Every year since the initiative’s inception, the EB-5 Immigrant Investor Program has grown in popularity. It was designed to attract foreign nationals to invest in the U.S. economy, and in exchange for a qualifying investment, they and each of their eligible family members may obtain a green card. The most recent fiscal data release reveals explosive growth since 2017 in several feeder countries. South Africa is one of them.
Within just a two-year span, the number of South African EB-5 investors grew by 226%, and 2020 market trends have pointed to a large uptick in applications as an indicator that South Africa is an emerging EB-5 market.
A stroke of luck for prospective South African investors, United States Citizenship and Immigration Services (USCIS) implemented new processing procedures for I-526 petitions that allow adjudicators to process applications on a first-in, first-out basis. While this is projected to extend wait times for EB5 investment participants in countries such as China, India, and Vietnam, industry experts say these procedural changes may foster even more growth in underrepresented markets. Again, South Africa is one of them.
Learn more about the kinds of South African investors who are participating in EB-5 investments, why they are choosing this program, and what key strategies they are employing to shore up their legacies in the United States.
The Savvy South African Investor
The worldwide financial meltdown in 2008 was a catalyst for a steady rise in foreign direct investment (FDI) in the southern hemisphere. Add to that the explosive economic growth in parts of Africa and a savvier, more sophisticated South African EB-5 investor seems to have emerged. A 92% petition approval rate reflects that sophistication.
Generally, EB5 investment participants from South Africa either accumulated their family wealth over two or three generations or their entrepreneurial endeavors have been highly successful in recent years. They are savvy business owners and investors, looking for solid returns. For obvious reasons, then, a primary question they initially ask when considering the program is why they would invest such a substantial amount of capital into an investment with such a comparatively low monetary return.
Reasons More South Africans Are Seeking EB-5 Visas
Right now, the minimum capital requirement to participate in an EB-5 investment is $1.8 million (or $900,000 when a project is located in a designated targeted employment area, or TEA). That is a lot of money to tie up for potentially years for returns that are generally 5% or less, especially considering the rand-to-dollar exchange rate. Yet savvy South African investors continue to pursue the EB-5 path, and there are several reasons why.
Diversification and Security of Wealth
Diversification of a portfolio is always important, and the security of one’s investment is especially fragile at present. Despite its challenges in the last few years, the U.S. economic climate is still relatively strong, and certainly more stable than South Africa’s in the post-pandemic environment.
Education and Employment Opportunities
Additionally, the vast majority of South African EB-5 investors are seeking a life in the United States for the educational opportunities. Enrolling their children in quality schools creates an opportunity for education—and ultimately employment—opportunities they wouldn’t otherwise have such easy access to.
While it is possible for South Africans to send their children to the United States to study at the cost of international tuition, it is far more cost effective to seek permanent residency for the entire family first. Residence also increases the likelihood of acceptance into an Ivy League school.
Relative Efficiency in Processing
The rule of law seems to be crumbling in South Africa, which is signaling to many South Africans that it’s time to take their business and families elsewhere, and the EB-5 visa program is one of the most direct paths to U.S. permanent residency. Alternative employment-based visa programs often require far more time before gaining a green card.
For instance, some programs require an employer sponsorship prior to coming into the U.S. Other programs have a limited number of allocated visas, so even approval doesn’t mean a visa will be granted. Furthermore, the temporary consulate closures in 2020 drastically increased the visa rollover totals, which means more visas allocated in FY2021 for EB5 investment participants.
These are only three of the most common challenges in securing a visa through other U.S. immigration programs.
Ultimately, the EB-5 program appeals to South African investors because they can count on the security of their investment, they can access better education and employment opportunities for themselves and their families, and they can do it relatively quickly.
However, participation in the EB-5 investment program takes a bit more planning when your country of origin is South Africa.
Strategies for Meeting EB-5 Requirements Under Reserve Bank and SARS Regulations
One of the greatest challenges South African EB-5 investors face is ensuring they can meet EB-5 investment program requirements while also adhering to South African Revenue Services (SARS) and South African Reserve Bank (SARB) regulations. The SARB, which governs exchange controls, sets a limit on the amount of money citizens may take out of the country. Each passport holder retains a 1-million-rand discretionary allowance, no questions asked. At the current exchange rate in December 2020, even the minimum EB-5 investment in a designated TEA ($900,000) equates to R 15 million.
Investors use three common strategies used when funds are being sourced from within South Africa.
Prepare for Scrutiny
Keep in mind, it is not unlawful to move more than R 1 million offshore; there will simply be greater scrutiny and greater tax implications for an investor when they do. The first strategy, then, is to properly prepare for an invasive review. The review process has significantly slowed for EB-5 investment participants since the minimum investment requirement increased, and it involves both the SARS and the SARB.
Move EB5 Investment Capital Offshore Early
Many prudent investors have long-since diversified their portfolios and externalized their money. This creates a situation in which the amount of money they seek to clear with SARB isn’t the full $900,000. This strategy is usually implemented by more experienced investors, as they often attempt to time it against the strength of the rand. However, because of the volatility of the rand, this can be risky, especially when there are looming EB-5 deadlines.
Make a Spousal Donation
The regulations allow 1 million rand per citizen. When an investor needs to move more than what’s allowed, it is perfectly acceptable to do so through a spousal donation. To remain eligible for the EB-5 investment program, participants simply need to provide the proper documentation for lawfully sourced funds.
None of these strategies are new, which means the South African government is familiar with them and unlikely to send up any red flags if investors’ affairs are in proper order.
The EB-5 Journey from South Africa to the United States
While the EB-5 market certainly isn’t as large as it is in other parts of the world, there are large pockets of South Africans who are seriously considering a move to the United States. Unfortunately, the recent near doubling of the investment requirement has put the program out of reach for many of them. For some, that means they will not be able to participate, but for an increasing number of others, it has simply meant being a little more creative. This is not only a testament to the sophistication of South African investors but also an indicator of the caliber of experienced EB-5 professionals they choose to work with on their EB-5 investment.
The general rule of thumb when advising a South Africa–based client is to plan on three years of preparation before they leave for the U.S. It is also important to understand there isn’t much an EB-5 investment participant can do to speed up the process, at least in the earliest of the following three phases.
Phase 1: Addressing EB-5 Investment Capital
From the time a South African investor decides to participate in the program to the time they make an actual investment in an EB-5 project, it usually takes around three months. It may take far less time if an investor is using capital that is already located offshore because they won’t need approval from SARS. But it may take significantly more when they need to secure funding to begin with and/or have to work through SARS because the amount needed to move out of the country is greater than the threshold set by the government.
Phase 2: Awaiting EB-5 Consular Processing
During the processing phase, EB-5 investors must file several petition packets, schedule visits with the consulate, and take care of follow up. At each substage of this process, there are various strategies to help move things along (or that can slow them down).
This is the longest phase in the process, and it currently takes about three years to complete. That is an average time frame, though, and every EB5 investment is unique. Working with an experienced U.S. immigration attorney who also understands South African law is imperative to managing one’s own expectations and to garnering the most efficient processing possible.
Phase 3: Beginning the Move
Once an EB-5 investment participant receives approval on their I-526 petition, it is time to make more definite travel plans. USCIS adjudication is currently running between eight and 24 months to completion. (Non-exemplar approved projects may take a bit longer.) That is essentially enough time to tie up loose ends such as finishing out a school year or selling the house, and arranging the move.