Investment 100 Tumbles, But Avoids Record Low

High Quality, High Tech Manufacturing Grabs a Big Foothold in the South

By Lee Burlett

If there is anything positive about this year's SB&D 100, it's the fact that the 2003 SB&D Investment 100, Part II of our annual ranking, didn't set record lows like the 2003 Job 100. Granted, this year's Investment 100 was the worst overall performance since 1994 and the $50 million threshold ties the lowest mark ever.

But all is not lost. At least we got rid of most of those pesky, phantom power plants. Only nine announced power plants made this year's I-100 compared to 37 last year and 27 the year before. Unfortunately for the South and for the counties where they were to be built, most of those power plants announced in 2000 and 2001 won't break ground any time soon, if ever. Therefore, this collection of large investments may be more real and accurate than when the power plant frenzy broke out in 1998. Still, a drop from last year's $78 million threshold, only the third decrease in any Investment 100 year, to this year's $50 million threshold is without question a cause for alarm.

The last three years of the Investment 100 saw thresholds of $80 million, $80 million and $78 million. To fall to $50 million in calendar year 2002 indicates a sharp drop in total investment generated by the Investment 100. The grim reality is that this year's I-100 generated but $18.3 billion in investments compared to $25 billion last year. Again, if you read the Job 100, the national media has generally depicted that 2001 was the recession year and 2002 was labeled the "recovery" year. In regards to the South's economy, nothing could be further from the truth. Calendar year 2002 was far and away a much more disappointing year than 2001 on the job and investment front in the South.

The last time the SB&D Investment 100, the 100-largest investment deals announced in the South the previous calendar year, totaled less than $18.3 billion was in 1994 when the world's corporate elite spent $17.4 billion in the nation's most active corporate and industrial dealmaking region. The all time low was $15.5 billion in 1993.

Furthermore, the last time the Investment 100 could muster but a puny $50 million threshold was in 1995, the same threshold seen in 1994 and 1993. As mentioned, the highest thresholds produced were in 2000 and 2001 with $80 million each ($25.75 billion and $24.97 billion totals respectively). But those two-year rankings were greatly populated by power plants that may never materialize.

Chart No. 1

SB&D Investment 100 1993-2003

              Investment Total      Threshold

1993      $15.5 Billion            $50 Million
1994      $17.4 Billion            $50 Million
1995      $18.8 Billion            $50 Million
1996      $22.6 Billion            $68 Million
1997      $23.8 Billion            $72 Million
1998      $19.8 Billion            $70 Million
1999      $22.6 Billion            $75 Million
2000      $24.6 Billion            $80 Million
2001      $25.8 Billion            $80 Million
2002      $25.0 Billion            $78 Million
2003      $18.3 Billion            $50 Million

Some Excellent Deals Making This Year's List

At the top of the 2003 Investment 100 is ... uh, a $2 billion power plant. As far as we know, this one in Kentucky is for real. But if you look at the top 10 investment deals announced in the South in 2002, you'll clearly see that some of the world's most recognizable manufacturers are spending some big bucks in the South.

At the No. 2 spot is LES, Inc. Who, you might ask? Louisiana Energy Services is a partnership of Duke Energy, Entergy, Excelon, Canadian-based Cameco and Urenco, a European concern. The LES deal is a $1.1 billion uranium enrichment facility being built on a site in Hartsville, Tenn., owned by the Tennessee Valley Authority.

Following LES, the list settles to the familiar: Hyundai, Citgo, Nissan, Honda, Saturn, Eli Lilly and BMW. Are those deals announced by that list of power players solid as gold? You betcha! Together, those nine investment deals total nearly $4 billion and they represent just three industries that you will be hearing from with regularity in the South in coming years. In terms of mass investments, automotive and biotech are the South's future. Oil and gas will always be a player in the South's economy until that resource is depleted.

Other major players who decided last year that the South was their kind of place to invest hundreds of millions of dollars include ExxonMobil, Williams International, J P Morgan Chase, Procter & Gamble, Dow Chemical, Nucor, Robert Bosch, Volvo, Citigroup, Oracle, Perrier, Samsung, Wyeth Biopharma, International Paper, Coca Cola, Goodyear ... well, we could go on forever. Just read the list.

New vs. Expanded

This year's top investment deals announced in the South include 39 new and 65 expanded projects. Unlike this year's SB&D Job 100, where new deals exceeded expansions, the SB&D Investment 100 acted more like a year when the economy isn't growing. With this type of economy, you are almost always going to see many more expansions than new projects. Last year, 51 new deals made the Investment 100 with 49 expansions. The year before there were 41 new deals and 59 expansions.

Industry Trends

Because of their capital intensive nature, the manufacturing sector has always dominated the SB&D Investment 100. But this year's crop of big investments leaned toward the manufacturing side like no other year. In fact, 83 manufacturers made this year's top 100 investment deals compared to 21 big service deals making the list. That's the largest number of manufacturers represented on any SB&D Investment 100 since it was first published in 1993.

Is manufacturing coming back in the South? This year's SB&D 100 indicates that manufacturing is not only coming back, the results from calendar year 2002 screams that manufacturing is returning with a vengence. This year's SB&D Job 100 saw nearly 50 percent of its deals come from the manufacturing sector when just 15 percent of the list was represented by manufacturing in the 2002 Job 100. Add to that the largest representation in the 11-year history of the SB&D Investment 100 and clearly you have a situation where manufacturing is blooming again in the American South.

But not only do the results of this year's SB&D 100 show manufacturing returning in huge volumes to the South, it's the quality of those deals that's important. Gone are the potential jack-leg deals found in low-wage industries such as agribusiness (only one agribusiness deal made the Investment 100 -- a huge, $350 million, 2,300-employee hog processing plant in Moore County, Tex.), textiles and apparel (one deal from that sector made this year's I-100) or furniture (no deals from that sector).

The early years of the SB&D Investment 100 and Job 100 saw a rash of chicken plants, textile deals, apparel announcements and mobile home manufacturers. Those types of deals are now gone from the exclusive SB&D 100. In fact, for all practical purposes, many of them are gone to China and other offshore countries.

In their place are big investments made in automotive, biotech, oil and gas, financial services, steel products, health care and distribution. The Automotive sector led all industry categories with 14 big deals making this year's investment 100 and six more smaller deals making the "just missed deal" list. In addition to the aforementioned industry sectors, chemicals faired well, as did food products, wood products and plastics.

Not showing well on this year's Investment 100 once again is the semiconductor industry. What was to be one of the South's premier potential industries way back in the mid-1990s, can now be labeled a bust. Aviation and aerospace also was missing on this year's big investment list. Only one deal made the Investment 100 and no aerospace or aviation deals landed on the JMD side. Printing and publishing, media, telecom, information technology and electronics had poor years as well.

Is NAFTA Weeding Out the Crud and Luring the Cream?

The cover story of this magazine's Winter 2001/2002 edition, reported that Ross Perot's theory that the passage of the North American Free Trade Act would bring a "giant sucking sound" of jobs leaving the U.S. in droves was, at the time, correct. In 2001 alone the South lost over 300,000 net manufacturing jobs. Most of those jobs, however, came from low-wage manufacturing industries such as those found in wood products, agribusiness, textiles and apparel.

At the time, high-wage manufacturing deals were showing in the South, but not in great numbers. So, like we always do, we went out on a limb and agreed with Perot's theory. There was no doubt that NAFTA wasn't treating the South very well in 2001. In fact, if anything, the South, especially its rural regions, was getting hammered by what the passage of NAFTA had brought in the late 1990s and the first two years of the 21st century. It should be noted that NAFTA was passed and signed by none other than Bill Clinton. It should also be noted that George Bush supported the passage of NAFTA as well, but couldn't get it passed by the time he left office in 1993.

While we were slamming NAFTA just 18 months ago, we have now changed our view. In fact, if we simply looked at a few clues such as huge deals turned by Michelin, Honda, Nissan and other foreign companies from 1998 to 2001, we would have realized what calendar year 2002 has clearly told us through this list of big investment deals. In just the last few years, NAFTA has created an environment where many of the South's low-wage industries have closed, picked up their gear and headed to some foreign locale. But on the flip side, those same foreign lands have sent the American South their best, largest and most important high-wage investment deals. And why not? The U.S. consumer is their No. 1 target and the South is by far the best place in the U.S. in which to profit, especially for a manufacturer. It simply costs less to produce products here than in the Northeast, Midwest or West. That being the case, we'll give Perot his due, albeit, his "giant sucking sound" theory lasted only a few years in the South. We firmly believe now that NAFTA has weeded out the crud and brought out the cream. And 2002 is the first year to clearly indicate that since NAFTA was passed.

2003 SB&D Investment 100: The States

If you read the SB&D Job 100, you'll remember that small states in the South (under 5 million in population) performed well in 2002, while some large Southern states saw their big job deals fall to record lows. That trend continued with this, the 2003 SB&D Investment 100. In fact, for the first time in SB&D 100 history, the South's small states turned more big investment deals than large Southern states. The combined SB&D Investment 100 and SB&D Investment JMD lists include deals of $30 million or more. This year, small states turned 87 deals of announced investments of $30 million or more. Large states, for the first time, settled to second place with 80 deals with $30 million or more in investment.

Recent years show just how significant 2002 was for the South's small and large states alike. In 2001, large states rung up 136 big investments, while small Southern states turned 106 SB&D I-100 and Investment JMD announcements. That's about the same ratio for years' 2000 and 1999. However, 1998's list of big investments made in the South showed what most of the 1990s was like: 143 big investment deals announced in large Southern states and 69 announced in the small states, or about a two-to-one ratio in favor of the South's largest states such as Texas, Florida, Georgia and Virginia, among others. That 10-year run by the South's largest states has now ended.

The 2003 SB&D Investment 100, combined with the Investment JMD list, shows that every small Southern state outperformed its 11-year average except for Arkansas, Kentucky and Louisiana. In contrast, almost every large Southern state performed below its average. Missouri was the only large Southern state out of a total of eight that saw its big investment deals increase beyond its average. Note Texas' performance in calendar year 2002 compared to its 11-year average in the adjoining chart No. 2.

Chart No. 2

2003 SB&D Investment 100
Deals $30 Million-Plus vs. 11-Year Average
(bold indicates large Southern states)                           

*Seven-year average
**Five-year average

We'll save you some math time by revealing that in the last decade, large Southern states have averaged a 64 percent take of all deals $30 million or more announced in the South since 1992, while smaller states in the South made do with 36 percent. This year, the South's little ones rung up 52 percent of all deals announced in the South of $30 million in investment or more, with large states totaling just 48 percent.

lee@sb-d.com