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What Is Foreign Direct Investment (FDI) Inflows In Mining & Quarrying To Australia? What Are The Benefits And Costs Of FDI Inflows From Mining & Quarrying To Australia?
Foreign Direct Investment inflows in mining and quarrying to Australia
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Foreign Direct Investment inflows in mining and quarrying to Australia
Introduction
Foreign direct investment is an integral part of any economy that wants to develop itself further. It is very important in today's world, where every country is vying to attract as much foreign direct investment as possible. This type of investment is very much essential for the development of developing countries such as third world countries. On the other hand, countries such as Australia and other developed countries are also in the race to get access to as much foreign investment as possible (Noor, et al, 2016, pp. 495-496). Since the 1980's, there has been an increase in foreign direct investments, even more than the output in the world trade during the same time. This increase in foreign direct investment is due to the higher degree of access attained by Multinational Corporations. Through the liberalization of trade barriers, a decrease in the foreign investment regimes, and innovation in technology has led to a higher degree of access available to Multinational Corporations. This essay aims to find the level of foreign direct investments in the mining and quarrying industry of Australia. Furthermore, it looks to analyze how beneficial or costly foreign direct investment in the above-selected industry have been.
Foreign Direct Investment
In its essence, the foreign direct investment can be described as the foreign capital that has been transferred in the form of investment to other countries directly. This type of investment can be considered as one of the main drivers of economic growth within any country. The importance of FDI stems from the fact that enlarges the country's investment base. This also helps in the reduction of the unemployment rate within a country (Iamsiraroj, 2016, pp.116-133). This is done by creating new job opportunities, bringing in advancement in technology, and able to identify the newest skills in management, marketing, and communication within the existing job market. This will affect the National Employment in such a way that people will be able to gain new skills and experience new and important techniques.
Furthermore, through the use of foreign direct investment, the host countries can be very beneficial. In one manner, through the use of foreign direct investment, the rates of investment would increase as the quantity of foreign direct investment increases. Furthermore, as the quantity of foreign investment increases over time, this helps in balancing the payments on foreign loans through the inflow of foreign capital (Iamsiraroj and Ulubaşoğlu, 2015, pp.200-213). This way, host countries which are mostly developing countries require such investment to pay off the massive amounts of debt they have collected to promote their economy. Furthermore, developed countries such as Australia, also need foreign direct investments to manage their balance of payments.
Through the use of foreign direct investment, countries can access advanced technology that can help increase the skill base of the labor force within that country. Moreover, other than increasing the expertise level of the labor force within the country, it also indirectly increases the level of efficient production within the host country (Farla, et al, 2016, pp. 1-9). Also, the export sector benefits highly through the use of foreign direct investment. This is done through the introduction of advanced technology that results in an increase in research and development. The effects like the productivity boost happen within the host nation and increases the national income.
Mining and Quarrying Industry in Australia
According to the Australian mineral resource report released annually, acknowledge that South Australia is one of the world's best-regulated mineral resource jurisdiction (Energymining, 2019). This aligns with the reports presented that show that the mining sector of Australia generate around two hundred and twenty-eight billion dollars in revenue for the economy of Australia. Furthermore, this revenue generated by the mining sector gives around eight percent of the GDP of Australia. Furthermore, the mining and quarrying industry within Australia is developed in several smaller sectors. These comprise of Iron ore mining, Oil and gas extraction, exploration and other mining services, other metal ores mining, Non-metallic mineral mining and quarrying and finally coal mining. All these promote a considerable share of the mining industry within Australia
Furthermore, the mining support services industry is in the business of providing services that complement the operations of the mining businesses. The fact is that Australian mining support services industry has been stagnant over some time and this is due to the subdued value of commodity prices (Bankwest, 2019, pp. 5-7). This is impacting the sector demand in Australia. However, Australia has proved to be a big player in the lithium mining sector and this presents an opportunity for them. This opportunity, if used properly can help the Australian mining industry to capture the value of downstream processing that results in the formation of batteries by using lithium.
There has been high growth in the Australian mining industry and it can be seen in the strong growth in the Australian mineral import industry. But the thing is that the local mining industry is dependent on the growth in the commodity importers of Australia. Currently, there are three major commodity importers in Asia of the Australian mining industry namely, China (seven percent), Japan (two percent), and Hong Kong (four percent) (Eklund, 2015, PP. 177-188). This growth in the industry is evident due to the growth being driven by commodity prices that have been rebounding from the record lows witnessed in 2014/2015.
FDI in Mining and Quarrying Industry of Australia
The Australian mining and quarrying industry have been the most beneficiary of foreign direct investments. This sector has gotten the highest of the foreign direct investments in comparison to all other sectors and has had around thirty-seven percent of the total foreign direct investments. Due to the richness of natural resources, the mining and quarrying industry within Australia has been flourishing heavily (Fan, et al, 2106, pp. 187-203). Furthermore, other factors such as openness to trade and business from international partners have also been a positive factor for increasing the growth within this sector. Due to these foreign investments, this sector promotes around seven percent of the total GDP and about sixty percent of the total exports.
In 2018, the value of foreign direct investments in the mining and quarrying industry of Australia has been around three hundred and fifteen billion Australian dollars. This sector of the Australian economy has shown a strong increase in foreign direct investment of around seven percent since the last year of 2017 (Beeson and Wilson, 2015, pp. 21-38). According to an analysis done of the different businesses within this sector, it was found that around six percent of the mining businesses within Australia are foreign-owned. In comparison to this, around only one percent of the mining, businesses are owned by domestic and national companies. These statistics show the imbalance in ownership within the mining and quarrying industry of Australia.
The foreign direct investment in the mining and quarrying industry in Australia represents around thirty-eight percent of all the foreign direct investments within Australia. These investments come mainly from countries such as Canada, the United States of America and the United Kingdom (Bakker and Shepherd, 2017, pp. 130-155). Other countries such as Brazil and Switzerland have also shown to be considerable investors in the mining and quarrying industry of Australia. All in all, the Australian economy needs this level of foreign direct investment as without it the country's resources would be underdeveloped.
Benefits of FDI’s in Australia
The inflows from the foreign direct investment in the mining and quarrying industry have been very beneficial for the Australian economy and its people in general. Through the inflows from this investment, the country is able to reach its economic potential (in this case, it is Australia) (Alfaro, 2016, pp. S2-S15). Through foreign direct investments, Australia can finance new mining and quarrying businesses within this industry and even boost the current mining and quarrying industry. This is vital due to the fact that the major portion of the businesses within the mining and quarrying industry are all owned by Multinational Companies.
Furthermore, through the inflows from the foreign direct investment into the mining and quarrying sector of Australia increases the level of dividends for all Australians. This is done by increasing the level of taxes and increasing the tax revenues in both the state and the federal governments (Tang and Zhang, 2016, pp. 423-429). This increases the funds available to invest in public services such as hospitals, roads, schools, etc. Moreover, through bringing new businesses with a connection to other markets, the Australian economy has additional export partners. This will have a positive effect on the overall performance of exports. Furthermore, this leads to an increase in the level of competition and innovation in technologies within the market in Australia.
The most important benefit of the inflows from the foreign direct investment in the mining industry is that helps fill in the gap between what the Australian government saves and invests. Australia is abundant in resources but it needs foreign direct investments to develop itself (Perri and Peruffo, 2016, pp. 3-27). This is evident from the fact that the gap between saving and investment has been around four percent of the total GDP of the country. At the end of the year 2018, the level of the total investment stayed at four hundred and fifty-five billion dollars and around fourteen billion dollars in domestic savings and around forty-one billion dollars in foreign investment.
Costs of FDI’s in Australia
As much as it has been beneficial for the Australian economy to have an immense amount of inflows from the foreign direct investments in the mining and quarrying sector of Australia, there have been numerous costs that the country has had to suffer (Neumayer, et al, 2016, pp. 177-213). With the influx of international companies within Australia, the competition within the domestic market has increased considerably. This is adversely impacting the development of Australia. This is because the domestic companies are losing business to international companies, which stops their growth and which has a detrimental overall effect on the development of the country and its people.
Furthermore, as more and more foreign investments keep pouring in the market decisions regarding investment, production and market products are all in the hands of foreigners. This will impede the development of the country as they will be making decisions for their benefit (Hill and Hult, 2017, pp. 52-64). This can be understood in such a way that to maximize the profits of such foreign companies, these companies do their utmost to exploit not only the resources of Australia but also the people of the country as well. This leads Australia into such a case where it has lost all its sense of sovereignty.
In one sense, foreign direct investment and its inflows can also be as a form of modern-day colonialism of Australia. The above reasons are pretty evident of that as countries such as Australia are losing sovereignty. Also, through the immense use of foreign direct investments, there is a high negative influence on the exchange rate of the country as well (Wang, 2017, pp. 522-539). Furthermore, the economy of Australia is so much dependent on foreign direct investment that without it the country can lose all forms of development and just be a land with high resources but limited ability to get access to those resources.
Conclusion
Foreign direct investments have been very dominant in the mining and quarrying industry in Australia. This is one of the industries that are experiencing a boom due to the increase in foreign direct investment it receives. This increasing amount of foreign direct investment has been very beneficial for the country in economic strength. On the other hand, the country has had to face certain costs due to the influx of foreign direct investment in this sector.
References
Alfaro, L., 2016. Gains from foreign direct investment: Macro and micro approaches. The World Bank Economic Review, 30(Supplement_1), pp. S2-S15.
Bakker, R.M. and Shepherd, D.A., 2017. Pull the plug or take the plunge: Multiple opportunities and the speed of venturing decisions in the Australian mining industry. Academy of Management Journal, 60(1), pp.130-155.
Bankwest. (2019). Bankwest Future of Business: Focus on Mining Services. [online] Available at: https://www.bankwest.com.au/content/dam/bankwest/documents/business/insights/focus-on-mining-report-2019.pdf [Accessed 18 Sep. 2019), pp. 5-7.
Beeson, M. and Wilson, J.D., 2015. Coming to terms with China: Managing complications in the Sino-Australian economic relationship. Security Challenges, 11(2), pp.21-38.
Eklund, E., 2015. Mining in Australia: an historical survey of industry–community relationships. The Extractive Industries and Society, 2(1), pp.177-188.
Fan, D., Cui, L., Li, Y. and Zhu, C.J., 2016. Localized learning by emerging multinational enterprises in developed host countries: A fuzzy-set analysis of Chinese foreign direct investment in Australia. International Business Review, 25(1), pp.187-203.
Farla, K., De Crombrugghe, D. and Verspagen, B., 2016. Institutions, foreign direct investment, and domestic investment: crowding out or crowding in? World Development, 88, pp.1-9.
Hill, C. and Hult, G. (2017). Global business today. 4th ed. North Ryde: Mc Graw-Hill Education, pp.52-64.
Iamsiraroj, S., 2016. The foreign direct investment–economic growth nexus. International Review of Economics & Finance, 42, pp.116-133.
Iamsiraroj, S. and Ulubaşoğlu, M.A., 2015. Foreign direct investment and economic growth: A real relationship or wishful thinking? Economic Modelling, 51, pp.200-213.
Neumayer, E., Nunnenkamp, P. and Roy, M., 2016. Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements. Review of World Economics, 152(1), pp.177-213.
Noor, M.T., Ali, S., Nirob, K.J.A. and Islam, M.S., 2016. Significance of foreign direct investment on economic growth in Bangladesh. Published October. PP, (495-496)
Perri, A. and Peruffo, E., 2016. Knowledge spillovers from FDI: a critical review from the international business perspective. International Journal of Management Reviews, 18(1), pp.3-27.
Tang, Y. and Zhang, K.H., 2016. Absorptive capacity and benefits from FDI: Evidence from Chinese manufactured exports. International Review of Economics & Finance, 42, pp.423-429.
Wang, M., 2017. Does foreign direct investment affect host-country firms' financial constraints? Journal of Corporate Finance, 45, pp.522-539.
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