Impact of Russian sanctions a puzzle for Cyprus

By George Pirishis

Significant questions arise with regard to the expected impact on the Cypriot economy following the decisions to impose European sanctions on Russia. While the services sector may have been at the centre of concerns evidence also indicates that there may be negative effects in the case of trade relations as well.

The newspaper obtained updated data from both the Cyprus Statistical Service and the Cyprus Chamber of Commerce and Industry (CCCI) which show that Cyprus’ trade relations with Russia at the end of November 2021 were at a fairly good level. Specifically, the total amount of Cypriot exports and re-exports to Russia stood at €60 million while imports stood at €80 million.

In particular, in terms of imports, the highest value of them was for aircraft and ship components with the total value of these amounting to approximately €40 million. Other imports have to do with ores and derivatives of petroleum products with a total value of €10.29 million, followed by cereals with €9.4 million and various types of feed used for animal consumption with the value of these imports amounting to €7.5 million at the end of the period under review. In addition, other imports concern paper and copper derivatives, while the value of imports of iron and steel at the end of November 2011 had reached €2.7 million.

In relation to Cypriot exports to Russia, the total value amounts to €60 million and involved both domestic exports and re-exports. Domestic exports to Russia amounted to just €7.2 million at the end of November 2021 with €6.3 million of these exports relating to pharmaceuticals.

However, re-exports amounted to €53 million and were related to helicopter and aircraft parts, ships and tugboats with a total value of €48 million. It is worth mentioning at this point that by re-exports we mean triangular transactions for which the ordered products do not arrive in Cyprus but in third countries.

Several orders in Cyprus are placed in this way so the buyers to benefit from the lower taxation that exists in our country. Re-exports are considered quite important for Cyprus as they amount to €1.6 billion at the end of 2021 where our total exports for the same year reach €1.3 billion. Newspaper sources said that Russia is both a close trade partner and a close partner in terms of the services sector. “Therefore, sanctions will inevitably affect us,” the same sources indicated.

It should be noted that according to OECD data, cited by Capital Economics (CE), before the pandemic, Cyprus’ exports to Russia covered more than 6 per cent of Cyprus’ gross value added, while in the Eurozone this figure was only 0.7 per cent (however these figures include tourism).

Much of these exports will now be lost, Capital Economics argues. “Even if some Cypriot exporters find other markets for their products, the blow will be severe,” CE analysts noted, adding: “This means that the Cypriot economy will almost certainly return to recession.” According to CE, Cyprus also has close links with Russia in the supply chain. Specifically, it is reported that 1/6 of intermediate goods imports come from Russia when in the Eurozone as a whole the ratio is 1/16.

Moreover, the CE also cites in its analysis the strong investment ties between Cyprus and Russia, noting that our country has a huge stock of foreign direct investment in Russia, while Russian investment in Cyprus is also large.

Finally, in the case of Ukraine, Cyprus’ trade relations with this country are clearly smaller compared to Russia. Total imports amounted to €19.9 million at the end of November 2021, while Cypriot exports reached €9.9 million at the end of the same period.

Most of the products that Cyprus imports from Ukraine are grains worth a total of €6.8 million and spirits worth €1.5 million. At the same time, the value of our exports to Ukraine concerns medicines with a total value of €7.7 million.