Investment Migration Has The Potential To Advance The 2030 Sustainable Development Agenda
Can you please give us a brief introduction to the United Nations Sustainable Development Goals and explain what they aim to achieve?
The United Nations Sustainable Development Goals (SDGs), adopted in 2015, provide an international framework to create more sustainable and fair economies as well as resilient and prosperous societies by 2030. They are a set of 17 SDGs and 169 targets that are applicable to different national realities, including advanced nations, middle-income developing and emerging economies, small island states, least developed countries and post-conflict nations. The SDGs include initiatives to end poverty, ensure quality education, achieve gender equality, promote decent jobs and take urgent action to combat climate change and its impacts.
The SDGs are not the first initiative of this kind. They were preceded by the Millennium Development Goals (MDGs) that were agreed upon in 2000. The SDGs are a second and more ambitious step in realising a global development agenda. The MDGs promoted economic growth combined with social equity and environmental protection. The SDGs take on a more comprehensive and holistic approach to development, sensitive to our ecological and planetary boundaries besides promoting poverty reduction and lower inequality.
What capital investment is required to implement the SDGs?
The United Nations Conference on Trade and Development (UNCTAD) in 2015 estimated global investment needs between $5 to $7 trillion per year to achieve the SDGs. Developing countries require around $4 trillion per year, mostly in terms of infrastructure investment such as power, transport, water and sanitation. Clearly, we cannot meet the SDGs only by utilizing public funds; private support is required too. The issue is more complicated for low income countries as they have to achieve the same set of goals but have fewer internal financing resources. Botswana, Ghana or Sri Lanka, for example, cannot be compared with Switzerland, Sweden or Germany in their ability to meet the SDGs. Besides, advanced economies have already achieved some goals, while developing nations have a long way to go.
Beyond the country differences, is the world on track to achieving the SDGs and is Covid-19 threatening progress?
The UN Secretary General appointed the Independent Group of Scientist to monitor the progress in achieving the SDGs. They produced a report in 2019 and concluded that the world is still far away from reaching the goals. For instance, we have seen insufficient progress in terms of reducing poverty in Africa and low-income Asia. Furthermore, climate change is one of the biggest challenges of our time and stopping or reversing global warming is a slow-moving process.
Covid-19 is definitely a set-back, hopefully of a temporary nature. The world economy in 2020 will experience the greatest recession since the Great Depression in the 1930s. Estimates by international organisations are that GDP will contract by 6% to 7% worldwide this year with positive growth in 2021. However, the pandemic presents both an enormous challenge and also opportunities for reaching the SDGs. Gains in economic and social progress made in recent years are reversed. The pandemic has also shown us how interconnected people and countries are for good or bad, for example the virus spread with utmost speed across the world through travel and people mobility in a few weeks. The crisis is forcing us to re-look at the way forward and come up with new solutions that truly balance economic, social and environmental progress. In this sense, the SDGs provide good priorities although we need more in terms of devising concrete strategies for effective recovery and for ensuring health and safety.
What impact can the investment migration industry have on the SDGs?
Investment migration brings in fresh capital, human skills and entrepreneurial capacity for the receiving nation. Some of this money contributes, perhaps unintendedly, towards meeting the SDGs. It is estimated that investment migration programmes worldwide have raised around $60 to $70 billion between 2008 and 2019. This represents a rather small proportion of the total $5 trillion to $ 7 trillion that are at the very least required to achieve the SDGs. Nevertheless, for small states citizenship-by-investment (CBI) programmes have been an important source of fiscal revenue. For instance, the CBI programmes in Antigua and Barbuda, St. Kitts and Nevis, Dominica and Vanuatu represent over 30% of fiscal revenue. In other countries, such as Malta and Cyprus, CBI revenue accounts for 4% to 5% of GDP, and this percentage goes up to anything between 15% and 25% for Caribbean CBI countries. So, for small economies, this money can make a large contribution in terms of providing both fiscal revenue and foreign exchange. For larger economies – the UK, Spain, Portugal, Greece and others – RBI income is not as important as a share of GDP or total public revenue although it still plays a role in strengthening certain economic sectors and creates value in distressed regions. However, in macro-economic terms, investment migration has the largest impact on small states.
Can you share a few concrete examples of how investment migration programmes have already contributed to the SDGs?
CBI resources have made important contributions to the funding of physical and social infrastructure, particularly to finance the reconstruction of infrastructure damaged by hurricanes that have hit the Caribbean. In 2017, Dominica was severely affected by Hurricane Maria and Antigua and Barbuda was hit by Hurricane Irma. CBI resources helped rebuild nearly 60% of all infrastructure that was being damaged by these climate events. These are two examples of how investment migration has contributed through the inflows of foreign resources that were mobilised by domestic authorities, to restoring living standards after main natural disasters. In terms of the SDGs they broadly contribute to “Good health and wellbeing” (SDG3), “Clean water and sanitation” (SDG6) and “Industry, innovation and infrastructure” (SDG9).
Residence-by-investment (RBI) programmes can have a potential impact on SDG8 – Decent Work and Economic Growth and SDG1 – Poverty Reduction. Take the EB-5 in the US that requires investors to create at least ten jobs per year. This is a source of extra income for workers and owners, although we have relatively little information on the extent the jobs created have been accompanied by effective social protection of workers (decent jobs). In Portugal, Spain, Greece and other countries, investment migration is directed to business investment that create jobs mainly in the services sector.
Some investment migration programmes appear to have a broader impact on the receiving nations than others, while critics are highlighting even negative effects of some programmes, including overheated real estate markets and the overreliance on investment migration funds. With the SDGs in mind, how should government’s make best use of investment migration funds?
Today, we are seeing two types of investment. One modality is ‘passive investment’, for instance in government bonds or in the real estate market; another modality is ‘active investment’ through which the migrant may be directly engaged in the creation of new businesses and the process of job creation. Governments in the recipient countries should encourage more active investments, although passive investments also play a role.
A consequence of passive investments in real estate is the tendency to push up property prices, especially in big cities such as London, New York, Paris, Sydney and others. As a consequence of price spirals in the property market, housing becomes unaffordable for the local population with modest and middle-income levels who have to move to live in locations away from their jobs and schools of their children. This shows that investment migration can feed into already existing social inequality mechanisms in the area of access to housing. This is a side effect that has to be seriously considered.
Another feature of investment migration is the channelling of capital into the tourism and entertainment sectors such as hotels and residential developments. At the same time, a case can be made for boosting investment into the manufacturing sector and higher value-added products. The promotion of green and clean-energy activities and organic agriculture are important priorities in a sustainable development strategy. Funds from investment migration programmes could be geared to these socially and environmentally desirable destinations.
Service providers, however, report that most of their clients considering the investment migration route prefer passive investments. How can governments strike the right balance?
That’s true, although it depends on the demographic profile of people who are moving across national borders. There is a study of foreign investment and investment migration to Canada which found out that a proportion of foreign immigrants aged over 60 years-old prefer passive investments. They feel they have more or less completed their active working life and want a more relaxed lifestyle in their new country of destination. However, there is also a proportion of immigrants who enjoy a direct entrepreneurial role and want to in create new productive ventures in Canada and other nations.
We have to keep in mind that most investment migration programmes were put in place after the global financial crisis in 2008, and governments were not making very stringent requirements because they wanted to attract foreign investors. But with these programmes coming to maturity new priorities are needed. Unfortunately, we are being hit by a new crisis, that of Covid-19, and probably investment migration will be needed to support recoveries and long-term growth.
How do you envision the investment migration industry will develop in the coming years?
The industry has to learn from the experience of past years and be aware of the new realities and challenges emerging with Covid-19 as we are entering into a new global age that will be probably more uncertain, fragmentary and risky. In the past ten years after the global financial crisis of 2008-09, globalisation has been strained by several factors: sluggish recoveries, rising inequality, job fragility, protectionism and new waves of debt creation. At the same time, we have seen a political and cultural backlash against globalisation accompanied by populism, nationalism and xenophobia.
Global problems require global responses and more international cooperation rather than inter-country competition in critical areas such as vaccine development and new technologies. The investment migration programmes should be an integral part of a globalised world that keeps the principle of free international mobility of people. Still this industry would benefit from aligning investment migration more with the concept of sustainable development and gearing investments towards high quality jobs, more social equity, green production and ecosystem protection.
Author: Andrés Solimano, Founder and Chairman of the International Center for Globalization and Development
