Cyprus as a whole is now an open, free-market, services-based economy with some light manufacturing (TDS, 2008). Since 1st May 2004, Cyprus has accession to the European Union, which is an important milestone in its recent economic development. The Cypriots are the most prosperous people in the Mediterranean region. It has a good, educated English-speaking population, good airline connections, and excellent telecommunications.
The economic activity in Cyprus had been based on agriculture in the past but in the past two decades, there has been a shift towards light manufacturing and services. Today agriculture contributes only 3.2% to the GDP while industry and construction contribute 19.2 percent and the services sector including tourism contribute 77.6% to the GDP employing 72.1% of the labor force (TDS, 2008). Cyprus has very few proven natural resources although the government is trying to explore the possibilities for offshore oil and gas reserves off its southern coast.
The GNP growth rates have declined as the Cyprus economy has matured over the years. Public finances have improved considerably and the fiscal deficit which had peaked in 2003 was eliminated by 2007 (TDS, 2008). There was a fiscal surplus in 2007 and the public debt declined simultaneously. The Cyprus economy got a further boost when Euro replaced the Cyprus pound as Cyprus’ national currency. This is expected to bring about a higher degree of price stability, lower interest rates, reduction of currency conversion costs and exchange rate risk, and increased competition through greater price transparency. The investment climate in Cyprus is conducive to FDI. There is an increased flow of FDI, particularly from the EU. Cyprus has a good communication system, an educated labor force, good airline connections, and a sound legal system and provides modern infrastructures and tax incentives for business houses. . .