Good Governance In Investment Migration Will Fuel Economic And Sustainable Development In A Post-Pandemic World
Authors: Bruno L’ecuyer
Over the past few years, investment migration – the industry intertwined with global wealth creation and people’s movement – has been defined by growth and expansion to reach an estimated value of €20 billion[i].
According to Investment Migration Council (IMC) research, 100 countries around the world now offer legal investment migration (IM) pathways. Among them, 60 actively promote Residence-by-Investment (RBI) and Citizenship-by-Investment (CBI) programmes – which for some countries generates between 2 per cent and +30 per cent of GDP.
Nevertheless, economics is not the only factor weighing in favour of investment migration. While the level of scrutiny by international institutions like the IMC and OECD is rising, the SARS-COV-2 pandemic is fostering innovative solutions to transform investment migration into a tool for sustainable and inclusive development.
Global organisations such as the International Monetary Fund (IMF) and the World Economic Forum (WEF) have described investment migration as one of the “fastest-growing economic enablers of modern times” for many small states[ii]. On the European front – according to the European Parliament Research Service – countries of the old continent benefited to the tune of €9.2 billion in revenue from investment migration over the 2008-2018 period[iii].
Investment migration has forged new economic sectors and enabled the development of cutting-edge infrastructure, start-ups and R&D programmes. The SARS-COV-2 pandemic that gate-crashed 2020 has significantly affected tourism on a global scale and weakened many countries dependent on this industry (e.g. Caribbean states) – which makes revenue from IM programmes even more vital for some sovereign states to keep afloat looking ahead.
The pandemic will likely have a far more devastating and deeper impact on the world economy than the 2008 global financial crisis. Nonetheless, it has fostered a rise in individual interest in making long-term moves or relocating in a semi-permanent manner to a new country of citizenship and residency. Despite mobility being defined by travel restrictions, border closures and quarantine requirements, investment migration could induce gains and add to economic recovery by attracting fresh capital and talent and fuelling much needed investment.
Investment migration programmes entail development impacts fostered by capital and investment; what is less known is that it also leads to the balance of foreign capital alongside social capital. A recent report[iv] by Dr Andres Solimano for the IMC highlights the link between investment migration, economic development, and the UN Sustainable Development Goals (SDGs).
In times of economic crisis, business investment and venture capital investment funds contribute to economic growth. In advanced capitalist nations, RBI programmes provide resources that are useful to support new businesses, job generation, and help struggling geographical areas – this was the case for Spain, Greece and Portugal in 2008.
In smaller countries considered by international development agencies as economically and ecologically vulnerable, revenues accruing to the CBI programmes can substantially fund public infrastructure reconstruction. Flows of foreign finance associated with citizenship-by-investment migration have provided a significant contribution to public sector revenues – sometimes giving the means to rebuild physical infrastructure damaged by hurricanes and other climatic hazards. Such gains contribute to improving health systems, bringing clean water, and an enhanced sanitation structure.
Investment migration is often overlooked as a factor within a country’s overall sustainability and development strategy. It is the case in Antigua and Barbuda, as well as in Malta, where RBI & CBI programmes’ resources have been used for several SDG activities beyond investments in climate change and peace, justice, and strong institutions. However, better incentives are still needed for capital from investment migration programmes to fully fund innovation and foster the development of clean energy to allow the mitigation of climate change.
For all of this, the current health crisis has also exposed the vulnerabilities of some pre-existing practices. The most significant risks of exposure to financial crime – such as money laundering and tax evasion, infiltration by criminals or criminal groups, and individuals’ ability to flee justice in another jurisdiction – persist to this day.
Led by the IMC, the industry’s desire to mitigate such risks put due diligence on the centre stage within investment migration. Due diligence appears to be the primary means to ensure CBI and RBI programmes’ viability and success. The development of common due diligence standards and an anti-bribery code, driven by the Investment Migration Council (IMC), shows that the industry recognises the need to self-regulate effectively or accept that rules will be imposed. A recent study[v], commissioned by the IMC, by Oxford Analytica reported that harmonised minimum standards across the industry by agents and governments should address gaps in legislation and increase transparency in processes and outcomes.
Questions on transparency and adherence to international standards on anti-money laundering brought the sector into sharp focus for the European Union and other international organisations, resulting in the European Commission launching an infringement procedure against Malta and Cyprus over their CBI programmes. According to the Council of Europe’s latest report on Investment Migration, the sharing of best practices and strengthening of the due diligence procedures counters the programmes’ possible illegal abuse – a solution largely echoed by the industry as it would endorse the introduction of legal provisions safeguarding the socio-economic benefits of the programmes.