Who's been 'buying up' New Zealand?

There's a huge interest in foreign investment in New Zealand - it's front page news when Chinese investors aren't allowed to buy farms, or Asian investors are supposedly snapping up Auckland houses, and the piece I wrote about Statistics NZ's data on foreign direct investment has had by far the biggest number of pageviews of anything I've written recently. Yeah, yeah, yeah, I know, they're not Krugmanesque numbers, but still.

Yesterday Stats released an update to the numbers, showing the situation at the end of March '15 (the spreadsheet with the numbers is here). First, here's the total stock of foreign direct investment in New Zealand, which includes the likes of those farms.

One country overshadows everybody else. Australia has more invested here ($51.4 billion) than the rest of the world put together ($48.2 billion). There are bite-sized chunks from the US, Hong Kong, the UK and a range of other Asian and European countries, but the story starts and ends with Australia. Most of Australia's interest is the banks: I don't have a complete industry-by-country breakdown, but given that there's $32.1 billion of overseas investment in our 'financial and insurance services' sector, and that by far the bulk of that will be the Aussie-owned banks, you can say that about 60% of all Australian investment is in the finance industry.

And what about all those farms being sold out from under the feet of our own farmers? Nah. Total FDI in 'agriculture, forestry and fishing' is $5.9 billion, a small proportion (5.9%) of the total investment, and roughly on a par with foreign investment in the retail trade ($5.7 billion). 

It's also a very small proportion of the total value of farms and forests, which at a heroic guess (as I'm no expert on the data in this neck of the woods) I put at around $340 billion. That's 14.4 million hectares (2012 Agricultural Census, here) times an average price these days of some US$15,000 a hectare (which I got from this article), or NZ$23,500 or so at today's exchange rate. So roughly only 1.7% of agriculture is owned overseas, and of that I'd guess a fair slab is foreign institutional fund ownership of forests. The proportion of the archetypal family-run sheep and beef or dairy farms owned by overseas interests must be very small indeed.

For those who might be agitated that we're all in hock to the People's Bank of China, that doesn't show up, either. Here's the picture of total foreign portfolio investment - everything from government stock to listed shares to unlisted equity to money lent to New Zealand entities. Essentially it's the UK, the US and Australia, with roughly equal amounts, and there's a modest bit from Japan. Everything else is relatively insignificant.

Well done, KPMG

First of all, well done KPMG for coming out with another edition of their analysis of foreign direct investment (FDI) in New Zealand, this time for 2013-14 (link to KPMG's summary here, and full pdf here). And well done again for serendipitously prompting what looks like some serious action to get better official data on what's going on.

On the data themselves, I must admit I was somewhat surprised, when I first heard the results on the radio, that Canada was the biggest single investor: I'd have expected Australia. Chances are, though, that Australia still is, there or thereabouts: as the report notes, following a sensible extension in 2011 of CER, Australian companies typically don't need to bother getting approval from our Overseas Investment office (OIO) for transactions under $477 million (and we don't need to get approval from their equivalent for anything under A$1 billion or so). That threshold was way higher than the $100 million that applied prior to March '13. So potentially there is a lot of Aussie investment in the $100 million to $477 million range that would have turned up in KPMG's analysis of 2010-12 but that won't have turned up in the 2013-14 data.

In any event, given the lumpiness of FDI deals, league tables are likely to jump around over short term time periods: over the longer haul there is some greater consistency. In the previous survey (summary here), North America, Europe and Australia accounted for some 70% of everything, and this time round they accounted for 59%, and would likely have been in the 60s somewhere if the Aussie threshold hadn't changed.

KPMG have done a fine job with the data, such as they are, though the data have their inherent shortcomings. As KPMG said, for many purposes the net data rather than the gross numbers are probably more relevant. The example KPMG give is this:

On a net basis, the numbers are considerably smaller, at around 35% of the gross numbers, though that probably won't stop the "we're becoming tenants in our own land" types from banging on about the gross numbers. The data are also approvals, not necessarily consummated transactions, and there's also the issue (perforce, given the Overseas Investment Office source of the data) that we don't know whether the stock of previous FDI has dropped as a result of later sales back to New Zealand entities. The data only covers new FDI, as approved by the OIO, and we don't know what happens to it later on.

All up, KPMG have provided a useful public service here, especially given that interest in the topic is very high: for my sins, I listen to most Parliamentary Question Times, and foreign investment is a recurrent theme (including today, re the possible foreign ownership of Landcorp farm disposals).

That said, I'm beginning to think that given the importance of these data, they should be taken over by Statistics New Zealand and developed so that some of the kinks can be ironed out. There's only basic summary info (here) provided by the OIO (none of the country-source or sector-destination data estimated by KPMG, for instance), which is not good enough: these are important facts collected on citizens' behalf by the OIO, and we deserve a better view of them. The politicians on all sides seem to be moving the same way and asking for more info, too, as this report from interest.co.nz says, but the pollies seem to be be leaving the OIO as the statistical source, and as things stand, that's just inadequate. Stats would also be well placed to deal with the confidentiality issues: it's something they handle all the time. And having these data produced to professional statistical standards would fit very well with Stats' existing compilation of our net international investment position (which you can find here).

So hats off to KPMG: a good idea well handled. And keep it up if there's no progress on industrial strength official data. But ideally I'd say it's time for Stats to run with it from here.