Why citizenship-by-investment schemes are a win-win

Most citizenship-by-investment programmes involve an upfront investment into the country.

When the first modern citizenship-by-investment programmes were developed in the mid-1980s and early 1990s, the investment migration industry was largely unformed, unknown and unregulated. Today, by contrast, the market is an established and evolving feature of the economic landscape and is growing faster in the Middle East than in any other part of the world. Thousands of people now apply for citizenship and residence each year, and by the end of 2017, there were over 30 active and successful programmes in existence. But what benefit do nations get from administering citizenship-by-investment programmes, and why are individuals so eager to get their hands on a second passport?

The primary benefit for states that administer citizenship-by-investment programmes is significant financial investment in their domestic economies. The cost and design of each programme vary, but most involve an upfront investment into the country. These inflows of funds are considerable and the macroeconomic implications for most sectors can be extensive.

Foreign direct investment brings capital both into a country's public sector - in the form of donations to the government, tax payments or treasury bond investments - and the private sector, in the form of investments in businesses, startups or real estate. Countries are able to use citizenship-by-investment funds to finance infrastructure development and improve their people's standard of living, and those that save their inflows may be able to improve their fiscal performance, minimise any dependence on international aid and reduce national debt.

Apart from these economic gains, successful applicants also bring intangible benefits to receiving countries, such as scarce skills and rich global networks. They add diversity and uplift host nations through their demands for improved and novel services, which in turn creates new employment and entrepreneurial opportunities.

As the number of successful applicants increases each year, host countries often gain international prominence on account of their increased competitiveness. This results in other benefits to the country, including growing publicity and media attention and a boost in tourism.

For applicants, a second or third passport does not just mean increased travel freedom. Having an alternative passport also grants its holder the right to do business and settle in an expanded set of countries and regions, as well as allowing access to all the benefits enjoyed by other citizens. It also eliminates a great deal of the inconvenience surrounding visa applications and passport renewal or replacement processes. Most importantly, though, an additional passport can literally save a person's life in times of political unrest or under heightened terrorism risk, or in other delicate political situations.

While citizenship-by-investment offers the greatest rewards to investors and the host nation, there are also mutual benefits to be obtained simply by removing the barriers to visa-free travel. While the advantages are not as significant as those received through citizenship-by-investment programmes, many governments have adopted this approach.

Earlier this year, for example, the UAE allowed Chinese passport holders to enter the country without a visa, which led the Emirati hospitality and tourist industries to report a 70 per cent growth compared to 2017, as Chinese travellers took advantage of their newfound access to the Middle East's main hub. Another benefit for the UAE is that like many such visa arrangements, the agreement with China was reciprocal, and in fact UAE passport holders can now visit 158 destinations visa-free. This year alone, they have gained access to Ireland, Burkina Faso, Uruguay, Guinea, Tonga, Honduras, Canada, Brazil, Guyana, and Barbados.

Thus, eliminating visa requirements is a helpful step along the path to borderless travel, even if it cannot provide the same advantages to countries or individuals as citizenship-by-investment programmes. For the privilege of fully comprehensive global mobility and flexibility, alternative citizenship is by far the best solution, and for this reason, it is consistently sought after by high-net-worth individuals who are willing to spend significant sums in order to secure it in the hope of better opportunities. Somewhat unsurprisingly, it is becoming increasingly popular in the Middle East, where instability in countries such as Yemen, Syria, Iraq and Lebanon means that many people in the region find their movement and opportunities constrained by their passports.

In recent years, the global citizenship-by-investment industry has experienced unprecedented growth, with thousands of people applying for alternative citizenship and residence each year. Nonetheless, there are still many countries where it makes sense to start new programmes, and the industry looks set to continue to thrive as global demand for alternative citizenship solutions increases.

However, as the industry grows in visibility and breadth, so too does the cloud of public dissent and opposition regarding the perceived 'marketisation' of citizenship, as does concern from multilateral organisations about tax and money-transfer practices. Accordingly, a strong culture of self-regulation and due diligence is essential to the industry's continued success and sustainability.

The challenge for the industry, then, is to build longevity and future-readiness while carving out its place in the global community as a beacon of innovation, collaboration, professionalism and responsible investing. The global citizenship-by-investment industry matters and, by all accounts, it is here to stay.

The writer is managing partner of Henley & Partners Dubai and head of Middle East operations. Views expressed are his own and do not reflect the newspaper's policy.