N.Z. Equity In Foreign Firms May Limit Growth

Press, Volume CVI, Issue 31363, 8 May 1967, Page 19

N.Z. Equity In Foreign Firms May Limit Growth

New Zealand policy towards foreign investment and misgivings about the popular attitude on the subject of foreign capital as it affects manufacturing were discussed in an article in the April Bulletin of the Reserve Bank of New Zealand.

Although the underlying fear seems to be of foreign control or domination of our industry, researches by Mr R. S. Deane, an officer of the Reserve Bank's Economic Department, may help to place this attitude a little more in perspective. Mr Deane is currently engaged in research on the subject of foreign investment in New Zealand, and some of the preliminary findings of his as yet incomplete study are dealt with here. In the study foreign companies are defined as those having a non-resident equity interest of 25 per cent or more.

There were 489 such companies in the 1963-64 fiscal year. This is only 5 per cent of the New Zealand total, but they employed 20 per cent of *’ e relevant labour force, and accounted for 26 per cent of the total value of output and 32 per cent of the manufacturing surplus. However, about one-third of these foreign companies have some local share participa-

tion, which indicates the need at least to consider domestic views in these, cases, although invariably the final decision rests with the non-resident. And, of course, all companies must adjust to the domestic environment. They are subject to New Zealand law and they depend on the New Zealand market and must meet the needs of the New Zealand consumer to survive. Independence In many instances it is impossible to exercise full control from abroad; in fact “the substantial degree of independence of many local manageuunts in running the New Zealand business was one of the interesting findings of the interviews,” Mr Deane says. But most importantly, about 80 per cent of the factory labour force is employed by entirely New Zealand-owned enterprises. On the other hand, this picture is changed a little by two additional factors: the concentration of foreign investment in certain industries, and the rapid growth of foreign establishments. Foreign investment was concentrated in chemicals, pharmaceuticals, electrical machinery, biscuits, distilling, tobacco, stationery, wallpaper, rubber tyres, paint, radio and television, vehicles and glass, but has little relevance to beverages, wearing apparel, printing and leather industry, for instance. During the last decade the number of foreign firms rose by more than 80 per cent, compared with 10 per cent for New Zealand as a whole. They increased employment in excess of 70 per cent—almost three times the increase for the whole country. Of the 40,000 factory employees of these firms, United Kingdom companies employed almost half, American companies a surprisingly low 10 per cent, and Australian firms (the fastest growing) about 30 per cent. These firms paid male employees almost £lOO a year more than the New Zealand

average, and the output for each employee was more than £l4OO greater than the comparable New Zealand figure. During recent years the Government has energetically pursued a policy of local share participation. Mr Deane argues that the policy has been effective only towards the smaller enterprises. The article then examines the desirability of such a policy. First, the view that local participation eases the burden of profit remittance on the balance of payments is answered by Mr Deane with the observation that, if the foreign investor purchases the shares at a price which reflects expected future earnings, the effect in the long run on the balance of payments is nil. , Foreign Control He holds that control is relatively unimportant as long as the Government remains the sole law-making authority and has a vigorous Department of Inland Revenue. “By insisting on local share participation we deny ourselves that much foreign investment and the opportunity to employ domestic resources in alternative ways which may be equally advantageous. Therefore, we will be slowing down the rate of capital accumulation."

Furthermore, New Zealand benefits more by technical assistance and research, which is almost always provided gratis where the company is wholly foreign-owned. In spite of this, the foreign firms in the study also carry out research in this country—--42 per cent of the total of “professional and technical” employees as shown in the industrial production statistics (this category includes chemists and laboratory workers) are employed by foreign companies. Little Evidence The survey produced little evidence to show that New Zealanders were denied access to senior positions. Where foreigners were employed the reason given was the shortage of appropriate New Zealand staff.

Mr Deane argues that limiting the excessive prices for imports from the foreign associate may safely be left to the Commissioner of Inland Revenue. The foreign companies in the survey claimed that they bought from their overseas principal because of bulk buying benefits, prompt service and guaranteed quality. A higher proportion of 100 per cent overseas-owned companies was engaged in exportting, and was less restricted in exporting than foreign firms with local participation. Finally, foreign companies claim that local shareholders demand too high a dividend pay-out and so hinder development. In 1963-64, 64 per cent of the companies with local equity paid a dividend, against only 46 per cent of the completely foreign-owned firms.

Dividends Due This Week Early Bros.-Final 7i p.s. (April 26) .... May D Golden Bay.—-Int 5 p.c. (April 27) May D Zealandia Milling.—Annual 10 p.m. (May 10) May 10 John Burns.—4nt S p.c. (April 28) May 12 Joseph Nathan.—lnt. 2i p.c. (May 5) May 12 Sharland.—lnt. 4$ p,c. (April (28) May 12 National Ins.—lnt. 4 p.c. (April 27) May 12 A. G. Securities.—Final 4i p.c. (May 8) .... May 12 Harley and Co.—Annual px. May 12