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The Middle East is a muddle. It's also a moneymaker for U.S. businesses. They see a lot of potential in the volatile region, thanks mainly to the steady stream of petrodollars flowing into the coffers of Mideast oil producers. American firms are well positioned to supply the equipment and services these countries need for expanding energy resources, defending borders and diversifying economies.
Joseph Quinlan, market strategist with Bank of America, notes that while the Middle Eastern market is too small to have much impact on overall U.S. corporate earnings, more American businesses are drawn by the area's rapid development and mounting wealth. "The vibrant and expanding markets of the Middle East are just what many U.S. firms need" as their home markets mature, Quinlan says.
Much of the interest is focused on the oil-rich Persian Gulf monarchies: the United Arab Emirates (UAE), Bahrain, Oman, Qatar, Kuwait and, of course, Saudi Arabia. The six members of the Gulf Cooperation Council are on track to post a 19% jump in their combined gross domestic product this year, slowing to a 9% gain next year as oil prices level off.
U.S. energy and defense companies will probably remain the leading beneficiaries of Gulf nations' spending, but other industries will share in the spoils. For example, the UAE—particularly the emirate of Dubai—and Bahrain are investing heavily in real estate, transforming themselves into major banking hubs and building up global airlines Emirates and Gulf Air, respectively. American suppliers plan to cash in on these megaprojects.
Meanwhile, Saudi Arabia will spend hundreds of billions of dollars over the next few years on roads, railroads, port facilities, power generation plants, petrochemical infrastructure, water desalination plants, telecommunications, information technology, agricultural infrastructure and education. Edward Burton, president of the U.S.-Saudi Arabian Business Council, notes that Saudi Arabia's entry into the World Trade Organization will give a big leg up to U.S. and other foreign companies eager to do business in the kingdom. "The prospects [for U.S. business] across a lot of these industry sectors are tremendous," he says.
U.S. interest in the region isn't confined to the big oil exporters. Egypt's 75 million consumers are a premier market for U.S. agricultural exports, particularly wheat. General Motors operates GM Egypt, a joint venture with Isuzu and Egyptian and Saudi private investors, to manufacture cars and light trucks at a plant near Cairo. Israel, despite its ongoing clashes with Hamas in the Palestinian territories and its recent war with Hezbollah in Lebanon, continues to attract strong direct investment from U.S. firms in fields such as medical devices, software and nanotechnology. Last month, York, Pa.-based Dentsply International purchased Uri-Dent, an Israeli maker of dental crowns for children. Warren Buffett's Berkshire Hathaway recently purchased Iscar Metalworking Companies, located in northern Israel close to the Lebanese border.
U.S. companies will still face stiff competition in the region. European multinationals have an advantage because of historical ties, geographic proximity and intense promotion by European governments. U.S. firms also must adhere to tighter restrictions on offering bribes and other favors to secure contracts or get things done abroad.
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