Don't get confused when reading this. What Fiona is doing in this article is quoting the German consultant and his outlandish comments about Cyprus and then disproving his claim in her own words.
PS. This really reminds me of mythbusters on discovery chanel
How attractive for investors is Cyprus?
28/09/2005
www.financialmirror.com
OPINION
Get your facts right!
By Fiona Mullen
A man describing himself as a German business consultant based in Cyprus wrote a critical article in a local newspaper on Friday about the environment for foreign investment in Cyprus. While some of his criticisms are reasonable, he made many more unsupported statements, some of which were either completely wrong or otherwise misleading.
We are not saying that Cyprus is perfect, and we have covered criticisms by foreign investor representatives at length. But if the consultant had spent just one hour on the Internet, he would have busted his own myths with the following hard evidence.
Myth 1: Living costs
"The living costs are among the highest in Europe". Wrong.
According to the latest Cost of Living Survey 2005 from Mercer Human Resource Consulting, Limassol (the only Cypriot city surveyed) is the second cheapest city in Europe, ranked 100th, beaten only by Bucharest in Romania, which is not yet an EU member, in 103rd place. As for property, Antonis Loizou, of Antonis Louizou and Associates Chartered Surveyors, told the Financial Mirror on the whole Cyprus is 20% cheaper than Spain on a like for like basis, 50% cheaper than Italy and France and a even more cheap than the UK.
Myth 2: Corporate tax
"The uniform corporate tax rate of 10 per cent ... is only part of the truth. ... Above one million, the tax rate is 15 per cent." Wrong.
The 5% windfall tax on profits above one million was temporary and applied only in the tax years 2003 and 2004.
Moreover, according to a study by the European Commission, in 2003 Cyprus had the 19th lowest tax burden (including social security payments) in the EU, at 34.3% of GDP, compared with a high of 51.4% for Sweden and a low of 28.7% for Lithuania. So even if Cyprus has fewer double taxation treaties than Germany or the UK, it is Cyprus that is likely benefit from the treaties it does have (which is why Germany bargained so very hard about the new double taxation treaty with Cyprus).
Myth 3: Defence tax
"[T]here is an additional so-called "defence tax", something that is hard to understand in the context of Cyprus’ EU membership." Misleading.
As this comes right after as discussion on corporate tax, it implies that there is a defence tax on corporate revenue. This is not the case. Although the rules on the defence contribution are complex (and do need to be simplified), our understanding is that companies only pay the special contribution for defence on dividends, interest and rental income, and even then, there are deductions and exemptions.
As for why Cyprus needs a special tax on defence, one only needs to note that despite being a member of the EU, Cyprus is still host to some 35,000 unwelcome Turkish troops. Moreover, the government’s defence spending was cut in half in 2004.
Myth 4: Labour costs
"Labour costs are not very attractive." Misleading.
According to a Eurostat survey published in May 2005, average annual earnings in industry and services excluding public administration were EUR 22,320 in Cyprus (13th highest), compared with an EU average of EUR 28,020. Admittedly Cyprus cannot compete with earnings of less than EUR 10,000 for seven of the new east European EU members, but it can compete very well with earnings of over EUR 30,000 for ten of the old EU members.
Moreover, when it comes to salaries for educated workers, on which Cyprus’ business services depend, Cyprus competes even better. The average salary for those with tertiary education is EUR 29,850 (15th highest), compared with an EU average of EUR 42,830 and six members with an average of over EUR 50,000.
Myth 5: Car prices
"Buying a car in Cyprus or importing a car from another EU country is more expensive than anywhere else in the EU." Wrong.
An extensive list of pre-tax and post-tax manufacturers’ recommended retail price for hundreds of models of cars that was published by the European Commission in August and covered by our newspaper, showed that Denmark was by far the most expensive country in the EU for almost every single model on a post-tax basis. While Cyprus had about three models that were close to the most expensive, it also had some of the cheapest. Although no average was given, Cypriot prices generally fell somewhere in the middle.
Myth 6: Languages
"Keep in mind that foreign investors regularly speak only little Greek". Misleading. According to new Eurostat research, 75% of Cypriots speak more than one language, compared with an EU average of 50%.
Where he does have a point
But there are a few observations with which we. First, the consultant asks whether the team at the new investment promotion agency will be formed "out of a community of friends, relatives and related friends."
The instinct to give greater weight to political connections than to real merit when recruiting for top posts in Cyprus is one of the biggest threats to business in Cyprus, because it encourages complacency and discourages competition. The stock exchange fiasco, after which the real culprits are still running free, is the best example of the dangers of cosy connections.
Second, he says "What matters...is mainly a question of the right mentality" and "Cyprus’ EU membership is widely known by expectations of "what we get out of Europe".
At the political level, he has a point, namely that our political reputation of being Europe’s pain in the neck can damage foreign investors’ appetites, as opposition politicians have pointed out in this newspaper before.
Heavyweights like Britain and France may be able to get away with picking fights with each other, but smaller, weaker member states seem to achieve much more by avoiding megaphone diplomacy: think of that other ex-colony, Ireland, now a highly successful EU member with bag-loads of foreign investment.
However, at least on the economic level, Cyprus’ contribution to the EU will come very soon, when along with all other member states, it will have to publish its own detailed country-specific Lisbon Agenda, showing how it will do its bit to turn Europe into the world’s most competitive economy by 2010.
With a highly educated, comparatively cheap labour force, low costs of services and an hospitable culture, the only thing that could hold us back is if the new head of the investment promotion agency is, indeed, just a friend of a friend with few real talents.
In 1969, my erstwhile employer in Switzerland was considering setting up a subsidiary factory in the "outskirts" of Europe, to employ ~100 persons in a high tech industry. We wrote down a list of possible candidates which included Cyprus and then struck off those that were negative, to leave a shortlist of 4 (Portugal, Spain, Italy and Malta). Cyprus did not even make it to the shortlist: contributory to this was the fact that we had written to various government departments for information about setting up a plant and obtained no useful replies (not quite true, we received one, but it was three months after we closed the shortlist!).
