The Overseas Investment Office (OIO) is so grossly under-resourced it has become an embarrassment for New Zealand, a mergers and acquisitions (M&A) specialist says.
More stringent and complex testing processes for foreign investments means OIO processing periods are now taking closer to 100 days - double the office’s target, Chapman Tripp
partner John Strowger told NZLawyer
“We’ve had transactions with regulatory approval required in 13 or 14 jurisdictions including this one, and everybody has been nervous about timeframes for obtaining clarity in other far-flung and exotic locations. And then we’ve signed the deal and gone off to get approvals and to our embarrassment the OIO process comes through a very distant last.”
“Basically everyone is sitting around waiting to transact, and really we are having difficulty to our clients explaining why it’s taking this long here in New Zealand… There’s an embarrassment factor around time processes.”
“You need to explain to your clients who aren’t familiar with the process what is going on and why, and it becomes a drag. They don’t necessarily really understand, and you’re trying to explain delays, and there will be a bit of disappointment. And no one likes to convey bad news.”
He pointed out that it was not a case of the staff at the office doing a poor job.
“I think their performance has lifted in the time that I’ve been dealing with them by a quantum - but there is clearly a resource problem. They are very significantly under-staffed.”
Chapman Tripp’s latest M&A trends and insights report – released last week – identified New Zealand as have the seventh most restrictive screening regime for foreign direct investment in the OECD.
In order to obtain consent for a business purchase not involving “sensitive land”, potential investors must satisfy and investor test that assesses their character, relevant business experience, acumen and financial commitment to the investment.
Acquisition of sensitive land and fishing quota requires the consent of two Ministers and – in addition to the investor test, a “benefits test” which examines whether the investment will result in benefits to New Zealand.
“The tests have got more rigorous, they are more demanding - and I think your average person in the street would completely support that,” Strowger said.
“But a consequence of that is that there needs to be more resource put into this function – you can’t sort of turn up the criteria and then expect the office, operating with its current resource and budget allocation, to actually achieve acceptable timeframes for processing applications.”
“If you talk to anyone in M&A generally, they will tell you - at least in private if not more publicly – that the time delays are becoming problematic.”
He described more resourcing and budget allocation as a “small price to pay if we want a more rigorous and demanding set of procedures around foreign ownership”.
“People say to me that very few applications are getting turned down, so why are we complaining and has anything changed. I think that is a very crude way to look at it. If you look at investment decisions and the overseas approval decisions, there are a lot more criteria and conditions precedent to approvals than there ever were – so it’s very, very common now for an applicant to be granted permission on the basis that it spends ‘x’ on CAPX or does ‘y’ in relation to full time employees.”
“The OIO is much more prescriptive around consents and if people say things in their application to try and recommend their cause, they will be held to account at approval time.”
“The criteria and process… is considerably more stringent and more time-consuming than what we had three or four years ago.”
But the OIO had remained extremely transparent, Strowger said.
“They are publishing more and more stats around time periods for processing. They are quite clear with you about where you sit in the machine, and so that is helpful, but ultimately they can’t control time frames for Ministers.”
“I think in general terms the office is co-operative, courteous, transparent and professional in their dealings with advisors and applicants. But they are under a pretty cruel workload. If they aren’t [run] off their feet – they are close to airborne,” he said.