Cyprus is suffering from a low level of judicial efficiency, excessive reliance on a limited number of countries for trade relations, as well as high costs for cross-border transactions, according to a report released on Tuesday by the Cyprus Economy and Competitiveness Council.
“The Covid-19 pandemic upset a course of sustainable public finances and financial stability in force during the period 2016- 2019,” the report stated.
“Reforms are being implemented that help to strengthen its competitiveness, improving the business environment, attracting new investment and diversifying the economy, but attention must be placed on their effective implementation,” the report added.
The biennial report, which seeks to evaluate the Cypriot economy’s competitiveness, as well the factors that affect it on a systematic basis, focused on eight key areas, presenting strengths and weaknesses for each one, while also making recommendations on how to improve in each sector.
These areas include entrepreneurship and business development dynamics, business synergies, the adoption of digital solutions, access to capital, human resources, international connectivity, foreign direct investment, and the diversification of the economy.
The report takes into account a number of indicators, such as the WEF Global Competitiveness Report and World Competitiveness Ranking, as well as data from Eurostat, Cyprus Statistical Service, Central Bank of Cyprus, EU Digital Scoreboard, and Global Innovation Index, among others.
Moreover, the report uses other countries and areas as benchmarks. These include Denmark, Estonia, Finland, Germany, Greece, Ireland, Malta, the Netherlands, Portugal, Slovenia, the United Kingdom, and the European Union. It also uses selected indicators from Israel and the eurozone.
Regarding entrepreneurship and business development, the report finds a great number of both weaknesses and strengths.
On the plus side, Cyprus has low effective tax rates, high business ambitions, business resilience and the ability to adapt, good work-life balance, strong performance in terms of dealing with insolvency, tax payment and the protection of investors’ rights, as well as low levels of market dominance.
Conversely, Cyprus has few large enterprises, low levels of specialisation, below-average intellectual property protection, corruption prevention and public sector efficiency, poor judicial efficiency, as well as inadequate accountability.
In addition, the report makes note of other general weaknesses in the business sector, such as the execution of contracts and the issuing of construction permits.
To resolve these issues, the council suggests that Cyprus’ business culture is further developed, cutting costs for businesses, recognising and showcasing success stories, increasing funding for research, as well as providing a safety net in order to decrease the cost of failure.
On the issue of business synergies, meaning the collaboration between multiple businesses to generate value higher than the sum of their individual parts, the report identified weaknesses in the development of innovative companies that are willing to distribute management authority, as well as a low score in the entrepreneurship index.
On the other hand, Cyprus has strong and dynamic professional services, potent shipping and tourism sectors, as well as a good performance in terms of the time and money it takes to start a new business.
Regarding the adoption of digital and technology-based solutions, Cyprus lacks digital skills and is hindered by lower than average broadband speeds. It also suffers from a low adoption rate of digital solutions in the private sector.
In terms of the effects of the pandemic, the Cypriot economy suffered a recession for four consecutive quarters, with recovery resuming during the second quarter of 2021.
The food and accommodation sector was hit the hardest, with production being reduced by 39.1 per cent between 2019 and 2020. Moreover, tourism revenue fell by 85 per cent year-on-year in 2020.