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At 10% of GDP exports of services to Russia – 12th post-memorandum assessment of Cyprus

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The important connection of the Cypriot and Russian economies through the services sector and the flows of Foreign Direct Investments is recorded in the report for the 12th post-memorandum evaluation of Cyprus. The value of exports of services reaches 10% of GDP and annual FDI inflows from Russia in the period 2018-2020 amounted to 8.1% of GDP on average. In terms of FDI, stock liabilities of almost 18% (!) Of GDP relate to real estate.

“There is still considerable uncertainty about the impact of disruptions on FDI flows on the economy and therefore close monitoring is needed,” warns the European Commission.


Excluding FISIM (financial intermediation services indirectly measured) for financial services, these shares amount to 11.2% and 6%, respectively.

“Financial sanctions imposed on Russia will have an impact on services “with a negative impact on the current account balance and real GDP in the short term,” the European Commission said.

There is, however, a positive dimension. Evidence of demand from Russian, Ukrainian and Belarusian companies to relocate to Cyprus with their employees in order to continue their operations away from risks related to Russia.

“This could support the professional services over the next two years “, the report states.

Foreign direct investment

Foreign direct investment (FDI) flows are characterized as another important link with Russia. Annual FDI inflows from Russia (approximately 8.1% of GDP on average in the period 2018-2020) are distributed between:

-real estate purchased in Cyprus (decreased from 2.6% of GDP in the period 2018-2020 to 1% of GDP after the abolition of the “citizenship through investment” program in November 2020),

-transfer of funds from special purpose companies (SPEs) that use Cyprus as a pass-through due to the favorable tax regime, and

-transactions of non-SPE financial companies.

FDI flows mainly related to real GDP are SPE-related transactions.

Annual FDI outflows to Russia between 2018 and 2020 amounted to approximately 13.3% of GDP. In terms of FDI stocks, in 2020 Cyprus represented about 30% of FDI in Russia and, conversely, Russia represented about 25% of the FDI stocks entering Cyprus. In terms of asset reserves, the vast majority are related to SPEs. In liabilities stocks, almost 18% of GDP is owned by Russian non-SPEs.

Source: politis.com.cy

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