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Cyprus Economy


The Cypriot economy is prosperous and has diversified in recent years. Cyprus has been sought as a basis for several offshore businesses, due to its highly developed infrastructure. Economic policy of the Cyprus government has focused on meeting the criteria for admission to the European Union. Adoption of the euro as a national currency is required of all new countries joining the European Union, and the Cypriot government intends to adopt the currency on 1 January 2008.

Agricultural products include cereal grains, olives, citrus, potatoes, and cotton; in addition, the Greek sector grows deciduous fruits and wine grapes, and the Turkish side grows tobacco, vegetables, and table grapes. Sheep, goats, poultry, hogs, and some cattle are raised. Fishing is an important industry in the Turkish sector, and the Greek side has a strong manufacturing economy (processed foods and beverages, paper, chemicals, textiles, metal products, and refined petroleum). Mineral resources include copper, pyrites, chrome, asbestos, and gypsum. Timber is also important. Tourism is important for both areas but has been affected by political instability. The Greek sector is considerably more prosperous than the Turkish side, which is heavily dependent on aid from Turkey.

Recently, oil has been discovered in the seabed between Cyprus and Egypt and talks are underway between Lebanon and Egypt to reach an agreement as to the exploration of these resources. The seabed separating Lebanon and Cyprus is believed to hold significant amounts of crude oil and natural gas.

The economy of the Turkish Cypriot North is dominated by the services sector including the public sector, trade, tourism and education, with smaller agriculture and light manufacturing sectors. The economy operates on a free-market basis, although it continues to be handicapped by the political isolation of Turkish Cypriots, the lack of private and governmental investment, high freight costs, and shortages of skilled labour. Despite these constraints, the Turkish Cypriot economy turned in an impressive performance in 2003 and 2004, with growth rates of 9.6% and 11.4%. The average income in the TRNC is $5,000 per capita: the Turkish government has pledged to increase this to $12,000 through investment and aid. This growth has been buoyed by the relative stability of the Turkish Lira and by a boom in the education and construction sectors.


Economy - overview :
The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for 76% of GDP. Tourism and financial services are the most important sectors; erratic growth rates over the past decade reflect the economy's reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control grew a healthy 3.7% to 3.8% per year in 2004, 2005, and 2006, well above the EU average. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005. The government has initiated an aggressive austerity program, which has cut the budget deficit to well below 3%, and the EU is expected to invite Cyprus to adopt the euro as its national currency on 1 January 2008. As in the area administered by Turkish Cypriots, water shortages are a perennial problem; a few desalination plants are now on line. After 10 years of drought, the country received substantial rainfall from 2001-04 alleviating immediate concerns. Rainfall in 2005 and 2006, however, was well below average making water rationing likely in 2007. The Turkish Cypriot economy has roughly 45% of the per capita GDP of the south, and economic growth tends to be volatile, given the north's relative isolation, bloated public sector, reliance on the Turkish lira, and small market size. The Turkish Cypriot economy grew around 10.6% in 2006, fueled by growth in the construction and education sectors, as well as increased employment of Turkish Cypriots in the area under government control. The Turkish Cypriots are heavily dependent on transfers from the Turkish Government. Ankara directly finances around one-third of the "TRNC's" budget. Aid from Turkey has reached over $400 million annually in recent years. Agriculture and services, together, employ more than half of the work force.

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