Economic benefits is a factor for assessing the benefit of overseas investments in sensitive land under section 17(1)(a) of the Overseas Investment Amendment Act 2021.
The economic benefits factor is broad and may encompass any benefit to New Zealand of an economic nature. Some examples are identified in the Act and discussed below, but others may also apply depending on the nature of the investment and the assets being acquired.
Examples of how the investment could create economic benefits include:
- Creation or retention of jobs
- Introduction of technology or business skills
- Increase in productivity
- Increase in export receipts
- Reduced risk of illiquid assets
- Increased processing of primary products
Applicants claiming a benefit under this factor should clearly explain what they intend to do and how this will result in specific economic benefits for New Zealand. For more information, see Making a claim.
Note that if an investment would grant the investor significant market power within an industry or result in vertical integration of a supply chain, a national interest assessment may be required.
Direct and indirect jobs
Jobs may result directly or indirectly from the investment.
Direct jobs are provided directly by the applicant or the business it is buying, such as additional staff for an expanding business. Direct jobs also include temporary jobs, such as seasonal workers or contractors for the construction of a new factory.
Indirect jobs flow from the overseas investment indirectly through suppliers or elsewhere in the relevant industry. Indirect jobs must be sufficiently linked to the occurrence of the overseas investment to establish a benefit.
The more direct the relationship between the overseas investment and the new or retained jobs, the greater the weight the benefit is given.
Calculating numbers of jobs
Numbers of jobs (current and projected) should be specified in full time equivalent units (FTE). One FTE is a permanent job for at least 30 hours per week, on average, calculated over a year. A job requiring more than 30 hours per week is still only one FTE. A permanent job for less than 30 hours a week should be expressed as a fraction of an FTE. For example, a permanent 15 hour per week job should be expressed as 0.5 FTEs. A temporary or fixed-term role must be identified as such. For example, a two-year, 40 hour per week job opportunity should be expressed as ‘one FTE for two years’. A job opportunity for a contractor (and not for an employee) must be identified as such.
Establishing a benefit
To establish a benefit, applicants must show the overseas investment is likely to result in:
- new jobs being created, or
- existing jobs being retained, only if those jobs are likely to be lost if the investment does not proceed (for example, jobs that are currently fixed-term and will become permanent).
Applicants should describe the number, nature, value (estimated salaries or annual wages) and location of the jobs being created or retained, and how they will provide a benefit to New Zealand. For example, will the jobs help to address specific employment needs in the relevant locations or professions?
Technology is the application of scientific knowledge for practical purposes. It is a broad term that includes areas such as information technology, industrial technology, biotechnology, nanotechnology and robotics. Technology may be in the form of machinery, devices, systems or processes, materials, chemicals, plants or organisms, animal breeds, software or some other form.
Business skills include ability, expertise and specialised knowledge, which are either of a commercial nature or relate to the activities to be carried out in relation to the overseas investment. Business skills may be derived from education, training or experience.
Examples of business skills include bringing staff into New Zealand with particular experience or teaching employees how to use processes or equipment.
Establishing a benefit
To establish a benefit, applicants must show the investment is likely to result in the introduction of technology or business skills that will have economic benefits for New Zealand. They should describe the technology or business skills and the nature of the benefit they will provide, including the extent to which the technology or skills will be available to New Zealand companies or New Zealanders.
Increasing productivity means increasing the amount of goods or services produced relative to inputs such as capital and labour. In other words, producing more goods with the same inputs or producing the same quantity of goods with less input.
Increases in productivity may result from increased automation of production, improvements in technology, adopting alternative business or production methods, upskilling employees, or introducing capital to expand existing operations.
The amount of the increase in productivity can be quoted as the projected output or profit (units or revenue per financial year) or projected input/output ratios (for example, stock units/ha or net profit/ha per financial year) compared to the current state.
Establishing a benefit
To establish an increase in productivity, applicants should describe the form and size of the increase in productivity, how it will be achieved and what economic benefits it is likely to have for New Zealand. The benefits to New Zealand of increasing productivity may overlap with other economic benefits claimed (such as increases in jobs or export receipts). If this is the case, applicants should make that clear.
Exports are goods or services of a domestic origin that are exported to another country. New Zealand exports include the provision of domestic tourism and education services to overseas visitors to New Zealand.
Exporting goods or services can enable an increase in domestic production and efficiency, as well as increasing the flow of money into New Zealand. This may lead to higher levels of employment and higher wages. It can help pay for the goods and services New Zealand imports, stimulate consumer spending, grow the economy and increase living standards for New Zealanders.
Export receipts for goods should be quoted as the value of the goods at a New Zealand port before export (free on board) in New Zealand dollars (as in, the value of the goods in the New Zealand exporter’s Customs documentation). Export receipts for services should be quoted as the value paid for the services.
Establishing a benefit
Applicants claiming this benefit should describe how the value of export receipts will be increased, quantify the increase in value, identify what will be exported, the destination, and the New Zealand exporter, and explain how the increase in export receipts will produce economic benefits for New Zealand.
Illiquid assets are assets that cannot be easily sold without a significant loss in value, or cannot be sold at all (stranded assets).
This may include large assets that cannot be sold in parts, or assets that require specialisation to own, control or operate. These assets are less likely to have prospective New Zealand purchasers so risks of illiquidity will be heightened. Build-to-rent developments are an example of an asset that could become stranded without overseas investment.
Assets that are regularly sold, such as forestry blocks or dairy farms, are unlikely to be considered illiquid. This will be the case particularly if the difficulty in selling the asset results from the vendor’s price expectations, or if a loss in value would occur on sale due to a drop in the market price of goods produced (for example, a significant drop in milk prices).
Reduced risk of illiquid assets
Reducing the risk of illiquid assets encourages capital investment in New Zealand by giving investors (both foreign and domestic) confidence that they will be able to realise their investment.
An overseas person may provide a benefit to New Zealand by ensuring there is a purchaser for assets that might otherwise be stranded.
Establishing a benefit
To establish a benefit, applicants must establish a real risk of illiquidity if the investment does not occur. It is not enough to show, for example, that sale to an overseas person will result in a slightly higher sale price.
Applicants should describe why the vendor wishes to sell the asset and why the asset is at risk of illiquidity. Detail any efforts by the vendor to sell the asset to New Zealanders and the response received. Applicants should explain how reducing the risk of illiquidity will benefit New Zealand (for example, the likely impact of the investment on the condition of the asset, the vendor’s future plans, and the willingness of other investors to undertake similar developments in the future).
Include a valuation of the assets (rateable valuation and/or an independent valuation where available) and the amount the applicant has agreed to pay for them (where applicable). If the vendor has offered the land for sale on the open market, state the asking price or enquiry over price (if any).
Increased processing of primary products is not included in section 17(1)(a) as an example of an economic benefit, but it is of high relative importance for applications relating to farm land exceeding 5 hectares (s 16A(1C)(a)(i)).
Primary products are natural raw materials that are ‘extracted’ from the land or ocean. They include products of mining, agriculture, forestry and fisheries. Examples of primary products include:
- fruit and vegetables
- fish and other seafood
- sheep and cattle
- oil and gas.
Processing of primary products
‘Processing’ refers to the transformation of a primary product into a different product or the use of a primary product to make another product. Processing of a primary product will generally add value to the product.
Some examples of processing of primary products include:
- transforming milk into butter
- transforming logs into timber or medium-density fibreboard (MDF).
Examples of activities that do not constitute processing of primary products include:
- grading and packaging products such as apples
- tending crops in a field
- harvesting logs.
The increased processing may be carried out by another party (for example, developing a new dairy farm may result in increased processing of milk products in New Zealand). The more direct the relationship between the overseas investment and the increase in processing, the more weight will be given to this benefit.
Establishing a benefit
Applicants claiming a benefit should identify the primary products involved and how, where and by whom they will be processed. Describe the amount of the increase in processing compared to the current state (in dollar or volume terms), how it will be achieved, and what economic benefits it will have for New Zealand. For example, is it likely to increase the value of exports or create more jobs?
Applicants claiming an overseas investment will have economic benefits should provide the following information:
- Description: The nature of the economic benefit the applicant claims will result from the overseas investment (for example, the creation of jobs) and the location where it will occur.
- Current state: The existing situation in relation to that benefit without the investment (for example, the current number of jobs).
- Method: The measures the applicant intends to take to achieve the claimed economic benefit. Claims should link to the applicant’s investment proposal.
- Benefit to New Zealand: How the proposed measures will provide a real benefit to New Zealand.
- Size: The size of the economic benefit that is likely to result from the investment. Include the monetary value of the benefit (where applicable) or any other matters relevant to the size of the benefit (such as the number of new jobs or additional units produced).
- Timeframe: When the benefit is likely to occur. If the benefit will be spread over a particular timeframe, specify the financial years it will occur over and (where possible) the size of the benefit in each of those financial years. If the benefit will be temporary the applicant should make this clear.
- Uncertainties: Any pre-conditions that may prevent the delivery of the claimed benefits (for example, approvals or consents).
Conditions of consent
An applicant’s claims under this factor are generally the subject of an associated condition of consent and post-consent monitoring by the Overseas Investment Office.