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Coming to America
By Andrew C. Schneider
Looking for a vote of confidence in the
U.S. economy? Look abroad. Overseas companies display
little doubt about the ability of capital invested here
to reap handsome rewards, despite the U.S. economy's
current sluggishness. Inward foreign direct investment
-- that is, the tally of foreign firms' purchases of
U.S. business assets and their investments in greenfield
projects here -- is on track to reach $238 billion this
year, based on joint projections from the Columbia Program
on International Investment (CPII) and the Economist
Intelligence Unit. Inward FDI will hold at about that
level in 2008, up sharply from last year's $175.4 billion.
Annual FDI inflows are at their highest since hitting
a record $314 billion in 2000 at the peak of the dot-com
boom.
The U.S. remains the top destination for
cross-border business investment, even though China
has taken the lead in greenfield projects. Foreign companies
will continue to sink money into the U.S. because it
pays off. "Keep in mind, the key determinants for
attracting FDI are the size of a market, economic growth,
sophistication of consumers and demand," says Karl
P. Sauvant, executive director of the CPII. All those
are factors that make the U.S. particularly alluring
over the long term. Foreign companies also crave access
to cutting-edge technologies that American firms still
excel in producing. What's more, the weak dollar is
allowing firms from abroad to swoop in and buy or build
properties here at bargain prices.
A growing share of FDI will come from
the developing world. Though multinational corporations
in Europe, Japan and other developed countries remain
by far the largest source of FDI into the U.S., businesses
in developing countries are also making their mark.
For example, Taiwanese computer manufacturer Acer made
a deal this year to buy Irvine, Calif.-based rival Gateway
for $700 million. And Indian information technology
services company Wipro Technologies is purchasing U.S.
IT infrastructure management firm Infocrossing Inc.
-- raising the prospect that, in a reversal of traditional
U.S. offshoring fears, Bangalore may wind up farming
out jobs to Leonia, N.J.
Developing-world money will also come
via sovereign investment funds. These government-run
entities have been set up to make better use of their
countries' massive foreign exchange holdings -- mainly
dollars, which typically have been invested in low-yielding
but relatively safe U.S. Treasuries. Three of the richest
funds are in Middle Eastern hands -- specifically, Abu
Dhabi of the United Arab Emirates ($875 billion), Saudi
Arabia ($300 billion) and Kuwait ($167 billion) -- thanks
to the large surpluses generated by oil exports. Outside
the Mideast, the funds of Singapore and China have $430
billion and $300 billion, respectively, to play with.
Deals involving state-owned foreign firms
are also less likely to trigger political tensions in
Washington than they were a couple of years ago. Recall
the uproars over the abortive bid by Chinese oil company
CNOOC to acquire Unocal and Dubai Ports World's purchase
of a British company that managed facilities at various
U.S. ports. Recent reforms to the Committee on Foreign
Investment in the United States (CFIUS), an interagency
government body that vets FDI transactions such as these,
will make the review process much more transparent for
both Congress and investors. That will add to the length
of time required for a foreign firm to complete a U.S.
acquisition, but it will also reduce the risk of such
a deal turning into a political football.
That said, the CFIUS reforms haven't prevented
foreign countries from taking revenge on the U.S. for
the FDI flaps that occurred before the reforms took
effect. For example, China recently adopted new rules
that will make it tougher for foreign firms to acquire
companies in politically sensitive sectors of the economy.
Russia, India and Germany are all considering FDI restrictions
of their own.
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All contents © 2007 The Kiplinger
Washington Editors
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