Rod Oram and Brian Gaynor both have identical concerns about recent failures in New Zealand’s capital markets. Oram:
Two deals this past Monday made it such a day of infamy. First Bright, China’s third-largest dairy company, said it was paying $82 million for 51% of the downstream processing and marketing operations of Synlait, one of our most ambitious dairy companies.
Then Olam, a Singapore company, said it was making a full bid for New Zealand Farming Systems Uruguay. It picked up PGG Wrightson’s 11.5% stake for $15.5m, taking its holding in NZFSU to 29.95%.
The deals showed once again that we are incapable of growing sophisticated international companies of scale and lasting economic value. The handful we already have, such as Fonterra and Fletcher Building, are legacies of earlier eras.
In the 1980s and 1990s Australian investors spotted the huge potential in our banking sector and purchased ASB Bank, Bank of New Zealand and the remaining 25 per cent of ANZ Banking Group (NZ). These offers were successful because we didn’t have sufficient savings and capital to match the Australian acquirers.
The major Australian banks have made huge profits from these acquisitions and, as a result, there has been a significant wealth transfer from New Zealand across the Tasman.
In the mid and late 1990s overseas investors, particularly from Asia and North America, recognised the huge potential in our major commercial forests. Most of these forests are now overseas-owned and these owners are now making huge returns because of booming log exports to China.
Once again we sold these forests far too cheaply because we didn’t have sufficient savings and risk capital to take a long-term view. New Zealand investors tend to panic and sell in a downturn and overseas investors, who take a long-term view and make low-priced, successful offers, make huge profits at our expense.
I’m not too worried. Smashing the unions will solve most of these problems while the tax cuts funded by scaling back Kiwisaver and gutting the Cullen fund will give Kiwi Mum and Dad investors the freedom to capitalise their own dairy processing plants.
As for our capital markets, surely the solution is simply to privatize some more SOEs?
Nice…
A large pool of sarcasm is sitting on my desk-top – having just dripped off those last two paragraphs…
Comment by Sam — July 26, 2010 @ 12:35 pm
“Once again we sold these forests far too cheaply because we didn’t have sufficient savings and risk capital to take a long-term view. ”
AFAIK not exactly right. in the early 90s we sold the forests ‘local business interests’ *cough*friends of ruling party*cough*, who proceeded to sack all the gangs and strip-mine the forests as fast as possible with cheap labour.
*then* they were sold off-shore.
Comment by che tibby — July 26, 2010 @ 12:45 pm
All these profits flowing overseas are an indication we’re doing things very, very wrong. I suggest we start making our own cars, planes, fibre, computer and software so we keep all these profits right at home.
Comment by Berend de Boer — July 26, 2010 @ 12:55 pm
Most of our major banks have been overseas owned for over 150 years – Westpac, Anz, National. ASB was a regional savings bank and only since its sale did it go on a national growth spurt. BNZ was sold to NZers initially and failed and was bailed, before sale to Aussies. How much of Westpac/ANZ and CBA are now owned by NZ shareholders?
So isn’t our own managerial and risk taking incompetance really the issue here not depth of capital?
“We sold them far too cheaply”
Ah 20:20 hindsight in investment is such a wonderful thing. If it was so obvious then capital raising by NZ companies shouldn’t have been an issue, whether from local or domestic sources. Guaranteed returns surely?
If we are not as smart as foreigners or as well informed as foreigners about the potential for our domestic industries, isn’t that either again an indictment on us or perhaps saying it was a bit riskier than hindsight might suggest.
Were these huge log export volumes to China predictable? How much of a loss did the forest owners make in the decade before these exports took off?
rahter than driving an in-country money go round by forcing local money into local investments just because it is local, wouldn’t it be better encouraging outward investment to draw in overseas dividends as well as focus NZ businesses on the discipline needed to provide competitive returns that will attract NZ investors as much as overseas ones?
Funny how no one seems to complain about the huge profits fonterra reaps from relatively poor Chinese consumers, that are repatriated to NZ.
Comment by insider — July 26, 2010 @ 1:08 pm
insider, that’s brilliant.
Comment by Berend de Boer — July 26, 2010 @ 1:18 pm
Funny how no one seems to complain about the huge profits fonterra reaps from relatively poor Chinese consumers, that are repatriated to NZ.
Not really. No one complains about the profits that foreign companies make when they sell us things we import either.
The system breaks down (for us) when we send money overseas to buy things, then try to balance this out by selling things to people overseas but then send all the profits back overseas as well.
Comment by danylmc — July 26, 2010 @ 1:24 pm
And the solution is? Whiny sarcasm?
Comment by har — July 26, 2010 @ 1:32 pm
But does the system equally ‘break down’ when we get dividends from overseas investments. It only seems to be considered a break down because there is a perception of some form of ‘unfairness’, which seems more about naivety than reality.
Comment by insider — July 26, 2010 @ 2:01 pm
No one complains about the profits that foreign companies make when they sell us things we import
We import banking services. You, and others, complain fairly often about that.
Comment by Phil — July 26, 2010 @ 2:06 pm
insider, Danyl and Brian Gaynor are typical of the left in that they don’t understand the concept of trade.
Danyl doesn’t really believe we should produce all our own software in this country. And if he does, he doesn’t want to admit that yes, it’s foolish that we in NZ would write all our own software so we’re not sending all the profits to Microsoft.
Comment by Berend de Boer — July 26, 2010 @ 2:08 pm
Asian investors seem to have a much longer term view on investment than us. Go to any commercial property auction and see how many Asian buyers there are, at what seems like ridiculously low yields. It seems to be the same case when Asian investors are the top bidders for assets like forests and farms, when no-one is is interested (or indeed capable of raising the money).
Maybe our hopeless banking/finance sector is the issue. Try raising a loan to buy a farm at the moment. Or to expand your business.
Comment by Pat — July 26, 2010 @ 2:32 pm
But does the system equally ‘break down’ when we get dividends from overseas investments
The whole point of the post is that we haven’t structured our economy into a position where we’re able to do that. If our companies were huge revenue streams for external dividends then we wouldn’t have a problem. As Gaynor points out, we can’t move to block overseas investment because that’s the only investment our industry can get. So surely you want to fix that and the best way to do that is mechanisms like compulsory savings, soverign wealth funds etc which this government has dramatically scaled back in favor of tax cuts.
I notice that managed funds in this country actually shrank in the last quarter:
http://www.stuff.co.nz/business/personal-finance/3958606/Retail-managed-funds-shrink/
Comment by danylmc — July 26, 2010 @ 2:36 pm
So NZ joins the rest of the world as pimples on the old money bags of the West in particular Europe.
And any non-U countries who progress through, gasp, some sort of economic socialism / centralism or economic diktat….. well, terrific, providing it’s not us. In a world riven by laissez faire-ism what would Berend the Bore and Hah! have us do? Too broke to save, too screwed to invest with confidence, twenty years past the light that was expected to be found at the end of the tunnel, and led by blinkered incompentent at both Board and Cabinet tables…… Run a warm bath, someone.
Comment by Galeandra — July 26, 2010 @ 3:17 pm
Difficulty is Galendra that we have tried that approach in the past and failed – remember “think big”? WHat’s changed?
The standardistas point to Kiwibank as an example, but that is subsidised by NZ Post and it has done little I can see to reduce banking margins – people ‘believe’ it has, but that seems an emotional response based on the fact they want it to. I’ve seen graphs and reports showing lending margins increasing in the last couple of years and KB’s margins as in the middle of the pack.
We forget that large chunks of the economy are already dominated by the state or heavily regulated by it – Power, roading, health, education are some.
Do you really believe in your heart the price of petrol would come down if the govt owned a bunch of petrol stations?
And no doubt someone will fully quote the wealth building efforts Chavez and Castro as a counter to your desires (so I thought I’d get in before Berend)
Comment by insider — July 26, 2010 @ 3:52 pm
a) crappy sharemarket – least regulated in the world, insider trading is rife, anyone else is a sucker
b) regulatory regime that rewards rent-seeking behaviour – no capital gains tax for non productive investments
c) nobody has capital. Mark Hotchin, Eric Watson et al nabbed it
Comment by ropata — July 26, 2010 @ 4:03 pm
Dunno what you’re all worried about, all we have to do is wait til China and Aussie run out of clean drinking water and then starting tapping that $1 trillion worth sitting in Lake Taupo.
Of course by then some future government would have sold the lake to a foreign super fund for $1.50 and a panda but hey, laying all that pipe is gonna mean a few jobs for the locals.
And after global warming turns NZ into a tropical paradise and floods the islands, we’ll be the tourism capital of the world!
Comment by gazzaj — July 26, 2010 @ 4:24 pm
gazzaj, as everything is going to be flooded anyway, why should we care to keep all the profits here?
Comment by Berend de Boer — July 26, 2010 @ 4:52 pm
Fletchers (in partnership with the Chines Govt entity CITIC) lost a truckload of money buying state forests in the mid 1990s and sold them at a big loss.
Comment by Tinakori — July 26, 2010 @ 5:02 pm
The real issue is that we wernt offered the share at all, I and lots of my mates were dead keen on getting a crack at Synlait but the idiot brokers couldnt be bothered actually offering it to the public.
Big problem is we never get offered these opportunities, I dont think its a lack of capital at all more a lack of opportunity which you can probably lay at Weldons feet, he gets huge bonuses without actually having to grow his company.
Comment by David — July 26, 2010 @ 5:54 pm
You know, if you’re going to talk shit, then you may as well talk shit about something obscure, not something that’s easily refuted with about 3 seconds worth of Google searching.
If BNZ was overseas owned for 150 years, then why the hell did Bolger have to bail it out in 1990? If ASB was overseas owned, then why does its own official history detail being passed to the Commonwealth Bank with a 75% share buy in 1989?
How many Kiwis own Westpac and ANZ shares? Well, why don’t YOU tell us, if you’re so sure of it? Me, I’ll bet not many… but then again, I’m not predicating my entire argument on a pile of bollocks bigger than a year’s mountain oyster crop.
Comment by dontsurf — July 26, 2010 @ 6:05 pm
Of course by then some future government would have sold the lake to a foreign super fund for $1.50 and a panda…
Heh
Comment by garethw — July 26, 2010 @ 6:39 pm
not to mention laying pipe for a living. i just don’t thing i have the abs to cut it.
Comment by Che Tibby — July 26, 2010 @ 7:22 pm
Danyl, your conclusions are irrefutably right.
Roger Kerr, Rodney Hide, Roger Douglas et al will love you (not mention
Crosby Textor).
What is left?
Irony. (This may be difficult for the above named [and Berend])
Sigh!
Comment by peterlepaysan — July 26, 2010 @ 7:38 pm
Solutions
1: Join CAFCA and rein in the Overseas Investment Office.
2: Don’t vote for a party that likes selling off national assets for their corporate pals
3: Give Kiwis confidence in investments other than property by regulating and investigating dodgy investment outfits BEFORE they go titsup.. and put Hotchin in jail. It’s called legislation, some governments used to do it before 1984
Comment by ropata — July 26, 2010 @ 7:43 pm
Here you go, the whole lousy investment story – http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1843003 – the Crown got a good deal on this one
Comment by Tinakori — July 26, 2010 @ 9:34 pm
you know dontsurf if you turned down the anger and turned up the reading comprehension skills you might have a point. You might also have noticed the phrase containing “Most of our major banks” had a full stop or two between it and the ones containing ASB and BNZ.
Full stops play an interesting role in English in separating ideas. That’s how most of us can read things like, ‘black is the new white. Green is the new red’ and not think that black and green are the same colour.
So if you’re going to talk shit dontsurf and launch into spleen venting, you might actually want to take your own three seconds to check that what you have read actually says what you think you are refuting.
(Ranapia mode switched off)
Comment by insider — July 26, 2010 @ 10:53 pm
“like compulsory savings, soverign wealth funds etc”
Who is the government to force people to save. If most NZers want to live for the now and suffer the consequences later, thats up to them
Comment by Matthew — July 27, 2010 @ 12:37 am
Who is the government to force people to save. If most NZers want to live for the now and suffer the consequences later, thats up to them
Who is the Government? They’re the people we vote for every three years.
Comment by georgedarroch — July 27, 2010 @ 12:46 am
I think I understand Danyl’s thinking on this topic.
“Let me explain to you how this works: you see, the corporations finance Team America, and then Team America goes out… and the corporations sit there in their… in their corporation buildings, and… and, and see, they’re all corporation-y… and they make money.”
Comment by OECD rank 22 kiwi — July 27, 2010 @ 3:12 am
“Who is the government to force people to save. If most NZers want to live for the now and suffer the consequences later, thats up to them”
That MIGHT be fine if the consequences only affected them. But isn’t our lack of savings the reason we have to turn to overseas investors? Australia has compulsory savings. Aren’t we trying to be more like them?
I agree with Danyl. We should having compulsory savings. And we should have a capital gains tax to stop us blowing all our saved money (and borrowed money) on housing, rather than productive investments.
Comment by Will Truth — July 27, 2010 @ 4:23 am
“That MIGHT be fine if the consequences only affected them. But isn’t our lack of savings the reason we have to turn to overseas investors? Australia has compulsory savings. Aren’t we trying to be more like them?”
Turning to overseas investors isn’t really a problem for the entrepreneur/corporate/homeowner, they only care about a good rate of interest, or price if they are selling. The “problem” is we/most NZers don’t save enough therefore cant invest and cant reap the rewards of that hypothetical investment at a later date. People who argue against foreign investment are just wishing NZers would spend less of their income and save more of it. Well that is their choice and no amount of wishing will change it.
Comment by Matthew — July 27, 2010 @ 4:38 am
[...] at the Dim Post it is suggested that New Zealand is somehow failing when company owners sell their assets to [...]
Pingback by TVHE » But what is the problem? — July 27, 2010 @ 8:33 am
as everything is going to be flooded anyway, why should we care to keep all the profits here?
Sorry, I should have been more specific – I meant the Pacific Islands.
As for the profits, I got no problem with foreign investment and foreigners taking their profits – we need their capital and more investment is better, it’s not a zero-sum game.
What I do have a problem with is the country as a whole spending all its money on importing consumer goods, when we could be saving and investing in production instead.
Comment by gazzaj — July 27, 2010 @ 1:36 pm
“People who argue against foreign investment are just wishing NZers would spend less of their income and save more of it. Well that is their choice and no amount of wishing will change it.”
Exactly. Wishing won’t change it. But compulsory savings and a capital gains tax might be one of the things that would.
Comment by Will Truth — July 27, 2010 @ 8:06 pm
Is it just veiled racism or is there a fundamental difference between a NZer owning something and a foreigner?
Comment by Owen — July 27, 2010 @ 8:28 pm
Cheap shot Owen. Would you prefer NZ becoming a nation of tenants and tour guides?
Comment by ropata — July 27, 2010 @ 10:08 pm
I think it is veiled racism that Europeans and North Americans have been buying land in NZ for over 150 years but as soon as the Chinese start it’s an issue.
Comment by gazzaj — July 27, 2010 @ 10:51 pm
Piss off with the racism accusations. Nobody objects in principle to Chinese families moving here and buying a house, but NZ has been subjected to massive uncontrolled immigration and large scale land sales to overseas interests. Absentee landlords and corporations buying pristine real estate take it far beyond the possibility of local ownership. Of course this has made many former landownders very wealthy and there’s thousands more who want to get on the gravy train. Classic tragedy of the commons. Fire sales are great for those who stand to profit, terrible for the economic future of NZ
Comment by ropata — July 28, 2010 @ 2:51 pm
@ ropata – how is private ownership and sale of property etc tradgedy of the commons??? Are you being sarcastic?
Comment by Matthew — July 28, 2010 @ 9:23 pm
Land is a finite (depleted) resource. New Zealand’s sovereign territories are not in the hands of its citizens any more.
Comment by ropata — July 29, 2010 @ 7:37 pm