In 2020 Japanese direct investment into Australia regained its position as the second highest source. Japanese FDI into Australia reached $131.8 billion. The largest sources remains the US with $196 billion. They were followed by the UK with $123 billion, Netherlands with $53 billion, Canada $46 billion and China $44 billion. It is noteworthy that the top 3 far exceed the next group.

In addition, of the top sources Japanese investment was the only one that grew in 2020 compared to 2019. Japanese FDI grew by 14% on a yearly basis, while that from the US declined -11%, from the UK -3% and from China -5%. Japan’s share of total inbound FDI is now 13%.

Despite the challenges posed to international investment and trade by the pandemic, Japanese companies continue to show tremendous confidence in the economic future of Australia and Japan’s role in its development. Although in recent years the growth of Japanese investment into Australia has diversified into numerous sectors (real estate, paint, insurance, finance, IT, renewables, paper, beverages) there now appear new stages for the further development of emerging iterations of traditional complementarity.

Prime Ministers Morrison and Suga met at the recent G7 and agreed to work together towards net zero carbon by 2050. Across the board of energy production, transportation and usage there will be investments made to lower carbon emissions. For example: LNG production; ammonia; green and blue hydrogen; carbon capture, utilization, storage and recycling; and low emissions steel and iron ore.

The biggest new opportunity for Australia-Japan collaboration is hydrogen. This process began with the Hydrogen Energy Supply Chain in Victoria with partners such as KHI, Iwatani and Marubeni. Now it has extended into QLD with several projects: Stanwell/Iwatani; Genex/J-Power; CS Energy/IHI; Gladstone Hydrogen Ecosystem/Sumitomo; and Gladstone Energy and Ammonia Project/ITOCHU. These projects feature various aspects of green and blue hydrogen production for both export and local use. In South Australia there is the Barossa Project in which Mitsubishi and JERA are involved and which also has hydrogen potential.

In addition, the moves away from fossil fuels will push the growth of battery technology and electric transportation. In turn this will lead to more investment in important non-ferrous metals and minerals such as lithium, cobalt, nickel, manganese and rare earths. In each of these, Australia is one of the top sources in the world.

It seems that the complementary nature of the Australian and Japanese economies continues to find new frontiers. It was built on iron ore, coal and LNG and the world leading technologies that made Australia a leading supplier. The same combination of technology and resources, resting on the solid foundations of trust, will propel Australia-Japan collaboration into the new opportunities that are opening.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence