Our
debt-moribund meat processor Silver Fern Farms now has a 50% Chinese investor.
Copying my comment to NBR:
The major argument against it, surely, is equity
financing is dearer than debt ... until you have so much debt you can't make
your own decisions anymore which seems to be where SFF is at. So this injection
is a bonus, especially if it gives them avenues into new markets, including
Asia. (And perhaps a different set of oversight disciplines at Board Level through
the new shareholder may bring invigoration also.)
Better
still there’s an injection of cash direct to our rural sector with this
investment by way of a special 30 cent dividend (a boon to the rural
communities suffering on the low dairy payout).
For
the mercantilists and economically illiterate who will raise the fallacious
argument against dividends flowing to a Chinese investor, no, you need to read my
below two posts and answer the questions therein on why there are no
detrimental effects on New Zealand at all – this investment is pretty much all
good.
For
convenience, here’s the question posed in that post:
… say that I’m a
Mexican, and I buy a shareholding in one of the energy companies here when it
is floated. After the first year I’m going to be distributed a dividend of
NZ$100k. You call this a ‘foreign dividend flow’, and seem to think it bad for
New Zealand. However, think about it, I can’t spend NZ dollars in Mexico, the
drug lords just don’t want them, so the only way I can spend this dividend is
to first exchange my NZ dollars with pesos, that is, I have to find someone to
sell my NZ dollars to. The only person who is going to buy those dollars from
me will be doing so to spend back in New Zealand, that’s the only place they
can be spent, ultimately. So, where’s the outflow of physical dollars from New
Zealand? Explain it to me.
I
make further points on this post:
Particularly,
while a dividend flowing to China still has to be exchanged for New Zealand
dollars and thus spent in New Zealand, a dividend going to the Kiwi farmer
investors is probably going to end up in Japan, Europe or even China to buy
that new Hilux, Range Rover or plasma set. [Just a little sleight of hand there ;) ].
I'm not so sure its that simple in the long term. This being a co-op also makes it different to buying into a listed or private company. Maybe the Chinese don't want to exchange the NZ$ for another currency? Being cash rich they will simply buy more assets, including the co-op's farms here. The kiwi farmer can have a new Hi Lux this year but it may cost far more than the sticker price long term.
ReplyDelete3:16
Okay, the Chinese may want to use the $NZ here to buy more, but that's fine - indeed that's my point ... long term all that money still gets spent in NZ.
DeleteTrue but does it get spent gradually removing the means of production from those residing here? I would argue that a long term interest in the well being of something counts for something - the $ is not all that matters. Once the produce has left NZ and is marketed by the Chinese in China we have no real knowledge of the ethics and accounting. That may impact the returns to NZ by siphoning off profits to the Chinese externally - clipping the ticket I guess via other solely owned enterprises within China. Time will tell but I remain of a view that owning the means of production is a sensible goal long term but only the Chinese seem to be pursuing it.
ReplyDelete3:16
I don't know why everyone jumps to the conclusion the Chinese are going to 'buy all the means of production'? Even if they did - assuming every business owner wants to sell out (which they won't) - that doesn't affect jobs, etc. Conversely, there is some Chinese wealth (brought into this country) getting destroyed in dairy farms they paid silly premiums for (but carry on employing kiwis, regardless) ... perhaps some of those farms will be bought back cheaply by Kiwis.
DeleteBut we're way outside my post. Overseas dividends still 'must' be spent in New Zealand. I still believe the Chinese investment in SFF is overall good. That industry and that firm, did need a circuit breaker.