AMG BRIEFING NOTE[tw-divider][/tw-divider]
[tw-column width=”one-half”]With metropolitan economies still struggling to eke out of economic recessions, CARICOM territories have found themselves in a crisis for capital. Selling citizenship now proves to be a lucrative solution.[/tw-column]
Economic growth in some territories has been paltry to fair at best, with industries such as tourism, agriculture and manufacturing seeing year-on-year declines with little improvement. Financial sectors have also been weakening and investments have been waning.
These issues have placed significant strain on the governments of the Caribbean, to the extent that they are now forced to expend significant political power and capital to cut debt and reduce government spending in order to stave off devaluation and increased debt crises. Some countries have already embarked on rigid fiscal austerity measures and their policymakers have been exploring other ways to attract and generate foreign direct investments in order to bolster economic growth and government revenue.
One initiative that has recently engaged Eastern Caribbean governments is economic citizenship or citizenship by investment (CBI), whereby foreign investors are offered passports in exchange for investments in real estate, private business or a donation to a government development fund.
But it is far from a regional position. Dr. Ralph Gonsalves, Prime Minister of St. Vincent and the Grenadines, has been virulently opposed to citizenship by investment schemes, going as far as to comment:
“For me, citizenship is not a commodity for sale, and the passport, which is a manifestation of the citizenship, what I call the outward sign of the inward grace of citizenship, is also not for sale… that is my position, that is the position of the government of St Vincent and the Grenadines”
– Dr. Ralph Gonsalves, Prime Minister of St. Vincent & the Grenadines
The St. Kitts & Nevis CBI scheme, established in 1984, is the oldest in the world. Neighbouring Antigua and Barbuda, Grenada and Dominica have since joined St. Kitts and Nevis as members of the citizenship by investment club.
Of those that remain, St. Lucia is well advanced in its deliberations on introducing a CBI scheme, with Prime Minister Kenny Anthony reporting that there has been “worldwide interest” in the proposal. Interests in the Bahamas have also termed a potential Bahamian CBI scheme as a ‘game changer’ for the Bahamian economy, while Barbados has opted for a middle-ground Entry and Reside permit, which offers indefinite stays in the island in exchange for $2mil in real estate investment.
Despite the skepticism about CBI by some Caribbean leaders, the programme has proven to be a viable financing option for the Caribbean states that have implemented it. At the conclusion of its visit to St. Kitts to review its US$84 million bilateral Stand-By Agreement (SBA), the International Monetary Fund (IMF) reported strong growth in the Kittian economy attributed partly to the CBI programme.
“The recovery in tourism receipts and strong increase in Citizenship by Investment (CBI) application fees contributed to a narrowing of the current account deficit from over 20 percent prior to 2011 to about 11-12% in 2012 and 2013”
– Judith Gold, Deputy Division Chief, International Monetary Fund
Gold further added that St. Kitts’ growth in 2014 is expected to accelerate to between 2.5 and 3 percent, supported by an increase in air lift capacity, and ongoing construction activity fuelled by CBI related inflows and other Foreign Direct Investment (FDI) projects.
Features of Caribbean CBI schemes
Caribbean CBI programmes have become popular because of the benefits they provide to both the economy and foreign investors.
For a couple hundred thousand dollars invested in the country of choice, plus due diligence and government fees, the investor can qualify for citizenship and visa-free travel in up to 139 countries, inclusive of Schengen territories.
CBI states benefit from application fees and, importantly, foreign direct investment. Once investors create a business, employment opportunities are subsequently created for the local citizenry. Some investors are also encouraged to donate to government funds, which equates to government revenue.
St. Kitts and Nevis
The St. Kitts CBI scheme allows citizenship through investment via real estate acquisition or by contribution to the St. Kitts and Nevis Sugar Industry Diversification Foundation as follows:
- A non-refundable contribution of US$250,000.00 must be made to the Sugar Industry Diversification Foundation (a public charity), or
- An investment must be made in designated real estate with a value of at least US$400,000.00 plus government fees, on the condition that the property cannot be resold within five years
Commonwealth of Dominica
Public sector projects identified for financing under the programme include (i) building of schools, (ii) renovation of the hospital, (iii) building of a national Sports stadium and (iv) promotion of the Offshore Sector.
Eligible private sector investments include tourism, information technology and agricultural sectors. For all categories, investors qualify for citizenship through a US$100,000.00 investment.
Antigua and Barbuda
- A minimum non-refundable contribution of US$250,000.00 to the National Development Fund, or
- An investment of at least US$400,000.00 in an approved real estate projects, or
- An investment of US$1.5 million directly into an eligible business.
The Antiguan CBI application process also carries government costs and due diligence fees of up to US$50,000.00.
CBI programmes, although generally successful, are not without their disadvantages and criticisms, and some of the same advantages may be double-edged swords.
Citizenship in some of territories is given quite speedily (in St. Kitts & Nevis it can be conferred in 90 days or less), but St. Kitts has come under increased media criticism since the United States Treasury discovered that the country issued passports to three Iranian men who were using their documents to conduct money laundering activities. Notable other Kittitian economic citizens have ran afoul of the law, leading a former Kittitian Deputy Prime Minister to say that the integrity of the islands’ passport was being challenged by the CBI scheme.
Caribbean CBI schemes are also unique among similar schemes in developed countries in that there is generally no residency requirement for economic citizens. With the exception of Antigua – where an economic citizen needs to spend at least 35 days within the five-year validity period of their passport on the island – there is no need to live, spend time in or even visit for the other CBI schemed Caribbean territories.
There is also some concern both within CARICOM and externally about states’ ability to properly regulate their CBI programmes in order to ensure that they do not encourage illegal activities such as terrorism, fraud and money laundering. In the short term however, as far as it relates to revenue generation, Caribbean CBI programmes have proven to be viable options once checks and balances are maintained and put in place.
For its part, the advisory firm of Henley and Partners – which assisted in the programmes in St. Kitts and Nevis and Antigua – notes that the scheme in St. Kitts and Nevis runs particularly well, and can be used as a model for the other territories.
AMG briefs are backgrounders on Caribbean media and policy developments, synthesizing from a range of credible sources to give readers strongly-researched, evidence-based dossiers on Caribbean current affairs and political game changers.