The importance of tourism in the Cypriot economy is unquestionable, which raises the question of how to best manage it, in order not only to ensure its long- term sustainability, but, more importantly, to safeguard its contribution to the country’s economy in line with its full potential.

Indeed, the tourism industry in Cyprus may be viewed as booming, while the numbers speak for themselves. During the past few years, tourist arrivals and revenues are experiencing significant growth, with 2016 being a record year for both indicators. In particular, total arrivals for 2016 reached 3.2mn with respective revenues of €2.4bn. Political tensions in the region enhanced Cyprus’ tourism product as an attractive and safe destination. In addition, the shutting down of the Cypriot flag carrier airline, along with the promotion of an “open skies” policy, boosted the country’s flight connectivity, and further assisted the growth of the tourism sector. The aforementioned growth is expected to continue this year with the latest figures clearly indicating that 2017 will be another record year. During the first eight months of 2017, total arrivals reached 2.5mn compared to 2.2mn in January-August 2016, whereas until July 2017, total revenues reached €1.4bn compared to €1.2bn the same period last year. This unprecedented growth in the tourism industry has contributed to corresponding growth in the GDP with spillover effects in many sectors of the economy, such as construction and retail. The fact that a substantial portion of this growth may be generally attributed to exogenous factors, like tensions in the region that are out of the control of the government, mandates the development and implementation of a strategy that will secure the country’s current status as an attractive and competitive destination and strengthen the tourism industry contribution towards its GDP.

The Cypriot government decided to proceed with an amended National Tourism Strategy, which will be based on a study conducted by an independent consulting firm that specializes in the tourism industry (THR Innovative Tourism Advisors). Although similar attempts were made by previous administrations, none of them was actually implemented. All the actions taken by the government this time indicate that this is a more serious effort, and the implementation of a strategy may be closer than ever. At the core of the new strategy is the anticipated “natural” growth in the tourism numbers while focusing towards higher quality tourists, and a longer tourist period. This type of tourists will spend more and stay longer, thus increasing the revenues in comparison to the current tourist mix.

It is evident that the government recognizes that this period of unprecedented growth in the tourism industry offers a unique opportunity for Cyprus to establish itself as one of the leading tourist destinations of the region, and this strategy reinforces this effort. The study was presented in an event earlier this month, and for the first time the government initiated a public consultation that will ultimately lead to the formation of the final National Tourism Strategy. The overall target of the study is for Cyprus to become, before 2030, an all year-round sustainable destination receiving 4.8mn tourists, out of which 40% will arrive during shoulder months (November to April; see Fig. 1). Achieving this target will generate c.€7bn in2030 while reaching a contribution percentage towards GDP of 28%. Amongst other things, the proposed strategy will generate 47,000 jobs and would require an investment of c.€20bn between 2015 and 2030. On first glance, it is evident that the focus of the study is not to increase the total arrivals of tourists, which is already set to surpass the €3.2mn reached in 2016. Instead, THR recommends the “premium and wise” growth model, under which the focus is to attract fewer tourists but with higher spending. As the consulting firm pointed out, the latter suggests an intelligent effort towards selective growth with greater economic, social and environmental profitability.

The proposed premium demand strategy focuses on three characteristics:

• higher per day expenditure;
• longer stay;
• and more discerning and lower impacts on the society and the environment.

As the consulting firm stated, Cyprus’ main competitive advantage is that it possesses “the best climate in Europe”, all year round. This competitive advantage is envisaged to be reinforced by a menu of tourism experiences, special destination attributes and a competitive advantage per business model. The benefits of adopting the strategy will far exceed the benefits of the organic growth that Cyprus will inevitably experience. Specifically, THR suggests that implementing the new strategy will generate additional €27.2bn during 2015 and 2030, versus the alternative – no strategy at all – option.

The implementation of the strategy requires, first and foremost, the creation of an under-secretariat of tourism (still pending parliamentary approval) which will be responsible for the strategy’s full implementation. This will provide the necessary separation of tasks between ministries, along with a clear focus to promote all necessary reforms required for the timely implementation of the strategy.

Tourism has the potential to be established as one of the major contributors to the country’s economy for many years to come, and the relevant figures from the past few years are just a glimpse of what this industry can offer. That being said, the full potential of tourism can only be achieved with the correct and proactive actions that safeguard and enhance all competitive advantages of Cyprus. Thankfully, the latest government initiative of proposing an amended National Tourism Strategy, along with the consensus that tourism is vital to the rebounding of the Cypriot economy and future sustainable growth, provides a strong basis that the country’s economy can build upon and continue the phenomenal growth of the past two years.

Authors: Mrs. Damiani Papatheodotou, Research Analyst, AXIA Ventures Group Ltd, Mr. Nikolas Kourtis Research Division, AXIA Ventures Group Ltd

Mr. Nikolas Kourtis joined AXIA in July 2017 as an intern in the Research Division. He is currently pursuing an MBA at the University of Cyprus which is due for completion in October 2018. Nikolas holds a BSc in Computer Science from the University of Southampton and has previously worked for technology companies in London and Nicosia.

Ms. Damiani Papatheodotou joined AXIA in January 2016 as an Analyst in the Research Division, after successfully completing a three month-internship during the period July to September 2015. Damiani primarily focuses on macroeconomic and political research vis-à-vis Cyprus and is the author of AXIA’s Cyprus weekly research note. At the same time, she actively monitors a number of European banks in Cyprus, Greece and Portugal with the help of AXIA’s Financial Institutions research team. Damiani holds a BSc in International, European and Economic Studies from the University of Cyprus and is due to complete her MSc in Finance.