Arab financial offensive on US companies concerns Analysts

Gulf states are seizing the opportunity to increase their influence in US economy.

By YAAKOV LAPPIN
Stock financial 224.88 (photo credit: AP [file])
Stock financial 224.88
(photo credit: AP [file])
As US shares continue to fall and the American economy reverberates with fears that a subprime-mortgage-driven recession has begun, affluent Gulf states are seizing the opportunity to increase their control of financial companies and other branches of the US economy. That development is leaving some analysts concerned over the prospect of Arab financial prowess manifesting itself in a political agenda, with negative consequences for Israel. "There is concern that the purchase of strategic assets provides the owners with the ability to intervene politically," Prof. Gerald Steinberg, chairman of the Political Science Department at Bar-Ilan University, told The Jerusalem Post on Sunday. He stressed, however, that those concerns were "based on a worst-case scenario," adding that countries such as Abu Dhabi "do not have a track record of political intervention." "Although this could change, at this time it's more a matter of watching than feeling threatened," Steinberg said. Should those fears materialize, he added, there would certainly be "a strategic impact on Israel. There has been increased Arab investment and control - but these are two different things. The problem is not investment, but control. You could start to see subtle aspects of a boycott [of Israel], even though that is illegal under American law. You might find that some of these firms [that have been heavily invested in by Arab states] place obstacles to deals with Israel," Steinberg said. On the other hand, the Gulf states could run their investments "just like businesses," he said. "Abu Dhabi's investment funds are under royal control, and the royal family is very much concerned, for good reason, about any kind of radical involvement," Steinberg said. Petrodollar investment in the US economy was nothing new, Steinberg noted, but "what makes this period potentially different is if it marks a significant decline in American economic power," leaving the door open to an Arab petrodollar buyout. In November, the Abu Dhabi Investment Authority invested $7.5 billion in US banking giant Citigroup. With an estimated $650b. at its disposal, the authority is one of the largest government investment funds in the world. The Abu Dhabi Investment Authority is also heavily invested in US home-builder Toll Brothers. Last year, the Dubai Istithmar investment holding company purchased Barneys department stores for $942.3 million, while Dubai World invested $5b. in MGM Mirage, a company that controls Las Vegas casinos. The US global investment bank Goldman Sachs has also seen many of its shares bought by Gulf investors. "In the Arabian Gulf countries alone, there are over 200 billionaires," the bank's CEO Lloyd Blankfein was quoted as saying during a banking conference in New York in November. Most Gulf states have set up sovereign wealth funds to handle their enormous investments, a development which leaves room for concern, senior American economist and former Treasury secretary Larry Summers said. A recent edition of the Middle East Quarterly quotes Summers as warning that government shareholders could be driven by motives other than pure economic factors. "They may want to see their companies compete effectively, or to extract technology, or to achieve influence," Summers warned. Norbert Brinker, of Tel Aviv investment house GIFT Asset Management, pointed to another, less menacing agenda that could be driving the Arab investments. "One day, oil won't be available in such quantities, and these countries are looking for replacements," Brinker told the Post. "If you look at Dubai's economic plan, they're investing heavily in tourism and hi-tech." Vered Dar, of the Psagot Ofek investment house in Tel Aviv, said, "Logic says they should buy these [US] shares. It seems like a sound decision. They have the petrodollars and they want the investment." Capital market analyst Prof. Rafi Eldor, of the Interdisciplinary Center, Herzliya, said he would "do the same" if he were in the position of Gulf states, adding that the largest investor in shares was not a Gulf state, but rather China.