U.S.: Mideast Investment Down

Continuing the trend of 1983, investors from Middle East oil-exporting countries decreased their investments in the U.S. in four key categories during the first quarter of 1984.

Preliminary figures from the U.S. Treasury show a net drop of 4.3 percent during the quarter for investments in government securities, corporate stocks, corporate bonds, and bank deposits.

Figures were not yet available from the Treasury for the trend in direct investment (i.e., purchases of 10 percent or more of U.S. companies), advances to the U.S. government (for example, by Gulf countries' for the purchase of weapons), and advances to non-bank U.S. corporations.

In the four categories for which figures were available, deposits in banks, particularly checking accounts, went down the most—12.8 percent since the end of last year. Investment in corporate stocks declined seven percent, and corporate bonds by .4 percent. Middle Easterners were net sellers in U.S. government securities, too—down by just under three percent. Holdings of Treasury bonds and notes were sold off at a rate of 4.5 percent, while holdings in Treasury bills and certificates—bucking the trend—rose by nearly two percent.

Sharif Ghaleb, chief Middle East economist for Chase Manhattan Bank, told The Washington Report that the essential cause of the decline lies in the cash-flow difficulties of the oil producers, stemming from a combination of lower oil revenues and continued heavy expenses on development. Thus, in 1983, the major oil exporters of the Arabian peninsula (Saudi Arabia, Kuwait, the United Arab Emirates and Qatar) ran a combined current account deficit for the first time ever—with outgo exceeding inflow by $6-7 billion, Dr. Ghaleb says. He estimates the deficit of OPEC as a whole to have been in the range of $25-30 billion. Noting that the Middle Eastern investors have been getting out of long-term securities, with the risk of capital depreciation, into shorter-term instruments providing high interest rates, he observes: "The pattern of their drawdown makes a lot of sense from the cash-management point of view."

Treasury reports on investments by both private and government investors from the Middle East oil exporting countries show a grand total of $74.6 billion of such investments as of the end of 1983—down by more than nine percent since the end of the previous year. However, actual totals are believed to be considerably higher than Treasury figures—because the Treasury is not able to track, for example, all stock purchases of less than five percent of the equity of a corporation, and cannot identify the Middle Eastern element in investment portfolios which come in from third countries.

Of the $74.6 billion in investments at the end of 1983, $40 billion were in U.S. government securities, $5.1 billion in corporate bonds, $8.6 billion in corporate stocks, $6.7 billion in bank deposits, $4.3 billion in advances to non-bank corporations, $5 billion in advances to the U.S. government, and $4.9 billion in direct investments.

At the end of 1982, OPEC countries accounted for 30 percent of all foreign holdings of U.S. government securities—but one year later this figure had dropped to 23 percent.

The percentage of direct investment from OPEC countries in the U.S. is still less than four percent of the total foreign investment—with investors from Britain, Canada, Japan, West Germany, France and the Netherlands carrying out most of the action.