A recent leader in Financial Mirror complained bitterly about the failure of Cyprus to capitalise on its attractiveness as a potentially ideal location for foreign investment and as a regional hub for high value services. Cases were cited of major foreign corporations being turned away by bureaucratic inertia. One could have added poor industrial relations, poor reliability and bad management to the list of reasons. The public spectacle of the seemingly endless self-destruction of Cyprus Airways (CY) is a graphic example. CY is just one example of over-paid and over-staffed large outfits whose employees and their unions appear to live in a fantasy world where the laws of economics do not apply.
It is bad governance for an enterprise to provide salaries, pensions and other benefits that are excessive in relation to its profitability. It is equally bad governance to fail to structure and operate its resources in a cost-efficient and cost-effective way. These are failures in the primary duty of care to shareholders as well as to other stakeholders e.g. both employees who, ultimately, may lose their jobs when profligacy has to be corrected and customers who may lose a competitive source of products or services.
As one senior figure in international capital investment said to me about such cases as the CYP 58m rescue package for CY, “What we are witnessing is the start of a potential drip-feed syndrome of the living dead”. In other words, it may already be too late for the EU rescue package to work unless the proposed plan is drastic enough. One can expect CY to be coming back cap-in-hand for more but the EU is unlikely to oblige for a second time. There is no divine right for any organisation to exist and for employees to demand virtually a job for life. It may be more humane to put the metaphorical living dead out of their misery than let this ghoulish farce drag on for years.
CY is the tip of the iceberg. Over-manning and other archaic attitudes and practices in large organisations of all kinds are a curse on the good name of Cyprus. Take property developers, for example. The attitudes and antics of some of them simply beggar belief. I have yet to find one whose management team warrant the term ‘competent’ let alone ‘professional’. For example, how can it be possible in 2005 for any capital project, such as a new-build complex, not to be under stringent project management discipline? Yet, in Cyprus property development circles, project management is virtually unheard of and this explains why delivery is often very late and of poor quality – remember all those letters of complaint from irate customers in the Cyprus newspapers and now reaching the UK media?
Poor building design, building methods, standards and planning controls are manifest. Developers continue to build foundations without proper attention to local flooding, geology or drainage and without damp courses. Water pipes, drain pipes and electrical cables are simply encased in the concrete of the structure instead of in conduits or duct cupboards. Lack of project management also leads to high costs as many avoidable mistakes are made that then have to be remedied, often several times over because of incompetence. All these matters are fundamental to ordinary good standards and NOT ‘world class’ or ‘best practice’. None of the Cyprus building nonsense would be allowed today in, say, Dubai or even Tehran. If poor building were not a bad enough blot on Cyprus’s reputation, when owners raise complaints they are either ignored or fobbed off with breathtaking evasion. This is a widespread systemic problem and not isolated, rare instances.
The disgraceful state of affairs in the Cyprus property development industry is becoming an international scandal and one might wonder what the government is doing to cut out this cancer. Nothing, apparently. ‘Caveat emptor’ seems to be their policy. They see it as their task simply to grant licences for property development projects. It would appear that property buyers, mainly foreigners, don’t matter and that it is perfectly acceptable for them to be – let’s not mince words here – conned and treated atrociously by unscrupulous developers. ‘Fiddling while Rome burns’ risks the very real possibility of a monumental backlash from a growing army of angry customers. What will the government do if buyers start raising their complaints through their own MPs and MEPs in their home EU country, citing dereliction of duty regarding EU regulations and standards? What will it do when they claim compensation, cheaply and easily, against bad Cyprus suppliers in their local EU small claims court in their own country? – probably for up to GBP 10,000. What will they do when the Cyprus property industry gets lambasted in the foreign press and TV? One foreign owner of a large property portfolio confided to me recently that he was really fearful of this threat as it could seriously damage Cyprus property sales for years to come.
What about the appalling attitude of many shopkeepers here? Shoddy, defective and often unsafe goods are being sold to the public willy-nilly without conscience and with an outright refusal to replace the goods or make a full refund. Cyprus has become synonymous with Del Boy – amusing as a TV rogue character but fatal as a national image. When will the Ministry of Commerce crack down on this endemic rip-off culture?
Perhaps the government imagines that foreign investors will just brush all this evidence to one side. Anything is possible but it would make the future of Cyprus so much more attractive and easier if such self-inflicted wounds were no so gaping and obvious. Major foreign investors usually do a ‘due diligence’ risk investigation of prospective partners, projects and investment territories, so no doubt all will be revealed to them!
As I and other speakers at the recent GARP Asia-Pacific Risk Management Convention for the finance community noted, reputation and brand are hard-won vital assets that usually take years to establish and require continual nurture. Companies simply cannot afford to act like cowboys, or treat customers with contempt or even to simply appear amateurish. In a highly competitive world, reputation and brand often influence if not determine buying and investment decisions. The reputation capital of Cypriot companies and ‘Cyprus Plc’ is very weak. A positive and permanent change of attitude and behaviour from within is urgently needed so as to make Cyprus a more attractive destination and a more credible candidate for investment. The alternative? Cyprus remains a parochial backwater in a slow spiral of decline.
Dr Alan Waring is an internationally recognised risk management consultant who advises industrial, commercial and government organisations on a wide range of risk issues. Contact [email protected]
©2005 A E Waring
