Matching Global Supply with Growing Demand
Dr. Juerg Steffen, CEO of Henley & Partners
Over the past three decades, investment migration has grown slowly but steadily, as a new generation of wealthy individuals and investors have gradually awakened to the idea that residence or citizenship in an alternative nation is an asset of great value to themselves and their families. One by one, nations around the world have opened their doors to the capital and talent these individuals can bring to their shores.
This past year marked an important inflection point for the investment migration industry. Demand for residence and citizenship in an alternative jurisdiction is rapidly accelerating, just as the supply of residence- and citizenship-by-investment programs proliferates globally.
Increasingly, nations and wealthy individuals see investment migration as more than a competitive advantage. Today, it is viewed as an absolute requirement in a volatile world where competition for capital is fierce.
Instability and a growing lack of faith in government institutions, slow economic and wage growth, and the creeping impacts of climate change are driving political and social upheaval from Asia and Africa to Europe and Latin America.
This global turbulence, along with persistent vast differences in wealth between advanced and emerging economies, is pushing international migration to new levels. By mid-2019, the number of international migrants had topped 272 million, a new high. Motivated by economic necessity, personal safety concerns, or simply a desire for new opportunities for their families, people are increasingly looking to put their labor, talents, and wealth to work in other nations.
Despite the recent backlash to immigration and globalization from a few nations, each year more states implement programs to welcome migrants and the value they can bring. Approximately 100 countries today have implemented investment migration programs, including more than 70% of the EU member states, with the majority of them put in place after the year 2000. These programs, comprising both residence- and citizenship-by-investment, are neither niche nor new but have benefited from a surge in interest over the past few years.
The investment migration industry has clearly entered a new phase of growth and maturity, as demand has steadily increased and the supply of national programs has matched its pace. Governments around the world are waking to the fact that residence- and citizenship-by-investment programs are an effective way to stimulate economic growth without resorting to increasing government debt or more monetary easing by already-strained central banks.
Migration trends suggest they will have no shortage of customers. Some 108,000 high-net-worth individuals (HNWIs) migrated in 2018, up from 95,000 in the previous year. Residence- and citizenship-by-investment programs accounted for almost a third of these migrations. In short, the world’s wealthy are flocking to them.
Policymakers looking for new sources of foreign capital would be remiss to ignore the effectiveness of investment migration programs. Similarly, wealthy individuals — or their advisors — who want to weatherproof their portfolios against volatile economic and political climates must consider residence- or citizenship-by-investment opportunities if they want a truly secure future for themselves and their families.
Global mobility, and the opportunities that come with it, increased for most people in the sixty years following the Second World War, as free trade expanded and barriers to the cross-border movement of goods, people, and capital fell away. Sadly, in recent years a number of nations have backtracked, enacting protectionist policies that have brought new trade tensions and a sharp decline in international commerce.
Investment migration is an antidote to this disturbing trend. It can, in effect, create a ‘market’ for wealth and talent, allowing individuals who possess them to move more freely to the places where they will be valued and treated accordingly. Many countries have begun to compete for these individuals by offering the best of their natural assets via residence- and citizenship-by-investment programs.
The contribution of investment migration programs to a nation’s economic and fiscal health is profound. It is estimated that investment migration has delivered approximately EUR 25 billion in foreign direct investment (FDI) to EU countries since 2010. It is also widely acknowledged that these programs provided critical assistance in the aftermath of the global financial crisis and the European sovereign debt crisis.
The impact of these programs has been even greater in many small and lower-income nations. While large economies like the US use investment migration programs to attract capital to distressed regions, their macroeconomic impact is modest. However, investment migration programs and the FDI they attract can have a vast impact on smaller economies.
Consider Malta, the EU’s smallest member state. The island nation lacks natural resources yet has much else to offer, including its attractive location in the Mediterranean Sea and access to the Eurozone. Until recently, Malta ran budget deficits every year for decades, a dangerous situation for a small economy that does not control its own currency. Seeking alternatives to debt, in 2014, Malta embraced the concept of sovereign equity through a citizenship-by-investment program. As a result, the government is expected to run its fourth consecutive budget surplus in 2019. The country’s economy grew by 6.6% in 2018, the second highest growth rate in the EU. Malta’s 3.5% unemployment rate is among Europe’s lowest. Last year, the country earned a top ranking from the World Economic Forum for macroeconomic stability.
Also take, for example, the twin-island nation of Antigua and Barbuda. The Caribbean economy is highly dependent on tourism, with large investment needs in hotels and related infrastructure, yet it is also susceptible to hurricanes. Hurricane Irma devastated the small nation in 2017, with rebuilding costs estimated at USD 150 million. Antigua’s citizenship-by-investment program, instituted in 2013, provided a lifeline in the wake of the storm, funding construction that mitigated fallout from reduced travel demand. In 2018, Antigua and Barbuda posted GDP growth of 7.4%, the highest among Caribbean nations.
These success stories have not been lost on other nations hoping to attract outside investment. Montenegro, for example, launched a citizenship-by-investment program in 2019 with expectations that it would attract much-needed FDI, increase economic activity, and create jobs. Montenegro ranks in the top 50 nations on the Henley Passport Index due to its association with the EU, its strong safety record, and its commitment to the rule of law, all of which should make it a strong draw for investors looking for residence or citizenship in a new nation.
The successful emergence of the investment migration industry has not gone unnoticed by national and supranational organizations, either. Once skeptical of — or even hostile to — the industry, these institutions are slowly but surely evolving to the view that it is a permanent and possibly even beneficial addition to the infrastructure of global mobility, and they are now working out how best to monitor and regulate it. Such organizations are finally realizing what investors and governments already know: investment migration is a highly sensible and necessary response to the challenges of the 21st century, for individuals and governments alike.
Sources:
AfrAsia Bank. 2019. Global Wealth Migration Review.
Ghohoui, William, Raphael Lam, and Victor Lledo. 2019. ‘A Map of Inequality in Countries.’ IMFBlog. International Monetary Fund.
Hudson, David. 2019. ‘Malta to get fourth consecutive budget surplus in 2019, Scicluna says’. Malta Today. September 13.
Investment Migration Insider. 2018. ‘A History of Citizenship by Investment.’ 2018. August 20.
‘Malta tops competitiveness index for macroeconomic stability.’ 2018. Times of Malta. October 17.
International Monetary Fund. 2019. Regional Economic Outlook: Western Hemisphere.
Porter, Eduardo and Karl Russel. 2017. ‘It’s an Unequal World. It Doesn’t Have to Be.’ The New York Times. December 14.
United Nations International Organization for Migration. 2019. Migration Data Portal.
The World Bank. 2019. GDP Growth — European Union.
Zuvela, Maja. 2019. ‘Montenegro launches scheme offering citizenship for investment’. Reuters. January 3.
