Part 7: The Strategic Investment Fund

New Zealand Trade and Enterprise: Administration of grant programmes.


The Strategic Investment Fund (SIF) is administered by Investment New Zealand. Investment New Zealand is a business unit within NZTE and is New Zealand’s dedicated investment promotion agency. The SIF is designed to assist in the early stages of investment assessment and planning of a business in New Zealand.

Three types of grants can be given under the SIF:

  • Feasibility study grants enable potential investors to conduct pre-feasibility and feasibility studies, to quantify substantial investment opportunities in New Zealand.
  • Guarantees of funding are provided for significant projects that seek to access funding from other government programmes. Funding from the SIF reduces as the level of funding from other government sources increases.
  • Cash grants are available for significant projects, where access to funding from other government programmes is inappropriate or does not fit with the project’s requirements.13

The objectives of the SIF are to:

  • encourage significant investment in new projects;
  • demonstrate the Government’s commitment to support major new investments;
  • provide firms making significant investment decisions with an informed opportunity to compare the benefits of investing in New Zealand with other options; and
  • identify any impediments to investments proceeding, and, where appropriate, advise the Government of the need for procedural change.

The SIF was established in June 2000.14 For the 2003-04 year, $3.975 million was allocated to the SIF. On 10 May 2004, the Minister for Industry and Regional Development announced that the SIF was to receive an additional $4.025 million from 1 July 2004.15 Figure 14 below sets out a breakdown of applications under the SIF, by year.

Figure 14
Applications to the Strategic Investment Fund since 2000-01

Approved Declined or cancelled grants Total ($)
Feasibility studies Cash grants Guarantees of funding Approved Paid
2000-01 2 0 0 0 78,300 78,300
2001-02 9 1* 1 1 1,895,000 900,000
2002-03 13 3 0 1 3,859,375 3,094,150
1 July 2003 to March 2004 3 0 1 0 2,192,188 115,887
Totals 27 4 2 2 8,024,863 4,188,337

* This was a combination of a cash grant and a guarantee of funding.

The approved applications ranged in value from $20,000 to $2,000,000. The most common grants were feasibility studies for $50,000 or $100,000. The cash grants ranged from $500,000 to $1,500,000, and the guarantees of funding were for $500,000 and $2,000,000.

NZTE was able to provide us with adequate data about approved applications, including one approved application that had been subsequently cancelled. NZTE does not keep a record of declined applications.16 This Part discusses the approved applications. No issues were raised by the cancelled grant.

Cabinet criteria for the award of Strategic Investment Fund grants

Cabinet has stipulated that the SIF is available to support the implementation of specific strategic investments that demonstrate significant benefits to New Zealand, in terms of sustainable development (in economic as well as environmental and social sustainability) through a substantial investment involving:

  • new direct investment in New Zealand of indicatively $50 million over 5 years, and/or the creation of 200 new jobs in New Zealand over 5 years;
  • development unlikely to occur in New Zealand without the Fund;
  • complementing New Zealand’s areas of competitive advantage;
  • no negative consequences domestically; and
  • a high level of clear “spill-over” benefits.

The operating principles of the SIF are to:

  • provide genuine additional benefits and gains, taking into account short-term and long-term direct and indirect costs and benefits, including potential impacts on both environmental and social sustainability, as well as economic impacts;
  • refrain from crowding out private sector activity, and accelerate and complement the provision and development of private sector services;
  • be based on partial funding, so there is both a partnership between central government and local government, education and research institutions, and the private sector, and commitment from participants;
  • complement and co-ordinate with the activities of other government programmes;
  • involve an explicit commitment from potential investors to proceed with implementation, subject to the outcome of any feasibility study with assistance contingent on meeting those commitments;
  • be consistent with New Zealand’s international obligations; and
  • be available to worthy domestic and/or foreign potential investments.

Were the Cabinet criteria met?

The SIF guidelines, discussed further below and prepared by Investment New Zealand, did not clearly describe how the Cabinet criteria were to be interpreted. Accordingly, it was difficult to establish whether the Cabinet criteria were met in the grants we examined. For example, one of the Cabinet criteria requires a “high level of clear spill-over” benefits. However, how this was to be assessed was not defined in Investment New Zealand’s SIF guidelines. We identified some approved grants where it was unclear whether the Cabinet criteria had been met, and some instances where in our view the Cabinet criteria had clearly not been met.

Recommendation 32
We recommend that NZTE develop comprehensive guidance for how each of the Cabinet criteria is to be applied to all applications under the Strategic Investment Fund.

Further, the supporting analysis in proposals or accompanying documents was poor. For example, in a typical feasibility study application, the statement was made that–

The Company expects the project to create 150 new jobs immediately and a further 75-100 jobs to be created over 3-5 years.

There was neither supporting documentation nor any analysis of that statement.

Advice given to Ministers contained a number of assertions that were not supported by any evidence or supporting documents. This was particularly evident for the Cabinet criteria relating to new direct investment of $50 million over 5 years and/or the creation of 200 new jobs over 5 years.

Recommendation 33
We recommend that NZTE ensure that applications for grants under the Strategic Investment Fund explicitly address all Cabinet criteria, and that all Cabinet criteria are met for every proposal.

Recommendation 34
We recommend that NZTE ensure that, for all statements made in applications for Strategic Investment Fund grants, the appropriate supporting analysis is recorded, so that such statements can be verified.

The application process

SIF applications come to Investment New Zealand from a variety of sources, including other parts of NZTE, Ministers, MED, and other government agencies. Firms are usually invited to apply for funding once Investment New Zealand has spent time with the applicant to determine whether the project is likely to meet the required criteria.

Proposals for feasibility studies, guarantees of funding and cash grants are developed by NZTE in consultation with the grant applicant.

Feasibility studies

To be eligible for a feasibility study grant, the proposal must demonstrate:

  • how the study will assess the commercial viability of new private sector investment;
  • if the study proves that the project is commercially viable, how that project will be funded;
  • that the proposed study would be unlikely to proceed without government support;
  • what contributions and support will come from local government, education and research institutions, and the private sector;
  • how any other existing government industry programmes will be involved in the programme;
  • the capability and expertise of the people who will undertake the feasibility study;
  • intended milestones and performance; and
  • how the study will be monitored and evaluated.

Proposals are to be assessed on the basis of the benefits associated with the project proceeding, and on the likely positive impact on industry, regional, and economic development, including:

  • the level of capital investment by the applicant;
  • the indirect and direct employment that will be generated;
  • the extent of industry development, including the introduction of new technology, new management practices and the establishment of strategic alliances;
  • potential revenue generation and profitability; and
  • how useful the findings might be for other projects and the wider industry.

Grants are available for 50% of the costs of the study, usually up to a maximum of $100,000. The Chief Executive of Investment New Zealand approves such feasibility study grants. Ministers can approve feasibility study grants of greater than $100,000. Figure 15 below sets out the process followed when a feasibility study application is received.

Figure 15
Approval process for Strategic Investment Fund feasibility study grants

Figure 15.

Once an application for a feasibility study has been approved, the applicant can start work on the agreed project. There is no retrospective funding from the SIF for costs incurred before the study was approved. Once the study has been completed, the applicant sends an invoice to the New Zealand Director for Investment New Zealand, who is required to certify the invoice before it is paid.

Guarantees of funding and cash grants

The SIF can provide guarantees of funding for significant projects that seek to access funding from other Government programmes. Commitments of funding from the SIF will be extinguished when funding from other government sources is approved or provided. The SIF can provide cash grants for significant projects where access to funding from other Government programmes is inappropriate or does not fit with the project’s requirements.

Guarantees of funding and cash grants are not to exceed $1 million for each year or an aggregate of $5 million for each project. All proposals for guarantees of funding and cash grants are to be considered by an inter-agency group co-ordinated by MED, and must be approved by the Minister for Industrial and Regional Development and the Minister of Finance, together with other Ministers whose portfolios are involved.

For both guarantees of funding and cash grants, the process followed by Investment New Zealand is set out in Figure 16 on the next page.

Figure 16
Approval process for Strategic Investment Fund guarantees of funding and cash grants

Figure 16.

Once an application for a guarantee of funding or a cash grant has been approved, a support agreement is signed. The support agreement typically includes:

  • a brief description of the project being funded;
  • performance milestones;
  • general obligations and conduct requirements for the grant recipient; and
  • termination arrangements.


Investment New Zealand has 3 pages of guidelines for the SIF (the SIF guidelines), which set out:

  • the principles of the SIF;
  • Cabinet criteria for support from the SIF;
  • feasibility study grant criteria and what information needs to be included in feasibility study grant proposals;
  • information and the objectives for guarantees of funding; and
  • information on cash grants.

The SIF guidelines do not describe with sufficient detail how an application is to be processed or assessed; nor how Cabinet criteria are to be applied and how risk is to be assessed. The SIF guidelines are inadequate, particularly given the size and potential value of SIF grants.

After the completion of our audit, NZTE began work on an Investment New Zealand Procedures Manual. This manual should significantly revise the SIF guidelines.

Recommendation 35
We recommend that NZTE significantly revise the Strategic Investment Fund guidelines to ensure that they are comprehensive, particularly given the size and scale of the Fund. The guidelines should include: how applications are to be processed, assessment procedures, how risk is to be assessed, and how the Cabinet criteria are to be applied.


The standard of documentation held on files was poor. In many cases, the files were missing the proposal for funding, invoices, and the support agreement, which is the contract between NZTE and the grant recipient. The audit team had difficulty tracing each grant awarded under the SIF through the approval process.

Recommendation 36
We recommend that NZTE develop guidance as to what material should be held on each Strategic Investment Fund grant file, and check these files periodically for completeness.

NZTE’s approach to risk for the Strategic Investment Fund

In the Cabinet minute establishing the SIF, investors are required to have “a proven track record as a good corporate citizen and in terms of business acumen”. However, in the SIF guidelines, there was no guidance on how the risk profile of an applicant was to be assessed.

The risk profiling of SIF applicants was poor. There were some copies of credit checks on file. But there was little evidence in the files that the organisational structures, financial stability, or governance arrangements of grant recipients had been considered. This is of particular concern, given the size and scale of grants able to be awarded under the SIF.

Recommendation 37
We recommend that NZTE develop a comprehensive approach to the assessment of risk for Strategic Investment Fund grant applicants. Such an assessment must ensure that decision-makers are fully aware of the risk profile of all grant applicants.

Were assessment procedures satisfactory?

The assessment procedures were not satisfactory. For the feasibility studies, guarantees of funding and cash grants, there was no framework for assessing applications.

For feasibility studies, applications were assessed on a case-by-case basis, with a proposal sent to the Chief Executive of Investment New Zealand for approval. In many of the applications we looked at, criteria were not addressed in proposals. In one approved application, we noted that the project did not meet all of the criteria for receipt of funding. In other applications, criteria, such as those around job creation requirements, were not met.

Recommendation 38
We recommend that NZTE develop a framework by which all Strategic Investment Fund applications are assessed to ensure transparency and consistency in decision-making.

From March 2003, for guarantees of funding and cash grants, applications were presented to the relevant Ministers after receipt of support from the NZTE Board and circulation of proposals to the Treasury, MED, and other relevant officials. For one cash grant from 2002 that we examined, the Treasury and MED were not consulted before the proposal went to the relevant Ministers.

In all cases, the funding was approved in accordance with delegated authority. In one case, the relevant Ministers were asked to agree to a funding application outside the Cabinet criteria, which they did.

Recommendation 39
We recommend that NZTE ensure that a thorough review of all Strategic Investment Fund applications is undertaken by decision-makers, and that the reasons behind any decisions are accurately recorded on the file for each grant.

Monitoring of Strategic Investment Fund grants

After a grant is approved, recipients are required to sign a support agreement with Investment New Zealand, setting out the terms and conditions of the grant. Included within those terms and conditions for feasibility studies are requirements to:

  • supply monthly reports to Investment New Zealand on how the feasibility study was progressing, and meet with Investment New Zealand on a regular basis to discuss the feasibility study; and
  • provide copies of the draft and final feasibility study to Investment New Zealand for comment.

Different terms and conditions have been established for the cash grants and the guarantees of funding. The monitoring arrangements refl ected the different terms and conditions. These arrangements ranged from those similar to the requirements for feasibility studies listed above, through to a requirement that the company reach job creation milestones that were audited by independent auditors on an annual basis. The support agreement included a repayment formula if the job creation milestones were not met.

Investment New Zealand did not require grant recipients to complete a standard form upon completion of the feasibility study, and did not keep a record of whether the proposed project had actually been undertaken.

Recommendation 40
We recommend that NZTE require all Strategic Investment Fund grant recipients to provide reports on the outcome of the feasibility study, cash grant or guarantee of funding. This should be in a standard format, to provide appropriate data for monitoring and evaluation of the Fund.

We saw little evidence in the files of monitoring activity. In only 4 of the 14 approved feasibility study grants we looked at was there any form of reporting back from the grant recipient on file. For cash grants and guarantees of funding:

  • in one case there was the requirement for external auditors to provide NZTE with an independent report as to whether the recipient was reaching job creation milestones on an annual basis – this was occurring;
  • for 2 cases no payments had yet been made to the companies, so there were no progress reports on file; and
  • in 3 cases there were no monitoring reports on file despite significant amounts of money having been paid.
Recommendation 41
We recommend that NZTE apply appropriate sanctions for those Strategic Investment Fund grant recipients who do not provide NZTE with the required final report. This could include withholding funds until such a report is provided.

Controls over the payment of SIF grants were inadequate. In some instances, invoices for feasibility studies merely required payment of the total NZTE contribution in a lump sum to the grant recipient. They did not contain information on who had undertaken the work or a breakdown of how their charges had been calculated.

Recommendation 42
We recommend that NZTE improve the payment controls applied to grants awarded under the Strategic Investment Fund.

13: Combinations of guarantees of funding and cash grants can also be given.

14: When first established, the SIF was called the Major Investment Fund. For the sake of clarity, we refer to it only as the Strategic Investment Fund.

15: The SIF was reviewed as part of the evaluation of the implementation of Investment New Zealand. This is discussed further in Part 8.

16: The one application that was recorded as declined was where the application had been accepted but the applicant no longer wanted to take up the grant.

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