If it's not broke don't fix it: forestry rights, sensitive land and the Overseas Investment Act
Earlier last month, in the middle of the summer holidays, The Treasury sought submissions - before 26 January - on the Government’s announced interest in including forestry rights as sensitive land under the Overseas Investment Act.
The Treasury discussion document cited the Comprehensive and Progressive Agreement for Trans Pacific Partnership as the reason for the “compressed timeframe for consultation”.
It is not known how widely the consultation net was cast. I hear the Forest Owners Association - the group that represents most of the large forestry owners in NZ - found out about the consultation process by accident. I hope that is not true.
Currently forestry rights do not require OIO consent.
The only reason given in the Discussion document for the proposed change is that “forestry rights can grant a high degree of control over large parcels of New Zealand land, often for long periods”.
Having spent many years preparing OIO applications for forestry transactions, there are numerous objections to the proposal, at both a policy and practical level. Here are a few.
Dealing first with the practical. The Overseas Investment Office is already hopelessly inefficient – good people trying to assess increasingly complex applications with limited resource against an increasingly politicised environment and unable to treat regular, committed-to-NZ investors any differently from newbies. All while costing overseas investors a fortune in both time and money. That it should be a privilege to acquire sensitive land in New Zealand is not at issue. What is at issue is how inefficient the process now is.
For example, regular overseas investors must continue to repeat basic information about the organisation notwithstanding the fact that they’ve lodged many applications in the past. Why not allow regular investors the opportunity to submit the basic information in to an investment folder once, with a continuous disclosure obligation to keep that basic information up-to-date? That would allow the Office to focus more on the circumstances of the particular transaction, and the benefits thereof.
On the question of control, forestry rights are almost entirely creatures of contract – the rights conferred on the grantee are those determined by the grantor (subject of course to the grant meeting the minimum requirements set by the Forestry Rights Registration Act). By contrast, sales of land and leases of land grant rights of exclusive possession over the land in question. Forestry rights do not – it is simply a right to extract an industrial crop. So why intervene if the grantee is happy with the rights it retains?
The Government wishes to establish 1 billion trees over the next 10 years. Most of the large forestry companies in New Zealand are overseas owned. There seems to be an inconsistency between encouraging planting on the one hand and discouraging investment in forestry rights - or at least making it much harder and more expensive – on the other.
One of the most exciting things to happen in New Zealand over the next 30 years will be the continued rise of iwi economic self-development. Critical to that will be the sensitive, sustainable and economically viable use of their land. There is significant potential – currently being achieved by some – for iwi to partner with forestry companies using forestry rights, thus avoiding the sale of their land. As I said, most forestry companies with scale are overseas owned. Requiring OIO approval for such transactions will significantly increase the time and cost of such joint ventures - and will likely impact the economics of actually undertaking them.
Finally, the benefit to New Zealand test for investments in sensitive land requires a comparison of what is likely to happen with or without an overseas investment (the counterfactual). The benefit must be substantial and identifiable, and it is measured against 21 economic, environmental and other factors.
The Treasury acknowledges that “the benefit to New Zealand test can sometimes be difficult for forestry investors to meet, and therefore changes may be worth exploring.”
While it is good to see an acknowledgement of the difficulties of mounting a counterfactual case particularly, ironically, when the forest is already well run, it is sad that such an important issue gets raised for debate in the middle of the summer break.
The forestry rights system is not broken and works extremely well. That does not need fixing. The Overseas Investment process, by contrast, is in dire straits.