Country Listing

Cyprus Table of Contents


Chapter 3. The Economy


Ruins of ancient aqueduct at Salamis near the contemporary village of Ayios Seryios

CYPRIOTS HAVE EXPERIENCED A SUBSTANTIAL improvement in their living standards since World War II. Cyprus benefited from the war, and in succeeding decades its economy grew at rates that matched those of other countries that profited from the general West European boom that began in the 1950s and lasted up to the first oil price increase of 1973. Cypriot per capita income increased steadily through this period; the economy diversified and ceased to be that of a Third World colony. This success was achieved despite widespread turmoil stemming from shaking off British rule in the 1950s and intercommunal warfare during the 1960s.

Cyprus was affected in 1973 and 1979 by the first and second oil price increases, for it was almost completely lacking in domestic sources of energy. However, energy-related economic disruption was negligible compared with the effects of the Turkish invasion of 1974, which ended in the de facto partition of the Republic of Cyprus. The island's economy disintegrated as a third of its inhabitants fled their homes and livelihoods and many farming, manufacturing, and commercial relationships were shattered. Thereafter, the island's Greek Cypriot and Turkish Cypriot communities lived separated from one another. Each sought to recreate a functioning economy.

Greeks Cypriots were the more successful. Republic of Cyprus planners adopted an aggressive program of constructive deficit spending, economic incentives, and targeted investments that led the Greek Cypriot economy to reach pre-1974 levels within a few years. This was an astonishing accomplishment in that the island's partition had cost the republic much of its agricultural and manufacturing assets.

The 1980s saw healthy growth and low unemployment. Tourism swelled, and by 1990 more than a million tourists, mostly from Western Europe, visited the republic each year. Housing them caused much construction and an explosion in the value of property along the coast. Manufacturing and trade were encouraged and grew. The destruction of Beirut permitted the republic to become a regional center for services and finance. As the 1990s began, Greek Cypriots were upgrading their tourist trade and aiming at a more diversified and sophisticated manufacturing sector. Leaders of the republic's economy hoped to take advantage of the republic's able and motivated work force and a strong and flexible commercial tradition.

The Turkish Cypriot economy also grew. Facing many obstacles and beginning at a lower point, however, its successes were smaller, and at the beginning of the 1990s Turkish Cypriots enjoyed a per capita income about one-third that of Greek Cypriots. Economic obstacles included the lack of a commercial tradition, a less well-trained work force, and rampant inflation largely imported from Turkey. However, perhaps the most serious economic hurdle Turkish Cypriots had to surmount was their state's lack of international recognition. Its absence deprived them of some international aid and made foreign connections difficult. Despite these difficulties, however, Turkish Cypriots could look with some optimism toward the future. Tourism expanded rapidly in the late l980s and brought in vital foreign exchange. The overall economy had diversified to some extent. Agriculture was more efficient and employed a smaller share of the work force. The service sector had increased in importance. Analysts expected, however, that the Turkish Cypriot economy would likely continue to need Turkish assistance for the foreseeable future.

Data as of January 1991