Day After I

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Day After I - Commercial opportunities following a solution to the Cyprus problem

Rapprochement between Greece and Turkey has led to a boom in commercial relations between the two countries that has transformed Greece into one of the top ten foreign investors in Turkey and has turned Turkey into one of the fastest growing markets for Greece, especially for tourism. Trade in goods and services between these two countries rose at an annual average rate of 25% in 2000-06, while the tourism market increased at an astonishing average rate of 275% per year.

This remarkable increase in business, despite centuries of mutual hostility, indicates that businesses quickly overcome feelings of mistrust as soon as political conditions improve. These developments, combined with Cyprus’s small size, suggest that the most lucrative opportunities for Cypriot businesses and the wider public after a solution lie beyond the island, namely in doing business with Turkey.

In order to give Cypriots on the island an idea of the value of these opportunities in money terms, we make projections for key sectors based on both a reunification and a continued division scenario. By subtracting the divided Cyprus from the reunified Cyprus scenario, we can calculate the annual peace dividend for each sector.

For our methodology, we take the growth rates in exports of goods and services between Turkey and Greece as an initial guide, as well as recent macroeconomic and sectoral trends in both parts of Cyprus. We pay particular attention to those sectors which have the most to gain from doing business with Turkey and from likely developments on the island after a solution. These sectors are tourism, shipping, construction and real estate, tertiary education, and accounting and legal services.

Deliberately avoiding the economics of any specific solution, we make one simple assumption: that the solution that would gain the majority support of both communities would be politically and economically sustainable.

According to our calculations, if Cyprus were reunited, the recurring annual benefits to Cypriot businesses in the first seven years after reunification would generate, on average:

• 510 million per year in additional exports of goods and services to Turkey, of which EUR 385 million would be tourism and EUR 22 million would be transport
• EUR 618 million per year in total additional trade in goods and services with Turkey
• EUR 393 million per year in new business for Cypriot construction companies
• EUR 155 million per year in new business for Cypriot real estate companies
• EUR 316 million per year (excl. new business from Turkey above) in new business for Cypriot tourism enterprises
• EUR 162 million per year of additional revenue for the Cypriot university education sector
• EUR 103 million per year in additional income for Cypriot accounting and legal firms
• EUR 184 million in new foreign direct investment (excl. construction and real estate above) into Cyprus
• The annual boost to business—the annual peace dividend—rises from EUR 283 million in Year 1 to EUR 3.9 billion, or 10% of GDP, by Year 7.
• The peace dividend is the equivalent of approximately EUR 1.8 billion per year (over CYP 1 billion or more than YTL 3 billion). If this is translated into the annual dividend per family (household) in Cyprus, it comes to an annual peace bonus of approximately EUR 5,500 per household per year. This is around 20% of the current average salary in the southern part of Cyprus and an estimated 40% of the average salary in the northern part of Cyprus.

This calculation is the least that can be expected since it focuses only on the sectors that stand most to gain. Moreover, the peace dividend calculated could be almost doubled if important regional developments, such as new business from the Baku-Ceyhan oil pipeline (EUR 1.3 billion) and the implementation of the Ankara Protocol (EUR 187 million per year) are taken into account.