Key drivers for the future
The underlying drivers of Japanese investment into Australia in the short, medium and long-term include no change to the underlying macro-economic factors that have previously driven investment (stable government, population growth, economic strength, rule of law) and a significant lift in the profile of bilateral co-operation at government-to-government level.
2022 should hopefully see an end to COVID-19 conditions which led to short-term absence of new entrants to the Australian market as well as lower levels of activity overall, given the difficulty undertaking due diligence and negotiations without being able to physically visit Australia.
A mixture of divestments in traditional areas and an increased focus on investment in new emerging sectors was evident even in the smaller deal numbers and should continue in 2022 as companies accelerate mid-term business plans and respond to Government policy settings on decarbonisation.
Environmental, social and governance (ESG) considerations are now a fundamental threshold criterion in investment decisions, especially for listed Japanese corporations driven by greater scrutiny of decisions by shareholders and independent non-executive directors.
“New Energy” continues to be strongly supported by Japanese and Australian governments, financiers, credit agencies, energy companies, engineering firms, port owners, trading houses and funds.
Australia is increasingly recognised for its innovation, technology and research & development opportunities.
2022 started positively for M&A deals and investment in new partnerships announced. Herbert Smith Freehills predicts this will continue – particularly from those companies who are able to take advantage of an established network in Australia as they continue to invest in new sectors as part of their mid-term business plan to diversify revenue sources.
With international business travel between Japan and Australia resuming, we expect there will be a significant number of new entrants coming into the Australian market with growing numbers of deals and, particularly, partnerships. Overall activity will revert to pre-COVID-19 levels and ESG, new energy and technology will be the drivers for many of the transactions.
The consequences arising from the recent events in the Ukraine will further strengthen the strategic importance for a stable supply of both traditional and new energy from Australia to Japan.
Ian Williams is Senior Advisor and Tatsuki Shiratsuchi is Solicitor for Herbert Smith Freehills
You can read the full Japan Australia Investment Report 2021 here.