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This week, the Australian federal government passed a bill to establish a $15 billion National Reconstruction Fund (NRF) to invest in priority areas of the Australian economy. What is the NRF, what are the government's priority areas, and what trends are we seeing around the world?

National Reconstruction Fund Corporation Bill

The Bill’s Explanatory Memorandum states that the funds will be provided by the government to the National Reconstruction Fund Corporation (the Corporation), with the Corporation’s independent board to decide which projects will receive funding. All investments made by the Corporation must be “solely or mainly Australian-based”. Section 70 of the Bill requires that the Corporation’s Board must create written guidelines which will set out the circumstances or conditions for an investment to be Australian-based, details of which have not yet been announced.

The Corporation will provide finance in projects through equity, loans or guarantees with the aim of encouraging private investment in priority areas. An initial $5 billion will be available from the commencement of the NRF with the remaining $10 billion to be made available by 2 July 2029 in instalments, as determined by Ministers. Revenue generated through the fund’s investments will be reinvested to support new projects.

Minister for Industry and Science Ed Husic has described the NRF as one of the “largest peacetime investments in Australian manufacturing capability” and has framed the fund’s aims as addressing supply chain issues and rebuilding manufacturing capabilities in Australia.

The Bill establishing the NRF requires that Ministers must provide an Investment Mandate to direct the Corporation’s Board on its investment functions and powers. At this stage, details of any investment mandate or further guidelines have not been announced.

What are the priority areas of the National Reconstruction Fund?

The Bill’s Explanatory Memorandum provides that the goal of the NRF is to “support, diversify and transform Australia’s industry and economy to secure future prosperity and drive sustainable economic growth”.

The Labor government has identified seven key sectors for investment to leverage Australia’s “natural and competitive strengths”, including by financing value-add projects which build on or use resources which are already mined domestically. These key sectors include:

  • value add in resources, such as mining science technologies and raw material processing
  • value add in agriculture, forestry and fisheries, including food processing, textiles, clothing and footwear manufacturing
  • transport manufacturing and supply chains for cars, trains and shipbuilding
  • medical science, including medical devices, Personal Protective Equipment, medicines and vaccines
  • renewables and low emission technologies, including wind turbines, batteries and solar panels
  • defence capabilities, and
  • enabling capabilities in engineering, data science and software development (including FinTech, EdTech, AI and robotics).

Similar trends in co-investment schemes

In the wake of supply chain issues post-pandemic and amidst the Ukraine conflict, a trend towards co-investment schemes has reflected a need to ensure the continuing stability of the Australian market and reducing its vulnerability to global pressures. This need has been made apparent by the Labor government, which cited OECD rankings placing Australia last in manufacturing self-sufficiency while garnering support for its commitment to the NRF.

The NRF follows various similar initiatives with related goals to de-risk investment in key sectors, including its predecessor Clean Energy Finance Corporation (CEFC) which the NRF is modelled off. The CEFC was set up by the Gillard government in 2012 with $10 billion of funding made available for investment in clean energy projects. CEFC commitments have had a total lifetime transaction value of $42.8 billion to date in national and state-based projects, with over $3.32 billion of lifetime returns in capital as at 30 June 2022 which are available for reinvestment in future projects.

The Modern Manufacturing Initiative also injected a further $1.3 billion of federal funding in 2020, which was provided on a co-investment basis to cover up to one third of costs for eligible projects. The National Manufacturing Priorities are parallel to the NRF and include resources technology and critical minerals processing, food and beverages, medical products, recycling and clean energy, defence and space.

Similar trends can be seen globally in the US – since late 2021, three pieces of legislation have been introduced which seek to improve US economic competitiveness, expand manufacturing jobs and drive innovation. The overlapping aims of the Bipartisan Infrastructure Law (BIL), CHIPS & Science Act of 2022 and Inflation Reduction Act of 2022 have together funded nearly USD$2 trillion of federal spending on domestic infrastructure, clean energy projects, accelerating semiconductor manufacturing capabilities and commercialising technology-driven innovation over the next 10 years. According to White House statements and releases, in August 2022, over 642,000 manufacturing jobs had been created since 2021. As of March 2023, over USD$300 billion has been spent on private sector investments for clean energy projects alone.

What's next? 

While details of any investment mandates and guidelines are yet to be announced, we will continue to monitor for any further updates.

HSF has extensive experience acting for both government and the private sector on transactions involving the provision of grants, loans or other agreements. Please reach out to our key contacts if you have any queries.

Key contacts

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Nicholas Carney

Global Co-Head of Infrastructure, Sydney

Nicholas Carney
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Lucy McCullagh

Partner, Head of Finance, Melbourne, Melbourne

Lucy McCullagh