Foreign investment 'changing'

By Brian Fallow

WELLINGTON - There are signs the kind of foreign investment flowing into New Zealand is changing, the Government Statistician, Len Cook, says.

Releasing details of the $5.6 billion of inbound foreign investment in the March 1999 year, Mr Cook pointed to lower and more volatile inflows of foreign direct investment (FDI) over the past three years while less stable forms of funding, such as intra-bank lending and loans between unrelated parties, had increased.

FDI is defined as investment in companies owned 25 per cent or more by a foreign investor.

In the latest year, the inflow of FDI was $1.9 billion, down from $3.4 billion the year before. It was all debt - loans to New Zealand subsidiaries by their overseas parents - apart from $367 million in retained earnings. There was no new equity investment.

Mr Cook said that since 1989 foreign investment had been dominated by FDI. Between 1989 and 1992 several large state-owned enterprises were sold, including Telecom and the BNZ. From 1993 to 1995 inflows of FDI ranged above $4 billion a year and were focused on private-sector companies.

But Mr Cook said that in the past three years, in what could be a new phase, FDI flows were lower and more variable, offset by an increase in loans between unrelated parties and deposits (largely overseas banks advancing funds to their New Zealand arms).

While FDI into New Zealand dwindled, New Zealand FDI abroad jumped to $1.9 billion - its highest level for four years.

New Zealanders invested a further $1 billion in overseas bond markets, and New Zealand banks lent $1.5 billion overseas.

The total stock of foreign investment in New Zealand at March 31 was $126.2 billion, up $2.2 billion on a year earlier, but New Zealand's holdings overseas rose $5.5 billion to $40.3 billion over the same period. The net position accordingly improved to minus $85.9 million from minus $89.2 billion a year earlier - the first drop since 1989.

The improvement is largely explained by a $2.3 billion drop in the value of some large FDI firms in New Zealand, while New Zealand-owned FDI companies offshore rose $1.2 billion in value.

Treasurer Bill English said the increase in New Zealand investment abroad boded well for the current account deficit in the long term.

Alliance leader Jim Anderton said the wide disparity between foreign investment in New Zealand and New Zealand investment abroad reflected the fact that New Zealand had fewer restrictions on foreign ownership than any other developed country.