Published on stuff.co.nz (Auckland), 4 December 2013
When the United Nations Conference on Trade and Development (UNCTAD) released its last World Investment Report in June this year, it was a sobering read for New Zealand.
Though we may be convinced we live in one of the most attractive places in the world, it does not show in our ability to attract foreign capital. Inflows to New Zealand fell by 33 per cent in 2012.
Admittedly, the post financial crisis years have been challenging for trade and investment around the world. However, other economies still managed to do much better than New Zealand. One of them is Hong Kong.
To be sure, Hong Kong was not immune from the global trend either and experienced a reduction in inward foreign direct investment as well.
However, figures just released by the Hong Kong government’s investment agency, InvestHK, show that despite this Hong Kong is currently home to a record number of overseas headquartered companies and the city has never been as globally connected as it is today.
Hong Kong’s FDI level had taken a minor hit during the financial crisis but it is well above it now – and much higher than at the beginning of the century.
To illustrate this with some figures, in 2001 there were 4,467 overseas companies operating in Hong Kong. Today there are 7,449 companies.
The job opportunities they have created have also increased from 237,000 jobs in 2001 to 385,000 jobs today.
Perhaps even more promisingly, 20 per cent of all international companies are planning to extend their operations in Hong Kong over the next 20 years and only 3 per cent were going to phase out or leave.
Looking at the Hong Kong’s FDI success story from a New Zealand perspective, we may wonder whether there are any lessons to learn for us. There are some obvious differences between Hong Kong and New Zealand, not least that Hong Kong’s nearest neighbour is the powerhouse of the world economy whereas trade opportunities with Antarctica are somewhat more limited.
Having said that, an InvestHK survey of foreign companies invested in Hong Kong reveals the factors that were important to them and which attracted them.
Top of the list of the most important qualities sought by international investors were simple and low taxes, a free flow of information, the absence of corruption and an independent judiciary under the rule of law. On all these categories Hong Kong ranked highly.
Perhaps surprisingly, geographical location was only the 7th most important factor (so there is hope for New Zealand).
Another result from the InvestHK survey is equally interesting from a New Zealand perspective. Foreign direct investment was dominated not by big multinationals but by much smaller companies.
Almost 70 per cent of all overseas companies in Hong Kong employ less than 20 people. As InvestHK’s Director-General Simon Galpin explained to me last week, this is the result of a deliberate policy.
“If you are trying to attract the Forbes 50, you have 50 options. If you are going for small and medium sized companies, the possibilities are endless.”
Taken together, the lessons for New Zealand are clear. The best way to attract foreign investors is to create an economic environment that is favourable to any business, whether domestic or foreign owned.
There is no need to roll out red carpets and make dodgy deals with international companies. Just ensure that the general environment is favourable to doing business.
And when it comes to promoting your economy as a potential partner, do not focus only on the big players but think of the niches in which your economy can play a role.
Hong Kong and New Zealand are obviously very different economies with different political and social cultures.
But if we want to make the New Zealand economy more attractive to job creating international investment, we might just try to learn a thing or two from the world’s best players in this business.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative. He just visited Hong Kong as a guest of the Hong Kong government.
