The year 2015 will bring about a reckoning for Cyprus. Set to exit recession and back on international markets, the country is ripe for economic recovery – with tourism, energy and financial services driving growth
Cyprus is setting its sights on bigger and better things in 2015, with the country officially on the cusp of exiting recession. While Europe is still reeling from the financial crisis, Cyprus achieved the fastest comeback to international financial markets out of any bailed-out country in the history of the euro debt crisis. Forced to undergo a tough bailout in March 2013, the country successfully returned to international markets in June 2014 with a €750 million issue. Determined to further strengthen its position, Cyprus has plans for two more international debt issues in 2015 under its European Medium Term Note (EMTN) programme.
Investors have been showing keen interest in the Eastern Mediterranean island. Cyprus’ December retail bond issue was heavily oversubscribed, with foreign investors bidding for more than three times the amount of bonds offered. A further confidence boost has been the consistent increase in new company registrations and with foreign direct investments (FDIs) into Cyprus exceeding €2bln in the past year – boosted by the significant capital-raising by Bank of Cyprus in September and Hellenic Bank earlier in 2014.
The speedy return to markets coupled with the domestic banks’ clean bill of health in the recent EU-wide asset stress tests, as well as the lifting of all domestic capital restrictions and easing of the remaining capital controls have brought a rapid stabilisation of the banking sector. Although non-performing loans remain one the biggest challenges for the banks, Cyprus is working to develop sustainable ways of restructuring to help overcome the issue.
The country’s tourism and services sectors, which constitute around 80% of GDP, have continued to be key drivers for growth – and 2015 is also set to see a revival in export growth leading to a resumption of investment in Cyprus. Retaining and improving its comparative advantages for international business has always been a key priority for the country, which before the international financial crisis saw decades of uninterrupted growth. Cyprus has placed paramount importance on safeguarding the stability and benefits of its tax and regulatory regime, as they constitute one of the main pillars of creating the favourable climate for international business and investment the country has enjoyed for years.
Further investment is set to come from the European Bank of Reconstruction and Development (EBRD), who recently opened a resident office in Nicosia. The EBRD, which is owned by the European Union, the European Investment Bank and 64 countries, made a €107.5 million investment in Bank of Cyprus in mid-2014 and holds a 5.02% stake in the bank. The bank plans to invest at least €100 million annually in Cyprus’ financial and energy sectors as well as in privatisations.
The recent closing down of national carrier Cyprus Airways, although not unexpected, has been a blow for the country. However, privatisations present a new opportunity in Cyprus and are being carried out in a targeted way, presenting a structural change that could entice further foreign investments and boost competitiveness in important sectors of the economy, such as telecoms and the ports.
On the energy front, Cyprus continues to explore its options on how to best exploit its natural gas reserves. Although the reserves in its EEZ were smaller than expected, it has not deterred the country from forging ahead to develop its oil and gas sector and discuss possibilities of commercial exploitation of its proven reserves in Block 12 with regional neighbours.
The island is firmly placing itself on the Mediterranean energy map, and has seen interest from various investors – more recently from US-Canadian engineering company TRU Group who stated Cyprus could be the ideal location for building niche natural gas derived chemical or medium-scale energy-intensive industrial operations.
Cyprus also hosts the biggest and most technologically advanced terminal for the storage and management of oil products in the Eastern Mediterranean, connecting Europe and the Black Sea with markets in the Middle East and Asia. The €300 million terminal project began operations in November 2014 and was constructed by VTT Vasiliko, a Cyprus-registered subsidiary of VTTI which is a joint venture of Dutch giant Vitol, the world’s largest trader of energy products today, and MISC, a leading shipping company whose main shareholder is the national oil company of Malaysia, Petronas.
The terminal is the first of its kind in the Eastern Mediterranean, and could establish Cyprus as a hub for trading companies requiring oil storage services. This is good news for the Cyprus economy, as the project is set to generate more opportunities for synergies, sharing the infrastructure with other potential developments in the area, as well as initiating the development of specialised laboratories, and providers of towage and pilotage service that could potentially be useful for future oil and gas projects. The significance of the project positions Cyprus on the map for future foreign investments and business activities.
Also attributing to the FDIs into Cyprus has been a record number of visas granted to non-European residents, who have invested in property or in bank deposits. Recently ranked the 5th best relocation destination in the world by an international lifestyle review, Cyprus continues to offer some of the most extensive advantages for entrepreneurs, families and retired couples looking for a lifestyle change. Cyprus property sales have increased for the first time in four years, seeing a 5.2% jump. More than 4,000 properties were sold in Cyprus in 2014, a significant rise in comparison to 2013.
With guarantees of no new taxes or cutbacks in the 2015 budget, Cyprus is ripe for recovery and will see a boost from both the European Investment Bank’s operations and the exploitation of natural gas. Efforts to attract year-round tourism from new markets and the plans to establish a casino in Cyprus are new opportunities just waiting to be capitalised on. The last two years have been tough, but Cyprus has proven resilient as it forges ahead with strengthening its economy and the increase in investment has sparked a cautious optimism that 2015 will bring prosperity and opportunity in its wake.