Mideast Investment Up in U.S.
Tuesday, March 7, 2006
Middle Eastern investment in the United States is once again picking up steam, showing big gains since the tense period following the Sept. 11, 2001, terrorist attacks. And while some takeovers are triggering alarm -- most famously, the purchase by a Dubai-owned company of a seaports management firm -- others are evoking warm welcomes.
Spearheading the trend is Dubai's Mohammed bin Rashid al-Maktum (popularly known as "Sheik Mo"), ruler of the freewheeling city-state, which is part of the United Arab Emirates. The ports deal is just one of a series of recent purchases by companies he controls.
Other acquisitions include a $1 billion portfolio of 21,000 apartments in U.S. Sun Belt cities; a 2.2 percent stake in the automotive giant DaimlerChrysler AG that cost another $1 billion; and a Manhattan landmark building, 230 Park Ave. The emirate also made major purchases in other countries over the past year, notably a $1.5 billion takeover of Britain's Tussauds Group, which owns the famous waxworks, along with theme parks, roller coasters and other entertainment-oriented businesses.
On Thursday came news that yet another Dubai acquisition is drawing Bush administration scrutiny because of the national security risks -- this time of plants in Georgia and Connecticut that make precision components used in engines for military aircraft and tanks.
But an entirely different reaction greeted the disclosure several months ago that Dubai Investment Group had acquired the Essex House hotel in Manhattan and promised to sink $50 million into renovating it.
That announcement prompted New York City Mayor Michael R. Bloomberg to exult: "Another iconic hotel overlooking Central Park will be preserved and its unionized workforce protected. This is excellent news for New York's tourism and hospitality industries."
Behind such transactions are two powerful forces. One, of course, is the high price of energy, which has left several oil-producing Arab countries swimming in cash. The other is the burgeoning U.S. trade deficit -- $726 billion last year -- which means that the United States needs foreign capital; a country that imports more than it exports must cover the gap with money from abroad.
Until now, investments in the United States from Europe and other parts of Asia have dwarfed those from the Middle East. But an increasing share of the foreign money required to fuel the U.S. economy is likely to come from places that, like Dubai, trigger visceral reactions among Americans seared by memories of the Sept. 11 attacks.
"The price of oil is going only one way -- up -- for the next five years, because it is going to take at least that long for alternatives to kick in," said Youssef M. Ibrahim, managing director of the Strategic Energy Investment Group, a consulting firm based in Dubai. "So there is no question in my mind that billions of dollars will continue flowing this way, and people cannot handle all of that kind of money here. You've got to circulate the money, and the United States is still the biggest market."
Already, the list of U.S. businesses owned by Arab investors -- not just from Dubai -- includes some well-known names. Among them are Caribou Coffee Co., the fast-growing rival to Starbucks Corp.; Church's Chicken, a fast-food concern; Loehmann's, a specialty retailer; TLC Health Care Services Inc., a provider of home nursing and hospice care; and even several financial publications, including the American Banker.
Such "direct" investment in hard assets -- companies, factories and real estate -- is generally preferable for the U.S. economy, in the view of most economists, to foreign investment in bonds, stocks and other financial assets. One advantage of direct investments is that they cannot be dumped in a panic the way that, say, a Treasury bond can. Moreover, they often involve high-wage jobs. Average annual compensation per worker at U.S. subsidiaries of foreign companies is about $60,500, 34 percent higher than the rate at all U.S. companies, according to the Organization for International Investment.
The main drawback of a direct investment is that it involves foreign control, which can raise national security concerns. That is why an interagency government panel, the Committee on Foreign Investment in the United States, reviews many foreign takeovers. That process may be revamped by Congress due to indignation over the panel's decision to approve the purchase by Dubai Ports World of Peninsular and Oriental Steam Navigation Co., a British firm that manages container terminals on the East Coast.