focus

USa INVESTmENT SECTOR WATCH INTERVIEW

Country

USa

43MAY 2013

UAE is the single largest export market for American goods in the MENA region. With bilateral trade touching USD 22.57 billion in 2012, bilateral trade and investment relations between both the countries have been going from strength to strength. Danny Sebright, President, US-UAE Business Council, speaks to Aparna Shivpuri Arya about this and much more.

Please give us a brief background about the US-UAE Business Council- its inception, its goals, members and so forth.The US-UAE Business Council is a progressive business advocacy organisation solely committed to the advancement of the trade and commercial relationship between the United States and the United Arab Emirates. The Business Council actively works to ensure that the US and UAE remain attractive destinations for foreign direct investment by conducting effective policy advocacy, undertaking various trade promotion initiatives, providing ongoing

updates on the business climate in both countries, and helping develop strategic relationships between US and UAE business and government officials.

Launched in May 2007, the Council was inaugurated by His Highness, Abu Dhabi Crown Prince, Sheikh Mohammed bin Zayed Al Nahyan and His Highness, UAE Foreign Minister, Sheikh Abdullah bin Zayed Al Nahyan and is comprised of over 100 members from a broad range of US and UAE commercial sectors.

Our advocacy and work priorities for 2013 reflect our membership and include specific focus in the areas of: Commercial

Trade and Foreign Direct Investment; Energy Development (Renewable, Nuclear, Oil & Gas); Aerospace, Defense, Security; Infrastructure Development & Green Build; Media, Tourism and Culture; and Medicine and Education.

Further, these sectors reflect the UAE’s overarching areas of federal economic development focus in high-growth and desired markets. Likewise, the UAE has established strategic benchmarks in each of these sectors and recognises that the United States is a leader in corporate knowledge and innovation. By facilitating both business communities, the US-UAE

Trade with the best!

INTERVIEW

COUNTRY FOCUS

44 MAY 2013

Business Council continues to promote and strengthen the bilateral trade relationship between both countries.

How has the US-UAE relations evolved in the last decade or so?It is important to note that the United States was one of the first countries to recognise the UAE as a sovereign nation when the country was founded in 1971. Subsequently cultivated as a strategic defense relationship following the Iraq War, US-UAE ties have evolved in recent years to include partnership in areas such as trade and commerce, education, financial services, hospitality, and especially aviation — an industry which accounted for close to 30% of all US exports to the UAE in 2012.

In recent years and in light of regional geopolitics, the UAE has become a strong partner to the US in the maintenance of regional trade and energy security and is a beacon of stability in an otherwise turbulent region. Additionally, the UAE remains the top destination for American exports in the entire Middle East North Africa (MENA) region since 2009 with US exports to the UAE totaling USD 22.57 billion (out of the total USD 24.8 billion trade relationship) in 2012. This is more than US exports to Saudi Arabia, Israel, and Egypt. Finally, with the advent of Emirates Airline, Etihad Airways, and the UAE’s world-class airport infrastructure, the country has become a centrally-located global transit point for international business and leisure travelers from the U.S. and around the world.

The breadth of the US-UAE relationship is tremendous today and will only get stronger as economic and regional stability in MENA remains a top priority for both countries. Beyond the deepening economic relationship, the US and UAE are key strategic partners who continue to cooperate closely on military and intelligence matters preserving regional and international security.

How do you see the trade relations between the two countries? Which goods are exported and imported?The UAE is the top destination for American

exports in the entire Middle East North Africa (MENA) region — a position the country has held since 2009. As was previously mentioned, the US and UAE experienced a record growth in bilateral trade with over USD 24.8 billion last year. US exports to the UAE in 2012 totaled USD 22.6 billion and included goods originating from every part of the country, with aviation exports — aircraft, engines, and parts — comprising the largest sub-set of US exports at USD6.44 billion. Conversely, UAE exports to the U.S. totaled USD 2.24 billion last year and notably did not include any crude oil.

The US-UAE trade and commercial relationship is growing, with the U.S. leveraging the UAE’s geographic centrality and world-class infrastructure to transport goods to the country both for consumption and re-export to key global markets; and with the UAE’s confidence in the quality of American-made products.

Our analysis indicates that growth will continue to rise over the next five years as the UAE continues to meet its economic development diversification targets and continues to invest in its infrastructure, education, and health care institutions.

You have identified certain areas that you work on? What have been the developments in those sectors?Economic growth and development has occurred in every sector we focus on: commercial trade and foreign direct investment, energy (oil & gas, renewable, nuclear), infrastructure and greenbuild, commercial aerospace and defense, hospitality and tourism, media and culture, and education. In each of these sectors, the emphasis of US-UAE partnerships is focused on knowledge transfer, training, and human capital development. The Business Council takes a strategic approach to each sector, tailoring our engagement to best suit each business

area, to optimise success for each of our member companies, and to complement efforts to advance the greater US-UAE bilateral trade relationship.

The largest growth industry at the moment is aviation, which accounted for close to 30% of all US exports to the UAE in 2012. In fact, in a new report recently released by the US-UAE Business Council, the United States and the United Arab Emirates were found to enjoy the fastest growing commercial aviation relationship in the world (growing 1,500% over the past decade).

But, growth figures in other areas like heavy industry with aluminum, in high tech with microchips and composites, in communications, IT, and media, and as well in travel and tourism has been very impressive.

The US and the UAE have been collaborating on energy - can you please tell us a bit more about that?The energy sector plays several roles in the UAE’s economic development plans for the future. Currently, between 60-70% of the UAE’s GDP comes from oil and gas, however,

ABOUTDanny Sebright serves as president of the U.S.-U.A.E. Business Council and a counselor at The Cohen Group, both based in Washington, D.C.

45MAY 2013

the country is endeavoring to diversify its economy and explore alternative energy solutions to decrease this number to around 30% by 2030.

The energy industries the UAE are currently developing includes renewables, nuclear, and solar energy. In each of these sub-sectors, the United States is playing a supporting role in providing infrastructure, training, and peripheral services to help the UAE develop its internal capabilities. This support is both practical and academic with American companies and institutions working in tandem with UAE counterparts to achieve energy sector diversification.

A flagship example of this collaboration is the Masdar Institute of Science & Technology, a research-driven academic partnership between the UAE’s leading sustainable energy company, Masdar, and the Massachusetts Institute of Technology (MIT). The facility is located in Masdar City – the UAE’s carbon neutral development currently under construction in Abu Dhabi – and boasts a growing global faculty and student population. In fact, the International Renewable Energy Agency (IRENA) chose Abu Dhabi as the agency’s first headquarters, a strong testament to the UAE’s prowess in the renewable field.

In the nuclear space, technology from the US-based Westinghouse Corporation is being used to design and construct nuclear reactors under construction in the Western Region of Abu Dhabi. Westinghouse is working within a coalition of companies led by South Korea’s KEPCO. With the first reactors set to join the UAE’s power grid in 2017 and a strict adherence to both the US-UAE 123 Peaceful Nuclear Energy Agreement and International Atomic Energy Agency (IAEA) standards, the UAE’s nuclear industry is positioned to set an example for the broader region and developing countries looking for alternative energy solutions.

These are just a few of the many examples of how the UAE is using its financial resources gained from the oil and gas sector to develop other important energy-related industries in partnership with the US and other countries.

For US businesses looking to enter the UAE market- do you provide any services?The US-UAE Business Council is a membership-based organisation that provides several useful services to advise US businesses looking to enter or strengthen their presence in the UAE market, these include:

• Introductions to key government officials

and private sector executives, • Match-making and due diligence for

potential local agents• Policy programming, business networking,

and reporting to provide U.S. businesses with sector-specific information as well economic and risk analysis

• Daily media clips designed to highlight trends and developments

The US-UAE Business Council also provides tailored business counsel that is focused

directly on specific member needs and priorities, in addition to meeting the overall goal and objective of raising awareness about the strengths of the bilateral trade and commercial relationship.

Are there any logistical issues in doing trade with a region that isn’t geographically that close?With 28 non-stop flights traveling between the US and UAE daily as of March 31st, 2013 and a globally connected business community, there are fewer logistical issues today than there ever have been.

The UAE is strategically investing in their overall infrastructure with ease-of-business in mind. Jebel Ali port is already one of the largest in the GCC and Khalifa Port in Abu Dhabi will be the only fully-automated port of

its kind for 3,000 miles in any direction. Moreover, the UAE’s geographic position is

ideally situated to doing business anywhere in the world. A majority of locations are within six hours flying from the UAE.

How do you see the business and investment relations in the coming years?The US-UAE business and investment relationship is strong and rapidly growing. In fact, the relationship is supported at the highest levels by both the US and the UAE governments who have each placed a renewed policy focus on developing economic ties between the two countries. The US Department of State and the UAE Ministry of Foreign Affairs established the biannual US-UAE Economic Policy Dialogue in March of 2012 to raise the profile of business and investment within the context of overall US-UAE diplomatic relations. This government-to-government effort is

supported by interagency cooperation on both sides and relies on substantive input from thought-leaders in the private and public sectors to drive the working agenda and advance bilateral commercial relations.

From a broader regional trade perspective, the US views the Gulf Cooperation Council (GCC) countries as viable and strong trading and investment partners. Accordingly, the United States and its counterparts in the region set up the US-GCC Strategic Cooperation Forum at the ministerial level and are actively working towards a US-GCC Free Trade Agreement. The UAE is heavily involved in these discussions and shares the United States’ commitment to the cultivation of stronger economic and diplomatic ties with the region.

INTERVIEW

COUNTRY FOCUS

In the nuclear space, technology from the US-based Westinghouse Corporation is being used to design and construct nuclear reactors under construction in the Western Region of Abu Dhabi.

46 MAY 2013

A new study commissioned by the US-UAE Business Council found that the US-UAE commercial aviation relationship is the world’s fastest growing at 1,500% over the past decade. In this article, the organisation gives us the details about this sectoral relationship and what are the prospects for trade and investment.

T he United Arab Emirates (UAE) has emerged as a key player in the global commercial aviation sector. By

expertly leveraging its geographic location to connect diverse communities around the world — approximately 60% of the world’s population lives within a six hour flight of the UAE — the country’s three international airports have emerged as global transit hubs, between east and west as well as north and south. Additionally, a key initiative underpinning the UAE’s success in the sector is also the swift expansion of its two national carriers, Abu Dhabi’s Etihad Airways and Dubai’s Emirates Airlines.

Although they are independent airlines, Emirates Airline and Etihad Airways have equally ambitious plans to launch new routes to several of the world’s top global markets. Further, both airlines have judiciously allocated resources to invest in newer, more advanced aircraft that can travel nonstop over longer distances and offer an enhanced passenger experience. This bodes well for increased commercial aviation partnership and investment between the United States and the UAE.

The US-UAE commercial aviation relationship is the world’s fastest growing at 1,500 % over the past decade. This monumental growth can be directly attributed to the successful expansion of non-stop travel options from the UAE to new US markets, the rapid development of the UAE’s infrastructure and emergence as a global hub for business, trade, and tourism, and the UAE’s commitment to the cultivation of a local aerospace industry destined to create and sustain jobs throughout the MENA region — as well as around the world.

According to the report, the four airlines that offer nonstop flights between the US and UAE — Emirates, Etihad Airways, Delta, and United— helped generate more than USD 5.8 billion in positive economic benefit in 2012 (combining overseas visitor expenditure and airline impact, such as purchases, and indirect and induced effects). At the nine US gateways, each nonstop flight to the UAE has been calculated to generate approximately 200 airport jobs and USD 80 million in annual economic activity. Currently, there are 182 nonstop flights each week between the U.S.

and UAE. In 2013 alone, these flights are expected to carry 2.4 million passengers between the UAE and US, and the number is expected to grow in the coming years.

For its part, the UAE serves as America’s top export market in the Middle East North Africa (MENA) region and a key gateway to Asian markets including China and India. The country is an emerging contributor to the rapid globalisation of these industries and the development of sustainable American jobs in general. Further, Abu Dhabi, the largest emirate in the UAE, has emerged as the catalyst behind the country’s growth in these sectors.

Indeed, commercial aviation and aerospace are key economic priorities highlighted by Abu Dhabi’s leadership in the Abu Dhabi Economic Plan 2030, a strategy designed to drive the emirate’s economic diversification away from a dependence on oil over the next two decades. According to this plan, Abu Dhabi aims to build and expand current infrastructure to support airplane manufacturing by 2019. Abu Dhabi also plans to increase the capacity at Abu Dhabi International Airport (AUH) to close

SECTOR WaTCH

COUNTRY FOCUS

Fly away!

48 MAY 2013

to 50 million passengers a year with the new Midfield Terminal Complex set for completion by 2017.

In the future, Abu Dhabi endeavors to become a nerve center for global aviation, joining Seattle and Toulouse as a leader in component manufacturing, aircraft production, and aviation technological innovation. Abu Dhabi made strides toward this goal in April of 2012 by holding its inaugural Global Aerospace Summit hosted by Mubadala Aerospace, a subsidiary of Mubadala Development Company and Abu Dhabi’s flagship aerospace investment firm, under the patronage of His Highness General Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces. The two-day conference brought close to one thousand industry representatives, including a U.S. Department of Commerce-certified trade delegation of American aerospace executives, led by the Aerospace Industries Association (AIA) and the US-UAE Business Council, to exchange ideas on the future of global aerospace.

During the conference, Emirati companies underscored a desire to work with international partners to achieve Abu Dhabi’s objective to become a commercial hub for aviation research, development, innovation, and manufacturing in the Middle East. This ambitious goal presents American companies, particularly SMEs, with an opportunity to contribute significantly to the successful development of the UAE’s nascent aerospace sector and supply chain capabilities. Moreover, it is an opportunity to develop important relationships with expanding UAE companies that have viable business plans and impressive investment portfolios.

In fact, Emirati companies have made and continue to make investments that directly support American jobs spanning the entire commercial aviation sector. For instance, the two national carriers of the UAE boast expanding fleets of Boeing airplanes fueled by General Electric and Pratt & Whitney engines, and order ledgers indicating ambitious growth plans and

delivery schedules. Further, both airlines have placed U.S. expansion near the heart of their development plans.

For its part, Boeing recently awarded Strata Manufacturing, a subsidiary of Mubadala Aerospace, a ten year contract to serve as a tier one regional supplier of advanced aero structures for Boeing’s 777 and 787 Dreamliner planes. The contract is a clear testament to the confidence Boeing

has in Strata’s ability to deliver quality products and in Abu Dhabi’s potential to develop as a regional, and eventually global, aerospace manufacturing, repair, and overhaul (MRO) center.

Other key sectors that support US-UAE commercial aviation relations include: information technology, travel and tourism, airport facilities management, air traffic control (ATC) technology, manufacturing and infrastructure, and energy.

Today, the epicenter of commercial aerospace demand is shifting eastward as countries recover from the global financial crisis and airlines from the Middle East and Asia emerge as dynamic players in the international marketplace. To compensate, American companies are increasingly looking abroad to international partners

and investors to secure future business to sustain jobs and to support the growth of their commercial aviation and aerospace industries.

Consequently, American companies — both large and small to medium-sized enterprises (SMEs) — looking for future sustainable business and investment opportunities should set their sights globally; namely toward the Middle East and Asia. Here, demand is

growing at a rapid pace and a common thirst for innovation is supported at the highest levels of government and industry.

As the commercial aviation sector evolves into a truly globalised engine of commerce, airlines from the UAE, the broader Middle East, and Asia continue to place record-breaking aircraft orders to support growing populations, fill gaps in international air traffic demand, and expand route networks. Many countries are working tirelessly to develop internal manufacturing capabilities to take advantage of this opportunity and compete internationally. Accordingly, it is in the interest of American industry to set aside competitive tensions and secure mutually beneficial commercial footholds in the UAE’s emerging aerospace markets in both Abu Dhabi and Dubai.

ABOUTThe US-UAE Business Council is a progressive business advocacy organization solely committed to the advancement of the trade and commercial relationship between the United States and the United Arab Emirates.

Launched in May 2007, the US-UAE Business Council was inaugurated by His Highness, Crown Prince, Sheikh Mohammed bin Zayed Al Nahyan and His Highness, Foreign Minister, Sheikh Abdullah bin Zayed Al Nahyan and is comprised of nearly 100 members from a broad range of US and UAE commercial sectors.

To read the full US-UAE Business Council commercial aviation report, “US-UAE Commercial Aviation: Taking Flight,” visit: http://usuaebusiness.org/wp-content/uploads/2013/03/US-UAE-aviation-report_Published.pdf

Other key sectors that support US-UAE commercial aviation relations include: information technology, travel and tourism, airport facilities management, air traffic control (ATC) technology, manufacturing and infrastructure, and energy.

49MAY 2013

Direct investment in the United States from the Middle East is generally unproblematic even by state-owned companies or by sovereign wealth funds, but nevertheless requires careful consideration of U.S. national security controls. Guillermo Christensen and Gregory J. Golden from Baker Botts LLP, talk to us about this issue.

Concerns that state-owned companies may have to address in clearing such regulatory hurdles

include, perceived threats to U.S. energy infrastructure; concerns regarding terrorism and political instability; concerns about political and economic ties to regimes and transfer of critical or sensitive technologies; perceived risk to US jobs/economic security.

Middle Eastern companies looking to do business in the United States should prioritise their investment objectives and tread carefully and purposefully toward fulfillment of those objectives, with the expectation that their activities will be subject to a high degree of U.S. government and public scrutiny.

Under U.S. federal law, the President has the authority to suspend or prohibit any

foreign acquisition, merger, or takeover of a U.S. business where the transaction is determined to threaten the national security of the United States. These laws are implemented and administered by the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee that reviews the national security implications of foreign investments in U.S. companies or operations.

Parties to a prospective acquisition, merger, or takeover may voluntarily notify CFIUS of the transaction and secure U.S. government approval before the transaction is completed. Where parties to a prospective transaction do not provide voluntary notice to CFIUS, the Committee has the authority to initiate its own review of the transaction,

including after the transaction has closed. Once notified, CFIUS will conduct a 30-day review to determine whether the proposed acquisition could impair the national security of the United States. If the Committee determines that the transaction

Tread with careINVESTmENT

COUNTRY FOCUS

raises significant national security issues, it will undertake a more thorough 45-day investigation, after which a report will be issued to the President. The President then has 15 days to decide whether or not to block the acquisition.

The applicable federal laws do not cover most “greenfield” investment by foreign persons, i.e. starting a new venture from the ground up. Thus, foreign companies may create new U.S. businesses without the need to undergo CFIUS review, but CFIUS may in some situations request reviews even in some types of hybrid greenfield investment situations when, for example, the acquisition is closely proximate to a sensitive U.S. government facility.

In practice, most transactions will be able to clear CFIUS review without significant complications. In 2011, for example, CFIUS reviewed 111 transactions, almost double the number in 2009. Of those transactions that were notified to CFIUS in 2011, 40 were subject to a full investigation, a significant increase from the prior two years. In contrast, for the first time since CFIUS came into being, in 2012 President Obama blocked a transaction involving a Chinese company.

Key CFIUS considerations regarding the acquiring entity• The ownership of the foreign acquirer

(including all companies in the ownership chain), and in particular whether there is control or ownership by a foreign government.

• The foreign acquirer’s long term plans for the business and strategic purpose for the acquisition.

Key CFIUS considerations regarding the target company include, whether the target:• works in or has access to secret

government data, or whether it has U.S. Government contracts.

• produces technology, software or goods that are controlled under US export laws.

• owns/has access to/operates critical infrastructure.

• operates in a domestic sectors that is considered to affect the capability and capacity of the U.S. to meet national security requirements.

ABOUTMr. Christensen is an attorney with Baker Botts’ International trade practice in Washington DC, and formerly has held several positions in the U.S. National Security Establishment.

Mr. Golden is the Partner in Charge of the Abu Dhabi office of Baker Botts. He also serves as the Chairman of AmCham Abu Dhabi.

Gregory J. GoldenGuillermo Christensen

50 MAY 2013