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Foreign Investment Review Board - Report for - 1988-89

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Foreign Investment Review Board

Report 1988 - 89

Department of the Treasury

Foreign Investment Review Board

Report 1988-89

Australian Government Publishing Service Canberra

© Commonwealth of Australia 1989

ISBN 0 644 11182 8

This work is copyright. Apart from any use as permitted under the Copyright Act 196S, no part may be reproduced by any process without written permission from the Director, Publishing and Marketing, AGPS. Inquiries should be directed to the Manager, AGPS Press, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601. (A)


No· 36 3 OF 1989 Ordered to be printed by Authority ISSN 0727-4181

Printed in Australia by R. D. RUBIE, Commonwealth Government Printer, Canberra

The Foreign Investment Review Board was established in April 1976. The members during 1988— 89 were Sir Bede Callaghan, CBE, Chairman, Mr Kenneth Stone, Mr Desmond Halsted, and M r George Pooley.

The main functions of the Board are:

• to examine proposals by foreign interests for investment in Australia and, against the background of the Government’s foreign investment policy, to make recommendations to the Government on those proposals;

• to advise the Government on foreign investment matters generally;

• to foster an awareness and understanding, both in Australia and abroad, o f the Government’s foreign investment policy; and

• to provide guidance, where necessary, to foreign investors so that their proposals may be in conformity with the policy.

The Board is assisted by an Executive which is part of the Treasury and also has available to it advice from other Com­ monwealth and State Government departments and authorities.

The Board’s functions are advisory only. Responsibility for administration of the Government’s foreign investment policy and for making decisions on proposals rests with the Treasurer.


Sir Bede Callaghan, CBE, has been Chairman of the Board since 1976. He is a fo rm er M an ag in g D ire c to r of th e

Commonwealth Banking Corporation. Sir Bede has also been an Executive Director of the In te r n a tio n a l M o n etary F und a n d th e

International Bank for Reconstruction and Development.

Mr Desmond Halsted was appointed to the Board in October 1984. He was Deputy Chair­ man of Hooker Corporation Ltd, having retired as an executive from the Hooker Group in 1982. He is a director of a number of companies.

Mr Kenneth Stone was appointed to the Board in May 1984. He was Secretary, Victorian Trades Hall Council and Junior Vice-President of the Australian Council of Trade Unions. He is National Director of the Australian Trade Union Training Authority

Mr Pooley is head of the Finance and Investment Division of the Australian Treasury and Executive Member of the Board.

c / - Treasury Building Canberra ACT 2600

Foreign Investment Review Board

Telephone 63 9111 Telex 62010

December 1989

The Hon. Paul Keating, MP Treasurer Parliament House CANBERRA ACT 2600

My dear Treasurer

In accordance with its responsibility to advise the Government on foreign investment matters, the Foreign Investment Review Board has the honour to submit to you its Report for the financial year 1988-89.

The first chapter of the Report outlines the changes to the foreign investment legislation during 1988-89; the second chapter reviews the activities of the Board and provides an overview of the year's foreign investment proposals; the

third chapter discusses the proposals in a little more detail by industry sectors; and the fourth chapter reviews developments in the levels and inflows of foreign investment in Australia, as indicated by data produced by the Australian

Bureau of Statistics, and summarises available information on foreign ownership and control in the Australian economy.

Yours sincerely

de Callaghan 'airman

Highlights for 1988-39

• There were no changes to foreign investment policy during the year. Major amendments were made to the Foreign Takeovers Act 1975 to give legislative effect to policy changes announced in earlier years.

• More than 5100 proposals for investment in Australia were submitted to the Government—688 of them were withdrawn or approved auto­ matically, 4398 were approved and 77 were rejected.

• The rejection rate was 1.7 per cent. In the previous year, it was 3.1 per cent. Most of the rejections in 1988-89 were in the real estate sector.

• At about $32 billion, the aggregate level of total expected expenditure associated with proposals approved in 1988-89 was about 29 per cent more than in the previous year (major qualifications attach to this and other statistics).

• Large proposals accounted for about two-thirds of the total expected investment— 139 proposals each involving expected investment of more than $50 million accounted for more than $21 billion of expected investment.

• The sectors that recorded strongest growth in total expected investment, compared with 1987-88, were tourism and real estate.

• Japan was the most significant investor source country in terms of total expected expenditure ($9.1 billion). The other major sources were the United States ($3.7 billion), the United Kingdom ($3.6 billion), Hong Kong ($2.0 billion) and New Zealand ($2.0 billion).

• Australian interests were parties to 454 foreign investment proposals and were expected to contribute about $5 billion in expenditure (about one-seventh of total expected investment).

• The average time taken to process proposals rose from 20 days in 1987-88 to 22 days in 1988-89, reflecting changes in the relative mix of simple and difficult cases in different industry sectors and the complexity of policy requirements in those sectors. (In 1986-87, the average was 26 days.)

• A number of meetings were held by Board members and/or the Execu­ tive with foreign and Australian investors.




Chapter 1 Changes to foreign investment legislation 1

— Urban real estate 1

—Other amendments to the Foreign Acquisitions and Takeovers Act —General strengthening of the Act

Chapter 2 Administration of foreign investment policy — Statistical qualifications — Definition of ‘Expected Investment’ — Summary of proposals

—Proposals by country of investor —Location of expected investment —Consultation arrangements 10

— International organisations 10

—Processing of proposals 11

— Freedom of information 11

—Cost of the Board's operations 11

Chapters Foreign investment proposals by industry 13

—Urban real estate 13

—Residential real estate 13

—Commercial real estate 15

— Tourism 16

— Service industries (excluding tourism) 17

—Finance & insurance 17

— Manufacturing 18

— Minerals 19

—Resource processing 19

—Rural land 20

Chapter 4 Aggregate foreign investment: Australian Bureau of Statistics data 21

—Overview of foreign investment inflows 21

—Non—official direct investment 23

—Non—official portfolio and other investment 23

— Australian investment abroad 23

— Investment levels 25

—Foreign investment by country 25

— Australia’s level of external debt 25

-—Foreign ownership and control in Australia 25

— ABS industry studies 25

Attachments Attachment A Foreign investment policy and administration —legislation, policy statements and publications 32

Attachment B Foreign investment proposals—press releases by the Treasurer, 1988-89 34

Attachment C Summary of foreign investment policy as at August 1989. 35

Statistical Appendix 38


vo oo ivx t-n - P > . t - » J to


Chapter 1: Changes to Foreign Investment Legislation

During 1988-89, there were no changes to foreign investment policy but major amendments were made to the Foreign Takeovers Act 1975 to give legislative effect to policy changes announced in earlier years. This chapter outlines the provisions of the Foreign Takeovers Amend­

ment Act 1989, which was passed by Parliament during 1988-89 although it did not come into operation until 1 August 1989. One result of the amending legislation is that the name of the Foreign Takeovers Act has been changed to the Foreign Acquisitions and Takeovers Act 1975 (the Act).

The legislative amendments fall broadly into five categories: (i) the extension of the scope of the Act to include acquisitions of Australian urban real estate by foreign interests; (ii) the exemption from the Act of small takeover proposals involving

Australian businesses with total assets of less than $5 million (less than $3 million in the case of rural properties); (iii) the increase from S3 million to $20 million in the threshold amount above which offshore takeovers (that is, takeovers where both the

offeror and target are incorporated outside Australia but subsidiaries or assets in Australia are incidentally involved) are subject to the Act; (iv) the exemption from the Act of proposals to acquire interests in mineral exploration rights (through ‘farm-in’ or ‘farm-out’ arrangements or a

rearrangement of interests in a joint venture agreement); and (v) a general strengthening of the Act.

Urban real The most significant legislative changes relate to urban land. Urban land is e sta te defined in the Act to mean all land that is not being used wholly and exclusively for a business of primary production. Interests in Australian urban land include certain legal or equitable interests, leases of five years or

more, options and profit sharing arrangements in respect of Australian urban land, and interests in companies and trusts that have more than half their assets in the form of Australian urban real estate. The amending legislation obliges a foreign interest to notify a proposal

to acquire an interest in Australian urban land (unless that acquisition is exempt under the regulations—see below). It also empowers the Treasurer to prohibit foreign acquisitions of urban land that are judged contrary to the

national interest and to order the disposal of interests in urban land purchased without notification and determined by the Government to be contrary to the national interest. These amendments give statutory effect to existing foreign investment

policy but do not change the policy in any material way. In particular, the legislation does not spell out the criteria used in deciding whether proposals are contrary to the national interest. In keeping with the long-standing foreign investment practice, and to maintain flexibility and avoid excessive

legalism, the criteria for examining proposals notified pursuant to the legislation continue to be set down by way of Ministerial statement and published in guideline form. Chapter 1 of last year’s Annual Report


O ther Am end­ m en ts to th e Act

described the major changes that were made in September 1987 to the foreign investment policy applying to urban real estate. The policy stance described in that chapter continues to apply—albeit that the Government now has legal powers of enforcement.

One long-standing feature of the Government’s foreign investment policy has been for certain classes of real estate purchases by foreign interests to be exempt from examination. Now that the urban real estate aspects of foreign investment policy have been given legislative form, those exemptions have been broadly maintained, and in some areas extended, by regulations under the Act.

The types of acquisitions of real estate that have been exempt from examination under foreign investment policy in the past have been purchases by foreign charities, insurance companies and superannuation funds operat­ ing in Australia for the primary benefit of Australians; purchases of industrial property (eg factories) where the acquisition is wholly incidental to the conduct of the Australian business of the foreign buyer, annual program arrangements and ‘off-the-plan’ sales of residential units where these ar­ rangements have been specifically approved in advance by the Treasurer; and purchases of property for use by foreign governments as diplomatic missions or residences.

All of these long-standing exemptions were confirmed by the Foreign Acquisitions and Takeovers Regulations which came into effect with the commencement of the amending legislation. Certain other types of acquisitions have also been exempted under the Foreign Acquisitions and Takeovers Regulations. Experience has shown that

these types of acquisitions rarely raise sensitive policy issues. They involve purchases of residential property by approved migrants and other foreign nationals entitled to permanent residence in Australia; purchases by Austra­ lian citizens resident abroad; acquisitions of non-residential commercial property valued at less than $5 million; and foreign portfolio investments in publicly-listed property companies and public property trusts. These latter categories of exemptions did not come into operation until 1 August 1989 and so had no effect on the Board’s statistics for 1988-89. In future years, it is expected that they will reduce the number of examinable proposals by

1000 to 1500 per year.

The non-real estate provisions of the amending legislation give legislative effect to existing foreign investment policy by introducing thresholds below which proposals by foreigners to buy Australian businesses are exempt from examination; by excluding from examination foreign acquisitions of mineral exploration rights; and by increasing the threshold above which offshore takeovers are subject to notification. Those amendments were foreshadowed by Ministerial statements in 1985 and 1987 and, in anticipation of their passage through Parliament, proposals falling within the relevant categories have received automatic foreign investment approval in the intervening period and have not been included in the Board’s statistics of proposals examined in both 1987-88 and 1988-89.


G eneral stre n g th e n ­ ing

Finally, the series of amendments were designed to strengthen the ambit of the Act. The definition of a foreign person was amended to include the trustees of trust estates in which there is substantial foreign ownership. The Act has also been amended to include a definition of ‘ordinarily resident in Australia’ viz a foreign national is only deemed to be ordinarily resident in Australia if that person has actually been in Australia for 200 days in the last

12 months and is legally able to remain in Australia indefinitely. The Act was amended to provide a legal basis for the long-standing practice of allowing foreign investment proposals to proceed by raising no objections subject to certain conditions being met. The Act provides penal­ ties for non-compliance with conditions.

Finally, the Act was strengthened by an amendment which provides for it to be an offence for a person to make false or misleading statements, by the inclusion of anti-avoidance powers which apply where schemes are entered into for the sole purpose of avoiding the provisions of the Act, and by an increase in penalties for offences.

To coincide with the commencement of the new legislation, a new edition of the guidelines booklet ‘Australia’s Foreign Investment Policy—A Guide for Investors’ has been published. It contains a comprehensive state­ ment of the current policy guidelines and the text of the Foreign Acquisitions

and Takeovers Act.


Chapter 2: Administration of Foreign Investment Policy

Statistical qualifica­ tions

The Foreign Investment Review Board’s primary function is to assist the Government in administering foreign investment policy. The Board exam­ ines proposals by foreign interests to undertake direct investment in Aus­ tralia and makes recommendations to the Government on whether those proposals are suitable for approval under the Government’s policy.

This Chapter outlines the Board’s activities during 1988— 89 and dis­ cusses aggregate statistics of proposals decided during the year. A summary description of the range of proposals subject to examination under foreign investment policy is provided in Attachment C.

Many qualifications need to be borne in mind in interpreting the statistics, which merely record the dollar amounts associated with expected expendi­ tures on proposed acquisitions and new businesses submitted by foreign interests for examination under foreign investment policy, including future known development expenditures. In particular, it should be borne in mind

that the figures recorded: • relate to proposals approved, which may or may not be implemented; and, if implemented, perhaps only over a period of years; • provide no indication of the source of the funds; • do not necessarily reflect changes in foreign ownership since, in some

cases, the vendor as well as the purchaser is foreign-owned; and • exclude foreign portfolio investments, direct foreign investments below the examination thresholds, expansions of existing foreign-owned busi­ nesses in Australia, and sales by foreign investors to Australian resi­


Also, policy changes from year to year mean that the statistics are not necessarily comparable over time; in particular, the major liberalisations to foreign investment policy since 1984 mean that the statistics for 1988-89 lack comparability in a number of significant respects with the figures for years earlier than 1987-88.

The Board’s statistics of examined foreign investment proposals are quite different from the Australian Bureau of Statistics (ABS) statistics of foreign investment in Australia set out in Chapter 4, which seek to measure the inflow and outflow of capital across the exchanges. By contrast, the Board’s statistics of approved proposals are not a guide to foreign capital inflow because, inter alia, the expected investment associated with proposals is often funded from domestic borrowings or from funds already in Australia.

Having regard to the qualifications mentioned above and elaborated in the Statistical Appendix—Limitations of the Data, the Board urges particular caution about comparisons between the 1988-89 statistics and those of earlier years.


Definition of

‘Expected investm ent’

Sum m ary of

p ro p o sals

The term ‘expected’ is used widely throughout this Report. Expected invest­ ment includes many elements in respect of proposals approved on a case by case basis: (i) the expected cost of acquisitions (shares or assets) or of real estate;

(ii) the expected cost of development following acquisition; and (iii) in the case of a new business, the expected cost of both establishment and development. In respect of proposals approved on a group basis, expected investment includes: (iv) annual programs1 for acquisitions of real estate for development (cost

of acquisitions only) and for acquisitions of developed commercial real estate; and (v) ‘off-the-plan’2 approvals whereby up to 50 per cent of units etc in residential real estate developments may be sold to foreign interests.

Total expected investment is the aggregation of the cost of each acqui­ sition, the development (if any) associated with each acquisition, develop­ ment associated with new business proposals and the value of annual programs and ‘off-the-plan’ approvals, valued at the time each application

is approved. Thus it can be said from Table A.2 in the Statistical Appendix that total expected direct investment during 1988-89 was $32 billion. It cannot be concluded, however, that $32 billion of direct foreign investment into Australia actually occurred during 1988-89. That is so, not only for the reasons set out in the paragraphs above about ‘Statistical qualifications’, but also because the $11.9 billion of development expenditure associated with

the $20.1 billion cost of acquisitions is likely to be spread over the years ahead (to the extent that the acquisitions and development occur at all).

Total expected investment associated with foreign investment proposals approved by the Government in 1988-89 was $32 billion, or about 29 per cent more than the 1987-88 expected level of $24.8 billion. The number of

proposals considered in 1988-89 was 5163, compared with 3754 in the previous year. Of the $32 billion total expected investment in 1988-89: • $20.1 billion was attributable to the expected cost of

acquisitions and $11.9 billion to expected development expenditures; • of the $20.1 billion attributable to acquisitions, $8.6 bil­ lion was represented by proposed purchases of real estate,

$4.1 billion by proposed acquisitions in the manufactur­ ing sector, $1.8 billion by proposed acquisitions in the mining sector, $1.4 billion by proposed acquisitions in the tourism sector, and $2.4 billion by proposed acquisi­

tions in the non-tourism services sector; • of the $ 11.9 billion expected development expenditures, $4.3 billion was proposed expenditures arising from new

1 To a v o id th e n e e d fo r e s ta b lish e d re a l e s ta te d ev elo p ers to n o tify in d iv id ­

ual a c q u is itio n s , re q u e sts fo r a n n u al p ro g ra m s of a c q u isitio n s by foreig n

in v e s to rs m ay b e su b m itte d fo r G o v e rn m en t a p p ro v al on the c o n d itio n , inter a lia , th a t in v e s to rs re p o rt a n n u a lly on re a l e s ta te a c q u isitio n s and the d e v e l­

o p m en t u n d e rta k e n . 2 S e e C h a p te r 3 fo r an e x p la n a tio n o f th e ‘o ff-th e -p la n ’ a rra n g e m e n ts.


businesses—of which $2.9 billion (almost 70 per cent) was in tourism, $0.3 billion in mining and $0.4 billion in resource processing. The remaining $7.6 billion was ex­ pected development associated with proposed acquisi­

tions, mainly in real estate ($6.1 billion), tourism ($0.7 billion) and resource processing ($0.7 billion). That is, apart from new business proposals, there were relatively little expected development expenditures re­ corded with respect to acquisitions in agriculture, mining, manufacturing, finance and insurance, and services (ex­ cluding tourism). (In part, this may reflect the fact that approvals in these sectors are not dependent on develop­ ment expenditures— even if foreign investors plan devel­ opment expenditures in respect of proposals in these sectors, they may not bother to inform the Board of the relevant expenditures as they are not critical to gaining approval.) Most of the total expected investment was in:

• real estate ($ 14.8 billion); • tourism ($5.0 billion); • manufacturing ($4.4 billion); • services other than tourism ($2.6 billion); and • mining ($2.2 billion). There was relatively less expected investment in agriculture, finance and insurance and resource processing.

Of the $14.8 billion expected investment in real estate: • $8.6 billion was the expected cost of the acquisitions. (The latter figure included $2.0 billion for annual pro­ gram approvals and $2.0 billion for the ‘off-the-plan’

approvals granted to real estate developers, a significant portion of which—perhaps 50 per cent—is unlikely to be utilised); • the remaining real estate investment ($6.1 billion) was

expected development expenditure, of which $4.2 billion represented expected development of commercial real estate and $1.7 billion development of residential real estate; • the main locations for expected real estate investment

were NSW ($8.3 billion), of which more than 85 per cent was in Sydney, and Queensland ($3.9 billion), of which 70 per cent was on the Gold Coast. Approximately 65 per cent of expected real estate investment on the Gold Coast was attributed to residential real estate for development, including ‘off-the-plan’ approvals. By contrast, nearly 66 per cent of expected real estate investment in Sydney was accounted for by commercial real estate for development; • acquisitions of developed residential properties ac­

counted for less than 3 per cent of expected investment in real estate ($369 million) but involved more than 1450 proposals, comprising 40 per cent of the number of real estate proposals examined. Of the more than 1450 pro-

posals, Australian citizens living abroad accounted for 37 per cent, and intending migrants 29 per cent, of the expected expenditures on purchases of developed resi­ dential property. Total expected investment in tourism was $5.0 billion: the expected development expenditures amounted to 72 per cent of the total. Most of the expected investments in tourism were in Qld ($2.7 billion) and NSW

($1.8 billion). Of the $32 billion total expected investment, at least $5.0 billion was attributable to Australian entities participating in ventures with foreign interests (see Table A.4). Taking account of this, and on the basis that little more than half of the $4.0 billion annual program and ‘off-the-plan’ approv­ als are likely to be utilized, a better approximation of total expected foreign investment approved in 1988-89 would be, say, $24 billion rather than $32 billion. Even the latter figure would, of course, be subject to the

statistical qualifications explained at the beginning of the Chapter. During the year, more than 5100 proposals were submitted to the Government for consideration, cf more than 3700 in 1987-88. Of this total, 338 were withdrawn and 350 were approved automatically—in anticipation of amendments to the Foreign Takeovers Act. Thus, in 4475 cases decisions

were needed. The very substantial increase in the number of proposals needing decision in 1988-89 is in large part the result of the full-year effect of the real estate policy changes in late 1987. Of the 4398 proposals approved during 1988-89, 1879 were approved without conditions and 2519 were approved subject to conditions. Most of

the conditions were in respect of acquisitions of urban real estate. The rejection rate for proposals was 1.7 per cent. This compares with 3.1 per cent in 1987-88, 0.4 per cent in 1986-87, 1.5 per cent in 1985-86 and 2.6 per cent in 1984-85. The decrease in the number of rejected propos­ als in 1988-89 reflects the improved understanding of residential real estate policy during the year. Total expected investment associated with the 77 proposals rejected in 1988-89 was $53 million. Of the 77 rejected proposals,

there were 71 in the real estate sector, two in the tourism industry, two in services other than tourism, one in minerals and one in the resource process­ ing sector. Further details are provided in Chapter 3. Several of the rejected

proposals were later re-submitted with new and/or additional information and approved. Table 2.1 provides an industry breakdown of proposals of more than $50 million. As the figures indicate, the proportions of expected investment attributable to different industry sectors, from proposals of $50 million or more, changed in some respects between 1987-88 and 1988-89.


TABLE 2.1: EXPECTED INVESTMENTS OF MORE THAN ____________ $50 MILLION________________ ___________

Industry Sector Expected investment

1987-88 1988-89

$b Per cent $b Per cent

Manufacturing 4.1 25 3.3 15

Mining 1.9 12 1.5 7

Finance & Insurance 1.3 8 0.6 3

Services (excluding Tourism) 1.7 10 1.4 6

Tourism 1.5 9 4.0 18

Real Estate 5.7 35 9.4 43

Other 0.2 1 1.6 7

Total 16.5 100 21.8 100

Note: Figures may not add due to rounding.

The data indicate a relative increase in expected large investments in the real estate and tourism sectors and a decline in manufacturing, mining, finance and insurance and non-tourism services sector. However, these figures are susceptible to the lumpiness associated with a few big proposals.

P ro p o sals Information on the number and value of proposals approved by country of by country investor is given in Table A.4. Expected investment levels by country of Of investor investor for 1985-86 to 1988-89 are summarised in Table 2.2.


Country of investor _______ Expected investment

1985-86 1986-87 1987-88 1988-89 $b $b $b $b

Japan 1.9 3.2 5.4 9.1

United States 1.7 3.6 1.7 3.7

United Kingdom 1.8 2.1 4.7 3.6

Hong Kong 0.4 0.6 0.8 2.0

New Zealand 0.5 3.5 2.8 2.0

Singapore 0.1 0.2 0.2 0.5

Australia 2.2 4.2 6.0 5.0

Other 1.2 1.1 3.2 6.2

Total 9.8 18.5 24.8 32.0

Note: Figures may not add due to rounding.

Japan, the United States, the United Kingdom, Hong Kong and New Zealand were the main expected investing countries in 1988-89. The UK and the US have traditionally been the major source countries for direct foreign investment in Australia, while substantial direct investment by Japan, and to a lesser extent New Zealand, is a more recent phenomenon.


Japan was the largest source country for expected investment approved in 1988— 89, accounting for 28 per cent of the total expected investment for the year, cf 22 per cent in 1987-88. (Japanese investment as a proportion of the total stock of direct foreign investment in Australia would be a good deal lower than 20 per cent since Japanese investment in Australia has been significant for a much shorter time period than investment from the United Kingdom and the United States.)

The main feature of expected Japanese investment in Australia ap­ proved in 1988-89 was its concentration in real estate and tourism. By far the greater part of it will involve development expenditures—construction of tourist facilities and construction of other real estate—and the creation of jobs for Australians associated with the tourist industry. About 54 per cent

of total expected Japanese investment ($4.9 billion) involved the real estate industry; of this amount $3.8 billion—nearly 80 per cent—was expected real estate development. Japanese interests also accounted for some 60 per cent of the total expected investment in the tourism industry, mainly in Queens­

land and, to a lesser extent, in New South Wales and Western Australia. The United Kingdom and the United States together accounted for approximately 60 per cent of the $4.4 billion total expected investment in the manufacturing sector.

Although direct investment from the United States was predominantly directed towards the manufacturing sector, there was significant expected investment also in services (other than tourism), mining and resource pro­ cessing.

Direct investment from the United Kingdom was spread between the real estate and to a lesser extent services (other than tourism) and the finance and insurance and manufacturing sectors. Expected investment from Hong Kong was mainly in real estate,

tourism and other services. Hong Kong investors also accounted for 31 per cent of the number of expected purchases of residential real estate by intending migrants. More than 70 per cent of expected New Zealand investment was in the

real estate sector. There was also some investment in manufacturing and services other than tourism. New Zealanders accounted for nearly 55 per cent of the number of total expected purchases of developed residential real

estate by intending migrants.

Location of The distribution by State and Territory of expected investment is shown at expected Table A.5 and summarised in Table 2.3. investm ent Variations between years in the State and Territory distributions of proposed investments should be interpreted with caution; they reflect in part

the lumpiness of particular projects. The rising figure for Queensland compared with earlier years is partly due to the change in real estate policy, which has had a proportionately greater impact upon the figures for that State. Even so, the main destinations for foreign investment over the past

three years have been New South Wales and Queensland.



1986-87 1987-88 1988-89

$b $b $b

New South Wales 4.7 8.0 11.3

Victoria 1.1 1.9 1.3

Queensland ... 2.9 5.2 7.5

Western Australia 1.5 1.7 1.9

South Australia 0.5 0.7 0.4

Tasmania 0.1 0.1 0.1

ACT 0.1 0.1 0.1

Northern Territory 0.1 0.1 0.1

10.9 17.7 22.9

Other (a) 7.5 7.1 9.1

Total 18.4 24.8 32.0

Note Figures may not add due to rounding. (a) Includes off-shore takeovers and proposals where the expenditure is expected to be undertaken in more than one State or Territory.

C onsulta- During the year, the Board consulted various Commonwealth and State tion ar- departments and authorities with an interest in particular (mainly large) rangem ents foreign investment proposals. Their advice and comment was helpful in assessing the implications of proposals and the Board acknowledges the

assistance received from the relevant Commonwealth and State departments and authorities. The Board regards its procedures for liaison with the State Governments as important in aiding the administration of foreign investment policy.

In keeping with one of its functions, that is, to foster an awareness and understanding of the Government’s policy and to provide guidance to investors, members of the Board and its Executive participated in a number of meetings with both potential foreign investors and Australian businesses to explain foreign investment policy and its administration and the applica­ tion of the policy to particular proposals. Over the course of the year, presentations on foreign investment policy were given to foreign and local businesses and groups.

Interna- Australia subscribes to the 1976 Declaration of the Organisation for Eco- tional or- nomic Co-operation and Development (OECD) concerning international g an isatio n s investment and multinational enterprises. The Declaration comprises two instruments (covering national treatment and investment incentives and

disincentives) and a set of voluntary guidelines concerning the conduct of multinational enterprises in member countries. Australia also subscribes to two OECD Codes of Liberalisation, one covering capital movements and the other invisible transactions. The broad thrust of the OECD’s work in this area is to seek to liberalise international capital flows.

The Board is the national contact point for matters that arise in respect of the guidelines and its Executive is called upon to provide briefing on foreign investment policy matters relating to the Declaration and the Codes. Australia maintains a limited reservation under the Capital Movements Code.


P ro cessin g of

p ro p o sals

Freedom of

inform ation

Cost of th e B oard’s o p erations

The Board recognises the desirability of examining proposals promptly to enable decisions to be taken by the Government and conveyed to foreign investors within the shortest practicable time.

The information and other requirements applicable to foreign investors have been designed with a view to keeping to a minimum the cost and time involved for the parties in seeking foreign investment approval. Unfortu­ nately, however, recent years have seen a trend towards some foreign investors (mostly through Australian advisers) submitting proposals to the Board with insufficient information to enable speedy processing. This practice results in delays while additional information is sought.

The average time taken to process all proposals in 1988-89 was 22 days, about 2 days longer than in 1987-88. The number of proposals examined per staff member during 1988-89 was approximately 190, compared with some 35 per staff member a few years ago. The variation over any period in

the number of proposals examined per staff member is a reflection of the relative mix of simple and difficult cases in different industry sectors and the variations in the degree of complexity of policy requirements in those sectors.

In 1988-89, the Board’s Executive processed six applications received under the Freedom of Information Act 1982 (FOI Act) for access to documents concerning foreign investment matters. Wherever practicable, requests for information are answered without applicants needing to have recourse to the provisions of the FOI Act. The Executive takes particular care in responding to these requests to protect commercially sensitive or confidential informa­ tion.

It is the practice of the Executive to consult with the parties to a proposal about the documents that are the subject of an FOI request to establish whether the parties are prepared to have the documents made available to an applicant. As a result of these procedures, a full release of documents in respect of two of the six requests and a partial release in respect of two other requests was possible. There are a number of provisions available under the FOI Act for denying access to commercially confidential documents. This,

of course, has relevance to documents provided to the Board (or prepared by the Board or the Executive) in its examination of a proposal. During 1987-88, two decisions by the Treasury to deny access to documents relating to foreign investment proposals were appealed to the

Administrative Appeals Tribunal by the applicant. The hearing of these appeals took place during the second half of 1988. At 30 June 1989, no decision in respect of them had been handed down. No commercially sensitive or confidential documents have been re­

leased to applicants as a result of an FOI Act request or a subsequent appeal.

Consistent with the proper discharge of its functions, the Board is concerned to ensure that the cost of its operations is minimised. Government expendi­ ture on the Board in 1988-89 was a little under $50,000. As in previous years, about 75 per cent of the expenditure was for the remuneration of the Board

members; the remainder was for local travel, car hire and printing expenses.


Government expenditure on the Executive was about $750,000 in 1988-89. This expenditure was directed mostly to salaries, with relatively minor expenses being incurred for travelling, printing and computer ser­ vices. The total cost of foreign investment screening would also include a minor part of the expenditure of other Government authorities and agencies, at both the Commonwealth and State levels, that are consulted on proposals.

At end June 1989, there were 22 officers in the Foreign Investment Branch of Treasury compared with 15 in early September 1987.


Chapter 3: Foreign Investment Proposals by Industry

Urban real e sta te

R esidential real e sta te

This chapter provides a summary, on an industry basis, of the proposals submitted to the Board for examination in 1988-89 and comments on some of the more significant cases.

Last year’s Annual Report noted that the abolition of the $600,000 cumula­ tive threshold that applied to foreign purchasers of urban real estate until 1987 had resulted in a large increase in the number of real estate proposals submitted to the Board for examination. The heavy flow of real estate proposals continued in 1988-89, when there were 3797 applications (of

which 3726 were approved by the Government and 71 were rejected). The expected investment associated with the approved proposals involved an expected $8515 million for the purchase of property and $6144 million of expected development expenditures.

For policy purposes, the real estate industry is divided between the residential and commercial sectors (and within each of these sectors between purchases of developed property and purchases of property fo r develop­ ment). The discussion below is in terms of these different categories.

For 1988-89, total expected investment in residential real estate was $5185 million. A disaggregation of this figure according to type of proposal is provided in Table A.7. Briefly, $4815 million was attributable to residen­ tial real estate fo r development proposals and $370 million to purchases of

developed residential real estate. The latter category is restrictive in policy terms because the Govern­ ment wishes to reduce any upward pressure from foreign buying on estab­ lished house prices in Australia. Accordingly, approvals are only given for a strictly limited range of purchasers. Of the 1462 approved proposals for the acquisition of developed residential real estate in 1988— 89, 563 were accounted for by Australian citizens living abroad and 604 by approved migrants and other foreign nationals entitled to permanent residence in Australia. About half of the last category involved purchases by New Zealand citizens, who have an automatic entitiement to permanent residence

in Australia. The Foreign Acquisitions and Takeovers Regulations, which came into operation on 1 August 1989, will exempt from examination purchases of residential real estate by Australian citizens living abroad and foreign nationals entitled to permanent residence in Australia. This change will exclude from examination in future years about one thousand routine pro­ posals.

Reflecting the restrictive policy applying to most foreign purchasers of developed residential real estate, there were 51 rejections of proposed acquisitions of established housing during 1988-89. These proposals were rejected because the prospective buyers did not fall into one of the specific categories through which the guidelines permit purchase of developed residential real estate. A few of the rejected proposals involved the purchase


of rural residential properties—ie small rural blocks with an established dwelling. Generally speaking, unless the Government is satisfied that such proposals involve the takeover of a viable, genuine farming business, they are treated'as the purchase of developed residential property.

During 1988-89, there were 1846 approved proposals for the acquisi­ tion of residential real estate for development with total expected investment of $4815 million. Of these figures, $422 million was accounted for by three annual programs and $1986 million by 298 ‘off-the-plan’ approvals.

Under the ‘off-the-plan’ arrangements, foreign applicants may receive approval to buy up to 50 per cent of the units or condominiums in a new residential development project, either prior to or during the construction phase. Moreover, to streamline examination procedures, an Australian real estate developer may apply to the Board for a general approval to sell to foreign interests up to 50 per cent of the individual dwellings in a new development. Subject to an undertaking by the developer to report all sales to the Board annually so that compliance with the 50 per cent requirement can be monitored, the Government issues such general approvals and thus

saves the time and expense that would otherwise be involved if individual foreign purchasers had to make separate applications to the Board. The effect of these procedures, however, is that the Board’s statistics overstate the likely extent of foreign purchases, since it is expected that few of the 298 developers (in 1988-89) with ‘off-the-plan’ approvals will sell a full 50 per cent of their developments to foreign purchasers. For that reason, the figure of $1986 million in Table A.7 for ‘off-the-plan’ proposals is undoubtedly an overstatement of actual purchases by non-residents. A preliminary analysis of ‘off-the-plan’ reports received to date by the Board from developers indicates that aggregate sales to foreign interests are un­ likely to exceed 25 per cent of total sales, although in some individual developments foreign sales are close to the 50 per cent ceiling.

Apart from annual programs and ‘off-the-plan’ approvals, the Board examined 1545 proposals by foreign interests to acquire residential real estate for development (expected investment of $2407 million). These pro­ posals comprise the purchase of broadacres for residential subdivision,

vacant building blocks for single dwellings and in some instances for integrated residential developments such as town house and high rise units. These proposals are approved on condition that construction is commenced within a stipulated period of time; such proposals add to the housing stock in Australia and yield direct economic benefits.

Queensland was the main location for expected foreign investment in residential real estate developments (the bulk of which are concentrated on the Gold Coast), followed by New $outh Wales: the two States together accounted for 85 per cent of expected investment in the development of residential real estate in 1988-89.

There were 18 rejections of proposals involving residential real estate fo r development in 1988-89. Most of them were rejected because either the planned development expenditures were not considered significant in rela­ tion to the acquisition price for the property (there is a normal expectation

that it should be at least 50 per cent) or the proposed timetables for development were unsatisfactory. The Government does not favour foreign interests holding vacant land in an undeveloped state for a long time and expects proposals to provide for development of properties to commence

Com m er­ cial real e s ta te

within a reasonable period (normally 12 months for small projects but with some flexibility in the case of larger, more complex developments). Two proposals were rejected because the prospective foreign purchasers had not established to the Government’s satisfaction that they had the technical and financial capacity to undertake developments on the scale envisaged—these proposals were subsequently re-submitted with greater detail and approved.

During 1988-1989, the Government approved 399 proposals involving non-residential commercial real estate and rejected two. The total expected investment associated with the approved proposals was $9,475 million.

Of the approved proposals, 22 with a total expected expenditure of $1528 million were processed under the annual program arrangements. This figure is little changed from 1987-88, when 22 annual programs were approved with a total value of $1558 million. The annual program figures

tend to exaggerate actual foreign investment because companies submitting annual program applications tend to err on the high side in estimating their expected level of purchases. In its 1987-88 Report, the Board expressed the

tentative conclusion that little more than half of the annual program approv­ als would be utilised. Follow-up inquiries and reports from the companies involved have indicated that during 1987-88 only about 30 per cent of programs were utilized compared with about 20 per cent in 1986-87.

A further 137 individual proposals were approved as commercial real estate fo r development, with expected consideration of $1641 million and a further $4157 million expected to be spent on development. Included in these figures are three major development projects which together account

for nearly 40 per cent of the total. In accordance with normal practice, the expected investment associated with these projects has been recorded in the Board’s statistics for the year in which the approval was given (1988-89) although it is obvious that actual expenditures will be spread over several

years. Moreover, there is an element of double counting since one of the projects was originally approved (with different ownership) in 1986-87 and would have been included in the Board’s statistics for that year. For acquisitions of developed commercial real estate, the policy seeks either 50 per cent Australian equity participation or the demonstration that

Australian equity is not available on reasonable terms and conditions. Where properties are actively marketed to Australians for at least three months, or are sold by public auction or open tender, the Government normally accepts

that Australian equity is not available if the highest offer for the property in question comes from a foreign interest. During 1988-89, there were 240 approvals of proposals for the acqui­

sition of developed commercial real estate, most on the basis of 100 per cent foreign ownership following the marketing of the property in the manner described in the immediately preceding paragraph. These proposals in­ volved expected investment of $2149 million.

Two proposals involving developed commercial real estate were re­ jected, because the marketing efforts undertaken were considered by the Government to have been unsatisfactory. One of these proposals was subse­ quently approved, after fresh marketing of the property by the vendor did

not elicit a higher offer from an Australian interest.


The major investor countries in commercial real estate were Japan, New Zealand and Hong Kong. The major location of commercial real estate investment was Sydney, which accounted for about two-thirds of the total figure. Examples of major commercial real estate proposals in Sydney

include the acquisition by the Japanese owned Kumagai-Gumi and Sogo companies of the Waltons Bond site on the comer of George, Park and Pitt Streets, Sydney for redevelopment as a department store/office complex, and the acquisition by a joint venture consisting of two Japanese companies (Nomura Real Estate Development Co Ltd and Toyo Real Estate Co Ltd) and the Australian owned Lend Lease Development Pty Ltd of property at Darling Harbour for development as a retail/office/hotel complex.

One aspect of the Board’s work which is not reflected in the statistics of new proposals but which has occupied some time in 1988-89 has concerned requests by foreign interests to be permitted to dispose of vacant land before it has been developed in the manner envisaged when the parties concerned originally sought approval to buy it. Of course, there can be a number of valid reasons why a particular proposal may not proceed to development. Even so, the Government is concerned to ensure that real estate is not acquired by foreign interests for speculative reasons. In one or two instances where foreign interests have chosen to sell the land rather than develop it in accordance with the approval given when the land was ac­ quired, the Government informed the parties concerned that they will not be given approval to buy further land for development in Australia for a specified number of years.

Tourism There were 40 new business proposals and 42 acquisition proposals in tourism and related industries in 1988-89. The total expected investment for these industries was $4997 million: substantially more than double the $2091 million total expected investment in tourism associated with ap­ proved proposals in 1987-88. The increase was mainly attributable to the greater number of new business proposals in 1988-89 (40 with expected investment of $2920 million compared to 13 and $1039 million in 1987-88). Proposed new hotel and resort developments accounted for most of this planned new business expenditure— more than 25 applications in 1988-89

involved the proposed establishment of new hotels and tourist resorts. Of course, not all of these proposals can be expected to be undertaken in the short term—some will take a number of years to commence and some may not proceed at all.

As in earlier years, expected investment in the tourism industry was again concentrated in Queensland ($2675 million) and New South Wales ($1839 million). These two States accounted for approximately 90 per cent of total expected investment in the tourism industry. Japanese interests were again the main expected investors in the industry, accounting for slightly more than two-thirds of the total expected investment in 1988-89. Further details of the breakdown of expected tourism investment by location and country of investor are provided in Table A.6.

There were twenty-six tourism proposals involving expected invest­ ment of $50 million or more, amounting to $3950 million. Among the largest of these proposals were the acquisitions of the Sanctuary Cove resort development on the Gold Coast by the Japanese-owned EIE group and of a part interest in the ‘Mirage’ resorts at Port Douglas and Surfers Paradise by the Japanese-owned Mitsui Group and Nippon Shinpan.


A feature of the tourism figures is the relatively high proportion of total expected investment associated with development expenditures and the relatively lower amount attributable to the purchase of assets. Of the $4997 million expected investment in tourism, more than $3600 million was

expected development expenditures and less than $1400 million was the consideration payable for the purchase of assets. While these figures are partly explained by the conventions used in recording the Board’s statis­ tics— 100 per cent of new business proposals are recorded as development

expenditures even though part of the investment is normally the purchase of land—the expected investment in tourism contains a heavy emphasis on development. Two proposals for investment in the tourism industry were rejected. One

proposal for a new hotel on the Gold Coast was not approved because the development timetable was too indefinite. While the Government indicated to the parties the steps necessary to make the proposal consistent with policy, the foreign interest concerned decided not to proceed. Another proposal for a Japanese company to participate in a joint venture with an Australian group for a new hotel and commercial development at Woolloomooloo Bay in

Sydney was rejected by the Government.

Service industries (excluding tourism )

Finance and

in su ran ce

During 1988-89, the Board examined 163 proposals for investment in the services industries sector (excluding tourism), comprising 17 new busi­ nesses and 146 proposed acquisitions. These numbers were little changed from 1987-88, when there were 13 new businesses and 147 acquisitions. The total expected investment associated with proposals in the non-tourism services sector in 1988-89 was $2645 million, compared with $2972 million in 1987-88.

There were thirteen proposals involving $50 million or more. Among the major new business proposals in the services sector was a joint venture between the US-owned Warner group and Australian interests to establish a series of new cinemas in Australia having more than one theatre in each

establishment. Major takeovers in the services sector included the Mojo- MDA advertising group (bought by two international consortia), the Mathers shoe retailing business (acquired by the US-owned Kinney Shoes), and the industrial, commercial and domestic security business of Wormald (pur­ chased by the UK Racal-Chubb Group).

Two proposals in the services sector were rejected. The Government decided that a proposal by a Malaysian-owned company to purchase an interest in a Perth evening newspaper was inconsistent with foreign invest­ ment policy. Aproposal by the US-owned Morgan group to establish a heavy

machinery distributorship for ‘Caterpillar’ products in Western Australia was initially rejected as contrary to the national interest but a restructured proposal involving the same company was later approved.

The Board examined 69 proposals in the finance and insurance industries during 1988-89 (65 acquisitions and 4 new businesses). The total expected investment was $1216 million. The equivalent figures for 1987-88 were 96 proposals (89 acquisitions and 7 new businesses) involving an expected

investment of $1862 million.


The four new business proposals in 1988-89 involved a new Korean- owned merchant bank, a UK-owned general insurance company, a West German-owned finance company and a new Japanese-owned investment company. The expected investment in the new businesses was $116 million compared with the figure for 1987-88 of $61 million.

During the year, the Treasurer gave approval for the overseas parents of three licensed Australian trading banks to acquire the minority Australian interests in their local operations and take foreign ownership of the three banks concerned to 100 per cent. These proposals involved The Industrial Bank of Japan Limited acquiring the minority 15 per cent interest in IBJ Australia Bank Ltd, the Oversea-Chinese Banking Corporation acquiring

the 30 per cent minority interest in Bank of Singapore (Australia) Ltd and the Bank of America National Trust & Savings Association acquiring the minority 25 per cent interest in Bank of America Australia Ltd from Coles Myer Ltd.

Another major acquisition in the finance sector during the year involved Citibank Ltd’s acquisition of the credit card business known as Australian Card Services Pty Ltd from the Smorgon family company, Linfa Pty Ltd. The Government also approved two competing proposals to acquire an interest in the Australian insurance company, Lumley Corporation Ltd. Dutch-owned Nationale Nederlanden (Australia) Ltd proposed to acquire an

18.9 per cent interest from BT Insurance Holdings Ltd and Edward Lumley Holdings Ltd of the UK proposed to acquire the outstanding 47 per cent interest that it did not already own. Edward Lumley Holdings Ltd success­ fully completed a takeover offer for the outstanding issued ordinary share capital of Lumley in August 1989.

M anufac- In the manufacturing sector, after substantial increases in the two preceding turing years, total expected foreign investment fell to $4353 million (from $5222 million in 1987-88). Maintaining the pattern of recent years, ex­ pected development expenditure on new businesses, at $257 million, was

small in relation to the expenditure on acquiring interests in existing busi­ nesses, viz $4095 million. By far the largest investors in this sector were the US ($1546 million) and the UK ($1105 million). Switzerland was a distant third with $256 million.

In this sector there was little change in the number of proposals received by the Board: the total of 125 proposals compares with 129 in 1987-88. The new business approvals included a joint venture between the Japanese Fujitsu group and Telecom to undertake research and development of telecommunications products and a joint venture between Pioneer Concrete and the French Lafarge group to make plasterboard. There were twenty manufacturing approvals involving expected expenditure of $50 million or above, the largest being the reorganisation of the Amatil food and tobacco group whereby Coca-Cola of the US replaced BAT as the largest shareholder but BAT obtained a majority interest in the tobacco operations formerly conducted by Amatil.

Other major acquisitions included the purchase by a joint venture between CSR and the Redland Group of the UK of the PGH brick and tile business; the purchase by SICPA of Switzerland of the Sidney Cooke printing supplies business; the purchase by Nestle of Switzerland of the 50 per cent of the Allen Life Savers confectionery business it did not already


own; the purchase by the Wilson Neill Ltd of New Zealand of the Cascade brewing business; and the purchase of the minority interests in the confec­ tionery and beverage manufacturer Cadbury Schweppes Australia by the UK parent Cadbury Schweppes pic.

No manufacturing proposals were rejected during 1988-89. However, one manufacturing proposal that was subject to an interim order under the Foreign Takeovers Act—the proposed acquisition of the Kirby steering gear operations by TRW Inc of the US—was eventually rejected in the early

months of the next year.

Minerals The 87 proposals (84 acquisitions and three new developments) in the mineral sector in 1988-89 involved proposed total expenditure of $2157 million, down from $2619 million in 1987-88. There was a substantial amount of restructuring in the coal industry during 1988-89, whereby a number of Australian-owned companies sold their interests to foreign investors. The improved outlook for coal exports and prices that developed during the year was a factor leading to these developments. The increased foreign ownership of the coal industry arising from these proposals was considered by the Government to be more than offset by the benefits to Australia of the coal resources passing into the hands of major companies that would be prepared to continue to capitalise and develop them over an extended period of years.

The larger proposals approved included the acquisition by the EEC- based Shell group of extensive coal interests from CSR; the US-owned Esso group’s acquisition of coal interests from White Industries; the purchase by the Italian AGIP group of coal interests from Mount Isa Mines and the US

Arco group’s acquisition of the Cook Colliery. The Renison Gold- fields/Dalgety development of the Glendell open cut coal project and the Murchison Zinc/Esso/Aztec development of the Scuddles base metals ore deposit in Western Australia were the largest new development proposals approved.

The largest sources of expected expenditure in the minerals sector were the US, the UK, the rest of the EEC, and Japan. Most proposals involved gold (28), coal (26) or oil (13). Twelve of the coal proposals involved Japanese interests, but both UK and US companies made substantially

greater total investments in Australian coal mines in 1988-89 than did Japan. Only one mining proposal was rejected in 1988-89: the Government decided that the proposed acquisition by Emperor Mines (incorporated in the Isle of Man) of all the shares in the Western Australian gold mining company Southern Resources was not in the national interest.

R esource The major resource processing proposal examined during the year was the p ro cessin g planned joint venture between Noranda of Canada and North Broken Hill to establish an export pulp mill at Wesley Vale in Tasmania. This project is not included in the Board’s statistics for 1988-89 because it was abandoned by

the two companies after the Government indicated that foreign investment approval would be subject to the negotiation of tougher environmental conditions than those required by the State Government.


Rural land

There were 14 other resource processing proposals in 1988-89, involv­ ing total expected investment of $1625 million. A significant amount of this expected investment was associated with two proposals—one involving the merging of the lead and zinc production facilities of CRA and North Broken Hill and another involving the planned development of heavy mineral sand deposits in Western Australia, by the US-owned Kerr-McGee Chemical Corporation and the Australian-owned Minproc.

Five proposals involved the establishment or acquisition of interests in abattoirs with a total expected investment of $51.7 million. Two of these proposals involved Japanese interests, two involved French interests, and one involved Singaporean interests.

One resource processing project was rejected. It involved the takeover of a rock lobster processing business in Western Australia. The Government decided that the proposal was inconsistent with foreign investment policy.

As noted in Chapter 1, recent amendments to the Foreign Acquisitions and Takeovers Act have exempted from foreign investment scrutiny proposals involving rural properties valued at $3 million or less. Pending the com­ mencement of this amending legislation, but in accordance with an an­ nouncement by the Treasurer, acquisitions of rural businesses below this threshold that were submitted for examination were approved automatically and for that reason are not included in the Board’s statistics for both 1987-88 and 1988-89.

Proposals involving rural properties valued at more than $3 million are approved unless judged contrary to the national interest. There were 23 rural property proposals above $3 million in 1988-89, involving a total expected consideration of $238 million. In the previous year there were 14 proposals involving $232 million. Two proposals ac­ counted for a large component of the total expected investment—a takeover of Sherwin Pastoral Company Limited by Bankers Trust Australia Limited and the acquisition of the hop farming business of Elders IXL Ltd by John I. Haas Inc of the USA. Only one proposal above $3 million involved a Japanese owned company— that proposal concerned the acquisition of an interest in a beef cattle grazing and feedlot property at Glen Innes, New South Wales.


Chapter 4:Aggregate Foreign Investment: Australian Bureau of Statistics data

Overview of foreign investm ent inflows

This chapter summarises trends in aggregate foreign investment in Australia and Australian investment abroad and presents estimates of foreign owner­ ship and control in Australia. As indicated in Chapter 2, ABS foreign investment data are based on

different criteria from those used by the Foreign Investment Review Board— the Board’s figures are an aggregation of the proposals submitted to the Executive, along with the expected associated expenditures. Table 4.0 sets out the relationship between foreign investment in Aus­ tralia and the current account deficit. In any year, aggregate foreign invest­ ment in Australia, minus Australian investment abroad, equals the balance on capital account. The balance on capital account should be equal to the current account deficit, but because of statistical discrepancies a balancing item has to be inserted to bring this about.

Table 4.1 sets out foreign investment flows into Australia from 1984-85 to 1988-89. In 1988-89, foreign investment in Australia totalled $26.1 billion compared with $23.0 billion in the previous year. Foreign investment attributable to the official sector (mainly general government borrowing)

was $0.8 billion in 1988-89, down sharply from the previous year’s figure of $4.0 billion. This mainly reflected a fall in borrowing domiciled in Australia, which may have partly been attributable to the increased Com­ monwealth budget surplus. The budget surplus also enabled repayment of $3.2 billion of Commonwealth government borrowing domiciled abroad, although this was partly offset by new State government borrowing domi­ ciled abroad of $2.8 billion. Foreign investment in the non-official sector was $25.3 billion in 1988-89, $6.3 billion higher than for 1987-88.


1984-85 1985-86 1986-87 1987-88 1988-89 $b $b $b $b $b

Foreign Investment in Australia 14.8 19.1 21.3 23.0 26.1

Australian Investment Abroad 3.2 4.9 12.4 14.4 10.5

Balance on Capital Account 11.6 14.2 8.9 8.6 15.6

Balancing Item -0.4 0.6 4.0 3.3 2.5

Balance on Current Account -11.1 -14.8 -12.9 -11.8 -18.1

Sources ABS 5301.0: Balance of Payments, Australia, September 1989 ABS 5306.0: Foreign Investment, Australia, June Quarter 1989 ABS 5305.0: Foreign Investment, Australia, 1987/88



Official Non-official —Direct —Portfolio and other

Total Non-official Total Official and Non-official

1984-85 to 1988-89 annual average 1984-85

$b per cent $b per cent

4.1 19.6 4.1 27.7

5.1 24.4 2.6 17.6

11.6 55.5 8.1 54.7

16.7 79.9 10.7 72.3

20.9 100.0 14.8 100.0

Sources ABS 5306.0 Foreign Investment, Australia, June Quarter 1989 ABS 5305.0 Foreign Investment, Australia, 1987/88 Note: Figures may not add due to rounding.

1985-86 $b per cent 5.6 29.3

3.3 17.3

10.2 53.4 13.5 70.7

19.1 100.0

1986-87 "SB percent’ 6.2 29.1

4.1 19.2

11.1 52,1

15.1 70.9

21.3 100.0

1987-88 "SB percent 4.0 17.4

5.2 22.6

13.8 60,0

19.0 82.6

23.0 100.0

1988-89 $b percent 0.8 3.1

10.5 40.2

14,8 56.7

25.3 96.9

26.1 100.0

Non-offi­ cial direct investm ent

Non­ official portfolio and o th er investm ent

(‘non direct

in vestm ent’)

A ustralian investm ent a b ro ad

Under the ABS framework for foreign investment statistics, direct invest­ ment represents funds invested in an enterprise by an investor (called a ‘direct investor’) in another country, which give the investor a ‘significant influence’, either potential or actually exercised, over the key policies of the enterprise (called a ‘direct investment enterprise’). Ownership of 10 per cent

or more of the ordinary shares or voting stock of an enterprise is considered to indicate ‘significant influence’ by an investor. The ABS classifies ‘direct investment’ flows into five categories— ‘re­ investment of earnings’ (the direct foreign investor’s share of unremitted profits of branches and other direct investment enterprises), ‘corporate equities’ (proceeds from the net sale of shares to direct foreign investors),

‘net equity in branches’ (changes in the net accounts to foreign resident owners of unincorporated enterprises), ‘borrowings’ (net borrowings by direct investment enterprises from direct foreign investors) and ‘other net accounts payable by direct investment enterprises to direct foreign investors’.

Table 4.2 indicates that foreign investment in 1988-89 in the non— official sector comprised: • $10.5 billion as direct investment, an increase of over 100 per cent on the previous year; and

• $14.8 billion portfolio and other (‘non-direct’) investment, an increase of 7 per cent over the previous year. Of the $5 billion increase in direct investment, there was a more than six-fold increase in direct investment in corporate equities from $0.6 billion in 1987-88 to $3.8 billion in 1988-89 and an increase in net equity in branches of $1.5 billion. In respect of direct investment, some $2.4 billion of the increase represents the ABS’s imputed estimate for undercoverage of real estate investment in Australia that was based on an analysis of data

obtained as a by-product of the foreign investment policy approvals mech­ anism. Estimates of undercoverage for 1986-87 and 1987-88 will be available in the September quarter 1989 issue of ABS publication 5306.0.

For the period 1984-85 to 1988-89, the non-official portfolio and other investment category has been the major contributor to non-official foreign investment in Australia (averaging around 70 per cent). This mainly reflects the high levels of foreign portfolio borrowings.

There was a further sharp fall in foreign portfolio investment in corpo­ rate equities in 1988-89, which may partly reflect the higher returns avail­ able from other financial instruments. Portfolio borrowings increased about 20 per cent from the previous year to $ 13.7 billion in 1988-89. This includes borrowing by public trading enterprises.

It is noteworthy that borrowings by banks increased each year from $1.9 billion in 1984-85 to $4.3 billion in 1987-88 and to $8 billion in 1988-89. Borrowings by banks increased from about 18 per cent of non-of­ ficial foreign investment in 1984-85 to about 32 per cent in 1988-89.

Australian investment abroad fell from $14.4 billion in 1987-88 to $10.5 million in 1988-89 (See Table 4.0). These figures include increases in Australia’s official reserve assets. Australian investment abroad excluding increases in official reserve assets fell from $10.5 billion in 1987-88 to

$9.6 billion in 1988-89.



1984-85 to 1988-89 annual average % of $b total

Non-official direct investment —Reinvestment of earnings 1.5 9.0 —Corporate equities 1.7 10.2

—Net equities in branches 0.5 3.0

— Borrowings — Banks(a) 0.13 0.8

—Other 1.2 7.2

—Other 0.1 0.6

Total direct investment 5.1 30.5

Non—official portfolio and other — Corporate equities 1.5

— Borrowings • banks(a) 4.4

• other public sector 2.9

• other private sector 2.7

—Accounts payable/ prepayments received______ (12 Total portfolio and other investment____________ 11,6 69.5

Total Non-official 16.7 100.0


26.3 17.4 16.2


1984-85 % of

$b total

0.6 5.6

0.3 2.8

0.1 0.9

0.03 0.3

1.1 10.3

0.4 3.7

2.6 24.3

0.5 4.7

1.9 17.8

3.2 29.9

2.4 22.4

0.2 1.9

8.1 75.7

10.7 100.0

1985-86 % of

$b total

0.9 6.7

2.1 15.6

-0.6 -4.4

0.6 4.4

-0.1 -0.7

0.3 2.2

3.3 24.4

-0.1 -0.7

3.8 28.1

2.1 15.6

4.5 33.3

-0.03 -0.2

10.2 75.6 13.5 100.0

1986-87 % of

$b total

1.2 7.9

1.7 11.3

0.1 0.7

0.7 4.6

0.5 3.3

-0.3 -2.0

4T____ 27.2

4.0 26.5

3.9 25.8

0.3 2.0

2.6 17.2

0 2 _____ 13

11.1 73.5

15.1 100.0

1987-88 % of

$b total

2.4 12.6

0.6 3.2

0.6 3.2

-0.1 -0.5

1.7 8.9

0.1 0.5

5.2 27.4

2.4 12.6

4.3 22.6

3.8 20.0

3.2 16.8

0.1 0.5

13.8 72.6

19.0 100.0

1988-89 % of

$b total

2.6 10.3

3.8 15.0

2.1 8.3

-0.6 -2.4

2.6 10.3

0.02 0.08

10.5 41.5

0.6 2.4

8.0 31.6

5.1 20.2

0.6 2.4

05____ 2.0

14,8 58.5 25.3 100.0

Sources ABS 5306.0 Foreign Investment, Australia, June Quarter 1989 ABS 5305.0 Foreign Investment, Australia, 1987/88 Notes:

(a) Change in data source for banks accounts for an increase of $ 1860m in the level of bank borrowing at June 30 1986 and thus figures to this date are not strictly comparable with figures subsequent to it. Figures are for private and public sector banks. Figures may not add due to rounding.

Investm ent levels

Foreign investm ent by country

A ustralia’s level of ex­ ternal debt

Foreign ow nership and c o n ­ trol in A us­


Table 4.3 shows that the estimated level or stock of foreign investment in Australia as at 30 June 1989 was $222.9 billion, comprising $78.2 billion of equities, $137.0 billion in borrowings and $7.7 billion in other forms. This represented an increase of around $31.9 billion, or 16.7 per cent, over the

level at 30 June 1988. O f the increase during 1988-89, $14.6 billion was accounted for by an increase in the stock of direct investment. The remainder was accounted for largely by increases in portfolio private borrowings

($11.1 billion) and in portfolio public borrowings ($5.3 billion). The large increase in the level of portfolio borrowing reflects, inter alia, the capital transactions during that period.

Table 4.4 shows the estimated stock of foreign investment in Australia by source country for the four years ended June 1988. The United States and the United Kingdom (the traditional source countries) each have an esti­ mated stock higher than that of Japan ($26.5 billion). Singapore, Switzer­ land, New Zealand and the Federal Republic of Germany had estimated stocks each of between $5 and $10 billion.

At 30 June 1989, the level of Australia’s net external debt was estimated at $108.2 billion, nearly 20 per cent higher than the estimate of a year earlier (Table 4.5). The increase in the growth of net debt is primarily a result of the increased current account deficit in 1988-89. Net external debt as a propor­ tion of GDP has shown a small increase during the past four years.

Foreign ownership statistics provide a measure of the total beneficial equity interest held by foreign residents in enterprises in Australia while foreign control statistics provide a measure of potential control (through ownership of voting shares) that foreign residents may have over enterprises in Aus­


A ustralian Bureau of S tatistics industry

stu d ie s

The following factors need to be borne in mind while using AB$ data to make observations about the level of foreign ownership and control of particular industries. First, movements in the aggregate level of foreign ownership or control of an industry over time may be caused either by

changes in the degree of foreign ownership of particular enterprises in that industry and/or by differences in the relative growth rates of foreign and Australian owned enterprises. $econdly, the basis used to measure owner­ ship or control (for example, value added, employment or turnover) may lead to different results because of differences in the capital intensities, efficiencies or stages of development in the industry. Finally, factors other

than share ownership may affect the control of businesses and the extent of participation in the profits of a business; these factors are not covered by the ABS studies.



Official _______________________________Non-official_____________________

Portfolio and other investment

Direct(a)_________ Accounts

At June 30

Equity Borrowing Other Corporate equities Borrowing

Public Sector

Private Sector

payable/ prepayments

1985 15.2 26.1 7.2 3.5 11.2 14.9 30.4 2.8

1986 23.8 27.8 8.9 3.8 12.7 19.0 40.8 2.8

1987 30.2 40.1 9.7 3.3 23.4 18.9 46.4 3.8

1988 33.0 46.3 11.2 3.4 20.2 22.8 50.3 3.8

1989 33.8 58.5 13.8 3.2 19.7 28.1 61.4 4.4


37.3 40.5 63.5 66.5




67.4 92.1 104.9 117.1 137.0

Source /

ABS 5305.0 Foreign Investment, Australia, 1987/88 ABS 5306.0 Foreign Investment, Australia, June Quarter 1989. Note: (a) The definition of direct investment changed from 1985/86 and therefore entries from that year are not strictly comparable with entries for previous years.

Figures may not add due to rounding.


6.6 6.9 7.4 7.5


TABLE 4.4: LEVEL OF FOREIGN INVESTMENT IN AUSTRALIA BY COUNTRY. 1984-85 TO 1987-88 ($A BILLION)____________ — ........... ...........i ■ - rr-j-Z -j Country 1984-85 1985-86 1986-87 1987-88

USA 26.8 31.9 40.8 39.2

UK 26.1 29.3 37.1 44.0

Japan 16.2 20.8 21.3 26.5

Singapore 8.9 8.3 9.4 6.9

Germany (FR) 3.6 5.5 7.1 6.4

New Zealand 1.5 2.1 4.9 5.3

Switzerland 4.1 5.9 7.5 7.4

Netherlands 2.4 3.0 4.1 4.2

Canada 1.8 1.9 3.4 2.5

Hong Kong 3.4 3.0 3.0 4.4

Bel-Lux 2.0 2.6 2.6 3.9

Central America and Caribbean 2.2 1.8 2.2 2.7

France 1.6 1.6 2.0 1.5

Other ASEAN 0.8 0.7 1.1 1.3

Sweden 0.3 0.3 0.4 0.3

Italy 0.2 0.3 0.3 0.3

Other 9.4 20.4 28.6 33.8

TOTAL 111.3 139.4 175.8 191.0

Sources: ABS 5305.0 Foreign Investment, Australia, 1987/88 ABS 5352.0 Foreign Investment, Australia, 1987/88: Supplementary Country and Industry Studies Note: Figures may not add due to rounding.

The ABS studies of foreign ownership and control provide foreign participation statistics on a number of bases including number of establish­ ments; persons employed; wages and salaries; turnover; value added; assets and income; and fixed capital expenditure less disposals. For the Board’s purposes, the most useful basis for measuring foreign investors’ participation

in Australia’s economic activity is considered to be value added—defined as turnover plus the increase (or decrease) in the value of stocks, less purchases, transfers in and selected expenses. The foreign control statistics in the ABS studies seek to measure

whether, in the light of the distribution of voting shares, foreign residents are likely to be in a position to determine key policy decisions of enterprises in Australia. There are four categories of control in the studies: foreign control; joint foreign and Australian control; control by naturalised or naturalising companies; and Australian control.

In the past decade or so, there appears to have been no major change in the levels of foreign ownership of Australian industries and resources that have been the subject of ABS studies (see Table 4.6).

In terms of specific sectors, increases in the level of foreign ownership were recorded in minerals processing (from 39.7 per cent in 1972-73 to 46.3 per cent in 1981-82) and life insurance (from 36.8 per cent in 1972-73 to 40.3 per cent in 1983-84). In manufacturing, there was virtually no

change. Foreign ownership declined in the general insurance sector (from 45.4 per cent in 1972-73 to 34.9 per cent in 1983-84) and also in mining (from 49.5 per cent in 1972-73 to 44.7 per cent in 1984-85).



Australian lending abroad

_____________Foreign borrowing________ ______ and reserve assets________ ________ Net external debt(b)________

Official(a) Non-official Total Official Non-official Total Official Non-official Total % GDP

Public Private

At June 30 Sector Sector

1984 8.9 8.9 26.3 44.1 12.4 1.8 14.2 -3.5 33.4 29.9 15.5

1985 14.9 15.0 37.6 67.5 13.6 2.6 16.3 1.3 49.9 51.2 23.8

1986 23.4 19.0 49.6 92.1 13.2 3.8 17.0 10.2 64.8 75.0 31.4

1987 29.9 18.9 56.2 104.9 18.0 4.5 22.5 11.9 70.6 82.4 31.3

1988 32.8 22.8 61.5 117.0 20.8 5.9 26.7 11.9 78.4 90.3 30.4

1989 __________ 33.7 28.1 75.2 137.0________21.3 7.5 28.8________ 12.4 95.9 108.2 32.3

Sources ABS 5305.0 Foreign Investment, Australia, 1987/88 ABS 5306.0 Foreign Investment, Australia, June Quarter 1989 Note:

(a) General government and Reserve Bank (b) Foreign borrowing by Australian residents less the sum of Australian lending abroad and reserve assets Figures may not add due to rounding

There were a number of studies undertaken in respect of 1983-84. Two of these studies showed that foreign ownership of agricultural land and the transport industry was less than 6 per cent in each case. A more recent study estimated foreign ownership in the banking industry at 21 per cent. There are no comparable data for earlier years.

Arecent study in respect of registered financial corporations3 as at June 1986 found that foreign ownership in the industry accounted for 38.1 per cent of the value of the assets of registered financial corporations within Australia

at that date. Most foreign ownership was attributable to the USA and UK which accounted for 12.5 per cent and 11.4 per cent of assets, respectively. The Board notes that changes in levels of foreign ownership and control of this industry resulting from the deregulation of the financial system and

liberalisation of foreign investment policy for non-bank financial interme­ diaries would only just have been beginning to take effect in 1986.

3. T he stu d y e x a m in e d fin a n c ia l c o rp o ra tio n s on the b asis of v a lu e of the

in d u s try 's a sse ts a n d lia b ilitie s . It ex clu d ed a ll F in a n cia l C o rp o ra tio n s that

did not co m e u n d e r th e F in a n cia l C o rp o ra tio n s A ct 1974.



Foreign ownership

‘Direct’ O ther identified’

Mining® 1972-73 37.5 12.0

1982-83 33.6 16.8

1984-85 — —

Minerals processing® 1972-73 - -

1981-82 27.6 18.6

Manufacturing® 1972-73 27.7 3.5

1982-83—Actual)(d) 28.4 4.5

1982-83—Adjusted) Life insurance®

— —

1973 18.8 18.0

1983-84 General insurance®

24.5 15.8

1972-73 — —

1983-84—Actual)(d) 32.5 1.6

1983-84—Adjusted) Registered financial corporations® — —

1984 (June) 26.5 9.4

1986 (June) Agricultural land®

— —

1983-84 . — —

Transport® 1983-84 — —

Banking® 1986 — —

Total foreign Australian


49.5 50.5

50.4 44.7®


39.7® 60.3

46.3 53.7

32.2 67.8

32.9 67.1


36.8 63.2

40.3 59.7

45.4® 54.6

34.1 34.9®


35.9 64.1

38.1® 61.9

5.9® 94.1

5.1® 94.9

21.0® 79.0

Source: Various ABS industry studies Notes: (a) Based on value added— ABS: Foreign Ownership and Control of the Mining Industry, Australia, 1982-83 (Cat No 5317.0). A split between ‘direct’ and ‘other identified’ is not available for studies undertaken in 1984-85 and subsequently.

(b) Based on value added—ABS: Foreign Ownership and Control of the Mining Industry and Selected Mineral Processing Industries, Australia, 1981-82 (Cat No 5317.0). (c) Based on value added—ABS: Foreign Ownership and Control of the Manufacturing Industry, Australia, 1982-83 (Cat No 5322.0). Statistics for 1982-83 are not directly comparable with those for 1972-73. (d) Statistics for the later year are not directly comparable with those for the earlier year. To facilitate comparability, the later year statistics have been adjusted to approximate

the same basis as the earlier year. For details on the factors affecting comparability refer to the relevant publications listed above. (e) In terms of the value of premiums received for life insurance policies and annuities— ABS: Foreign Ownership and Control of the Life Insurance Industry, Australia, 1983-84 (Cat No 5311.0). (f) In terms of the value of premiums received—ABS: Foreign Ownership and Control of the General Insurance Industry, Australia, 1983-84 (Cat No 5309.0). Statistics for

1983-84 are not directly comparable with those for 1972-73. (g) Based on value of corporations’ assets—ABS: Foreign Ownership and Control of Registered Financial Corporations, Australia, 1984 (Cat No 5334.0). Excludes the category ‘Retailers’. At end of June 1986 assets (loans outstanding) reported for the category ‘Retailers’ were S63.8M of which foreign ownership accounted for 100%. (h) Based on number of hectares. By location, the highest level of foreign ownership was in the NT, in which 13.0 million hectares or 18.2 per cent of its agricultural land was

estimated to be foreign owned. Corresponding figures for the States were Queensland, 8.4 million hectares (5.3 per cent); WA, 3.6 million hectares (3.1 per cent); SA, 2.7 million hectares (4.3 per cent); NSW, 0.7 million hectares (1.1 per cent); Tasmania, 0.05 million hectares (2.1 per cent); and Victoria, 0.06 million hectares (0.4 per cent)—ABS: Foreign Ownership and Control in Agriculture, Australia, 1983-84 (Cat No 5536.0). (i) Based on value added— ABS: Foreign Ownership and Control of the Transport Industry, Australia, 1983-84 (Cat No 5335.0). (j) It is not possible to disaggregate total into ‘direct’ or ‘other identified’ foreign ownership.

(k) Based on value of banks’ assets— ABS: Foreign Ownership and Control of the Banking Industry, June 1986 (Cat No 5347.0) ABS: Foreign Ownership and Control of the Life Insurance Industry, Australia, 1983-84 (Cat No 5311.0) and other relevant publications provide an explanation of ‘direct’ and ‘other identified’ categories of foreign ownership.

Attachment A

Foreign investment policy and administration— legislation, policy statements and publications

Legislation 1. Companies (Foreign Take-overs) Act 1972, No 134 of 1972— November 1972 2. Companies (Foreign Take-overs) Act 1973, No 199 of 1973— December 1973 3. Foreign Takeovers Act 1975, No 92 of 1975—August 1975 4. Foreign Takeovers Amendment Act 1976, No 93 of 1976—September


5. Statutory Rules 1975, No 226—December 1975 6. Statutory Rules 1976, No 203—September 1976 7. Commonwealth Functions (Statutes Review) Act 1981, No 74 of 1981—June 1981

8. Foreign Takeovers Amendment Act 1989

Policy 1. Statement by the Treasurer, the Hon Paul Keating, MP—Review of S ta te m e n ts Foreign Investment Policy—20 December 1983 2. Statement by the Treasurer, the Hon Paul Keating, MP—Foreign Investment Policy and Stockbroking— 18 April 1984

3. Statement by the Treasurer, the Hon Paul Keating, MP—Participation in Banking in Australia and Other Issues of Financial Deregulation— 10 September 1984 4. Statement by the Treasurer, the Hon Paul Keating, MP—Foreign

Investment Policy and Stockbroking— 18 December 1984 5. Statement by the Treasurer, the Hon Paul Keating, MP—New Banking Authorities—27 February 1985 6. Statement by the Acting Treasurer, the Hon Chris Hurford, MP—

Review of Foreign Investment Policy—29 October 1985 7. Statement by the Acting Treasurer, the Hon Chris Hurford, MP— Economic and Rural Policy Statement— 15 April 1986 8. Statement by the Treasurer, the Hon Paul Keating, MP—Foreign

Investment Policy Relaxations—28 July 1986 9. Statement by the Treasurer, the Hon Paul Keating, MP—Further Liberalisation of Foreign Investment Policy—30 April 1987 10. Statement by the Treasurer, the Hon Paul Keating, MP—Thin

Capitalisation and Corporate Restructures in relation to Foreign Investment Policy— 30 April 1987 11. Statement by the Treasurer, the Hon Paul Keating, MP—Foreign Investment Policy: Developed Residential Real Estate—29 September


12. Statement by the Treasurer, the Hon Paul Keating, MP—Foreign In­ vestment Policy: New Oil and Gas Developments—20 January, 1988.


Publica- · Foreign Investment Review Board Reports: 1977-1988 tio n s · Australia’s Foreign Investment Policy— A Guide for Investors, third edition, 1989. Copies of the Board Reports and the Guide may be obtained from Australian

Government Publishing Service bookshops. The Guide is also available at Australia’s overseas posts.


Attachment B

Foreign investment proposals— press releases by the Treasurer, 1988-89

No 103 Statement by the Treasurer, the Hon Paul Keating, MP— Foreign Investment Proposal: Emperor Mines Ltd and South­ ern Resources Ltd— 14 September 1988

No 142 Statement by the Treasurer, the Hon Paul Keating, MP— Foreign Investment Policy: Hotel Development at Woolloomooloo Bay—23 December 1988

No 9 Statement by the Treasurer, the Hon Paul Keating, MP— Foreign Investment Proposal: proposed acquisition by Chunagon Co Ltd of Planet Fisheries WAPty Ltd and Weddell Fisheries Pty Ltd—9 February 1989

No 17 Statement by the Treasurer, the Hon Paul Keating, MP— Foreign Investment Proposal: Hotel Development at Woolloomooloo Bay— 1 March 1989

No 20 Joint Statement by the Treasurer, the Hon Paul Keating, MP and the Minister for Arts, Sport, the Environment, Tourism and Territories, Senator the Hon G.F. Richardson—Foreign Invest­ ment Proposal for the proposed Wesley Vale Pulp Mill— 15 March 1989

No 25 Statement by the Treasurer, the Hon Paul Keating MP— Foreign Investment Proposal: Mitsui & Co Ltd and Nippon Shinpan Co Ltd—Acquisition of 49% Interest in Mirage Resorts


G eneral

E xam ina­ tion

S ectoral G uidelines

Attachment C


The Government’s foreign investment policy is framed and administered with a view to encouraging foreign investment in Australia and ensuring that such investment is consistent with the needs of the community. The Gov­ ernment recognises the substantial contribution foreign investment makes

to the development of Australia’s industries and resources. Capital from other countries supplements domestic savings and provides scope for higher rates of economic activity and employment. Foreign capital also provides access to new technology, management skills and overseas markets.

The following types of proposals by foreign interests to invest in Australia are subject to examination: • acquisitions of substantial interests in existing Australian businesses that have total assets of more than $5 million (more than $3 million for

rural properties); • proposals for the establishment of new businesses involving total in­ vestment of $10 million or more; • proposals for investment in the media irrespective of size;

• direct investments by foreign governments or their agencies irrespective of size; • proposals to acquire non-residential commercial real estate valued at $5 million or more; and

• proposals to acquire residential real estate irrespective of size (unless exempt under the regulations). A foreign interest is briefly defined as: • a natural person not ordinarily resident in Australia;

• any corporation, business or trust in which a single foreigner (and any associates) has 15 per cent or more of the ownership or in which several foreigners (and any associates) have 40 per cent or more of the owner­ ship.

The Foreign Acquisitions and Takeovers Act 1975 applies to most examinable proposals and provides penalties for non-compliance. The text of the Act and associated Regulations and full details of the guidelines are contained in the booklet ‘Australia’s Foreign Investment Policy—A Guide

for Investors’.

The policy applicable to investment proposals subject to examination is outlined below:


Manufacturing, Services, Resource Processing, Non-Bank Fi­ nancial Institutions, Insurance, Sharebroking, Tourism (Hotels and Resorts), Rural Properties, Primary Industry (other than non oil and gas Mining) The Government approves proposals to acquire existing businesses or establish new businesses unless the proposal is contrary to the national interest.

Real Estate Proposed acquisitions of real estate for development are approved unless they are contrary to the national interest. Foreign interests are normally given approval to buy vacant residential land (on condition that a dwelling is built within 12 months) and to buy home units, townhouses etc ‘off-the-plan’ or under construction, on condition that no more than half of the units in any one development are sold to foreign interests.

Proposed acquisitions of developed non-residential commercial real estate are normally approved, subject to the acquisition being made with 50 per cent Australian equity participation. Where Australian equity is not available, 100 per cent acquisitions by foreign interests are approved unless

they are contrary to the national interest. Proposed acquisitions of developed residential real estate are exempt from examination in the case of Australian citizens living abroad and foreign nationals entitled to permanent residence in Australia (such as intending migrants who have received approval from the immigration authorities to take up permanent residence in Australia). Proposals by all other foreign interests to acquire developed residential real estate are examinable and are not normally approved except in the case of foreign companies buying for their senior executives resident in Australia and foreign nationals temporar­ ily resident in Australia for more than 12 months (subject to the sale of the property when they cease to reside in Australia).


A proposal for a new (non oil and gas) mining project involving expenditure of $10 million or more is allowed to proceed if it is not contrary to the national interest and it provides for a minimum 50 per cent Australian equity and joint control. Where Australian equity participation is not available on reasonable terms and conditions, the 50 per cent guideline is applied flexibly. Proposals for acquisitions of existing mining businesses (other than oil and gas) need to demonstrate net benefits.


The Government has indicated it does not envisage issuing further banking authorities to foreign interests not already holding a banking authority in Australia. Foreign investment in the banking sector needs to be consistent with the Banks (Shareholdings) Act 1972 and banking policy, including prudential requirements.

Civil Aviation Following the deregulation of domestic air services scheduled to occur in October 1990, the Government will approve proposals by foreign interests to acquire existing businesses or to establish new businesses in the civil

aviation industry, except that there will be restrictions on the level of equity that may be held in a domestic carrier by foreign international airlines operating services to Australia.

Radio and Television Foreign investment in radio and television is governed by the Broadcasting and Television Act 1942. The Act provides that a ‘foreign person’, as defined in that Act, may not hold or control, directly or indirectly, more than 15 per

cent of the issued capital or voting rights in a licensee company, and that two or more ‘foreign persons’ may not hold or control in aggregate more than 20 per cent of the issued capital or voting rights in a licensee company.

Newspapers Foreign investment in mass circulation newspapers is restricted. All propos­ als by foreign interests to establish a newspaper in Australia are subject to case-by-case examination.

Uranium Foreign interests may explore for uranium and are not required to seek Australian participation in their exploration activities. With respect to de­ velopment of uranium projects, the Government’s policy provides for the

continuing operation of the existing Ranger and Nabarlek projects in the Northern Territory and the development of the Olympic Dam copper/ura­ nium/gold deposit in South Australia, but for no other uranium mines to be developed.

N aturalisa- A company may be granted naturalised status if (i) it is at least 51 per cent tion Australian owned; (ii) its Articles of Association provide for a majority of board members to be Australian citizens; and (iii) general understandings have been reached about the company’s autonomy and to ensure that its

operations and policies are determined by the Australian board. A naturalis­ ing company must be at least 25 per cent Australian owned and have given a public commitment to increase Australian equity to 51 per cent on a generally agreed timetable. It must also meet conditions (ii) and (iii) for

naturalised companies. The only criterion for approval of examinable proposals by naturalised and naturalising companies (other than in the uranium, civil aviation, media and banking sectors) is that proposals be judged not contrary to the national interest, except that in establishing new mining projects over $10 million in partnership with other foreign interests the naturalised/naturalising compa­

nies should hold at least 50 per cent of the equity in the joint venture.


Statistical appendix

Foreign investment proposals Table A. 1 Proposals by number and total expected expenditure, 1985-86 to 1988-89

Table A.2 Proposals for acquisitions and new businesses, by industry

Table A.3

sector, 1988-89

Proposals over $50 million for acquisitions and new busi­ nesses, by industry sector, 1988-89

Table A.4 Total expected investment associated with proposals, by coun­ try of investor and industry sector, 1988— 89

Table A.5 Proposals by location of expected investment, 1988-89

Table A.6 Expected investment associated with tourism proposals, by country of investor and location of investment, 1987-88 and 1988-89

Table A.7 Expected investment in urban real estate, by type and number of proposals, 1988-89

Table A.8 Expected investment in developed residential real estate, by category of investor, 1988-89

Table A.9 Purchases of developed residential real estate by intending migrants and other foreign nationals entitled to permanent residence, by country of investor, 1988-89

Table A. 10 Total expected investment in urban real estate, by category of real estate and location of investment, 1988-89

Table A. 11 Acquisitions of rural land involving properties with total assets of more than $3 million, 1988-89

Lim itations of th e Data 1. The data in this Appendix have been derived from information con­ tained in submissions to the Government from foreign interests concerning

their proposals for investment in Australia. Several major qualifications must be borne in mind in seeking to draw conclusions from these statistics: (a) they are a record of the intentions of proponents, as indicated in proposals submitted to the Board, at the time their proposals are

decided by the Government. The expenditures recorded are those contemplated at that time. The proposed actions and, more particu­ larly, the expected expenditures of investors may not necessarily be realised. Actual expenditure may be dependent upon, inter alia, the

completion of further detailed feasibility studies or upon successful exploration in respect of mineral development; (b) the real estate statistics include annual programs approved for real estate developers for unspecified purchases up to an agreed dollar

amount and ‘off-the-plan’ approvals for developers to sell up to 50 per cent of residential real estate developments to foreign interests. It is almost certain that some of these annual program and ‘off-the- plan’ approvals will not be fully utilised; (c) proposed expenditures on development are recorded against the year

in which they are approved. Actual expenditure may be spread over several years. Moreover the aggregate data can be influenced signif­ icantly by relatively few, very large proposed investments. For ex­

ample, in 1988-89, nearly 70 per cent of the total expected invest­ ment resulted from little more than three per cent of the proposals approved; (d) some of the expected investment represents the contributions by

Australians to projects in which they are in partnership with foreign interests. The extent to which approved investment proposals will directly result in foreign capital inflows depends not only upon whether the proposals are implemented but also upon the proportion

financed from foreign sources. In many cases, this proportion will be quite low. In the case of acquisitions by one foreign interest from another foreign interest of businesses operating in Australia, no flows of capital across the Australian exchanges need occur; (e) the data are restricted to investments that come within the ambit of

the Foreign Takeovers Act 1975 and the Government’s foreign in­ vestment policy and, therefore, do not cover several categories of new business proposals involving a total investment of less than $10 million, expansions of the existing Australian activities of for­

eign businesses that are often quite substantial, or a significant amount of foreign investment of a portfolio nature that falls outside the Foreign Takeovers Act 1975; and (f) for a number of reasons the statistics for 1987-88 and 1988-89 are

not comparable with those for earlier years. First, policy changes have altered the range of investment proposals that are examinable. For example, following the 30 April 1987 policy changes, takeovers of Australian businesses with total assets of less than $5 million (less than $3 million for rural land) were approved automatically in antic­ ipation of amendments announced by the Government to the Foreign Takeovers Act 1975 to exempt them from its provisions. Such pro­ posals were not included in the statistics for the last two months of


1986-87 and for the whole of 1987-88 and 1988-89. More signifi­ cantly, the real estate policy change of 29 September 1987 abolished the threshold that had previously exempted from examination foreign purchases of urban real estate up to a cumulative level of $600,000. This has resulted in a very large increase in the number of real estate proposals examined since that date. Second, in some earlier years, adjustments were made to the statistics to reflect, inter alia, changes of intentions advised by investors after proposals had been approved. Very few such adjustments have been made to the 1986-87,1987-88 and 1988-89 statistics, partly because of resource constraints and partly to minimise arbitrariness. Considerable caution must, therefore, be exercised in seeking to use the statistics of foreign investment proposals as indicators of the total level of foreign direct investment activity in Australia and for other purposes. 2. With the exception of Table A .l (which includes rejected proposals), the data in the tables relate only to proposals approved by the Government. 3. All expenditure data are rounded and discrepancies may occur between sums of the component items and totals. 4. Data on expected investment by industry sector have been compiled by reference to the Australian Standard Industrial Classification published by

the Australian Bureau of Statistics. An exception has been made for invest­ ment proposals involving newspaper printing and publishing. The prospec­ tive expenditure associated with these proposals has been allocated to service industries. In some cases, acquisitions by diversified company groups are classified according to the industry of the major activity of the group. Acquisitions of real estate to be used for purposes incidental to the main business activity of the purchaser are classified according to that activity.

5. The symbol indicates an aggregate monetary figure of less than $500,000.


Type of proposal

1985-86 No $b

1986-87 No $b

1987— 88(a) No $b

1988-89 No $b

Approved unconditionally 580 2.5 529 7.7 1641 18.4 1879 19.69

Approved with conditions 710 7.3 818 10.8 1450 6.4 2519 12.33

Total Approved 1290 9.8 1347 18.5 3091 24.8 4398 32.02

Rejected 20 0.5 5 0.019 100 0.054 77 0.53

Total decided 1310 10.3 1352 18.5 3191 24.8 4475 32.56

Submitted but not examinable 17 6 — -

Approved automatically(b) - - 424 350

Withdrawn 51 54 139 338

Total considered 1378 1412 3754 5163

(a) Policy changes during 1987 varied the range of examinable proposals, as a result of which figures for 1987— 88 and 1988-89 are not comparable with earlier years. (b) In anticipation of amendments to the Foreign Takeovers Act, proposed acquisitions of businesses with total assets of less than $5 million (less than $3 million for rural land) were approved automatically in 1987-88

and 1988-89 and expenditure data was not recorded for statistical purposes.



Industry sector

No of Proposals Consideration

$ billion

Expected development expenditure $ billion

Total(a) expected investment $ billion

Agriculture, forestry & fishing —acquisitions 26 0.24 0.00 0.24

—new businesses 1 0.00 0.02 0.02

—total 27 0.24 0.02 0.26

Mineral exploration & development —acquisitions 84 1.75 0.09 1.84

—new businesses 3 0.00 0.31 0.31

—total 87 1.75 0.40 2.15

Manufacturing —acquisitions 118 4.09 0.00 4.09

—new businesses 7 0.00 0.26 0.26

—total 125 4.09 0.26 4.35

Finance & insurance —acquisitions 65 1.10 0.00 1.10

—new businesses 4 0.00 0.12 0.12

—total 69 1.10 0.12 1.22

Services (excl Tourism) —acquisitions 146 2.38 0.01 2.39

—new businesses 17 0.00 0.25 0.25

—total 163 2.38 0.26 2.64

Tourism(b) —acquisitions 42 1.38 0.70 2.08

—new businesses 40 0.00 2.92 2.92

—total 82 1.38 3.62 5.00

Real estate 3726 8.62 6.15 14.77

Resource processing —acquisitions 11 0.57 0.65 1.22

—new businesses 3 0.00 0.41 0.41

—total 14 0.57 1.06 1.63

Total —acquisitions 4218 20.13 7.60 27.74

—new businesses 75 0.00 4.28 4.28

—total 4293 20.13 11.89 32.02

Financing arrangements & corporate restructures 105

(a) Total expected investment consists of consideration involved with acquisitions, including any new invest­ ment preposed to be undertaken following the acquisition or establishment of a new business. (b) See footnote (a) on Table A.6 for definition of Tourism.



No of Proposals Consideration

$ billion

Expected development expenditure $ billion

Total(a) expected investment $ billion

Manufacturing —$100m & over 9 2.61 0.00 2.61

—$50m-$100m 11 0.56 0.16 0.72

—total $50m & over 20 3.17 0.16 3.33

Mining —$100m & over 6 0.73 0.33 1.06

—$50m-$100m 6 0.47 0.00 0.47

—total $50m & over 12 1.20 0.33 1.53

Finance & Insurance(a) —total over $50m 7 0.59 0.00 0.59

Services (excl Tourism) —$100m & over 3 0.67 0.14 0.81

—$50m-$100m 10 0.61 0.00 0.61

—total $50m & over 13 1.28 0.14 1.42

Tourism .^ —$100m & over 14 0.81 2.30 3.11

—$50-$ 100m 12 0.21 0.63 0.84

—total $50m & over 26 1.02 2.93 3.95

Real Estate —$100m & over 28 3.91 3.63 7.53

—$50m -$100m 28 0.86 1.05 1.91

—total $50m & over 56 4.77 4.68 9.44

Other(c) —total $50m & over 5 0.55 1.01 1.57

TOTAL — all sectors —$100m & over 66 9.50 7.41 16.90

—$50m-$100m 73 3.09 1.85 4.94

—Total $50m & over 139 12.59 9.26 21.84

(a) To preserve confidentiality, proposals in the finance and insurance sector have not been disaggregated accord­ ing to whether they were above or below $100 million. (b) See footnote (a) of Table A.6 for definition of Tourism. (c) ‘Other’ comprises four proposals in the resource processing sector and one proposal in the agriculture, for­

estry & fishing sector.


TABLE A.4: TOTAL EXPECTED INVESTMENT ASSOCIATED WITH PROPOSALS, BY COUNTRY OF INVESTOR AND INDUSTRY SECTOR, 1988-89________________________________________________________________________________

Industry sector US UK FRG Other Switz- Can-

EC erland ada

$m $m $m Sm $m Sm

NZ Japan Sing- Mai- Korea Hong World Sub- Aust

apore aysia Kong Other total (a)

$m Sm Sm Sm $m $m Sm Sm Sm



Agriculture, forestry and fishing Mineral exploration and development

Manufacturing Finance and Insurance Service (excl Tourism)

Tourism(c) Real estate Resource processing Total

Number of proposals (b)________

430 219

1546 1105 221 809 138



315 492 83 1268


3715 3583

227 390

13 17 80 6


130 15 272

212 231 90 132


171 13 854


256 50 66 50 132



128 89 0 0


32 2


229 36 236 59

158 121 188 135 3516

1392 4927 0 42

249 1965 9104


20 6 25 10

280 120 7 468

26 5 1 4 76

751 0


0 14 33 248 15 263

0 9 106 1334 823 2157

0 25 106 3736 618 4354

36 40 10 1092 124 1216

0 436 80 2406 239 2645

1 392 131 ,4726 271 4997

76 1072 2314(d''12474 2292 14766 0 0 478 972 653 1625

113 1988 3258 26497 5035 32023

13 745 889 4131 454 4585

(a) The expenditure identified as originating from Australia represents the contribution by Australian-controlled companies and Australian residents to the total expenditure associated with foreign investment proposals in which they are in partnership with foreign interests but does not generally include the contribution attributable to minority Australian shareholders in companies with majority or controlling foreign shareholders. (b) These figures indicate the total number of proposals in which investors from the particular country have an interest. Proposals involving investment from more than one

country count as one proposal for each of the countries concerned. (c) See footnote (a) of Table A.6 for definition of Tourism. (d) This figure includes off-the-plan approvals to real estate developers—see Chapter 3 for explanation— which have been recorded as World Other because the country of investors is not known in advance.


State or Territory

Number Consideration

$ billion

Expected Development Expenditure $ billion

Total expected investment $ billion

New South Wales 968 5.694 5.615 11.309

Victoria 237 1.013 .322 1.335

Queensland 2142 3.611 3.935 7.547

Western Australia 601 1.156 .767 1.923

South Australia 060 .276 .142 .418

Tasmania O il .121 .000 .121

ACT 017 .064 .040 .104

Northern Territory 009 .137 .006 .143

Other (a) 353 8.060 1.063 9.123

Total 4398 20.132 11.890 32.023

(a) Includes off-shore takeovers and proposals where the expenditure was expected to be undertaken in more than one State or Territory.


TABLE A6: EXPECTED INVESTMENT ASSOCIATED WITH TOURISM PROPOSALS(a), BY COUNTRY OF INVESTOR AND ___________ LOCATION OF INVESTMENT, 1987-88 AND 1988-89____________________________________________________


Japan Kong (d) ASEAN

Location 87-88 88-89 88-89 87-88 88-89 NSW 270 803 363 10 340

VIC - 23 - - -

QLD 946 2415 13 10 -

WA 170 240 - - -

SA — — - - 16

ACT - 35 - - -

NT - — 15 - -

Other(b) - - - 20 34

TOTAL 1385 3516 392 40 390

$ million

World Other EC (incUK) NZ

87-88 88-89 87-88 88-89 87-88; 88-89

140 113 - 3 25 31

116 10 47 86 29

- 10 - 20 - -

- 31 - - - -



71 14 20


144 286 81 84 131 60

Sub-Total Aust Total(c)

87-88 88-89 87-88 88-89 87-88 88-89

445 1653 191 187 636 1839

- 23 - - - 23

1051 2597 17 54 1068 2675

170 269 - 20 170 289

- 47 - 10 - 57

- 35 - - - 35

- 31 - - - 31

114 48 102 / - 216 48

1782 4727 309 / 270 2091 4997

(a) Tourism proposals defined by reference to Australian Standard Industrial Classification numbers 9138, 9141,9143, 9144,9232, 9233,9241, 9242 (b) Other comprises expenditure in the other States and the Territories and also expenditure to be undertaken in more than one State or Territory (c) Includes acquisitions of tourism businesses involving assets of over $5 million and establishment of new tourism projects involving total investment of $10 million or more. New tourist projects are not recorded as such in the statistics unless total investment is to exceed $10 million. For example, a proposal by a foreign investor to buy land

valued at $3 million on which to build a $9 million motel would be classified as a new $ 12 million tourism business. By contrast, a proposal to buy land for $5 million on which to build a $3 million motel would not be examinable under foreign investment policy as a new tourism business (because total investment is less than $10 million) but would be examinable as an acquisition of commercial real estate for development and recorded as such. (d) There were no tourism proposals from Hong Kong in 1987-88


No of proposals Consideration

$ billion

Expected Development Expenditure $ billion

Total expected investment $ billion

Developed residential Residential for development 1462 .367 .003 .370

—ordinary approvals 1545 .710 1.696 2.407

—off-the-plan approvals 298 1.986 - 1.986

—annual programs —total residential for

003 .422 — .422

development 1846 3.118 1.696 4.815

Developed commercial Commercial for development 240 1.861 .288 2.149

—ordinary approvals 137 1.641 4.157 5.798

—annual programs —total commercial for

022 1.528 1.528

development 159 3.169 4.157 7.326

Sub-Total Acquisitions of real estate 3707 8.515 6.144 14.659

related businesses 019 .107 - .107

Total 3726 8.622 6.144 14.766


Category of investor No of


Expected investment $ million

Australian citizens abroad(a) 563 146

Intending migrants(b) 607 135

Company purchases for senior executives Foreign nationals temporarily 80 43

resident in Australia(c) 169 36

Other(d) 46 10

Total 1465 370

(a) Also includes purchases by couples where one partner is an Australian citizen and the other is their foreign national spouse. (b) Includes purchases by other foreign nationals who, although entitled to permanent residence in Australia, are currently residing abroad. (c) Foreign nationals temporarily resident in Australia for a period exceeding 12 months are normally permitted

to buy developed residential real estate, on condition that the property is sold when the person leaves Aus­ tralia. (d) ‘Other’ comprises transfers of property within family groups, ‘swap’ proposals where non-residents with an existing residential property are given approval to buy a different property cxi condition that the first one is

sold, and acquisitions resulting from raffles, art unions etc.



Country of investor

No of Proposals

Expected investment $ million

New Zealand 279 48

Hong Kong 187 54

Japan 10 7

EC (incl UK) 27 7

ASEAN 32 5

Other 72 14

Total 607 135



Location Commercial


Developed Commercial Developed Residential

Residential for Total

Development $ b $ b $ b

Development $ b $ b

NSW 4.931 1.510 .176 1.696 8.313

Queensland 1.013 .375 .121 2.397 3.906

Victoria .194 .063 .026 .101 .384

Western Australia .065 .146 .038 .180 .430

Other(a) 1.123 .055 .008 .439 1.626

Total 7.326 2.149 .370 4.814 14.659

Number of Proposals 159 240 1462 1846 3707

(a) Other includes ACT, Northern Territory, Tasmania, South Australia and annual programs covering more than cme State or Territory.



Location No of


Consideration $ million

New South Wales 11 80

Queensland 5 23

Other(b) 7 135

Total 23 238

(a) The total area involved in these 20 proposals was 8.50 million hectares. (b) Other comprises one Tasmanian property, one Victorian property, one South Australian properly, two Western Australian properties and two proposals to acquire a company that owned rural land in more than one state.


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