10 May 2004 Media Note
Budget 2004

Expanding & Enhancing the Strategic Investment Fund

The Strategic Investment Fund, administered by New Zealand Trade and Enterprise, will receive additional funding of $4.025 million in 2004/05 and out-years to support the expansion of Investment New Zealand’s promotion and attraction capability.

This funding will enable an expanded number of feasibility studies, guarantees of government funding and, in certain circumstances, cash grants, to encourage firms to invest in New Zealand. The fund is open to New Zealand companies but, in practice, we expect most recipients to be new foreign investors.

Expanding Investment New Zealand’s investment promotion and attraction capability is expected to contribute to a significant increase in the level and quality of foreign direct investment in New Zealand. Additional FDI will improve New Zealanders’ livings standards by growing the economy through adding to the capital stock, creating new and better quality jobs, and increased productivity eg through technology transfers or enhancing global distribution channels for New Zealand companies..

Rationale

New Zealand needs to attract more and better quality foreign direct investment (FDI). Key to this is having an overall business environment that is conducive to new investment, but “good fundamentals” alone are not sufficient for attracting more and better quality investment to a small open economy like New Zealand. That is because:

- Without promoting itself, New Zealand cannot expect to have a very high profile among international investors and a low profile is likely to impede flows of investment to New Zealand from overseas;

- Investors only value the benefits that accrue to them. They do not consider the potentially significant benefits that may accrue to New Zealand businesses, employees and consumers, such as new jobs and higher wages, higher tax revenues, and increased demand for local supply. In the absence of government support, this can lead to under-investment. Investment incentives, including cash grants, are therefore aimed at increasing the quantity and quality of investment. Incentives are made conditional on the occurrence of certain beneficial outcomes for New Zealand including sustainable new employment, the introduction of new technology or R&D activities, better access to international markets or distribution channels.

- Increasingly, we face active competition for new investment from investment promotion agencies in other countries.

Assistance from the Strategic Investment Fund addresses the above issues by:

- Providing a firm signal of commitment from the government that the investor is welcome in New Zealand;

- Providing INZ with a “seat at the table” to ensure that the investor’s needs are met and that any unreasonable impediments to investing are identified and addressed; and

- Better enabling New Zealand to benefit from investment through granting investment incentives that lead to significant economic benefits for New Zealand.

How does the initiative contribute to GIF objectives?

FDI contributes to economic growth by adding to the capital stock, creating new and better quality jobs, and increased productivity. Most important is the contribution to increased productivity, including through:

- Better use of resources for production. For example, output by workers could increase as a result of new technology brought to a local enterprise by a foreign investor. In turn this could lead to higher wages, reduced costs or higher quality of intermediate goods, and lower costs or better quality products for consumers.

- Spillover benefits from foreign firms to local firms. For example foreign investors can bring to local firms better international distribution channels.

- Improved domestic market competition. A foreign entrant may increase competition in the domestic market, eventually leading to higher productivity, lower prices, and more efficient resource allocation within the economy.

How does the initiative contribute to achieving the Government’s key goals?

Increased high-quality investment has the potential to create new and better quality jobs, improve New Zealanders' skills, and raise living standards for all New Zealanders.

Links to other initiatives/rest of GIF package

This initiative is complemented by the initiative to Enhance Investment Promotion and Attraction Capability.

Funding

Additional funding of $4.025 million for Investment NZ in 2004/05 and out-years represents an increase of 100 per cent over current funding.

$million (GST inclusive where applicable) 2004/05 2005/06 2006/07 2007/08 Out-years
Operating – new 4.025 4.025 4.025 4.025 4.025
Operating – redistributed Nil Nil Nil Nil Nil
Capital - new Nil Nil Nil Nil Nil
Capital - redistributed Nil Nil Nil Nil Nil
Total 4.025 4.025 4.025 4.025 4.025

ENDS

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