By DANIEL RIORDAN
Government moves to put foreign investors under tighter scrutiny on national interest criteria may be unnerving the sharemarket, but greater use of the test in Australia has done little to stem overseas investment there.
Finance Minister Michael Cullen wants the Overseas Investment Commission to pay more attention to the national-interest test in assessing foreign investment proposals.
The test includes whether the foreign investor will create jobs, introduce new technologies, increase exports, improve efficiencies or stimulate investment.
Overseas investors must seek commission clearance to buy or take control of 25 per cent or more of businesses or property worth more than $50 million. The threshold was raised from $10 million last December.
In the year to December 31, the commission approved 305 proposals worth $5.5 billion and rejected only two.
While Dr Cullen said New Zealand would continue to have one of the most open foreign investment regimes in the world, some economists and financial market players are concerned that more rigorous testing could discourage foreign investors.
Those investors own about 60 per cent of the sharemarket while companies with more than 25 per cent foreign ownership employ 18 per cent of the workforce and contribute close to 40 per cent of gross corporate earnings.
A former member of the commission, John Yeabsley, of the Institute of Economic Research, said a toughertest could have a negative impact on funding the current account deficit.
It could also lower the value of New Zealand assets, by reducing the potential international market for anything put up for sale here.
The managing director of Cavill White Securities, Don Turkington, said: "New Zealand is perceived as a friendly environment for overseas investors, with investment lightly regulated and commission approval a mere formality.
"Emphasising the national-interest criteria can only detract from that perception."
But those worried about the change might look to Australia. More frequent use of the national-interest test by the commission's equivalent, the Foreign Investment Review Board, seems to have done little to subdue inflow of capital.
In the year to June 1999, the board approved 4642 proposals, worth $A84 billion, and rejected 112 because they were not in the national interest.
Most of the proposals and rejections were for residential real estate, although the biggest sectors in value were services and manufacturing.
As in New Zealand, the granting of approvals does not necessarily mean the investment proceeds.
Board executive Peter Bags said that although a decision on what constituted national interest was ultimately up to the Australian Treasurer, in practice the criteria were well understood and a well-documented history of decisions helped lessen any arbitrariness.
Australia scrutinises foreign investors
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