To strengthen competitiveness and productivity, Cyprus is adopting an ambitious new strategy to better connect traditional industry and manufacturing with other sectors to transform the country into a more modern and tech-driven economy.
In a bid to revolutionise its industrial sector and improve access to the world’s biggest markets, Cyprus has a new vision to create a robust, flexible and technologically advanced industry with services that will substantially contribute to the development of the Cypriot economy.This will be achieved through the gradual implementation of a new National Industrial Strategy Policy for 2019-2030. Its mission is to develop more high-value-added innovative products and services that will contribute to the competitiveness of Cyprus, and increase industrial productivity by strengthening the industrial ecosystem and investing in sustainability, innovation, digitalisation, infrastructure and skills.
As the EU and eurozone’s most eastern member, Cyprus is an attractive option for producers in the Middle East, Africa and Asia to access the European Union’s 500 million consumers. The island is equally attractive to manufacturers in Europe and beyond, providing an affordable base with high connectivity to supply existing and emerging markets in the East. The island has one of the EU’s lowest corporate tax rates at 12.5%, double taxation treaties with over 60 countries across the globe, a highly educated workforce and a sophisticated transport and logistics infrastructure.
A New Strategy for Growth
With sectors such as tourism, professional services and construction booming, the government has now placed strong focus on further developing its manufacturing and industrial sector. Incentives are already in place for investments in fixed assets and industrial equipment, while innovation projects in the industry are supported by state funding to promote results-oriented research.
Together with the private sector, the Ministry of Energy, Commerce and Industry (MECI) has finalised its new strategy, which echoes the EU’s renewed industrial policy that highlights digital transformation and envisions so-called smart factories increasingly powered by renewable energy churning out high value-added and ‘green’ products – a formula that has already been embraced by Cyprus’ leading manufacturers to compete globally. Access to finance and export markets will be improved, along with new tax and other incentives to attract foreign direct investment in high-tech and knowledge-based industries.
A prime example of the sector’s significant potential for growth and foreign investment, was the €260 million acquisition of a leading Cypriot pharmaceuticals producer Remedica Ltd by South Africa’s Ascendis Health Ltd in 2016. The South African corporation wanted a strategic platform within the EU for expansion and growth in the generic pharmaceutical industry in both European and emerging markets. The alliance has given Remedica the funding to embark on a new phase of development and the benefit of synergies with Ascendis.
Incentives to boost the sector include a fast-track visa programme for start-up entrepreneurs from outside the EU to establish ventures with high growth potential, which will be in force until 2021. The expected establishment of an under-ministry for development will also accelerate procedures for foreign investment and help cut government bureaucracy.
Cyprus embraced industrial development in the decade after independence in 1960, transforming the largely agricultural country into one where manufacturing accounted for 20% of GDP by the 1980s. An early success came in 1967 when a Cypriot company, Photos Photiades Breweries, secured a licence to brew Carlsberg, which is now done at a fully-automated brewery in Nicosia. It was the first time the Danish brewing giant allowed its famous beer to be produced outside Denmark. Further transformation produced an increasingly services-oriented economy. The once flourishing but protected textile, clothing and footwear industries faded after EU membership in 2004, giving rise to the manufacture of medium- and high-technology products and semi-customised small-batch products.
The main growth areas have been in the ICT sector, manufacturing parts, instruments and electronics, as well as consumer products such as cosmetics. Production of pharmaceuticals, cement and fabricated metal items – all well-established export industries – is performing strongly. Record-breaking tourist arrivals are stimulating the food and beverages industry, which accounts for over 30% of total manufacturing production. Halloumi cheese is a stellar export performer. In 2018, Cyprus exported 30 million kilos worth €194 million to over 40 countries worldwide– and with more markets steadily being targeted and opened for exports, these figures are sure to grow further in the coming years.
Industrial production contracted sharply during the recent recession, but the traditionally resilient sector recovered faster than the general economy, with production increasing 5.4% year on year in February 2019. Some 30,000 people – about 6% of the workforce – are employed in manufacturing and industry. The main destination for Cypriot manufactured exports is the European Union, which constitutes over 50% of the market, while exports to the Middle East make up around 15%.
Supporting Innovative SMEs
The clear majority of Cyprus’ 5,300 manufacturers are small and medium-sized enterprises (SMEs), mostly family-owned and run. This makes the sector flexible and open to innovation, offsetting difficulties with economies of scale which will also be addressed by plans for clustering and improving the industrial infrastructure. The new national industrial strategy policy will encourage more private investment in research and innovation and capitalise on robust spending in this area by Cyprus’ public universities by improving synergies between academia and industry.
Cyprus also ranks first per capita among EU members competing for funds from Europe’s largest research and innovation programme, Horizon 2020, securing almost €90 million so far to finance some 250 projects by academic and research centres and companies. Acquiring such funds has helped innovative Cypriot SMEs to become notable successes. One of these is Vitatrace Nutrition Ltd (VTN), which employs some 40 people at its Nicosia offices and factory, producing vitamin pre-mixes and pharmaceuticals for animal nutrition for export, particularly to the Middle East and Europe. Founded in 1978 and owned and operated by two families, it has won funding in cooperation with several British universities for the EU’s largest-ever research programme on animal nutrition.
A Badge of Quality
Quality and affordability are the hallmarks of Cypriot-made pharmaceuticals, which are sold in over 100 countries across the globe. The industry is led by Medochemie Ltd and the aforementioned Remedica, which invest heavily in research and innovation and spend significantly on continuously upskilling their workforces. Medochemie Ltd, founded in 1976, develops, manufactures and distributes mostly generic pharmaceuticals and invests up to 7% of its turnover in research and innovation. The company has 13 manufacturing plants and facilities, of which nine are in Cyprus, one in the Netherlands and three in Vietnam. With its multinational staff of 1,670, the company has expanded from its Cyprus base into promising markets across the world – to the Middle East and Africa, Far East and the Americas – and has 21 offices and operates in 107 countries. Cyprus’ ideal location enables these two award-winning companies in Limassol to distribute their products to markets in the region and far beyond. Their products bear ‘made in the EU’ labels – a badge of quality that assures consumers that what they are buying has met rigorous testing standards.
Another major manufacturer and one of Cyprus’ biggest exporters is Vassiliko Cement Works, which boasts Europe’s largest single clinker production line and operates its own eponymous port. Founded in 1963, the company was floated on the Cyprus Stock Exchange (CSE) in 1996. A decade later, to satisfy growing demand, Vassiliko revamped its whole plant with an initial investment of €180 million. The company has an annual capacity of two million tons of cement, more than twice the island’s domestic needs. Its international customers are mostly Cyprus’ neighbours in the Eastern Mediterranean. Vassiliko has a variety of programmes to keep training and upgrading the skills of its 340-strong workforce, and a ‘talent academy’ that trains unemployed graduates for six months to a year, some of whom enter the workforce when vacancies arise.
Cyprus has a 4,500-year-old history of copper mining, and today’s production methods are of the highest standard. Substantial investment in research, innovation and the latest mining technology has enabled Hellenic Copper Mines (HCM) to commercially exploit ores depleted by millennia of extraction. HCM set a European first in 1996 by introducing hydrometallurgy, a cost-effective and environmentally friendly way of exploiting low-grade ores, and it is a pioneer in bio-leaching. The high price of gold has also made it worthwhile for HCM to begin processing ores bearing the precious metal that it amassed while mining copper and to extract new ones, along with silver-bearing ores.
HCM employs just under 100 people, nearly a third of them university graduates, and some 50 contractors daily, providing welcome employment in the rural Solea district and contributing to the rehabilitation of remote areas. HCM exports 100% of its production to European destinations and its copper is classified among the top copper metal producers worldwide in terms of its purity (99.999% cu). Although currently the only operating mining company in Cyprus, some exploration companies are active because the island remains rich in low-grade mineral wealth. The mining of metals accounts for about 5% of Cyprus’ industrial exports, a figure which would be far higher if industrial minerals and cement were included.
Given the island’s small domestic market, the government is encouraging manufacturers to be more international in outlook in order to grow. A good example of this is Elysée, which celebrates its 40thanniversary in 2019. The award-winning Nicosia-based company designs and develops irrigation and piping systems that are sold in 65 countries from Europe and the Middle East to South Africa, Japan, Australia and New Zealand. Equally ambitious and innovative is Limassol-based Muskita Aluminium Industries Ltd, which designs and manufactures aluminium products and systems that are used across the globe in sectors ranging from aviation to agriculture.
With 350 highly trained staff, the over 60-year old company was a forerunner in the European aluminium industry and holds many design patents and pioneered the use of robotics in Cypriot industry, both in its warehousing and production, and prides itself on fostering green initiatives. Today, Muskita is one of the most technologically advanced firms in its industry worldwide and the largest, most progressive factory of its kind in Cyprus. The company’s systems have been tested and certified to withstand the severe rain and snow of Northern Europe, the pounding cyclones of the Indian Ocean and the searing heat of the Middle East. Its products are used internationally, a testament to the cutting-edge technology, engineering, quality and skilled workforce that have been paramount to the company’s current and future success.
Opportunities and Challenges
The new industrial strategy policy is designed to maximise the opportunities and address the challenges inherent in a sector where most enterprises are SMEs largely dependent on imported raw materials from distant markets. A major strength of the strategy is that it was formulated after lengthy consultations between the government and stakeholders, primarily the private sector’s two main representative and lobbying bodies, the Cyprus Chamber of Commerce and Industry (CCCI) and the Cyprus Employers and Industrialists Federation (OEB). All stakeholders are working together to make the strategy work. Most SMEs are entrepreneurial and have the advantage of being agile, flexible and innovative, but face difficulty in keeping the cost of imported raw materials down by buying in bulk. Now plans for clustering units of similar producers that can join in bulk orders will reduce costs.
Access to financing has been a concern for small manufacturers because financial institutions have set stricter lending conditions in the wake of the 2013 bailout. Although the economic climate has improved substantially, the financing environment remains difficult for SMEs which have limited collateral available and many companies also remain overindebted. In a bid to support SMEs, Cyprus is offering opportunities to make use of tax breaks for new export-oriented companies, access to training grants and soft loans, as well as funding opportunities for small start-up companies. State-guaranteed loans from the European Investment Bank (EIB) are also enabling banks to extend credit to SMEs, with more than €210 million disbursed in 2018, of which €127.6 million went towards SMEs, €39.4 million for innovation and €31.1 million for the environment while the remaining went for infrastructure.
In a bid to tackle climate change and to address the common complaint by manufacturers about the high cost of electricity, the strategy will incentivise greater use and development of renewable energy resources (RES). Installing new, clean energy-powered heating and cooling systems in factories will be a priority. With the government committed to meeting 13% of Cyprus’ energy needs with RES by 2020, the clean energy industry is ripe for foreign investment.
The island aims to become a hub for solar innovation, technology transfer and start-ups. Photovoltaic parks are a growth area ready for more investment. The national strategy is also proceeding with a techno-economic study for industrial sustainable management of waste and assessing the capacity to generate electricity from better waste management in industrial zones. In addition, the study will examine the possibility of installing treatment plants for wastewater from food and wastewater industries. The results of the study will eventually create new grant schemes and other incentives to industries and SMEs to promote and make use of cyclical economy technologies, applications and standards.
The future exploitation of significant natural gas reserves in Cyprus’ waters could also facilitate growth in the manufacturing sector, with prospects of using the island’s own energy supply to lower production costs in the future. On another front, the new national industrial strategy policy has plans to boost competitiveness and productivity by ensuring that the sector’s labour force is continuously trained to capitalise on rapidly evolving technologies. This, together with further investment in modern tech solutions, will enable manufacturers to keep their advantage over competition from lower-wage producers in Eastern Europe.
Determined to Succeed
The foundations of a robust industrial base have long been in place in Cyprus. The island has a deep pool of well-educated human capital, a sophisticated infrastructure, and a strategic location with high connectivity that makes it the ideal springboard for European manufacturers keen to expand into the markets of the East and vice versa. It may take a few years to see concrete results from the new industrial strategy policy, but Cyprus’ manufacturing and industrial sector is determined to realise its true potential. SMEs are increasingly following the pioneering lead of several large, innovative and export-oriented companies, and with renewed support and incentives in place, Cyprus will certainly see a revolution in this arena in the coming years.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
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