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Business services in Cyprus
Current impact and future risks
Fiona Mullen
Director, Sapienta Economics Ltd
[email protected]
Motive for this topic
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Sector of increasing importance
But not generally acknowledged
With growing competition
IPE (rejected?) research proposal looking for
a home!
Which is the bigger sector?
• The sun (tourism?)
• Or the suits (business services)?
Tourism & business services exports
% of GDP
Tourism v. business services exports (as % of GDP)
20.9%
25.0%
20.0%
9.5%
15.0%
9.3%
10.4%
10.0%
5.0%
0.0%
2001
Travel (mainly tourism)
2010
Other business services (mainly accounting, legal, merchanting)
Rising v. falling
Tourism v. business services exports (EUR m)
Source: Central Bank of Cyprus, balance of payments
2,300
2,100
1,900
1,700
1,500
1,300
1,100
900
2001
2002
2003
Travel (mainly tourism)
2004
2005
2006
2007
2008
2009
Other business services (mainly accounting, legal, merchanting)
2010
Even bigger with fin services
Tourism v. business and financial services exports
(as % of GDP)
20.9%
25.0%
15.2%
20.0%
11.2%
9.3%
15.0%
10.0%
5.0%
0.0%
2001
Travel (mainly tourism)
2010
Financial and other business services
Prof services in the national accounts
Professional services in the national accounts:
% of 2010 GDP
4.5
10.8
4.7
W&R trade
5.6
Public admin
Construction
9.9
7.3
Finance & insurance
Accomm. & food service
8.5
Transport & storage
Professional, S&Tech
A growing professional labour force
Labour trends by economic activity
31000
29000
27000
25000
Accomm. & food services
23000
Fin. & insurance
Professional, S&T
21000
19000
17000
15000
2004
2005
2006
2007
2008
2009
2010
An efficient labour force?
Labour trends by broad sector
40
35
Manufacturing
30
Construction
Hotels & restaurants
25
Financial intermediation
Real estate, rental and business activities
20
15
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Maybe not…
Worker to sectoral GVA ratio
30.0
28.6
25.0
27.5
24.7
20.0
15.0
15.4
10.0
5.0
0.0
Fin. & insurance
Professional, S&T
Accomm. & food
services
Total GVA
Main strengths
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EU a natural marketing tool
Educated labour force
OECD white list 2009
Legal system
Tax system (for the time being)
Can it last?
Main risks
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The government
The European Commission
The Russians
The Maltese
The government
• 11% corporate tax threat damaged
confidence in a stable system
• Nearly removed lowest EU tax rate status
• Other business and income taxes rising
• Ratings suggest loss of external confidence
The European Commission
• Prefers a one size fits all tax rate
• And if not, a one size fits all tax base
• Will this affect taxation of non-residents?
The Russians
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Russian bank deposits: c 40% of total
Russian tourists rose 50% two years running
Russian business services: 65% of total?
Risk of over-dependence if oil price falls
The Maltese
Nimble, late adopter
Took gaming companies as we were too slow
Taking funds while UCITS 4/AIFMD awaits
“The Maltese are eating our lunch!”
(Marina Theodotou)
• Are we Friends Reunited to Malta’s
Facebook?
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To-do list
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No time for complacency
Learn bad lessons from tourism
The govt: pro-active measures
The sector: learn how to innovate*
• *Shameless plug!