CYPRUS Open fOr Investment 1

Just two years after a financial

sector meltdown that almost

bankrupted it, the historic

Mediterranean island of Cyprus

is poised for a return to growth in

2015. The Government has seized

the opportunity provided by the

crisis to push through an agenda of

reforms that are now changing the

face of the economy. Savvy investors

are already making their moves in a

country where the pace of change

is putting its larger neighbors in

Southern Europe to shame.

“As a result of the commitment

and zeal of the Cypriot people and

the hard work of the Government I

can state with certainty that we have

turned the page,” says President

Nicos Anastasiades, who has led the

reformist drive since the dark days of

March 2013. “The Cypriot economy

is now moving towards the end of re-

cession, and on the road to recovery.”

Cyprus’ s journey along the road

to recovery has been faster than

anyone predicted two years ago,

when the country became the fifth

European Union member state to

receive a bailout from the EU and the

International Monetary Fund. Since

Cyprus signed up for the bailout

program, the rapid pace of reform

has helped to almost eliminate the

for the country,” the

President says.

The Government ’s rap-

id and effective reaction to the

economic crisis of 2013 has earned it

international credibility and restored

the confidence of foreign investors.

Like many southern European coun-

tries, in the years after Cyprus joined

the EU and the eurozone its econ-

omy experienced an unsustainable

boom in construction and credit and

its banking sector grew out of pro-

portion. However, unlike its peers in

the Mediterranean, when the global

financial crisis took hold and the

bubble burst the Government took

decisive and unprecedented action.

When President Anastasiades was

elected into office in early 2013, he

took the dramatic step of ‘bailing in’

bank creditors and uninsured de-

positors to recapitalize the banking

system, while protecting Cypriot

taxpayers and public finances. The

new Government then signed up to

an ambitious program of econom-

ic reform and privatization, paving

the way for financial support of

€10 billion euros from the IMF and

European partners.

“We had to take bold and

painful measures to prevent

our economy from collapsing,”

President Anastasiades

remembers. “It is my

Government ’s conviction

that Cyprus is now not only

capable of bouncing back, but of

creating a new model of economic

viability, investment opportunity,

and social welfare based on all of

our comparative advantages.”

Those advantages include one of

the most attractive tax systems with-

in the EU, an enviable quality of life,

and a strategic position as a beacon of

stability and prosperity in the Eastern

Mediterranean region, where major

natural gas reserves have been dis-

covered in recent years.

As Cyprus goes about the job of

reinventing its economy, it is the

island ’s highly qualified, profes-

sional and flexible workforce that

may be its greatest asset. President

Anastasiades says that the resilience

and unity of the Cypriot people has

played a crucial part in ensuring

the country ’s rapid recovery out of

crisis. “I have absolute confidence

that the spirit of unity and drive to

succeed already demonstrated by

the people of Cyprus will ultimate-

ly prevail. My Government will do

its utmost to provide a more stable,

prosperous and promising future for

all Cypriots.”

fiscal deficit well ahead of schedule,

resurrect the banking sector and

attract record levels of foreign

investment. Such has been the

speed of the recovery that Cyprus

was able to re-access international

capital markets as early as 2014 and

to abolish all capital controls earlier

this year. Unemployment has also

begun to decrease, and the IMF is

estimating a return to growth this

year, after three years of recession.

With its financial house in order

again, the Government is now

pushing through economic reforms

that will maximize the country ’s

growth potential and deliver

new investment opportunities to

the private sector. “The focus of

my Government is on making

administrative structural reforms

with the overall aim of setting the

foundations for sustainable growth

in the long run, attracting foreign

direct investment and eventually

creating a new economic model

the Cyprus ComebaCkInvestment opportunities abound in an economy that has defied all odds

The Cypriot economy is now moving towards the end of recession and on the road to recovery.”nicos Anastasiades

president of Cyprus

In collaboration with:the content of this report was produced by:

Irena Georgiadou Chairwoman, hellenic Bank

Nicos anastasiades president of Cyprus

Yiorgos Lakkotrypis minister of energy

Harris Georgiades minister of finance

John Hourican Outgoing CeO, Bank of Cyprus

CYPRUS Open fOr Investment 2

CYPRUS BAnKInG & fInAnCe 3

After weathering the storm of

2013, the Cypriot banking

sector has raised capital

faster than anyone anticipated,

brought in entirely new boards

and management teams, restoring

the confidence of depositors and

investors. The banks are now

focused on further strengthening

their balance sheets and extending

credit to a fast-reviving economy.

“We need to have the ability

to provide credit to the Cyprus

economy,” says John Hourican, the

Irish banking executive who has

rebuilt the island ’s largest bank, the

Bank of Cyprus, since joining as

on funding from the Central Bank

and has also drawn up plans to ac-

cess international capital markets.

“We now have the capital in place to

talk to our customer base with con-

fidence about how we can support

them and create growth in the wider

economy,” Hourican says.

legislation is to encourage loan re-

structuring, which will allow a more

effective workout of the high level of

private debt that is still hanging over

the economy,” Minister of Finance

Harris Georgiades says. “The com-

plete overhaul of the banking sector,

which now has new capital, new

shareholders, new boards and new

management, has been a major fac-

tor in building confidence in Cyprus

and restoring economic stability,” he

adds. “There have been some very

positive improvements.”

With balance sheets restored and

the right regulatory conditions in

place, the country ’s banks are well

set to create value both for their

shareholders and for society at large.

“The Bank of Cyprus is now fully

capable of being a good investment

and of supporting an economy in

recovery,” Hourican says.

CEO in 2013. At the end of last year,

the bank raised €1 billion in share

capital from investors including

Wilbur Ross, passed the stress tests

of the European Central Bank, and

appointed one of Europe ’s most pre-

eminent bankers, former Deutsche

Bank CEO Josef Ackermann, as its

new Chairman.

As a result of these actions,

Hourican leaves the bank this sum-

mer having successfully restored

confidence in an institution which is

a key player in the Cyprus comeback

story. As an indicator of that confi-

dence, even though the Government

has now lifted all capital controls,

the Bank of Cyprus has still been

recording quarterly increases in its

customer deposits - deposits which

the bank will use to fund a new lend-

ing drive. As well as building up de-

posits, Hourican has cut dependence

FINaNCIaL seCtOr reAdy tO PoweR GRowTH

hellenic Bank transforms for the future

the third largest bank in

Cyprus, and the only bank

not to need bailout cash,

Hellenic Bank was the first on the

island to receive new funds from

private investors, including foreign

shareholders. Following its suc-

cessful recapitalization, the bank is

now radically reinventing its busi-

ness model and pursuing a strategy

of growth based on innovation.

It is a massive change for an

institution that was founded

and controlled by the Church of

Cyprus. When Irena Georgiadou

joined the bank as Chairwoman in

2014, she became the first woman

ever to hold a senior role at the

bank; previously, women weren’t

even allowed on the top floor.

Georgiadou, who is still under 40

years old, says her appointment

symbolizes the change in culture at

Hellenic Bank and sends a powerful

Wargaming, founded in Cyprus

by a Belarusian entrepreneur.

The two shareholders believe

that the banking sector will be at

the heart of the Cyprus recovery

story, Georgiadou says. They are

committing both their capital and

their know-how to make sure

that Hellenic Bank spearheads the

turn-around.

“They both bring valued exper-

tise,” Georgiadou explains. “From

Third Point, we have access to a

lot of financial technology and

know-how in investment banking

and capital markets. For its part,

Wargaming contributes a lot of

innovation in online technology.”

Investment in innovation is one

of the cornerstones of Hellenic

Bank’s growth strategy. “The

traditional banking model is

probably obsolete,” Georgiadou

says. “Customers don’t need to go

to the bank branch anymore - the

bank is in their pocket, on their

smart phone. We are working very

hard to be ahead of these trends.

We have completely reinvented

our working practices, brought in

a new Board and new management,

and we are investing in technology

message about its new direction.

Replacing the Church, the two

largest shareholders in Hellenic

Bank are at the cutting edge of

the 21st century economy; hedge

fund Third Point, based in New

York, and online gaming company

There has never been a recovery of an economy without the provision of credit.”John hourican, Outgoing CeOBank of Cyprus

The economy has started to heat up, demand for loans is rising, and we are very well placed to support the recovery.”Irena Georgiadou

Chairwoman, hellenic Bank

“The new legal framework for foreclosures and insolvency is a major improvement.” harris Georgiades, minister of finance

and in going digital. We cannot

go back to business as it was

before the crisis.”

At the end of 2014, Hellenic

Bank raised further capital from

its new shareholders to fund its

growth drive. At the same time,

because it was never involved

in the ‘bail-in,’ the bank also

benefits from the continued

confidence of depositors, and

deposits are rising at a yearly rate

of around 20%. The institution is

now in a prime position to help

finance the turnaround of the

island’s economy and to raise its

market share in lending.

“Our main strategic target is

double digit growth in lending,”

Georgiadou says. “The economy

has started to heat up, demand

for loans is rising, and we are

very well placed to support the

recovery.”

The Government is playing a

major role in helping financial insti-

tutions contribute to the rebooting

of the economy. At the beginning of

the year, it passed new legislation on

foreclosure and insolvencies that will

make the job of loan restructuring

easier for the banks. “The aim of the

CYPRUS Open fOr Investment 4

CYPRUS Open fOr Investment 5

the crucial factor in the

outperformance of the Cypriot

economy since 2013 has

been the reaction of the country’s

policymakers and ordinary people

to the crisis. Rather than blaming

their economic troubles on foreign

creditors, Cypriots understood that

many of the problems were of their

own doing, and they quickly set

about correcting the indecision and

complacency which had crept into

their policymaking system over

the years. International investors

have responded positively to this

strategy, with record levels of capital;

since 2014, nearly €3 billion of

foreign direct investment has been

committed to growth sectors such

as energy, tourism, real estate,

education, R&D and others.

“Investors realized pretty soon

after the crisis that things were

moving in the right direction,” Charis

Papacharalambous, Director General

of Invest Cyprus says. “By the end

of 2013, credibility began to return

to the system, and investor interest

has significantly improved in the

last two years. Interest from foreign

investors is now higher than it was

before the crisis, because Cyprus is

offering medium term and long term

opportunities in a more solid and

business friendly macroeconomic

environment.”

Clear indicators that investor

confidence has returned can be

found both in the financial sector -

including a €400 million investment

in the recapitalization of Bank of

Cyprus from US billionaire Wilbur

Ross - and in the sovereign debt

markets, where two Government

bond issues since the bailout have

been heavily oversubscribed.

Papacharalambous says that

Cyprus has treated the challenges

of the economic reform program as

an opportunity to move forward,

a chance to capitalize on the high

quality of Cyprus’s workforce and

talking to developers from the US

and Asia about building what will

be Europe’s largest integrated casino

resort, including a convention center,

shopping malls and entertainment

venues, providing visitors to the is-

land with an experience unlike any-

thing else in the Mediterranean.

As well as increased investor

interest in the tourism industry, there

has also been significant traction

in FDI in the energy sector. Since

significant offshore gas reserves

were found in 2011, multinational

investors from the US, France, Italy

and South Korea have all committed

to exploring Cyprus’s natural gas

potential. The monetization of these

resources and the development of the

island as a regional energy services

hub has the potential to transform

the Cypriot economy.

“Our strategy for the oil and gas

sector is not limited just to exploit-

ing our natural resources,” Yiorgos

Lakkotrypis, the Minister of Energy,

Commerce, Industry and Tourism

explains. “Over the longer term, we

want to capitalize on the strong hu-

man talent that we have in Cyprus

by developing a knowledge-based

economy centered around the oil

and gas industry. There is a lot of

offshore activity in our neighbor-

ing countries, and we believe we

can export our services to them.

Many international oil companies

and services companies have now

started to use Cyprus as a base for

their operations in the entire Eastern

Mediterranean region.”

The country’s privatization pro-

gram provides another source of

attractive opportunities for foreign

investors. The Government is cur-

rently pursuing plans to privatise

state-owned assets such as telecom-

munications firm CyTA, electricity

supplier EAC, and the Cypriot Ports.

In addition to these new openings

for foreign investors, many of Cyprus’s

traditional economic strengths from

before the crisis endure. Cyprus

remains an important international

quality business center, with a

simple, modern and fully compliant

tax system that includes an attractive

corporate tax rate and a network of

over 55 double tax treaties. Thanks

also to the transparent and business-

friendly legal system which is based

on English common law, the island

remains a popular springboard for

foreign investors to do business

throughout Europe, the Middle

East, North Africa and beyond.

This has led countless international

companies to choose Cyprus as

their home away from home in the

Eastern Mediterranean. It is a stable,

friendly, strategically located hub to

do business.

Finally, it is perhaps the people

of Cyprus and the quality of life on

the island that hold the secret to the

resilience of the Cypriot economy

and the strength of the rebound.

“Cyprus is one of the best places to

live and work anywhere in Europe,”

Charis Papacharalambous says. “The

highly educated and internationally

experienced work force, supported

by the quality of professional services,

the inherent hospitality of the people,

the low crime rate, and world-class

communications and infrastructure,

are some of the key factors behind

the economy’s resilience. These

factors are now helping to attract

new interest in opportunities to

invest in Cyprus.”

services by making the island an

easier place for investors to do

business. Policymakers have seized

the moment to develop a more

versatile economy by introducing

urgently needed structural changes

and reforms.

The Government has established a

new series of incentives to investors.

It has relaxed planning legislation

for large-scale projects, increased the

flexibility of rules for new buildings,

instituted tax breaks or other benefits

for companies investing in fixed as-

sets in research, IT, communications

and renewable energy, and launched

various employment schemes. At

the same time, it is reducing bureau-

cracy throughout Cyprus, allowing

business to be done more quickly

fOreIGn InvestOrs delIver vOte Of CoNFIdeNCe

Cyprus is offering medium term and long term opportunities in a more solid and business friendly macroeconomic environment.”Charis papacharalambous

director General of Invest Cyprus

significant offshore reserves were found in 2011.

and effectively. These measures have

helped grab the attention of some

of the Mediterranean region’s larg-

est enterprises; at the beginning

of 2015, Egyptian conglomerate

Orascom announced plans to invest

€220 million in the construction of a

marina in the southeastern resort of

Ayia Napa. The Government is also

CYPRUS strAteGIC future rOle 6

for thousands of years, Cyprus

has been a trading center and

meeting place for cultures and

civilizations from East and West.

Today, the island is drawing in-

vestors and leisure travelers both

from its traditional economic part-

ners, such as the UK and Germany,

and from newer markets including

countries in the Middle East and

Eastern Europe.

“We have a long-term tourism

strategy of growing our tradi-

tional markets, at the same time

as developing emerging markets

in tourists from Western Europe,

mainly from the UK and Germany.

In today ’s political climate,

there are few countries which

can claim to have such positive

relations with both Russia and

Germany, with Israel as well as the

Arab states. That the people and

politicians of Cyprus can main-

tain enduring friendships with all

of them is a legacy of the coun-

try ’s unique history as a cultural

and economic crossroads. As the

island prepares to develop into a

regional oil and gas power, this

legacy stands it in good stead for

the future. President Anastasiades

says, “our vision is to turn Cyprus

into an energy hub for the Eastern

Mediterranean, in the process con-

tributing to enhancing geopolitical

stability and economic prosperity

in the region.”

While stability and prosperity

are rare commodities in today ’s

Mediterranean, the President is

also preparing to seize what he

calls the ‘historic responsibility’

of reaching a peace deal with the

Turkish Cypriot community and

reuniting the island of Cyprus.

“A viable and durable solution to

the Cyprus problem that will re-

unite the island, its people, econ-

omy and resources will resonate

positively throughout the Eastern

Mediterranean region,” President

Anastasiades says.

such as Israel and Russia,” Yiorgos

Lakkotrypis, the Minister of Energy,

Commerce, Industry and Tourism

says. “For example, we have intro-

duced numerous flights from the

Gulf countries, while also improv-

ing existing agreements with tour

operators in the UK and Germany.”

In recent years, Cyprus has

developed close economic and

cultural ties with Russia, which

in 2013 was the island ’s second

largest source of tourists. So far,

the impact of the depreciation of

the Russian ruble on the Cypriot

tourism sector, which accounts for

at least 12% of the country ’s GDP,

has been muted. Angelos Loizou,

Chairman of the Cyprus Tourism

Organisation (CTO), says that

while the numbers of Russian visi-

tors have dropped, the shortfall has

been covered by a sharp increase

hIstOrIC IslAnd lOOKs tO the FUTURe

we need to make sure that our visitors have a unique and unforgettable experience.”yiorgos lakkotrypis, minister of energy,

Commerce, Industry & tourism

The reunification of the island will also have a decisively positive impact on the local economy.”nicos Anastasiades

president of Cyprus