Clarky's Comment - Forestry Rights as Sensitive Land under the OIA

A Treasury paper seeking feedback on the inclusion of Forestry Rights (FR) as sensitive land requiring approval for foreign investors under the Overseas Information Act has alarmed New Zealand forest owners. Submissions made have almost universally condemned the idea based on:

  • Loss of tree crop liquidity / exit plan for both existing and new forest investors.
  • A FR being a right to occupy the land for a period, not long-term alienation of the underlying land itself.
  • The significance of foreign capital to the development of the current forest industry, with many forests or parts of forests held as FRs. Forest growing ties up lots of capital for long periods; and related to that, the likely inability to fund an additional 50,000 ha/annum of new tree planting using the willing and available NZ savings pool alone.
  • The time and costs associated with forestry applications lodged under the OIA being a major impediment to forest liquidity and extending that to FRs would chase foreign investors away, or alternatively significantly raise investment risk and therefore hurdle rates required.
  • The proposal seems to be at odds with the government’s stated goal of significant new planting.

It has been explained to forest industry leaders that the primary driver of this initiative is to retain the option for this and future New Zealand governments to regulate foreign investment in forestry via FRs as once the new CPTPP (TPP 11) comes into force in a few months that option will no longer exist. While we accept as legitimate the idea to retain that option, this must be balanced against the likelihood of that option being needed in the future, and the damage done to forestry investors in the meantime. It seems to me that foreign investment in growing trees has been of great benefit to New Zealand in the past and I find it difficult to envisage the situation where that would change – or at least in a way that could not be regulated by some other means should a problem emerge.

Successive Ministers of Trade, supported by Treasury, MFAT and MBIE officials have well understood the economic value to NZ of Foreign Direct Investment (FDI). It seems to me that forestry is an ideal home for such investment. It ties up lots of capital for long periods, suiting especially wealth protection and superannuation funds. FDI in forestry frees up NZ resident savings for shorter term but higher yielding investments. As a nation we are already over-invested in residential housing, and light on investing in more productive assets. Making it harder for foreigners to invest in trees can only result in one or both of:

  • Lower profitability from growing trees and therefore less trees planted; and/or
  • 'Screwing the scrum' in favour of domestic investment in trees vs. foreign investment. Why would we want to exacerbate our national savings placement to longer-dated lower yield assets like growing trees?