The benchmark for Hockey’s GrainCorp test

Australia is increasingly hungry for foreign capital, but must send the world the right signals about its role in our growth. The split around GrainCorp does not augur well for Joe Hockey.

The proposed sale of agribusiness GrainCorp to American firm Archer Daniels Midland is Treasurer Joe Hockey’s first big foreign investment test – and the road ahead on foreign investment isn’t going to get any easier. Australia is a capital hungry economy, requiring foreign investment to drive growth and raise living standards. It’s been an important job generator over the past six years as almost one million jobs were created.

Firms like ADM see a takeover target like GrainCorp as important for growth in an increasingly competitive global marketplace. But the Australian government, and particularly the Treasurer, must always adhere to the first principle of foreign investment. Namely, that it serves Australia’s vital national interests. If an approval serves these interests so be it, but it’s not the role of the Australian government to just wave a proposed sale through. The government must also ensure we send the correct signals to the global marketplace about the role foreign investment plays in our own economic growth. Often, this is best done by ensuring investment continues to flow, but with appropriate safeguards in place to protect our producers and consumers.

During my time as Treasurer, foreign investment grew strongly. Bearing testament to this is the fact that between 2007 and 2012, the total stock of foreign investment in Australia increased by nearly 30 per cent to $2.2 trillion. That's more than double the level of foreign investment in Australia just a decade ago. It’s a remarkable achievement given the concurrent turmoil in the global economy as many advanced countries struggled to secure investment. It’s no surprise the mining sector attracted much of it, growing by two thirds to almost $180 billion. Other sectors also recorded strong growth. Wholesale and retail trade also grew by around two thirds in that time, and the property and business services sector grew by more than 80 per cent. Most astounding of all, manufacturing saw foreign direct investment grow by over 30 per cent.

Some of the decisions that came before me were very contentious. The proposal by Singapore’s stock exchange to purchase the ASX in 2011 threw up wide-ranging concerns. At $8.4 billion, it was more than twice the size of the GrainCorp proposal. There were strong, diametrically opposed, vested interests arguing both for and against the sale. Those in favour said if I prohibited the sale, inward investment would dry up. Ultimately I prohibited it. Inward investment did not dry up – in fact, it continued at pace. Principally I rejected it because I did not believe Australia’s national interests were served by approving it. It’s important to note that such a rejection is very rare. It should only occur when there is strong advice from the Foreign Investment Review Board to this effect. This was the case with the SGX-ASX matter. Announcing my decision, I said it had been made "based on unambiguous and unanimous advice from the FIRB that the proposed transaction was contrary to the national interest". Advice does not come more conclusive than this.

If Hockey rejects ADM’s bid then this "unambiguous and unanimous advice from the FIRB" is the benchmark that must be met. While people like Warren Truss and Barnaby Joyce, and shock jock Alan Jones, run around the place making all sorts of wild claims, it is not their ranting and populism that should hold sway. They are simply playing to their constituency. It was extraordinary that Hockey felt the need, recently, to defend himself from what he described as attempts to bully him. Treasurers should never find themselves in such a position.

Meanwhile, the Coalition is deeply divided on this matter. An ugly split has developed. The Nationals and the rural Liberals are lobbying Hockey ferociously. On the other side stand the likes of Assistant Treasurer Arthur Sinodinos and other city-based Liberals. This does not augur well for Hockey. The longer he is in the job, the more foreign investment proposals will arrive on his desk. Hockey has already delayed the decision, issuing a press release early last month extending the period of consideration through to December 17. He cited the "size" and "complex nature" of the sale as the reasons for the delay. Hockey’s delay means the GrainCorp issue has now been drawn out longer than the proposed SGX-ASX merger. In dragging his feet he has given his critics more time to bully him.

Wayne Swan is the former Treasurer of Australia.

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