Cyprus' investor appeal strong, but high energy costs and red tape threaten growth
"According to the latest EY Attractiveness Survey, 83% of international investors view Cyprus as an attractive destination for foreign direct investment, with 62% planning to expand local operations over the next year. However, energy costs have emerged as a primary operational headwind—flagged as a key weakness by 50% of respondents for the first time—alongside regional geopolitical risks (74%), chronic bureaucracy, and banking compliance friction."
EU Directive 2019/790 Article 15 Attribution • Verified Energy Document
Cyprus remains a favored destination for foreign direct investment, with 83 percent of investors finding the island attractive, according to the latest EY Attractiveness Survey. The report also reveals that 62 percent of investors plan to expand operations within the next year, while 60 percent foresee Cyprus becoming an even more appealing investment hub over the next three years. These findings were presented at EY’s Cyprus Future Realised forum, coinciding with President Nikos Christodoulides' announcement of a 10 percent rise in substantive foreign investment for 2025.
Despite this strong investor confidence, critical challenges persist. For the first time, energy costs emerged as a top concern for 50 percent of respondents, highlighting a significant weakness. Persistent issues such as access to finance and pervasive bureaucracy also ranked highly, echoing complaints from previous surveys.
Investors value Cyprus' robust tax system, which received a positive assessment from 90 percent of respondents. The island’s quality of life, political and social stability, European Union membership, professional services sector, and legal system were also cited as strong advantages. Furthermore, half of the investors currently without a presence in Cyprus expressed intentions to establish one.
However, the survey also detailed a substantial list of complaints. Geopolitical tensions were identified as the greatest threat to Cyprus’ investment appeal by 74 percent of those questioned. Other prominent concerns included limited air and international connectivity, reputational issues, increasing regulation, a shortage of skilled labor, and unstable energy prices.
Andreas Anastasiou, an EY Cyprus representative, noted that Cyprus’ geographical location presents both a risk and an opportunity. While its proximity to an unstable region creates vulnerability, the same location positions it as the closest European Union base to several crucial markets. Investors continue to prioritize well-established sectors like real estate, construction, tourism, leisure, information and communication technology, and financial services.
To foster further growth, investors called for stronger technology and artificial intelligence infrastructure (62 percent), greater government support (59 percent), and more specialized skills (56 percent). Labor availability is a significant constraint, cited by 53 percent of respondents. Environmental, social, and governance (ESG) considerations also heavily influence 68 percent of investment strategies, with priorities including increased use of renewable energy, easier financing for sustainable projects, and a supportive regulatory framework.
The banking system also faced criticism, with onboarding and know-your-customer procedures being the primary headache, followed by slow transaction processing, limited finance availability, and inconsistent customer service.
Irene Georgalla, head of the Office of the Deputy Minister to the President, emphasized the growing importance of foreign policy to Cyprus' investment prospects. She explained that while geopolitical risks are carefully weighed, investors choose Cyprus for its combination of EU security and strong Eastern Mediterranean ties. Energy cooperation, and closer relationships with the United States and India, are pivotal in leveraging Cyprus' geographical advantages and opening new economic avenues. The relationship with the United States, in particular, has evolved into a strategic partnership encompassing security, energy, investment, technology, and innovation. With India, the focus is on transforming political relations into practical business partnerships, including via the India–Middle East–Europe Economic Corridor.
Marios Tannousis, chief executive of Invest Cyprus, affirmed that the EY findings align with his organization's research. He highlighted that foreign companies often encounter similar frustrations to local businesses but require clearer instructions and more guidance due to unfamiliarity with the local system. Businesses are seeking straightforward rules, firm timetables, and consistent communication with authorities handling their applications. Tannousis also underscored the broader value of foreign businesses, which bring commercial risks, create specialized jobs, introduce new knowledge and skills, contribute taxes, and enhance Cyprus' international presence. He disclosed ongoing interest from the United States, including discussions with a large American company considering relocating an affiliate's headquarters and a Silicon Valley firm eyeing Cyprus as its European base.
Bruno Macaes, former Portuguese undersecretary for European affairs, contextualized the discussion within a "metamorphic" international order, constantly reshaped by evolving rules, institutions, technology, and power dynamics. He pointed to the rise of China and India and the changing US-China relationship as examples. Macaes concluded that governments and companies must recognize this shifting landscape and that Cyprus must accelerate its adaptation to remain competitive for investors.