Why New Zealanders avoid greenfield investments

Don Brash

Overseas investment will remain essential for any greenfields development in New Zealand while local investors minimise their risk, former Reserve Bank governor Don Brash says.

Dr Brash is one of two remaining directors of Oceania Dairy Group, which attempted to raise capital for a $90-100 million milk plant in South Canterbury.

Instead the company has sold its consents and land purchase option for a site at Studholme near Waimate to one of China’s largest dairy companies, Inner Mongolia Yili Industrial Group.

The site is near a milk powder plant built by New Zealand Dairies, a Russian-backed venture that failed and is now owned by Fonterra.

Yili intends to spend twice the orginal sum, some $214 million, on an infant formula plant.

Oceania’s failure follows a similar unsuccessful attempts to attract capital by Synlait Milk, which then received backing from China’s Bright Food Group, and Hamilton fruit extract company BioVittoria, which is now backed by global food ingredients company Tate & Lyle.

“New Zealanders tend to be focused on property or Fonterra and greenfields investments are considered much riskier. However, it’s lower risk for large companies as Bright Food and Yili,” he says.

Dr Brash and fellow director and South Canterbury dairy farmer Paul Park visited one of Yili’s modern dairy plants in Hohhot, a city of four million and capital of the autonomous Inner Mongolia region in China last October.

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A useful purchase for Yili, now it can claim it makes infant formula in NZ, of course auditing how much is made here and how much is sold in China as being made in NZ here could well be quite different.
One also wonders what will happen to NZ's dairy reputation should a Chinese company manufacturing here gets up to the usual highjinks and there's bad publicity.

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This is from the man who as Chairman of Huljich Wealth Management oversaw the large scale investment into bonds when equities were at its cheapest?

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Bravo Dr Brash. There must be more high profile business people making such pronouncements and repeating them in the media to the embarrassment of our erstwhile "Investment" communities. Where are the investment banks with "balls" to back the entrepreneurial acumen of our people. Entrepreneurs are regularly tagged with having the "Spirit" to participate. Rubbish, these people have the proven Acumen to foot it with the best. What we don't have is funders with the conviction that our neighbours (Aus) have to back their own people. Our lenders would rather rip us off with 30% rates or worse a 70% cut of the business. Get real guys, we will let you help our ideas to market, but not at the expense of our souls.

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Well said

Where is NZ Super fund in all of this
Ah that's right they invest 80% of our money offshore because its clever and they can all get multiple overseas trips each year to visit their invetsments.

Meanwhile Australia invests 50% of their money in Australia and that is only restricted because they have so much money sloshing around their compulsory supoer scheme their just isn't enough local investments.

NZ Super and the Kiwisaver schemes have a lot to answer for to the NZ market and also to their members - who seem to be be ignored and forgotten by the highly paid NZ Super Fund staff

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Funny. We want our land, our companies, our assets to stay in Kiwi ownership. But when it comes for Kiwis to pay for the ownership, we don't take our hands out of our pockets. Talk of "investment banks with balls" ! There aren't any such kind Santa Clauses. Even the 'proudly Kiwi-owned' banks charge the same interest rates as the Aussie owned banks. Our business scene is riddled with virtual monopolies. Just think...Fonterra just has to sneeze, and all dairy farmers catch a cold. Would any of them have the balls to sell to anyone else? But its OK. Happens when we get used to living in a pseudo-welfare state. If we don't learn to wipe our own noses, we'll end up looking like Greece, unless you prefer Portugal, Spain, Ireland, et al.

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One possible reason why people remain risk averse is a failure to understand that with increasing uncertainty there is a need to increase ones skills and ability to respond to change.
The more capital you have to invest arguably the more you need to have some in new riskier areas to ensure that when a supposedly low risk area experiences an unexpected change undermining the investment you have a set of skills available and growing to meet the change.

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Good observation Deepak - my own observation of my fellow Kiwis, particularly bloggers, is that they always want someone else to pay for it, until they do. - they want NZers to own everything, but they don't want to have to pay for it - easy to understand our problem isn't it.

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Too true; people complain that all these nasty offshore companies are getting "our" profits by buying shares in "our" companies, but they won't buy shares in NZ companies - they'll either buy real estate, or put all their money into high-return finance companies, (High Return of course implies High Risk) then complain when they go belly-up and demand that taxpayers bail them out.

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The economic policy fashions promoted by Don Brash have themslves led to bad local investment decisions.
Treasury refused to consider a tender for the manufacture of Rail rolling stock in NZ. This is an example of narrow ideology trumping practical economics.
BERL prepared a business case for this tender with the following observation:

"Our research suggested that overseas manufacturers would need to produce the rolling stock at between 29 percent and 62 percent less than the price of manufacture in New Zealand to offset the benefits to New Zealand GDP of producing the trains here. This range was dependent on whether only the direct benefits were considered (29 percent) or the total benefits (62 percent) to New Zealand GDP."

The less we hear from Don Brash the better. The policies Bash championed led to the hollowing out of the NZ economy. The likes of David Cunliffe can lead NZ into a prosperous and fair future.

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Rail? Really? Rail and investment don't belng in the same paragraph. This article was nothing to do with rail.

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Cunliffe will only lead NZ into a Greece/Ireland scenario. He doesn't even begin to understand economics, just listen to his utterances.

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Chinese companies get loans in China under very favorable (subsidized) rates, enabling them to easily outbid local companies that are forced to borrow on the open market...

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Is it true this Company intends to make baby formula with sugar and fat in it to resemble McDonalds ? ie food manipulation.. not a new thing , but do we need this **** ?

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