New Zealand is ranked by far the most restrictive OECD nation for foreign direct investment.
The Treasury is leading work on the Government’s plan to establish a National Infrastructure Agency.
Matthew Hooton has more than 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties, and the mayor of Auckland.
OPINION
How depressing the old mercantilist Winston Peters may have a moresophisticated understanding of the Government’s role in attracting foreign investment than National or Act.
At Sunday’s NZ First conference, the Deputy Prime Minister ran through many themes he’s doggedly pursued for three decades, as well as reciting a long list of what he calls just some of this party’s achievements in government.
But what captured attention was his proposed “New Zealand Future Fund” of up to $100 billion, including some raised from overseas.
By extraordinary coincidence that only NZ First seems able to pull off, the convention had just passed a members’ remit calling for exactly what Peters could announce a day later.
Peters’ idea is similar to but potentially bigger than the National Infrastructure Bank Judith Collins proposed in 2020 but which National has since abandoned, apparently worrying it was too socialist.
The purest view on foreign investment from the reform era is that all governments need to do is get macroeconomic fundamentals and regulatory regimes right, and word will spread through the global investment community that New Zealand is the place to be.
That’s undoubtedly the most important element, although foreign investment still finds its way to opportunities in countries with shocking legal and economic environments.
By the mid-1990s it was thought a bit of international glad-handing and matchmaking was needed too.
Governments launched offshore marketing programmes, economic ministers and Prime Ministers were sure to include speeches to investor conferences when abroad, and there was talk of some type of concierge service for potential investors willing to visit.
It worked to some extent, with foreign direct investment reaching a peak of 59% of GDP in the 1990s, much higher than the 20% average among developed countries.
Since then, despite growing globally, foreign direct investment in New Zealand has declined as a percentage of GDP. We’re again well below the OECD average.
That’s largely because of the slow erosion of New Zealand’s basic macroeconomic framework this century.
Predictably, ever-more elaborate government marketing programmes and dating services to match projects and investors have made no difference.
Arguably, some were so clumsy they deterred potential investors from ever looking at New Zealand again.
Act has always been most sceptical of such dating services and public-relations activities, thinking good policy is enough.
National, like Labour, believes that all else being equal, international investors will send cash our way because a Prime Minister gushes at them or squeezes their shoulder.
A bigger problem, as opportunities for international investment and the sheer size of funds have grown this century, is that New Zealand projects have looked ever-smaller and more irrelevant.
Massive investment funds are busy places, where proposals – legitimate and dodgy – flow in too fast for many to be taken seriously, let alone be evaluated properly by analysts.
Funds’ minimum investment mandates are so high that very few individual New Zealand projects come near them. Even our Superannuation Fund won’t take too seriously opportunities of less than $1 billion.
If you’re a busy funds manager in Oslo, Montreal, Toronto, New York, London, Singapore or even Sydney, you’ll be even less interested in allocating precious analytical time and effort to study Southland’s water pipes.
Projects and investment opportunities must be aggregated to be worthwhile for international investors to even sit through a PowerPoint presentation.
That was the original idea behind Labour’s Three Waters reforms, which were defeated by political mismanagement, disinformation about co-governance and parochial local-body politicians genuinely believing decaying sewerage pipes are assets rather than liabilities.
A medley of mayors opposing Three Waters reforms gathered at Parliament in 2021 to voice their displeasure. Photo / Mark Mitchell
Aggregation was also the idea behind Collins’ National Infrastructure Bank. Peters’ proposed New Zealand Future Fund also allows investors to take a macro-view.
Funds would have an opportunity to become exposed to New Zealand infrastructure generally or to a collection of projects of a certain kind or in a particular region, without being expected to evaluate whether Hawke’s Bay freshwater or a Northland expressway is a better investment opportunity than Auckland wastewater or a railway in Tairāwhiti.
That makes Peters’ idea completely different from Chris Bishop’s new National Infrastructure Agency (NIA), which is largely just another dating agency.
The suggestion the NIA will be able to hire people – or that they exist – who are able to get Singapore’s state-owned investment firm Temasek to invest in a new expressway from Warkworth to Whangārei is as laughable as New Zealand Trade & Enterprise officials claiming their agency is akin to an investment bank.
Arguments against Peters’ proposal are the same as against Labour’s superannuation scheme in the 1970s and Superannuation Fund in the 2000s – that they risk the state having to buy up everything in New Zealand, “and you know what that’s called, don’t you?”
National’s “Dancing Cossacks” advertisements a half-century ago legitimately highlighted a potential risk, and weren’t just a smear campaign.
But a communist takeover is less likely if the New Zealand Future Fund includes private capital and is capped at $100b.
That’s large enough to make a difference but not so big the fund would end up owning an unacceptably high proportion of the nation’s infrastructure.
NZ First can expect adamant opposition from Act, on “Dancing Cossacks” grounds and because they think deregulation and restoring the macroeconomic fundamentals of the 1990s is enough.
Despite Collins’ 2020 proposal, National now seems loath to go beyond the dating-service and concierge model.
Prime Minister Christopher Luxon suggests the solution may lie in copying Ireland’s “comprehensive concierge service” for foreign investors, without mentioning its 12.5% company tax rate.
As shallow as always, he seems to genuinely think attracting foreign investment is just another sales job and that his own personality means he’ll be much more successful than any of his predecessors in charming foreign investors at lunches offshore.
Prime Minister Christopher Luxon speaks to reporters in Laos. Is attracting foreign investment just another sales job? Photo / Jamie Ensor
That’s no more likely than National’s messianic belief Luxon’s mere election would so boost business confidence that domestic investment would immediately rebound and 2024 would be a boom year.
A 12.5% company tax rate, not the current 28%, would be a much better bet than relying on his or any other Prime Minister’s sales skills, along with limos or helicopters from the airport and PowerPoint presentations for visiting funds managers.
In his speech, Peters referenced Ireland and signalled that NZ First supports tax reform, although apparently the type where bureaucrats pick winners and offer them concessionary rates.
But it’s a start. Combined with his proposed fund, can we hope that the unlikely figure of Peters will be the one to convince his coalition partners that it’s not just Ireland’s public-relations moves we might emulate, but its company tax rate as well?
