we will likely see an increase in acquisitions of Australian businesses by foreign companies, greater confidence in the Australian market and an increase in financial activity in the Australian market. The above results also indicate that this is an opportune time for Australian businesses looking to form overseas partnerships or joint ventures, or attract foreign investment. For Australian companies looking to appeal to overseas investors, it is important to act sooner rather than later as Australia's favourable market conditions are especially pronounced at present in light of the uncertainty plaguing the traditionally more attractive markets of Britain, Europe and the US.