Technology & Start-Ups

Investing in Innovation

Cyprus’ technology landscape is set to see a transformation in the coming years with significant new state investment in innovation and tech development, incentives attracting growing numbers of start-ups and blockchain ventures, and global companies choosing the island for regional headquarters.

As an established hub for international business, Cyprus has long been home to a number of international tech companies running their regional headquarters from the island and servicing clients in Europe, the Middle East and North Africa. Innovative start-ups and blockchain businesses have also started to spring up and Cyprus is certainly being noticed outside its borders. The country has an advanced communications infrastructure in place to support business, and efforts to upgrade and expand high-end networks have gained momentum over the last few years. Promoting a digital economy, developing more secure and efficient global communications and launching incentives are high on the agenda for Cyprus to attract more tech business and investment into Information and Communications Technology (ICT).

Supporting Tech Development

With strong GDP growth over the past few years and recognising ICT as a catalyst to increase productivity and economic growth, Cyprus is ready to boost investment into innovation and technological development. In 2019, the government pledged to double expenditure on developing technology and increase private contribution as part of a 2019-2023 national strategy on Research and Innovation. The proposal – branded ‘Innovate Cyprus’ – envisions the future of the country as a dynamic and competitive economy with research, scientific excellence, innovation, technological development and entrepreneurship at its core. Part of these plans was to establish a national Council of Research and Innovation and a Deputy Ministry for Research, Innovation and Digital Governance, and provide €60 million in state funds to co-finance four new research centres of excellence.

Cyprus is certainly determined to up its game and focus more on long-term development outcomes. A recent roadmap for a 2030 vision was created by EPOQ Partners, a private consultancy firm newly established in Cyprus, which outlined the potential of Cyprus to harness growth with a technology-driven economy. To remain competitive depends on how Cyprus adapts to new realities like virtual banking, technology in agriculture, new and renewable energies, as well as smart cities. The report also identified significant potential in further developing medical and financial technology. Sparking new growth in sectors through technology would benefit the country and help diversify its economy. In the next five years, Artificial Intelligence (AI) is also set to significantly change the way companies conduct their business. Business success will depend on how new technological capabilities will be utilised. Education and retraining will be key to effectively harness technology and to adapt to new realities.

Sector of Opportunity

The biggest spender by far on IT in Cyprus is the financial sector, followed by the telecoms providers and the public service. Support and training services form the largest primary market in Cyprus, followed by project and outsourcing services. There is currently big demand for support services and skills training in ICT, especially as communications are moving increasingly to 3rd Platform technologies, such as mobile, cloud and big data systems, and with businesses competing to stay ahead of the game. Cloud solutions are beginning to gain more traction in Cyprus with the main providers, Cyta, epic, Primetel and Cablenet all offering cloud services, which are primarily used by small to medium sized enterprises (SMEs). Services and software are expected to be the top-performing segments of the Cypriot IT market in the coming years, due to continuing demand for quality end-to-end solutions that focus on enhanced user experience. Innovation and specialisation will certainly be key elements to succeed in the Cypriot market, which is rapidly embracing the digital culture and mindset.

ICT is a serious growth area for Cyprus and a sector that is seeing active support from the government and several local projects have secured EU financing from programmes such as Horizon 2020. The University of Cyprus’ KIOS Research and Innovation Centre of Excellence, in collaboration with Imperial College London, conducts multidisciplinary work that focuses on the monitoring, control, security and management of ‘critical infrastructure systems’. These include large-scale, complex systems and networks such as power, energy, water and transportation systems, telecommunication networks, and emergency management and response systems.

Attracting Tech-Savvy Talent

An increasing number of technology companies are also choosing to locate their operations in Cyprus because of its cost-effective services, favourable tax and business environment, as well as its skilled workforce. The island’s capital, Nicosia, has been identified as the future centre for ICT and research and development. The local universities provide excellent bachelor and masters programmes in computer sciences and technology, consistently producing tech-savvy candidates to join the ranks of some of the world’s leading ICT companies. For example, the University of Nicosia (UNIC) broke new ground in university adoption of blockchain technology and offers the first certified online blockchain course (MOOC) and the world’s first master’s degree for digital currencies. More than 25,000 students have taken the MOOC and over 500 students have enrolled in the MSc in digital currencies.

Cyprus first made the news in 2013 with a small ‘bitcoin gold rush’, but the country has in fact long been a prime location for the fintech industry as it is home to hundreds of the world’s biggest Forex brokers and online-trading platforms. More recently, Cyprus has fully embraced blockchain technology. At the end of 2018, Cyprus along with six other EU states signed a declaration to collaborate on the promotion of distributed ledger technologies and blockchain application. Also in 2018, the country’s investment promotion agency, Invest Cyprus, announced a new collaboration with Singapore-based blockchain platform VeChain and the American organisation CREAM, which provides advisory services for projects and investments in the blockchain area. The objective is to create a new framework of cooperation, recommend policy reforms and establish the necessary legal framework to regulate the application of blockchain technology in Cyprus’ financial sector. Another non-profit organisation supporting the research of blockchain technologies is called Cyprus Blockchain Technologies (CBT), which is a consortium including the University College London, the Bank of Cyprus and KPMG. With fresh incentives and the highly beneficial tax framework of Cyprus, it is no wonder the island is emerging as a hotspot for entrepreneurs around the world to kick-off new blockchain and cryptocurrency businesses.

Several major international ICT companies have long operated regional headquarters in Cyprus, using the island as a hub for software development, system integration, testing services, R&D activities, project management, marketing and sales. Among these are NCR, an America-based world leader in consumer transaction solutions, including ATM teller machines, and amdocs, a leading multinational software and services provider to global communications and media companies. Others who have their global headquarters in Cyprus include Wargaming, a world-renowned video game developer, 3CX and Viber, the popular online communications platform. Viber’s success in Cyprus is a good advertisement for the island as it seeks to attract more tech entrepreneurs. Viber was started in 2010 by a team of foreign nationals who needed an EU base with favourable taxation, so they set up their headquarters in Limassol. Viber grew rapidly and in 2014 was bought by the Japanese e-commerce giant Rakuten for US$900 million.

International giants such as Microsoft, SAP, Oracle and IBM have been on the ground, supporting Cyprus’ tech evolution for many years, but there is room for further development and growth in the sector. A new arrival in Cyprus is Whipper, a ‘chat and play’ gamified digital messaging platform aimed at millennials, which opened its headquarters in Limassol in June 2017. Its founding team includes executives, investors and advisors from Netflix, Riot Games, Amazon, Swiftkey, Expedia, and Viber. The number of fintech and regtech firms, such as Spotware Systems and Point Nine, is also growing and taking advantage of Cyprus as a gateway into and out of the EU for various corporate services.

A recent development that could also potentially bring more tech business to Cyprus in the future, is Japanese tech giant SoftBank’s acquisition of a majority stake in Spanish group Altamira, which manages the €6.3 billion non-performing loan (NPL) portfolio of the now defunct Cyprus Cooperative Bank. The SoftBank Group, which is ranked in the Forbes Global 2000 list as the 36thlargest public company in the world, owns operations in for example broadband, fixed-line telecommunications, e-commerce, internet, technology services, finance, media and marketing. In addition, SoftBank’s US$100 billion Vision Fund is transforming Silicon Valley’s start-up economy.

Creating a Start-Up Ecosystem

Cyprus’ focus has firmly shifted to provide better financial incentives for innovative SMEs and start-ups launching on the island. With the rise of business angels and venture capitalists looking to invest risk capital in exchange for equity in promising ideas and products with high market potential, Cyprus created a two-year pilot programme called the Start-Up Visa scheme in 2017. The aim was to attract more international talent from non-EU countries to launch innovative ventures in, and from, Cyprus.

In 2019, the government decided to expand the programme until May 2021 and grant 150 new visas to third country nationals to establish, operate or develop a high-growth potential start-up in Cyprus. The move is expected to further boost entrepreneurship with the goal to create new jobs, promote innovation and research, and diversify the country’s business ecosystem. Approved applicants will initially get the right to live and work in Cyprus for at least a year, and if successful in launching their start-up and creating jobs, the visas can be extended indefinitely. So far, most interest has come from the Middle East, and given Cyprus’ proximity to the area it makes the island an attractive option for innovators from the region to stay close to home while working in a competitive and business-friendly environment with access to EU markets.

Start-up accelerators like the Cyprus Business Angels Network (CYBAN), Cypriot Enterprise Link, Chrysalis Leap and Repower Cyprus have all boosted the environment, along with events such as Hack Cyprus Hackathons, the Clean Launchpad Competition, as well as Startup Weekend and Startup Live. Home-grown talent and a burgeoning tech landscape are launching inspirational success stories, and a new research centre on interactive media, smart systems and emerging technologies (RISE) was inaugurated in Nicosia in 2017. The project is a joint venture between the three public universities – University of Cyprus, Cyprus University of Technology, and the Open University of Cyprus – the Municipality of Nicosia, and two international partners, the German Max Planck Institute for Informatics  and University College London.

Troubleshooting Challenges

Despite the recent strides Cyprus has taken in order to develop its tech landscape, the country still lags behind the rest of the EU in digital transformation and innovation. To bridge this gap, the National Research and Innovation Council and the Research and Innovation Foundation have been tasked to develop the sector for both companies and the state to make better use of innovative ideas and products. The challenge is to connect academic research centres and businesses to come up with ideas and products. For business to move forward with innovative products and services, cooperation with companies excelling in the sector is needed. Another area where Cyprus should focus on, and needs more state-led action, is in mitigating serious cybersecurity challenges, data leaks and information security breaches. If given proper attention, Cyprus has a natural advantage due to its small size as it can easily direct bureaucracy towards boosting its cyberspace and create a more secure environment for various types of business.

A new initiative to further enhance the landscape for financial services and e-solutions was launched in 2018 by regulating authority the Cyprus Securities and Exchange Commission (CySEC). The goal of establishing an Innovation Hub is to address and explore the rise of fintech and regtech developments. The aim of the Hub will be a place where both supervised and non-supervised entities in innovative or new industries will have ongoing access to the authority in order to better understand and implement their regulatory requirements. This is a welcome move that will support information and knowledge exchange in the industry as well as the development of new solutions for the financial services sector.

Tech Innovation from Defence Projects

Expanded opportunities in tech development could come from a new initiative led by Greece and Cyprus to build a Joint EU Intelligence School (JEIS), with the aim to broaden defence cooperation between EU countries on land, air and sea. The project was approved in late 2018 by EU foreign and defence ministers and signed by all EU countries except Denmark, Malta and the UK. The school will be led by Greece and Cyprus – with the planned physical presence based in Cyprus – and will train intelligence agency staff from around the EU, in cooperation with national security agencies and NATO, as well as conduct work on developing new hardware, like drones and electronic warfare technology.

The initiative is part of a list of 17 projects signed within the Permanent Structured Cooperation (PESCO) framework which is part of the EU’s security and foreign policy. The hardware and software projects are set to deepen technical innovation in the countries involved and could contribute substantially to national economies – and help strengthen EU-wide security. For example, Cyprus is working with France and Belgium on building new generation EU Beyond Line of Sight (BLOS) land battlefield missile systems, to conduct ground-to-ground and air-to-ground operations, and to provide integrated and autonomous target designation capabilities. Other projects include areas such as upgrading maritime surveillance, tackling cyber threats, crisis response and developing integrated unmanned ground systems (UGS).

Building A Digital Future

With fresh commitment from government to launch incentives and invest in the country’s tech landscape, Cyprus could see substantial growth in this sector in the coming years. The country is renowned for its skilled workforce and universities, and research institutes are providing growing numbers of highly qualified graduates to meet the sector’s growing demand and carrying out several ground-breaking and technologically innovative projects. Modernising public administration, upgrading networks, and promoting entrepreneurship are key goals for Cyprus to strengthen its global competitiveness in a truly digital future.

For more information, contact Cyprus' investment promotion agency, Invest Cyprus.

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July 2019

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