Cyprus Profile

Manufacturing and Industry

A Renaissance in Manufacturing

Cyprus is focusing on advanced high-tech products for niche markets, with hope that these value-added activities could facilitate a resurgence of productivity and protect the island’s production heritage.

Cyprus is the perfect base for the small-to-medium-sized manufacturer seeking access to both the European customer base and the burgeoning markets of the Middle East, North Africa and Asia. Its strategic location, coupled with its sophisticated transport and logistics infrastructure, offers considerable advantages to the producer hoping to expand into new markets. Companies forming links with Cyprus are able to benefit from the country’s EU and Eurozone membership and from numerous tax advantages. Businesses located in Cyprus are superbly placed to supply new and existing markets in the region while benefiting from the island’s well-developed infrastructure and highly skilled labour force.

It is hoped that a new collaborative initiative between Cyprus and Germany will encourage German manufacturers to establish bases in Cyprus, enabling them to make maximum use of its position as a gateway for expansion to the countries of the Middle East.

Cyprus is radically restructuring its manufacturing base and actively seeking to attract new high-tech and knowledge-based industries. Regrettably, the sector has been hit hard by the economic recession of recent years. Prior to the 2013 bailout, Cypriot manufacturers were slowly emerging from a lean period when they were squeezed between high-wage producers in the west using cost-efficient modern production techniques, and low-wage mass producers in South-East Asia. They responded by repositioning themselves to focus on higher-value niche production, more appropriate to Cyprus’ modern-day economy and its highly educated workforce.

However, the economic downturn has seen a decline in productivity over the past two years, industry is recording a negative growth rate in real terms for the third year running, while the industrial turnover index recorded a drop of 6.4% in the first eight months of 2014, compared to the same period over the previous year.

Cyprus’ main industrial products are: pharmaceuticals, food, beverages, chemicals, mineral products, machinery and equipment. Of these, only pharmaceuticals and non-metallic minerals have experienced growth in recent years. Today, manufacturing contributes approximately 5% of GDP and accounts for 9% of people in employment. The main destination for Cypriot manufactured exports is the European Union, which constitutes over 50% of the market, while exports to the Middle East make up around 15%.

The majority of manufacturers are small and medium-sized enterprises (SMEs), which employ less than 10 workers. This makes the sector flexible and open to innovation. The government is seeking to improve SME’s access to finance and overseas markets, while seeking to maximise the commercial potential of local research and development in order to open up untapped areas of productivity. The adoption of modern production technologies has already created new opportunities for traditional enterprises to compete globally and the sector is attempting to secure its future by establishing itself afresh in specific niche markets. The pharmaceutical and non-metallic mineral sectors have already succeeded in making this transition towards the provision of value-added products for a specialist market. Since 1999, both areas have shown consistent growth.

One such niche success story is leading Cypriot pharmaceutical company Medochemie Ltd, which develops, manufactures and distributes generic pharmaceuticals. It has nine plants in Cyprus, one in the Netherlands, and last year expanded still further, opening its eleventh plant in Vietnam, a vote of confidence in that country that saw Medochemie thanked by an award for FDI from the People’s Committee of Vietnam. Other areas of potential interest include the preliminary surveys done by mineral exploration company BMG, which is in the process of identifying sites for high impact exploratory drilling in the Kalavassos district of the Troodos Mountains, the site of previous copper pyrite mining for forty years up until 1978.

Food and beverage manufacturers are also attempting to grow and develop specialist markets for their product and are marketing halloumi cheese, olive oil, fruit and vegetable juices and wine to a more specialist customer base. The recent discovery of natural gas is expected to further facilitate innovation within the manufacturing sector and it is hoped that the island’s own energy supply will not only provide local industry with an economic boost, but also stimulate rapid technological development.