28 Apr Smoke Signals: Australia Tightens Foreign Investment Review Rules
The Government has announced that it will significantly increase the foreign investment review process in order to prevent foreign entities from taking advantage of a depressed economy.
Effective immediately, the Foreign Investment Review Board will scrutinise all transactions, regardless of value, with a mandatory six-month assessment process. Previously, FIRB assessments were handled in a 30-day period.
The move comes amid growing concern that foreign companies would capitalise on the impact of COVID 19 on the Australian economy, buying up companies and land at a depressed price.
Tightening the foreign investment review process is widely seen as a message specifically for China, although the measures apply to all non-Australian buyers regardless of their home country.
Treasurer Josh Frydenberg was quick to reassure the commerce sector, adding that the changes to FIRB processes were “not an investment freeze”.
“Australia is open for business and recognises that investment at this time can be beneficial if in the national interest,” he said.
Some members of the agriculture industry have warned that the new restrictions could have “unintended adverse consequences”.
Paul McKenzie, a West Australian-based consultant with Agrarian Management said that while he understood the Government’s move, agriculture’s reliance on foreign investment could add insult to injury for farmers already suffering the effects of drought.
“At this point in time, its clear that in certain areas that additional investment is required rather than less investment,” he said.
“I think we need to be quite cautious about the possible negative impacts of the FIRM changes adding to a liquidity trap.”
As well as companies and land, the FIRB restrictions also apply to the investment trusts, putting the brakes on the funding projects including agricultural technology and innovation.
Guy Hedley, the Executive chair of Atlas Advisors Australia, is concerned about the impact that delayed and restricted funding will have.
“[We represent] an agricultural tech company, NSW registered, that is going incredibly well with robotics and because my money is coming from foreign nationals, I need to get FIRB approval,” he said.
“What good is it for the company that needs capital now if they’ve got to wait for six months to secure that capital? They wont be around.”
Mr Hedley argues that managed funds should be treated differently to other foreign-owned transactions given their nature.
“There’s a big difference between foreign direct investment … and people like us who are managing money on behalf of investors, through a collective instrument that is based here in Australia, even though my beneficial owners happen to be offshore.”
While China is often seen as being the biggest investor of Australian farmland, it’s actually the United Kingdom which holds the largest portfolio of land with 2.6%. China comes second, owning a 2.3% share, followed by America with 0.7%. Other players in the top ten include the Netherlands, Bahamas, Canada, Switzerland, Hong Kong and Saudi Arabia.
Of the amount of foreign interest in Australian agriculture, approximately 80% is leasehold.