ON THE surface, 2016 was a good year for the economy. Cyprus exited the assistance programme, public finances were under control, the banks started issuing loans, there was a small drop in non-performing loans, tourist arrivals were at record levels and the growth rate was close to 3 per cent. These are signs that the economy is on a recovery path, but the rate of recovery is rather slow and would have been even slower had we not had a bumper year for tourism which ensured very high occupancy rates for hotels and a business boom for the coastal resorts.
The property market also appears to be making a recovery, but this has been driven by foreign money, the government’s incentives for citizenships and permanent residency attracting wealthy buyers from outside the EU. While this has helped indebted developers and injected some money into the economy, it is more of an emergency measure that could be stopped by the EU at any time, rather than a foundation for building a robust and dynamic economy. This also applies, to an extent, to the tourism sector which depends on many exogenous factors beyond our control.
The rest of the business sector, which drives the economy and finances the high maintenance public sector, is still struggling. Businesses are still trying to cope with big loans made before the recession, wages remain low, new jobs are not being created and unemployment among the young has not fallen. Some initiatives have been undertaken, such as the efforts to encourage start-ups, but have not been very successful. In fact, the most popular business venture of the last few years is the opening of coffeeshops, presumably because of the low running costs and small risk involved, but an over-abundance of coffeeshops will not power the economy.
The real problems facing the Cyprus economy are the absence of dynamism and lack of entrepreneurial spirit, especially among the young, most of whom seem to dream of a risk-free, undemanding, professional life in the public sector. Conditions and pay in the public sector are so attractive they have killed off entrepreneurship among the young on whom the future of the economy depends. This negative trend must be reversed if the wealth-creating sector of the economy is to truly recover. It is not an easy task and there are no ready answers, but the government should explore ways of addressing it in 2017.
Studies should be commissioned, think-tanks set up and long term action plans formulated in consultation with business groups, academics and professionals of different fields. We must work at changing our youths’ thinking and values as a matter of priority if we really want our economy to take off eventually rather than remain on the path to slow recovery.