GLOBAL CROSS BORDER COMMERCE

Cross border commercial activities generally fall into two broad categories, one being the acquisition of offshore businesses or the development of them, and the second mainstream is the export of the goods and services rather than the business itself. In this article the offshore acquisition is discussed and in a subsequent and separate analysis, the business associated with exports and imports is examined.

The onslaught of the Corona Virus has made international business quite unpredictable as business travel has been decimated and actual cross border business and corporate acquisitions are very difficult to manage, and many would say that under the present conditions it is impossible to effectively manage a cross border business. In this article the beginnings of the effect of the Pandemic are examined and the additionally the place Australia has in the international commercial scene are evaluated.

STRUCTURE OF CROSS BORDER INVESTMENT [CBI]

There are several forms of CBI:

-- Portfolio, an investment into share or other instruments generally through the stock market. It is made up of both Debt and Equity Securities.

-- Foreign direct Investment [FDI] an investment or acquisition into the business interests of another company in another country

-- Other Investments

-- Financial Derivative

The levels of investment in Australia, and the Australian investment offshore for the y/e December 2020 are as follows in billion$

Direct Investment 1026.6 (inward), 814.4 (outward).
Portfolio Investment – Equity 675.8 (inward) 906.0 (outward)
Portfolio Investment – Debt 1369.2 (inward) 426.0 (outward)
Financial Derivatives 396.4 (inward) 403.6 (outward)
Other investments 523.0 (inward) 433.2 (inward)
Reserve Assets 0 (inward) 60.0 (outward)
TOTAL 3991.0 (inward) 3043.2 (outward)

THE SIZE OF THE INVESTMENTS

Australia’s outward investment position has been much smaller than the inward investments. It is relevant to note that inward investment has been an average of $A3612 billion which is 50% more than Australia’s outward investment of $A2640 and this has been the position for the last 20 years, and it is surprisingly constant at that level.

AUSTRALIAN INWARD INVESTMENTS

The inward investments are dominated by USA, UK and EU as those 3 country areas have dominated each of the last 5 years.
Over that 5-year period the USA has provided 25.9% of our inward investment, UK 16.8%, and the EU [without the UK] has provided 18%. The only other country group which has significant investment is Japan which averages $A238.6 [just under 7%] for the last 5 years.

China, the county which attracts considerable interest and comment provides approx. $A 75 billion which is approximately 2 % of the total for each of those 5 years. Hardly quantities sufficient to cause angst in Australia.

AUSTRALIAN OUTWARD INVESTMENTS

Australian outward investments are also dominated by the USA, UK and EU [not including England]. Those 3 make up an average of 57% of outward investment for the last 5 years, which is equivalent to an average $A1505 billion per year, which is a significant sum. The other areas of outward investment are Japan [4.6%] of the total and Asean takes approximately 4.0% of the total. These numbers make a mockery of the occasionally heard cry that “we must reduce our tax rates to be more competitive and encourage more investment” when Australia, the USA and UK have comparatively high rates of corporate taxation, and despite this, inward investment is running at comparatively high rates and is an internationally desired activity.

GLOBAL CROSS BORDER INVESTMENTS

The Global investment pattern has changed dramatically due to the Covid Pandemic. According to the OEDC.
-- Global Flows have decreased by 38% to USD 846 Billion, the lowest level since 2005
-- Inflows to OECD have decreased by 51%, and outflows from OECD decreased by 48%
-- FDI inflows to non-OECD countries decreased by only 9%
-- China overtook USA as the top destination for FDI
-- There was a rebound in cross border M&A activity which has continued into 2021

The Cross Border Investments as a % of GDP at the Global level are quite interesting, in that the Inward amount almost equals the Outward amount. Obviously, in the overall scheme of things, they should be equal, as the Outward amount in source country is equal to the Inward amount in the target country. The following are the statistics for the average of the 3 years 2018, 2019 and 2020

FDI Outwards Positions for OECD 50.7%
FDI Inwards Positions for OECD 47.6%

AUSTRALIAS COMPARATIVE POSITION

The Australian position for the average of the 2 years 2018 and 2019 comparative to the average of the OECD is as follows
FDI Outwards Position 38.1%
FDI Inwards Position 50.0%
Which means that Australia receives more Inward FDI than outward FDI, which is consistent with recent history

CONCLUDING SUMMARY

There have been many articles and commentary which indicate that Australia is a net recipient of foreign investment, and this analysis has confirmed the situation has not changed. Whether the situation will change, when and if, the commercial situation returns to “normal” is a subject of some conjecture, however, there is the argument that the Australian large corporates are comfortable being the recipient rather than the reverse in cross border acquisitions.

AUTHOR

Glen Robinson is a co-founder and director of Asean Focus Group with Peter Church which was formed in 1990 to provide advice and assistance to those organisations which wished to take a commercial presence primarily in ASEAN, but also other Asian countries. Several years ago, the company entered a joint venture with Venture Group, and both now trade as AFG Venture Group.

Glen is a director of the Australia Thailand Business Council and a Councillor of the Australia Institute of International Affairs NSW.