New investment agency built from old bits and pieces

By CHRIS DANIELS

The investment promotion agency born in the Budget is less of a new baby than a Frankenstein's monster, cobbled together from old bodies using money that is by and large already allocated.

New money worth $6.5 million will go to the agency, to be created from a merger of Industry New Zealand's Major Investment Service and the wing of Trade NZ known as Investment New Zealand.

The agency will operate under the auspices of Deputy Prime Minister Jim Anderton's Industry New Zealand and will be designed to attract more domestic and foreign investment.

"Investment is critical for New Zealand's economic development," said Anderton. "We are looking for investment that contributes to the Government's innovation framework, bringing new skills, new technologies and access to new markets."

Minister of Trade Negotiations Jim Sutton said creating an integrated investment promotion agency was one of the key recommendations of a study conducted by the Boston Consulting Group.

The Major Investment Service, with its annual budget of $1.2 million, will join Investment New Zealand, with its budget of $4.4 million.

A fund for promoting investment is also being established, although the bulk of its money comes from an existing fund run by the Major Investment Service.

The fund will be increased by $600,000 to make a total of around $4 million and will be renamed the Strategic Investment Fund.

Anderton said it would demonstrate "through small and well-targeted underwriting and cash grants, the Government's commitment to major investment, particularly from overseas".

Although the Government says the announcement is evidence of implementing the recommendations of the Boston report, the amount of money involved is not of the scale envisaged by the consultants.

The Boston report recommended an Irish-style investment promotion agency with an operating budget of $50 million and a staff of 150 by 2006.

It said the Government should spend several hundred million dollars a year in incentive packages to attract foreign direct investment of $4 billion to $5 billion a year by 2011.

The total yearly budget allocation for the new agency, after the $6.5 million of extra funding, will be $14.5 million.

Calls to soften the tax regime for foreign investors have not been accepted by the Government.

Finance Minister Michael Cullen said in his speech: "Officials have concluded that significantly lower rates of tax could not be restricted to new foreign direct investment except as a transitional measure.

"As a consequence, it seems unlikely that such a reduction would produce sufficient benefits to New Zealand to offset the welfare costs of raising revenue on other productive activity in New Zealand."

In a bid to help New Zealand exporters, trade promotion body Trade NZ will get an extra $5 million a year for the next five years.

Some $2 million of this will be used to promote e-business as a method of getting overseas buyers in touch with New Zealand exporters.

Trade NZ's Export Network Fund will be given an extra $300,000, pushing its annual budget up $4 million a year. The fund helps groups of exporters to attend trade fairs overseas. It is the only area of Trade NZ's work where it hands out money in the form of grants.

The agency will spent $2 million of new money on an extension of the investment promotion effort known as "beach heads."

This is the establishment of office facilities for small, often high-tech New Zealand exporters to use when trying to set up a base overseas.

Money will also be spent by the Government on a plan to "to develop, manage and promote Brand New Zealand".

Anderton's economy, industry, and regional development budget will contribute $1.5 million this year and next, eventually rising to $2 million in 2005.

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