It’s 1918 and the Roaring Twenties is around the corner. Life is hard and migrants go to where life is better. Among them are the immigrant investors, businesspersons and their families who seek greener pastures in an ever-changing landscape. One hundred years later, instead of steam ships, we have commercial aircrafts traversing the Atlantic. These are indeed different times, but the narrative remains the same.
“Unprecedented”, a word that has often been used these past few months. When the dust settles and some semblance of normalcy returns, we will see a clearer picture what this global pandemic has brought all of us. Just like the world wars which drained economies from east to west, so will this plague that has not only claimed too many lives but billions of dollars in business as well. We hope to flatten that curve soon, but we are not out of the woods yet. The truth is that we won’t be fully okay until a vaccine has been developed which scientists say could be anywhere from six months to a year or more. We must accept that the economic consequences of this catastrophe could be much worse than the 2008 financial crisis. Immigrant investors have always had that distinct advantage but given the looming downturn, it seems that ship has sailed.
For small island developing states that rely heavily on tourism and economic citizenship programs, this will be a painful double whammy. From cruise ship and hotel cancellations to a decrease in citizenship applications, the effects may last a while. Larger nations that offer permanent residency through investment won’t be spared either. This epidemic greatly affects their processing times and possible changes in health screening procedures.
Thanks to their rising wealth, the biggest number of immigrant investor applications come from China. As of this writing, the Chinese government has been showcasing that they are getting back on their feet and that the manufacturing powerhouse is open for business. Behind all that is the preparation for a possible second wave of the virus while their high net worth families are busy recuperating lost income. Acquiring citizenships and residencies through investment may not be a priority at this time or for months to come. A reactionary demand from the Chinese market may be short-lived.
The 21st century is the era of global travel and tourism has been a cash cow for many countries. Visa-free travel has been a banner for citizenship programs who use it as a weapon to get more applications. This has been a major selling point for investors specially in the Chinese market given the limited access of their passports. With freedom of movement curtailed across the globe, visa-free travel is no longer an asset. It may have even become a liability.
Though we will unlikely see any data, we wonder how many economic citizens travelling on their second passports at the height of border closures encountered extreme difficulties? Many of them won’t entertain the thought of being repatriated to small islands at this time. What could be extra challenging is the high probability of permanent disease-related travel restrictions like what some African nations have experienced. With China at the epicenter of this virus, that will be a geopolitical nightmare of titanic proportions.
For residency by investment permit holders of European, American, Commonwealth and other developed economies, the story is not necessarily better. Though they have advanced healthcare systems, these are all enormously overwhelmed now. The huge populations in their city centers do not help the situation leading to a false sense of security. Increasingly, we see a grim economic future but there is always light at the end of the tunnel.
Small islands offering citizenship for investment will see the need to implement further reduced fees to shelter their economies from the ongoing tourism slump. This stopgap measure may not be enough. If there is one thing this global disease has taught us, it is the value of local food supply. A resource of organic products from land and sea can greatly contribute not only to the needs of their own people but as a resilient export as well. Furthermore, instead of strengthening individual export production, a combined regional output would help make dents in international demand.
Regional harvests such as Caribbean breadfruit or South Pacific mahi-mahi should be considered. The European Union has been pushing the “Made in EU” branding so why not “Proudly Caribbean Made” or “From the South Pacific”?
The continued implementation of the Caribbean Community’s CARICOM Single Market and Economy can include this as part of their project. For its part, the Pacific Island Countries Trade Agreement by members of the Pacific Islands Forum may also institute something related.
Citizenship and residency investments focused on real estate are on the right path. Although real estate tourism should no longer be the focus. We should see more of these investment programs towards agriculture and fishery, small-scale manufacturing, and the health sector, the pillars of survival in a post- pandemic world.
One of the benefits of having an alternative citizenship and residency is the enhancement of the quality of life. Rather than highlighting the right to travel as a reason to acquire citizenship, countries that offer fast-track programs should emulate the larger economies. A great motivation for high net worth applicants to live securely in their new countries can be done by offering them easy access to premium healthcare. An investment program for a well-equipped modern hospital instead of a five-star hotel will benefit all the citizens of the country and will even attract medical tourism income.
Obtaining another citizenship or residency means that you open your options to a better life for you and your family. That means better security, healthcare, education, mobility and financial opportunities. In the last five years, we have seen a meteoric rise of citizenship and residency programs. How many of them tick all the boxes? With decreased wealth, applicants will be more prudent and will find the best options. It may not exactly be a price war, but it will surely be a value-for-money battle.
We may expect an increase in enquiries for these programs. Larger states such as Spain and Italy who have been badly hit may widen their residency doors. While smaller economies such as the Solomon Islands, who have yet to launch their citizenship scheme, may see this as an opportunity to undermine competitors. Only time will tell how the marketplace will react in a year or two, but the mindset of the applicant will remain constant. The programs who tick all the boxes will see the most benefit. A refocus must be done as early as now if these programs are to survive the economic effects of this pandemic.
On the Role of Sovereign Wealth Funds (SWFs) in Supporting a Green Recovery
Perhaps one of the few areas where a consensus is crystallizing across the major powers of the global economy is on the urgency of advancing the green environmental agendas and reducing the carbon emissions. Global institutions such as the IMF are emphasizing the need for a green recovery to take hold in the world economy as the global community emerges from one of the starkest crises in the past century. The world’s sovereign wealth funds as a powerful force in international financial markets could play a vital role in advancing green projects as well as green finance. This is particularly relevant for Russia, where the National Wellbeing Fund could be partly invested into green financial instruments.
At this stage there is a number of global networks and initiatives that bring together the world’s largest institutional investors, including sovereign wealth funds, to drive the green investment agenda. These include European Long Term Investors, the Institutional Group on Climate Change and the Network on Climate Risk. Some of the wealth funds from the Middle East, including the Abu Dhabi Investment Authority, the Kuwait Investment Authority, the Qatar Investment Authority and the Public Investment Fund of Saudi Arabia, are signatories to the One Planet SWF Framework. The meeting held by the International Forum of Sovereign Wealth Funds in 2016 “participants highlighted that SWFs are particularly well-positioned to become trailblazers in green investment”.
Recent data and surveys reveal a growing integration of the green agenda into the decision-making and strategies of the world’s sovereign wealth funds. These were the findings of an inaugural survey of 34 sovereign wealth funds, representing 43% of the world’s sovereign funds, conducted in September by the International Forum of Sovereign Wealth Funds and the One Planet Sovereign Wealth Funds .
The survey reveals that climate-related strategies represent more than 10% of portfolios for 30% of responding wealth funds. The survey also found that these funds made 18 investments in agriculture technology, forestry and renewables opportunities in 2020 at a total value of $2 billion, up from eight investments valued at $324 million in 2015. Overall, according to the survey “sovereign wealth funds have invested more than $5 billion in agritech, forestry and renewables opportunities over the past five years as part of an increased push toward climate change-aware investing”.
Just over a third of responding funds (36%) have a formal climate-change strategy in place, with 55% of these funds adopting the policies since 2015 and 30% since 2018.
The survey came up with the following recommendations to wealth funds based on the survey findings:
· to adopt and implement climate-related strategies;
· to seek appropriate talent and expertise;
· to explore board member and executive education;
· to use metrics to show not only climate impact but also comparable returns and risk reduction;
· to communicate to all stakeholders the strategic importance of climate change;
· to partner with peers and international initiatives to share experience and generate greater leadership from within the wealth fund network.
The latter recommendation dovetails the recent Valdai Club initiative to enhance cooperation among the largest sovereign wealth funds against the backdrop of the Covid pandemic. In particular, in 2020 the Valdai Club together with Shafi Aldamer and Curran Flynn from King Fahd University of Oil and Minerals advanced the proposal to create a platform for the sovereign wealth funds (SWFs) of G20 countries to boost long-term cooperation, direct investments, and the formation of bilateral/trilateral/multilateral investment accords. The findings of this policy brief were included in the T20 communiqué, which encourages the G20 to promote “the creation of a platform that would bring together the sovereign wealth funds of its members, possibly in coordination with the International Forum of Sovereign Wealth Funds.”
Such a platform would encourage the G20 states to strengthen their economic cooperation, bolster mutual interests, improve multilateralism, and develop opportunities for their SWFs. Additionally, it would act as an emergency tool in easing the impact of a global crisis, such as the current COVID-19 pandemic, as it can be employed as an anti-crisis measure via the investments of the G20 states’ SWFs. One important venue of cooperation for such a platform for sovereign wealth funds could be the elaboration of green investing principles and benchmarks for the major sovereign wealth funds, which in turn would support the advancement of a green recovery in the global economy in the aftermath of the Covid pandemic.
As regards Russia’s sovereign wealth funds, most notably the National Wellbeing Fund (NWF), which by Q1 2021 has accumulated more than USD 180 bn in overall resources there may be a case for investing part of the liquid reserve into green instruments, including sovereign green bonds. In particular, the investment guidelines for the NWF may involve a formal target on the share of green assets in the Fund’s portfolio. These in turn may include corporate and sovereign green bonds from advanced economies as well as an allocation reserved for Russia’s corporate and sovereign green bonds. The latter would potentially deliver a significant boost to the development of Russia’s green bond market. Currently green bonds account for just 1.5% of total corporate bonds outstanding in Russia and the emergence of sizeable demand from Russia’s sovereign wealth fund would raise the potential growth for this very important market segment.
From our partner RIAC
5 things you should know about the state of the global economy
Is this the year we overcome the global economic crisis caused by the pandemic? Are our jobs in danger? Who has lost the most in the crisis and what can be done to recover? As the UN Department of Social and Economic Affairs (DESA) prepares to launch the mid-year update of the 2021 World Economic Situation and Prospects (WESP) report, here are five things you need to know about the state of the global economy.
1) US and China bounce back, but a slow recovery for developing countries
While economic output in the United States and China is expected to grow robustly and lift global growth, many developing economies are not expected to return to pre-pandemic output levels anytime soon. The pandemic is far from over for most developing countries where vaccination is advancing slowly, and fiscal pressures have intensified.
2) The situation of the most vulnerable has become even more precarious
Lockdowns and social distancing measures resulted in large job losses in contact-intensive and labour-intensive service sectors, which predominantly employ women. The pandemic has also exposed the vulnerability of informal employment, which is the main source of jobs in many countries and which offers less job security, social protection and access to healthcare.
3) Global trade recovery is strong, particularly in Asia
Merchandise trade has already surpassed pre-pandemic levels, buoyed by strong demand for electrical and electronic equipment, personal protective equipment (PPE) and other manufactured goods. Trade in services remains constrained by restrictions on international travel. While exports from Asian economies have soared, exports from Africa, Western Asia, and the Commonwealth of Independent States has stalled.
4) The COVID-19 crisis has inflicted more harm on women and girls
This crisis disproportionately affected women, who suffered significant job and income losses, contributing to the worsening of gender poverty gaps. Burdened by increased home care duties, many girls and women gave up on schools, and the workforce altogether. Returning to school and work might take longer or may not happen at all for many of them, further widening gender gaps in education, income and wealth.
5) Countries need to do more to address the uneven impact of the COVID-19 crisis
There is an urgent need for countries to formulate better targeted and gender-sensitive policies to drive a more resilient and inclusive recovery from the crisis. Though on the frontlines of the pandemic, women have been under-represented in pandemic related decision-making and economic policy responses. The severe and disproportionate impact of the pandemic on women and girls call for more targeted policy and support measures for women and girls, not only to accelerate the recovery but also to ensure that the recovery is inclusive and resilient.
Biden’s shift from neo-liberal economic model
Mercantilism; which was the ‘Hall of Fame’ from 15th-18th Century had emerged from the decaying of feudal economic system in Europe. It was initially started from the Mediterranean trade in bullion on the cities like Venice, Genoa and Pisa. In the course of history, this idea was challenged by the writings of John Lock’s Second Treatise of Government and A Letter Concerning Toleration with larger than life of Adam Smith’s, The Wealth of Nations of 1776—gave rise to Classical Liberalism. This idea also even started shaking during the 1930s followed by the Great Depression. The Keynesian economic model came to escape the consequences of this Great economic shortfall till 1970s. Afterwards, Neo-liberalism was the ‘lifeline of the global economy’. Soon, this also diminished from the rapid financialization and globalization process of 1990s. The financialization, which was the ‘Heart of the Town’ till 2008; devastated by the 2008 financial crisis. The US government rescued this crisis via Dodd-Frank Act and greater stimulus package to economy. And, lastly current COVID-19 pandemic crisis is much more powerful than that of 1930’s Great Depression or any other crisis in observable history. To cope of with this crisis, Biden administration is rescuing the economy with comprehensive stimulus package by challenging the internationally accepted fundamental economic model.
Today, Keynesian economic model is taking shape in the US. The central theme of Keynesian theory —measured as the sum of the spending by households, business, and the government; which Biden is doing so by $640 billion housing plans over 10 years to provide affordable, safe housing for all individuals, by increasing tax for corporations and high-income filers by $3.3 trillion. In addition to this, he is creating massive government spending ($2trillion) on infrastructure for job creation, spending on public goods( health care, education, job, security, child care), and less interested in fiscal deficits and his more critical view on an unregulated market controlled by big corporations. These steps of Biden correlated with that of the Keynesian economic model (the model which remained ‘talk of the town’ from WWII to the 1970s). Following this, new Washington Consensus is born against the low levels of government spending, minimizing fiscal deficits, nonintervention, and deregulation in the market, and liberations of trade and foreign investment. All these ‘values’ are undermined by the current Biden administration.
The world economy is in the same historical place as that of WWII followed by the great depression comparing today of the COVID-19 pandemic. So, whenever there is an unprecedented shock on capitalism; it has always transformed itself within. From the Mercantilism(16th-18th Century), Classical liberalism, Keynesian/ neoliberalism, and financialization–capitalism has survived astonishingly. This new ‘Bidenomics’ will behave as an influential replica in the other parts of the world as the land, labor, capital, and productivity is impacted immensely by the COVID-19 pandemic. This succeeding market intervention by the US government could replicate in other international liberalism followers nations of the world. The era of government-led intervention in the market started.
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