The day after
Commercial opportunities following a solution to the Cyprus problem
Written by Fiona Mullen, Özlem Oğuz and Praxoula Antoniadou Kyriacou
Funded and published by the PRIO Cyprus Centre
Summary of key findings
Rapprochement between Greece and Turkey has led to a boom in commercial relations between the two countries that has transformed Greece into one of the top ten foreign investors in Turkey and has turned Turkey into one of the fastest growing markets for Greece, especially for tourism. Trade in goods and services between these two countries rose at an annual average rate of 25% in 2000-06, while the tourism market increased at an astonishing average rate of 275% per year.
This remarkable increase in business, despite centuries of mutual hostility, indicates that businesses quickly overcome feelings of mistrust as soon as political conditions improve. These developments, combined with Cyprus’s small size, suggest that the most lucrative opportunities for Cypriot businesses and the wider public after
a solution lie beyond the island, namely in doing business with Turkey.
In order to give Cypriots on the island an idea of the value of these opportunities in money terms, we make projections for key sectors based on both a reunification and a continued division scenario. By subtracting the divided Cyprus from the reunified Cyprus scenario, we can calculate the annual peace dividend for each sector. For our methodology, we take the growth rates in exports of goods and services between Turkey and Greece as an initial guide (before making downward adjustments), as well as recent macroeconomic and sectoral trends in both parts of Cyprus.
We pay particular attention to those sectors which have the most to gain from doing business with Turkey and from likely developments on the island after a solution. These sectors are tourism, shipping, construction and real estate, tertiary education, and accounting and legal services.
Deliberately avoiding the economics of any specific solution, we make one simple assumption: that the solution that would gain the majority support of both communities would be politically and economically sustainable. According to our calculations, if Cyprus were reunited, the recurring annual benefits to Cypriot businesses in
the first seven years after reunification would generate, on average:
; EUR 510 million per year in additional exports of goods and services to Turkey, of which EUR 385 million
would be tourism and EUR 22 million would be transport
; EUR 393 million per year in new business for Cypriot construction companies
; EUR 155 million per year in new business for Cypriot real estate companies
; EUR 316 million per year (excl. new business from Turkey above) in new business for Cypriot tourism
; EUR 162 million per year of additional revenue for the Cypriot university education sector
; EUR 103 million per year in additional income for Cypriot accounting and legal firms
; EUR 184 million in new foreign direct investment (excl. construction and real estate above) into Cyprus
; The annual boost to business—the annual peace dividend—rises from EUR 283 million in Year 1 to EUR
3.9 billion, or 10% of GDP, by Year 7.
; The peace dividend is the equivalent of approximately EUR 1.8 billion per year (over CYP 1 billion or
more than YTL 3 billion).
; If this is translated into the annual dividend per family (household) in Cyprus, it comes to an annual peace
bonus of approximately EUR 5,500 per household per year. This is around 20% of the current average
salary in the southern part of Cyprus and an estimated 40% of the average salary in the northern part of
This calculation is the least that can be expected since it focuses only on the sectors that stand most to gain. Moreover, the peace dividend calculated could be almost doubled if important regional developments, such as new business from the Baku-Ceyhan oil pipeline (EUR 1.3 billion) and the implementation of the Ankara Protocol (EUR 187 million per year) are taken into account.
1. Greece-Turkey services boomed after 1999 7. Greece is Turkey's 9th largest investor
Total trade in services between Greece and Turkey (exports + imports) Turkey: FDI stocks by country (USD m)(EUR m)
8. Turkish real estate returns are very profitable 2. Trade in goods rose more than fourfold
Rental yieldsTotal trade in goods between Greece and Turkey (exports + imports) (mid-range, %)(EUR m)
1,500Turkey coastRomania city centreTurkey city centre1,000Bulgaria city centreGreek city centre500Greek islandsCyprus (south) coast00.02.04.06.08.010.012.014.016.019961997199819992000200120022003200420052006 9. Turks are beginning to travel 3. Travel market rose by average 275% per year Turkey: Number of people travelling abroadGreece-Turkey travel market: total travel receipts(EUR m)8,500,0008,000,0002007,500,0007,000,0001506,500,0006,000,0001005,500,0005,000,000504,500,0004,000,000019961997 1998 1999200020012002200320042005200619992000200120022003200420052006 10. Business services: growth area in the south 4. Greece's freight business is benefiting Cyprus (south): Foreign exchange inflows (% of GDP)Greece: Transportation inflows from Turkey(EUR m)25
2060155040103052010001996199719981999200020012002200320042005200619961997199819992000200120022003200420052006Other business services (mainly accounting & legal)Tourism (travel)TransportationSea transport, freight 11. Education is the new growth area in the north 5. Turkey is an important emerging market Foreign exchange income from education Turkey: exports and imports of goods(USD m)(USD m)16000031014000012000026010000021080000Cyprus (north)16060000Cyprus (south)4000011020000600199619971998199920002001200220032004200520061020022003200420052006Exports of goodsImports of goods 12. But tourism revenue is on a declining trend 6. Foreign direct investment (FDI) is soaring Cyprus (south): Tourism revenue (% of GDP)Turkey: Inward foreign direct investment (USD m)(Dotted line is the linear trend)2520.519.52018.51517.516.51015.514.5513.5012.51995199719981999200020012002200320042005200619961997199819992000200120022003200420052006
13. In the north and in the south 19. ?548m for real estate and construction
Real estate and construction business (ex Varosha)Cyprus (north): Tourism revenue as % of GNP(EUR m)(dotted line is linear trend)
72002523620021195200Reunited Cyprus17154200Divided Cyprus13320011922001996199719981999200020012002200320042005200720082009201020112012201320142015
14. Construction is weakening in the north 20. ?316m in extra tourism (excluding Turkey)
Non-Turkey tourism incomeCyprus (north): Fixed capital investment in construction(EUR m)(at constant 1977 prices)
3400320016530002800115Reunited Cyprus2600Divided Cyprus65240022001520001997199819992000200120022003200420052006 prov200720082009201020112012201320142015
15. Shipping is losing out in the south 21. ?162m in extra tertiary education income
Cyprus (south): Number of ships on the registerEducation FX income(EUR m)2900300027002500250020002300Reunited Cyprus15002100Divided Cyprus10001900500170002007200820092010201120122013201420151997199819992000200120022003200420052006
WHAT’S A SOLUTION WORTH?
16. Solution worth ?46m pa in exports of goods 22. ?103m in professional services
Professonal services FX incomeExports of goods to Turkey(EUR m)(EUR m)
14012001201100100100080Reunited CyprusReunited Cyprus90060Divided CyprusDivided Cyprus80040700200600200720082009201020112012201320142015200720082009201020112012201320142015
17. ?464m pa in exports of services to Turkey 23. ?184m in foreign direct investment
Additional foreign direct investment (ex construction and real estate)Exports of services to Turkey(EUR m)(EUR m)
34002500200029001500Reunited CyprusReunited Cyprus2400Divided Cyprus1000Divided Cyprus190050014000200720082009201020112012201320142015200720082009201020112012201320142015
24. Total peace dividend ?1.8bn per year 18. ?385m per year in Turkey tourism income
Total peace dividendTravel receipts from Turkey(EUR m)(EUR m)3,88414004,0002,96012003,5003,0002,21810002,5008001,620Reunited Cyprus2,0001,136600Divided Cyprus1,5006574001,000283200500002009201020112012201320142015200720082009201020112012201320142015
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? International Peace Research Institute, Oslo (PRIO), 2008