|
Cyprus REPUBLIC OF CYPRUS
From independence in 1960 until the Turkish occupation
of the
north in 1974, the economy of Cyprus performed well
overall, and
the gross domestic product
(GDP--see Glossary) increased
at an
average annual rate of about 7 percent in real terms.
However, the
Turkish Cypriot community did not share in this growth,
living in
its scattered agricultural enclaves under conditions like
those of
less developed countries
(see The Republic of Cyprus
, ch.
1).
The Turkish invasion and occupation of the northern 37
percent
of the island severely disrupted the economy of the
Republic of
Cyprus. Fragmentation of the market, a massive
displacement of
people (about a third of the island's population), and
loss of
important natural resources had devastating effects. The
government
responded with the first and second emergency economic
action
plans, for 1975-76 and 1977-78. The pre-1974 policy of
balanced
budgets was replaced by expansionary fiscal and monetary
policies
aimed at stimulating economic activity. Incentive plans to
encourage private economic activity were implemented, as
were
housing and employment programs for refugees who had fled
areas
seized by the Turks.
These efforts proved phenomenally successful. The
economy
expanded at a 6 percent rate in real terms between 1974
and 1978,
and by 1978 unemployment stood at about 2 percent,
compared with 30
percent at the end of 1974. This growth continued through
the
1980s. In 1988 the per capita gross national product
(GNP--see Glossary)
in current prices was about US$7,200 or C£3,597
(for value of the
Cyprus pound--see Glossary), compared with
C£537.9 in 1973.
The economy of the Republic of Cyprus changed as it
grew in
size and complexity. The primary sector lost ground, as it
had in
the decades before the Turkish invasion. Agriculture
declined from
more than 20 percent of GDP at the end of the 1960s to
only about
7 percent by the end of the 1980s, although it employed
about 15
percent of the labor force. Mining, vital in the 1950s as
a source
of exports, became insignificant.
Manufacturing increased at double-digit rates during
much of
the 1980s. At the end of the decade, it accounted for 15.2
percent
of GDP, the second largest share, after the service
sector's, and
was the second largest source of employment. Manufacturing
depended
on exports, most to the Middle East and the
European Economic Community
(EEC--see Glossary).
However, rising labor costs and
relatively low quality products stood in the way of future
industrial growth. Construction provided just under 10
percent of
GDP in 1989 and was the fourth largest private employer.
Construction had declined in importance since the second
half of
the 1970s, when much housing for refugees was built and
work began
on constructing the tourist facilities that were important
to the
south's economy.
The service, or tertiary, sector was the dominant
sector in the
Greek Cypriot economy after the late 1970s. In 1988 it
accounted
for 50.2 percent of GDP. The sector's most dynamic
component was
trade, restaurants, and hotels (or tourism), which
supplied 20.8
percent of the GDP and employed 22.3 percent of the labor
force in
1988. The gigantic increase in the number of
tourists--from 165,000
in 1976 to 1,376,000 in 1989--was the main cause of this
subsector's growth. Tourism was also an important source
of foreign
exchange, exceeding the income from the export of domestic
goods
from 1985 through 1988.
The other branches of the service
sector--transportation,
storage, telecommunications, finance, insurance, real
estate, and
business services--also experienced steady growth and
improvement.
Another dynamic component of the sector, important to
Cyprus's
future economic growth, was offshore enterprises, which
conducted
diverse businesses abroad from a base in southern Cyprus.
Attracted
by generous tax concessions, the island's strategic
location
between Europe and the Middle East, and stable political
conditions, many foreign businesses established themselves
in the
republic. By 1990 more than 5,000 permits for offshore
enterprises
had been issued.
The government played an active and successful role in
planning
after 1974. This planning was indicative in nature. That
is, the
government set goals for the economy and limited its
direct
participation to improving the nation's infrastructure and
supporting and guiding the private sector. These
activities were
costly, however, and resulted in large and expanding
budget
deficits. By the end of 1987, the total deficit of the
1975-87
period amounted to C£640.6 million.
Another problem was a consistently unfavorable trade
balance.
In most years, however, expanding surpluses in the
invisibles
account, mainly from tourist receipts, nearly offset the
trade
deficits. At the beginning of the 1990s, it was not yet
clear what
effect the 1988 Customs Union Agreement with the EEC would
have on
this deficit. Many Cypriots saw the agreement as an
opportunity.
Access to the community's market of 320 million people
might prove
beneficial, provided that the manufacturing sector,
consisting of
small labor-intensive firms, was restructured and
modernized.
Undoubtedly, the economy would face more intense
competition in the
1990s, but its main asset, a versatile and educated human
capital,
could make the difference again as it had often done in
the past.
Data as of January 1991
|
