CYPRUS will step up a drive to attract foreign investment next year, and is considering the establishment of a framework to attract Islamic finance, the head of its investment agency said yesterday.
Sotiris Sotiriou, Director General of the Cyprus Investment Promotion Agency (CIPA), told Reuters in an interview FDI would fall by around 10 per cent in 2009 from last year’s €1.48 billion. That slide, based on the global squeeze on capital this year, would continue in 2010 before a pickup in 2011, he said.
The island, which represents 0.2 per cent of the euro zone economy, has one of the lowest tax rates in Europe and a network of taxation agreements with other jurisdictions which has seen thousands of companies set up base over the years.
Now authorities have set their sights on tapping Islamic finance, one of the world’s fastest growing financial sectors. “Banking and finance is our first priority sector,” Sotiriou said.
“There are subsectors within like Islamic Finance, like investment funds and we are now formulating our strategy around this concept,” he said.
If successful, Cyprus would join a number of countries from Britain to Australia eyeing a sector growing an estimated 15-20 per cent per year.
Islamic finance, derived from sharia, or Islamic law, forbids charging interest and favours profit-sharing agreements or structures that resemble rental agreements. It is usually underpinned by physical assets.
Sotiriou said Cyprus’s location as the European Union’s easternmost outpost on the edge of the Middle East and its friendly relations with the Arab world made the island well placed to attract investment from the region. Its membership of the euro zone from January 2008 was a key asset, he said.
“Investors from the region had in the past been investing heavily in products based on the US dollar and they are now shifting their attention to euro-based products. Cyprus is in the region, in the euro zone and can offer them the platform to establish these kinds of funds in Cyprus.”
Sotiriou said CIPA had already carried out a survey to ascertain that Islamic-compliant products were compliant with existing Cypriot legislation, and were in the preliminary stage of consultations on how a sharia board could be established in Cyprus.
A sharia board is instrumental in ensuring that all aspects of the products on offer are in compliance with Islamic law.
According to official data, Cyprus saw foreign direct investment fall in 2008 to 1.48 billion euros from 1.6 billion in 2007. Sotiriou said 2009 was likely to see a 10 per cent drop.
“We expect this trend to continue in 2010, albeit to a lesser degree. We anticipate that 2011 will be a year for revitalization of the international economy,” he said.
The primary sources of investment are European countries including Russia, with most channelled into the financial intermediation sector — around 48 per cent of the whole.
“Next year we plan to step up our promotional activities to attract investors in financial and banking, and in certain sub-sectors of Information and Communication Technology,” Sotiriou said.
