Coconut Oil Future Fund: Vanuatu’s most serious attempt to reform its controversial CBI program

By Moustafa Daly 

Vanuatu recently announced a new citizenship-by-investment (CBI) route, requiring applicants to invest in the Coconut Oil Future Fund (CNO Future Fund) an amount of $138,000 for a family of four.

Unlike other available routes, the CNO route will yield returns on the initial investment, Daniel Agius, CEO at the Vanuatu Investment Migration Bureau (VIMB) and architect of the CNO route, tells Uglobal. “Investors in the CNO Fund will acquire redeemable preference shares, which are tied to a mandatory holding period of five years in a Vanuatu registered company,” he adds.

“Post this period, investors are entitled to redeem their shares, receiving the initial net investment amount in addition to the accrued capital appreciation,” Agius says. The fund doesn’t come with a dividend policy, however, its annual capital appreciation target is at least 5%, he explains.

The CNO Future Fund route aims to complement Vanuatu’s strive for a sustainable economy, as the country is extremely vulnerable to climate change. These investments are thus part of Vanuatu’s strategy to fund its climate adaptationmitigation process.

Why did Vanuatu choose to concentrate these CBI-related investments on coconut oil?

“Coconut oil is proven to be a substitute for diesel,” says James E. Harris, Vanuatu’s Special Advisor and Honorary Consul to the United Kingdom, who has a long work history with the VIMB. “Vanuatu currently runs all its electricity generators in Port Vila on diesel generators, so [by growing this fund] we can entirely eliminate fossil fuels and replace it with coconut oil,” he adds.

Besides the potential attractiveness to climate-change-conscious investors, the new CBI route’s investment structure gives a clear financial incentive to invest, as opposed to the long-established donation option that doesn’t yield other benefits than obtaining Vanuatu citizenship. 

“Normally, it’s purely a donation program,” says Harris. “For years, people have been asking, what's the investment component, what is my return on my investment?”

But it’s not just the lack of financial return that has lowered interest in Vanuatu’s CBI program.

^{James E. Harris}

The new CBI route happens at times of decreased mobility for Vanuatu’s passport 

Vanuatu’s CBI program has had a turbulent year. First, its visa-waiver agreement with the European Union (EU) was suspended in late 2022; was granted a grace period to address the EU’s security concerns regarding its program.

Then, in July 2023, the UK took a more decisive approach by halting the visa-waiver agreement, accusing its CBI program of posing acute security and border risks.

These developments have encouraged Vanuatu officials to design this new route, which prioritizes sustainable investment by addressing its partners’ concerns and helping fund its pressing climate agenda.

“We want to see people with genuine ties to the country when they’re taking citizenship,” explains E. Harris. “By creating a program which creates actual, genuine, and identifiable investors, this starts to make the program look a lot more like a regular citizenship program that you see around the world.”

The senior advisor also notes that the program must overcome negative perceptions from the international community, so the new CBI route would at least “change the optics.”

Despite these challenges, Harris is optimistic about the potential return of visa-free travel, at least with the UK. “Vanuatu is a commonwealth country, and it’s a very important partner in the Indo-Pacific for the UK,” he explains.

Although the visa-free revocation came from the UK’s Home Office, Harris reveals that the Foreign Office, tasked with managing diplomatic relations, “was against that because there's so much at stake in terms of the Indo-Pacific geopolitical situation. And when you look at the UK's influence in the Pacific, it’s directly related to its relationship with Commonwealth countries.”

According to Harris, Vanuatu's relationship with the UK could lead to a reversal of the visa decision if the situation changes. Indeed, the island nation has already addressed the UK and EU security concerns.

“It’s common knowledge that Vanuatu, amongst other countries, was an enabler of a legitimate change, a name change, so people could apply for citizenship and change their names. It's the same in many countries, including the UK, so there was nothing irregular about the process itself,” he says. “There would, however, be an information gap created by that process because Vanuatu would not by default relay this information about name changes to third-party countries.”

As of now, Harris says, the name-change option is no longer available for investors, which partially addresses some of its partners' security concerns.

Political impasse is complicating Vanuatu CBI’s mission

In addition to tensions with the UK and EU over its CBI program, Vanuatu has also had a tumultuous year at home, with more than three coalition governments formed recently.

“It's unfortunate that the coalitions that are put in power are weak in terms of numbers,” says Harris. “They're slim majorities, and so it's quite easy for them to be overturned. There are now calls for Parliament to be dissolved and a general election to be held.”

However, any Vanuatu government would have CBI reforms atop its agenda, expects Harris. “[The program] is very important to Vanuatu, not just because of the citizenship program, but for Vanuatu's reputation overall and because the citizenship program is such an important pillar of income for the country,” he asserts.

“The only thing that the government can do is to try to make structural changes to the program, to make it palatable to the wider international community, including Australia and New Zealand, who are our near neighbors,” he says, adding that New Zealand and the UK in particular have offered assistance in reshaping and conducting due diligence for the program to increase its credibility with international partners.

Moving forward, Harris wants to see his country pursue a healthy diversification of its revenue streams. He cautions that “there is a rather heavy reliance on the citizenship program to generate income for the country. And clearly that's not good for the country's economy overall, and I don't think it looks good internationally either.”

“I don’t want, just like the rest of my fellow countrymen, for Vanuatu to be a nation that relies on handouts. So I think Vanuatu should be applauded for seeking ways to capitalize on the fact that it is an ecologically pristine, carbon negative, peaceful, non-aligned country,” he concludes.

Harris anticipates an updated version of the Vanuatu citizenship by investment program, with changes to its controversial provisions, to be announced early in 2024. 

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