Why FDI is good for you

Last updated 11:44 03/09/2012

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OPINION: Foreign direct investment, or FDI, is an important part of keeping our economy on a stable footing, writes Eric Roy (National) in From the Beehive.

In short, New Zealand simply does not save enough to cover our investment needs. Between 2002 and 2011, New Zealand saved just over $4 billion a year, leaving a shortfall of $9 billion a year to fund our investment. Foreign direct investment helps bridge this funding gap.

Foreign investment can bring benefits that foreign borrowing does not. These benefits can be of particular value to a small economy, and include providing a stronger buffer against economic shock because investment comes without the fixed interest payments of debt, FDI produces transfers of technology and know-how, and provides access to international markets and recent research shows that New Zealanders working for firms with foreign investors tend to be paid more, and that firms receiving foreign investment increase employment and output.

In 2008, Treasury concluded that foreign capital flows into New Zealand lifted incomes by around $3800 per worker between 1996 and 2006 in today's prices, and lifted wealth by $16,000 per person.

Foreign investors in New Zealand do take out some profits, but between 2006 and 2011 they have also reinvested about 25 per cent of their returns on equity back into New Zealand.

Foreign direct investment is not a new concept for New Zealand. In the late 1800s and early 1900s, British investment played a prominent role in the development of our refrigerated meat industry. Since the 1980s, Australian investment supported the emergence of New Zealand's wine industry, bringing with it know-how, technology and international market access.

In the 1990s, Japanese investment helped to introduce more value-added production and efficiency in our forestry industry, as well as access to Asian markets.

As a small country, we naturally rely on FDI to help us achieve economies of scale, and for access to ideas and consumer markets. We do not have the large stock of capital which older and wealthier countries have.

Foreign investment is a vote of confidence in the quality of New Zealand's institutions and the quality of its workforce. As employees come and go from foreign owned firms, they take what they learn and apply it to new ventures. These skills produce higher wages for New Zealanders working in those firms, and skills tend to spill over.

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» Eric Roy is the electorate MP for Invercargill.

- The Southland Times

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