BEIRUT, May 5—Western political and economic leaders, seeking desperately needed capital for their faltering economies, have put aside many of their concerns over Arab sovereign wealth funds (SWFs). But the Arab world is questioning the wisdom of building its financial future on the shaky foundations of Western economies, and increasingly focusing on the development and diversification of its own economies, explains a new paper by the Carnegie Middle East Center.

In Managing Sovereign Wealth in Turbulent Times—and Beyond, produced in cooperation with the Arab Reform Initiative, editors Sven Behrendt, Bassma Kodmani, and a group of Arab economists discuss the economic, political, and social influences that will determine Arab funds’ investment behavior in the years to come.

Key points:

  • Arab investment in strategic industries in Western countries will become increasingly cautious and selective.
  • The Arab public is demanding more accountability and transparency from SWF managers, which will drive them also to invest in tune with the political sentiment in their countries.
  • Arab foreign investments should complement domestic economic development and diversification agendas. They should develop a clear understanding of the markets that they seek to serve and adjust their foreign acquisition strategy accordingly.
  • Arab fund managers should not scale back efforts to make their funds more transparent in light of reduced international pressure. As the G20 process indicates, all stakeholders in the global financial architecture would benefit from efficient and transparent global markets.
  • Western political and economic leaders need a new sense of partnership and understanding for the development needs of the Arab world to attract Arab fund investments into their industries.

Behrendt concludes:

“Moving forward, the investment strategies of Arab SWFs will most likely be based on a more holistic approach. Ideally, this would include taking into account the long-term financial needs of their societies, the long-term development and diversification strategies of their economies, as well as the long-term opportunities of select industries to serve in global markets in transition.”

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NOTES

  • Sven Behrendt is a visiting scholar at the Carnegie Middle East Center. He is an expert in global policy issues, international negotiations, corporate strategy, and diplomacy. Prior to his appointment at Carnegie, he served in various management positions at the World Economic Forum and the Bertelsmann Group on Policy Research. He is a regular commentator on television and in the press on corporate strategy and globalization.
  • Bassma Kodmani is the executive director of the Arab Reform Initiative and senior adviser on international cooperation to the French national research council (CNRS). She held directing positions at the Ford Foundation and the Institut Français des Relations Internationales (IFRI), Paris. She was also an associate professor of International Relations at Paris University.
  • Carnegie's Arab Reform Bulletin has been transformed into a full-featured website that offers greatly enhanced search functionality, the option for readers to comment on articles, and frequent news updates.