It’s no secret that many small states struggle to acquire the finance needed to support their development goals. The Commonwealth Secretariat has recently been exploring the potential of diaspora investment to support development. A recent Commonwealth publication estimates that on average, small states could raise approximately 4.52% of GNI per annum from their migrants alone (excluding first and second generation migrants) as compared to 1.18% of GNI for Commonwealth non-small states (Tavakoli and Raja, 2017).
Similar, but less frequently examined, sources of funding are citizenship-by-investment programmes.These programmes grant citizenship to people who make substantial financial investments in a country. While many countries offer a route to citizenship after a period of residency, with citizenship-by-investment programmes, residency is not often required. This revenue raising scheme is particularly popular with many Commonwealth small states -- Antigua and Barbuda, Cyprus, Dominica, Grenada, Malta, St Kitts & Nevis, St Lucia, and Vanuatu all have such programmes. The investments required are often real estate purchases, set term investment in government bonds, or donations to particular charities or funds and the minimum amounts range from $100,000 USD in Dominica to $2.4million USD in Cyprus.
On the face of it, diaspora investment and citizenship-by-investment programmes are two sides of the same coin. They both seek to increase investment by appealing to people’s affinity for a country through its citizenship or would-be citizenship. However, I would argue that their risks and rewards of each are quite different.
With diaspora investment, there is an identifiable pool of people ready and willing to invest in the country of their roots. Their interest in the country is stable and often not subject to the fluctuation of economic cycles. As diaspora investment can take many forms – investment in real estate, bonds, or businesses – the financial benefits can range from increasing government revenue to job creation and adding to GDP. However, the size of the investment can vary greatly from person to person. Furthermore, many diaspora investors may demand higher accountability from the government before investing, or may seek more political rights in the country.
On the other hand, citizenship-by-investment programmes offer an immediate substantial investment which increases government revenue. However, the investment vehicles do not tend to lead to job creation and may have an adverse impact on the property market in small countries with scarce land. Additionally, given that countries offering these programmes are competing with each other for investors, there is the possibility of a race to the bottom. Finally, there is the reputation risk for the country if background checks are not properly conducted.
Given the pros and cons, for my taste, governments would do well to spend more time and effort facilitating diaspora investment as opposed to citizenship-by-investment. I realise however that the issue is completely debatable. Some people argue that criticising citizenship-by-investment undermines sovereignty and attacks a genuine income stream for countries with limited revenue-raising options. Furthermore, some countries don’t have sizeable diaspora communities to make diaspora investment viable. Nonetheless, personally, I think the reputation risks alone outweigh the benefits.
One thing is certain, more research is needed into citizenship-by-investment programmes, including how much money countries actually gain from it.
Where do you stand on the issue? Should more small states consider citizenship-by-investment? Or should more be done to attract investment from diaspora communities around the world?
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