Craig Stobo is a professional director and business owner. He is chairman of the Financial Markets Authority and a member of the New Zealand Initiative.
OPINION
Productivity is not everything, but in the long run it is almost everything – so said Paul Krugman.
We know our incomes and living standards are driven by productivity growth. So it was with dismay I read in the Budget that Treasury had calculated our GDP per capita had fallen by 3 per cent since September 2022 and it had lowered long-run productivity forecasts to 1 per cent.
This follows average growth of a meagre 1.4 per cent from 1993 to 2023.
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The reasons given for the weak productivity outlook are lower benefits from innovation, weak investment relative to employment growth, and a slowdown in international trade and connections. Furthermore, Treasury says we have relatively low research and development (R&D) and weak managerial capability, which could limit the uptake of new technology.
While I have been vocally concerned for some time about our declining educational achievements and much-needed reforms in the delivery of public services, it seems New Zealand business needs to look in the mirror after reading Treasury’s analysis.
This train of thought and need for self-reflection was confirmed by a recent NZIER study which attributed our low productivity to lower investment in capital and “low rates of diffusion of technology and innovation”.
Tellingly, the NZIER (the New Zealand Institute of Economic Research) says a low level of “dynamic capability” in businesses is reducing “their absorptive capacity to adopt and implement new ideas or technologies”.
If New Zealand businesses have weak managerial capabilities and low levels of dynamism, then it is time to change the commercial landscape.
It is time to really welcome foreign businesses into our country. Foreign Direct Investment (FDI) can build jobs, local know-how and offshore relationships for the exports of our goods and services, making it easier for us to integrate and compete in the global economy.
I am not just advocating for a review of the Overseas Investment Act and the screening of regulations overseen by Land Information New Zealand, including the thresholds and exemptions for sensitive assets.
I am advocating for a change in attitude: away from xenophobic autocracy to a genuine open economy that competes for new business. From selective political patronage to a hunger for new industries to establish themselves throughout our country.
You will recall the commercial embarrassment of our recent history of approaches by foreign investors.
Both Dubai Aerospace and the Canadian Pension Plan Investment Board (CPPIB) sought to buy shares in Auckland Airport Ltd.
In 2008, the New Zealand Government’s Cabinet changed the regulations so CPPIB failed to meet a sensitive land test, and when control of the target shares was modified, Cabinet created a new test of providing “benefits to New Zealand”. CPPIB withdrew.
Both Dubai Aerospace and the Canadian Pension Plan Investment Board (CPPIB) once sought to buy shares in Auckland Airport – but the local response was an embarrassment, writes Craig Stobo.
Natural Dairy (NZ) Holdings, a Hong Kong-based company, sought to buy the Crafar farms in 2010. The farms were put into receivership in 2009.
National Cabinet ministers declined consent on “good character” grounds and Shanghai Pengxin bought the farms later, after nine months of Overseas Investment Office deliberation. A different approach may have elicited more and faster global interest.
This “ministerial flexibility” is at the expense of investor certainty. It gets worse.
In 2020, the Labour Government sought urgency in Parliament to require ministerial approval for any acquisition of equity above 25 per cent. How easy is it for existing foreign direct investors in New Zealand to sell businesses to other foreign direct investors?
Too much protectionism
Can existing approved foreign direct investors easily purchase more businesses? And we wonder why New Zealand has the most protectionist FDI regime in the OECD?
I want to welcome foreign direct investors into New Zealand. I want real incentives to attract them here. Not the kind provided under the Large Budget Screen Production Grant, which awards tax rebates of 15 per cent over a minimum spend. Not the bespoke incentives negotiated by Warner Bros in 2010 by threatening National ministers that it would film The Hobbit elsewhere.
I want our Government agencies to change from focusing solely on investing in New Zealand export-led growth to embracing the migration of global businesses to New Zealand.
From mercantilism to multinationalism. From ambivalence to action.
New Zealand Trade and Enterprise (NZTE) expresses this ambivalence in its recent annual report. It says it “sources investors with the skills and capital to help New Zealand companies to flourish on the global stage. We give preference to domestic investors, however, high-quality international investments complement our portfolio as needed”.
By contrast, Ireland’s inward investment promotion agency IDA (Industrial Development Agency) has been helping overseas companies set up and expand their strategic international operations in Ireland for more than 70 years.
It has 1800 multinational clients, which have created over 300,000 jobs as at October 2022, 12 per cent of total employment.
For every 10 jobs in an IDA client company, eight others are created in the local economy.
There are evident spillover effects – job creation, job opportunities and progression, local sourcing, global value chain integration and, importantly taxation receipts. IDA client companies account for 70 per cent of corporation tax receipts and make a significant contribution to income tax receipts.
New Zealand does have parallel opportunities – we are English-speaking, have a strong judicial system and a stable Government, proximity to Asia, an ease of starting businesses, an educated workforce and access to universities. What we don’t have is a national culture of welcoming FDI because of the benefits it brings – and a 12.5 per cent corporation tax rate.
But then are we really serious about wanting to lift our productivity, our incomes and our standard of living?
