side of the green line demarcating the Turkish military occupation of Northern Cyprus, one of the newest EU members hopes to capitalize on the affiliation Ankara has thus far been denied.

Cyprus, with its modest-but-modern capital of Nicosia, is now the EU physically nation nearest Egypt. With a set of economic policies geared toward encouraging investment — the lowest taxes in the EU, no tax on dividends, no double taxation and interest rates of only 4% — Cyprus is literally begging for attention from foreign investors.

The plan is off to a running start. Foreign direct investment (FDI) in 2004 totaled $1.079 billion (LE 5.9 billion) and is accessible to both EU and non-EU nationals. Over 40,000 foreign businesses registered in Cyprus during 2007 alone. Likewise, no distinction is made between Cypriots and foreigners in their investment policies. There are 30 foreign banks and over 1,200 international business corporations that operate fully functional offices in Cyprus, a staggering number considering the small size of the country.

Cyprus acceded to the EU on May 1, 2004 along with nine other nations. On January 1, 2008, they joined the Eurozone, shifting their currency from the Cyprus Pound to the Euro. Being on the Euro means a higher level of economic transparency with other Eurozone markets as well as guaranteeing the low interest rates that prevail throughout the Eurozone.

Though Cyprus is a nation of under a million people, it enjoys widespread affluence. The high per capita income of 17,048 Euros (LE 138,000) in 2005, low unemployment (4.28%), personal income tax capped at 30% and low cost of living make Cyprus an ideal economy for its prosperous citizens. Unlike many EU members, the cost of employing workers in Cyprus is anything but prohibitive: The average wage is 11.10 (LE 90) per hour, compared to 23.71 (LE 192) for other Eurozone nations. Both Cyprus’s overall employment rate and female employment rate are a few points above the EU average. The nation’s average rate of growth over the past five years has been 3.2%, with inflation sitting comfortably beneath it at 2.5%.

Though Greek is Cyprus’s primary language, English is spoken both widely and well. The education system is modern and developed, with 75% of Cypriots attending college, the highest percentage in the EU. Moreover, a greater percentage of Cypriots boast a tertiary degree — that is, a Ph.D. or master’s degree — than any other nation in the EU. The percentage of GNP spent on education (7.36%) is also significantly above the EU average (5.22%). With such an emphasis on education, Cyprus boasts a highly skilled labor force, particularly within the service spheres of banking, information technology, business consulting, accounting, auditing and legal consulting.

With these kinds of statistics, it is no surprise that the service sector provides the bulk of Cyprus’s GNP: 76.7% in 2005, with the figure remaining consistently above 75% in recent years. The nation found this niche — dominated by the shipping, financial and tourism sectors — in the 1980s, before which the economy relied predominantly on manufacturing and mineral export.

Most notable among Cyprus’s professional services are the banking and accounting sectors. Put simply: Cypriots are good with money. The prosperous economy and progressive tax policies are proof enough, but the wide expansion of Cypriot banks into Eastern Europe is a significant accomplishment for a nation of its size. Now that it is part of the Eurozone, this success is likely to continue as their accounting practices are harmonized with the rest of the EU.

Despite the fact that tourism accounts for only 13% of Cyprus’s GNP — and is sliding — the potential of this sunny, bucolic island to attract visitors cannot be overlooked. Even in this period of decline, Cyprus hosts 2.4 million tourists annually, bringing in revenues exceeding 1.7 billion (LE 13.8 billion) during a typical year. But with only 50,000 of these visitors drawn from the Middle East annually, there is significant room for expansion.

Meanwhile, Cyprus is also looking to become a player in the burgeoning medical tourism industry. In the coming years, they plan to establish industry centers in the cities of Pafos, Limassol and Larnaka, as well as the picturesque central mountain region. The majority of doctors in Cyprus were educated abroad — often in the US or UK — with a leading focus on cosmetic surgery as well as dentistry and ophthalmology. Additionally, Cyprus’s well-developed network of hotel spas is an attractive off-season destination during the post-surgery recovery process, not to mention the range of gorgeous beaches. Considering medical tourism is also developing in Egypt (See Come for the Surgery, Stay for the Sun, Business Today, January 2008), this is a niche ripe for those with an existing stake in the industry.

Aside from medical tourists, Cyprus’s Ministry of Tourism also hopes to encourage two other varieties of traveler: conference and religious tourists. Cyprus will host next year’s World Challenger Series, an event in which executives compete at team-building activities. Likewise, the island’s historical churches, mosques and monasteries provide religious tourists a reason to come.

Cyprus’s first inhabitants arrived by sea roughly 10,000 years ago — as did many of the missionaries who built the island’s ancient religious sites — and control of the nation has been wrestled from one seafaring power to the next throughout the country’s history. So it is fitting that a major strength of modern Cyprus should remain its ports and fleet. In 2006, 665 million (LE 5.38 billion) worth of goods were re-exported, though this was a drop from 802 million (LE 6.5 billion) in 2005. In 2006, 46% of this shipping was directed at the EU.

Cyprus’s location, nestled between the shores of three continents, is a significant economic advantage for trade. The nation hopes to serve the Middle East as a gateway to the affluent, import-heavy European market. Conversely, Cyprus also plans to establish itself as a gateway for European investors to wealthy and rapidly developing Gulf economies. If Cyprus can convince both sides that it is the perfect conduit for business, it could secure a lucrative niche in the growing exchange between the two regions.

To encourage trade, Cyprus does not impose tariffs on products manufactured in the EU. Moreover, they have eliminated price controls and investment restrictions. Perhaps the greatest assets to growth are the free trade zones operated in the cities of Larnaka and Limassol. With Limassol as the nation’s largest port and Larnaka hosting its busiest airport, each provides a convenient center for import and export.

The Larnaka Free Trade Zone houses nearly 100 industrial sites, half of which are yet to be leased. The leasing fee for each of these sites over the first five years is set at one Cypriot Pound, that is, roughly LE 16. After this nominal fee, the cost rises to 525 Cypriot Pounds, or about LE 7,240 per square kilometer each year. They also offer free installation of electricity and telephone lines on-site. The Larnaka Free Trade Zone is within ten kilometers of both the port and airport that serve the city.

Cyprus imports a substantial share of its raw materials, consumer and capital goods, transport equipment and fuel. Among these, the most significant were consumer vgoods (30%) and raw materials (28%) in 2006. On the other side, Cypriots export pharmaceutical products, clothing, cement, cigarettes, paper products, plastics, potatoes, citrus fruit, wines and furniture, although exports account for only 8% of the nation’s economy. Nevertheless, at 1.1 billion (LE 8.9 billion), the figure is nothing to sneeze at. The majority of domestic exports (58%) went to the EU in 2006, totaling 258 million (LE 2 billion) in revenue.

Most notable among Cyprus’s exports is the pharmaceutical industry. It is, first of all, the nation’s largest source of export revenue. Inhalers and generic drugs — those that can be freely manufactured because the patent has expired, are among the country’s specialties.

In 2006, the Cyprus Chamber of Commerce and Industry (CCCI) sent delegations to a number of nearby nations, including Egypt. The ministers of commerce, industry and tourism, as well as the president of Cyprus, visited Egypt that year in hopes of promoting their service industry to Egyptian investors.

Within the CCCI, there exists the Cyprus-Egypt Business Association (CEBA). A. Christofides, president of CEBA, explains the role of his organization: “Our task is to help Cyprus businessmen who want to go to Egypt for business and vice versa, the Egyptian businessman who wants to come to Cyprus. We are here to promote and encourage the exchange of information and also help in setting up such businesses.”

To encourage foreigners to open businesses in Cyprus, the CCCI established the Foreign Investor Service Center, or ‘One-Stop Shop,’ an agency meant to streamline red tape and clarify the official policies for those unfamiliar with opening a business in Cyprus. With the agency’s help, the registration of a company can be completed in as little as four days, while they aim to have new businesses up-and-running within seven days.

Cyprus’s business incubators provide opportunities for low-risk investment in a number of sponsored areas, including the high-tech and information technology sectors. This focus on technological innovation has also led to a partnership between Cyprus’s government and Harvard’s School of Public Health. The program is meant to encourage innovation in the fields of public health and the environment, as well as education, technology and international research. Another recently created program was the Cyprus Research and Education Foundation. Likewise, the Cyprus Institute of Technology and the University of Cyprus have recently established engineering schools.

Results from these initiatives are already beginning to surface. Cyprus has shown the largest growth in high-tech services employment rate in the EU at 12.7% over the past five years, well above the EU’s 2.9% average.

Cyprus is also an ideal location to establish a holding company. Tax is not withheld on dividend income from subsidiary companies abroad. With the double tax treaties, businesses get lower withholding tax rates on dividends and income from subsidiaries in other countries. There is also no tax on capital gains or income if the company is liquidated. Outward dividends by the Cyprus holding company to its non-resident shareholders are exempt from any withholding taxes. Profits earned from a permanent establishment abroad are fully exempt from Cypriot tax and to top it all off, they require no minimum holding period.

The trend of innovative programs extends into Cyprus’s renewable energy projects. The country is currently one of the world’s largest producers of solar energy per capita, harnessing the island’s 300 sunny days each year to produce 20 million (LE 162 million) worth of energy. A wind power plant is awaiting approval and by 2013, Cyprus plans to build a plant that produces energy from seaweed. To ensure that these projects expand into widespread use, the Cypriot government has mandated that renewable energy use be doubled from 4.5% to 9% by 2010, while bringing electricity use from renewable energy to 6%.

Cyprus is also undertaking a combined survey with Egypt and Lebanon for natural gas and petroleum reserves in the Eastern Mediterranean. The Cypriot government has apportioned 13 exploration blocks, of which three have received applications and while they are certain of the presence of natural gas, oil reserves have yet to be located.

Perhaps the most promising trend in Cyprus is the value they place on the exchange of ideas between different people, nations and regions. Even before the Turkish occupation, Cyprus was a society peacefully integrated between its Greek Christian and Turkish Muslim populations, with mosques and churches still standing adjacent to one another today, even in the divided capital of Nicosia. In this spirit, the tourism industry’s long-term plans are based on cooperative networks and partnerships between Cyprus and other nations. Cyprus’s cruise industry, for example, offers stops in Egypt and along the Levantine coast.

Likewise, Michael Kammas, director general of the Association of Cyprus Commercial Banks, hopes to foster a closer relationship between banks in Cyprus and the Middle East using existing banking forums as the model, so that parties can exchange their unique expertise in different fields. “The Interbalkan Banking Forum is comprised of the associations of the Balkan countries and Cyprus. So you have ten members, ten associations formed in a group and through this forum — which meets twice or three times a year — we exchange views about different banking issues and practices. So we get to learn from each other. My vision is to establish a similar body for the Middle Eastern, Arab and North African countries. If we can manage to come together as a forum to meet and exchange views, we can create a lot of synergies for our members.”

And if French President Nicholas Sarkozy’s plan to create a Mediterranean Union is realized, Cyprus and Egypt might soon be members of an international economic partnership comparable to the EU. If so, there is a great deal to gain by investing now and staying a step ahead of the game. Only a 45-minute flight from Cairo, Cyprus is a promising nation with favorable economic policies, capable, well-educated citizens and impeccable access to regional markets.

“Considering that Egypt has made a move toward the EU — they have already signed a customs union with Europe — that can only bring our countries closer together with more cooperation,” says Christofides. “Egyptians feel more at home in Cyprus than in Europe. The cultures of the two people are very similar. So we find it very easy to communicate. So I see that the opening up with Egypt into Europe is about to bring a lot of connections with Cyprus. That will be their stepping stone into Europe.”