It seems bizarre that the man in charge of growing the economy is not right to the fore on such transactions

Bill English is the politician who ultimately holds the pen on foreign direct investment into New Zealand, but when it comes to politically controversial FDI decisions they have been kicked down the road to more junior ministers.

It's an absurd situation given the big fuss senior Cabinet ministers have made about the need to entice foreign investment into New Zealand.

But English has delegated his day-to-day responsibilities, functions and powers under the Overseas Investment Act 2005 to his Associate Minister of Finance, Paula Bennett.

Unlike his predecessor Sir Michael Cullen - who did make himself unpopular with international investors when he changed the rules to stop a Canadian pension fund buying Auckland International Airport - English shows no desire to enter the fray.

Advertisement

Thus it was Bennett who fronted the recent "ministerial" decision to veto Chinese investor Shanghai Pengxin's $88 million bid to buy Lochinver Station.

It was also Economic Development Minister Steven Joyce who put forward the Government's explanations to senior leaders in China last week for what was seen as a blatantly political decision even though it appeared to be within the rules.

Given this Government's tendency to hawk foreign direct investment as a vital growth booster for the economy, it seems bizarre that the man in charge of growing the economy is not right to the fore, painstakingly explaining to the nation why FDI is so necessary and taking the political lead to ensure the bureaucracy is well-resourced to deal with foreign investor bids.

But instead there is an absurd situation where the Overseas Investment Office (OIO) is strapped for cash and has to hit up applicants for fees to stay in business yet subjects them to inordinate and costly delays in getting applications heard because it lacks enough qualified staff to deal with the workload.

Something doesn't compute.

Even the OIO itself is simply a regulatory agency tucked within Land Information New Zealand with scarcely a bow to the fact that most of its largest applications are to buy businesses, not land. Something which would surely be of critical interest to the Finance Minister.

The OIO boss - a public servant - is largely anonymous.

Unlike Australia's Foreign Investment Review Board where members make the case for FDI and its benefits, no one routinely does this at the OIO. The Overseas Investment Act is also confusing.

Advertisement

When National came to power in late 2008, the Treasury set about reviewing the foreign investment framework to move towards a more liberal model. But that work was shelved when the Government ran into political roadblocks.

The upshot is that investors are frequently confused by a loopy regime that has come about through a combination of out-of-date legislation, a series of ministerial directives to counter thorny domestic political issues and the High Court ruling in the Crafar farms case which requires overseas investors to sometimes perform extraordinary contortions to provide more benefits than local investors for the same assets.

Across the Tasman it's different. As former Liberal Treasurer Joe Hockey said this year, "Foreign investment is integral to Australia's economy and we welcome all investment that is not contrary to our national interest."

Australia's regime is being increasingly cited as Chinese investors turn their attention to Australia when it come to investing in agricultural land.

The Australian Financial Review reports that Chinese investors have heated up an Australian farming spree, having spent a "quick-fire A$120 million" in the past two months buying rural properties. The AFR said there were more than A$1 billion worth of such deals in place. It reported that Dashang, Hailiang, Fucheng, Yiang Xiang Assets, New Hope, Oriental Agriculture, Splendid Farm, Shandong Ruyi and Tianma Bearings Group were among the major Chinese land purchasers.

However well justified, the Lochinver decision has changed the dynamics. As PwC's Colum Rice observes, "What is most important to potential investors is that New Zealand now ensures clear, consistent application of a coherent set of foreign investment criteria.

"The Lochinver process has highlighted the need to speed up the timeframe for decisions ... Slowing the decision process could be damaging to our country's reputation, wasting both potential investors' time and resources, as well as deterring future submissions."

In a note by DLA Piper, lawyer Martin Thompson said, "The key point to take away for future applications is that if the investment involves significant farmland, the resulting benefits will need to be assessed in the context of the size and nature of the overall investment."

The upshot is confusion in investing circles.

The High Court in the "Crafar decision" - where Shanghai Pengxin was again the bidder for the 16 Crafar farms - said the economic benefits of the investment were required to be assessed against a counterfactual scenario should the investment not go ahead. DLA Piper notes that the OIO takes the view that non-economic benefits, where possible, should also be assessed against the counterfactual scenario.

"But in the Pengxin case, the ministers and the OIO considered the relevant counterfactual scenario in this case to be that the vendor will likely sell Lochinver Station to an alternative New Zealand purchaser who will likely undertake some development of Lochinver Station.

"They appear to have adopted this counterfactual scenario in light of the marketing and expressions of interest received from New Zealanders for the property, and following a report from an economist."

However, the ministers and the OIO acknowledged there was some benefit to the country from the investment by Pengxin subsidiary Pure 100 Farm that would not result under an alternative local purchaser.

A leading lawyer told me this week that their simple advice to a foreign investor seeking to buy a large iconic slice of New Zealand would be - "Don't".