Foreign Direct Investment in Cyprus and the real economy
ME PoV Fall 2019 issue
Cyprus ranked 8th out of the top 20 countries globally in Global Finance magazine’s “FDI Superstars 2018” for Foreign Direct Investments (FDI) performance and appeal. We have come a long way in the last few years, surpassing all international expectations since the banking crisis of 2013.
Cyprus is now attracting significant inflows of foreign investments from the United States, Russia, India, China and other countries in the Middle and the Far East. Cyprus’ improved credit ratings by international agencies, the successful recapitalization of its major banks and recent government bond issues raising over €5 billion in the international markets, coupled with numerous large-scale projects, have all contributed to the resurgence of Cyprus as a top FDI destination.
During the last six years, FDI in Cyprus stood at over €10 billion. The most important investments went to the recapitalization of the banks, major acquisitions in the pharmaceutical and retail industries with major foreign investors entering the market, investments in hotel and leisure–the most significant being the €500 million investment in the integrated casino resort–and new players entering the health and education sectors by acquiring major stakes in existing operations.
These types of investments are indeed encouraging, however, what makes a country really successful in attracting FDI is its ability to encourage foreign investors to develop industries and sectors within its economy. It is encouraging to see that the emphasis is more on motivating multinationals to set up real operations, headquarters, large-scale warehouses and regional centres as opposed to just SPVs (special purpose vehicles) and holding companies. This will certainly have a positive impact on the creation of jobs and other opportunities, not only in the respective industries, but also in all the peripheral services offered to such corporations.
It is inevitable that when such global organizations set up presence in a specific country, they look for support from local sources in legal, accounting, human capital and many more like services. Their highly paid expatriates use restaurants, education, retail shops, transportation and many other products and services in their country of operations.
Within the tourist industry, efforts are being made to encourage big international hotel chains to enter the market, thus enhancing tourism offerings and products.
Two recent examples of companies taking advantage of what Cyprus can offer are Sykes Enterprises, a global leader in business process outsourcing, which picked Cyprus from 20 other competing jurisdictions as its base, citing the right work-life balance as a key reason. High-tech and entertainment start-up Whipper also established its global headquarters in Limassol, adding more weight to the growing start-up culture in Cyprus.
Companies like Wargaming, who moved their headquarters to Cyprus bringing with them more than 200 top executives with their families, are a prime example of the increased number of companies in the intellectual property and technology industry setting up real presence on the island. These are encouraging and welcome signs of what real FDI is all about.
Brexit is also providing opportunities. The major global shipping insurer, London P&I Club, announced that it was setting up a “post-Brexit subsidiary” in Cyprus. And there should be many more opportunities in other industries too.
The recent gas findings are promising and some of the big names in the industry have already set up operations on the island. These include not only the well-known operators but many of the support companies that are looking to set up regional headquarters for servicing their clients in the wider region of the eastern Mediterranean, Middle East and Africa.
The rapid expansion of the tertiary education sector in recent years has also created opportunities for regional educational centres attracting foreign students from all parts of the world. We have already seen cooperation between local institutions and many international universities bringing with it increased foreign investment in the industry. The global university rankings that recently ranked the University of Cyprus at number 700 out of more than 28000 universities globally is also very encouraging.
There is a bright future for Cyprus in attracting even more FDI, which can have a real impact on the economy. For many years, Cyprus has been identified as an ideal location to establish business presence, offering an enviable combination of climate, business and culture with many key benefits to foreign investors and their dependent family members who are looking for a jurisdiction that offers financial stability, a gateway to Europe and a quality standard of living for their families.
Being the third largest Island in the Mediterranean, Cyprus is one of the most attractive tourist destinations in the region. But don’t be misled, when you’re next on the beach have a closer look at those enjoying the sun. They are most likely on their lunch break or maybe even preparing for a conference call with HQ in New York and a law firm in London. The challenge is to keep them working and enjoying the benefits of Cyprus and not to just have them back as tourists!
by Pieris Markou, Partner, Tax & Legal Services Leader, Deloitte Cyprus