News
Cyprus & World News

ECONOMY: Cyprus businesses bracing for a no-deal Brexit

14 September, 2019

Cyprus businesses are preparing for a hard Brexit in light of developments in the UK, with London adamant on leading Britain through the European Union exit door by 31 October with or without a deal.


Particularly concerned about the effects on tourism, business associations, experts and hotels are preparing to face any scenarios that may play out after October.

Sounding the alarm over risks of a no-deal Brexit, the Cyprus Chamber of Commerce and Industry has called on businesses to be prepared for the aftermath which KEBE find to be the most plausible outcome.

According to a letter sent to its members earlier this week, KEBE noted that "due to its historically close ties with the United Kingdom, Cyprus will not be able to remain unaffected by its departure from the EU, especially from a no-deal Brexit".

Talking to the Financial Mirror, Leonidas Paschalides, KEBE's deputy general secretary, said that the main concern of the chamber is possible effects on exports and tourism.

“For the time being, and for one year after a possible no-deal Brexit, Cyprus exporters will not be affected as the UK has decided that in case of a no-deal Brexit, it will impose tariffs on 12 product categories. No one of these includes Cyprus products.”

Paschalides did note, however, that the UK decision will be revised one year after implementation, which in that case Cyprus exports, including Halloumi might suffer.

“Halloumi will probably be included in a list of products which will be affected by tariffs, which may spell disaster for the traditional cheese and producers as Halloumi exports to the UK are worth €70 mln”.

Concerning tourism, Paschalides said that there’s not so much concerned over possible visa restrictions of British tourists wanting to visit the island, as much as the impact a no-deal Brexit may have on the pound.

“We fear a devaluation of Sterling will mean that our tourism product will become more expensive.”

There are also estimates of a two-year recession in the UK following a hard Brexit, which does not bode well as 35% of all tourists arriving in Cyprus come from Britain.

KEBE warned that making estimates as to what extent Cyprus tourism will be affected is risky as the picture is not complete on what type of Brexit, if any, will materialise.

“What we should be doing is preparing for a no-deal scenario and try to diversify our tourism product.”

Paschalides said the tourism sector is currently over-dependent on the Russian and UK markets, which contribute over 50% of tourist arrivals.

“We should finally take steps towards investing in attracting tourists from other destinations and not put all our eggs in one basket.”

Expensive destination

UCLAN Cyprus lecturer in Innovation and Entrepreneurship and director of Centre for Entrepreneurial Development, Alliance & Research Fanos Tekelas said that a no-deal Brexit will be a blow not to be taken lightly.

“Our tourism strategy over recent decades saw us concentrating on one or two markets. We were largely dependent on the UK market, and when we saw numbers dropping, only then did we turn to other markets. But again, we turned to just a couple, namely the Russian and the German market.”

He argued that Cyprus believed its tourism could survive and flourish on just these markets.

Tekelas also agreed that Cyprus may lose out on British tourists, as it will become a more expensive destination, while competition from neighbouring countries like Turkey and Egypt is increasing.

He is concerned that in case of a no-deal, Cyprus' tourism will also suffer as the island will become more expensive for airlines who he expects to see reducing their flights.

During a transitional period, airlines may not have to pay higher taxes but at some point, they will be faced with higher charges which they will pass on to consumers.

“This will skyrocket airfares, making it harder for Britons to get to the island and harder for locals to leave.”

He said British tourists will probably turn to closer EU destinations such as Tenerife and other Spanish resorts.

Tekelas finds recent moves made by the Deputy Ministry of Tourism to be on the right track towards diversifying the basket of destinations from which Cyprus draws tourists.

“The memorandum between Cyprus, Greece and Israel to offer joint holiday packages is a good move in also diversifying our tourist product, offering more to tourists eyeing Cyprus for their holidays.”

He believes the Ministry's efforts including destinations such as China, are slowly starting to pay off.

Tourist enterprises are also bracing themselves for a no-deal Brexit as they are taking pre-emptive action.

Zacharias Ioannides, director-general Cyprus Hoteliers Association (CHA) said they are working closely with all stakeholders to face any Brexit aftershocks affecting the island's tourism.

“We are aware that a no-deal Brexit may affect the purchasing power of British tourists, thus pushing them to cheaper destinations such as Turkey and Egypt, but we are confident that our initial plans and strategies for the coming year are not affected.

“Any differentiation in taxes will take place after an initial one-year transitional period following Britain’s exit from the EU.”

Phanos Leventis, of the Leisure and Entertainment Establishment Owners Association, said that bars and restaurants are feeling insecure with how the Brexit process is unfolding in the UK.

“However, we are continuing business as usual, as if no change is foreseeable in the upcoming year with plans and events already drawn up.”