Bracing for a tough year ahead
Among my readers, there will be some who remember war and the time leading up to it, when the future looked bleak and uncertain. Today, I and many others have a similar feeling, of fearful anticipation, as to what the year which starts tomorrow will bring. A year ago today, when business was generally good, who would (who could) have thought of the financial and economic chaos that would crash around our ears in 2008 and the prospects which face us in 2009? No one seems to have any answers to the crisis, except to borrow more money. Hope and prayer seem to be the dominant thoughts. Forecasting is something I am not good at, so I can only report on what people tell me and attempt a modest analysis.
Already sectors of the hotel industry, notably in the west of the island, are experiencing a worrying decrease in business. Revenue in that area is dominated by the British – tourists and residents, so the downturn will almost certainly continue. Because of the fall in the value of Sterling against the Euro many Brits are either leaving or drastically cutting their spending (as an example, a British couple receiving pension and other income paid from the UK in Sterling to the annual value of €30,000 at January 1, 2008, will now see this reduced to less than €23,000 in 2009. Similarly, those British tourists who do travel to Cyprus (or anywhere else in the Euro zone) will find that instead of receiving €130 for St£100, to spend, they will now get €100 or less. In view of the economic situation in Britain, they are unlikely to bring more money.
In the Limassol district, the residency and tourist inflows are more multi-national, but as the bulk of income is from people with modest to medium incomes, who are coming from countries affected to a greater or lesser degree by the crisis, there will be a downturn here, too. As for the resident population, there is an insufficient number of wealthy people, who are unaffected by the current situation, to keep suppliers of expensive goods, food, wine and services at a satisfactory level of business.
In the local economy, tighter controls over credit and loans are already leading to slowing or stopping of building projects, leading to unemployment and less money in circulation, as well as creating difficulties for the development companies, many of which are PLCs. The credit controls also affect consumer spending.
The consensus of opinion, from the conversations I have had suggests that:
In the hotel sector: general decline in occupancy, leading to more cut price offers; cost cutting (in sourcing, and service), staff cuts (where these are possible); lower profits; seasonal closures. Some possible failures.
Catering: problems for the more expensive operations (customer availability, competitiveness); customers will move to less expensive eating places and those giving best value. Numerous failures foreseen. A “return to our tavernas?” – probably, as long as they don’t hike their prices.
Wine: some retail wine merchants without a strong customer base will have difficulties. Downturn in hotel and restaurant business will affect wholesale business.
Retail: for a while sales at high end will hold up, middle level will decline as wine drinkers seek bargains and better value wines. Supermarket wine sales will hold up, and possibly increase as the public eats more at home (take-out and home cooked). Lower priced wines will consolidate, especially locally produced.
Generally: everyone is going to have to run a “tighter ship”, streamlining operations, cutting costs and above all, giving the customer a better deal.
Not a happy looking prospect. In past years, Cyprus has always survived and prospered, due to the energy of its people and successive waves of tourism, business and investment from places like Lebanon, Serbia, Russia and eastern European countries. But this one looks a tough one – a question of “Fasten your Seatbelts”?
To end on a positive note: “where there are problems, there are opportunities”, and I am sure that, once more, in 2009, the entrepreneurial spirit and energy of the people of Cyprus will shine through. Happy New Year!
Patrick Skinner
