If ever there was a dangerously inappropriate political football, it is the potential sale of Crafar farms to the Chinese company, Shanghai Pengxin and the hysterical xenophobia it has induced. While the furor has managed successfully to paint National into a very uncomfortable corner, it has also made all future overseas purchases significantly more difficult. Like the sale of airport shares to Canada during the Labour administration, the entire debacle has been driven by the typical isolationist xenophobia of Kiwis in general (the consequence of living on an island miles from anywhere). Unlike the airport saga, though, the Crafar sale has the added complication of an about-turn instituted by a legal judgement.
Let me be clear that I have no issue, on the surface, with the Justice Miller’s legal finding that the OIO have overestimated the additional benefits to New Zealand of an overseas sale. The problem here is with the word “additional” which the Judge correctly points out can be interpreted to mean “additional to the reasonable improvements expect to incur from a New Zealand sale”. While this is a reasonable lay interpretation of the words, it is clear that the OIO and, I suspect, many economists would disagree with it.
The problem lies in the fact that the idea of reasonable improvements is extremely nebulous. Take the Crafar farms, for instance, (and John Key is probably thinking “please do”). Fay and his consortium could simply sell the farms, without improvements, individually, to make a reasonable profit. Or, more likely, they can spend the bare minimum to make them a going concern again and make a killing. Absurdly, if they sold them individually, I think all the farms are small enough to escape the level of scrutiny being given to the current deal. It is therefore quite possible for Fay to sell the farms individually to Pengxin over a period of a few years (I am just guessing here, but it is possible, owing to the way the current law is structured, that a deal like this could be made)
The thing is that Fay, and any other New Zealand bidder can offer as many improvements and jobs as their imagination can provide. Unlike the Chinese and other foreign bidders, the OIO has no power to compel them to provide these improvements. Fran O’Sullivan points out in her column today that Fay has an extra $30 million dollars to play with and so can make his offer of improvements seem very plausible. It would be hard to establish that his offer, bogus or not, was “unreasonable”.
Effectively, this makes it virtually impossible for an overseas investor to beat a homegrown offer, even if that offer is much lower (in fact, especially if it is lower). As O’Sullivan points out, this essentially reduces the sale price of all farms in New Zealand.
Ridiculously, the Left are crowing about National’s discomfiture without any apparent appreciation for the damage they are doing to New Zealand investment. This is made doubly absurd by the fact that Labour accepted many, many farm sales during their last administration based on exactly the same OIO analysis as the Crafar one, now rejected by Justice Miller.
There are no good options left for National. Appealing Justice Miller’s ruling would merely prolong the issue and there is no guarantee that it would be overturned. Approving the sale based on a new OIO recommendation will see Fay taking it to court again. The damage to National would be very large if he was successful. Key might even have to demote his ministers.
Rejecting the sale is also a poor option, sending all the wrong signals to overseas investors, but at least it can be done in the context of reviewing the OIO criteria and making the selection process clearer and more defined. The MacDoctors advice, FWIW, would be to scotch the sale and purchase the farms via Landcorp (at a bid somewhere between Fay’s and Pengxin’s). Get them up and running again and sell them individually ( if Fay can make money out of this I see no reason for the government not to be able to). At least Fay will not profit from his machinations (and that would send a clear signal to the Chinese that the New Zealand government is less than impressed with the situation and will act to remedy it). Then the OIO criteria can be revised and made unambiguous at leisure.
Of course Pengxin will be put out, but even that would be a valuable lesson for them. Next time you want a piece of New Zealand, get a New Zealand company to front the bid and loan them the money. We have to do the same when buying into China.
After all, xenophobia is the bed-pan of socialism. You just have to hide it under the bed.