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September 8, 2020

If well executed, a Citizenship by Investment Programme (CIP) can, and does, bring countries much-needed investment to help boost economic growth, create jobs and fund development. And with the negative effects of the pandemic taking hold, such programmes could become even more of an economic lifeline.

Launching and running a Citizenship by Investment (CBI) programme can bring all sorts of headaches, as has been witnessed in recent years. From controversies about due diligence checks and concerns over security risks, to accusations of harbouring known criminals and questions marks over the selling off of one’s national identity, Citizenship by Investment is a complicated and sometimes controversial practice that isn’t without its critics and cynics.

In 2018, Moldova froze its then newly-launched CIP following concerns over security risks (it remains currently frozen), while more recently Cyprus was engaged in battling media accusations (the Cyprus Papers) that the country has inadvertently given its so-called Golden Passports to criminals, leading to the suspension of the programme.

So, why on earth, you ask, would any sane, serious or stable country sign up to the selling off of second passports and welcome strangers to its shores?

CBI Programmes offer rich revenues
Well, it’s simple really. Money. When delivered well, a Citizenship by Investment Programme (CIP) or Residency by Investment arrangement (aka Golden Visa) can reap serious rewards, bringing much-needed investment and revenue to help boost that country’s economy, grow its GDP, and aid in the funding of national development, be it building a new airport or refurbishing a hospital.

For smaller and poorer countries, especially, the Citizenship by Investment programmes have proven a lifeline, providing these countries with innovative ways to obtain development funds, boost economic growth and create jobs.

Recent research by the International Monetary Fund (IMF) highlighted the significant macroeconomic impact of citizenship by investment programmes on many small states. Take the Caribbean region, where five small island nations offer CIPs, the industry jumped from 0% of regional GDP in 2007 to a weighty 5.1% in 2015.

citizenship by investment Caribbean
Aerial view of tropical island beach, Dominican Republic

Saint Kitts & Nevis’ CBI Programme, the world’s most established and longest-running, contributes up to 35% of government revenue, while Saint Lucia’s CIP has contributed more than US$48 million to the country’s coffers since its launch just four years ago.

But such economic success courtesy of a CIP is not limited to the Caribbean islands. For the pacific island nation of Vanuatu, its CBI Programme (launched in 2014) is now the single largest source of revenue for the government, contributing 30% of GDP; while Portugal’s popular Golden Visa programme brought more than €4.7 billion in direct investment into country between its launch in 2012 until July 2019.

So far, so impressive. But what’s even more impressive is that the majority of these countries are using the income from their CBI programmes to directly address the issues that have arisen for them from their vulnerabilities as smaller nations. Vulnerabilities that include natural disasters, with islands such as Dominica in the Caribbean and Vanuatu in the South Pacific using the funds from its successful CIPs to rebuild in the aftermath of hurricanes and cyclones, respectively.

Similarly, the income from Antigua and Barbuda’s successful CIP is being used to fund the reconstruction of Barbuda, which was badly damaged by hurricane Irma in 2017.

Battered Vanuatu reaps revenues for recovery
While Vanuatu’s CIP was first unveiled in 2014 (making it the first in the Asia Pacific), it wasn’t until a year later, in the aftermath of Cyclone Pam – one of the worst natural disasters to hit the island with Aid agencies reporting that between 50-90% of all homes, schools, churches, businesses etc. had suffered some damage – that its CIP’s potential to generate revenue was fully realised.

Post Cyclone Pam, the government directly advertised the selling of its passports as a way to fund its recovery, and it was a big success, with revenues accrued from its CIP now the single largest source of revenue (30%) for the government.

More recently, oh-so-vulnerable Vanuatu was battered once more, firstly by Covid-19 (tourism-wise), and then by a further category five cyclone, Cyclone Harold, in April this year (2020).

And so, while the government of Vanuatu had been previously considering a review of its programme, due to controversy surrounding its screening processes, which have been criticised for not being good enough, the latest double battering and the millions made in 2020 from the CIP, may well justify the government’s decision to keep the programme in place.

According to the Vanuatu National Citizenship Commission (VNCC), the country’s CBI Programme has accrued nearly US$53 million in revenue so far in 2020.

Saint Kitts & Nevis citizenship by investment

Saint Kitts & Nevis reliant on CIP funds
Having grown out of a desire to help the island nation stand on its own two feet after gaining independence from the UK in 1983, Saint Kitt’s CIP is “crucial to our growth and development” Prime Minister Timothy Harris recently told Arab News.

Considered the Platinum Standard of CBI Programmes worldwide, Saint Kitts’ CIP contributes as much as 35% of government revenue.

And like many of its CBI programme counterparts, Saint Kitts is transparent about how it uses the funds from its CIP (each applicant pays US$100,000 into the nation’s Sustainable Growth Fund), with funds fed into important socio-economic projects that directly help the people and growth of the islands.

These include the CBI-funded Poverty Alleviation Programme, which provides a monthly stipend to low-income households, and the Skills Training Empowerment Programme (STEP), which has helped some 3,000 citizens improve their job prospects.

Dominica transformed at huge pace due to CIP
The Caribbean island of Dominica, which is equally transparent about its CBI Programme, is well-known for making heavy and visible investments using funds from its CIP, one of the reasons why the CBI Index by FT’s PWM Magazine classes Dominica as the best country for Citizenship by Investment.

In fact, Dominica has transformed at a huge pace, especially since the damage caused by Hurricane Maria in 2017, thanks to the funding secured entirely by foreign investors’ contributions who were successful in obtaining second citizenship from Dominica.

These funds are being used in the construction and rehabilitation of 15 schools damaged by Hurricane Maria, in the construction of 14 new polyclinics and its state-of-the-art new Marigot hospital, and in the launch of its Education Mentorship Programme, which has led to 169 young people being placed in schools across the country to support students that require additional tutoring. Dominica’s Prime Minister, Roosevelt Skerrit, has estimated that the total expenditure from CBI funds on education overseas is at $26 million.

“We have decided to use the CBI funds in a sustainable way,” PM Skerrit told the Khaleej Times in May earlier this year, “we use it mainly for public sector investment programmes, the building of schools, hospitals, health centres, roads, bridges, the education of our human resources, our children, our youth”.

He added that “every bridge we have fixed, every home we have assisted, every school we have fixed, funds came from the government of Dominica utilising the Citizenship by Investment programme”.

But that’s not all. Over the last few years, the government has been saving US$5 million from its CIP each month in order to help fund its new international airport. And in presenting the country’s budget for the fiscal year 2020/2021, PM Harris recently announced that he would build 450 homes across the island, extending its existing commitment to build 5,000 hurricane-proof homes, all of which are entirely funded by CIP revenues.

Dominica citizenship by investment cbi funds budget

Saint Lucia spotlights socio-economic development
The newest of the Caribbean CIPs, since launching in 2016, Saint Lucia’s CBI Programme has contributed millions to the socio-economic development of the island, more than US$48 million, according to the government.

In justifying the need for such a programme, Prime Minister Allen Chastanet told parliament over the summer: “At a time of dwindling sources of granting funding and an ever-increasing demand for government services, government will leverage the demand for our passports as a means of attracting investment into St Lucia.”

Rise of the pandemic passport
And now with the effects of the pandemic having hit many countries financially, from loss of employment to loss of tourism dollars, these CBI programmes are proving even more of a lifeline for countries, providing them with funds to help them pick up the financial pieces.

From temporary price reductions or exclusion of government fees to expansion of list of dependents, the Caribbean countries upped the citizenship by investment (CBI) stakes with new adjustments during the pandemic.

Saint Kitts’ Prime Minister, Roosevelt Harris, admits that without the CBI Programme “we would have been in serious danger” due to the effects of Covid-19, which has “destabilised our economy”.

Like many of these CIP-offering island nations – Saint Lucia, Antigua, Grenada, Dominica, Vanuatu – tourism is the mainstay of their GDP and the pandemic has wiped out these revenues. For Saint Lucia, Saint Kitts, and Antigua & Barbuda, tourism is the mainstay of their economies, accounting for 65%, 62% and 60% of GDP, respectively. Similarly, tourism is the backbone of pacific island nation Vanuatu’s GDP (40%).

Ronald Warsal, chairman of the Vanuatu National Citizenship Commission (VNCC), explains that while the Vanuatu border is currently closed, due to the pandemic greatly affecting Vanuatu’s tourism sector, the country’s only quick cash revenue to help citizens through this time of crisis is its CBI programme.

“I can confirm the stimulus package of VT4 billion [US$36 million] to help businesses and employees that have been affected from the Covid-19 pandemic was sourced in the national treasure through the fund collection by this programme,” Chairman Warsal told the Vanuatu Daily Post. “While we have lockdown all over the world, it is good for our economy to be that strong in terms of revenue because we still don’t know how long the pandemic will last.”

Solomon Islands citizenship by investment vanuatu

Will more countries take the leap post-pandemic?
With all countries worldwide suffering, financially and economically, from the effects of the pandemic, the big question is, will other nations, especially small, tourism-dependent ones, see Citizenship by Investment Programmes as a solution to their economic woes? Will more countries be pulled into the CBI Programme fold post-pandemic?

Even before the pandemic, various countries currently without CIPs had been teetering on the edge of a CBI Programme launch, buoyed perhaps by the economic gains secured by other nations.

Having witnesses the continued financial rewards of its Caribbean island sisters, and more importantly, what they have managed to achieve with such revenues, Saint Vincent and Grenadines has been considering launching a CIP for some time. Citing the economic successes of Saint Kitts and Dominica, the island’s leader of the opposition, Dr Godwin Friday, continues to push parliament for such a programme, making a case for its benefit to the island’s education, infrastructure, and sporting facilities.

The same is happening in Asia Pacific. Sister island to Vanuatu, the Solomon Islands, has seen first-hand the revenues that can be secured by running a CIP. In a recent speech to Parliament, Solomon Islands’ Govenor-General David Vunagi argued the case for a CIP as a potential new revenue source, stating that “many small countries [that] have implanted this program have generated [in] excess of US$100 million”.

The government of the small Baltic country of Moldova, which launched a CIP in 2018 but subsequently froze it following concerns over security risks, acknowledges that with a CIP “the bonuses are quite good”, and is keen to unfreeze the programme in order to fund ambitious infrastructural initiatives, which were announced in the electoral presidential year of 2020.

While Mauritius, which had previously announced plans to launch a CIP in order to meet disbursements of new capital projects and public debt repayments, could be revisiting its CBI programme plans; and there are rumours that Montserrat, which has been struggling to revive its economy following a volcanic eruption in 1995, may replace its current residency programme with a CIP.

Whether these particular countries choose the CBI Programme route or not, for many countries, including those with existing CIPs, it’s becoming increasingly clear that such a programme, if executed and delivered to high standards, can reap great rewards and give nations a much-needed economic boost. And in this post-pandemic age, it might be just the recovery the doctor ordered.