Germany, not China, tops in foreign direct investment

An average Kiwi would name China as the country that is currently dominating the foreign investment sector in New Zealand.

But the reality shows quite a different picture, according to our research.

We have analysed trends in Foreign Direct Investment (FDI) through a review of the Overseas Investment Office (OIO) approvals for the period covering July 2010 to December 2012.

This research showed that Asia accounted for only 16% of gross FDI over the last two years. Australia remains our main single source of capital at 46%. Combined, North America, Europe and Australia accounted for approximately 70% of investment.

“There have been several media reports about Chinese investment into the country, particularly around large agri-business deals.

However Asia and China are not as dominant as many people may think.

Agribusiness leads

Our research also showed that there were significant levels of investment from unexpected quarters. Germany for instance, has been investing heavily in agribusiness in recent times. Of $300 million that German entities have invested here in the past two and half years, agribusiness accounted for 86% (predominantly in dairy).

Another interesting finding was that Korea appears to have dropped off the radar as an investor in New Zealand. In the past two and half years, there were comparatively few Korean-based deal recorded by the OIO.

In previous years, we had seen a lot of transactions with Korea, particularly in forestry and wood processing, but they were absent from the latest statistics.

Overall, New Zealand remains an attractive environment for offshore investors.

At KPMG, we are regularly engaged with overseas buyers involved with acquisition and due diligence processes – and our experience tells us that inbound investors are maintaining their levels of interest in New Zealand.

The country offers lower regulatory hurdles than in other territories, coupled with our stable political and legal environment. The recent uncertainty in Europe has no doubt made us an even more an attractive proposition.

Among the other highlights of our research are as follows:

The largest 11 transactions during the 2.5 year period accounted for approximately 40% of OIO approved investment.

Among Asian countries, Japan (53%) was a bigger investor in New Zealand than China and Hong Kong (33%). Significant acquisitions made by Japan in the last two years included beverage companies Independent Liquor and Charlie’s.

While China’s level of foreign investment appears relatively low in recent times, this may change. Recent examples include press announcements over proposed investments in the dairy sector by Yashilli and Yili.

China, Germany and Sweden have been the most active acquirers of dairy land, accounting for over 70% of dairy land acquired by overseas investors in the last three years. UK and US remain the dominant acquirers of land by overseas investors. China is 14th on the list by area acquired over the last three years.

KPMG FDI Report

The KPMG Foreign Direct Investment Report analyses the trends in foreign direct investment, through a review of OIO approvals over a given period.

This is the inaugural report, which has analysed approvals from July 2010 to December 2013. We intend to publish this Report on a biennial basis.

It complements the KPMG (Merger & Acquisition) Predictor, published every six months, which reports on Merger and Acquisition activity in New Zealand.

While the OIO does not disclose the dollar value of net investment by application, they provide summary statistics which suggest that the net investment is usually considerably lower than the gross consideration paid. This is because many transactions are restructures which contribute little by way of net investment in New Zealand or involved transactions between overseas entities.

We suggest that net investment is the better measure of incremental foreign direct investment in New Zealand.

Dinesh Naik is Tax Partner at KPMG based in Auckland. KPMG is the Sponsor of the ‘Business Excellence in ICT’ Category of the Indian Newslink Indian Business Awards 2013.

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