Cover Story: Shipping at the heart of Cyprus’ growth

To describe Cyprus’ economic recovery as akin to a phoenix rising out of the ashes could be somewhat harsh yet you can get a sense of the reality when you plot the extent of the country’s economic recovery against the backdrop of economic recession following the banking crisis it faced only four years ago.

According to the country’s Minister of Transport, Communications and Works Marios Demetriades, the Cypriot economy is definitely recovering and shipping has clearly been at the heart of this growth. The fact that the Economic Adjustment Programme for Cyprus, usually referred to as the bailout programme, which was signed in March 2013 to cope with the 2012/13 Cypriot financial crisis, made no changes to the regime governing the shipping sector on the island, “demonstrated the Troika recognised the importance of shipping to the country’s economy,” he said.

“And I believe this was very important because Cyprus managed not to lose any shipping companies the year the Memorandum of Understanding was signed,” he added.

As far as Cyprus is concerned, shipping remains the third largest sector in the economy contributing between 6% and 7% to national GDP. According to the Minister, while 2013 saw a recession of almost 6% in the economy and one of almost 2% the year later,  the economy started to stabilise with a near 2% growth rate in 2015; 2.7% in 2016 and an expected 3.5% to 3.6% growth in 2017.

Indeed, according to the Cyprus Shipping Chamber, the annual revenue of the Government of Cyprus from fees and taxes paid by shipping companies is estimated at around €10 million, which mainly consists of tonnage tax from shipowning and shipmanagement companies, registration fees and fees from other services as well as for the registration of shipping companies by the Registrar of companies. Another important contribution of the Cyprus Shipping Industry is that it has created many employment opportunities for Cypriots. The total number of gainfully employed persons by Cyprus Shipping ashore is approximately 4,500, representing 2% of the total employed population, and approximately 55,000 seafarers of different nationalities are employed onboard vessels controlled or managed by shipping companies located in Cyprus.

As Mr Demetriades stressed to SMI, “Because shipping is international and because we didn’t lose any companies, shipping did play its role in the recovery of the Cyprus economy. And then in the last couple of years the cluster has been growing for a whole new number of reasons. So, despite the slowdown in the shipping sector, the cluster has been growing and we have had an influx of new companies coming into Cyprus.”

According to the Minister, the Government’s strategy when it comes to shipping, is twofold and has been implemented across government departments: “We want to maintain a strong registry; it is not our ambition to become the world’s largest registry and given the Turkish embargo, this would be extremely difficult anyway. But we want to maintain a strong position in the world’s fleet, that is clear.

“We also want to enlarge the cluster as much as we can. Traditionally we have been one of the world’s leading shipmanagement centres – out of the 200 shipping industry companies we have in the cluster around 25% are in shipmanagement. But we are also promoting such things as maritime education and we have been trying to attract more shipowning companies onto the island because by bringing in more owners, we will attract additional companies to the cluster,” he said.

Cyprus has had an element of success in attracting shipowners onto the island, especially from Greece on the back of that country’s own economic woes. But by attracting in the owners, will the Government then want to broaden the scope and composition of the cluster to include other important elements such as law and classification?

Marios Demetriades again: “You are spot on. We wish to broaden the cluster as much as possible. Indeed two of the largest local banks have introduced ship finance departments in the last couple of years and these are steps in the right direction.

“We need to take additional steps. Everyone is trying to enlarge their registries and clusters and we need to do more and be more aggressive – we need to focus on different classes of ships or owners and look at what incentives we have to introduce to attract them in. We have managed to achieve this for certain parts but the process is continuous.   

“We recognise the Turkish embargo is a disadvantage, but we have so many advantages to the Cyprus registry and this is not only related to the tonnage tax system but also to the service the department gives. What we have been trying to do is focus on categories of ships who are not really affected by the embargo. We don’t have the ambition to be the largest but want to be seen as one of the more important flags in the world,” he added.

A key aspect of Cyprus’ growth strategy is the creation of a Deputy Minister of Shipping, a move which has attracted widespread support from the cluster. According to the Cyprus Shipping Chamber, Parliamentary approval of the Bill for the Deputy Ministry of Shipping, conveys a clear message of political support for this productive sector of the Economy, with a contribution of 7% to the GDP. “Such a unified State support, is expected also to serve as a convincing leverage for attracting additional quality shipowners and shipping companies in Cyprus, with a positive chain effect on reducing unemployment and strengthening other economic sectors that provide services to the Shipping Industry,” it said.

This new structure of the Cyprus Maritime Administration will be fully implemented with the commencement of the new Government in March 2018.