THE PRESS THURSDAY, AUGUST 2, 1979. Foreign investment review

Press, 2 August 1979, Page 16

THE PRESS THURSDAY, AUGUST 2, 1979. Foreign investment review

The results of a review of the rules governing overseas investment in New Zealand make no dramatic change in practice; they alter appearances a little. A 1974 regulation required foreign investors to obtain the approval of the Overseas Investment Commission if they wished to acquire the assets of any New Zealand company. A 1978 amendment, designed to reduce the vast amount of paper work, exempted the acquisition of assets worth not more than SlOO.OOO in a company. Under the review just announced the level has been raised to $500,000. Acquisition of the assets would not give the buyer the right to trade in New Zealand without the approval of the Overseas Investment Commission. Any shareholding greater than 25 per cent has to have the approval of the commission. The only other change of significance is that the amount of borrowing permitted within New Zealand by an overseas-owned company has been greatly increased. The main effect of the changes relating to the acquisition of assets will be that owners of small companies will be able to sell their assets to foreigners without difficulty. An owner who is retiring or in financial difficulty normally wants to rid himself of the assets to the person who will pay the best price. Previously he had to see the deal approved by the commission if the purchaser was from overseas. The review has some administrative advantages but does not herald a new policy. It is also designed to give the appearance of easing the path of foreign investment in New Zealand. The country has a reputation for being

cautious about, if not positively hostile to, foreign investment. It will not bring a flood of foreign investment to the country and may do little to encourage foreign investment at all; but if a gesture was all that was needed, the gesture has been made. Reputations have been made or broken on less. Gestures apart, the questions about the development of New Zealand and the role of overseas investment in that development remain important. The difficulty is to strike the correct balance between allowing overseas investment into the country to relieve the strain on domestic capital formation and to reduce the need for overseas borrowing on the one hand and, on the other, letting an overseas concern obtain benefits for itself and not for the country. It is a mistake to regard all overseas investment as coming from huge multinational corporations which a small country might find hard to control. It is also a mistake to believe that the country can be developed solely by loans raised by the Government overseas. The amount of the gross national product which has to be diverted to repay capital and interest is running high. Direct investment usually means that the capital remains in the country and revenue is often turned into further capital development. The argument is sometimes put forward, with some justification, that an indiscriminate invasion of overseas investment can lead to a position of colonialism. Yet to be blind to the advantages that can be had from access to markets, capital, patents, and technical skill betrays an inverted colonial mentality. Properly managed overseas investment should be to New Zealand’s great advantage.