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COMMENT

Investment incentives need to create high-skilled (Cypriot) jobs

15 April, 2013 | Posted By: Fiona Mullen

Fiona Mullen, Director, Sapienta Economics Ltd.

A number of ideas have been doing the rounds for attracting new investment into Cyprus.
There will inevitably be a temptation to go for the quick buck—mop up all of that extra housing stock by offering citizenship and or residency to Chinese citizens for only a little bit of investment.
This will admittedly fix a short-term issue, namely problem loans taken out by overstretched real estate developers and owed to fragile banks.
But it will not fix the much longer-term problem, namely the disappearance overnight of opportunities for young, educated Cypriots.
The decimation of our only two growth sectors (financial and business services) means that young Cypriots will be suffering at Greek-sized unemployment rates in a year or so.
This is why we need to do something to boost the employment of young, skilled labour.
According to Eurostat, Cyprus has the highest tertiary educational attainment rate in the EU for 15-64 year-olds, at 34.8% and one of the highest for the young.
This is a massive pool of talent. But the jobs they used to take as accountants, lawyers, bankers and, yes, public servants, have now disappeared.
There are around 8,500 Cypriot students currently in the UK and around 9,000 or so in Greece.
If the ones in the UK stay and the ones in Greece emigrate north, we shall have lost an entire generation that might just be able to think differently than the one that got us into this mess in the first place.
So here are a couple of ideas. As usual, I like to attribute the sources of my ideas, so this one comes from Stavros Zenios at the University of Cyprus.
Keep the citizenship and residency thresholds the same for a simple bank deposit or purchase of real estate. But drop them if the investor also creates, say, 50 high-skilled jobs for the young.
EU rules have a lot of state-aid exemptions for job-creation, so I doubt that this will be a problem.
In my view it is important that these jobs be highly skilled, by which I mean jobs for Cypriot graduates.
You might attack me for discrimination. But if Cypriots are to survive this calamity they have to do something for the young and the hopeful. Otherwise we cannot be complacent that this generally peaceful populace will never go the way of Greece.
We also need to find ways that do not depend on bank financing. The three largest lenders (Bank of Cyprus, Laiki and the cooperatives) account for more than 70% of local lending.
While sorting out their capital positions they will not be in a position to lend. So we shall, in essence, have an economy that has to survive on no new credit for a number of years.
This leads me to the second idea, this time from Marina Theodotou of Curveball Ltd, namely to use our connections with Israel to help us attract venture capital that takes advantage of our highly skilled workforce. Venture capital, by definition, does not depend on bank financing.
We have the accounting skills for venture capital investment, we have the sun to reduce our dependence on imported oil. We even have the hi-tech skills, sometimes going unused behind a government desk.
Mesh these together, with incentives for job-creation, and you have an attractive investment proposition.
The three of us have plenty more ideas. Is there anyone out there listening?