Foreign direct investment (FDI) in New Zealand

FDI in Figures

According to UNCTAD's World Investment Report 2023, New Zealand received USD 7.53 billion in FDI inflows in 2022, up by 88.8% year-on-year and more than double the 2018-20 average. In the same year, the stock of inward FDI into New Zealand has been estimated at USD 93.85 billion, around 38.8% of the country’s GDP. As of March 2023, data from the national statistics office reveals that of the $531.2 billion total foreign investment in New Zealand, 57.5% originated from Australia, the United Kingdom, the United States of America, and Japan, with 28.3% being direct investment, 49.0% portfolio investment, 3.9% financial derivatives, and 18.7% other investment. Of the total stock, 49% is directed towards financial and insurance services, 14.3% towards public administration and safety, and 7.2% towards manufacturing industries.

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. 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. Private entities, whether foreign or domestic, enjoy the freedom to own and operate business ventures in New Zealand. The government does not discriminate against foreign investors regarding the establishment and ownership of businesses, though it imposes specific restrictions on foreign ownership of strategic enterprises like Air New Zealand and Chorus Limited, a telecommunications infrastructure provider. In 2021, adjustments were made to the foreign investment framework, streamlining the Overseas Investment Office's screening process. Notably, a "national interest test" is now applicable to foreign government investment in New Zealand, with a threshold set at 25 percent, with certain exceptions. New Zealand’s downsides include vulnerability to natural disasters, geographical isolation, and a limited domestic market. The overall business climate in the country is considered positive, and New Zealand ranks 27th among the 132 economies on the Global Innovation Index 2023 and 6th out of 184 countries on the latest Index of Economic Freedom.

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.