Basseterre, May 25, 2023 (GLOBE NEWSWIRE) -- Citizenship by Investment (CBI) schemes are growing in prominence. For business owners who are seeking to invest internationally, CBI is a viable option that offers a wide range of benefits such as access to new business markets. For countries running CBI programs, the economic benefits are numerous.
The CBI industry plays a key role in the global economy. To begin with, CBI schemes contribute to a country’s direct capital inflows or Foreign Direct Investment (FDI). For Small Island Developing States (SIDS) like St Kitts and Nevis that are confronted by natural disasters, high levels of public debt and underdevelopment, FDI from CBI is an economic lifeline.
CBI schemes are evolving as countries seek better ways to manage capital inflows and make them sustainable in the face of growing threats and competition. In the aftermath of the global financial crisis of 2008-2009, many developing countries boosted their weakened economies using revenue generated from CBI schemes. Similarly, the Covid-19 pandemic pushed the demand for these programs as most developing countries sought after relief funds for their devastated economies.
Unlike other private capital inflows, FDI is resilient in times of crisis. CBI programs are long-term oriented; they cannot be easily reversed. This makes them useful in their contribution to macroeconomic stability for SDIs like St Kitts and Nevis. Other benefits of FDI from CBI are as follows:
FDI allows the transfer of technology:
FDI results in positive technological spillovers, making it a pivotal channel for transferring technology to developing countries. Shared business systems bear the potential for transmitting technological information. Local businesses that work with foreign businesses from technologically advanced countries can benefit from technology licensing. This means that a developing country like St Kitts and Nevis can adopt new technologies at a faster rate than forming the technologies itself.
Profits generated from FDI contribute to the tax bases of host countries:
There is a positive correlation between FDI and tax revenues collected by host countries. Higher levels of FDI lead to a growth in corporate tax revenue for recipient economies. On the other hand, when the levels of FDI are low, revenue collected from corporate taxpayers also remains low. Outside of corporate tax, FDI generates government revenue through the collection of other taxes such as Pay As You Earn (PAYE), general excise tax, Value Added Tax (VAT) as well as customs and import duties.
FDI contributes to long-term economic growth:
FDI creates more demand for local inputs. For instance, in St Kitts and Nevis, one of the CBI options is an investment of US$200 000 in a pre-approved real estate development. When one is granted citizenship after investing in real estate, they may need to buy local supplies of construction materials such as cement, steel, glass and timber among others. This increases the aggregate demand for local goods which ultimately results in an increase in the Gross Domestic Product (GDP).
Recurrent CBI revenue in St Kitts and Nevis amounted to a cumulative 65 per cent between 2017 and 2021. This resulted in fiscal surpluses which were used to fund national economic projects along with government spending on education, healthcare and affordable housing. Because of the strong CBI flows, the debt-to-GDP ratio of St Kitts and Nevis is one of the lowest in the Caribbean region.
Funds collected from CBI are used as relief packages for natural disasters:
St Kitts and Nevis is exposed to natural disasters, among them hurricanes, cyclones and other violent storms that lead to severe flooding and, in the worst cases, the loss of life, homes and infrastructure. The aftermath of natural disasters entails reconstruction as well as repairs, which all cost a lot of money. Revenue collected from the CBI schemes is used as relief packages in the aftermath of natural disasters.
As aforementioned, the Covid-19 pandemic left a trail of destruction in vulnerable developing economies. The St Kitts and Nevis economy which relies on tourism was no exception. Because of the lockdown and travel restrictions, the tourism sector collapsed during the pandemic. CBI funds came in handy for the twin islands as they were allocated to alleviate the economic devastation in the tourism sector.
Countries receiving FDI have improved human capital development:
Similar to the transfer of technology, FDI also improves the levels of human capital development through the transfer of skills. Multinational companies (MNCs) are instrumental in transferring skills. In order to set up and run their operations in foreign countries, MNCs usually deploy skilled managers from their headquarters. These managers train local employees on various business operations. Imparting such operational knowledge contributes to the skills base of the host country, thereby increasing the levels of human capital development.
The macroeconomic impact of FDI from CBI programmes is significant, especially in the transfer of technology, widening tax revenues, long-term economic growth, post-disaster management and human capital development. In St Kitts and Nevis, CBI programmes have proven to be a reliable source of government income. For SIDS seeking to grow their economies, CBI schemes are a workable option to secure revenue and investment.
