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CYPRUS: A MODERN CENTRE OF BUSINESS SERVICES (SBF.pdf, 710 Kb)
The Cyprus Services Sector and Government Strategy
Today, the foundations of the Cyprus economy like other developed economies, are no longer provided by agricultural and industrial production but by services and information processing. It is an established economic law, that as economies develop and per capital income is rising their structure shows an evolution from primary and agricultural to industrial production and to services where value-added and productivity is higher and the emphasis is on knowledge management and innovation. The Cyprus economy is no exception to the historical trend.
In the last two decades the Cyprus services sector has experienced significant growth rate and today is the leading sector and the engine of further growth of the island’s economy. Today, the services sector accounts for about 75% of the country’s GDP and employs around 72% of the economically active workforce. In terms of categories of services, it is a very diversified component of the economy. It comprises considerable variety of economic activities ranging from travel and tourism, to legal, accounting and business consulting, software services, banking, finance and insurance, shipping and ship management, education and healthcare.
In recent years, technological developments, trade liberalization and deregulation of services industries in both developed and developing countries have intensified the international competition in the tradable services sector.
These global economic trends and the fact that Cyprus is a EU member have created a new strategic context for the Cyprus economy which determines to a large extent the Government’s development policy choices. There cannot be any doubt that the continued growth of the Cyprus economy presupposes a robust and competitive services sector. This is a major challenge for both, the Government and the private sector. They have complementary and mutually reinforcing roles to play in this national endeavour.
In the case of the Government, its role is to provide the maximum level of support (direct and indirect) for service operators with the minimum possible level of bureaucratic interference in their operations. Its strategy is, effectively a «two track strategy».
The «first track» consists of a firm commitment of the Government in ensuring that appropriate business-friendly institutions and macro-policies are in place which create a favourable political, social and economic environment in which entrepreneurship could maximise its returns from risk taking and investments. At the same time , it aims to enhance the attractiveness of Cyprus as an international business and financial centre in the Eastern Mediterranean region by capitalizing on its new role as a full member of the European Union.
As a result of this supportive role of the Government, Cyprus, today, can offer international investors those background competitive advantages that they seek before opting for an operational base in Cyprus. Most important of these advantages are:
- A stable macroeconomic environment, underpinned by a firm commitment to fiscal consolidation in view of Cyprus joining the eurozone in 2008.
- Highly developed infrastructural services such as energy, telecommunications and road network.
- An efficient financial system.
- Highly educated workforce.
- Low level of taxation coupled with double taxation agreements with 40 countries.
- Social cohesion based on long tradition of cooperation between the social partners.
Highlighting these advantages, does not mean that, at the macro level, there is no scope for more to be done by the Government. In fact, it is worth mentioning, at this point, the current initiative of the Ministry of Finance on streamlining the regulatory framework governing the operations of businesses so as to minimize their distortions and administrative cost on companies.
The «second track» of the Government’s strategy for the services sector consists of, what could be described as more direct, demand policies and practical measures the aim of which is to facilitate the creation of more export-oriented services sector. They are focused mainly on creating awareness and influencing perceptions of business decision-makers in selected overseas markets by projecting in these markets the distinct advantages and possibilities that Cyprus can provide the international business companies.
These practical measures include a number of activities, ranging from organization of seminars mainly in certain European Markets, participation in specialized services exhibitions, subsidization of market research work by individual service operators, publication and circulation relevant information material, placing generic advertisements and sponsoring special Cyprus supplements in international business publications which highlight the competitive advantages of Cyprus as international business and services centre. Furthermore, supportive contribution to the services sector promotion is also provided through various activities by the network of the Ministry’s Trade Centres in 11 important markets in Europe, the USA and Gulf States.
Currently, the Government is focusing its efforts on encouraging the export orientation of a more diversified services sector by capitalizing on the growth potential of services such as Legal and Accountancy services, Medical and Education services, Construction Services, Information Communication and Telecommunication (ICT) services and Creative Industries. Target markets are mainly the UK, Greece, Russia and other East European Countries, Lebanon and Jordan.
In the case of Education and Medical Services their export potential is top priority of Government strategy. They are currently subject to a study by the competent Ministries on what supply side measures could be introduced in order to improve their export capacity.