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Cyprus strengthens its position as an international business hub

Interview - August 5, 2015

World Report sits down with Marios Demetriades, Minister of Transport, Communication and Works, to discuss his collaboration with private sector stakeholders, and Cyprus’ strengths as a flexible island economy.

MARIOS DEMETRIADES, MINISTER OF TRANSPORT, COMMUNICATION AND WORKS
MARIOS DEMETRIADES | MINISTER OF TRANSPORT, COMMUNICATION AND WORKS

The 2013 crisis was a shock to the system for Cyprus. Out of this shock we saw a period of economic turmoil, followed by quite a rapid recovery. What can be credited with the on-going recovery of Cyprus?

Even though the crisis and the subsequent implementation of the Memorandum with the Troika was painful, it also had a positive side, as it allowed us to implement a lot of changes that we should have implemented on our own in the past.

Ultimately it forced us to decrease the cost of doing business in Cyprus. For example, in the public sector the salaries were beyond the increase in productivity.

This was the case in the private sector as well, but the private sector always adjusts much faster than the public sector.

We needed this kind of shock to adjust our economy, because since 1960, when the Republic of Cyprus was formed, to 2013, we have not been through a major implementation of structural reforms.

The public sector maintains the old structure of the past, and although we have been discussing privatizations for years, we haven’t done it yet. Among EU countries, we’re probably one of the few countries that hasn’t privatized telecommunications yet, and these are changes that should have been done years ago.

The positive is that we have implemented some changes quite fast, especially on the cost side. I think this is our difference with many countries, including Greece, in the sense that in Cyprus reforms are voted on in the parliament and reforms are implemented immediately.

Overall, I think the shock of implementing some of these changes was painful as they took place in a short period of time, but at the same time they helped speed up the recovery.

You have a portfolio that is related to 50% of the infrastructure of this country, including some of the most resilient of our key productive sectors of the economy. How has your Ministry protected these key sectors, such as shipping?

The shipping sector is essentially an offshore business as it is not dependent on the local economy. A lot of ship owners register their ships under the Cyprus flag and benefit from the tonnage system, which is of course a system that has become a standard within the world and the EU as well.

Additionally, we have a lot of companies that do business out of Cyprus, especially in the sector of ship management. 20% of third party world ship management is done out of Cyprus and the ingredients that provided a good environment for these companies are still there despite the crisis.

When we implemented the Memorandum, which included a lot of measures, we made sure that we would not change the fiscal characteristics that made our country friendly for business.

We maintain a stable environment, which is something a lot of companies are looking for, and provided incentives for people to continue to work from Cyprus.

This made a lot of the companies stay in Cyprus, even though when the crisis hit a lot of them considered leaving our country. Especially in the shipping sector, companies continued to trust us, as their working environment remained more or less the same.

You mention the business environment, which is a major factor in choosing Cyprus as a base for doing business. What is being done to support the business environment?

Over the last two years we have recovered relatively fast due to the fast implementation of the initial measures. Having said that, we now need to implement more structural changes, and this is when the hard work begins.

We need to have a viable cost structure in the public sector, and we introduce a number of tax incentives to attract more business to Cyprus, as we believe that in order to promote growth we need to decrease the cost for doing business in Cyprus.

At the end of the day we’re looking for growth and we should create a positive fiscal environment. We still have one of the lowest corporate taxes, and as for shipping in particular we have not changed anything, and that was part of our success.

As a government we started reforms, such as closing down government organizations that fulfilled their role, and started the reform of the civil service.  

We believe that the reform of the Civil Service should be combined with ICT (e-government) and for this reason even formed a committee, as we believe that no reform can be effective if not combined with ICT.

We need to ensure that business is done much faster, and this can only be done if the public sector becomes more efficient.

Beyond that we need to continue with the privatization program that should have been implemented 10 years ago. If I take the example of Malta, they have done privatizations, including giving out a concession for their main port, even though they are smaller than us.

I believe that we cannot afford to delay any longer. As a government we are very good at regulating and planning, but we are not very good business people. The private sector can do a much better job than us.

They have the incentive to earn money. What we should ensure is that all these private businesses are well regulated and supervised and make some money out of it as well.

Maritime Cyprus: Game Change will be a major international event, with many participants, including international organizations, key government figures, and executives attending. How do you see the prospects for Cyprus’ shipping moving forward?

I strongly believe that shipping has great prospects in Cyprus and I am really happy that this year we have tremendous interest from companies to participate in the event.

I believe that our product is great and we have done well over the last few years, but as we have not made any changes for some time we have been losing competitiveness, as the competition caught up with us.

As a result, about 15 months ago, we have decided to implement a number of changes in the sector so as to rejuvenate our product. The essence of these changes is to become more business oriented and more business friendly.

We are planning to enhance the level of service offered to our clients and also strengthen our presence in Rotterdam, Hamburg, London, and New York, so that they have more resources for promotion and client services.

It is also about making operational changes needed to enhance the level of services offered to our clients, which are the shipping companies based in Cyprus.

What is the importance of the Telecommunications and ICT sector to Cyprus’ efforts to become an international business hub?

Cyprus, due to its geographical position, has long been seen as a key commercial center in the region. The telecommunications and ICT sector is very important for our efforts to maintain our position as a regional business center and further expand it.

Telecommunications and information technology are the backbone of every business today, and for this reason Cyprus has invested heavily in its telecommunication and ICT systems in order to attract foreign companies to the island.

There is in place an extensive submarine fiber-optic cable network connecting the island with neighboring countries whilst access to major satellite systems is also available.

Local telecom and ICT providers offer state-of-the-art services throughout the country. Furthermore, the IT skills of the Cypriot population are increasing thanks to a number of initiatives aimed at strengthening the role of ICT.

Since 2012 we have in place a national digital strategy, which is in line with the objectives and actions proposed in the Digital Agenda for Europe, and will contribute substantially to economic growth, productivity and competitiveness increase.

Our main goal is to attract foreign companies to locate their operations in Cyprus, taking advantage of our advanced telecoms, our global connectivity and high quality services, skilled workforce and favorable tax and business environment.

A big part of making Cyprus more business friendly is partnering with the private sector. How are you working with the private sector at the moment?

Our role as a state is to service the private sector and not the other way around. We cannot exist without the private sector, which means that partnering with them is essential.

I can give several examples about the importance of such partnerships, even in the shipping sector. When I took over as a minister it was obvious that we needed to make some changes in the shipping sector.

So we invited the private sector to agree together the terms of reference for employing a consultant to produce a report about the necessary changes for the shipping sector.

After the report was produced we formed several working groups with the private sector to actually start implementing things.

The whole process has been very helpful as a lot of ideas came up from the cooperation of the private and public sector, and these ideas are being implemented now.

The contribution of the private sector is necessary as they know more about the actual business environment than us and can complement our knowledge.

Your portfolio covers a number of major infrastructure projects and with the BOT framework in place, this is another place where the private sector gets involved. What has been the success of previous projects? Do you see further opportunities for the future?

Until now, the most important BOT project done is the project of the two international airports, which was completed in 2006. Since then, the Hermes consortium has been running the airports according to a concession contract which also included building two brand new airports.

Currently we are in the process of doing a number of additional PPP (public-private partnership) projects, including projects in energy saving, and police cameras.

We were fortunate to meet with the president of the CCCI, and he talked about the effects of the integration or possible reunification. What economic opportunities do you see with potential reunification?

I strongly believe that if we have a working solution, the impact on the economy will be extremely positive. If you take the example of shipping; I expect the sector to increase considerably as currently Turkish ports are closed to ships that are registered under our flag.

This also applies to ports as ports in Cyprus could be used for serving south Turkey, including their energy needs.

Aviation is another example where we could benefit. This benefit could come in the form of increased registrations in Cyprus following the example of Ireland, which has developed as a major aviation center.

Currently this is not possible as aircraft registered under the Cyprus flag cannot fly over Turkey. Cyprus would also benefit from added connectivity; a connection with Istanbul would increase connectivity since during recent years it has become a major aviation hub.

I believe that as long as we have a working solution all sectors of the economy will benefit from such reunification.

Given the current events in Greece at this time, it must be said that Cyprus often encounters unfavorable publicity around this. How should international investors distinguish Cyprus?

Cyprus as an economy is completely different, including having a different legal system and different business mentality.

We need to separate the cultural similarities from the business environment. Cyprus is an international center for business and a strong service-oriented economy.

We have strong national identity links but at the end of the day the business is totally separate.

Brand Cyprus suffered after 2013, but as you mentioned this has been seen as an opportunity for reform. How do you see the Cyprus brand?

I’m not one of those people that believe Cyprus is unique, but I can tell you why I believe Cyprus is a good place to do business.

We are a small, flexible economy, with a high quality of people situated in a very good geographical location. This is what underlines our advantages. 

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