Part 5: Assessing the benefit to New Zealand from an investment in sensitive land

5.1
If there is an investment in sensitive land (and the overseas investor is not going to reside permanently in New Zealand), the decision-maker needs to decide whether the investment will, or is likely to, benefit New Zealand.²⁵ In making this assessment, the decision-maker must consider specified factors, largely economic and conservation factors.

Carefully considering information about the benefits of an investment

Types of benefit

5.2
Using the information made publicly available by the OIO about each overseas investment decision made during 2016 (up to and including October 2016) we considered the various categories of benefit that have been identified as applying and how often they are cited by the applicant. Economic-related benefits are the most frequently cited (see Figure 2).

Figure 2
Overseas investment benefit categories cited for applications decided in 2016

Source: Our analysis of information from the OIO's website. The analysis is limited to applications where a benefit category has been reported on the OIO's website.

Determining benefits

5.3
As outlined earlier, determining whether the criteria are met for each benefit category and, therefore, what the benefits are of an application is an important role for the decision-maker. The OIO provides the decision-maker with advice on the requirements of the benefit criteria for investments in sensitive land. In the applications we reviewed, this advice was thorough and provided the decision-maker with guidance about the criteria to be considered, the standard to which the decision-maker needs to be satisfied, and the OIO's recommendations about those elements.

5.4
In the applications we reviewed, it was common for the OIO to rely on the information provided by the applicant. That said, we saw evidence that the OIO carefully considered that information and did not always agree with the applicant's interpretation of the information. We saw the OIO:

• identifying additional benefit factors that were met over and above those identified by the applicant (in two of the applications we reviewed);
• disagreeing with applicants' assertions that certain multiple benefit factors were met (in four of the applications we reviewed);
• rejecting an initial application (later resubmitted as one of the applications we reviewed) because of insufficient information to demonstrate that the overseas investment was likely to be of benefit to New Zealand or that such a benefit would be substantial and identifiable (in one of the applications we reviewed);
• finding links suggested by the applicant between the investment and benefits were too tenuous (in two of the applications we reviewed); and
• asking detailed benefit-related questions of the applicant.

5.5
In two applications, we saw evidence of the OIO identifying benefits in the investment that had not been suggested by the applicant. In our view, this identification was in the interests of objectively evaluating the application against the statutory criteria and is consistent with providing the best advice to the decision-maker.

5.6
We saw the OIO use information above what was provided by the applicant to assess whether various benefit factors were met, including:

• comparative industry economic, efficiency, debt, and productivity data;²⁶
• additional information in response to requests by the OIO for further information;
• internal peer review advice;
• third-party submissions; and
• monitoring and other information held by the OIO related to the applicant's other overseas investments.

5.7
The OIO's use of comparative industry economic, efficiency, debt and productivity data in the cases that we saw involved analysis such as comparing the ratio of inputs (such as staff) to other inputs or outputs (such as stock units) proposed in the overseas investment against that ratio for the industry as a whole.

Non-urban land

5.8
If the overseas investment includes more than five hectares of non-urban land, the decision-maker also needs to determine whether the benefit will be, or is likely to be, substantial and identifiable. If the benefit is not or is not likely to be substantial and identifiable, consent cannot be given.

5.9
In the applications that we reviewed, the OIO provided advice to the decision-maker about whether there was a substantial and identifiable benefit with the overseas investment where that was relevant. In those applications, the OIO determined whether there was a substantial and identifiable benefit using the following information:

• the collective number of benefit categories it considered were met;
• counterfactual information;
• whether, overall, the benefits had been adequately quantified; or
• the actual size of the benefits.

5.10
In one of the cases we reviewed, the application was declined because the OIO assessed that the application failed to meet this requirement and other criteria.

Determining the relative importance of the benefit factors

5.11
In many of the applications we reviewed, the OIO determined the relative importance of a number of the benefit factors. The factors used by the OIO to inform this determination included the ministerial directive (for example in certain circumstances economic benefits, economic interest, and oversight and participation by New Zealanders might be relatively important) and the contribution of an investment to New Zealand relative to the national contribution of the relevant industry.

Counterfactual analysis

5.12
As part of determining whether an investment will benefit New Zealand, the decision-maker must consider only those benefits that are over and above what would occur if the investment was from within New Zealand. This requires the decision-maker to first identify what would happen without the overseas investment (the counterfactual scenario) and then compare this with the expected benefits of the overseas investment. The OIO routinely provides advice to the decision-maker on this issue when making a recommendation about an application.

5.13
Identifying the right counterfactual scenario is important to the outcome of the OIO's assessment of an investment's benefit to New Zealand. Different counterfactuals may lead to different conclusions on the benefits of an investment. Generally, the OIO considers what would happen without an overseas investment in a given case by considering what a New Zealand purchaser of the land or business would do. There is judgement involved in this consideration.

5.14
For example, a judgement about what might otherwise happen is easier to make in situations involving farm land where that land has been offered on the open market in New Zealand before the overseas investment application. If there has been interest shown by New Zealand parties in purchasing the land, a purchase from a New Zealand-based party might be the suitable counterfactual. Where there is no interest, the counterfactual might be that no New Zealand buyer would invest in the asset.

5.15
Where the asset that is the subject of the application for an overseas investment has not been made available to the New Zealand market, it is more challenging for the OIO to determine whether there would be a New Zealand buyer without the overseas investment, and if there is a New Zealand buyer, what benefits may result.

5.16
In the applications we reviewed, the OIO included its counterfactual analysis in the material provided to decision-makers where this analysis was required. We saw evidence of the OIO carrying out counterfactual analysis for some of the individual factors making up the overall benefit, as well as for the overall benefit of the investment. This was to test whether those purported benefits were generated by the overseas investment. In carrying out the counterfactual analysis and making recommendations, the OIO generally relied on the same types of information it used to identify the relevant benefit factors and their relative importance.

Applying judgement when assessing benefits

5.17
The OIO's advice to the decision-maker was thorough, included information about the standard to be applied when applying the benefits test, and set out whether, in its view, the particular investment would, or was likely to, benefit New Zealand.

5.18
In the applications we reviewed, it was common for the OIO to rely on information from the applicant. However the OIO critically considered that information and, where it thought necessary, sought to verify it. Judgement is required when evaluating whether the proposed investment will give rise to a benefit and we saw evidence of the OIO applying that judgement. Although the OIO did, on occasion, seek expert input from other agencies about the degree of benefit in a particular investment, such assistance could be more routine in what are sometimes complex economic evaluations. This could be particularly helpful when considering the relevant counterfactual scenarios.

5.19
An issue for the OIO is how to access the wide range of technical expertise and specialist information that could be required to inform its advice to decision-makers. We saw examples of the OIO seeking information from other government agencies, such as the Ministry for Primary Industries, the Ministry of Foreign Affairs and Trade, and New Zealand Trade and Enterprise. However, this was not common.

5.20
At the time of our review, the OIO was considering how it might arrange more ready access to specialist industry advice and information. This was through:

• recruiting advisory staff with different skills and experience from existing staff (in progress at the time of our fieldwork); and
• considering the establishment of a panel or similar arrangement where experts from other public entities were more readily available to provide advice to the OIO.

5.21
We encourage those initiatives.

25: Section 17(1) of the Overseas Investment Act 2005. It is only where an investment is only in significant assets and does not involve sensitive land that the OIO does not need to consider whether there is a benefit to New Zealand.

26: We note that the definition of "full-time equivalent" used by the OIO in this type of analysis is consistent with the definition used in Statistics New Zealand's Quarterly Employment Survey.