Strategic focus need for Asian investment

Government needs better strategic focus for Asian investment says the Asia-NZ foundation. Photo / 123rf

Government efforts to attract foreign investors would benefit from greater strategic focus, the Asia-New Zealand Foundation says in a new report that finds big gaps in official statistics measuring where investment comes from, but suggests Asian investment is a far smaller proportion of the total than is widely thought.

It suggests also that the current tests applied by the Overseas Investment Office risk failing to assist such a strategic approach, instead creating "a tax or entry fee on inward investment" by imposing conditions on things that are easy to measure but don't relate to economic impact.

"Unlike the provisions of the Overseas Investment Act relating to good character and business experience, assessing the benefits arising from a proposed investment requires an estimate of future effects," the foundation report says in a section marked "An Opinion" and representing a collective view from the leadership of the government-funded agency to promote closer ties with Asia.

"This is a very difficult task and some OIO decisions appear to rest on 'benefit' factors that can be more readily imposed and monitored, such as a requirement to support a particular local heritage or local ecological asset in the area surrounding the investment site.

"Imposing this kind of requirement on a case-by-case basis ends up producing something like a tax or entry fee on inward investment. It does not provide us with a strategic basis for attracting the kinds of investment that best serve the country," the foundations says.

While the Overseas Investment Act includes considering factors such as job creation and retention, new technology, exports, productivity gains and further investments, "the problem lies in determining whether any particular proposed investment will deliver these kinds of benefit.

"It is these things that create the potential for FDI to raise productivity, increase exports and yield other positive spill-overs for the host country."

While diverting resources to attracting particular kinds of foreign investment was "contentious" because of an ingrained New Zealand aversion to picking winners, the foundation argued that "given that the New Zealand government invests finite resources in attracting investment, it makes sense to ration these resources according to some strategic rationale".

"Such a strategy should be mindful of the potential for excessive resource extraction and be based on an appreciation of the strengths that many New Zealand firms already demonstrate."

Research by The University of Auckland's New Zealand-Asia Institute found that, based on the limited public data available, "Asia accounts for a relatively small share of all foreign investment in New Zealand", at less than 10 per cent of the totals recorded.

By comparison, Australia, Britain and the United States accounted for 58 per cent of the foreign investments recorded, mainly in OIO applications for "sensitive land" and other transactions worth more than $100 million.

That left a gap with "no official figures on the sectoral composition of non-OIO approved investments by source countries or regions", and potentially overstating the extent of Asian direct investment in primary industries.

In a study of all OIO decisions, researchers found Australian investors made up 29 per cent of FDI, and the US and Canada were at 26 per cent, while China, Japan and Singapore represented 9 per cent, 7 per cent and 4 per cent respectively, with Asian investors most likely to invest in Auckland or the Waikato and in the meat, dairy, forestry, horticulture and property sectors.

"This apparent concentration of investments from Asia in the primary sector could simply reflect the nature of the OIO screening regime. The only firm conclusion to be drawn here is that there is a gap in the available statistical data."

The report calls for "robust" discussion of foreign direct investment because of its long importance to New Zealand's economic development.

"The quality and tenor of this debate say a great deal about the maturity and balance of New Zealand's relationship with Asia," wrote executive director Simon Draper in his introduction, arguing that foreign direct investment is "not so much about the financial inflow ... but from the other things that some foreign investors bring: access to technology, management expertise, knowledge of foreign markets and links to partnerships and collaborations abroad".

The report contains eight case studies of New Zealand businesses operating in Asia, in sectors outside the most visible areas of Asian FDI.