The US Treasury has issued guidance on how the repatriated funds can be used and direct investment (expansion and acquisition of operations in the US) is one of a few permitted categories. Countries that are seeking US-controlled FDI will now have to counter the fact that this is an opportune time for US companies to consider re-investing at home without penalty.

Also benefiting the US, from an investment promotion perspective, is the cheap dollar. In a downward slide that began in 2002, the dollar has lost 37% against the euro and 24% against the yen. Because so many Asian currencies are pegged to the dollar, the US Federal Reserve’s overall market basket of currencies indicates only a 16% drop. But, since the principal investors in the US are the Europeans and the Japanese, the larger percentage changes may be the most operative for predicting FDI flows.

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Wall Street has already witnessed an increase in merger and acquisition (M&A) activity, with a 46% rise in 2004. Repatriated profits and currency arbitrage may help to fuel this M&A growth in the US. The flow from Europe has not been as strong as the currency fundamentals might suggest, however. Perhaps this is a result of the Europeans’ overall weak track record on making US acquisitions profitable and the fact that many prospective buyers have not had sufficient earnings to finance a spending spree. Nevertheless, many of the new year’s executive surveys point to an expectation that M&A activity will be stronger.

Unfortunately for local political leaders in the US, these new investments may not lead to much job creation. Whether from international sources or repatriated profits, to the extent that the predicted increase in M&A is realised, the impact may be mixed. Many companies have completed intensive cost-cutting programmes and rationalisation of production facilities already, and they believe that they may have hit a ceiling in organic growth. To improve performance, they are turning revenue increases through combinations and still further cost reduction through consolidation of administrative and management structures (more job cuts). So, the more the US-bound FDI numbers go up, the more likely some related employment numbers may come down – in head offices as well as back office locations.

Daniel Malachuk is senior managing director at CB Richard Ellis Consulting, New York. During his career, he has advised many of the US’s leading companies and has worked in the White House.

E-mail: daniel.malachuk@cbre.com