Investment Reports Breathe New Life into NZ Business

21 October 2015

Government’s Investment Reports Breathe New Life into NZ Business – DLA Piper

“A breath of fresh air in the business landscape and important new momentum for the economy to benefit every New Zealander”.

That’s the description two partners of DLA Piper New Zealand gave to the Government’s investment chapter of the Business Growth Agenda, launched last week.

“The message was clear and the Government’s strategy couldn’t be more determined,” says partner Sue Brown. “More offshore investment into New Zealand is vital because we lag behind. Without it, we can’t achieve appropriate investment in primary and secondary manufacturing industries to help them deliver for our prosperity into the future.”

“Put simply, we need an extra $160 to $200 billion of new productive capital according to these reports – a 70-90% increase on current levels – to meet the country’s much needed target of lifting exports to 40% of GDP by 2025. The only way we can get that level of investment is through a significant growth in foreign direct investment,” she says.

“For the first time, Government is speaking openly and explicitly about the need for foreign investment. We need it to shore up diversification in the products we make, and to add value to our primary sector,” says DLA Piper New Zealand partner Martin Thomson.

“Capital from the world's developed and developing economies - including traditional trading partners like the US and Europe and newer trading partners such as China and India - is looking for a home. The only question is: will New Zealand be open, attractive, willing and competitive enough to receive it?” he says. “If the Government has its way through these reports and strategies, we will be ready.”

"The Government's Business Growth Agenda recognises that it is businesses that drive economic growth and build a more successful economy with more jobs for Kiwis" adds Ms Brown. “The new Building Investment work stream supplements earlier strategies and looks to leverage the significant steps taken to improve and strengthen our capital and financial markets. These are now supported by a world-class regulatory and legislative framework, following the recent financial markets reforms. The reforms - led out by the establishment of the Financial Markets Authority and implementation of the Financial Markets Conduct Act - have restored confidence to our markets and promoted growth through the establishment of new and innovative markets for crowd funding and stepping stone markets, such as NXT.”

“These financial markets reforms provide the springboard to accelerate growth” says Ms Brown. “Now, we have to leverage this framework into the productive economy. To do this, we need to be open to direct investment from offshore. “

“The aim is to direct this capital into investment in research and development to support productive industries and reduce our reliance on primary production, expand the pool of ‘smart’ capital from migrants, and support regional and Maori investment opportunities to attract offshore investment. This is probably the first time New Zealand has seen such a determined, concerted approach from any Government, across all of its branches.”

The Government also released a separate report International Investment for Growth which shows why foreign direct investment is good for New Zealanders, and the approach to be taken to attract high value investment.

The report argued that, in the absence of a large domestic market, foreign investment into New Zealand helped the country connect globally with customers. It also said that foreign investment had a profound effect on New Zealand’s labour market. Foreign investment is represented in only 2% of New Zealand firms, but in 47% of firms with over 100 people. Firms with foreign investment employ 20% of people in New Zealand, and mostly they pay more than domestic firms.

“There are major benefits to New Zealand in foreign direct investment. It’s just that these benefits are poorly understood,” says Mr Thomson. “Foreign investment comes with a longer term commitment than simply lending. As the report says it supplements domestic saving, allowing the economy to grow faster. In the long run too, it can help us reduce our dependency on borrowing, and in itself bring down interest we pay because of that dependency.”

Other benefits included that foreign direct investment:

• comes linked with the skills, know how, and productivity of the investor – which are often passed onto New Zealanders.

• helps New Zealand connect with destination markets.

• helps New Zealand add value to its raw products because it provided financial and knowledge resources to support manufacturing and processing that otherwise would not be available within the country.

• increases New Zealand’s productivity (which lags behind other OECD countries). It provides access to networks, research and development, economies of scale and supply chains.

However, despite the useful analyses contained in the investment chapter of the Business Growth Agenda, Mr Thomson said it had missed an opportunity to analyse whether the current policy regime including the Overseas Investment Act supported the Agenda.

Mr Thomson, who is an expert in the legal requirements for investment by offshore parties into New Zealand (under the Overseas Investment Act) said the report pointed out that New Zealand is restrictive in its investment regime. New Zealand is now ranked by the OECD’s foreign direct investment restrictiveness index as the seventh most restrictive of the 56 economies in the index.

“Although the reports acknowledge that more resourcing is needed in the Overseas Investment Office in order to ensure improved applications and faster turnaround, will this be enough to support more foreign direct investment into New Zealand? I doubt it,” says Mr Thomson. “The Government has missed an opportunity to encourage foreign investment by reviewing some elements of the Act and its framework in relation to the Business Growth Agenda’s goals, particularly in comparison to the equivalent regimes of other countries, who are also out there attracting capital. As acknowledged in the separate report, many other countries have moved away from screening investors at all.”

Ends

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