Cyprus has regained its status as a serious contender amongst European FDI destinations thanks to its rapid economic turn- around and advantageous business operating environment. New luxury developments are springing up across the country with significant foreign investor backing, and both multinationals and tech-savvy start-ups are setting up global and regional headquarters on the island, further boosting investor confidence.
Cyprus has come a long way in the last few years, surpassing all international expectations and attracting an impressive eightfold increase of inward investment in 2017, with significant inflows from the US, Asia, Russia and the Middle East. The island’s improved credit standing after consecutive upgrades by international credit rating agencies, the successful recapitalisation of its major banks, bond issues raising over €3 billion in international markets, and numerous large-scale projects, have all contributed to the resurgence of Cyprus as a top foreign direct investment (FDI) destination. These developments have also been recognised internationally, as Global Finance magazine’s ‘FDI Superstars 2018’ ranked Cyprus 8th out of the top 20 countries globally for FDI performance and appeal.
The small Mediterranean island is abuzz with new large-scale real estate projects, luxury marinas and pioneering tourism infrastructure, as well as exciting new opportunities in the energy sector, which are all reinforcing Cyprus’ appeal as an interesting investment location. Already renowned as a popular holiday destination and a thriving business hub servicing international companies with multinational operations, the island is growing its investment appeal by streamlining processes to boost its economy and attract more investment through modernising legislation, promoting development projects, diversifying tourism, introducing tax and other incentives and speeding up licensing procedures.
An added benefit is its secure and stable EU environment in a turbulent region, which also provides an ideal base for regional headquarters or ancillary and support services for investors with clients in the wider eastern Mediterranean region. Two prime examples of this in 2017 were the global leader in business process outsourcing, Sykes Enterprises, which picked Cyprus from 20 other competing jurisdictions as its base, citing the right work-life balance as a key reason. High-tech and entertainment start-up Whipper, also established its global headquarters in Limassol in 2017, adding more weight to the growing start-up culture in Cyprus. Brexit has also provided opportunities. The major global shipping insurer, London P&I Club, announced in July 2018 that it was setting up a ‘post-Brexit subsidiary’ in Cyprus.
Improvements in Cyprus’ macroeconomic and financial environment are reviving international interest in around 30 major development projects on the island, and with the government expecting a healthy 3.5% growth in 2018, the island’s FDI appeal is on an upward trajectory. Investment opportunities in Cyprus’ large-scale projects span various sectors, including high-value tourism and housing developments, projects with a special focus on golf courses and luxury marinas, as well as education and energy.
Upmarket Tourism Expands
Tourism has long been a driving force of the Cypriot economy, and expansion of capacity as well as quality upgrades have seen both arrivals and expenditure break new records for three years running. Having already reached 3.6 million arrivals in 2017, projections of international tourist arrivals reaching almost 4 million and generating expenditure of €3.5 billion by 2025 look set to be revised upwards. Cyprus has been attracting new interest thanks to the diversification its offering, by developing nautical, golf and wellness tourism and by extending the tourist season. The construction and investment in multipurpose projects such as luxury marinas, golf courses and more recently the island’s first-ever and only integrated luxury casino resort, are all part of the plan to upgrade Cyprus’ tourism product. Investment in the Ayia Napa Marina project is seeing a transformation of the area, while the casino, which is being run by the globally renowned Melco, will have extensive facilities and exceed five-star status. The investment for this mega project is expected to exceed €500 million – making it the first of its size in Europe. From January 2019 Cyprus will have a dedicated deputy tourism minister focused on further upgrading the sector.
Marina projects in particular have seen a surge of investor interest, following the success of Limassol Marina. Ayia Napa Marina is already under construction and plans are in place to establish new luxury yacht marinas in the country’s other major coastal towns of Larnaca and Paphos. The €220 million luxury marina in Ayia Napa will feature twin skyscrapers and a yacht marina with a capacity for 600 vessels – with provisions for yachts up to 60 metres. With significant Egyptian investment backing the innovative project, the seafront residences are already being marketed to investors worldwide, with a price tag ranging between €500,000 and €5.2 million.
Tourism-related real estate and infrastructure continues to be one of the most attractive investment opportunities in Cyprus, evidence of this is the number of foreign investors closing multimillion-euro deals in the last three years. These include the prestigious Sun City Spa and Residences by Chinese group Jim Chang Global with an initial investment of €100 million to construct a five-star resort hotel and exclusive beachfront residences in cooperation with the Giovani Group.
Other examples are the upcoming launches by the Rezidor Hotel Group of Larnaca-based Radisson Blu Hotel and Residence and the Radisson Blu Conference and Airport Hotel – which will be the island’s first airport hotel – and the €71 million deal on Amathus Beach Hotel in Limassol. More investment has flowed into Limassol with the new Parklane Luxury Collection Resort & Spa replacing the popular Le Meridien. The hotel is undergoing a major luxury renovation, designed by Harrods Design Studio and is estimated to cost €70 million. Other major international deals were the acquisition of the Alexander the Great Beach Hotel in Paphos and South African Atterbury acquiring two of the country’s flagship Nicosia retail outlets, the Mall of Cyprus and the Mall of Engomi, for €200 million.
Boost in Real Estate Sales
Property sales in Cyprus also marked a significant increase thanks to foreign buyers and a growing number of attractive offerings for the luxury end of the market. One of the latest projects is the Sofitel Resort & Spa, a joint venture between Singapore- headquartered Oxley and Planet Vision on the Limassol beachfront, which promises to take luxury and lifestyle residences to the next level. Property purchases completed by overseas buyers increased 16.5% year-on-year in 2017, with overseas buyers making up 30% of all real estate transactions.
Cyprus continues to be on the top of the list for investors, holiday-home seekers, expats and retirees, with the traditionally popular areas of Paphos and Limassol leading the way – a trend likely to continue throughout 2018. Sales in Larnaca and the capital, Nicosia, have also been rising rapidly from a low base. Interest in real estate has partly been spurred on by the incentives offered in the country’s permanent residency and citizenship programmes, which require investment in property. According to some reports the schemes are said to have brought in over €5 billion in revenue over the past two years, with most enquiries coming from Russia and China. Recent studies conducted by global immigration experts rank the Cyprus Investment Programme amongst the top ten worldwide, and one of the strongest in the EU. The programme was revised in September 2016, making it even more attractive. The investment required is €2 million and a residential property worth €500,000. If an investor chooses to invest only in residential properties in Cyprus, their investment is limited to €2 million. Investment options include real estate, investment in Cyprus companies, investments in Alternative Investment Funds and bonds issued under the auspices of the Cyprus Securities and Exchange Commission (CySEC), or a combination of the above.
Evolving Energy Opportunities
Cyprus’ hydrocarbons discoveries have captured the attention of several global energy giants, such as ENI, Kogas, ExxonMobil, Royal Dutch Shell, and Total, who have all secured exploration licences, with further drilling in Cypriot waters expected in 2018. ENI announced a promising discovery in Block 6 in early 2018, which initial estimates put at around 6-8 trillion cubic feet (tcf). ExxonMobil is due to drill in the second half of 2018 and Cyprus could be signing its first gas export deal in 2018. US-company Noble Energy made the first natural gas discovery in 2011, with estimated reserves of 4.54 tcf in the Aphrodite field.
Cyprus has been deepening cooperation with Egypt, Israel, Jordan, Lebanon, Greece and Italy, positioning itself as a convenient regional energy hub in the eastern Mediterranean. New opportunities are being created for a range of energy investments, including gas imports for power generation, the liberalisation of the electricity market, the growing share of renewables, the EuroAsia Interconnector project to connect Cyprus, Israel and Greece via submarine electricity cable and a related one to connect Egypt. However, regional disputes have slowed down the progress of extracting and exploiting the hydrocarbons wealth that lies in Cypriot waters, but the discoveries have boosted the development of a new energy industry in the country, which is also well positioned to offer a multitude of auxiliary services to the industry and companies operating in the region.
Banking Attracts New Players
Cyprus’ successful financial adjustment programme brought much-needed fresh foreign capital into the banking sector, which restored confidence and created opportunities for more foreign participation in the sector. The island’s biggest lender, Bank of Cyprus, secured €1 billion of investment from world-renowned investors in 2014 and further good news came when the bank listed on the London Stock Exchange in January 2017.
Hellenic Bank, the second largest commercial bank, also attracted investment when New York-based hedge fund Third Point became a major shareholder in Hellenic Bank in 2013 and strengthened its position by purchasing €7.7 million worth of convertible bonds, while there were additional capital injections from international online gaming company Wargaming and the European Bank for Reconstruction and Development (EBRD).
The banking sector has also seen some newcomers such as Swedish Ancoria Bank with an initial capital of €50 million. Mergers and acquisitions are also on the rise, with strategic new investment entering the sector from the sale of the majority stake of the Cyprus subsidiary of Greece’s largest lender Piraeus Bank, to Lebanese Holding M. Sehnaoui SAL – which injected €40 million of fresh capital into the bank, now renamed AstroBank.
Another major development in the banking sector came in June 2018, with the shareholders of the Cyprus Cooperative Bank approving a proposal from Hellenic Bank for the acquisition of certain parts of the state-owned lender. As part of the deal Hellenic Bank is subject to a capital raise and will absorb all of the Coop’s total deposits, amounting to €9.7 billion. In addition, it will take on €10.3 billion of the bank’s assets which are made up of performing loans, bonds and cash, as well as a portfolio of around €500 million in non-performing loans. Assets worth approximately €8.3 billion will be transferred to the state, and the so-called bad loans will be managed by a specialised state-controlled entity staffed with Coop personnel. As part of the deal, major legislation was passed in July 2018 that significantly enhances banks’ abilities to recover loans and to shed other bad loans via securitisation.
The sector is certainly seeing more activity and is providing opportunities for new players to enter into the market and encouraging healthy competition and a wider scope of services. Investment opportunities that could be tapped into by international banks and financial groups are mergers and acquisitions, private equity and venture capital projects via the budding funds sector, as well as financing of large infrastructure projects.
The maritime industry has been one of Cyprus’ most successful export services and now has its own dedicated deputy ministry. The island is considered one of the top global hubs for ship owning and shipmanagement services and is home to some of the world’s most influential names in shipping. Today, Cyprus is the largest third-party ship management centre in Europe and the largest crew management centre in the world, while the island’s international ship register is the third largest in Europe and the 11th largest in the world. The growth of Cyprus’ resident shipping sector over the past 50 years has also meant the development of a strong maritime cluster that caters to the needs of Cyprus-based companies, including banking, professional services, insurance and IT. The cluster has gone from strength to strength over the years and is consistently attracting more quality tonnage and shipping-related companies to its shores. Natural gas finds within Cyprus’ EEZ and efforts to exploit it in cooperation with neighbouring countries are also raising expectations for the island’s already flourishing shipping sector.
Cyprus has seen a rapid expansion of tertiary education in the past few years and is well on the way to developing the island into a regional education centre and knowledge hub. The island has already attracted cooperation and synergies with international universities, most notably the University of Nicosia launching the island’s first degree programme in medicine in collaboration with St George’s Medical School at the University of London, and University of Central Lancashire – Cyprus (UCLan), being the first British university to establish a campus on the island. Since joining the EU in 2004, the number of foreign students studying in Cyprus has doubled and today 30% of students are foreigners – a figure which highlights the great opportunities that exist in Cyprus for the establishment of new universities, colleges and research institutes.
Science and Technology
Parallel to the growth in tertiary education, Cyprus is expanding the number of top-quality research centres. The Cyprus Institute (CyI), with strategic partnerships with prestigious global research centres such as MIT and the Max Planck Society, is spearheading research in exciting new areas like simulation and data science with the creation of a new Centre of Excellence in 2017. Over the past six years, Cyprus has also harnessed over €90 million in EU funding for Cypriot-led research projects. In this regard, opportunities are opening up for business angels and venture capitalists looking for innovative start-ups, and to invest risk capital in exchange for equity in promising business ideas and products. Cyprus has also launched a new Start-up Visa scheme, aiming to attract more international talent to establish ventures with high growth potential. Recent changes to taxation on intellectual property (IP) also support innovative research.
The technology and communications sector in Cyprus has become fiercely competitive, with a number of players deploying cutting edge solutions to both increase their local market share and generate growth through the launch of new technology and products. The sector saw new action in July 2018, with South Africa’s telecom MTN Group – which entered the Cypriot market 11 years ago – selling its Cyprus operations to Monaco Telecom S.A. in a €260 million deal, which also allows the Monegasque company to use its brand for a three- year period for a fee. MTN saw its market share in mobile telephony increase to more than 35% in December 2017, up from 23% in December 2010.
Privatisation and Liberalisation
The liberalisation of markets in which state-owned entities used to dominate present a new opportunity in terms of FDI. The commercialisation of the country’s largest port in Limassol marked a new era for Cyprus as a commercial hub and will prove a major asset for the economy. The successful bidders were Eurogate International GmbH, as the majority participant, along with Interorient Navigation Company Ltd and East Med Holdings SA for the container terminal, and DP World Limited, as the majority participant, and G.A.P Vassilopoulos Ltd for both the marine services and the multipurpose terminal. The deal is expected to boost state coffers with €2 billion over the next 25 years, while the new port operators are expected to invest over €100 million in infrastructure. Other targets for future privatisation are the State Lottery and the dominant telecommunications provider Cyprus Telecommunications Authority (Cyta). Opportunities for renewable electricity producers are also opening up, with the full liberalisation of electricity generation and supply due in 2019 and binding renewables targets due by 2020.
Having endured a challenging economic climate, Cyprus is back on the fast track in reclaiming its title as an economic outperformer. To enhance investor interest, the government is making staunch efforts to improve its FDI framework and has vowed to cut through red tape, including reform of the judicial system, to better facilitate investment. These efforts are bearing fruit, with Cyprus seeing an increase in the registration of new companies setting up on the island. Cyprus’ open economy, European status and established role as a regional business hub between three continents continue to appeal to investors. The island also hosts a thriving forex industry with many global giants basing their operational headquarters in Cyprus. The investment funds sector has grown exponentially in the last five years and assets under management reached €4.8 billion in March 2018, constituting 68% growth since 2016Q4. If current growth rates are sustained, assets under management are expected to rise to an incredible €20 billion in the next five years.
A Bright Future
Cyprus’ liberalised Foreign Direct Investment Policy, both for EU citizens and investors from third countries, along with its favourable tax regime makes it one of the most attractive centres for FDI in Europe. At 12.5% Cyprus’ corporate tax rate is one of the most competitive in the EU, and its extensive network of double taxation treaties with 64 countries has strengthened its position as a business gateway as well as a preferred location for corporate head offices for companies from around the world – using the island as a secure, EU regional base for centralised services. The modernisation and transformation of Cyprus’ economy, which is one of the fastest growing in the EU, is presenting many opportunities and advantages for serious investors who can move in fast. Early investors can reap the benefits of the efforts made by a pro-business government determined to succeed in maintaining the current healthy economic growth rates. More work remains to be done, but the remarkable progress made so far, the attractive incentives and the ever-expanding opportunities have certainly been recognised by foreign investors.
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