Foreign investments from the Arab world and other emerging economies are making the headlines nowadays.
Bridging the gap from New York to Andermatt
Foreign investments from the Arab world and other emerging economies are making the headlines nowadays. The most recent is the acquisition of a 90 per cent stake of the Chrysler building in New York by the Abu Dhabi Investment Council (Adic) for US$800 million (Dh2.93 billion). There should be nothing worrying about this. New York City, the global melting pot, stands as a symbol of liberal capitalism, progress and openness. There is no deal that cannot be pursued in this city, which takes pride in its position as the world's key location when it comes to turning ideas into money.
But this time it is different. Aggravated by the effect that a slowing US economy and declining incomes have on the mood of Americans, the public reaction to Adic's investment has been cool. Commentators have warned that New York is selling out to foreign investors. One particular story run by the Washington Post Express inadvertently referred to an "Abu Ghraib investment firm" as being behind the investment; obviously an error, but nevertheless it demonstrates the thinking behind the story.
There are two preliminary conclusions to be drawn from this episode. The first is that Arab investors face growing political obstacles when they go abroad. The heated debate about the future role of sovereign wealth funds (SWFs) from the Arab world and other emerging economies is a further indication of the changing mood. The second is that Arab investors need to better assess and manage the public opposition and political risks that they face, now and in the future.
This can be done, as has been impressively demonstrated by Samih Sawiris, the Egyptian entrepreneur who is the chairman of Orascom Hotels and Development. In December 2005 Mr Sawiris announced his intention to build a huge resort in Andermatt, Switzerland, for an investment of well above $1bn. What is astonishing about it is that, more than two years later, construction appears ready to go ahead, despite all the political objections and pitfalls that a project like this is bound to face.
Andermatt is a small town located in one of the most conservative Swiss regions, the canton of Uri, one of the founding cantons of the Swiss Confederation and home to the Swiss national hero, Wilhelm Tell. Andermatt is the embodiment of what Switzerland represents for the outside world; it stands for the rural and conservative Alpine country. According to Mr Sawiris's plans, a massive hotel resort, including all amenities that a world-class holiday destination features today, will be built. The investment will fundamentally alter the face of the village of Andermatt, the valley in which it is located, the canton of Uri, and indeed will have an impact on the Swiss economy. One would assume that a project like this would face even stiffer resistance than a similar project in New York, and end in tears for the foreign investor.
But only two-and-a-half years later, the project is about to get under way. And not only that, it has the full support of the community of Andermatt. In March, during a town hall meeting, 96 per cent of the citizens of Andermatt voted in favour of the resort. This is counter-intuitive. Why are the people from rural and conservative Andermatt more receptive to foreign investors than cosmopolitan New Yorkers?
Andermatt's residents were at first bemused by the scale of Mr Sawiris's project, which will easily double the size of their village. Many wondered whether the ambitious project, which included a high-altitude golf course, was really suited to Andermatt's traditions and climate. Local farmers dug in their heels when it became clear that the golf course was going to swallow up more land than had originally been expected, and that they were therefore faced with losing some of their fields.
Aware that these objections posed a serious risk to the project, Mr Sawiris went into high gear, applying a sophisticated form of business diplomacy. This included developing an understanding of local culture and a sense of the economic and political interests of the different stakeholders. It also required the stamina to patiently pursue protracted negotiations with the local community to secure his investment.
In numerous town hall meetings with the citizens of Andermatt, in conversations with farmers, NGOs and other local authorities, he made concessions where they helped to overcome objections, but stood firm against demands that would fundamentally alter the character of his project. By following this path, Mr Sawiris was able to negotiate a deal that satisfied him and the community of Andermatt. It is a far stretch from Andermatt to New York. But the events in these two places indicate that business diplomacy might make a crucial difference when investing abroad. The acquisition of the Chrysler building went ahead, regardless of the reservations of New Yorkers. But the episode of Mr Sawiris's Andermatt investment and the overall political climate seems to indicate that sophisticated business diplomacy is bound to become an essential element of the Arab investor's recipe for success.
Sven Behrendt is a visiting scholar at the Carnegie Middle East Center in Beirut.