When will the PM and his Finance Minister give up the marketing-PR-comms con-jobs they have embarked upon of late that only remind us of the Jacinda Ardern-Chris Hipkins con-jobs? Yesterday the PM told the country that NZ needs more foreign investment - that it is desperately short of these funds. So he's got into the business of selling residency and NZ passports at bargain basement prices. We've joined a bunch of poverty stricken Caribbean islands that run similar schemes. In NZ's case, applicants now don't even need to speak English. What's more, the PM made a mistake in his announcement by characterizing NZ as being short of overseas funds. Its a fact of economics that Net Foreign Investment is equal to the Balance of Trade (difference between exports & imports). When a nation like NZ runs a trade deficit, whereby imports exceed exports, then in order to raise the foreign currency to buy those imports, it must rely on overseas investors buying assets denominated in our dollars, selling their foreign currency in exchange. Out of 38 OECD countries, NZ currently has the fourth largest sized trade deficit, at 2-3% of GDP. That means NZ also has the fourth highest level of Net Foreign Investment in the OECD.
What are the foreign funds currently pouring into NZ dollars buying? Publicly listed stocks and bonds, amongst other assets. The NZ dollar is one of the world's top ten most traded currencies. However, though we already have high levels of Net Foreign Investment, the same cannot be said for Foreign Direct Investment (FDI), where NZ ranks toward bottom of the OECD. The latter is defined as the purchase of an asset in another country that gives the buyer a degree of control rights - typically over 10% of a company - making it different from a portfolio investment, like buying some shares in a big public company. There's a view FDI supports economic growth more than other forms of foreign investment, as it brings technical knowledge & management skills to the host nation.
So what's our beef with the PM, Finance Minister and Immigration Minister's Foreign Investment Visa Announcement? In short, it was (probably intentionally) misleading. It was not aimed at encouraging Foreign Direct Investment. Under both investor categories (see the link above) there's no requirement that one's investment need be FDI. Under the "Economic Growth" category it can either be in a "managed fund", or alternatively a direct investment. Has the government been corrupted by the Funds Industry in NZ? Did it lobby to connect investment in one of their funds to foreigners being gifted a Kiwi passport? Since NZ-based Managed Funds can invest in offshore equities, then foreign investors' money can come into NZ and go straight out again. In the second "Balanced Category" there's a wide range of investments foreigners can make, again with no requirement it has to be a Foreign Direct Investment. Foreigners can buy bonds (private or government), publicly listed stocks, managed funds (again), or new property developments. A "direct investment" is just one of a large range of options. But as we noted, NZ already has the OECD's 4th highest level of foreign (non direct) investments, so why now hand out passports for free to go with it?
My opinion is that lobbying has featured in this announcement. It smacks of a dirty deal whereby local Fund Managers have got around the PM to make this change - so they can slice commissions off their managed funds by telling offshore clients that now an NZ passport will be thrown into the party bag. The PM has trashed the integrity of our passport. These portfolio funds do not constitute direct investments - they bring no technology or skills, contrary to Immigration Minister Stanford's assertions - and NZ already has no problem attracting them. What will be the type of person coming under this scheme? Useless kids of rich offshore families, who can't speak English, bring no skills & expertise, don't work, yet use our health-care, education, and infrastructure for free? All they need do is throw some of Daddy's money into a managed fund run by an NZ Big Bank. Was the cash-in-managed-fund-in-exchange-for-NZ-passport a dirty backroom deal between the PM and the industry? As for the security implications, they are frightening.