The Article below was written by this year’s summer intern, Ms Anastasia Bolshakova, with the help and supervision of our Team. Ms Bolshakova is currently a final year student at Frederick University, Limassol. Ultimately, it has provided an opportunity for both the intern to enhance her knowledge through research, as well as writing skills, while our Company gained insight from a piece of writing which adopts the respective point of view of the Russian population’s side. The Article concentrates on the context circulating around the remarkable relationship between Russia and Cyprus, with emphasis given on factors which relate to economic growth on the island. It forms a simple yet effective piece of writing, which allows for a pleasant read with regards to a very topical subject of the last twenty years.
On 16 August 1960,when Cyprus gained its independence from the United Kingdom, Cyprus was recognised as a newly independent state.
In 1974, after the occupation of the northern part of Cyprus by Turkish armed forces, the development of tourism in Limassol began. When the USSR collapsed, Cyprus recognised the Russian Federation as the successor state of the former Union on 7th of April 1992, and therefore many Russians started migrating and moving to Limassol. Since then, the town started attracting even more people, and in turn these people started injecting generous funds to the Cypriot economy as they had brought along with them their new life on the island.
Based on the information presented by the Population Census, which was launched in 2011, Russian citizens were numbered at 8,663 by then. From 2001 to 2011 there was an increase of 74,93% of the Russian population on the island. Today, it is estimated that approximately 40,000 Russians live in Cyprus, most of which are located in Limassol.
With respect to Taxes on Income and Capital, the bilateral Agreement on Avoidance of Double Taxation that was signed in Nicosia in 2009 strengthened relations between the two countries even further.
With regards to events which took place in 2011, Russia offered Cyprus a 2.5 billion bailout loan. However, it did not prevent the Cypriot banking system from going under severe strain in the wake of the Greek crisis and briefly shutting down in March 2013. In 2013, many of the accounts with larger deposits were foreign-owned, and the island’s financial system was particularly popular with Russian investors and businesses, prompting accusations that it was a place for money laundering. To make matters worse, the high interest rates on deposits which were offered did not help create a good reputation for the island. Eventually, this almost led to a collapse, as the lending of this excess liquidity was very poor and unprofitable. A bailout package negotiated by the EU Commission and the IMF involved a levy on Cypriot bank accounts and deposits, including those from Russia, briefly souring the relationship. However, Russian capital returned as soon as Cypriot banking system rebounded, even though the decision made by the European Union in March was negatively received by representatives of the Russian state.
“Obviously, Cyprus-Russia relations went through a very bad patch during the Cypriot banking crisis, but it’s funny how everyone in Russia seemed to take it in their stride,” Ian Ivory, business advisor at Russian law firm Goltsblat BLP, told CNBC at the time. “I think Russians are used to less constancy in their banking system, so they weren’t perturbed by what happened in Cyprus.”
“The reality is that Cyprus remains the best place for Russian business to locate their offshore financial structures although there is still a lot of pressure on Russian companies to repatriate assets,” he added.
Nowadays, there are a lot of business incentives on offer in Cyprus that many Russians have taken advantage of, to the benefit of the island’s economy. Limassol is still considered an attractive place for Russian Businesses because of the modern and investor friendly infrastructure with a relatively low corporate tax, modern telecommunications and professional services, a healthy climate and business activity, as well as a growing Russian community. More than two thirds of the Russian businesses operating in Cyprus are located in Limassol.
Cyprus has always been considered as one of the top property destinations for foreigners in Europe. Besides the economic downturn that Cyprus has experienced in 2013 as a result of the global economic recession, the island still holds a very strong interest for the real estate sector, especially when it comes to appealing to the Russian market. This is due to many factors such as the relatively low cost of living (although this is increasing dangerously, especially in Limassol), the high quality of lifestyle, the favourable policy to obtain a permanent residence through the acquisition of real estate and the fact that Cyprus is one of the top destinations for retirement.
There are 5 Russian schools in Cyprus, 3 of which are located in Limassol, as well as international secondary schools accommodating many Russian students. In addition, higher education centres boast thousands of students. A Russian church has also been built in the Limassol area to accommodate the Russian community, and this is considered as one of the most important common elements which form a link between the two communities. This is the first Russian church on the island, which is run by the Orthodox Church of Cyprus, but delivers sermons in Russian. Furthermore, in terms of banking, the Russian Commercial Bank (RCB) also has branches in Limassol, Nicosia and Paphos.
There are many ways for Russians to keep informed on social events happening within the Russian Community. Social media, clubs with varying interests, websites, forums for the Russian speaking community and different kinds of excursions throughout the island are all created for the Russian community to enjoy. Moreover, there are specialized Russian stores with products from Russia and many restaurants with Russian cuisine in Limassol, Larnaca and Paphos. There is also an opportunity for the Russian community which is provided by cinemas where Russian movies are presented, as well as many concerts with famous Russian artists are held regularly. Moreover, Russian radio and the newspaper “Vestnik Kipra” have also become “a part” of the Russian community.
With regards to the Medical sector, Cyprus` healthcare system is divided into two sectors: public and private. Public healthcare is either inexpensive or free, at least for citizens of the EU, as well as private healthcare costs can be quite affordable for them. On the other hand, for the non-EU residents who are unable to take advantage of state health benefits, or who prefer to take out private health insurance, healthcare is quite expensive, but it offers the availability to access a wider variety of hospitals and facilities and to skip the public sector`s occasionally long waiting lists.
When answering the question “Why do Russians Choose Cyprus?”, Natalia Kardash, the Editor-in- Chief of the Limassol-founded Russian weekly, Vestnik Kipra, replied:
“…the most important reason is people. Cypriots like Russians. Russian people feel very comfortable here…Many people say that in Cyprus they feel that they live a full life, they learn to enjoy every day.”
In terms of the economic relationship, Cyprus is officially considered one of the largest foreign destinations for Russian investors. When observing the expansion of its economic presence within the EU, it may also be argued that Russian investors have acquired a strong foothold in Cypriot real estate, banking and other services.
Cyprus has been critical of western sanctions imposed on Russia for its part in the conflict in Ukraine and Nicosia’s latest move to allow the Russian navy access to its ports will no doubt raise eyebrows in Europe. However, it also should be noticed that Russian Federation itself has enjoyed Cyprus’ distinct support in the European Union fora.
Nevertheless, the close cooperation of Cyprus and Russia carries great risks, in the opinion of experts.
“For Cyprus, this might prove to be a dangerous card to play. This will irritate the U.S. no end and might see a less supportive U.S. approach over the future of Northern Cyprus (which is Turkish territory),” Standard Bank emerging markets analyst Timothy Ash warned.
“Cyprus also likely views Russian support as important in allowing development of offshore gas fields—therein the Russian-Egyptian-Cypriot angle is becoming interesting,” he added.
Ivory said Russia was taking a risk, too:
“On the face of it, from the Cypriot perspective they need Russian money, but I would argue that it’s much more nuanced than that. It’s unlikely that a Grexit will occur but if it did and there was another Cypriot banking crisis then it would be a disaster for Russia given that its economy is already suffering from the ruble’s decline and economic sanctions.”
Respecting the December 2018 agreement, Cyprus foreign secretary Nikos Christodoulides visited officially Sergey Lavrov on 22 February 2019. After the talks, it was stated that “the bilateral relations are at a very satisfactory level”; that they agreed “to work together, in concrete actions, for the further development of these relations in a number of subjects of common interest.” In addition, the Cypriot minister expressed that “the appreciation of the Republic of Cyprus for the diachronic stance of the Russian Federation, especially in the framework of the UN Security Council, [its] clear position on the abolition of the anachronistic system of guarantees of 1960, as well as the need for the unobstructed continuation of the UNFICYP’s presence, for as long as the present unacceptable state of affairs continues”.
Sergei Lavrov’s statements at the beginning of the press conference sounded even more positive and far “warmer.” First, he employed his favourite and unmistakably “pragmatic idealist” formulation:
“Cyprus is Russia’s important and long-time partner. Our cooperation hinges on long-standing bonds of friendship and mutual sympathy, the spiritual and cultural affinity of our nations and serves to enhance security and stability in the East Mediterranean region and on the entire European continent.”
He added: “We are satisfied to note positive trends in all areas of bilateral cooperation.”
Moreover, what should cause Cypriot enthusiasm is Moscow sharing explicitly Nicosia’s recent proposals against “Turkey’s guarantees,” a fact contradicting Ankara’s hegemonic narrow-mindedness: “The current system of the island’s external security guarantees no longer meets modern realities and the Republic’s current international status. We firmly believe that the UN Security Council’s guarantees should become the most effective method for maintaining the security, sovereignty and territorial integrity of a united Cyprus.”
Based on the arguments presented, the bilateral prospects still seem very promising indeed, in the fields of diplomacy, political cooperation, defence, trade, banking, energy, tourism, religion and culture. In all of them, the two countries are going to share mutual benefits on the level of the interest of the two countries which will help fortify the sharing of principles, values, friendly sentiments and associated bonds.
After all, it must be appreciated that over the years there is a second generation that was born on the island and naturally considers Cyprus to be their (second) home.
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