The
United States Must Not Neglect
Saudi Arabian Investment
By Tanya C. Hsu
Executive
Summary
Saudi
Arabians
have
allocated
an
estimated
60%
of
their
global
investments
to
the
United
States
through
passive
and
direct
investments.
This
commitment
has
enabled
the
United
States
to
finance
an
ongoing
trade
deficit
and
produce
new
economic
growth
opportunities.
Objections
and
barriers
to
Saudi
investment
in
the
United
States
are
on
the
rise.
Although
most
are
baseless
and
even
discriminatory,
their
impact
could
be
multiplied
in
the
current
market
environment.
Promotion
agencies
across
the
globe
are
maneuvering
to
attract
and
keep
foreign
investment.
The
Kingdom's
own
market
climate
has
opened
and
become
highly
attractive
for
Saudi
investors.
America
must
eliminate
growing
impediments
to
Saudi
and
other
foreign
investment
in
the
United
States
in
order
to
remain
competitive.
Saudi
Investment
and
the
U.S.
Trade
Deficit
Saudi
Arabian
investments
in
the
United
States
have
traditionally
been
a
welcome
counterweight
to
the
systemic
U.S.
trade
deficit
with
the
Kingdom.
As
our
demand
for
Saudi
oil
continues
at
1.5
million
barrels
per
day,
U.S.
service
and
merchandise
exports
revenues
to
the
Kingdom
cover
nowhere
near
the
level
of
expenditures
for
petroleum.
By
March
of
2003,
the
U.S.
deficit
with
oil-producing
nations
including
Saudi
Arabia
and
Venezuela
grew
to
an
all-time
monthly
high
of
U.S.
$5
billion.
One
enabler
of
U.S.
consumption
has
been
the
historic
Saudi
Arabian
willingness
to
finance
this
trade
deficit
by
investing
in
the
United
States.
The
Kingdom
holds
important
levels
of
both
foreign
direct
investments
(FDI)
and
passive
investments.
|
|
As
our
demand
for
Saudi
oil
continues
at
1.5
million
barrels
per
day,
U.S.
service
and
merchandise
exports
revenues
to
the
Kingdom
cover
nowhere
near
the
level
of
expenditures
for
petroleum...
...One
enabler
of
U.S.
consumption
has
been
the
historic
Saudi
Arabian
willingness
to
finance
this
trade
deficit
by
investing
in
the
United
States.
|
FDI
is
the
smaller
portion
of
total
Saudi
investment
in
the
United
States.
The
U.S.
Department
of
Commerce
Bureau
of
Economic
Analysis
(BEA)
defines
FDI
as
"the
ownership
or
control,
directly
or
indirectly,
by
one
foreign
resident,
of
10%
or
more
of
the
voting
securities
of
an
incorporated
U.S.
business
enterprise
or
the
equivalent
interest
in
an
unincorporated
U.S.
business
enterprise."
According
to
the
BEA,
FDI
in
the
United
States
by
Saudi
Arabia
grew
from
U.S.
$2.7
billion
in
1998
to
$4.4
billion
in
2001.
This
produced
a
modest
average
income
of
between
2.3%
-
5.4%
per
year
to
Saudi
investors.
(See
exhibit
#1)
Exhibit
#1
Saudi
Foreign
Direct
Investment
Position
in
the
U.S.
by
Historical
Cost
(Source:
Bureau
of
Economic
Analysis
2002
and
IRmep)
Throughout
this
four-year
period,
Saudi
FDI
represented
approximately
35%
of
all
FDI
in
the
United
States
from
the
Middle
East
region.
In
each
of
these
years,
Saudi
Arabia
was
the
regions'
single
largest
FDI
investor
in
the
United
States.
However,
FDI
is
only
a
small
portion
of
the
total
Saudi
investments
in
the
United
States.
Passive
non-controlling
Saudi
investments
in
U.S.
stocks,
government
and
corporate
bonds,
commercial
paper,
bank
deposits,
and
other
securities
are
significantly
larger
than
FDI.
In
February
2003,
total
worldwide
Saudi
investment,
including
investment
in
the
United
States
and
Europe,
was
conservatively
estimated
at
U.S.
$700
billion.
The
United
States
received
approximately
60%
of
the
global
Saudi
investment
allocation.
(See
exhibit
#2)
Exhibit
#2
Estimated
Saudi
Geographical
Investment
Allocation
(Publication:
Middle
East,
London;
February
2003
and
IRmep)
There
was
much
speculation
about
post
September
11,
2001
Saudi
geographical
investment
reallocation.
One
initial
report
of
Saudi
financial
flows
out
of
the
United
States
estimated
that
$200
billion
had
left
the
United
States
between
the
autumn
of
2001
and
spring
of
2002.
The
U.S.
Treasury
Department
data
on
foreign
portfolio
movement
includes
Saudi
Arabia
in
the
category
of
"Other
Asian".
Treasury
data
revealed
that
between
April
and
June
of
2001,
less
than
$1
billion
had
actually
left
the
U.S.
stock
and
bond
markets.
The
speculation
of
Saudi
investment
flight
may
nonetheless
contain
some
seeds
of
truth
regarding
the
future.
Several
factors
have
already
combined
to
make
both
direct
and
passive
investments
in
the
United
States
much
less
attractive
for
Saudi
Arabia
at
a
time
when
the
United
States
needs
it
most.
Global
Competition
for
Foreign
Direct
Investment
Countries
across
the
globe
are
rigorously
competing
for
FDI.
Smaller
markets
have
long
preferred
FDI
as
a
stabilizing
long-term
investment
category
that
cannot
flee
the
market
when
the
economy
turns
sour.
According
to
the
United
Nations
Conference
on
Trade
and
Development
(UNCTAD),
global
FDI
flows
will
remain
sluggish
in
the
short
term
although
they
could
pick
up
momentum
over
the
medium
term.
UNCTAD's
survey
of
investment
promotion
agencies
(IPAs)
from
106
countries
revealed
that
56%
of
the
respondent
countries
intensified
their
efforts
to
attract
FDI
with
new
programs
and
strategies.
Over
half
of
the
IPAs
have
begun
to
improve
and
target
their
FDI
marketing
efforts
while
21%
have
resorted
to
additional
FDI
incentives.
One
quarter
are
implementing
greater
domestic
liberalization
specifically
to
compete
for
FDI.
|
Recently
thwarted
FDI
projects
in
the
United
States
reveal
that
organized interest
groups
have
sought to
target
and
derail
Saudi
investments.
|
The
United
States
is
no
different
from
the
rest
of
the
world
in
needing
committed
investments
in
its
economy.
This
is
particularly
true
of
"green-field"
investments
that
break
ground
for
entirely
new
factories,
real
estate
development
projects
and
other
businesses.
Recently
thwarted
FDI
projects
in
the
United
States
reveal
that
organized
interest
groups
have
sought
to
target
and
derail
Saudi
investments.
Locals
who
objected
to
Saudi
Arabian
investment
in
to
their
community
have
made
a
comparison
of
legitimate
Saudi
investment
to
suspect
illegal
organizations.
One
project
failed
as
a
small
group
of
activists
launched
a
media
campaign
accusing
terrorist
ties.
Though
the
allegations
were
groundless,
the
municipality
lost
a
U.S.
$100
million
development
project.
|
| Many
Saudi
investors
are
also
concerned
about
becoming
victims
of
lawsuits.
Saudi
and
other
foreign
investors
with
no
complicity
whatsoever
with
9/11
or
links
to
terrorism
nevertheless
perceive
the
aggressive
efforts
of
an
army
of
U.S.
lawyers
and
entrenched
interest
groups
to
"link
and
accuse"
foreigners
in
a
broad
net
of
litigation.
The
threat
of
becoming
ensnared
in
such
lawsuits
has
been
reason
enough
to
avoid
long
term
investments
in
U.S.
markets.
If
plaintiff
efforts
to
freeze
and
tie
up
investments
in
advance
of
any
evidence
of
guilt
succeed,
foreign
faith
in
U.S.
financial
markets
will
suffer.
These
threats
against
foreign
direct
and
passive
investments
in
the
United
States
are
bleak,
but
especially
troubling
for
the
Saudis.
Investors
from
Saudi
Arabia
and
the
rest
of
the
Middle
East
are
receiving
a
message
that
the
United
States
is
hostile
to
their
investment
and
will
actively
dismiss
FDI
at
the
same
time
as
other
states
eagerly
pursue
them. |
Investors
from
Saudi
Arabia
and
the
rest
of the
Middle
East
are
receiving
a
message
that
the
United
States
is
hostile
to
their
investment...
|
Competitors
for
foreign
investment
include
Europe
and
newly
liberalized
economies
in
the
developing
world.
According
to
UNCTAD,
China,
India
and
Saudi
Arabia
are
emerging
as
major
investors
allocating
more
FDI
to
developing
countries.
FDI
is
also
flowing
to
high
value
added
projects
that
produce
high
paying
jobs,
including
research
and
development
(R&D)
outsourcing
and
regional
headquarter
operations.
Salem
bin
Dasmal,
Deputy
Director
General
of
the
Dubai
Development
and
Investment
Authority
(DDIA)
sees
an
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