Beyond the fiscal consolidation and restructuring of pensions, an ambitious programme of reform and privatisation is underway in Cyprus, spearheading the drive to make the country more internationally competitive.
The Cypriot government has undertaken a number of strategic reviews in priority economic sectors to accelerate recovery, enhance competitiveness and deliver sustainable economic growth, through the privatisation of certain state assets, making Cyprus a more attractive location for investment. Cyprus has made significant progress in the implementation of the Memorandum of Understanding (MoU), particularly when it comes to stabilising the financial system and proceeding with the agreed privatisation agenda. Finance Minister Harris Georgiades explained that the country would fast be returning to international bond markets, should conditions prove favourable.
“Confidence has been restored and market access re-established. We are planning a new bond issuance by the end of the year (2015) in line with our annual funding programme, but the exact timing and details have yet to be determined,” he says. A government financial analyst said it would likely be a 10-year issue, with Cyprus expected to be able to borrow at a rate of 3.5%, thanks to yields on existing bonds issued by Cyprus having dropped from 5.75% in February to 3.69%.
The island last tapped international markets in April 2015, highlighting the progress of the reforms as regards the country’s ability to tap international liquidity markets. The most recent ‘troika’ review of Cyprus said, “The fiscal targets in the first half of 2015 were met with substantial margins. In addition, the authorities are making progress on their structural reform agenda.”
Constantinos Petrides, Under Secretary to the President, explains that the reforms have been a long time coming for Cyprus, but also that it was vital for them to both meet the country’s Europe 2020 targets and the context of the MoU on specific economic policy. “After the tangible progress achieved with the banking sector and fiscal consolidation,” Petrides explains, “our priority now is the implementation of a wide-ranging structural reform programme to improve our global competitiveness. These reforms are an important step towards improving effectiveness and efficiency in government, enhancing human resource development and safeguarding fiscal sustainability.”
The comprehensive reform plan of the public sector workforce was recently approved by the Council of Ministers and submitted to the House of Representatives. The plan comes into effect in 2017 and includes the introduction of a new appraisal system, a new promotion and appointment system, enhanced mobility and a new wage bill mechanism.
In the tourism sector, a number of reform initiatives have been undertaken, such as a study that aims to improve both the performance and revenue yield of the sector, and to establish a sustainable, year-round model. The study will also assess the current regulatory framework and simplify procedures, whilst looking to enhance Cyprus’ air connectivity through further partnerships and the issuance of licenses under the ‘Open Skies’ act.
Furthermore, the study aims to concentrate decision-making authority in relation to tourism infrastructure and regulation under one roof. A legacy of British colonial rule, such authority is still divided between various ministries and organisations, and as Angelos Loizou, Chairman of the Cyprus Tourism Organisation explains, remains an obstacle to growth.
“We have a number of laws and working methods that are conflicting,” Loizou says, “meaning I have to talk to different departments to get results – for example beaches are under the Minister of Interior, and all archaeological sites belong to the Ministry of Transport, Communications and Works. This is problematic, which is why we recommend having one unified tourism law, or at least the power to implement things outside the present scope.”
Looking towards the maritime sector, a study on the future of shipping in Cyprus is being prepared; aiming to enhance its competitiveness by promoting the advantages as regards the islands professional services sector, and the competitive advantages they can extend to shipping companies operating from Cyprus. Beyond the competitive tonnage tax system of the island, the Department of Marine Shipping is looking to make itself more customer-orientated, a kind of multi-department ‘one-stop-shop’ for shipping, to simplify the processes of doing business in Cyprus.
The Minister of Energy, Commerce, Industry and Tourism, Yiorgos Lakkotrypis, explains that it is vital for Cyprus to focus on its advantages, yet also that public sector reform needs to be first on the agenda if they are to be fully exploited. “Besides the restructuring of certain key areas of our economy, we have been improving the working procedures of tourism and professional services,” he says. “This falls directly under the mandate of my ministry.”
“Since beginning the Department of Registrar of Companies, we wanted to be able to register a new company within 24 to 48 hours. We have thousands of registrations every month and we want to simplify the process of setting up a new business in Cyprus. We are focusing on professional services, tourism and shipping because these industries have shown significant resilience to the crisis.
“There are many reasons for this, but one crucial point is that they have never been dependent on advantages from Cyprus’ financial sector. Their growth has always been based on their own competitiveness, and Cyprus should exploit that leverage, the know-how and expertise of our professional services sector,” Lakkotrypis concludes.
Other studies being conducted relate to the establishment of a comprehensive medium-term policy regarding the optimum penetration of renewable energy into the electrical grid, aimed at reducing carbon emissions and the cost of generation. Separately a study prepared by the National Commission on Research, Innovation and Technological Development on development in the field is underway.