The Article below was assigned to one of this year’s summer interns, Christodoulos Pouroutides, and was written with the help and close supervision of our Team. Christodoulos is currently a final year student at the University of Warwick, Leamington Spa, UK. Ultimately, it has provided an opportunity for both Christodoulos to enhance his knowledge through research, as well as to express his own perceptions, interpretations and educated opinions on the matter, while our Company gained insight from an excellent piece of writing which assesses the way in which Cyprus’ modern economy is being shaped through the years, examining current and future (potential) implications. The Article emphasises on the core essence of the island’s economic growth landscape, demonstrating and analysing with real-life events and circumstances how this unfolds and evolves in front of our eyes. It forms a short, simple, yet effective piece of writing which incorporates the point of view of the younger generation, and ultimately allows for a useful and pleasant read.
In Ancient Greek mythology, the proud King Midas, after showing an incredible feat of hospitality to a Satyr by the name of Silenus, was approached by the god, Dionysus. Being the god of wealth, fertility, splendor (and also insanity), Dionysus saw fit to give Midas, then king of the Phrygians, a gift that equally reflected his omnipotent qualities. King Midas was suddenly imbued with the “touch of gold”, an ability to turn anything he touches into the solid, valuable mineral. Initially, Midas was over-struck with joy at the fact of infinite riches, for he was now the richest man in the cosmos, solely by the grace of the gods. Nothing, however, was given without terms from the gods, who reveled in causing chaos and dissonance. King Midas was rendered cursed by this ability, going so far as to turn his daughter into gold after wanting to comfort her. Midas was thus now isolated in his own wealth, surrounded by towers, effigies and bodies of gold, that were no use to him other than reminders of his excess, gluttony and ambition.
Riches within rubble (and rubles)
1,073 kilometers south-East and about 2,700 years later, the island of Cyprus looms closer and closer to a similar fate. After the collapse of the Soviet Union in 1991, Cyprus became an essential investment haven for the East, attracting funds from Russian, Chinese, European and other global foreign investors, with noteworthy additions from ex-Yugoslavia and the countries formed after the latter’s partition. This was due to its prime strategical location, as a modern “Silk Road” towards the Middle East, Africa and the Mediterranean. Cyprus removed almost all restrictions on foreign investment, applied a very liberal corporate tax rate (with 12.5% being one of the EU’s lowest), and created an EU approved citizenship by investment scheme. Cyprus was showing incredible hospitality to the powers that be, going so far as to effectively prioritize foreign assets during the 2013 ‘haircut’, leaving local uninsured bank accounts to take the brunt of the economic fallout. In return, foreign investments kept landing within Cypriot borders.
As such, Cyprus was gifted with a higher standard of living, incredibly fast-paced development, and a booming private industry, with large conglomerates such as ‘WarGaming.net’ (which created war-based multiplayer games, which are played by over 160 million people) choosing to base themselves within the capital of Nicosia. The ‘Midas touch’ was bestowed upon Cyprus by the private sector, with the promise of unparalleled riches and full-blown hedonism having inched closer to realization. Construction contractors went underway with steadfast efficiency in turning Cyprus into a modernist utopia, with Limassol being filled to the brim with “towers of ivory”, colloidal skyscrapers, large business centers, Hotels and even an entire sub-town in the form of the highly coveted Limassol Marina. The tallest building in Cyprus, “the One” tower, was recently completed at 170 meters in height with 38 floors, encapsulating incredible views of the golden sunsets that Cyprus has to offer from the top penthouse.
Empty Skyscrapers and unattainable houses.
Yet as it goes, such penthouses will likely never see any occupants. In fact, most skyscrapers, newly built constructions across highly sought-after locations in Limassol and modernist houses will hardly have tenants set foot to gaze at their marvelous construction, let alone permanent residents. Premium and moderate housing has exploded in interest from asset management companies and foreign investor seeking the fast-track scheme to citizenship, however without necessarily entertaining any prospect in living in Cyprus. For the luxury properties that are occupied, most interest is attracted from foreign educated workers who have found work within the lucrative and exponentially growing FOREX industry. This has led to an enlarged housing price war, both in rent and in acquisition. As it stands, a 1-bedroom apartment in Limassol requires a monthly rent payment of (sometimes) even up to €1,000, which in a country with a low minimum wage and stagnant internal progress, makes living independently, let alone buying a home, a pipedream. Like Midas, who doomed his daughter to an early death from opulence, so too is Cyprus edging closer and closer to creating an inhospitable environment for mainly locals, in exchange for the gift of gold and luxury.
As things stand, the Cypriot government’s “all-in” policy is now being put to the test due to current political affairs. The Ukrainian war and its consequences are towing the country extremely close to a whirlpool of an economic crisis. RCB (Russian Central bank) is expected to repay €2.8 billion worth of customer deposits or transfer them to other banks, as well as sell a loan portfolio of €556 million to Cypriot, UK and EU clients. Any layman can see that Europe’s stance on the Ukrainian war (further morally political and economic analysis aside) is already having the result of an exodus in Cyprus’s foreign investing capital, with Russian corporations already seeking alternatives in developing business hubs at locations such as Dubai. This is further exasperated by another bundle of economic factors, such as construction materials experiencing an over 30% increase in prices from 2021, the widening of the trade deficit by €200 million, as well as a surge in consumer prices due to inflation being at 9.6% (according to the Cyprus’ Harmonized Index of Consumer Prices). The effects of the war, as well as the break within the supply chain triggered by a myriad of Covid-19 and logistical related issues, trickle into the average Cypriot wallet, with gas prices also exploding due to Gazprom shutting off the Nord stream 1 pipeline and the vicious pricing policy that Russia has retaliated with. With a 33% increase in fuel costs that is still growing, Cyprus is to suffer exponentially due to its heavily car-based infrastructure.
Jumping the Chasm with a Porsche
The war, the housing crisis, and the investment exodus all are concurrent ailments to another disease that has slowly embedded itself deep within the culture of Cyprus. The chasm of ambition hides within it deeply seated financial inequality. As unattainable as housing is due to asset management firms and foreign investment, it is also no help that median wages have remained stagnant within the past decade. The average wage has increased by only 2% within 10 years as per the Cyprus Statistical service, and with inflation at 9.6%, purchasing power has dropped significantly for the middle- and working-class Cypriots. In fact, job quality has also deteriorated, with the proportion of employees earning €750 per month or less increasing from 10% to 15% of the total. With the average monthly salary in Cyprus being €1,863 (with the number being inflated due to the number of high-earning individuals in mainly foreign companies), rising costs before the war still make that an unlivable wage, with out-of-control rent prices and other external costs placing a crippling blow to the heart of the average employee. Citizens observe class dissonance most prolifically seen in our choice of cars. Expensive luxury cars line the beachfront as a monument towards our inherent contradiction, whilst only 100 meters inwards, you’ll find crippled buildings with unreasonable rent prices, and disgruntled Cypriots who work for wages barely enough to cover their groceries. To make matters worse, the issue is exasperated by the massive bank sellouts of non-performing loans to Credit institutions, showing us that the dream of opulence is built on a principle of over-borrowing that went sour.
The chasm widens further when we look at education, with Cyprus having one of the biggest private school sectors in the whole of Europe. Statistically, over 20.5% of secondary school students attend private schools in Cyprus, with that statistic being over 30% in Limassol. This is in stark comparison to fellow European countries such as Greece, with its private school population being around 4%. It is not a sin to want the best available option for your children, and it is also the case that a large percentage of those pupils are non-Greek speaking, and a foreign-language provision would be of utmost necessity. However, it is a pity that public schools have been abandoned to a certain degree, often being left to rot in ageing facilities, with a heavily bureaucratic and inefficient education system that does not encourage children to excel as they should. With a shot at succeeding becoming limited to paying for extra private lessons (“frontistiria”), the education system has formed another wound in our system. As such, the education gap exacerbates because of this, as does the class gap because the former leads to a skill offset, and the population balance is ultimately thrown out of equilibrium.
Fixing the problem of the dwindling middle class and disparaged working class should therefore be of utmost importance to the state. The Faustian deal was a mastermind plan in short term growth, and the rich did get richer, with the middle class benefitting for a certain time period. Now, however, it seems our ambitions have outgrown us. The book “Why Nations fail” talks about the existence of “extractive institutions”, in which their purpose is to transfer wealth from the low and middle to the top. What we truly need, in Acemoğlu and Robinson’s words, are “inclusive institutions” that create “virtuous circles of innovation, economic expansion and more widely-held wealth”. If we neglect this, the chasm will keep growing wider and more unstable. If we approach this issue with inaction, it would only be a matter of time until we find ourselves in the presence of King Midas, waiting patiently at the bottom to embrace us.
“THE REVITA TEAM”
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