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Arab SWFs have money. The West can use all it can get. In fact, they’ve thrown their doors open to the Arab world. Have perceptions of Arab funds changed?
October 29, 2008 12:32 by kippreport
A high-level US official yesterday stated that the US is open to more investment from Sovereign Wealth Funds (SWF) and wealthy investors from the Middle East, reported Forbes. The announcement isn’t news. The US government has been inviting the Gulf and its affluent businessmen to invest in major corporations for months. On June 3, the US Treasury secretary Henry Paulson said that America is and always has been keen to invite foreign funds to invest in American corporations and the bonds. The US “rejects measures that would isolate it from the world economy,” he said.
The difference this time around, however, is how the US population will receive the news. When the Abu Dhabi Investment Authority (ADIA) bought a chunk of Citigroup for $7.5 billion and a majority stake of New York’s landmark Chrysler building for $800 million, Americans weren’t happy.
At the time, GCC-based SWFs were accused of using their nations’ wealth to exert their influence onto the American economy, and ultimately the US government. The US, however, wasn’t alone in fearing Arab money. The British public also voiced fears when ‘iconic’ structures such as the London Eye and the Madame Tussauds were bought by Sheikh Mohammed bin Rashid Al Maktoum and Dubai International Capital (DIC) respectively.
But things have changed: GCC- based SWFs have been called upon to help rebalance the world’s economy. Not is Gordon Brown, the British prime minister, on his way to the GCC to ask for funds to help the IMF bail out countries in Europe, Spain has asked government-owned funds to buy the public debt it wants to issue in order to fund its banking support package. The amount the Spanish need is over $63 billion.
The shift in attitude toward Arab money is dramatic. Clearly nations are turning to the Gulf out of desperation, and the need for money is immediate, which means that nations do not have time to deal with their prejudices.
So far, the Gulf has not responded to the cries for help. For the time being, Gulf-based SWFs are turning homeward in case GCC nations require funds for the region’s ambitious development plans. According to the FT, the GCC’s official reserves will reach close to 1,100 billion by the end of 2008, which, by any region’s standards, is a considerable sum, especially given that each country has its own reserve in addition to the council’s.
But if the GCC decides to help the West, and once financial crisis is behind us, how will the West feel about the Gulf and its cash? It’s hard to tell.