Introduction – Main Economic Indicators and basic Characteristics of the Economy
Main Economic Indicators 2002 - 2008
The Cypriot economy is a small, robust and fairly flexible economy, and has shown itself able to adapt to rapidly changing circumstances. Intertemporally, the Cypriot economy is characterised by a very satisfactory rate of growth (the average growth of GDP between the years 2003-2007 amounting to 3.6% and the projections for the average GDP growth for the years 2008-2008 showing a rise to 4%), decreasing unemployment (with an average unemployment between 2003-2007 at a rate of 4.6% and estimated unemployment levels for the years 2008-2011 at 3.8%)and internal and external macroeconomic stability. As a result, Cyprus has achieved an enviable level of real convergence with the advanced economies, with a per capita GDP in 2002, expressed in purchasing power standards, standing at 89.6% of the EU 27 average, gradually increasing to 93.7% in 2007. Inflation indications give a similar picture with the average inflation between the years 2002-2007 amounting to 2.5% and the estimations for 2008-2011 showing a decrease at a level of 2.1%.
In brief, the basic characteristics of the Cyprus economy are the following:
■ The dominant role of the private sector in the production process. The role of the State is a supportive one, and concentrates mainly in:
□ maintaining conditions of macroeconomic stability and a favourable business climate by creating the necessary legal and institutional framework
□ securing conditions of fair competition;
□ creating modern economic and social infrastructure, utilising, inter alia, the new instruments of public private partnership;
□ ensuring conditions of social cohesion.
■ The small size of the domestic market.
■ The small size of enterprises.
■ The small size of the labour force.
■ The openness of the economy, with both the volume of exports and imports rising between the years 2002-2009.
■ The predominance and increasing importance of the services sectors, which accounted for 78.5% ofGDPin2008.
■ Partial dependence on the tourism sector, whose total contribution, derived from the value added created, either directly through the purchases of goods and services of tourists in various sectors of economic activity or indirectly, through the intersectoral linkages, amounted to 15-20% of GDP in the period 1990-2008.
Structure of the Economy
Structure of Production
The predominant and continuously expanding share of the services sectors (approximately 77.0% of GDP in 2002 to 2009) at the cost of both the primary sectors of economic activity, agriculture and mining and quarrying and the secondary sectors of manufacturing and construction.
The sectors of financial services, business and real estate and renting activities, educational and health services, also exhibited an increasing trend in their share to GDP. This development was the result of the utilisation of the comparative advantages of Cyprus as far as the supply of high quality of services are concerned, both in the domestic market and in the external market, as well as the high income elasticity which characterises these services.
The share of public administration and defence to GDP exhibited intertemporally a slight increasing trend; it remained, however, at low levels by international comparison.
The agricultural sector’s share to GDP has been decreasing (10% in 1980, to an estimated 2.2 % estimation for 2009), a development that constitutes an international phenomenon, and is attributed to the relatively low-income elasticity of demand for agricultural products, the urbanisation trend and the reallocation of productive resources from agriculture to other more profitable economic activities. In the case of Cyprus, a constraining factor to the growth of the agricultural sector was also the Turkish invasion and the occupation of a large portion of fertile land, the water scarcity for irrigation, a problem which has become more intense in the past few years, the land fragmentation into small units, which prevents the use of advanced technology and the use of agricultural land for tourist development and other uses. In parallel, agricultural production faced intense competition during the 1990s due to the trend towards gradual liberalisation of world trade of agricultural products.
The contribution of the manufacturing sector to GDP also exhibited a falling trend since the early 1980s (18,2% in 1980, 9.5% in 2002 and 7.6% in 2008). The sector is characterised by chronic problems of competitiveness, due, inter alia, to the small size of the majority of manufacturing units, which negatively affects their capacity to utilise advanced technology and modern methods of management, production and marketing.
Structure of Exports
Domestic exports have experienced an increase of 13% in 2007 and this is mainly attributed to the strengthening of trade relations between Cyprus and European countries mainly due to the entry of the Republic in the EU.
The EU member countries and particularly Britain, Germany, Greece and Italy continue to be the most important trading partners of Cyprus, absorbing 62% of domestic exports in 2007. Middle East countries absorb about 11% and the remaining Asian markets 10% of domestic exports.
An important income comes from re-exports. In 2007 the income from re-exports amounted to 578 million Euros. The largest proportion of re-exports is absorbed by EU countries (51%). An important percentage was also absorbed by Middle East countries (12% in 2007).
Structure of Imports
The total imports of goods in 2007 have experienced an increase by approximately 15%. Consumer goods and raw materials constitute the largest part of imports, amounting to 29% of the total.
The largest proportion of imports comes from EU countries. (68% of total imports in 2007). Imports from Middle East countries account to 9.1% of total imports and from the remaining Asian countries comes a 12.2% of imports in 2007.
Statistical Data about the Economy is provided by the Ministry of Finance and Statistical Data about Trade is provided by the Trade Service of the Ministry of Commerce, Industry and Tourism.
Conclusion - The changing structure of the Cyprus Economy
The changing structure of the Cyprus economy is reflected in a parallel change in the structure of exports of goods and services. Characteristic of these changes is the rise in the exports of services, which accounts for more than 80% of all revenues from the export of goods and services, compared to around 50% in 1980. Moreover, the share of the tertiary sector amounts to 78.5% of GDP in 2008 showing the gradual restructuring of the Cypriot economy from an exporter of minerals and agricultural products, mainly copper, asbestos and citrus fruits in the 1960’s and early 70’s to an exporter of manufactured goods, mainly clothing and footwear, in the latter part of the 1970s and the early part of the 80s, to an international tourist, business and services center during the 1980s and onwards.
The continuing upward trend of the share of the tertiary sectors of services to GDP reflects the comparative advantages of Cyprus in these sectors (see section “Why choose Cyprus for Business” of our Website for more details) especially the high levels of professionalism and quality of services offered.