Directive letter sets balanced investment rules

A new directive letter to the Overseas Investment Office provides extra clarity and certainty for potential investors about the Government’s general approach to foreign investment in sensitive assets, Finance Minister Bill English says.

The letter sets out the changes to regulation the Government announced in September to address concerns around large scale overseas ownership of farm land and vertically integrated primary production companies.

"The changes strike an appropriate balance. They increase ministerial flexibility to consider a wider range of issues when assessing overseas investments in sensitive land, while providing extra clarity and certainty for potential investors and the Overseas Investment Office (OIO)," Mr English says.

The changes include two new factors the OIO must consider under the benefit test used to assess investments in sensitive land:

A new “economic interests” factor allowing ministers to consider whether New Zealand’s economic interests are adequately safeguarded and promoted. This will improve ministerial flexibility to respond to both current and future economic concerns about foreign investment, such as large-scale ownership of farmland.
 

A new “mitigating” factor enabling ministers to consider whether an overseas investment provides opportunities for New Zealand oversight or involvement – for example, by appointing New Zealand directors or establishing a head office in this country.
 

"The letter, sent this week, directs the OIO to give these factors high relative importance in any decision of whether overseas investment in large areas of farm land is likely to benefit New Zealand.

"The definition for 'large' areas of farm land has been set at 10 times the average size of any given type of farm. For example, based on Statistics NZ data, the average dairy farm is 172 hectares, so the threshold will be 1,720ha. The average sheep farm is 443ha so the threshold will be 4,430ha.

"The new factors are in addition to a range of existing factors and a good character test – designed to ensure overseas investment results in genuine benefits to New Zealand.

"Beneficial foreign investment makes a positive contribution to New Zealand through increased jobs, capital and access to export markets.

"At the same time, the Government recognises there are genuine public concerns around some overseas investment in our productive land. Taken together, the changes outlined in the letter achieve an appropriate balance," Mr English says.

The directive letter reiterates the Government's desire to minimise unnecessary delays or administrative costs in the OIO's consent process. It follows several changes last year to simplify overseas investment rules, cut red tape and speed up processing times for applications.

The changes to regulation are subject to the Governor General's consent, which is expected before Christmas. They are expected to take effect from 13 January 2011.

The Cabinet paper, regulations and directive letter can be viewed at:

www.treasury.govt.nz/publications/informationreleases/overseasinvestment/review2009