How have recent events influenced relations between Russia & Cyprus?

Cypriot–Russian relations refers to the bilateral foreign relations between the Republic of Cyprus and the Russian Federation. The USSR established good relations with the newly independent Republic of Cyprus on August 18th 1960. Cooperation between both countries has improved since the 1990s and the fall of the USSR. In today’s current climate, how are the sanctions in Russia influencing both economies relationship?

How have recent events influenced relations between Russia & Cyprus?

Cypriot–Russian relations refers to the bilateral foreign relations between the Republic of Cyprus and the Russian Federation. The USSR established good relations with the newly independent Republic of Cyprus on August 18th 1960. Cooperation between both countries has improved since the 1990s and the fall of the USSR. In today’s current climate, how are the sanctions in Russia influencing both economies relationship?

Cyprus' economy & citrus farmers

The ministerial council in Cyprus examined the negative effects of the sanctions on other states withinin the Eurozone. While citrus farmers in Cyprus showed a significant loss by approximately €10.8 million, last year they were asking to separate Cyprus and seek exemption from the embargo. It was found that the main problem areas for Cyprus were fruit crops, such as lemons, oranges and peaches.

Agriculture minister Nicos Kouyialis concluded that aside from seeking compensation from the EU, Cyprus would also look into alternative markets aside from Russia. The farmers unions stand behind the government for securing compensation however are reluctant to support looking into alternative markets. Union representatives and the producers union from Cyprus claimed they would have to sell at very low prices for the plan to be actualised.

The Ministry of Foreign Affairs added that every effort is being made to address the adverse repercussions for Cypriot citrus growers. Asked about the extension of the Russian embargo on new products, the Minister stated “this development does not really affect Cyprus since the island does not export these products and I hope that the embargo will not be extended to include more products”. €125 million compensation was awarded to all EU vegetable growers in August last year but distribution of those funds remains unknown.The registration of halloumi cheese as a protected designation of origin (PDO) was also discussed, with hopes of positive results from the European Commission by 2016.

TRNC

A Turkish Cypriot columnist has proposed that as a result of the embargoes between Russia, the EU and the US may be of benefit to the Turkish Republic of Northern Cyprus. Russia may need to start buying products from countries outside of the EU, such as Turkey. He goes on to say: “The TRNC could also take an advantage from this situation. With Turkey’s initiative Russian tourists may decide to visit Northern Cyprus instead of the Greek side of the island. This also may be a part of Russia’s needs in agricultural produce such as fruits may be met by the TRNC. What should be done is to secure coordination among the ministries concerned, and consult on these issues with officials from the Turkish Embassy and take the necessary steps accordingly without any further delay”.

Russian economy effects

A Russian law limiting tax privileges enjoyed by Russian-owned companies based overseas may have less of an impact on Russian business activity in Cyprus compared to developments in Cyprus and the EU, according to a recent study.

FBME

Evgenios C. Evgeniou, chairman of the Association of Russian Businessmen in Cyprus, stated the banking sector bailout in 2013 led to the loss of deposits, held at Bank of Cyprus and Laiki Bank, as well as the suspension of the operations of FBME (the Federal Bank of the Middle East) which had a huge disruption of Russian business activity in Cyprus. This eventually led to numerous companies being liquidated. “The insolvency of Laiki Bank and confiscation of funds from depositors accounts with the Bank of Cyprus, not only damaged local and international businesses, including Russian business, but in many instances, resulted in their complete involuntary winding up.” Stated Mr Evgeniou.

The FBME’s Cyprus operations have remained frozen since July 2014, after the Central Bank of Cyprus placed the bank under administration following various money laundering allegations by US authorities. It should be noted that FBME was the first foreign financial structure in 1982 which established international activities in the banking sector eventually bringing significant financial benefits to Cyprus in coming years. It was also one of the first foreign banks to open its branch in Moscow during the perestroika times in Russia. As a result of this FBME has been actively involved in many projects in Russia with Russian clients holding their accounts. In addition, the changing of the Bank of Cyprus board of Directors following its €1 billion capital increase in August, as well as weakening of share’s in the lender’s capital held by bailed-in Russian depositors, were additional factors to upset Russian business people in Cyprus.

DEFA

Another factor was the decision of the state-owned Natural Gas Public Company DEFA not to complete negotiations with Itera, a Russian-owned oil and gas company, for Cyprus’s interim supply of natural gas in 2013. In September 2013, DEFA requested another offer from Itera, but turned down DEFA’s request and backed out of negotiations. Therefore, the laws adopted due to obvious reasons in Russia, including the de-offshorisation law, are secondary to the above-mentioned events in their degree of influence upon the presence of the Russian business in Cyprus. Business service professionals said the law may change the pattern of Cyprus’s economy where a significant number of Russian owned companies are registered.

The de-offshorisation law, part of a set of measures introduced by the Russian government with a view to modernising the country’s taxation system, entered into force on January 1st, 2015. It is expected to lead smaller Russian owned companies to leave Cyprus and settle in Russia, and encourage a number of larger ones to relocate their headquarters to the island in order to continue benefiting from the Cypriot tax regime and legal framework, business professionals said. The contribution of the business service sector to Cyprus’s GDP is estimated at around 15%.

The sanctions are also negatively affecting Russian business operations in Cyprus is related to sanctions imposed on Russia by the EU countries in response to the annexation of Crimea last year. The sanctions, which among other things ban certain Russian nationals from entering the EU and restrict access to funding for certain Russian energy and financial companies, touched upon even particular individuals who have made a valuable contribution into development of bilateral Russian-Cypriot relationships.

“Summing up, one cannot exclude that a number of Russian business structures which have been traditionally operating in Cyprus might change the format of their presence adjusting to both positive and negative tendencies” the chairman of the Association of Russian Businessmen in Cyprus said. At the same time it can be suggested that a historical potential of the relationship between Cyprus and Russia which has amounted to over 900 years, could allow them to overcome problems in the bilateral business relations of the current economic period.

Sources:

http://czampelas.com/cyruj/

http://cyprus-mail.com/2014/08/18/eu-fruit-vegetable-growers-to-get-125-mln-euros-to-help-with-russia-ban/


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