Wrong-way to keep costs down

4 mins read

There is a love-hate relationship between the government and the business community.

On the one hand, the government needs business to pay taxes and contribute to national growth to maintain its payroll; business relies on handouts from the administration (paid by taxpayers) that are ‘generously’ provided to get through crises.

This vicious circle is not sustainable.

The occasional injection of EU funds is not directed at a major overhaul of longer-term projects, upgrading infrastructure, investing in health, education, and the environment.

Last month’s benchmark Economic Sentiment Indicator points to a slow pace of recovery, dropping even in September.

And this, despite over-confident GDP growth rates of the economy projected at 3-4% over two years.

Probably, the biggest impact was due to the slowdown in construction, with the termination of the golden passports scheme pulling the reins on the sector.

This will also have a trickle-down effect on unemployment, which, although dropping, is seasonal, suggesting that jobless rates could inch up again during the tourism-dead winter months, with the hope it will recover if leisure travel picks up again.

Holidaymakers were late to arrive this year, due to the Covid pandemic and all the restrictions associated with it, including household budgets affected by a slowdown in the labour market and, of course, the confidence factor, with vacationers choosing ‘safe’ destinations.

However, tourists feel more comfortable holidaying in the Greek islands, Red Sea resorts, and the Mediterranean, with Cyprus at the end of the wish list.

With airlines desperate to get back in action to keep their businesses afloat, shorter destinations are once again preferred over longer ones, with Cyprus in the 3–5-hour range of flight times.

A nuisance, plus a higher cost, while rising fuel rates have not helped when calculating the cost per seat.

The four-million-arrivals record seems a faraway dream, rather than within grasp, next year or the one after.

Talk of a fifth wave of the virus is not helping either, with the public frustrated once again, affecting sentiment, even mental health, and a tendency to conserve rather than spend.

Added to this, the banks are struggling to get out of a downward spiral, having not provided enough cash to individuals and the retail sector, the backbone of the Cyprus economy.

To top it all off, energy costs have gone through the roof, both for communication (in the absence of decent public transport networks) and for power, at home and businesses.

The government took a narrow-sighted decision to subsidise future electricity bills with a marginal discount, not realising the winter months will be tougher for consumers and employers, instead of lowering tariffs on fuel and electricity or speeding up solar parks and interconnectors to cheaper suppliers.

Judging from the stalemate in the Cyprus problem, one would be right to say the administration is preparing for an exit and looking to sustain its image over the next two years, preferring to do as little as possible so as not to rock the boat until the next elections.

By then, if stakeholders do not take drastic action and bring the Cyprus economy back on a sustainable and clean growth path, there will be no boat to rock, just a rusty old wreck chugging along– until the next ship enters port.