After the 2017 election, New Zealand First made it part of its Coalition Agreement with Labour “to strengthen the Overseas Investment Act and undertake a comprehensive register of foreign-owned land and housing”. I would quote NZ First’s full policy, if any NZ First policy were still online. The Greens have strong policy against unproductive foreign investment.  In Opposition, Labour’s Land Information NZ* spokesperson, Stuart Nash, wanted overseas investors held to their consent conditions regarding ‘benefits to New Zealand’. *The Overseas Investment Office (OIO) is part of Land Information NZ (LINZ). Ed.

Labour’s election manifesto on trade opposed sale of our farms, homes, State-owned enterprises and monopoly infrastructure to overseas buyers and free trade agreements should not prevent regulating those sales; there was nothing against foreign investment in business assets. So, with the change of Government, we expect some change in the overseas investment regime, but how much will we get?  We thought it was timely for an article explaining how the system works.      

How Does OIO Consent Work?

Under the Overseas Investment Act 2005 (which replaced 1973 legislation), people who are not NZ citizens or do not have permanent residence status and companies with more than 25% foreign ownership, must obtain consent to buy or lease any land designated as “sensitive”, or any business assets (including shares) in excess of $100 million. Or in excess of $500m if you’re Australian. A schedule at the end of the Act lists land as sensitive if it is more than five hectares, non-urban, an island, foreshore/seabed/lakebed, conservation or park land of any kind, reserve land, heritage, historic or wahi tapu land, or adjacent land to any of these larger than a stated size. It doesn’t mention forests.

The Minister now responsible for the Act is Labour’s Grant Robertson as Minister of Finance. In practice, he delegates the role to either or both of his Associate Ministers of Finance, namely Davids Parker and Clark, who receive policy advice from Treasury. Green MP, Eugenie Sage, is Minister in Charge of LINZ (and thus, of the OIO. All three Green Ministers are outside Cabinet). In practice, Parker/Clark and Sage are responsible for sensitive land, Parker/Clark for business assets and Parker/Clark and Stuart Nash, the Minister of Fisheries, for consents to buy fisheries quota. 

The Act establishes a “regulator”, appointed by the Minister as head of a unit within the LINZ offices on The Terrace, in Wellington.  Since mid-2017 that’s Lisa Barrett, Deputy Chief Executive Policy and Overseas Investment. During 2016-17, LINZ reported that just 50 applications were sent to National government Ministers for a decision as they were outside the scope of the powers delegated to Barrett’s predecessor.

The criteria for granting consent are laid out in the Act, which states that consent must be granted if the criteria are met (s.14[1](c). The criteria are that the person responsible (or persons, if a company) must be of good character, have relevant business experience and have demonstrated financial commitment. Any sale involving farmland has to be offered on the open market, i.e. New Zealanders given a change to buy it. If the person is not a NZ resident or is a more-than-25%-foreign company, the acquisition must be “likely to benefit NZ” or, if for more than five hectares of sensitive land, must offer “substantial and identifiable benefit” to NZ.

There’s a list of acceptable benefits in s.17 in regard to sensitive land, and a further list in the Regulations under the Act (schedules or regulations make legislation more flexible by allowing details to be updated by Cabinet plus the Governor-General, without a full Parliamentary process).  The s.18 criteria for foreigners buying business assets worth in excess of $100 million is a lot shorter: business acumen, financial commitment and not a convicted criminal or terrorists (Immigration Act ss.15 and 16). “Benefit to New Zealand” is a requirement if no sensitive land is involved.

So, transnational applicants promised job creation and development capital, and lifestylers talked about walkways and pest eradication. No one got out of the office much to check whether any of it actually happened. The OIO Website provides information about how to get consent and lawyers know the formulas to ensure it was rubber-stamped without a hitch. When summaries of consents appear on the OIO Website, the business or regional press might rehash it as an article, with very little investigation.

The OIO publishes statistics on the net value of assets and land passing into foreign ownership. For example, in 2016 consent was given for a net transfer of $4,378,792,008 worth of New Zealand assets and land into foreign ownership. But there’s no running total to let us know how much we’ve got left.  CAFCA’s best guess in 2011 was that 8.7% of New Zealand farmland including forestry (1.3 million hectares) was foreign-owned or controlled; it could have reached 10% by now.

So, buying up NZ has been easy-peasy, and hardly noticed by most people – unless the new owner pisses off the neighbours, or CAFCA reveals they’re the scion of mass murderers. Buying up non-sensitive urban land with existing houses on it has been easiest of all. Only quite large housing developments trigger the $100m threshold for OIO consent. While some applications for residential development have been about the land with the applicant building from scratch, most have been for consent to buy an existing development. Consents to acquire significant business assets in excess of $100m are about existing New Zealand businesses.

In 20 months I’ve seen one consent on which an overseas company proposed to start a large greenfield development from scratch on non-sensitive land. This is not productive investment. A bit of development capital may sometimes be promised as a “benefit to New Zealand”, but the amount stated or withheld on the consent summary is what it cost to get ownership. They are buying existing businesses for their revenue streams, to export the profits. 

What Has Happened So Far?

The outcome so far of the NZ First/Labour Agreement is that the Overseas Investment Office got a raise in the 2018 Budget to increase monitoring and enforcement, and now employs around eight people on this.  As well as warnings issued for breaches of OIO rules, four court prosecutions have resulted in $847,000 worth of penalties (PeriOIOdical May 2017).

Stuff (10/5/18) reported that, so far in 2018, 19 compliance letters had been sent (compared to three in 2016 and none in 2015) and six wealthy foreign landowners had been forced to re-sell their land, a power invoked only ten times in the previous decade. www.stuff.co.nz/national/103678364/wealthy-overseas-landowners-forced-to-sell-in-government-crackdown.

Sounds good, but it’s fairly aspirational because it doesn’t change the legislative criteria; it’s a change of emphasis in interpreting the current criteria. For minor changes of shareholding in already-owned rural or forest lands, foreign companies no longer need consent. For acquisitions by new foreign owners involving “sensitive land”, the benefits to New Zealand must now be “substantial and identifiable” and over and above those that would be expected anyway (see the Craigmore application which was declined in April 2018. It’s in my write up of the April 2018 OIO Decisions, elsewhere in this issue).

The Directive lists factors of high or lower relative importance. The Minister notes that the merits of overseas investment in the primary sector can be less compelling, given that we are world leaders in this area. Sponsorship of community projects is now of low importance, so forget donations to kiwi conservation, and don’t bother to offer the Crown a bit of your foreshore or river bed, the Government will take it as wanted, thanks. Benefit to New Zealand need no longer be shown by individuals purchasing rural land, but they do need to hold an appropriate resident or entrepreneur visa and show proof of intention to move here within a year and be ordinarily resident within two years.

An important change in the Directive is that it specifically includes and sets criteria for forest land, which is not specifically addressed in the 2005 Act or its Schedule defining sensitive land. Nor was forest land addressed in the Amendment Bill as introduced. Consents reviewed by CAFCA show overseas investment funds gobbling up privately-owned forest blocks, large and small, that were once a public asset owned by us all.

The Directive footnotes that non-urban “sensitive land” including forest land is defined as five hectares or more – in contrast to the National government’s 2010 Directive, which instructed the OIO to require benefits to New Zealand only for farmland of more than ten times the average size of each type of farmland mentioned in the Act (agricultural, horticultural, pastoral, bee-keeping, poultry, or livestock).

Amendment Bill Before Parliament

Change to the Overseas Investment Act is in progress. A Bill was introduced into Parliament on 14 December 2017. It states that its aim is to ensure that that investments made by overseas persons will have genuine benefits for New Zealand and to enhance the information-gathering and enforcement powers of the Overseas Investment Office, but its main focus is on bringing residential land within the definition of “sensitive land”.

In the quarter to March 2018, according to Statistics NZ, 7.3% of Auckland houses were sold to non-citizens or non-residents, and 10% of all houses were sold to companies (either NZ or overseas but excluding trusts).  If the Bill is passed, overseas non-residents will no longer be able to buy residential or lifestyle land with existing housing. Overseas developers will be able to buy land to build new housing but must sell the houses and land upon completion – although non-resident foreigners will be permitted to buy new apartments “off the plans” to rent out but not live in themselves.

A bit at the end ensures that all this doesn’t interfere with Maori Aussies’ traditional rights to their iwi’s land or housing. This is Labour’s part of the magic pill for the housing crisis, designed for minimal side-effect risk of being sued by foreign corporations under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (what used to be better known as the TPPA).

The Bill as introduced did not address forestry land, and the only clause that mentions business assets ensures the Government can implement any prior trade treaty obligations (s.33). CAFCA met with LINZ Minister Eugenie Sage in late 2017 and raised many of the same issues covered in CAFCA’s 2004 submission – including the fact that, in over 20 years of “not of good character” complaints by CAFCA, not one has been upheld by the OIO. 

See Murray Horton’s “Putting A Human Face On Capitalism. What’s That Old Saying About Pigs And Lipstick?”, specifically the sub-section headed “Tightening Up Farmland Sales Rules Welcomed”, in Watchdog, 146 December 2017 www.converge.org.nz/watchdog/46/01.html and CAFCA’s submission, written by Bill Rosenberg, on what became the  2005 Overseas Investment Act, http://canterbury.cyberplace.co.nz/community/CAFCA/OIReview/2005/CAFCA%20Submission%20indexed.pdf. 

Public submissions closed on 10 April and we were awaiting the Finance & Expenditure Committee’s report on the Bill when Eugenie Sage, the Minister for Conservation and LINZ, found she was unable to refuse consent for Chinese-owned bottled water company Creswell to acquire six hectares at Otakiri Springs. The promised development capital, job creation and high speed technology to increase extraction by 900% all met the criteria, but read as a political disaster, particularly within the Minister’s Green Party (Stuff, 13/6/18, “Green Party Members Revolt Over Water Bottling Decision”, www.stuff.co.nz/national/politics/104668519/green-party-members-revolt-over-water-bottling-decision.

The Minister stated there would be a wider review of the Overseas Investment Act and noted the OIO consent was still dependent on consents from the regional and district councils. But those consents had been given just days earlier. A few days later the Minister was able to announce a refusal of mining consent on Buller conservation land, definitely a better look.

Local groups intend appealing to the Environment Court against the Council consents. Applying for a judicial review of the OIO consent would result in no more than the proverbial slap with a wet bus ticket. But given that the Overseas Investment Act is in Parliament right at the time of writing, there may be a political opportunity here, to ask the Ministers to add another, balancing criteria – something like… “That consent should not substantially detract from the achievement of goals and purposes of environmental, conservation or climate change legislation, or the protection of nga taonga katoa under the Treaty of Waitangi”.

Forestry

As the Committee considered the Bill, the Associate Minister of Finance, David Parker, introduced a Supplementary Order Paper (SOP) that specifically brings foreign acquisition of forestry land under “benefit to New Zealand” criteria and also addresses “profits à prendre, including forestry rights”.  A profit à prendre contract gives someone the right under the Forestry Rights Registration Act 1983 to cut and remove the timber – or coal, gravel, or stone – without having rights to the land itself.

That’s the kind of joint agreement that many iwi made with the old Forestry Service, which was then privatised, with cutting rights falling into private, often offshore, hands. Some recent OIO consents are for private, or privatised, forests to be purchased by overseas companies or pension funds that use local or other overseas-owned companies to do the work. So, this SOP would bring those arrangements under the “benefit to New Zealand” and other criteria for sensitive land.

As in the Directive, the benefit test for forestry is to compare the outcome of the overseas acquisition with the outcome without it – which might include with an alternative New Zealand investor. In some circumstances, a special benefit test in the Regulations may include preventing certain activities, requiring certain outcomes and/or protecting certain features of the land.

These stronger criteria are welcome, but in other ways the intention seems to be to facilitate overseas ownership of (“investment in”) our forests with a “very light-handed checklist screening regime”. So light-handed that forestry rights on less than 1,000 hectares don’t require consent. The SOP states that forestry is a sector of strategic importance to New Zealand and accounts for around 3% of New Zealand’s gross domestic product (GDP) and is our third largest export earner after dairy and meat, and “it is a long-term investment” (p.14).

It cites Treasury that around 70% of plantation forest is already in overseas ownership (including long term control of, but not always freehold ownership of, the underlying land). So, Parker thinks maybe they’ll help us plant one billion more trees. Yes, forestry does require a lot of capital and work, and waiting 25 years before the timber is sold. New Forests, one of the global investment fund companies buying up our forest land, sells that idea to its clients as a good thing: forestry is a stable long-term investment that grows – not just through export and processing profits, but biologically.

But it is the trees that are long term and stable, not the investing. Investment shares in our forests are being bought and sold on daily basis, on overseas stock exchanges or in private equity firms – it’s the global capitalist casino in which anything could happen in 25 years. In the last 25, it was forest-to-dairy conversions. What evidence is there that individual investors on the other side of the world will give a toss about our environment, our health and safety, or our climate change policies?     

Finance & Expenditure Committee Report On The Bill

The Select Committee report on the Bill, after public submissions and the Minister’s SOP, has the thumb print of the real estate industry on it, for good or bad. The report proposes allowing overseas persons to lease residential land for five years, not three as at present, without requiring consent, and recommends that allowing non-residents to buy land to build new housing and housing “off the plan” should include a limited proportion of units in apartment buildings and hotels, without requiring consent. 

I wonder how the new law will apply to new and existing rest homes and retirement villages, which are being acquired by Australian chains. The report recommends a streamlined approval path for businesses to purchase residential land for non-residential purposes and placing the primary responsibility for compliance (and fines) on the purchaser, not the conveyancing lawyer or agent. The OI Act currently contains powers to make exemptions from consent via the Regulations.  The Committee sees these as important for efficiency but recommends that more detailed reasons for exemptions be included in the Bill, not the Regulations.

It also recommends that overseas-owned “network” companies (gas, electricity, telecoms) should be exempt from seeking consent to buy residential land. There is a two-page minority report from National and Act saying that the Bill will impose costs and delays and discourage new housing, and that there is insufficient evidence that foreign investment affects house prices. So, all these changes have been added into a now fairly unreadable Bill which will go on to its third Reading in the House. None of it seems to tighten up the criteria that allow overseas interests to gobble up NZ business assets and profits.

The Swirling Billions Of The 1%

I’ve been monitoring the OIO consents for CAFCA for 20 months now. It’s been an education. Of course, I knew that overseas companies were buying up New Zealand land and companies and exporting the profits – Bruce Jesson wrote about it starting with financial deregulation in the mid-1980s (Murray Horton’s obituary of Bruce Jesson is in Watchdog 91, August 1999, https://www.scribd.com/doc/24211861/watchdog-91-August-1999. Ed.).

To some people, it seems to be the peak of business success to be bought out by a transnational. Treasury sees growth in foreign direct investment as a good thing, because it’s usually in our largest firms, who employ 20% of the workforce and tend to pay higher wages to higher skilled employees. They see it as money coming in (https://treasury.govt.nz/sites/default/files/2015-10/iig-bga-oct15.pdf). But buying out existing shareholders isn’t the same thing as putting more development capital into the operation itself. To me, global capitalism looks like a great big milking machine, sucking up the revenue streams created by our hard work.  Well, colonisation isn’t new to NZ. 

But I’d been thinking in terms of one company selling to, or merging with another company, maybe to get funds to scale up and/or to plug into global distribution networks, or even just to retire because you’re 55 and tired. Once companies are on the share market, they are vulnerable to having their shares bought up by competitors or by companies expanding or diversifying, in pursuit of a new revenue stream.

OIO consent allows overseas companies to do this. Once they’ve got a certain percentage of shares, they get control of the company. They may then expand NZ products into overseas markets (like Bacardi’s 42 Below vodka, now advertised with a stoat as well as a kiwi, for God’s sake), or move production off-shore (Cadbury, Griffins) or discontinue the NZ product in favourite of another of their brands (whatever happened to….?). 

A lot of what’s going on now is more complex, and more anonymous than that. We are being bought up by the swirling billions of the 1%. Some of it may be short-term investment funded by borrowing against other assets, as in the global financial crisis. Private equity funds, pulled together by investment companies, or maybe just by here-and-gone financial advisors. OIO consent requires nationalities to be stated, and shares are often held in low tax countries like Luxembourg, Netherlands, the Caymans or Virgin Islands.

Some applicant companies I have looked up were registered the week before at an address in Amsterdam Airport with hundreds of other companies and one employee – take a look at 2 Degrees (OIO Decisions, June 2017, http://canterbury.cyberplace.co.nz/community/CAFCA/cafca17/fi-2017-06.html).  Some have layers of holding companies; some layers being added require OIO consent. What can this be about except tax avoidance and insulation from responsibility?

There’s a great video on Youtube The Tax Tour (https://www.youtube.com/watch?v=ek5Rn9YHdWY)  about companies that are location-holders for low tax purposes as funds move through as fast as electronics allow. Who are these people?  What will they care about employer responsibilities or social and environmental impacts in New Zealand? 

Private Equity’s “Creative Destruction” Reaches NZ

That they won’t is borne out by a research critique commissioned by UK union Unite about the impacts of private equity on US manufacturing (“Private Equity, Productivity And Earnings”, David Hall, 1/7/09,  http://gala.gre.ac.uk/1711/1/2009-07-PE-WEF.pdf). The firms bought up by private equity already had a higher productivity ratio per worker, which was then squeezed higher rather than increasing sales.  Compared to stock exchange listed firms or family firms with a hired-in chief executive officer (CEO), private equity firms were significantly more likely to dismiss workers, while the wages of remaining workers declined.

The “creative destruction” of private equity groups – buying, selling, closing and opening plants – intensified when the cost of debt rose. This report was written in 2009 amid predictions that a third of European companies bought up by private equity would default on their debt. This style of overseas investment is now reaching safe, stable New Zealand.