10 May 2004 Media Note
Budget 2004
Enhancing investment promotion & attraction capability
Investment New Zealand will receive additional funding of $6.632 million in 2004/05 and out-years to, amongst other
things:
- Complete its offshore network;
- Increase New Zealand-based personnel to support the expanded offshore network, add sector expertise and build stronger
relationships with existing foreign investors;
- Develop and implement a comprehensive marketing campaign, supported by high-quality research and marketing material
targeted at strategically important investors;
- Extend the Visiting Investor Programme to allow visits by technical and advisory personnel and marketing material
targeted at strategic foreign investors; and
- Administer an expanded and enhanced Strategic Investment Fund (refer to separate initiative).
In addition, the Ministry of Foreign Affairs and Trade will receive $250,000 a year to provide support to Investment NZ
operations offshore
Expanding Investment New Zealand's investment promotion and attraction capability is expected to contribute to a
significant increase in the level and quality of foreign direct investment in New Zealand. Additional FDI will improve
New Zealanders' living standards by growing the economy through adding to the capital stock, creating new and better
quality jobs, and increased productivity e.g. through technology transfers or enhancing global distribution channels for
New Zealand companies.
Rationale
New Zealand needs to attract more and better quality foreign direct investment (FDI). The key to this is having an
overall business environment that is conducive to new investment, but "good fundamentals" alone are not sufficient for
attracting more and better quality investment to a small open economy like New Zealand. That is because:
- Without promoting itself, New Zealand can expect to have a very low profile among international investors and this is
likely to impede flows of investment to New Zealand from overseas;
- Investors only value the benefits that accrue to them. They do not consider the potentially significant benefits that
may accrue to New Zealand businesses, employees and consumers, which can lead to under-investment;
- Increasingly, we face active competition for new investment from investment promotion agencies in other countries.
The above suggests a clear role for government to:
- lift the profile of New Zealand and, in particular, international investors' awareness of investment opportunities
within New Zealand;
- in the face of competition from other countries, provide an information service to prospective investors to help them
make investment decisions;
- facilitate investments into New Zealand by smoothing out the investment process, particularly government processes;
and
- attract investment with desirable characteristics through guaranteed access to government services and, where
necessary, incentives that are closely aligned with the generation of spillover benefits.
How does the initiative contribute to GIF objectives?
FDI contributes to economic growth by adding to the capital stock, creating new and better quality jobs, and increased
productivity. Most important is the contribution to increased productivity, including through:
- Better use of resources for production. For example output by workers could increase as a result of new technology
brought to a local enterprise by a foreign investor. In turn this could lead to higher wages, reduced costs or higher
quality intermediate goods, and lower costs or better quality products for consumers.
- Spillover benefits from foreign firms to local firms. For example foreign investors can bring to local firms better
international distribution channels.
- Improved domestic market competition. A foreign entrant may increase competition in the domestic market, eventually
leading to higher productivity, lower prices, and more efficient resource allocation within the economy.
How does the initiative contribute to achieving the Government's key goals?
Increased high-quality investment has the potential to lead to new and better quality jobs, improve New Zealanders
skills, and raise standards of living for all New Zealanders through higher wages and lower costs to consumers.
Links to other initiatives/rest of GIF package
This initiative is complemented by the initiative to Expand and Enhance the Strategic Investment Fund.
Funding
Additional funding of $6.632 million for Investment New Zealand in 2004/2005 and out-years represents an increase of
more than 50 per cent over current funding.
Additional funding of $250,000 for MFAT's investment promotion work fund represents an increase of more than 80 per cent
over current funding.
$million (GST inclusive where applicable) 2004/05 2005/06 2006/07 2007/08 Out-years
Operating - new 6.882 6.882 6.882 6.882 6,882
Operating - redistributed Nil Nil Nil Nil Nil
Capital - new 374 Nil Nil Nil Nil
Capital - redistributed Nil Nil Nil Nil Nil
Total 7.256 6.882 6.882 6.882 6.882
Questions and Answers
Why do we need FDI?
FDI provides significant benefits for New Zealand businesses, employees and consumers through:
- Creating more jobs and increasing the skills and experience of New Zealand's workforce due to the recruitment and
training of employees by the foreign company;
- Better infrastructure and business networks;
- Development of linkages with foreign-owned firms operating in New Zealand, which can lead to:
- improved distribution channels and international market opportunities, creating opportunities for New Zealand-based
suppliers and employees;
- new ideas, skills and technologies that lead to new and better quality products and services and, ultimately,
productivity improvements; and
- the potential to outsource low value-added parts of the business to firms with genuine scale economies.
- It adds to tax revenue and, through reductions in unemployment, is associated with lower government expenditure;
- Ultimately, new productive investment stimulates economic growth and contributes to higher living standards for New
Zealanders.
How do you know this is value for money?
There is a sound rationale behind government involvement in investment promotion, attraction and facilitation (see
above). And there are some real examples of where investment has led to positive outcomes for New Zealand. But
evaluating the effectiveness of IPA work, and the contribution IPAs make to investment decisions, is problematic, as
there are a number of different factors that influence investment decisions. Nevertheless, feedback received from INZ
clients suggest that in many cases INZ assistance is a contributing factor to investment decisions.
The BCG Report "Building the Future" noted the need for more resources into New Zealand's FDI promotion activities,
which are limited compared to other countries. Internationally, those Investment Promotion Authorities that have been
most effective at attracting FDI into their respective countries (such as the Irish Development Agency, Invest Australia
and Singapore's EDB) have more extensive offshore networks and spend more on promotional materials and incentives than
New Zealand. This proposal is therefore relatively modest by international standards.
What have we got out of this sort of spending so far?
HITLAB, Navman & EDS are good working examples.
What other countries/IPAs are we competing with?
There are more than 2,500 IPAs operating globally.
Why not put effort into promoting New Zealand investment in New Zealand - instead of helping sell off New Zealand to
foreign owners?
Investment New Zealand does not aim to "sell off" New Zealand businesses. It aims to grow New Zealand businesses in New
Zealand, leading to jobs and a higher standard of living for New Zealanders, by facilitating partnerships between New
Zealand companies and large international organisations where all parties believe it is in their mutual interest to do
so.
Such partnerships are not always acquisitions. Brunswick's investment in Rayglass is an example. Another is the joint
venture between Jack Links, a US-based meat company, and a New Zealander to form the Jack Links (NZ) operation.
What sort of activities will this money be spent on?
Investment New Zealand will use the new money to:
- Complete its offshore network;
- Increase New Zealand-based personnel to support the expanded offshore network, add sector expertise and build stronger
relationships with existing foreign investors;
- Develop and implement a comprehensive marketing campaign, supported by high-quality research and marketing material
targeted at strategically important investors;
- Extend the Visiting Investor Programme to allow visits by technical and advisory personnel as well as those
responsible for investment decision-making; and
- Expand and enhance the Strategic Investment Fund (a separate Initiative).
How do you know this sort of policy works?
Active investment promotion and attraction activities, including the use of investment incentives, are standard practice
in most developed countries. While there is clear evidence that certain types of FDI can generate significant economic
benefits, evaluative evidence on the effectiveness of IPAs is sparse. As a result, the level of resources that New
Zealand commits to this activity is relatively modest by international standards.
How will you measure the success of this initiative?
The evaluation of the initiative is scheduled to be completed by December 2006. An evaluation strategy is currently
being completed.
Isn't this just favouritism for a few?
No, Investment New Zealand aims to attract and facilitate investment that benefits New Zealand. For example, incentives
are generally only paid out once certain conditions (e.g. job creation) are met.
Why do we give cash grants to successful foreign companies?
The nature of investment is that there are both private and public benefits. Examples of public benefits include new
jobs and higher wages, higher tax revenues, increased demand for local supply, and technology sharing partnerships.
As these benefits are not captured by investors, there is potential for under-investment. Investment incentives,
including cash grants, are therefore aimed at increasing the quantity and quality of investment. Incentives are also
made conditional on the occurrence of certain beneficial outcomes for New Zealand.
What sort of investors will qualify for support under the Strategic Investment Fund?
Strategic Investment Fund support is conditional on the nature of the investment, not on the identity of the investor.
Both domestic and overseas investors are eligible.
In essence, the investment must generate significant economic benefits, although the nature of those benefits - and who
benefits - will vary from case to case.
Have any of the Strategic Investment Fund criteria changed - is this more money for business as usual?
The criteria for the Strategic Investment Fund are currently being looked at.
How does Investment New Zealand facilitate investment?
INZ's investment facilitation activities are varied - a lot of the activity takes place in its offshore offices where
most initial contacts with investors are made.
INZ's activities can include:
- Briefing investors on NZ's comparative advantages;
- Providing information to investors, such as suitable locations within NZ;
- Introductions to relevant local and central Government agencies as well as potential private sector business partners;
and
- Enlisting help from other government agencies.
ENDS