Putting the politics into foreign investment
By Richard Harman (author)
Though Associate Finance Minister David Parker is billing his changes to the Overseas Investment Office legislation as a chance to smooth the path for overseas investors, his proposals also call for greater Ministerial oversight of overseas investment proposals.
Clearly, his proposals must risk politicising overseas investment decisions.
Given that the government depends on two parties hostile to overseas investment; the Greens and NZ First, the inevitable conclusion will be that the Government will end up tightening up on overseas investment.
The fundamental criteria for an overseas investment to need approval is that it would mean more than 25% of the shares in a $100 million asset were held overseas.
In a discussion document put out with the call for consultation on the proposals says: "Some of the current rules do not seem to allow the government of the day sufficient discretion to intervene in the national interest, as can occur in Australia.”
“ Conversely, other rules are overly complex creating uncertainty and delay.
“We want to achieve the right balance between the need to restrict investments that do not benefit New Zealand and the need to facilitate high-quality investment that can boost our productivity.”
But NZ First has consistently made it clear that it opposes foreign investment, full stop.
In May 2017, for example, when Silver Fern Farms laid off 377 workers at its Fairton plant in mid-Canterbury, Peters blasted “the Chinese owned” company.
“Today’s news rams home not only the price of unfettered foreign ownership but this government’s unwillingness to stop meat processing slipping into foreign control,” he said.
At the heart of Parker’s proposals is a redefinition of what is in the “national interest”.
He is seeking submission this, but the consultation documents say the options include: “a narrow design that only allows Ministers to deny consent for investments that pose a risk of substantial harm to things like public health and safety.
“Or a broad design that allows Ministers to only provide consent for more sensitive transactions if they are in New Zealand’s national interest.
“ At the very end of the range of options, decision-makers could be granted full discretion, with all transactions (rather than just more sensitive ones) only able to receive consent if they are in New Zealand’s national interest.
“The issues that could be considered under the ‘national interest’ test would be left open and for Ministers to determine on a case-by-case basis. Under this option, the complicated ‘benefit to New Zealand’ test would be removed.”
In other words, whether an overseas investment would be allowed would be almost entirely up to the political judgement of the Government of the day.
In Parker’s comments to his press conference yesterday there was no evidence that he favoured that recommendation.
But he did say the government should have a more general discretion to turn down an overseas investment proposal.
He gave as an example of where he would have liked that discretion was his turn down of a proposal by a Canadian pension fund to purchase Auckland Airport when he was a Minister in the Clark government.
He said he couldn’t do it under the criteria applying to businesses in the legislation but instead had to use criteria which gave the government discretion over land purchases of more than five hectares.
“Which was absurd really when you think about it,” he said.
“It was legitimate but it was absurd.
“So we think that in respect of infrastructure assets which are important to the functioning of the wider economy, they're not just the business units, in their own right; they are key to the operation of the wider economy that t here needs to be a discretion for the Government in respect of some of those infrastructure assets with monopoly characteristics to say no we don't think it's New Zealand's interests to sell them overseas.”
Asked for an example of an asset which was approved but which he thought should not have been he said the Wellington Lines Company.
(The lines company was sold in 1996, first to a Canadian company; which then sold it to an American company which then sold it to a New Zealand company, Vector, which then sold it to a Chinese company.)
“Monopoly assets always earn a profit,” he said.
“ Sometimes they earn an excess profit.
“That's what monopolies are reputed to do.
“Why would you want to export the monopoly profit overseas.”
The consultation document also asks whether any impact on Maori cultural values should be included in the assessment of an overseas investment application of above $100 million.
But Parker also wants water and national security included in the criteria.
“Should there be greater ability to consider water and Maori cultural values and sometimes national security when assessing the impact of investments,” he said. Well, we are consulting upon that also as a government was looking at whether water bottlers should face a royalty on the use of New Zealand water if they're exporting it.
“ I'll be presenting a paper to Cabinet on that issue later this year,” he said.
The proposals will sit alongside the restrictions on overseas land sales announced last year.
Much of what he announced was obviously designed to win the approval of NZ First, but Parker seemed to be rejecting their objections to the proposed takeover of the Westland Co-operative Dairy Company by the Chinese- Mongolian company, Yili.
He said the proposals he unveiled yesterday would not apply to this transaction.
But he went further.
He said that the best example of where the national interest test might be applied would be in the case of monopoly infrastructure.
“I don't want to leave the impression that the Westland milk transaction in the future would necessarily be turned down,” he said.
The devil in this legislation will be in how the government responds to the feedback from the consultation document. The potential is there for a draconian clampdown on foreign investment.
But there are frequent references in the document about how New Zealand needs foreign investment and how it does relatively poorly at attracting high-quality investment.
Balancing that against the political views of particularly NZ First will now be the challenge for Parker.