A"think tank" independent of the state can make a valuable contribution to public debate. For 25 years, the NZ Business Roundtable financed forceful policy research in this country. Over the past decade a second business-backed body, the New Zealand Institute, offered different economic prescriptions. Since the death last year of the Roundtable's intellectual driver, Roger Kerr, the two have merged. The fusion, named The New Zealand Initiative, has just produced something interesting.

It has found New Zealand is not as open to foreign investment as we have supposed. Despite the visible evidence of foreign-owned banks and foreign domination of so many commercial sectors, the NZ Initiative finds our criteria for approving overseas investment are the sixth most restrictive of the 55 states in the OECD. Only Japan, India, Indonesia, Saudi Arabia and China are more restrictive.

Most surprising, researchers Luke Malpass and Bryce Wilkinson have found we are the most restrictive in the OECD on applications for manufacturing investment. They offer no examples of manufacturing proposals we have rejected but it seems extraordinary that the Government would ever refuse them. Local manufacturing has been moving offshore since import barriers came down, and those that remain constantly complain about the difficulty of competing at a high exchange rate. If foreigners find it profitable to invest in manufacturing here, they deserve a powhiri.

New Zealand, the study notes, ceased to be a "fortress economy" in the 1980s but the reduction of import barriers, elimination of exchange controls and open trading conditions has not been reflected in the inward investment controls. The rot set in, they say, about 15 years ago and it is best expressed in the Overseas Investment Act 2005 that calls it "a privilege for overseas persons to own or control sensitive New Zealand assets".


In line with that philosophy, the act gives government officials and ultimately ministers the power to decide whether the applicant is investing his money wisely, whether he is of good character and whether he has sufficient acumen and experience in his business. It is, as they say, absurd.

But they appear to be looking at the letter of the law rather than its application. Opponents of foreign investment often complain that very little is turned down by the office. The potentially restrictive terms of the act and its regulations are no doubt designed to give governments grounds to refuse an application that might cause a public outcry.

The Crafar farms sale is a recent example. It is to the Government's credit that it did not cave in to xenophobic opposition though it could have done so on two of the criteria it has written into the regulations. The Labour Party says it would have turned the application down.

The overseas investment regime might be worse in principle than in practice, but the principle is economically unwise and politically dishonest. It promotes the false impression that we can impose any conditions we like on potential investors at no cost to this country. There are always costs, in a lower price offered for the asset, in unnecessary paperwork and professional fees and, most seriously, in investment diverted away from this country by the hurdles we have placed in its path.

When our overseas investment rules are compared to other developed countries we appear to be a fortress still. A country with limited domestic savings cannot afford self-imposed handicaps in the competition for the capital everyone needs.