If there was a prize for a country that has successfully reinvented itself, Cyprus would be a leading contender. Following a period during which the world’s media congregated in its capital, Nicosia, to follow every step of the country’s banking crisis and subsequent bailout organised by the 'troika' of the International Monetary Fund, the European Central Bank and the European Commission, the Mediterranean country is now bullish about its prospects.

“Cyprus has returned to the international markets far earlier than anyone expected,” says Charis Papacharalambous, director-general at the Cyprus Investment Promotion Agency. “It has returned 15 months after the memorandum of understanding with the troika, and the requirement was oversubscribed approximately four times, which reflects investors’ confidence in the Cypriot economy. We’ve also seen long-term government bond yields drop below 5% recently. And the end of year [2013] contraction of the economy, which was expected to be just under 9%, ended up being 5.4%  – significantly surpassing even the most optimistic expectations.


"The 2014 recession has been a challenge – and unemployment is still high – but overall it has been less painful than many predicted. All the reviews by the troika say our programme is on track while it is also predicting [economic] growth from as early as 2015. Furthermore, the country is undertaking sweeping reforms, making it significantly more flexible and attractive for FDI.”

Rating upgrades

One of the obvious signs of Cyprus's improvement has been the upgrades by the ratings agencies. Standard & Poor’s upgraded the country in November 2013, while in March this year Moody’s switched the government’s and country’s financial institutions’ credit worthiness from 'negative' to 'positive'. A month later, Standard & Poor’s raised the long-term foreign and local currency sovereign credit ratings on Cyprus from B- to B. It also reaffirmed the short-term foreign and local sovereign credit ratings as B.

At the beginning of July 2014, Fitch Ratings upgraded the Bank of Cyprus’s long-term issuer default ratings from 'restricted default' (RD) to CC and Hellenic Bank’s from RD to CCC. The two banks’ short-term issuer default ratings were also upgraded from RD to C.

“We now have 43 banks, following a new entrant to the Cyprus market in July 2014, and there will be even more as there are other licences pending," says Mr Papacharalambous. "Hellenic Bank has been recapitalised through both foreign and Cypriot investment. The Bank of Cyprus has posted a small profit for the first quarter of 2014. And its recent recapitalisation, which was oversubscribed, has been concluded successfully.”

Most of the country's banking restrictions have now been lifted, but Mr Papacharalambous admits that challenges remain, particularly with non-performing loans.

Although the country’s progress has been recognised by the troika and wider international community, the troika’s July 2014 statement on its fifth review mission urged: “Reversing the rising trend of non-performing loans is critical to restoring credit, economic growth and the creation of jobs.” It also pointed out that public and private sector debt remain very large and the unemployment rate, at more than 15%, is “unacceptably high”.

Traditional strengths

Tourism in Cyprus has provided a boost. A passenger survey conducted by the Statistical Service of Cyprus showed that revenue from the sector hit €132.9m in April 2014, a 20.4% increase on April 2013’s €110.4m. “Interest in health tourism is growing and Buena Vista Hospitality Group has recently announced plans for a significant investment in a very large healthcare project in the Kalavasos area outside Limassol,” says Mr Papacharalambous. Qatar Airways has also given the country's travel industry a boost by starting flights to Larnaca Airport in April 2014.

Other sectors that are holding up include research and development, shipping, property and the funds industry, with interest in these areas coming from Europe, the US, the Middle East and India.

Cyprus is also looking to become an energy hub for the eastern Mediterranean region. “As a member of the EU, the eurozone and the UN, and the most stable and secure place in the region, I’m pretty convinced that [Cyprus is destined to become an] energy hub,” says Mr Papacharalambous. “Halliburton and Schlumberger have recently set up regional offices here, and a lot more will follow, so oil and gas are already starting to provide FDI and jobs.”