This is Cyprus, an absolutely gorgeous nation in the Mediterranian filled with
beautiful little towns a laid-back way of life and an economy that is supposedly for sale.
That’s right, a fair few of you watching may have seen headlines that apparently
Amazon is going to purchase the island nation and
set up it’s global headquarters there to have it’s very own little tax haven.
This story was originally published by Saxo
Bank which is a small European investment bank with alot of operations in the area.
Now spoiler alert, it’s not going to happen, but it’s not as crazy as it sounds and one day
it genuinely could make sense as a sound business plan. So stick around, partially because I need
that average watch time so that the youtube algorithm may bless this video, but mostly
because this bizarre prediction can tell us a lot about possibly the weirdest economy in the world.
There is a very good reason that cyprus was singled out as the most likely country to be
purchased in the 2020 national yearbook and that is because of its long history
of hmmm let’s say being very agreeable to the whim of institutions with a healthy bankroll.
But of course, the nation is fascinating for so many more reasons not least of which is that
half of the country is technically subject to an illegal occupation of the territory of the EU.
And it gets even weirder than that, if you were to look at the island of Cyprus
you would be forgiven for thinking it is just one little ol country,
but depending on who you ask it has as many as 4 different entities claiming
sovereignty over what is a very beautiful but otherwise very barren piece of land.
So there is a lot going on here and as always the best way to make sense of alot of this
is to look at the economics of the island to work out what is truely motivating
all of these powerful institutions that apparently want to own cyprus.
So What is really driving the economy of Cyprus?
Why are so many people laying claim to it?
How have these tensions come back to bit them in recent years?
Why would it make the ideal country for some global megacorporation like amazon to buy?
And of course once we have made sense of all of that,
we can go ahead and put Cyprus on the economics explained national leaderboard.
Intro Add
The story of the Cypriat economy starts as so many do in 1960 when it claimed it’s independence
from the British. This independence was granted so long as cyprus allowed the
british to retain two naval ports here and here. The british still fancied themselves
a naval power at this time, and Cyprus has a great central location in the med.
While this was a great victory for the people of the newly formed nation
it quickly fell into a new form of uneasy tension
between the two dominant populations on the island, The Turkish and the Greeks.
An attempt to control these tensions revolved around introducing a representative senate that
would be well represented by proportional politicians from both backgrounds.
This never really worked though and the nation,
unfortunately, fell into a vicious civil war 14 years after their independence.
Turkish troops landed on the nation’s shores in an attempt to claim the land as their own.
Obviously, this was very unpopular in the international community
considering both Greece and Turkey were members of Nato,
and this conflict was taking place right on the doorstep of the soviet union.
Turkey also had the audacity to carry out this invasion
with weapons supplied to them by the US which was a major no no.
Due to this massive international pressure a ceasefire was eventually called but not
before turkish forces had occupied 36% of the nation’s north. Up here in the pointy bit.
This led to many turkish Cypriots been evicted from their homes in the south
and likewise with greek cypriats in the north. To this day the island is still
divided like this although the area under Turkish administration is not recognized by basically
anybody although it still has all of the same functionality of a regular nation.
This means that the Republic of Cyprus, you know the one that everybody agrees is
Cyprus has what is known as de jure sovereignty over the entire island.
There is an interesting debate about what makes a nation a nation,
and if you were to research this topic you would find that most experts would say it is
other countries recognising you as a country. A membership to the UN is also a huge boost.
And you know what, that is all well and good however the republic of Cyprus has all of this,
but it still can’t do so much as commission a public fountain in the north,
so that really is a strong point against that particular argument. Your move Wendover.
To make this geopolitical fruit salad all the more interesting the UN controls a vast
swath of land between the north and south as a buffer to avoid further tensions in the region.
This makes 4 different territory claims in an island that up until recently hasn’t
been overly prosperous. Oh and one little side not amongst all of this is that both the north
and the south share the same capital city of Nicosia. So you know, UN buffer zone,
divided capital city, retained British outposts, or as I like to call it a real recipe for success.
Now make sure to remember all of this tension because it will get really important later on,
but for the most part in this video,
when we talk about cyprus we will be talking about the republic of cyprus in the south.
Now even after all of this was said and done and the dust settled on the island, it wasn’t an easy
Path to prosperity
For the new country.
Ongoing hostilities and a relatively relaxed way of life meant that the nation lacked the
infrastructure to support industries that were driving growth in the modern world.
Instead, the country relied primarily on basic agriculture as it had for
thousands of years. This unrealized potential was perhaps best typified in its tourist industry.
The country is beautiful, it has miles of unspoiled beaches, and crystal clear waters
all bathed in the Mediterranian sun. The only problem was, nobody could get there.
The country only opened it’s first commercial airport in 1968,
and that was in it’s capital city which was inexplicably as far away
as physically possible from all of the beaches the nation had to offer.
So unless your idea of a resort getaway was a scheduled flight into an ex airforce base
and then a 2 day drive over cobblestone roads to a beach shack with no plumbing,
Cyprus probably wasn’t getting your dollars.
This of course did eventually start to turn around as the international
community started to forget the troubles of the 60’s and 70’s and the government
rolled out sweeping reforms in an attempt to modernize the nation.
Now in terms of government investment into infrastructure
there are normally some area’s that have some pretty high returns on investment.
Tourism as mentioned earlier was the first big one. This won’t work for all nations of course,
but for those that happen to be blessed with the type of environment that is commonplace in cyprus…
well a few roads and some small local airports opens the nation up quickly to
those sweet tourist dollars that are looking for a less crowded place to get sunburnt.
The same went for agriculture, which saw a massive increase
in output after the nation embraced modern mechanized farming techniques.
It’s a common misconception that all nations that have experienced a period
of rapid growth have done so because they embraced modern manufacturing.
And yes of course there are many examples of where this has been the case,
but heavy industry is incredibly expensive and competitive to break into.
It’s like starting a business and deciding on a cafe. I mean sure if it goes well you will do ok,
but could you possibly think of a more saturated, cpompetative and uninspired business idea.
Anyway rant aside all of this was to say that cyprus was much better served by making small
investments into little industries rather than massive investments into becoming a manufacturing
hub, which is a lesson that many other nations could learn from, because well it worked.
And in fact one of the nation’s biggest payoffs was the investment
in harboring a strong business center.
Companies need a few things to set up operations in a nation. They need
some profit incentive to be there, they need confidence the nation won’t devolve into chaos,
and lax business regulations and taxes are always helpful too.
Once international businesses were confident of the continued status quo on the island they
were more than happy to move in. The first big additions being shipping companies.
Today Cyprus is home to the third-largest merchant navy in Europe,
only falling behind Greece and the united kingdom.
Infact cyprus actually has a shipping fleet twice as large as the united states.
Now the reason that so many merchants choose cyprus to do business in was a little
bit because of it’s central position and a lot to do with it’s favorable taxation and business laws.
There is something called a flag of convenience in shipping. Where ships that are by there very
nature not bound to any particular country in the world will pick and choose between countries to
see who will give them the best deals on rules around how much tax they will need to pay,
what standards are required on the ship and even down to who they can employ from what country.
For all of these reasons Panama is actually technically home to the largest merchant
fleet in the world but Cyprus is still a compelling option especially for those
who do a lot of business in europe and that’s because of the last piece of the Cyprian puzzle
Membership in the EU
In 2004 Cyprus became a member of the european union which was fantastic.
It meant it could adopt the euro and open itself up to do business directly with all of europe.
This made all of its previous progress in the fields of agriculture,
tourism, and financial services all the better.
In the years after admission into the EU Cyprus saw a sharp spike in economic growth
and money started pouring into the nation to
set up administrative centers to take advantage of this new market.
This investment took the form of everything from venture capital looking to modernise
farming techniques, all the way to major hotel chains setting up resorts across
the coastline to cater to the new wave of European tourists.
This membership into the little European club also opened the
nation up to outward investment opportunities.
Given all of the tax and business laws we mentioned earlier cyprian banks were
flush with foreign cash, and these reserves only escalated when those same banks could hold euro’s.
Re-investment into cyprus was an option, but the whole nation only
had a GDP of around 25 billion dollars and these banks were now holding onto
hundreds of billions of euro’s. It would be like bill gates investing in a lemonade stand.
No matter how good the returns, it wouldn’t be worth their while.
So they invested in other fast-growing European nations,
specifically their ancestral homeland of greece. Which was you know, not awesome.
The eurozone crisis hit cyprus extremely hard, not necessarily through any fault of their own, but
moreso that their banks had invested into nations that were no longer able to make their repayments.
It didn’t take long before uneasy global billionaires and multinationals wanted
to withdraw their funds for cyprian banks causing a minor run on these institutions.
Given that the nation no longer had free reign to print its own currency after it
adopted the euro the government needed a more radical solution to this problem.
In 2013 cyprus confiscated funds held in their banks exceeding 100,000 euros.
a portion of this excess cash changed from money sitting in the bank to shares in the bank itself.
In theory the individuals effected were no worse off but in practice well…. In an economic crisis
would you rather have cash, or shares in a sinking bank? The answer should be pretty obvious.
This is what is known as a bail in, as opposed to a bail out.
So you might be asking then, amongst all of this why on earth would Amazon
want to buy Cyprus? Well as we said earlier, it doesn’t. This proposal was merely a demonstration
of how easy it is for wealthy institutions to buy their way into the systems of cyprus.
You see membership in the EU brought Cyprus much more than just dodgy investment opportunities,
it also brought with it all of the perks of being being a member of the EU.
It’s citizens could live and work and do business in
any member state almost with the same ease as if they were citizens.
This is something that was great for the people of the nation who
might be interested in such opportunities
but even better for wealthy individuals who liked the sound of european citizenship as well.
If you are a wealthy person, getting citizenship in cyprus is extremely easy. This means that
legitimate and illegitimate global billionaires alike have been able to claim dual citizenship
in cyprus as a sneaky back door into Europe where they will then set themselves up in Paris,
or berlin or rome or wherever with all of the amenities afforded to any other EU member.
This is particularly popular with russian and chinese billionaires
which would not be granted citizenship in these more conservative countries.
This passports for sale scandal caused a major outcry in the european community
when it came under scrutiny in 2018,
since then the nation has had to drastically pull back on this lucrative little pass time.
But that might not be such a big problem given that just a
year later Exxon Mobil announced that it had made the world's third-biggest
natural gas discovery
This gas was discovered off the coast of Cyprus which is
where these disputed borders get messy once more.
You see the Republic of Cyprus and even the European Union had learnt to just accept
northern cyprus as something that is there, and there is not much that can do about it.
But now with a prize that could be worth trillions of dollars
tensions are starting to heat up over who lays claim to these gas fields.
Countries get 200 nautical miles off their coastline to exclusively exploit for fishing
and drilling, but how large that coastline is, really depends on how you draw these borders.
A flair up of tensions could ruin the countries progress in transitioning from
an agrarian afterthought in the middle of the ocean to an advanced centre of business
even if that business is sometimes on the naughty side.
Ranking
Now it is time to put cyprus on the economics explained national leaderboard
and as always we will start of with size.
Now the economy of cyprus is fascinating but it is very small, it’s recent advancements
have made a big difference but with a GDP of less that 25 billion dollars
it’s almost inline with micronations like Monaco or Malta it gets a 2 out of 10.
An important thing to note about this though is that it does not take into consideration
the economy of the north as that region is not recognized by the international
agencies that make these figures. Even still the economy of northern cyprus is
even smaller and more basic than the south so it is unlikely to make much difference.
GDP per capita is a better story though because the population of the island is very
small especially when international organizations don’t recognize all the
people in the north. With a GDP per capita of 28,000 USD it is a securely middle class
economy somewhere between greece and italy in terms of prosperity, it gets a 5/10.
Stability and confidence, well this really depends on the timeframe,
in recent years it has been doing alright for itself and depending
on what happens in these gas field it might continue to do so, even still,
in it’s short history as an independent state it has been home to wars, divided territories,
controversial bank bailouts, and international scrutiny over selling passports. It gets a 3/10.
Growth, now we measure this figure over the last decade because spoiler alert pretty much
every country in the world has grown rapidly when you extent the timeline out far enough.
The ten year figure also works well because it assesses how well an economy has been
able to come back from the financial crises that plagued the last decade.
Which in the case of cyprus is.. Not well. Despite recent improvements,
the economy is still smaller than it was at it’s peak in 2008 so it gets a 0/10.
Finally industry, this has certainly been improving and the nation has openeined itself
up to new profitable industries like all the ones that we have discussed in this video
but it’s still certainly not what you would call a powerhouse by any means. It gets a 5/10.
Altogether this gives the nation an average score of 3/10
which is bad, and puts the nation into last place on our leaderboard… for now.
The good news is that you can put yourself in a more secure
financial position by automating your savings…
With acorns...
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