The New Zealand government has taken the first in a series of steps to simplify rules pertaining to foreign investments in the country.
The changes, which take effect immediately, are expected reduce by two weeks the normal application process for foreign investments into the country. The Overseas Investment Office has now been given the power to assess all applications besides those pertaining to rural sensitive land and land adjoining waterways.
“Overseas investment can play an important role in economic recovery and job creation by providing the funds for local firms to grow. However the current rules are too complex and too difficult to interpret,” Bill English, the country's finance minister, said in a statement.
A New Zealand-based fund manager said that the government’s intention “is to clarify the rules and provide transparency rather than loosening the rules as such. Previously there has been an ability for decision makers to take an ad hoc approach to policy implementation”.
These changes are the first part of a two-step review. The second part of the review will be focused on changes to the Overseas Investment Act and will include lowering the number of land and business investments that are screened to determine whether these investments are being made in sensitive assets.
Furthermore, it will simplify the screening of investments in sensitive land, ensuring that investors do not have to meet arbitrary requirements of government departments.
The review will also aim to provide certainty to investors by ensuring that overseas investment rules cannot be substantially changed during the course of an application – “avoiding the situation we saw last year with Auckland Airport”, the ministry said.
In September 2007, the Canada Pension Plan Investment Board (CPPIB) approached Auckland International Airport to buy a controlling stake, but its bid was rejected by the board of directors three months later. Simultaneously, the government implemented a ruling which allowed regulators to block foreign owners from trying to take control of local strategic assets.
CPPIB then voluntarily reduced its voting power and ability to nominate board directors in an effort to placate regulators in March 2008. Shareholders approved its offer to buy a 39.2 percent stake for C$1.4 billion, but a month later, the application was rejected by two ministers unconvinced the deal met under the Overseas Investment Act's provision that investment should “benefit New Zealand”. This was despite advice from the Overseas Investment Office that CPPIB’s proposed investment complied with requirements and was likely to benefit the country.
The government will also consider removing the “strategic asset test”, which it said was “never properly defined and created considerable confusion and uncertainty”. It will consider replacing this test with a “national interest test” to determine whether an investment safeguards the interests of the country.
The changes being implemented are likely to benefit foreign private equity investors that want to invest in the country by making the application process for such investments clearer and quicker.