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Foreign investment can play an important role in fostering economic growth. Besides the monetary investment that foreign investment provides, there is also the transfer of knowledge through the importation of technology and the development of new contacts and linkages. This can often lead to benefits for other areas of the economy. New Zealand’s Growth and Innovation Framework recommends that we target areas where there already exists a strong domestic sector, as an existing base will not only make it easier to attract quality investment but will better position New Zealand to leverage the benefits across the country.
A key aspect of the New Zealand Government's growth strategy is the development of strong international linkages. This includes both outward and inward investment. New Zealand has a very welcoming and open attitude towards inward foreign direct investment (FDI). This is reflected in the facilitative nature of the Government’s foreign investment policy regime. New Zealand welcomes and encourages foreign investment from all countries without discrimination. According to the Index of Economic Freedom, New Zealand has one of the most open regimes for FDI. New Zealand top scored with other countries such as Singapore, Hong Kong, Sweden, the Netherlands, Ireland and Luxembourg.47
Participation can be by establishing new ventures, relocating current operations, or participating in strategic partnerships and joint ventures with New Zealand companies.
With regard to outward investment, there are no impediments to investing overseas. As New Zealand is a net capital importer with ongoing requirements for capital, the Government is more active in promoting inward than outward investment.
However, a minimal level of controls over “significant” overseas investment is maintained. The Overseas Investment Commission (OIC) is responsible for administering the Overseas Investment Act. It assesses applications to purchase certain land, business and fishing quota investments by overseas buyers. Decisions are made by the OIC or by Ministers based on criteria set out in the Act and regulations made under it.
An “overseas person” must obtain consent to acquire or take “control” of 25 percent or more of:48
businesses or other assets worth more than NZ$50 million.49
land over 5 hectares and/or worth more than NZ$10 million;50
land on most offshore islands;
land over 0.4 hectares that includes or adjoins "sensitive" land over 0.4 hectares (eg. on specified islands, containing or next to reserves, historic or heritage areas, or lakes);
land over 0.2 hectares that includes or adjoins the foreshore.
Approval is also required for any overseas ownership or interest in fishing quota.
The New Zealand Government recently completed a review of the Overseas Investment Act. The objective of the review was to provide better protection for sites of special historic, cultural or environmental significance, while also encouraging foreign investment where it can make a positive contribution to the economy. The key changes are:
the threshold for screening non-land business assets will be raised from NZ$50 million to NZ$100 million;51
purchases involving land with an unimproved value of NZ$10-100 million 52 will no longer require consent where the land is not screened for other reasons;
land adjoining some non-sensitive reserves, for example drainage and hospital reserves, will be removed from the purview of the Overseas Investment Act;
land criteria have been expanded to include historic, heritage, conservation or public access factors relevant to the property, as well as the economic development factors currently taken into account;
the New Zealand Government will have a new right of first refusal over foreshore and seabed land where this would otherwise be sold into foreign ownership;
the regulatory functions under the Act will be performed within Land Information New Zealand, with the existing Overseas Investment Commission being disestablished.
These changes require an amendment to the Overseas Investment Act. It is expected that this legislation will be introduced to Parliament this year.
Promotion of investment opportunities in New Zealand is carried out by Investment New Zealand.53 The agency actively promotes New Zealand as an investment destination, working closely with New Zealand companies and foreign investors on significant opportunities. It looks to match potentially high-growth New Zealand businesses with current and potential international investors, supports the management of multinationals’ New Zealand subsidiaries to attract further investment from their overseas parents, and promotes New Zealand as a relocation destination.
Investment New Zealand’s activities focus around six core sectors: biotechnology, creative industries, information and communications technology, specialised manufacturing, food and beverage, and wood processing. The first three sectors form the basis of the New Zealand Government’s Growth and Innovation Framework.
Like New Zealand, Malaysia welcomes and actively encourages FDI. Indeed, FDI has played an important role in developing Malaysia’s export-oriented manufacturing sector. Malaysia has traditionally been an attractive destination for FDI with its well-developed infrastructure, capable administration and skilled and well-educated workforce. However, Malaysia focuses on encouraging joint ventures between Malaysian and foreign firms rather than permitting outright ownership of domestic businesses.
Foreign firms must seek approval from the Foreign Investment Committee (FIC) for the following investments:
any proposed acquisition of property in Malaysia by a foreign interest;
any proposed acquisition of assets or any interest, mergers and takeovers of companies and businesses in Malaysia by any means that will result in ownership or control passing to foreign interest;
any proposed acquisition of 15 percent or more of the voting power by any one foreign interest or associated group, or by foreign interests in the aggregate of 30 percent or more of the voting power of a Malaysian company or business;
control of Malaysian companies or businesses through any form of joint venture agreement, management agreement and technical assistance agreement or other agreements;
any merger or takeover of any company or business in Malaysia, whether by local or foreign interests;
any proposed acquisition of assets or interests that is RM10 million or more in value, whether by local or foreign interests.
However, there are some exceptions to these conditions if the investment is in the manufacturing sector (for which licence is granted by the Ministry of International Trade and Industry), or in the case of any acquisition of interest in Multimedia Super Corridor Status companies54. Exceptions also apply in the case of any acquisition of interest in companies that have been granted the status of international procurement centre, operational headquarters, representative office or other special status as granted by the Government.
Recently the Government has taken steps to further liberalise foreign investment regulation, particularly in the manufacturing sector. In June 2003 it loosened the requirements for FDI by allowing 100 percent foreign equity holdings for all investments in new manufacturing projects, including expansion/diversification by existing companies.
Of New Zealand’s $86.1 billion of total investment abroad as at 31 March 2004, $38 million was invested in Malaysia. This was up from $26 million in 2002 and $18 million in 2001.55 In the other direction, Malaysian investment in New Zealand came to $17 million as at 31 March 2004.56 These investment stocks are modest for both countries and, based on anecdotal evidence, there is reason to believe the actual level of investment could be much higher. One explanation could be the fact that the above figures do not account for indirect investment between Malaysia and New Zealand. For example, some New Zealand investment could be directed through countries such as Singapore. Total New Zealand investment in Singapore was $1.9 billion as at 31 March 2004. If some of this is moving into Malaysia, official investment figures could be understating the actual level of investment. The same argument can also be made for Malaysian investment into New Zealand, which could come through countries such as Australia. Although this makes it difficult to gauge the exact amount of investment between the two countries it would be safe to assume that the actual level of investment is greater than official figures suggest.
There are a number of New Zealand firms with investments in Malaysia. These are spread over a diverse range of sectors: food, food technology, agricultural technology, manufacturing, engineering, construction, and consultancy and information technology. Some of these firms include:
New Zealand Milk;
Dairy Engineering Product Services Ltd;
Structureflex New Zealand Ltd;
New Zealand Sports Turf Institute;
Provenco Group Ltd.
Malaysian investment in New Zealand is also spread over various sectors. These include forestry, food processing, accommodation, property, automobile distribution, and consultancy services. In addition, there are a number of private property owners. Malaysian firms with investments in New Zealand include:
Samling Group, which owns 100 percent of Hikurangi Forest Farms, located outside of Gisborne;
Tiong Group, which has investments in forestry, fishing, and property;
Sime Darby Sdn Bhd, a major conglomerate from Malaysia, which wholly owns Sime Darby Automobiles and Truck Investments Ltd.
Investment flows between New Zealand and Malaysia have been relatively modest when compared with investments by other countries. Both countries could benefit from an increase in bilateral investment, as well as the exchange and transfer of knowledge, technology, ideas and export opportunities that would flow from it. Intra-industry investment is particularly beneficial in the export sectors of both countries as companies are able to share international market information and strategies. This may lead to improved competitiveness in the global market place.
An FTA between New Zealand and Malaysia could consider areas where further liberalisation and/or cooperation would help facilitate greater levels of investment between our two countries. Ways in which an FTA could contribute to these aims include:
greater transparency of regulations or laws that affect foreign investments;
more liberalised regimes which will facilitate the foreign investment in each country;
improvements that can make it easier for New Zealand or Malaysian investors to resolve any disputes that they may have.
In addition to promoting bilateral investment by strengthening investor confidence, a free trade agreement could be expected to promote bilateral investment through its impact on market perceptions. It should also lead to increased investor interest in new business opportunities in the other country. In the longer run, more integrated markets based on an FTA could improve the competitive capacity of enterprises and the efficient distribution of resources, and promote two-way investment.
The opening of bilateral investment may encourage expansion of the current partnership into new areas of manufacturing and service industries.
Publicity and promotion surrounding the signing and implementation of an FTA between New Zealand and Malaysia will highlight investment possibilities in both markets and improve awareness of the opportunities for joint ventures and strategic alliances. Scope for greater cooperation between New Zealand and Malaysian investment promotion agencies should be considered part of any FTA negotiations.
An FTA has the potential to encourage investment in both New Zealand and Malaysia across a wide range of industries. Possible investment opportunities of likely interest to investors in New Zealand and Malaysia are discussed below.
New Zealand's forest industry is well established. Its wood processing infrastructure provides the capacity to produce a variety of products and there are environmentally sound forest management principles. New Zealand's environmentally certified softwood (radiata pine) resource, coupled with a climate that enables fast-rotation tree growth, allows for cost-effective export to Asia Pacific markets. Other product areas of interest include: appearance-grade lumber and mouldings, laminated veneer lumber, glue-laminated lumber, medium-density fibreboard, structural lumber, packaging grade lumber, and pulp and paper projects. New Zealand scientists and engineers are at the forefront of research into plantation forestry.
Malaysia recognises the importance of science generally, and biotechnology in particular, to its future and sees as beneficial the creative application of biosciences and biotechnology to areas such as food production. New Zealand investors can bring valued skills to Malaysian industry. They are looking for Malaysian partners in biotechnology and agricultural research, as well as opportunities to scale up production. This suggests that biotechnology research and application will be a fruitful area of future investment in New Zealand and Malaysia.
New Zealand's ICT sector has the advantage of strong personnel and a culture of innovation, idea generation and entrepreneurship. New Zealand has companies active in creative technology, agricultural products, wireless/mobile devices, and security, healthcare and commercial collaboration. There are strong links between the tertiary, business and government sectors. New Zealand's ICT skill base is high and its technology-literate society can provide an excellent test-bed for new products.
[47] Index of Economic Freedom, The Heritage Foundation and the Wall Street Journal, 2004
[48] For further information on the New Zealand Overseas Investment Regime and the procedures for seeking approval for foreign investments in the areas outlined is obtained on the website [external link].
[49] New Zealand’s requirements are expressed in New Zealand dollars, but this amount is approximately US$33.5 million at the 1 October 2004 exchange rate of US$0.67=NZ$1.00.[50] Approximately US$6.7 million at the 1 October 2004 exchange rate of US$0.67=NZ$1.00.
[51] All results of the review are expressed in New Zealand dollars but this amount is approximately US$67 million at the 1 October 2004 exchange rate of US$0.67=NZ$1.00.
[52] Approximately US$6.7-US$67 million at the 1 October 2004 exchange rate of US$0.67=NZ$1.00.
[53] For further information on Investment New Zealand see their website [external link] which offers information about investment opportunities in New Zealand and the services offered by Investment New Zealand.
[54] The Multimedia Super Corridor (MSC) is a designated economic development zone between Kuala Lumpur and Kuala Lumpur International Airport for businesses and activities specialising in information, communications technologies and multimedia. Companies that meet MSC criteria qualify for a set of incentives and benefits from the Malaysian Government.
[55] Total investment consists of FDI, portfolio investment and other (mainly loans). Total investment is used instead of FDI because of confidentiality issues.
[56] The large fall in Malaysian investment into New Zealand over this period is mainly due to the revaluation of loans.
