Basic Characteristics - The Cypriot economy is a small, robust and fairly flexible economy, and has shown itself able to adapt to rapidly changing circumstances. Inter temporally, the Cypriot economy is characterized by a very satisfactory rate of growth (the average annual rate of growth of GDP amounted to 5,1%, in real terms, over the period 1961-2003), full employment conditions and internal and external macroeconomic stability. As a result, Cyprus has achieved an enviable level of real convergence with the advanced economies, with a per capita GDP in 2003, expressed in purchasing power standards, standing at 76,3% of the E.U. 15 average, according to the latest Eurostat estimates of May 2004, and exceeds that of Greece and Portugal.

In brief, the basic characteristics of the Cyprus economy are the following:

• The dominant role of the private sector in the production process. The role of the State is a supportive one, and concentrates mainly in maintaining conditions of macroeconomic stability and a favourable business climate by creating the necessary legal and institutional framework, securing conditions of fair competition, creating modern economic and social infrastructure - utilizing, inter alia, the new instruments of public private partnership - and ensuring conditions of social cohesion.

• The small size of the domestic market. The population in the Government controlled area was 709.600 in 2002, out of which 69,1% live in urban areas and 30,9% in rural areas.

The small size of the domestic market constitutes an adverse factor in the realization of economies of scale and in the development of satisfactory intersectional relationships.

• The small size of enterprises. According to the Registration of Establishments of 2000, the size of enterprises remained very small, with 4,4 persons on average per unit in 2000, as compared to 4,3 persons in 1995. More than half of the total number of enterprises, 58% employed only one person. The “micro enterprises”, that is the enterprises employing less than 10 persons constituted 95% of the total, other “small-sized” enterprises with 10-49 employees constituted 4% and “medium-sized” enterprises, with 50-249 employees constituted only 0,7% of the total. The large enterprises with a workforce exceeding 250 employees amounted to solely 67, representing 0,1% of the total number of enterprises. The small size of the business units hinders the exploitation of economies of scale and the adoption of advanced technologies and modern methods of management, production design and marketing.

• The small size of the labour force, given the small population base and certain quantitative and qualitative imbalances in the labour market. The quantitative and qualitative imbalances are evident both at the sectoral and occupational level and have been partly ameliorated by the employment, to a large extent, of foreign labour. At the sectoral level, the imbalances are more evident in the sectors of hotels and restaurants, construction, agriculture and manufacturing, whereas at the occupational level, the shortages are observed in technical and low-skilled occupations.

• The openness of the economy, with total imports and exports of goods and services accounting for around 102% of GDP in 2003 as compared to an E.U. average of 66,9%.

• The predominance and increasing importance of the services sectors, which accounted for 75,7% of GDP and 71,5% of total gainful employment in 2003. This development reflects the gradual restructuring of the Cypriot economy from an exporter of minerals and agricultural products, mainly copper, asbestos and citrus fruits in the period 1961-73 and an exporter of manufactured goods, mainly clothing and footwear, in the latter part of the 1970s and the early part of the 80s, to an international tourist, business and services centre during the 1980s and 1990s.

• Partial dependence on the tourism sector, whose total contribution, derived from the value added created, either directly through the purchases of goods and services of tourists in various sectors of economic activity or indirectly, through the intersectoral linkages, amounted to 15-20% of GDP in the period 1990-2003.