IN a report we carried last month, two leading hoteliers were quoted as saying that they expected to have an idea of how the tourism season would fare after the first two weeks of July. This would give a better idea of what hoteliers could expect that would, in turn, determine how many hotels would open. Most hotels could get by with a 50 per cent occupancy rate as, with state support, this meant a manageable loss.
Unfortunately, the first two weeks of the month have shown that we will not even meet the modest arrivals’ target set by the deputy ministry of tourism, Savvas Perdios back in March. On Tuesday, Perdios said forecasts of 200,000 tourist arrivals in August were slashed by 50 per cent, adding that this was the best-case scenario. In this scenario, Britain would be moved to category A countries in the second half of August, meaning visitors would not need a Covid-19 health certificate and tour operators would resume offering holiday packages to Cyprus.
While the health certificate is the biggest obstacle to arrivals because tour operators flatly refuse to cooperate, we should also consider that many people are reluctant to fly, either because of the economic uncertainty caused by the pandemic or for fear of being infected in a tourist resort. The possibility of contracting the virus in a foreign country is something most people want to avoid. It is difficult to predict people’s behaviour in a pandemic, following lockdowns and big uncertainty about the future.
The effects of the disappointing number of arrivals are already being felt in the tourist resorts, as we reported last Sunday. Thousands of hotel workers, unions are saying, are having to survive on €360 per month they receive from the state because their hotels have remained closed and they will not be entitled to full unemployment benefit until November, when hotels traditionally suspend operations. Many have been laid off while others work only weekends, unions have said.
Inevitably, this will put increasing pressure on the state to come up with funds for more support schemes, something it has already been doing as more businesses are being prevented from doing business while others have been hit by the very low tourist arrivals. The finance ministry has been offering support to businesses and the self-employed, but funds are not inexhaustible and the lower income than forecasted from tourism means state finances could be worse than expected.
What should also be taken into account is that for a very big number of businesses, tourism accounts for a large proportion of their revenue – for some as much as 40 per cent – which means they will not only be contributing much less in the form of taxes to the state but also consider laying off staff as soon as they have fulfilled their obligations under the government support schemes. The repercussions of the desperately low number of arrivals will be felt across the economy, hitting consumption and jobs, making a bad situation worse.
For how much longer will companies be prepared to join the government support schemes for workers with its stipulation recipients cannot lay off staff for a period of time, when there seems to be no sign of the economy recovering, at least marginally. Finance minister Constantinos Petrides had said a couple of months ago that the recovery of tourism could bring an economic recovery, but sadly it has not happened.
Will the €2.7 billion we will be receiving from the EU over the next three years help steady the ship? A little less than a half of that will have to be invested in the digital transition and green transition and the spending will need the European Commission’s approval. According to Petrides, €1.45 billion will be utilised through existing programmes, mainly the cohesion policy and common agricultural policy, but this amount will be released by the EU over three years, with 70per cent absorbed in the first two. His predecessor at the finance ministry, Harris Georgiades told the Cyprus Mail on Friday he was not sure Cyprus would use the loan element of the EU funding as this would impact the public debt, which was already too high. No decision has been made, but the government might have no choice but to borrow, either from the EU or the markets, in the current environment.
Are we prepared for a bigger downturn than was originally expected, one that would put public finances under huge strain and many businesses on the brink?
The government is not blame for what is happening, but it should reassess the economic situation in the light of the disappointing arrival figures, because state funds for supporting businesses will run out long before the signs of recovery appear, hopefully early next year. A plan of action, however unpopular, for the new conditions is an imperative.