As more economies take a closer look at increasing rates of new firm formation as a core element of new economic policies, it behooves us to look for clues for our own efforts to boost economic growth in the United States. I was recently invited by President Nicos Anastasiades of Cyprus to observe and comment on his small nation’s strategies for economic reform.
This month, most economic indicators are presenting a less dire view of the recovery here in the United States. However, Americans remain anxious about the future, as the world’s economies become even more sensitive to each other’s performance. We are rightfully concerned about whether economic malaise that started in Greece, Spain and Italy has now spread to weaken Europe’s strongest economy, Germany. In our global village of economies, what happens in Europe matters a great deal to the United States.
Last week in Cyprus at The Economist’s Reinventing Cyprus Summit, I joined John Peet, Europe editor of The Economist, Benoît Coeuré from the Executive Board of the European Central Bank and Klaus Regling managing director for the European Stability Mechanism along with Ministers from Cyprus to discuss the role of entrepreneurship in President Anastasiades’ approach to recovery.
Of note was the fact that the event in Nicosia included a strong presence of entrepreneurship leaders from Cyprus and abroad including entrepreneurs like Victor Kislyi, founder and CEO of Belarus’ Wargaming.net and leaders of Cypriot startup communities like John Georgoulas, Stavriana Kofteros, Carla Tanas and Michalis Stangos. Organizations like Global Entrepreneurship Week, the Industry Disruptors-Game Changers, the Municipality of Nicosia and Cyta (semi-government telecom company) and the Cyprus Business Angels Network (Cyban) are coming together to increase prospects for Cypriot entrepreneurs through events, competitions (e.g. the annual Disrupt Cyprus Cup), education, funding opportunities and further resource activations. They were also front and center in discussions about reforming their nation’s economy.
The President here has been keen to listen to outsiders, forming an International Advisory Council which not only includes voices from the United States, but transition economies like Egypt (Fadel Jawad Kadhum), the European Union (Lord Mark Malloch-Brown) and the World Economic Forum (Roberto Bocca). The Council has a consultative scope to the President in his efforts to pursue a new economic model for Cyprus after suffering the kind of economic collapse other economies too big to fail, but also too big to rescue, now fear.
The government in Cyprus faced a dilemma: either to lead the country to disorderly bankruptcy, or to accept a very difficult, but allegedly manageable EUR 10 billion rescue package from the European Union to help stabilize and re-ignite the economy. The country took the second route. Restrictions on transactions and financial losses led to risk-aversion, mistrust and even bitterness. As expressed in a press statement by President Anastasiades, the shortage of cash in the Cypriot economy due to the structure of the recovery plan meant “investors and entrepreneurs cannot secure capital to continue their activities”.
To address this unfriendly business environment and mitigate to some extent the damage the local and foreign business community has endured, the President has sought, for example, palliative measures, such as permanent immigration avenues for certain non-resident investors, and tax incentives for new companies doing business in Cyprus. For the medium- and long-term, President Anastasiades has promised to increase Cyprusʼ competitiveness through diversification away from financial services (with a special focus on the energy sector) and creating a more effective and business-friendly environment for new firms to form.
This predisposition to become a more reliable partner to entrepreneurs and investors is palpable and worth monitoring over the next few years as a test of whether increasing rates of new firm formation can have the kind of economic impact troubled European economies seek. I joined several Ministers for a luncheon where it was apparent that promoting a new public mindset to accompany regulatory improvements to ease barriers on entrepreneurs trying to explore opportunities in new sectors is a top priority.
According to PwC’s third annual CEO Survey in Cyprus, most Cypriot CEOs feel optimistic about their medium-term growth prospects, with 75 percent of them staying confident about their prospects for increased revenues over the next three years. The only thing they seem to expect from the government is stability in its finances. The new wave of Cypriot entrepreneurs is global and collaborative. Chrysalis Leap, for example, is a startup accelerator program set to provide participating Cyprus-based startup teams with the necessary tools and skills to launch their ideas in the fields of cleantech and sustainable development, with a clear focus on businesses with potential to grow outside the confines of the island. Sixty-five teams applied to its first round sponsored by Ernst and Young.
There will be many elements of course that might make Cyprus an attractive environment for entrepreneurs. As reported by the World Bank Doing Business report, these include: the strategic location, a sophisticated infrastructure, a well-educated young population, a favorable tax system, comparatively low operating costs, and the high standard of living on this island economy of 1.1 million locals.
But the work is just starting for those setting the framework in which entrepreneurs are to operate. For example, while Cyprus now aims to be a leader in energy, getting an electricity connection takes 247 days and involves clearances from at least six agencies, according to the World Bank Doing Business report. And enforcement and commercial dispute resolution can be slow.
The presence in Cyprus this week of high-ranking government officials from all corners of Europe, high-level executives from world-renowned companies, and institutions, as well as prominent members of the academic community confirms that confidence in the economy’s recovery has been re-established. During my very short visit, I took note of how much the role of entrepreneurs was stressed at this inflection point in the history of Cyprus, as the nation’s recovery calls for the very skills entrepreneurs possess: endurance, perseverance, and a determination to succeed. They hold the greatest potential to reclaim hard-won gains eroded by the recent crisis. Cyprus may have lessons for other regions in the future who believe in the potential of new firm formation as a pillar of economic reform.
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