In a departure from the normal discussion around farm data and business process improvement I would like to put in my own personal opinion around ‘Foreign Direct Investment’ (FDI) especially given the current state of political debate around the possible sale of 13,800 hectare Lochinver Station to Shanghai Pengxin.
New Zealand is inexorably interwined with the global economy through trade and investments, therefore FDI has been increasingly important in a more connected world. The reason for this is that it is seen to generally deliver host country benefits. However, the polls indicate that nearly three quarters of NZ’ers want to see rules tightened around foreigners purchasing New Zealand land. Underlining the sensitivity and emotive responses to FDI.
World trade has grown dramatically relative to world output since WW II and the flow of ideas and people has also increased dramatically. There is strong evidence across the economy in terms of economic growth, international trade, firm productivity and employment and wages. It shows why governments have given qualified support to open FDI policies.
As we are all aware Foreign investment in terms of purchasing agriculture land has been driven by a commodity boom and a very positive outlook for agricultural prices (based on growing Asian demand). Ironically, it appears that on a global basis, NZ has actually missed out on the ‘commodity’ land boom! The aggregate data (NZIER, OECD, Statistics NZ) suggests that NZ has not been part, to any great extent, of the international trend in foreign land acquisitions. New Zealand is atypical for a country attracting land-based investment since the land is relatively expensive, the country is a long way from major markets and the food produced here is different to what has been traditionally targeted by many agricultural related foreign investments. Potentially, protein based investments could increase if commodity prices remain high however.
In another of the great ironies around any discussion about FDI it seems to be overlooked that Australia ($63.2 billion or 60% of FDI) and the United States ($10.9 billion) are by far and away the largest contributors to direct total Foreign Direct Investment (FDI)!!! At the risk of posing a ‘rhetorical question’ then, why is it that FDI coming from certain sources catches more headlines than others?
Perhaps one of the most intriguing questions that seems to have been overlooked with regards to FDI is that NZ entrepeneurs have not emerged to take over NZ agribusiness companies, especially those companies that are highly leveraged or looking for cash injections? Rather it has been overseas entities with stronger business plans, a long term view and finance, that have looked to capitalise on the opportunities that have presented themselves. For example, PGG Wrigthson and Synlait. Why then focus on land sales rather than the sale of agribusinesses. When NZ agribusinesses have the potential to have more of an impact on the daily lives of New Zealanders?
From an economic perspective, and I am by no means an economist, one of the most consistent pieces of advice given to the government by international and domestic agencies to improve economic growth is to have an open investment regime. So any move away from this policy will be seen as diminishing NZ’s growth potential and investors and credit agencies will react accordingly. With the flow on effect being higher interest rates to consumers as the cost of borrowing for banks will increase. So if we extrapolate that thinking out, if FDI restrictions become tougher, New Zealanders will become poorer. As higher interest rates mean that spending on food, consumer and other items could decrease. Reduced consumer spending is likely to reduce employment, further affecting household and business spending.
It is my belief that New Zealand has one of the best institutional frameworks in the world. Where government, businesses and households operate under the same ‘rule of law’. Furthermore, NZ’s smallness means that any transgressions are quickly identified and made public. In the context of the FDI, this means there is little scope for overseas entities to exploit the land in ways that are contrary to NZ law and get away with it on a continuing basis.
In conclusion, land based FDI has surged over the past decade fuelled by high commodity prices and bright agricultural price outlook. However, NZ has not been a participant in this land grab because we are too far away, have a small market and our land is too expensive. Further, land ownership by foreigners is very small and is not growing fast.
Many factors come in to play when thinking about our attitudes to FDI, including the state of the economy, political considerations (and I haven’t even gone there in discussing the permutations here) and the strength of the institutions. New Zealand’s institutions are very strong and we have an economic need for further investment (if we want to grow). Therefore it is the political factors backed by public disquiet that are currently having an impact on the policy settings. This alone should make for an interesting election.
Kim Nankivell is a business consultant focused on helping farms and businesses to succeed through the use of technology. Kim specialises in the area of farm productivity. You can follow him on Twitter, connect with him on LinkedIn or contact him at kimn@olympic.co.nz.