Market Overview
The economy of Cyprus is thriving. The last few years have seen rapid growth, full employment and economic stability.
Cyprus offers good business and financial services, modern telecommunications, an educated labor force, good airline connections, a sound legal system, and a low crime rate. Cyprus’s EU membership, its geographical location, low tax rates, and modern infrastructure make it a natural hub for companies looking to do business within the EU and with the Middle East, Eastern Europe, the former Soviet Union and North Africa. A liberal investment regime has also helped increase the flow of direct investment in Cyprus in recent years. The inflow of total direct investment in Cyprus reached USD 2.2 billion in 2007, compared with USD 1.8 billion in 2006. Intellectual property is protected under modern copyright and patent legislation. Economic growth remained strong at around 3.7 percent in 2008 (from 4.4 percent the year before) comparing favorably against the Eurozone’s average of 1.4 percent in 2008 and 2.9 percent in 2007. Cyprus? GDP per capita, adjusted for purchasing power parity, corresponds to 93.4 percent of the EU27 average, and is the highest of the ten new EU members. The main drivers of growth in 2008 were financial intermediation services, property development, and transport, storage and communication services. The sectoral allocation of GDP in 2008 was as follows: primary sectors (agriculture, fishing and mining) 3.0 percent; secondary sectors (manufacturing, utilities and construction) 18.4 percent; and tertiary (services) sectors, including tourism, 78.5 percent.
In 2008, Cyprus had the third-lowest unemployment rate among the EU27 at around 3.8 percent, and moderate inflation of around 4.5 percent. Cypriot public finances have also improved considerably in recent years. The fiscal deficit, which had peaked at 6.3 percent of GDP in 2003, has been eliminated over the last two years and converted into a surplus (3.3 percent in 2007 and 1.1 percent in 2008). A balanced budget or a very small deficit is expected in 2009. Concurrently, the public debt has declined from 59.8 percent of GDP in 2007 to 48.1 percent in 2008. Cyprus is one of ten countries to have joined the European Union (EU) on May 1, 2004. The EU acquis communautaire — the body of common rights and obligations – applies to the government-controlled areas and is suspended in the area north of the Green Line which is administered by Turkish Cypriots. The process of harmonization with the EU in the run-up to accession has transformed the economy of the government-controlled area, making it more open, liberal, and competitive. Among the many reforms which have already taken place are the following: liberalization of trade and interest rates, abolition of investment restrictions for EU residents and liberalization of the general investment regime for all non-EU investors, abolition of price controls, introduction of private financing for the construction and operation of infrastructure projects, and gradual liberalization of utilities. Cyprus obtained very few derogations from the EU acquis, one of which limited the acquisition of land by EU residents until May 2009.
As of January 1, 2008, the Euro has replaced the Cyprus Pound as Cyprus’ national currency. Joining the Eurozone has been a major accomplishment for the Cypriot economy, resulting in such benefits as a higher degree of price stability, lower interest rates, and reduction of currency conversion.
Market Opportunities
Best prospects for overseas firms generally lie in services, high technology sectors, such as computer equipment and data processing services, financial services, environmental protection technology, medical and telecommunications equipment, and tourism development projects such as casinos, marinas, and golf courses. Moreover, alternative energy sources and the energy sector in general, are attracting an increasing amount of attention, while the possible existence of natural gas and petroleum reserves off the southern and eastern coast of Cyprus opens up new prospects. International food franchises and apparel licensors are also finding fertile ground for expansion in Cyprus. The gradual liberalization of foreign direct investment regulations has made Cyprus an increasingly attractive destination for investors in recent years.
Most imported products and services are handled through agents and distributors. Although most agent agreements are not exclusive, most distributor agreements are. In most cases, a distributor may obtain an agreement to represent a company in both Cyprus and Greece and sometimes in countries of eastern Europe as well.
Many overseas companies have partnered with Cypriot companies as a distribution and sales channels. It is relatively easy to find qualified Cypriots to serve as agents and distributors. Hundreds of overseas companies are already represented here on an agency/representative basis. Cypriot agents/representatives normally market international products and services under binding agency agreements based on commissions. Well recognized Cypriot agents are reliable and pursue their work objectives aggressively and with a keen business sense.
Eu membership heralded a raft of fresh opportunities in the clothing and textiles sector in Cyprus. There are opportunities for franchisors to franchise on the island as well as for exporters of specialised products. The country is increasingly establishing itself as a serious contender in high street culture and in recent years the government-backed Fashion Resource Center was created to promote the Cyprus fashion market.
Largely as a result of Cypriots improved standard of living and wider exposure to international cuisine through travel abroad, there is a growing demand for gourmet as well as ethnic food. An increasingly “western lifestyle” translates into greater demand for prepared or convenience foods. Cypriots have also become more aware of health and fitness and there is an increase requirement for low-fat and organic products.
Import Tariffs
Since its accession to the EU on May 1, 2004, Cyprus has fully adopted the European Union’s Common Customs Tariff (CCT) for third countries. EU products enjoy a natural advantage in Cyprus due to the application of zero tariff rates, more so now, that Cyprus has adopted the Euro as its official currency (as of January 1, 2008).
Trade Barriers
In the run-up to EU accession, Cyprus progressively dismantled trade barriers, becoming a more open and competitive economy. On the whole, this process has made Cyprus a more attractive place for international business. For example, under the CCT, Cyprus now applies tariffs on U.S. products, which are considerably lower than under the earlier regime. (An exception to this rule concerns cereals and other agricultural products.) Another example was the abolition of the 20 percent price preference granted to locally produced goods and services for public tenders. This provision, deemed contrary to EU practice and the WTO’s Government Procurement Agreement, has been abolished since April 30, 2003. Furthermore, Cyprus has eliminated quantitative restrictions and other non-tariff barriers to trade since January 1, 1996, when it started implementing fully the Uruguay Round agreement.
