This week we published the last in our series of three reports on New Zealand’s external financial links.

Our report, Open for business: Removing the barriers to foreign investment, co-authored by the writer and Research Assistant Khyaati Acharya, examines New Zealand’s Overseas Investment Act 2005 and associated regulations.

This examination was motivated by international evidence of New Zealand’s declining attractiveness as an investment location and a markedly restrictive regulatory regime.

It confirmed that the Act is fundamentally hostile to incoming overseas investment. From the very outset, it haughtily informs the world that overseas investors should feel privileged if we allow them to invest in ‘sensitive assets’. It then defines sensitive assets absurdly broadly.

With these preliminaries in place, the Act imposes a pre-investment approval requirement for such investments. Most countries do not see such a need, and the New Zealand Treasury has long recommended its elimination.

The Act’s criteria for screening business investments are not particularly onerous (unless ‘sensitive land’ is involved). They test character, relevant business experience and acumen, and ‘financial commitment’. But in whose interests is it to stop a New Zealander from getting the best possible price for a business that they are selling on the grounds that the overseas buyer is being foolish?

But the Act’s real punch applies when the business investment involves ‘sensitive land’ and the overseas investor is not intending to live in New Zealand indefinitely. All large forestry and farming business investments are potentially caught by this provision. So was the Canada Pension Board’s proposed purchase of shares in Auckland International Airport.

The High Court has determined that the Act is so hostile to such investments that it should be interpreted to exclude the primary benefit from selling—the benefit to a New Zealand vendor—from the required assessment of benefit to New Zealand! This makes no commercial or economic sense.

As the Treasury has repeatedly said, if there is an issue with sensitive land it is surely about the use to which it is put rather than who happens to own it.

New Zealand has hundreds of pages of legislation on the books regulating business acquisitions and land use independently of the Act and no-one seems to have been able to identify what gaps in that body of legislation justify its existence.

Our report argues that New Zealand should adopt a more welcoming regime based on principles of neutrality and greater respect for New Zealanders’ property rights. We have little, if anything, to lose from greater openness, but a lot to gain.