Global systems
Analysing the role
of sovereign
wealth funds
Simon Oakes
Philip Allan Publishers © 2015
Presentation outline
• Political factors and economic decision-making.
• Role of governments in economic globalisation.
• Sovereign wealth funds (SWFs) of nations.
• Why other places rely on SWFs.
• Global patterns of SWF investment.
• SWFs as a superpower strategy.
Philip Allan Publishers © 2015
How political factors affect
economic decision-making
•
Economic factors, such as the cost of labour and emerging markets, play an important role
in accelerating globalisation.
•
The growth of globalisation is aided by political factors too.
•
Some governments decide to invest their money abroad.
•
Other governments decide to allow foreign investment to take place within their own
borders.
•
Global financial flows and systems depend as much on the removal of barriers to capital
movement as they do on the capital movements themselves.
Philip Allan Publishers © 2015
How political factors affect
economic decision-making
The success of London’s Canary Wharf can be
linked with (a) UK government deregulation
policies and (b) the foreign direct investment
this policy attracted. This place is now a global
financial hub.
Philip Allan Publishers © 2015
Role of governments in
economic globalisation
National governments become players in globalisation when they adopt policies that encourage
foreign investment inside their borders:
•
Free-market liberalisation is associated with Margaret Thatcher’s policies in the 1980s.
Restrictions were lifted on how companies operated.
•
Deregulation of the City of London in 1986 removed ‘red tape’ and helped London become
the leading global hub for financial services.
•
Privatisation of important state assets, such as the railways and energy supplies, took place
after the 1980s. Running these services often proved costly for the government and so they
were sold to private investors. Over time, ownership of many UK assets has passed
overseas. For instance, the EDF energy company is owned by Électricité de France.
•
Sovereign wealth funds have been allowed to invest in British assets.
Philip Allan Publishers © 2015
Sovereign wealth funds
(SWFs)
•
An SWF is a government-owned investment fund or bank.
•
SWFs are typically associated with China and countries that have large revenues
from oil, like Qatar.
•
Only a minority of countries operate SWFs.
•
Two different spending models are used:
•
(a) Direct state purchasing (Kuwait’s US$500 billion fund, dating back to
1953, works this way)
•
(b) Purpose-built investment banks (Singapore has two, called Temasek
and GIC).
Philip Allan Publishers © 2015
What is the source of
SWF money?
Oil and gas
Minerals
(e.g. Norway and
Qatar want to
re-invest their
enormous
petrodollar income)
(e.g. Chile’s
government has
copper wealth and
Bolivia sells
diamonds)
Philip Allan Publishers © 2015
Balance of
payments surplus
(Money generated
when a country’s
exports exceed the
value of its imports
e.g. China)
How many places use their oil income to fund
Country
fundnot
name(s)
Assets
their
SWFs?Sovereign
Which iswealth
a state,
a nation?
China
Abu Dhabi
(UAE)
China Investment Corporation
SAFE Investment Company
National Social Security Fund
Abu Dhabi Investment Authority
Abu Dhabi Investment Council
Norway
Singapore
Government Pension Fund
Government of Singapore
Investment Corporation (GIC)
Temasek Holdings
Qatar
Qatar Investment Authority
Australia
Australian Future Fund
Russia
Reserve Fund
National Welfare Fund
Alaska (US) Alaska Permanent Fund
Philip Allan Publishers © 2015
(US$ bn)
1,500
1,000
900
500
Origin
Since 1997, several SWFs manage US$1.5
trillion (derived from exports). Could be
worth US$12 trillion by 2025
From 1976 onwards, oil wealth has been
fed into several wealth funds with a
combined value of US$1 trillion
The largest SWF, funded by oil since 1990
Two bespoke investment banks handle
Singapore’s trading wealth since 1974
300
100
160
Funded by petrodollars since 2005
Founded in 2006
Funded by oil revenues since 2008
55
A fund set up in 1976 (oil)
Why dos the UK government
increasingly rely on SWFs?
•
The UK is the most popular destination for SWF investment.
•
Foreign states, notably China, already own major stakes in Britain’s railway lines, airports,
water companies, sewers, central business districts and half of the House of Fraser
department-store chain.
•
After the global financial crisis (GFC) of 2008–09, the UK government actively
encouraged investment in the UK by overseas SWFs.
•
This was because of a shortfall of money for new projects (without raising taxes or the
UK’s national debt).
•
The government’s National Infrastructure Plan identifies a need for half a trillion pounds of
spending on transport, energy and cities before 2020.
•
To get these big projects off the drawing board, the UK government has been forced to
look to overseas investors for support.
Philip Allan Publishers © 2015
Why dos the UK government
increasingly rely on SWFs?
Which countries’
SWFs are ‘buying
British’?
Philip Allan Publishers © 2015
•
By 2025, China will own an estimated £100
billion of UK energy, property and transport
investments.
•
Democracy and rule of law make the UK a
low-risk investment site for Russian,
Singaporean and Middle Eastern SWFs.
•
Sheikh Mansour bin Zayed Al Nahyan of Abu
Dhabi bought Manchester City football club
(more than £1 billion has been invested,
including the cost of a training academy).
Philip Allan Publishers © 2015
‘I’m not embarrassed that
(China) own 10% of our
biggest water company or
a big chunk of Heathrow
airport. I’m proud. Tell the
other Chinese investors –
come to London; spend
your money.’
UK prime minister
David Cameron
Global patterns of
SWF investment
•
The UK is not the only place where SWFs invest.
•
Singapore owns almost half of New Zealand’s Viaduct Quarter (a major residential and
commercial development in Auckland).
•
Angola is investing its US$5 billion oil-derived assets on infrastructure and hotels in
neighbour states.
•
Norway, the world’s largest SWF, is a major Facebook shareholder.
•
SWFs play an important role in the global land grab phenomenon.
Philip Allan Publishers © 2015
Global patterns of
SWF investment
What factors can
help explain this
global pattern?
Philip Allan Publishers © 2015
The role of SWFs as a
superpower strategy
•
A superpower is a nation with the means to project power and influence
anywhere in the world.
•
SWFS can be an important part of a country’s power strategy.
•
SWFs allow some governments to carry out foreign land grabs. These are largescale agricultural land acquisitions in developing countries made by overseas
governments.
Philip Allan Publishers © 2015
Evaluating SWFs
•
Some national governments are strategically re-investing national savings in profit-making
assets on a global scale.
•
In part, these actions are informed by the principle of sustainable development. State
funds are being invested in order to provide an income for future generations. SWFs
operate as ‘inter-generational wealth carriers’ that also serve to project global power and
influence.
•
Not everyone in the UK agrees SWF investments made here are a good thing. Because
ownership passes to foreign governments, rather than foreign companies, critics say SWF
purchases represent a loss of sovereignty. The UK government is ceding power over
national assets to foreign governments (some of whom do not operate democracies).
•
Should the UK allow Chinese or Russian SWFs to have a major ownership role in sensitive
sectors such as energy? What do you think?
Philip Allan Publishers © 2015
Further research
•
A good starting point for SWF research: www.swfinstitute.org
•
A look at Norway’s SWF: www.bbc.co.uk/news/world-europe-24049876
Philip Allan Publishers © 2015
This resource is part of GEOGRAPHY REVIEW, a magazine written for A-level
students by subject experts. To subscribe to the full magazine go
to: http://www.hoddereducation.co.uk/geographyreview
Philip Allan Publishers © 2015