Governments at the bidding table.(Policy Watch)

"New Zealand needs to attract more and better quality foreign direct investment. [...] The above suggests a clear role for government to [...] attract investment with desirable characteristics through guaranteed access to government services and, where necessary, incentives that are closely aligned with the generation of spillover benefits."

Economic Development Minister, Jim Anderton (May 10, 2004)

"We are therefore going to fine tune the inward investment programme. [...] Specifically, we will discontinue the major grants and loan guarantees element of the Strategic Investment Fund. [...] The second step, which lain announcing today, is a new focus on assisting firms to undertake outward investment."

Economic Development Minister, Trevor Mallard (August 30, 2007)

1. Introduction

An amazing thing happened on August 30, 2007 when Economic Development Minister Trevor Mallard announced a major policy change. The Minister noted that "Research done by government officials shows that our stock of inward foreign direct investment (FDI) is similar, as a proportion of GDP, to those in other small developed economies. However, our stock of outward investment has declined and is now significantly below half of the OECD average." (1) In response, he announced a change in government focus. It will scrap the major grants and loan guarantees element of its Strategic Investment Fund, set up to lure foreign investors to New Zealand, and instead provide support to companies that expand offshore. In layman's terms, funds are redirected from subsidizing foreign firms that invest in New Zealand to subsidizing New Zealand firms that invest overseas.

This sounds like a tough sell with voters. Moreover, the change in policy comes at a time when 71 countries have made 208 changes to FDI laws; in 90% of the cases favourable to attracting FDI. (2) Does the Minister know something that the rest of us don't? At least he has done his homework. The change in policy was initiated after a review of Investment New Zealand's (INZ) programmes, which is discussed below. The review revealed that over the last six years some programmes were unlikely to have provided good bang for the buck.