Setting the parameters to guide Cyprus find its “why”

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The “why” is the reference point for all your decisions and actions. It defines who you are and what makes you productive. It’s the reason for your life’s work. If you are feeling overwhelmed, anxious or unfulfilled, it is because you most likely don’t have a clear understanding of your “why”. Finding your “why” is the main proposition behind Simon Sinek’s thesis (https://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action?language=en) popularised in 2009.

When it comes to countries, this has to do with setting the vision of where the collective aspires to be in 20 – 30 years, setting the strategy, deliverables, and timeframe to achieve the pre-agreed goals that stem from this vision, and then having everyone rally behind this cause. The vision itself needs to be pragmatic and set within some broad parameters, or else it becomes wishful thinking and is doomed to fail.

Let us focus on Cyprus.

Population:

  • The population of Cyprus totals 840,000, of which 640,000 (76%) are Cypriots, 75,000 are from EU countries, 30,000 are from the UK (hooray for Brexit!), and 95,000 are from other countries.
  • Cyprus has the lowest fertility rate globally; Cypriot women are having on average just one child in their lifetime, way below the replacement level of roughly 2.1.
  • Lower population growth directly implies reduced labour input, it leads to higher tax rates which reduce the incentive to work and, in turn, reduces a country’s GDP.

Response:

  • More people need to move to the island so that there is enough demand for goods and services, including real estate, in the medium to long term. Before anyone starts venting, note that in 2001 Cyprus’ population was 703,000, of which 635,000 (91%) was Cypriots, i.e. over the past 20 years the number of Cypriots has remained broadly stable (and has aged), but the overall population has increased by 140,000 (20%) mainly due to in-migration of especially younger overseas nationals.
  • In-migration isn’t the only way; having a maternity allowance of 18 weeks is frankly too short and pushes women to either stay out of employment or not to have more children reducing the country’s talent pool. This, along with an inadequate provision of services by the state to accommodate taking care of the kids in the afternoons puts stress on the family, both financially and practically. Female participation in Cyprus stands at 59%, whilst in the EU is 67%, whilst that of Germany and the UK are significantly higher at 70% and 73% respectively.

Banks:

  • Banks constitute around 18% of Cyprus’ GDP and play an important role in the functioning of businesses and investments, by facilitating the allocation of funds from savers to borrowers and providing specialised services and structured products.
  • Cyprus banks are faced with over-leveraged businesses (165% of GDP) and households (92% of GDP) who, in their majority, don’t need (or want) additional debt.
  • They have high employee costs and an inflexible workforce, mainly due to the powerful Cyprus Union of Bank Employees.
  • They are faced with increased competition from online banks and fintech organisations.

Response:

  • Banks are currently focused on “finishing off” managing their NPLs and taking a proactive approach to their digital transformation. However, there is so much fat that can be removed by cutting costs and optimising operations thus improving their bottom line.
  • The excess liquidity in the local banking system needs to be channelled overseas or else banks will be forced to move up the risk spectrum which may lead to additional problems down the line.

Government:

  • There is a total lack of vision at the country level, with individual organisations and bodies acting in an uncoordinated manner. Although individual organisations operate better than others, they fail to coordinate actions often leading to duplicate work, increased costs, or lost opportunities.
  • The talent pool to lead government and other institutions is limited. Swede Sven-Göran Eriksson was the first non-British manager to be appointed coach of the England national team. Mark Carney, a Canadian, served as the Governor of the Bank of Canada from 2008 until 2013 and Governor of the Bank of England from 2013 to 2020.

Response:

  • A small country has a limited pool of local talent. This is not a weakness, but a realisation that bringing in expertise from overseas can significantly help bring the country forward through knowledge transfer from best-in-class, rather than progressively evolution.
  • The pandemic has exposed the various weaknesses of the government apparatus and highlighted where there are opportunities for improvement, e.g. online education, health-tech, moving real estate transactions and associated banking services online, etc.
 

Cyprus is faced with adverse demographics, a challenging market for its financial institutions, and a limited talent pool that lacks coordination. It needs to rediscover its “why” or be forced to play an increasingly (even more) marginalised role in an ever more competitive world. The country’s vision needs to be set out by its youth, but with voter turnout being above 60-65% for those over 60 years of age and below 35-40% for those below 40 years politicians are focused on placating those demographics that are against change.

Change has been thrusted upon us. We need to embrace it and act in a collective manner to set the foundations for the decades to come.