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Act now for Cyprus growth

Time is of the essence to position Cyprus as a safe and reliable place to do business

By Lefteris Adilinis and Fiona Mullen

Government and other stakeholders must quickly pull together if Cyprus is to take advantage of the small window to attract investors and create long-term jobs, business leaders have told the Cyprus Weekly in an exclusive interview.

With the World Economic Forum highlighting the risk of international conflict as the biggest threat in the next decade, Cyprus has a brief chance to position itself as not just a safe but a reliable place to do business.

“If you see what is coming out of Davos, investors are looking for bright spots of predictability and good governance in a region that is volatile and unpredictable,” said Cleopatra Kitti, an advisor to investors and governments on policy and inward investment strategy.

“Those who get there first will be the winners, so Cyprus doesn’t have much time to waste,” she added.

The world is moving fast

Yet Cyprus has been falling behind, argues Pavlos Photiades, Managing Director of the Photos Photiades Group, one of the largest employers on the island.

In the World Bank’s 2015 Ease of Doing Business rankings published in November, Cyprus had tumbled to 64th place, from a high of 36 in 2013 (published before the crisis).

“The world is moving … Maybe ten years ago we were among the best. But we haven’t really improved in the last ten years,” Photiades said.

Photiades welcomes the government’s plans to cut red-tape and streamline licensing procedures but he also urges the government to move ahead fast.

“There is a very difficult hurdle and that involves restructuring the government machine. We all know that this has to happen, the government has announced that they will do it, so they have to go ahead and do it.”

He says this will instill confidence not only within Cyprus but also outside “that things are improving drastically”.

Another source of urgency is the weak prospects for growth, especially after the recent disappointments over natural gas.

“You cannot continue with a savings rate that is below zero. Now drivers of the economy have to start producing.”

Investors need predictability and reliability

One area which needs urgent focus is reliability and predictability for investors, says Kitti.

“We need to be clear about what defines Cyprus as an investment destination. Respecting rules is key. This needs to come both from investors and from the country’s leadership and stakeholders–government, political parties, public sector employees, unions and the business leadership.”

Achieving that requires “a proper investment code with rigorous corporate governance,” she says, otherwise Cyprus will be “caught in a rate-race of short-termism and short-view investors”.

“People need jobs and we need long-term investors to stay with us on our side.”

Parties and media also have a role

While the government and regulators have a large role to play, interviewees also called on other stakeholders such as the political parties and media to play their part.

Symeon Kassianides, chairman and CEO of the Hyperion Systems Engineering Group, which has a long tradition of international business, says: “What we seem to ignore here in Cyprus is that people do listen to what we say, whether that’s foreign investors or portfolio managers.”

This is especially true when it comes to politicians and on economic issues.

“It doesn’t matter if they are the best in the world at what they do. We have people who express opinions and take decisions about things they don’t know,” says Kassianides.

This means that these days an association with Cyprus can have “numerous negative connotations”.

Others have privately expressed concern that party micro-politics combined with persistent, often inaccurate media leaks, about delicate negotiations with foreign companies are putting off investors.

Kitti urges all stakeholders to pull together for the good of Cyprus.

“There is a noble cause in reforming the way Cyprus works and what it stands for. Domestic micro-politics won’t get us there,” she says.

The opportunities are there

As well as good regulation and governance, Cyprus needs to make the most of its talent.

“Are we developing the human resource in a way that we can provide high class service?” asks Kassianides.

“It is different from saying we have highly educated people. We could be doing things to develop education, training, medical services.”

If we get things right, however, the opportunities are there.

Photiades says that so far the government has been “shy” in attracting multinational companies to base their regional operations in Cyprus.

“It seems that there are legal hurdles to employ non-EU citizens. If we don’t find a way to solve that, we can never be a regional business hub,” he says.

And an energy service hub is still possible, even when the amount of Cypriot gas is less than expected, as long as the right environment is created.

Nor is the Cyprus gas story over. Noting that the economics of manufacturing petrochemicals products from hydrocarbons feedstock move in the opposite direction to the economics of extracting and exporting oil and gas, Kassianides says there are ways of monetising the current gas resources quickly.

“Because of our 20 years or so activity in this field internationally we have been approached by international companies that could be interested.”

Attract some and more will come

Frederick Tschernutter, head of Pafostech, a facilitator creating business communities in Paphos, says his clients are excited about Cyprus but government and other bodies need to support private initiatives.

“People talk. If we manage to get three or four smaller companies in a city like Paphos and they work in an export-oriented field like health, medical devices or IT, it attracts other people,” he says.

“One of the most important thing is to attract people. If we solve that then we have solved the real estate problem.”

Redesign the Cyprus brand

All interviewees emphasised that time is of the essence in making the change.

“This has to happen in months, not years,” said Photiades.

“Old rules and old ways don’t work. We need to redesign what Cyprus stand for. And we don’t have much time,” urged Kitti.

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