Report Back On Overseas Investment Trip

Investors, The Coalition and the Reserve Bank

Hong Kong
Our short visit to an up beat Hong Kong allowed me the chance to outline the new government's economic initiatives to government representatives, banks and an audience of local business people. The one country-two systems policy is performing above expectations and there is a general confidence that China will be admitted to the WTO and this will provide a further fillip to the Hong Kong economy.

On the investment front, I explained that we are keen to see further activity channeled into greenfield or expanded development rather than into more passive areas like property.

There was some interest in the progress of NZ's negotiations with Singapore on a free trade agreement. We also discussed the shift in NZ immigration policy to one that was more job-related, with a greater influence on the mix of migrants than on numbers per se.

However, I emphasised that the new government is one keen to encourage immigration - in contrast to the policies that deterred potential migrants in the mid-90s.

The HSBC noted that the NZ dollar was one of the more popular deposit currencies. There was a general expectation the NZ$ would appreciate slightly in the coming year or two, but anything more would not be good for the economy.

The 39 cent tax increase was the issue raised most frequently. I was able to reassure audiences that foreign investors are not affected as the company tax rate has not increased.

Tokyo
I am more optimistic about the state of the Japanese economy than I was prior to our visit. Overall, the balance of opinion is that there are distinct signs of recovery in Japan although it will be neither smooth nor assured.

The Japanese tend to invest in the bond market, there is not a lot of direct investment in NZ. A substantial purchase of NZ government securities by a Japanese investor just the day before we arrived, made the point.

My meeting with the Minister for Economic Planning was an opportunity to hear a Japanese Government view of the local economic situation. Director General Sakaiya said the economy had entered a delicate stage and since the beginning of the year there had been signs, including increased industrial production, capital investment, effective job

Offers and overtime, that the economy was back on a recovery track.

Interestingly, growth in the corporate sector is not limited to the 'new economy'; electrical and machinery manufacturers are also predicting increased earning in the coming years, largely as a result of restructuring - an area where NZ has little fat left to shed.

While there is a general consensus that the Japanese economy is in better shape than a year ago, there is not yet a universal view on the obstacles standing in the way of sustainable recovery.

My visit to Tokyo was the first by this government and as such attracted a lot of attention from within the Japanese Government, the financial sector and the media. I received very favourable feedback but more importantly, I was given a valuable behind-the-scenes look at the state of the world's second largest economy and a key market for New Zealand. I will ensure that close and regular contact is maintained with Japan

New York
The mood was tense when we arrived in New York on Sunday as the world held its breath to see what would happen when Wall Street opened on Monday. But fears of a stampede eased when the market rallied toward the end of trading and the solid senior citizens of Wall Street seemed fairly relaxed. After all, they reasoned, the NASDAQ was overdue for a correction and there is probably more to come.

JPMorgan's commentary on NZ in its April World Financial Markets analysis is positive. It says the economy has gone from strength to strength and that there is less

risk that the recovery will be extinguished prematurely because the Reserve Bank has become less "trigger happy".

Likewise Moody's seems relaxed about the government's policy programme and confirmed that their visit here in June is pure routine and they have no plans to change NZ's current stable rating outlook.

But, they do share my own serious concern over the current account deficit, particularly our poor savings and investment balance. I assured them that raising the country's savings levels is a key government objective. I also pointed out the government's spending and tax policies represent a fiscal shift of less than 1 percent from the previous government.

The highlight of the New York leg of the trip was the Investor Dinner. Extremely wealthy investors and venture capitalists were guest to host Ambassador Jim Bolger.

What struck me was the number of these investors who have an emotional attachment to NZ; some have property here, or enjoy holidays in this part of the world, others have Kiwi relatives and some just simply like the country and want to push their investments in NZ.

Another surprise from this wealthy and elite audience was their overwhelmingly positive feedback on NZ as an investment destination.

They praised our transparent legal system, the lack of capital gains tax and death duties, our high education levels, the creativity and talent of our people and our political stability. Surprisingly, even ACC is a selling point: one investor told me that he maintains a strong investment in NZ due to the fact that here, unlike the US, he doesn't run the risk of injury litigation.