This House would act to regulate the activities of Sovereign Wealth Funds

Sovereign wealth funds (SWFs) have become very important players in the global economy. The already exceed the assets controlled by hedge funds and will surpass the stock of global foreign exchange reserves.[1] They are now so big that their activities can shift markets, such as Norway’s Government Pension Fund did when short selling Iceland’s banks, leading to panic and instability when they sell assets suddenly.[2] Their purchases can mean that companies owned by other states can end up dominating the economies of smaller countries, undermining their own sovereignty and economic independence. It is also worrying that many SWFs are controlled by undemocratic states which have a questionable commitment to capitalism; should we allow such states to exercise so much power over our economies?

[1] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008, http://www.imf.org/external/np/speeches/2008/090308.htm

[2] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, http://www.economist.com/node/10533428

Sovereign wealth funds are not new and they are still only a tiny part of the global financial system. They represent only about 2% of global traded securities, and are dwarfed by other financial actors such as mutual funds, or private equity groups and hedge funds.[1] What is more, in comparison with these other players in the global financial system, SWFs are long-term investors looking many years, even decades into the future. This means that they are likely to bring calm, rather than irrational volatility to markets, as they will not be rushed into dumping assets based on a few months of bad data.

[1] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, http://www.economist.com/node/10533428

Sovereign wealth funds raise worrying issues about national security. Unlike mutual funds or private equity groups, which seek only to maximise their investors’ returns, SWFs must be regarded as political entities. Rather than passively holding their assets, they may seek to use their purchases to gain access to natural resources, advanced technologies, including those crucial to our defence, or other strategic sectors.[1] For example Gulf states are using their SWFs to invest in food and natural resources from Latin America.[2] They may engage in economic nationalism, shutting factories in western countries to give an unfair advantage to their own industries[3]. While it has not yet happened they may even attempt economic blackmail, threatening to turn off the lights through their control of energy companies and utilities if governments do not fall in with their foreign policy aims. Allowing countries such as China, Russia and various Gulf states to buy up western companies at will is potentially very dangerous. Even if we regard these states as friendly at the moment, there is no guarantee that they will stay that way, especially as none of them share our political values.

[1] Lyons, Gerard, ‘State Capitalism: The rise of sovereign wealth funds’, 2007, p.14 http://banking.senate.gov/public/_files/111407_Lyons.pdf

[2] Pearson, Samantha, ‘Sovereign wealth funds: Foreign cash has its drawbacks’, 2011, http://www.ft.com/cms/s/0/e5e4f274-6ef5-11e0-a13b-00144feabdc0.html#axzz1bEemFdel

[3] Balin, Bryan J., ‘Sovereign Wealth Funds: A Critical Analysis’, 2008, p.4, http://www.policyarchive.org/handle/10207/bitstreams/11501.pdf

Fears about national security are greatly overblown, and are often simply an attempt to justify protectionist measures. Very few companies pose a national security risk, and those that do are covered by existing regulations – so that, for example, the USA could veto Dubai Port World’s bid to take over American ports. Most SWFs do not seek full control of companies they invest in, so they are not in a position to manipulate their assets for political gain, even if they wished to.[1] In reality, countries set up SWFs for economic reasons and they represent a major national investment, the value of which would be expensively destroyed if they once tried to abuse their position. Nor are there any actual examples of a country trying to exert political influence through its sovereign wealth fund.
Overall, tying a wide variety of states into the international economic and financial system is beneficial, as it gives them a stake in the peace which the global economy needs for prosperity and so makes them less likely to pursue aggressive foreign policies. Conversely, alienating the governments of other states by designating them as dangerous predators who cannot be allowed to invest in our companies is a sure way to create enemies.

[1] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html

Sovereign wealth funds suffer from an almost total lack of transparency. Most countries maintain secrecy about the size of their funds and the extent of their holdings, their accountability to government, their investment strategies and their approach to risk management. Without knowing these things, it is impossible to gauge whether political or economic objectives will dominate the SWFs’ behaviour, or indeed whether they will make safe and responsible shareholders in any business – secrecy breeds corruption. For these reasons, Jeffrey Garten of Yale has argued that SWFs should be obliged to publish independently audited accounts twice a year. He has also pointed out that many countries operating SWFs protect their domestic economy from foreign competition and investment. We should demand reciprocity, so that countries seeking investments abroad must open up their own economies fully before they are allowed to hold significant assets elsewhere.[1]

[1] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007. http://www.ft.com/cms/s/0/0b5e0808-454a-11dc-82f5-0000779fd2ac.html#axzz1bEemFdel

Transparency is a good thing, but it would be unfair to single out sovereign wealth funds for special punishment over this issue. Hedge funds and private equity groups are even less transparent than SWFs, and their influence in the global economy is much greater.[1] Some countries (e.g. Norway) already operate very transparent investment strategies. Many have agreed to the Santiago Principles which encourage transparency and disclosure of financial information.[2] It is likely that other countries will come over time to follow their lead voluntarily, as it is in the interest of their own citizens to see that the state is managing their money in an efficiently and honestly.

[1] Avendaño, Rolando, and Santiso, Javier, ‘Are Sovereign Wealth Funds’ Investments Politically Biased? A Comparison with Mutual Funds’, 2009, p.9. http://www.oecd.org/dataoecd/43/0/44301172.pdf

[2] Ibid

The ownership of important businesses by sovereign wealth funds runs counter to the economic policy pursued by almost every government over the past 25 years. In the 1970s many states owned nationalised industries as part of an attempt at socialist economic planning that has now been discredited. State ownership distorted incentives, interfered with management and produced decades of underinvestment, poor service to consumers, and national economic failure with the most extreme example being the Soviet Union itself. Since the 1980s countries everywhere have followed the example of Thatcher’s Britain and privatised their industries, freeing them to compete efficiently and to generate more wealth and jobs than they had ever done in state hands. Going back to state ownership of business is a dangerous backward step, especially as it is now foreign governments that are doing the nationalising.

While it may be true that the state is often a bad manager of assets and businesses in this case the state is not usually involved in the management of the assets. This is being done through the wealth fund which is often in large part run by people whose background is in finance rather than in government. This use of external independent asset managers in itself should be enough to ease worries over state control.[1] Because SWFs don’t seek to have control over the majority of the businesses they invest in discredited government economic planning is not an issue.[2] Indeed SWFs are operating much more like private companies than state owned enterprises.

[1] Mezzacapo, Simone, ‘The so-called “Sovereign Wealth Funds”: regulatory issues, financial stability and prudential supervision’, 2009, p.46. http://ec.europa.eu/economy_finance/publications/publication15064_en.pdf

[2] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html

A number of possible models of regulation have been suggested for sovereign wealth funds. Some, such as Gilson and Milhaupt, have argued that state-owned investment vehicles that buy shares abroad should not be allowed voting rights in that stock.[1] Others would put a cap on SWF investments, so that they cannot take a stake of more than, say 20% in any business without government approval within the country the SWF is investing in[2] – meaning that they can only be passive investors. Both these proposals would ensure that they are unable to abuse a dominant position while still allowing countries to benefit from cross-border investment in a globalised economy. At the same time such rules would prevent any broader protectionist backlash so the Sovereign Wealth Funds themselves could welcome the regulation.

[1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. http://legalworkshop.org/2009/07/19/sovereign-wealth-funds-and-corporate-governance-a-minimalist-solution-to-the-new-mercantilism#fn-1069-2

[2] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007, http://www.ft.com/cms/s/0/0b5e0808-454a-11dc-82f5-0000779fd2ac.html#axzz1bEemFdel

Regulations already exist to prevent foreign investments that might compromise national security.[1] Other than this it would be unfair to discriminate against certain classes of investors. Wealth-creating capitalism relies upon investors seeking to maximise the value of their investments. Without voting rights or the possibility of exercising majority control of a company, SWFs would be unable to ensure that managers were working hard on their behalf, allocating resources efficiently and being held accountable for their decisions.

[1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. http://legalworkshop.org/2009/07/19/sovereign-wealth-funds-and-corporate-governance-a-minimalist-solution-to-the-new-mercantilism#fn-1069-2

Sovereign wealth funds (SWFs) have become very important players in the global economy. The already exceed the assets controlled by hedge funds and will surpass the stock of global foreign exchange reserves.[1] They are now so big that their activities can shift markets, such as Norway’s Government Pension Fund did when short selling Iceland’s banks, leading to panic and instability when they sell assets suddenly.[2] Their purchases can mean that companies owned by other states can end up dominating the economies of smaller countries, undermining their own sovereignty and economic independence. It is also worrying that many SWFs are controlled by undemocratic states which have a questionable commitment to capitalism; should we allow such states to exercise so much power over our economies?

[1] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008, http://www.imf.org/external/np/speeches/2008/090308.htm

[2] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, http://www.economist.com/node/10533428

Sovereign wealth funds are not new and they are still only a tiny part of the global financial system. They represent only about 2% of global traded securities, and are dwarfed by other financial actors such as mutual funds, or private equity groups and hedge funds.[1] What is more, in comparison with these other players in the global financial system, SWFs are long-term investors looking many years, even decades into the future. This means that they are likely to bring calm, rather than irrational volatility to markets, as they will not be rushed into dumping assets based on a few months of bad data.

[1] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, http://www.economist.com/node/10533428

Sovereign wealth funds raise worrying issues about national security. Unlike mutual funds or private equity groups, which seek only to maximise their investors’ returns, SWFs must be regarded as political entities. Rather than passively holding their assets, they may seek to use their purchases to gain access to natural resources, advanced technologies, including those crucial to our defence, or other strategic sectors.[1] For example Gulf states are using their SWFs to invest in food and natural resources from Latin America.[2] They may engage in economic nationalism, shutting factories in western countries to give an unfair advantage to their own industries[3]. While it has not yet happened they may even attempt economic blackmail, threatening to turn off the lights through their control of energy companies and utilities if governments do not fall in with their foreign policy aims. Allowing countries such as China, Russia and various Gulf states to buy up western companies at will is potentially very dangerous. Even if we regard these states as friendly at the moment, there is no guarantee that they will stay that way, especially as none of them share our political values.

[1] Lyons, Gerard, ‘State Capitalism: The rise of sovereign wealth funds’, 2007, p.14 http://banking.senate.gov/public/_files/111407_Lyons.pdf

[2] Pearson, Samantha, ‘Sovereign wealth funds: Foreign cash has its drawbacks’, 2011, http://www.ft.com/cms/s/0/e5e4f274-6ef5-11e0-a13b-00144feabdc0.html#axzz1bEemFdel

[3] Balin, Bryan J., ‘Sovereign Wealth Funds: A Critical Analysis’, 2008, p.4, http://www.policyarchive.org/handle/10207/bitstreams/11501.pdf

Fears about national security are greatly overblown, and are often simply an attempt to justify protectionist measures. Very few companies pose a national security risk, and those that do are covered by existing regulations – so that, for example, the USA could veto Dubai Port World’s bid to take over American ports. Most SWFs do not seek full control of companies they invest in, so they are not in a position to manipulate their assets for political gain, even if they wished to.[1] In reality, countries set up SWFs for economic reasons and they represent a major national investment, the value of which would be expensively destroyed if they once tried to abuse their position. Nor are there any actual examples of a country trying to exert political influence through its sovereign wealth fund.
Overall, tying a wide variety of states into the international economic and financial system is beneficial, as it gives them a stake in the peace which the global economy needs for prosperity and so makes them less likely to pursue aggressive foreign policies. Conversely, alienating the governments of other states by designating them as dangerous predators who cannot be allowed to invest in our companies is a sure way to create enemies.

[1] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html

Sovereign wealth funds suffer from an almost total lack of transparency. Most countries maintain secrecy about the size of their funds and the extent of their holdings, their accountability to government, their investment strategies and their approach to risk management. Without knowing these things, it is impossible to gauge whether political or economic objectives will dominate the SWFs’ behaviour, or indeed whether they will make safe and responsible shareholders in any business – secrecy breeds corruption. For these reasons, Jeffrey Garten of Yale has argued that SWFs should be obliged to publish independently audited accounts twice a year. He has also pointed out that many countries operating SWFs protect their domestic economy from foreign competition and investment. We should demand reciprocity, so that countries seeking investments abroad must open up their own economies fully before they are allowed to hold significant assets elsewhere.[1]

[1] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007. http://www.ft.com/cms/s/0/0b5e0808-454a-11dc-82f5-0000779fd2ac.html#axzz1bEemFdel

Transparency is a good thing, but it would be unfair to single out sovereign wealth funds for special punishment over this issue. Hedge funds and private equity groups are even less transparent than SWFs, and their influence in the global economy is much greater.[1] Some countries (e.g. Norway) already operate very transparent investment strategies. Many have agreed to the Santiago Principles which encourage transparency and disclosure of financial information.[2] It is likely that other countries will come over time to follow their lead voluntarily, as it is in the interest of their own citizens to see that the state is managing their money in an efficiently and honestly.

[1] Avendaño, Rolando, and Santiso, Javier, ‘Are Sovereign Wealth Funds’ Investments Politically Biased? A Comparison with Mutual Funds’, 2009, p.9. http://www.oecd.org/dataoecd/43/0/44301172.pdf

[2] Ibid

The ownership of important businesses by sovereign wealth funds runs counter to the economic policy pursued by almost every government over the past 25 years. In the 1970s many states owned nationalised industries as part of an attempt at socialist economic planning that has now been discredited. State ownership distorted incentives, interfered with management and produced decades of underinvestment, poor service to consumers, and national economic failure with the most extreme example being the Soviet Union itself. Since the 1980s countries everywhere have followed the example of Thatcher’s Britain and privatised their industries, freeing them to compete efficiently and to generate more wealth and jobs than they had ever done in state hands. Going back to state ownership of business is a dangerous backward step, especially as it is now foreign governments that are doing the nationalising.

While it may be true that the state is often a bad manager of assets and businesses in this case the state is not usually involved in the management of the assets. This is being done through the wealth fund which is often in large part run by people whose background is in finance rather than in government. This use of external independent asset managers in itself should be enough to ease worries over state control.[1] Because SWFs don’t seek to have control over the majority of the businesses they invest in discredited government economic planning is not an issue.[2] Indeed SWFs are operating much more like private companies than state owned enterprises.

[1] Mezzacapo, Simone, ‘The so-called “Sovereign Wealth Funds”: regulatory issues, financial stability and prudential supervision’, 2009, p.46. http://ec.europa.eu/economy_finance/publications/publication15064_en.pdf

[2] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html

A number of possible models of regulation have been suggested for sovereign wealth funds. Some, such as Gilson and Milhaupt, have argued that state-owned investment vehicles that buy shares abroad should not be allowed voting rights in that stock.[1] Others would put a cap on SWF investments, so that they cannot take a stake of more than, say 20% in any business without government approval within the country the SWF is investing in[2] – meaning that they can only be passive investors. Both these proposals would ensure that they are unable to abuse a dominant position while still allowing countries to benefit from cross-border investment in a globalised economy. At the same time such rules would prevent any broader protectionist backlash so the Sovereign Wealth Funds themselves could welcome the regulation.

[1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. http://legalworkshop.org/2009/07/19/sovereign-wealth-funds-and-corporate-governance-a-minimalist-solution-to-the-new-mercantilism#fn-1069-2

[2] Garten, Jeffrey, ‘We need rules for sovereign funds, 2007, http://www.ft.com/cms/s/0/0b5e0808-454a-11dc-82f5-0000779fd2ac.html#axzz1bEemFdel

Regulations already exist to prevent foreign investments that might compromise national security.[1] Other than this it would be unfair to discriminate against certain classes of investors. Wealth-creating capitalism relies upon investors seeking to maximise the value of their investments. Without voting rights or the possibility of exercising majority control of a company, SWFs would be unable to ensure that managers were working hard on their behalf, allocating resources efficiently and being held accountable for their decisions.

[1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. http://legalworkshop.org/2009/07/19/sovereign-wealth-funds-and-corporate-governance-a-minimalist-solution-to-the-new-mercantilism#fn-1069-2

Sovereign wealth funds are highly beneficial for states with large financial surpluses. Traditionally they have been run by resource-rich countries which wish to diversify their assets to smooth out the impact of fluctuations in commodity prices on their economies and revenues. The fund can then be drawn down then prices are low.[1] Indeed 30 of 38 SWFs in 2008 were established for such a stabilization role.[2] By holding investments abroad, oil-rich countries such as Qatar and Norway have also built up valuable national reserves against the day when their fossil fuels eventually run out. Kiribati, a pacific island country, put aside wealth from mining guano from fertilizer. Now the guano is all mined but the $400million fund boosts the island’s GDP by a sixth.[3] In any case, allowing all the income from natural resources into your domestic economy is well known to lead to wasteful investments and higher inflation – better to manage the revenues responsibly by using them to create wealth for the future. More recently many Asian countries with big current account surpluses and massive government reserves have sought higher returns than they could get through more traditional investment in US Treasury bonds. Again, this is a responsible strategy pursued by states seeking to do their best for their citizens.

[1] Ziemba, Rachel, ‘Where are the sovereign wealth funds?’, 2008, http://qn.som.yale.edu/content/where-are-sovereign-wealth-funds

[2] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008. http://www.imf.org/external/np/speeches/2008/090308.htm

[3] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008. http://www.economist.com/node/10533428

In many cases sovereign wealth funds are not even good for the states that own them. Almost all are emerging economies with limited financial expertise available to them, and they are not equipped to invest the money wisely. This has led to SWFs paying inflated prices for dodgy western companies, whose share price has subsequently collapsed, resulting in the loss of billions of dollars of national wealth for example China Investment Corporation lost $500million on Blackstone, Qatar Investment Authority may have lost as much as $2billion in its attempt to buy Sainsburys.[1] Surely it would be better to invest the money at home, or even return it to their people in the form of lower taxes.

[1] The Economist, ‘The rise of state capitalism’, 2008. http://www.economist.com/node/12080735

Sovereign wealth funds should be credited with coming to the rescue of the global financial system during the turmoil of 2008. With their long-term horizons for a return on their investments they have been willing to provide billions of dollars in new capital to distressed companies, at a time when other sources of funding have headed for the door.[1] Their money has allowed firms to continue trading and so safeguarded jobs at a time of great uncertainty. It has also helped prevent complete collapse of global equities prices, on which many people, through their pension funds, depend for a secure future. Moreover unlike some other types of funds such as hedge funds SWFs have an interest in keeping the global economy stable and reducing the impact of any downturns as their own country is bound to be affected by global economic conditions so responsible investment practices are encouraged. SWFs therefore “can play a shock-absorbing role in global financial markets”.[2]

[1] Beck, Roland, and Fidora, Michael, ‘Sovereign Wealth Funds – Before and Since the Crisis’, 2009, p.363. http://journals.cambridge.org/action/displayFulltext?type=1&fid=6245144&jid=EBR&volumeId=10&issueId=03&aid=6245140

[2] Lipsky, John, ‘Sovereign Wealth Funds: Their Role and Significance’, 2008. http://www.imf.org/external/np/speeches/2008/090308.htm

Sovereign Wealth Funds could potentially help the financial system but they will only do so if it is in the national interest of their country to do so. It is this political dimension that is the reason for more regulation. Moreover regulation of SWFs will not prevent these funds from helping the global financial system. They will still be free to invest. Moreover it does not reduce the incentives for them to do so either, regulation will make no difference to a state’s motivations in a time of crisis – the national interest will remain key.

Restricting the activities of sovereign wealth funds is a form of protectionism, which is itself likely to stimulate further demands for barriers against globalisation. Western countries oppose protectionism when it is from other countries preventing western companies investing so it would be hypocritical to want protectionism against those same countries buying the firms that want so much to invest in emerging markets.[1] It should be remembered that almost 40% of SWF assets are controlled by SWFs from advanced industrialised states.[2] As a result SWF investments abroad contribute to greater economic openness around the world. By exposing emerging economies and authoritarian states to developed world standards of transparency, meritocracy and corporate social responsibility, they will help to spread liberal values and raise standards. They will also give many more nations a stake in international prosperity through trade, encouraging cooperation rather than confrontation in foreign policy, and giving a boost to liberalising trade deals at the WTO. Finally as with all protectionism there is the risk that the SWFs will pull out their wealth and not invest as a result of protectionism resulting in lost jobs or jobs that would otherwise be created going somewhere more hospitable to SWFs.[3]

[1] The Economist, ‘The rise of state capitalism’, 2008. http://www.economist.com/node/12080735

[2] Drezner, Daniel W., ‘BRIC by BRIC: The emergent regime for sovereign wealth funds’, 2008, p.5. http://danieldrezner.com/research/swf1.pdf

[3] Ibid, p10

Fears about the unrestrained influence of sovereign wealth funds will likely stimulate wider protectionism anyway if effective regulation is not introduced. Protectionist politicians may exploit fears of foreigners to restrict any kind of foreign investment, and seek to build up national champions as a defensive measure. This risks losing all the economic benefits of globalisation, such as opportunities to unwind financial imbalances and to spread expertise, while directing capital to areas where it can have the greatest impact. Better to regulate SWFs now for fear of a greater backlash later.

Developed countries are guilty of a great deal of hypocrisy in their attitude to the sovereign wealth funds of emerging economies. In the past their own companies were used as instruments of state power, for example BP’s origins lie in Britain’s attempt to dominate Iran’s (at the time known as Persia) oil wealth.[1] The developed world is always willing to buy assets on the cheap, as shown by American banks buying up Asian banks during the Asian Financial crisis at the end of the 1990s.[2] Recently SWFs have proved willing to channel a great deal of investment into poorer states, particularly in Africa, their investments have already surpassed the IMF and World bank’s,[3] boosting their economies and assisting their long-term development through the provision of infrastructure such as roads and ports. This is a much more equal relationship than that promoted by the west, with its manipulation of aid and loans to maintain political influence in former colonies.

[1] BP, ‘Our history’. http://www.bp.com/extendedsectiongenericarticle.do?categoryId=10&contentId=7036819

[2] The Economist, ‘The rise of state capitalism’, 2008. http://www.economist.com/node/12080735

[3] Cilliers, Jakkie, ‘Africa and the future’.  http://www.regjeringen.no/nb/dep/ud/kampanjer/refleks/innspill/afrika/cilliers_2.html?id=533469

The amounts sovereign wealth funds invest in the poorest countries is tiny compared to their overall portfolio. In 2008 the head of the World Bank Robert Zollick was attempting to persuade sovereign wealth funds to invest just 1% of their assets in Africa.[1] Investment by SWFs in Africa is not all good. Sovereign wealth funds are guilty of bad behaviour in the developing world. Some government-backed firms from China and the Arab world (not all of the SWFs) have provided capital to maintain some of Africa’s worst rulers in power, in exchange for the opportunity to gain access to the natural resources of their misruled states. Sudan for example has sold 400,000 hectares to the United Arab Emirates.[2] This has allowed dictators to ignore the conditions (e.g. for political freedoms and economic reforms) attached to funding offered by western aid donors and international institutions such as the World Bank. It also contrasts sharply with the behaviour of western companies, who are led to act more responsibly by pressures from their own governments, investors and media.

[1] Stilwell Amy, and Chopra, Geetanjali S., ‘Sovereign Wealth Funds Should Invest in Africa, Zoellick Says’, 2008. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21711325~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

[2] The Economist, ‘Buying farmland abroad, Outsourcing’s third wave’, 2009. http://www.economist.com/node/13692889