On the mixed-ownership model for state assets

By focussing on the spectre of foreign ownership, the critics of the partial asset sales process have been inadvertedly helping the government, by deflecting attention from a more urgent issue : the price that ordinary New Zealanders are going to receive for their assets, once they are sold off to a relatively small group of investors.

The price is likely to be low not only because the sales will be occurring during recessionary times but because of the details of the mixed ownership model announced yesterday.

The details had been flagged in advance. The restrictions on the size of the share ownership (only blocs of shares less than 10 per cent in size can be held by any one private sector entity) the restrictions on the subsequent sale of the share parcels (they can only be sold to a buyer who will own less than 10 percent after the purchase) and the promise that those small and elusive ‘Mum and Dad’ investors will be put (somehow) at the front of the queue when the shares are offered, are all likely to drive down the sales price. A price that will also be depressed, as Prime Minister John Key readily conceded at the post-Cabinet press conference yesterday, by the retention of a 51% ownership stake by the government.

The further factor that will depress the sale price is one that has been mentioned before: that there will be so many electricity companies crowding the sharemarket that investors wanting to diversify their portfolios will have only so much available room, and less investment money, to spare.

On the weekend, financial analyst Brian Gaynor made that point within the context of a chilling analysis of the direction in which the New Zealand economy has been taken over the past 30 years.

As Gaynor pointed out, eight of the 12 largest listed companies at the end of 1981 had private sector origins, and were strongly oriented to exporting. Today, they have been replaced by companies that either began life as government entities and/or are monopolistic in nature. There are now no export-oriented firms at all among our top listed companies. After the partial asset sales, Gaynor explained, this trend will become even more pronounced :

The NZX’s domination by regulated and monopolistic organisations is likely to increase with the proposed listing of Mighty River Power, Meridian Energy and Genesis Energy. There are now seven former government or local authority owned companies in the 12 largest NZX companies list.

There is a strong possibility that ten of the largest 12 NZX companies will have their origins in the public sector after the three state-owned electricity generators are listed. There is also a chance that six of the NZX’s 10 largest listings will be electricity companies – Contact Energy, Vector, TrustPower, Mighty River Power, Meridian Energy and Genesis Energy.

The domination of electricity companies will make it difficult for investors, particularly large ones, to diversify their portfolios. It also raises the question as to why the NZX is ruled by monopolistic or near-monopolistic companies and has a dearth of large export-oriented organisations.

Indeed. What we’ve seen in New Zealand since the Rogernomics revolution has been a process of cannibalism, not entrepreneuralism. After all the years of cheerleading about open markets and cutting regulation and unleashing the entrepreneurial spirit, there are fewer successful private sector entrepreneurs leading the sharemarket register now than in the days of Robert Muldoon.

And after taking down trade barriers have we created a vibrant new generation of export-oriented companies to replace what was lost? Evidently not. We have zero export-oriented New Zealand firms among our top listed companies now, when we had eight among the top twelve 30 years ago. (The virtuous rhetoric about removing tariffs seems to have been merely an enabling device for re-locating production and jobs more cheaply, offshore.)

The partial asset sales of the state’s energy companies is another set of nails in this particular coffin. Assets that we all currently own are going to be hocked off at fire sale prices to relatively few New Zealanders – and by focussing on the foreign ownership bogey, the critics have given the government an excellent excuse. Hey, you wanted all these safeguards put in place to guard against foreigners buying them. And now you’re complaining because those conditions have driven down the price?


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