London, Asharq Al-Awsat—Arab investors have been notorious among political economists for their preference for investing outside the Middle East. One favored destination for direct investment is the US, despite its recent economic problems.
SelectUSA is a unit within the US Department of Commerce and part of a government-wide initiative to encourage and facilitate foreign business investment in the United States.
At the American Embassy in London, Aaron S. Brickman, the deputy executive director of SelectUSA, spoke to Asharq Al-Awsat on the reality of Foreign Direct Investment (FDI) in the US. Mr Brickman is a recognized expert on FDI and, as the founding director of SelectUSA, aims to create a platform, or “first step,” for investment in the US.
SelectUSA will be holding a summit from October 31 to November 1, 2013, in Washington, D.C., to connect foreign and domestic investors with local, state and regional economic development organizations. This initiative has been described as an “integral part of the Obama administration’s efforts to increase direct investment in the United States, which leads to economic growth and job creation.”
Speaking to Asharq Al-Awsat, Mr. Brickman focused on investment from the Arab world, and argues that the US is an ideal place to invest in various sectors.
This interview has been edited for length.
Asharq Al-Awsat: Can you give us an idea of what type of long- and short-term investments the US been able to secure from the Arab world in recent years?
Aaron Brickman: The topic of investing in the United States has definitely experienced a resurgence in the international media and with the international investor community. I think it’s clear that there’s a lot of attention being paid to opportunities for direct investment in the US. These are opportunities that never went away, but the investor community’s attention kind of goes in different directions. However, the fact is that we remain the best investment destination globally, and have been for a long time.
The A.T. Kearney FDI confidence index, which came out recently, really is a validation of what we already know and what investors have been experiencing for generations, which is that the US represents the best risk-adjusted return on investments globally. So, what we’ve seen from the Arab world has been great. There’s productive capital in the US, certainly in terms of direct investment, much on the real estate side. Also, increasingly and in a diversified way, looking particularly at Saudi Arabia and the United Arab Emirates, I think we see diversification both on the “green field” side—meaning new expansions—but also some on the “acquisition” side. For example, though this goes back a while, Saudi Basic Industries Corporation (SABIC) purchasing GE plastics was a key project. SABIC thrived with this investment and increased its footprint within the US.
What’s good is that C-level executives from the region are actively examining, identifying and moving positively with regards to investments. So, this is a trend that I think we’ll see playing out. For instance, Saudi is the 17th-fastest-growing investor nation in the US. That’s a pretty big deal. It has a five year compound annual growth rate (CAGR) of over 13 percent, which is substantial. Then we see Kuwait with a similar percentage. The UAE is most impressive, at number 8, with over 23 percent CAGR. So we see this movement of capital, and it indicates that there’s more room for growth. What is most important is that this creates a win–win situation where the headquarters of the company is growing to service these new investments and becoming a larger more profitable parent company while growing these assets in the US, which is the largest, most productive, most creative economy in the world. We appreciate this because it brings about job creation and economic growth in the United States. That’s why FDI is a win–win.
Q: Who are the key Arab investors in the US? Are they only GCC companies?
Not quite. Though the GCC are making the fastest-growing list, the fact is that in 2012, ORASCOM, an Egyptian company within the field of fertilizers, made a USD 1.3 billion investment in the US. This is due to some global economic factors that are available in the US, like cheap energy. It also has to do with significant domestic market, and other cheap input costs. So, this is an Egyptian company making a major move in the US to service a huge domestic market for, in this case, fertilizer. Why the US? Because the numbers make sense. My guess is they’ll also be exporting from that investment, and it’s a real snapshot into how the global economy works. The US is, of course, a non-discriminatory economy that provides national treatment to companies from all over the world. There are substantial investments from non-GCC countries, and the US is truly receiving investments from all around the world, in a whole variety of sectors. The investments flow to a great diversity of locations in the US: all 50 states, 5 territories, and the District of Colombia receive FDIs from around the world.
Q: Given that the effects of the subprime debt crisis are still lingering today, what kind of guarantees has the US offered for these investments?
The US is an open economy; it’s not a planned economy. So there are no guarantees, national, sovereign or otherwise. The fact is that companies invest in the US not based on what happened yesterday, today or tomorrow, but they make long-term plans on a business strategy and business planning basis, and they execute this business plans in, what is really, the most competitive, most sophisticated market in the world. So, US firms have no such guarantees either. It is an open and competitive climate where all companies have the opportunity to succeed. I would also say that there is no market in the world that affords the same level of opportunity for success through hard work, strategy and innovation like the US does. Companies can go from consisting of one or two people in someone’s garage or basement to becoming a multi-billion dollar company employing hundreds, if not thousands, of people in the US and around the world. Nowhere else in the world provides that kind of opportunity.
Q: With the Foreign Account Tax Compliance Act (FACTA) soon to be implemented, Arab investors might be liable to be taxed as Americans, and this taxation will be extended to all their profits from non-US investments. Will there be some kind of tax exemption for non-US citizens that are investing in the US?
The US is unique in the world in terms of large economies, in that once a foreign company establishes a legal entity in the US, they’re treated like a US company. This is very important for legal, regulatory and other standards. These companies have the same level of protections and opportunities as American companies. No other economy in the world provides that level of insurance. The fact is that we don’t afford special treatment to anybody. Whether domestic or foreign investors, we treat everyone the same and this is a hallmark of the system and our longstanding and unequivocal policy and support of foreign investment in the US.
Q: In the wake of 9/11, many so-called strategic assets were blocked and many considered this a form of racial profiling. For example, the Peninsular and Oriental Steam Navigation Company (P & O) was retained from Dubai in 2006. Post-crisis, do you think the US and the West have become less sensitive to investments by Middle East companies? Are Arabs less worried about being rejected?
I think I’ve talked about our policy of strict national treatment and non-discrimination. It is truly what makes the US unique. If you look at the number of Arab companies that have succeeded in the US and the number of successes of both investments in the US to service the domestic market and also exports from the US, significant companies use us as an export platform. I think you see that what is played out has really been the epitome of our policy; we don’t just talk the talk but we walk the walk. Companies succeed in America unlike any place else. I think we’re a very large economy and we have the eyes of the world on us. For those reasons, once in a very long while there will be an anomalistic instance of a company getting scrutinized.
I don’t think there were many cases, as you said, but there was the one you mentioned that was greatly talked about in the media. Frankly, our Emirati friends see it as a lesson learned for both sides and I think our international reputation has improved greatly. If you look at capital flows to the US, we received USD 168 billion last year, ranking number one in the world. We have a stock in the US of USD 2.7 trillion of FDI. There really is no number two in the world. We’re so far in front of all other nations with regard to our FDI. Frankly, capital goes where it is well treated. This capital doesn’t have to come to the US. There are other opportunities, but it flows to the US because it is so well treated since the US really does have the best adjusted return on investment and we have significant Arab capital.
Q: Can the US benefit from these FDIs in terms of improving the US’s infrastructure or transportation network?
Beyond the win–win situation that I talked about earlier, there are all kinds of ways the US benefits from FDI. As a start, 5.6 million American workers are employed by US subsidiaries of global companies. This is in a whole host of industry sectors, from transportation and infrastructure to agriculture and IT services. This is a trend that is not slowing down and as the most diverse economy on earth, we present opportunities for companies representing every industry sector and sub-sector, including transportation and infrastructure. I think you’ll see more and more opportunities for global companies in the US in transportation and infrastructure, even leveraging public/private partnership, an innovative move that is already happening.
Q: What sector does investment from the GCC influence the most? Is there a particular focus?
No, but this is a positive thing. This is a demonstration of the economic diversity within the GCC. There’s investment flowing in a diversity of sectors, including manufacturing and other services well beyond what the region has—for better or worse—become known for which is their energy sector. The research and development climate in the US, as well as the fact that a third of all R&D dollars in the world are spent in the US, create a wonderful culture of entrepreneurism and innovation where it’s okay to fail. In the midst of trying to innovate and trying to be that entrepreneur, the US is one of the few places in the world where it’s okay to fail and it won’t tar you for the rest of your professional career. Our mobile and flexible labor force—and again there is no number 2 in terms of labor productivity—is real value for money. Then there is the robust domestic market and economy and the ability to use the country as an export platform. We have several Free Trade Areas with some of the GCC countries and they present ample opportunity. Again, it’s a win–win. It’s not about just building a business in the US, but rather a global business in any sector.
Q: Besides financial returns, how else do you think investors can benefit from investing in the US? Do you have any frameworks for, say, technology sharing, talent mobility, and so on?
The two you mentioned are definitely important. There is access to the best and most concentrated talent pool on earth, across many industry sectors. There is also access to capital, technology sharing, and the ability to refine new technology. The large market shouldn’t be understated. Also, not to mention the concentration of R&D, our communications infrastructure and education; 15 of the world’s top universities are in the US.
It’s just item after item. If a company is thinking about where to locate and it benchmarks locations throughout the world, there is no way that a realistic and neutral assessment does not include the US at the top of that list. A.T. Kearney’s FDI confidence index really does justify that viewpoint. We see companies from around the world taking a second look at the US, which really had just fallen off the top of their list, not because we had somehow faltered but because there were other attractive things going on.
I was at the Hannover Messe in April, the world’s largest manufacturing trade show, and twice—not just once—European companies in conversation said: “You know, the US is the new China.” This is such a powerful statement for me, and it’s funny the way trends work; it’s sort of like pink is the new black. The US never went anywhere; it’s just that the world’s attention has focused back on us. We’ve always been the best destination for capital, the most predictable, most transparent, and the best operating environment, and so nothing has changed in that regard. Recent economic tumult has definitely shed a light on how much confidence investors do have in the United States, because much of the world looks less attractive.
Q: Which Middle Eastern country has the largest number of investments in the US?
I don’t have the exact data. We don’t keep numbers and specific names in the US, because this is aggregate data. We don’t, as an economy, publish this information; it is business confidential. Most countries that keep this kind of data work on that same basis. But as I see here in front of me, the UAE is the 21st-largest investor in the US. That’s a position of USD 17.34 billion. That’s a substantial position. Then comes Saudi Arabia, number 24, equal to USD 11.57 billion. Then we have Kuwait at number 35, with USD 2.4 billion. I see Lebanon at 38, but now that’s just USD 500 million give or take.
On a flow basis, the UAE is the 8th fastest-growing economy from the region. That’s a five-year CAGR, as I mentioned earlier, of almost with 23.5 percent, and that is greatly substantial. Then we have Saudi Arabia, the 17th fastest-growing with 13.19 percent. Kuwait is at number 21, with over 10 percent. Then there is Lebanon again, at number 24, with 8.2 percent. I have a feeling that Lebanon is also a conduit for capital if I had to guess, but I wouldn’t put too much credence in the Lebanese numbers for now. The others are important locations that we are sure to engage in every year for promoting and facilitating investment.
Q: What are the top three investors on an international level?
On a stock basis, the UK, where we are sitting right now, is by far the biggest investor in the US. Over 900,000 American workers are employed by UK companies. Their position stands with almost USD 530 billion. This is 2011 data, whereas 2012 data shows an amount of USD 2.7 trillion. Japan is number two before Germany and then comes Canada, France, etc.
On a growth basis, China is number one, with a five-year CAGR of over 71 percent, since a lot of Chinese companies are investing in the US. New Zealand is second and India is third, followed by Ireland, Belgium, Singapore and Spain. Then the UAE at number 8 is very impressive.
Q: Given your role as a Senior Consultant for a Chicago-based electronic commerce firm, how do you think online business is faring in the Middle East in the context of the world-wide expansion of the sector?
There are probably many more people with more expertise than I have on web commerce in the region. I think in general what we’ve seen, from an FDI perspective, is that online commerce is not only growing, but skyrocketing. Yet, there are still parts of the world where growth is less than others. We know that the world comes to the US for the latest innovation in terms of online and latest technology, and in many cases to start online companies; very often, technology-driven companies, particularly in the online category, start in the US because of the intersection of innovation, experience, know-how talent, capital and R&D. They then service the business in their home market. It is such a dynamic sector that shouldn’t be underestimated.
Q: Given the relatively higher growth rates in the Gulf, how do you convince investors that there are better opportunities in the US, with its slower GDP growth and less favourable demographics?
The US is the only fully developed economy of scale with an increasing population. It is easy to look at the developed world and say there isn’t any demographic opportunity, but in the US there certainly is. We have an increasing population unique in the world of developed economies. And, frankly, we have a propensity for business-to-consumer commerce, so Americans have a significant level of disposable income and are very open to trying new things. In the consumer space, the US represents 42 percent of the global consumer goods market. There is no other place to go. There are, of course, opportunities for the domestic markets but I would encourage companies to come to the US if they are not comfortable, sophisticated and mature enough for their domestic markets. A company is not truly global unless it’s in the US.