It seems that you can’t read the news today without some mention of Brexit. The referendum that took place took place on 23 June 2016 its now nearing the deadline and Europe as a whole, is at the edge of their seats waiting to see how Brexit will be finalised and how this will affect the economy and lifestyle of the member states and their people. What will the impact be of Britain leaving the EU on the Cyprus economy?
Cyprus is the 123th largest export economy in the world.
As per Intra-Extra EU Trade Statistics of the Republic of Cyprus issued by the statistical service of Cyprus of January – July 2018 the top exports are:
- ‘Vehicles, aircraft, vessels and associated transport equipment’ with €1.347,8 mn
- ‘Mineral products’ with €598,7 mn
- ‘Machinery and mechanical appliances; electrical’ with €252,4 mn
- ‘Products of the chemical or allied industries’ with €216,0 mn,
- ‘Base metal and articles thereof’ with €181,4 mn
- ‘Live animals, animal products’ with €151,8 mn
- ‘Prepared foodstuffs, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes’ with €78,9 mn
- ‘Vegetable products’ with €51,9 mn
For January - July 2018 the top imports were:
- ‘Vehicles, aircraft, vessels and associated transport equipment’, with €1.451,0 mn
- ‘Mineral products’ with €1.072,0 mn
- ‘Machinery and mechanical appliances, electrical equipment and parts’ with €474,0 mn
- ‘Prepared foodstuffs, beverages, spirits and vinegar, tobacco and manufactured tobacco substitutes’ with €417,1 mn
- ‘Products of the chemical or allied industries’ with €380,4 mn
- ‘Base metals and articles of base metal’ with €283,0 mn
- ‘Textiles and textile articles’ with €168,0 mn
- ‘Plastics and articles thereof’ with €143,5 mn
The top export destinations of Cyprus are Greece (€181MN), the United Kingdom (€111MN) and Germany (€115MN).
The top import origins are Greece (€977MN), Germany (€302MN), Italy (€464MN) and the United Kingdom (€320.5MN).
As can be clearly seen from these statistics, the UK is among Cyprus’s largest trading partners and the deal that the UK manages to secure with the EU will have an impact on those imports and exports between the Cyprus and the UK. The extent of this impact will solely depend on how the UK separates from the EU.
When the United Kingdom leaves the European Union, higher barriers to trade, capital flows and labour mobility will affect output and jobs not only in the UK but also in the remaining 27 EU member states. Since Brexit means both parties will withdraw from a frictionless economic relationship, there will be costs on both sides, especially for those parties that have substantial supply chain trade links between them.
Under a preferable deal the UK would leave the European Union but stay as closely aligned to the EU as possible. It could keep the UK in the single market or the customs union or both. It could involve British compromises on free movement of people, allowing European Union citizens’ rights to settle in the UK with access to public services and benefits.
Those EU member states with closer ties with Britain, Cyprus being one of them, would suffer disproportionally so the closer to a free trade agreement of an outcome the better for Cyprus
Plans being discussed include the “Norway model”, a Norway-style association agreement, where the UK would remain in the EU single market, able to trade freely, but in return it would have to allow free movement of people – which has been a key sticking point for many in the Brexit debate who want to be able to control immigration from the EU. The UK would also have to make a contribution to the EU budget - smaller than it currently makes - and abide by many of the EU's rules.
Such a plan would be seen as a “soft Brexit deal” and will definitely be the best option for the UK-Cyprus supply chain trade link.
A “hard Brexit deal” would be one where few of the existing ties between the UK and the EU were retained, so it would mean Britain giving up membership of the EU’s single market, and the benefits of being part of a free trade area with the EU and setting up its own trade deals and rules.
A “no deal Brexit” means the UK and the EU would be unable to reach a withdrawal agreement and as such consumers, businesses and public bodies would have to respond immediately to changes as result of leaving the EU.
The UK would fall back on its membership of the World Trade Organization (WTO), the global body governing international trade.
UK exports to the EU would be subject to the same customs checks and taxes the EU currently imposes on countries like the United States.
The long-run impact from a “hard Brexit deal” or a “no deal Brexit” would be spread across the EU as a result of the economic and financial ties spanning the region, which have grown closer by about 40% over the past quarter century. The UK ranks among the EU’s three largest trading partners, accounting for 13% of trade in goods and services. There are also complex supply chain links between companies across the bloc.
Those EU member states with closer ties with Britain, Cyprus being one of them, would suffer disproportionally so the closer to a free trade agreement of an outcome the better for Cyprus.
The economy of Cyprus is heavily dependent on tourism, and over a third of its annual four million visitors come from the UK so it is imperative that a “no deal Brexit” has minimal impact on flights disruption. Surely the fact that Cyprus is also a member of the Commonwealth will help rebuild ties between the two countries no matter what the outcome is.
Right now, negotiations about future relations between the UK and the EU are in process.
Both sides hope they can agree by mid-November an outline of how things like trade, travel and security will work. If all goes to plan this deal could then be given the go-ahead by both sides in time for 29 March 2019.
We, K. Treppides & Co. Limited through our innovative thinking, expertise and dedication to provide professional services and solutions to our clients by adapting to new changes in global markets and trends, we welcome this type of community and entrepreneurship culture and we look forward to the positive impact that coworking spaces will have to the business environment in Cyprus.
Costas Loizou
Principal, Financial Department
Contact Details:
info@treppides.com www.treppides.com
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