Long-established and highly respected, Cyprus’ shipping sector punches well above its weight on the global scene and 2018 is set to be a breakthrough year for further growth.
A strong wind is blowing in the sails of Cyprus’ remark- able maritime industry, which has been expertly captained through the storms and doldrums of international crises to achieve global success. The Cyprus registry, reputed for its quality and safety, is the third largest merchant fleet in Europe and the 11th largest in the world. Cyprus is also the EU’s largest shipmanagement centre – with one in five vessels under third party management controlled from Cyprus – and is one of the three largest centres globally controlling a fleet of 2,500 vessels.
Most of the 200 ship-owning, management and other shipping-related companies in Cyprus are influential names internationally. Notable for its independence, this formidable industry has flourished without any state investment, although it enjoys continuous and strong state support. Cyprus’ two dynamic shipping associations work closely with the state to constantly upgrade the maritime administration and to build its competitive offering. The creation of a new and independent Shipping Deputy Ministry in March 2018 has made the sector even more efficient, autonomous and more business-minded. The launch was well- timed to capitalise on new opportunities for the sector that arise from Cyprus’ emerging natural gas sector and Brexit, and a new Deputy Ministry fully focused on shipping, coupled with the country’s attractive tax incentives, has led to the relocation of a number of shipping companies to Limassol, while 52 new ships have been registered in the first five months of 2018.
Propelling the Economy
The vibrant and resilient shipping sector is Cyprus’ longest-serving generator of foreign direct investment and is now primed for further growth. It emerged unscathed from Cyprus’ bailout five years ago, with its competitive advantages and operational framework intact. The troika of international lenders readily accepted there was no need to tamper with the shipping sector whose advantageous, EU-approved tax framework was already modern, flexible and transparent. The Cyprus Shipping Chamber (CSC) – essentially the voice of the resident industry – lost none of its members, even registering new ones right through the difficult years between 2013-2016 and has continued to build up its membership ever since. Two of the industry’s most highly respected privately- owned shipmanagement companies, Columbia Shipmanagement and Marlow Navigation, both based in Limassol, merged last year to form Columbia Marlow, making it one of the world’s largest ship and crew-management companies.
Internationally, the shipping industry is now benefiting from improved freight rates after a period of low income due to weak world economic growth. In 2017, Cyprus’ maritime industry contributed more than €1 billion to the economy for the second year running. This figure accounts for 7% of GDP, a far higher figure than in other countries seriously engaged in merchant shipping. In the past five years there has been an increase of more than 65% in the number of shipping companies that have registered with Cyprus’ specialised shipping taxation system, boosting the sector’s revenue by 25%. The industry directly employs 55,000 sea-farers from around the world and 4,500 personnel onshore, more than half of whom are Cypriot graduates, attracted to the sector because of its professionalism and high salaries.
Tonnage Tax Factor
A famous seafaring nation since antiquity, Cyprus began building its modern shipping industry in the early 1960s when it established its shipping registry and introduced legislation providing ship managers and owners with a more tax-efficient business environment. Among the country’s other evident advantages were its strategic location at the crossroads of maritime transport lines between East and West, low operating costs, a highly educated, multilingual workforce and its sophisticated professional services industry. Cyprus is also signatory to numerous international maritime conventions and has bilateral cooperation agreements with 23 countries, among them leading suppliers of labour.
Foreign shipmanagement executives enjoy the renowned holiday island’s pleasant lifestyle and are reassured by statistics that show it is one of the safest places in the world to raise a family. Limassol, Cyprus’ maritime capital where the vast majority of shipping companies are based, has undergone a major transformation in recent years. Bustling cafes and restaurants fill its revamped historic old town while its long coastal road is now flanked by cycle paths, pedestrian walkways and prestigious, high-rise residential developments. An added boost for shipping executives comes from new legislation providing tax incentives for high-earning expats. But the major driver of the sector’s success was put in place in 2010 when, after more than 10 years of negotiations with Brussels, Cyprus secured agreement for an upgraded and competitive EU-approved tonnage tax (TT) system.
The main benefit of the TT regime is the certainty it provides companies on their annual tax obligations, enabling them to do their business planning accordingly. While other jurisdictions might have less expensive TT regimes, Cyprus’ incorporates all three types of maritime activities – ship owning, shipmanagement, and chartering, making it unique in the EU where other jurisdictions might specialise in just one or two of these areas. Cyprus is also one of the only EU-approved open registries in Europe. The TT regime ensured the country was an attractive jurisdiction despite the Turkish embargo, which was imposed in 1987 on Cyprus flag ships calling at Turkish ports. The Cyprus flag is also considered one of the highest quality EU flags available today and ranks at the top of various Port State Control Agreement ‘white lists’ – including the Paris and Tokyo MOUs.
2018 – A Milestone Year
The creation of an independent Shipping Deputy Ministry, whose head reports directly to the country’s President, was a major milestone in 2018 for the industry’s development, serving to further attract quality shipowners and shipping companies to Cyprus. Based in Limassol, the Deputy Ministry is the first ministry outside Nicosia and as such is ideally located to work with the CSC, the industry’s professional trade association, and the Cyprus Union of Shipowners. These influential associations have played a key role in developing the industry through their lobbying efforts and expert advice to the government, with which they cooperate closely.
The CSC prides itself on its ‘after-sales’ care service for its members, which kicked in following the 2013 bailout of Cyprus. The CSC worked quietly with the troika of international lenders, the Central Bank of Cyprus, the Ministry of Finance and the banks to secure the implementation of an EU directive to reduce the losses of those members that suffered a so-called haircut on their bank deposits. The Deputy Ministry has upgraded and replaced the Department of Merchant Shipping, which offers 24/7 support services, reacts rapidly to emergencies, and continuously adopts the most advanced electronic and mobile communications systems.
A Global Showcase
The industry is showcased internationally at the biennial ‘Maritime Cyprus’ in Limassol, which attracts hundreds of shipping executives and professionals from around the world. Growing in prestige since it was first held in 1989, the event now serves as a leading global forum that influences maritime policy, regulation and shipping trends. The resident industry’s voice is also heard abroad through Cyprus’ active participation in various shipping-related fora, such as the International Maritime Organisation (IMO), the International Labour Organisation (ILO) and the European Commission, the International Chamber of Shipping (ICS) and the European Community Shipowners’ Association (ECSA).
Preparing for the Future
In another landmark for the industry, classes began in 2018 at the new Faculty of Marine Sciences and Technology in Larnaca, which is part of the University of Cyprus, a prestigious Nicosia-based public institution. Instruction is in English and, according to Lloyd’s Register, the faculty is set to provide the local and global maritime industry with high-quality human capital and research capabilities. The private educational sector is also helping to build a workforce for an industry that is embracing rapid technological advances. In 2016, the University of Nicosia, an independent institution, launched the Cyprus Maritime Academy, which collaborates with renowned shipping companies and supports the industry in Cyprus and globally by providing qualified officers for vessels.
Opportunities and Challenges
Although global shipping is still suffering structural challenges from the effects of the international financial crisis, with oversupply of vessels and banks tackling the weight of bad shipping debts with repossessions to cover losses, there is recovery on the horizon which also presents a silver lining for Cyprus. The flag is growing, and the country’s shipping industry is ideally placed to capitalise on the discovery of large natural gas fields in Cypriot, Egyptian and Israeli waters. There are six LNG carriers in the Cyprus fleet and plans to add many more under Cyprus’ new gas strategy which embraces the LNG market.
A more immediate opportunity for the country’s maritime sector comes from Brexit. UK regulated ship insurers have identified Cyprus as an attractive jurisdiction for an outpost or base amidst fears that the EU-exit will hinder their access to the bloc’s financial market. For example, the major global shipping insurer, London P&I Club, announced in July 2018 that it was setting up a ‘post-Brexit subsidiary’ in Cyprus, while several Greek ship-owners previously based in London have already relocated to Cyprus. Prompted by uncertainty in the Greek economy, other Greek shipowners and shipmanagement companies have transferred some of their operations to Cyprus.
The size of the world fleet has doubled over the last two decades, but currently the Cyprus industry is prevented from realising its full potential by the Turkish embargo on Cyprus-flagged vessels entering its ports. A settlement of the Cyprus Problem would immediately resolve this and dramatically boost the size of the country’s commercial fleet. Pending a settlement, Cypriot officials will press for the lifting of the Turkish embargo to be included in any package of confidence-building measures in reunification talks, which are expected to resume in 2018. If negotiations fail to progress, Cyprus is looking to use its influence within the EU to exert diplomatic pressure on Turkey to lift the trade restrictions.
The Mouse That Roared
In maritime terms, Cyprus is the mouse that roared, a small country that has become a global shipping superpower. It is estimated that approximately 5% of the world’s fleet and around 25% of global third-party shipmanagement activities are controlled from Cyprus. Of the companies established in Cyprus, some 87% per cent are controlled by EU interests, including Cypriot. Shipping gives Cyprus not only financial strength but political clout. From discoveries of natural gas in the island’s waters to new opportunities arising from Brexit, the sector is set for further growth in 2018 – both in quantity and quality.
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