Anyone wanting to stir up debate at a party in New Zealand should bring up one of two topics: rugby or the issue of whether or not New Zealand-owned assets should be sold to foreigners. Whether true or not, many New Zealanders believe that too many foreigners, especially Chinese investors, own New Zealand assets, and land in particular.

But, while there are quite a few New Zealanders, including some politicians, who dislike the idea of foreigners owning local assets, there is little doubt that FDI has helped to boost New Zealand’s economic growth.


The International Monetary Fund’s World Economic Outlook forecasts New Zealand will achieve an economic growth rate of 2.5% in 2014, against the world average for advanced economies of just 1.2% in 2013. Numerous international organisations, including the rating agencies, attribute New Zealand’s relatively strong economic performance to the fact that it is a largely open economy. There are no restrictions on the movement of funds into or out of New Zealand, or on repatriation of profits. No additional performance measures are imposed on foreign-owned enterprises.

“Most, but significantly not all studies, signal positive benefits [from FDI] for the host country,” says Chris Nixon, senior economist at the New Zealand Institute of Economic Research in a November 2013 paper entitled 'Foreign direct investment – the threat associated with high level overseas investments: just or groundless'.

Losing ground

According to Statistics New Zealand (SNZ), as of June 30, 2013, the country's stock of inward FDI stood at NZ100.7bn ($87.2bn) against only NZ22.6bn of outward FDI. However, only a small percentage of inward FDI actually constitutes land acquisitions, according to several economists. But, since neither SNZ nor the Net International Investment Position measure the extent of foreign investment in land separately, it is difficult to determine how much New Zealand land rests in foreign hands.

Perhaps the closest approximation comes from Mr Nixon’s research, in which he points out that the stock of land-based foreign holdings was only NZ$4.8bn in 2009 (1% of the 2009 total), compared with about $27bn (9%) invested in manufacturing and NZ$192bn (61%) invested in finance and insurance.

Mr Nixon also says that while there are several reasons why investors worldwide select land, including price and proximity to markets, the decision to invest in New Zealand land is primarily taken because the country has a business-friendly environment.

According to figures from SNZ, for the year ending March 31, 2013, Australia is by far the biggest investor in the country with NZ$110bn-worth of investments. This is followed by the UK and the US with investments valued at NZ$52.9bn and NZ$38.8bn, respectively. Singapore, with investments worth NZ$7.8bn, was only marginally ahead of Japan, which had investments of NZ$7.7bn.

The flip side

The one thing on which there is general agreement is that inward FDI should add value to New Zealand businesses, and to the economy generally, namely in terms of introducing leading-edge innovation and knowhow. And New Zealand Trade and Enterprise (NZTE) is at the forefront of attracting FDI to NZ. According to its general manager of capital, Quentin Quin, NZTE works to make the right match between investors’ interests and sectors of significant benefit to the country.

“Our priority focus includes areas where there is potential to leverage New Zealand’s existing reputation – such as the primary sector through our innovative on-farm IP systems and high-productivity capability,” he says. “As a nation, we are market leaders in efficiently converting pasture to protein through the implementation of smart systems and technologies."

Moreover, combining global capital investment with New Zealand’s existing innovative technology capability has ancillary benefits in other sectors such as food and beverage manufacturing, he says. For example, it can help to support the growing global demand for food by combining high-quality production with agricultural knowhow.

New Zealand also benefits from FDI in other sectors including software engineering, “where our university incubator programmes and entrepreneurial start-up culture has spawned technology, application development and digital media businesses of worldwide influence”, Mr Quin says. “We also focus on areas of need such as infrastructure development, which includes the rebuilding work in Christchurch after the 2011 earthquake.”

Sad story?

Much of the fear around FDI in New Zealand stems from a concern that the country will lose control over its own assets, notes Mr Nixon in his 2013 paper. He says that some of the questions that are asked are 'could New Zealanders become tenants in their own land?' or 'and will foreigners be accountable for their actions on that land in the same way as New Zealanders?'. Even the country's prime minister, John Key, has weighed in on the issue, commenting in a well-documented statement in 2010 that “we [New Zealanders] don’t want to... become tenants in... [our] own land”.

As recently as late April 2014, controversy erupted over the NZ$1.04bn sale of the Kinleith pulp and paper mill, Tasman pulp mill, Penrose paper mill and the Carter Holt Harvey Group packaging businesses in Australia and New Zealand to Japanese buyers, Oji Holdings, and government-backed investment fund Innovation Network Corporation of Japan. New Zealand First party leader Winston Peters went as far to describe the sale as a “sad story”, adding: “It makes no sense for an export-dependent economy to sell export-creating assets.”

But such debate is normal, argues Bryce Wilkinson, senior fellow at business group the NZ Initiative. “FDI is pretty controversial in most places,” he says, citing Chinese investment in the US and Australia. “Australia would never tolerate the US owning all its major banks, but New Zealand’s major banks are Australian-owned,” he adds.

Mr Wilkinson also argues that it is in New Zealand’s best interest to boost FDI, unless it “wants to remain a backwater”. However, he also notes that the country’s “politicians lack the incentive to prioritise completely independently of short-term political considerations”.


IN FOCUS: The regulatory environment

Although New Zealand has relatively liberal FDI regulations, there are some types of investments that must be screened, according to the Overseas Investment Act 2005. Three broad classes of asset are currently defined as sensitive within the act: acquisition of a 25% or greater ownership interest in business assets valued at more than $100m, all fishing quota investments, and investment in sensitive land as defined in Schedule 1 of the act.

Examples of sensitive land include rural land of more than 50,000 square metres or land bordering or containing foreshore, seabed, river or the bed of a lake. Most urban land is not screened unless defined as sensitive for other reasons. A full list of sensitive assets is defined in the act.

Rules have also been introduced that provide ministers with increased power to consider a wider range of issues when assessing foreign investment in sensitive assets, primarily large-scale overseas ownership of farmland and vertically integrated primary production companies. This now includes “sensitive land” defined as “large” areas of farmland 10 times the average size of any given type of farm, for example, the average dairy farm is 172 hectares according to New Zealand statistics, which means the threshold that triggers the screening is 1720 hectares.