2022-2023 Cyprus Country Report

CYPRUSCOUNTRY REPORT 2022
quickly after the global pandemic in 2020. The figures tell a remarkable story with real
GDP growth hitting -5.0% in 2020 and rocketing back to 5.5% in 2021. During the past
few years the banks have consolidated, boosted and diversified their capital base and
cut non-performing loans by over 80%. At the same time, the government reformed its
public finances, brought debt back to sustainable levels and paid off its debt to the IMF
five years early. These achievements gave the government the fiscal space to extend
sustained support to enterprises affected by the pandemic.
Substantial financial support for the EU’s green and digital transition agenda has
given renewed impetus to digitisation, liberalisation and green reforms, while new
incentives continue to be launched to attract a broad array of quality foreign investment.
This fresh focus is set to raise the economy’s competitiveness further and leverage the
eurozone economy’s highly educated population.
KEY SECTORS
The Cyprus economy is dominated by services, which accounted for 83.4% of gross
value added in 2021, while industry accounted for 8.5%, construction 6.1% and
agriculture, forestry and fishing 2.0%. Over the past two decades the economy has
diversified. While tourism remains one of the most significant sectors – especially
because of its wider impact on retail, transport, construction and employment –
its value-added contribution, when narrowly defined as accommodation and food
services, has now been overtaken by professional services, communications, financial
services and real estate.
Diversification has been made possible by the growing importance of Cyprus as
an international business centre. Information and communication services have
expanded rapidly from a low base, as the country takes advantage of its geostrategic
location at the intersection of three continents. Administrative services are also rising
fast, boosted by the growing compliance industry. As in many advanced countries, the
largest single sector is wholesale and retail trade, serving the general population as
well as incoming tourists.
CHALLENGES AND OPPORTUNITIES
I
mportant structural support in Cyprus’ efforts to stay on its robust growth path
is coming from the Deputy Ministry of Research, Innovation and Digital Policy,
which was established in March 2020 and was key to accelerating digitisation of the
public sector at the height of the pandemic. The government has also launched a
raft of initiatives to support competitiveness and the green transition. These include
incentives for the island’s budding wine sector, to support entrepreneurship and for
energy upgrades in buildings.
Key prospects lie in energy including renewables, interconnectivity, tourism and
headquartering. Energy prospects arise from offshore natural gas finds, further
electricity liberalisation and investment in renewables, while opportunities for
interconnectivity will come from the submarine electricity cables that will link Cyprus
to the European and African continents. Investment in expanding and upgrading the
island’s tourism offering will continue, while prospects for headquartering have been
boosted by the government’s early public health interventions to rapidly contain the
pandemic. This has further enhanced the country’s reputation as a safe eurozone
location in which to do business.
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