Overseas investment: our open home

The onus is on the government to explain how a looser overseas investment policy will have net benefit for New Zealand

This year we’ve seen two examples of the way the global rip current is pulling, yet we’re out swimming in it, Piha Rescue-style.

Hong Kong-based Chinese company Natural Dairy Ltd wants to buy the Crafars’ North Island dairy farms. Earlier, in a now-collapsed deal, Dubai interests aligned with a hapu to fund the purchase of 28 Southland farms. This is but a fraction of the Gulf states’ and China’s larger food security strategy (see further here, and here, and here) — a strategy they’re pursuing with some determination. Aspects of both deals had a flavour of evasion, of the overseas investment review requirements.

But whereas these other countries are thinking ahead, moving to secure good cheap food supplies, unwilling to put their faith long-term in commodity markets, our own government policy seems directed to opening up investment, and abolishing the premise of the present settings, that it is a privilege to invest in New Zealand.

Last year Treasury advised the government that it should review the overseas investment legislation, because it is a barrier to foreign investment in New Zealand. The aim of the review, announced shortly after that briefing, is to “promote and encourage the flow of foreign investment”, while addressing valid concerns about it.

The review will consider, among other things, whether the purpose of the Act should be restated to reflect a more open approach; whether the screening thresholds for investments, including sensitive land investments, should be adjusted (ie, raised); and whether the types of land considered sensitive can be can be refined.

The last overseas investment review, carried out in 2003 and 2004 by the Labour government, from which the current Act resulted, had a similar terms of reference. In other words, one should not leap straight from the terms to the conclusion that death, destruction and despair are imminent. As a result of that earlier work, aspects of the legislation were tightened, others relaxed. This might, therefore, be just another instalment in the iterative process of getting the balance right.

However, this is Treasury-led work, and the whole tenor of their briefing is deeply worrying to me.

First, it says, “A more open approach to foreign investment could be shown by restating the purpose of the Act. The premise of the current Act is that it is a privilege to invest in New Zealand and this frames the way the Act is implemented.”

I would have thought this was self-evident; just as it is self-evident that the Act would be a barrier to investment, since that is, after all, its purpose. We’re a small (if lightly populated), not particularly wealthy, notoriously under-capitalised country. Land is our key piece of capital. How else should we regard it, but a privilege?

Second, “While Treasury would be comfortable with removing the screening regime altogether and relying on protections in other existing legislation, we recognise that foreign investment raises concerns for a number of New Zealanders and some form of screening may help to alleviate these concerns.”

Whilst acknowledging the irony that I am busy tapping out a page of words to prove their point, I find the tone of this extraordinary: that the Act exists principally as a sop to some nebulous public insecurities.

Third, the briefing says any screening regime needs to target relevant concerns about foreign investment, and give New Zealanders confidence those concerns are being assessed and addressed. But then it goes on to talk about efficient processing, and other possible ‘simplifications’, which might include removing the requirements to offer back special land to the Crown and offer farm land for sale on the open market. To my eyes that's a fairly substantive change to be dubbed a ‘simplification’, since surely what this would do is remove New Zealanders’ option of first bite at the cherry—or, shall we say, the plums.

Fourth, it considers worthy of further investigation (whilst acknowledging the difficulties and the fundamental nature of such a change) an OECD suggestion, that the burden of proof might be placed on the regulator. So the Overseas Investment Office would need to show that any particular investment would cause harm or loss for it to be declined.

New Zealand is land grabbing too: Fonterra has extensive Latin American operations (although Latin America embraces and encourages this, it seems). And we need foreign capital: I read somewhere on my travels that the proportion of such investment has declined, significantly; and Bernard Hickey, in characteristic style, says we made a sort of Faustian pact, exchanging future sovereignty for a credit binge, and now the devil is extracting his price.

But two things bother me.

First, this feels like another instance of burning the furniture to keep warm — putting the country’s capital assets up on the auction block, with no guarantee of net benefit. We should be as wary of the smashing downsides of corporate colonisation, as we are eager to ride its wave of benefits: it prices ordinary farmers and their aspirants out of the Kiwi way of life.

Second, whereas other countries are taking explicit forceful steps to secure the future for their citizens, and the United Nations, et al are becoming strident, we are the grasshopper who sang all summer. If nothing else, food and water security are basics New Zealanders should be able to count on, but from that biggest blessing also stems our biggest risk: complacency. Here, I wrote about factors driving the rising cost of food, and our exposure to all of them, by having embraced so wholeheartedly the international commodity market, and dairy specialisation — not unlike Cuba and sugar. Here, I found that no one quite knows how much food we import: it might be as much as one third, all unlabelled, undermining the individual sovereignty of personal choice.

Similar thoughts are expressed with some strength, in an unexpected quarter, here (Federated Farmers dairy spokesperson Lachlan McKenzie) and here (Andrew Ferrier, Fonterra chief executive) and here (Sir Henry van der Heyden, Fonterra chair). Never mind the slight double standard, because their basic points are sound: we need a conscious national strategy around food production land and assets, the farming kingpins are saying, and a properly developed policy on food security, and prime earner Fonterra needs to make itself more resilient.

Call me cynical… I doubt Fonterra’s true concern is household food security, in the daily meal-on-the-table sense, as opposed to its (and our collective) self-interest in not waking up one morning to find itself offshore-owned. Think back to 2007 and early 2008, and the prices of blocks of cheese. That’s life, Fonterra said. Market prices. Nothing we can do. So I think what they’re really talking about is my first national asset point, but let’s not quibble: everyone else is alive to this issue, and our government needs to wake up, fast.

Agriculture Minister David Carter has acknowledged the issues. But it needs more than lip service. If, as it seems, a somewhat looser strategy is afoot, the onus is on the government — for any particular investment that the Overseas Investment Office approves, as well as the governing policy framework — to explain what the benefits will be, and why they exceed the costs.