Tuesday, September 25, 2007

Arab Socialist Takeovers of Private Western Businesses

Abu Dhabi National Energy Company, a state-owned company in the Middle East known as TAQA, agreed on September 24, 2007, to buy Prime West Energy Trust of Calgary, Canada, which manages oil and gas properties. It agreed to pay $2.4 billion plus assumption of Prime West’s debt. Since Prime West owns oil and gas properties in the United States, the deal may be subject to a national security review by the Committee on Foreign Investment in the U.S. that investigates the transfer of U.S. assets to foreign entities.

This acquisition is TAQA’s third in Canada, bringing its investment in Canada’s energy’s sector to $7.5 billion, with the goal of reaching $20 billion by 2012. TAQA plans to acquire oil and gas pipelines and power generation and distribution facilities. TAQA’s purchase in Canada is part of a growing pattern of Middle Eastern state-owned companies acquiring Western resources and other assets. Bourse Dubai, a state-owned entity in Dubai, is seeking a 20 percent stake in Nasdaq, the second leading U.S. securities exchange.

Two points merit discussion. The first is that TAQA’s acquisition of private Western enterprises is not one private enterprise buying another. Rather, it is a government-owned entity in the volatile Middle East buy private Western businesses. This can be loosely construed as nationalizing private Western firms, placing them under the control of foreign state entities. This is not free-market capitalism.

The second point is that these are Arab state-owned entities. Not all Arab regimes are friendly to the United States. Those that are friendly today may change their allegiance tomorrow. The question can be asked if the accumulation of vital Western energy resources by Arab state-owned entities poses a potential security risk to the United States, given its heavy dependence on imported oil.

China and Russia Rising

Each year Freedom House compiles reports on the state of political freedom and civil liberties around the world. It has just released the 2007 edition of Countries at the Crossroads, analyzing the current state of governance in 60 strategic countries. The report pointed to the diminution of human rights and governance in Russia and Iran, political repression in Libya, Tunisia, and Algeria, and military coups in Thailand and Bangladesh.

Several of the countries that are retreating from democracy have been successful economically, notably Russia, Libya, Tunisia, and Algeria. The report further noted that states around the world are choosing to follow the models of growth over democracy of China and Russia. The leaders of many developing and middle income countries may be moving away from democracy in favor of stern rule that emphasizes growth over political freedom and civil liberties.

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