Cyprus is the only stable country in the East Mediterranean
Cyprus’ standing as an international business centre was a dealt a big blow by the events of March 2013, when the second largest bank was wound up, deposits at the biggest bank were frozen and eventually bailed in and capital controls imposed.
A country with its banks on life support, crippled by non-performing loans (NPL) and in desperate need of recapitalisation, would have trouble enough keeping the foreign businesses based here from leaving, let alone attracting new ones. Being in an assistance programme and having international lenders dictating economic policy were not the kind of selling points that attracted new business.
Two-and-a-half years later, the economy is on the recovery path, recording modest growth for two consecutive quarters, the banks have been re-capitalised although the proportion of NPLs remains high, capital controls have been lifted and the government can once again borrow from the markets.
On the minus side, many local businesses are still struggling and the government has concluded that the best way to give the economy a boost is by attracting foreign investment. President Nicos Anastasiades has visited more than half a dozen countries accompanied by businessmen in an effort to secure investment but has not been very successful. There is a lot of competition and Cyprus is still in an assistance programme which it will exit in March.
While these presidential road-shows may have some value they do not seem to offer incentives that are attractive. The government and agencies seeking investment have failed to come up with a unique selling proposition, to use the advertiser’s lingo. Before EU membership, particularly in the ‘90s, the 4% corporate tax attracted big numbers of foreign businesses to the island marketed as being at the “crossroads of three continents”.
This matters very little, in the age of the Internet, but the government could still market Cyprus as an international business centre as corporate tax remains relatively low – this is why the feared mass exodus of companies after March 2013 did not materialise – and because it offers a good lifestyle. Many foreigners have their businesses here because of the lifestyle they can enjoy.
There are no big distances to travel to work, meeting up with friends is not a logistics exercise as it is in big cities, the weather is perfect apart from the peak summer months, the beach is only a short drive away, there are English language schools in all towns and it is a very safe place to bring up children. These are just a few of the factors that contribute to an easy and relaxed lifestyle and should be used by the government to sell Cyprus to foreign businessmen.
If the current peace talks lead to a settlement of the Cyprus problem we would have a second unique selling proposition apart from the good lifestyle – the only peaceful and stable country in the eastern Mediterranean.