Text: Manolis Kalatzis
In 2013, when Cyprus was in the throes of the global economic crisis, there was a strong optimism that great difficulties can create great opportunities. Today’s reality indicates that the bet was won since the results of the actions being already visible in the real economy through the creation of new job positions, the high rate of growth and the upgrading of the economic outlook by the international rating agencies.
A key feature of this crisis that has turned into an opportunity is the change of orientation of the economy, which was mainly based on the banking and financial sector and tourism. Today, the picture is clearly different, with the development of sectors that believed in Cyprus’ capabilities and comparative advantages
Tourism remains the driving force of the Cypriot economy, but it is no longer one-dimensional. Construction, with the real estate market, shipping, higher private education, the pharmaceutical industry, and the first steady steps in the energy sector, compile business web that creates new streets on the economy network.
The most traditional supporting sector for the Cypriot economy is tourism. In recent years, tourist arrivals have sky rocketed thanks to high quality services as well as external factors related to the geopolitical situation in the eastern Mediterranean. The attention with which the Cypriot government approaches the field of tourism is also reflected in the creation of a sub ministry which basically has upgraded the role played for decades by the Cyprus Tourism Organization.
Taking into account the ambitious targets set for the period extending to 2030, the field for new investment with relatively low risk is very wide. The target set is to increase the number of visitors to 30 million per year and 40% of them to cover the operation of tourism infrastructure in the winter months, with expected revenues, estimated at 7 billion euros. Britain remains the largest market for Cypriot tourism, with 30% of the total number of visitors, followed by visitors from Greece at 15%, the Russians at 9,5% and the Israelis at 9%. In 2018 there was an increase of visitors from Britain and Greece by about 15%.
The prospect of boosting tourism, in addition to inflowing capital for consumer purposes, creates the basis for large investments of about 1,5 billion euros– in infrastructures such as Μarinas. The undertaking of upgrading tourism as a product is also based on high-quality hotel investment. In the last few years a lot of hotels have been bought out, renovated, expanded in addition to a lot of newly built ones and more that are under construction, all of which significantly increase the accomodation capacity. These moves also encourage the creation of “satellite” small and medium-sized businesses in the areas of dining, entertainment and retail.
This new era has directed the attention of many investors, new entrepreneurs and investment funds to construction and land development at an extremely rapid pace. The program which grants the Cypriot citizenship to non EU citizens that invest and purchase luxury houses has been a great driving force behind this wave. The construction and real estate management sector has been responsible for investments and turnover with a contribution of 40% in the GDP growth rate of recent years.
The large structures in Limassol, Nicosia and Larnaca have attracted funds mainly from abroad, while the contribution of domestic investors is also significant. The added value of the construction sector increased by 110 million euros in 2016, 207 million euros in 2017, 93 million euros in the first half of 2018 and 150 million euros during the first nine months of 2018. These are investments based on real existing needs and not on opportunistic and profit driven actions . Hence, although the growth rate is high, it remains far from what could create overheating and a “bubble”.
The construction in recent years has also changed the image of Cypriot cities, such as Limassol. In the coming years, the coastal front will present a very different look with the construction of dozens of multi-storey luxury buildings and one of the largest investments ever made in Cyprus over 500 million euros: the “City of Dreams Mediterranean” that will be the largest integrated casino-resort in Europe.
In Ayia Napa, the impressive investment in the marina and the buildings surrounding it –two towers, 29 villas, shops, restaurants etc.– has been budgeted at 300 million euros and is expected to change the image of the whole region.
However, in addition to the large investments in high-rise buildings, there are investments in smaller construction, notably autonomous residences and apartment complexes. In 2018 building permits increased by 32% in area coverage compared to 2017. These permits were mainly for residential buildings and hotels. It goes without saying that development in the construction sector has contributed significantly to the reduction of unemployment.
Cypriot shipping is the world’s 11th maritime power, with 1,700 ships, including 1,000 ocean-going ones. The growth potential of shipping is also reflected in the increasing trend amongst large ship-owning and shipping companies to choose Cyprus as their base. By definition, this dynamic also extends to various supporting businesses such as banks, law firms specialized in maritime law, insurance companies, maintenance companies and others.
Approximately 200 shipping companies are based in Cyprus, while many have expressed their intention to move there, mainly in Limassol. Interest is expected to rise further with Britain’s departure from the EU as many British-based shipping companies want to maintain their headquarters within the EU. Ship management is estimated to contribute to 5% of GDP, excluding services that are directly related to shipping and which cumulatively raise the contribution to GDP to 7%.
Private education also boasts swift growth, particularly higher education, with the privately-owned universities operating in Cyprus gaining an increasing market share, taking advantage of the non-existence of private universities in Greece. The dynamics of private higher education is reflected in the 4,8% of GDP contribution of universities. These numbers are impressive since nearly half of the private universities students in Cyprus are not Cypriots, while it is estimated that the operation of private universities –whose high quality education and the recognition of degrees are a pole of attraction for students even by USA, Australia and Canada– yields about 1 billion euros per year, with the number of students rising steadily and reaching 50,000. Investing in higher education has also created a significant number of new job positions in both the academic and surrounding sectors.
Cyprus, traditionally, has been silently ranked high in the list of countries with a significant contribution to the pharmaceutical industry. Its induction into the EU has expanded the export capabilities of Cypriot pharmaceutical companies greatly, turning them into one of the five key support pillars for the economy. Industries such as Medochemie, which holds approximately 4,400 circulation licenses for 630 drugs and manufactures over 170 pharmaceutical products, and Remedica company, which manufactures nearly 300 pharmaceutical products with exports to 100 countries, is among the most important productive units on the island.
Their production units operate in compliance with World Health Organization and the European Medicines Agency employing thousands of workers. The aim of both companies is to remain competitive amongst similar industries, maintaining high quality and safety in the products they produce.