great deal for pem. will this rocket now, page-46

zoose

I am not a big fan of foreign investment by Australian companies overseas. They usually do it badly, eg Ozzie banks in UK and USA.

I think the benefit of foreign investment comes from new developments and there I can see a case for some Australian investment overseas and some overseas investment in Australia. The PEM sale is not bringing anything new to Australia, other than some relief to bankers from having to fix things (and to shareholders who may have been totally skewered by the banks).

Unfortunately most foreign investment in Australia is simply buying up existing assets in such areas as our power generation stations, property, mines and what little is left of our manufacturing. In the case of mining there are significant strategic games to be played by both sides, and given the clear importance of mining to our long term national economic health it is essential that it stays in local hands.

Far too much of total world capital flows has relied on credit creation and this has led to excessive leverage that simply inflats asset values. We will be picking up the pieces for the current mess for many years.

I never understood the financial alchemy around Macquarie Bank buying up overseas infrastructure using massive gearing. You can be sure that if Qantas had been taken over by the proposed consortium with the high gearing proposed that it would now be in liquidation and sold off to who knows where.

This is a massive topic, and is not being addressed by the media over the last 20 years because the popular view is that the market is acting in the best interests of the economy, when in fact it is heavily rigged. You can be sure that the Chinese firms buying up Australian assets here would not be doing it without funding provided by their central govt (as happened in the case of Chinalco buying a big stake in RIO). This is hardly a level playing field if a foreign govt can do that, as the Australian private sector firms can not compete. In addition, the massive surplus available to China to buy up assets has to a lerge part stemmed from central govt industy and trade policies and artifically holding its currency down.

I know it is difficult to get at the core of what is happening, but it is in your own interest to read widely and make an independent view of what is beneficial or negative about foreign investment. Remember, the level of taxes and your wage will be dependent on the wealth of Australia staying, for the most part, in Australian hands.

Another example of issues surrounding foreign investment is the IT sector where there are lots of foreign IT firms dominating the industry, who simply have no interest in doing any R&D in Australia, thereby simply keeps our skiils level low.

Australian firms have made a difference in developing from the exploration stage some major projects overseas. Many of these involve the payment of high local taxes and royalties. The mining regimes in most overseas countries are very risky and may involve high taxes, but some have been quite profitable (eg copper mining in Chile where the scale of operations makes it worthwhile). These Australian (or part Australian) firms are bringing new skills, employment and foreign exchange to those countries. Chinese firms are not bringing any new skills here, indeed they send their students to study geology and mine management to our universities etc.

Good luck in your investments.

loki