Opinion: Govt about-turn on investment good, but big problems remain

By Melanie Carroll of NZPA

Friday 31st August 2007

The Government's about-turn on overseas investment -- helping New Zealand businesses grow overseas rather than luring foreign cash to boost enterprise here -- is worthy and sensible, but only deals with a tiny part of the problem.

Millions of dollars were spent by Investment New Zealand over four years to attract overseas investment. However, half the investments were in wood processing acquisitions, and were dominated by one country, Malaysia.

Most involved foreign companies buying existing productive assets, rather than providing cash, innovation and connections for locals.

"I think a lot of the focus was on volume of investment rather than quality of investment," Economic Development Minister Trevor Mallard says.

The agency was involved with 19 investments worth half a billion dollars. Only four were associated with high-growth, local companies seeking strategic investment partners.

A review found that $155m would not have occurred otherwise, but it's not clear that was worth the $60m cost of getting it.

So, it is now time to help local companies not by pouring in cash, but by facilitating connections, and providing knowledge of offshore markets. It's a good time to change tack, Mallard says, given the high New Zealand dollar, and historic shortage of workers.

We also want to be that foreign investor funnelling profits back home, for a change.

The problem is how to grow companies to the point where they can export, and how to make the environment attractive enough to keep them here once they've found their springboard.

Ross MacKenzie of Old Fashioned Foods, maker and exporter of Aunt Betty steamed puddings and rice bran oil, has not received direct Investment NZ assistance, but the agency did introduce a party that then invested.

"I'm just surprised they've come out with it because you can see a whole lot of negatives people might perceive in it ... creating jobs offshore rather than here," MacKenzie said. But he believed it was a valid approach.

"The objective in growing New Zealand business is to grow the New Zealand economy in total ... and the way to approach it is (through the) international market.

"If you've got specialist knowledge, it's taking the idea and multiply it faster by going offshore."

New Zealand businesses rate highly on innovation, but we are a very conservative nation when it comes to backing them with our money. Hence the $90 billion of foreign direct investment here, five times more than we invest offshore, part of a nearly 200-year reliance on foreign cash to stay afloat.

Our expansion skills also leave something to be desired.

"I think we need to do a lot in New Zealand around succession planning, and we need to be better at taking some of our companies onto the stock exchange, for example, so we've got a broader ownership base, and we've also got to be a bit more innovative in the way that we go for challenges in the area of capital," Mallard says.

The Government says companies heading offshore face complex and unfamiliar business regimes and tax systems.

However, Business NZ argues that New Zealand may be the easiest place to set up a business, but it's not that simple when a business wants to expand.

Chief executive Phil O'Reilly applauds the change in direction, but says the Government is just tinkering around the edges of the problem. Improving the business environment and economy would be of more benefit, he says.

The Resource Management Act makes it hard to build a bigger factory. Goods can't get to port because the roads are clogged. Broadband internet service could be much better.

"All those sorts of things we talk to the government about a lot are in fact the very issue why companies struggle to export so well," he says.

Improving skills is top of his list. "If we're small, we need to be small and nimble up the value chain and skills is the way to get there."

Another business peeve is the amount of government spending, and "ill-conceived" spending such as paying welfare to high-earning families.

The recent departure of part of Fisher and Paykel's manufacturing operation to Thailand has raised an outcry over a loss of jobs in New Zealand. Many other companies have also sent manufacturing overseas, either to be closer to markets, or because it's cheaper and easier.

"No government can ever determine that more businesses will stay onshore, or more businesses will stay offshore," O'Reilly said.

"New Zealand businesses, like businesses over the world, are increasingly internationalised, so increasingly they're borderless. What we shouldn't do is say we're Fortress New Zealand, and the only hero NZ companies are those which do absolutely everything in New Zealand."

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