Labour productivity in Cyprus is below the EU average, ranked at the bottom end with Portugal and Greece, said the Economic and Competitiveness Council.
Releasing its second competitiveness report, the Council notes that Cyprus performed poorly, as its productivity ratio compared to the EU average stands at 80.6% in 2020, dropping from 95.7% in 2008.
“This can be at least partially attributed to the service-based nature of the Cypriot economy,” said its report.
Productivity growth in services is often difficult to achieve. This applies to traditional service sectors such as tourism, real estate, and construction, which are the main pillars of the Cypriot economy.
At the same time, increasing productivity is easier to achieve in technology sectors and services such as information and communication technologies (ICT).
“However, investment in such services has been historically low and has contributed little to GDP growth.”
In recent years, a negative trend was also observed in total factor productivity growth, with the decrease being greater in Cyprus than in any other reference country, except Greece.
In most countries, including Cyprus, productivity is lower in smaller companies.
Labour productivity is below the EU average in all business sizes, seriously lagging behind the best performing countries, such as Ireland, Denmark, and Finland.
From 2010 to 2014, the overall increase in factor productivity in Cyprus was consistently low compared to almost all reference countries.
The total productivity of the factors of production in Cyprus has decreased since 2006, more than any other reference country except Greece.
Although most countries have experienced similar reductions and the situation in Cyprus appears to have stabilized since 2014, the depth and persistence of the decline were greater apart from Greece.
From 2010 to 2014, total factor productivity growth in Cyprus was consistently low compared to almost all benchmark countries.
Consequently, total factor productivity in Cyprus has fallen since 2006, more so than in any other benchmark country except Greece.
Although most countries faced similar declines, and the situation appears to have stabilized since 2014, the depth and persistence of the decline have been greater in Cyprus, except for Greece.
“The causes of low total factor productivity growth cannot be directly identified, but typically, low growth is associated with lower rates of enterprise innovation and lower adoption rates of digital and other efficiency-gaining technologies”.
In Cyprus, investments in ICT and other productive capital are relatively low, which may be attributed to constraints on access to credit due to cautious lending by domestic credit institutions that still hold significant portfolios of non-performing loans and stricter leverage regulations for new investment credit lines.
“Greater investment is needed in areas that may boost productivity in the long run, such as technology, infrastructure, and other productive investments.”