Cyprus has recorded a drop of five positions in the competitiveness ranking of the IMD World Competitiveness Centre for the third consecutive year, falling from the 40th position to the 45th among 64 evaluated countries.
Cyprus has experienced a decline in its competitiveness for the third consecutive year.
According to an announcement by the University of Cyprus’ Economic Research Centre (CypERC), in 2023, Cyprus reached its lowest position since participating in the ranking.
This year’s decline is attributed to the worsening of the four aspects that compose the overall competitiveness assessment, namely economic performance, government efficiency, business efficiency, and infrastructure.
Cyprus’s economic performance was negatively affected mainly due to reduced foreign direct investments, a deficit in the balance of payments, further deterioration of trade terms, and limited goods exports.
In addition, shortcomings in the institutional framework, such as cost of capital, transparency, and bureaucracy, that harm government efficiency, as well as weaknesses in the country’s basic and technological infrastructure that had burdened the ranking in previous years, are reflected more intensely in this year’s evaluation.
The low efficiency of Cypriot businesses constitutes the most burdensome factor in this year’s ranking, primarily due to weaknesses in administrative practices and the implementation of digital transformation plans.
In addition, according to the research centre, Cyprus’ ranking this year has highlighted the importance of addressing the country’s weaknesses through reforms and investments in infrastructure and human capital that meet the needs of a modern economy.
It added that the persistent shortcomings that have hindered Cyprus’s competitiveness in previous years not only remain but have significantly intensified in conditions of external disturbances, such as the Russian invasion of Ukraine and the resulting sanctions, economic slowdown, and uncertainty, further pushing down the country’s competitiveness.
Factors that make the Cypriot economy attractive
On the other hand, according to the 2023 Opinion Survey, the five most significant factors that make the Cypriot economy attractive are, in order, the competitive tax regime, business-friendly environment, high level of education, skilled workforce, and people’s positive attitude.
The first four factors were selected among the top five in the 2022 survey, while the fifth factor is a new addition that has displaced reliable infrastructure from this year’s top five.
In terms of economic performance, Cyprus ranks 47th among the 64 countries, dropping nine positions compared to the previous year.
The decline in this year’s ranking stems from the significant deterioration in the evaluation of Cyprus in the subcategory of international investments, which includes reduced flows of foreign direct investments to and from the country, and, to a lesser extent, from the worsening performance in the subcategories of international trade and employment.
Positive aspects for Cyprus were the significant improvement in the evaluation of the domestic economy in 2023, and the strong performance of Cyprus in terms of tourism income, foreign investment inflows, and service exports, somewhat mitigating the downward trend in the country’s ranking.
State and businesses become less efficient
In terms of state efficiency, Cyprus ranks 30th in 2023, dropping six positions compared to 2022.
This year’s decline was a result of worsened assessments in the institutional framework subcategories, including the cost of capital, transparency and bureaucracy, as well as the social framework, which includes the unemployment rate by gender ratio, and the justice system.
Conversely, the slight improvement in Cyprus’ assessment of the business legislative framework subcategory, which includes government subsidies, labour surplus cost, and the density of new businesses, positively influenced this year’s ranking.
Assessments in the public finance and tax policy subcategories remained at the same levels as in 2022, with the tax policy, specifically in terms of the corporate tax rate, contributing favourably to the ranking, as in previous years.
In the category of business efficiency, Cyprus dropped to the 55th position from the 44th it held last year.
The significant decline in the ranking in 2023 resulted from the worsened assessment of Cyprus in all five examined subcategories.
These include productivity and efficiency, the labour market, financing, administrative practices, as well as business attitudes and values.
Particularly notable weaknesses are reflected in the assessment of the administrative practices of businesses, as Cyprus ranks second to last among the 64 countries.
The current ranking indicates that Cyprus significantly lags behind other countries in criteria related to digital transformation in businesses, the ability of boards of directors to exercise effective control, attracting and retaining talented workers in businesses, undertaking corporate social responsibility, and utilising big data and analysis in making business decisions.
Although Cyprus’ weaknesses in some of these criteria were identified in previous years as well, they are more pronounced this year, as the country has been placed in lower positions.
On a more positive note, Cyprus continues to demonstrate advantages in certain criteria in the labour market subcategory, such as a long-term increase in the labour force, the percentage of women in the labour force, and the remuneration of managerial positions.
In terms of infrastructure, Cyprus ranks 42nd out of 64 countries, marking a two-point drop compared to last year.
The decline in the 2023 ranking is attributed to Cyprus’ unfavourable assessment in four out of the five subcategories examined.
The country’s position in the subcategories of basic and technological infrastructure, which was already low in previous years, further declined in 2023.
Specifically, Cyprus appears to have significant deficiencies compared to most countries in aspects such as energy infrastructure, the quality of air transportation, the percentage of mobile broadband subscribers, cybersecurity, and technological development funding.
Despite the improved assessment of Cyprus in the subcategory of scientific infrastructure, the country’s position is burdened by long-standing weaknesses, such as the low percentage of graduates in STEM fields, as well as emerging issues like the low transfer of knowledge between universities and businesses.
Moreover, in 2023, Cyprus experienced a slight worsening of its position in the subcategory of health and environment, as well as in the subcategory of education.
However, Cyprus continues to have advantages over other countries in criteria such as the influx of foreign students, the student-to-teacher ratio in secondary education, and the signing of environmental agreements.