Economic crisis triggers government response at national and sectoral levels

In order to reduce the effects of the economic crisis on the Cypriot economy, the government has decided to introduce a package of measures, finalised at the beginning of November 2009. The measures aim to stimulate the economy, on the one hand, and to protect employment on the other. Among the measures are retraining programmes and incentives for hiring unemployed people. The measures have been largely welcomed by the social partners.

In an effort to address and moderate the effects of the global economic crisis on the Cypriot economy, the government has introduced a package of measures, which it finalised in early November 2009. A number of these measures are a continuation of previous initiatives, which have been extended until the crisis eases. It is likely that, in the coming months, the introduction of additional measures will be approved. In this context and referring to the measures seeking to support employment, the Minister of Labour and Social Insurance, Sotiroula Charalambous, highlighted that the measures will be evaluated and readjusted depending on how the crisis develops.

Measures to support employment

Problem of rising unemployment

As the available statistical data show, one of the most serious effects of the economic crisis is the particularly high unemployment rate compared with previous years. According to seasonally adjusted Eurostat data published on 30 October 2009, although Cyprus continues to have the third lowest unemployment rate in the EU27 – at 5.9% in September 2009 – there has been a substantial increase in levels since September 2008, when the unemployment rate stood at 3.5%. A particularly worrying aspect is the level of unemployment in certain sectors of economic activity, such as construction, where between September 2008 and September 2009, unemployment increased by over five percentage points, exceeding 7% (CY0910039I). Against this background, many of the measures to be implemented aim to protect employment.

Details of measures

Specifically, the Human Resource Development Authority (Αρχή Ανάπτυξης Ανθρώπινου Δυναμικού, ANAD), in collaboration with the Ministry of Labour and Social Insurance (Υπουργείο Εργασίας και Κοινωνικών Ασφαλίσεων, MLSI), have introduced ‘a special plan for prevention/action’, which primarily seeks to prevent and eliminate unemployment, by making use of training and retraining possibilities. The special prevention/action plan, whose implementation is the responsibility of ANAD, includes the following actions targeting enterprises, workers and unemployed persons.

It should be noted that, apart from ANAD and the MLSI, the Productivity Centre (Κέντρο Παραγωγικότητας, KEPA) and the Higher Hotel Institute (Ανώτερο Ξενοδοχειακό Ινστιτούτο Κύπρου, HHIC) will also take part in many of the above programmes.

Subsidy for hiring unemployed people

On 4 December 2009, with its publication in the country’s Official Gazette, official notice was given of a ‘subsidy scheme for hiring unemployed people’. Under the provisions of this scheme, which was also approved by the social partners in the framework of the National Employment Committee, companies are to be encouraged to hire unemployed people for a period of six months through receipt of a subsidy, and for a further two months without a subsidy. The subsidy will amount to 30% of total wage costs for each employee, with a maximum expenditure amount of €3,600 per person on a six-month basis. All enterprises are entitled to receive the subsidy, except for those operating in the primary production of agricultural products, in fishing, aquaculture and coal, as well as in ‘ailing companies’ as defined by European Community guidelines. Total spending on the project – which is financed by the European Social Fund and which aims to find work for about 1,700 unemployed people – will be around €6 million. Approval of a subsidy scheme to save existing jobs is expected within the next few months.

Measures targeting tourism industry

On 5 November 2009, the Cyprus Council of Ministers approved a proposal by the Ministry of Commerce, Industry and Tourism (Υπουργείου Εμπορίου, Βιομηχανίας και Τουρισμού, MCIT) regarding the extension of support measures for the tourism industry until 31 December 2010. The measures to be extended specifically involve the following:

  • the reduction of value added tax (VAT) from 8% to 5%;
  • state payment of the accommodation tax to local authorities;
  • suspension of the state’s right to airport tax;
  • approval of a €10 million fund for social tourism.

With regard to measures supporting social tourism, the MLSI and the Cyprus Tourism Organisation (Κυπριακός Οργανισμός Τουρισμού, KOT) are implementing a social tourism scheme directed at insured people with low incomes, recipients of public assistance, disabled persons and pensioners. It was also decided to double the number of subsidised holidays available from the Holiday Fund. In the same context, from 14 November 2009 to 27 June 2010, KOT has for the second year running implemented the ‘Cyprus, short escapes – great discoveries’ holiday programme, which primarily aims to prolong tourism beyond the high season.

Two additional measures are also due to be introduced in this area: the first involves the offering of urban planning incentives, with permission to build extra space to upgrade and expand the services offered by hotels; the second entails government guarantees on loans for upgrading and modernising hotels.

Other measures

To support the above provisions, the government along with the MLSI, as the main planning and implementing body, has decided to:

  • step up measures to eliminate undeclared and illegal employment, by increasing workplace inspections and creating special teams in all districts for immediate investigation of complaints in this regard (CY0901039I);
  • implement restrictive policies on the granting of additional permits to employ third-country nationals. In this context, new permits will be granted only where deemed necessary – for instance, in agriculture and animal production or for specialised staff. At the same time, there will be strict implementation of existing criteria, particularly regarding the principle of national and European Community preferences, the criterion of organised enterprises and the possibility to train unskilled staff to replace non-nationals, on condition that their work permits have expired.

Reactions of social partners

Although the government measures addressing the effects of the economic crisis were largely well received by the social partners, the reactions were rather passive in nature. One exception in this respect concerns the Employers’ and Industrialists’ Federation (Ομοσπονδία Εργοδοτών και Βιομηχάνων, OEB), which on 6 November 2009 urged its members to explore and make appropriate use of the training and retraining programmes made available by ANAD, as well as the new subsidy scheme for hiring unemployed people. According to OEB, companies’ participation in these programmes can be of great benefit, since they will be able to retrain their own staff, thus preventing dismissals and suspension of business, while also keeping wage costs at low levels. In order to make it easier for its member enterprises, OEB codified the main provisions of the relevant schemes, clearly setting out the advantages of each initiative.

Evangelia Soumeli, Cyprus Labour Institute (INEK/PEO)

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