THERE IS a great myth that New Zealand is open for business. Anyone following the Crafar farms sale and related legal battle could be forgiven for thinking New Zealanders are hocking off land and assets in a laissez-faire fire sale to rapacious foreigners.
However, little could be further from the truth. According to the OECD New Zealand is in fact performing very poorly compared to other countries in the race to attract overseas capital.
Out of 55 countries measured by the OECD regulatory restrictiveness index, New Zealand is ranked as having the sixth most-restrictive foreign investment regime in the world. We are far more restrictive than both the OECD and the non-OECD average. The five regimes more restrictive than New Zealand are China, Saudi Arabia, Indonesia, India and Japan.
Analysis by The New Zealand Initiative has delved further into the OECD data, and measured New Zealand’s restrictiveness on an industry-by-industry basis.
Staggeringly, New Zealand has the most restrictive regime of all 55 countries for manufacturing. For a nation that has never-ending debate on how to create value-added export industries, this alone should be cause for great concern.
New Zealand is most restrictive, relatively, in the ‘food and other’ and ’electric, electronics and other instruments’ categories. Only one other country has a more restrictive regime in respect of each of the ‘oil refinery and chemicals’, ‘metals and machinery and other minerals’ subcategories.
Only two other countries are more restrictive in respect of hotels and restaurants. Only three are more restrictive in respect of forestry, fishing and wholesale trade. However, 10 countries have more restrictive regimes than New Zealand in respect of agriculture, and 23 are more restrictive on investment in the media.
FDI (foreign direct investment) restrictiveness comparisons are important precisely because they are comparative measures: New Zealand competes on the same basis as all other nations for capital and is clearly slipping on competitiveness. Investment restrictiveness is also 100% controlled by government policy, not by less-tangible factors such as history or culture.
This should be a worry for all New Zealanders. Most evidence shows that FDI positively contributes to job and incomes in the host country. Countries with higher levels of FDI generally have higher levels of productivity.
By making investment in New Zealand unnecessarily restrictive, the Government is not only limiting the above benefits but also imposing mostly unobservable costs on all of us. Expensive and difficult investment processes limit the amount and raise the cost of capital. This affects all New Zealanders through lower property prices and higher mortgages.
Of course you won’t hear any of this from advocates of further restricting New Zealand’s foreign investment regime. There is a ‘free lunch’ mentality, where it is argued that ‘New Zealand’ in general gets benefits from restricting foreign investment that individual New Zealanders don’t have to pay for. In the case of farms, further restrictions on land sales to foreign owners will depress future agricultural property prices – this is good if you are looking to enter the market, but potentially costly if you are looking to sell or have borrowed against the value of the land.
Over the past decade, Australia has been the beneficiary of an unprecedented $270 billion investment pipeline that sluices around the country lubricating the cogs of economic activity. Without foreign investment, there would be no resources boom and most probably far fewer Kiwis heading there. In fact, recently Australian Treasurer Wayne Swan announced government approval of the sale of Queensland’s Cubbie Station to Chinese interests for a rumoured $A350 million. Cubbie is Australia’s biggest farm, holds a massive water rights allocation and produces 10% of Australia’s cotton. A few maverick MPs aside, the decision was supported by both sides of politics.
New Zealand has been lagging on foreign ownership for 15 years, and it is beginning to cost the country in the form of lower levels of investment. Ultimately it is simple: saying no to foreign investment means saying yes to lower living standards.
• Luke Malpass is the co-author (with Bryce Wilkinson) of Verboten! Kiwi Hostility to Foreign Investment, released by The New Zealand Initiative – www.nzinitiative.org.nz
