Introduction

Tourism has traditionally been a major source of income and a driver of economic growth in Cyprus. Over the last few years however, tourism as an economic activity has entered a slowdown phase and the Cypriot tourist product has undergone a continuous loss of competitiveness, due to both exogenous and endogenous factors. The tourism sector grew rapidly throughout the 1980s and 1990s. Revenues from tourism exceeded 20% of GDP throughout most of the latter decade. In the last few years however, the sector seems to have come to a standstill. Tourist arrivals peaked at 2.70 million in 2001 and have yet to return to that level; they were 2.40 million in 2006. Similarly, revenues peaked at 1.27 billion Cyprus pounds (CYP), or 2.17 billion Euro, in 2001; in 2006 they were CYP1.03 (EUR1.76) billion. The contribution of the tourism sector to national income has dropped even faster. Revenue from tourism as a percentage of GDP was 12.3% in 2006, down from 20.6% in 2000. The slowdown in the tourism sector has been a cause of concern in both industry and policy circles. Most industry experts seem to agree that Cyprus is no longer competitive as a tourist destination.

Original article: “Department of Economics and  Economics Research Centre, University of Cyprus” by Sofronis Clerides and Nicoletta Pashourtidou

Essay by Borislav Hadzhiev
Master in Tourism Destination Management student 2008/2009

Increased competition, rising costs and a deteriorating infrastructure are the reasons most often cited for Cyprus’s loss of competitiveness. Several countries such as Croatia, Turkey and Egypt have emerged as popular tourist destinations in the last few years. This has increased competition among countries trying to attract tourists and has put downward pressure on prices. Newly established tourist destinations are at a lower level of development and operate with significantly lower costs than Cyprus does. It is therefore very difficult to compete against them in terms of price. The alternative strategy is to differentiate Cyprus’s tourist product and compete by offering higher quality. 

Overall the rather unfavorable developments of tourism over the last years in Cyprus are a combination of various factors. The war in Iraq, the crisis in Lebanon, terrorist incidents in other countries and the rise in transportation costs due to increases in oil prices are events that negatively affected tourism. In addition, structural problems with the Cypriot tourist product per se, worsen the position of Cyprus as a destination in terms of value for money (i.e. the relation between the price paid and the quality offered), rendering it less competitive compared to other destinations. One-dimensional development (sun and sea), outdated hotel accommodation, unsatisfactory infrastructure and facilities, poor image of the built environment, perishing cultural identity and pressure on the natural environment and resources are just some of the challenges that the Cypriot tourist product is currently facing. On top of that, cheaper emerging destinations in the Mediterranean as well as enhanced tourist products supplied by traditional competitors make it more difficult for Cyprus to maintain its share in the tourist market, given the relatively high operating costs and the current pricing schemes (legitimate or illegitimate).

The tourism sector has contributed immensely to the development of the Cyprus economy but is now in a state of relative decline. This was to a large degree inevitable. The sun-sand-sea mass tourism that Cyprus has specialized in over the last thirty years is a low value-added, labor-intensive activity. It is a suitable vehicle for growth for countries that are relatively less developed and can offer tourist services at a low cost. As a country gets richer, its costs of providing services will rise. New, low-cost competitors will appear and the country will be priced out of the market. In order to avoid this outcome the tourist sector must make a strategic shift towards higher quality products and services.

The relative decline of tourism is not necessarily bad for the overall economy. On the contrary, over-reliance on a single-sector is risky, especially when the sector is as volatile and vulnerable to exogenous shocks as tourism is. According to World Tourism Organization statistics, Cyprus is one of sixteen countries that had tourism receipts exceeding 15% of their GDP in 1998. Fourteen of those countries are islands and the other two are peninsulas. Ten of them have an area less than 640 square kilometers, which is about one fifteenth the size of Cyprus. Countries with such characteristics may have no other choice than to have an economy based on tourism. A country like Cyprus, with its excellent geographic location, highly educated workforce and membership in the European Union and the European Monetary Union, can and should have a more diversified economy. Even though tourism is unlikely to ever regain the position of being the leading sector of the Cyprus economy, it can remain an important source of income for the country if appropriate steps are taken. Substantial investments are required from both the public and the private sector. Hotels need to be upgraded and geared towards high valued-added services. Public hygiene needs to be improved. Transportation networks need to be built and public transport must become available. The natural environment should be better protected and maintained. Town centres must be made attractive and pedestrian-friendly. All these are costly but worthwhile investments that will make Cyprus much more attractive and enjoyable to tourists and locals alike.