Cyprus’ tourist industry suffered a hammer blow this year because of the Covid-19 pandemic, but the disaster has fueled other ambitions on the island, with many political leaders, financial experts and corporate players now seeing the country as an international hub for small and medium-sized enterprises (SMEs).
Brexit uncertainty, changing work patterns and lifestyle considerations, coupled with the Cypriot government’s courting of global tech companies, has resulted in SMEs increasingly looking to this corner of the Mediterranean to grow their wealth.
With a corporate tax rate of 12.5%, a highly developed banking system built on British standards and practices, and a legal system based on British law, Cyprus is fast emerging as a real contender in the cutthroat arena of international commerce.
“The Cyprus economy is built on a model of SMEs,” said Marios Christou, who heads the Center of Economic Studies at the University of Nicosia (UNIC). “And SMEs have found a home base in Cyprus where they can flourish.
“It’s an upward trajectory that’s likely to continue in the coming months and years, further propelling the status of the island as an international business hub.”
More than 90% of the businesses operating in Cyprus are classed as micro, small and medium-sized enterprises, which is indicative of the overall work ethic of locals and expats on the island according to Elena Kontou, chief executive of Sepaga, a Canadian-owned electronic money institution (EMI) founded in Cyprus in 2015.
“Cyprus offers significant opportunities to SMEs due to their key role in the local economy,” Kontou said. “They generate approximately 77.7% of value added, which is above the EU average of 56.8%.
“There are also many very well-educated, driven young professionals to recruit, with a strong work ethic, as well as a market with grounds to grow and develop. Especially in the area of technology and finance, Cypriots are eager to learn and try new solutions.”
Revenue from tourism – which affects many businesses on the island – suffered a monumental drop in the first six months of this year, dropping to €6.7 million (US$7.9 million) in June compared with €350.4 million at the same time last year. According to statistics released this month by the Cyprus Statistical Service, it’s a decrease of 98.1%.
However, despite the common perception that tourism is the lifeblood of the island, 70% of the Cypriot economy is actually focused on financial and professional services including banking, investment management, shipping and real estate.
And prior to the pandemic, the economy was doing better than predicted.
Over five consecutive years, Cyprus registered GDP growth rates averaging 4.4%, with unemployment falling to its lowest level in a decade. Downsizing the banking sector, reducing the concentration of high-risk assets and imposing one of the strictest anti-money-laundering frameworks in Europe had further renewed confidence in the banking sector, leading to new international business and foreign direct investment (FDI).
Serious investment was also being plowed into large-scale infrastructure projects, hospitality, health care, higher education, technology and renewables.
Georgios Lakkotrypis, the former energy and commerce minister for Cyprus and an adviser to the president, said: “In recent years, Cyprus has transformed its banking systems, fully aligning it with EU regulations and the highest international standards.
“Before temporarily being interrupted by the pandemic, Cyprus was able to stabilize its economy and attract investment. With its careful handling of the health crisis, Cyprus will soon be in a strong position to resume its growth trajectory.”
One of the sectors the government is pinning its hopes on to restore the island’s fortunes is future technologies. Theodoros Loukaidis, the director general of Cyprus Research and Innovation Foundation, says interest in future capabilities, in particular, has witnessed a “rapid evolution” in recent years.
“The reform of the national governance system for R&I as well as the recent establishment of the Deputy Ministry of Research, Innovation and Digital Policy reflect the strong commitment to establish R&I as a fundamental pillar of a new model for growth, capable of expanding the productive base of the Cyprus economy.
“Through collaborative working, our aim is to bring the ecosystem closer together and amplify its potential to produce world-class research and innovation that results in tangible benefit for the national economy and the society.”
Among the next-generation technology companies that have made Cyprus their base are Pundi X 365 and Borghese Ventures offering tech solutions in tourism and hospitality, fintech, edtech and data analytics.
Joseph Borghese, an Indo-Cypriot entrepreneur who owns both companies, said: “Cyprus has many opportunities to offer businesses seeking to develop within the EU and beyond.
“As a country, it has the most higher education graduates per head of population in the EU. Specifically, more than 58% of the people aged between 30 to 34 have higher education qualifications, and it has witnessed a great growth in the science and technology sector.
“Also, due to the political will of the government and the encouragement of the EU through strategies like the European Digital Strategy, new ecosystems on innovation and next-generation technologies are being built in Cyprus creating new opportunities for investments.
“For example, focusing on blockchain, artificial intelligence and IoT [the Internet of Things], the national strategies that have been approved by the Council of Ministers open the doors for international tech companies to invest in Cyprus.”
Andreas Neocleous, the CEO of Cyta, the island’s biggest telecommunications provider, also believes the island’s future lies in tech.
The former Goldman Sachs and Ericsson executive said: “It is reassuring to remember that in difficult times, Cyprus has managed to successfully re-invent itself again and again and I am confident that it will continue to do so in the future.
“One thing we have not been so successful in so far is to use technology to enhance our capabilities and transform our economy. However, during the last few months, there have been encouraging signs from within the government, and we have witnessed some crucial first steps towards this direction.
“Digital solutions were chosen to implement the movement restrictions during lockdown, the automation of financial benefits to the workforce as well as the new policy for travelers to Cyprus from abroad. For the first time, there is a real opportunity for technology to become the main force to move the economy to the next level.”
Despite the island’s relatively slow embrace of the digital age, Cyprus has witnessed some surprisingly pioneering moments in recent years. The University of Nicosia was the first university in the world to offer a master’s program in digital currency, recognizing the potential of blockchain ahead of the curve. It was also the first to allow fees to be paid by Bitcoin as early as 2013. There has also been a noticeable uptick in businesses offering AI services.
One such company, Fountech Solutions, opened for business in Cyprus last month with the aim of helping European clients drive growth through artificial intelligence.
A spokesman said: “AI is lagging way behind its potential; we want to inform and encourage much greater innovation. It’s as if mankind just invented the wheel, but over-regulation, especially within the EU just now, is applying the brakes.”
It is this sense that Cyprus is willing to go easy on the brakes that is making budding entrepreneurs sit up and take notice.
Andreas Savvides, CEO of the Curis Network, a health-care delivery service that has its sights set on international medical tourism, said: “Cyprus is ideal for developing your business. The local market size is perfect to test drive any idea in a controlled, managed environment prior to scaling up.
“The operational costs are also substantially lower than any of the ‘branded’ European business locations. And, of course, Cyprus offers a unique lifestyle.”
UNIC’s Marios Christou agrees that the island’s quality of life is another aspect helping to drive the current business interest.
“This ‘dawning’ of small and medium-sized enterprises is especially pronounced in Limassol, which is regarded in its own right as one of the most reputable business hubs in the Mediterranean, offering an excellent combination of business life with quality of life.”
According to government statistics, one in every four people working in Cyprus is a non-Cypriot and some 70,000 British expats currently live on the island. Before Brexit loomed, the main draw for Brits choosing Cyprus to set up shop was the quality of life the island offered. The weather is good, the crime rate is low and – thanks to the government putting health over wealth during the pandemic – it is viewed as a relatively safe place to live.
British-owned moving firm RSS Logistics, based on the west coast near Paphos, began life 10 years ago as three men and a van. Now the company has a fleet of vehicles offering worldwide relocation services to and from Cyprus.
Manager Andrea Thorne said, “Cyprus is ideal for SMEs as overheads are low, tax is advantageous and VAT [value added tax] is at a lower rate than the UK. The local population both Cypriot and expat are both very supportive and welcoming. There is also plentiful skilled labour that enables a high standard of service to be offered.
“The other advantage Cyprus has is its feel-good factor. It’s a beautiful, safe island with great weather and lots to do given the outdoor nature of life here.”
One of the other draws for UK entrepreneurs is that Cyprus is easy to navigate, thanks to British-style administrative systems, the prevalence of the English language and driving on the left. Another selling point is that it is part of Europe.
James and Rachel Hennessey are among a number of “Brefugees” who moved to Cyprus last year. For Rachel, who worked as a key account manager for a courier company in Buckinghamshire, her decision to leave the UK came after experiencing first-hand the huge financial cost of a looming Brexit.
“At the place where I worked there was a lot of shipping in and out of the country and millions had already been lost because people panicked,” said Rachel, 38. “Many of our customers simply stopped using us and they put their warehouses in other countries – mainly Belgium, the Netherlands and Poland – because they need that input into Europe.”
The Hennesseys moved to Peyia in July 2019 and immediately set up their own businesses – JH Plumbing & Heating and Island Rose Cyprus, a florist specializing in wedding flowers.
Rachel said: “When the island went into lockdown it was a real worry, but we survived and James’s business has really taken off again. In fact, he may need to hire another plumber by next year because the business is growing so nicely now.
“Although we ‘sold’ him well, thanks to some good marketing ads, we’ve both found it quite easy to start businesses here and if Covid hadn’t happened I believe we would both be flying now.”
Cyprus’ ability to bounce back is a given. The global financial crisis and the troika bailout in 2013 damaged the country badly in terms of its economy and reputation when the European Commission, the European Central Bank and the International Monetary Fund agreed to throw Cypriot banks a €10 billion lifeline on condition they impose a bail-in of bank deposits.
This meant that clients of the country’s two largest banks saw a percentage of any deposits exceeding €100,000 converted to equity, namely shares in the lender. The moved caused outrage both at home and abroad, so the relatively quick turnaround in the island’s fortunes has not gone unnoticed.
“Cyprus, being a small country, has the ability to recover faster than bigger countries after crises,” said Joseph Borghese. “Even though Covid-19 definitely affected the Cyprus economy, like any other country, due to the hard-working character of the population and the political stability I am personally confident that the economy will recover with faster rhythms than other EU states.
“Even before the pandemic, Cyprus had made steady progress transforming its banking, financial and regulatory structures, turning it into one of the fastest-growing economies in Europe.
“Now we are noticing important changes in the ecosystem of business especially through the implementation of new digital processes within the government system. This also helps businesses to work remotely with more efficient processes.”