Further to the Government's announcement last year to reform the Overseas Investment Act 2005 (Act), Cabinet has now approved the details of the proposed reforms, with new legislation to be in place by the end of this year. This reform was a key commitment in the Coalition Agreement between ACT and The National Party as a driver of economic growth, and improved productivity. The proposed amendments are intended to speed up decisions and provide more certainty to overseas investors, while protecting New Zealand's national interests and key sensitive assets.
A wide range of stakeholders have been calling for substantial reform to New Zealand's FDI regime for many years - including the NZ Initiative, BusinessNZ, and many practicing lawyers and economists - and represent a welcome development.
The changes are significant and represent the first major overhaul of New Zealand's foreign investment laws in over 20 years. Once enacted, this reform may well be the most significant micro-economic reform of the current Government.
Some of the features of the proposed reforms include:
- a starting assumption that an investment transaction can proceed unless there are national interest risk factors identified;
- a consolidation of the existing core tests (investor test, benefit to New Zealand test and the national interest test) into a single modified national interest test to apply to all in scope transactions aside from residential land, farmland and fishing quota;
- a new 15 day fast-track consent process for all investments aside from residential land, farmland and fishing quota, after which the transaction must be either approved or escalated to the responsible minister for a national interest assessment if there are reasonable grounds to consider the transaction may be contrary to the national interest;
- better acknowledging the benefits investment can provide to New Zealand’s economy, including having regard to whether a national interest risk may be offset by the benefits of the transaction;
- strengthening the Government’s ability to intervene on the rare occasion that a transaction is not in the national interest;
- giving LINZ more powers to grant consent without involving Ministers; and
- providing that one of the Ministerial Directive Letter’s functions is to identify any risks or factors that decision-makers need to or should consider when granting consents, imposing conditions or declining transactions on national interest grounds.
The proposed 15-day fast-track assessment period is significantly shorter than the current statutory assessment timeframes, and even shorter than the timeframes required by the Minister in the most recent Ministerial Directive. This change, along with the other proposed reforms, should give overseas investors much greater confidence over foreign investment into New Zealand, confirming that the Government's key focus is on genuinely sensitive assets. It should also bring the New Zealand regime more into line with that of other OECD countries. It is encouraging to see the "benefits to New Zealand" test be removed as it can prove difficult for some investors to be able to foresee the specific benefits that will arise at the start of a period of ownership, and in practice it often transpires that significant unforeseen economic benefits arise in any case. However, as with any regulatory reset, the "devil will be in the detail", and Russell McVeagh will remain closely involved in the legislative process as it unfolds.
The ministerial press release and Cabinet paper can be found here.