Nice idea - shame about the reality

By Rod Oram

Between the lines

Over the past few days, ministers Max Bradford and Lockwood Smith have scrounged a few more dollars from Treasury for two important on-going initiatives: attracting foreign investment to New Zealand and identifying non-tariff barriers to our exports.

The money will turn up in the Budget on May 20 for spending in the upcoming fiscal year. But the ministers of commerce and trade couldn't wait. They beat the Treasurer to the punch, rushing out press releases to tell us the good news.

Nice idea. Shame about the reality.

Indeed, the New Zealand economy would benefit if more foreigners invested directly in productive projects. They would introduce new technology and skills and create jobs. Output from the plants would increase exports and/or decrease imports while creating economic activity among suppliers and further downstream from, for example, staff wages.

It would also mark a welcome change in foreign investment patterns. In recent years, almost all the money coming into the country has been in the form of unproductive purchases such as land or existing shares in our companies.

The work on non-tariff barriers is just as important. Countries use an endless array of regulations such as health and safety standards to protect themselves from imports. Some regulations are necessary but many are arbitrary, excessive or unnecessary, designed to protect local producers.

Given the potential benefits of the two initiatives, you might expect the Government to put some serious money behind them. But they haven't. Trade Minister Smith has come up with an extra $50,000 to expand the non-tariff barrier budget to a magnificent $450,000. Enterprise and Commerce Minister Bradford has got an extra $3.59 million, roughly doubling the foreign investment promotion budget.

Of Mr Bradford's new money $1.45 million will help support the Government's "red carpet

visitor programme aimed at a select few potential investors; $675,000 will boost off-shore promotion of New Zealand; and $1.46 million will go on exploration and development of the Crown mineral estate.

The money is meaningless weighed against the costs and benefits of such programmes. On the cost side, for example, domestic and foreign energy companies will spend $300 million on oil and gas exploration in New Zealand this year. On the benefit side, previous investment allows the sector to produce $1.5 billion of oil and gas a year.

And when it comes to promotion, $675,000 buys you three full colour, full-page adverts in 1 million copies of BusinessWeek magazine.

There is a good case for such initiatives and you can measure the cost-effectiveness of the benefits generated. But paying lip service is a waste of money. The Government should decide whether to get in the game or out of it.