Cyprus Manufacturing
Clothing plant, and example of Cypriot light industry
Courtesy Embassy of Cyprus, Washington
At independence the manufacturing sector consisted
almost
entirely of small, family-owned enterprises, most with
fewer than
five workers. Production consisted mainly of consumer
goods and
items for the construction industry, all for the local
market.
Obstacles to the development of larger establishments were
the
limited domestic market, a generally low level of income,
a lack of
available capital, and a shortage of skilled labor.
During the period of the second five-year plan
(1967-71), steps
were taken by the government to encourage industrial
development.
Import duties on raw materials were reduced or abolished,
and
tariffs were imposed to protect domestic industry.
Generous
depreciation allowances and tax remissions were granted.
In
addition, training centers were set up for management,
technical
personnel, and workers. Industrial parks were established
in
Nicosia, Limassol, and Larnaca. Government policy
generally left
manufacturing to private enterprise, but in some cases,
such as the
petroleum refinery at Larnaca, the government made direct
investments.
During the plan period, some seventy larger
manufacturing
plants were constructed. These plants included a petroleum
refinery, biscuit and margarine factories, fruit- and
meat-canning
plants, a brewery, an edible oil plant, paper products
factories,
textile and hosiery mills, pharmaceutical plants, and
metal
fabricating plants. A 1972 census of industrial
production,
covering Greek Cypriot establishments plus estimates for
the
Turkish Cypriot community, showed that more than
four-fifths of the
7,612 plants in manufacturing (excluding cottage
industries) still
had 1 to 4 employees; only about thirty establishments had
more
than 100. These larger establishments, however, accounted
for 81.4
percent of the value added by manufacturing. Despite this
change,
manufacturing as a whole remained largely geared to the
local
market, the principal exception being canned goods, most
of which
were exported.
The Turkish occupation resulted in a major division of
the
island's manufacturing sector, because one-third of the
larger
enterprises were located in the north. Another immediate
effect was
disruption of the domestic market. The division also cut
off the
sources of some raw materials and intermediate goods.
The sharp general drop in incomes in the south after
mid-1974
forced the manufacturing industry to reorient production
toward
exports. A principal objective of the first Emergency
Economic
Action Plan (1975-1976) was the reactivation of
manufacturing with
emphasis on the development of such labor-intensive
industries as
clothing and footwear aimed at the export market. This
effort also
included measures to reestablish in the Greek Cypriot area
the
operations of entrepreneurs who had fled the Turkish
Cypriot zone.
During this plan period, 200 new or reopened plants went
into
production, and at the end of the period more than 130
additional
ones were under construction.
The Greek Cypriot government took other steps to create
an
export climate attractive to industrial entrepreneurs. Raw
material
and machinery imports were duty-free, a guarantee scheme
was
established for bank credits for exports, and a tax
allowance was
granted on foreign exchange earnings from exports. Trade
centers
were also set up abroad, and there was participation in
foreign
trade exhibitions. Some indication of the success of the
overall
effort was seen in the tripling of exports of manufactured
goods
from C£22.5 million in 1975 to C£66.5 million in 1978. By
the late
1970s, manufacturing was very close to wholesale and
retail trade
in its contribution to GDP, and there were some 1,320
manufacturing
enterprises covering a broad range of industrial activity.
During the decade of 1979-88, the contribution of
manufacturing
to GDP at current prices nearly tripled (see
table 14,
Appendix).
Manufacturing's share of GDP, however, declined slightly
during
this period, beginning in 1984. The decline moved
manufacturing
into second place, after the category of wholesale and
retail
trade, restaurants, and hotels.
The principal industrial products were food, beverages,
and
tobacco; textiles, wearing apparel, and leather; wood and
wood
products; paper and paper products; printing and
publishing;
chemicals and toiletries, petroleum, rubber, and plastic
products;
nonmetallic mineral products, such as cement; and metal
products,
machinery, and equipment.
The three subsectors of food, beverages, and tobacco;
textiles,
wearing apparel, and leather; and chemicals and
toiletries,
petroleum, rubber, and plastic products represented 65.4
percent of
the total gross industrial output in 1979, and in 1987
they
represented 64.7 percent. In 1987 the relative share in
industrial
output of food, beverages and tobacco was 27.4 percent; of
textiles, wearing apparel, and leather 23.2 percent; and
of
chemicals and toiletries, chemical, petroleum, rubber, and
plastic
products 14 percent. During the period 1979-87, the two
most
important subsectors for exports were food, beverages, and
tobacco
and textiles, wearing apparel, and leather. In 1987 they
accounted
for 21.6 and 54.2 percent of total industrial exports,
respectively.
Industrial output came to depend on exports. The Arab
Middle
East was a key market for industrial production, but the
EEC
purchased 39.3 percent of exported manufactures in 1987.
These two
markets and the protected domestic market absorbed about
90 percent
of manufactured products.
The traditional markets for Cypriot manufactured goods
could
not be regarded as secure at the beginning of the 1990s.
The Arab
Middle East markets were often highly volatile, for both
political
and economic reasons, and the European market had also
become
increasingly competitive. A main threat to Cypriot exports
in these
areas were Asian manufacturers with lower labor costs and
higher
quality goods. The domestic market was also increasingly
threatened
because the terms of the Customs Union Agreement with the
EEC
required the country to gradually dismantle its highly
protective
tariff system. (In the late 1980s, for example, Cypriot
tariffs on
clothing imports from the EEC were over 80 percent.)
In meeting these mounting challenges, Cypriot
manufacturers
were striving to raise the quality of their production,
improve
marketing, and contain labor costs through productivity
gains as
tariffs came down. The government continued its
longstanding policy
of encouraging manufacturing by improving the
infrastructure and
creating industrial parks and free industrial zones. It
also
identified new industries and products suitable for future
development. Because of the number of small
labor-intensive plants
with well-qualified workers adept at learning new
technologies, the
government recommended that these plants adopt the
principle of
"flexible specialization," with modern design techniques,
quick
turn-around times, and computer-controlled machinery, to
meet the
rigors of the global market of the 1990s.
Data as of January 1991
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