June 12th 2023
An Economist Impact Event: Cyprus Investment Summit - A new chapter ahead
June 9th 2023 • London Stock Exchange
Nikos Christodoulides, president of the Republic of Cyprus (recorded message)
The president of the Republic of Cyprus Nikos Christodoulides gave his opening remarks for the conference in a recorded message, presenting his vision for the country, involving the implementation of bold reforms and technological applications for the green and digital transition that will allow Cyprus to respond swiftly and efficiently to challenges. In recent years, the Cypriot economy has proven its resilience, with enough budget surpluses to support employment during the pandemic, and the country continues to record above average growth rates despite the consequences of Russia's illegal war on Ukraine, he said. The aim of the government's programme is to increase the competitiveness and extroversion of the country on the basis of a new model, including fiscal discipline within a European framework and the continuous implementation of structural reforms, backed by a robust and healthy banking and financial system. The new government has cooperated fully with its US and UK partners and is setting up a sanctions implementation unit in collaboration with them, the Cypriot president said. Cyprus has also taken significant steps in recent years to enhance its anti-money laundering and terrorist financing regulations, and has transposed relevant EU regulations into national law, he added, noting that the Central Bank of Cyprus has been working to reduce the number of non-resident deposits in Cypriot banks, particularly from high-risk countries.
Lord Hannay of Chiswick, member of the European affairs committee of the House of Lords, United Kingdom
Lord Hannay of Chiswick, Member of the European affairs committee of the House of Lords, United Kingdom, referred to the recent elections in Greece, Turkey and Cyprus, saying that before the outcomes became known it was possible that a change in government may have led to unexplored avenues in terms of handling the situation in the Eastern Mediterranean. That is no longer so, as the Mitsotakis government seems poised to win a second election and Erdogan has secured a parliamentary majority, he mentioned. The standoff over the exploration and exploitation of gas reserves in the Eastern Mediterranean, particularly around Cyprus, is not helping to increase Europe's energy security needs, he noted. Yet, there is an opportunity for Cyprus to benefit economically and politically from helping to meet those needs. Lord Hannay posed the question of whether this possibility will be seriously explored as part of the new government's mandate. He also discussed the potential extension of the EU-Turkey customs union for trading goods, a move that is already being explored, as Cyprus has a lot to gain from access to Turkey’s market. He also warned about the issue of migration, referring to the Arab League’s decision to welcome Syrian leader Assad back as a member, which is likely to contribute to a further exodus of people from the region towards the West. On the Cypriot issue, he said that a two-state solution is not a solution, and commented that the UN is not a mediator and has not been accepted by either side as anything other than a facilitator in this context. [iEpikaira: Περισσότερα για τον ρόλο του λόρδου Χάνεϊ (δηλ. του Φόρεϊν Όφις) στο Κυπριακό ΕΔΩ και ΕΔΩ! Επισημαίνεται επίσης η σπουδή του Χάνεϊ για την τελωνειακή ένωση της ΕΕ με την Τουρκία αλλά και την ενεργό εμπλοκή της ΕΕ στις διαπραγματεύσεις για το Κυπριακό, δυο στοιχεία πολύ ψηλά στην προεκλογική ατζέντα του Ν. Χριστοδουλίδη ΕΔΩ και ΕΔΩ... Τώρα γίνεται κατανοητό ποιοι τα υπέδειξαν! Επίσης είναι πλέον προφανές γιατί ήταν τόσο ενθουσιασμένος ο Ν. Χριστοδουλίδης με την ιδέα της εμπλοκής της ΕΕ στο Κυπριακό... Προφανώς οι Βρετανοί του υποσχέθηκαν ότι θα βάλουν πλάτες!]
Menelaos Menelaou, Greek Cypriot negotiator for the Cyprus problem
Menelaos Menelaou, the Greek Cypriot negotiator for the Cyprus problem, in response to Lord Hannay’s remarks emphasised that the only way forward is a one-state solution. Now is a time when the use of force has returned to the forefront, and we must redouble efforts to increase the role of diplomacy, he said. Cyprus aspires to be a reliable partner and build bridges of cooperation while respecting international and maritime law. Efforts for a comprehensive solution have reached an impasse since 2017, and all attempts have been impeded by Turkey's rejection of a federal solution to the Cypriot problem, which essentially advocates for a two-state solution, according to Mr Menelaou. Following resumption of negotiations 6 years later, we have seen several violations of Cyprus’ sovereignty, as well as efforts to enhance the secessionist drive of the TRNC and buildup of Turkish military forces in the region, he said. He expressed the opinion that this is not sustainable and called for an enhanced role of the European Union in this issue.
Chris Patsalides, special advisor to the President on economic affairs, Cyprus
Chris Patsalides, special advisor to the president of the Republic of Cyprus for economic affairs, said that the new government took office in March of this year with the clear mandate to pursue modernisation and highlighted the government’s 2035 vision for Cyprus, which includes a recovery and resilience plan. The regional cooperation mechanisms established by Cyprus and its partners in energy, security and other regions are among the key achievements of recent years, allowing Cyprus to rebound very quickly from the recent crises and achieve one of the lowest rates of inflation, which is decelerating, as he said. Additionally, contractionary fiscal policies have resulted in the creation of surpluses. Medium term forecasts remain favourable at over 3% of GDP for the period 2024-2026; the general government debt dropped significantly and is expected to reach 60.1% by 2026, Mr Patsalides noted. In April this year, the Cypriot government also issued its first sustainable bond of 1 billion euros with a term of 10 years. Chris Patsalides noted that the government wants to help existing sectors move towards more productive and attractive business propositions while developing new sectors. Cyprus is establishing itself as an IT hub, as technology is surpassing tourism as a contributor to GDP, he said. In terms of RRF funds, Cyprus is allocating 41% of the 1.2 billion-euro package to green initiatives. A digital service factory is underway and the reforms are radical to digitise public services, according to the special advisor. Regarding tax reforms, the system will be modernised to enhance transparency and competitiveness to support the creation of business hubs. Strong liquidity in the banking system, in addition to the equity provided by surpluses, the RRF and the 1.8 billion-euro Thalia programme, in addition to a strong FDI push, ensure a positive path for the Cypriot economy, Mr Patsalides concluded.
Evgenios Evgeniou, chairman, Invest Cyprus
Evgenios Evgeniou, Invest Cyprus chairman, said that last year's 5.7% growth and the expected 2.8% growth this year for Cyprus put it well ahead of the European average and are to a very large extent because of foreign investment, given that the country has a national strategy for attracting investments and for the creation of a technology cluster, as he said. Tax incentives for employees and measures targeting high-specialisation companies are making it very attractive to relocate to Cyprus, Mr Evgeniou mentioned. There is, however, a shortage of IT skills in Cyprus, therefore the educational reform and reskilling efforts are a key part of the government’s plan. Additionally, diversification away from Russia has been a goal for a long time for Cyprus, and fears regarding the blow to the economy from the loss of Russians coming to Cyprus after the war broke out were disproven, he said. When asked about the shortage of affordable housing and the high cost of living, Mr Evgeniou expressed the opinion that the imbalance will be addressed by the market.
Panicos Nicolaou, chief executive officer, Bank of Cyprus
Bank of Cyprus CEO Panicos Nicolaou said Cyprus is a highly attractive market, with low corporate taxes and high growth rates, and it has the potential to be a business hub for the EMEA region. It also has one of the lowest loan-to-deposit ratios in Europe, with 52 billion euros in deposits versus 23 billion euros in loans, as he mentioned. The bank has changed beyond recognition since the crisis of 2013, with no equity issuances since 2014 and improving metrics, a reduction in the NPE portfolio and a return to profitability, Mr Nicolaou said, affirming the lender’s commitment to paying dividends reflecting 30-50% of profitability. This will be the first time in 12 years that the bank will pay dividends from its 2022 profits. Regarding the war in Ukraine, the Panicos Nikolaou said that the Cypriot economy registering 5.6% growth, one of the highest in Europe, disproves the assumption that the country is highly dependent on Russia.
Ayuna Nechaeva, head of Europe, primary markets, London Stock Exchange Group
Ayuna Nechaeva, head of Europe, primary markets, London Stock Exchange Group, referred to the unprecedented turbulence seen in international markets and the volatility in the banking sector, most recently reflected in the collapse of SVB in the US and Credit Suisse in Europe. Nevertheless, since January 2020 European stocks have been on a path of recovery, registering largely flat or slightly positive performance, compared to US markets, which remain volatile and have lost value since 2020, according to Ms Nechaeva. European stocks are also slightly overperforming on a global basis. Focusing on London, the LSE has seen 128 offerings by listed companies this year so far, she said, noting that the stock exchange doesn’t seek to replace local markets but it has a role to play as a secondary home for companies wanting to diversify the investor pool and tap international markets. By all metrics, LSE remains the top market in Europe, she concluded.
George Theocharides, chairman, Cyprus Securities and Exchange Commission
George Theocharides, chairman of the Cyprus Securities and Exchange Commission, presented his organisation, which is currently regulating over 800 entities, including investment firms, funds, administrative service providers, capital markets, and a small growing sector of crypto assets service providers. He referred to the topic of financing growth in challenging times, highlighting the role of financial intermediaries, particularly alternative investment funds or crowdfunding platforms. We’ve seen regulatory developments in Europe to allow alternative tools for funding and promoting growth, Mr Theocharides said. Investment funds can be used to support infrastructure projects, while crowdfunding has a role to play in funding SMEs and startups.
There is a new proposal in Europe to create a European long-term investment fund for long-term projects in relation to real assets, in which investor protection and sustainability standards are embedded, he mentioned. Another proposal would allow the creation of loan-originating AIFs, to allow loans to be granted to businesses on an off-bank balance sheet basis while complying with standards; these funds would be aimed at institutional investors. Another legislative proposal is to allow the appointment of the AIF depositary, which holds all the assets of the fund, in a member state other than the state where the fund is established, thereby allowing additional EU jurisdictions to enter the sector and enabling growth. In terms of crowdfunding, the new EU regulation on European crowdfunding service providers for businesses went into effect in 2021 and lays down uniform rules across the EU, offering access to a larger pool of investors across the bloc while protecting investors, he added. Cyprus is a seat for several alternative investment funds, which are mostly managing projects in the country, Mr Theocharides concluded.
Alex Fotakidis, partner, CVC Capital
Alex Fotakidis, partner at CVC Capital presented his company as a global private equity investment firm with a strong European heritage as an investor. As of 2018, CVC has been looking at Cyprus for investment opportunities and already has operations in the country in sectors including healthcare, food and beverage and insurance, he mentioned. In macro terms, the legal and tax structure in Cyprus is clear and the outcome of the recent election provides more clarity and stability, Mr Fotakidis noted. Cyprus is strategically located and the island’s human capital is excellent, allowing the company to build high-performing teams. Meanwhile, Cyprus has one of the leading positions in Europe in terms of services, according to Mr Fotakidis. CVC will continue investing in the country and wants to support the energy transition, particularly solar and wind projects, he concluded.
Stelios Demetriou, partner, head of strategy and transactions services, EY Cyprus
Cyprus witnessed an increase in FDI, especially after the pandemic, also because of the upgrade of its status as a country and its increased credibility as an investment destination, according to Stelios Demetriou, partner and head of strategy and transactions services of EY Cyprus. EY creates reports on attractiveness for investors and Cyprus is among the countries covered, he said, moving on to present key findings. Overall, Cyprus shows very positive results from the investor survey, as international investors were optimistic about the economy’s future. The country’s strengths lie in communication, digital infrastructure, tax regime, and in quality of life, while areas with room for improvement are excessive bureaucracy and the need for upskilling, he said. Real estate and hospitality have traditionally been one of the strong pillars of the Cypriot economy, and we saw the tourist industry come back stronger after the pandemic, the expectation being that numbers will surpass 2019 performance. In real estate, the number of transactions is high, and the banking sector is profitable. Moreover, an increasing number of IT companies are setting up regional HQs in Cyprus, and we expect this trend to continue in the coming years, Mr Demetriou added. The rankings of Cypriot universities are quite high, while the healthcare system covers 100% of the legal residents of the island. In the energy sector, renewables are attracting a lot of interest, and weather conditions favour their development. Mr Demetriou expects that traditional sectors’ contribution to the Cypriot economy will decrease. A services economy requires skilled workers, and it takes some time to carry out upskilling and reskilling and to amend educational programmes, but the government has this as a priority. Stelios Demetriou also expects that Cyprus will be affected by Germany’s economic slowdown, but tourism will help the country weather the slump as demand for travel isn’t expected to decrease, just as Greece is still performing very well in this area.
George Papanastasiou, minister of energy, commerce and industry, Cyprus
Electricity in Cyprus is very expensive and this is not sustainable, with the economy suffering as a result, according to George Papanastasiou, minister of energy, commerce and industry of Cyprus. We want an economy that is sustainable in the long-term and cheap energy is necessary, for which we must develop renewables and storage for the energy produced by them, he said. To that end, the grid must be prepared to accommodate renewables. This can take the form of green or blue hydrogen, for example for storage, while natural gas acts as a transitory fuel for the green transition. We are reducing emissions, but still, Cyprus’s footprint is very high compared to European peers, and this is not sustainable, with consumers bearing the cost of 300 million, Mr Papanastasiou said. In contrast, Egypt has a lot of infrastructure connecting the gas discoveries transporting it into the country, and there are two stations for the conversion of gas to LNG. Israel has more gas quantities than Egypt. Cyprus on the other hand has no infrastructure; without infrastructure, you cannot develop and commercialise discoveries, the minister said. Therefore, if the country wants to contribute to the European or other markets it needs infrastructure. Cyprus will not become an energy hub for this reason, but it can be a contributor, according to the minister. He acquiesced that the country’s grid is indeed old and many cables will need to be replaced, but the government plans to interconnect the electricity grids with the ones of countries in the neighbourhood, specifically Israel and Greece. Meanwhile, pipeline developments are under discussion. Aphrodite is the most important discovery in the minister’s view, while solar is more promising than wind.
John Ardill, vice-president, global exploration, ExxonMobil
John Ardill, vice-president, global exploration at ExxonMobil, presented the energy landscape as continually evolving. The first aspect of this is the global energy transition, the second revolves around covering the world’s energy needs, and geopolitical complexity is not uncommon in this space, including in the Eastern Mediterranean, as he mentioned, and the third aspect is exploration and geology. Given that every aspect of our lives is touched by oil and gas, it is important to be aware of what society needs and provide energy that is reliable, affordable and clean, Mr Ardill said. We won’t move away from biomass and coal as energy sources but we must build upon them he added. At the same time, the energy transition needs to happen with the government’s contribution, as no private company can do that on its own. ExxonMobil has made a huge capital investment in this space and is part of a 100-billion consortium deploying projects to that end. A pre-combustion decarbonisation plan is one example, as are projects to build hydrogen and ammonia capacity at scale, Mr Ardill added. The population is rising and GDP growth is driving energy demand. Zooming into Cyprus, the geology in the area is very interesting, he noted. While Cyprus has smaller resources compared to Egypt and Israel, they are still very important. The question is how we develop the infrastructure to develop those gas reserves, John Ardill said.
In terms of exploration in Cyprus, the first thing to do is understand the geology and this is technically very difficult. High salt density makes it harder to conduct imaging, and the company is still in the data acquisition phase, preparing to drill holes in 2025, he added. Yet, natural gas is very important for the energy transition. The US achieved a 15% emissions reduction just by shifting from coal to natural gas, and the technology to do this exists. Gas is very complementary to renewables capacity buildup because it gives a stable base load for the grid and then you can build towards a smart grid with intermittent generation from renewables, John Ardill concluded.
Toula Onoufriou, president, Cyprus Hydrocarbons Company, professor, Cyprus University of Technology
Τhe energy landscape in the Eastern Mediterranean has been focused on natural gas and the region is of increasing importance to Europe and the international markets, according to Toula Onoufriou, president of the Cyprus Hydrocarbons Company and professor at the Cyprus University of Technology. Overall, the region has abundant energy resources, the professor said. In 2011, the Eastern Mediterranean generated gas production of about 7.8 bcm/day, which when compared to the EU average daily consumption of 38 bcm/day in 2021, is around one-fifth. There is significant exploration potential; to this end, an MoU was signed between Israel, Egypt and the EU in June 2022 to support gas exports to the EU and this was key to supporting diversification away from Russian gas, Ms Onoufriou added. However, cooperation is needed to exploit the potential of gas, which is important for the energy transition and amid the expected rise in demand. Monetisation is also challenging given the depth and difficulty in accessing the resources and the lack of infrastructure, she noted. Cyprus is motivated to work towards this goal by securing lower prices for energy and targeting scope 1 and 2 emissions reductions, which are important to make gas production itself cleaner. Green energy can then be provided from the region to Europe either as electricity or as green hydrogen or ammonia, professor Onoufriou concluded.
Stefanos Koutsakos, non-executive director, Green Energy Group
The EU is targeting a 23% contribution of renewables in energy consumption by 2030, according to Stefanos Koutsakos, non-executive director of Green Energy Group. However, in March targets were increased, and Cyprus is expected to increase them as well. Cyprus has exceeded its targets so far in this field, as the RES share was around 18% as of 2022 in total energy production, with a big increase from solar thereafter, he said. One question is why solar has been the only driving force in this development – the main reasons are that wind turbine tech is expensive and Cyprus does not have reliable wind resources. We estimate that more capacity is needed to meet the new targets, presumably via solar, which translates to over 500 MW of additional PV parks and over half a billion euros in investments, Mr Koutsakos noted. Investor appetite and climate conditions are there, but there are challenges, particularly in grid infrastructure, he said. The capacity of the regional substations must be increased and this needs to start happening immediately. Storage capability must also be increased and we must develop a better energy demand structure, moving demand towards high PV supply times. The government needs to move faster in its reforms in this area, and we expect there will be a cap and a limitation in capacity if Cyprus fails to do so, harming the country’s climate ambitions, Mr Koutsakos concluded.
Peter Droussiotis, chairman, UKCEC (UK-Cyprus Enterprise Council)
Cyprus has many of the attributes required to succeed economically and above all a highly talented population, Peter Droussiotis, chairman of UKCEC, said. In an environment of accelerating change, countries need vital investments in enterprises that can produce long-term economic activity and growth, he said. Overall, investors are looking for opportunities with returns on a pragmatic timeframe, quality teams they can back, businesses that can be enhanced through technology, but investors are also looking for market integrity, Mr Droussiotis emphasised. You can have all the entrepreneurial talent in the world, but this is not enough if they can’t trust the jurisdiction, he noted. It is vital that the authorities are fully transparent and accountable to the public, Mr Droussiotis concluded.
George Tziortzis, head of consulting services, EY Cyprus
We need to explore why we have achieved this level of success in Cyprus – the answer can be found in the island’s extreme resilience historically, according to George Tziortzis, head of consulting services of EY Cyprus. The skills and the capability of the people on the island have been questioned, but the Cyprus Vision 2035 plan is working and technology companies are not moving to Cyprus by accident. The country has the fastest 5G internet in Europe for the second year in a row, and 100% of the population is covered by 5G. Access to the market is easy, and Cyprus also ranks above average in innovation, he said. One of the key reasons for the success of the technological sector is the increase in cooperation between the private and the public sector, which worked together to attract investment. Finally, the country has implemented a lot of reforms to incentivise people to move to Cyprus from abroad and invested in digital public infrastructure. Cyprus has excellent talent, and it is not a lack of talent where the problem lies, he concluded.
Christophoros Papachristophorou, founder & managing partner, INVEL Cyprus
Cyprus is a great place to be and do well, according to the founder & managing partner of Invel Christophoros Papachristophorou, commenting on the quality of life. Cyprus is known for the quality of financial services provided. People here love what they do and they are proud, he said. As we diversify away from tourism and hospitality, the real estate sector will also diversify toward other types of property, Mr Papachristophorou noted. Real estate investment trusts could allow foreign investors to tap into the market, alongside the enhancement of green investing. Mr Papachristophorou expressed optimism saying the market has always surprised him and done better than he thought it would. We must now find a balance between the supply of property and do it in an environmentally friendly way, he concluded.
Detailed conference agenda:
Platinum sponsor: Bank of Cyprus
Premium energy sponsor: ExxonMobil
Gold sponsor: EY Cyprus
Supporting organisations: Invest Cyprus, Hellenic Tech Network, UK-Cyprus Enterprise Council
Contributor: Proelium, Logistics supplier: DHL
Supporters: Gloa, Artecniko
Facebook: Economist Impact Events for Greece, Cyprus, Malta and southeast Europe
Source: https://www.hazliseconomist.com/en/press_release/cyprus_investment_summit_2023
