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Western Europe / Cyprus

The state of play: FDI in Cyprus

Cyprus had been on an upward curve with regard to FDI attraction, but then Covid-19 hit, with its tourism industry bearing the brunt. However, hopes are high that the country can bounce back.

cyprus-fdi-tourism
Cyprus’s economy is reliant on tourism. The sector is a significant draw for foreign investors, but it has been badly affected by the Covid-19 crisis. (Photo by Matthieu Clavel/AFP via Getty Images)

Having almost quadrupled its foreign direct investment (FDI) inflows in 2019, according to the UN Conference on Trade and Development (UNCTAD) World Investment Report 2020, Cyprus was in a buoyant mood going into 2020. However, the outbreak of the Covid-19 pandemic has hit the country’s GDP growth rate and slowed investment projects – but it is preparing for a bounceback in 2021.

Cyprus attracted $24bn of FDI inflows in 2019, according to UNCTAD, up from $6.4bn in 2018 and $15.3bn in 2018. The number of projects attracted in 2019 remained static at 11, although this was an increase from the six projects in 2017.

Cyprus’s GDP set to rebound after Covid shock

Cyprus is set to experience a 6.2% drop in GDP in 2020 as a result of the pandemic, according to data from the European Commission’s European Economic Forecast for Autumn 2020. However, the data reveals that it is set to rebound in 2021 and 2022, recording growth of 3.7% and 3%, respectively.

The report mentions that “economic activity in Cyprus contracted sharply in the first half of 2020 due to the Covid-19 crisis. The important tourism sector has borne the brunt, while domestic demand has shown resilience. The impact on the labour market has been mitigated by temporary income support measures.”

Indeed, tourism is one of the most important sectors for Cyprus’s economy, along with real estate and professional services. Other sectors that are attracting the interest of international investors include infrastructure, shipping, energy, telecommunications and higher education, according to the EY Attractiveness Survey Cyprus 2020.

The report also finds that sustainable development and the transition to a circular economy are now higher on the country’s agenda. However, it highlights that “the liberalisation of the energy market and a well-designed green energy taxation system may help the transition to a green economy”.

Sofia Karadima

Sofia Karadima

Senior editor and researcher

Sofia Karadima is a senior editor and researcher at Investment Monitor, focusing on financial and business services, and ESG investing.