Dileepa Fonseka is a Stuff writer on business and politics.
OPINION It is time we admit that this idea New Zealand doesn’t need foreign investment is a charade.
This insular attitude is at least part of the reason why many of New Zealand’s economic indicators are going in the wrong direction, or carry some awful catch.
GDP growth of 3 per cent during a quarter would be impressive in normal times, but this time it did not make up for lost ground the previous quarter when the economy shrank by 3.6 per cent.
Wage inflation of 3.8 per cent doesn’t sound bad by historical standards either, but then you realise inflation ran hotter (5.9 per cent), meaning real wages shrank by 2.1 per cent.
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The early trade surplus has also gone, trade surpluses at the beginning of the pandemic have transformed into spectacularly large deficits: goods have gone from a $3.1b surplus in 2020, to a deficit of $6.2b in 2021, same too for services: $1b surplus across 2020 to a $5.4b deficit.
Infometrics economist Brad Olsen puts these last few deficits down to the increased importation of goods from overseas and the total drop-off in big export earners like tourism and international education with no other industries popping up to take their place.
Current account deficits, even ones as large as $20b, are not necessarily a big concern for developed economies, but this situation is a far cry from the immediate post-pandemic vision of New Zealand as a nation which wouldn’t need industries like tourism or export education because it could manufacture its own goods and barter for the rest with locally-driven agriculture and digital exports.
Digital exports have grown, but in order to embrace digital we have had to consume more digital services from overseas. The expansion of the technology sector has also been constrained by the inability to bring in more skilled workers.
As for goods, the prices of these have gone up, so we are consuming more of these by value.
“That whole point around well maybe we’ll do more manufacturing here in New Zealand, that was never in my mind a particularly likely or sensible scenario,” Olsen says.
“New Zealand learnt what it was good at in previous times, there’s a reason we don’t manufacture cars here."
The problem is we have been trying to lay the foundations for a better future with one hand tied behind our back.
We viewed Covid-19 as an opportunity for a catch-up in all the areas we were weak in: housing, wages, productivity, and exports, but we were missing some key ingredients to make progress in these areas: capital, expertise and experience.
In recent decades New Zealand has had trouble getting capital to the places we really wanted it to go.
Plenty of capital was available to pump up the trade in second-hand homes, but comparatively little to finance large scale residential development, invest in entrepreneurs, or funnel capital to companies seeking to disrupt industries or bring prices down for consumers.
Foreign investment has often plugged the gap, but setting up the right foreign investment deals can take years, and the business sector has been unable to lobby for border exemptions with the same vigour as the sporting, festival and event industries have.
Unfortunately the closed borders have drastically slowed down the pipeline of foreign investment, as Auckland Unlimited Director of Investment and Strategy Pam Ford explains: “It would be very unique to finalise plans without actually visiting where you want to invest. So the inability to travel has actually slowed that development, and that has also impacted the pipeline.
“These deals often take many years … so it’s going to take some time to reconnect and restart some of those early-stage discussions, but also pick up where we left off.”
You only have to look at the future skyline of Auckland to see the critical role these foreign investors can play. The tallest residential building in New Zealand has been developed by Melbourne-based developers Hengyi Pacific, the Seascape apartments are being developed by Shundi Customs – whose parent company is Shanghai-based – and the major 21-storey high-rise on top of Aotea Station (part of the City Rail Link project) has been taken on by the Malaysian Resources Corporation Berhad.
The right kind of foreign direct investment can help keep inflation down by bringing in experienced players to disrupt existing sectors.
Ford says her organisation is trying to persuade foreign supermarket chains to enter the New Zealand market too, but nothing has gone past the conversation stage yet.
Persuading large companies to enter a small market like New Zealand is not easy, and often requires years of work from intermediaries like New Zealand Trade and Enterprise or regional economic development agencies.
With the borders set to re-open, and other restrictions slowly lifting, we have an opportunity to embrace foreign investment again, here’s hoping we haven’t forgotten how.
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