Finance Minister Bill English did the rounds of Tokyo, New York and Boston early in September, briefing international financiers on his Government’s plans to control debt, lift growth and rebalance the economy towards greater investment and exports.
“Governments all over the world are going to the market to borrow large sums to support their economies,” he explained. “To secure the funds, we need to make sure we are out there telling our story.”
In other words, the Minister would be convincing investors that an over-indebted New Zealand is on the road to economic recovery and is still good place to sink their money.
Earlier this year, Reserve Bank and Treasury officials similarly were promoting New Zealand as place to invest in New York, London and Hong Kong while updating investors on this country’s economic and fiscal outlook.
“An update is always useful and, given the New Zealand economy’s continued requirement to access foreign funding, we want to ensure investors have good understanding of the New Zealand environment and the opportunities available here,” English said then.
Trouble is, we can’t just keep on borrowing as we have been doing for years. We’ve got to make special effort to sell our country as place to invest. That perturbing reality was part of the rationale for the Government’s review of overseas investment rules, scrapping constraints imposed by the Clark government to stop the sale of Auckland International Airport to the Canadian Pension Plan.
During the recession, and coming out of it, New Zealand will need to attract overseas investment. New Zealanders do not save enough to be able to source all investment in New Zealand, and without new investment there will be no new jobs.
To facilitate inflows of investment, similarly, the Key Government is relaxing immigration rules, making it easier for rich investors and entrepreneurs to get residency in New Zealand.
The new policy package is designed for migrants who want to invest or set up business and gain permanent residence and gives effect to one of the high-priority initiatives announced at the Job Summit earlier this year. The New Investor Policy kicked in from 28 July; the Entrepreneur Policy will from November.
The Wellington Regional Chamber of Commerce echoed government rhetoric, when welcoming the revamp. “New Zealand’s productivity growth hinges on increased investment and more entrepreneurialism and the revamp will go some way to addressing the deficit we face there,” chamber CEO Charles Finney enthused.
Jeremy Moon, the CEO of Icebreaker Clothing and chair at the Job Summit, backed the idea “because the more investment and entrepreneurship we can get in New Zealand the better” and enthused about it being “win win”.
Not necessarily.
The changes – English insists – will “strike the right balance, making overseas investment simpler and therefore more attractive while still protecting New Zealand’s most sensitive land and assets”.
Anyone proposing to invest in Auckland Airport will have to go through the overseas investment screening regime. That regime will include passing good-investor test and national-interest test.
The nature of those tests will be critical, to ensure investment generates new production. Moreover if interest, dividends and profits flow back overseas, our formidable current account deficit will be exacerbated.
The important bit of good policy will be to ensure the money that comes in is invested in productive assets, and the rules should ensure the investment is not short-term and speculative.
Taking over an existing asset is not enough – our GDP is lifted only by new productive assets or the improvement of existing ones. Ordinary maintenance won’t do the trick, although we do have to keep on looking after existing assets such as replacing old machines and buildings.
During the 1989-90 recession maintenance work was neglected. Plant and machinery became seriously outdated; now we are trying to catch up. The miserable productivity performance lamented by commentators largely can be traced back to the failure to maintain our assets 20 years ago.
We sold state assets, too, but didn’t ensure they were maintained by their new owners for the long haul and profits re-invested.
Selling something like Auckland International Airport (let’s say) does nothing for the economy unless the new owner or shareholder invests serious amount of dollars to upgrade it and makes long-term commitments to New Zealand’s productive resource base by re-investing the profits here. The Wisconsin Rail people – let’s not forget – were investing here too. They came, they bought, they made fast buck and they left. Taxpayers were left to pick up massive tab. Let’s hope we do it right this time.
Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.
