Over the last three years the Cyprus economy has made important steps in the right direction. Cyprus has exited the economic adjustment programme, while it is no accident that a positive growth rate has been recorded for eight consecutive quarters, following a prolonged recession.
The economy is projected to grow by more than 2% over the next two years, aided by a recovery of domestic consumption, a drop in unemployment, an increase in tourist arrivals and a recovery in private and public spending. Cyprus is also receiving positive ratings from international agencies, while business sentiment has clearly improved.
Despite the important achievements, challenges do remain. Our economy remains small and not well diversified, therefore making it susceptible to changes in the international economic environment, which in turn is currently characterised by instability and uncertainty. The United Kingdom’s exit from the European Union, for example, could have long-term effects on Cyprus, given the close financial ties between the two countries. At the same time, unemployment remains high despite its downward trend, the banking system still faces difficulties, while private and public debt remain at high levels.
It is imperative that we carry on responsibly. We need to complete the reforms and structural changes in the public sector, aiming at a modern, competitive economy. We need a friendlier investment climate, which will make Cyprus more attractive to the international investment community. Providing incentives is a necessary precondition to attracting foreign investments, while it is equally important that investors, both domestic and foreign, feel secure and confident when they invest in our country.
Cyprus undeniably offers significant comparative advantages to international investors and businessmen. Its geographic location, EU membership, the quality of the professional services we offer, the tax regime (one of the most favourable in the EU), the well-functioning legal framework and our modern infrastructure are some of the benefits that attract the interest of the international investment community.
Yet, there is still much room for improvement. Indicatively, the role of the legal framework is extremely important. It must be adequate, stable and flexible enough to support business initiatives but also adopted to international demands and practices, so as to be attractive. Bilateral and international agreements with other countries play a major role, as do agreements for the avoidance of double taxation and the protection of investments, which combined with the domestic legal system set the wider framework for foreign investments. Some legislative initiatives that could prove helpful in this area are detailed guidelines for taxing investment funds and modern financial products, as well as modernising corporate law.
A favourable legal framework must be accompanied by the correct supervision and control, and should be enforced effectively by the supervisory bodies and courts. In this respect, substantial steps have been taken in recent years as regards the supervision of the Cyprus’ financial system and the safeguarding of the country’s reputation as an investment and services hub.
Attracting investment funds is equally important for Cyprus. This is a sector that can contribute a lot to the economy and multiple benefits could be derived from it. The operation of investment funds generates multiple financial benefits: tax revenue for the state, new jobs, benefits for the real estate market and retail trade. We need to simplify registration procedures for these funds, where possible, and add new products, so that we are in a position to compete with more established destinations such as Luxemburg and Ireland.