Among the sovereign wealth funds that allow nations to make foreign investments in their national interests, the Qatar Investment Authority (QIA), representing the oil-rich Gulf state, is one of the wealthiest.
A Carnegie Endowment study showed the QIA amassed assets of $70 billion as of 2010.
This year, the QIA is poised to put $35 billion into a set of U.S. investments, including the buyout of a division of American Express and other key investments. The QIA also plans to set up a new office in New York.
Qatar officials says they just want to be closer to partners, and they highlight the creation of U.S. jobs. But what role does all of this money play in international diplomacy, and what effect could it have on international relations?
Michael J. Hershman is the president of the Fairfax Group, a firm founded in 1983 that assesses issues such as security and crises management for clients around the world. He has also served on the board of directors of the Center for International Private Enterprise.
“The proposed investment by the Qatar Investment Authority is relatively small compared to total foreign investment in the United States,” Hershman told the Gulf News Journal recently when asked how the QIA’s investments might influence U.S. foreign policy. “I would not anticipate any impact on diplomacy and world politics.”
As far as transparency, Hershman said, investments must be structured in a way that clearly shows what’s going on and the stakeholders who are involved.
The transparency and accountability really depends on how the deal is structured.” Hershman said. “As long as the beneficial owners are clearly identified, as well as the terms and conditions of the transaction, then it should be fine.”
To try to improve transparency and smooth international relations, world leaders have developed a set of guidelines called the Santiago Principles to try to manage the relationships between countries, and what sovereign wealth funds do on behalf of partners and stakeholders.
Part of this was in response to the idea that in some cases, sovereign wealth fund investments could be dangerous to national security and to some types of international competitive interests. The Carnegie Endowment, in a paper that talks about the Santiago Principles and their origin, notes that the funds may have “unwittingly injected considerable fuzziness into international affairs, obscuring the boundaries between international economics and geopolitics.”
Carnegie gives the Qatar fund a Santiago compliance ratio of less than 40 percent, leaving this particular sovereign wealth funds near the bottom of the curve, along with funds from Mexico, Botswana, Bahrain, Iran and Equatorial Guinea.
In discussing the trickiness of the handling of the investments of sovereign wealth funds, Hershman said it’s important to look at the full context of the issue, to always bring a level of scrutiny to trade deals.
“All companies, U.S. or otherwise, have an obligation to the stakeholders to ensure that their partners are of high integrity.” Hershman said. “Whether the issue is corruption, human rights, environmental, etc., they must remember that the problems of their partners could easily become their problems.”
