How COVID-19 will transform the market in investment migration

By Kristin Surak (SOAS University of London).

This contribution is part of a blog series featuring contributions by Peter Spiro (COVID-19 and the future of dual citizenship) and Jelena Dzankic (Will the global market for investor citizenship survive COVID-19?).

We have just been shown, again, that future planning is always vulnerable to black swan events.  Who would have thought at the turn of 2020 – as wild fires raged in Australia, Japan prepared for the Olympics, and the US entered its extended election season – that an invisible virus would become the story of the year, killing hundreds of thousands within six months, and placing the global economy in a coma. For students of mobility, the juncture is a petri dish. Borders have proliferated within Europe to a degree unmatched even during the so-called refugee crisis. Two-thirds of the world’s fleet of airplanes has been grounded as passenger air traffic has fallen to rates last seen half a century ago. Global cities like Paris and Dubai have transformed walking down the street into an offence. 

The changes raise important questions for any student of international mobility.  When it comes to investment migration, the pandemic has underscored the key differences between citizenship by investment and residence by investment, so often treated together – even conflated – in the literature, as well as the distinction between citizenship and mere passports. It also raises questions about how supply and demand will transform in this unusual market. What does the pandemic mean for millionaire mobility through investment migration?

Expanding supply

As others have noted, microstates in the Caribbean will become ever more dependent on citizenship by investment (CBI) as a revenue source as tourism, their economic mainstay, flags.  Bad press about cruise ships as infection factories are a minor win, for these floating hotels and restaurants ensure that most tourist dollars remain in the US, while their rubbish and debris do not. The bigger question is whether vacationers will want to get on an airplane to fly down for a beach holiday in a country where they are unsure of the medical system.  If over 35 percent of Saint Kitts’s GDP came from citizenship before the crisis, as Atossa Abrahamian has shown, the proportion will only go up now that the island’s sole airport has closed and the resorts are shuttered. Holdouts in the region, such as Saint Vincent and Barbados, may find it more difficult to explain why an IMF loan is preferable to what appears as a low-cost method of attracting FDI. Even for economically stronger and more diversified economies, such as Malta and Cyprus, where CBI is a smaller proportion of government revenue, the allure will remain as other parts of the economy contract. Cyprus has called for accelerating  the six-month application process, while Malta plans to renew its program.

The supply side of the market will remain strong, as Spiro suggests, if not expand. The crucial question is where. The most recent entrants in the market have been more sizeable states than its mini pioneers, with Turkey and Jordan now attracting investor citizens, and Egypt in the waiting room now that it has passed a law to facilitate investor naturalisation. (Moldova’s program is under a moratorium until September 2020).  In these cases, it is not visa-free access to the EU that tempts – though you are less likely to get harassed at a border if carrying Jordanian documents rather than Syrian ones – it is the benefits within the state and commercial opportunities abroad that allure. Turkey attracts white-collar professionals from the region and beyond who seek a relatively safe and secure lifestyle with the amenities and facilities of a global city like Istanbul or a seaside haven like Izmir. Istanbul’s pull also brings in entrepreneurs seeking to expand their enterprises, for it can be easier to do business in and through Turkey – a growing market for many industries – if one is a citizen. For people like these, buying a home worth $250,000 with citizenship to boot, requires little further reflection. This raises the key question at this inflection point. For as the global economy contracts, the rest of the world stares in wonder at the West’s floundering attempts to contain the virus, particularly in comparison to its Asian counterparts. Will we see more microstates, scrambling for revenue, adopt this low-cost means for attracting FDI?  Or will we see more sizeable countries, with greater independence from Western power holders, making the shift to draw wealthy individuals into their orbit?

Shifting demand

The key issues that emerge concern the where of what naturalisation offers and how these rights are secured. Traditionally, demand for citizenship by investment has turned on what the status secures outside the granting state, principally in visa-free mobility, rights to residence (an “insurance policy”), and business opportunities (Surak 2020). Of these, Covid-19 has highlighted how fragile the mobility aspect can be. The current fence of travel bans is part of the reason. More significant are the quarantines, a far greater concern, for countries will continue to screen entrants for temperatures for much longer and require those with fevers or testing positive to self-isolate. A quick trip abroad is simply not worth the risk of losing weeks in confinement. The “one percent” – in US terms, families with incomes above $420,000 – is an extraordinarily mobile set, especially at its upper end. But those without access to private jets are now revamping their globe-trotting lives. For travel has changed enormously. People will think twice before queuing at an airport and hopping on a plane – at least among the remaining airlines. Flights will be fewer and more costly, even for those who are used to hearing, “please turn left” when boarding business or first class. We all now know how much can be accomplished on Zoom, and without jetlag or waiting. Even if holiday travel recovers, lockdowns have proven that much business travel is surprisingly expendable. The working lunches and afternoon meetings that once kept the lounges full at JFK, Heathrow, Flughafen Zürich, Dubai International, Changi Air, and elsewhere will be fewer. Going forward, the thud of the stamp at passport control will be replaced by the click of a link to a meeting app.    

This is why – contra Spiro – residence by investment (RBI) may grow at the expense of citizenship by investment. The one percent from the Global South is thinking about not where their next business meeting will be, but where they might want to position themselves for a longer stretch of time: they want a Plan B insurance policy. This typically means big, wealthy, English-speaking countries with a track record of foreign settlement: namely, Canada, Australia, the United States, and New Zealand. The long history of popular passive residence by investment programs in these regions makes them known quantities. But in recent years, Europe has emerged as a second desired area, ticking several boxes of interest as well. The Covid-19 travel restrictions have shown that wealthy countries will allow not only their citizens, but also those holding resident status to enter. As such, a residence card secured through investing in business, real estate, or bonds is enough to get one across an otherwise closed border. For those worried about being stuck, the so-called golden visa programs in places like Portugal, Spain, Greece, Ireland, and Latvia offer options for maintaining a toehold in a country where one might want to spend time when other travel opportunities are limited.

This does not signal an end to citizenship by investment. For – significantly – these programs offer more than just “golden passports.” If we look at the three proximate reasons why people select CBI options – mobility, insurance policy, and business opportunities – we see some interesting developments. As discussed above, mobility demands are likely to change, with the weight shifting from present mobility and border crossing ease to future mobility and a Plan B. The result will be an expansion of demand for RBI in wealthy countries at the expense of CBI in peripheral ones. 

But business opportunities remain. Citizens of Grenada and Turkey can apply for an E2 visa to the US that facilitates commercial expansion in the country, and Turkey, Malta, and Cyprus can serve as a staging ground for businesspeople with companies entering the EU market. These extra-territorial benefits, secured through long-term treaty and therefore relatively sticky, are less likely to change. Geopolitics too – and the walls it raises – will continue to create incentives for dissembling one’s citizenship to make a deal, as businesspeople from Arab countries working with Israeli partners know. Even if membership, in such cases, operates a flag of convenience, it is the legal connection of citizenship – and not merely the travel document – that is crucial.

Certainly, new concerns about travel restrictions mean that demand in many places will take a blow, for visa-free mobility is a significant part of CBI, but it’s also not definitive of it. COVID-19 supplies a test case for assessing the extent to which interest beyond a mere “golden passport” matters.  In watching developments, it will be important to keep in mind the impact of market segmentation on both supply and demand. The Caribbean memberships that facilitate visa-free access to Europe will see a larger dip in numbers than the Mediterranean islands that grant a much greater bundle of rights as members of the EU, or the Middle Eastern options that offer business and residence possibilities. The decline in the desirability of mere visa-free access will explain part, but not all, of the story, for cost is important too. The less expensive Caribbean offerings attract a subset of the one percent that has been particularly hard hit by the coronavirus: those with wealth in the low millions, generated through entrepreneurial activities. COVID-19 has dealt a blow to their businesses, which they will be shoring up over the next few years. Under such conditions, citizenship options and other secondary considerations fall by the wayside as expendables that can be cut during tough times. The super-wealthy one percent of the one percent – more likely to splash out €1 million for membership in an EU country – have taken less of a hit, and their interest in these programs may even rise.

One might note too that if citizenship gained through investment is more than a “golden passport” from the point of view of demand, as described above, it is also more than a travel document from point of view of supply. CBI programs rely on an extended formal application process and vetting procedure that produces a sticky legal status. If only passports were on offer, it would be relatively easy for the state to simply revoke them. But as more than 25 Cypriot investor citizens now in legal limbo know, that is not the case.  

Paying to play?

At issue is not whether investor citizens will access “services without taxation,” as opposed to residents who are “lifetime taxpayers,” as Dzankic suggests. The native born, too, are likely to move, as is very common among the small island countries that host CBI programs.  All are emigration nations, home to substantial populations of citizens abroad. Around 30,000 Grenadians live in the US alone. The figure may seem small, but it is about one-third of the island’s population – which itself includes large numbers of intra-Caribbean migrants. One in 16 Maltese citizens lives in the UK, and the rate is about the same for the Republic of Cyprus – even without including their newly naturalised compatriots in Knightsbridge. Not investor citizens, but diaspora members are far more likely to return – if only for holiday or to visit family – possibly raising a host of issues. 

These may include questions around healthcare, though its delivery is unfortunately, contra Dzankic, notone of the core functions of the state,” as the vast majority of the world knows too well. Even the wealthy OECD countries that offer forms of national health insurance rely heavily on private sector involvement to provide medical services. The recent flurry of touts proffering citizenship by investment countries as bunkers with beaches is unlikely to gain much traction. Concerns about the strength of local healthcare systems are more liable to keep investor citizens away than lure them in (Dominica has just two ventilators). But if it does come down to the question of whether those who pay into the state treasury have a better claim to healthcare, as Dzankic queries, then investor citizens will be shunted to the front of the queue in most places. According to their 2017 budgets, Antigua generated $31 million USD in revenue from an investor citizenship program that saw 333 individuals or families naturalise, but collected only $28 USD million in income tax from its 80,000 residents. Saint Kitts too gained $56 million USD from its citizenship program while it took in only an estimated $44 million USD in income tax from a population of 55,000. In Malta, a single investor citizen or her family gifts €600,000 to the government, on top of other investments – far more than the average Maltese, on an income of €20,000, will ever pay in tax. Hopefully the doctors in all of these places, as everywhere, maintain the principles of the Hippocratic Oath. What is unlikely to happen is that states will re-evaluate how they grant citizenship based on the type of connection an individual has with a country.  “Responsibility to provide” is – pace Dzankic and perhaps unfortunately – a minor concern at best, derivative of keeping the masses quelled or the voters in line.  If the state’s fundamental interest in securing power and harnessing resources is ever hidden, it is certainly not in a time of economic crisis. 

Let’s hope too that in the midst of all of this we don’t see a re-emergence of nationalist sentiment, whether as pride in a country’s success in containing the virus or embarrassment for its failures as Spiro contemplates, or that we see a reconsideration of just what kind of ties to a country really matter as Dzankic suggests. Both outcomes align too easily with an exclusionary thrust that COVID-19 only exacerbates: it’s the foreigners who have penetrated our borders who are to blame, and we need to keep such undesirables out of our country and away from our jobs.  Watch the US elections to see how this might unfold.