Foreign direct investment (FDI) in New Zealand

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty has put significant downward pressure on global FDI in 2022, and new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions, all shifted in reverse after the first quarter of 2022 to start declining. Cross-border M&A sales were 6% lower and IPF values more than 30% lower in 2022. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI (UNCTAD Global Investment Trends Monitor, January 2023). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession.

According to UNCTAD's 2022 World Investment Report, New Zealand received USD 3.4 billion in FDI inflows in 2021, virtually unchanged from 2020 levels (USD 3.8 billion), despite the global economic crisis triggered by the Covid-19 pandemic. The stock of inward FDI into New Zealand has been estimated at USD 91.88 billion in 2021. FDI inflows are attracted by the open and business-friendly economy, low levels of corruption, good protection of property rights, high living standards, political stability and advantageous tax policy.  Most FDI inflows arrive from Canada, Australia, Hong Kong, Japan and Cayman Islands as well as the U.S., with investments centring on the service sector and manufacturing.

The Overseas Investment Office (OIO) is the regulator responsible for the administration of the Overseas Investment Act 2005 (OIA), the statute that regulates investments in New Zealand assets by overseas investors. The OIA sets out a consent regime in relation to investments that meet a value threshold or are in respect of certain types of land. In mid-2021, a national security and public order (NSPO) regime was introduced, applying to certain investments in strategically important businesses that don't otherwise require consent.

The country is ranked 12th on the AT Kearney Foreign Direct Investment Confidence Index 2022 on the most attractive economy for foreign investment.

The country's economy is dependent on foreign investment. However, the coalition government between the Labour Party and New Zealand First – a nationalist party – passed the Overseas Investment Amendment Act of 2018 to restrict FDI in areas such as ‘sensitive’ land and housing. This legislation remains in place today. In 2020, as a result of the Covid-19 pandemic, New Zealand introduced a temporary emergency notification requirement in its FDI screening mechanism to be able to review all overseas investments that result in more than 25 per cent ownership of a New Zealand business, or an increase in an existing shareholding to or above set thresholds (50, 75 or 100%). Still, New Zealand has several incentives to promote FDI. It facilitates foreign investors' access to the domestic market, it has the shortest time to start a business (0.5 days), and the lowest number of procedures required. Furthermore, the country provides a stable environment with a modern infrastructure and a highly trained workforce. In order to further attract FDI and convince investors to move to the country, the government has also redesigned the visa system for investors. However, some of its downsides include vulnerability to natural disasters, geographical isolation, and a limited domestic market.

New Zealand Foreign Direct Investment (FDI) increased by 1.3 USD bn in Sep 2022, compared with an increase of 3.7 USD bn in the previous quarter (CEIC, 2023).

What to consider if you invest in New Zealand

Strong Points

New Zealand's efficient and market-oriented economy offers benefits for all investors, such as overall business stability, numerous free trade agreements and active government support for investment. In 2020, the World Bank awarded New Zealand first place in its country rankings for ease of doing business (Doing Business, 2020).

The main strengths of the country are:

• Stable and robust growth of 2.2% in 2019 (IMF)
• A stable and secure environment with modern infrastructure in telecommunication networks, roads, railways, sea and robust and sophisticated energy networks
• A highly trained, flexible and versatile workforce
• Ownership costs that are among the most competitive in the Pacific region
• Free movement of capital
• A simple and attractive tax system for FDI: for example 100% tax deductibility for research and development for companies
• One of the lowest customs tariff rates in the world
• Proximity to Asian markets
• Good shape of public finances
  
• No social security system
  

Weak Points

The main weak points of the New Zealand economy are:

• Geographical isolation and vulnerability to natural disasters
• A limited domestic market (5 million inhabitants in 2020 - IMF) is further hampered by a high level of household and business indebtedness
• A shortage of skilled labour weakly offset by immigration
• Increased dependence on exports of the agricultural sector
• Low investments in research and development
• Dependence upon foreign investment and Chinese demand
• High household debt level (164% of household disposable income in 2020 - New Zealand Parliament) and external (55.5% of GDP in 2020 - Stats NZ)

Government Measures to Motivate or Restrict FDI

The New Zealand government has put new tax incentives into place in order to promote FDI. The 2005 law on foreign investments was simplified and now facilitates foreign investors' access to the domestic market. Nevertheless, the government amended the 2008 Overseas Investment Act to regulate some aspects of foreign investments in "strategic infrastructure".

In 2016, the government established a Global Strategy to attract more international investment with a triple objective: to attract FDI with higher added value, to encourage multinational companies to set up their research and development in the country and to convince private investors and other entrepreneurs to reside in the country. In support of this strategy, the government has, for example, redesigned the visa system for investors and made it possible to access public subsidies for partnerships between domestic and international companies which in the past were only available to 100% New Zealand- owned businesses.

New Zealand Trade and Enterprise (NZTE) is the Government of New Zealand's international trade development agency. Its mission is to provide support to exporters to develop a productive, sustainable and inclusive economy.