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How COVID-19 will change the World Economy and CBI Programmes

Epidemics are related to population mobility. COVID-19 is special in that today’s global economy is intrinsically linked to unprecedentedly prevalent and frequent population mobility. Today, a virus can spread unabated.

Free-traders have always argued that the global circulation of goods, services and labour is more important than factory assembly lines when it comes to sustaining growth. They are uninterested in social disruption; only wealth enhancement. The COVID-19 epidemic and the subsequent national responses are particularly stark because they have abruptly halted what we may call a ‘mobility economy’.

The cracks to modern free trade started to manifest over 10 years ago when Canada, of all places, limited the right of citizenship by decent to the first generation born outside the country; thus effectively disenfranchising Canadians born abroad and limiting mobility choices. America today openly discusses limiting birthright citizenship.

We are starting to see a slow but general progression away from interconnectivity and the global economy in favour of the independent championing of national industries and destinies. Brexit, the Yellow Vest movement, Trump’s America first agenda, etc. are just results of what is arguable the beginnings of a paradigm shift for the foreseeable future.  COVID-19 is the catalyst for the tipping point.

In this brave new world, what rights citizenship may truly entail becomes less clear. CBI is now all that much more important for it represents choice.

Cyprus, as others, runs a quite effective CBI program. As a result, the country has been the recipient of much FDI over the years.

Nevertheless, there are strains to the Cypriot program as elsewhere. Its very success has resulted in an overheated real property market, with an ever growing disconnect between value received and mandatory investment thresholds. A real estate market correction is expected and long overdue. Again, COVID-19 will be the catalyst.

How this pending Cypriot real property correction will impact on exit strategies for existing and future CBI recipients, when they decide to sell their properties and unlock capital, is anyone’s guess.

As in Cyprus, many in the global CBI industry continue to discount such warning signs – as did free-traders 15 years ago – they firmly believe that CBI exit strategies are immaterial; only the passport matters. From my experience, the more sophisticated the candidate, the more likely there is an interest in value for money, a desire for real product choice, and how to unlock the capital and effectively redeploy it when the time comes.

OECD transparency requirements, KYC, origin of funds and wealth are all aspects of the global paradigm shift. They are not bad concepts in themselves. They are indicative of a maturing industry where the necessity of CBI is all that more important in this era of heightened nationalism and parochialism.

Some 20 years ago, I saw this progression in Silicon Valley as a young attorney. The dot-com bubble was caused by excessive speculation in Internet-related companies. It was a time of massive growth in the use and adoption of the Internet. Value and price were disconnected, and different product offerings were limited. This ultimately resulted in a NASDAQ market correction that eventually wiped out all the gains of ten years before. Many were hurt; but the industry recalibrated and became stronger.

That is what we are going through now: both collectively, as members of the world economy, and individually, as CBI industry participants.

Today, the NASDAQ correction is seen as a good thing. In 20 years, perhaps COVID-19 will be seen as a positive tipping point that ushered in a new era for our industry; ensuring that it properly matured and solidified alongside the development of the new global context.