NZ urged to harness foreign investment

NZ's wage levels and productivity need to rise, says Supachai Panitchpakdi. Photo / Mark Mitchell

New Zealand must remain open to foreign investment but should learn from past mistakes to ensure the benefits don't flow overseas, says senior UN official and former World Trade Organisation boss Supachai Panitchpakdi.

Supachai, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), was in Wellington last week as a guest of the Government and the Asia NZ Foundation.

In his five years with UNCTAD, developing economies, particularly those in Asia, have accelerated their growth which has helped lift millions of their citizens out of poverty.

Large developing economies including China and India are now leading a nascent recovery in the world economy from the global financial crisis. But that recovery required a rebalancing in developed economies, including New Zealand, away from debt-funded consumption towards higher savings.

"This is what we call the new development path out of the crisis," Supachai told the Herald.

For that rebalancing towards higher savings to remain on track here, Supachai said New Zealand's wage levels and productivity must increase, and foreign investment had to play an important role in that. He discussed that subject with Prime Minister John Key during his visit.

Supachai was aware New Zealanders were somewhat disenchanted with foreign investment, especially what happened with the privatisation of state assets, particularly when NZ Rail was sold to a consortium including local investment bankers Fay Richwhite and US company Wisconsin Central in 1993.

Supachai formerly chaired Thailand's privatisation committee and saw some of the same problems there. He was surprised New Zealand had allowed the immediate acquisition of the rail company by overseas investors.

UNCTAD had studied privatisations around the world and observed numerous instances where foreign buyers asset-stripped their acquisitions.

"If you allow asset stripping you are not going to privatise in a way that you can stabilise your own economy so I was surprised that it happened."

However, following his discussion with Key, Supachai believed the Government understood New Zealand had to make itself more attractive to foreign investors, "but I think the people will have to be made aware that this negative example of national railways does not have to be repeated".

On privatisation of state assets, Supachai said it must be done for the right reasons, to increase competition, rather than to improve the government's financial position.

Rather than in purchasing state assets, Supachai envisaged new foreign investment that lifted New Zealand's productive capacity in primary production such as farming, but also in manufacturing linked to the agricultural sector or perhaps in renewable energy products.

However, the quality of that investment was important and Supachai said UNCTAD was seeing more government intervention around the world to determine its composition.

"It doesn't mean that there's going to be more investment protectionism it means there is more articulation of investment policies to support national policies.

"Are you going to help enhance my labour productivity? Are you going to follow my environmental and competition rules?"

Supachai Panitchpakdi

* Secretary-General of the UN Conference on Trade and Development (UNCTAD).

* Formerly Thailand's Deputy Prime Minister.

* Succeeded Mike Moore as head of the World Trade Organisation in 2002 and stepped down in 2005 when he took up his current role.

* UNCTAD aids developing nations integrate into the world economy: "What we are trying to do at UNCTAD is make trade work for development."

* It works to harmonise trade agreements, investment rules, financial systems, and regional infrastructure including transport, water management and energy grids.