By Stelios Orphanides
Sunday’s explosion outside the premises of a company tasked with the administration of a hotel unit after its owners defaulted on their debt has sent negative messages to foreign investors at a crucial time for the economy, two economists said on Tuesday.
Foreign investors may also link the incident to messages politicians send with respect to the management of non-performing loans which in turn could negatively affect investment inflows, the two economists said.
“There is an ambient atmosphere of politicians encouraging this type of behaviour,” said economist Marios Clerides. “As a result, the type of investors we manage to attract are those who prefer a non-transparent environment”.
Economist Michalis Florentiades said with the business environment lacking strong contract enforcement mechanisms unsurprisingly “in order to attract investors, you have to instead offer them passports”.
“The notion has been cultivated that if you resort to blustering, a contract you have signed is not enforceable, especially for small companies,” he said.
The motives suspected behind the explosion that damaged the entrance of the offices of CRI Group and injured a neighbour, are related to the attempts by the company’s director Chris Iacovides to bring under his effective control a hotel unit in Paphos.
Relatives of the shareholders of the company which owned the hotel and defaulted on €5m bonds in 2015 have repeatedly prevented Iacovides from seizing the property even after he secured a court order in August. On Monday, the police arrested a 50-year-old suspect who the Paphos court ordered not to prevent Iacovides’ efforts to seize control of the property.
The Cyprus Investment Promotion Agency (CIPA), a government sponsored body tasked with advertising the island as an investment destination, was not available for comment.
On Tuesday Iacovides criticised the Paphos police directorate for doing nothing to support his efforts of enforcing the provisions of the contract.
“The Paphos police behaves like an imperium in imperio [a state within a state],” he said.
A police spokesman said they had no obligation to assist Iacovides in seizing the property and added that the court order did not instruct the police to help enforce the provisions of the contract. The officers present when Iacovides attempted to take over the hotel unit restricted their action to maintaining order, the police spokesman said.
Iacovides also said he had filed complaints with the police after the relatives of those owning the hotel threatened him and his associates a few months ago, adding that he was advised to file an additional complaint after receiving new threats last week. “I already filed complaints months ago and the investigation is still ongoing, so what’s the point of filing another?” he asked.
The police spokesman added that the chief of the police “ordered an administrative investigation which will cover the whole history of Iacovides’ allegations”.
Cyprus is ranked in 138th among 190 countries in the World Bank’s 2017 Doing Business Report in terms of enforcing contracts, just behind Niger, the Dominican Republic and Vanuatu but beating the Kyrgyz Republic in 139th place, followed by Yemen and Libya.
In Cyprus, it takes 1,100 days to enforce a contract and the cost to do so is 16.4 per cent of the claim, the World Bank said.
The two economists also criticised candidates in next year’s presidential elections who promise to reduce borrowers’ outstanding debt which in turn further discourages borrowers from sticking to the terms of loan contracts they signed.