Lack of clarity on SWFs in Germany

I had the great pleasure recently of attending a dinner in honour of the German Foreign Minister, Peer Steinbrueck, and came away from it with a little more understanding of how Germany sees the Gulf – but a little more confused as to where the country stands on the debate over sovereign wealth funds.

The dinner – arranged by the minister's hosts in Dubai, Deutsche Bank – was the final formal event of a four-day tour of the Gulf that included Kuwait and the UAE. It was intended to underline how important Germany regards this part of the world, and – judging by the top-level party of German politicians and businessmen accompanying their minister – it is clear that Europe's most powerful exporting economy still sees great opportunities in the Middle East as a whole, in the Gulf and the UAE in particular.

The kind of infrastructure development being pioneered in Dubai and Abu Dhabi brings together the various specialisms within the German industrial sector – large scale engineering and construction, the high-technlogy end of the industrial process, and state-of-the-art techniques in the energy and utilities sectors. German expertise will be of crucial assistance to the UAE in its grand strategic plans to get away from oil dependence and build a new generation of greener, more environmentally friendly power sources.

Simultaneously, UAE's oil rich consumers will want more of those fabulous German export items, from automated kitchens to "vorsprung durch technik" motor cars. It seems a trading relationship made in heaven.

Steinbrueck – a firm friend of German Chancellor Angela Merkel if not quite so popular with the voters – explained all this with a clarity and precision worthy of the most advanced of his country's vast array of sophisticated electronics goods.

But it was when he came to talk about the thorny subject of sovereign wealth funds that his precision began to waver a little. I put it down at first to a little unease in speaking on such a complicated subject in English, but the German press, who were there in numbers from the country's finest pubicaions such as Der Spiegel and Die Zeit as well as the news wires, also shared my confusion, and confirmed there was a two-way pull going on among policy-makers on the SWF issue, and that Steinbrueck's ambivalence confirmed this.

There was good news from the minister: he appeared to give a cast-iron assurance to his listeners (which included many Emirati notables from business and finance) that Germany would not subject SWF investment into Germany to any new regulatory scrutiny or limitations, as is being contemplated by the US and France. He explicitly said there would be no "impediments of obstacles" to SWFs.

(Steinbrueck inexplicably included the UK in his list of countries that had introduced anti-SWF measures, when we all know that British policy for years has been to sell any part of its national assets to whatever bidder as long as it was the highest. Perhaps he was confusing the British with the Scandinavians?)

But then there appeared to be a rather drastic shift in his reasoning: while not legislating specifically against SWFs, he said, they would fall under new German laws against general foreign investment, and especially investments that amounted to more than 25 per cent of a company's share capital. Germany has to protect its national means of production, was the argument, and this was the rational for the new SWF-encompassing laws. So it was not just Gulf investors, but any foreign investors, that would be subject to the new seemingly protectionist measures, which apparently have strong support from some sections of the German government, especially the labour ministry.

Much debate followed over the petit-fours. It was explained by people who had accompanied Steinbrueck on the Kuwaiti leg of his tour that there he had been more explicit in his views on SWFs. He had told Kuwaiti officials their foreign investors were "the good guys" and that any investment from that area would not be impeded. And apparently, judging by the reaction of his Emirati listeners, the UAE was included in the "good guy" list.

He never made apparent who were the "bad guys", though we can be pretty sure that Russia and China must have been pretty high on that list.

I came away from the dinner replete with good food and grateful for the chance to hear the views of one of the country's leaders about perhaps the most important issue in world business; but also feeling rather confused about German policy on SWFs. We will see in the weeks ahead, as the new proposals are codified, whether more light can be shone on this crucial area.

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