New Zealand prides itself on being an open trading nation. When it comes to trade in goods and services this claim is certainly true. Few countries embrace free trade as unequivocally as we do.
It is a different story when it comes to capital. Our country’s screening regime for foreign direct investment is the most protectionist in the OECD. Where countries like Ireland and Singapore actively pursue foreign investment, it can seem like our Overseas Investment Act is designed to keep it out.
Our attitude to FDI is a short-sighted form of self-harm. International data shows that FDI benefits domestic economies. Countries that invite international investment typically boost their competitiveness. This comes not just from the foreign capital but the accompanying technologies, management expertise, and access to overseas markets.
Not surprisingly, other developed economies like the UK, Ireland and France do not even have laws with “character and competence” and “sensitive land” requirements like our regime.
And why would they? With plenty of laws to regulate corporate conduct, does the UK need (for example) to ask Apple and its board and senior executives to prove their character and competence before permitting Apple to invest in a British technology company? Why, then, do our laws?
Equally, why wouldn’t France welcome a foreign company investing in one of Bordeaux’s thousands of vineyards? With planning laws that protect the environment, what need does France have of an additional “sensitive land” test like the one that dominates NZ’s regime?
Instead of broadly discouraging foreign investment by making it subject to bureaucratic approval like we do, other developed countries typically adopt a narrow national security focus. Foreign investment is permitted – or, rather, welcomed – unless the investment raises national security or public order concerns.
So, foreign investors buying land to build a data centre, acquiring an MDF plant, or a radiata pine forest would simply get waved through. But, if a foreign company wanted to buy one of the country’s telecommunications networks, then the acquisition would first need to clear a national security hurdle.
Simplifying overseas investment would bring other benefits. Instead of tying up resources in the bureaucratic monstrosity the Overseas Investment Act has created, New Zealand could unleash them in competing with Ireland’s Investment Development Agency to attract FDI down under.
A competitive offering will require more than a simplified FDI regime. But repealing the Overseas Investment Act would be a good place to start.