By Stelios Orphanides
The Cypriot economy may have entered a stage of uncertainty affecting investors’ decision-making as reunification talks are about to break down, considerably limiting any prospect of the island being reunited, an academic economist said.
“Now the optimistic scenario is the continuation of the status quo,” Sofronis Clerides who teaches at the University of Cyprus said in a telephone interview on Tuesday. “There can’t be anything better than this”.
“The negative scenario provides for (geopolitical) tension and fait accomplis, which may impact economic performance and investment,” he said and added that the development of hydrocarbons and tourism may be sensitive to what is to come. On the other hand, a reunification of the island could unleash economic potential if functional.
Under the current status quo, which has the form of a fragile cease-fire overseen by United Nations peacekeepers, the northern part of Cyprus will continue to remain occupied by Turkey, which stations 30,000 soldiers in Cyprus since 1974 after it expelled Greek Cypriots who cannot use their properties. In 1987, Turkey imposed an embargo on Cypriot shipping, banning vessels owned or managed by Cypriot companies from entering Turkish ports.
In 1983, Turkish Cypriots declared the establishment of Turkish Republic of Northern Cyprus (TRNC), recognised by Turkey only since, which disputes Cyprus’s exclusive economic zone, in which the Republic of Cyprus aspires to explore and develop hydrocarbon reserves. Turkey which sent warships to the area in 2011, when Noble Energy carried out its first exploratory drill in block 12, is currently carrying out hydrocarbon exploration with its seismic vessel Barbaros.
On Monday, deputy government spokesman Victor Papadopoulos said that President Nicos Anastasiades decided to refer a law approved by lawmakers on April 7, effectively reversing an amendment passed by parliament in February proposed by the xenophobic Elam. The amendment angered Turkish Cypriots and prompted Turkish Cypriot leader to withdraw from reunification talks. Papadopoulos cited constitutionality concerns, a position held by politicians in favour of the initial amendment, which provided for the commemoration of the “Enosis referendum,” a petition signed by Greek Cypriots in 1950 demanding the unification to Greece.
Akinci and Anastasiades, who both supported in 2004 the UN-sponsored reunification plan which Greek Cypriots eventually rejected while Turkish Cypriots approved, resumed talks last week amid a poisonous atmosphere. Anastasiades’s decision to refer the new law to the Supreme Court is likely to again anger Akinci.
Clerides said that, while he does not rule out a further upgrading of the political status of Turkish Cypriots, he considers an agreed partition as unlikely.
Still, even in the case of agreed partition, the economy may still have to deal with uncertainty, said George Markides, a Limassol-based financial services consultant. “It depends on whether Turkey will (then) apply a good-neighbour policy,” he said, adding that he considers it unlikely. “Otherwise, half of Cyprus (stays) a grey zone with Turkey, Greece and UK as guarantors with an amputated and deeply problematic constitution”.
“The only thing that keeps us afloat is low taxation,” Markides continued. “If the environment becomes more insecure, then the risk will counterbalance any advantages”.
Barret Kupelian, a UK-based Cypriot economist, said that while the public discussion of the economics of the solution lacked serious analytical thinking, more reminiscent of “coffeeshop talk” than reflective discourse, one should wonder whether the current situation is beneficial from an economic point of view.
“Any sensible analysis on the net economic benefits of the status quo should always be compared to the counterfactual of a sensible solution to the Cyprus problem being struck,” he said. “Every single credible academic study shows that the economics of co-operation trump the economics of confrontation. Cyprus is no exception to this”.
In the absence of reaching an agreement which could allow Turkey, currently the world’s 14th largest economy, from withdrawing its troops from the island, Cyprus will not be in position to take advantage of its vicinity to the country, which is expected to become by 2050, the world’s 11th largest economy, Kupelian said.
“Cyprus is uniquely positioned to take advantage of this growth spurt as a credible, stable and reputable business centre,” he said. “However, our leaders are consciously shooting themselves in the foot by choosing not to trade with the largest economy in the area, without providing for an alternative growth plan”.
An indication of the decision of Greek Cypriot politicians not to devote time and energy in discussing the economic benefits of a settlement may be the decision of finance minister Harris Georgiades not to attend an event organised by the Cyprus Association of Economists (CAE) at the Central Bank of Cyprus scheduled for April 27.
“The CAE announces that, due to the unforeseen absence of the honourable minister of finance abroad, who accompanies the President of the Republic of Cyprus in his visit to India, the event on ‘The Challenges of the Economic Aspect of the Solution to the Cyprus Problem,’ is postponed,” the association said in a statement emailed by the Central Bank of Cyprus on Tuesday.