The increase in foreign investment improves Cyprus's ranking in competitiveness

Cyprus moved up one spot to 43rd place out of 67 evaluated countries in the IMD World Competitiveness rankings, indicating a little improvement. The Economics Research Centre (CypERC) of the University of Cyprus announced this improvement.

These assessments are carried out by the CypERC in collaboration with the Cyprus Employers and Industrialists Federation (Oev) and the IMD World Competitiveness Centre of the IMD Business School in Switzerland.

Cyprus's advance in the rankings is mainly attributable to a noteworthy improvement in economic performance, which is mostly driven by increasing foreign direct investment (FDI) into the nation, according to the IMD World Competitiveness Yearbook 2024.

The rankings are influenced by the significant annual fluctuations in FDI and the investment volume relative to the size of the economy, making Cyprus' ranking somewhat volatile.

This year's improved economic performance was also supported by a high growth rate in fixed capital investments, an increase in service exports, reduced inflation, a relatively low cost of living, and strong performance in terms of direct investment stock.

In terms of government efficiency, Cyprus saw a slight improvement in 2024, owing to strong fiscal performance and its established advantage in taxation.

However, other categories of the overall competitiveness ranking for Cyprus remained unchanged from 2023.

For the fourth consecutive year, low business efficiency continues to be a major drawback in the ranking. This is largely due to weaknesses in managerial practices and the country's international image.

This year's assessment also highlighted deficiencies in basic infrastructure, particularly in the energy and education sectors.

Nevertheless, there are gradual improvements in areas previously identified as deficient, such as technological infrastructure, digital transformation in businesses, and corporate social responsibility.

Key improvements in the economy noted in this year’s assessment include an increase in fixed capital investments (in real terms), reduced inflation, and a strengthened fiscal surplus (as a percentage of GDP).

On the downside, there was a slowdown in GDP growth (both total and per capita) and increased business dissatisfaction with the legislative framework for employing foreign labor and environmental regulations.

In government efficiency, Cyprus ranks 28th in 2024, moving up two places from the previous year. This improvement is due to better public finances, surpluses, an upgraded credit rating, and reduced bureaucracy.

However, there were declines in tax policy subcategories, such as tax revenues as a percentage of GDP, and in the legislative framework for businesses, which includes legislation for employing foreign labor and the impact of state ownership of enterprises on business activities. The social framework also saw some deterioration, with issues like income shrinkage for poorer households and gender inequalities.

Despite these challenges, Cyprus remains strong in areas such as redundancy costs, new business density, corporate tax rates, and personal taxation.

In the business efficiency category, Cyprus remained at 55th place in 2024, the same position as in 2023. There are significant weaknesses in businesses’ responsiveness to changing market conditions, the effectiveness of boards of directors, the use of large databases and analytics in decision-making, and the country's international branding.

Regarding infrastructure, Cyprus ranks 42nd out of 67 countries, the same as in 2023. The most significant deterioration was in basic infrastructure, where the country ranks poorly due to worsening water resource management, urban management, and serious deficiencies in energy infrastructure and production.

However, Cyprus showed improvement in technological infrastructure, addressing past weaknesses such as low mobile broadband subscriptions and inadequate cybersecurity. The country also continues to excel in ICT service exports compared to most other countries.