What's up with second passports? | Fin24

What's up with second passports?

May 25 2016 22:00

Cape Town - Dr Johann van Rooyen, author of Residency and Citizenship through Investment: The 2016 Report for Emigrants, Expatriates and Investors, has been invited to speak at the Citizenship by Investment & International Residence Summit Europe.

Fin24 found out some more:

What is the conference about?

It is the largest independent event for international investor immigration and it covers the second passport industry worldwide, operational and regulatory insights, outlook and industry trends. Speakers include the prime minister of St Kitts and Nevis, several ambassadors and government ministers, academics, immigration consultants and legal firms. It is held over two days in June 2016 in Geneva, Switzerland.
What is your topic?

I discuss the main drivers behind emigration in general and more specifically, what drives investor-class emigration and the quest for second citizenships, as well as recent trends, risks and demographics. I focus on the Brics countries, as a large percentage of second passport applications come from China, and to a lesser extent from Russia, Brazil, India and South Africa.

How do you define the second passport industry?

The industry consists of at least 50 countries which offer residency and citizenship to hundreds of thousands of emigrants who are willing to invest their money in these countries and do not wish to go through the lengthy bureaucratic processes, or do not qualify for the traditional emigration channels because of their age, language abilities, or a lack of in-demand skills, educational requirements and job offers.

What are the main drivers for investor-class emigrants seeking second passports?

There is a growing demand because of greater political and socio-economic instability in many regions of the world, growing numbers of wealthy individuals in emerging countries.

Political instability

The world today is arguably in a greater state of flux than any time in recent decades and dangerous flashpoints can be found virtually in every corner of the globe. In response to the persistence of war, civil war, genocide, discrimination and repression, millions of refugees are seeking an escape, and hundreds of thousands of investors-class emigrants are joining them by seeking second passports.

While political instability and violence force most investor class emigrants physically to move to their host countries, for many others, a second passport is seen as an insurance policy against future risks. Many Hong Kong residents who left before the China takeover in 1999, returned within a few years after they obtained a second passport and hundreds of thousands of South Africans own second passports, including about 800,000 with British passports, but remain in South Africa – for them, it’s a great place to live, but they appreciate to have an alternative.

Socio-economic and financial drivers

The second most important driver for second passports is the quest for a better economic future and financial security. High net worth individuals, which epitomizes the average citizenship-by-investment emigrant, are financially independent and because of various challenges symptomatic to most developing and under-developed countries, these individuals seek a better standard of living, send their children to better schools, enjoy cleaner air, have access to better healthcare, and enjoy a higher level of personal security.

In addition, they seek to preserve their wealth from being expropriated and controlled by unscrupulous and corrupt governments, and from the ravages of inflation and currency depreciation. Mostly it is a combination of these socio-economic conditions that motivates emigrants, for example, Chinese emigrants leave in search of better education for their children, escape dangerous levels of pollution and authoritarianism. Emigrants from Russia, South Africa and Brazil seek to escape high levels of violent crime and corruption - 60% of South African emigrants list the 9th highest murder rate in the world as the main reason of why they emigrated.
Retirement incentives

For many investor-class emigrants, especially those from first world countries, the quest for residency and citizenship could be driven by the desire to retire in a lifestyle that is comfortable, affordable, with low housing and healthcare costs, relative safety, and basic comforts. In addition, they prefer countries that are basking in year-round sunshine, with cheap golf courses, good restaurants, cultural activities and good air travel connections.

In fact, about two-thirds of the 30 host countries discussed in my book enjoy either a tropical or Mediterranean climate. Low-cost, high quality medical care is a huge incentive among an aging baby-boomer generation of which there are over 1 billion members worldwide. Popular host countries that cover many of these requirements include Panama, Costa Rica, Belize, many Caribbean island states, the Southern Mediterranean, Mauritius and the Seychelles.

Low-cost, high quality medical care is available in Costa Rica, Panama, Grenada, Mauritius, Spain, Portugal, Malta, Cyprus which attract many retired expats. In addition, countries such as Panama and Ecuador offer retirees discounts in restaurants, hotels, cinemas, clinics, pharmacies ranging from 10% to 50%.

Tax incentives

While about $21trn is held in offshore tax havens and another $1trn per year flows out of developing countries, investors do not have to become residents or citizens in these countries to enjoy the benefits of offered by tax havens - investor-class emigrants who are physical residents or citizens can benefit from the low or zero taxes, and this is another driving force for expatriates to invest and settle down in far-away tropical islands and low-profile countries. Countries such as Belize, Bahamas, Costa Rica, Monaco have little or no income, capital gains, inheritance or gift taxes.

Weakening currencies

A constantly weakening currency and especially the expectation of further declines, make it difficult to accumulate sufficient foreign exchange to meet investor-class criteria and encourages emigrants to expedite their departure. The South African rand, the Brazilian real and the ruble have all declined by 50% to 66% over the past two years.

With South Africa facing a further downgrade to junk status later this year, prospective investors-class emigrants are getting restless as their rand assets decline in value on almost a daily basis.

Capital controls

When countries face major capital outflows, their governments could stem the outflows of money through capital controls. Few things evoke more panic among potential emigrants than not being able to export their capital and this is a big incentive for investor-class emigrants to circumvent or pre-empt such controls.

The strict apartheid-era forex controls during the 1980s still resonate with South Africans who were forced to smuggle out money or leave behind much of their capital.

Better passports and visa-free travel

Powerful second passports are sought-after travel documents for those desperate for the convenience, security and mobility that it represents. Anyone who has ever applied for a Schengen, Canadian, American and other visas, knows what a bureaucratic and expensive annoyance this can be. Powerful passports of most developed states and even those of some smaller stable countries eliminate onerous visa restrictions and passport that allows for visa-free travel to the Schengen zone are especially popular.
South African passports are relatively weak and allow visa-free travel to only 94 countries out of a possible 218, Russians to 95, India to 52, China to 44 and Afghanistan to 25. German citizens possess the world's most powerful passport and can travel visa-free to 177 countries, Canadians to 172, Portugal 172, Malta 163, the U.S. 174. Even some countries in the Caribbean such as Antigua & Barbuda have powerful passports with visa free travel to 134 countries.

What are the recent developments and trends?

The European Union is under pressure

Open borders and passport-free travel, especially in Europe’s Schengen zone of 26 countries, are under threat. Europe is experiencing the largest influx of people since WW2 and the result has been the limits on the freedom of movement within the Schengen zone and a tightening of its external borders.

So far this has not had too much impact on the second passport industry, but it can be expected that backgrounds checks will increase before citizenship is authorized. With the EU facing a growing risk from disintegration and terrorism, it might also be possible that there could be greater demand for non-European passports, in particular for relatively lower-risk countries such as Canada, Australia, the US and New Zealand.  


More than 50 countries have some form of investor-class programme and the US leads the way with 11 000 investor visas per year, New Zealand about 3 500 and the province of Quebec about 2 500. Estimates for the total annual citizenship by investment applications range from 60 000 to 80 000 or more.

A recent study by New World Wealth suggested that 39 000 millionaires emigrated in 2015 from just nine countries, including 9 000 Chinese, 4 000 Indians, 2 000 Russians, 2 000 Brazilians, 950 South Africans. If we add the millionaire emigrants from the US the Middle East, South-East Asia, Africa and South America, that figure could double to about 80 000 millionaire investor-class emigrants per year.


The demand for second passports will keep on expanding as the numbers of wealthy people in emerging countries increase, and in no country are the numbers of wealthy are increasing as fast as in China or are leaving as fast as in China. Between $450bn to $1.2trn of capital left China last year, together with about 600 000 Chinese emigrants.

Chinese buyers now are the largest source of foreign cash in the US and Canadian residential real-estate market and Chinese investors constitute more than 80% of investor-class immigrants in Australia, the US, Quebec and Portugal. About 9 000 millionaires left China in 2015 and about half of the 1.3 million Chinese millionaires plan to leave of the country in the next five years.

Pressure to tighten requirements

With growing demand for second passports and greater financial incentive to encourage this kind of investment, countries have to be careful not to allow their citizenship to be compromised and diminished. Passports issued inadvertently to criminals, money launderers and terrorists, by overly-eager host countries, have the potential to discredit the integrity of such passports and harm the industry.

Malta was pressured by the EU to make changes to its second passport programme. St Kitts had to recall 16 000 second passports after re-issue after Canada placed visa restrictions on St Kitts citizens. Canada revoked the citizenship of over 3 000 citizens who obtained it fraudulently and suspended another 65 000 applications in 2013.
The wealth effect

Between 2006 and 2014 investor-class emigrants invested a total of $4bn in second passports through one firm, Henley & Partners. Just three countries, the US, New Zealand and the province of Quebec attracted more than $10bn last year, and it can probably safely be assumed that the rest of the industry 50 countries is worth at least 3 to 5 times that amount - that is more than $30-50bn per year.

How does any of this apply to South African emigrants?

About 1.5 million South African expatriates live outside of South Africa and in recent years the steady stream has picked up again to about 27 000 per year. Since most people leave without emigrating formally, actual numbers are probably double.

While the vast majority of South African emigrants with good qualifications and skills go via points-based emigration programs to traditional immigration destinations such as Australia, New Zealand, the US, Canada and the UK, growing numbers of wealthy South Africans are using their cash to acquire second citizenships in less-familiar parts of the world such as Cyprus, Malta, Mauritius, Bahamas, Belize and Panama.

According to New World Wealth, there were 38 500 high net worth individuals with net assets of $1m (R15m) in 2015 (representing 40% of Africa's millionaires).  About 1 000 millionaires emigrated in 2014, adding to the more than 8,000 millionaires who have left SA since 2000. It must be added that not all investor-class emigrants are millionaires – many more are worth between $500 000 and $1m, which is sufficient to allow for citizenship by investment in most  host countries.

About 36% of investor-class emigrants went to the UK, 15% to Australia, 11% to the US, 8% to Canada, 5% to Mauritius and 4% to Israel. Mauritius remains a popular option for wealthy South Africans, due to its proximity, language, powerful passport and relatively developed economy. More than 20 000 South Africans have settled in Mauritius between 2000 and 2015 - 400 of these were millionaires and presumably the rest were wealthy enough to make the $500 000 minimum investment in a qualifying resort property or a business.

South Africa’s capital controls have been relaxed over recent years and the fact that South Africans are allowed to own two passports, has encouraged the investment in foreign passports. South African emigrants are allowed to take out a foreign capital allowance of R10m per adult per year or R20m per family unit. Even when not emigrating, the South African Reserve Bank allows citizens to invest money overseas, currently up to R10m per adult ($670 000).

Unfortunately, the relaxation of capital controls has largely been negated by the currency’s decline from R7 to R15 per $1 during the last five years. This means that a South African who needed R3.5m in 2011 to buy a house in the Algarve to get a Golden visa, now needs R7m for the same transaction. With South Africa facing a further downgrade by rating agencies later this year, investors-class individuals should be getting very cautious.

world economy  |  emigration


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