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The Associate Minister of Finance David Seymour has issued a new Ministerial directive letter to Land Information New Zealand (LINZ) to make consent processing timeframes faster under the Overseas Investment Act.
The directive is potentially a game-changer and, if fully implemented by the OIO, has the potential to materially lower barriers to foreign direct investment in New Zealand, as well as substantially reducing compliance costs and delay.
From our perspective, the key points are:
- a clear and unambiguous statement that access to international capital markets is presumptively beneficial, and accordingly the focus of the regime should be on managing risks. This is as close as the Minister can get to reversing the onus in a consent application (which is currently on the applicant to prove the investment is beneficial) without changing the legislation;
- a direction to apply proportionate scrutiny when reviewing applications, and to “consider every opportunity” to minimise compliance costs, reduce the regulatory burden and prioritise resources, recognising that most investment poses “no-to-low risk”; and
- critically, an expectation that 80% of applications will be assessed within half the relevant timeframe in the regulations, and to report to Ministers and to the public whether that objective is being met.
That last point is of particular relevance because delay is what foreign investors are generally most concerned about. What the Minister is saying in this letter is: I expect you to radically streamline your assessment of FDI applications and, if you do as I direct, the result should be a dramatic reduction in processing time, for which I will hold you accountable.
The challenge for the OIO will be implementing the directive letter within the framework of the existing legislation. The OIO still needs to demonstrate that the relevant statutory tests are satisfied, and adopting a ‘quick look’ approach to granting consent may expose the OIO to the risk of judicial review. That has happened before: the increase in the regulatory burden of FDI screening in recent years dates back to a court challenge in 2012 in which a complainant seeking to block the sale of land to a foreign buyer successfully argued that the OIO had failed to properly apply the legal tests. So the OIO will need to balance the Minister’s desire for an expedited and risk-based approach against a statutory framework that still puts the onus on foreign investors to justify their investments in New Zealand.
More generally, however, this directive letter is a clear indication of the Government’s foreign investment policy and hopefully will inform legislative changes in this Parliament. This letter suggests that, if the Minister had his way, the Act would be re-framed to allow the OIO/Ministers to block investments that pose a risk to New Zealand rather than, as presently, requiring investors to demonstrate their investments will benefit New Zealand. Positive signs, in other words.
For further information on this topic, please contact one of our experts.
