THE government should relax foreign direct investment regulations, the Organisation for Economic Co-operation and Development says.
THE government should consider relaxing foreign direct investment regulations, which have discouraged overseas investors from investing in Australia, the Organisation for Economic Co-operation and Development says.
The existence of these restrictive barriers have led some overseas investors to refrain from applying to the Foreign Investment Review Board for approval, while others have withdrawn their applications because of the uncertainties and costs involved.
Australia ranks relatively high in the OECD Foreign Direct Investment restrictiveness index — ahead of the US, which has more generous criteria, an OECD report says.
Australia occupied the seventh worst position in the index with Korea, Canada, Japan and Mexico having even more restrictive barriers on foreign ownership of assets. The report says in Australia, “restrictions apply in certain sectors — international aviation including airports, domestic shipping, telecommunications, media and real estate — and investments above a certain amount are subject to screening, increasing the regulatory costs for investors.
“The criteria for approvals, especially with respect to the national interest, are not always clear, although the government released national interest principles in 2008 with further clarity provided in June 2010.”
However, since FIRB had only rejected about 1 per cent of investment applications, this indicated that the restrictions were not that onerous after all.
The OECD estimates that if investment restrictions were removed, foreign direct investment into Australia would “increase noticeably over time”.
The report also calls for more transparency and accountability on the application criteria to help investors better assess the outcome of their applications.
If foreign direct investment regulations were relaxed, this would help promote a rebalancing of the structure of foreign liabilities and improve longer-term financing of the economy, the report says.
Australia’s foreign liabilities are virtually all held in Australian dollars or hedged back to Australian dollars. As foreign investors seem happy to hold assets in Australian dollars, domestic borrowers are protected against exchange rate risks. During the global financial crisis this helped shield the country against the increased volatility of the exchange rate.
“Nevertheless, the high and rising share of debt in gross foreign liabilities might make Australia more vulnerable to changes in world financial market sentiment and rising cost of debt,” the report says.
Story by Teresa Ooi www.theaustralian.com.auTags: economy, finance, investment, property, real estate