Racism risks trade backlash

BNZ economist Tony Alexander joins the discussion on Auckland housing and the part played by foreign buyers:

. . . So we remain in the dark about the extent to which Auckland’s housing market is truly being driven by offshore buying. But as emphasised previously, there are three key points which I shall keep repeating regarding Auckland housing and house price pressures.

1. The fundamental cause of rising prices in Auckland is a shortage of supply and until that gets addressed prices will stay highly elevated and perhaps keep rising out to late-2017 this cycle.

No matter what tinkering is done to reduce demand by restricting foreign buyers won’t change the fact that there is a shortage of supply.

2. Whatever the true magnitude of Chinese buying has been these past few years it will get much greater. Chinese families are growing wealthier, so naturally they will seek offshore assets. Chinese people wish to get assets off the mainland and this week’s massive intervention in sharemarkets by the Beijing authorities illustrates why people have high distrust of the environment on the mainland in which they would hold assets. And Chinese authorities have yet to relax hefty restrictions on people getting their funds offshore. When they do, well then you will see something entirely new hit the world’s residential property markets.

3. We should as soon as possible adopt Australia’s rules restricting foreign buying of anything other than new housing unless resident for 12 months.

But here is the fourth point which to date I have not emphasised but now will do. Adopting Australia’s rules as they stand won’t be the panacea many are hoping for. In Australia’s case people have been able to get around the restrictions quite easily. The regime is now being enforced more rigorously, but that does not necessarily alter what is being seen as a huge problem – something which people in Hong Kong have been seeing more and more of in recent years.

Many Chinese who buy properties never, or rarely, occupy them. They sit empty. This applies even to newly built apartments sold to Chinese buyers. Chinese simply want an asset away from any control by the CCP. There was an article on this in The Australian newspaper this weekend, page 6.

What this means is the following. As Auckland very slowly goes vertical in areas like New Lynn, developers will find they can very easily get offshore financing for their projects and hefty sales off the plan to Chinese investors (we Kiwis prefer to touch and feel before buying). These investors may never occupy or even rent out their investment. Thus while on the face of it the Aussie rule that a foreigner may only buy a newly built house or apartment sounds like a grand idea, it could leave the housing supply situation unchanged from a no-rule regime.

Thus, were we to adopt the Aussie regime we would need to add in an extra clause along the lines of apartments having to be made available for rent, actually rented, or something like that.

When might we see the adoption of some form of restriction on foreign home buying in New Zealand? Maybe within two or three years. About three years ago I recommended that we adopt the Australian regime. That was/is not because I feel Chinese buying is currently the big buying force people believe it is, but because the buying will grow and the eventual popular backlash against such buying and introduction of legislation in that heated environment would risk a backlash. The Chinese leadership may feel we were targeting them and getting above our station. Trade retaliation would be likely.

That is still the position I hold and the earlier we adopt Australia’s rules with the extra twist noted above, the better for everyone, including exporters to China wanting good access for many years who may feel nothing needs to be done on foreign home buying. You are the ones most at risk should this situation turn bad in 5, 10, 15, or 20 years time.

If there needs to be restrictions on foreign non-resident buyers they must apply to all foreign non-resident buyers.

Over at Kiwiblog, David Farrar points out that Labour’s policy of treating Australians more favourably than Chinese would contravene the free trade deal which that party signed when it was last in government.

Even if it didn’t, putting higher hurdles in the way of those from one or more countries while applying less restrictive rules to others is discriminatory and could lead to tit for tat repercussions which would endanger trade.

That would impact on the whole country when the housing problem is essentially Auckland’s and the solution to it lies not in restricting demand but increasing the supply.

 

 

NY to NZ – our gain

Federated Farmers vice president Anders Crofoot  reacts to emotive opposition to foreign investment:

When it comes to the foreign ownership of farmland my family has a unique perspective. 

Before my wife and I moved our family thousands of miles from upstate New York to the Wairarapa, we did research.  A great deal of it.  We’d narrowed our choices to English speaking Canada, Australia and of course, New Zealand.  Adding a new language, when you are moving thousands of kilometres, adds too much complexity.  Since moving downunder, we’ve learned that being a “good b..tard” is a complement. Maybe Winston Churchill was right when he said “Britain and America are two nations divided by a common language”. 

While Emily was the farmer, I was an investment analyst.  Together, we learned more about the country, its political stability, history, economy, agricultural system, climate and the rural property market.  Of course, being ‘foreign investors’, we checked out whether we’d be welcomed or not. 

We quickly dropped Canada from consideration for being even colder than New York.  We also wanted to break out of the closeted subsidy culture prevalent in North America. While Australia offered space aplenty, dealing with years of drought followed by floods was a challenge too far.  Our preference was for New Zealand’s more benign climate.

To farmers overseas, New Zealand is the mecca of farming.  Nowhere else had an organisation like Federated Farmers worked with a left-wing government to end subsidies.  Farmers there, we learned, were judged on their abilities as farmers and not the size of their subsidy cheque. New Zealand was at the forefront of pastoral research and practice too.  It also had plenty of migrant farmers who had integrated and excelled. New Zealand felt right.

Being in Federated Farmers a few years later, I came across one farmer who made Winston Peters look like a weak-kneed liberal.  Proving the debate is seemingly two-thirds heart and one-third brain, I later learned that he’d bought a farm in Australia but he still opposed foreign investment, albeit, slightly sheepishly. 

Sadly this hypocrisy isn’t unusual.

Deciding on a country is one thing, but it’s quite another to get the ideal farm. We were very fortunate to convince Castlepoint’s Board that New York Yankees were fit custodians for their iconic Wairarapa station.  That was 1998 and we’ve never looked back. 

Kiwis are the most hospitable people with an unerring knack of convincing you to take on more responsibilities. I was one of two non-New Zealand born farmers on the Federated Farmers National Board.  I’m also on the Board of Grow Wellington and to keep my feet firmly on the ground, I’m also Castlepoint’s Fire Chief.  Emily is similarly involved and our children are now working in New Zealand.

The Crofoots have and continue to contribute a lot to their local community, farming and the country.

Their decision to move from new York to New Zealand has been our gain.

Politicians are quick to say that families like us are their ‘ideal’ business migrants.  The message is that ‘people like us’ will continue to be welcomed, whichever party wins on 20 September. 

Unfortunately, that nuance is lost if you’re thousands of miles away reading herald.co.nz or watching news on-demand.  The streaming of talkback radio means Albany, New York can listen to ZB just as easily as someone in Albany, Auckland. 

If we were researching New Zealand, today, would we make the biggest of big moves?  Possibly not. 

The tone around foreign investment has hardened for the worse.  To outsiders, politics and cultish popularity now seem big determinants.  There’s also a nasty undercurrent which reflects poorly on us as Kiwis.  Who this is putting off we’ll never know, but it is off-putting.

That might be what those opposed to foreign investment want but it’s not necessarily in the best interests of New Zealand.

Farming is the most international industry we have.  It’s this mix of people that makes New Zealand agriculture unique and the success it is.  The Green Party opposed Shania Twain’s High Country purchase but look at what British record producer Robert “Mutt” Lange has given back; 53,000 hectares and a whole landscape permanently protected. The restoration and enhancement of Young Nicks Head would never have taken place had a Kiwi farmer purchased it rather than New York financier, John Griffin.  We’re even near neighbours of James Cameron, that’s in a rural sense because we’re over an hour away by car. 

Politics must come out of the ‘foreign investment’ debate because it can so easily spiral into the gutter.  Rules are important and we Kiwis accept that with sport, why not overseas investment? 

We have rules on foreign investment and those rules have been toughened since National has been leading the government.

It hasn’t been easy for foreigners to buy farms here for a long time and it’s harder now.

If the rules still aren’t tough enough it is fair enough to look at the m again.

But that look must be a rational one, mindful of both the costs and benefits of foreign investment, our obligations to trading partners and the benefits New Zealand and New Zealanders get from investing in other countries.

 

I know another couple from the USA who have made a big investment in New Zealand in hospitality and tourism. They are an asset to the community in which they’ve settled, the wider hospitality and tourism industry and the country.

I wonder how many others like that might write New Zealand off their list of countries to visit and possibly invest and settle in because of political opportunism?

We’ve grown

Foreign investment is an issue which bubbles away in the background with the occasional boil over, usually based on emotion not facts.

This week’s fuss over the sale of Lochinver Station is a prime example.

The rules for foreign investment were already tight and National tightened them further.

Foreign buyers of sensitive land must convince the Overseas Investment Office they can meet strict criteria – including delivering greater economic, environmental and social benefits than a local buyer would.

This isn’t just a matter of ticking boxes.

A friend manages farms owned by a foreign company and he says they are strictly monitored to ensure they are doing what they said they’d do.

This isn’t good enough for politicians who sense an opportunity to grab a headline and garner votes.

The concern is that if emotion rules, New Zealand and New Zealanders will be poorer.

Foreign investment brings benefits as John Roughan points out:

Foreign investment seems to have done us no harm. In fact we would be a smaller, meaner, more worried place without it. We’ve grown.

Prime Minister John Key has said if there’s a run on our land the government will act.

There is a need for a discussion on what would constitute a run and the total area of foreign ownership we should allow.

But that should be based on reason not emotion.

Foreign investment has helped us grow and poor policy based on  political opportunism by politicians desperate for attention could threaten future growth.

We’ve grown and we need some foreign investment to ensure we keep growing.

How foreign investment works

Act leader Jamie White explains how foreign investment works:

. . . The value of a business depends on its expected future profits. The seller of a company is in effect swapping the profits she would have got over future years for a lump sum she gets today. The lump sum (the purchase price) represents the present value of the future profits.

When a foreigner buys a New Zealand business, all the expected future profits of the business come into the country in the purchase price. When the actual future profits then go out to the new owner overseas, there is no net loss.

In fact, the transaction must involve a net gain for New Zealand. This is because, if the purchase price were exactly equal to the present value of the expected future profits, the Kiwi owner would have gained nothing from the transaction and would not have sold. The Kiwi seller must have valued the purchase price higher than the future earnings. So the transaction creates a net gain to New Zealand. . .

His comment was prompted by a speech from Labour leader David Cunliffe.

If Mr Cunliffe does not understand this, then he learnt little from his days at the Boston Consulting Group. If he does understand it but still peddles the popular myth of profits lost overseas, well, that is even worse. 

The worse option is the most likely one. Cunliffe should understand economics.

In ignoring what he knows he’s just pandering to prejudice in the hope it will win some votes.

Hostility to foreign investment holds NZ back

New Zealanders’ hostility to foreign investment could damage the agricultural sector’s chances of becoming a trillion-dollar “food bowl” to Asia.

One of the issues identified in ANZ’s Greener Pastures report was a shortfall in capital.

Farmers will need up to $201b extra between now and 2050 and another $130b to support retiring farmers:

Traditional sources of funding- debt and retained earnings- would not be enough to bridge the gap.

“Inevitably, foreign investment will be an important part of the answer, but the pace of investment cannot get too far ahead of public opinion without undermining its sustainability,” the report said.

One survey quoted found 82 per cent of Kiwis believed foreign ownership of farms and agricultural land was bad.

ANZ commercial and agri managing director Graham Turley said the sector could work harder at educating urban New Zealand.

“We’ve built New Zealand off foreign capital, and we’ve done that reasonably wisely,” he said.

“They just need to increase their awareness of foreign investment being a good thing, that it creates access to market, it brings in technology and allows us to expand the productive base of our economy.”

The ANZ report noted that the Overseas Investment Office’s test for the sale of agricultural assets lacked clarity and transparency, and that the regime was seen as too restrictive by some.

Turley said the Crafar farms OIO saga was a “fringe” distraction from the real debate, which should be about how to attract and deploy foreign capital to the country’s advantage. . .

The xenophobic attitude to foreign investment isn’t helped by the media. Take this headline as an example: More kiwi farms could fall into foreign hands.

The story is about seven farms in a receivership sale which are being advertised internationally.

That’s sensible business practice and could mean they might be bought by foreigners but falling into foreign hands is an emotive and unnecessarily negative way to describe it.

The media ought not to feed xenophobia, nor should politicians. But we’ve had a couple of examples of that from the opposition in the past week.

They were quick to seize on criticism of Huawei, the Chinese company which has a telecommunications contract here when it was accused of spying. There’s been no response to the report which exonerates it.

Labour, the Green Party, NZ First and Mana keep calling for more jobs but they are feeding hostility to foreign investment which will be necessary for economic growth needed to provide those jobs.

The full Greener Pastures report is here.

Foreign ownership fears unfounded, benefits not appreciated

Fears of foreign ownership are overstated and the benefits are under appreciated.

In a speech to New Zealand Contemporary China Research Centre Finance Minister Bill English said our investment relationship with China is much smaller than our trade:

Despite our strong trading relationship, China is not a major investor in New Zealand, being New Zealand’s 11th largest investor totalling $1.8 billion in 2011.

Foreign direct investment, or FDI, is less than half this amount.

By comparison, New Zealand has NZ$52 billion of FDI from Australia and NZ$11 billion from the US. China has made investments in New Zealand forestry, manufacturing and agriculture.

China is also investing in New Zealand government bonds, contributing to the record low borrowing rates New Zealand currently enjoys. New Zealand is seen as a relatively safe haven in these difficult times and Chinese authorities want to diversify their international bond holdings.

New Zealand’s investment into China is similarly small, totalling $789 million in 2011, making China our 13th largest investment destination.

These investment figures reflect broader trends.

While New Zealand is a recipient of foreign investment in line with the OECD average, New Zealanders invest overseas at well below OECD average rates. . . .

Opponents of foreign investment play on fears, most of which are unfounded.

They take no account of the the benefits which include  supplementing domestic savings, sharing technology, and driving growth in wages, employment and economic output.

As a small country, we naturally rely on FDI to help us achieve economies of scale, and for access to ideas and consumer markets. We do not have the large stock of capital which older and wealthier countries have.

Foreign direct investment has benefits for New Zealand in three broad areas:

• First, as a source of capital to supplement New Zealand’s domestic savings.
• Second, as a driver of growth in wages, employment and output.
• And third, for the transmission of technology, skills and know-how to New Zealand and for improving our connections to valuable international markets.

New Zealand simply does not save enough to cover our investment needs.

Between 2002 and 2011, New Zealand saved just over $4 billion a year, leaving a shortfall of $9 billion a year to fund our investment. Foreign direct investment is a type of international trade in savings and helps bridge this funding gap.

Foreign investment can bring benefits that foreign borrowing does not. These benefits can be of particular value to a small economy, and include:

• FDI provides a stronger buffer against economic shock because investment comes without the fixed interest payments of debt.
• FDI produces transfers of technology and know-how, and provides access to international markets.

Recent research shows that New Zealanders working for firms with foreign investors tend to be paid more, and that firms receiving foreign investment increase employment and output.

In 2008, Treasury concluded that foreign capital flows into New Zealand lifted incomes by around $3800 per worker between 1996 and 2006 in today’s prices, and lifted wealth by $16,000 per person.[5]

Foreign investors in New Zealand do take out some profits, but between 2006 and 2011 they have also reinvested about 25 per cent of their returns on equity back into New Zealand.

New Zealanders interact with foreign-owned businesses every day. Over half of the companies larger than $100 million in New Zealand have majority foreign ownership.[6]

Many of these companies are a familiar part of our national landscape, and provide Kiwis with a huge range of products and services. They are also among our largest employers. A recent study showed about a quarter of Aucklanders work for foreign owned companies.[7]

FDI, inward or outward, does not necessarily mean acquisition of full ownership by foreigners. In many cases it can take the form of a joint venture or partnership between New Zealand and foreign owners.

And FDI is not a one shot deal. Businesses built up under foreign ownership can move or return to New Zealand ownership.

Examples of that are Shell petrol stations which are now owned by Z, Opus which was bought by Malaysians but now has significant local shareholding and several meat companies.

What would happen if New Zealand could not access foreign investment?

One outcome is that the cost of capital would increase. This would constrain businesses’ ability to grow, and would reduce employment opportunities and household incomes.

Treasury has estimated that a permanent one percentage point change in interest rates (say, from 5 per cent to 6 per cent) would lower the level of GDP by about 2 per cent over a period of time.[9] New Zealand’s standard of living would be lower without access to foreign investment.

FDI can have its costs. The quality of foreign investment matters, and New Zealanders care that investment goes to productive capital, and that it supports jobs and higher incomes.

But fears of foreign ownership are frequently overstated. While it is true that the returns from foreign financing contribute to New Zealand’s current account deficit, it’s also important to consider the bigger picture.

The outcome for the economy is positive overall when foreign capital raises worker productivity and national income increases by more than the return on the investment.
FDI is profitable precisely because it introduces ideas and brings new capital to countries.

Foreign investment is a vote of confidence in the quality of New Zealand’s institutions and the quality of its workforce.

New Zealand welcomes foreign investment.

Firms that are successful enough to be international investors tend to have developed the skills and deep specialisation New Zealand needs.

These skills produce higher wages for New Zealanders working in those firms, and skills tend to spill over.

As employees come and go from foreign owned firms, they take what they learn and apply it to new ventures. Foreign investment helps bring these advantages to New Zealand.

FDI has other benefits. It helps link New Zealand into opportunities for export and to tap in to international supply chains.

Foreign investors bring knowledge of international markets and access to established networks that are hard to develop from this far away.

FDI has been instrumental in the global shift towards international production networks in which steps on the production process occur across borders. Economies that have experienced the largest FDI inflows have on average also seen the largest expansion in merchandise exports.[10]

The benefits don’t negate the need for checks and balances.

A recent OECD study has rated New Zealand among the most restrictive overseas investment regimes in the OECD.[11] The study focuses on our regulations rather than how many foreign investments we turn away.

But there can be no serious suggestion that New Zealand lacks appropriate controls.

Our constraint on growth is not the size of the opportunity. It is our ability to access capital, knowledge, and people, and we get to decide this in part through policy.

New Zealand has not moved rapidly to reach out overseas to find new ideas and access new capital. This is something we must learn to do.

We sit on the doorstep of the fastest growing economies in the world.

There will be many more people in the Asia Pacific region with growing incomes who want more of New Zealand’s products.

Our trading partners, led by China, have opened the door for us.

Our challenge is to assemble enough capital, people and market knowledge to take advantage of this opportunity. How we go about that will define our economic success in the next generation.

The xenophobes have unfounded fears about the costs of foreign investment but we would have far more to fear if we didn’t have the benefits of overseas capital and expertise.

How matters not who

A KPMG survey found that people who work the land aren’t bothered by who owns it:

KPMG interviewed 98 industry leaders for its Agribusiness Agenda, which reveals restricting foreign investment in agriculture land and assets is among their lowest priorities.

No surprises there, anyone with a real connection to farming knows it’s not who owns the land but how they farm it that matters.

Head of Agribusiness Ian Proudfoot told NBR ONLINE industry leaders realise that throughout New Zealand’s history, offshore investment has always featured.

“Initially it came from Britain, then Europe, the United States and Australia, and now the Asian countries who have got surplus cash and are looking for good investment opportunities.

“We can’t turn our back on foreign investment now. That would be inappropriate just because it’s coming from a country where we have less in common than we did with previous investors.”

While people who rarely get closer to a farm than looking over the fence as they travel along main highways are exercised over foreign investment, those directly affected welcome it.

Farmers’ main concern around the Crafar farms issue is that if you refuse offshore investors, there are not enough New Zealand buyers to purchase the land, despite claims to the contrary, he says.

“Without those foreign investors to support market prices, the value of the assets the farmers have are worth less in reality.

“Therefore the amount they can borrow goes down and the ability to grow their business is reduced.”

One argument put forward by opponents of foreign investment is that it puts land prices out of the reach of locals.

Land has never been easy to buy.  The harm done to the businesses of the many who aren’t selling would far outweigh the benefits to the few who might get a bargain if there was less foreign investment or worse, none at all.

We benefit from investment

Quote of the day:

“Both sides see our future in the dynamic markets of Asia. At issue in this Forum was how we could work to make this a reality.  There was agreement that business needs to step up to articulate this vision more forcefully to domestic stakeholders, to develop new business models connecting with regional supply chains and to work with governments to promote both the development of Asia-relevant skills as well as a range of policy instruments which will foster greater economic integration in the region.

‘Be open to investment in rural land’

“Chief among these is the need to maintain an open and welcoming environment for foreign investment, including in agricultural land,” Ling said.

“Calls for a more restrictive environment for foreign investment can only hinder business development by making it harder to access capital and develop key relationships in Asia and beyond. The cost will be slower economic growth and fewer jobs,” he said. Australia New Zealand Leadership Forum co-chair and Fletcher Building CEO Jonathan Ling

Foreign investment better than debt

Which is better: borrowing money from foreign banks to try to improve businesses and create employment or accepting foreign investment which does that?

Since we don’t save enough ourselves those are the two options we have if we want to pay for  the first world infrastructure and services we need and investment is usually  preferable to debt.

Unfortunately, as Economic Development Minister Steven Joyce says, not enough New Zealanders appreciate the  benefits of foreign investment and economic growth:

. . . “There a sort of a sense among some people that there is some magic by which you can achieve jobs without considering the tradeoffs.”

It was not enough to just want higher skills or just green tech jobs. “We need to take a bit more of a realistic understanding of what does create jobs and encourage investments.”

Economic growth required the use of capital, resources, skilled labour, infrastructure, innovation and a market.

“So all those things have to be managed. It’s not a case of carte blanche but every time you say ‘I don’t want that’ that shuts off another opportunity.”

This country was built on immigration and foreign investment.

JC left a comment on Thursday which pointed out:

. . . prior to 1948 most farmland was owned by “foreigners”, and that the period 1900-1950 is regarded at the Golden Age when NZ was in the top three countries in the Western World for prosperity and quality of life.. despite an awful lot of farm profits still being sent “Home”, and much of our farm implements, clothing, machinery, cars and trucks being imported from the UK. . . 

The foreigners weren’t always welcomed, bigotry, ignorance  and xenophobia aren’t new. They haven’t always been aimed at the same target but the current hysteria isn’t the first time Chinese have been treated badly here.

The government imposed a poll tax on them in 1881 which wasn’t repealed until 1944.

But if it wasn’t for China we would not have weathered the global financial crisis and on-going uncertainty nearly as well as we have.

The free trade agreement with China doesn’t mean it is easy to do business there; Cactus Kate has listed 10 of the challenges. But it is already providing a very important market for us and there will be more opportunities for us there and through their investment here

The launch yesterday of the NZ inc China strategy by Prime Minister John Key should be welcomed.

. .. .”Trade with China is one of the success stories of the New Zealand export sector over the past decade or so. China is also New Zealand’s largest source of foreign students, and our fourth biggest tourist market and we plan to develop these areas further.”

The strength of the relationship with China is underpinned by the Chinese community in New Zealand, which numbers more than 147,000 and is growing. . .

Most of these people make a positive contribution to our country. They are generally under-represented in negative statistics and over represented in positive ones.

I wonder what they  think of the criticism being levelled at the land of their ancestors?

Foreign investment brings benefits

Mention foreign investment and opponents will talk about exporting profits.

They rarely if ever mention the benefits:

. . . when foreign companies were investing in the country they were bringing with them the new and interesting ways of doing things, those higher productivity ways, which increase the wealth of the country. Note that these new ways only have to be a few percentage points more efficient than the local ways to more than cover the dividends and profits flowing out again.

Tim Worstall is writing about Venezuela but his point is universal.

Providing foreign investors obey our laws, meet our standards and pay our taxes we’re better off with their money, expertise and technology than without it.

Foreign investment essential for higher standard of living

John Key would have had little if any opposition when told Federated Farmers’ National Council:

Politicians who were unwavering advocates of trade and investment when they were in government have somehow turned into defenders of Fortress New Zealand while in opposition.

Their views appear to have changed 180 degrees, for the sake of politics.

That is a shame, because at stake here are New Zealand jobs, New Zealand incomes, and New Zealand futures.

The reason we allow investment to flow between countries – both into New Zealand and out of New Zealand – is because it benefits New Zealanders.

We don’t do it for any other reason – we do it because we benefit from it.

In particular, overseas investment in New Zealand creates jobs, boosts incomes, and helps the economy grow.

Overseas capital can make things happen here that wouldn’t otherwise happen, grow businesses that wouldn’t otherwise have the means to grow, create jobs that otherwise wouldn’t exist, and pay wages that are higher than they would otherwise be.

Overseas capital makes New Zealand a vastly more productive country.

So there is absolutely no way we could enjoy the standard of living we do without overseas investment.

And part of that standard of living is being able to afford the education, law and order, and health services that our families want.

A recent study concluded that overseas investment in New Zealand lifted national income by around $5 billion between 1996 and 2006. That is an estimate of the return to New Zealand from overseas investment, over and above the cost of paying interest and dividends on that investment.

Could those who criticise foreign investment come up with any practical ideas on how to get a $5 billion increase in income from domestic investment alone?

He gave examples of how investment in the wine industry,  PGG Wrightson, Synlait, CRV Ambreed and Anzco had been beneficial to the country then said investment is a two-way street:

New Zealand businesses and individuals are themselves investing abroad.

There has been considerable investment, for example, by New Zealand dairy farmers in overseas farms. Fonterra, of course, has processing facilities in a number of different countries.

A free flow of investment also allows New Zealanders to diversify their savings across different countries and different industries. Most of the savings that are in the Super Fund, for example, and in many KiwiSaver funds, are invested overseas.

In fact, the total amount of equity investment into and out of New Zealand is surprisingly balanced. According to the latest figures, New Zealanders have around $53 billion of equity invested abroad while overseas investors have $61 billion of equity in New Zealand.

So international flows of investment – both into and out of New Zealand – are very important for our standard of living.

He then acknowledged that people are concerned about foreign ownership of land.

 I think the fact that people are concerned with overseas ownership is perfectly legitimate.

But we should be careful not to let those concerns get out of hand.

For a start, about a third of New Zealand – including our most iconic land – is protected by being in the conservation estate. So no-one from overseas can come in and buy Mt Taranaki or the Franz Josef Glacier, for example.

Second, it is a simple fact that land can’t change nationality. People can change nationality, of course, and factories can be relocated overseas. But a piece of land in New Zealand will always be here in New Zealand.

Because it will always be here, the use of that land will always be subject to New Zealand laws and regulations. And ultimately we as New Zealanders get to determine what those laws and regulations will be.

Third, and contrary to what some people might think, there hasn’t been an acceleration of overseas sales in recent years.

In fact, as at a couple of days ago, only 11, 203 hectares of land has been sold so far this year. That is certainly well below the peak of 380,000 hectares that were sold in 2006.

Fourth, the issue of whether businesses and properties are owned by New Zealanders or people from overseas, is for the most part, squarely in our own hands.

What I mean is that no-one can be forced to sell their business to an overseas investor, just as no farmers can be compelled to sell their land to foreigners.

Obviously with mortgagee sales or receiverships things get a little more complicated but, in general, people who feel very strongly that New Zealand-based assets should remain in New Zealand hands are free to sell only to New Zealanders.

Exactly. Vendors who don’t want foreigners to buy their land don’t have to sell to them.

Moreover, New Zealanders can always buy land and other assets back. What makes that difficult isn’t the rules around overseas investment, it is the fact that New Zealand has a poor savings record and therefore a relatively small stock of capital available for investment.

If, as a country, we saved more, we would own more of the assets in New Zealand, including land, as well as being less in debt to overseas lenders.

Another very good point. If we saved more we could afford to pay more when buying.

Then there are safeguards in the Overseas Investment Act and regulations government must follow under that Act. The government has reviewed this to ensure it has the right balance between three key objectives:

• welcoming desirable investment, in recognition of the benefits it brings for New Zealanders
• providing a stable investment environment, where the rules are settled and everyone is clear about what they are; and
• addressing public concerns about overseas investment, particularly in regard to land.

This review has come to three conclusions.

The first conclusion is that the Overseas Investment Act is a fundamentally sound piece of legislation.

The Act makes it clear that it is a privilege for overseas people to own or control sensitive New Zealand assets.

In particular, it lays out that foreign investment in land is only acceptable if it substantially benefits New Zealand, according to a range of factors which include, among other things:

• the creation of new job opportunities in New Zealand
• the introduction into New Zealand of new technology
• increased export receipts for New Zealand exporters
• the introduction into New Zealand of additional investment for development purposes
• increased processing in New Zealand of New Zealand’s primary products
• protection of native bush and other indigenous vegetation; and
• protection of game species and walking access.

In addition, farm land has to be offered on the open market so that New Zealanders can bid for it as well.

These are very stringent criteria.

In fact, these are the very same criteria that Phil Goff was trying to pass off as brand new policy a few weeks ago. I welcome his endorsement of the current provisions of the Overseas Investment Act which, of course, was passed by his government back in 2005.

The second conclusion we came to in this review was that the existing process – not the key rules themselves – was too slow, cumbersome and costly.

We therefore made some changes last year to simplify some of the less-important regulations, cut red tape and speed up processing times for applications.

Those changes have been very effective. In the year to date the average time for processing an application has dropped from 63 days to 42 days.

The third conclusion we came to was that a couple of additions should be made to the existing rules.

These additions would make sure that all public concerns about overseas investment, both now and in the future, could be covered off under the rules.

So the Government is adding two more factors that ministers must consider when they assess the benefits of a proposed overseas investment in New Zealand land.

The first new factor is very wide-ranging and looks at whether New Zealand’s economic interests will be adequately promoted by overseas investment.

This will allow ministers to consider, for example, whether any of our key exports are in danger of being controlled by an overseas entity, or whether there are non-commercial motivations driving a proposed overseas investment.

The second new factor is a “mitigating factor” which looks at whether the investor has a meaningful commitment to New Zealand involvement in the running or oversight of the investment.

That could include, for example, part ownership with New Zealanders, appointing New Zealanders to the board, or listing on a New Zealand exchange.

We could look across the Tasman for a model. Australia requires the head office of at least some, it may even be all,  foreign-owned Australian companies to be based in Australia and their chief executive to live there too.

So in conclusion can I stress that we allow overseas investment to flow between countries – both into New Zealand and out of New Zealand – because it benefits New Zealanders.

With the appropriate checks and balances in place, this investment is good for jobs, wages and growth.

After reviewing the overseas investment regime, and making some amendments to it, the Government is satisfied that we do now have the appropriate checks and balances.

Foreign investment in New Zealand and New Zealand investment in other countries has economic and social benefits.

Providing the interests of New Zealand and New Zealanders are safeguarded we have nothing to fear and lots to gain by enabling investment to flow freely in to our country and out of it.

Nationality not important in land ownership

The announcement that the government is to simplify foreign investment rules  has attracted the usual hysterical responses.

Colin Espiner started it:

Slices of the South Island high country and assets such as ports and airports may again be for sale to the highest overseas bidder under changes to investment rules being considered by the Government.

That should read . . . sold to the highest bidder who may be from overseas because the vendor is unlikely to sell to a foreigner if a New Zealander offers a better deal.

Finlay McDonald Macdonald * continued the emotive slant with a piece headlined Bending over backwards for foreign coin.

The critics always see a freeing up of investment rules from the point of view of another buyer who may not be able to pay as much, rather than the seller who will receive more which could then be invested in something else, here or overseas, both of which will have benefits for New Zealand.

Critics also don’t appear to see that if we stop foreign investment here it is hypocritical to reap the rewards from New Zealand investment overseas.

But the worst of the criticism is nothing more than xenophobia based on ignorance.

It’s not who owns land or other assets which matters, it’s what they are permitted to do – or not  do – and that is governed by laws and regulations, including district and regional plans, which apply to everyone.

Those who oppose foreign investment ignore the benefits it brings to New Zealand and New Zealanders.

One of the farms we visited last week is owned by immigrants who brought a lot of money with them when they came. They poured it into their property and have worked hard to increase its productivity and improve it not just economically but environmentally. They employ other New Zealanders, send their chidlren to local schools, are active in the community and have strengthened the economic and social fabric of the district.

They are by no means the exception and if the rules are simplified to allow more people like them to invest here the critics will be proved wrong.

* Thanks to David Cohen  for corrrecting my spelling.