Changes to the rules governing investment in sensitive or high-risk New Zealand assets by overseas buyers are to be brought in to give the Government more power to block overseas investors from acquiring such assets where it would be against the "national interest". The changes to the Overseas Investment Act 2005 were announced on Tuesday by Associate Finance Minister David Parker, who said that they would allow a national interest lens to be applied when assessing overseas investment in strategically important assets and critical national infrastructure, such as ports, airports, electricity generation and distribution, water infrastructure, telecommunications infrastructure, and media entities.
The proposed amendments to the Overseas Investment Act 2005 are the most recent of a series of changes brought in by the current Government including last year’s ban on most foreign buyers from acquiring residential property which saw a sharp drop in house sales to overseas buyers.
Ministers will now be empowered to decline consent for overseas investment in sensitive or high-risk assets if the investment is considered contrary to the national interest, or to impose conditions on the transaction. This will undoubtedly give rise to debate over what should be regarded as in the national interest, and it will be interesting to see the extent to which the legislation will provide guidance to the Ministers in what could be regarded as a political decision.
The Government will also have the power to "call in" for screening transactions involving strategically important assets and critical national infrastructure, and to block those transactions if they are found to pose risks to national security or public order.
Under the current law, the Government has limited ability to block foreign investment that may be contrary to New Zealand’s national security or other key interests. Champions of free speech will welcome certain aspects of these changes which will empower the Government to block foreign entities from buying and controlling New Zealand’s media. Without these controls, it would be possible for overseas corporations or overseas governments to acquire controlling stakes in New Zealand media companies, which could be seen as undesirable and even a threat to our democracy in a media market which already lacks significant competition.
Critics will argue that the proposed changes are unnecessary state intervention and a disincentive to international investment which is vital to the growth of the New Zealand economy.
The proposed changes will also mean that companies like Air New Zealand which are "New Zealand-controlled" but which have foreign shareholders owning more than 25% of the company will no longer be regulated under the Overseas Investment Act. This will make it easier for New Zealand-controlled companies to acquire assets and make them more competitive with their domestic counterparts.
There will also be changes to the way that certain types of land and certain types of interest in land are treated under the Overseas Investment Act. Currently leasehold interests in land which is regarded as sensitive land under the Act require consent unless they are for a term of less than three years. This will change under the proposed amendments so that leases of anything other than residential land of less than 10 years are excluded.
Likewise, some areas of land which adjoin sensitive land but are not sensitive in themselves have been removed from the operation of the Act which will make it easier to adhere to it. Land which adjoins the foreshore, lake bed, conservation land, certain regional parks and some land significant to Maori will still be screened.
One welcome amendment is the introduction of specified time frames for the Overseas Investment Office to process applications, which will be set out in regulations. At the moment, time frames for the processing of applications by the OIO are open-ended which has been a major criticism of the legislation and its implementation.
The enforcement provisions of the Act are also being strengthened and the maximum fixed penalty for not complying with the law will rise from $300,000 to $10million for corporates.
David Parker has promised that the new powers "will be used rarely and only where necessary for protecting New Zealand."
With these new powers afforded to the Government, there is the risk that decisions on foreign investment could become highly politicised. A Bill implementing the changes will be introduced to Parliament early next year and it will be interesting to see the criteria for the new national interest test in order to truly understand the ramifications of those changes.
Rachel Laing is a solicitor with Marks & Worth Lawyers and IP Specialists and specialises in intellectual property and privacy law. rachel@marksandworth.co.nz
