Ex­perts warn of fall­out for Cyprus from ‘Brexit’

Financial Mirror (Cyprus) - - FRONT PAGE -

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”.

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