COVID-19 is an Opportunity for Small-State CIPs to Future-Proof ThemselvesApril 14, 2020
The last thing the hurricane-stricken Caribbean needed was another external shock to their economic foundations. COVID-19, unfortunately, represents exactly that. For countries like Dominica, only recently restored after the two major blows Nature dealt the country in the last five years, the pandemic threatens to undo much of the recovery.
But, as with all challenges, even pandemics bear within them the seeds of opportunity. Opportunities that countries with Citizenship by Investment Programs (CIPs) can and should embrace in order to navigate the rough waters ahead and to give them a layer of insulation in future crises, whatever they may be.
The first of those opportunities grows out of the constraints placed on government operations in a global state of lockdown. Many Caribbean governments have paid a great deal of lip service to e-government for years but have not practiced it in a meaningful form. In Dominica, both during and immediately after Hurricane Maria, the Citizenship by Investment Unit (CIU) was still processing applications, a feat that allowed it to keep its revenue streams intact during a critical time. The Unit reaped praise from agents and clients worldwide, and the admiration and (eventual) emulation of peers elsewhere in the region.
Even that system, however, isn’t fully digital from end to end. This year, the Eastern Caribbean Central Bank (ECCB) is piloting a digital currency, the API of which, we hope, could be made freely available to other CIP platforms so that they may integrate it into their own solutions.
While it would not obviate the need for human interaction entirely (particularly in the realm of AML/KYC) and is not a true digital currency, it is a step in the right direction.
Further digital integration, including digital signing (with authentication) and allowing secure remote access by Unit staff to allow divesting from centralized processing, will help not just in light of future health scares but in overall disaster management by providing extended backup and operation. It will also serve as a model for greater digital platform adoption across all sectors of society.
Volumes may be lower, values must be higher
While it is too early to say definitively what happens next, certain trends are likely to emerge. For example, Grenada has increased marketing commissions, rather than lowering prices. Creating more diverse and qualitative products and incentivizing key program partners will become the standard for program growth.
It will not, however, be as simple as trying to grow volumes. Changing standards of global mobility, a brittle Europe, and a more inward-looking United States will drive a more value-based approach to CIPs. Increasingly, larger investors will be needed, which will require templates not only for gaining citizenship but also for working with governments to create new economies built to foster local priorities with global investor input.
All programs globally, not just in the Caribbean, have skewed heavily towards tourism infrastructure in their CIP planning. This will have to change for pragmatic – and obvious – reasons. Yes, the global tourism market will rebound and, yes, existing and under-construction CIP infrastructure will still be very relevant. Those who foretell gloom and doom beyond the short term need only look at how the world adapted in order to return to business as usual with regards to travel and tourism following 9/11.
However, small island states have had a reminder of how fragile their health systems and food security can be and, in general, how dangerous it is to have supply chain dependency susceptible to sharp and quick disruptions. Creative methods, such as floating health and private sector financing bonds, or directly financing agricultural production projects, will increasingly come into play as small island states come to terms with strengthening their weaknesses and developing their sustainability.
Infrastructure spending is good; rainy-day reserves are paramount
A few years ago, I met Judith Gold, Deputy Director of the IMF, at a conference. Her take on CIPs was that, having seen the strides made by St Kitts and Dominica, in particular, there was real value to be had in creating heritage (sovereign) wealth funds with program proceeds. In the context of the Caribbean, only Trinidad and Tobago have had the luxury of long-standing revenue from an industry (oil and gas ) that can be saved in that manner.
The reality, however, is that most CIPs have utilized their revenue to help bolster their public sector infrastructure and investment programs and also to sustain their economies after climate events. In some cases, they have had to support recurring revenue demands with CIP funds. With crude prices dropping below the level needed for many oil-producing countries to meet their regular budgets, Trinidad may well have to tap into its heritage savings to balance its economy over the next few years. This is an example of why planning for the absence of regular revenue from the program is even more important than ever.
While each of the above-listed improvements are critical, flexibility and adaptability must characterize the thoughts and actions of our decision-makers so as to always make sure we are a step ahead of what may come. Governments must be equipped to react swiftly to any type of crisis in order to protect their economies and, more importantly, their people. CIP revenues, and their judicious deployment, are essential tools in that respect.
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