Cyprus’ net Foreign Direct Investment (FDI) position decreased further in 2021, with the dominant partner, both in terms of inward and outward FDI being Russia, according to a report released by the Central Bank of Cyprus (CBC) on Wednesday.
Cyprus’ net FDI position, meaning the balance resulting from subtracting inward FDI from outward FDI, decreased further in 2021, thus remaining negative.
Specifically, the net FDI position in 2021 amounted to a deficit of €8.3 billion, compared to a deficit of €1.9 billion in 2020.
“This is due to the fact that outward FDI decreased more than inward FDI,” the central bank said.
In addition, the stock of outward FDI reached €366 billion in 2021, compared to €398 billion in 2020.
The decrease in question is attributed to the decrease in equity securities while debt instruments recorded a small increase, the CBC explained.
88 per cent of the stocks of outgoing FDI in 2021 consisted of equity securities and 12 per cent of debt instruments.
The stock of inward FDI stood at €375 billion in 2021, compared to €400 billion in 2020.
“This development is mainly due to the decrease in equity securities and, to a lesser extent, the decrease recorded in debt instruments,” the report noted.
Moreover, 84 per cent of inward FDI consisted of equity securities and 16 per cent of debt instruments.
Net FDI transactions in 2021 remained negative. Specifically, net FDI transactions in 2021 were recorded at a deficit of €4.4 billion, as the level of outward FDI transactions, which was negative, exceeded the level of inward FDI transactions, which was also negative.
As for outward FDI transactions, these amounted to a deficit of €34.6 billion in 2021, of which €38 billion were equity securities other than reinvested earnings.
On the other hand, the total transactions in debt instruments and in reinvested profits were both positive and mitigated the aforementioned decrease.
Inward FDI transactions amounted to €30.2 billion during 2021, of which €26 billion came from equity securities other than reinvested profits and €10.9 billion from transactions in debt instruments. Unlike the other components, reinvested profits were positive and reached €6.8 billion.
Net FDI income continued to be negative in 2021, meaning income from inward FDI exceeded income from outward FDI.
Specifically, net FDI income was recorded at a deficit of €1.8 billion in 2021, worsening from a deficit of €1.1 billion the previous year.
Regarding income from outward FDI, this amount amounted to €20.8 billion in 2021, compared to €17.9 billion in 2020.
“This increase is mainly due to the increase in income from reinvested profits, which was tempered by reductions in equity securities income except for reinvested earnings (dividends) and income from debt instruments,” the central bank explained.
Income attributable to inward FDI amounted to €22.6 billion in 2021, compared to €19 billion in 2020.
As with outward FDI income, the improvement was due to an increase in income from reinvested profits while the other two categories recorded reductions, something which mitigated the aforementioned increase.
“From the above analysis, it follows that, compared to 2020, profitability in 2021 improved, both for outgoing and incoming FDI,” the report said.
In more detail, the rate of return in 2021 was 5.7 per cent for outgoing FDI and 6 per cent for inward FDI, while the corresponding rates of return in 2020 were 4.5 per cent for outward FDI and 4.8 per cent for inward FDI.
The stock of inbound and outbound FDI in Cyprus is spread across all continents, with Europe being the dominant partner, the central bank reported.
Outbound FDI stocks destined for Europe amounted to €232.63 billion in 2021, of which €125.51 billion were destined for Russia. The second most important continent in terms of value was America, with the value of outbound investment amounting to €72.5 billion.
It is also noted that, for 2021, an amount of €49.3 billion refers to unallocated items, meaning items that cannot be distributed geographically.
Regarding the euro area and the European Union, the share of FDI destined for these countries in 2021 amounted to 12.4 per cent and 14 per cent respectively.
Regarding incoming FDI, these are channelled mainly from Europe and, to a much lesser extent, from America.
More specifically, the stock of FDI inflows from Europe reached €299.38 billion in 2021, of which €120.39 billion came from Russia.
The inward stock of FDI from the Americas, the second most important continent in terms of inward FDI was recorded at €38 billion. The unallocated amount was recorded at €21.7 billion.
The stock share of inward FDI from the euro area and the European Union is much higher than the corresponding share of outward FDI in 2021, representing 29.2 per cent and 30.8 per cent respectively.
“Although the number of partner countries, both for inward and outward FDI is large, there is a large concentration in a small number of countries,” the central bank said.
“More specifically, the top ten countries regarding both inward and outward FDI stock represent more than 81 per cent of total allocated reserves, with Russia being the leading partner,” the report concluded.