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Printable version
Key Statistics - article, November 2003, p. 9-12
New Zealand’s Investment Relationship with Selected Countries1
The information presented in this article follows on from recently released international investment statistics disaggregated by country and by industry. This article discusses and presents information on New Zealand’s international investment relationships with the United States, the United Kingdom and Australia.
Background
Statistics measuring New Zealand’s international investment transactions and investment position are produced each quarter. The transactions are presented in the financial account of the balance of payments (BoP) statement, and the positions (ie the value of investment at specified points in time) are presented in the international investment position (IIP) statement.
Disaggregations of these statistics by country of source of foreign investment in New Zealand, and country of destination of New Zealand investment abroad are published once each year. The reference period used is the year ended 31 March for the investment transactions and as at 31 March for the IIP.
In interpreting the disaggregation by country of source and destination of investment, note that the country allocation represents the country in which the immediate non-resident counter-party is resident. This provides the first level source or destination in all cases, but will not necessarily describe the ultimate source or destination of the transaction or investment.
For example, if an investor from the US were to acquire the majority ownership in a New Zealand company via a subsidiary company in Australia, acting as a regional head office, then this direct investment in New Zealand would be treated as sourced from Australia. This first level attribution of country of the non-resident counter-party in the BoP and IIP statistics is consistent with international compilation standards set out by the International Monetary Fund (IMF).
In accordance with these compilation standards, New Zealand’s international investment relationships are classified by functional type: direct, portfolio, and other investment.
A direct investment relationship is defined where an investor owns 10 percent or more of the voting capital (equity) of an enterprise. Once this relationship is established, all financial capital transactions (transactions in equity capital plus all borrowing and lending) between the two parties (direct investor and the investment enterprise) are classified to direct investment in the statistics. Portfolio investment is defined as the ownership by one party in another of less than 10 percent of the voting capital of the enterprise, and investment in the form of financial securities such as bonds and notes.
Other international investment is defined as all other types of international financial capital transactions that do not fall into direct or portfolio investment. Examples are loans between unrelated parties, and trade finance and deposits. Note that in respect of interbank funding, funding raised by a resident bank from its overseas parent bank is classified to portfolio or other investment, not to direct investment. The classification of this interbank funding between portfolio and other investment is on the basis of instrument type (securities such as bonds to portfolio, and loans to other investment).
The analysis of country data and subsequent discussions in this paper are restricted to data from 2001 to 2003. This is principally due to the application of new standards for compiling the New Zealand BoP and IIP statement from 2001 onwards. The new standard for compilation is the fifth edition of the IMF’s Balance of Payments Manual (BPM5). Data prior to 2001 has been compiled on a BPM4 basis.
A significant difference between the two standards is the change to a 10 percent direct investment threshold (BPM5) from the previously applied 25 percent threshold. From June 2000, compilation used the new BPM5 standard. The international investment series have not been backcast to the new compilation standards for previous periods. Therefore, there is a lack of comparability of the IIP and financial transaction data before and after March 2000.
All data referred to is published in the Hot Of The Press Balance of Payments and International Investment Position: Year ended 31 March 2003. This data has since been revised with the publication of the June 2003 quarter statistics. A more comprehensive breakdown of countries at the total and component level is available on Statistics New Zealand website: www.stats.govt.nz.
Major investment partners
While historical data disaggregating the stock of total investment by country is not available, an analysis of foreign direct investment (FDI) data by country shows that in 1993 the US, the UK and Australia contributed in total 74 percent of foreign direct investment in New Zealand. At the same time, Australia and the UK were the destinations for 76 percent of New Zealand’s direct investment abroad.
This article discusses New Zealand’s international investment relationships with its three main investment partners at a total level (ie the total of direct, portfolio and other investment) and then considers the relationship in respect of each category. Table 1 presents a breakdown of the stock position of New Zealand’s total international investment by country for the years ended 31 March 2001, 2002 and 2003, while Tables 2, 3 and 4 provide a breakdown at the component level.
New Zealand’s total investment abroad
Results show that in the last three years there has been an overall decline in the level of New Zealand’s investment abroad to its three main destination countries ($50.7 billion in 2001 to $48.6 billion in 2003). Australia and the UK as a destination for New Zealand investment decreased but total investment to the US increased, as shown in Figure 1.
Australia was the destination for $20.3 billion or 25 percent of all New Zealand investment abroad at March 2001. At March 2002 this had decreased to $16.3 billion or 21 percent, and at March 2003 this proportion remained unchanged.
The total level of investment abroad to the UK also fell over the three-year period. At March 2001, $10.3 billion or 13 percent of New Zealand’s total investment abroad was invested there. In 2002 this had dropped to $8.8 billion or 11 percent of the total, and by 2003 had fallen to 9.8 percent.
Aggregation of New Zealand’s investment in the three main destination countries at March 2001 was $50.7 billion (the UK, US and Australia). There has been little change in the proportion of New Zealand’s total investment abroad accounted for by these three countries, increasing from 62 percent at March 2001 to 63 percent at March 2003.
Total foreign investment in New Zealand
Results show a growth in the level of foreign investment in New Zealand from the same three countries (the UK, Australia and US). Comparing March 2001 with March 2003, the value of foreign investment in New Zealand from these three countries rose 16 percent.
In contrast, the value of total foreign investment in New Zealand from all countries rose by 5 percent. While the largest rise in total foreign investment in New Zealand occurred between March 2001 and 2002 (up 4.3 percent), the largest rise in investment from the three main countries occurred between March 2002 and 2003 (up 13 percent).
At March 2001, Australia was the source of 19 percent of New Zealand’s total investment from abroad, increasing to 23 percent at March 2003. The UK accounted for 20 percent of foreign investment at March 2001, and at March 2003 it contributed 23 percent to the total. The contribution from the US was static in value at March 2001 and 2003, but its proportion of the total decreased from 16 percent to 15 percent.
Aggregation of foreign investment in New Zealand from the three main countries shows they contributed 56 percent of total investment in New Zealand at March 2001, 55 percent in 2002, and by 2003 this increased to 61 percent. This reflects the rising contribution from Australia and the UK as a source of investment, as shown in Figure 2.
Component breakdown
Direct investment
Australia, the UK and the US combined, accounted for $11.6 billion, or 63 percent of the value of New Zealand’s direct investment abroad at March 2001. Such whole comparisons cannot be made for 2002 and 2003 due to confidentiality of data. It is clear that Australia remains a significant destination for New Zealand direct investment abroad, while the importance of the US has fallen.
The value of New Zealand’s total direct investment abroad has declined by 27 percent over the past three years. The value of New Zealand’s direct investment in Australia has declined but, proportionately, Australia is a larger destination for this investment at March 2003 compared with March 2001. This is probably due to factors, such as Australia’s close proximity and relative familiarity, and trade agreements, such as Closer Economic Relations.
New Zealand’s stock of direct investment in the US has decreased from $2.2 billion at March 2001 to just $0.5 billion by 2003 – this is a decline of 76 percent.
Portfolio investment
New Zealand’s total stock of portfolio investment abroad has declined by $1.3 billion or 5 percent over the past three years to a position of $24.9 billion in 2003. The combination of Australia, the UK and the US accounts for 75 percent of this total.
When comparing the March 2001 to March 2003 periods, Australia and the UK have been a declining destination for New Zealand’s portfolio investment abroad, while the US has been an increasing destination.
Total portfolio investment into New Zealand has risen from $61.8 billion in 2001 to $65.0 billion by 2003, an increase of 5 percent. Australia has been a substantial contributor to this increase with its stock position rising 112 percent. At March 2001 Australia was a source of 5 percent of total portfolio investment in New Zealand but at March 2003 this had increased to 10.2 percent.
The UK is by far the largest single source of foreign portfolio investment in New Zealand. Comparing March 2001 with March 2003, we see a 44 percent increase in foreign portfolio investment in New Zealand sourced from the UK, reaching a level of $26.5 billion at March 2003.
The US is the second largest source of portfolio investment into New Zealand. In 2001 the US contributed 16 percent of the total. By 2003, the stock position increased, but proportions were unchanged, implying that US investment is increasing its level proportionately with other countries.
In 2001 Australia, the UK and the US combined accounted for 51 percent of portfolio investment in New Zealand, in 2002 this increased to 56 percent and by 2003 this was 65 percent. This is a sizeable increase, implying that these three countries are becoming even more important to New Zealand over time.
The data for flows supports this, all three countries report large flows over the period, in particular the US.
Other investment
Australia and the UK have declined as a destination for New Zealand’s other investment abroad, while the US has increased by 68 percent. Aggregation of these three countries as a destination gives 63 percent of the total in 2001. By 2003, this proportion fell to 55 percent of the total, but the stock position increased, indicating that one country or more over and above these three is a growing destination for other investment from New Zealand.
Singapore has increased as a destination for other investment, going from $0.09 billion in 2001 to $1.3 billion in 2003. This is an increase of 1,307 percent, while Germany has consistently been the second largest destination of other investment, ahead of both Australia and the UK.
Australia, the UK, and the US contribute significantly as sources of other investment. In 2001, their combined total was 49 percent of the stock. By 2003, this was up to 52 percent of the total. Singapore is a significant but declining source of other investment. From the 2002 and 2003 years, other investment from Singapore decreased other investment by $3.5 billion, making up almost the entire decrease in total other investment.
Australia reported an increase of $4.3 billion in other investment, making it the largest source at 24 percent, while the US increased slightly, and the UK had a small decline.
Conclusion
Australia, the UK and the US have been in the past and continue to be the traditional sources and destinations for New Zealand investment. However, the make-up of these contributions has changed over the period analysed here. As destinations for New Zealand investment abroad at the total level, Australia and the UK have decreased, while the US has increased. However, the opposite is true for sources of foreign investment in New Zealand – the US has declined while the UK and Australia have both increased.
Footnote
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