The sheikh’s coffer

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The Qatar Investment Authority has transformed the country’s image into a luxury brand: profit and political influence go hand in hand.

A sovereign wealth fund, particularly in the Persian Gulf, functions pretty much like a Swiss Army knife. The tool is always the same, vast pots of money, but it has many uses: from developing the local economy to funding parties and armed factions around the world. If appropriately managed, a sovereign fund like the Qatar Investment Authority (QIA) can completely remodel the image of a country, transforming the way in which the world views a nation like Qatar from an unknown desert peninsula in the Persian Gulf into one of the most important world players in politics, finance and even communication in just a few years.

It all began in the early 2000s. Hamad bin Khalifa al-Thani, the young and ambitious emir, had taken over from his father in 1995 following a “bloodless coup”, and proceeded to rationalise the management of the vast surpluses generated by the sale of Qatari gas and oil. This led to the foundation of QIA and its subsidiaries (such as Qatar Holdings and Qatari Diar Real Estate Investment Fund), which were put in the hands of the young emir’s right-hand man, the equally dynamic and ambitious foreign affairs minister who would later become Prime Minister Hamad bin Jaber al-Thani. That the concentration of the power of these three posts was put in the hands of the man closest to the sovereign came as no surprise, and it sent a very clear message: Qatar intended to raise its status on the world stage, and was prepared to use cash, its most plentiful resource, to do so. Unlike other regimes in the region such as Saudi Arabia, which is also endowed with a vast sovereign wealth fund but has 30 million subjects to appease, the Qatari monarchy has far less need to deploy its resources in order to guarantee domestic stability. Out of the two million people living in the country, less than 300,000 can lay claim to Qatari citizenship, one of the hardest citizenships to obtain in the world. Holding a Qatari passport does, after all, guarantee the many privileges, subsidies and access to well-paid public employment that has turned Qatar into the country with the highest per-capita income in the world. Thanks to the scant number of inhabitants, this social pact has so far proven to be very robust while only costing the regime a small fraction of the huge revenues produced by its energy sector. The rest of the sovereign wealth fund, currently estimated at around 250 billion dollars (€224bn), has been channelled into three main areas: revenue, development and political influence.

The first objective of all of the sovereign wealth funds in the region is the same: finding ways of gradually replacing energy revenues with alternative incomes. As the inevitable depletion of the oil and gas resources draws nearer, and with the threat of energy sales being undercut by the development of new technologies, regimes in the Gulf are all intent on investing in high-yield long-term assets, which are intended to replace the revenue from gas and oil with the proceeds of financial investments. In the long-term, this shift will be essential for maintaining the strange social pact that holds true in all Gulf monarchies: a free hand for the monarchs in exchange for services and free revenue for their citizens. It is a delicate system that does away with taxation at the expense of representation, but also means that the rulers must plan and ensure the availability of future resources. The QIA fund has therefore invested in shares of high yield companies endowed with long-term stability, such as major energy companies (Shell, Total), high end real estate in strategic centres (London’s the City, Manhattan and Porta Nuova in Milan) and major financial institutions such as Barclays.

Along with investing abroad to guarantee its future revenue, QIA has also generously invested within the country by creating infrastructure and large state and state-controlled enterprises. QIA has primarily invested in new technologies and is attracting scientists from around the world, putting Qatar on track to become one of the main development hubs for sectors such as information technology and agricultural techniques.

But it is the third macro-objective pursued by QIA, its influence in foreign affairs, that has attracted the most attention to Doha. In a little less than a decade, QIA has managed to transform Qatar’s image into a brand associated with luxury, fashion and show business by shelling out billions of dollars to purchase shares in some of the world’s most most well-known brands such as Chanel, Valentino, Sainsbury’s, Harrods and Miramax. In 2012, QIA even purchased the Paris Saint-Germain football club for 130 million dollars.

All of this represents the glamourous façade of the Qatari brand, but there is also a second, more obscure and elusive underbelly. Every day, dozens of leading political figures, businessmen and revolutionaries show up in Doha seeking backing for their causes. The hotel chosen for them by the authorities while they await audience already delivers a clear message: those staying at the Four Seasons or the Ritz can expect to walk away with a few million dollars, while those housed at the old Sheraton can count themselves lucky to see a few thousand. QIA accounts are a state secret, and no one knows exactly who has been receiving what from 2005 to the present. What is certain is that almost everyone, from the Taliban to the Sudanese guerrillas and the Muslim Brotherhood, has spent time in Doha hotels. The latter in particular enjoyed a good standing in Qatar after the Arab Spring erupted in 2011, and it is no secret that QIA was among the primary architects of the the subsequently deposed Egyptian President Mohammed Morsi’s rise to power. Qatar has also directly funded groups linked to the Libyan government in Tripoli, which has close ties to the Brotherhood, as well as many armed organisations involved in the Syrian revolution. According to the Qatar Awareness Campaign, set up in the wake of a thorough investigation carried out by the British Daily Telegraph, funds from Qatar have been more or less directly funnelled to groups linked to international terrorism such as Jabhat al-Nusra and IS. These accusations have yet to be proven, mainly due to the difficulty of accessing QIA accounts. But very few believe that there are any recent Middle Eastern scenarios, including revolutions and bloody civil wars, in which the financial arm of Qatar has not played a prominent role.

Nevertheless, things have started to change for Qatar and QIA in the last three years. Deep reversals in foreign affairs (the deposition of the Muslim Brotherhood in Egypt and the Syrian stalemate) have led to a change of attitude in Doha politics. This was underlined by the abdication of Hamad al-Thani in favour of his son Tamim, a momentous shift which was bound to affect pillars of Qatar power like the QIA. The new emir immediately replaced all QIA top-management, starting with the powerful Hamad bin Jaber, who was relieved of all government appointments. QIA’s change in approach is also partly due to the collapse in oil prices that has negatively affected all of the sovereign wealth funds in the region. The new strategy appears to be to reduce the level of acquisitions, favouring the search for profit over political influence, and includes a change of destination for future investments. Crises in Europe have caused serious damage to QIA investments. Volkswagen, of which QIA held a 16% share, has collapsed on the stock market as a result of the emissions scandal, and the Brexit is severely undermining the value of investments in the United Kingdom, which represent over 30 billion dollars (€26.9bn). The new leadership appears intent on turning its hand towards more stable and promising investments, primarily in Asia and the US. The first indication of this shift was the purchase of vast office blocks in Manhattan, along with a 10% share of the Empire State Building, followed by the announcement of investments in the US over the next years worth $35 billion (€31.4bn). At the same time, QIA has moved into the Malaysian petro-chemical sector, Indian infrastructure and has also announced investments to the tune of $10 billion (€9bn) in China in the coming years. This is a bad sign for the Europe, and particularly for the likes of the French and British economies, which had been counting on their capacity to attract Gulf capital to their countries.

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