Proposed changes to Australia’s foreign investment rules aim to fuel investment in key sectors

Reforms to Australia’s foreign investment rules will further support such investment by streamlining approvals for investments that are considered lower risk and encouraging foreign investors to participate in competitive bid processes. The announcements are a welcome step in reducing some of the delays and costs under the current foreign investment regime that may have been seen to deter some foreign investment.

The National Interest Framework

Draft legislation is yet to be released but the supporting papers provided on 14 May, when the budget was handed down, indicate that the Act will include a National Interest Framework which will establish priority investment sectors using a core set of principles. Those principles include Australia’s grounds for lasting competitiveness, the role of specific industries in reaching net zero targets, and the role of those industries in building Australia’s economic resilience.

The core principles also address whether those industries will build key capabilities, and whether public investment in those industries will alleviate barriers to private investment in a significant way.

The framework currently provides that a sector may be characterised as a key target for public investment in one of two ways – namely, as part of a ‘net zero transformation stream’ or as part of an ‘economic resilience and security stream’.

Industries falling within the net zero transformation stream are those that are forecast to maintain a long-running comparative advantage in a net-zero environment, but require significant public investment to reach a state where meaningful and cost-efficient impacts can be made on emissions reductions, with a focus on helping Australia to become a renewable energy superpower.

Industries falling within the economic resilience and security stream are domestic industries that are critical to Australia’s long-running economic resilience, stability and national security but require investment activity from the private sector that will not be realised in the absence of thoughtful and carefully planned public initiatives.

The federal government will consult on the details of the framework as part of its consultation on the Future Made in Australia legislative package.

Foreign investment implications

The treasurer announced reforms to Australia’s foreign investment regime to complement the initiatives to be implemented under the Act.

The reforms are designed to improve transparency in the foreign investment review process, efficiently allocate resources to complicated and high-risk investment proposals and create a more streamlined process for investment proposals that are considered low risk to Australia’s national interests and security.

The proposed reforms can be broken down into three key areas, namely reforms ensuring greater scrutiny of foreign investment in sensitive sectors, reforms ensuring streamlined processes for low-risk foreign investments, and reforms implementing timeframes and fees.

Proposed reforms ensuring greater scrutiny of foreign investment in sensitive sectors

This category includes a targeted screening system to apply greater scrutiny to proposed investments that may attract a greater national security risk, including those into the critical infrastructure and technology sectors.

Also proposed is a move to direct resources towards the monitoring and enforcement functions of the Treasurer and, in particular, ensuring compliance with conditions previously imposed on foreign investment proposals.

Proposed reforms ensuring streamlined processes for low-risk foreign investments

Proposed reforms to processing applications relating to low-risk foreign investments are expected to result in a quicker, streamlined review process that will apply to passive institutional investors, foreign investors with an existing track record of compliance with Australia’s foreign investment laws, and investments in sectors that are not considered sensitive to Australia’s national security - such as manufacturing, professional services, commercial real estate, new housing and mining of non-critical minerals.

Further ensuring a streamlined process, the recently announced changes to Australia’s approach to merger controls should see the removal of duplications, and the resulting increased cost and delays, in the assessment of competition issues between the foreign investment framework and the merger control system. 

Proposed reforms implementing timeframes and fees.

Australia’s Foreign Investment Review Board’s (FIRB) application fees for foreign investors who participate in competitive tender processes but are ultimately unsuccessful will be refunded, effectively removing the current significant barrier on foreign investors’ participation in competitive bids.

In addition, a performance target for FIRB of processing 50% of applications within the 30-day statutory timeframe has been set for 1 January 2025. It is hoped that lower risk investors will see an improvement in the speed of processing applications from 1 July 2024. 

Lastly, the federal government has indicated that investors will have more transparency into the decision-making process and be more readily able to determine whether a longer review timeframe can be expected due to features of certain investments requiring more in-depth consideration.

Co-written by Hannah Syme and Felix Kafka of Pinsent Masons.