The Cyprus Economy and Competitiveness Council on Friday published a report outlining a number of recommendations that seek to provide both medium and long-term solutions to the ongoing issue of high inflation.
The council said that Inflation is one of the most important challenges facing most European Union member states, including Cyprus.
Moreover, it noted that amidst the war in Ukraine and the energy crisis, economic uncertainty has deepened, exacerbated by continued price increases, particularly in terms of fuel and electricity, pushing Eurozone inflation to historically high levels.
“For more than a year, both Cyprus and other countries have experienced a significant increase in the prices paid by the consumer”, the council said, noting that this has multiple negative aspects, including the erosion of purchasing power, higher interest rates and a slowdown of economic growth.
“These problems only serve to further highlight the imperative need for changes, as well as the implementation of the relevant measures,” it added, explaining that the Cypriot government has adopted a number of short-term measures to address inflationary trends, as well as to moderate energy prices.
What is more, the council said that EU Member States on October 6 2022 approved a regulation for an emergency intervention to address high energy prices, albeit with an exception allowing Cyprus and Malta to opt out from implementing the measures involved in the regulation.
“The Cyprus Economy and Competitiveness Council, due to the seriousness of the situation, has set up a committee to propose a series of policy measures and directions in order to deal with inflation in the medium and long term,” the council said.
“The recommendations of the council, as presented in this report, complement the short-term measures already taken by the state, combined with the aforementioned EU measures, and are aligned with both the National Recovery and Resilience Plan and the long-term strategy for the sustainable development of the Cypriot economy, titled Vision 2035,” it added.
The first proposal by the council focuses on improving productivity through digital transformation and innovation initiatives and projects.
These can include the further digitisation of services, broadband connectivity improvement, as well as the use of new technologies in agriculture.
The council explained that the National Recovery and Resilience Plan already includes a series of digital transformation and reform measures, for the medium and long term, aiming to boost investment in innovation and increase productivity.
“The digitisation of various services will reduce the need to use transport means to process services in physical presence, as well as the need to impose additional fees for their processing,” the council said.
“In general, digital transformation and investment in innovation will bring multiple benefits in productivity, achieving economies of scale, and reducing production costs and final consumer prices,” it added.
Moreover, the council said that improving broadband connectivity will provide an innovative environment with the advanced infrastructure it requires to operate.
This will in turn significantly contribute to reducing costs in the workplace, through more efficient transactions and communications, as well as in household life, providing, for example, increased capacity for distance learning and working from home.
“It is important to promote entrepreneurship and the use of new technologies in the agricultural sector, which can improve productivity and reduce dependence on imports,” the council stated.
The second recommendation that the council made revolved around supply chains and Cyprus’ trade connectivity, both of which should be improved.
This can be done by upgrading Cyprus’ ports and airports through new technologies, improving air and sea connectivity, as well as focusing on upgrading the state’s trade service in order to further improve exports.
“Upgrading ports and airports through new technologies and promoting them as regional hubs will help improve the supply chain and reduce transport costs to and from other countries,” the council said, noting that the improvement of Cyprus’ air and sea connectivity is crucial in reducing the cost of transporting both goods and people.
“The upgrading of the Trade Service, which is under the Ministry of Commerce and Industry, aims to promote exports,” the council added, explaining that this will help companies that export products and services to achieve economies of scale. This can result in lower prices for consumers in Cyprus as well.
The council also recommended the use of cheaper energy sources, promoting the circular economy, and reducing overall energy consumption.
Among the measures that the council mentioned in this area are the upgrading of existing connections with other countries, combined with new connections, improving buildings’ energy efficiency, and the development of affordable housing to support vulnerable groups.
The improvement of Cyprus’ energy market, the council said, combined with the improved connection of the electrical grid with other countries, and the use of cheaper energy sources will contribute to the gradual reduction of the price of electricity.
“The promotion of the circular economy will contribute to the reduction of the excessive consumption habit and the reduction of the use of raw materials resulting in the reduction of production costs and final consumer prices,” the council stated, noting that a number of measures to promote the circular economy in Cyprus are included for implementation in the National Recovery and Resilience Plan.
“The state should also help promote the development of affordable housing and other measures to support financially vulnerable population groups that are most affected in times of high inflation,” the council added.
The final recommendation that the council made focused on the adoption of cheap and efficient public transport, both through the promotion of existing means and the introduction of new, more effective modes of public transport.
The council noted that the long-term strategy ‘Vision 2035’ already includes a proposal that primarily concerns the need to change the mindset and habits of Cypriots regarding the use of public transportation.
According to the recommendation, the state should encourage the use of buses and bicycles and promote car-sharing programmes.
“Increasing the frequency of public transport to universities, hospitals and schools and providing financial incentives for the use of public transport for specific groups such as students, would help in this endeavour,” the council said, noting that this would also help reduce transport costs and increase productivity.
However, the council noted that In the past, a feasibility study was carried out for the operation of trams and a rail link between cities, which indicated that these projects are not sustainable under the current conditions.
“In the future, however, the study should be updated as these projects may become efficient means of public transport when the critical parameters are varied,” the council concluded.
