NORTH-SOUTH ECONOMIC COOPERATION

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JUSTIFICATION

A study by Robert Nathan Associates, a U.S. consulting firm, identified four factors that will “profoundly influence the institutional framework for Cyprus’ post-settlement economy: EU accession, the Annan Plan structures, financial assistance from the international donor community, and the ‘peace dividend’.” Over the past four years, the Greek Cypriot economy, has made legal and policy reforms in the areas of banking, taxes, trade and market liberalization to align itself with the EU’s “acquis communautaire”. On May 1, 2004, the Greek Cypriot economy will become part of an expanded EU market of over 400 million consumers. EU entry will take place regardless of whether there is a settlement of the Cyprus problem, although the EU has expressed its preference for accession of a united Cyprus. Evidence suggests that many in the Turkish Cypriot community agree. However, because of the current state of affairs, the Turkish Cypriot economy has not even begun to analyze the reforms that will be required by the acquis communautaire, nor to set any of these reforms in motion. Delaying a political settlement will only prolong the Turkish Cypriot community’s economic disadvantages. A settlement is expected to generate sharply increased financial inflows, especially in infrastructure development, tourism, housing and other construction. The Turkish Cypriot economy is in a period of “severe stagnation”. Its weak performance is attributed to three major factors: (i) a banking crisis in 2000; (ii) a 60% devaluation of the Turkish lira by Turkey in February 2001 that caused a massive decline in purchasing power for Turkish Cypriots; and (iii) growing uncertainty regarding a peace settlement, which has inhibited individual investment. Most of the real growth in the Turkish Cypriot economy during the past several years has been in the services sector, especially transportation, communications, business and personal services. One success story in terms of economic growth has been tertiary education. With five universities serving 23,000 students from the Eastern Mediterranean and Middle East region, higher education has become a major foreign exchange earner for the Turkish Cypriot economy, although the quality of education provided through this system needs improvement. Many believe that long-lasting peace will only be achieved in Cyprus when the economic difference between Turkish and Greek Cypriots is minimized. Both the UN and the EU are now making available, for the first time, funds for projects to encourage joint business ventures, especially business activities that will contribute to the economic development of the North. However, the supporting infrastructure for business people to effectively form such partnerships and to absorb and benefit from these new opportunities is still lacking. This project will deploy a team with experience in business development to actively work with potential joint business venture candidates, supporting them from beginning to end to apply, manage and benefit from such opportunities, and to ensure that they are equipped with the necessary skills to succeed.