The past year or two have seen the concept of investment migration catapulting into the mainstream. The significant global volatility driven by COVID-19 has led to a surge in affluent investors focused on building diversified investment migration portfolios through residence- and citizenship-by-investment (RCBI) to overcome the limitations and risks of being restricted to a single jurisdiction or residence.
Investment Migration Programmes Generate Sovereign Equity
RCBI programmes — also known as investment migration programmes — encourage high-net-worth (HNW) families to relocate and contribute to the economy of hosting states through both entrepreneurial and consumer activity. Successful applicants arrive in their adopted countries with less tangible resources such as unique skillsets, valuable commercial knowledge, and rich global networks. We refer to this dynamic as ‘sovereign equity’. Sophisticated global HNW investors literally ‘buy in’ to the sovereign state, diversifying their global investment and real estate portfolios through investment migration. Additionally, they gain long-term yields such as enhanced mobility, and they are able to mitigate risk while simultaneously creating opportunity in terms of where they and their families can live, work, and invest.
Unlike traditional sovereign securities, however, sovereign-equity-generating RCBI programmes do not increase the debt and deficit of sovereign states. Instead, they create significant sovereign and societal value by delivering a source of sustainable liquidity that provides monetary and fiscal autonomy as it is an equity injection, that does not increase leverage, and it can be used to drive economic growth and core infrastructure, enhancing the lives of all citizens. Not only a source of income, RCBI programmes are also proven drivers of foreign direct investment (FDI).
Investment Migration Programme Proceeds Boost Host Economies
Contrary to what many believe, RCBI programmes are not the exclusive domain of nations that are struggling economically or starved for foreign capital. Nineteen of the Group of 20 (G20) nations, including the UK and the US, offer a mechanism to attract inward investment in exchange for residence rights. The 20th G20 member comprises the 27 EU member states, of which 60 per cent offer investment migration programmes. Each of these highly developed nations designs and implements RCBI programmes for the same reasons small and developing nations do — to stimulate their domestic economies by attracting foreign capital, skills, and knowledge.
The offering and acquisition of residence or citizenship in return for investment is mutually beneficial for the countries that host programmes and the affluent families that invest in them. The number of HNW and UHNW investors seeking global mobility through alternative residence or citizenship is soaring, and in exchange, countries administering RCBI programmes receive significant financial investment in their domestic economies.
Most programmes involve an upfront investment in the public or the private sector, application fees, and an amount to cover due diligence costs. Inflows of funds from RCBI programmes can be considerable and the macro-economic implications may be extensive. FDI increases the value of the receiving state, bringing in capital to the public sector in the form of donations to the government, tax payments, or treasury bond investments, and to the private sector as investments in businesses, start-ups, or real estate.
Investment Migration Programme Inflows Have Far-Reaching Benefits
The economic benefits of the injection of funds are cumulative. Receiving states may experience growth in the real estate sector, construction industry, and local businesses. There may be increased liquidity in the commercial banking system, a rise in employment, and the creation of new revenue streams through duties and taxes on imported goods. Although the global tourism industry is currently beleaguered, the World Travel and Tourism Council has called for an end to travel bans which brings hope that, in time, as in the past, RCBI countries will experience increased hotel-room supply as a knock-on effect of construction growth (which in turn saw greater air traffic, a rise in tourism, and concomitant tax and spending benefits).
Countries may use RCBI inflows to finance infrastructure development. Those that save their inflows may improve their fiscal performance, minimise their dependence on international aid, and reduce national debt. Malta and several Caribbean small-island nations provide excellent examples of the proven socio-economic benefits of hosting RCBI programmes.
A Stabilising Force For St. Lucia
The Caribbean’s newest programme — the St. Lucia Citizenship-by-Investment Programme — was launched in December 2015. The programme is performing extremely well, raising some XCD 62 million (US$23 million) in the 2018–2019 reporting year, more than doubling the previous year’s revenues of XCD28 million (US$10.4 million). Following these results, the IMF acknowledged that prudent fiscal policies in recent years, supported by revenues from the CBI programme, had helped to stabilise public debt as a share of GDP. At the launch of the St. Lucia Citizenship-by-Investment Programme’s new brand visual identity and website, the Prime Minister of St. Lucia, the Hon. Allen Chastanet, said, “Everything that the country was focused on pre-Covid has become even more relevant now: investment in education, building an e-government platform, simplification of the tax regime, investment in infrastructure, modernisation of the security force and of the judicial system, and broadening the tourism offering. The citizenship-by-investment program can be a key source of funding in helping us to facilitate these developments”.
The Soft Benefits Of Investment Migration Are Equally Valuable
Investor migrants bring intangible benefits also, such as sought-after talent and global connections. They add diversity and uplift host nations by their demand for improved and novel services which creates new employment and entrepreneurial opportunities. As the number of successful applicants increases, host countries gain prominence in the international arena. This leads to other benefits, including increased publicity and media attention and a boost in tourism which, in turn, may encourage more potential applicants.
Sovereign Equity Gives Host Nations A Competitive Edge In The COVID-19 Era
Sovereign equity has the potential to fundamentally shift how sovereign states approach sovereign funding, attracting investment from abroad, and public finance. Sovereign equity also addresses persistent global inequality. FDI has been shown to be essential for developing, transitional, and recovering economies, but it can also be critical for regional development in large, advanced economies. Made possible through investment migration, sovereign equity will support ongoing economic growth and prosperity.
The benefits of sovereign equity enable countries to turn away from debt and dependency towards fiscal autonomy, stability, and independence. Investment migration is one of the most important opportunities for growth and economic development for countries able to offer it, creating considerable value and persuading productive members of the community to stay and contribute rather than emigrate.
All of this was true before the horror of COVID-19 became apparent. The pandemic has changed our way of life and it is fundamentally damaging the global economy: sovereign equity could be a partial solution to the economic challenges that will face government decision-makers in the months and years to come. Many sovereign states that run investment migration programmes need additional capital as tourism, leisure, and hospitality are substantial portions of their economies — sectors that are in dire straits. According to the International Labour Organization, in total there were unprecedented global employment losses in 2020 of 114 million jobs relative to 2019. Corporate and income-tax-derived income is down. Infrastructure is under pressure. All sovereign states need capital, ideally from a debt-free source of liquidity. Even with cheap debt, there is insufficient liquidity. Countries are constantly competing for vital FDI and talent to diversify their economies and introduce new opportunities to their societies. What sovereign states require is a competitive edge — this is what sovereign equity can provide.
Supply And Demand Is Likely To Continue To Increase For The Foreseeable Future
Alternative residence or citizenship is a unique investment that permits affluent investors to be as globally diversified in their domicile options as their wealth portfolios. Furthermore, the liquidity pool will continue to grow. Even before COVID-19, a rising number of millionaires with global wealth portfolios could not travel efficiently because of their birth citizenship. This market creates a rising demand for sovereign equity products. To meet this surge in demand, an increase in sovereign equity offerings in the coming months and years is highly likely. These may be positioned as specially branded offerings from existing sovereign equity providers. However, the more dramatic moves could come from sovereign states that choose to enter the market, whether by offering residence rights or citizenship rights, to rebalance their socio-economic mixes in the wake of COVID-19.
In short, investment migration is a long-term positive solution, injecting liquidity into an economy, generating sustainable income streams that can support public financial needs, and attracting much-needed FDI, creating significant sovereign and societal value.
Dr. Juerg Steffen
Dr. Juerg Steffen is the CEO of Henley & Partners. Dr. Steffen has over 30 years’ experience in the financial services industry and is widely regarded as a leader of the investment migration industry. He has played a pivotal role in growing the firm and, indeed, the investment migration industry at large, improving Henley & Partners’ operational standing and developing key structures and processes that enable the firm to keep the industry-leading position it enjoys today.