Sometimes, being at the front of the queue isn't a good thing.
If you lined countries up in a row, starting with the places least friendly to foreign investment, and ending with the places with the fewest restrictions, New Zealand would be near the front of the queue. In the OECD's 2018 survey, only Jordan, China, Malaysia, Russia, Indonesia, Saudi Arabia and the Philippines were more restrictive – and most countries were far more liberal.
So it is a bit odd to hear Trade Minister David Parker talking this week about the need to tighten up New Zealand's foreign investment regime. The Overseas Investment Act and its implementation need reform, but substantial tightening is not what needs to happen. Are we trying to catch up with China or vault past Russia in these leagues?
The problems are long-standing. The New Zealand Initiative's 2014 report Capital Doldrums: How Globalisation is Bypassing New Zealand, pointed out that New Zealand's overseas investment regime was even then one of the most restrictive in the world on the OECD's measure. By 2012, Australia had attracted 45 per cent more foreign direct investment per capita than New Zealand.
Fortunately, the proposed changes are not quite as bad as the minister's rhetoric – but they do still leave ample cause for concern.
Thus far, New Zealand's Overseas Investment Act has not looked at the one area where restrictions might be justifiable – potential national security issues arising from geopolitical investments. Parker's proposed reforms would introduce a National Interest Test guarding against foreign governments taking over assets of security interest.
So far, so sensible. The Overseas Investment Office has been far too focused on discouraging investments that do not raise any such security concerns.
Welcome too are proposals to grant exemptions to New Zealand firms currently caught by the act. New Zealand firms with a bit too much support from foreign investors have too easily been caught up in the act's regulatory hurdles.
But against this, the Government proposes tightening restrictions against foreign investment in infrastructure on the grounds of monopoly. If that is an issue at all, it is a Commerce Act issue, not an Overseas Investment Act issue. If there are problems, it is the Commerce Act that should be fixed.
New Zealanders need ongoing investment in infrastructure. Foreign expertise and connections can add value and ease funding constraints. It is not obvious why making it harder for local governments to enhance local infrastructure is in the interests of local communities. And neither is it obvious why National Interest Tests around national security should apply to investments in irrigation schemes.
Similarly, why discriminate against foreign investors with imposed national interest, environmental or cultural values tests that do not apply with as much force to New Zealand investors? It is hard to see why an aquifer would care whether a water bottling plant is owned by a foreign investor or a domestic one; good environmental policy should apply regardless of nationality.
There is no free lunch for New Zealanders when imposing discriminatory costs on foreigners. Foreigners can choose another country – and it is New Zealand that continues to lose out for want of the capital necessary to upgrade our infrastructure.
Nor do the government's proposals appear to correct the current farce of a benefit-cost test for foreign investment that excludes the most important benefit from any asset sale – the payment an owner receives on selling an asset. To the contrary, the proposed changes risk making the test even worse.
Parliament should insist on being given professionally competent assessments of the net benefits (or costs) for New Zealanders of measures relating to the Overseas Investment Act. Anything less indicates that the wellbeing of New Zealanders is a subsidiary concern.
Getting this right matters. Local councils facing infrastructure deficits might be able to fix things by trading old assets for new ones. A partial sale of a port can buy both better management for the port and new storm water infrastructure. Innovative financing arrangements with foreign partners could get around some current infrastructure financing bottlenecks that, so far, central government has not been able to solve.
Perhaps the Overseas Investment Act itself should be subject to a national interest test.
Dr Bryce Wilkinson is Senior Fellow with the New Zealand Initiative. Dr Eric Crampton is chief economist with the New Zealand Initiative