The contentious debate over foreign ownership has been heartily reignited, subsequent to Labour MP Stuart Nash questioning whether foreign investors are really adding value to the country.

He has described the selling off of productive land to foreign investors who repatriate the profits overseas as a “dead end street” and is demanding greater transparency in the approval process of foreign investment applications.

And yet, New Zealand has one of the toughest investment regimes in the developed world.

Despite this, Federated Farmers president William Rolleston, in support of Mr Nash, has said foreign investors in sensitive assets “need to show demonstrable benefits to the country” and that there needs to be “constant monitoring and enforcement to ensure that the promised benefits are being delivered.”

However, these comments are perhaps misguided; both Mr Nash and Dr Rolleston appear to have overlooked not only the economic rationale for why foreign direct investment (FDI) occurs in the first place but also the fundamental issue of property rights in selling private assets.

Worse, New Zealand First leader Winston Peters is proposing the creation of a register of foreign-owned New Zealand land. The private member’s Land Transfer (Foreign Ownership of Land Register) Amendment Bill would “feed data into the debate about the level and scale of foreign ownership” and, through more information, reduce the scope for emotional claims about FDI.

It is unlikely more data will persuade those who remain staunchly opposed to FDI.

Emotive arguments dominate public debate on the contentious issue of foreign ownership in New Zealand, too often drowning out factual considerations of the benefits of FDI. A register will probably have little effect. There will always be those who think even 1% inward investment is 1% too much.

Foreign capital plays an intrinsic role in New Zealand’s economy. The New Zealand Initiative’s series of reports on FDI* cites a Treasury working paper, which estimates that imported capital between 1996 and 2006 cumulatively raised our incomes by $2600 a worker and wealth per capita by $14,000 in 2007 prices.

Another Treasury Working Paper** released late last year found foreign-owned firms also offer higher wages compared to domestically-owned firms. Even after correcting for the often larger size of foreign firms, remuneration for workers in foreign-owned firms is 2-4% higher than in Kiwi-owned firms.

Despite the benefits of foreign investment, New Zealand stands out in international comparisons for the restrictiveness of its regulatory regime and the slump in its ranking for investment attractiveness.

The OECD’s Regulatory Restrictiveness Index has consistently demonstrated that New Zealand has one of the most onerous and restrictive investment regimes in the world.

So the last thing the country needs is yet another barrier to overseas investment.

Questioning the value of foreign investment overlooks the economic rationale for why it occurs in the first place. Jamie Whyte addressed this flawed statement in an NBR ONLINE opinion article posted last week. As he explains, the “value of a business depends on its expected future profits,” so when an overseas investor buys a New Zealand business, those future expected profits are automatically factored into the purchase price that is received by the vendor and injected into the domestic economy.

FDI transactions then must, by definition “involve a net gain for New Zealand” since the sale of a domestic asset to a foreign investor entails that “no New Zealander valued the future profits as high as the foreigner did.”

That net benefit is the difference between the “winning” bid from the foreigner and the next highest bid from a New Zealander. But this is overlooked by Mr Nash, Dr Rolleston and Mr Peters, and more fundamentally within the Overseas Investment Act itself.

Another issue is the apparent disregard for private property rights by opponents of FDI. Any seller should be permitted to sell his or her land to the highest bidder, regardless of the buyer’s country of origin.

The government should be protecting the freedom of New Zealanders to sell their assets to whomever they choose, foreign or local.

The New Zealand Initiative report, Open for Business, determined the Overseas Investment Act was not fit for purpose and “is seriously deficient from a public policy point of view, with a strong bias against both inwards foreign investment and New Zealander’s property rights.”

But a Foreign Ownership of Land Register represents only more prejudice against inward FDI and New Zealanders’ property rights. If anything, the onus should be on the government to prove that an investment may not be of a net benefit to the domestic economy.

New Zealand has an economic interest in attaining foreign investment and foreign capital. International comparisons show that many other nations are doing well with much less investment regulation and monitoring bodies; there is little reason why New Zealand shouldn’t allow this either.

* Open for Business: Removing the barriers to foreign investment; Capital Doldrums: How globalisation is bypassing New Zealand; and New Zealand’s Global Links: Foreign ownership and the status of New Zealand’s net international investment

** Earnings and employment in foreign-owned firms (NZ Treasury WP14/16)