Country Trade Risk Index (ERI): 94.91
Country risk reference rating: Level 6 (6/9)
Country Risk Outlook: Stable
Economic and trade risks
In 2012, Cyprus’ nominal GDP was 17.89 billion euros, the real economic growth rate was -2.4%, the per capita GDP was 21,760 euros, and the inflation rate was 2.4%. Cyprus is a developed country that implements an open free market economy. Its industrial scale is small, and it is dominated by tertiary industries such as finance, shipping, and tourism. Since joining the EU in 2004, the economy has developed rapidly. However, affected by the European sovereign debt crisis, negative growth began in the second half of 2011, and the economic situation worsened day by day.
In 2012, due to the continued impact of the European sovereign debt crisis, the Cyprus national economy continued the sluggish trend of the previous year, and the national economy experienced negative growth throughout the year. Among them, the domestic loan growth rate and inflation rate have declined, the unemployment rate has continued to rise, and the service industry, wholesale and retail industry, transportation industry, and catering industry have all experienced recessions. Faced with the severe situation, the Cyprus government continues to take measures such as reducing public expenditures, increasing value-added tax, and actively promoting oil and gas exploration in the waters of the country’s southern exclusive economic zone, but it is still unable to save the crisis. The country became the fifth Eurozone country to apply for bailout in June 2012, and its sovereign debt rating was also downgraded repeatedly throughout 2012. In 2013, Cyprus’ recession is expected to further deepen. Three consecutive years of deepening economic decline have plunged Cyprus into the most serious economic crisis since 1960.
Investment risk
As a Eurozone country, Cyprus’s business environment is generally good. Cyprus has good infrastructure construction, loose policies for foreign investment, and free flow of foreign exchange. It is a leading regional financial center connecting Europe and the Middle East. Ranked 36th in the “2013 Doing Business Report” released by the World Bank for 185 economies. Government administrative efficiency and transparency ranked 29th among 176 countries in the 2012 Corruption Perception Index released by Transparency International.
There are no railways in Cyprus, and domestic transportation mainly relies on roads. As of 2009, Cyprus has 17,000 kilometers of roads and 257 kilometers of highways. The island has a developed road network. There are highways between major cities. There are roads in inhabited places and mountainous areas, and the road conditions are good. It has two international airports and 5 major ports. The country’s electricity resources are sufficient and fully capable of meeting the country’s economic and social development needs.
Legal risks
The legal system of Cyprus is based on the British legal system and is based on common law principles, namely case law, precedents and regulations. The legal system is highly modernized and transparent, and judicial efficiency is high.
The main foreign-related laws in Cyprus include Company Law, International Law, Intellectual Property Law, Contract Law and Tax Law, etc. Cyprus has no restrictions on the proportion of foreign investment and the amount of holdings in foreign direct investment, and provides national treatment to foreign investors. According to the standards of the World Bank’s Doing Business Report 2013, after a Cypriot company files for bankruptcy, the bankruptcy case trial and execution process takes 1.5 years, which is lower than the average of 2.4 years in Eastern Europe and Central Asia. Insolvency-related litigation costs cost approximately 15% of net fixed assets, slightly above the Eastern Europe and Central Asia regional average of 13%.
Overall risk
Generally speaking, Cyprus is a country with stable political situation and social security, and the North-South issue has not yet endangered the overall peace. However, the north-south issue in Cyprus has been going on for a long time. The interests of all parties are intertwined and the international community has its own positions. It is expected that ethnic conflicts and divisions will remain important risk factors affecting the development of the country in the short term. Cyprus is one of the richer countries in the world, but its domestic market is small and resources are scarce. Its economic development is greatly affected by the European economy and international crude oil prices. At the same time, the country’s industrial base is weak and its economy is highly volatile.
Based on the analysis and assessment of the current overall situation, Cyprus’s country trade risk index (ERI) is 94.91, the country risk reference rating is 6 (6/9), the country risk level is relatively high, and the country risk outlook is stable.
(Issuing agency: China Export and Credit Insurance Corporation)
