Even though the blow inflicted on the manufacturing sector by the Turkish invasion of 1974 was severe, recovery during the 1975-83 period was remarkable. By 2002 the sector accounted for about 10% of Gross Domestic Product (GDP) and 12% of employment. Exports of manufactured products in 2003, compared to 1973 figures (C£15 million), recorded a large increase and reached about C£191, 6 million. The most important sectors in terms of value added are food and beverages, clothing, furniture and metal products. Other industrial sectors, which continue to expand, include printing and publishing, plastics, chemical and pharmaceutical products.

The manufacturing industry of Cyprus has been going through difficult times in the past decade, experiencing a fall in the growth of production, exports and employment. This development has been the result of erosion in competitiveness, both abroad and in the local market, at a time of increasingly intensified, international competition. At the root of these problems lie the structural weaknesses of the sector, the drastic reduction of tariff protection due to the participation of Cyprus in the World Trade Organization, the rising labour costs and low productivity. As a result the share of the manufacturing sector in the Gross Domestic Product and in employment remained stagnant.

International competition is increasingly intensified mainly from two directions: on the one hand, the high-wage producers, who have combined design, quality and new forms of flexible production to cut working and capital costs and improve response times and on the other, the low-wage mass producers of South-East Asia. Faced with this situation the Government having thoroughly considered ways and means for the reconstruction and development of the sector, has reformulated government policy to facilitate the process of modernization and technological upgrading of the productive fabric of the economy within the framework of harmonization with EU Regulations and the Acquis Communautaire in general.

More specifically, the Government has set amongst its priorities the following basic goals:

• Attraction and development of new high-tech industries

• Assistance and reconstruction of Cyprus traditional industry

• Productivity improvement

• Attraction of capital intensive foreign investment

Foreign capital would also play a major role in these efforts, as it contributes substantially to the introduction of high technology, know-how and expertise. Further, the full liberalization of the capital markets, within the context of harmonization with the European Union will add impetus to the inflow of foreign investment capital and the creation of joint ventures. The accession of Cyprus to the European Union would provide Cypriot small and medium sized enterprises with the opportunity of participating in the various community programmes concerning industrial technology, professional training, product development, marketing etc., thus further enhancing the process of restructuring. Cypriot firms will also be presented with the challenge of penetrating the European market of 450 million consumers.

Small and Medium Enterprises in Cyprus

Sized Enterprises in Cyprus - The economy of Cyprus is dominated by small enterprises. Almost all enterprises (99,9%) employ less than 250 persons whereas the overwhelming majority (95%) employ less than 10 persons. The total number of small and medium-sized enterprises (SMEs) in Cyprus is 61.041. The government of Cyprus emphasized the need for a regulatory climate conducive to investment, innovation and entrepreneurship stressed the need to lower costs of doing business and to remove unnecessary procedures which act as a barrier against the development of SMEs in Cyprus.

One of the primary objectives of the government development policy concerns the restructuring and modernization of the productive fabric of the economy in order to assist enterprises to meet the challenges of globalization and accession to the European Union. To this end, various support schemes have been introduced in the different sectors of economic activity. Although the schemes do not generally distinguish between micro, small, medium or larger units, in view of the predominance of SMEs in all sectors, size is one of the parameters which are taken into account in policy formulation.

The existing EU “acquis” does not require transposition into the national legal order. Conforming with the EU policies, implies that the EU’s philosophy on SMEs should be incorporated in Cyprus policies and actions in a more systematic and explicit form. In view of this, the Ministry of Commerce, Industry and Tourism and the Planning Bureau who have jointly the overall responsibility for the formulation of the Government Policy on SMEs, always take into account the particular needs and specific problems of SMEs, in the process of promoting the various programmes to support SMEs.

The Government policy for SMEs is fully harmonized with that of the European Union, as it is outlined in the European Charter for Small Enterprises. The basic objectives, therefore, of the strategy of Cyprus, aiming at the support and development of SMEs and entrepreneurship are the following:

• Introduction of a simplified legal, regulatory and procedural framework for the function of SMEs.

• Improvement of the monetary and financial environment.

• Assist SMEs to internationalize their activities, taking into account the European perspective of Cyprus and to reorient accordingly the applied strategy, through the improved systems and information services.
  Strengthen the competitiveness of SMEs.

• Improve the access of SMEs to research, technological upgrading, training and information services.