The COVID-19 pandemic is creating economic mayhem internationally, and New Zealand is not immune. At the same time, the international crisis has made this country an increasingly desirable destination – especially to wealthy foreign investors. But there is real danger that lack of administrative resources and attention will deny New Zealand the chance to take full advantage of a much-needed inflow of cash.
Do We Need the Investors?
A couple of months ago I was one of those who highlighted a surge in interest in NZ by wealthy migrants, especially from the USA. More recently, Business NZ has argued that a specific border exemption for high-net-worth investors is needed, in order to encourage the funds to flow into the local economy. It has been suggested that some $2 billion in potential investment funds is tied up in Investor Visa applications which are still in process. As you will see, this is not far wrong.
The need for economic stimulus is clear, with New Zealand heading into a very significant recession. Some have argued that allowing wealthy foreign migrants to buy their way in does not actually deliver the sorts of benefits that we might want, such as boosting industries that create jobs. Investors are characterised as having put their money into bonds or passive property, rather than providing capital to be used by local companies.
That last comment is derived from an article from Stuff in April 2020. It was partially based on some MBIE research from 2013-2014. However, there are a couple of reasons to be sceptical about this view. The first is that Investor policy settings were changed in 2017 to create incentives for “growth investments” – that is, almost anything other than bonds and charities. It’s not clear that this has brought about a seismic change in investor behaviour, but most clients we have dealt with have eyed the benefits of growth investments with interest. These include relaxation of the “time in NZ” requirements and a reduction of the amount an Investor 2 client has to tie up (which is, by default, NZ$3 million for 4 years).
Perhaps more crucially, an MBIE source has observed to me that their own tracking of investor outcomes indicates that those who secure Investor Residence will, on average, end up bringing at least 3 times more into the country than they originally needed to in order to secure a bare Resident Visa.
Thirdly, as argued by a colleague in a report from August 2020, it’s not just the quantity, but also the quality of interested investors, that is so striking about the wave of applicants for Residence. We ourselves have been approached by clients for whom the $10 million Investor 1 requirement is small change. Furthermore – and this applies to those from the US in particular – they include an increasing number of capable entrepreneurs whose interest is in new ventures and new technology. The small, nimble New Zealand market has for some time been the test-bed for leading edge developments. There may be real attraction in funding and supporting local businesses which are taking leading roles in areas such as biotech.
However, creating a border exemption for investors is probably not addressing the core issue. As I have explained in a vlog published during the first Level 4 Lockdown, the investor process takes years, rather than months. An applicant who is issued an Approval in Principle is given 12 months to transfer and invest their funds, and that period can be extended. This large window is provided so that people can liquidate their assets, bring them into the New Zealand jurisdiction, and settle upon where they want to place them. They are likely to have personal affairs and assets that they need to settle before making that move.
If we consider that current border restrictions are likely to remain in place for perhaps another year, but probably not for more than 3 years, getting a border exemption may not be so critical for those who wish to travel down the Investor Residence route now.
More important, in my view, is directing more resources to processing the large number of Investor applications currently with Immigration New Zealand’s Migrant Investor Team. For a time, cases filed by offshore applicants were not being processed at all owing to a blanket approach to most visa types. However, processing has recently restarted. Still, as with many visa categories, this has inevitably built up a backlog.
Since the end of April 2020, the number of Investor applications “on hand” has increased from 918 to 1215, or 32%. The Investor 1 list has grown in the same period from 228 to 444, or 95%. If we assume a $10 million investment from each applicant, and only 50% are finally approved, then $2.2 billion of potential investment is locked up in an office in Wellington. That is no fault of the visa officers. There just may not be enough of them.
There could be ideological and social resistance to inviting more rich people into New Zealand. We just have to get over it. I have had multiple enquiries from local business owners , in manufacturing in particular, who are looking for capital from offshore. But they also want to tap into the expertise of active investors who have made their money from growing similar businesses; and who often are very keen to share their knowledge and get involved with a similar Kiwi enterprise.
Encouraging overseas investment has been important to this country for a long time. It is even more vital now, in order for New Zealand not just to survive, but to thrive in a world facing some dark days ahead.