Economic interdependence in Cyprus

A study of economic interdependence and its future prospects in Cyprus demonstrates the importance of economic ties in transforming conflict, and reveals an important number of lessons for other divided and disputed territories.

By Erdal Guryay and Costas Apostolides

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This study ‘relates’ to legitimate economic transactions across the ceasefire line (the Green Line) in Cyprus, that separates the Greek and Turkish Cypriots. Within such ‘conflict’ situations it is considered that freedom of movement and economic interaction encourage resolution of difference by demonstrating that the communities involved can work together for mutual benefit, and that there are mutual economic gains arising from the settlement of disputes.

Within this context, the basic aim of this study was to promote economic interdependence between the Greek and Turkish Cypriot communities, enabling businesses to enhance their financial relations, and individuals to work together for mutual benefit.

Economic interaction requires a high degree of freedom of movement across dividing lines. In Cyprus this was achieved in April 2004 when both communities agreed to the establishment of crossing points (there are seven today), and with the accession of Cyprus to the European Union in May 2004, resulting in a series of EU laws and regulations, known as the ‘Green Line Regulations’, which form the basis for movement of both people and goods. The issue of non-recognition is overcome by assigning the function of documentation for trade in goods to the respective Chambers of Commerce.

Economic transactions between Greek Cypriot (GCC) Community and Turkish Cypriot Community (TCC) in Cyprus are much more significant than commonly assumed and in 2008 and 2009 exceeded €300m of business in both directions across the Green Line. This is the basic finding of this study – prepared by the Peace Economics Consortium consisting of eight members; four of them Greek and four Turkish Cypriot economists – that was completed in 2011.

Economic Interdependence
Economic Interdependence grew from €70m in 2003 to €311m in 2008, and fell slightly to €301m in 2009. The main findings relating to economic interdependence were the following:

  1. Movement across the Green Line and the EU Green Line Regulations have both resulted in the growth of consumer expenditure, trade and Turkish Cypriot employment since April 2003 when crossing the Green Line became possible;
  2. These factors, plus social insurance payments and health services, have benefited the Turkish Cypriot Community by an estimated €185m in 2008 and €192m in 2009;
  3. Movement across the Green Line by Turkish Cypriots are estimated to have benefited the Greek Cypriot Community by €126m in 2008 and €109m in 2009;
  4. The most important factor in economic interdependence is movement of people across the Green Line, which accounts for 75% of the total intra-island expenditures; the others being Green Line trade, TCC employment and social insurance and health service provision. In 2008, 3.7m people crossed the Green Line, but this fell to 3.2m in 2009;
  5. A survey undertaken found that, on average, Turkish Cypriot expenditure per visit across the Green Line is higher (at €70 per visit) than for Greek Cypriots (€50 per visit);
  6. Turkish Cypriots registered as employed south of the Green Line in 2008 totalled 2,800, but this fell to 2,460 in 2009 owing to the recession in construction;
  7. The contraction in the TCC economy – which began in 2008 and turned into a depression in 2009 – has been deeper; while south of the Green Line, the recession occurred in 2009 and has reduced TC employment and Green Line movement, thereby reducing TCC expenditure south of the Green Line;
  8. Crossing the Green Line has been made easier by the seven crossing points, but these still impose a cost in time, fuel and insurance (€68 for GC’s and €48 for TC’s per visit by car) and constitutes a discouraging factor for Green Line Crossings;
  9. An impediment to economic interdependence is the psychological problem which has its source in the experiences of the past and the failure to reach a Cyprus settlement.

Recommendations

The recommendations in the report regarding intra-island trade and interdependence under the present conditions include the following:

  1. The leaders of the GCC and TCC should set out their policies on economic interdependence and should actively support intra-island trade and economic activity. Furthermore, a publicity campaign should be undertaken to encourage intra-island economic cooperation and officials should be trained in such a policy;
  2. Green Line Trade in goods should be encouraged;
  3. The number of crossing points across the Green Line should be increased to facilitate movement and reduce travel, time and monetary costs of crossing over;
  4. The TCC should be encouraged to implement more urgently its EU harmonization programme, and extend the programme to cover all measures affecting intra-island trade, and particularly quality and health standards;
  5. Cooperation between professional associations across the Green Line and greater involvement of the All Cyprus Trade Union Forum would extend economic cooperation;
  6. The confidence building measures relating to the environment, cultural affairs, health, crisis management, crime and criminal matters should be implemented and finance provided;
  7. The Technical Committees set up under the Cyprus Talks should be reactivated on the lines of the Joint Unit on Criminal Matters and the Technical Committee for the Cultural Heritage. Additional committees on intra-island trade and cooperation, and on agriculture, veterinary services, forestry and others, should be established;
  8. An initiative to facilitate mobile telephone roaming facilities in Cyprus should be undertaken assisting those crossing the Green Line;
  9. A cooperation mechanism for planning and ensuring sustainable development in the event of a Cyprus settlement should be established;
  10. The CCCI and TCC should be supported with the aim of developing economic interdependence and cooperation further, and preparing for a Cyprus Settlement.

Conclusion
The study concludes that economic interdependence is developing. There is evidence that the two markets affect each other to some extent, and that in terms of GDP the positive impact is mainly on the wholesale/retail sector, restaurants and tourism. Such interdependence improves competitiveness and helps businesses to prepare for a Cyprus settlement. Work is continuing on the second stage of the study, which aims at examining the economic development of the island after a Cyprus settlement and setting out a framework for a joint economic development plan.

Erdal Guryay is a professor at the faculty of economics and administrative sciences of the Near East University and Costas Apostolides, an expert in international economics, is the chairman of EMS Economic Management Ltd, a consulting firm established in 1991.

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