New storm brewing over ‘golden passports’

3 mins read

Cyprus Citizenship for Investment Scheme is under scrutiny once more following revelations the cabinet approved the naturalisation of 42 relatives of a Saudi businessman with friendly ties to the President.

The case involves relatives of the owner of JetStream Aviation, Abdulrahman Mahfouz whom President Nicos Anastasiades called a friend following a scandal in 2018 when he accepted a ‘lift’ for his family’s vacation in the Seychelles on the Saudi’s jet.

Mahfouz is the same businessman granted a Cyprus passport.

Auditor-General Odysseas Michaelides’ revelations before a House committee on Thursday, has reheated the debate surrounding Cyprus’ investment program and those who fear the passport scheme has brought about more damage than good.

President Anastasiades had said back in 2018 that it was a mistake to accept a free flight on Mahfouz’s jet for a family holiday in the Seychelles but argued the private trip didn’t break any laws or ethical guidelines.

He said in a written statement use of the jet “could’ve been avoided” to prevent what he called a “needless commotion” and “groundless” claims.

According to Michaelides, 42 people benefitted from the naturalisation of the Saudi Arabian businessman resulting from his investment in Cyprus through the CIS program.

An issue arises as no further investment other than the one stated on the initial investor’s application was made.

During a discussion in the parliamentary Audit Committee, Michaelides stated that six relatives were naturalized through the Saudi, as well as 36 dependents of theirs.

Two of the investor’s brothers and a sister, as well as their spouses, acquired Cypriot citizenship.

It is worth mentioning that one of the brothers had two wives.

MPs called on the Ministry of Interior to forward relevant information to Parliament.

The Auditor-General and the House are not the only bodies to revisit the scheme, leading employers came out in support of it but called for investments to be directed towards industry.

The Cyprus Federation of Employers and Industrialists (OEB) argued the investment scheme should be maintained but needs to be improved and its resources redirected from property deals to funding industry as well.

George Petrou, OEB’s chairman, said the Citizenship by Investment Scheme, has contributed up to €9.7 bln in direct and indirect contributions and created about 10,000 jobs since 2013.

In comments to the Financial Mirror, Antonis Loizou, CEO of Antonis Loizou and Associates, defended the scheme arguing it was “not only 10-20 developers who benefit” but a wide range of professionals.

He argued benefits from the scheme have trickled down to other parts of the economy resulting in increased revenue for the state in taxes.

He further argued that Cyprus banks are among the beneficiaries of the scheme as many businesses, including developers were able to restructure their non-performing loans.

Nothing to brag about

Economist and Independent MP Anna Theologou questions the extent to which the CIS has benefited Cyprus’ economy.

She argued the Finance Ministry itself has said that the CIS contribution through investments made in real estate is relatively small compared to the rest of the economy.

Quoting a recent study by the Finance Ministry, she said: “The contribution of investments through the CIS in the construction sector during 2016-2019 amounted to around 1.7% GDP compared to cumulative GDP growth during the same period which was 18.4%”.

She argued the 1.7% cumulative rate over three years compared to the 18.4% GDP growth rate for the rest of the economy, is nothing to brag about.

“If the government had not intentionally turned investors’ focus solely to real estate, returns and benefits would definitely have been higher.”

Theologou said the government turned investors towards real estate in a bid to bail out banks which were overexposed to toxic loans taken out by developers.

“There is currently a bubble in the real estate sector waiting to burst. The government thought that by boosting developers’ liquidity they would be able to pay off their NPLs, helping out banks in the process,” said Theologou.

However, as she argued, developers took to building luxury apartments and houses without planning, creating an oversupply of such property.

“This has brought them back to square one, as despite not having borrowed money from Cyprus banks, they will be unable to repay restructured loans as they will find themselves left with a large number of unsold luxury property on their hands”.

The economist further argued that no serious investment has been made in affordable housing for Cypriots.

“Affordable housing is the last thing on developers’ minds who are concentrating on demand from abroad.

This means that Cypriots still need to find some 300,000 to buy a house, looking to take out loans from banks.”

She believes these loans are not sustainable, and will eventually become NPLs, adding to the bad debt mountain.

Commenting on the CIS’ contribution to unemployment Theologou said that numbers can be misleading.

The ministry report says some 3,000 people were employed in the industry as a result of these investments.

“We know that a large number of workers from abroad were brought in with part of the income generated from the boom construction industry finding its way out of the island.”

The CIS programme has mostly benefited lawyers and property developers, Theologou said.

For a foreign investor to be eligible for a Cypr0us passport, they need to invest at least €2 mln and purchase a €500,000 residence plus tax.

Investors also have to pay a €150,000 application fee with the money earmarked for low-cost housing and innovation.

Cyprus is set to revoke Cypriot citizenship from seven foreign investors for violating the terms of its maligned passport-for-investment scheme, officials said Wednesday.

The development followed a storm of criticism created by Qatar-based broadcaster Al Jazeera reporting that dozens of those who applied for so-called “golden passports” were under criminal investigation or international sanctions, or serving prison sentences.