By Vidhan Rana

How can foreign investment make a difference in your community? Take Nashwauk, a small town in northeast Minnesota as an example. Essar Steel, a wholly owned subsidiary of Essar Global – a $50 billion Indian-owned global conglomerate – struck a deal with Minnesota Steel to build a $1.65 billion steel plant near Nashwauk. The plant will be the first of its kind in North America, and when fully operational, will produce up to 2.5 million tons of steel products per annum (MTPA) and employ up to 700 people. Construction on the plant will begin in June and is expected to be completed by 2010.

Minnesota Steel is not Essar’s only venture in North America. In June 2007, the shareholders of Canada’s Algoma Steel approved a $1.63 billion acquisition by Essar Steel. With the help of Essar, Algoma is planning to increase its output from 2.4 MTPA to 4 MTPA within the next two years. This week, Essar announced that Esmark, Inc., a Wheeling, West Virginia-based company, accepted its $1.1 billion buy-out offer. Essar is paying Esmark $669 million in cash and assuming its $430 million debt. Essar America’s President, Madhu S. Vuppuluri, said, “The Company plans to invest in Wheeling-Pitt, which has operations in Ohio, Pennsylvania and West Virginia, to make it a low-cost, technologically advanced steel producer.”

One of the reasons foreign steel companies like Essar are trying to buy up capacity and invest in plant expansion in North America is to gain market proximity. The United States alone consumed about 144.2 million tons of steel in 2006, about 10.6 percent of the steel produced in the world. As the U. S. dollar falls against other world currencies, it is becoming increasing difficult for foreign steel companies to stay competitive by producing overseas and exporting their steel to North America. Increasing fuel costs, which add to their transportation cost, is not helping, either. As a result, these steel makers are choosing to buy up capacity in North America to increase their global presence. This phenomenon is bringing foreign capital and technology into the U. S. steel industry, which it lacked in the past.

As economic development professionals, we need to keep these investments on track and do our best to attract them to our communities. Essar is not the only company making such investments; many other companies from emerging economies like India, China and Brazil are taking their business global, and North America is usually their first target. Though they are coming here for the market, their investment creates jobs, raises tax revenues of local governments, and improves the profile of the community internationally.

Essar Steel currently produces about 8 million tons of steel per year, but with its expansion in India, Southeast Asia and North America, the company expects its capacity to rise to 20 to 25 million by 2012. Currently, Essar Steel operates plants in India, Vietnam, Indonesia, Trinidad, Canada and the United States.