Cyprus has pledged to rebuild its economy by welcoming foreign investors into its renewed energy sector. The pledge comes after a long period of economic uncertainty, which resulted in a €10bn EU bailout in late March and the imposition of the eurozone’s first capital controls.
The bailout deal, which originally proposed a levy on bank savings, has brought about the closure of the country's second largest lender and most troubled bank, Laiki Bank, as well as a complete restructure of the country’s largest bank, Bank of Cyprus.
Cyprus serves as a haven for billions of euros, mainly from Russian offshore depositors, which account for most of the country's €20bn of international bank deposits. The level of damage is still uncertain but the reduction in economic activity could be as high as 15%.
Another feature of the bailout is an increase in corporate tax from 10% to 12.5%. However, “benefits to foreign investors have increased as a result of the shock management the economy has undergone", said Charis Papacharalambous, director-general at Cyprus Investment Promotion Agency. "Stimulating the environment for FDI will be a key priority for the new government in order to secure a boost to the economy.”
The shocks to the Cypriot economy have also sent waves to Malta's rapidly growing banking sector. This has forced Josef Bonnici, governor of the Central Bank of Malta, to emphasise the strength of Malta’s financial sector, stressing that it is different from that of Cyprus, despite a decline in FDI in 2012.
Recent FDI into Cyprus includes US-based binary options platform Banc De Binary, which has placed its headquarters for Europe, the Middle East and Africa in the city of Limassol, as well as energy storage company VTTI, which is expected to invest about €30m in an oil storage terminal. These projects acknowledge continuing commitment to the country.
Mr Papacharalambous highlighted that the energy sector would play a vital part in renewing and rebuilding the economy. “Taking into account the relative size of the economy, one can easily see the immense impact the development of the energy sector will have on the country’s economy,” he said.
Despite being a key trigger of financial uncertainty, the financial and insurance sector, which attracted 34.1% of FDI to Cyprus in 2010, is expected to remain an important contender in the new Cypriot economy.