By Dr Matthew Durban, former senior economist and trade & investment commissioner

The Albanese government is committed to changing Australia’s energy mix. This will require trillions of dollars of investment with overseas capital critical to success. However, national security and by extension economic security settings have in recent years constrained Australia’s competitiveness and thereby inhibited the ability to attract much needed foreign direct investment (FDI).  

The last time the World Bank ranked economies by Ease of Doing business in 2020, Australia came in at number 14 out of 190, up from number 18 the year prior but well below the number 10 spot in 2015. Australia ranked best on getting credit, starting a business and enforcing contracts. We were closer to the middle of the pack for getting electricity ranking 62, and trading across borders ranking 106.  

If the competition to attract businesses and investment in the green economic transition was not already intense enough, many countries are actively pursuing domestic industry support. The Global Trade Alert (GTA) database launched in May this year has tracked US$1.4 trillion worth of industry interventions in 75 jurisdictions since the beginning of 2023. Measures range across the production of low carbon goods, dual use goods, critical minerals, medicines and semi-conductors. The GTA estimates that a little under half are related to addressing the ultimate negative market externality – climate change.

Foreign investment growth has been slowing  

Fast forward four years, the World Bank survey is no more, and we can only gauge Australia’s performance in attracting international investment by the Australian Bureau of Statistics capital stock measure, aggregated annually by country and generated five months after the fact. This FDI is crucial to the country’s energy transition. Australia has been a net capital importer since Federation. Recent performance however has been mixed. 

Although the overall level of FDI stock in Australia rose 2.9 per cent per cent in 2023, this is a far cry from pre-pandemic growth levels. FDI grew almost 30 per cent in the five years to 2018 but only 12.2 per cent in the five years to 2023. 

With more than a 23 per cent share of FDI in 2023, Australia remains heavily dependent on America. Although China entered our top 10 sources of foreign direct investment in the early 2010s, it never displaced the traditional partners of the US, the United Kingdom, Japan, Singapore and Europe.  

Since the financial crisis, European multinationals such as Acciona, Engie, Iberdrola and Neoen and institutional investors from Canada, the US and the UK have lifted their capital stock in Australian energy and infrastructure. Japan’s FDI capped a record 18 per cent investment over five years with 5.2 per cent growth in 2023. 

At $127 billion in 2022, European FDI was almost three times China’s. The US and UK remain our first and second largest investors with just over a trillion dollars each. Chinese FDI continues to plateau however, driven by a slowing domestic economy and the Australian government’s deterrence of investment in a wide variety of sectors deemed ‘in the national interest’. 

Having set emissions targets, the Australian Government’s industry policy A Future Made in Australia is designed to foster decarbonisation, clean energy generation and manufacturing, supporting the market by taking advantage of Australia’s comparative advantage in green resources and critical minerals.

In their submissions to the Senate on the Future Made in Australia bill, existing investors such as BHP and Japan’s Inpex cited the need for ‘stable and predictable policy settings’ to achieve such decarbonisation objectives. There is frustration at state and federal irregular and uncompetitive tax regimes, a paucity of skills (at start-up and for operation), lengthy environmental approvals (complex, unbalanced and taking years), and inadequate power and water infrastructure for new deposits or energy networks.  

New partners are needed to boost foreign investment competitiveness 

There is a distinction between policies that address market externalities, foster innovation and export capability (think green steel, hydrogen and associated infrastructure) and those that prop up uncompetitive production or already established industries (think fossil fuels, solar panels). The initial investments from the National Reconstruction Fund and the Hydrogen Headstart Program will hopefully bear this out. 

The energy transition in Asia is potentially a massive economic opportunity for Australia. Australian goods and services exports literally power the region. Our exports are dominated by three export commodities (iron ore, coal and gas) and three export markets (China, Japan and Korea). All three commodities and all three markets accounted for more than 52 per cent of goods and services and 46 per cent of total exports respectively in 2023. Our renewable energy investment and consequently our exports ought not be limited by these behemoths. There is the opportunity to expand the range of energy and product manufacturing cooperation with existing partners including China (e.g. into green steel and hydrogen) and expand the range of countries with which we partner (e.g Southeast Asia and the Pacific) to develop jointly projects in each other’s countries and pursue economic growth. Climate change affects us all. The solutions need to be for all. 

Without a clear-eyed view of country economic partners and an energy pipeline of sequenced opportunities, competitiveness will continue to deteriorate, finance will remain elusive, and the nation’s net zero targets will be at risk. Unfortunately the emotive association of national security with borders and sovereignty has now extended to economic self sufficiency which sets almost impossible commercial constraints on FDI so necessary for our energy security and any future in value-added manufacturing. 

Dr Matthew Durban is the former head of global insights at the Australian Trade and Investment Commission, a senior and a past senior trade and investment commissioner to Indonesia and India.

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