The American Government
The question before the corporation is whether we should consider investing in the United States given the current economic and business climate. To achieve a recommendation in this area, it was necessary to look at the current social, political and economic conditions in the United States as well as the potential for long-term change. The American government is based on a system of free-enterprise and the American people generally disdain the idea of state-controlled industry, so it is reasonable to assume that investments there would be safe from state seizure.
However, the American tax structure can be unfriendly and the recent implementation of the so-called Patriot Act can expose firms from the Middle East to an unusually high level of government scrutiny. In addition, since the September 11, 2001, attacks on the United States, anti-Arab sentiment in the country has been high and this social factor must be a consideration when discussing the question of investing there.
Another factor that must be considered when evaluating the likelihood of successful investing in the United States is the current economic conditions there. GNP has slowed to almost nil and consumer debt within the country is alarming. Other consumer indicators including the employment rate, inflation and interest rates all seem to be in flux. In recent news, the United States has seen a collapse in its property markets and real estate is selling at well-below the 2006 and 2007 prices. In 2007 for the first time ever, the Chinese GNP surpassed that of the United States to become the largest economy in the world.
However, given all these factors, it still makes sense to invest in the United States if certain criteria are met. The best form of investments would be FDI, specifically in bio-technology or other cutting edge sciences or in real estate. For immediate profitability, the best option would be to invest in high technology companies including bio-technology or alternative fuels as the Americans attempt to reduce their oil dependence.
For those investing with a long term strategy in mind, FDI in real estate is also a good option. While the real estate market is currently depressed, the simple fact of the matter is that the value of property always rebounds and it will likely eventually return to pre-collapse levels and then continue to escalate. Buying now, while the market is soft ensures getting the most real estate for the least investment.
The first major factor to consider when discussing foreign investment is the political climate of the nation where the investment will take place. Though the leadership of the United States will change in 2009, it is unlikely that the change in the presidency will result in significant policy change, especially since the great majority of the law-making capacity of the U.S. government lies with its Congress. Under the American system of government, no more than one-third of its Congress is up for election at any given time, creating a general stability in the political environment that has lasted 230 years.
There is no reason to assume that any of the current candidates for American president will greatly influence the business cycles within the country. It is true that in the past the country’s economic conditions have faltered for a short period of time after the election of a new president, but the rebound usually occurs within a year of the election. In addition, these generally represent minor anomalies in the greater economic condition of the country.
Of minor concern with regard to the presidential election is talk of a move toward a government-run health care system. Moving to a national health care system as suggested by both the Democratic candidates would be indicative of a major shift in the political-economic structure of the country away from the free market and towards a more socialist point of view. For this reason, it is a bad time to invest in pharmaceuticals or medical companies in the United States as their future is the least certain of any American industry.
Socially, the decision to invest in the United States currently is a question of perception. Since the September 11, 2001, attacks, the United States has been suspicious of any Arab-based investment within the country, culminating with the widespread opposition to the Dubai Port World investment in six major shipping centers. Here, it is important to urge caution.
An overt investment with ties tot eh Middle East is likely to be met with some amount of suspicion. In addition, because of the so-called Patriot Act and the “anti-terrorism” initiatives set forth by the American government since the attack on the World Trade Center, it is likely that any investment originating in Dubai or elsewhere in the Middle East will be highly scrutinized and be asked to complete additional security and reassurance checks than another country attempting fDi might be.
However, investment made without attracting widespread attention could be very profitable and there is a growing Muslim population in the United States, making the country more comfortable for those who do business there. Additionally, though the social stigma definitely exists, the Americans generally pride themselves on their openness and willingness to accept all cultures and are therefore less oppressive than other regimes might be.
Economically, this is a prime time to invest in the United States. For the first time since World War II, the country is seeing zero or possibly even negative growth in the GNP. Americans are concerned that China has become the largest economy on the planet and want to reclaim their place as the economic powerhouse. In addition, the recent instability in the American economy has lead to bargain basement prices on some American investments. In what Americans call the “mortgage crisis,” recklessly inflated real estate prices have gone through a periodic self-adjustment to reflect a more accurate value and left millions of Americans owing more money on property than they can afford to pay.
Those this crisis has had a backlash effect through much of the American economy, it means that right now, American real estate is available at bargain prices. Because the population of the United States continues to grow, the property value will rebound when people need homes, business, etc. Therefore, this is a good time to invest in real estate. The current prices are down, in some cases significantly lower than one or two years ago, and property values rarely stay down for any length of time. The length of this crisis is currently unknown, so this should be considered only for a long-term investment – at least three to five years.
According to fDi Magazine in April, 2008, one of the most attractive sectors for investment in North American and in Europe is in biotechnology. “To examine the attractiveness of countries for biotech investment, fDi examined first the countries’ general FDI attractiveness for knowledge-intensive industries (Part 1). Factors measured through various indices include the macroeconomic environment, total inward investment projects and property rights protection.” (Kalyvas 2008).
Given the worldwide food shortage and the increasing use of food products (corn, soy and sugar cane) to create alternate fuels, this seems to be the singlest best area of fDi in the United States. Investments in Monsanto and other companies which provide hybrid and genetically modified crops to increase food production or in American farmland seem likely to result in both long-term and short-term profits for the firm.
Therefore, given these considerations, it is my recommendation that the firm actively begin pursuing options for fDi in the United States and concentrate our efforts in the areas of real estate and biotechnology. The combination of investment options will help to secure an economic recovery in the United States, one of the world’s largest consumer nations, and can assure that the firm is invested in areas that will be protected from nationalistic tendencies such as those forming in the medical industry and will be creating products (food) which is in demand worldwide.
Kalyvas, Antonios. “US shows biotech strength”, fDi Magazine
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