A GOVERNMENT-imposed freeze in hiring non-EU nationals in response to rising unemployment is taking its toll on Cyprus’s aspirations to become a regional financial centre.
One Limassol-based investment firm, 3D Global Ltd, has said it has had enough and is thinking about re-locating to the UK.
We want to develop our business into the Russian market,” David Rumsey, 3D Global’s managing director told the Sunday Mail in an interview. “We found someone very competent we wish to employ as she is fluent in English, Greek and above all, she is Russian and knows the Russian mentality. We applied to the labour office and they said no”.
It was the second negative reply 3D Global received from the Department of Labour, at the Ministry of Labour and Social Insurance, even though the company had followed the letter of the law and advertised the vacancy to give first preference to Cypriot and EU nationals. They received no applications however.
But the ministry said in a second refusal on March 29: “Nothing that justifies a change in our response from January 27, 2011 was established after reviewing your letter and the additional information you submitted.
The unemployment rate, which rose to 7.2 per cent in February from 6.2 per cent a year before, may be the reason behind the negative answers. The government which has resorted to subsidising the hiring of the unemployed, aims at reducing jobless numbers by curbing the inflow of non-EU workers. This makes Rumsey’s efforts to develop his company’s Russian business more difficult.
But Cyprus’ attractive 10 per cent corporate tax can no longer offset such rigid bureaucratic practices, or the rising cost of living and higher costs of running a business here, according to 3D Global, which is mulling a relocation to the UK.
From a financial point of view and from the point of view of running a business the benefits of Cyprus are now marginal,” said Rumsey. “Auditors in the UK are significantly cheaper than in Cyprus. My competitors in the UK are paying half to a third of what I am paying”.
Phidias Pilides, who chairs the government-sponsored Cyprus Investment Promotion Agency CIPA, which aims at facilitating foreign investors, and the Cyprus-Russian Business Association, offered to mediate in this case. “They should contact us and we will do our best to help them,” said Pilides who is also managing partner and chief executive officer at PricewaterhouseCoopers Cyprus. In this respect he rejected Rumsey’s claims that companies in Cyprus have to pay more in auditing fees. “The opposite is the case,” he said.
Still, as 3D Global’s decision to remain in Cyprus or relocate to the UK is pending, recent downgrades in Cyprus’s sovereign credit rating have also affected the company’s operations. The subsequent downgrade of Cypriot banks forced the company to transfer a large portion of its deposits to higher-rated banks abroad so that it could maintain a high capital adequacy level. “We now keep more money overseas than we do in Cyprus,” Rumsey said.
According to the investment firm law, a company’s maximum business volume stands in direct relation to its capital levels. In February, total deposits at Cyprus’s banking system fell to 69.1 billion from 69.7 billion in January, according to the Central Bank of Cyprus. The value of deposits in foreign currency bank accounts, which are usually owned by companies with offshore activities, fell by 816.9 million in February in only a month to 21.6 billion.
Moody’s decision to cut Cyprus’s sovereign rating by two notches on February 24, to A2 as well as Standard & Poor’s decision to downgrade Cyprus to A- on March 30, may trigger an outflow of deposits from the Cypriot banking system, according to Michalis Sarris, former minister of finance. “A rating cut may trigger an automatic outflow of deposits held by certain organisations,” Sarris said.
Cyprus is already paying the price for not consolidating its budget, Manthos Mavromatis, chairman of the Cyprus Chamber of Commerce and Industry said. “A financial centre cannot be downgraded that often and expect that there will be no other consequences,” Mavromatis said.
