Highlights
– Qatar’s investment fund, the QIA, is purchasing large stakes in the LSE and London-based industries
– The QIA says it is a long-term investor interested in promoting stability in global financial markets.
– England is optimistic that its growing economic ties with Qatar will ensure its access to the emirate’s vast natural gas reservoirs.
The Qatar Investment Authority (QIA), a two-year old government-backed investment fund, was established to redistribute the nation’s oil and natural gas wealth into diversified investments and is worth an estimated $50 billion. Currently, the QIA is invested in primarily European and American stocks, but seeks to increase its Asian investments to 40 percent.
Buoyed by high oil prices, the growing presence and purchasing power of Chinese, Russian, Dubai, and Qatari government-backed investment funds are now estimated at a combined valued of $2.5 trillion, raising a red flag for the US and many of its allies. The US is, therefore, expected later this week to introduce before the Group of Seven (G7), governing legislation that prohibits sovereign wealth funds from purchasing strategic assets in foreign countries, as well as destabilize global financial markets.
A Mixed Bag
All things considered, Qatar is characterized by relative economic and political stability. A sultanate, whose King, Sheikh Hamad bin Khalifa al-Thani came to power through a bloodless palace coup in 1995, Qatar’s monarchy enjoys a near political monopoly with little opposition. The sultanate ranked the highest among the Gulf States in the 2007 Corruption Perceptions Index (CPI) compiled by Transparency International and is home to the Middle East’s most independent media outlet, Al Jazeera.
Though Qatar was targeted by a suicide bomb attack two years ago that killed a British teacher, the greatest threat to stability in the sultanate is not terrorism, but inflation. The rate of inflation was 14.8 percent in the first quarter of 2007 and 12.8 percent in the second, with rents increasing by 168 percent in the last two years. The high rate of inflation—which should ideally settle around 3 percent—is linked to a rise in public expenditure of light surplus budgets and rapid population growth. When combined the two usually increase demands.
Qatar’s liberal policies and relations with Israel are counter weighted by Sheikh Hamad’s patronage of Muslim cleric Yusuf al-Qaradawi who heads the government’s Islamic Council. Western governments criticize sheikh al-Qaradawi for his past funding Palestinian suicide bombers and stoning of female adulterers. Arguably, however, given Qatar’s Wahhabi make-up, Sheikh Hamad’s patronage of al-Qaradawi is of negligible import when compared to its overall liberal outlook.
England Embraces the QAI with Optimism
Qatar and Dubai’s combined purchase of 48 percent of the London Stock Exchange (LSE) in September 2007, as well as Qatar’s bid to purchase large stakes in Sainsbury and Barclays, gives the QIA a large vested interest in and potential influence over the future of the United Kingdom. Unwilling to comment on Dubai’s purchase of 28 percent of the LSE, British ministers expressed optimism over its growing economic ties with the former British colony. Qatar is home to the third largest reservoir of natural gas and is slated to open a direct line of transport to the newly constructed Milford Haven LNG terminal next year. British exports to Qatar are also on the rise, increasing 35 percent in 2006. In fact, of the 7,000 Britons living in Qatar, representing Qatar’s largest ex-patriot community, three are highly influential QIA managers.
With Qatar projected to be the world’s top LNG exporter by 2012, England covets its position as the emirates’ historical ally. For its part, Qatar Finance Minister Yousef Hussein Kamal says Qatar is a long-term investor interested in the stability of its investments.
A Look Forward
The QIA fund’s influence will continue to grow in the coming years, but is expected to be a stabilizing influence in global financial markets, overall. Unlike hedge fund investors, the sultanate of Qatar is most interested in the long-term, financial stability of its investments and the countries in which it invests. England will continue to be the favorite among Qatar’s partners due to its historical social, economic, and political ties with the small emirate. Therefore, expect England to continue to be the favored home of QIA investment, with increased diversification into Asian financial markets in the years to come.
