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Cyprus Db3a (Slight Risk) D&B Country Report D&B Country Report Cyprus DB3a (Slight Risk) Contents Country Risk Analyst PART ONE: Executive Summary Markus Kuger Telephone: 01628 492438 Email: [email protected] Key Information 2 Risk Snapshot 3 Risk Snapshot 3 Outlook Summary 4 Sales Email: [email protected] PART TWO: Risk Outlook Telephone UK: +44 (0)1628 492700 US: +1 800 234 3867 Political Risk 6 Rest of world: contact your local Domestic Politics 6 office or call +44 1628 492700 Policy Agenda 7 International Relations 8 Economic Risk 10 Publisher Global Outlook 10 D&B Economic Performance 11 Marlow International Economic Policy 13 Parkway External Economic Risk 16 Marlow Bucks SL7 1AJ Commercial Risk 19 United Kingdom Business Performance 19 Tel: 01628 492000 Credit Risk 20 Fax: 01628 492929 Email: [email protected] Financial Sector Risk 21 Other Commercial Risks 22 Data Summary 23 While the editors endeavour to ensure the accuracy of all PART THREE: Risk Environment information and data contained in this D&B Country Report, Political Environment 24 neither they nor Dun & Political Overview 24 Bradstreet Limited accept Political System 25 responsibility for any loss or Political Forces 26 damage (whether direct or Security 28 indirect) whatsoever to the customer or any third party International Environment 28 resulting or arising therefrom. Economic Environment 30 Economic Overview 30 Economic Framework 30 Trade Profile 32 © All rights reserved. No part of Long-Term Economic Potential 35 this publication may be reproduced or used in any form or by any means graphic, Commercial Environment 36 electronic or mechanical, Overview 36 including photocopying, Physical Environment 36 recording, taping, or information Legal and Regulatory Environment 37 storage and retrieval systems Corruption 40 without permission of the Taxation 41 publisher. Trade Environment 43 Investment Environment 46 Additional Sources of Information 48 This D&B Country Report was prepared in September 2010. PART FOUR: User Guides Glossary 49 Country Risk Indicator Definition & Report Guide 50 2010/11 1 © Dun & Bradstreet Limited D&B Country Report Cyprus DB3a (Slight Risk) Key Information Basic Country Information Surface area (sq km) 2,951 Capital Nicosia Country population (m) 0.8 Population of capital (m) 0.3 Official language(s) Greek, Turkish Timezone of capital GMT +2 hours Political Information Political system Presidential democracy Ruling coalition AKEL, DIKO Head of state & govt. President Demetris Christophias Last election Parliamentary: 2006; Presidential: 2008 Next election Parliamentary: 2011; Presidential: 2012 Trade & Commercial Information Trade terms Top 3 export goods (% of total exports) Minimum terms SD Manufactured products 60.0 Recommended terms SD Raw agricultural products 17.4 Usual terms 30-180 days Processed agricultural products 16.7 Transfer situation Top 3 import goods (% of total imports) Local delays 0-2 months Fuels & lubricants 28.0 FX/bank delays 0-1 months Transport equipment 25.4 Import cover 1.2 months Manufactured products 15.5 Export credit insurance cover Top 3 export markets (% of total exports) US Eximbank Full cover available Greece 23.8 Atradius Full cover available Other-EU 13.6 ECGD Full cover available Middle East 12.0 Euler Hermes UK Full ST cover available Top 3 import sources (% of total imports) International sanctions and trade restrictions Greece 20.0 None known Italy 11.0 UK 9.0 Economic Data Key country data 2007 2008 2009 2010f 2011f GDP (current EURbn) 15,879 17,248 16,946 17,247 18,059 GDP (current USDbn) 21,752 25,364 23,537 22,399 23,454 Real GDP growth (%) 5.1 3.6 -1.7 -1.0 1.7 Inflation, annual average (%) 2.2 4.4 0.2 2.8 3.0 Government balance (% of GDP) 3.4 0.9 -6.1 -5.8 -5.2 Unemployment (% of labour force) 4.0 3.6 5.3 6.8 7.0 Current account balance (% of GDP) -8.4 -17.1 -8.1 -6.5 -5.8 Global data 2007 2008 2009 2010f 2011f World real GDP growth (%) 4.2 1.8 -2.0 2.7 2.6 US real GDP growth (%) 2.1 0.4 -2.4 2.0 1.7 Oil price, Brent Crude (USD/b) 72.3 97.9 61.8 77.4 83.2 Comparative Market Indicators Cyprus Greece Italy Malta Portugal Income per capita (USD) 27,023 29,554 35,282 19,226 20,813 Country population (m) 0.9 11.2 59.9 0.4 10.7 Internet users (% of population) 49.8 44.5 48.8 58.9 48.3 Real GDP growth (% p.a., 2010-19) 2.0-3.0 1.5-2.0 1.0-1.5 3.0-3.5 0.5-1.5 Sources: Central Bank of Cyprus; Eurostat; Statistical Service of Cyprus; World Bank, World Development Indicators; D&B 2010/11 2 © Dun & Bradstreet Limited D&B Country Report Cyprus DB3a (Slight Risk) Risk Snapshot Country Risk Indicator: DB3a (Slight Risk) Enough uncertainty over expected returns to warrant close monitoring of country risk. Customers should actively manage their risk exposures. The DB country risk indicator is a comparative, cross-border assessment of the risk of doing business in a country. The indicator seeks to encapsulate the risk that country-wide factors pose to the predictability of export payments and investment returns over a time horizon of two years. Risk Snapshot • Cyprus’ political risk outlook has worsened since Dervish Eroglu was elected president of the Turkish Republic of Northern Cyprus in April 2010. Reunification talks have since reached deadlock and prospects for a permanent peace settlement on the divided island have receded due to unfavourable political conditions on both sides. We do not expect a reunification agreement in our forecast period. • The effects of the financial crisis on Cyprus were not as severe as on other Mediterranean countries, but the economy is only slowly recovering from the negative shocks of the past two years; the construction and the tourism sectors in particular are suffering from low demand. Positive Risk Factors + The leaders of the Greek-Cypriots and the Turkish-Cypriots might be able to reach agreement on some of the disputed topics, like citizenship and government structure, which would boost the prospects of the reunification talks. + The economy showed signs of recovery in 2010 and real GDP growth will return to positive levels in 2011. + The Greek debt crisis did not affect Cyprus as much as other Mediterranean countries and the government has not yet had problems financing its deficit (owing to low interest rates and low risk premiums on government bonds). + The country’s parliament rejected government proposals to increase corporation tax, maintaining Cyprus’ position as a very attractive destination for FDI. Negative Risk Factors − Political stability decreased further after a junior coalition partner left the government and a Supreme Court ruling weakened the president’s position. − The election of Dervish Eroglu (the then party leader of the nationalist opposition) as president of the Turkish Republic of Northern Cyprus in April 2010 has made reunification very unlikely in the short term. − The government has to reduce its high deficit by 2012 but has so far failed to agree on any noteworthy austerity measures. − Austerity measures in several of Cyprus’ main trading partners create downside risks for the tourism- and export-oriented economy. − Despite the favourable commercial environment, the island’s division is a major deterrent for investors, hampering investment activity in Cyprus. 2010/11 3 © Dun & Bradstreet Limited D&B Country Report Cyprus DB3a (Slight Risk) Outlook Summary Cyprus offers a ‘slight risk’ operating environment for businesses, as reflected in its DB3a rating. The economy is small, but prosperous, and has been significantly reformed in recent years as a result of its EU accession in 2004 and the introduction of the euro in 2008. The commercial risk environment is favourable, while its benign investment climate, preferential corporate tax regime, flexible labour market conditions and modern infrastructure have helped Cyprus to develop into an important regional and international business centre. The economy has slowed significantly because of the global financial crisis and a further deterioration will take place in 2010. However, signs of a recovery in 2011 are clearly visible. The still-unsolved political/geographical division of the island will weigh down investment activity in real estate in the forecast period, and it continues to handicap economic development. As a result, the key challenge ahead will be to find a sustainable solution to the island’s division. The current reunification negotiations are the best chance in many years for finding a workable political settlement and could lead to an upgrade to Cyprus’ country risk rating, which has not changed July 2009. However, this chance for reunification has decreased since mid-2009 because of the presidential election results in the Turkish-Cypriot part of the island and due to several developments in the Greek-Cypriot political landscape. Comparative Risk Indicator Histories Lowest 1 Risk 2 3 4 5 D&B Risk IndicatorRisk D&B Cyprus Greece Italy 6 Malta Portugal Highest Risk 7 2005 2006 2007 2008 2009 Latest Source: D&B Political Risk Outlook The presidential elections in the Turkish Republic of Northern Cyprus (an entity that is not internationally recognised) in April 2010 had a significant impact on the outlook of the ongoing reunification talks between both ethnic groups. The more amenable President Mehmet Ali Talat was replaced by Dervish Eroglu, the then leader of the nationalist party in Northern Cyprus. This further reduced the chances of rapid reunification, as President Eroglu has no interest in making concessions to the Greek- Cypriot side. Eroglu’s hardline position was reinforced in local elections in July 2010, making it very unlikely that he will be more conciliatory in the ongoing talks.
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