FOUNDATIONS OF CYPRIOT ECONOMIC PROGRESS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001100840001-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 18, 2010
• Sequence Number: 1
• Publication Date: October 16, 1984
• Content Type: MEMO

Sanitized Copy Approved for Release 2010/08/18: CIA-RDP85T00287R001100840001-9
Memorandum for:
The attached Memorandum was prepared[
in ns to a
Roger Robinson of thepNSCeStaff,request by
Distribution:
Original - Roger Robinson
1 - OD/EURA
2 - EURA Production
4 - IMC/CB
1 - WE File
1 - IA Branch File
EURA/WE/IA
EUR M84-10211
160ct84
E U R A
Office of European Analysis
Directorate of Intelligence
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25X1
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Foundations of Cypriot Economic Progress
Greek Cyprus has made remarkable economic progress since the war in
1974. The chaos resulting from the Turkish invasion that year turned half of
the population of about 600,000 into refugees, while investment and production
dropped precipitously. By 1983, most of these difficulties had been
overcome. Inflation at the end of the year was just 6 percent and
unemployment was only 3.5 percent. Foreign exchange reserves amounted to
about $514 million and were increasing at a steady rate. Despite some
persistent problems, such as a stagnating industrial sector and expanding
debt, most economists are optimistic about future prospects, expecting
continued strong performance by tourism and exports and a decline in consumer
imports. In addition, unemployment and inflation have fallen further of late
-- the latter to just 3.7 percent during the first quarter of 1984.
Geographical and cultural factors help explain the economic resurgence.
Cyprus is strategically located near three continents, and the Greek
population has a tradition of entrepreneurial skill and craftsmanship.
Despite tensions over the division of the island, the Greek sector is
politically stable and democratic -- features in stark contrast to trends in
neighboring countries. Cyprus in particular has benefited from the crisis in
Lebanon, which has frightened away many businesses and investors from Beirut,
the former banking and commercial center of the Middle East.
The Cypriot government, in conjunction with businessmen, has worked hard
to attract Middle Eastern investors by encouraging exports of goods and
services to the Arab world. Shipping, banking, and exports of foodstuffs and
light manufacturing goods have been most lucrative. Since 1976, the country's
trade and services accounts with the Middle Eastern countries have been in
surplus, despite the increasing costs of oil imports. Building on its strong
links to the EC, Cyprus also has invested heavily in tourist and conference
facilities, and its telecommunications system is highly advanced by world
The specific steps the government has taken include:
-- Quick processing of applications for foreign investment in domestic
industry and "off-shore" enterprises.
-- Tax allowances on investments in plant and machinery (30 percent) and
the construction of hotel (25 percent) and industrial buildings (20
percent).
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-- Tax allowances on mining investment and expenditures on scientific
research.
-- A maximum tax of only 4.25 percent on all taxable income derived from
sources outside Cyprus.
-- Reduced income tax rates for foreign employees.
-- Tax-free remission of profits, interest, and dividends up to $3,800.
Sums above that level are taxed at a flat rate of 5 percent.
-- The elimination of import duties on plant and machinery.
-- The absence of any withholding tax on dividends paid by offshore
From 1973 to 1982, the government approved 5,500 requests by non-
residents to establish companies or participate in joint ventures. Twenty-
five hundred companies set up offshore operations in Cyprus in 1983 alone.
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