Cyprus remains vulnerable to Brexit as May expected to trigger article 50

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By Stelios Orphanides

On Wednesday, British prime minister Theresa May is expected to notify the President of the European Council Donald Tusk that the UK intends to leave the European Union, triggering article 50 of the European Treaty.

This step, the outcome of the June 23 referendum in which Britons decided in favour of Brexit, is expected to begin a two-year divorce negotiation period which will determine the future of relations between the EU and the UK, one of the main trading partners of the Cypriot economy which is still recovering from a prolonged recession and the effects of the 2013 banking crisis.

The terms of the agreement could also determine whether Cyprus can attract UK companies which will seek to maintain their access to the EU single market.

Tirkides“Cyprus has close trade and investment links with the UK,” said Ioannis Tirkides, who heads the economic research division of Bank of Cyprus in an internal report seen by the Cyprus Business Mail. “Hence, its economy is particularly vulnerable to developments in the UK economy”.

Cyprus whose tourism industry accounts for about a quarter of its economy, directly or indirectly, attracted last year a total of 1,157,978 British tourists, which accounted for 36 per cent of total arrivals. The number of British visitors rose last year 11 per cent compared with an overall increase of almost 20 per cent.

Following the Brexit vote, sterling depreciated roughly 12 per cent against the euro, making the single currency bloc’s products and services, including vacationing in Cyprus, less affordable for British consumers. This appears to have already impacted the number of British tourists visiting Cyprus.

While the number of arrivals of British tourists continued to increase following the Brexit referendum last June, the rate of increase dropped from an annual 16 per cent in January to June last year to 8.1 per cent in the second half of the year.

As economic growth is expected to further weaken next year in the UK from an estimated 2 per cent last year to 1.5 per cent this year and 1.2 per cent in 2018, many questions remain open concerning the UK’s future relationship with the EU.

As one of the topics in the Brexit referendum was the free movement of citizens of other EU countries, one of the four freedoms enshrined in the rules of the European single market, it is considered unlikely that the UK will remain part of it following the divorce negotiations.

“The slowdown of economic activity in the UK in 2017 and the appreciation of the euro against the pound will reduce the competitiveness of the Cypriot exports to the UK,” Tirkides said.

He added that while the value of goods exported to the UK account for 7 per cent of total exports, the share of exported services to the UK is almost three times as much compared to the total.

“There will be prolonged uncertainty and we will have fluctuations depending on how negotiations are going,” said Michalis Antoniou, who manages the Employers and Industrialists Federation, a business group known widely by its Greek acronym OEB. “These fluctuations will impact sentiment and this in turn will affect consumption and other issues. But I am not expecting any concrete results in the first six months following the beginning of divorce negotiations”.

Michalis Antoniou OEB“Brexit should not be punitive,” Antoniou who was commenting on the phone said, adding that while the UK and the EU “should maintain their relationship as it is in their interest,” the EU should also rule out “cherry-picking”.

The director general of OEB said that the negotiated agreement should preserve bilateral trade ties, avoid placing unnecessary obstacles to trade transactions and “leave the door open for even stronger relations at a later stage”.

“Future trade relations could have many possible forms; (the UK) being merely a third country or enjoying a strong association,” Antoniou said. “The path we are walking on now is completely unknown”.

As uncertainty following the Brexit vote prompted British companies, including financial and shipping firms, relying on access to the single market, to seek alternative locations in order to maintain their EU-pass, the terms of the divorce agreement are likely to also determine whether they will also seek to relocate.

Still, Thomas Kazakos who manages the operations of the Cyprus Shipping Chamber and holds a seat in the board of directors of the Cyprus Investment Promotion Agency (CIPA), tasked with attracting foreign investment, said that while Cyprus is always “on the lookout,” to attract to the island, UK companies in the shipping sector and those in related financial services.

While his expectations are low regarding what can be achieved, even as Cyprus has a “competitive, lawful and EU-approved tax-regime,” able to offer aftersales service, any UK company in the shipping sector or offering related support services is welcome to the island, he said.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Dave The Impaler

    Brexit Is not all bad. There is a large number of firms leaving or about to leave the UK because of brexit. Cyprus & Greece could benefit by this if they play their cards right.

    • CM reader

      how?

      • Dave The Impaler

        Ok, for example Easyjet are looking for a post-Brexit EU base. Why can’t it be in Greece or even Cyprus. Brexit could quit easily turn to our advantage if only our politicians can be a little more assertive and take the imitative before its to late.

        • Vegchef

          What? You quoted the words politicians and initiative in the same sentence. Sorry “does not compute”.

    • Jack Iacovou

      Every cloud Dave, every cloud…ha ha

  • Gipsy Eyes

    I watched Brexit Question Time last night and discovered that while May is going to trigger Article 50 tomorrow there seems to be no real idea where we are heading. One minute Davis is talking about a great deal the next he is talking about crashing out. One minute he’s cutting immigration the next increasing it.

    A rather sensible young woman actually pointed out the obvious. To paraphrase her, she said words to the effect that we have given the politicians a mandate to take us out of the EU and I don’t trust any of them to make a good job of it.

    The discussion was not a great deal different to what we’ve been arguing about on these pages and I think for the next 18 months the discussion will be ,more or less along the lines of what we’ve had for the last nine months. There will be one very significant difference: where May and her Brexiteers had controlled narrative and timetable over the last nine months it will be the EU that will be controlling those aspects from now on. So the British will have to stop deluding themselves that they are calling the tune and start thinking about dancing to the tune called by the EU negotiators

    • Dave The Impaler

      One of my pro-Brexit colleges from the office was happily reassuring me that nothing much was going to happen after Brexit. I responded by saying but that’s not what you voted for. You people voted for CHANGE which is going to effect everybody.

      • Gipsy Eyes

        On the programme I mentioned above Alex Salmond challenged the Brexit deputy leader by saying to her “please don’t tell me you want to curb EU migration so that we can have more migration from the Commonwealth countries”. Whether the British like it or not if their economy is to grow as a result of leaving the EU which is one of the changes proposed then we will continue to need immigrant labour for the simple reason ours is an aging population and successive governments have failed to invest in training you people.

        This is the problem with a Brexit :that hasn’t been thought through because it wasn’t meant to happen. There are pros and cons. Curb immigration which is the main change the Leavers sought and the economy has to shrink. So instead of cutting immigration we now have a narrative that states quite clearly, what we always wanted was to control immigration not to reduce it. And if it does not reduce and it keeps growing well at least we’re controlling it.
        A survey in my daily read states 80% of British people still don’t feel they are being listened and yet daily you hear politicians claiming they are carrying out the will of the people. So there goes the protest vote for Brexit which was looking for a change that would mean politicians listen to us.

        My paper also reported that the ares that will be hardest hit by Brexit are the very same areas that voted Leave overwhelmingly. So no change for them.

        The EU referendum had nothing and has nothing to do with either change or what the British people want or don’t want. It was all about a long standing political squabble inside the Conservative Party between factions of pro and anti EU groups. There have always been Labout Eurosceptics and of course there is UKIP who everyone feared would win seats from both the Labour and Conservative Parties.

        I think your colleague is right. Britain has always been half in and half out of the UK…..and it’s quite likely for all the bravado of the Brexitteers, half in and half out is where we will be in two years

        • SuzieQ

          I tend to agree with you that the uncertainty stems from the fact that future steps had not been thought through. I think this uncertainty will carry on for a good while yet.

          • Gipsy Eyes

            The only thing that has been thought through is the desire to leave the EU under all any and all circumstances. John Redwood has been a Eurosceptic for as long as I can remember. He was on TV this afternoon and asked to respond to certain demands for Brexit made by a cross party group called Open Britain……I can’t quote the whole thing word for word but if you’ve got the BBC it was on the Daily Politics.
            He was asked about the 350 million a week that was going to be spent on the NHS: He answered when we have control of it we will decide what to spend it on. He was asked again what would he do…..and just repeated the same mantra…..when we have control……etc, etc, when asked about immigration…..it was much the same. When we regain control of our borders etc. etc.
            As genuine as many people may be about what they believe will be the benefits of Brexit….Mr. John Redwood is interested only in getting out for no other reason than that’s what he has always believed and wanted.
            I mean you only have to look at Farage and Aaron Banks.They are now supposedly engaged in a new project which is splitting the State of California into two. Into a Trump supporting bit and an anti Trump bit. Somebody has written a book calling these two, among others as the Bad Boys of Brexit. I think it’s tragic that supposedly respectable politicians like May and David Davies are going along with these charlatans and calling it the will of the people.

          • SuzieQ

            Thanks. At the moment I can’t access the programme you speak of, but I’ll keep trying– it sounds more than interesting…

          • Gipsy Eyes

            I’m going to be in Cyprus for the next two weeks with no access to the BBC beyond the website and my daily papers . I’ll have to go back to to arguing about the Cyprob…….

          • SuzieQ

            And the Cyprob presents many opportunities to have a good argument!

    • gentlegiant161

      You should have watched Good Morning on ITV monday, Alastair Campbell and Nigel Farage were going at each other hammer and tongs..Almost looked at one point they might come to blows!
      I also picked up the point the Lady in the audience made about Commonwealth immigrants.
      I couldnt fathom out why they wanted EU workers out when they contibuted to the Economy and replace them with workers from other countries….but then the penny dropped, after Brexit and the New ‘British Law’ is in, EU workers coming to work in UK will be better protected than British workers under what is going tobe a dogs dinner of changes..
      One paper is saying May wanted the stopping of new EU people into UK to start after the letter of article 50 was handed in.
      EU says UK is still a member so cannot do that until you leave – but it sets the tone of what other underhand stunts they have lined up.

      • Gipsy Eyes

        So far this year there has been a 20% fall in the number of EU citizens applying for jobs in the UK. The number of UK citizens applying for jobs in the EU is increasing……no figures given. Sign of things to come. Those who can leave the UK are giving a new meaning to “Leave”. Many of those poor mugs conned into voting Leave will be stuck in the UK paying the price for listening to clowns like Farage and Boris Johnson.

    • Jack Iacovou

      Good commentary Gipsy.
      I’ve recorded QT and will be watching tonight.
      In my mind it is clear why we are now in a mess with Brexit. No-one in our Government thought for one single minute that the UK population would vote out. Yes, there were many Brexit political supporters but everyone thought that the UK population would come to its senses and vote to stay. Basically the UK has been caught with its pants down.
      There are no mature, thought through plans on how to successfully negotiate a successful exit. I also hear that we do not even have the expertise to negotiate. I see a lot of last minute, knee jerk policies coming in. I fear for our economy. There are many industries who are dusting down their UK exit plans. The only thing that will keep them here is a very weak pound or some other type of knee-jerk tax policy to keep them here.

      • Gipsy Eyes

        Enjoy the programme. It’s a real eye opener but also quite depressing that for many the level of the debate has not shifted beyond the myths spouted during the referendum campaign. I suspect big business will be turning up the pressure on the government to stop the rabble rousing and start looking seriously at the British economy and its future prospects