Experts warn of fallout for Cyprus from ‘Brexit’
As the UK heads towards a crucial referendum on June 23 to decide whether to remain in the European Union or leave, experts in Cyprus warned on Tuesday that a ‘Brexit’ could be bad for the economy and more specifically the tourism industry, trade and its financial services, the Cyprus News Agency reported.
A discussion on the UK referendum was co-organised by the Institute of Chartered Accountants of England and Wales (ICAEW), the Institute of Certified Public Accountants in Cyprus (ICPAC) and the Cyprus-UK Business Association.
“The economic impact of staying but probably even more so of leaving are simply unknown and our latest economic forecast indicates that already we can see a slowdown in business investment and business confidence which is attributed to a number of issues, uncertainty on financial international markets but also uncertainty in relation to the referendum” said Martin Manuzi, ICAEW Regional Director for Europe.
Manuzi provided some figures on the UK’s employment, trade and financial services to help people understand what the key facts are.
On employment, he said that there are just over 3 mln EU nationals in the UK and the proportion of those who are setting up businesses is actually higher than the national average. “Overall, the proportion of non-UK EU nationals who are actually working is higher than UK nationals,” he noted.
He also said that there is “nothing in the evidence to suggest that those non-UK EU nationals are actually claiming more benefits than UK nationals”.
Manuzi stressed that the EU is the largest trading partner for the UK, with imports representing 60% of its GDP.
The foreign direct investment the EU has been the source of most of that or the largest single component of that over the last ten years or so, but it has been declining quite quickly, according to the ICAEW Regional Director.
“Economic success in non EU markets for UK companies will be beneficial but we say very clearly that we don’t necessarily have to not do the EU markets in order to be successful in other markets”.
He also noted the importance of tariffs and non tariff barriers and stressed that the UK accounts for 24% of the EU’s financial services activity.
Manuzi said that if the decision of the British people is to leave the EU, clearly the terms of that departure need to be discussed.
“There will be a two-year period during which the negotiations will be conducted and that could be extended. So, clearly we need to be aware that there might be a lot of uncertainties but actually for these two years it will be business as usual, but of course we do not know exactly what business confidence issues will arise”.
Phidias Pilides, President
of the Cyprus Chamber of Commerce (KEVE) said that the only thing that is definitely certain in the event of a Brexit, is uncertainty, for both the UK and the European Union, including Cyprus. He said that studies have shown that Cyprus will be among those member states that will be most negatively influenced by a possible Brexit, as they have very strong trade, investment and financial links with the UK.
The UK, he noted, is the second most important trading partner of Cyprus, accounting for 9% of its imports and 7% of its exports and a Brexit could have significant adverse consequences, particularly if the UK does not manage to strike a good partnership deal with the EU.
“Any introduction of tariff and non-tariff barriers will be very detrimental to put it mildly”.
Tourism is also an area of concern, Pilides said, noting that in 2015 the UK represented nearly 40% or over a million of tourists of all tourist arrivals, whereas revenues from UK tourists exceeded 35% of total tourism revenues. Possible consequences for tourism concern the exchange rate of the sterling against the euro in the case of Brexit and any visa requirements that may be put in place by the EU depending on the arrangements that will come into operation for UK visitors to EU member states, he pointed out.
Demetris Vakis, ICPAC President, said that a restriction in the full movement of capital between the EU and the UK might affect the efforts of Cyprus to increase and improve its funds industry and funds administration services, “which is a very promising one”.
He also noted that if the UK, a major decision maker in the EU, leaves the Union, Cyprus “will have more difficulty” in defending its position with regard to tax harmonisation in the EU, something the UK also opposes.
“This might affect Cyprus significantly because the business model of Cyprus is based on tax advantages Cyprus offers and therefore a common tax base will erode that advantage of Cyprus and will have an impact on financial services and a knock on effect on the rest of the economy”.
A Brexit will probably be “negative” for Cyprus, noted Sofronis Clerides, Associate Professor of Economics at the University of Cyprus. It will also “further weaken the Union” and “give ideas to other countries that maybe they should start asking for exceptions”.
Clerides explained that Europe was built on this balance of power primarily between France and Germany, but also the UK being an important player. “If it leaves it will be bad for everybody because the UK gives a different perspective, especially when it comes to economics it has a different approach, and there was a balance there that was working out pretty well despite all the problems. If the UK leaves I think the balance within the EU will be shifted with unknown consequences”.