The growth in Australia-Asia trade and investment over the past 10 years has been nothing short of phenomenal. Centered on the resources sector and funded mainly by Chinese State Owned Enterprises, Australia has emerged as China’s No. 1 destination for outbound investment and has attracted billions of dollars of foreign investment into our economy.
As technology evolves and societies change, we will transition to a new phase of investment with its roots in clean energy, real estate, agriculture and services. We are already seeing an increasing number of capital injections from private high net worth individuals and entrepreneurs looking to strategically diversify their wealth by investing in Australia.
The “Significant Investor Visa”, otherwise known as visa category 888, was launched on 24th November 2012. It invites wealthy foreign investors to apply for a four year residency visa in Australia (which can then be converted into citizenship) for individuals who invest over AUD 5million for a minimum of 4 years into three main categories: (1) Australian Government Debt (2) privately owned Australian companies, and (3) complying managed funds investing in Australian assets and overseen by the local regulator, ASIC. In addition, in order to be granted a permanent visa from a provisional Significant Investor Visa, each applicant must spend at least 40 days each year (or cumulatively) over four years. There is expected to be strong demand for these visas, particularly from Asia, with at least 700 visas expected to be issued under the scheme each year – a combined annual investment of $3.5bn into Australia’s economy.
The aim of the scheme is primarily to attract much needed capital plus entrepreneurial skills and experience into Australia. There are over 60,000 individuals in China with over AUD16 million in assets - if Australia were to issue visas to just 1% of these individuals, it would be a $30bn injection into the Australian economy, not allowing for the multiplier effect of their personal contribution to the economy, including housing, luxury goods, taxes, retail expenditure etc. With over one million millionaires in China, of which 85% send their children abroad to study, Australia’s education sector is well positioned to attract these high net worth individuals as long term investors into our economy.
Whilst there has been some controversy surrounding this new visa category (“Australia sells visas”) from an economic standpoint it must surely be viewed as a beneficial transaction for all involved. Last year, Asian nations purchased over two thirds of our exports, worth over $175 billion to the economy. As a net importer of capital, Australia will no doubt welcome these innovative and entrepreneurial individuals who are eager to invest in our economy, creating jobs, boosting local consumption and raising much needed Government revenue to pay for new infrastructure, education and healthcare services.
Of course, Australia is not the first to offer this type of visa category. The UK, Singapore, New Zealand and Canada all have similar visa categories aimed at attracting high net worth migrants. The UK, Singapore and NZ investment threshold are all below Australia’s, sitting at GBP1million, SD1million and NZD1.5million (with language requirements) respectively, so Australia needs to compete on an international and regional scale to be the destination of choice for wealthy Asian entrepreneurs and their families.
The 888 scheme will provide a huge opportunity for both the funds management and banking sectors. Applicants who are successfully granted a visa and choose to live in Australia will open bank accounts and transfer some or all of their wealth to Australia. Interestingly, Asian people generally prefer to keep their money on deposit in banks – a competitive opportunity for banks to appeal and market their retail banking and other divisions to Chinese investors. The 888 visa scheme will also see investments flow into our services sector and, in particular, the managed funds industry, with new migrants requiring investment, taxation and wealth management advice, an enormous opportunity for financial advisers who can tap into the Asian migration pool. To capitalise on these opportunities, financial advisers and bank executives must invest in developing their profile, creating new connections and tailoring their services to a bilingual, multi-cultural and relatively sophisticated group of high net worth Asian investors.
Currently, the investment limitations surrounding complying investments in managed funds are restrictive and detailed. They require managed funds to hold investments in one or more of:
- infrastructure projects in Australia:
- agribusiness in Australia;
- cash held by Australia deposit taking institutions;
- State or Territory Bonds;
- bonds or equity issued by an Australian ASX listed company;
- bonds or term deposits issued by Australian Financial Institutions;
- real estate property in Australia; and
- investment into ASIC regulated managed funds that invest in the mentioned list of assets.
The main problem is that the majority of Australian managed funds which already invest in these categories would not qualify as complying investments under the 888 scheme due to their exposure to a broader range of asset sectors or other instruments, like derivatives. As a result, assuming the requirements under the scheme are not extended, managed funds will need to be tailored to comply with the current 888 requirements.
Should the investor choose to invest directly into an Australian Private Company, it must satisfy several requirements, including that the company must not be established solely for the purpose of meeting the complying investment test. In addition, it must operate as a ‘qualifying business’, i.e. “one for which the prime motivation is to make a profit through providing goods and services and not for the purpose of speculative or passive investment” and for a minimum period of time. The investment must be an interest as a shareholder in the company that operates the business, including interests held directly through a partnership, trust or company.
The complementary nature of the Australian economy to other Asian nations will open enormous opportunities in the agricultural, food, clean energy and services sectors. As the mining and resources industry slows and the Australian economy adjusts to a new equilibrium, the role of foreign investment will be crucial to the expansion and evolution of these fast growing industries, with the need to invest in innovation, technology and research. The Significant Investor Visa is just one mechanism to attract large foreign investments and successful entrepreneurs to our country, but it is the one that is most occupying the minds of all banking executives as we start the Year of the Snake.
Hong Kong, Macau, Guangzhou and Shenzhen are famous cosmopolitan cities in Guangdong Province which are already well known to seasoned travellers. Bordering Macau and Hong Kong is Zhuhai, a second tier city which is heralded as the Chinese Riviera due to its 190 islands. With a current population of just over 1.5 million people, Zhuhai is China’s ‘hidden treasure’.
Zhuhai is one of the core cities on the west bank of the Greater Pearl River Delta (GPRD) which comprises nine cities: Guangzhou, Shenzhen, Zhuhai, Dongguan, Zhongshan, Foshan, Huizhou, Jiangmen and Zhaoqing, along with the Special Administrative Regions of Hong Kong and Macau.
A pioneer in economic reform, Zhuhai was one of the four earliest Special Economic Zones (SEZs) established under the leadership of Deng Xiaoping. The creation of Special Economic Zones paved the way for China’s recent transformation from a planned to market economy.
After 30 years of economic development in Zhuhai, six key manufacturing sectors have been developed comprising of electronics, home electric appliances, power and energy, biomedicine and medical devices, petrochemical, precision equipment and yacht manufacturing.
According to the “Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020)” released by the State Council in January 2009, Zhuhai is specified as a core city and transportation hub on the western bank of the Pearl River Estuary.
The economic significance of Zhuhai cannot be ignored. It is one of China’s fastest growing, outward oriented and attractive investment regions. In 2010, foreign trade was valued at US$751.1 billion (representing 25.3% of the national total).
At the end of 2010, 11,064 FDI projects from 70 countries had been approved in Zhuhai, with FDI totaling US$12.7 billion. The city has been successful in attracting large multinational corporations to invest in 85 projects in Zhuhai, including Canon (from Japan), Flextronics (US), Panasonic (Japan), Bosch (Germany), Phillips (Netherlands), BP (UK), Shell (UK-Netherlands) and China’s National Offshore Oil Corporation (CNOOC). In March 2011, the Zhuhai provincial government signed agreements with a series of leading SOEs (state owned enterprises) with investments worth over US$26 billion.
The Zhuhai Free Trade Zone encourages investment in warehousing, logistics and export processing. In 2010, the gross industrial output from the zone hit RMB 7.076 billion, accounting for 5.1% of Zhuhai’s total. The foreign trade of the zone exceeded US$1.558 billion, comprising US$730 million in export value and US$828 million in imports. By 2008, more than 150 companies from 20 countries and regions had established businesses in the zone. In 2010, the utilized FDI in the zone amounted to US$45.98 million. Large investors include MTU, EPCOS, Oplink, Coloplast, SCHMID, Tyco Electronics, ProLogis, Canon and domestic firms such as Mingde Logistics and Zhuhai Flight. In the first quarter of 2011, Zhuhai FTZ’s GDP reached RMB 388 million, the gross industrial output hit RMB 1.45 billion, and foreign trade amounted to US$ 390 million.
Zhuhai has a growing financial services industry with over 50 foreign financial institutions operating in Zhuhai city, seven of which are foreign banks including Morgan Stanley, Bank of East Asia and Standard Chartered Bank. The number of foreign banks will increase in the years ahead due to the development of new infrastructure, particularly the fast road and rail links to neighbouring Hong Kong, Shenzhen and Guangzhou.
New infrastructure is in fact the key to Zhuhai’s economic development. Construction is currently underway for a 49.9 km long bridge linking the cities of Hong Kong, Zhuhai and Macau which will be finished by 2016 (see map below). When complete, Zhuhai will become the only city that links the Special Administrative Regions of Hong Kong and Macau. This is very significant for the huge commercial benefits that will flow between the economies of these three major cities in Southern China.
Many Chinese tourists travel to Zhuhai to witness its spectacular landscape. The region has an exceptional environment consisting of mountain ranges, rivers, beaches and islands together with a very pleasant climate. As a result, Zhuhai has received numerous honours and accolades such as the “National Environmental Protection Model City”, “National Hygiene City”, “National Ecological Demonstration Zone”, one of the “Chinese Cities with the Greatest Investment Potential”, the “International Award for Best Practices to Improve the Living Environment” by the UN Habitat, the “National Advanced Science and Technology City”, and even scoring the “Top 10 Chinese Cities with the Greatest Sense of Happiness”. A popular destination for many Chinese tourists, Zhuhai comprises a wealth of islands such as the Outer Lingding Island, Guishan Island, Hebao Island and Dong’ao Island. Many people travel to Zhuhai for its abundance of beaches, sea views and hot spring resorts.
Over the past few years, Zhuhai has stepped up efforts to develop advanced manufacturing in certain industry sectors such as general aviation, ocean engineering equipment manufacturing, ship building and marina development. I have a particular interest in the economic development of Zhuhai due to my involvement in the Zhuhai (Australia) Yacht Industrial Garden Project where I am facilitating business and investment links between Zhuhai and New South Wales. This project was approved by the Central Government’s State Council in 2012 as a “key project of coastal industry in Guangdong”, and involves the building of a new world class “yacht city” on a footprint the size of the city of Sydney.
I will be leading a NSW delegation to Zhuhai later in the year and look forward to introducing Australian business leaders to the delights of Zhuhai, China’s hidden treasure. For more on the Zhuhai (Australia) Yacht Industrial Garden Project, please see the issue of "Think Global with David Thomas - December 2012" below:
Despite news of the recent downturn in Brazil’s economy, multinational corporations are continuing to invest billions in Brazil. Not only is Brazil the largest economy in South America, it is also ranked as the 6th largest economy in the world (expected to rank 5th during the next decade). The 2014 FIFA World Cup and the 2016 Olympic Games will further raise the country’s international profile in the coming years.
Brazil has advanced manufacturing, mining and agriculture sectors and rapidly expanding technology and service industries. It is also the leading hub for innovation in South America and has the most sophisticated and diversified science and technology system in the region.After 16 years of economic stability and relatively little impact from the GFC, Brazil’s economic fundamentals remain strong and sustainable.
Foreign direct investment to Brazil has increased investor and market confidence in the South American giant. Last year, Brazil was the second largest global destination in attracting FDI at US$65.2 billion and fifth in terms of FDI projects. In 2011 alone, there were 507 FDI projects in Brazil which created over 160,000 jobs. The top region for FDI in Brazil is Sao Paulo, attracting 26% of all FDI projects. Rio de Janeiro is ranked second, attracting 8%.
What are Brazil’s key competitive advantages?:
- Social and economic growth combined with economic and environmental stability
- Large and strong domestic market due to a rapidly growing middle class. With a population of 191 million people, a well educated middle class and millions of working class citizens, Brazil’s importance as a consumer market is on an upward trajectory.
- Wealth of natural resources and clean and abundant renewable energy
Top sectors attracting foreign direct investment:
- Service activities have driven 52% of the total FDI projects
- The ICT sector generated 105 FDI projects in Brazil and ranked 4th in terms of job creation in Brazil in 2011 (created 17,724 jobs)
- Business services attracted 53 FDI projects in 2011
- Financial services attracted 35 FDI projects in 2011
Information and Communication Technology (ICT) and New Media
Brazil is the largest ICT market in South America, after Mexico. It is also one of the largest IT markets within the emerging economies. IT end-user spending in Brazil is expected to grow to $134 billion in 2014. The largest share of spending will be on telecom equipment (representing 72% of the market, followed by IT services at 13.3% and computer hardware at 11.9%).
In 2009, the Brazilian environmental technologies market was estimated to be worth US$9.0 billion. Given the projected growth of the Brazilian economy for the next 5 years, and the emphasis on new infrastructure, the environmental industries market is expected to grow by 10% annually.
Infrastructure is the key to the Brazilian government’s economic expansion over the coming years, with Brazil looking at investments of over $262 billion. The 2014 World Cup, the 2016 Olympics, and the federal government infrastructure programs on roads, railroads, ports and airports offer a broad range of business opportunities for foreign infrastructure firms.
The life sciences sector in Brazil is among the 10 largest in the world and has averaged 4% growth per year since 2007.
Brazil offers great potential for mining exploration activities and an expanding market for mining equipment and services due to its large reserves of natural resources. Mineral production in 2009 was over US$21 billion.
Oil and Gas
The investment plan of the Brazilian government-owned oil company Petrobras may represent the largest global business opportunity in the oil and gas sector between 2011-20. Petrobras anticipates it will invest $224 billion in exploration and development between 2011 and 2015. This represents real opportunities for firms servicing the oil and gas industry willing to undertake investment or joint ventures with local companies in Brazil.
Brazil is targeting nuclear energy as an area for expansion in order to diversify its energy mix. This represents real opportunities for engineering firms as well as R&D companies.
David Thomas will be co-leading an International Business Visit Program in late 2013 to Rio de Janeiro and Sao Paulo. For more information on Brazil Access 2016, please go to: http://brazilaccess2016.com/program/
Finally, watch the August 2012 issue of "Think Global with David Thomas" which was made in Brazil: