A firm but fair regulatory framework is vital - yet NZ also needs to recognise the many benefits which foreign ownership can bring in the form of capital, market access, innovation and opening up untapped opportunities.
"If the pendulum for foreign investment in the primary sectors swings too far, there could be immediate implications for asset valuations, particularly in those sectors where it has provided a significant proportion of capital.”
Current angst over foreign ownership also deflects attention from NZ’s poor saving record, resulting reliance on foreign saving and poor relative investment returns.
A more proactive stance towards saving and investing is an important part of any policy solution.
Foreign ownership in the rural land sphere has been very influential in the forestry, viticulture and pipfruit sectors – indeed, these sectors wouldn’t be where they are today without it.
Despite common perceptions, foreign ownership has been less influential in sectors such as dairy, meat and fibre. While there is angst about land ownership, foreign investment beyond the farmgate has arguably been much more significant in influencing sector direction too.
This is especially so for the beverage (69 per cent of turnover) and processed food (60 per cent) sectors, but is true for all to some extent.
With the political breeze clearly favouring a more restrictive stance, it will be interesting to see how far the pendulum swings.
If it swings too far, there could be immediate implications for asset valuations in sectors where foreign investment has been the greatest – namely forestry, pipfruit, viticulture and large-scale operations.
But perhaps more importantly, there would likely be negative long-term implications for high-growth sectors which would struggle to meet their aspirations – as well as productivity, innovation, market access, infrastructure and wages across some of NZ’s key business sectors.
Observation one: this is nothing new
There is always a fear selling New Zealand assets to foreign investors will result in ceding control and a loss of sovereignty.
Another common argument is ‘selling the family jewels’ will leave NZ owning very little in its own country. The standard argument is the sale undermines the next generation’s earning capacity, with the returns on the land accruing offshore.
You can see this in NZ’s balance of payments figures, which show net international liabilities currently sitting at 57 per cent of GDP. The net cost to the country from that large stock of international liabilities totalled the princely sum of $NZ9 billion in the last year – a nontrivial sum.
Foreign investment in New Zealand is nothing new though and it should be remembered it is not just equity – the majority is actually debt.
As of March 2017 total foreign investment stood at $NZ373 billion (excluding financial derivatives and reserve assets), compared to $NZ75 billion in 1992.
Of that, only $NZ113 billion is direct investment – of which nearly half is owned by Australians. The second-largest foreign direct investors in New Zealand are the Americans, with the Chinese (including Hong Kong) third on the list.