Foreign buyers wanting to purchase an asset in Australia often find themselves entangled in a fickle and opaque approval process, according to the findings of a senate inquiry into the country’s foreign-investment ombudsman.
The arbitrary nature in which the Foreign Investment Review Board (Firb) assesses applications leads to “significant shortcomings in the transparency of the process and in the scrutiny of the national-interest test”, the inquiry concluded.
In some cases, foreign buyers have been able to sway the outcome of an application, and influence how rigorously the national-interest test is applied. Further, companies have got away with breaching the conditions of their Firb approvals due to a lack of adequate penalties.
The 174-page senate report, released last week, was originally intended to focus solely on the agricultural sector, but the committee has suggested that its findings be extended to other sectors of the economy. In total, it has made 29 recommendations for tightening the rules.
“I expect this report will be the starting point for a much broader overhaul of how foreign investments are approved,” says Tony Damian, a partner at law firm Herbert Smith Freehills in Sydney, adding that, if implemented, the new rules will have far-reaching implications for future investment in the country.
“We didn’t expect the report to call for more transparent and rigorous national-interest testing of all investments across all sectors, not just farming.”
It isn’t clear how the test will be tightened, but it is likely to require applicants to adhere to a set criteria. Companies may, for example, be asked to explain how their investment will affect the local community and the environment, with an emphasis on creating local jobs, boosting local economies and generating tax revenues.
“Rather than focusing on the negative, the test is more likely to ask buyers to prove that they can bring positive benefits,” says Damian.
As part of a new compliance regime, companies that receive approval but then fail to adhere to the conditions of the investment may be forced to sell the asset.
“It is measures like these that make the report a game-changer,” says Damian. “Foreign investors will be getting the message that Australia plans to scrutinise overseas bids more closely and hold buyers to account.”
Another key recommendation is the lowering of the current investment threshold that triggers a Firb review. At present Firb approval is only required for investments above A$248 million ($230 million) — a level considered too high for the agriculture industry and one that doesn’t cover cumulative strategies where a buyer purchases a number of small neighbouring farms.
That threshold may now be dropped to A$15 million for agricultural land, and where the investment exceeds 15% of an agribusiness.
The report also singles out state-owned enterprises and sovereign wealth funds for special treatment. “SoEs certainly need to take notice of this report,” says Damian, who points to growing concerns globally over food security and the dangers of selling off important agricultural assets.
“All investors, whether they are government or private, will need to prove that the investment is being made on a genuinely commercial basis and without distorting the capital markets or the trade in agricultural products.”
Buyers will also have to undertake to compete fairly with domestic Australian farmers and agribusinesses.
The committee recommends that the current rule requiring Firb approval for all agriculture investments made by government entities — regardless of their value — remain in place.
Asked if the report signals a lurch towards economic nationalism, Damian says: “There’s no doubt that the rules will be revamped, but at the same time the government is keen to send a message to the world that Australia is still open to foreign investment.”