Attracting New FDIs In The Covid-19 Era
Amid the golden passports scandal and the economic crisis of the COVID-19 pandemic, Cyprus is searching for new ways to attract Foreign Direct Investments (FDIs). The country’s GDP is expected to shrink by about 5.5% this year, while tourism, the Cypriot economy’s most critical sector, has suffered a year-to-year decrease of about 80% in visitors and revenues. Once again, after the financial crisis of 2013, the government is looking for new ways to attract investors and fresh capital to the Mediterranean island.
A research conducted by the advisory firm EY, highlights the pros and cons of Cyprus as an investment destination. Almost one in four investors who participated in the “EY Attractiveness Survey Cyprus 2020” answered that they have plans to establish or expand their already-existing Cypriot operations over the next three years. The percentage for investors who already operate in Cyprus and want to expand their businesses was 54%.
When asked to identify the type of investment they are planning to implement, 28% answered ‘supply chain and logistics,’ 24% said ‘sales and marketing offices,’ and 18% answered ‘headquartering.’ Attracting international firms to set up headquarters is one of the country’s strategic goals and the number one priority on the list of Invest Cyprus, the Cyprus Investment Promotion Agency, dedicated to attract and facilitate foreign direct investment into the country.
In the EY survey, investors who are already in Cyprus, answered that ‘quality of life’ is the most attractive characteristic of the Cypriot economy, followed by ‘telecommunication and digital infrastructure’ and ‘stable political/social environment.’ However, only 69% answered that they view the Cypriot system as ‘a favorable bureaucratic and administrative environment’ (69%). Low results were also observed in the areas of ‘aid, subsidies and support measures from public authorities’ (68%), ‘flexibility of labor legislation’ (66%), and ‘sustainable development/policy approach to climate change’ (66%); indicating potential areas of improvement.
Half of the respondents in the EY survey identified the need to further support high tech and innovation as the top priority (49%). Investing in major infrastructure and urban projects emerged as the second key priority (34%), while support for small and medium-sized enterprises came in third place (22%). Educational background, skillset, and experiences of local human capital are also key considerations in investment decisions.
Perhaps the most crucial issue detected through the survey was that non-established investors had little or no knowledge in the incentives the country is offering to attract fresh FDIs. The report concludes with a series of recommendations for further improving the country’s attractiveness:
• A targeted campaign to raise awareness about investment opportunities in Cyprus.
• Diversification of the country’s economy to reduce dependence on tourism, real estate, and financial services.
• Investment in research, innovation and technology.
• Further investment in infrastructure, including ports, airports, and telecommunications.
• Greater focus on sustainable development and the circular economy.
• Reskilling of the workforce to deal with the shortage of specific technical skills.
• Enhancement of SMEs and more support to start-ups.
• Steps to dilute bureaucracy and eliminate delays in legal proceedings, through the digitalization of government and justice.
• Strengthening the banking system “and increased liquidity through an active stock exchange.”
Cyprus has been trying for years to establish itself as an international professional services center in the Eastern Mediterranean, as “the Singapore of the region,” as officials often state. But the truth is that there was never a serious and organized effort towards that direction. Any efforts made were mostly opportunistic, and thus the results were poor and often ended up harming the country’s reputation. From past cases with dubious offshore companies and dirty money transactions to the recent scandal of the “golden passports” program, the effort of becoming a well-known and respected financial center has not materialized.
It remains to be seen if, this time, the country will draw and implement a structured and long-term strategy to attract investments that will create added value and benefit the whole Cypriot society.