Protecting the competitive edge of an economy requires a never-ending reform process, but with the country’s significant competitive advantages and pro-business government, Cyprus is ready to further unleash the productive forces of its economy, says Finance Minister Harris Georgiades.
2018 marked the start of your second term as Minister of Finance, how would you describe the current economic situation of Cyprus and what targets have you set for the year ahead?
The Cyprus economy has already achieved an impressive recovery. It has covered significant ground after a deep recession and major deficiencies have been tackled, primarily those relating to public finances and the operation of the banking system. The objective for 2018 and for the medium-term is to maintain conditions of stability and to ensure that economic growth becomes sustainable. This, among others, will enable us to achieve conditions of full employment by 2020.
Cyprus is posting healthy growth rates and future projections look positive, in what ways can the country keep this momentum going and stick to prudent economic policies and balanced budgets?
The outlook is positive, but we should not be complacent about it. Firstly, we should demonstrate that we really have learned from the mistakes of the past and to ensure that these are never repeated. Growth in the pre-crisis period was a result of unsustainable lending towards the private sector and unsustainable spending on behalf of the public sector. This is no longer the case, and it should remain so. Maintaining balanced budgets is not an end in itself but is a means towards sustainable growth. Secondly, we must realise that maintaining the competitive edge of an economy requires a never-ending reform process. Much has already happened, but more needs to be done. Ultimately, we must continue the effort, further unleashing the productive forces of our economy.
What key benefits and incentives does Cyprus offer in terms of attracting more investment into the country?
Cyprus is an excellent destination for new business and investment. It is a small but dynamic economy, with a skilled workforce, and potential to grow further with key sectors enjoying access to regional and international markets. Cyprus is a committed member of the EU and the Eurozone, and also an island of safety and stability, with essentially all government policies aimed at maintaining a business-friendly environment. For instance, tax certainty is something we can guarantee. At the same time, there is a willingness on our behalf to acknowledge shortcomings and to undertake a determined effort to improve.
What type of strategic foreign investment would you like to see? Are there particular sectors of focus?
Naturally, we would welcome investments in any sector of our economy. Be it in well-established sectors including tourism, shipping, real estate and business services, which retain excellent prospects. At the same time, there are multiple opportunities also in newer sectors with promising potential, ranging from higher education and energy to fund management. The role of the government is not to choose where new investment will take place, but rather to keep the ship steady and to ensure that entrepreneurship is not faced with unnecessary obstacles. So, any investment is welcomed and will enjoy our full support.
The burden of high NPL ratios in Cyprus banks continues to be a problem, what measures are being taken to tackle this issue and what needs to be done to speed up the progress?
Non-performing loans constitute the most significant legacy problem facing the Cyprus economy. As already mentioned, in the recent past lending towards households and business was offered in an unsustainable manner. This has now stopped, but the stock of old loans remains high, with a significant part of it being non-performing. Of course, one should distinguish between NPLs, as many have already been restructured and are being serviced but are still counted in the NPLs due to their statistical treatment. As for speeding up the progress, I must point out that the drop in NPLs in Cyprus is proportionately the fastest in the EU, but still supervisory pressure is intense for further reduction. Recently, we have moved forward in giving the legislative tools for further expediting the process, through improving our legislation on foreclosure and insolvency and supporting the carving out of NPLs from the balance sheets of banks to asset management companies. At the same time, we have articulated a scheme named Estia, to support the vulnerable members of the population, in their efforts to meeting their payment obligations with respect to the loans on their houses.
Innovation is a key driver in attracting and developing new business, how is the government fostering this area and will more funds be allocated to research and development projects?
I fully agree. Innovative entrepreneurship is the way to expand the productive base of our economy and actions are being taken as part of the implementation of a Policy Statement adopted by the Cabinet in 2015. Specific actions that have been implemented so far include a set of tax incentives for innovative companies that came into force in January 2017, and already a number of tax certificates have been issued. In February 2017 we also introduced a Cyprus Startup Visa Scheme in order to attract more talent from non-EU citizens into Cyprus. A third initiative involves the bills, which will allow technology transfers from public universities to enterprises, currently being debated in Parliament. We have also adopted a policy of co-funding of centres of excellence for research and innovation, which secured EU funding, with the first two projects already approved. I would like also to mention the very significant investment in public universities and research centres which is being complemented by equally significant private investment in higher education facilities.
Cyprus has a strong track record in offering international financial and business services, which also constitute an important sector of the economy, how do you see this sector developing in the face of increased competition from other jurisdictions?
The business and financial services sector has already demonstrated its resilience and has been adapting to the new global norms. It has been one of the sectors where we have seen good job creation and I remain convinced that Cyprus will remain a competitive international business centre. From our side, as government, we shall continue to focus our efforts and to allocate resources in areas where shortcomings are identified which are holding the sector back. For instance, in the judicial system, where we know that we are facing delays and inefficiencies, we are investing, as part of a broader judicial review, in e-justice and are promoting the establishment of a specialised commercial court.
What is your future outlook for the Cyprus economy and what message would you like to convey to the international community?
I am confident. I see the Cyprus economy continuing to be one of the fastest growing economies in the eurozone, fully able to tackle the last remaining legacy problems. Cyprus remains a stable and safe destination, with significant competitive advantages and with a pro-business government which has recently received a renewed mandate, and which will continue to welcome and support new business and new investment. And this is exactly my message to the international community.