The Korea-Australia investment relationship is rapidly expanding. Over the last decade, bilateral capital flows have averaged approximately $1 billion per annum, and each country now features in the other’s top-ten investment partners. For the first time, investment is a key component of their bilateral economic relationship.
Booming investment flows have been driven by economic complementarity and supportive policy environments. Korean firms have participated in Australian mining and energy projects to secure resource supply for heavy industries; while Australian institutional investors have sought attractive opportunities in the Korean market. Favourable regulatory environments and the Korea-Australia Free Trade Agreement have helped crowd-in these investments.
However, the bilateral investment relationship remains very ‘traditional’. Investments are mostly concentrated in the resource and real estate sectors, and there are few ‘direct’ investments that build managerial and knowledge links between Australian and Korean firms. A range of mutually-beneficial investment opportunities have yet to be fully realised.
Maturing the Korea-Australia investment relationship is key for its next stage of growth. Building on recent successes in the resource sector, bilateral investment now needs to move into a range of new industries, including infrastructure, finance, services and agriculture. This will ensure a more diversified investment relationship, which fully exploits the complementarities between the Australian and Korean economies.
To unlock these opportunities, governments and businesses in Australia and Korea will need to develop new investment strategies. These needto raise awareness of each other’s business environments, augment the investment capacity of SMEs, augment regulatory cooperation between the governments, and develop industry-specific plans for bilateral investment.
This publication was written by Dr Jeffrey Wilson, Head of Research, as part of the Economics of the Indo-Pacific series.