Cyprus Mail 26 April 2020
Covid-19 should be seen as an opportunity to build a better future
By Gregoris Philippou
The healthcare concerns surrounding Covid-19 are gradually being replaced by economic concerns, as it seems likely we will be facing an unprecedented economic downturn. At the core are the issues of global supply and demand and mass layoffs.
In Cyprus, the economic effects of Covid-19 have yet to be strongly felt, largely due to the government’s swift action to support businesses with employee subsidies and postponement of loan repayment. However, as in any country, government support can only run for so long.
In attempting to foresee the risks that the local economy is facing, one should perhaps start with the main income sources of the country and GDP drivers. And it is no secret that the Cyprus economy relies heavily on foreign investment, in large part in the form of tourism, real estate and construction investment and professional services. The first two are greatly affected by the restrictions on flights and the viability risks faced by airlines, while the third, the professional services sector, already dealing with inefficient, time-consuming and costly banking support, now has to cope with the Russian Federation’s suggested changes on the double tax treaty between it and Cyprus.
So, what should Cyprus do? Several organisations have provided proposals, but the answer is not an easy one and perhaps a specialised committee should be formed with economists and business leaders that would be appropriately equipped to form a strategic plan. It is highly urgent we introduce measures with an overall strategy that takes into account well thought-out short-term, medium-term and long-term objectives. Covid-19 should also be seen as an opportunity to build a better future by making long-delayed but necessary reforms.
As to the short-term targets, it is the author’s view (as submitted to the Paphos Chamber of Commerce) that the government should aim to incentivise the circulation of money and the flow of foreign investment in the country. Cheap credit on its own seems an inadequate response in an economy reliant on foreign investment.
The priorities should perhaps be to (i) quickly issue construction, immigration and other permits pending, (ii) give incentives for investments in Cyprus in new and traditional industries such as renewable energy, technology and real estate (such as providing building density on agricultural land) (iii) properly incentivise employers to retain employees after the support measures expire (one proposal by a member of the board of the Paphos Chamber of Commerce, is to give employers as an allowable expense 150 per cent of an employee’s salary) and last but not least (iv) to take bold action to deal with the inefficient, incredibly slow and costly banking system especially when dealing with money transfers from abroad.
The banking sector itself is an open wound. The excessive and inefficient processes cause significant delays to money transfers deterring a number of foreign investors from doing business while unreasonably increasing the costs of those who do. A quick solution (but not a complete one) could be to avoid double due diligence checks when the money to be transferred is in a European Bank which has conducted its own anti money-laundering controls. At the moment, a bank in Cyprus conducts a new due diligence check to receive money from another bank in Cyprus. Such double checks seem at odds with the free movement of capital in the EU and the overall cooperation in economic, tax and legal matters in the bloc.
In the medium and long term, we can turn Covid-19 into an opportunity to change our economy. We can strategically review and promote the next pillars of the economy. We can, and perhaps should, incentivise investments in renewable energy and technology. Effective business support and transparency is crucial and as such we should prioritise faster changes and digitisation of governmental and other authorities starting with the key sectors such as the land registry, the planning authorities, the companies registrar and the courts.
Our economy relies heavily on foreign investment. We should facilitate this and make it as easy as possible. Above all, we should keep in mind that Covid-19 can be turned into an opportunity to build a better future for Cyprus. The key is to be strategic in setting and executing objectives.
Gregoris Philippou is a partner at Polycarpos Philippou & Associates LLC (www.philippoulaw.com), a lecturer on the law of Equity and Trusts at the Neapolis University, a non-executive director of the Paphos Chamber of Commerce and a member of the Real Estate Committee of the Cyprus Chamber of Commerce
