Significant benefits for the Cyprus economy
By Nicolas K. Shacolas
Following Cyprus’ accession to the European Union, the Government of Cyprus has rightly decided to introduce the Euro to Cyprus from the beginning of 2008, replacing our national currency.
Looking at things from the business perspective, this will have significant benefits to Cyprus and will further advance the progress and prosperity in a country where traditionally high custom duties and interest rates and the oligopoly of the banking system prevail.
Saving millions annually
One advantage will be time saving in the software and accounting systems, while costs of buy/sell and commission of foreign currency will diminish, as exchange rate conversion between the Cyprus Pound and the Euro will become obsolete. Today this cost is very high, primarily because products, goods and services are charged with the banks’ charges/commissions, over and above the rate difference between the currencies. All the above put extra burden on the companies and the businesses, as these costs reach several millions of Cyprus Pounds per year.
Reduced exchange rate differentiation risks
Exchange rate differentiation will decrease in relation to the services provided to Cypriot companies by the manufacturers and principals abroad, especially for delayed payments, which are performed a lot later than delivery and distribution of the products in Cyprus. This is common practice in the retail trade, for hundreds of millions per year. The same can be said for other methods of banking facilities and Letters of Credit. Today, Cyprus Pounds must be converted to Euros – the products are ordered and bought in Euros – then the products must be distributed in Cyprus Pounds. Their value then has to be converted back to Euros for the payments abroad. This practice produces high costs, thus increased prices on products are introduced in order for the company to survive. With the introduction of Euro this practice will disappear. As it is well known, Cyprus is a major importing country. From the EU countries alone, Cyprus imports goods of approximately CYP 1.8 bln or EUR 3.1 bln a year.
Customs authorities now have to convert the value of imported goods invoiced in Euro into Cyprus Pounds and then collect the import duties and other taxes. Usually the conversion is at the expense of the importer, which puts extra costs on the price. With the introduction of the Euro, exchange rate differentiation will no longer apply. A uniform policy concerning Euro will be enforced, with low interest rates, thus increasing the profitability of the companies. This will be at the benefit of all people in Cyprus, because the products will be offered at more competitive prices.
Encouraging foreign investments
The Euro will also encourage and help foreign investors to come to Cyprus, because of the decrease in the risk of exchange rate differentiations and also in the interest rate fluctuations. Foreign investments are valuable for the Cyprus economy. We assume that there will be a decrease in product prices, because of the lower cost in using the new currency.
Different scenario for Cyprus – prices will drop
We approach this subject with a business perspective, in its practical and true sense. The introduction of the Euro will help to decrease Cyprus’ inflation rate — because Cyprus’ monetary framework differs from that in Greece, Italy, France, Portugal or other countries (whose currencies were lower than the Euro upon the introduction of the common currency) whereas in Cyprus it is the opposite, it is estimated that during the transition period, we will discover many advantages; the product prices will not increase but it is estimated they will fall by about 2-3%.
More revenues for the State
As a result of the increased profitability of the companies, an advantage for the government will be created, through higher tax collection as a consequence of the lesser costs and the minimal risks of exchange rate differentiation, as well as from the decrease in interest rates.
Tourism will benefit
The decreased costs and the minimal risk of exchange rate differentiation, since there will be a common currency throughout Europe, will benefit travellers to Cyprus and tourism in general. Though the United Kingdom has not yet introduced Euro as its currency, still there will be advantages from the introduction of Euro to Cyprus, because the currency in Cyprus will be the same as in all the other countries of Europe. This will help the travel agencies to plan and distribute services accordingly in Euros at lower costs.
Investments in the Cyprus Stock Exchange
Investors will find the Cyprus Stock Exchange more attractive, since the buying and selling of stocks in a common currency will simplify the procedures. Today’s procedures are preventive, because of the costs in converting Euros to Cyprus Pounds and vice versa, and due to the exchange rate risks.
Money market competition
Other advantages will be the stability that a common currency will offer and a unified interest rate throughout Europe. More banking institutions will be encouraged to develop financial activities in Cyprus. As a result a healthy competitive environment will develop in the money market. Money will be more readily available to all the people of Cyprus and for their needs. And of course, it will help the general business environment of the Cyprus market.
Exports will benefit
Exports will cost less, as it will not be necessary to cover risks for which commissions and expenses for conversion of Euro to the Cyprus Pound is now needed.
Immovable property
Benefits will also be available for land developers and foreign buyers, who are interested in investing on the island for a permanent residence. The same can be said for foreign property investors wishing to invest on the island.
State and business debts
With the introduction of the Euro, debts will no longer have conversion costs or risks, but lower interest rates are expected to be applicable. Debts will be in Euros and not in Cyprus Pounds, which has a higher interest rate.
Benefits for the economy and the people of Cyprus
We, as market leaders in the retail business environment of Cyprus, in imports, trade, industry, estate and investment partners for major projects, such as the development and operation of the new airports of Larnaca and Paphos, with commercial centres and golf courses, have no doubt that the introduction of the Euro, will generally help the economy and will contribute to the quality of service and life for the benefit of the people of Cyprus. Ultimately, this will have an effect in the reduction of unemployment.
The Shacolas Group has readily responded to the encouragement of the Ministry of Finance and the Central Bank of Cyprus and as from the beginning of March all invoices and receipts present prices both in Cyprus Pounds and Euros in all Ermes and Debenhams Department Stores, Next and Zako Stores, Super Home Center D.I.Y. Mega Stores and others. This is a step towards familiarising the public with the new currency.
