By Stelios Orphanides
Hoteliers are “cautiously optimistic” that the island’s tourism industry may see a further boost in 2016 even if the weaker British pound and Russian rouble affect travellers’ plans this year in Cyprus’s two main markets.
“Given the dynamics and the sensitivity we cannot come up with a safe prediction as to how 2016 will end up,” Zacharias Ioannides, director general of the Cyprus Hotel Association said in a telephone interview.
While tour operators and airlines have increased their seat capacity for Cyprus this year, it remains “difficult to predict currency fluctuations, which directly affect tourist flow, as well as geopolitical developments that can be devastating as the past has demonstrated,” Ioannides added. “All other things being equal we are confident that we will have a continuation of growth”.
Tourism, which makes out directly or indirectly roughly one quarter of Cyprus’s economy, saw tourist arrivals rise 8.9 per cent in 2015 to 2.7 million, an all-time record. The increase came from an almost 20 per cent increase of arrivals from the U.K., Cyprus’s largest source of incoming tourism, that offset an 18 per cent drop in arrivals from Russia, the second largest market.
According to two economists interviewed by the Cyprus Business Mail, the reason behind the devaluation of the British pound, which lost about 7.5 per cent against the euro since November 23, is the intention of British premier David Cameron to allow Britons to vote on the country’s participation in the European Union. The weaker rouble is due to the reduction of Russia’s revenue from energy exports.
“The sterling will remain under pressure as long as there is uncertainty over a possible Brexit,” as the scenario of the U.K. leaving the EU is also called, said Michalis Florentiades, chief economist at online financial service provider XM.com. “Anyone considering an investment in the U.K. wants to know whether the country will remain in the EU or not. A 30 per cent Brexit chance is not a negligible risk”.
Florentiades also said that a Brexit could cost the British economy around 2 per cent in economic output. He also added that the rouble, which lost almost one-fifth of its value against the euro in the past two months, will continue to lose ground as long as the oil price, an important Russian export commodity, doesn’t stabilise.
Oil, traded at around $30 per barrel in recent weeks, lost about four-fifths of its value since mid-2014.
Ioannis Tirkides, senior officer at Bank of Cyprus’s economic research division, said Russia’s economy also has to struggle with sanctions in response to its annexation of Crimea, and the support of separatists in Ukraine, which Moscow denies.
Sanctions “are unlikely to be lifted any time soon,” Tirkides said,adding that they “deprive Russia of foreign investment and much needed financing and technology, and will ultimately lead to a number of unpleasant consequences if they last for too long”.
Cyprus has therefore “a lot to do in terms of strategy and in terms of exploiting the opportunities when preferences are changing,” Tirkides said.
“There is no doubt that a depreciating currency puts a limit on travel but we should not forget one fundamental fact,” he said. “Our tourist intake from any one source country may be large in the pool of our total tourist intake, but it is only a tiny fraction of the tourist pool in those countries. With the right strategy we can minimise that impact if current currency trends continue”.
“Our tourist intake from any one source country may be large in the pool of our total tourist intake, but it is only a tiny fraction of the tourist pool in those countries,” he said. “With the right strategy we can minimise that impact if current currency trends continue”.