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Regional Report: Southern States Receiving Their Fair Share of Foreign Direct Investment

July 2011
ThyssenKrupp Steel’s facilities in Mobile County, Alabama, represent the largest German foreign direct capital investment in the United States ever made.
ThyssenKrupp Steel’s facilities in Mobile County, Alabama, represent the largest German foreign direct capital investment in the United States ever made.
Steady, but slow gains in the Southern States have made development officials and businesses alike cautiously optimistic about the region's financial future. Diligence and patience are key to developing long-term economic development strategies. "In general, we are seeing a clear recovery trend, but it is just not fast enough for most people," says Dr. Sam Addy, director of the Center for Business and Economic Research at the University of Alabama. He adds that in light of the severity of the recent economic downturn, "Expectations of a quick recovery are unrealistic."

In the midst of fluctuating economic gains, in April 2011, some of the most violent tornados in U.S. history ripped across seven of the Southern States. "The tornados will affect all of us in the short term," says Addy. Marianne T. Hill, Ph.D., editor, and senior economist at the Mississippi Institutions of Higher Learning, concurred in the Mississippi Economic Review and Outlook: "Thousands of persons are dealing with the devastating aftermath. Output of businesses and farms in areas affected has dropped, but reconstruction efforts are picking up. The net effect will be some increase in the state's economic growth rate, but with a shift in activity towards construction."

An Optimistic Outlook
On Numbers, a publication of the American City Business Journals Inc., is optimistic: "The South's manufacturing sector has awakened in a big way." Its new study shows that durable goods manufacturing was the fastest-growing industry in eight Southern States last year.

The automotive industry is the driving force for recovery in this region. Keivan Deravi, professor of economics at Auburn University in Montgomery, Ala., illustrates this by pointing out major expansions in Alabama by Honda, Hyundai, Toyota, and Mercedes-Benz. He says, "When the national economy collapsed, our [the South's] economy collapsed too. However, we began to see some stabilization when the auto industry started to recover."

EconSouth - a publication of the Federal Reserve Bank of Atlanta - echoed those sentiments: "Manufacturing is also performing well in the Southeast economy." In Tennessee, Volkswagen AG opened its newest auto plant near Chattanooga this year. The Nissan vehicle assembly plant in Smyrna branched out into production of the electric car, LEAF, which, despite delays due to the earthquake in Japan, is expected to roll out its vehicles in 2012. Construction on a new plant to produce batteries for the environmentally conscious car has also broken ground.

In Kentucky, General Motors announced a refurbishment and expansion of its Bowling Green facility, adding a new vehicle product program - the next-generation Chevy Corvette - which will entail the creation of 250 new jobs and a capital investment in excess of $131 million. In Tennessee, SL Tennessee, LLC, an automotive parts supplier for General Motors, is launching a $14 million expansion in Clinton that will create 100 new jobs and add an additional 175,000 square feet to the company's existing facility.

Also bolstered by the automotive sector, Mississippi touts a Nissan plant in Canton, a Toyota facility near Tupelo, and a PACCAR light and heavy truck manufacturing and assembly facility in Lowndes County. In April, Nissan Americas announced relocation of the production of its Nissan Xterra SUV and Frontier pickup models to its Canton plant, creating about 300 jobs. The firm's long-term strategy involves localizing its production base by region. Carlos Tavares, chairman of Nissan Americas, said in a company statement, "By 2015, 85 percent of the Nissan and Infiniti vehicles we sell in the Americas will be built here, up from the current localization rate of 69 percent."

Super Projects & FDI
The Southern States also have pursued "super projects." ThyssenKrupp Stainless USA and ThyssenKrupp Steel USA's 2,700-employee stainless steel mill in Mobile County, Ala., represents the largest German foreign direct capital investment ever in the United States and also one of the largest private investments made in the United States in the last 20 years. With announcements made in 2007, and the grand opening at the end of 2010, the facility continues to make news with plans for additional types of processes. The mill will collectively produce five million metric tons of steel for industries related to appliances, pipe and tube, commercial food preparation, service centers, automotive, and construction.

In Louisiana, Nucor Corp. broke ground on the first phase of an iron and steel manufacturing facility in St. James Parish. The facility will be one of the largest industrial projects in Louisiana history, and could result in 1,250 new, direct jobs.

Alternative energy is also a focus in the Southern States. Arkansas reports the formation of a significant cluster of wind component manufacturers in the state over the past few years in response to the demand for alternative energy sources. LM Wind Power, Nordex, Mitsubishi, and Beckmann Volmer, producers of a variety of wind blade and turbine components, have announced more than 2,300 new jobs for Arkansans and more than $360 million in investment since 2007. Louisiana heralds its Shaw Modular Solutions at the Port of Lake Charles as the first U.S. facility building modular components for nuclear reactors. Foreign direct investment is an element in many projects. Mitsubishi Electric Power, part of a business group owned by Mitsubishi Electric Corp. of Tokyo, Japan, is investing $200 million to build a production facility for electric transformers in the Memphis area, creating up to 275 new jobs. The new facility will produce extra-high-voltage shell-type power transformers and will be Mitsubishi's national headquarters for the production of heavy electrical equipment.

While unemployment rates continue to fluctuate, EconSouth notes that "the Southeastern States of Louisiana and Alabama saw strong job growth in the first three quarters of 2010, gaining 39 percent and 18 percent, respectively, of jobs lost in 2009. Louisiana has the region's lowest unemployment rate, while the job gains in Alabama are helping the state's fiscal situation - its projected state budget shortfall is the smallest in the region."

Economist Deravi explains that the Southern States are not alone in their economic ups and downs. "We have all inherited the negatives from the national economy." However, considering the promising growth rates of the Southern States as the dark economic cloud of the recession begins to lift, he sums up, "As the national economy begins to click, we will be able to fly at whatever altitude we want."

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