The Role of FDI in Cyprus's Economic Development and Future Prospects

This essay examines the economic development of Cyprus, focusing on the role of Foreign Direct Investment (FDI) and its impact on the island's growth. Since 2017, Cyprus has attracted significant investment, particularly from the US, Asia, Russia, and the Middle East, bolstered by upgrades from international credit rating agencies and substantial projects. The island is now a prime FDI destination, driven by real estate projects, luxury marinas, tourism infrastructure, and energy sector opportunities. Cyprus leverages modern legislation, innovation, diversified tourism, and a favorable tax structure to attract capital, offering a stable EU environment and serving as a base for businesses in the Eastern Mediterranean. Examples like H&M and Lidl highlight the island's advantages, such as economies of scale and competitive advantages through greenfield investments. While greenfield investments offer benefits like low transportation costs, they also carry risks such as market knowledge gaps. The essay also considers Dunning and Lundan's framework for internationalizing production, including market-seeking, efficiency-seeking, strategic asset-seeking, and resource-seeking FDI. Although Cyprus faces internal conflicts, its ability to attract FDI has created jobs and increased productivity, albeit with challenges for local businesses due to increased competition and potential issues with MNCs influencing local authorities.

The island of Cyprus is located within the Eastern Mediterranean and is the third largest
and third most populous island in the Mediterranean. The island has now come way far in terms
of growth and development. It has been capturing the interest of the overseas market in terms of
investment opportunities. The increase in the investment phase has been observed since the era
of 2017. The major investors were mainly from the region of US, Asia, Russia and the Middle
East.
The island has been able to sustain its growth in terms of the credit standing capability because
of the constant upgrades as brought in by the international credit rating agency.
Some of the critical facts like that of recapitalisation of the major proportion of the banks, issue
of the bond rise to over €3 billion within the international markets, also a frequent number of big
scale projects together they all have contributed towards the development of the island Cyprus.
The island is now addressed as a top foreign direct investment (FDI) destination. According to
the various research held in the phase of 2014, the inflow of FDI has risen to about € 232
million, whereas the net outflow from Cyprus amounted to 954.
The island comprises mostly of the real estate projects on a large scale basis. Some the
key factors for enhancing the development of the island Cyprus is luxury marinas, infrastructure
to carry on tourism business activities, along with capabilities for business generation within the
energy sector. It is now addressed as one of the popular holiday destination, tourist hot-spot and
a pleasing destination to carry out business activities on an international basis.
The island is, on the other hand, making use of the modern legislative, innovation within the
development projects, diversifying tourists, formulation of the tax structure, and many other
fringe benefits using a tax structure that has been introduced to raise capital. Additional benefits

stand for the achievement of a stable and secure EU environment. The island also serves as a
base point for clients within the wider eastern Mediterranean region.
For example, H&M in Cyprus, they make use of the economic concept and theories such
as the economies of scale concept. The production level is the same in comparison to that of the
region of Sweden. The local territory based retailers and shops will not be able to bring in
competition because the advantage that stays in the company’s favour will be huge because of
the qualitative advantage that the island at present scenario processes. The huge capital generated
by the island activities can be utilised for the products development, marketing skills
and international connection.
The geographical advantage of the island Cyprus is one of the primary
factors for the growth within the country’s destiny and prosperity. The international
market appreciated the entrance of the island within the EU in 2004, and within the Eurozone in
2008. The island was respected as much of the investor and business firm believes that the island
has the potential for a number of business prospects.
Some of the major demonstrations of business process outsourcing in the era of 2017 is, Sykes
Enterprises which choose the island Cyprus from among the various 20 other competing
jurisdictions as its base. High-tech and entertainment start-up Whipper, also established its global
headquarters in Limassol in 2017, adding more weight to the growing start-up culture in Cyprus.
One of the primary reason why the supermarket chain Lidl has been relied upon the
Greenfield investment as their entry market strategy because of the future scope that stays in
favour of the island. The supermarket chain Lidl possess competitive advantage by cutting down
the additional costs such as customer services, ‘art-of-state’ shop designs and additional features.

The supermarket chain Lidl if would not have chosen the island for their start-up strategy then
the competitive advantage that stays in the favour would have been under risk, under threat or
even might have been eliminated (Ando, 2006). Other major beneficial factors that stays in
favour of the greenfield investment are as low transportation costs and elimination of the chances
that the frequent fluctuation in the foreign exchange market. However, there are numerous
disadvantages and risk associated with the Greenfield such as lack of knowledge regarding new
market, lack of the experts and strategic partners. There is a risk-bearing factor if business
formulated with the Greenfield investment in comparison to the joint-ventures market.
According to Dunning and Lundan (2008, pp. 68-78), there are four aspects to be
considered to internationalise the production of business. These are as follows:
O Market-seeking FDI.
O Efficiency-seeking (global sourcing FDI).
O Strategic asset/capabilities seeking FDI.
O Resource seeking FDI.
In a fast-changing business environment, the various economies are getting interconnected with
each other. Some are even changing at such pace that they have achieved a huge development.
They have successfully eliminated the poor state of their economy. Much of the corporates and
business firm are becoming MNC, and they are implementing different methods of business and
investment patterns. The business firms are making a proposal of competitive advantage in terms
of the location, internalization, and ownership advantage.
The Cyprus country is now surrounded by some MNC’s. It is a small country but comprises of
some internal conflicts. The country has somehow been able to capture the interest of the FDI
from across the region of the Middle East and non-European countries. The MNC

has provided many job scope within the country. Moreover, the local origin
operating business firms has to speed up their business undertaking and
activities to compete with the MNC companies, this, in turn, has brought an
expansion in terms of the productivity. The wages and salary structure on
the other hand has increased a lot due to which the local citizens are also
hugely satisfied. However, the development in the country has brought
about a significant situation of distress among the local operating firms
because of the high competition. The MNC’s on the other hand has
hampered the law by bribing the local authorities in Cyprus in order to get
away from the tax or from getting exemptions. The political factors has also
took place because of some particular body.