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Shifting sands
SLOWLY and quietly one of the greatest shifts in economic power is taking place as GCC countries accumulate extraordinary financial reserves from record oil revenues. The impact on global commerce could not be more profound — and fraught with difficulties.
This is translating into an investment armoury the GCC is using to acquire stakes in some of the world's most well known companies and financial institutions. Just as well — recent investment in financial groups such as Citigroup and Merrill Lynch probably prevented a much more catastrophic subprime fallout and amounted to a bail out by any other name.
According to a recent estimate by Professor Robert J. Shiller, professor of economics at Yale University, there is as much as $100 trillion of oil in the ground, meaning that state investment or sovereign wealth funds (SWFs) are likely to become very large indeed. Yesterday's news that GCC's foreign assets will reach $3.5 trillion by 2010 demonstrates the pace with which Gulf economies are diversifying oil income. Kuwait Investment Authority (KIA) alone is planning to as much as triple investment in Japan to $48 billion according to the finance minister.
Given the strategic nature of these investments it is likely there will increased calls for SWFs to clarify their investment intent. The GCC has frequently stated investments will be passive and long-term in nature. However this may not be enough to allay some concerns regarding national interest by recipient governments. Track back to DP World having to relinquish ownership of P&O's US assets just over two years ago as a recent example.
The GCC is home to some of the world's largest SWFs including ADIA (Abu Dhabi Investment Authority) and KIA. In order to address worries the GCC in particular would be well served in considering a transparent set of guidelines. The EU, with Germany very much the driving force is already considering a regulatory code that may curtail investment by SWFs.
As with most things in life anticipating and addressing the concerns of others usually makes for a positive outcome.
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