State & Corporate Crime

SOVEREIGN POWER: The impact of Abu-Dhabi SWFs on the US economy

In the last 10 years Sovereign Wealth Funds (SWFs) have become the dark matter of the world financial system, like dark matter itself which physicists believe to be an invisible substance that only interacts gravitationally with visible matter, sovereign wealth cannot be easily tracked but its presence can be felt through the entire world economy. 

Using public data one can observe that in the 10 years between 1995 and 2005 the total SWFs assets under management (AUM) increased from 5% to 10% of the US GDP. In the next 10 years, between 2005 and 2015, the SWFs AUM increased even more dramatically, from 10% to 40% of the US GDP, reaching an astounding $8 trillion US dollars by 2019 according to the best estimates by the Sovereign Wealth Fund Institute [1-2]. 

Even though by 2019 there were nearly 100 active sovereign wealth funds (SWFs) in the world 90% of the current SWF wealth originated in just a few countries: China (27%), Norway (14%), Singapore (10%) and the GCC states (37%) : Saudi Arabia, United Arab Emirates (UAE), Kuwait and Qatar. 

The 2.2 trillion US$ of chinese sovereign wealth consists of 2 Beijing based SWFs : CIP and SAFE and two Hong Kong based SWFs: HKMAIP and NSSF. The estimated 1.2 trillion of United Arab Emirates (UAE) oil wealth, second in size after the chinese, consists of 3 SWFs: the Dubai based ICD with 240 billion US$ and the Abu-Dhabi based ADIA (Abu-Dhabi Investment Authority) and Mubadala funds with a combined 1 trillion dollars in AUM by 2019.

The two Abu-Dhabi based SWFs are especially relevant because they constitute the highest concentration of wealth in the planet. ADIA and Mubadala combined trillion dollars of oil wealth is controlled by only one family, the Al-Nahyan family that is the ruling family of the emirate of Abu-Dhabi, The Deputy Chairman of ADIA and Chairman of Mubadala Investment Company is crown prince Sheikh Mohammed bin Zayed Al Nahyan, who is also the Deputy Supreme Commander of the UAE Armed Forces, while other members of the Al-Nahyan family occupy most of the positions in the Board of Directors of these two SWFs as well as most of the positions in the Council of Ministers of the UAE government. For all practical purposes the political, financial, judicial and military structure of the UAE resembles that of a medieval feudal state where all levers of power are controlled by a single royal family to whom all citizens give homage and unquestioned obedience.      

The UAE began to play a role in global Foreign Direct Investment after the year 2000 when the price of crude oil surpassed $20 dollars/barrel. According the US Bureau of Economic Analysis (BEA) it reached a maximum of $52 billion in 2007 and was $38 billion in 2017 and 2018. The total UAE FDI outflow since 1995 adjusting for inflation is by my calculations $715 billion in 2019 US dollars. According to the Bureau of Economic Analysis, the Sovereign Wealth Fund Institute, the Sovereign Wealth Lab (SWFL) and other SWF monitoring organizations the US market is the preferred target for direct SWF investments [3]. The SWFL estimates that the amount of sovereign wealth directly invested in the US is around 1/3 of the total amount or 3 trillion US dollars, which represents around 15% of the US GDP. According to the BEA the emirati FDI in the USA between 2014 and 2018 averaged 70% of the total emirati FDI. If we extrapolate this we estimate that the accumulated UAE FDI in the USA is around US $500 billion, which agrees with the SWFI estimates. If we include the amount of SWF wealth that is invested outside of the US market but that is managed by US private equity firms and other US based investment vehicles the amount is higher than $500 billion. Since the total FDI in the USA was $4.34 trillion by 2018 according to a July 2019 report by the Bureau of Economic Analysis the UAE contribution to the total FDI in the USA is around 12% . It is estimated that each trillion of FDI supports the creation of 1.5 to 2.0 million jobs in the USA. Therefore the accumulated UAE FDI in the USA supports around 850,000 jobs in the USA.     

Furthermore, in 2018, total trade between US and UAE totaled $24.5 billion, with the US exporting $19.5 billion to the UAE. The resulting $14.5 billion trade surplus for the US is America’s fourth largest trade surplus globally and it supports an estimated 160,000 jobs in the USA. The Abu-Dhabi SWFs yield an incredible amount of power over the economies of the US, UK and the EU also because of the more flexible nature of their portfolio when compared to other SWFs: ADIA is estimated to have only 26% in fixed income and cash, 52% in equities and the rest in alternative investments while Mubadala has an even more risky and flexible portfolio with 25% in equities and 75% in alternative investments [3]. ADIA since its inception in 1976 has been historically quite secretive on the specific details of its portfolio and after many years it only publishes investment philosophy statements in its annual reports. Mubadala on the contrary offers specific details on particular investments and even boasts publicly of the fact that has multi-billion dollar investments spread across several US states. Mubadala even offers an online interactive tool to help us navigate its portfolio.

This has created the de-facto more powerful foreign lobby in the USA [4]. No US congressmen nor senator would endanger the thousands of jobs in their states, that are supported by UAE FDI or by exports to UAE, voting favorably for any kind of resolution against UAE interests [5-7]. 

The importance of UAE SWFs investments for the American economy has also put the USA Department of Justice (DOJ) in a very delicate situation in their mission to prosecute international bribery and money laundering. The most egregious case is the so called 1MDB scandal [8]. Jho Low is a malaysian citizen of chinese origin who acted as an intermediary [9] or middleman for the chinese government collaborating in the design of a complex offshore financial structure to facilitate the payment of bribes to the Al-Nahyan family in exchange for large oil and gas concessions in the UAE being offered to Chinese NOCs (National Oil Companies) as CNPC and CNOOC. Those UAE oil & gas concessions expired exactly at the same time, on January 2014, when Jho Low received a $300 million dollars unexplained “fee” from UAE owned spanish oil company CEPSA supposedly for mediating in the acquisition of Coastal Energy Resources. Jho Low’s assets were confiscated by the DOJ and an agreement was reached in absentia [10]. It is mind-boggling in my opinion that the DOJ is willing to reach a settlement with a fugitive on the run. It is also unbelievable that the International Criminal Police Organisation (Interpol) has yet to include Jho Low on its wanted list because apparently nor the USA nor Malaysia requested it [11].

The DOJ has had to walk a very thin line in order to avoid accusing any of the UAE citizens who are clearly involved in the 1MDB scandal: Khadem Al-quabisi [12] ex-CEO of IPIC (IPIC stands for International Petroleum Investment Company and was an Abu-Dhabi based SWF that was absorbed by Mubadala on January 2017), UAE ambassador Yousef Otaiba [13-14] (who is known to have received millions originating in 1MDB) and Sheikh Mansour Bin Zayed Al Nahyan [15] (who is also the brother of the current Abu-Dhabi crown prince and was a member of the board of IPIC before the merger with Mubadala). The DOJ avoided in its court orders to insinuate any involvement on the part of the UAE ambassador or on the brother of Abu-Dhabi’s crown prince. Both of them have diplomatic immunity but even if that was not the case prosecuting these two individuals would be impossible without endangering the hundreds of billions of dollars that the UAE has invested in the USA through its SWFs the last 20 years.

The ”sovereign” nature of the sovereign wealth funds makes nearly impossible for any international organization or country agency to develop regulations to monitor SWFs ultimate objectives, to enforce reporting practices or to tax their profits. As SWFs have expanded to reach a size of 10% of the global GDP the conflicts of interest are unavoidable and their consequences have started to subvert the economy, the democracy and the justice system of USA, UK and the EU [16-22]. 

References :

 [1] SWF Total Assets Under Management Values per Year (What is a SWF ?, 2018 SWF Institute, swfinstitute.org)

 [2] Top 89 Largest Sovereign Wealth Fund Rankings by Total Assets (SWF Institute, swfinstitute.org)

 [3] Sovereign Wealth Funds Report 2018 (IE Sovereign Wealth Lab, www.ie.edu, Spain)

 [4] The UAE lobby: Subverting british democracy ? (Spinwatch.org, 2018) 

 [5] The most powerful arab ruler isn’t M.B.S. It’s M.B.Z. (New York Times, Jun 2nd 2019)

 [6] Is Mohammed bin Zayed a bad influence on US foreign policy ? (Forbes, Jan 16th 2020)

 [7] Mohammed bin Zayed’s dark vision of the Middle East’s Future (New York Times, Jan 22nd 2020)

 [8] Abu-Dhabi SWF gets entangled in global 1MDB scandal (Bradley Hope and Nicolas Paraise, Washington Street Journal, Dec 1st 2016)

[9] Fugitive Jho Low tells Strait Times he was just an intermediary (The Straits Times, Jan 6th 2020)

 [10] Jho Low, accused mastermind of 1MDB scandal, reaches DOJ civil settlement (Byron Tau and Aruna Viswantha, Washington Street Journal, Oct 30th 2019)

[11] Jho Low not yet on Interpol’s Red Notice list (News Straits Times, Thursday March 5th 2020)

 [12] Alleged 1MDB conspirator says he is a scapegoat for emiratis (Bradley Hope and Tom Wright, Washington Street Journal, Jan 23rd 2019)

 [13] Stolen emails show Ties between UAE envoy and 1MDB Fund’s central figure (Bradley Hope and Tom Wright, Washington Street Journal, Aug 1st 2017)

 [14] UAE’s ambassador to US linked to 1MDB scandal (Bradley Hope and Tom Wright, Washington Street Journal, June 30th 2017)

 [15] The Topaz and Sheikh Mansour link to 1MDB (The Edge Malaysia, Feb 11 2019)

 [16] Sovereign Wealth and Sovereign Power: The strategic consequences of American indebtedness (Council of Foregin Relations, Oct 2008)

 [17] Sovereign Wealth Funds and International Political Economy, (Manda Shemirani, Routledge , May 2011)

 [18] The Shadow Market : How Sovereign Wealth Funds and Rogue Nations Threaten America’s Financial Future, (Erik Weiner, Simon & Schuster, Sep 2011)

 [19] Sovereign Wealth Funds : The new intersection of money and politics, (Christopher Balding, Oxford UP, Feb 2012)

 [20] The New Economics of Sovereign Wealth Funds, (Massimiliano Castelli, O’Reilly, May 2012)

 [21] Sovereign Wealth Funds : Legitimacy, Governance and Global Power, (Gordon Clark, Princeton UP, July 2013)

 [22] Citizens’ Wealth: Why (and How) SWF should be managed by the people for the people (Angela Cummine, Yale UP, Sep 2016)

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