Cyprus has attracted billions of euros in investment thanks to its rapid economic growth, incentives and advantageous European business operating environment. Investment has flowed into multiple sectors fuelling the economy and placing the island on the radar of foreign investors worldwide.
The growth performance of Cyprus continues to exceed international expectations, while successive credit rating upgrades have attracted billions in foreign investment since 2015, with significant inflows from the US, Asia, Russia and the Middle East. New luxury and infrastructure developments are underway across the country with significant foreign investor backing, and international companies are setting up headquarters on the island, which is becoming an increasingly attractive gateway to growth markets. The island’s return to an investment-grade credit rating in 2018 gave both the economy and investor confidence a boost, and the successful recapitalisation of its major banks and numerous large-scale projects, have all contributed to the resurgence of Cyprus as a top foreign direct investment (FDI) destination. The sectors that have seen the most significant FDI are banking, shipping, retail, tourism, pharmaceuticals and energy. These developments have also been noticed on the world stage, with Global Finance magazine’s FDI Superstars 2018ranking Cyprus eighth out of the top 20 countries globally for FDI performance and appeal, and the Financial Times fDi Intelligence Division ranking Cyprus in first place out of 31 islands in its 2019/20 Island Economies of the Future ranking.
Growing Investment Appeal
After a recession-driven divestment in 2013-2014, foreign direct investment into Cyprus turned positive, reaching €7.4 billion in 2015, and climbing up to €9.8 billion in 2017. The percentage increase in Cyprus’ FDI for 2016-2017 was the highest in the European Union. Today, the country is a hive of activity with several notable projects already implemented or in the pipeline, strengthening Cyprus’ image and appeal.
New large-scale real estate projects, luxury marinas and tourism infrastructure, coupled with exciting opportunities in the energy and shipping sectors are all reinforcing Cyprus’ status 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 sharpening its competitive edge by streamlining processes, modernising legislation, introducing incentives and speeding up licensing procedures to better cater to investors. An added benefit is its secure and stable EU environment in a turbulent region, which provides an ideal base for regional headquarters or ancillary and support services for investors with clients in the wider Eastern Mediterranean region.
Large-Scale Projects and Privatisations
Improvements in Cyprus’ macroeconomic and financial environment are reviving international interest in around 30 major development projects on the island, and with the economy posting a healthy 3.9% 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, energy and, more lately, the international film sector.
The liberalisation of markets in which state-owned entities used to dominate presents new opportunities in terms of FDI. The 2017 commercialisation of the country’s largest port in Limassol marked a new era for Cyprus as a commercial hub. The privatisation deal with Eurogate International GmbH and DP World Limited is expected to boost state coffers with €2 billion over the next 25 years, while the new port operators are injecting millions in upgrading services and infrastructure. Other targets for future privatisation are the State Lottery and the dominant telecommunications provider Cyprus Telecommunications Authority (Cyta).
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. Cyprus has been attracting new interest thanks to the diversification of 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 ongoing strategy to upgrade Cyprus’ tourism product. Investment in the Ayia Napa Marina project is seeing a transformation of the area, while the casino will have extensive facilities and exceed five-star status. The casino resort is Hong Kong-based Melco’s first expansion outside of Asia and will be the biggest casino of its kind in Europe, with the investment for this mega project expected to exceed €500 million.
Following the success of Limassol Marina, there has been a swell of interest in these types of projects. The €300 million luxury Ayia Napa Marina is due for completion in 2019, offering capacity for 600 yachts of up to 60 metres, a shipyard, and a range of luxury villas and facilities. With significant Egyptian investment backing the innovative project, the seafront residences, which will be completed by 2021, are already being marketed to investors worldwide. In addition, a €110 million marina project has already broken ground in Paralimni, and plans are in place to establish new luxury yacht marinas in the country’s other coastal towns such as Larnaca and Paphos.
The number of foreign investors closing multimillion-euro deals in the last three years underlines the fact that tourism-related real estate and infrastructure continues to be one of the most attractive investment opportunities in Cyprus. Worthwhile investments have been made in the hospitality industry with acquisitions and the construction of new luxury hotels of well-known hotel management chains. 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. The Radisson Hotel Group, one of the largest and most dynamic hotel groups in the world, has big plans to grow its existing portfolio in the country to six hotels and almost 1,000 rooms by 2025.
In 2019, the Luxury Collection, part of Marriott International, openedthe Parklane Luxury Collection Resort & Spa resort in Limassol. Owned and operated by Parklane Hotels Limited, the property marks Marriott International’s entry into Cyprus.Another major international deal in recent years was 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.
Booming Property Market
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. One of the latest projects is the Sofitel Resort & Spa, a joint venture between Singapore-headquartered Oxley Holdings and Planetvision on the Limassol beachfront. The project will be the first Sofitel Resort with branded residences in Europe and is expected to be completed by 2022.
Health and wellness developments are increasingly popular, and a prime example of this is the Eden Seniors Resort in Larnaca which opened its doors in 2018. The project, developed by the Cypriot-Lebanese joint venture Eveningfall Investments Ltd, is a wellness and rehabilitation centre, with spa and relaxation facilities for the elderly.
The high-end residential property segment accounted for 19% of the total transaction value of real estate in Cyprus during 2018, and almost half of all properties sold were purchased by foreigners – with 67% of properties acquired by non-EU buyers. A key driving force has also been the government’s schemes encouraging direct investments in Cyprus, such as the permanent residency and citizenship programmes which require investment in property. According to a government report in February 2019, the schemes have generated around €6.6 billion in transactions since 2014, of which €3.7 billion were in real estate.
Evolving Energy Opportunities
Since US company Noble Energy made the first natural gas discovery in 2011 with estimated resources of 4.5 trillion cubic feet (tcf) in the Aphrodite field, Cyprus’ hydrocarbons discoveries have captured the attention of several global energy giants. ENI, Kogas, ExxonMobil, Royal Dutch Shell, and Total have all secured exploration licences and conducted exploratory drilling. ExxonMobil announced the discovery of an estimated 5 to 8 tcf in Block 10 in early 2019 and ENI announced a promising discovery in Block 6 in early 2018. More drilling is expected in the next two years and in 2019 Cyprus agreedto build a subsea pipeline connecting Aphrodite to Egypt’s liquefaction plants and concluded a production-sharing deal with Noble Energy and its partners over the Aphrodite gas reservoir – which is set to bring Cyprus an estimated €9.3 billion over 18 years.
New opportunities are being created for a range of energy investments, including gas imports for power generation, the expected liberalisation of the electricity market by 2021, 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, and the potential for the world’s longest gas pipeline from Israel via Cyprus to Italy. 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 companies operating in the region.
Stable Banking Sector
Since the 2013 financial crisis, Cyprus banks are at a substantially improved level of capital adequacy and liquidity. The gradual restructuring of the banking sector attracted important institutional investors and fresh foreign capital, as well as measures to sell off non-performing loans – which has enabled the financial system to operate on a more sound basis.
The island’s biggest lender, Bank of Cyprus, secured €1 billion of investment from world-renowned investors in 2014 and issued another €220 million in Additional Tier 1 (AT1) capital in December 2018. The bank listed on the London Stock Exchange in January 2017, which has substantially opened up access to foreign investors.
Hellenic Bank completed a capital increase of €150 million in March 2019 to support its acquisition of mainly performing loans from the former Cyprus Cooperative Bank. The acquisition boosted the bank’s assets to €16 billion and raised market share for loans to 30%. The capital raise brought in new international investors, such as US-based Poppy Sarl (PIMCO), with the other major shareholders being Demetra Investments Ltd, Wargaming, Third Point and investment fund 7Q Financial Services Ltd.
Mergers and acquisitions in the past few years have transformed the landscape somewhat 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 in fresh capital into the bank in 2017, now renamed AstroBank. In January 2019, AstroBank went on to acquire the locally based USB Bank for €40 million. The deal is expected to contribute to the further consolidation of the Cyprus banking sector and highlight potential investment opportunities in Cyprus. Negotiations are also said to be underway between AstroBank and the National Bank of Greece, to acquire the latter’s subsidiary in Cyprus.
The banking sector has seen more activity and investment in recent years, providing opportunities for new players to enter into the market to encourage 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.
Global Shipping Hub
The maritime industry has been one of Cyprus’ most successful export services and now has its own dedicated deputy ministry. The decision in July 2018 by leading London ship insurer P&I Club to open a post-Brexit EU subsidiary in Cyprus, reaffirming the island’s position as one of the top global hubs for ship owning and shipmanagement services. Another coup came in early 2019, when British shipping firm P&O Ferries decided to register its English Channel operating fleet under the Cyprus flag to take advantage of the benefits and security it provides.
Two of the industry’s most highly respected privately-owned shipmanagement companies, Columbia Shipmanagement and Marlow Navigation – both based in Cyprus – merged in 2017 to form Columbia Marlow, creating one of the world’s largest ship and crew-management companies. Another transaction constituting FDI was the 2018 buyout of Limassol-based Songa Offshore SE by Transocean Ltd, the world’s largest offshore drilling contractor for oil and gas wells, in a deal worth US$3.4 billion.
The growth of Cyprus’ resident shipping sector over the past 50 years has developed 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. In the past six 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%. In addition, natural gas finds within Cyprus’ EEZ and efforts to exploit it in cooperation with neighbouring countries have expanded opportunities for the island’s already thriving shipping sector.
Regional Education Centre
Cyprus has seen a rapid expansion of tertiary education in the past few years, and is well on its way to develop the island into a regional education centre and knowledge hub. Cyprus 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 soared. The number of foreign students choosing Cyprus for their studies has almost tripled in the last five years, representing over 60 different countries and supporting the growth of Cyprus into a true global educational centre. This fact underlines the great opportunities that exist in Cyprus for the establishment of new universities, colleges and research institutes.
Focus on Innovation
A range of initiatives are under way to support start-ups, including a Start-up Visa scheme to attract more international talent to establish ventures with high growth potential. Opportunities are therefore 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. Recent changes to taxation on intellectual property (IP) and the Cyprus Investment Programme 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 investment in July 2018, with South Africa’s telecom MTN Group – which entered the Cypriot market 11 years ago and has around one-third of the market – selling its Cyprus operations to Monaco Telecom S.A. in a €260 million deal. In 2019 the company was rebranded Epic, and the group announced strategic cooperation with China’s Huawei on developing a 5G network in Cyprus.
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.
Cyprus is firmly back on the fast track in reclaiming its title as an economic outperformer, having endured a challenging economic climate earlier this decade. To enhance investor interest, the government is making staunch efforts to improve its FDI framework and has vowed to cut through red tape. Reforms under way include a specialised commercial court and upgrades to the judicial system, and a planned strategic investment law to better facilitate investment. These efforts are bearing fruit, with Cyprus seeing a steady increase in FDI and 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. In addition, the investment funds sector has grown exponentially in the last few years with continuous upgrades to the regulatory framework. Assets under management have more than tripled from €2.1 billion in 2012 to €6.7 billion in May 2019. If recent growth rates are sustained, assets under management could reach €20 billion in the next five years.
Cyprus’ liberalised FDI Policy, both for EU citizens and investors from third countries, along with its favourable tax regime makes it one of the most attractive investment targets 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 65 countries has strengthened its position as a business gateway and a preferred location for corporate headquarters. The country’s skilled talent, low cost of doing business, top-tier professional services, and high quality of life renders Cyprus not only a wise business choice but also a great relocation destination. As work progresses on implementing structural reforms to bolster the business environment, the attractive incentives and the ever-expanding opportunities will continue to entice foreign investors. The transformation Cyprus’ economy is going through today, presents many opportunities for serious investors who are ready to tap into the potential of one Europe’s fastest growing economies – and reap the rewards of a nation determined to succeed.
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