When the first modern citizenship-by-investment programs were developed in the late 1980s and early 1990s, the investment migration industry was largely unformed, unknown, and unregulated. Today, by contrast, citizenship-by-investment is part of every savvy wealth manager’s vocabulary. The number of citizenship programs is also increasing steadily, as governments seek to tap into their potential to boost capital and talent inflows. The global citizenship market is now an established and fast-growing feature of the economic landscape, with prominent players such as the EU endorsing and participating in the industry. But what exactly does the ‘global citizenship market’ entail, and how are its much-touted benefits distributed? Why, and to whom, does this market matter? This article takes a first step in answering these questions.
A brief history of citizenship-by-investment
In its most basic form, citizenship-by-investment denotes the process whereby qualified, vetted candidates are granted full citizenship in exchange for their substantial economic contribution to the passport-issuing state.
The history of the citizenship industry can be divided into three distinct waves. The first wave, which marked the industry’s haphazard inception, stretched from the mid-1980s to the mid-1990s. In 1984, St. Kitts and Nevis launched the first citizenship-by-investment program in the world. Four years later, the Republic of Ireland created a controversial naturalization program, which was terminated the following decade. Dominica launched its Economic Citizenship Program in 1993, becoming the second Caribbean nation to enter the investment migration space.
The second wave, spanning the late 1990s to the mid-2000s, can best be described as a “cooling period.” In 2001, Grenada closed its citizenship-by-investment program amid heightened security concerns following 9/11. No new citizenship programs were launched worldwide during this period. Activity in the competing residence-by-investment space experienced a comparable slow-down, too.
The boom period of the past ten years or so has seen the industry regenerating itself and gaining widespread credibility and acceptance. The European island of Cyprus legalized citizenship-by-investment in 2011. In the two years that followed, both Antigua and Barbuda and Grenada in the Caribbean launched citizenship programs. In 2014, EU member state Malta introduced its Individual Investor Program, which is the only program of its kind recognized by the European Commission.
Benefits of the industry: A win–win
Offering citizenship in return for investment is mutually beneficial for both successful applicants and the destination countries they choose.
For high- and ultra-high-net-worth individuals, the benefits of alternative citizenship are manifold, but they generally involve a combination of increased travel freedom and improved safety and security. A second or third passport grants holders the right to travel, trade, and settle in an expanded set of countries and regions, as well as access to all the benefits enjoyed by other citizens of the state in question (education, health care, voting rights, and so on). It also eliminates a great deal of the inconvenience and waiting time surrounding visa applications and passport renewal or replacement processes. Finally, and perhaps most importantly, an additional passport can quite literally save a person’s life in times of political unrest, civil war, and terrorism, or in other delicate political situations.
For states that administer citizenship-by-investment programs, the primary benefit is significant financial investment in their domestic economies. The cost and design of each program vary according to the issuing country’s requirements, but most programs involve an up-front investment in the public or the private sector, combined with application fees and a fixed amount to cover due diligence costs.
The inflows of funds from citizenship programs are considerable, and the macroeconomic implications for most sectors can be extensive. Foreign direct investment increases the value of the receiving state, bringing in capital to both the public sector — in the form of donations to the government, tax payments, or treasury bond investments — and the private sector — in the form of investments in businesses, start-ups, or real estate.
The economic benefits are also cumulative. Receiving states tend to experience a combination of the following trends:
- Rapid growth in the real estate sector, accompanied by growth in the construction industry and among local businesses
- Increased liquidity in the commercial banking system
- Employment growth
- Increased hotel-room supply, leading to greater air traffic to the country, an increase in tourism inflows, and various associated tax and spending benefits.
Countries are able to use citizenship-by-investment inflows to finance infrastructure development, and those that save their inflows may be able to improve their fiscal performance, minimize their dependence on international aid, and reduce national debt.
Apart from these economic gains, successful applicants also bring intangible benefits to receiving countries, such as scarce skills and rich global networks. They add diversity and they uplift host nations through their demands for improved and novel services, which create new employment and entrepreneurial opportunities.
As the number of successful applicants increases each year, host countries often grow in prominence in the international arena, on account of their increased competitiveness. This results in other benefits to the country, including increased publicity and media attention and a boost in tourism, which in turn may encourage more potential applicants.
Case study: St. Kitts and Nevis
Since 2007, when Henley & Partners teamed up with the government of St. Kitts and Nevis to revamp and relaunch the country’s Citizenship-by-Investment Program, financial inflows from the program have grown substantially. Three years post-launch, the program accounted for around 5 percent of the country’s GDP. A year later, this figure had doubled, and after the sixth year this figure had doubled again to 20 percent. By 2014, just seven years since the program’s relaunch, the St. Kitts and Nevis Citizenship-by-Investment Program was responsible for approximately 25 percent of the nation’s GDP.
The St. Kitts and Nevis Sugar Industry Diversification Foundation (SIDF) was established in September 2006 to help the government transition from a dependence on the sugar industry to a more diversified and resilient economy, through research into and funding of alternative industries. To generate income for this important initiative, the government appointed the SIDF as an approved beneficiary of the country’s Citizenship-by-Investment Program.
Contributions to the SIDF of US$250,000 or more qualify foreign nationals who have passed stringent due diligence checks for St. Kitts and Nevis citizenship. To date, through citizenship-by-investment contributions, the SIDF has invested over US$50 million into St. Kitts and Nevis’s economic, social, and agricultural development by way of grants, loans, and share-holdings.
Capisterre Farm is one example of a project that is funded by the SIDF. The 113-acre farm is located in the former sugar belt and was established in 2010 to create employment for displaced sugar workers and help achieve the goal of food security.
The SIDF has also partnered with several local banks to help citizens secure residential loans of up to XCD 500,000 (US$185,000) at a fixed interest rate of 5 percent. By Feb. 2015, 187 residential loans had been disbursed. The SIDF also subsidizes electricity charges for residential consumers to provide financial relief.
The oldest citizenship program in existence, the St. Kitts and Nevis Citizenship-by-Investment Program is an example of the growth and development potential of the investment migration model for small-scale economies that would otherwise struggle to scale or compete.
Sustainability of the industry
The global citizenship market has entered a period of unprecedented evolution and growth, with thousands of people applying for citizenship and residence each year. By the end of 2017, there were over 30 active and successful programs in existence. An emerging trend is localized programs that attract applicants from countries within the same region: Kazakhstan, for example, is planning to introduce a residence program that will appeal to citizens of other countries in Central Asia, and similar developments may soon take place in the citizenship space. There are still many countries in the world where it makes sense to start new programs, and the industry looks set to continue to thrive as global demand for alternative citizenship solutions increases.
As the industry grows in visibility and breadth, so too does the cloud of public dissent and opposition regarding the perceived ‘marketization’ of citizenship, as well as concern from multilateral organizations about tax and money-transfer practices. Accordingly, a strong culture of self-regulation and due diligence is essential to the industry’s continued success and sustainability.
In 2015, the leading firms in the industry formed the Investment Migration Council (IMC), a professional association that establishes and maintains professional standards and codes of conduct. The IMC is tasked with, among things, improving public understanding of the complex processes and systems involved in citizenship and residence programs, and of the issues faced by clients and governments in this area.
Dr. James Canton, CEO and chairman of the Institute for Global Futures, has earned the titles “Digital Guru” and “Dr. Future” from CNN and Yahoo, respectively, for his insights into the major trends that are shaping the 21st century. Canton stresses that to achieve the state he calls “future-readiness,” countries need to build “predictive awareness” — but he is equally convinced that trend-watching, analysis, and hedging against loss and adversity are not in and of themselves enough. Rather, leaders need to be proactive in building systems that will ensure their continued viability in what is poised to be an “extreme future.”
In the citizenship industry, the call for future-readiness is already inspiring innovation. Certain countries are challenging traditional program parameters by considering payment via non-traditional currencies, including cryptocurrencies. The Pacific state of Vanuatu took a tentative first step in this direction in October 2017, and St. Lucia in the Caribbean appears to be following suit, with the latter now accepting foreign currencies such as euro and yen and contemplating adding bitcoin to the equation.
The challenge for the industry, then, is to build longevity and future-readiness while carving out its place in the global community as a beacon of innovation, collaboration, professionalism, and responsible investing. The vast majority of participating countries and intermediaries seem poised to meet this challenge. The global investment market matters and, by all accounts, it is here to stay.