What’s needed to win in the hunt for overseas investment

By Phil O’Reilly

First published on the The Post.

The Government has spent a lot of time in the last year telling the world that New Zealand is open for business — and it is gratifying to note that an increasing number of offshore businesses are investigating New Zealand as a place to invest.

It is valuable, though, to understand the context in which businesses and investors are looking at New Zealand.

Many countries that compete with us for investment are busy developing industrial policies that heavily favour their domestic sectors. They are subsidising investment in things like green technology, electric vehicles, hi-tech manufacturing, digital, and much more besides.

The most obvious example is the United States, where billions of dollars are being spent to attract investment for which we too compete. Other big actors in this space include Europe and even Australia.

Given that situation it is logical and quite understandable for potential investors to ask whether New Zealand does the same.

Our answer is that we don’t pick winners and that we won’t subsidise new entrants into markets. That has been our position for decades now, but it is important to understand that it is an outlier — even more so now than it was when we adopted it in the late 1980’s.

I should note, incidentally, that the idea that New Zealand doesn’t pick winners has never been quite true. We have picked one big winner since the second world war: agriculture. Five of our seven Crown Research Institutes (CRIs) point towards agriculture. If you even bring an apple across the border you could be fined.

I am not suggesting that these supportive policies are a bad idea – quite the opposite. Agriculture, after all, helps make New Zealand wealthy. But we should acknowledge that our stance of not picking winners is flexible.

The point is that those kinds of policies are usually expensive and inefficient. We simply can’t afford them even if we wanted them.

The problem is that the settings on which we have relied for the past 30 years are not quite so compelling as they might once have been.

What about offering a more helpful taxation environment for businesses coming here? Unfortunately, New Zealand has the fifth highest corporate tax rate of the OECD economies.

What about the attractiveness of our overseas investment regime? Until recently New Zealand ranked bottom of the OECD for overseas investment attractiveness.

What about our brilliant education system? Actually, the OECD Pisa tests rank New Zealand only in the middle pack for school achievement and our best university (Auckland) has fallen out or is now last of the top 150 in any of the rankings.

What about the quality of our regulation and regulatory burden? Once again, the OECD data informs us that the quality of regulation in New Zealand has gone all the way from ranking second in 1998 to 20th out of 48 participating countries in the most recent survey.

What about the quality of our infrastructure? Well, it is not better than our competitors, if we take aside our excellent broadband infrastructure that really is world class.

You get the idea. If we are going to argue that we don’t pick winners, then we need to have a compelling and investable alternative.

One question I’m asked by potential international investors is - you say you are open for business, but do you really mean it?

In fact, I can assure them that Government is already doing quite a lot.

David Seymour’s new regulatory ministry is all about attempting to improve regulation.

The science system review panel will be making recommendations soon, hopefully aimed at improving science system governance, which in my opinion is the biggest thing holding us back. And maybe we will see a new focus on hi-tech and digital.

Ministers are making almost daily announcements about improvements to our infrastructure settings to encourage pace, innovation and new investment.

We have fast-track consenting legislation emerging soon and more fundamental reform underway.

The list goes on.

The challenge we face is twofold though.

The first is pace. The Government needs to move fast to make us a really attractive place to invest, in the absence of subsidies and winner-picking.

The fast-track legislation is an example of the challenge. It has been a year since the Government was established and we still don’t have the final legislation at hand. The regulatory reform process is good, but slow and our infrastructure investment plans and policies are only now really starting to bear fruit.

The second challenge is clarity – explaining the changes brilliantly. Senior ministers are out there talking it up, but it’s sometimes challenging to explain the gap between rhetoric and reality. Good work is underway to explain the reform program, but more needs to be done to maintain and increase investor interest and commitment.

All these investment missions and conferences will not be effective if we can’t demonstrate that we are actually achieving policy improvements at pace.

Companies will usually make choices rationally and in their own interests. We need to make sure that those choices land on investing in our country. The clock is ticking.