When David Cameron flew out to Asia last week, he did so on a Boeing 474 owned by Sonangol, the Angolan state oil company. Anyone minded to spot a narrative in these things might have called it a sign of the times; an embattled Prime Minister traveling East - on a plane owned by 'sub-Saharan Africa's first sovereign wealth fund' - to tempt Asian governments flush with foreign exchange to invest some of it in Britain's creaking infrastructure. The trip followed Cameron's pre-Budget announcement that sovereign wealth funds (SWFs) may be allowed to lease roads in England and receive a hypothecated share of vehicle excise duty.
To be fair, the country needs some £500 billion of transport, energy and ICT investment in this decade alone. And the government is strapped for cash. So it would be churlish not to consider harnessing the $10 trillion of capital sitting in SWFs (largely in the emerging markets) to fill the gap.
In the last four months the China Investment Corporation and the Abu Dhabi Investment Authority have both taken stakes in Thames Water. A fortnight ago South Korea's National Pension Service, already a part-owner of Gatwick Airport, set up a London office to coordinate new investments. The Treasury Minister Lord Sassoon reports a 'huge appetite' for British infrastructure amongst SWFs in the Gulf. What makes such state-owned investment vehicles attractive is that they value long-term stability; they exist to smooth out the growth paths of countries that, through natural resources or export success, want to reduce their dependence on finite drivers of economic growth.
There is, however, a strong case for caution. Despite a voluntary code of conduct (the 2008 Santiago Principles), the SWFs are often extremely secretive; some have a higher risk appetite than their 'stabilisation' remit might suggest; above all, they are political beasts.
Britain's infrastructure is of strategic importance: a public good. Do we want to hitch our roads, broadband, electricity and so forth to the economic stability of the autocratic Wild East? The Arab Spring has shown the speed at which entire systems can be overthrown. And do we really want to embark on another 'buy now, pay later' investment option? Could this be another PFI? Many questions surround Cameron's and Osborne's assertion that the SWFs can fill the gap.
But let's look a little closer. Many of our economic competitors clearly deem Britain's infrastructure an opportunity to turn a short-term revenue stream (be it from commodities, exports or other sources) into a long-term one. Is the imminent sale of Britain's part-nationalised banks not an analogous windfall? Will it not produce a sudden, one-off boost to the Exchequer akin to the discovery and drilling of a new oilfield?
The government should take heed and, when it sells its holdings in RBS and Lloyds, use the proceeds to create a British SWF. This could be tasked with financing and extending the government's £20 billion National Infrastructure Plan. Its mission would unambiguously serve the national interest. Both the TUC and the Institute of Directors have called for the creation of such a fund; in the legacy of the 2008 bailouts, Cameron and Osborne have a serendipitous opportunity to create one.
A longer version of this post first appeared at Shifting Grounds
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