New Zealand has depended on overseas trade and capital for its prosperity from colonial times. But prejudice against foreigners and foreign capital will always be with us. It is inherently tribal. Current fears of becoming “tenants in our own country” and of foreigners driving Auckland property prices beyond affordable levels for locals trigger potentially powerful emotions.

This report aims to help ensure that debates about foreign capital are fact-informed rather than fact-free. Statistics New Zealand (SNZ) publishes hundreds of time series on the international assets and liabilities of New Zealand resident units. This report is accompanied by a spreadsheet containing 84 tables that compiles much of that information in an accessible form.

The report reviews the major trends in these series. In the process it explains and illustrates the relationships between flows of trade and capital in the balance of payments and stocks (levels) of assets, liabilities, and net debt.

The report also delves into the distant past to see what can be said statistically about New Zealand’s reliance on foreign capital from colonial times.

Four results stand out from this statistical investigation.

• New Zealand has depended heavily on international capital from colonial times, although the degree of dependence has fluctuated substantially. SNZ estimates that the stock of inwards capital exceeded the stock of outwards capital by 72% of GDP in March 2012. This compares with diverse unofficial estimates of 4.4% of GDP in 1973.,15% in 1949, 101% in 1926, 151% in 1910, and 273% in 1886.
• The big rise in this ratio after 1973 was triggered by large trade deficits in the balance of payments, not least due to spiking oil prices, and exacerbated by the largely “Keynesian” deficit spending policy response of successive governments until the mid-1980s.
• The chronically large deficits in the current account of the balance of payments during the last 23 years are a legacy of this deficit-spending period. By the mid-1980s the net deficit on investment income in the current account of the balance of payments was running at 5% of GDP. This ongoing deficit has kept the overall current account in deficit despite the balance of trade surpluses that prevailed between 1984 and 2004.
• Reducing the net external liability relative to GDP would require policies aimed at (1) raising international competitiveness and (2) raising the growth rate of GDP relative to the earnings rate paid on net external indebtedness. Policies aimed at raising the national savings rate in its own right could have disappointing results if they did not also improve competitiveness and productivity growth.

The report identifies and rebuts 12 myths about New Zealand’s international debt and inwards foreign direct investment (FDI).

1. It is wrong to assert that New Zealand has a large negative net international debt position because domestic investment since 1973 has exceeded national savings. A case can be made that causation has largely run in the opposite direction since the mid-1980s. It is the deficit on international income from a high ratio of net external indebtedness that has kept the current account in the balance of payments in deficit, which is the same thing as an excess of investment over saving.
2. It is wrong to say that our large negative net international debt position is due to our spending more than we have been producing since the 1970s. New Zealand’s trade surpluses in the balance of payments for 20 of the 25 years between 1988 and 2012 mean that ‘we’ were spending less than ‘we’ produced in those years. However, the statement is essentially correct for the 1975-1987 period.
3. It is wrong to say that New Zealand’s net international debt position is due to our being poor savers, spending more than ‘we’ earn. In fact, national savings were positive for 38 of the 41 years between 1972 and 2012.
4. It is wrong to say that our large negative net international debt position is due to the private sector because the government’s net external debt is close to zero. The government was very active in running up international debt until the mid-1980s. Asset sales and (eventually) fiscal surpluses have since reduced government’s net exposure but not large ongoing deficits in the current account of the balance of payments.
5. It is wrong to say that New Zealand’s ratio of private indebtedness is a major risk. The ratio has prevailed for decades and is concentrated in lending to New Zealand’s major banks and government debt. Our banks face intensive scrutiny from their overseas parents, world investors, sharemarket investors and our central bank regulator.
6. It is wrong to say that our large negative net international debt position is due to banks borrowing overseas to fund New Zealanders into housing. This is a practical impossibility. Only something that changes the current account deficit in the balance of payments or valuation changes in overseas assets and liabilities can change the net international debt position.
7. It is wrong to say that achieving a fiscal surplus by 2014-15 will start reducing the current account deficit to a meaningful degree. It may or may not. What counts instead is international competitiveness.
8. It is wrong to say that Asians are increasingly taking over New Zealand. If anyone it is the Australians. They increased their share of the FDI stock in New Zealand from 31.5% of GDP to 55.8% between 2001 and 2012.
9. It is wrong to say that New Zealand is open to takeover, but it is not two-way.  New Zealand’s stock of direct overseas investment abroad has risen markedly in dollar terms since the 1990s and New Zealand’s inwards investment scrutiny regime is one of the most restrictive in the world on the OECD’s measure.
10. To say that greenfield FDI is better than brownfield FDI is a false choice. It is better to have both if driven by the market rather than by government support.
11. The same response applies to the statement that foreign portfolio investment in New Zealand is less useful than direct investment.New Zealanders are not at risk of becoming tenants in their own country when government is overwhelmingly the largest landlord and landowner. A ballpark estimate is that foreigners own somewhat more than 1 million hectares of a total land area of 28.7 million hectares.
12. New Zealanders are not at risk of becoming tenants in their own country when government is overwhelmingly the largest landlord and landowner. A ballpark estimate is that foreigners own somewhat more than 1 million hectares of a total land area of 28.7 million hectares.

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