Despite Unrest, U.S. Firms See Promise in Mideast
When Intel Corp. went looking for skilled engineers in the early 1970s, Dov Frohman, an Israeli citizen and inventor of the erasable programmable read-only memory chip, suggested his homeland.
Two decades later, the Santa Clara, Calif.-based semiconductor giant has become a key part of Israel’s high-tech boom, investing several hundred million dollars in a design center and semiconductor plant. Now Intel plans another $1-billion chip plant in Kirat Gat, 30 miles outside Jerusalem.
Although last week’s Israeli-Palestinian violence in Jerusalem has given some would-be investors pause, the many U.S. industrial firms with a long history in the region hardly seem to have noticed. They are forging ahead with projects in the region, convinced that the long-term payoff in the oil-rich, and increasingly technology-rich, region far outweighs the risks.
“There’s always something,” said Intel spokesman Howard High.
“What you do as a company is try to spread the risk around and also, hopefully, perform well under sometimes-trying conditions. And occasionally, you’re lucky.”
Indeed, the long-standing U.S. alliances in the Middle East--supported by massive U.S. economic and military aid--continue to pay off handsomely for U.S. construction, energy and defense-related firms.
For that reason, the Middle East will remain a strong market for companies such as Parsons Corp. of Pasadena, which built the giant Yanbu Industrial City in Saudi Arabia; Hughes Information Technology Systems of Fullerton, creator of Saudi Arabia’s air defense system; and Irvine-based Fluor Daniel Inc., which is constructing several large petrochemical complexes in Saudi Arabia and Kuwait.
At a seminar with top U.S. ambassadors to the Middle East in Los Angeles last week, U.S. Commerce Department officials reminded business leaders that the recent violence doesn’t negate the fact that Mideast governments have begun liberalizing their economies, privatizing state-owned industries and pursuing regional economic integration.
Officials cited numerous examples of stepped-up U.S. trade and investment in the region.
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Recent deals include Sea-Land Service Inc.’s $250-million contract to build a port in Jordan, New Jersey-based Ogden Yorkshire Water’s participation in a $500-million partnership to upgrade waste water treatment facilities in Oman and Union Carbide Corp.’s $1.2-billion joint-venture petrochemical facility in Kuwait, the country’s largest privately financed project.
Besides, political instability is hardly the only obstacle to doing business in the Mideast, where even the oil-producing nations have failed to keep pace with their more aggressive Latin American and Asian competitors in attracting foreign investment.
Between 1985 and 1993, average incomes in the Middle East fell by more than 30%. By 1993, average unemployment in the region had climbed to more than 15%.
Common complaints from foreign companies trying to work in the Middle East include bureaucratic red tape, insufficient financing, inadequate intellectual property protections and a host of conflicting regulations and barriers to intra-regional trade.
And not everyone is convinced the peace process is solid enough to justify a money-backed vote of confidence.
Nizar Katbi, president and chief executive of Irvine-based FTR International Inc., has bid on several major construction projects in Egypt, Jordan and Israel. But he does not plan to invest hard cash in the region until relations between Israel and its neighbors improve.
“We are keeping our eye on the market, but we are not engaged at this particular time,” he said. “We are looking forward to the situation getting better.”
U.S. officials confirmed that the recent violence sparked by Israel’s decision to excavate a historic tunnel near a Muslim holy site has dampened the enthusiasm of newcomers to the market.
But they said most firms with a history in the region were moving ahead with their plans, particularly in areas like oil, defense, energy, water desalination, environmental cleanup and health care.
Those opportunities will be the focus of the upcoming Middle East-North Africa Economic Summit, scheduled for Nov. 12-14 in Cairo. That event, the third such meeting, is designed to break down the economic barriers between Israel and its Arab neighbors.
Many say the key is regionwide development that spans borders, like a transcontinental highway, a regional airport or a giant power grid.
Those would provide economies of scale attractive to foreign investors while encouraging cross-border trade and investment.
“When an Israeli businessman needs the market in Egypt and vice versa, the handful that creates chaos will once and for all be moved aside,” said Jack Tymann, director of international operations for Westinghouse.
One pressing issue is developing the economy of the West Bank and Gaza, where skyrocketing unemployment and a severely depressed economy have fueled the Palestinian unrest, particularly among the youth.
The Clinton administration is promoting the establishment of joint industrial zones that would marry the technology and capital of Israel with the low-cost labor of the Palestinian region.
But although that proposal had support from some prominent Israeli businessmen, the recent tensions have slowed negotiations.
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Meanwhile, Ryan Crocker, the U.S. ambassador to Kuwait, in Los Angeles for the Mideast business conference, said the “Made in America” label has gotten a huge boost from the Gulf War, when the “strength of the U.S. commitment to Kuwaiti security was tested and found solid.”
Though some have grumbled about Kuwaiti ingratitude, Crocker said that after U.S. complaints about piracy problems plaguing foreign firms, the Kuwaiti government--in spite of complaints from the Europeans and Asians--issued a proclamation protecting intellectual property for U.S. firms only.
And Parsons and Fluor Daniel are among the U.S. firms hoping to win a piece of a proposed 2,400-megawatt power project that Kuwait has promised will be a unique “set-aside” for U.S. companies.
