Company (P&O), which owned 29 container terminals, including those in six major U.S. ports.

There is no doubt that the DP World controversy had a negative impact on the U.S.-UAE relationship and caused UAE companies – both government-owned and private sector – to carefully consider the political ramifications of investing in the U.S. market. But even as the DP World drama unfolded in 2006, UAE institutions and companies made dozens of major overseas investments:

• Mubadala acquired 35 percent of the equity of Italian aircraft-maker Piaggio Aero, and a five percent stake in Italy’s iconic automaker Ferrari. It also acquired 25 percent of the large Dutch fleet management firm LeasePlan Corporation.
• Etisalat, the UAE’s government-owned telephone company, announced a plan to make over $25 billion worth of foreign investments in coming years. The company already has major investments in mobile networks in Afghanistan, Egypt and Pakistan.
• ADIA invested $600 million in Apollo Management, a U.S.-based private equity firm.
• DIC acquired British engineering giant Doncasters for $1.3 billion. DIC also invested $1 billion in Daimler Chrysler and acquired Britain’s Tussauds Group for $1.48 billion.
• Emaar Properties reached an agreement with the Government of Saudi Arabia to build King Abdullah Economic City near Jeddah. The total value of the project is estimated to be over $25 billion. Emaar also announced real estate development projects in Islamabad and Karachi worth $2.4 billion.
• Damac Properties announced plans to develop a mixed-use real estate development in Tianjin City, China, for $2.72 billion.

Profile: Dubai Holding

Dubai Holding is one of the UAE’s most successful conglomerates. With 19 subsidiaries in 11 sectors, there are few areas of the emirate’s development in which Dubai Holding is not involved. The firm was created by the Government of Dubai with the express purpose of creating synergies among its various component companies. In the process, Dubai Holding and its 12,000 employees have helped to make Dubai a regional center of commerce, finance and leisure.

Investment: Flowing In, Flowing Out

As the UAE attracts more foreign investment,
its own investment firms look abroad

The UAE led the Arab world in attracting foreign direct investment (FDI) in 2005, the most recent year for which official figures are available. Over $12 billion of investment capital flowed into the seven emirates that year, representing 34 percent of all foreign direct investment into the Arab world.

World Investment Report 2006, produced by the U.N. Conference on Trade and Development (UNCTAD), notes that the number of greenfield (brand new) FDI projects in the Arab Middle East jumped 100 percent from 2002 to 2005, with the UAE registering the most such projects by far (215 in 2005).

Foreign investment is a key component of the UAE’s strategy for economic growth, and the country is especially interested in attracting investment that will result in a transfer of knowledge or expertise, open new markets, and create new employment opportunities in knowledge-intensive and high value-added areas of the economy. Foreign investors are attracted by the UAE’s liberal tax, investment and residency laws, as well as the country’s 32 free zones.

The UAE’s strategic location and world-class transportation infrastructure also help to attract foreign investors who see the advantages of using the UAE as a hub for business throughout the Middle East, Africa and Asia. One such company is the U.S. oil services firm Halliburton, which recently moved its corporate headquarters from Houston to Dubai. In announcing the move, Halliburton said the new headquarters would better position the firm to take advantage of business opportunities in the region.

Halliburton CEO Dave Lesar told the International Herald Tribune, “The Eastern Hemisphere is a market that is more heavily weighted toward oil exploration and production opportunities, and growing our business here will bring more balance to Halliburton’s overall portfolio.” Halliburton’s announcement elicited criticism from some in

Washington’s political circles, but the business community generally understood the move as a logical strategy to increase revenue and market share.

While foreign companies have been pursuing investment opportunities in the UAE, several of the UAE’s private sector and government-owned investment institutions have been actively pursuing investments abroad. Overseas investments have been a critical component of the UAE’s economic development strategy for decades as the Emirates have sought to diversify where and how they invest their financial assets. The UAE Government has regarded such investment as a form of savings for future generations of its citizens – who will one day face a depletion of the country’s energy resources.

This strategy led to the creation of a number of government-owned investment institutions, including the Abu Dhabi Investment Authority (ADIA), the Abu Dhabi Investment Council (ADIC), the Dubai Ports, Customs & Free Zone Corporation, Mubadala Development Company, Dubai International Capital (DIC) and the Abu Dhabi International Petroleum Investment Company, to name just a few.

Although official figures concerning these institutions’ assets are not released, their portfolios are huge. An article in the April 2006 edition of Euromoney estimates that ADIA’s reserves are as high as $500 billion, making it the second largest institutional investor in the world, after the Bank of Japan.

ADIC is a new institution, established in June 2006, which seeks to focus on investments in the Middle East. Private investment companies have also proliferated in the UAE and are increasingly active in international capital markets.

One foreign investment venture generated a major controversy in 2006: DP World announced the purchase of a UK firm, Peninsular and Oriental Stream Navigation