New measures to protect New Zealand’s national interest during COVID-19 crisis
The Government is amending the Overseas Investment Act to protect key New Zealand assets from falling unnecessarily into foreign ownership as the economy recovers from the fallout of the global COVID-19 pandemic.
“We need to minimise the possibility that cornerstone businesses in our productive economy are sold in a way contrary to our national interest while the pandemic is causing the value of many businesses to fall,” Associate Finance Minister David Parker said.
The changes bring forward the introduction of a national interest test to our most strategically important assets, as agreed by Cabinet last November as part of the Phase Two reform of the Act.
In addition, the changes announced today include the temporary application of that test to any foreign investments, regardless of dollar value, that result in more than a 25 per cent ownership interest, or that increases an existing interest to – or beyond – 50 per cent, 75 per cent or 100 per cent in a New Zealand business.
“This temporary power will operate as a simple notification requirement and the process will be quick to ensure investment is not unduly delayed but it is important to have new rules that protect Kiwi businesses from being snapped up and opportunities potentially lost as they recover from the damage caused by the virus,” David Parker said.
“Hypothetically, with international tourism at a standstill the value of a significant tourism company may have plummeted and could be low or near zero. That value would not reflect the importance of the business, so interim controls are needed to protect our national interest.”
The temporary power will be reviewed every 90 days and remain in place only as long as it is necessary to protect the essential interests of New Zealand while the COVID-19 pandemic and its economic aftermath continues to have significant impact in New Zealand.
Certain other investments in strategically important assets will also have to be notified to protect New Zealand’s national security.
Once the temporary measures end, a national interest test will remain for business transactions at a minimum threshold of $100 million, or higher if set by the terms of an international trade agreement, as well as investments in sensitive land and fishing quota.
Other jurisdictions have already taken steps to protect their businesses. Australia has reduced its foreign investment threshold for screening to $0 and Canada and the EU have also recently strengthened their regimes.
“The changes we are introducing do not mean New Zealand is closing the door on foreign investment, only that the Government should have the ability to ensure that such investments are in line with our national interest and that we are well placed to grow once the COVID-19 crisis passes,” David Parker said.
“This Government welcomes productive, sustainable, and inclusive foreign investment.”
In addition to a national interest test, this Bill includes other measures to protect New Zealand’s interests announced in November as part of the Phase Two Reform, such as equipping the Overseas Investment Office with enhanced enforcement powers.
Recognising that New Zealand businesses’ demand for capital will likely increase in coming months, the Bill and supporting regulations will also ensure that a large number of low-risk transactions are no longer screened.
This includes purchases by fundamentally New Zealand companies and small changes in existing shareholdings, as announced as part of the Phase Two reform. In addition the Government will use regulations to extend existing exemptions and remove screening from two further classes of low risk lending and portfolio management transactions.
The Government remains committed to the wider reforms of the Overseas Investment Act that are not reflected in the urgent Bill. These reforms, which include changes to the consent process for sensitive land, will be covered in a separate Bill also introduced this week that will be progressed through the House over a longer time period.
“Essentially we are fast-tracking the most critical measures of the Phase Two reforms necessary to respond to the urgent COVID-19 situation, and progressing the other reforms on a slower track to ensure they are fully considered by Parliament,” David Parker said.
“My view remains that it is a privilege to own or control our sensitive New Zealand assets – particularly now. Like other countries, we must act quickly to protect our essential interests.”
The Government aims to have the law change in force by mid-June, following a select committee process that will be truncated to ensure that this gap can be closed quickly.