By Denis Bright
This article seeks to apply the wisdom generated by UQ’s Business Faculty (BEL) Alumni’s Roundtable event at the Customs House in Brisbane on 2 August 2024. Professor Shaun Bond of UQ moderated the event. The panellists were Mr Paul Taylor, Head of Investments at Fidelity International, Catherine Allfrey, Portfolio Manager at WaveStone Capital as well as Professor Rumi Masih, Affiliate Professor of Queensland Alliance for Agriculture and Food Innovation (QAAFI).
Private sector capital flows in direct investment and portfolio investment in existing businesses are complicated by an array of financialization processes. The options include debt financing, investment in hedge funds and derivatives. These financial processes have gained a higher profile in the post-Bretton Woods era since the 1970s. Despite the interruptions posed by the GFC (2007-09) and the COVID-19 crisis, global capital flows are still measures in trillions of US dollars. Only the estimates for Global financial direct investment (FDI) generate more reliable data (United Nations Trade and Development UNCTAD 2024):
Global foreign direct investment (FDI) fell by 2% to $1.3 trillion in 2023 amid an economic slowdown and rising geopolitical tensions, according to the World Investment Report 2024.
But the report highlights that the decline exceeds 10% when excluding the large swings in investment flows in a few European conduit economies.
The downturn in project finance affected sustainable development, with new funding for Sustainable Development Goals (SDGs) sectors dropping over 10%, particularly in agrifood and water. This hampers efforts to achieve the 2030 Agenda and calls for urgent policy action to revamp sustainable development finance.
A now dated 2018 YouTube video is available from Noam Chomsky to cover these issues. From this era, former President Obama and former progressive socialist Greek Prime Minister Alexis Tsipras discussed the implications for the Greek economy for the Wall Street Journal.
This article promotes discussions arising from global capital flows. The issues raised are my own reactions to the issues discussed at the Roundtable event. My selected concerns relate to the need for more optimum mix in Australian capital investment, more transparency in taxation of multinational companies and stronger protection against future financial instability. Cues from the panellists and questions from the audience assisted in generating these responses.
Professor Catherine Allfrey told the audience to watch for the next moves from The US Fed in relation to future interest rates. The Fed decided to keep interest rates unchanged at 5.5 percent at its last meeting on July 31. Markets anticipated that the first interest rate cut in mid-September by the Fed could be too late to save the economy from falling into a recession.
Professor Paul Taylor continued this theme of Australia’s responses to any deterioration in US investment markets. The arrival of a new era of US protectionism posed new challenges for Australia.
The temporary dive in US financial markets about to occur on 2 August 2024 (US time) was fully anticipated.
The US Fed had kept interest rates on hold at its two-day meeting in late July 2024 after a minor spike in the US jobless rates with similar trends evident from the Bank of England.
My local concerns over the direction of capital flows relate to:
The Quest for a More Optimum Investment Mix in an Australian Neoliberal Economy
The latest release from the International Invested Position (IIP) from ABS offers a picture to 2022-23. Surprisingly, investment from the US, Britain and Europe still tops the foreign investment here.
Net overseas investment inflows approaching $5 billion saturate certain sections of the economy such as fast foods, entertainment streaming services, real estate over longer-term investment in social housing, affordable health infrastructure, public transport infrastructure or public broadcasting. The growth of commercial streaming services are sources of cultural tensions. Techradar (2 August 2024) welcomes these trends:
Remember when Netflix was really our only option? And how it was a shell compared to the United States offering, and what we know and love today? The times have certainly changed and now there is a literal deluge of services, including more niche offerings such as Britbox, Kanopy and Crunchyroll. But arguably the biggest and best streaming services – and the ones we’ve focused on in this article – are Netflix, Stan, Amazon Prime Video, Apple TV Plus, Disney Plus and Binge.
A question from the floor of the Roundtable event raised the possibility of opening of Australian state-owned public-sector investment and sovereign wealth funds as well as the Future Fund to overseas capital investment. Professor Rumi Masih welcomed the suggestion if there were absolute guarantees of the integrity in the management of this investment in the context of problems faced by Malaysia’s Investment Fund (BBC News 27 June 2024).
The Need for More Transparency in Australian Taxation of Multinational Companies
Representatives from both Australia and the US have opportunities in their consultations to address the possibilities of tax evasion by multinational companies in commercial relationships within the Australia-US Free Trade Agreement (AUSFTA). These confidential negotiations between the chosen representatives of both countries simply do not surface in mainstream media coverage or on the site of the US Trade Representative based in Washington. The latest posts on this site relating to Australia pre-date the election of the Albanese Government on 22 May 2022. This might reflect the desire of the new government to keep negotiations confidential and to keep financial considerations of the enormous costs of AUKUS and other defence arrangements as in-house as possible.
The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share–Integrity and Transparency) Act 2024 is now law in Australia to permit the ATO to place appropriate scrutiny on traditional tax evasion practices by multinational companies (The Treasurer 4 July 2024).
Legislative changes in 2024 are of course too recent to show up in the tenth corporate transparency report of the ATO which is due for release in November 2024. The current report from 8 November 2023 showed that 31 percent of the major corporations listed paid no tax in Australia. These included familiar resources companies and household brand names with both Australian and overseas ownership.
Financialization processes initiated from overseas financial hubs contribute to Australia’s Net Income Balances as monitored by the RBA (1 August 2024).
Risks of Exposure to Future Global Market Volatility
Differences in official interest rates between Australia and the financial hubs of Britain and the US place pressure on Australian interest rates. Higher official interest rates in Britain and the US place pressure on interest rate stability in Australia. Fortunately, the new volatility in interest rates and market indicators is quite pale in comparison with events in the early 1980s as shown by longer-term interest rate settings from the US Fed commencing in 1955.
Nuanced responses are the new watchwords of these times. Hopefully, I have taken the right cues from both the panellists and the questions raised by the audience. Readers can use the Replies button to correct my errors of judgment in rejecting the benign nature of these financial tidal waves in the global economy with profound implications for Australia (Trading Economics):
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