26 June 2019
Foreign investment is a hot topic.
Overseas investment rules are being changed and a recent Overseas Investment Office decision is causing controversy.
In New Zealand we often debate the merits of foreign investment.
Business mostly takes the view that it’s needed for enterprises to grow. Our capital pool is fairly shallow and local businesses often seek funding overseas.
Overseas investors have frequently put up venture capital and funding for enterprises or projects that might otherwise have gone unfunded.
It has pretty much always been this way - New Zealand’s development was built on foreign investment.
In the 1800s Premier Julius Vogel went to the London money markets to raise funds to build railways, roads and ports, infrastructure that allowed New Zealand’s farming exports and industry to develop.
Our ability to produce, export and earn wealth came directly from that foreign investment initiated by Vogel.
These days overseas investment is often used by local firms to import and pay for new technology, increasing productivity, earnings and jobs.
Our extensive land-based industries mean investment often comes in the form of land purchases, and this is where controversy arises - for some it can be hard to see New Zealand property sold to non-New Zealanders.
However, the stats show less than 7 percent of foreign investment goes into agriculture, forestry or fishing – most goes into manufacturing and finance businesses.
Businesses of all kinds can benefit from foreign investment, and many kinds of businesses are held back from receiving investment because of OIO rules.
An application by mining company OceanaGold to buy farmland near its Waihi mine to expand its operations was recently declined.
The decision was split between two Ministers of the Crown. Land Information Minister Eugenie Sage and Associate Finance Minister David Clark reached different views as to whether the application would deliver sufficient benefits to New Zealand to proceed, and the Overseas Investment Act says when Ministers form different views on an application, it must be declined.
It’s understandable that Ministers from different political parties would have different views on the benefits of overseas investment, although this appears to be the first time this has resulted in a split decision.
It’s also notable that OceanaGold has made 85 applications to the OIO over the last 30 years, and the latest application was the only one declined.
This episode draws attention to the OIO rules themselves, and whether they are now working appropriately.
The rules are currently under review - including what purchases should be screened, how screening could be improved, and what should be the threshold for ownership shares to define a company as New Zealand-owned or not.
I think the rules around Ministerial decision-making should be reviewed too.
Rather than Ministers having the final say over investment proposals based on their own understanding of the issues involved, it would be better for the considerations involved in OIO decision-making to be more clearly specified so consistent decisions can be made - and justified consistently - by the Overseas Investment Office at operational rather than Ministerial level.
This is important because inconsistent decision-making could over time discourage investors from investing in New Zealand.
New Zealand’s investment screening regime is already seen as fairly restrictive.
I think we could benefit from a more open OIO system.
In other areas New Zealand takes an open approach.
We are very open to international trade, imposing few tariffs, an approach that has helped us gain trade deals and entry for our exports in many places.
Our financial markets are very open to cross-border financial flows, making the New Zealand dollar one of the most traded currencies in the world.
This openness has helped us become a modern, developed economy in a connected world.
In reviewing the OIO rules we should be aiming for an open system that welcomes foreign investment - along with appropriate controls to bring maximum benefit to New Zealand.
Kirk Hope | Chief Executive | BusinessNZ | www.businessnz.org.nz