As I watched the BBC reports on the “Economic Immigrants” (Econogrants) deluging the EU this summer and early fall, I wondered about the strain this would impose on basic services – not too mention the average EU taxpayer. Not even Angela Merkel can turn these folks, who don’t speak the language or understand the system, into BMW or Mercedes engineers anytime soon. The situation is somewhat reminiscent of the illegal immigration that has been occurring in the United States. The good news for the U.S. is that the econogrants basically all speak the same language, Spanish, and have a general idea of democracy and the system of laws and civic morals. The bad news is that they will continue to strain social services, medicine and education, while exporting billions of dollars to their home country derived from the gray economy. These two different, but eerily similar, sets of circumstances seem to epitomize the need for job creators. Yet the investor visa programs in place in Western countries with few exceptions, are time consuming (years), expensive, and a veritable maze of regulations (think the U.S. tax code) and pitfalls. The programs on the books give little latitude to the investor to start a business in a field he or she wants and create the jobs that are needed so badly.
Consider the EB-5 visa program for the United States, which ostensibly rewards millionaire immigrant investors with a visa and a path to citizenship for creating jobs in a “jobless” economy. Bill Wright, a spokesman for U.S. Citizenship and Immigration Services said, “Our goal, with the Visa Program, is certainly job creation, and that’s what this program is all about. Were the EB-5 program to meet its 10,000-visa quota, it would contribute more than $4.4 billion to GDP and create or preserve nearly 75,000 jobs annually, according to a report prepared for the government by consulting firm ICF International”.
Let’s look at who these millionaire immigrants are and their priorities.
They hail from the Asian “Tigers” or “Dragons”: China, Vietnam India and the rest of the subcontinent. They oftentimes are the entrepreneurs who make our clothes, our shoes, our widgets and gadgets, computers and smart things. In the doing of all this manufacturing they have become millionaires. The sweet spot for Investor Visas is 3 to 10 million. Any less than 3 million, there is not enough liquidity for them to launch a venture in the “new world.” More than 10 million and in all likelihood they have already assembled a team of professionals outside the country to guard their hard-earned fortune and take care of that pesky immigration situation.Newly minted “Middle Millionaires” are similar to middle children, no two are alike and they are all difficult. To understand them you must understand where they are coming from. The average Asian country has a passport that will allow visa-free travel to less than 50 countries – none of which is a particularly attractive location (think Libya, Sudan, North Korea, Iran, Iraq, Yemen, Somalia, Zimbabwe and all of the Stans). They yearn to be more free, but first things first – they want to protect their hard-earned fortune. A Google search in the case of EB-5 visas/Regional Centers reveals all of the ugly secrets about poor project performance and dismal returns, if any, including loss of capital. An excerpt from a question-and-answer email after a conference with a Vietnamese consulting firm for middle millionaires reveals all below in its original form with my answers:
We call investors from Vietnam to capitalize a regional center (investment trusts). As we know the effectiveness of projects is often evaluated by economic experts. But those experts were hired by the project owner. So how accurate is of this information?
You have made a very good observation! The owners of the regional centers hire ‘connected’ economists who show their projects in the best position. The most important factor for the government to approve is that the project creates the required number of actual and imputed jobs. The government does not scrutinize the viability of the project and takes the economist’s word on that issue – not good. Since the real estate market and the general business climate in the US are very slow, it is hard for project owners to get financing. So many are relying upon the EB-5 program for financing that the local market, here in the US, is not willing to provide . . .
How is a good project deployed and managed? (private company or government organization)
All projects are part of the private economy. They are essentially managed by the regional center that sponsored the project. Like anything else, there are good projects and good managers, bad projects and bad managers.
The source of investment funds
Who is authorized to approve it and how? The process of installments?
The government Department of Homeland Security must approve the source of funds, which, as you know, is a tricky procedure given the currency restrictions in Asia. They want to make sure that the money has been earned from a legitimate business and not from drugs or prohibited activities.
As you can see, “job creators” are asking the right questions and they are concerned about the safety of their funds vis-à-vis an investment in what Google threads term dubious schemes at best. The current U.S. strategy has an almost-too-rigorous vetting-of-funds policy, given that almost all of these regimes have serious currency restrictions to prevent “capital flight” – it just does not work. To get their funds out, business owners rely on re-invoicing, smuggling (gold), and structured agreements where multiple family members send out transfers to amalgamate, in installments, the required funds for the deal. That only makes the vetting process more difficult by a power of 10. In the end, the middle millionaires want to create their own businesses and be in control. I say, “Why not?”
Let’s now consider the path to citizenship, or, more correctly stated, the route to a “better passport.” The paperwork is rigorous but they are accustomed to that, living in highly regulated countries. The fees charged by the regional centers and the immigration attorneys border on prohibitive and are becoming a major sticking point. These small family-owned businesses know the value of hard-earned money and do not part with it easily. I can state unequivocally that many of the “would be” job creators have said they are going to use a new route: Tourist visas to the states and anchor babies on tourist visas. In both cases they intend to overstay the visa and hope for the best, particularly now that there is a perception that there are no consequences. A new direction is the F and J class visas to send their children to be educated and begin the investment process while “junior” is getting a master’s degree at Wharton. A smaller number are using the two-step process with a stop in Latin America first and a decent passport (120 countries visa-free, including the EU) and a business visa to the U.S. They will invest in the U.S. with friends, family and distant relatives in their own projects that make sense to them. After all, it is their money.
So where have governments gone wrong with their investor visa programs? It is clear that millions of millionaires in the Far East and the subcontinent region wish to emigrate to the West, bring their money and create jobs. It is also very clear that the West needs millions of jobs, as neither the U.S. nor the EU has done well in this post-recessionary period with job creation. It should go without saying that “governments can’t create jobs or communism would have worked.” It didn’t. In the case of the EB-5, the process is onerous, lengthy, costs/fees are exorbitant and the ultimate job creator simply becomes an investor with no control of the outcome whatsoever. The regional center concept smacks of local cronyism and is riddled with poor performing projects that looked good on paper but the jobs never materialized for the most part.
So what lessons can we learn? In the Western Hemisphere, let’s take a look at Panama, which has attracted tens of thousands of millionaire investors over the last decade. Some of the investors took advantage of the Investor Visa program; others just saw a booming economy and jumped in. Why? The Panamanians have done a wonderful job in actively selling their program and benefits. They streamlined the process, including a very accommodating public sector “help office” that walks the investors through the process and solves problems. Imagine that! They have a “can do” attitude. Most South and Central American countries have lower entry points ($250,000) for investor visas and a tiered program of investment, which decreases the amount of time from investment to passport for larger entry investments. The different tiers, for the most part, let investors choose what type of business they want to start, something to be emulated.
Here’s a little anecdote illustrating how good Panama’s attitude is toward business. In my chosen home country of Costa Rica, we have a Caribbean port that received 60 cruise ships a year with approximately 4,000 passengers each. The passengers enjoyed the day on the east coast, spending about $100,000 per cruise ship in the local economy, about $6 million a year. The port authority could not resist the temptation of easy money and began charging the ships one dollar per passenger on top of the dockage fees. Panama, which was fighting for the business, offered the cruise lines a dollar per passenger if they would dock in Panama instead (an $8,000 swing). Long sad story short, Costa Rica now receives 12 ships annually on the east coast.
That’s also the way Panama approaches citizenship by investment. The West will take in record numbers of econogrants in the next 18 months and there are no jobs for them. They are allowed in without any documentation, while the job creators are vetted to the nth degree! In the Far East there are millions of millionaires with job creation skills who are looking for a safe place to invest their funds and a second passport. There it is, folks, staring us in the face, a “match made in heaven,” and our governments can’t get out of their own way and put this deal together. What they, the job creators, want is simple: a chance to invest their funds in something that they are in charge of and familiar with; to be treated with respect, to be welcomed and helped through the process. Is that too much to ask? Apparently so!
There are $3 trillion to $5 trillion of investment capital waiting patiently to relocate. If each millionaire creates 10 jobs, the employment implications are enormous. Sometimes it really is that simple.