The CBI industry plays a key role in the global economy. To begin with, CBI programmes can contribute to a country’s direct capital inflow or FDI. For Small Island Developing States (SIDS) like St Kitts and Nevis that face natural disasters, high levels of public debt and underdevelopment, FDI from CBI is an economic lifeline. We discuss the benefits of FDI by means of CBI below as well as how St Kitts and Nevis leverages FDI.
The correlation between citizenship by investment and foreign direct investment
CBI programmes 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. These include access to new business markets. For countries running CBI programmes, the economic benefits are many.
Subsequently, CBI programmes are evolving as countries seek better ways to manage capital inflow. It’s also crucial that the programmes themselves are 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 programmes. Similarly, the Covid-19 pandemic pushed the demand for these programmes as most developing countries sought after relief funds for their devastated economies.
Benefits of FDI by CBI
Unlike other private capital inflow, FDI is resilient in times of crisis. CBI programmes are long-term oriented. As a result; 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 and how St Kitts and Nevis leverages FDI:
FDI allows the transfer of technology
FDI can result in positive technological spill overs. This makes it a vital avenue 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 possibly 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 remain 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. This was in conjunction 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. These include hurricanes, cyclones and other violent storms . 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.
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. As a result 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.
Click here for the latest St Kitts and Nevis CBI updates or alternatively contact us for more information on the St Kitts and Nevis CBI programme.