The Successful Business Magazine is publishing a renewed set of propositions (released in December 2020), calling for immediate action to Restart Cyprus: Now. We have prepared a summary of the report. You may find the full version on www.pwc.com.cy.

PUBLIC SECTOR REFORM. 

1. Modernise the public administration to achieve efficiency and effectiveness. 

Proceed with horizontal reforms in human resource management of the public sector. The civil service needs to shift away from traditional people management practices to attract needed talent and make better use of employee capabilities. Meanwhile, the digital transformation of public administration is also crucial as it allows the government to redefine its role and become more citizen-focused. As the current situation stands, ongoing collective negotiations with public-employee unions have taken away some of the State’s decision-making power, leading to a distortion of the labour market, weakening public finances, and lessening the government’s responsiveness as well as the quality of public services.

a. Encourage mobility in the public sector

Civil servants’ mobility should be encouraged in order for staff to be redeployed to cover changing business needs. By developing a policy for mobility between offices, departments, teams, etc. the public sector will promote transparency and eliminate corruption. Mobility in senior management positions would also create a wider internal labour market in the public sector with more career opportunities for capable civil servants. This would also improve coordination between public services, as senior PUBLIC SECTOR REFORM staff would have experience in more than one service.

b. Civil servants to be appointed and promoted on merit

Redesign the appraisal system for civil servants, creating new procedures and criteria for the evaluation and selection of candidates for promotions. Merit and performance need to act as key determinants of promotions and salary increases. In this way, individual goals can align with organisational goals, while achieving the delivery of high-quality public services. To this end, it is critical to improve training and encourage upskilling across the entire civil service for individuals to be able to meet their objectives. On this front, evaluation should be done on an annual basis by the head of each department, on the basis of specific quality and quantitative targets, to have tangible results for the people appraised.

2. Create an e-government.

The government should utilise digital technology and leverage Cyprus’ assets to achieve economic growth transcending the national borders, and social development, raising Cyprus' position to an above average position in the Digital Economy and Society Index (DESI). In order to bring its vision to fruition, in an efficient and effective manner, the Government needs to formulate an e-government strategy that would reflect the necessary interventions and promote effective and efficient coordination between the ministries and other public entities. An e-government concerns the whole society and relates to all aspects of the social and financial activity of Cyprus. It is a very important factor to attract foreign investors and in general, to develop Cyprus as a peripheral service provider centre.

Time-consuming bureaucratic procedures with manual checks should be quickly replaced digitally so that organisations and, in some cases, employees themselves can easily deal with repetitive administrative tasks while working on reduced hour schedules. Moreover, the government should develop a remote working policy to ensure continuity of business and the provision of government services at all times. Estonia is a good example to follow. It has been building up its e-government since the mid-90s. Today 99% of public services there are available online 24/7. Cyprus and Estonia have a Memorandum of Understanding in place in e-governance and it should be vigorously pursued.

3. Achieve better coordination between public and private sectors.

For the effective execution of a national economic strategy it is necessary to achieve a coordinated response on behalf of the public and private sectors.

a. Internally

The State should use various tools at its disposal to direct private sector activity in the targeted growth areas – these span fiscal and non-fiscal measures and should include amongst others, tax incentives, appropriate utilisation of the Next Generation EU funds towards structural reforms, and digitalisation of the public sector, leading to a more business-friendly environment and a “greener”, more sustainable economy. There is also a need to reconsider if measures are required in order to re-establish a currently absent equity market, which is depriving the private sector of non-credit funding. At the same time, the broader education system should also be used to accelerate the upskilling of our current and future workforce with the skills required by the new world.

b. Externally

It is vital that as a country we develop further our economic diplomacy and project a single and clear voice in promoting Cyprus internationally in order to promote Cyprus’ key export product (i.e. tourism) as well as encourage foreign investment. There are many areas where this is necessary, including addressing decisively negative perceptions of money laundering and financial corruption, effectiveness of the judicial system, quality of service, and social inclusiveness.

4. Key policy/system reforms.

The European Commission has stressed numerous times the need to reform the local tax policy to complement EU legislation, as well as the necessity to accelerate the progress in implementing reforms to the justice system, despite some early steps already taken to address both matters. At this stage we stress the importance of moving ahead with these reforms immediately.

a. Promote a tax reform

Promote a tax reform to proceed with the gradual introduction of environmental taxes and cater for incentives favouring investment in the productive sectors of the economy. The wider implications of the corporate tax harmonisation, convergence of the corporate tax base and rates, and expected revenues from the introduction of other types of taxes, such as digital tax at EU level, should also be taken into account.

b. Accelerate judicial reform

The legal system plays a significant role in building and sustaining the attractiveness and reputation of a jurisdiction which aspires to be an attractive business environment. It is broadly recognised that action is needed to further improve the Cyprus legal system. The reform of the judicial system and the civil procedures rules, the digitalisation of court processes, the consolidation of major legal/regulatory frameworks, are some of the much needed reforms, which are partly underway but which should be accelerated following through the various studies undertaken. The underlying objective of such reforms should be to enable the justice system to reach decisions swiftly and efficiently.

VERTICAL REFORMS

 1. Promote sustainable tourism

Continue with the implementation of the National Tourism Strategy 2030. Cyprus should aim to combat seasonality and concentration of tourist activity in specific parts of the island by attracting visitors to more parts of the country and for more months in the year.

Cyprus should rebrand itself as a destination which offers more than just sun and sea by shifting towards sustainableoriented segments.

a. Levelling up our villages and boosting agrotourism

Promote strategies for increasing the capacity of local businesses and the range and quality of goods and services to meet tourism needs, improve the attractiveness of the destination and the quality of tourist experience outside hotels. Identify villages or natural and cultural heritage areas and assets to be developed in a holistic manner. Invite villages to develop and submit proposals in collaboration with their community, to identify which projects they suggest being delivered, which projects require funding, and how these projects will fit into the long term. The government will have to approve the final projects which will unleash the full economic potential of a number of villages throughout the country. Infrastructure investments and other incentives (e.g. tax, or subsidies for renovations) should be made available, promoting sustainable development, authentic Cyprus architecture, traditional products, local culture, and Cyprus cuisine. Focusing on a holistic and sustainable development of these villages and areas will create a domino effect and create opportunities, driving young professionals to move into rural areas. This in turn could increase customers’ discretionary spending, make more areas economically viable, and ensure local community well-being.

b. Take advantage of the upcoming growth in health tourism

Health tourism is a relatively small segment of the global tourism market, but it is likely to grow in the coming years. This presents an economic potential for Cyprus, as it is well-placed to offer a high-quality and holistic medical tourism experience. It is also an opportunity to increase the number of visitors in the "off-season" time of year, while it could also mean that Cyprus will attract higher-spending tourists and reverse the trend observed over recent years (i.e. higher numbers of tourists but lower spending per trip).

On this note, the implementation of the National Health System is of great importance as it will free up resources in the private sector to accept an increasing demand from international patients. To this end, Cyprus needs to accelerate efforts to improve airline connectivity for medical tourists, to avoid multiple connecting flights and long connection times when travelling.

The skills gap in healthcare also needs to be addressed. Cyprus has signed a number of Memoranda of Understanding with various countries to facilitate more cooperation in the medical field; for example, Cyprus and Canada have an MoU in place to drive cooperation with the University of Cyprus and the Health Ministry to develop a world-class university teaching hospital and an advanced learning institute. Developing areas of specialisms in concert with academic institutions could help make Cyprus a key destination for certain health activities.

c. Encourage investments in sustainable tourism

Another initiative could be the implementation of measures to ensure tourist satisfaction at the local destination level by offering a quality experience and providing innovative products and services. Incentives for eco-certification can be used to promote sustainable tourism and encourage businesses to become certified. The private sector can be encouraged to invest in sustainable tourism projects through subsidies, or green loans. Also invest in the local community by offering incentives (e.g. tax) for businesses that buy local goods and services from sustainable sources.

d. Invest in eco-friendly technologies

Provision of incentives (such as subsidy schemes or tax) for Cypriot businesses, particularly hotels and other accommodation units, to stimulate investment in energy and water-efficient new technology during renovation/construction.

e. Monitor tourist satisfaction

It is important that the Deputy Ministry of Tourism continually monitors tourist satisfaction through proper indicators and analytics at both business and destination level, to support a continual improvement cycle. It could also create a rating system of hotels in Cyprus, allocating ratings based on the extent to which hotels use renewable energy, are energy efficient, or incorporate additional green policies, such as good waste management, water use, or elimination of single-use plastic.

2. Encourage investments in agriculture, especially in agrotech, and promote Cypriot speciality foods

The agricultural sector in Cyprus has the potential to grow faster than GDP, provided it is modernised via suitable investments. Agricultural technology (agrotech) is expected to play a large role in the agricultural sector moving forward, as the sector needs to shield from climate change and reduce excessive water and resource use.

Attracting appropriate investments could not only revive growth and productivity in the sector but also identify areas for differentiation and competitive advantages in Cypriot speciality foods, in line with shifting consumer preferences and priorities towards quality and sustainability. Cypriot traditional, authentic, ethical, and organic products can also enhance our tourism offering, as part of embracing a lifestyle, and provide a memento of Cyprus to take away. Due to its small size, Cyprus cannot produce huge volumes at low cost, but it can excel at its quality linked to a green and sustainable agenda. This can also develop the brand of Cyprus globally, increasing the country’s cultural capital, which can positively affect other industries as well.

Cyprus needs to develop and promote technically grounded agriculture degrees in a collaboration between universities and industry, in order to enhance the skills and training required to meet business needs. The degrees should equip young people with the skills necessary for innovation by providing them with both technical and business skills. In addition, students should have the opportunity to gain work experience relevant to their degree, by having a placement year into the industry (e.g. placements at farms or companies implementing agrotech solutions) in order to develop their skills and understand better the realities of the sector. The State should also provide financial subsidies for young people to study in the field of agriculture either locally or abroad.

Finally, it is important to invest in R&D and encourage new technologies to attract international investment.

Source: www.pwc.com.cy