Republic of Cyprus
LOCATION AND SIZE.
The Republic of Cyprus is the internationally recognized government on the island. In 1983, a separate Turkish administration declared the northern territory an independent state and calls itself the Turkish Republic of Northern Cyprus (TRNC). Unless otherwise indicated, the "Republic of Cyprus" or "the government of Cyprus" mentioned in this entry refers to the internationally recognized government administered by the Greek Cypriots. For practical purposes, the terms "Greek zone" and "Turkish zone" are used to describe the 2 parts of the island.
The third largest Mediterranean island after Sicily and Sardinia, Cyprus is located in the East Mediterranean Basin 75 kilometers (47 miles) south of Turkey. The island has an area of 9,251 square kilometers (3,571 square miles)
The population of the entire Republic of Cyprus in 2000 was 758,363. The predicted growth rate for the population is 0.6 percent, according to 2000 estimates. The country is relatively young, with the age group between 0 and 14 making up about 23 percent of the total population. The life expectancy is 72 years for women and 70 for men in the Turkish zone, but 80 and 75, respectively, in the Greek zone.
The population of the Turkish Republic of Northern Cyprus, according to the revisions of the 1996 census, was 200,587. Of this number, 164,460 were Turkish Cypriot citizens, 30,702 Turkish citizens, and 5,425 people with citizenship in other countries. The natural rate of population growth in the Turkish zone is 0.9 percent.
The Greek Cypriots make up slightly more than three-fourths of the island's population, with 99.5 percent of them living in the Greek zone and the remaining 0.5 percent in the Turkish zone. Turkish Cypriots make up nearly all of the remaining population, with 98.7 percent of them living in the Turkish zone and 1.3 percent in the Greek zone. Other ethnic minorities make up less than 5 percent of the island's total population, and they live mainly in the Greek zone. Turkish nationals can enter the Turkish zone without passport formalities. However, entry is restricted from the Turkish to the Greek zones.
Three languages are spoken on the island: Greek, Turkish, and English. Greek is the dominant language in the south; Turkish predominates in the north. A majority of the population can also speak English. More than 90 percent of the population is literate.
The religious structure of the island is divided, like its people. Members of Greek Orthodox churches comprise 78 percent of the island's total population and live mainly in the Republic of Cyprus. The Turks in the TRNC are mainly Muslims. Other religious groups like Maronites and Armenian Apostolics together account for less than 5 percent of the total population.
The economy of the Greek zone is prosperous but can easily be affected by external shocks, since it is heavily dependent on the tourism industry. For instance, in the 1990s the region's economy attained inconsistent growth rates due to swings in tourist arrivals, caused by political instability on the island and changes in economic conditions in Western Europe. Being a candidate for membership in the European Union (EU), economic policies in the Greek zone are focused on meeting the criteria for admission. On the other hand, the attractiveness of the island has led to a concentration of investment and labor in the tourism sector, thus reducing the Greek zone's competitiveness in manufacturing and other sectors.
Inflation rates in the Greek zone have been moderate. The average was 4.8 percent between 1982 and 1990, and had dropped to 1.6 percent by 1999 as a result of economic slowdown. The government uses a wage determination system called COLA (cost-of-living-allowance), which automatically adjusts wages and salaries for inflation . The country's unemployment rate stood at 3.6 percent in 1999, below the levels of many EU countries. Immigration helps the Cypriot economy maintain its economic growth rate even in times of economic slowdown. Unskilled immigrant labor usually takes agricultural and domestic jobs.
The economy of the Turkish zone (US$820 million) is much smaller compared to that of the Greek zone (US$9 billion). The northern region has about one-fifth the population and only one-third of the per capita GDP of the south. The GDP growth rates in the north averaged around 4.7 percent in the 1980s, slowing down to an average of 2.8 percent in the 1990-98 period. In 1991 real GDP actually fell by 4.3 percent, and then by 4.1 percent in 1994 as a result of the economic crisis in Turkey. The "Turkish Republic of Northern Cyprus" is recognized only by Turkey, which means the rest of the world still considers the southern Greek administration as the sole administrator of the whole island. This has created problems for the Turkish Republic of Northern Cyprus' government and its economy. Foreign firms and investors cannot do business in the Turkish zone, as they cannot transfer funds or goods from a country that is not recognized as an independent state. As a result, the economy of the Turkish zone remains heavily dependent on agriculture and government service, which together employ about half of the workforce. The economy also has a small tourism sector, with legalized gambling, serving especially tourists from Turkey, where all forms of gambling have recently been banned. The economy of the Turkish zone is more vulnerable to outside shocks not only because of its small size and its legitimacy (diplomatic recognition), but also because it uses Turkish lira as the legal tender, which has devaluated (decreased in value) greatly over the past decade. To compensate for the economy's weakness, Turkey provides direct and indirect aid to tourism, education, and industries located in the Turkish part of the island.
The Greek Cypriots are among the most prosperous people in the Mediterranean region, and the Greek zone has enjoyed a high level of economic development, especially from the tourism industry. The inflation rate was 2.3 percent in 1998 and declined to 1.6 percent in 1999. The unemployment rate remains around 3.6 percent. The Greek zone has an open, free-market, service-based economy with some light manufacturing. Agriculture and natural resources make up only about 6 percent of its economy, according to 1998 figures. The industrial and construction sectors, on the other hand, accounted for nearly 25 percent of economic activity in that year, with most of the production for domestic need. The remainder of the economy is based on tourism and other services. Included in this category are restaurants and hotels, with 21.6 percent of the GDP; and banking, insurance, real estate, and business sectors with 17.5 percent. Transport, communication, government services, and social and personal services make up the remainder.
The island receives approximately US$3 billion from service-related exports led by tourism. Compared to only US$1.2 billion from merchandise exports, this is a fairly high proportion in the total economy. The service sector, including tourism, employs about 62 percent of the labor force . Consequently, the economy's growth rate is quite vulnerable to swings in tourist arrivals that are in turn affected by economic and political conditions in Cyprus, Western Europe, and the Middle East. According to the U.S. State Department's Country Background Notes on Cyprus, the real GDP growth was 9.7 percent in 1992, 1.7 percent in 1993, 6.0 percent in 1994, 6.0 percent in 1995, 1.9 percent in 1996, and 2.3 percent in 1997. Such a volatile pattern shows the effect of tourist arrivals on the overall economy.
Agriculture, on the other hand, employs only 12 percent of the population. Potatoes and citrus are the principal export crops. The island is not self-sufficient in agricultural products and must import other agricultural products for survival. More than 50 percent of Cyprus's trade is with the European Union. Cyprus signed an Association Agreement with the European Union in 1972, which established a Customs Union between the 2 zones. It applied for full EU membership in 1990 and since then the Cyprus pound has been pegged to the euro. The economic agenda in the Republic of Cyprus is geared towards joining the EU.
Trade is vital both to the Greek and Turkish Cypriot economies as the island is not self-sufficient. That explains why both zones have had structural trade deficits , which continue to grow. The Republic of Cyprus has a very important ship registry, and currently more than 2,700 ships are registered in Cyprus. As an open registry,
The Turkish Republic of Northern Cyprus does almost all of its trade with Turkey and uses Turkish lira, the currency used in the republic of Turkey, as its legal tender. Assistance from Turkey is the mainstay of this zone's economy, thus making it very vulnerable to shocks coming from Turkey. For instance, the TRNC experiences the same rate of inflation that exists in mainland Turkey. As the value of Turkish lira falls against other currencies such as the dollar or the euro, so does the purchasing power of Turkish Cypriots against imported goods from the United States or Europe. In 1998, the Turkish zone experienced an inflation rate of 66 percent, which was the same as in Turkey. The unemployment rate in the Turkish zone reached 6.4 percent in 1997, almost double the rate in the Greek zone. According to an economic protocol signed in January 1997, Turkey has undertaken the provision of loans to the TRNC totaling $250 million for public finance, tourism, banking, and privatization .
Agriculture accounted for 6 percent of the GDP in 1997, and it employed about 12 percent of the labor force. Agricultural products accounted for 21 percent of total domestic imports in 1997. In 1998 revenue from agricultural products was US$531 million. Citrus fruits and potatoes are the main export commodities, followed by grapes, barley, and vegetables. In 1996 the area under field crops was 93,000 hectares. Vineyards covered 15 percent of this acreage, while permanent orchards accounted for 11 percent, and olive vineyards and nut trees an additional 6.2 percent. Agricultural production is dependent on the island's temperate Mediterranean climate with hot dry summers and cool winters. In terms of value, 56 percent of the 1996 gross harvest was consumed in Cyprus. Although domestic markets are important for agriculture, processing of agricultural products for other uses is becoming more important. Per capita consumption levels of fruits and citrus are exceptionally high in Cyprus, with 55 kg per person for citrus and 146 kg for other fruits.
In Cyprus, farm processing is important, with production of halloumi cheese, raisins, and wine being the most important. Such processed farm products have higher export values than unprocessed food products and are easier to sell abroad, especially since closer integration with the European Union has made more of Cyprus's farm products available to consumers in Europe.
Fishing is an expanding sub-sector of agriculture. Fish farms have been installed on the south coast, and local and tourist fish markets provide a continuous demand. In recent years, the catch from inshore and trawler fisheries has increased, while marine aquaculture (sea fishing) has stagnated. The Cyprus government reported that the Cyprus Fisheries produced more than 3 tons of fish in 1997.
Agriculture in the Greek zone has an uncertain future, because the sector is declining in importance against other sectors like tourism. It is also affected by rainfall fluctuations and by the water-shortage problem on the island as a whole.
The northern Turkish zone relies more heavily on agriculture than the southern Greek zone. Although only one-third of the island's area is under Turkish control, its agricultural sector accounts for 46 percent of Cyprus's total crop production and 47 percent of its livestock population. Agriculture employs more than 25 percent of the Turkish zone labor force. Its agriculture sector experienced a severe blow in 1995 when the region lost nearly 10 percent of its forests in a major fire. The sector has also been hurt by regulatory difficulties surrounding the export of agricultural products. The European Court of Justice has ruled that agricultural products must have phytosanitary (certifying that plants are disease-free) certificates from the legally recognized authorities of the Republic of Cyprus. As a result, many agricultural products from the Turkish zone must first be exported to Turkey before getting into European markets. Another disadvantage is that the Turkish Cypriots have to accept payments for their exports in Turkish liras instead of hard currency such as the dollar or the euro.
Information about mining in the separate zones is not available. Mining has long played an important role in Cyprus's economy. For several thousand years, the island has been an important source of copper ores. It also produces pyrites, asbestos, gypsum, salt, marble, clay, and earth pigment. In the 1950s, minerals accounted for almost 60 percent of all exports and employed more than 6,000 people. After independence in 1960, however, the share of mineral exports had fallen to 34 percent. The 1974 Turkish intervention further disrupted the mining sector. In 1981 its share in total exports fell below 5 percent and by the end of the 1980s to less than 1 percent. The contribution of the sector to the GDP also declined, to 0.5 percent in 1985 and 0.4 percent in 1987 and 1988. Most of the deposits on the southern part of the island are nearly gone today. The asbestos mines were closed in 1988, thus further reducing the share of the mining sector in the economy. By the 1990s, the main mining products were pyrites and copper. The mining of sand and other construction minerals fluctuates with demand. By the late 1990s, 250 quarries were operating in the Republic of Cyprus. Though the mining industry had declined since the Turkish invasion, the Hellenic Copper Mine's 1996 establishment of a mine at Skouriotissa was encouraging.
According to the U.S. State Department's Background Notes on Cyprus, manufactured goods accounted for approximately 69 percent of the Greek zone's domestic exports in 1997. Before the partition of the island, most of the manufacturing goods were produced in what is now the Turkish zone by small, owner-operated plants. Most of the production was for the domestic market. After 1974, the industries were re-oriented for export, and large factories were built in the southern Greek-controlled zone. Output grew rapidly there through the 1980s. The manufacturing sector's contribution to the economy of the Greek zone declined from 17.3 percent in 1983 to 10.9 percent in 1999. During the same period, the total employment in the manufacturing sector has also declined, from 21 percent of the overall labor force to around 13 percent. The heavy industries include petroleum refining and cement while the light industries include clothing, footwear, and machinery and transport equipment. High tariffs put on imports to protect domestic manufacturing industries were lifted under the membership agreement with the European Union. This fact, plus the rise of tourism and the service economy, has hurt the competitiveness of the manufacturing sector in the Greek zone. In 2000, the Republic of Cyprus was actively trying to attract high-technology businesses to the country.
In the Turkish zone, industry in 1998 accounted for about 11.8 percent of the GDP and 55.4 percent of the total employment in its region, according to the World Factbook 2000 . Manufacturing is almost entirely based on light industry, with textiles and clothing being the most important products. The only example of heavy industry is a cement factory at Boghaz. In the late 1980s, clothing accounted for over 30 percent of all exports in the Turkish region, exceeded only by citrus exports. In 1989, for the first time, manufacturing surpassed agriculture's contribution to the GDP and has grown since then. However, compared to the situation in the Greek zone, the Turkish-zone manufacturing sector is small.
Tourism is very important to the functioning of the Cypriot economy both in the south and the north. Revenue from tourism contributed approximately US$1.7 billion to the economy of the Greek zone in 1998. The reduced airfares resulting from the liberalization of the airline industry in Europe helped make Cyprus a major tourist destination during the 1970s. The tourist industry on the island was hurt during that decade because of the ongoing disputes between the Turkish and Greek populations, but since the 1980s, it has grown dramatically, especially in the Greek zone. By 2001, Cyprus, especially the southern side, had become a popular holiday spot for many Europeans. Offering natural beaches, warm climate, and unspoiled nature, the island attracts many vacationers from nearby countries. The Greek zone is also more easily accessible via its international airports and cruise-ship ports.
Tourism in the Turkish zone is hampered by legitimacy problems. Since the TRNC is not recognized as an independent and sovereign state by any other nation except Turkey, it does not have consular offices (official offices to represent a country's commercial interests abroad) in other countries where visitors or tourism agencies can easily arrange travel. There are few international flights to the Turkish zone. The TRNC's official airline, Cyprus Turkish Airlines (KHTY), circumvents such problems by making brief stops on the Turkish mainland prior to its final destination in Turkish Cyprus. Tourists from Turkey make up more than 80 percent of all tourists coming to the Turkish zone. Despite these limitations, tourism continues to be the driving force behind the TRNC's economy. In 1999, earnings from tourism were estimated at around US$405 million, equivalent to 43 percent of the region's GDP. Since gambling is permitted, the TRNC serves as an important holiday destination for tourists coming from Turkey, where casinos are banned. The Turkish zone is also a popular shopping destination for mainland Turks who take advantage of the region's lower taxes.
Both the Greek and Turkish zones have a good tourism infrastructure with sufficient, quality lodging and other facilities. As of 1998, the Greek zone had a capacity of 86,151 beds, according to the Cyprus Statistical Service. In 1999, 2.4 million foreign tourists arrived in the southern zone. U.S. State Department surveys forecast even higher revenues from tourism in coming years, though the political dispute between the 2 sides on the island remains a potential barrier.
According to the U.S. State Department's Country Commercial Guide on Cyprus, finance, insurance, real estate, and business services recorded gains recently (from 16.6 percent of GDP in 1992 to 19.8 percent in 1998).
The banking system in Cyprus consists of the Central Bank of Cyprus and 9 local commercial banks, as well as several specialized financial institutions, leasing companies, and co-operatives. There is also an established foreign banking community, which includes 30 international banking units. Commercial banking arrangements and practices follow the British system. In 1996, the Central Bank of Cyprus achieved substantial progress in its campaign to liberalize and reform Cyprus's financial sector. Monetary policy is now conducted through the use of market-based instruments. Repurchase transactions between the Central Bank and financial institutions are the main tool of liquidity management, and the use of the minimum liquidity requirement has been abandoned. The new procedures are fully in line with EU practices.
In the Greek zone, a law that came into effect on 1 January 2001 abolished the 9 percent ceiling on interest rates that had existed since 1944, enabling depositors to receive higher returns on their savings. In addition, previous restrictions on Cypriots' ability to own foreign currency and make overseas investments are being loosened as part of a 3-stage plan to harmonize the country's financial industry with EU standards. The Greek zone is now an open country for foreign investment, whereas prior to 1997 there were restrictions on the participation of foreigners in Cypriot firms. In preparation for EU membership, all foreign-investment restrictions for EU investors have been abolished since January 2000. Foreigners can own up to 100 percent of companies in the manufacturing and services sectors and up to 49 percent of businesses in the agriculture, media, press, and travel sectors. Cyprus also has a stock exchange, where foreigners are permitted to own up to 49 percent of publicly traded companies. Foreign investment makes the economy stronger by bringing new capital and technologies to existing industries, helping to modernize them, and creating jobs.
Businesses in the Turkish zone cannot attract foreign investment because of the legitimacy problem mentioned earlier.
In 1998 the Greek zone recorded a balance of payments deficit of US$342.8 million compared to a deficit of US$229.9 million in 1997. The trade deficit reached a record of US$2.5 billion in 1998, due in part to a decline in tourism revenues in 1996 and 1997. Also, the volume of imports did not decrease as much as the decline in the country's export revenues, helping to make the deficit even higher.
Middle Eastern countries receive 20 percent of exports from Cyprus. Cyprus re-exports cigarettes from the United States to 2 major markets for tobacco products: Russia and Bulgaria. The economic crisis in these countries has hurt consumer purchasing power, thus lowering Cyprus's revenues from these exports.
The amount of total imports increased in 1998 to a total of US$3.5 billion. Most of these imports were intermediate goods and capital goods . While Cyprus faced difficulty in selling its products or re-selling U.S. products abroad, it bought more from abroad, making its trade deficit higher. Cyprus must import fuels, most raw materials, heavy machinery, and transportation equipment. More than 50 percent of the country's trade is with the European Union, especially with England.
Cyprus has recently attempted to liberalize its trade policies by eliminating import quotas and licenses. It has also lowered tariffs on most products as a result of its obligations to the EU for the Customs Union Agreement. The country's entry into the Customs Union with the EU has also made trade conditions more competitive (restrictive) for U.S. exporters doing business in Cyprus.
|Trade (expressed in billions of US$): Cyprus|
|SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.|
However, according to the U.S. State Department's analysis, the United States has a competitive edge over its European allies in the sales of computer-assisted design systems, medical equipment, environmental products, and new capital equipment for production of textiles, clothing, and footwear. Compared to those of European origin, U.S. software products are in higher demand in Cyprus. U.S. pressure resulted in new copyright (1994) and patent (1998) laws that helped protect U.S. software products, thus increasing the sales of those products.
The TNRC does most of its trade with Turkey (around 47 percent in 1998), followed by England (slightly more than 25 percent) and other EU countries (15 percent). The Turkish zone's trading account continues to be in deficit, but is offset by earnings from tourism and development programs, which come largely from Turkey, and also from income by United Nations personnel stationed in the zone.
The Cyprus pound is printed and circulated through the Central Bank of Cyprus, which aims to keep it stable in relation to the euro. Cyprus does most of its trade with the European Union. As a result, the Cyprus pound has been linked to the European Monetary Union system of currencies (EMU). As of 1 January 1999, the Cyprus pound has been linked to the euro.
Following the 1974 separation, the Turkish Cypriot zone adopted the Turkish lira as the legal tender, but the Cyprus pound was used until 1983. The Cyprus pound is now considered a foreign currency in this region and is subject to foreign exchange regulations. Still, the Cyprus pound is used by businesses, along with the British pound and the U.S. dollar in the Turkish zone to assess export and import prices or in trading. There is also a central bank in the Turkish zone, but its functions and powers are limited. Since the Turkish lira is the legal tender and is printed in mainland Turkey, the central bank can neither print money nor decide on monetary
|Exchange rates: Cyprus|
|Cypriot pounds per US$1||Turkish liras per US$|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
policy. It receives daily exchange rates from Turkey and passes them on to commercial banks operating in the northern zone, but it has no control over the interest rates. Since it has such strong links to Turkey, the economy in the TNRC is affected by the same high inflation as in mainland Turkey, where the consumer-price inflation rate was 99.1 percent in 1997 and 69.7 percent in 1998. The economy of the Turkish zone also suffered in 1994 when Turkey experienced a severe economic crisis and devalued its currency. To compensate for these problems, Turkey has long provided direct and indirect aid to nearly every sector. Today, financial support from mainland Turkey accounts for about one-third of the zone's total GDP.
The Republic of Cyprus had a 3.3 percent unemployment rate in 1999 and a workforce of about 314,000 people. Workers are protected by laws regulating their health and safety on the job. In addition to legislation, trade unions also play an important role in workers' lives. The initial attempt to form trade unions in Cyprus took place in 1915, when the country was under British rule, but the first of them, the Nicosia Footwear Union, was not recognized until 1932, a year after it was established. After labor unrest in 1944, Cyprus adopted a cost-of-living allowance (COLA) for its workers. The 8-hour workday was accepted only after independence.
The Turkish zone labor force was estimated at 80,200 people in 1998, and the unemployment rate was 6.4 percent. Almost one-third of the labor force in the Turkish zone is unionized. Minimum wages are untaxed and are fixed annually by law according to inflation indexing, the so-called "cost of living allowance" (COLA) standard.
Cyprus has no territories or colonies.
Republic of Cyprus:
Turkish Republic of Northern Cyprus:
Cypriot pound (CP). One Cypriot pound equals 100 cents. There are coins of 1, 2, 5, 10, 20, and 50 cents and 1 pound. Paper notes include a 50 cent note, and 1, 5, 10, and 20 pound notes.
Turkish lira (TL). One Turkish lira equals 100 kurus. This zone uses the same currency as used in Turkey. The smallest unit in circulation in the TRNC is TL50,000. The kuru is no longer in circulation due to high rates of inflation and the devaluation of the currency. Paper money comes in bills of 50,000, 100,000, 250,000, 500,000, 1 million, 5 million, and 10 million lira. There are coins of 5,000, 10,000, 25,000, 50,000, and 100,000 lira.
Both Greek and Turkish zones:
Citrus, potatoes, and textiles.
Additional exports from the Greek zone:
Grapes, wine, cement and shoes.
Consumer goods, petroleum and lubricants, food and feed grains, machinery.
Food, minerals, chemicals, machinery.
GROSS DOMESTIC PRODUCT:
US$9 billion (1998 est.).
US$820 million (1998 est.).
BALANCE OF TRADE:
Exports: Greek zone, US$1 billion (1999); Turkish zone, US$63.9 million (1998). Imports: Greek zone, US$3.309 billion (1999); Turkish zone, US$421 million (1998).