The Arabs Are Coming

An embargo may still be keeping Arab oil out of the U.S.--but not the gigantic amounts of investment capital that the Arab countries are accumulating by selling that oil elsewhere. Over the years, the Arabs have piled up American holdings estimated to be $10 billion to $15 billion. Now such thinly populated countries as Kuwait, Saudi Arabia and the Persian Gulf sheikdoms are pulling in more money through oil-price boosts than they can possibly absorb at home, and are channeling still more cash into the U.S.

The money is being placed discreetly, without publicity, in outlets that draw little attention--chiefly bank deposits and blue-chip real estate. There are two reasons. One is simply that Arabs tend to be ultra-conservative investors who are fearful of being cheated if they venture into anything the least bit speculative. Also, the Arabs are well aware of the political climate in the U.S., and so the Arabs are determined to maintain a low investment profile.

Still, the pickup in Arab investment has been noticeable. "Every day we get offered vast sums, like $200 million at a time, to be invested in things like Treasury bills," says a California banker. Adnan Kahsoggi, a Saudi, has moved beyond U.S. bank deposits to buy U.S. banks. Over the past two years, he has purchased controlling interests in two headquartered in Walnut Creek, Calif.: Security National, which has assets of $115 million, and the Bank of Contra Costa, with assets of $22.8 million.

In the real estate field, the mixed public-private Kuwait Investment Co. last year committed itself to put up $10 million, half the equity of a $100 million urban complex in downtown Atlanta, two blocks from Peachtree Street. The project will include a Hilton hotel, offices and a shopping mall. Kuwait Investment reportedly has also bought a South Carolina island intending to build a luxury resort.

Best Addresses. Kuwaitis and Saudis are also buying feed lots, agricultural land and New York City office buildings, almost all at the best addresses in town, such as Wall Street and Fifth Avenue. Raymond Jallow, chief economist of the United California Bank and himself an Iraqi, says he knows of several shopping centers and office buildings that Arabs have bought in California, ranging in price from $1 million to $10 million. Dr. Jallow expects such investment to increase "twentyfold in the next two years."

Most experts are convinced that the Arabs will eventually move beyond such cautious investments to ones that have more political clout. One reason: they genuinely, though wrongly, believe that U.S. support for Israel stems partly from a Zionist hammerlock on U.S. business, and are eager to break it. One industrial area that the Arabs are certain to aim at is so-called "downstream" oil activity--refining and marketing in consuming nations. Kuwait is already considering buying a large chunk of Gulf Oil stock (from whom is not clear).

The pacesetter for Arab investment is likely to be the "First Arabian Corp.," an Arab version of First Boston Corp. that was organized by Roger Tamraz, Middle East representative of the U.S.investment firm of Kidder, Peabody. First Arabian will soon open offices on Park Avenue expressly to channel Arab funds into the U.S. Tamraz says that he plans to take over an American bank (one just below the big ten) on behalf of his clients, then bid for an industrial firm that he will not identify beyond saying that its brand name is a household word. He sees these moves as test cases that he will stage-manage carefully, probably clearing every step with Secretary of State Henry Kissinger and Treasury Secretary George Shultz.

The Arabs will get further help in locating U.S. investments from American banks that are setting up throughout the Middle East. In the past six months, Americans have bought controlling interest in three banks, and bought into three others in Beirut alone. The U.S. bankers believe, in the words of one, that "the only thing worse than the Arabs investing in America is the Arabs deciding not to." His point: a vast mass of Arab capital pitching aimlessly from country to country and industry to industry could disrupt economies and financial markets throughout the West. In order to avoid that, stable, long-term investments must be found for the Arabs, and the best are in the U.S.

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