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Tuesday, March 07, 2006

Arab Investment Up in U.S.

The Washington Post reports this morning that Arab investments in the United States are increasing at a rate not seen since before 9/11. As far as I am concerned, this article ought to be a wake-up call for the United States before the sheer volume of Arab investment gets out of proportion. As you will see below, investments must comply with Shari'a law, which is anathema to many non-Muslim westerners. There is also a real concern that security sensitive investments are being made. Is the US going to look at investments from countries like ('our friends') Saudi Arabia and Bahrain differently than it looks at investments from Canada and England? Or is this going to be like airport security where 80-year old American grandmothers are searched the same way as 25-year old men from Arab countries?

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. [I don't know about all of you, but I'm seriously concerned about that sort of manufacturer falling into Arab hands. I would think that the US would - and it likely does - restrict the ability of foreigners to purchase sensitive technologies. Or is this going to be another one of those instances - like the refusal to profile terrorists post-9/11 - in which the US is going to play "see no evil, hear no evil, speak no evil" and treat Saudi Arabia like Canada when it comes to scrutinizing foreign acquisitions of US companies? CiJ].


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. [They forgot Fox News, which I understand from correspondents in the US has become completely different since it was taken over by the Saudis. CiJ]


To some extent, Arab investors think U.S. property is overpriced, so they are putting more of their overseas bets in Asia, said Gary Sheehan, an executive with Sentinel Real Estate Corp. in New York. But an additional factor is their fear about what might befall their holdings at the hands of U.S. authorities.

"I was in Bahrain the week before last and had a meeting at a bank where they said they would love to invest in the States," Sheehan said. "But they said: 'Syrian interests own 12 percent of our bank. So we know that if push comes to shove' " -- that is, a serious confrontation between Washington and Damascus -- " 'our assets will be frozen.' "

Such negativity toward investing in the United States could well deepen as a result of the controversy over the Dubai ports deal, some in the region warn. Sheikha Lubna al-Qassimi, the UAE economy minister, told the Financial Times last week that the United States will become less attractive if investment decisions are subject to political interference. "There are other countries that are competing for [our] money," she said.

But worries about a drying-up of Arab investment are overblown, according to others, including C. MacLaine Kenan, an executive in the Atlanta office of Arcapita Inc., one of the biggest firms serving as a conduit for foreign Arab investors in U.S. businesses.

Arcapita has raised billions of dollars from investors in the UAE, Saudi Arabia, Qatar and neighboring countries and has invested the majority of it in the United States, where it owns Caribou Coffee, Church's Chicken and other companies, as well as real estate. The investments have to conform with sharia, or Islamic law, which means that they cannot involve businesses that traffic in alcohol, pork, pornography or gambling and that they have to use special types of financing to avoid violating Muslim rules against charging interest. [Left unsaid is whether they have to comply with the Arab boycott of Israel. CiJ]

"Our investors will spend some time complaining about U.S. politics, but at the end of the day, they're pretty shrewd in divorcing the economic opportunity from the political issue," Kenan said. [This is actually true. While Saudi Arabia will not sell oil to Israel, Israeli brokers participate in transactions involving Saudi oil products all the time. CiJ] "And they generally know the political problems will in most cases blow over. So every now and again, we get people saying: 'I wish this [U.S.] administration would do better. But by the way, how's this investment going?' "

Read the whole thing.


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