Overseas cash gives NZ a miss

By JIM EAGLES business editor

New Zealand had the biggest drop in direct foreign investment of any country in the OECD last year.

An OECD report on trends in direct foreign investment, issued this week, says it has "cooled considerably" in the whole OECD area since the investment boom of the late 1990s.

After a "steep decline" in 2001, investment fell by a further 20 per cent last year, and preliminary indications were for another drop this year."

The OECD's figures show New Zealand has been the biggest victim of this trend.

Its direct foreign investment figure was down 93 per cent.

Other countries affected were Austria (73 per cent), Hungary, Norway and Turkey (all more than 60 per cent), and Denmark, Korea and Mexico (between 40 and 50 per cent).

Australia was one of a few countries which went against the trend and increased foreign investment -

" to US$14 billion, the highest since the early 1990s.

Other countries which had an increase in foreign investment were the Czech Republic, the Slovak Republic and Finland.

The OECD's figures show that last year, direct foreign investment in New Zealand totalled US$300 million.

That was hugely down on the US$4 billion recorded the previous year, when investment was boosted by large transactions such as the sale of Fletcher Challenge's pulp and paper business to Norske Skog and its energy business to Shell Apache.

But it was also a marked drop from the US$1.3 billion in 2000 and the US$900 million in 1999.

Statistics New Zealand yesterday confirmed that last year was slow for foreign investment.

"The comparison with 2001 gives a somewhat exaggerated impression, because that was a particularly busy year," said senior economic statistician Peter Roche.

"But ... even if we set aside 2001, it was light by comparison with any recent years."

It is not surprising that New Zealand is the country worst affected by the worldwide slowing in direct foreign investment, as it has been one of the biggest beneficiaries.

The OECD report also shows that between 1993 and last year, foreign investors put US$22 billion into New Zealand, and New Zealanders invested US$2.7 billion in other countries.

That net inward flow of US$19 billion was the ninth highest in the OECD.

More significantly, it was 33 per cent of current GDP, the third highest level in proportion to the size of the economy of the 29 countries studied.

It was exceeded only by Ireland, with a net figure of US$71 billion, equal to 60 per cent of GDP, and the Czech Republic, with US$35 billion, or 50 per cent of GDP.

The US$31 billion invested in Australia during the decade was 7 per cent of its GDP.

Don Brash, National's finance spokesman, said annual variations in direct foreign investment had to be treated cautiously, but last year's figure was surprisingly small considering that for most of the year the exchange rate was below the long term average.

"It certainly suggests that foreign investors looking at New Zealand are not seeing a very attractive investment scene."

Brash said the problem lay in the overall economic framework and the failure to create an environment favourable to growth.