Although Citizenship by Investment schemes showed early promise as a spur to national development, increasing competition in the region and beyond is creating a dangerous zero-sum game in which states try to offset declining income by further reducing pricing, writes David Jessop (Caribbean Council)

Jessop, David

LSE Research Online

Caribbean	‘Citizenship	by	Investment’	is	becoming	adangerous	race	to	the	bottomAlthough	Citizenship	by	Investment	schemes	showed	early	promise	as	a	spur	to	nationaldevelopment,	increasing	competition	in	the	region	and	beyond	is	creating	a	dangerous	zero-sumgame	in	which	states	try	to	offset	declining	income	by	further	reducing	pricing,	writes	DavidJessop	(Caribbean	Council).In	most	OECS	nations,	citizenship	is	available	at	a	cost.	It	can	be	purchased	by	almost	anyone	whocan	afford	it.	There	is	no	qualifying	period	and	no	residential	requirement.	All	that	is	needed	is	aone-off	payment	into	either	an	agreed	form	of	investment	or	to	a	government	development	fund,	plus	backgroundchecks	on	the	individual	concernedDepending	on	the	location	and	scheme	chosen,	the	basic	cost	is	now	between	US$0.1m	and	US$0.4m	plusfees.		Not	only	does	this	confer	a	passport,	but	it	also	offers	free	movement	within	CARICOM,	and	visa	free	entryto	many	other	countries.	At	further	cost,	citizenship	can	be	extended	to	families	and	relatives.Grenada,	St	Kitts	&	Nevis,	Dominica,	Antigua	&	Barbuda,	and	St	Lucia	offer	Citizenship	byInvestment	(Kurious,	mix	by	Asa	Cusack)The	creation	of	such	Citizenship	by	Investment	(CBI)	programmes	has	been	mainly	driven	by	the	the	Caribbeangovernments	concerned	need	to	find	new	ways	to	raise	revenue	because	of	their	otherwise	limited	capacity	tocompete	globally.St	Kitts	and	Nevis,	Grenada,	Dominica,	Antigua	and	Barbuda,	and	St	Lucia	have	such	arrangements,	but	StVincent	has	not.	Belize	suspended	its	controversial	programme	in	2002.For	the	most	part,	such	schemes	showed	early	promise.	Slides	shown	in	June	this	year,	by	Trevor	Alleyne,	theIMF	Division	Chief	for	the	Caribbean,	at	a	conference	on	global	mobility	and	tax	strategies,	suggest	that	takentogether,	the	contribution	made	to	GDP	by	Caribbean	CBI	programmes	peaked	in	2014.	Then,	for	example,	StKitts	earned	14%	of	it	GDP	from	citizenship,	enabling	it	to	substantially	offset	what	otherwise	would	have	beennegative	growth.	However,	seen	since	then	its	programme	earnings	has	gone	into	a	slow	decline.LSE Latin America and Caribbean Blog: Caribbean ‘Citizenship by Investment’ is becoming a dangerous race to the bottom Page 1 of 3		Date originally posted: 2017-10-26Permalink: http://blogs.lse.ac.uk/latamcaribbean/2017/10/26/caribbean-citizenship-by-investment-is-becoming-a-dangerous-race-to-the-bottom/Blog homepage: http://blogs.lse.ac.uk/latamcaribbean/In	a	probable	reflection	of	this	and	the	need	to	stimulate	renewed	interest,	its	government	recently	announced	anew	route	to	citizenship	at	a	basic	rate	of	US$0.15m,	‘a	proportion	of	which’,	it	said,	would	be	paid	into	ahurricane	relief	fund.		The	decision	appears	to	make	redundant	a	part	of	its	existing	programme	which	offerscitizenship	for	a	minimum	contribution	of	USD$0.25m	to	the	country’s	National	Development	FundTo	be	fair,	it	may	also	reflect	a	comment	made	recently	by	the	Governor	of	the	Eastern	Caribbean	Central	Bank(ECCB),	Dr	Timothy	Antoine.		Launching	the	ECCB’s	strategic	plan	earlier	this	month,	he	urged	OECSGovernments	to	consistently	set	aside	a	portion	of	citizenship	revenues	to	use	as	leverage	to	attract	climatefinance	under	the	Paris	Climate	Accord.In	contrast,	in	Dominica,	and	to	a	much	lesser	extent	in	Grenada,	the	contribution	made	by	citizenshipprogrammes	to	GDP	has	been	increasing.	In	Dominica’s	case,	its	National	Development	Programme	earningsbefore	Hurricane	Maria	struck,	had	reportedly	reached	US$50m	per	month:	sums	that	were	being	used	to	paydown	debt,	support	public	works,	as	well	as	to	provide	budgetary	support	and	employment.In	an	indirect	confirmation	of	the	value	of	Dominica’s	low	basic	fee	of	US$0.1m,	and	the	fierce	competition	nowexisting	between	OECS	nations	for	citizenship	applications,	Antigua	this	month	reduced	its	basic	fee	forcitizenship	to	the	same	US$0.1m	level.The	least	successful	CBI	programme	has	been	St	Lucia’s.	Earlier	this	year,	its	government	halved	the	previouscost	of	citizenship	for	individuals,	also	to	US$0.1m,	and	adjusted	downwards	the	fee	for	all	other	categories,making	the	country’s	programme	for	a	short	time	the	cheapest	in	the	region.	It	also	lifted	a	self-imposed	limit	onthe	number	of	applications	that	could	be	processed	annually,	and	revoked	previous	requirements	relating	to	anapplicant’s	net	worth	on	the	basis	that	other	countries	were	offering	discounts	or	incentives.What	is	emerging	from	this	apparent	race	to	the	bottom	are	several	issues:1.	 First,	well	conceived,	well	administered	programmes	linked	to	national	development	programmes,	wherejudiciously	applied	and	with	clear	outcomes,	appear	to	offer	the	best	avenues	for	government	and	countriesto	reap	the	greatest	rewards.2.	 Second,	global	and	inter-regional	competition	suggests	the	emergence	of	a	zero-sum	game	in	whichnations	may	seek	to	offset	a	decline	in	income	by	further	reducing	pricing.	If	this	happens,	it	follows	that	ahigher	number	of	successful	applicants	will	be	required	if	income	from	citizenship	is	to	sustain	or	enhanceGDP	growth.3.	 Third,	if	governments	are	unable	to	significantly	grow	applicant	numbers	through	price	reductions,	orthrough	encouraging	greater	citizenship	related	investment	in	real	estate	or	bonds,	they	may	have	to	turnagain	to	tourism	to	increase	revenue,	and	to	new	tax	breaks	to	spur	investment.In	short,	Caribbean	CBI	programmes	may	not	have	as	a	bright	a	revenue	earning	future	as	they	have	had	in	thepast.While	many	high	net	worth	people	continue	to	seek	second	or	third	citizenships,	it	appears	likely	that	the	numbersof	applicants	per	Caribbean	country	may	decrease	as	global	competition	grows,	at	worst	accelerating	the	sector’sdecline.LSE Latin America and Caribbean Blog: Caribbean ‘Citizenship by Investment’ is becoming a dangerous race to the bottom Page 2 of 3		Date originally posted: 2017-10-26Permalink: http://blogs.lse.ac.uk/latamcaribbean/2017/10/26/caribbean-citizenship-by-investment-is-becoming-a-dangerous-race-to-the-bottom/Blog homepage: http://blogs.lse.ac.uk/latamcaribbean/Harmonisation	could	prevent	a	race	to	the	bottom,	but	the	region’s	recent	record	is	weak	in	thisregard	(Wdcf,	CC	BY-SA	3.0)In	theory	OECS	nations	with	CBI	programmes	could	consider	some	sort	of	approach	involving	harmonisation.However,	in	the	real	world	of	multiple	unresolved	sub-regional	ideological,	economic,	and	personality	differences,it	is	hard	to	imagine	achieving	a	consensus	that	lasts.Unfortunately,	OECS	governments	have	shown	little	willingness	to	address	questions	about	the	sustainability	oftheir	citizenship	programmes,	or	to	indicate	whether	they	have	fresh	ideas	about	the	ways	in	which	they	mightredesign	existing	schemes	to	ensure	continuing	income	without	lowering	fees	any	further.All	of	which	is	to	say	nothing	about	the	sometimes-questionable	comments	and	defensive	public	relationsexercises	undertaken	by	some	agents	selling	CBI	programmes,	about	the	questions	that	remain	about	the	duediligence	processes	some	governments	pursue,	or	the	serious	international	concern	that	has	arisen	about	theissuance	of	diplomatic	passports.Almost	every	nation	in	the	world	provides	a	path	to	citizenship.	Despite	this,	many	citizens	and	somegovernments	in	principle	object	to	the	idea	that	nationality	is	something	that	can	be	sold.		In	this	the	Caribbean	isno	exception.As	long	as	citizenship	programmes	exist,	questions	will	also	remain	about	the	granting	of	rights	and	freemovement	within	CARICOM	to	those	who	are	not	required	to	reside,	make	no	long-term	economic	or	personalcontribution,	and	who	have	no	historic	or	cultural	affinity	to	the	region.Notes:•	The	views	expressed	here	are	of	the	authors	and	do	not	reflect	the	position	of	the	Centre	or	of	the	LSE•	This	post	was	originally	published	by	the	Caribbean	Council•	Please	read	our	Comments	Policy	before	commentingDavid	Jessop	–	Caribbean	CouncilDavid	Jessop	is	a	Consultant	and	former	Managing	Director	of	the	Caribbean	Council.	He	hasworked	on	Caribbean	issues	for	over	forty	years.	During	that	time	he	has	provided	high	level	supportand	advice	to	industries,	associations,	governments,	and	companies	on	investment,	trade	policy,and	political	issues	in	the	Caribbean,	the	UK,	and	continental	Europe.	His	fortnightly	columns	aresyndicated	to	the	Caribbean	press	and	can	be	found	on	the	Caribbean	Council	website.LSE Latin America and Caribbean Blog: Caribbean ‘Citizenship by Investment’ is becoming a dangerous race to the bottom Page 3 of 3		Date originally posted: 2017-10-26Permalink: http://blogs.lse.ac.uk/latamcaribbean/2017/10/26/caribbean-citizenship-by-investment-is-becoming-a-dangerous-race-to-the-bottom/Blog homepage: http://blogs.lse.ac.uk/latamcaribbean/

Caribbean 'Citizenship by Investment' is becoming a dangerous race to the bottom

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