Archive for June 2015 | Monthly archive page

A piece of land the size of New Jersey is up for sale in Australia. At a sprawling 23,000 square kilometers (14,000 square miles), the Anna Creek Station in South Australia is the world’s biggest cattle ranch.

It’s being offered as part of a portfolio of Australian properties which includes 11 cattle stations and a bull breeding stud farm. But it doesn’t score many points for location. The collection of farming assets stretch across more than 100,000 square kilometers of Australia’s vast interior. To inspect the full sweep of properties on the block by air would take about a week.

Buyers around the world have expressed interest in the sale which should fetch around $300 million Australian dollars ($232 million U.S. dollars). It’s expected to wrap up by the end of the year. Ernst & Young’s Adelaide managing partner Don Manifold is handling the deal, and has more than 30 serious buyers on his books, including parties from North America, Europe and Asia.

Foreign ownership, particularly Chinese, of agricultural land is a contentious topic in Australia. To combat rising unease with the level of foreign investment in farm land, the country raised the threshold on purchases subject to government review earlier this year. Australia is world’s third largest beef exporter behind India and Brazil, and ahead of the U.S. Its export strength is helped by a number of free trade agreements with beef-eating countries and the reputation of its meat as safe. Manifold said the Anna Creek ranch offers a chance to become “one of the world’s foremost beef producers” as Asia’s growing middle class spurs demand for red meat.

In one of the most bearish forecasts for the Australian dollar, Morgan Stanley expects the currency to drop to US68¢ by the end of the year, before finishing 2016 even lower at US62¢.

After an around 18 per cent fall over the past 12 months due to falling commodity prices, jawboning and targeted cash rate cuts, the Aussie has since February been stuck in a trading range of US76¢ to US81¢.

“Indeed, there was some market frustration with the recent rhetoric from the RBA that in one breath backs hard for a lower currency but then backs away from the easing bias that would have helped achieve this outcome,” Morgan Stanley analysts, led by Chris Nicol, write in a note to clients.

“We are more sanguine on this front, and like other major central banks, we view the recent RBA rhetoric and positioning as one that seeks greater flexibility linked to the overarching concept of data dependancy.”

Morgan Stanley expects soft data to eventually force the RBA’s hand, taking the cash rate down to 1.75 per cent in the fourth quarter, from 2 per cent currently.

But the analysts add that the data itself should do a lot of the heavy lifting required to weaken the Aussie, which in turn would support the economy in its struggle to transition away from the last gasps of the mining boom.

The lower Aussie forecasts are not only based on a struggling local economy, but also on continued strength in the greenback, the analysts say.

“The key short-term drivers of the US dollar will be growth and front-end yield differentials, which we expect to become even clearer with our team forecasting a strong retail sales figure on Thursday, adding to momentum from payrolls, housing data and the ISM.”

The median forecast by analysts for the Australian dollar at the end of this year is US74¢, edging up to US76¢ by the end of 2016, according to Bloomberg.

Competition between Australia’s biggest internet providers is heating up with Telstra launching cheaper broadband plans with more added features that could reduce its profits.

Telstra on Tuesday will start selling new broadband bundles that offer cheaper internet and Foxtel Pay TV services as part of a package. Where Telstra users previously paid $130 per month on a two-year contract for a 200 gigabyte plan with Foxtel services, the same plan will now cost $109 per month – a 16 per cent discount.

Telstra will also launch a commercial version of its national Wi-Fi hotspot network, which has been rebranded as Telstra Air. The only customers able to use it free of charge are existing broadband subscribers who offer to turn their own home networks into a hotspot.

But while customers will welcome the lower prices and bigger inclusions, shareholders could be less enthused. The new prices could result in lower average revenues per user and smaller profit margins thanks to rising competition.

For the first time the company will also offer 1 terabyte plans, equivalent to 1000 gigabytes, for $149 per month. It has also eliminated a 100GB plan that will force some users to pay more to upgrade to Telstra’s pricier 200GB plans or get cheaper 50GB options.

Telstra’s move is likely, partly, in response to Singtel-Optus’ aggressive move to offer cheaper services that came with internet television provider Fetch TV and free subscriptions to video streaming service Netflix.

Those packages have allowed Optus to turn around its stalled fixed-line internet division and increase the number of broadband customers from 1.014 million users in December 2014 to 1.032 million as of March 2015.

Telstra was forced to sacrifice earnings to make similar concessions in its mobile phone business earlier this year because of discounts and data boosts from Optus and Vodafone Hutchison Australia.

That move led to Telstra’s now-chief financial officer Warwick Bray to warn of potential cuts the the average revenue earned per user.

“On ARPUs it is early days but the recent change in competitive dynamics may have some impact,” Mr Bray said at the time. “We’ve previously talked about EBITDA margins around the high 30 [per cent] and there’s no change to that today.”

The prices are still higher than those of Telstra’s rivals, Optus and TPG Telecom. But Telstra’s Group managing director of consumer and products, Karsten Wildberger, said he was confident it would win over new customers.

“I’m personally very, very confident that our customers will like it,” he said. “As of Tuesday we will have a differentiator [in Telstra Air] that others don’t have, which we are very excited about.

“We hope with those new offers … we will get even more new customers and our existing customers will stay longer with us and that’s what is behind it.”

Telstra Air aims to get two million hotspots up and running throughout the country over the next five years. Non-Telstra users can buy access to the service through its Spain-based partner, Fon.

The company’s initial hotspot trial, using converted payphones, saw 1.5 million people use its free Wi-Fi hotspots to download 500 terabytes – or 500,000 gigabytes – of data.

The telco giant has previously been able to use its ownership of copper phone networks and infrastructure investments to dominate the mobile and fixed-line markets. But its rivals have spent billions of dollars catching up and the $41 billion national broadband network is designed to level the industry’s playing field for everyone.

This will force Telstra to become far more competitive at the cost of its long-term profitability – a key reason why the company was paid $11.2 billion in compensation by the Federal Government to lease its copper network for the NBN.

The toy company plans to invest $1 billion over the next 15 years as part of a broad effort to make its iconic plastic building blocks better for the environment. It will also make its packaging more sustainable.

The company made 60 billion Lego pieces last year. So a little bit of change could go a long way to “significantly reduce [Lego’s] impact on the planet,” Lego said in a statement.

Lego has already done things to reduce its carbon footprint — like cutting the size of packages and investing in wind power.

Now it will work to develop replacements for plastic that are more climate friendly.

 

“Several factors influence the environmental sustainability of a material — the composition of the material, how it is sourced and what happens when the product reaches the end of its life,” CEO Jørgen Vig Knudstorp said.

This is not Lego’s first attempt to become cleaner.

In 2013, the company started a partnership with WWF, the environmental group, to help develop a plan for making its materials more sustainable.

Last October, Lego ended a 50-year relationship with Shell after falling under scrutiny over the oil giant’s drilling in the Arctic.

More than 100 new employees will be hired to work on the project at Lego’s sustainable material center in Denmark, which is expected to be finished by 2016.

 

 

 

 

 

Emerging from last year’s recession, many in the financial industry were curious about the Japanese government’s take on its own recovery programs. While these programs included a substantial stimulus package, they also included increases in sales tax and capital expenditures. However, based on a recent statement issued by the Bank of Japan, the nation apparently feels quite positive about its recovery progress; a fact signaled by its announcement of plans to maintain the Bank of Japan’s massive stimulus program.

In the announcement (made Friday), the Bank of Japan not only described plans to continue the stimulus program, but asserted that growth would accelerate inflation to the BOJ’s 2 percent target without any additional monetary easing. This assessment was based on observations of improving business sentiment and an increase in capital expenditures. The Bank of Japan also announced its decision (made by an 8-1 margin) to keep intact a pledge to increase base money at an annual rate of $650 billion per year via aggressive asset purchasing. The Bank of Japan noted in a statement reported by Reuters“Exports are picking up and capital expenditure is rising moderately as a trend as corporate revenues improve.”

The BOJ also revised its assessment on housing investment, indicating that the industry “appeared to be picking up.” Just last month the BOJ had said it believed that housing investment was bottoming out. This revision is not a retraction of the prior month’s assessment, but rather an indication of positive upward movement in this segment of the economy.

Japan experienced a stronger than expected performance in the first quarter of 2015. Prior to this surprise showing, most economists pegged the economy’s projected growth at somewhere under one percent for the year. However, after the reported first quarter showing, some have increased their expected growth rate to somewhere between three and four percent.

Some analysts believe the BOJ may become more hesitant to ease for fear of weakening the yen. The value of the yen sank significantly during the recession, which has actually served to help the still sagging export market, but has drawn criticism from the public and lawmakers. A strong yen has often been a source of national pride, and the Governor of the Bank of Japan is expected to address the nation after the next BOJ meeting to discuss the pros and cons of a weak yen.

There were mixed signals from the current Australian Liberal-National Party Coalition government on its approach to foreign investment when it was elected in 2013. As the government settled in, Prime Minister Tony Abbott declared that ‘Australia was open for business’, but just how open it was for foreign business remained unclear. The creation of an investment portfolio in conjunction with the trade portfolio, held by Liberal Party Minister Andrew Robb, therefore provided reassurance that the new government was not going to abandon Australia’s long-standing proactive approach to encouraging foreign investment.

China’s President Xi Jinping shakes hands with Australia’s Prime Minister Tony Abbott after statements to the media following the signing of a free trade agreement at Parliament House in Canberra on 17 November 2014. (Photo: AAP).

Yet uncertainties remained as one of the early decisions made by the Australian Treasurer was a rare use of his powers to block a major foreign investment proposal — in this case, the takeover of Grain Corp by American company Archer Daniels Midland. The National Party leadership, representing rural constituencies, also continued its hostility towards foreign investment in agribusiness.

Foreign investment brings much needed capital, expertise, technology and links to international markets. Maintaining an open investment regime and an attractive investment environment is essential to growth in jobs and maintaining living standards. For almost two centuries, it has been an important engine of Australia’s economic progress.

Australia has historically been an attractive destination for investment. The world’s major investors, such as Europe, the United States and Japan, are also Australia’s largest sources of direct foreign investment. Now it has emerged as a global investor, China is also becoming a major investment partner, and Australia is one of China’s largest ultimate destinations for foreign investment.

The Foreign Investment Review Board (FIRB) and the foreign investment regime have played an important role in facilitating investment and reassuring the Australian community about the value that foreign investment brings, through screening foreign investment to ensure new investment is in the national interest.

Two recent developments have led to pressure on the approach to foreign investment policy. First, the large inflow of investment from China associated with the resources boom put stress on the screening process and resulted in short term policy responses because of political pressures. Community concerns arose in response to the rapid increase in the scale of Chinese investment and its unfamiliarity as a new source of investment, the complication of high levels of state ownership, and the expansion of Chinese investors into agriculture and real estate. The increased interest in investment in agribusiness more generally has elevated anxieties about foreign investment in rural assets.

Second, free trade agreements have de facto amended the foreign investment regime by raising the monetary thresholds that trigger a review of investments originating in particular countries and introduced distortions in the treatment of foreign investment from different countries. Investment from Europe, Southeast Asia and all other countries is treated differently from investment from the United States, New Zealand, Chile, China, South Korea and Japan with which preferential trade agreements have been signed. This does not make any policy sense.

The Australian Treasury is undertaking a welcome review of foreign investment laws and regulations aimed at modernising and simplifying the foreign investment regime. This will tidy up a number of legislative anomalies and regulatory processes that make it more difficult for productive investment from abroad to contribute to the strength and resilience of the Australian economy.

In this week’s lead essay, John Denton and I argue that the time is right for a fundamental re-positioning of the foreign investment regime.

There is considerable evidence that Australia’s standing in the international investment community has been diminished in recent years by short-term politically-driven responses in foreign investment policy making. Piecemeal changes that discriminate among different investment source countries have weakened the coherence of the regime and go against international best practice as outlined in frameworks such as the OECD’s Policy Framework for Investment, which recommends non-discrimination as a guiding principle of investment policy. Large investors, like the United States and China, see Australia’s foreign investment regime as a barrier to foreign investment rather than a facilitator that guarantees the strongest possible flow of foreign investment in the national interest.

With the creation of a ministry responsible for attracting foreign investment, the current Australian government has taken a first step in re-positioning to project the national interest in a more clearly supportive foreign investment regime.

As Denton and I point out, there is a great deal of evidence that trade and foreign investment are inextricably linked. The OECD identifies a direct correlation between trade and foreign investment. It recommends close interaction between governmental departments to ensure capitalisation of the benefits of trade-inducing foreign investment.

Specifically we suggest the launch of ‘an inter-departmental effort comprising importantly the Treasury and Trade and Investment ministries to look at the macro policy issues relating to foreign investment and actively attend to the intersections between trade and foreign investment policy’. An inter-departmental committee could serve a Ministerial-level Foreign Investment Council chaired by the Treasurer and including the Trade and Investment Minister. ‘It would not consider the merits or national interest issues for individual foreign investment proposals which would remain the province of the Treasurer under the Foreign Investment Review Board’. But the Foreign Investment Council and its inter-departmental advisors would be responsible for ensuring Australia crafted a consistent trade and foreign investment policy with the clear message that foreign investment is welcome. At the same time it would broadcast Australia’s expectations of foreign investment, including the importance of conformance with domestic regulatory institutions, such as the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), the Australian Taxation Office (ATO) and environmental agencies, in the governance of foreign investments (which apply equally to domestic investments).

‘The attractiveness of Australia as an investment destination is not simply a matter of elevating investment promotion by Austrade and DFAT’, we argue, ‘but also requires active engagement of the investment policy makers with authorities and business in important target countries, such as China and India, and its proper resourcing’.

An Australian Foreign Investment Council, with input from across the relevant ministries and agencies, would help to address these problems and project more effectively Australia’s strategic interests in this area of its international economic diplomacy.

Peter Drysdale is Editor of the East Asia Forum.

With the huge structural adjustment that the Australian economy has to effect as the commodities’ boom fades into the distant past, the ability of Australia to attract high levels of foreign investment has never been more critically important to driving employment, productivity growth, and innovation.

Foreign investment brings much needed capital, expertise, technology and links to international markets. Maintaining an open investment regime and an attractive investment environment is essential for growth in jobs and to maintain living standards. The government’s proposals to modernise Australia’s foreign investment regime, together with the A$53 million (approximately US$40 million) announced in the 2015 budget to increase Australia’s profile as an international investment destination are a tangible demonstration that the Australian government agrees on the need to encourage foreign investment.

There is a great deal of evidence that trade and foreign investment is inextricably linked. The OECD, in its recently revised Policy Framework for Investment, identifies a direct correlation between trade and foreign investment. The OECD recommends close interaction between governmental departments to ensure capitalisation of the benefits of trade-inducing foreign investment.

In Australia, trade policy — including initiatives like the recent trifecta of free trade agreements (FTAs) with Korea, Japan and China — is managed within the portfolio of the Department of Foreign Affairs and Trade. The foreign investment regime is the remit of the Department of Treasury, including the Foreign Investment Review Board and more recently the Australian Taxation Office.

The time is right for a fundamental re-positioning of the foreign investment regime in a way that directly recognises the connectedness of trade and direct foreign investment.

A standing inter-departmental committee — which formalises and actively manages the intersection of treasury, trade and foreign affairs policy and services a ministerial-level Foreign Investment Council — would be a useful addition to the national armoury for managing foreign investment policy that encompasses the links between trade and investment.

A first task would be to agree on a program of international missions to key investment destinations in the US, Western Europe and Asia to promote Australia as a key investment location and coordinate the facilitation of trade and investment. These missions should, at the same time, seek to educate key stakeholders about the operation of Australia’s foreign investment policy regime.

An inter-departmental effort, which would importantly be comprised of the Treasury and the Trade and Investment ministries, would look at the macro policy issues relating to foreign investment and actively attend to the intersections between trade and foreign investment policy. The inter-departmental committee would not consider the merits or national interest issues for individual foreign investment proposals, which would remain the province of the Treasurer under the Foreign Investment Review Board. The Foreign Investment Council and its inter-departmental advisors would be responsible for ensuring Australia crafted a consistent trade and foreign investment policy.

The current foreign investment regime requirements in practice mean that very few FTA investors even are able to utilise the higher thresholds now available to them as most, for tax efficiency and corporate governance reasons, will interpose structures between the FTA jurisdiction and the ultimate investment in Australia. These structures are commonplace, considered market practice and support, for example, investment in greenfield and brownfield infrastructure. Concerns about offshore structuring and the impact on tax revenues are a matter for Treasury in its capacity to regulate taxation matters, not only in the context of foreign investment.

The higher thresholds under FTAs should, in any case, be sensibly made available to all investment sources.

The attractiveness of Australia as an investment destination is not simply a matter of elevating investment promotion by Austrade and DFAT but also requires active engagement of the investment policymakers with authorities and business in important target countries, such as China and India, and proper resourcing.

Australia’s message to the world has to be that it is open to business from abroad within a framework that seeks to also protect the national interest. A coordinated education program would provide the Australian government with a forum to communicate the operation of Australia’s foreign investment regime. At the same time, it would communicate Australia’s expectations of foreign investment, including conformance with domestic regulatory institutions, such as the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission, the Australian Taxation Office and environmental agencies in the governance of foreign investments (which apply equally to domestic investments).

As Trade Minister Andrew Robb has said, ‘the world is awash with mobile capital, but the competition is fierce … That is why we need the right resources in the right places’. An Australian Foreign Investment Council, with input from across the relevant ministries and agencies, would help to address these problems and project more effectively Australia’s strategic interests in this area of its international economic diplomacy.

Time to re-position Australia’s foreign investment regime is republished with permission from East Asia Forum

The Australian dollar has jumped three quarters of a US cent as the unemployment rate surprisingly fell.

The jobless rate dropped to 6.0 per cent in May, as the number of people with jobs lifted by 42,000, better than market expectations of a 10,000 gain.

The Australian dollar rose to 77.93 US cents by 1132 AEST, from 77.23 US cents just before the jobs numbers were released.