Employers propose measures for dealing with economic crisis

A series of activities in late 2008 have brought the global financial crisis and its impact on the Cypriot economy to the centre of focus for the Cyprus Employers and Industrialists Federation. The federation believes that the Cypriot economy has slowed down significantly, highlighting notably construction, tourism and manufacturing as the sectors worst affected. Thus, it has proposed measures to assist these sectors. Meanwhile, employers remain concerned about the future.

Substantial slowdown in economy

During November and December 2008, the issue of the global financial crisis was at the centre of interest for the Cyprus Employers and Industrialists Federation (Ομοσπονδία Εργοδοτών και Βιομηχάνων, ΟΕΒ). In this context, ΟΕΒ presented its views on the magnitude of the crisis in Cyprus mainly at meetings with state officials. The federation also made a range of recommendations aiming to prevent or reduce the impacts of the global financial crisis at national level. According to OEB estimates, the Cypriot economy has slowed down substantially: gross domestic product (GDP) had increased by only 1.5% in 2008, and certain sectors of economic activity, including construction, hotels and restaurants, and manufacturing, are already facing serious problems.

For instance, in the tourism sector, bookings have reportedly fallen by about 20%, while business also appears to be down in export industries, due to the financial problems faced by countries that import Cypriot goods. According to OEB, the current economic crisis has also had a significant impact on the real estate market and new car sales. Moreover, OEB’s member enterprises have expressed strong concerns about their lending capacity or low liquidity, as well as the level of interest rates.

Support requested for sectors worst hit

In order to discuss ways of dealing with the crisis, OEB met with the President of the Republic, Dimitris Christofias, on 5 December 2008, and also with the Governor of the Central Bank of Cyprus, Athanasios Orphanides, on 29 December. At these meetings, ΟΕΒ recommended the adoption of measures to assist certain sectors of economic activity, principally tourism and construction.

For the tourism sector, ΟΕΒ specifically recommended that:

  • the value-added tax (VAT) rate be decreased to 5% for all tourism enterprises,
  • airport taxes be reduced by returning part of government revenues;
  • a special management committee be set up to help deal with the crisis.

In addition, ΟΕΒ’s recommendations include a substantial reduction in taxes and charges in the construction sector, immediate implementation of government works, issuance of property titles as rapidly as possible and amendment of the existing statutory framework in this regard. Finally, with reference to the manufacturing sector, ΟΕΒ argued that industry constitutes a permanent stabilising factor for the Cypriot economy, making it imperative, on the one hand, to strengthen existing support schemes for the manufacturing industry and, on the other hand, to speed up the process of examining such schemes.

Pessimism from employer side

The business world has expressed pessimism with regard to the course taken by the economy in the second half of 2008 compared with the first half. The findings of a specialised survey conducted for ΟΕΒ by a labour market research company on a sample of 1,146 enterprises showed that Cypriot business people forecast that the state of the economy would worsen in the second half of 2008. More specifically, 44% of business people expected the economic situation to get worse, but to varying degrees, while 30% expected the economy to remain on a steady course compared with the first half of the year, and 11% expected a marginal improvement in the economy. With regard to classification by sector of economic activity, estimates regarding a deterioration of the economy referred mainly to the commerce sector, followed by construction, services and industry. In ΟΕΒ’s view, however, the positive element that has emerged from this survey is that, despite their negative estimations, the employers will be very restrained with regard to staff cutbacks. Of the employers surveyed, only 9% expected to dismiss employees, while 11% reported plans to hire more staff.

Eva Soumeli, Cyprus Labour Institute (INEK/PEO)

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