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Taking a More Proactive Approach to the Economy
State and buSineSS StakeholderS need to conSolidate their effortS to Secure, reinforce and fully utiliSe all the benefitS that cypruS offerS aS a financial and profeSSional buSineSS centre, SayS Michael antoniadeS, chairMan, kpMG in cypruS.
How would you describe the present state of the Cyprus Economy?
Now on a path of solid growth, as acknowledged by the major credit rating agencies in recent years, the economy needs to maintain this positive growth. The major challenges include the reduction of NPEs in the banking sector and the need to speed up structural reforms in the public sector in order to simplify and facilitate foreign investment. The successful introduction of the National Health Scheme will also play an important role in the development of the economy in 2019.
What has actually changed in the real economy the past 5 years?
The real economy has experienced – but managed to adapt swiftly to – constant disruptions and reforms to the local and international economic environment. These were mainly caused by enhanced international regulation on tax, exchange of information and AML. Organisations acknowledge nowadays that emerging compliance requirements demand that increased control procedures and systems be utilised in order to monitor and improve the quality of services or products offered. Foreign investment in Cyprus continues to be a major source of national income. On the one hand, companies without substance are not an option, and on the other hand, the strategic location of Cyprus offers a unique opportunity to multinational corporations for the establishment of a regional office. The latter enables coordination of operations between the Far East in the morning to the West in the afternoon and, in addition, offers passporting options for operations within the European Union. One of the major catalysts that cannot be ignored is technology, which has disrupted the real economy and influenced the way services are offered to clients. I believe that technology lies at the forefront of future developments and plays a key role in organisations’ efforts to enhance their service offering. In terms of professional services, I strongly believe that the introduction of technology will definitely increase the efficiency and quality of service offered to businesses and to society in general.
In addition, the real economy is experiencing an evolution of service offerings in all major industries, due to Artificial Intelligence, Data & Analytics, Cybersecurity and Fintech. I believe that these capabilities will enhance public satisfaction levels and, consequently, the customer experience.
Do you believe that Cypriot businesses have been strengthened and improved by the influence of the many international companies that have set up in Cyprus?
I believe so, yes, both directly and indirectly. We have seen many international companies choosing Cyprus in order to set up a presence for a number of reasons. These companies not only bring their expertise, their collaboration networks and their best practices with them, but they also seek cooperation with Cypriot businesses. These synergies appear to be successful, having brought about a renewed boost in confidence, an improved economic climate, and good prospects in the real estate, investment fund, shipping, construction, tourism and energy sectors. There is a lot of foreign investment in which the local business world has been involved, including marinas (Paralimni Marina), the banking sector (Bank of Cyprus and Hellenic Bank have foreign shareholders and American funds), the pharmaceutical sector (such as the investment made in Remedica), the energy sector (hydrocarbons in our Exclusive Economic Zone), shopping malls and the tourism sector (several hotels are being renovated and new ones are being built by foreign investors).
Do you have any specific proposals that could make Cyprus an even more attractive location for funds and their management?
Michael Antoniades
First, state and business stakeholders need to consolidate their efforts to secure, reinforce and fully utilise all the benefits that Cyprus offers as a financial and professional business centre. The country must be prepared to serve the continuously changing needs of investors and entrepreneurs by promoting all its competitive advantages, such as the stable and attractive tax system, its geographical location, its large double taxation agreement network, while continuously increasing the large number of vessels on the Cypriot register and the associated services offered to this particular industry. In terms of service offering, particularly relating to Funds, Cyprus is positioning itself as an attractive alternative funds domicile: the local AIF framework provides a flexible vehicle for private equity, infrastructure and real estate fund managers, offering clear opportunities for structuring through Cyprus. It is important to note that professional service firms such as ours offer competitive Fund Management and Fund Administration advisory services, while at the same time guiding clients through the challenges and opportunities posed by the evolving external environment and assisting them in identifying optimal and pragmatic solutions for the mutual benefit of the fund manager and the investors. In addition, the local highly skilled workforce is greatly experienced in the issues, trends and risks related to funds and ensures effective compliance with the increasingly varied and complex regulatory requirements. Cyprus has recently implemented a revised, more comprehensive framework for funds. This was the result of a detailed study to ensure that our funds framework meets the latest market requirements in a robust and agile manner. In addition to constantly monitoring international developments in this area and modernising our funds framework accordingly, at this stage we should be focusing on informing the international funds management industry about the benefits of Cyprus as a funds jurisdiction.
Do you think Cyprus will be negatively or positively affected by Brexit?
We are still at the stage where no-one knows what kind of Brexit it is going to be. A ‘hard’ Brexit will not be good news for the UK or for the other EU member states. A ‘hard’ Brexit will mean harsh conditions in the labour market, regulated imports and exports of products to and from the EU and, of course, will affect the issue of free movement, which currently enables European companies to operate in the
UK and UK companies to operate within the EU. However, even though a ‘hard’ Brexit will eventually impede cooperation, it may, under certain conditions, entail opportunities for Cyprus. We have recently seen UK companies, especially those operating in the financial sector, express interest in utilising Cyprus as basis from which to continue their work within the EU. Other countries such as Ireland, Luxembourg and Germany have already taken advantage of Brexit and gained greater benefits than Cyprus. I would say that the private sector is doing quite a lot and, with careful planning, Cyprus can gain a great deal from Brexit. We can do much more, such as regularly informing British entrepreneurs, fund managers and insurance companies about the benefits that Cyprus offers as a financial centre within the EU. We would like to see more action by the Government, such as information campaigns on the advantages of Cyprus and even through presentations in the UK itself.
Do you believe that more reforms are needed for Cyprus to continue its positive growth? In what areas?
The Government and the private sector both need to abandon their traditional approaches and to constantly research the markets and embrace open-mindedness, in order to enhance the competitive advantages that Cyprus has as a business and financial centre but also as a place to be living in. They need to establish synergies to maintain the current positive momentum of the economy and work on resolving major issues such as unemployment and Non-Performing Loans. Looking at the measures adopted by other competitive countries, it is clear that Cyprus needs to offer more in the way of fiscal incentives and naturalisation schemes. These two have already contributed to an increase in demand for property, which is evidenced in the number of sales contracts. Furthermore, new regimes for film, audiovisual and Research & Development are in the pipeline. Alongside the efforts to combat bureaucracy and implement all necessary reforms, the majority of industries must continue doing their best to adhere to enhanced regulation, especially in relation to compliance and exchange of information. The current effort aimed at restructuring the judicial system is very important as entrepreneurs and investors alike wish to have a judicial system that is flexible, fast and efficient. Particular emphasis should also be given to attracting new forms of tourism (nautical, medical, sport) and extending the tourist season to be year-round. Very promising steps have already been taken, such as the construction of marinas and the eventual operation of the multi-functional integrated casino resort.
How successful has the Cyprus Investment Programme (Citizenship by Investment) been? Do you think that it should be extended indefinitely or is there a risk of it leading to a new real estate bubble?
Offering incentives through schemes such as the Cyprus Investment Programme boosts foreign investment and revives the economy, especially in times of recession. It is important to note that this is a perfectly legitimate tool, adopted and exploited on a global level by numerous jurisdictions. My assessment is that the Government needs to study the economic impact of the particular scheme carefully and on a regular basis in order to have a clear image of its effects and benefits. Certainly, any bad practices should be immediately identified and tackled vigorously, and corrective measures undertaken. It is imperative that such incentives are evaluated on a regular basis and any remedial action required is implemented in a timely manner in order to avoid potentially negative effects on the real economy. It is important that long-term planning is firmly in place and that decisionmaking is flexible and agile in order for the economy to remain trusted and competitive and to continue to register steady growth.
