As the eurozone struggles to restore its ailing economies, perhaps it is time for participant-states to look beyond their own backyards, writes Giorgi Meladze.
Giorgi Meladze is the director of the Ilia State University Center for Constitutional Studies and the executive director of the Liberty Institute, a libertarian think-tank in Tbilisi, Georgia.
As Italy, Portugal and Greece continue to struggle economically in the aftermath of the global financial crisis, the Eerozone must urgently improve its immigrant investment programs and put an end to the rising xenophobia witnessed during the EU parliamentary elections this year. Solutions to both of these problems do indeed exist and, surprisingly, they happen to be found in some rather startling places.
In today’s global marketplace, entrepreneurs from developing countries are increasingly looking toward more advanced economies for investment opportunities, sometimes due to political instability at home but always in the hope of maximizing their returns. Unfortunately, however, the eurozone has yet to capitalize on this trend because too few participant-countries have as of yet implemented world-class policies to attract foreign investors, while the region continues to suffer from a growing ethnic divide.
As the world’s historic melting pot, the United States offers a number of lessons learned in terms of how sound policy combined with social tolerance lures foreign investors. Thousands enter the United States annually under these programs. In 2013, in fact, according to the Migration Policy Institute, the country nearly met its cap for these immigrants, granting entry to nearly 10,000 through its EB-5 Visa program.
Other Western countries such as the United Kingdom and Australia are also case studies deserving of analysis. Often requiring upfront investments from immigrant investors by way of property purchases, cash advances, or government obligations for benefits like citizenship or special residence status, these programs provide them with political and economic stability, fiscal advantages and visa-free travel. Specifically these countries remain popular destinations among entrepreneurs looking to invest abroad, as they not only offer the “run-of-the-mill” incentives, but also all of the dressings of a tolerant society.
Today, however, the eurozone lags behind not for a mere lack of trying. While many states have crafted programs to attract investors from Eastern Europe, the Middle East and North Africa since the crisis, few have seen their tactics gain ground because, as societies, they have yet to become sufficiently tolerant.
Undeniably, immigrant investor programs demand political and social readiness to secure the desired applicant pool, as several emerging markets have shown through their inclusive development strategies.
Although quite distinct economically and culturally, three former Soviet countries – Latvia, Georgia and Azerbaijan – are outstanding illustrations of what the Eurozone might do to entice foreign investment.
Perhaps most impressively, Latvia has received enormous investments from non-European sources since it began formulating programs targeting foreign investors in 2010, boosting crucial domestic markets such as the housing sector. While attracting $1 billion over the past three years from a diverse suite of foreign investors through these programs, the government has cleverly remained ahead of the curve by demanding comparatively lower investment thresholds. Today, investors essentially need no more than $100,000 in real estate capital, or $50,000 in equity investments to qualify for Latvian residence permits.
But Latvia is also a beacon of social inclusion in Europe. Although two-thirds of its foreign investors hail from Russia (despite all of the connotations that this carries given the complex historical ties between those two countries), Latvia’s openness and aggressive policies to attract development capital without ethnic discrimination have propelled its economy toward further output growth, and almost certainly contributed to its successful bid to enter the Eurozone and adopt the Euro currency early on in 2014.
At the same time, Georgia and Azerbaijan have also managed to attract significant numbers of foreign investors to their economies thanks to their stellar immigration reform and highly tolerant societies.
Considered a “failed state” by many until after the 2003 Rose Revolution, Georgia implemented a broad program under former President Mikheil Saakashvili to attract foreign investors that included reforms to public service and business law, new anticorruption legislation and visa-free residence for citizens from the United States, Switzerland and the EU, among other major world economies. At one point ranked 112th on the World Bank’s “Doing Business” survey, the reforms pushed Georgia to eleventh place by 2010, although its new government has decidedly rolled back on certain globally minded initiatives.
Meanwhile, Azerbaijan, a secular country with a predominantly Shi’ite population bordering Georgia to the east, boasts a remarkable history of tolerance and international partnership, as its thriving relations with Israel suggest. Home to a flourishing Jewish community of 30,000, Azerbaijan is perhaps Israel’s model Muslim partner for the conflict-ridden Middle East. Supplying Israel with 40 percent of its oil, the two countries’ trade hit an astounding $300 million in 2013. Even more astonishingly, although located just south of Russia and in earshot of Syria and Iraq, Azerbaijan has become a prized ally of the United States and EU through oil and gas projects vital for global energy security, while managing to effectively pursue economic ties with Islamic states such as Iran, thus setting a benchmark in tolerance to follow.
Perhaps it is time for participant-states to look beyond their own backyards, for insight into how to better attract foreign investments. Located on either side of Europe’s edge, Latvia, Georgia and Azerbaijan offer essential lessons learned.