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Why John Key should be careful what he wishes for when questioning foreign ownership of NZ land
By Bernard Hickey
Prime Minister John Key should be careful what he wishes for.
His call for a review of foreign ownership rules around land highlight two fundamental weaknesses in our economy: our lack of savings and our weak capital markets
Any consistent and comprehensive attempt to stop foreign capital coming in to offset our low savings and poor markets could trigger a few unintended consequences. They could include higher interest rates, higher unemployment, lower land prices and slower economic growth, all of which would become a bigger political issue than concerns about Chinese investments in a few dairy farms.
Key has recognised a hot political button that could be dangerous if he leaves it out in the open and elevated for any extended period.
He wants to remove it from the political dashboard before someone like Winston Peters pushes it in the run up to next year's election.
That's fair enough. The last thing New Zealand needs is another damaging debate about migration and race in an election campaign. Or at any time.
But there is no easy way to make this issue go away without asking some uncomfortable questions or being so inconsistent as to become a joke in the eyes of foreign investors and lenders.
Related Topics
Why, for example, are foreign investors keen to pay more for our land and assets than New Zealand investors?
Why are Chinese, Singaporean and Russian interests willing to invest in capital to develop our resources when we can't or won't?
What might happen if we said foreigners couldn't buy our land?
What would or should we do to land or companies that are already foreign owned?
Why are New Zealanders so reluctant to risk their own money to build these factors and develop this land?
Let's start with the context to Key's decision to open up this can of worms.
The explosive Crafar story
Back in September last year interest.co.nz reported that New Zealand's largest family-owned dairy farming group, owned by Allan Crafar and family, was poorly managed and was starving calves.
It turned out this was the tip of a large and ugly iceberg. Crafar had built up over NZ$200 million of debt through a credit-fueled spree of acquisitions and conversions.
He was still running it like one big family farm, despite having over 20,000 stock and over 200 staff. He had repeatedly breached effluent release laws and was renowned for neglecting his staff and animals.
Crafar's problems are symptomatic of the worst of New Zealand's productive sector and its savers. Crafar was using foreign debt to buy leveraged land in the hope of capital gains. He was only ever interested in maximising production of a raw commodity, regardless of the cost to the environment or the risks of passing on crushing debts to the next generation.
The animal welfare scandal gave the banks, Westpac, Rabobank and PGG Wrightson Finance, the excuse they were looking for to put Crafar Farms into receivership. Unbeknownst to them or the receiver, Crafar had been negotiating with May Wang to sell the farms to Chinese interests for over NZ$216 million.
Wang and her backers, UBNZ and Natural Dairy, are opportunists with no dairy industry experience here and a controversial business past.
The flakiness and heat around their bid has helped galvinise the debate.
The real drivers
But the more serious events were;
* the announcement in the last couple of weeks that China's Bright Dairy has bought a stake in Synlait for NZ$82 million to help it build a new factory in Canterbury to make milk powder and baby formula, and,
* the bid by Singapore's Olam International for a controlling stake in New Zealand Farming Systems Uruguay.
Both of these are symptomatic of a more worrying trend from Key's point of view. Both are results of failures of New Zealand's capital markets to funnel what little local savings there are into viable and vibrant investment opportunities here.
New Zealanders have lost faith in their capital markets and are low savers anyway. So companies with growth ambitions or land/asset owners with debt problems are looking overseas for the equity to solve their problems.
This is only natural and is not new. We have been using overseas capital to grow for centuries, although the last 10 years saw the biggest foreign borrowing spree in our history to buy each others houses and go on a consumption binge.
It's all come home to roost
Now it's clear our household sector is indebted up to the gills and we are poor savers.
Many farm owners are also indebted up to the gills and are either being forced to bring in fresh foreign equity or are choosing to do so.
So what are the options for New Zealand.
If we want to turn away the fresh equity in any substantial and consistent way that will impose some equally unpalatable choices.
Land prices will fall. Without foreign demand propping up prices, prices will drop to the levels justifying investment by locals. There is local money there on the sidelines waiting for realistic prices.
Interest rates will rise. If foreigners work out their interests could legislated away they may be reluctant to keep lending to us in quite the same way. Local savers will realise they are not 'competing' against foreign lenders and realise their money is more precious to those locals who do want to borrow.
Our economic growth will slow. Lower land prices will discourage consumption based on land wealth and so will higher interest rates.
Unemployment and net emigration will rise.
Maybe it's a price worth paying
The picture I paint is not attractive, but it still may be worth paying the price, if it forces New Zealanders to live within their means and create their own capital markets.
This is the real challenge for John Key and those who support such controls on foreign capital flows.
Can we do it ourselves?
Your view?
.
50 Comments
Nice try Bernard but it
Nice try Bernard but it demands vision and bold policy from govt....not what you will get. The govt will carry on with fiddle and tweak. The foreigners will be given citizenship and as Kiwi their capital will spun as ok. The property ponzi scheme will stagger along. Labour will be back in 4 years once the short term memory factor has erased the visions of nanny state stupidity and they will win the day with a raft of pork promises. This country is stuck with what it has. If you want progress you have to look elsewhere to find it.
"This is only natural and is
"This is only natural and is not new. We have been using overseas capital to grow for centuries,"
Yeah and they have also been nationalised in that time to...
Sale of such assets amounts to the same thing as off shore colonialism...Colonialism = eventually sucking the guts out of a country ....hence why our major industries of the time, including mining where, nationalised .....then sold off again.
The trouble is in todays modern world, nationalisation when the cycle rolls around and required is no longer acceptable unless from a small banana republic.
Once sold there is no control over that land, ie if gets left abandoned and to waste, or who owns generations from now.
If nationalisation is not an option in the future we shouldnt sell....
20 or 30 yr leases would be an option and the use of the land in that time specified.
Complementing your post: by
Complementing your post:
by Anonymous | 28 Jul 10, 1:16pm
NZ is a sideshow and always will be.
Every nation learns the folly of becoming dependent upon external sources of supply.
It's one thing to have overseas assets, but they must be disposable.
Self-reliance and independence is the key to strength.
Anonymous 9.29 SELF RELIANCE
Anonymous 9.29
SELF RELIANCE AND INDEPENDENCE IS THE KEY TO STRENGTH! YES!
We have to try it, the price of tightening the belt and living within our means - is this really asking too much?
Well spoken Bernard. Will
Well spoken Bernard. Will they listen ??
I believe it's like you said ....kill the story before Winston Peters gets into it next year....
Q1. If Landcorp (NZ Company) can only offer $200million for Crafar and Natural Diary can offer 250 million, who should we sell it too ??
Q2 If Bright Diary wants to invest $100 million in NZ on a Milk Factory with it's implied jobs and productivity growth while no other NZ company is willing to invest, should we turn it down?
Q3 Olam International buying NZ Farming System (in Uruguay not NZ) and NZ Farming system needs the money to repay their bankers (that's the common problem with debtors...they need to repay their loans)...should we stop the transaction ??
Q4. Should "white" New Zealand oppose any investment in New Zealand by "non-white" foreigners ?? I don't see any objections in New Zealand elite circle when other "white" foreigners are buying heaps of land and business in New Zealand ...(more land and business are being bought by British, US and Germans than by Asians)
The first thing to do is to
The first thing to do is to look at how other states with 4 million people are doing.
But I suppose we quickly will come to the conclusion that you can't mine here, you can't built, etc. And with the government consuming about 50% of our income, yes people, 4 hours a day you work for the government, there's not a lot of saving left.
It's all fine and dandy, but
It's all fine and dandy, but the bottom line is -
NZ companies or individuals cannot own fee simple land in China.
They cannot own 90%+ of non-Fee Simple land in Singapore, either (and I imagine Russia would also still be heavily restrictive toward foreign land ownership).
Any major land sales to any countries that have the military capacity and may reasonably decide to, for whatever reason or pretense, "enforce" their land ownership in and food supply from New Zealand in the future, must be accompanied by a great increase in expense on new weapons for the NZ Army and Air Force, to defend us from such intimidation. This unfortunately would include the extremely expensive to buy and maintain new generation fighter and bomber aircraft, eg F-15E or Super Hornet, or Su-35.
Gaining a couple of billion on higher foreign offers for our farms, only to have to waste many billions on a very expensive air force do defend us from now interested foreign parties? Worth it?
Sounds really dumb to me.
Kind a strange article,
Kind a strange article, Bernard seems to assume if Key closes his eyes and puts his head in the sand this issue will go away.
Quite the opposite, because people like Peters cannot wait to pick up on this issue.
If he oversees the current proliferation of increasingly large tracks of land being sold off oversea, he may not be around for long, or quite likely not even a second term as prime minister.
I think Kiwis have been pretty patient with this issue up till now, but with this ever ramping up of our land being flicked off overseas, the patience I think has just about run out.
Do these guys want to be around for another term or not?
Realistically the worst Key
Realistically the worst Key and his government can expect to face is a small reduction of the number of seats they currently hold in parliament if Winnie manages to agitate enough.
National know as well as anybody that they face no credible opposition and have almost no chance of losing the next election.
Any chances that JK will go
Any chances that JK will go early, then? I mean, there's been quite a bit of gentle spadework done, and if there's no viable alternative about at the moment, ( why let Peters/Laws in the side door?) why not go later this year ( along with Aussie); get the new 3 year mandate, and rellly get stuck in before the global economy gets nasty again!
Why would Key go early when
Why would Key go early when he has a clear mandate from the people of NZ who are obviously 100% supportive of his leadership?
Because we need him to! At
Because we need him to! At some stage we have to believe that we elected the Government to look after our best interests. Sure, politics is as much about that, as the law is to justice; but every now and then, things do get done for the National Good. I'd like to think we have a opportunity to 'get on with rebalancing our country' a bit better than what we are at the moment.
LOL it's that kind of
LOL it's that kind of arrogance of thinking there is no opposition that will be the end of them.
Peters is already up to 4.5% in the polls and hasn't even got started yet.
Not a bad
Not a bad idea...
regards
It just makes sense! " Not in
It just makes sense! " Not in our first term" seems a common phrase. So, get it , the first term, out of the way! No promises broken, and what time do we have as a nation to waste, just "waiting' for the first term to pass? Let's get on with it, JK!
This isn't a political thang,
This isn't a political thang, chaps and chapesses, finally.
It's structural - as BH has patiently pointed out.
The structural issues are deep-rooted
Now, add in an MMP political environment, which encourages stasis and penalises bold moves, and we have - quelle surprise - a rather timid, static, incremental approach to fixing all this stuff. As if Gubmints actually can...
But, the alternative - of populist demagogues with Big Ideas and the political mandate to Do Great Things, should scare us even more....but then History has declined sadly within the populace, so they prolly Go Fer It....Sigh.
What is most galling is that
What is most galling is that those of us who aren't weaklings are being dragged down by the gullible masses.
Many people including myself have been working hard and saving harder. One thing I am not is a "consumer" in the usual sense, and I am not alone.
On top of that I have never bought a lotto ticket of any kind, have never bet on a horse of greyhound, and would sooner shoot myself than put a coin into a slot machine, yet my taxes go to bailing out those whose gambling habits get themselves into terrible strife.
It's finally time to reward those of us who haven't been idiots with our money. Sadly I see no sign of anything changing.
steve-o, Of course Kiwis
steve-o,
Of course Kiwis cannot buy/own fee simple land in China...neither can Chinese national. All land in China is goverment owned and can be leased for "land use rights" up to max 30 years only. So the treatment is the same for Chinese and foreigners. Infact foreigners has the advantage as the goverment encourage foreign investment vis a vis local investment. Most Asian countries has this "foreign friendly " policy. Even Singapore is Foreign friendly. More than 85% of productive assets in Singapore is "Foreign Owned" but only account for 45% of employment....(beats NZ hands down!!)
Joke: Singapore is know as the "Banana republic" ...yellow outside but white inside.
BTW to think that foreigners will "enforce" their rights by military invasion is silly. If a country really wants to invade another they don't need to "enforce" any "rights". A good UN resolution will do fine....eg Afghanistan and Iraq
Bernard Becoming tenants in
Bernard
Becoming tenants in your own land to foreign owners has never been a good thing. The Irish potato famine was made vastly more dire because the foreign land owners exported the wheat that was growing on their land, rather than provide it to the starving tenants. That is an extreme example, but is illustrative of the basis for concern that John Key is raising.
I can't say the Maori have
I can't say the Maori have benefitted all that much either when the "Crown" took their land and leased it back at unaffordable rates. The pound sure stretched a lot further then of course.
Not such an extreme example
Bernard doesn't need to worry
Bernard doesn't need to worry about getting voted back in again, National do.
There isn't going to be any
There isn't going to be any alternative to capital controls. The world is going to be awash with US$ seeking real assets as the problems in the shadow banking system come home to roost and as people finally realise that the US is living beyond it's means. Some will be genuine savers (China) and others not.
We'll end up serfs in our own country.
And why don't people get so emotional about "selling" the country at a rate of $100million per week. Just because it's not "visible" doesn't mean it's the same thing.
To John Key Introductions
To John Key
Introductions so New Zealander’s are in charge of our own economic, environmental and social destiny PM.
In a very fast changing world, topics like globalisation and free trade need a far more critical approach and shouldn’t be done with unethical countries.
To succeed nationally and be competitive in a world market New Zealand needs a "Mixed economy" model in order to avoid "Uneconomic Growth", but this needs a vision - a reform the way we do economics here in New Zealand.
Mr. Key you should travel more here in New Zealand visiting producers/ manufacturers talking and create better conditions for Kiwi companies/ exporters.
In stead of importing most everything we need an economic strategy, developing new industry sectors in order to placing orders for our infrastructures needs here in New Zealand.
This would create skilled and better paid jobs here in New Zealand. This would bring the skilful and experienced Kiwis back home to set up new businesses and to work in interesting jobs. This would make us less depended from foreign capital/ skill and knowledge.
This would increase our economic diversity and our national safety/ security. This would help exporters to compete better on international markets. This would increase interaction with other industry sectors science/ education etc. This would lift our profile, working for the next generation, so we can afford an average life standard in a safe environment.
Can you do that PM ?
Bernards been wrong about a
Bernards been wrong about a few things and this is another one, if he thinks selling our land off is a good thing.
Funny how he thinks inflated land prices are good, while inflated house prices are bad, can't quite equate that.
Anonymous, I don't
Anonymous,
I don't necessarily think selling off our land is a good idea in the long term. I just think people should be aware of the fallout if they go down this route.
I ask the question at the end whether it's worth it. It may well be in the long run.
I' have an increasingly open mind about capital controls in a world where everyone seems to have them in one form or another and the 'old' model of utterly free global capitalism seems to have failed to cope with or plan for shocks.
I'm also rethinking the idea that slavishly following the laws of comparative advantage and putting all our eggs in the specialised basket and relying on a free flowing global trading and capital system is a good idea. It leaves few redundancies and seems to create the Black Swan problem. Have a read of this to get a sense of where I'm going.
http://www.newstatesman.com/ideas/2010/07/debt-system-mother-black
Maybe we do need to keep some of our own manufacturing, food supply etc to cope if the world freezes again.
Your thoughts?
cheers
Bernard
At LONG LONG Last - someone
At LONG LONG Last - someone is coming to the realisation that mercantilism may actually be essential for the creation of wealth in the longer term. Globalism merely forces everyone down to the lowest common denominator.
Lets focus on what we do really well - but dont give up our soveriegnty. We need to be able to feed ourselves, house ourselves and grow our economy wihtin our own social and economic norms - not those impose on us from the outside.
Get rid of free trade agreements unless the other country has EXACTLY the same openess that we have. Every transaction in New Zealand by a foreigner MUST be proven to benefit New Zealand for the longer term.
restrict divident payouts to the equivalent of th governemtn stock rates. require foreigners to invest in their infrastructure, and NEVER NEVER NEVER sell land
Sorry about the spelling -
Sorry about the spelling - cannot see the whole when typing in
It seems to me mercantilism
It seems to me mercantilism and pursuing sovereignty as a nation aren’t topics, which bloggers are interested. The question is are Kiwis in general really interested on our economy or just selfishly on the Real Estate and Property industry ?
In the current environment one day this way of thinking (mentality) has negative consequences and will lead to the collapse of our standard of living or worse.
Bernard - my thoughts? Well
Bernard - my thoughts? Well said. We might be fantastic at playing cricket (ahem!) but if other folk (rest of the world!) don't play the game, we need to be aware of the risks and ADAPT accordingly.
"What might happen if we said
"What might happen if we said foreigners couldn't buy our land?"
That's easy to answer Bernard, it would become more affordable for Kiwis. BTW you fail to mention that it is not permissible for foreigners to buy land in China. Now if that's not hypocritical I don't know what is.
If Winston promises to stop land sales to foreigners in his election campaign he's got both my constituency and party vote (and I have never voted NZ First previously). As far as I am concerned Immigration and land sales will be the No.1 issue in the next election.
Got mine too Andy. This is
Got mine too Andy. This is the only election issue as far as I'm concerned. And I have never voted for Winston before either. The results of next years election could be a huge shock for both National and Labour.
The arrogance of political
The arrogance of political parties that think they don't have to listen to the public, is normally one of the main thing that loses parties elections.
I see something National will be very careful to not be arrogant about here.
Look how quickly Labour in Aussie went from being pretty popular to self destructing, and now looking like a very good chance of losing the next election.
People like BH can rabbit on about how great it would be to sell all our land off, but Kiwis are not dumb enough to fall for it.
"People like BH can rabbit on
"People like BH can rabbit on about how great it would be to sell all our land off, but Kiwis are not dumb enough to fall for it."
Guh?
Goff kicked Carter to touch pretty quick-smart today. He had to of course, but he's at least shown he can be strong and decisive when he has to be, as with the credit card spending debacle and now this.
They still don't stand a chance of defeating the Nats, but Key had better not rest on his sleazy laurels come election time or we may end up with yet another useless Mickey Duck coalition situation.
That's probably what the
That's probably what the Aussie Labour party thought 8 months ago, now look at them, almost gone.
I think Key is smart enough to realise that money for land provides NZ with nothing new, and for the loss of the land.
I'm just not sure that Bill English is quite as smart.
Any political party that bans
Any political party that bans or restricts the sale of land - and productive assets such as infrastrtucture to foreigners has mY vote
And so we build a
And so we build a bridge...... Foreign ownership a possibility for those industries that involve recreational or tourist activities.......... which does not include watching cattle s*#ting or the shooting/stealing or smuggling of endangered species. International Health Spas and or Retirement acreages for that filthy stinking rich banker who may now need anonymity.
As to compensation for farmer Joe well that's gonna be a touchy one.... being a bit chicken and egg if you follow.... compensation for being wound up by your friendly banker ....or for your genuinely pristine poo paddock...?
"Becoming tenants in your own
"Becoming tenants in your own land to foreign owners has never been a good thing. The Irish potato famine was made vastly more dire because the foreign land owners exported the wheat"
oh thats famious in the history books..why not look closer to our own history with the big British Empire multi nationals stripping out our coal, gold, lamb and timber exports.
Espec in the big depression of the 1870/90s
Wasnt the Boston tea party along these lines...?
Sure we can sell off for the short term....but what happens if BH's children want be come farmers ?...and lets face it its prime production land that the off shore investors want to buy.
And sure the off shore buyers are willing to pay premium + for the land..which then ineffect inflates property beyond normal market value and no one in NZ will be able to buy a farm.
Bernard Hickey for PM
Bernard Hickey for PM
Does it always comes back to
Does it always comes back to the same issue, if you don't invest, if you just borrow and spend, then when it comes to the crunch (now) you have few options - someone dictates to you in one way or the other ! Foreign investment or poor, foreign investment oir poor, you choose
I agree this is a big
I agree this is a big issue.Prime land is a finite rescource which once sold might never come on the market again. I think there is a need to differentiate between foriegn bona fide farmer land purchasers looking to purchase a single farm and huge international investment funds like Natural dairies et al. The former are here in large numbers already and bring their capital, skills and families and generally farm well and contribute strongly to society. The latter are interested purely for a return on their investment which after the initial capital injection would be mainly syphoned offshore indefinately. All this talk of Winston makes me shudder but I do wish in hindsight we had voted in his compulsory super scheme in the 90s, I think we would be in a far better position today. Time for a rethink perhaps....
Sheep Shagger - absolutely
Sheep Shagger - absolutely agree - I voted against Winston's complusory super plan because I knew that I could save and do it better than the system, which has proved correct. Of course what I ignored is the fact that the average NZer seemingly can not do the same without complusion, and I pay the price for that through higher taxes than otherwise to pay for their retirement, and we all do in the lack of job growth because of the lack of investment capital that demands either greater foreign investment or less jobs.
It seems to work well for
It seems to work well for Aussie - lets make kiwisaver compulsory and start doing the hard yards.
That's exactly what Fijians
That's exactly what Fijians want. So why are we interfering in their way of democracy.It's ok BIG BROTHER can do so.
"Their way" ain't no form of
"Their way" ain't no form of democracy. It's called an unelected ditatorship. I agree, though, NZ and Aust should just not worry about it. Holiday in Samoa instead - way cheaper, much nicer, no tinge of supression.
I would put jack chen and may
I would put jack chen and may wang in the same desirable migrant class as gorse and sparrows.
What class would you put Eric
What class would you put Eric Watson and Mark Hotchin, Petrovich, et el ??
The "financially able" class? in more than one way ?? Where did they or their Parents/Grandparents come from ?? How much money did they "lose" for their customers /Creditors? Where are they now ?? Are they defending their business practice in New Zealand courts?? (at least May Wang is in court trying to defend herself and finding a solution with her creditors !!
Re your comments about
Re your comments about our capital markets. As a long term equity
investor vesus a major property investor (although I have considerable
exposure to the latter) I am dismayed by the dearth of quality opportunities for investment
into New Zealand industry.
I would love to be part of a push to invest into our agricultural industries for example but often dont trust the integrity of the promoting company's directors.
They need to suffer from a dose of conservatism. There are so many examples of investor's equity being swallowed up into reckless schemes conceived it would seem late in the
night in a hotel bar.
Are we too greedy or just downright impatient? Roll on Fonterra float!
Regards and thanks for your articles
Jon
Dear John Key, I'm a bit
Dear John Key, I'm a bit worried that you seem to be on the verge of giving away the foreshore and seabed and associated access and mining rights, that I and everyone else currently own - to Maori Iwis !!! By Xmas this year!!... You aren't really are you?? Watch out people - this is a hugely consequential and litigious constiutional reform about to be rushed through Parliament....
http://www.sunlive.co.nz/16438a1.page
Great piece.
Great piece.
nz for all kiwis its not for
nz for all kiwis its not for sale jhonny boy