Foreign investment has been indispensable for the economic dynamism of the US and it has, in return, offered plenty of bang for your buck. And today, a new wave of investors in the world’s biggest economy may well carry an Emirati tag given the UAE’s enviable capital reserves and spending power.
Foreign direct investment (FDI) in the US economy grew from an estimated $1.76 million (about Dh6.46 million) in the late 17th century (1 per cent of the total GDP) to $25.17 trillion towards the end of 2012 (more than 5 per cent of the GDP), according to the US Department of Commerce’s Bureau of Economic Analysis (BEA).
Despite the persisting after-effects of the global downturn, the US still offers a very safe market for steady returns, says Danny Sebright, President, US-UAE Business Council. Although the US witnessed a $207.2-billion slump in FDI in the last quarter of 2012, attributed by BEA to a decrease in the value of financial derivatives, the land of opportunity remains a viable option for many of the UAE’s leading conglomerates, entrepreneurs and leaders seeking empire expansion or an international presence.
Foreign-owned assets in the US increased by $13.7 billion in 2011-12. “Thanks to transparent regulations and rules of business law, Emirati investors feel the US is a good place to bring their money and put it to work, and get low-risk returns on investments,” Sebright says.
One example is Shaikh Mansour Bin Zayed Al Nahyan, Deputy Prime Minister of the UAE and Minister of Presidential Affairs, who owns the English Premiership football team Manchester City. He concluded a deal in May with the New York Yankees to purchase a $100-million franchise in the US’ Major League Soccer (MLS). The new club, to be called New York City Football Club, will become the MLS’ 20th team, and is expected to be playing in a stadium in Brooklyn by 2015.
Shaikh Mansour’s astute move epitomises the business-savvy acquisitions the UAE’s major players are well positioned to make. GN Focus looks at some sectors that could offer substantial yields to such investment.
The sporting arena
To continue with the sporting theme is but natural, given the mega dollars the US ploughs into its professional sports industry. According to a report by WR Hambrecht+Co, a sports finance group based in California, personal consumption expenditure on the spectator sports segment in the US was in excess of $25 billion last year. It grew at a compound annual growth rate (CAGR) of 6.4 per cent over the past five years — good numbers for potential investors.
The US’ diehard sporting fervour and the UAE’s ambitions of becoming a leading global sports brand are a perfect match.
One of the most attractive investment opportunities right now is the National Football League (NFL). With some players earning more than entire franchises, owners are concerned that some teams face financial shortfalls that could create major problems in the long run. Such franchises — the Atlanta Falcons in particular — offer one of the best prospects for FDI. The Georgia-based side had construction plans for a new $1-billion stadium approved by the 32-member NFL in May. While taxpayers will cover up to $200 million, owner Arthur Blank has said he will foot the rest of the bill.
The $800-million shortfall offers a perfect opportunity for big, sports-keen companies such as Emirates Airline and Etihad Airways — both already have substantial interests in sports franchises in Europe. Also up for grabs will be stadium naming rights, which both airlines have already shown a proclivity for. The Emirates American Football League (EAFL) was inaugurated in the UAE late last year, and investment in American football will be an ideal segue into the sport, forging stronger ties between the two countries’ footballing ambitions.
Into the space age
Exploration of the final frontier is dear to both the UAE and the US. Abu Dhabi-based private joint stock company Aabar currently holds a 37.8 per cent stake in New Mexico-headquartered Virgin Galactic, the world’s first commercial spaceline. And with rocket-powered test flights by the company already under way, there will be more intergalactic missions attracting the attention of UAE companies looking to stake a claim in space. Nasa’s proposals to set up Mars to Stay initiatives fall well within this category.
The notion of colonising Mars has been given vociferous public backing by the New York Times and former lunar astronaut Buzz Aldrin, among others. Essentially, it aims to send astronauts to the Red Planet and leave them there to colonise and set up habitable conditions for the future.
Given the emergence of Mars One, a similar scheme announced in July last year by Dutch entrepreneur Bas Lansdorp, the race to colonise Mars is on. With a Mars settlement project reportedly set to cost more than $100 billion, the US’ space exploration ambitions would welcome additional monetary clout. UAE organisations could, by investing in such ventures, once again be at the forefront of the future, making giant leaps for mankind.
A stake in banking
Outward investments have been vital to the UAE’s economic strategy of geographical and sector-wise diversification. Government-owned investment organisations such as the Abu Dhabi Investment Authority (ADIA), Abu Dhabi Investment Council, Mubadala Development Company, International Petroleum Investment Company, Dubai World and Dubai International Capital have been active in global financial markets, seeking risk-adjusted returns while working with international best practices. Sebright says, “Banking is always going to be a sector for overlaps. Emiratis are always interested in the direction of US banks, in spreading risks and in joint major products. This is a very exciting sector and will continue to be exciting in the future.”
There are several key investments in the sector already. ADIA holds a 4.9 per cent equity share in Citigroup, albeit without any management role or involvement on Citigroup’s governing board. The UAE’s stake in Nasdaq came with a five per cent voting share and 20 per cent ownership, making it the single largest foreign investor in this important US stock exchange. The Investment Corporation of Dubai, the investment arm of the Dubai government, reportedly holds a 43.6 per cent stake in Nasdaq OMX Group, and a 51.4 per cent stake in the US-based Och Ziff Capital Management Group.
Mubadala acquired a 7.5 per cent share in the Carlyle Group, a high-profile US private equity firm, in 2006, making an additional investment of $500 million in the company’s general partnership in late 2010. In March 2010, Mubadala bought a 9 per cent equity stake in US merchant bank The Raine Group, which focuses on media, entertainment and sports.
According to the UAE Embassy in Washington, “In this process, Abu Dhabi has accepted the need of other governments for increased scrutiny of in-bound investments that have potential national security implications, as long as the process is clear, fair and timely. For example, Abu Dhabi investment organisations to date have been comfortable with and fully accept the new Committee on Foreign Investment in the United States review process, and remain committed to abiding by both the letter and the spirit of the new law.”
The lure of hospitality
Hospitality remains an attractive sector and may see a lot of investment this year. Sebright says, “Leisure is on its way back, and there’s a lot of Emirati and Gulf money flowing into hotels on the east and west coasts of America.”
The Middle East’s first Hotel Investment Forum, held in Dubai ahead of the Arabian Hotel Investment Conference, highlighted the Dh6.2 billion in hospitality investments originating from the region last year. According to real estate specialist Jones Lang LaSalle, “In 2012, Middle Eastern investors were among the most active buyers of hotel real estate, acquiring assets with a total value of $1.7 billion, about 15 per cent of total investment volumes in Europe, the Middle East and Africa.”
The company has also reported that despite economic challenges in Europe, hotel investment volumes in the region are anticipated to hold up this year and are forecast at roughly Dh40 billion. According to the report, cross-border capital accounted for 30 per cent of global hotel investment in 2012, trending above the recent average and driven by strong out-bound capital flows from Asia and the Middle East.
“Cash-rich UAE and Qatar investors, primarily high-net-worth individuals and sovereign wealth funds, will remain key to diversify into upscale assets in core markets and are likely to place in excess of $100 million in equity in each of a number of major deals,” the report states.
MGM Mirage and Dubai World have already joined forces to develop CityCenter, a mixed-use complex of hotels, residences and casinos that opened in 2009 in Las Vegas, Nevada. The Investment Corporation of Dubai owns a 8.87 per cent stake in MGM Mirage and a 9.2 per cent stake in Orient Express Hotels. The ADIA invested a reported $140 million in the Hyatt Hotels Group in December 2009, which translates to about an 11-per-cent share.
Green energy
Energy has always attracted cooperation between the two countries, and Sebright says: “It’s key for the US to figure out where it’s going to be in the next cycle of energy use, without being reliant on hydrocarbons from abroad. Whether that’s renewable, nuclear or gas-generated energy, there’s a big focus on getting the energy mix right and that presents a huge opportunity for the UAE’s energy companies.”
In January, Abu Dhabi National Energy Company (Taqa Global) invested in the 205.5-megawatt Lakefield Wind Project in Jackson County, Minnesota. When operational, the field will produce enough sustainable energy to power more than 60,000 homes. The UAE is also investing $15 billion in clean energy technologies through its Masdar Initiative. Masdar says $268 billion was invested in renewable energy worldwide in 2012 — this figure is expected to reach $750 billion annually by 2030, accounting for 73 per cent of total annual investment in power generation.
“There’s space for investment and agreements in green energy. It’s the level of technological development the UAE has achieved, especially at places such as Masdar’s solar plant, that is attractive for US companies,” says Richard Boehne, Senior Director of International Programmes at engineering services firm Merrick and Company. “Given the alternative energy market issues with the Chinese and solar panel pricing, which makes business as usual difficult, we tend to look for places that offer solutions, and the UAE certainly does that.”
Speaking at Washington, DC-based non-profit think tank the Brookings Institution, Dr Sultan Ahmad Al Jaber, Minister of State and CEO of Masdar, said: “With the growth in energy demand both in the US and around the world, it is crucial that we remain committed to investing across various energy sources and technologies. As energy-rich nations, the US and the UAE have a responsibility to invest in advancing the renewable energy sector and build a low-carbon future.”
