At the crossroads of Europe, Asia and Africa, Cyprus is situated in the north-eastern corner of the Mediterranean sea, 75Km south of Turkey, 90Km west of Syria and 380Km east of the Greek island of Rhodes. The third largest island in the Mediteranean after Sicily and Sardinia. 35% of the island is occupied by Turkish troops while 3% constitutes the territory of the British Sovereign Base Areas.

Overview Cyprus is a member of the European Union. From 1 January 2008, it entered the Eurozone and adopted the euro. Despite of the world going through an unprecedented economic crisis marked by high levels of inflation and stagflation, the Cyprus economy remains extremely satisfactory and is performing near the top of European economies. In 2008 it was classified by the International Monetary Fund amongst the 32 advanced economies of the world. However, World economic depression and the negative fallout from the global financial crisis would have affected the Cyprus economy a lot more, had Cyprus not jointed the euro-area in time.

The euro acts as a protection shield for the purchasing power of the Cypriot citizens and generally for a healthy long-term financial framework of the local economy. In one of his speeches, Mr Orphanides, the Governor of the Central Bank of Cyprus pointed out that: “One must not override the fact that an open economy, such as Cyprus has, could not remain totally unaffected by the negative repercussions of the international crisis. One of the important benefits Cyprus has experienced from joining the euro is the protection of the economy from negative fluctuations in the world economic environment and this has had tangible value, in particular in the last few months of 2008,” In addition the euro introduced many modern changes which aligned Cyprus with modern economic notions and European reality.

Economic Overview Cyprus has an open, free-market, service-based economy with some light manufacturing. Internationally, Cyprus promotes its geographical location as a "bridge" between West and East, along with its educated Greek and English-speaking population, moderate local costs, good airline connections, and telecommunications. Throughout the post - Independence period (Cyprus was an English Colony until 1960), Cyprus has had a record of successful economic performance, reflected in rapid growth, full employment conditions and external and internal stability. Cyprus is classified amongst the high-income countries, nowadays. It has a standard of living that is even higher than some other European Union member- states and the performance of the economy compares favourably with that of most other E.U. countries.

These achievements appear all the more striking, bearing in mind the severe economic and social dislocation created by the Turkish invasion of 1974 and the continuing occupation of the northern part of the island by Turkey. The Turkish invasion inflicted a serious blow to the Cyprus economy and in particular to agriculture, tourism, mining and quarrying: 70% of the island’s rich producing resources were lost, the tourist industry lost 65 % of its hotels and tourist accommodation, the industrial sector lost 46%, and mining and quarrying lost 56% of production. The loss of the Port of Famagusta, which handled 83% of the general cargo, and the closure of the Nicosia International Airport, in the buffer zone, were additional blows.

Despite the blows, the Cyprus economy, has managed to be transformed into a modern economy, with dynamic services, industrial sector and advanced physical and social infrastructure. The success of Cyprus in the economic sphere is attributed, inter alia, to the adoption of a market oriented economic system, the pursuance of sound macroeconomic policies by the government as well as the existence of a dynamic and flexible entrepreneurship and a highly educated labour force. In the past 20 years, the economy has shifted from agriculture to light manufacturing and services. The predominant and continuously expanding share of the services sectors at the cost of both the primary (agriculture, mining and quarrying) and secondary sectors (manufacturing and construction) reflects the comparative advantages, which Cyprus enjoys in the sectors of services.

These advantages derive mainly from: 1. its strategic geographical location at the crossroads of three continents; 2. the favourable business climate, which is directly related to the prevalence of conditions of macroeconomic stability and a generally favourable tax regime. In relation to this, the recent tax reform introduced a uniform corporate tax rate of 10%; 3. the well-educated labour force (in conjunction with the competitive, as compared to international standards, level of remuneration); 4. the relatively satisfactory state of its infrastructure in transport, energy and telecommunications; 5. satisfactory living conditions for foreigners, as well as 6. the close economic and political relations Cyprus has developed with its neighbouring countries.

The hotels and restaurants sector’s share to GDP rose throughout the 1980s, 1990s and 2000s. However, the sector exhibits fluctuations, confirming its vulnerability to exogenous and imponderable factors. The sectors of financial services, business and real estate and renting activities, educational and health services, also exhibit an increasing trend in their share to GDP. This development was the result of the utilization of the comparative advantages of Cyprus as far as the supply of high quality of services are concerned, both in the domestic market and in the external market, as well as the high income elasticity which characterises these services. The agricultural sector’s share to GDP has been decreasing and is attributed to the relatively low- income elasticity of demand for agricultural products, the urbanization trend and the reallocation of productive resources from agriculture to other more profitable economic activities. The contribution of the manufacturing sector to GDP also exhibited a falling trend since the early 1980s.

The sector is characterised by chronic problems of competitiveness, due, inter alia, to the small size of the majority of manufacturing units, which negatively affects their capacity to utilize advanced technology and modern methods of management, production and marketing. The decreasing trend of the contribution of the manufacturing sector to GDP is also attributed to the faster increase of production costs, as compared to competitor countries as well as the intensification of competition due to the implementation of the Customs Union Agreement between Cyprus and the EU and the trend towards liberalization of world trade. The construction sector’s share to GDP has also been falling, a development attributed to the satisfaction of the housing needs of the vast majority of the population, the reduced interest in the construction of new tourist accommodation and the relative slackening of demand for secondary homes in recent years. Another dynamic component of the sector, important to Cyprus's future economic growth, is offshore enterprises. Attracted by generous tax concessions, the island's strategic location between Europe and the Middle East, and stable political conditions, many foreign businesses established themselves in the republic.

Cyprus has the fourth-largest ship registry in the world, with 2,758 ships. It is an open registry and includes ships from more than 43 countries, including Greece, Germany, and Russia. In conclusion, the continuing upward trend of the share of the tertiary sector of services to GDP reflects the comparative advantages of Cyprus in this sector and denotes the important role of services in a contemporary society.

Economy of Cyprus Currency Euro since 1 January 2008Euro1 January2008 Statistics (based on 2007) GDP (PPP) US$ Billions GDPPPP GDP growth 3.5% (3rd Trimester 2008) GDP per capita $27,000 GDP by sector agriculture 3.1%, industry 9.1%,services 77.8% (2007) Inflation (CPI)4.8% (2008) InflationCPI Unemployment3.9% (Dec 2008) Unemployment External Public finances Public Debt 59.8% Revenues €5.319 billion (3.113 Billion CYP) Expenses €6.154 billion (3.602 Billion CYP)

Structure of Unemployment The change in the structure of production in favour of the tertiary sectors implied a similar change in the structure of employment. The contribution of the tertiary sectors to the total gainfully employed population increased from 45,5% in 1980, to around 77%. In parallel, it is noted that as early as from the beginning of the 1960s there was a decrease, in absolute terms, of employment in the primary sectors, while a similar trend is observed in the secondary sectors as from the beginning of the 1990s, a development which implies that the additional posts are exclusively created in the tertiary sectors of services. Another basic characteristic of the labour market is the employment of large numbers of foreign workers, especially in unskilled or low-skilled occupations. The total number of legally employed foreign workers reached 80,000. From a sectoral perspective, the majority of the foreign workers in Cyprus are employed as household help, others work in the sector of hotels and restaurants, construction, agriculture, manufacturing and trade.

Unemployment by gender Despite policy reforms made by the Cyprus government to combat discrimination and increase women’s labour market participation, women in Cyprus still lag behind men in terms of access to employment opportunities and career advancement. They also continue to be confronted with a substantial gender wage gap. The percentage of unemployed women has always been higher than the corresponding figure for men (from 4.6% in 2003 to 5.4% in 2004). A relatively high female unemployment rate also exists amongst women aged 35–44 years, revealing that women face particular difficulties when trying to reenter the labour force after a period of inactivity.

Cyprus Unemployment rate* Year unemployment rate % change % % % % % % % % % * Source: International Monetary Fund World Economic OutlookInternational Monetary Fund

Cyprus Population Age According to data from the statistical Service of the Ministry of Finance, the total population of Cyprus was 802,500 in 2002 of whom 80,1% (642,600) are considered to be members of the Christian Greek Cypriot Community and speak Greek (Armenians, Maronites and Latin churches account for 1%). Of the remainder 10,9% (87,400) belong to the Moslem Turkish Cypriot Community and speak Turkish and 10% are foreign workers. English is widely spoken in Cypru s. According to data from the statistical Service of the Ministry of Finance, the total population of Cyprus was 802,500 in 2002 of whom 80,1% (642,600) are considered to be members of the Christian Greek Cypriot Community and speak Greek (Armenians, Maronites and Latin churches account for 1%). Of the remainder 10,9% (87,400) belong to the Moslem Turkish Cypriot Community and speak Turkish and 10% are foreign workers. English is widely spoken in Cypru s. *0 – 14 years: *0 – 14 years:19.5% ( male / female) 15–64 years: 15–64 years:68.5% ( male / fem.) 65 years and over 65 years and over:12% ( male / fem.) * data source: The Cyprus Republic Statistics Department Birth rate births / 1000 population

In February 1997, the government revised its policy on foreign direct investment, permitting 100% foreign ownership in certain cases. Regulations on foreign portfolio investment in the Cyprus Stock Exchange also have been liberalised. Additionally, Cyprus passed a modern banking law in July 1997, incorporating all the provisions and directives of the EU for the prudential supervision of credit institutions. Cyprus has concluded treaties on double taxation with 26 countries and has removed exchange restrictions on current international transactions. Investment Climate

Stock of direct foreign investment - at home: $13.18 billion (2007 est.) Stock of direct foreign investment - abroad: $5.324 billion (2007 est.)

CONCLUSIONS The Finance Minister of Cyprus has predicted that the country will see growth of 3.7 % for 2009 as well as see full employment and lowered inflation. In a recent news conference reviewing the government’s budget for 2009 and the economic outlook for Cyprus, Finance Minister Charilaos Stavrakis had a very positive outlook. “The Cyprus economy remains extremely satisfactory and is performing near the top of European economies with a growth rate of nearly 4%”. The minister also indicated that inflation should come in at 4.8% for all of 2008, despite being over 5% earlier in the year. For 2009, inflation is expected to decrease significantly to between 2.5 and 3%. The Minister also noted that the 2009 budget has several large projects, including three new desalinisation plants and infrastructure projects designed to decrease traffic in and around Nicosia. Furthermore, the last few months, negotiations about the solution of the Cyprus Problem are being carried on. Should a solution be found for Greek Cypriots and Turkish Cypriots leaving together, the Cyprus Economy will need to face new challenges and ways should be found to remain at least satisfactory.