Saudi government

The World Next Week Political Masterstroke Award this week goes to the Saudi government, which is in the process of setting up a $5.3 billion investment company. This was far smaller than its reported plans to establish a huge sovereign wealth fund (SWF) worth over $900 billion.

This week, Saudi Finance Minister has gone one step further by announcing that the new company will not, in fact, be a SWF at all. Rather, he claims, the new company will focus primarily on the domestic market, the technology sector in particular.

With oil prices soaring, the Saudis have got money to burn. So why the backtracking? The answer is to be found in the growing Western backlash against SWFs. With both the IMF and the European Commission issuing demands for increased SWF transparency, any new Saudi fund is sure to attract a good deal of Western scrutiny. Riyadh -- hardly known as a paragon of financial openness -- is loath to submit its finances to such probing.

Yet by establishing this company, the Saudis may have actually strengthened their position. The Saudis already have vehicles for overseas investment, namely the Saudi Arabian Monetary Agency and the personal bank accounts of the Royal family. By establishing this fund -- and staying away from the SWFs -- they can keep the spotlight away off their other (more opaque) investment practices.