Cyprus - Economy

Historically an agricultural country with few natural resources, Cyprus has been shifting from subsistence farming to light manufacturing, and a service dominated economy. Farm mechanism has reached an advanced state, and a hopefully long-lasting solution to an erratic water supply has been achieved with the completion of a second desalination plant in 2001 that has allowed the lifting of restrictions on water usage. Large trade deficits have been partially offset by tourism and remittances from Cypriots working abroad. The Greek Cupriot economy has established itself as a business and service center for enterprises engaged in shipping, banking, and commerce. Cyprus is now classified by the World Bank as a high-income country and is on track for accession to the EU in 2004, though it is unclear what relationship it will have with the Turkish-occupied north which lags behind economically. Also Turkey has made clear its oppositioin to the EU's inclusion of Cyprus before its inclusion of Turkey.

The 1974 coup and the Turkish armed intervention badly disrupted the economy. Physical destruction and the displacement of about a third of the population reduced the output of the manufacturing, agricultural, and service sectors. The lands occupied by Turkish forces accounted for about 70% of the country's prewar economic output. In general, the Greek Cypriot zone recovered much more quickly and successfully than the Turkish-held region, which was burdened with the weaknesses of Turkey's economy as well as its own. Scarcity of capital and skilled labor, the lack of trade and diplomatic ties to the outside world, and the consequent shortage of development aid have aggravated the problems of northern Cyprus. In the south, on the other hand, tourism has exceeded prewar levels, foreign assistance has been readily available, and the business community has benefited from the transfer to Cyprus of the Middle Eastern operations of multinational firms driven from Beirut by the Lebanese civil war.

The Republic of Cyprus saw strong economic growth throughout the 1990s. in 1992, the economy grew by over 8%. In 1995 and 1996, growth was more modest, but still robust, registering 6.6% in 1996, a level not since attained. Growth slumped in 1997 to 3%, which was followed by three years of recovery, with growth rates of 5%, 4.5% and 5.1% 1998 to 2000. The global slowdown of 2001 impacted Cyprus' vulnerable economy, which posted a 2.6% decline. Although growth returned in 2002, it was at an anemic 2% level due mainly to the sharp decline in tourism following the 11 September 2001 terrorist attacks on the United States. Barring serious disruptions, which are not, unfortunately all that unlikely as consequences of the confrontation with Iraq, the IMF has predicted that growth will return to 3% in 2003. Inflation and unemployment have continued at low levels. From 1992 to 2001, the weighted annual rate of inflation was 2.48%, and had fallen to 1.9% (consumer prices) in 2001, according to CIA estimates. The unemployment level was averaging below 2% before 1996, and since has averaged a little over 3%. Unemployment was at 3% in 2001, and is estimated at 3% for 2002, according to official government statistics.

In the North, however, the economy has continued to grow more slowly, at less than 1% a year accompanied by persistently high inflation. In 1995, growth was estimated at 0.5% and inflation at 215%. In 2000, according to CIA estimates, growth was .8% and inflation, based on consumer prices, was 53.2%. Unemployment in the Turkish-held north, estimated at 1.5% in 1995, was at an estimated 5.6% in 1999, the latest available year. Nominal per capita income in the south is about three times that of the north, although in purchasing power parity (PPP) terms, as estimated by the CIA, the difference is somewhat narrower.