Investment Migration: A Future-Proofing Mechanism for Smaller States
In an epoch as unpredictable and changeable as our own, it is no wonder that governments are looking for common-sense ways in which to future-proof their countries, and residence- and citizenship-by-investment (RCBI) programs represent a sensible means of doing just that. When the future is murky with uncertain prospects and outcomes, the implementation of economic, environmental, social, and technological strategies that can ensure the long-term sustainability of a country and its people is becoming more attractive than ever.
This year has also seen the RCBI industry facing increased scrutiny from external regulatory bodies, however, raising important questions about due diligence practices and the concept of citizenship in general.
Dubai, recently named a “model smart city”, with a spirit of innovation and entrepreneurship that is helping the UAE realize its Vision 2021, is the ideal backdrop for these discussions in no small part because so many UAE-based expatriates, who constitute approximately 80% of the UAE population, are flocking to RCBI programs. Indeed, the UAE contains an ideal client base for countries offering second citizenship and residence prospects. The most sought-after programs are those that provide business and travel access to Europe’s Schengen Area, the US, Canada, China, and other international destinations that are valued by the Middle Eastern and other expats living in the UAE.
Emirati citizens themselves are not eligible for dual citizenship, but they also happen to possess the fastest improving passport in the world. The UAE passport has made a stunning ascent on the Henley Passport Index, from 62nd place in 2006 to 21st place worldwide in Q4 2018, and the UAE now holds the number 1 passport in the Middle East region. The performance of the Emirati passport is a testament to the UAE’s (as well as Dubai’s) status as a growing international hub of business, trade, tourism, and culture.
Foreign direct investment: The lifeblood of economic growth
The significance of foreign direct investment (FDI) as a source of economic stimulus has increased rapidly over the past decade. FDI has traditionally taken place between advanced global economies. However, since the early 2000s, the importance of emerging market economies as a destination for FDI has gradually been on the rise. It is now widely acknowledged that FDI is the lifeblood of economic growth for many developing and recovering smaller economies around the world — and it is within this context that the simultaneous boom in the investment migration industry ought to be seen.
The number of RCBI programs has been increasing steadily in recent decades, from just a handful of programs in the 1980s and 1990s to over 60 active programs today, with Moldova and Montenegro — both small but fast-growing European countries — being the latest to launch strong citizenship offerings earlier this year.
As an established form of FDI, investment migration revenues bring a tapestry of benefits to nations with programs in place — benefits that can be mobilized and deployed to stimulate profound yet sustainable domestic growth. Countries that have a clear strategy for how to attract FDI and utilize its potential are in a better place to deal with economic, social, or environmental issues that may arise now or in a few years to come. For this reason, RCBI is an optimal form of future-proofing, if managed effectively.
Investing in a sustainable future
Malta is a good case in point. The Malta Individual Investor Program (MIIP) has emerged as a model citizenship-by-investment (CBI) program in the years since its launch in 2014, with the Malta Residence Visa Program also gaining traction among high-net-worth-individuals (HNWIs) seeking EU residence. The revenues from the MIIP in particular have helped the country reverse a decades-long fiscal deficit trend, resulting in a surplus of 3.9% of GDP in 2017 — the highest percentage of any EU member.
However, it is not only Malta that understands the benefits of investing in a sustainable future and of laying the groundwork for positive, long-term momentum. In Greece, the Permanent Residence Permit program has raised over EUR 1.5 billion and has helped halt a nine-year decline in real estate prices. Even more dramatically, figures coming out of Cyprus indicate that, in 2016, the FDI received through the country’s CBI program was the difference between recovery from the 2013 sovereign debt crisis and what would otherwise have been an economic contraction that year.
In the Caribbean, inflows from St. Kitts and Nevis’s pioneer CBI program experienced a surge in 2010, which led to program revenues growing from less than 1% of GDP in 2008 to 25% by 2014. According to the International Monetary Fund, the robust inflows that resulted from the program “have supported economic recovery, improved key macro-economic balances and boosted bank liquidity”.
However, the key elements of future-proofing facilitated by RCBI are not simply limited to its direct economic ramifications. The arrival of HNWIs in a host country also brings new innovations, talent, and entrepreneurs who can foster efficiency through increased competition.
A bright and burgeoning industry
Ultimately, when properly executed, investment migration is a highly desirable, profitable, and socially beneficial form of investment. However, just as the industry can assist countries and individuals with preparing for future uncertainty, it must also ensure that it future-proofs itself. While the main players in the industry are consistently applying strenuous effort to ensure that thorough background checks and due diligence processes are always applied, these efforts need to be constantly reinforced and replenished. If the industry can do this, its future prospects look bright, as do the prospects for global citizens and host nations alike.