In recent years, Cyprus ranked among the top destinations in terms of attractiveness for foreign direct investment thanks to its rapid economic turnaround and advantageous business operating environment. However, after the outbreak of the COVID-19 pandemic, Cyprus has seen a sudden decline in FDI inflows. According to UNCTAD's latest World Investment Report, FDI inflows amounted to 4.9 billion USD in 2022, thus marking the first year in which the net FDI transactions turned positive after six consecutive years of negative flows. The total stock of FDI in 2022 stood at 58 billion USD, a significant decrease from the previous year (425 billion USD in 2021). According to the Central Bank of Cyprus, the sectors that attracted the most FDI are financial and insurance activities (accounting for roughly 90% of the total stock), transport and storage, real estate, tourism, pharmaceuticals and energy. The main FDI partners are the Russian Federation, Luxembourg, the Netherlands, the United Kingdom and Germany.
Sectors such as financial intermediation benefited from government policies and Cyprus began receiving large amounts of FDI annually. Large-scale projects, tourism infrastructure, and privatisations are also receiving a good chunk of FDI. Moreover, the government is trying to attract FDI in newer sectors such as film production, investment funds, education, research & development, information technology, and regional headquartering. An added benefit is the country’s secure and stable EU environment in a turbulent region, which also provides an ideal base for regional headquarters or ancillary and support services for investors with clients in the wider eastern Mediterranean region. Cyprus does not have a mandatory foreign investment screening mechanism (although a draft bill on the subject was presented in 2022); however, there are some ownership limitations and licensing restrictions for non-EU investors in specific sectors, such as private land ownership, media, and construction. On the other hand, the country has a small domestic market and the banking sector is still recovering from the 2009 crisis: Cyprus' high overall indebtedness continues to limit Cypriot banks' growth potential and elevates economic vulnerability. Furthermore, tensions still exist between the Turks and the Cypriots parts of the island; and the country remains highly dependent on Russia and the UK as export markets and sources of financing. Overall, Cyprus ranks 27th out of 132 in the 2022 Global Innovation Index, 51st out of 180 in the Corruption Perception Index, and 40th out of 82 in the Economist Business Environment ranking.
|Foreign Direct Investment||2020||2021||2022|
|FDI Inward Flow (million USD)||-24,451||-35,744||4,913|
|FDI Stock (million USD)||490,880||425,018||58,262|
|Number of Greenfield Investments*||6||15||24|
|Value of Greenfield Investments (million USD)||160||229||363|
Source: UNCTAD - Latest available data.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
The country's strong points are:
The main weaknesses of the country are:
The country manages to create an attractive environment for investors by strengthing weaknesses in its economy. For example, since 2013, the government has been restructuring the country's banking sector. This, combined with the recapitalisation, enabled it to avoid bankruptcies and improve stability. Likewise, progress has been made to modernise and make its legal, accounting and banking services more efficient.
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Latest Update: September 2023