New policy to grow kiwi firms via offshore links

Hon Trevor Mallard
Minister for Economic Development

30 August 2007 Media Statement
Embargoed until 1.00 pm

New policy to grow kiwi firms via offshore links

See also speech at www.beehive.govt/mallard

Economic Development Minister Trevor Mallard today announced a new policy to grow and strengthen New Zealand firms - that will see new government support for firms to form strategic partnerships or make investments offshore.

"We are shifting one aspect of government's international investment support programmes to focus explicitly on growing our firms and sectors through offshore strategic investment alliances – partnerships that will deliver concrete wider benefits and add value to firms and industry sectors in New Zealand," Trevor Mallard said in a speech to the Wellington Diplomatic Club today.

"Research shows that inwards and outwards investment by firms is important. It can help firms and sectors grow and become more productive by bringing in offshore expertise, technology, innovations, and additional capital. It also helps lift firms' understandings about the global marketplace as well as improving access and connections to those markets.

"This new policy follows a scheduled review of the work of government agency Investment New Zealand that found good, bad and mixed results. As a result of the review some programmes are being dropped or refined – as is the point of any evaluation exercise. I have directed the Ministry of Economic Development to develop options to put a new explicit outwards investment support programme into action.

"The Labour-led government is committed to working with business to transform this economy into one that is both innovative and sustainable, and one that generates higher incomes for New Zealanders. To do this we need to develop globally competitive firms as the small New Zealand market is just not enough. Our inward investment rates are okay but our outward investment rates need a boost. Other countries are also starting to develop explicit outward investment programmes in recognition of the benefits they can generate back home."

Trevor Mallard said any government assistance for outwards foreign investment would have to deliver positive spillovers and meet certain conditions, namely that:

- The outward investment could introduce new technology, or new research and development activity, or an ability to commercialise innovations into the New Zealand economy.

- It could establish new or enhanced linkages and networks between the host country and New Zealand that other New Zealand firms can directly leverage and create value from.

- It could create opportunities for other New Zealand firms to improve their position in international supply chains, distribution networks and markets in ways that contribute to improved productivity, sales and competitiveness.

Officials are to report back next year with programme options for supporting outward direct investment.

The review of Investment New Zealand found the Visiting Investor Programme worked and this would continue.

It also found that from 2002 to 2006, Investment New Zealand was involved with 19 investments with a combined value of $502 million, of which $155 million would not have occurred without the agency’s intervention.

"But there is a question about value for money. The spend necessary to win that investment was relatively high. While there are many good reasons for that – New Zealand is a small, geographically distant country and we have had to work hard to achieve this level of investment – the review result has prompted the changes in policy I am announcing today," Trevor Mallard said.

Other aspects of Investment New Zealand's work would be refined as a result of the review, and the grants and loans portion of the Strategic Investment Fund would be discontinued as it was found to be ineffective in achieving its goals. The funding for this programme will be redirected to support wider economic transformation work.

Trevor Mallard emphasised that the policy change is about how the government facilitates international investment through agencies such as Investment New Zealand. The policy change has nothing to do with the regulation of international investment through the processes outlined in the Overseas Investment Act nor does it effect any decisions relating to the sale of Auckland International Airport Ltd under that Act.

The evaluation of Investment New Zealand and related cabinet paper which also summarises the key recommendations and responses are on www.med.govt.nz.

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Background: Review of Investment New Zealand.

What is Investment New Zealand?
Investment New Zealand is a specialist unit within government economic development agency New Zealand Trade and Enterprise. Its network of investment managers, based both in New Zealand and in key locations offshore, promotes New Zealand as an attractive investment destination. Examples of investments that Investment New Zealand has worked on can be found at www.investmentnz.govt.nz

The current annual budget of Investment New Zealand is around $16.9 million (excluding GST).

What is the Strategic Investment Fund?
This is a fund administered by Investment New Zealand to attract high quality foreign investment to New Zealand. It has two components – major grants and loan guarantees, which provides part funding for high quality development projects; and feasibility study grants – ie grants for up to half of the cost of a study into the feasibility of particular high quality investment opportunities.

The review of Investment New Zealand said the major grants and loans guarantees component of the Strategic Investment Fund was not successful and this is to be discontinued as at 23 July 2007 .

The feasibility study component of the fund was found to be effective and it is to continue.

The Strategic Investment Fund had an appropriation for 2007/08 of $5.2 million (excluding GST). Funding from the discontinued grants and loans aspect of this fund will be redirected to other economic transformation activity.

What is the Visiting Investor Programme?
This is a programme in which Investment New Zealand invites selected investors to come to New Zealand for introduction to pre-approved business opportunities, networks and New Zealand’s investment climate, with a view to encouraging them to invest here.
The review found that this programme was successful and it will continue.

What were the other findings of the review of Investment New Zealand?
From July 2002 to June 2006, Investment New Zealand was involved with 19 investments to the value of approximately $502 million. The evaluation estimated approximately $155 of this investment was directly attributable to the role played by Investment New Zealand.

The review found that in the main Investment New Zealand has achieved its objectives – in particular its impact was greatest with existing foreign investors, including expansion in high productivity/high technology areas of work, and retaining a number of existing foreign investors who were considering pulling out.

It also found Investment New Zealand was not quite so successful in attracting significant new investments, possibly because New Zealand is a small, geographically distant market that does not offer substantial under-utilised resources and because our competitors give larger financial incentives (such as grants or tax breaks) to attract foreign investors.

There were also a number of operational recommendations about how Investment New Zealand goes about its work, which are being implemented.

ENDS