August 5, 2009 6:47 pm

Warm welcome for businesses in North Dakota

When Murad Al-Katib decided to build the biggest chickpea processing plant in North America, he looked to North Dakota, an economic anomaly in the US and now its chickpea capital.

Most states have been struggling with falling payrolls and rising foreclosures. However, wintry North Dakota has been an oasis of relative stability, welcoming displaced workers and using its budget surplus to recruit overburdened companies with attractive tax incentives.

“North Dakota is a bright spot in an economically difficult environment,” said Mr Al-Katib, chief executive of United Pulse Trading, a Canadian lentil and pea-splitting company. He was convinced to build the $7.5m (€5.22m, £4.42m) project in Williston by a promised interest buy-down and tax concessions. “We couldn’t ignore it.”

Last year, the state’s economy grew at the fastest pace of any in the US and unemployment, at just 4.2 per cent, is the country’s lowest. A fertile mix of natural resources, frugality and a plains-state work ethic have made North Dakota one of the most productive states in the US.

“It’s the nature of the North Dakota people,” John Hoeven, the governor, said in an interview with the Financial Times. “They’re more conservative than the average American.”

Mr Hoeven credits his state’s economic development strategy, strict banking rules and growing tourism for North Dakota’s financial health. The state has also been one of the more assertive in using a mix of energy sources such as coal, oil, wind and biofuels. So, it has reaped the benefits of rising commodity prices even as its manufacturing sector has suffered. But unlike Alaska, which is dependent on oil, it was able to offset the vagaries in the price of a single commodity.

Located on the northern border neighbouring Canada, Minnesota, Montana and South Dakota, North Dakota is nearly 10 times the size of New Jersey but, owing to its remoteness and cold winter, has less than 10 per cent of its population.

Unlike most US states, North Dakota has weathered the downturn well. The budget for its fiscal two years ending June 30 2011 shows a surplus of $1.2bn, a sharp contrast to the national situation since the US plunged into the deepest recession since 1929.

States had to close a cumulative $142.6bn gap as legislatures enacted their budgets for the latest fiscal year, which began on July 1 for 46 of 50 states, according to the National Conference of State Legislatures, a bipartisan research group. The recession has decimated tax revenues, forcing lawmakers to fire state workers, close schools and even shutter prisons.

North Dakota’s cushion has given the state the luxury of debating whether it should use the $600m it received in federal stimulus money now, or save it for another downturn. It has $700m in reserves, the most in the state’s history.

With most states bleeding workers, North Dakota wants more investments such as Mr Al-Katib’s, and has begun aggressive recruiting campaigns in cities such as Detroit, Chicago, Denver and Minneapolis.

In the year to June, the state was the only one to create a significant number of jobs, according to the US Department of Labor, adding 5,400.

In the past year, North Dakota has used its budget surplus to slash corporate, property and personal taxes and improve roads, infrastructure and education. By comparison, California has had to cut programmes for children and the elderly as well as close state parks to tackle a $24bn budget gap.

Challenges remain: in a recent report from Standard & Poor’s, the ratings agency warned that declines in the state’s construction and manufacturing sector could blunt its growth. And IHS Global Insight, an economic forecasting group, said North Dakota could end up losing jobs in 2009 if the global credit crisis worsened.

Still, many of the state’s quirks seem to have left it well insulated. David Flynn, an economist at the University of North Dakota, argues that tough lending rules and a network of local banks protected it from the subprime loan problem. A population of just 650,000 also helped to stop a housing bubble. “Now we’re trying to exploit the downturn in the rest of the country,” Mr Flynn said.

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