Cyprus competitiveness report highlights urgent need for productive investment

ICT sector stands out as success story in latest Cyprus competitiveness report The Cyprus Economy and Competitiveness Council on Monday presented the Cyprus Competitiveness Report 2025, highlighting the need to attract more productive investments that create genuine economic activity, new jobs and knowledge transfer as one of the country’s foremost economic priorities. Presenting the report’s findings in Nicosia, University of Cyprus economics professor Sofronis Clerides, who led the research team responsible for the study, said that competitiveness can no longer be measured solely in economic terms. He explained that competitiveness should instead be linked to a country’s ability to create sustainable prosperity through an effective business environment, strong economic performance and social and environmental sustainability. The report identifies productivity as Cyprus’ biggest structural weakness. It states that despite low unemployment, high employment rates and the substantial inflow of skilled workers in recent years, Cyprus continues to lag behind many competing economies in terms of productivity. An exception is the information and communications technology (ICT) sector, which has recorded much stronger performance and represents perhaps the most successful example of the productive upgrading of the Cypriot economy. The report compares Cyprus with twelve benchmark countries, namely Greece, Malta, Israel, Slovenia, Portugal, Ireland, the United Kingdom, the Netherlands, Germany, Denmark, Estonia and Finland. It identifies three horizontal priorities, namely strengthening productivity, creating conditions that allow businesses to grow and scale up, and improving the state’s ability to implement reforms. Particular emphasis is placed on updating and systematically monitoring Vision 2035, including the establishment of a dedicated implementation unit capable of ensuring continuity beyond changes in government. During the discussion that followed the presentation, speakers pointed out that although Cyprus continues to attract substantial foreign investment, much of this consists of company relocations, acquisitions or financial transactions rather than new productive facilities, industrial units or activities that generate significant new economic value. “Not all investments are the same,” Clerides said. He stressed that different forms of investment produce different benefits for both the economy and society. “We are a small economy and cannot absorb an unlimited number of new companies without consequences,” he said. “Therefore, we need to think about which investments offer the greatest benefits and the fewest negative side effects and seek to attract those,” he added. Responding to questions about whether it is realistic for Cyprus to attract more productive investment despite challenges relating to energy, infrastructure and market size, council vice-president George Syrichas acknowledged the difficulties but argued that there was no better alternative. “Yes, it is difficult,” Syrichas said. “If it were easy, everyone would do it,” he added. “But the alternative, to continue without clear direction, is a far worse choice,” he continued. He explained that productive investments generate much greater added value than simple acquisitions or transfers of assets. “An acquisition has its usefulness and may bring some know-how and income, but when an asset simply changes hands, the added value for the economy is limited,” Syrichas said. “That is why the focus should be on productive investments,” he added. Syrichas also said that international companies already operating in Cyprus could contribute much more to the economy. According to him, the real challenge lies in integrating these businesses more deeply into the country’s productive fabric through additional hiring, the development of local executives, the transfer of expertise and stronger links with the domestic economy. “For an investment to be considered a real investment, it must have a real presence,” Syrichas said. “It must create offices, employ staff and develop activity in Cyprus,” he added. “We need to strengthen this diffusion of knowledge and value as much as possible,” he continued. Another important issue highlighted by the report concerns the state’s capacity to design and implement policies. The study points to serious weaknesses in public administration, the justice system and the implementation of reforms and major projects. Responding to a related question, council president Demetris Georgiades said Cyprus frequently tackles critical policy issues in a fragmented manner, without sufficient coordination between ministries and government departments. He cited energy policy as a characteristic example. Georgiades explained that issues such as the electricity interconnection with Greece, energy storage systems and new power generation units are often discussed simultaneously without always assessing how these decisions complement or contradict one another. “Each authority cannot focus only on its own project,” Georgiades said. “There needs to be unified strategic planning,” he added. In the same spirit, Clerides argued that issues such as energy, water and major infrastructure require continuity and cannot be redesigned every time a new government takes office. For this reason, both the report and interventions by council members reiterated the need for a permanent mechanism to monitor and implement Vision 2035, operating above political cycles and ensuring consistency in long-term planning. The report also places considerable emphasis on the green transition, an area where Cyprus continues to lag behind, with indicators remaining weak. Syrichas argued that unlike many European countries concerned about the costs associated with decarbonisation, Cyprus has the opportunity to transform the transition into a significant competitive advantage. He explained that the country’s high electricity prices and abundant sunshine create powerful economic incentives for a faster shift towards renewable energy sources. This view is consistent with the report’s findings, which identify energy costs as one of the most significant weaknesses of the Cypriot economy and point to delays in the green transition. Human capital emerged as another major challenge. According to the report, although Cyprus spends considerable resources on education relative to gross domestic product, outcomes remain disappointing. The report highlights poor student performance in international assessments, limited technical and vocational education, a small number of STEM graduates, substantial mismatches between skills and labour market needs and weak links between universities and businesses. It argues that the main problem lies not in the level of expenditure but in its effectiveness and poor targeting. Clerides said education should adopt a more practical orientation. “Education needs more laboratory-based learning and closer links with the real needs of the economy,” he said. Syrichas noted that predicting the skills the labour market will require in coming years is becoming increasingly difficult because of the speed of technological developments. Nevertheless, he said this remains essential for sound policymaking. Questions concerning demographic ageing also featured prominently during the discussion. Georgiades pointed out that Cyprus has a high proportion of workers who continue to work after retirement because many lack the financial capacity to withdraw fully from the labour market. He said the pension system requires a comprehensive reform. According to Georgiades, Cyprus has one of the lowest savings rates in Europe and lacks a mature institutional framework supported by a developed capital market. He argued that the current approach remains fragmented and focuses mainly on increasing pensions rather than adopting a broader strategy that considers all relevant parameters. Syrichas added that demographic ageing and population trends should be examined alongside rapid technological developments such as artificial intelligence, which could eventually reduce the need for large labour forces. “Today there is concern that demographic trends will halt growth, but we will have to wait and see how technological developments evolve,” Syrichas said.