(Adds comment by former government spokesman Stefanos Stefanou in the 22nd paragraph and energy minister Yiorgos Lakkotrypis in the 24th paragraph)
By Stelios Orphanides
President Nicos Anastasiades begins his much hyped official visit to Russia today and will face a tough choice; he will have to choose whom to disappoint; Russia or the EU and the USA.
In either case, the price may be high while the benefit uncertain.
As Russia is one of Cyprus’ major sources of tourists, while Russian-owned companies domiciled in Cyprus make the bulk of the ‘offshore sector’, which accounts for about 15 per cent of Cyprus’ gross domestic product, the Russian interest in both sectors is at risk.
Russia’s economy has been hurt by a combination of falling prices for oil and gas, a major export commodity for the country, and European and US sanctions over its role in the conflict in Ukraine led to a devaluation of the rouble vis-à-vis the euro. As a result fewer tourists are expected to visit Cyprus this year compared to 2014.
Also, a new Russian law, widely known as the de-offshorisation law which entered into force on January 1, restricts tax benefits Russian-owned companies registered in Cyprus and elsewhere outside Russia enjoy, and may impact their further presence on the island.
On the other hand, Cyprus is a member of the European Union, and has close economic and political ties with the rest of Europe while it attracted mainly US investment to recapitalise its battered banking sector after it agreed to the terms of a €10bn international rescue in March 2013.
At the same time, Cyprus relies mainly on western European and US companies in its effort to exploit confirmed and probable hydrocarbon reserves in its exclusive economic zone. Turkey disputes Cyprus’ right to explore for and exploit hydrocarbons in its offshore territory and in October sent its ship Barbaros to carry out seismic surveys in the Cypriot exclusive economic zone. President Anastasiades suspended his participation in reunification talks with Turkish Cypriot leader Dervish Eroglu.
“The question is not about what Russia can do for us – we know well what it can do – but it is what we can do for Russia,” the chairman of an influential business group said on condition of anonymity. “It will depend on what they will ask in exchange, and the exchange will not be economic, it will be political.
“The Russians need us and if we offer them support we may have some economic benefits, like the postponement of the de-offshorisation law and a more favourable treatment for Cyprus with respect to this law that may help us maintain the presence of Russians in Cyprus, which in turn would be a great advantage,” the chairman of the business group added.
“Cyprus is too small to quarrel with Europe but too important for Russia. Russia could use Cyprus as a vehicle for a tentative improvement of relations with Europe”.
European governments and the US are considering imposing tougher sanctions against Russia as fighting in eastern Ukraine continued even after a cease-fire agreement brokered by German chancellor Angela Merkel and French president François Hollande on February 11, was signed by pro-Russian rebels and representatives of Russia and Ukraine. Russia annexed the Crimean peninsula less than a year ago and is allegedly behind an armed revolt by pro-Russia separatists in Ukraine’s Donbass region, which the Russian government denies.
An EU decision to impose new sanctions on Russia will require a unanimous vote.
While the Russian business community may be seriously disappointed with Cyprus, the island continues to remain attractive to Russian business, the anonymous business group chairman said.
“We had Russian deposits trimmed, we took their money, we called them money launderers, we insulted them and they are still in Cyprus,” he said. “This means that they would rather be in Cyprus which is small and they can control, as it is very difficult for us to wake up one morning and chase them out of the country. This is something the UK could afford but it would be suicidal in our case”.
Chairman of the Association of Russian Businessmen in Cyprus, Yuri Pianykh has said that Russian business people with operations in Cyprus were disappointed by the decision of the Cypriot government to back EU sanctions against Russia last year, as their operations on the island were disrupted by developments in the banking system, including the loss of deposits during the chaotic bailout two years ago. These developments are expected to have a stronger impact on the Cypriot economy than the de-offshorisation law, Pianykh said.
In a first reaction to the Cyprus Business Mail story, government spokesman Nikos Christodoulides said in an interview to CyBC television that the visit of president Anastasiades aims at serving the interests of the Republic of Cyprus just like countries do in the global system.
The president’s visit is not affecting relations with the US as Cyprus’ traditional relations with Russia is not a “zero-sum game”, Christodoulides said according to CyBC.
The signing of 12 agreements with Russia to strengthen bilateral cooperation is not directed against any other third country, Christoulides said.
The government spokesman reiterated Cyprus’s position that sanctions have so far failed to deliver the expected results and added that diplomacy can must lead to a settlement in the Ukraine conflict.
The same time, Christodoulides said that Moscow’s ties with Ankara could help achieve progress in the Cyprus problem. The Greek Cypriot side will return to negotiations when the right conditions are created, which is the Grek Cypriot side’s aim.
Christodoulides said Anastasiades is expected to discuss matters related to the double tax agreement with Russia without further specifying.
Christodoulides’s predecessor, Stefanos Stefanou, who served as government spokesman under former president Demetris Christofias, said in an interview to Cyprus Business Mail that the Cypriot government “should try to bring Russia back in to our natural gas planning”.
Russia is a permanent member of the United Nations Security Council and “plays a decisive role in the settlement of the Cyprus problem,” Stefanou who is a member of AKEL’s politburo said.
Energy minister Yiorgos Lakkotrypis, who is also responsible for tourism and is accompanying Anastasiades on his trip to Moscow, said yesterday that while his trip aims primarily at helping curb the expected drop of tourist numbers from Russia, “Russian companies are always welcome to Cyprus’s exclusive economic zone”.
Lakkotrypis added the government will “seriously consider” any interest from Russian energy companies to start operations in Cyprus.