The Turkish Republic of Northern Cyprus (TRNC) is isolated from the international community because of its political history. It was established by Turkish forces in 1974 and the soldiers remain on its soil. Despite the isolation, the TRNC’s stance towards FDI remains outward looking. It has just founded an Investment Development Agency, based on a Singaporean model, to provide investors with a one-stop shop.
The agency is designed to speed up the passage of proposals for house building and business start-ups that are hindered by the current system. Ayshe Donmezer, director of the Investment Development Agency, says: “Our system of giving approvals to projects is in chaos. Investors are pushed between one ministry and another and many are very upset. This new agency will help point investors in the right directions. We are also trying to persuade ministries to simplify their requirements and processes.” Erdil Nami, president of the Turkish Cypriot Chamber of Commerce, says: “Investors are having to wait a year before they can get approvals. We want to cut out the red tape.” Fatma Kinis, manager at the Turkish Cypriot Development Bank, concurs: “The State Planning Organisation takes quite a bit of time to organise tax credits.” The state-owned Development Bank distributes funds to potential investors in the key strategic sectors of tourism and leisure, education and construction.
The upsurge of interest in investing in north Cyprus has its origins in the Annan Plan. This was devised by Kofi Annan, former secretary general of the United Nations, as a route to unification and eventual acceptance of north Cyprus by the international community. The plan, which held the prospect of greatly lifting the north Cypriot economy, was scuppered by the Greek Cypriot community following a referendum in 2004, and north Cyprus remains outside the EU.
Yet investors are still optimistic about the north Cyprus economy. Ian Smith, the island’s largest estate agent, says: “Property and land prices have more than doubled over the past five years. As the politics of the island become more favourable, we expect the economy to rebound strongly.”
The opportunity to make substantial profits from investment must be balanced against political factors. First, investors must ensure they have good title to any land they buy. This will guard against later risk of confiscation by the original Greek owners. Second, foreign investors who publicly indicate they are making a commitment to investing may face pressure from Greek Cypriots who continue to lay claim to the entire island. Minister of finance Ahmet Uzun says: “Investors who work with the government and with well-established local lawyers are safe to put their money here and the opportunities are great. This is a strong economy, with a $4bn gross domestic product.”
Many foreign investors keep their heads firmly below the parapet to avoid any reprisals. But one British businessman has made it known that he has invested in the north of the island. David Lewis, owner of UK fashion chain River Island, has invested some $150m in a project to build a marina and hotel complex in north-eastern Cyprus. It will house 300 yachts and have two five-star hotels. Israeli companies have also been active in the north of the island. One company built a desalination plant, and another a university dormitory complex.
An investment in north Cyprus carries with it undoubted political risk. The flipside is the opportunity to be the early bird in an economy with much untapped potential. Timing is everything but savvier Cypriots believe those early opportunities will not be around for long.