Michael Cullen Speech To OIC Cocktail Function
Speech To Overseas Investment Commission Cocktail Function
Hon Dr Michael Cullen, Minister of Finance
Embargoed to 1900
Wednesday 15 May 2002
Beehive Foyer, Parliament Buildings
It is my pleasure to welcome you to this Overseas Investment Commission cocktail function.
The jury is well and truly in regarding the question of the importance of foreign direct investment to New Zealand’s economic future. As a nation we benefit from FDI, and investors by and large find that doing business in New Zealand is a profitable enterprise. New Zealand welcomes FDI under a regulatory regime that is liberal by international standards and acclaimed for its transparency.
Officially, New Zealand ranks highest among developed countries in terms of the relative significance of FDI in an economy. The flows of FDI into New Zealand have increased from $300 million in 1981 to an average of $3.75 billion over the five years up to 2001. This flow has accounted for 23% of all investment occurring in New Zealand over that five-year period.
Of course FDI has immediate significance to the many New Zealanders whose jobs are with companies with foreign ownership. Those companies with more than 25% foreign ownership employ directly 18% of the New Zealand workforce or 272,000 full time equivalent workers as at February 1998. It is further estimated that about one third of New Zealand’s full-time and part-time work force, or 580,000 people, have jobs which directly or indirectly depend upon FDI.
These statistics beg some questions about what the net benefit of significant foreign ownership is. That is, in what ways foreign owners add value to New Zealand that local ownership does not. Again, the evidence indicates that benefits definitely flow to New Zealand. A KPMG report on FDI in the mid 1990s found that:
- In a survey of 189 foreign-owned firms, such firms paid wages 28% higher than New Zealand companies (foreigners made up less than 1% of their workforce);
- 90% of value added by foreign companies stays in New Zealand; and
- 50% of foreign-owned firms surveyed used significant overseas technology not otherwise available in New Zealand.
Foreign investment can also help New Zealand companies develop their export potential. Linkages established with the parent investor company can lead to greater market access overseas In a 1995 American Chamber of Commerce Survey, a majority of foreign-owned New Zealand companies cited access to parent networks as a major reason for their success. Clearly FDI is accompanied by increased linkages between New Zealand and successful global companies.
There are of course good reasons for foreign investors to choose New Zealand over other investment destinations. In the year ended March 2001 the investment income from FDI in New Zealand by foreign firms was $8.8 billion (compared with $6.8 billion in 2000). This represents a return of 18% on the level of FDI stock in New Zealand over the period. $2.4 billion was distributed as dividends. $994 million or 11.2% was retained and reinvested in New Zealand.
These statistics are in one sense a tribute to the current regime for overseeing FDI, administered by the OIC. It is a regime which protects the legitimate national interests that are at stake, and yet does so in a very transparent, professional manner, that ensures that the innate advantages of investment in New Zealand shine through.
New Zealand maintains specific foreign investment restrictions in very few areas. There are no restrictions on the movement of funds in or out of New Zealand, or on repatriation of profits. No additional performance measures are imposed on foreign-owned enterprises.
It has been an important feature of the regime that the OIC has a clearly focused legislative brief when assessing applications made under the Regulations. There are from time to time calls to introduce wider issues into its brief, for example, public access rights over private land, or environmental impacts of land use. However, these issues are not relevant to a question about whether foreign investment should take place. They would apply equally to purchase of land or investments by New Zealanders and as such are considered by other areas of legislation such as the Resource Management Act.
New Zealand’s regime is also notable in that it is quite neutral as respects the comparative treatment of mergers and acquisitions and so-called greenfields developments.
In a 1998 World Competitiveness Report, our FDI regulatory regime ranked 12 in a study of 46 countries’ FDI policies. The survey ranks countries according to a scale from 1 (foreign investors are free to acquire control in a domestic company) to 46 (foreign investors may not acquire control in a domestic company). Australia ranked 33, the USA ranked 17, and the UK ranked 4.
Looking ahead, it is likely that FDI will continue to play a significant role in fuelling the economic growth of small and developed countries like New Zealand. In February this year, the Prime Minister announced a new strategy to grow an innovative NZ. This strategy acknowledges that, as markets globalise, achieving a higher growth path will increasingly depend upon attaining higher productivity, attracting and building businesses engaged in higher value production of goods and services, and increasing New Zealand’s global connectedness.
FDI has the capacity to bring with it these types of economic activities, and therefore the Government is focusing on attracting quality foreign investment which will contribute to aggressive export promotion, and improved national branding of New Zealand.
In this year’s budget the Government will be announcing new initiatives to attract increased foreign investment in NZ. Increasing funding for the promotion of foreign investment opportunities is one area we will be outlining as part of strategy to improve economic growth.
The additional funding that we will outline in this year’s budget will be targeted particularly at attracting more foreign investment into three areas that have considerable growth potential, as well as have high potential spill-over effects for growth in other sectors. As outlined in the Prime Minister’s statement to Parliament in February 2002, these areas are: biotechnology; information and communications technology; and the creative industries.
Recent figures on global flows of FDI to both developed and developing countries showed that the impact of the events of September 11 was significant, but temporary. According to UNCTAD, FDI flows to developed countries declined by nearly half in 2001, and flows were also down in all developing regions except Africa. However, their report also states that despite the estimated downturn in 2001, the cross-border investment plans of trans-national corporations for the coming three years have not substantially changed since September 11.
It is our aim as a government to capture an increasing share of high quality international investment. The OIC therefore plays a vital role in the development of the New Zealand economy. It is important that the role of the Commission is well understood and supported by all of those with an interest in seeing a constructive and mutually beneficial engagement between New Zealand and foreign investors.