SWFs Are the Solution, Says Dresdner Analyst
Analyst Arnab Das of Dresdner Kleinwort writes in the Financial Times that sovereign wealth funds are the solution to the global financial crisis, and should not be subjected to so much scrutiny.
SWFs are here to stay. Elections may foment opposition but host country and SWF governments will engage constructively, given shared interests in global financial stability and growth.
SWFs will continue to converge with private-sector counterparts; develop partnerships to align incentives with host-country investors to manage securities portfolios or strategic stakes, and mitigate political tensions; and bring in outside talent with track records to help grow domestic skills.
Investment banks, money managers and private equity investors will keep doing deals with SWFs that have financial resources to complement their own skills.
Above all, SWFs will continue to convert US public debt into global equity, helping to restore stability and finance investment and growth.
State Capitalism a Bigger Threat than Sovereign Wealth
Quite the interesting column in the Wall Street Journal this week:
Don’t Pick on Sovereign Wealth
By DOUGLAS REDIKER and HEIDI CREBO-REDIKER
FROM TODAY’S WALL STREET JOURNAL EUROPE
July 17, 2008Under pressure from the U.S., Europe and the IMF, representatives of 25 sovereign wealth funds managing about $3 trillion in assets met last week in Singapore to discuss how to allay fears about their investments. These large pools of government-controlled wealth are investing in everything from Barclays and Citigroup to New York’s Chrysler Building. As they transcend traditional boundaries between foreign policy, financial markets and national security, it is natural that Western capitals are worried.
Difficult Terms for Energy Investors
For years now I have closely followed developments at Russia’s Shtokman Field - a very large natural gas field in the Barent’s Sea. We have observed the Kremlin dangle the opportunity before several oil and gas multinationals, extracting the greatest political leverage possible. Today, the Wall Street Journal reports on the almost punitive terms of entry for the foreign investors, and points out the extraordinary lengths companies are now willing to go in order to participate in production.
Oil Sees End of Sweet Deals
Total, StatoilHydro
Accept Tough Terms
For Shtokman FieldBy GUY CHAZAN
July 14, 2008; Page B5LONDON — The terms of a Russian contract to develop one of the world’s largest untapped natural-gas fields reveal the lengths to which Western oil companies will go these days to gain a foothold in the dwindling pool of new hydrocarbon resources.
In Russia’s sector of the Barents Sea, the Shtokman field is hundreds of miles offshore in Arctic, iceberg-strewn waters. But despite the immense technical and investment challenges it poses, its 3.8 trillion cubic meters of gas has proven a huge draw for oil companies desperate for new reserves.
Africa Raises the Infrastructure Bar on Investors
It’s a familiar story, and I won’t be the first one to tell you. As documented widely, the rapid industrial rise of the BRIC economies has created an unexpected demand crush on natural resource commodities, generating all sorts of anomalies for foreign investors in extractive industries. We have seen resource nationalism issues pop up in emerging economies everywhere from Venezuela and Bolivia to Nigeria and Russia, while both state and private companies are attempting to negotiate and understand the rules of a whole new competitive playing field - whereby host governments find themselves with the unprecedented leverage to demand more than just capital.
In Africa, these new, unconventional investment arrangements often involve debt forgiveness and extensive infrastructure and aid packages (and in the case of Algeria, arms deals with Russia) - in short, not the type of incentives that the private companies have much experience with or are readily able to provide.
However, the impact of this new competition gap isn’t yet entirely clear. On the one hand, the resource curse is perpetuated in many energy and metals exporting nations, as authoritarian governments extend repressive abuses with very little fear of an investment slow down over concerns of corruption, democracy, or human rights. This of course in turn has exacerbated social tensions over the distribution of resource wealth - with Nigeria as the prime example.
As Zimbabwe Collapses, Business Struggles for Survival
Things are looking worse than ever in Zimbabwe, as the increasingly isolated President Robert Mugabe defied international pressure and outright condemnation to proceed with a “one-candidate poll” in the runoff election for the presidency on Friday - leaving not only the beleaguered public, but also foreign and domestic businesses, between a rock and a hard place.
As expected, Mugabe sailed to a landslide victory today, yet may face a situation of complete international illegitimacy, even among neighboring African republics
Many of the issues this blog focuses on in terms of corporate foreign policy are currently playing out in a dramatic fashion in Zimbabwe, as battle-hardened foreign investors work to cling to their commitments after surviving more than a decade under a profligate corruption-and-extortion despot. With fewer and fewer friends abroad, Mugabe’s administration will be looking to further tighten the screws on the business sector to extract desperately needed concessions, and may in fact begin looking for “symbolic punishments” against private business in response to diplomatic actions by their host countries (Russia is an expert in this). As the Guardian reports, many democracy and human rights observations are beginning to ask the critical questions: are foreign companies helping keep Mugabe in power? Do business activities in Zimbabwe contribute to the collapse of democratic institutions and liberties? Should investors be obligated to withdraw from the country in order to contribute to further political pressure.
The answers to such questions are much more ambiguous and complicated than they may seem, and despite the preposterous unquantifiable levels of hyperinflation, some investors (particularly in mining) are defending the dictatorial actions of Mugabe in order to preserve their proximity to power. Is this abandon of ethnics the only method of survival?
OECD Takes AIM at State-Owned Companies
After giving close scrutiny to effect of private equity and sovereign wealth on global markets, it has finally occurred to the OECD that they may want to check in on the world’s most powerful state-owned companies, which have often shown a political streak in their decision making and acquisitions. This one comes from the Financial Times:
Mr Gurria told international investors at the annual conference of the International Corporate Governance Network in Seoul these new investors played a positive role in capital markets and should not be treated differently from other investors through the creation of new laws or codes. But he highlighted the growing role of state-owned companies in global markets, which he said had “received less attention so far”.
“Only four years ago, the world’s 10 largest listed companies in terms of market value were private commercial entities domiciled in the US and Europe. Today, five of the top 10 publicly traded corporations are government controlled. Three of these are Chinese, including PetroChina. Another is Russian (Gazprom) and one Brazilian (Petrobras).
“Partially state-owned enterprises, such as Electricité de France, Eni, Enel and the telecoms companies of Germany and France, are among the world’s 100 largest publicly traded companies.” These state-owned companies were becoming more important as they consolidated and expanded into other markets, he said.
The Rise of Business Human Rights
I highly recommend that readers check out an article entitled “In Human Rights, the Cup is Two-Thirds Full,” by legal journalist Michael Goldhaber, which provides a summary of a recent Columbia Law School conference at its Human Rights Institute. The question at hand: has the world made progress in advancing human rights in the past 10 years?
While the answer to that question and the various responses were ambiguous (the George W. Bush era certainly has taken its toll), there is at least the beginnings of a discussion about the role of investing corporations in upholding human rights standards - something that this blog has been focused on since inception. Here is Chris Avery remarking on the shift in pressurs on companies to develop corporate social responsibility programs:
“Ten years ago, the field of business human rights didn’t exist,” began Chris Avery, the founding director of the Business & Human Rights Resource Centre in London. Yet the approach has been rapidly embraced by human rights NGOs, the United Nations, and national human rights commissions. Most importantly, Avery said, the private sector is more susceptible to pressure than the public sector, with a majority of the top 100 London-listed companies already having adopted policies of corporate social responsibility.
Avery’s point here is rather unobjectionable, and I do agree that business human rights is one of the most important developments in this area, however I still think that most corporations are behind the curve. The paradigm has shifted to such a dramatic degree that relations between states and businesses is no longer one of traditional accountability and responsibility. Take for example a number of corporations investing in Africa and parts of Asia which are virtually being handed the de facto role of the state - a new level of responsibility to local communities that a flimsy CSR plan prepared by the PR department is ill-equipped to handle. This brings me back to one of my central and oft-repeated points about the necessity of developing strong corporate foreign policies - that the new reality of investing in emerging markets means that companies really need to begin demonstrating their follow-through on commitments, and fully assuming the responsibilities of their new roles.
Energy Investment in Venezuela and Nigeria
This is my speech from the Houston World Affairs Council on May 19, 2008 - covering the comparative investment environments of Venezuela and Nigeria, the rise of state-owned energy companies, the decline of Washington’s soft power, and the new competition gap facing investors.
Shell’s Nigerian Withdrawal Underscores Human Rights-Energy Gap
The year 1995 was very tragic for Nigeria: after years of starvation and exploitation, the ethnic minority in Ogoniland, an area rich in oil and gas, began mounting a peaceful civil society movement to demand a greater share of the oil wealth to fund infrastructure in their impoverished communities. Led by the political activist Ken Saro-Wiwa, the Movement for the Survival of the Ogoni People (MOSOP) began holding multitudinous protests of 300,000 people in the early 1990s, particularly targeting the activities of oil multinational Royal Dutch Shell. After several arrests and high profile human rights trials, Saro-Wiwa was executed by hanging by the military dictatorship.
Just this week, government officials have announced that Shell is being ousted from its concession in Ogoniland, which has been inactive as far back as 1993, opening the opportunity for the entrance of a new operator. Ken Saro-Wiwa Junior, the son of the famous activist, gave an important interview with Reuters, commenting on what Shell’s departure means for the Ogoni people, and what kind qualities the next foreign operator will have to offer to earn the rights to the fields. The Shell ouster, says Saro-Wiwa Junior, is evidence that the government is listening.
RA in Upstream: Confronting Resource Nationalism
Robert Amsterdam was profiled in the new issue of Upstream magazine, an energy trade magazine, on how international energy companies can and should defend their rights in resource nationalist market conditions. Download the full PDF of the article here.
