Cypriot tourism gutted by recession

Tourism and property tax revenues fall as Cyprus begins to feel the crunch writes MEL REYNOLDS.

Figures released last month indicate that Cyprus’ vital services sector is beginning to feel the effects of the global financial crisis, signalling fears for job security in the tourism and construction industries.

Just as the island’s troubled property industry battles a growing tide of discontent concerning long-overdue title deeds, the devalued British pound and rising prices are causing consternation for the tourism sector, as an increasing number of visitors abandon ‘rip-off Cyprus’ in favour of cheaper breaks in countries like Egypt and Turkey.

With the Cyprus economy closely linked to the economic woes of its main trading partners, recently released figures for its tourism sector highlight the need for a radical approach to address diminishing year-on-year visitor arrivals and industry revenues.

An 8.6 per cent decline in arrivals with a corresponding fall of 12.8 per cent in tourism revenues for the period from January to April 2009 includes a 10 per cent reduction in the number of British holiday-makers to the island, traditionally its largest overseas market.

The strength of the Euro against the struggling British pound has compounded the issue with ‘bucket and spade’ consumers deterred by Cyprus’ inflated cost of living and rising complaints about a deterioration in service standards during its ‘boom’ years.

In its annual Holiday Cost of Living Survey UK travel operator Thomas Cook identified Cyprus as the most expensive European travel destination in its top ten value destinations in 2009, falling far below the island’s more price competitive neighbours.

Perennial British favourite Ayia Napa has been one of the worst hit resorts on the island and was recently described as a ‘ghost town’ with many restaurants and bars remaining closed for the season.

Extortionate prices and over-charging are amongst the most vocal complaints made by tourists, with claims that some bars are charging up to €4.50 ($7.90) for a pint of beer in what was once considered a draw for Europe’s holiday bargain-hunters.

Although the resort has enjoyed some success in shedding its ‘lager-lout’ image it has yet to consolidate its position at the higher quality end of the tourist market.

More remote resorts such as Polis are also feeling the pinch and blame inadequate public transport and the withdrawal of tour operators from the town in response to dwindling demand and profitability.

President of the Republic Demitris Christofias addressed the Cyprus Hoteliers Association (PASYXE) at their Annual General Meeting in Cyprus in May, offering his assurance that support for the industry would remain a government priority, “The common objective is to upgrade the quality of the tourist product and maintain its competitiveness. We also have to restructure and reshape the services we offer,” he said.

“Our strategic goal is a more dynamic and effective promotion of Cyprus, enhancing our tourist product and upgrading services offered.”

Commenting on the rising cost of tourist services Christofias emphasised the need for restraint on pricing, “We cannot allow a foreign visitor to be overcharged for a pitta of souvlaki to the tune of €10 or more. That would be a strategic mistake,” he said.

The focus on ‘quality’ to address decline in an industry which contributes 12 per cent of the island’s GDP, is an attempt to attract more affluent visitors in the future.

However, while the development of high-end visitor products such as marinas, golf courses and conference centres will provide market diversification, the policy has been widely criticised by leading industry experts as ignoring the needs of Cyprus’ critically important mass market.

Competitive air transport services, an increase in three and four star accommodation and value for money are all vitally important for the sector, yet with tourist businesses actually increasing prices in the wake of the downturn and little progress made on air transport issues, it appears that Cyprus is content to sit back and watch as more consumer-focused countries take decisive action.

The International Air Carrier Association (IACA) has repeatedly warned the Cyprus government that it must take steps to ensure that the island’s airports remain competitive with its regional counterparts.

The organisation issued a press release in December 2008 in which IACA’s Manager of Ground Operations, Luc Geens, described the difficulties faced by the island’s air transport operators: “The steep increase of more than 70 per cent in airport charges at Larnaca and Pafos and the unacceptable government concession fee of 33 % on airport revenues are examples of how Cyprus has become an unattractive place to do business for airlines,” he said.

“Other resorts in Egypt and Turkey, who reacted quickly to the current downturn in the tourist sector, are continuing to grow as holiday destinations.”

Urging a swift removal of the increased charges and the implementation of improved airline incentive plans, Geens warned that failure to create a more competitive marketplace for tourism would have severe consequences for Cyprus and its economy.

The island’s property market has been a major contributor to economic growth, however a decline in the number of property sales contracts reported by the Land Registry and a significant fall in property- related State revenue are testimony to a reversal of good fortune.

Capital Gains Tax receipts dropped by 82 per cent in the first four months of this year, which combined with a fall in stamp duties, amounted to a loss of over €104 million to the State.

Sales have been hampered by both the global economic crisis and adverse publicity surrounding the government’s apparent lack of interest in either resolving or taking action against property developers for their part in the on-going title deeds fiasco.

With growing pressure from the British Government and the Cyprus Property Action Group (CPAG), the EU may yet wade into the debacle regarding the lack of title deeds for the owners of around 100,000 properties in the Republic, 30,000 of which are said to have been bought by foreigners.

With many purchasers waiting for anything up to twenty years for title deeds, a result of property developers raising capital by borrowing against the land on which the homes in question stand, the issue threatens to undermine foreign property investment and exacerbate a general slow-down in the construction industry.

The CPAG are to stage a peaceful demonstration during an official Presidential visit to the town of Peyia in early June.

Almost 2,000 disgruntled buyers have also added their weight to a petition posted on a Downing Street website, calling for British Prime Minister Gordon Brown to ‘exert pressure’ on the government of Cyprus to resolve the matter.

The fall in tourism and real estate revenues are perhaps the most alarming for the island’s economic outlook, with 78 per cent of Cyprus’ GDP derived from the services sector, comprised of these and the financial services industry.

The latter also suffered a blow with the announcement last month that Marfin Popular Bank is to move its headquarters to Greece, although Cyprus Finance Minister Charilaos Stavrakis was quick to play down the impact the decision would have on the island’s economy.

“We cannot ignore the fact that the departure of a large bank from Cyprus creates a negative picture in terms of Cyprus’ efforts to attract foreign investors, but I do not think there will be serious immediate economic consequences,” he claimed.

Ironically, a multi-million Qatar investment proposal to develop a luxury hotel on a State owned site in Nicosia still hangs in the balance after opposition party DISY accused the government of a lack of transparency over the proposal, which they claim, excludes local businesses from bidding to develop the site.

At a time when the public sector is rife with accusations of nepotism, and political fighting continues to threaten the Qatar deal, the government faces a challenging economic future, particularly if it is to justify the massive expense account increases it recently awarded to 48 top state and judicial officials.

As the summer season begins, its ability to apply an appropriate solution to the title deeds dilemma and more crucially, the ‘bums in beds’ conundrum may yet prove to be its reckoning.