The EBRD’s Peter Sanfey analyses the Cypriot economy’s fundamental strengths
In its first three years of operating on a temporary basis in Cyprus, the EBRD hit the ground running, investing primarily in the financial sector.
Now, with the EBRD’s 2017 Annual Meeting and Business Forum in Nicosia approaching and talks moving forward between the island’s two communities - bringing closer the possibility of unification - the EBRD’s Peter Sanfey is looking forward to future investment and development opportunities in the whole island.
“So far we have done about €220 million investment, mostly in the financial sector,” said Mr Sanfey, the EBRD’s Deputy Director for Country Economics and Policy. “We were part of the recapitalisation of the Bank of Cyprus. We have equity in another bank. And we have a very active Trade Facilitation Programme through the local banks.”
Also on the cards – though it depends on the government of Cyprus taking further steps - is an acceleration in the pace of privatisation of a few key assets. This was part of the plan for the economic adjustment programme that Cyprus entered into in 2013, in agreement with the European Union, European Central Bank and International Monetary Fund after a year of financial crisis.
“At the time, there was the intention to privatise the telecommunications company and also to move ahead on privatisation of the energy sector. Neither of these has really happened yet,” Mr Sanfey said.
“Our view is that a properly done privatisation would attract fresh investment and, ultimately, better services for the consumers concerned. We are ready to be part of that. But the government has to take the first move.”
Cyprus has done well in terms of meeting the objectives of the adjustment programme, he added.
“It was a big shock to the economy in 2012-14 – a big drop in GDP spread over three years – but Cyprus has bounced back in the past couple of years and completed the programme successfully, exiting a couple of months ahead of schedule.”
In terms of fiscal adjustment and external adjustment, the country’s progress has been quite impressive, with a return to growth - of close to 3 per cent last year - and continued growth expected this year. “We’ve seen improvement with unemployment as well.”
Where there is still a big need for further progress is in the financial sector, he explained.
“There is a huge overhang still of non-performing loans and non-performing exposures. This is a challenge. They’ve revamped their insolvency law. We are engaged in some technical assistance improving the insolvency framework and implementing the new law, but that’s a process that’s going to take some time, working through bad debt.”
But there is fundamental strength in the economy. “It’s a very open economy,” he added. “The people are well educated, public administration functions well, and some sectors are quite robust – tourism, obviously, accounting services, too, and some of the other high-value service sectors have come through quite well.”
In the future he sees opportunities for this small country of just over a million people in shipping and in the natural resources which could be developed over time.
An oil and gas field offshore is potentially of long-term benefit. Services are another traditional strong point in this outward-looking country, where most people speak English, offering plenty of potential.
The big sector for the island nation is, however, likely to remain tourism. “Being an island, if unification were to happen you’d see a lot of facilities in the north being upgraded - and why not? It is a beautiful place, with sunshine 300-plus days a year,” he said.
The EBRD’s Annual Meeting in May will have a very positive impact for Cyprus, raising its profile at a moment when its economic efforts are paying off.
“Putting aside unification for the moment, the country has a positive story to tell. Even after the GDP drop in 2012-14, Cyprus still has something like 85 per cent of the EU average GDP per capita, so it’s prosperous, it’s a pretty well-run place.”
“I think this is very important and part of the secret of why they’ve managed to come through the programme quite successfully. They have a culture with an impartial, independent civil service, which has served the country well.”
“The situation in the north remains difficult, because it has been isolated for so long, with very restricted access to global markets. If that can change, there is potential for strong growth – obviously in services, tourism, some agribusiness products and some others. For now, though, it’s still difficult to quantify.”