Accession of Cyprus to the EU; Opportunities for American Investors
by Dennis C. Droushiotis
Cyprus is the third largest island in the Mediterranean located strategically at the crosswords of three continents and the furthest east of any of the EU Members. The island is approximately the size of Connecticut and has a population of about 750,000 in the government controlled areas.
Cyprus’ entry into the EU is a milestone and we are confident in our ability to undertake the obligations of membership and we have the competency to cope with the competitive pressure and market forces within the Union. Cyprus has a record of successful economic performance and social development, reflected in rapid growth, full employment, a well functioning market economy, a literacy rate of 99% and one of the highest numbers of University graduates per capita in the world.
Cyprus’ Gross Domestic Product has reached $12 billion and prospects for this year remain positive. According to international statistics, the average growth of the Cyprus Economy in the period 1998-2002 was 77% higher than the EU average and 35% higher than the world average. For 2004 the economic growth of Cyprus is forecasted to reach 3.7% and the per capita income in Cyprus has already surpassed $18,000, the highest in the area of the eastern Mediterranean, the highest between the ten new member states and higher than that of some other EU member-states.
Due to the small domestic market and its strategic geographical position, Cyprus, throughout history depended on international trade. Tourism, followed by trade in goods and services, has been the main contributors to economic growth in recent years, accounting for 70% of GDP. Total trade transactions in 2003 reached approximately $5 billion while tourists revenues almost $2 billion.
Trade with the United States has expanded significantly over the past decade and the total turnover reached the figure of $350 million. Over 30 categories of Cyprus Products are exported to the American market ranging from Fresh Citrus to Designer Furniture. Conversely, the United States is the number one foreign supplier to Cyprus.
Cypriot businessmen have responded by developing new regional markets for American Products, making Cyprus a springboard for hundreds of millions of dollars of American exports to the region.
U.S. major exports include medical, engineering, transport and telecommunications equipment, pharmaceuticals and tobacco.
Cyprus Exports include: Halloumi and other Dairy products, Wines, Citrus Fruit, Jewelry, Furniture, Cement, Fresh Fish, Olive Oil, Clothing, and Footwear.
International Business Corporations (IBCs)
Cyprus has long established itself as an international business center and it offers significant advantages to companies wishing to base operations on the Island.
As reported in the May 5th edition of The Wall Street Journal, “Cyprus offers a strategic location, favorable tax environment, educated work force, excellent telecommunications and modern banking and legal infrastructure which makes the country the perfect business bridge for the European Union and the Middle East.”
American companies have been quick to take advantage of business opportunities offered by Cyprus. Over, 1,200 International Business Corporations (IBCs) currently maintain fully-fledged offices in Cyprus. Among these companies are: Coca-Cola, Dow Jones, Gateway 2000, Merck, NCR, Raychem, R.J. Reynolds, SmithKline Beecham, S.C. Johnson, Estee Lauder, Moody’s to name a few.
In addition, there are close to 50,000 companies registered by non-Cypriots. Many are owned by U.S. interests. Such legal entities are widely used by American companies for joint ventures, patent exploitation, investing in third countries, as well as asset management.
Cyprus’ biggest success story has been its establishment as the gateway for investment into Central and Eastern Europe and Russia. In Russia in particular, Cyprus is in the top three positions of foreign investors into the country.
Cyprus has one of the lowest tax rates in the EU with a corporate tax rate of 10%. Cyprus also has 40 double taxation treaties, including one with the United States.
Currently, there are over 29 International banks (International Business Units) operating from within Cyprus.
Their presence in Cyprus is an indication of our country’s international recognition as a reputable regional banking center and of the business opportunities which are expected to arise from our membership to the European Union.
Foreign Direct Investment
The attraction of direct foreign investment, including the promotion of joint ventures, constitutes a major objective of our government policy. In the harmonization process with the European Union, the Government of Cyprus has liberalized direct foreign investment and simplified procedures and allows foreign ownership in all sectors, in many cases 100%.
With liberalization, new business opportunities have been created, which include the energy sector, telecommunications, tourism, and technology, to name a few.
As far as the energy sector is concerned, Cyprus plans to promote specific projects. These plans include preliminary studies on offshore oil deposits and energy infrastructure projects for the importation of natural gas estimated to cost $225 million.
In the area of telecommunications, Cyprus is considered one of the most important telecommunication hubs in the area. The telecommunications market in Cyprus is now being fully liberalized and presents enormous opportunities to foreign investors.
In the tourism sector, Cyprus plans for the construction of new marinas, theme parks, and football stadiums, estimated at a cost of $400 million. Other major projects include reconstruction of our two airports and the sea port of Larnaca.
New investment opportunities, with a long term horizon, will be provided through Cyprus’ high technology investment programs which envision the establishment of business incubators in Cyprus. Through incubators, Cyprus will facilitate the start up of new companies, both local and foreign, in the areas of advanced technology.
American-based IT companies have already expressed interest to exploit the arising opportunities. A number of American enterprises, including two major companies, have been established during the last years on the Island offering information technology services.
In order to establish links with American scientists and other interested entities which would be beneficial to promoting the high tech industry in Cyprus, we have signed a cooperation agreement in the field of science and technology with the University at Albany State University of New York, the University of Southern California, and in June of this year, another with Harvard University.
It is expected that American scientists will be hosted in our high tech business incubators and will be engaged in the development of high tech products in the fields of telecommunications, environment, and renewable energy sources.
Today, Cyprus has managed, with some good fortune and a lot of hard work, to stay ahead of the economic curve.
The economic future for Cyprus looks even brighter as we join the European Union, bringing with it ever hopeful new prospects of a just political solution and social prosperity for all Cypriots.
I have tried in the allotted time to introduce you to various opportunities for the American Investor and the benefits of using Cyprus to expand your business to the 450 million EU market place, Eastern Europe, Russia, and the Middle East.
In concluding, I will borrow a phrase from Shakespeare’s Othello: “You are welcome Sir to Cyprus”.
****Dennis C. Droushiotis, is the Trade Commissioner of the Republic of Cyprus. These remarks were delivered on May 17, 2004, at the Weissman Center for International Business at Baruch College, New York