Cyprus faces tough times. The Cypriot banking system, intertwined with Greece’s, has been stretched beyond its elastic limit. Cyprus made its official request for a bailout fund in June 2012, after talks with Russia and China to negotiate a separate bailout agreement did not come to fruition. Cyprus has trade links with both the Russians and the Chinese, and Russia has already lent Cyprus a sum of €2.5 billion.
Following the latest bailout, Cyprus has been shut out of international markets – this means that it can’t borrow any longer, because it simply doesn’t have the finances to pay loans back. After such a slap on the wrist, Cyprus is going to have to work hard to regain the confidence of investors through economic and structural reforms.
Cyprus has certain strategic advantages which stand it in good stead; it has a good location at the crossroads of Europe, the Middle East and Africa, as well as favourable tax treaties which make it highly attractive to investors. It also has trade allies in the form of Russia, China and the Middle East, and has become something of an offshore centre for Eastern European and Russian businesses.
That’s not all it has going for it; Cyprus also has a growing number of Indian, Canadian and British businesses using Cyprus as a tax haven through which to invest into new and emerging markets. Cyprus has worked hard to make itself a prime location for investment business.
There has been even more good news; large natural gas fields – a very valuable asset – have been discovered off the coast, making it a richer country. This discovery will attract more business to the island as Russian, Israeli and Turkish oil companies will all want to establish a base there. The Russians have even expressed a desire to build a naval base in Cyprus, further boosting its position as a place of strategic importance.
The biggest threat to Cyprus comes from a Grexit. As a neighbour and trading partner, if Greece were to default on its debts to Cyprus the knock-on effect would be tangible.
In PART 7 of our eurozone report, we look at tax haven Gibraltar. We run through:
- How Gibraltar insulated itself against the crisis (by pandering to investors).
- What’s different about Gibraltar (compared to other eurozone countries)
- How the investment landscape has changed during the crisis