ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)598
Vol.1979/0205

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79)598 final
Brussels.7November 1979
COMMISSION COMMUNICATION TOTHECOUNCIL
ontheimplementation ofeconomic andfinancial cooperation
betweentheCommunity andCyprus
C0M(79)598final

COMMISSION COMMUNICATION TOTHECOUNCIL
ontheimplementation ofeconomic andfinancial cooperation
betweentheCommunity andCyprus
1.AjointCommission /EIBdelegation visitedCyprusfrom14to18May1979
forapreliminary exchange ofviewontheimplementation ofeconomic and
financial cooperation onthebasisoftheAdditional andFinancial Protocols
signedon15September 1977*-
AsinthecaseofotherMediterranean countries withwhichtheCommunity
hasconcluded economic andfinancial cooperation agreements thisfirstvisit
wasofanexploratory nature,itsobjective beingbothtoobtainanoverall
viewoftheeconomicsituation andtogettoknowCyprus'sviewonimplementation ,
partic ^arlyoftheFinancial Protocol.
TalkswereheldwiththeCyprusGovernment andrepresentatives oftheTurkish
Cypriot Community . '
2.TheFinancial Protocol withCyprusinvolves atotalof30millionu.a.
fortheperiod1January 1979to31December 1983.Ofthissum,20millionu.a.
consistsofloansfromtheEIB'sownresources ,witha2$interestratesubsidy;
4millionu.a.consistsofspecialloanswithaninterestrateof1$;the
balanceof6millionu.a.comprises grants,ofwhichapproximately 3millionu.a.
shouldbeearmarked forsubsidizing EIBloans,leaving 3millionu.a.for
technical assistance andtraining.
i
According totheinformation supplied theCommunity'sfinancial contribution
willcoverapproximately 2$ofprojected investment inCyprusduringthefive-
yearperiodandcorresponds toroughlyjfooftheexternalfinancing requirement .
3.Duringthedelegation 'svisititsCypriothostsemphasized thepriority
economic sectorsforwhichCommunity assistance issought.

Investment priorities areundoubtedly "betterwatersupplies andimproved
roadinfrastructure .Also,irrigation andsoilconservation projects and
industrial development schemesforsmallandmedium-sized enterprises were
putforward.TheCypriotrequestson technical assistance andtraining were
concerned mainlywithelementary anduniversity education andwiththe
assistance ofexpertstohelppromotetheisland'sEconomic development .
Attheendofthevisititwasagreed,onthe"basisoftheinformation obtained ,
thattheCommission woulddrawupadraftdefining theguidelines forcooperation
"betweentheCommunity andCyprus,tobeadoptedbytheAssociation Councilat
theappropriate time.AsecondvisitwouldbemadetoCyprusinorderto
identify theprojects tobefinanced bytheCommunity undertheFinancial
Protocol ,andthuspermitactualimplementation ofthefinancial cooperation ;
thisvisitcouldtakeplaceinthefirsthalfofI98O.
4.InthetalkswhichtheCommission representatives hadwiththevarious
Cypriotauthorities theCommunity principle thatfinancial cooperation must
benefitthewholeoftheCypriotpopulation wasaccepted .
However,onthematterofimplementation thatisprojectidentification and
thedetailsofexecution ,differences ofopinionarelikelybetweenaposition
adheringstrictlytothetermsoftheFinancial Protocol andonewhichseeks
asolution ofapolitical nature *

5.TheCommunity'sattitude towardsCyprusinthecontextoftheAssociation
mustinvolveneithertheabandonment oftheundertakings enteredintoby
bothpartiesintheFinancial Protocol noranydivision betweenthetwo
communities ofthefundsavailable undertheProtocol .WhattheCommunity must
aimatistoensurethatthewholeoftheCypriotpopulation benefits from
theeffectsoffinancial cooperation .TheCommunity shouldensurethat
financial cooperation schemes donotconsolidate thedivision oftheisland.
Theobjeotive offinancial cooperation withCypruswouldtherefore beto
identifyprojects ofgeneralimportance fortheisland'seconomy ,forinstance
inthewaterandinfrastructure sectors.
-i _ .
6.TheCommission herebytransmits totheCouncil,viathiscommunication ,
proposal defining thefuidelines forcooperation betweentheEECandCyprus
which,tterbeingadoptedbytheCommunity ,shouldbeendorsed bythe
Association Council.
TheCommission hasenclosedintheAnnex,fortheinformation oftheCouncil ,
amemoontheeconomic andfinancial situation inCypruscomprising datagathered
duringthejointCommission/EIBvisittotheislandlastMay.

Draft
Decision oftheEEC-Cyprus Association Council
setting oatthe guidelines forcooperation
between theCommunity andCyprus
TheAssociation Council ,
Having regard totheAdditional Protocol totheAgreement establishing an
Association between theEuropean Economic Community andtheRepublio of
Cyprus ,andinparticular Articles 10and13(l )thereof aswell astheFinancial
Protocol oftheAgreement andinparticular Article 9(l)thereof .
Whereas Article 10provides that cooperation shall beinstituted with the
aim ofcontributing tothedevelopment ofCyprus byefforts complementary
tothose made byCyprus itself andofstrengthening existing economio links
onasbroad abasis aspossible forthemutual benefit oftheParties ;
Whereas inaccordance with Article 13(l)oftheAdditional Protocol andArticle
9(l)oftheFinancial Protocol itisnecessary todefine thegeneral guidelines
ofcooperation and -thespeoifio objectives offinancial andtechnical cooperation .
HAS DECIDED ASFOLLOWS :
Article 1
Thefollowing objectives have been established asgeneral guidelines forthe
-cooperation tobeinst itutalbetweentheCommunity andCyprus forthemutual
benefit ofthetwoParties ,having regard tothecomplementarity oftheir
economic interests andthebenefit ofthepopulation efthewhole island :
1

■thedevelopment ofbasic infrastructure ,,•
-V­
' • J
.thedevelopment andmodernization ofindustry andagriculture ,withthe
aimoffostering thecreation ofjobs ,improving theproductivity of
these Bectors andhelping the "balance ofpayments ;
.thedevelopment oftechnical assistance schemes ,vocational training ,and
research ,onWhich depend theachievement oftheobjectives setoutabove j
-thestrengthening ofcooperation between European andCypriot economic agento
intheindustrial field ,withtheaimoffacilitating thetransfer of
technology andcapital ?
_cont^ingtotheimprovement oflivihg andworking conditions andto
theor .notion oftheleast developed areas oftheisland .
O Article 2
Technical andfinancial cooperation shall*denied onthehaaisofthe
following principles :
„ .tvaidsha uhedirected toouppcrting theeconcmio cooperation activitie_Community aidshall 12eftteAdditional Protocol .tohecarried outinpursuance ofArticle 12or
.hellhepaidtoecheaes allowing fortheconcurrent use
"fTe^ifferlt typesofoperation ,particularly those lilce*toetiolate
theinflow oftechnology ,capital orotherbenefits^txng .r«e.
application ofthesaidirtiole .12. . ■

-3-
-Comity operations shallWSigned , poasiWe ,toeneourag
assistance f*oa <rther eouxoes of particularly inthe ®-.
■triangular ©©operation®
Artide 3
Onthe "basis oftheobjectives andprinciples setoutintaprec^.
theamount ofaidepecified inArticle 2ofthefinancial Protocol^
accordance withtheproton *ofthatProtocol tofiance promts «A
meeting theeconomic priorities indicated inthetanex .

ANNEX
I. DEVELOPMENT OFINFRASTRUC TURE AFP THE PRODUCTIVE SECTOR S
Projects helping toincrease water supplies foragriculture ,industry and
tourism andforwaste-water recycling anddisposal .
Development andmodernization ofindustries andrelated infrastructure
contributing towards thecreation ofjobs ,theimprovement ofcompetitiveness ,
the exploitation ofnatural resources anddiversification ofexports .
Development andmodernization oftheroad network .
II.TECENICAL ASSI STANCE .ANDTRAINING
Techi ,.calassistance operations intheeducational ,agricultural andindustrial
fields .
Technical assistance operations which make forefficiency intheprocess of
identifying ,preparing ,implementing andmanaging projects .
Study andtraining grants ,vocational training .
\
111 •SCIENTIFIC COOPERATION
Cooperation schemes inthefields ofsoience ,technology andprotection -of
the environment .

cYPRuS
ECONOMIC ANDFINANCIAL SITUATIO

Exchange Rates
1978:1C£=2.68US$
1US$=0.37C£
1977:
1978:
29.6.1979 :1TL
1US$=
1TL
1US$=
1TL
1US$-0.05US$
19.44TL
0.04US$
25.25TL
0.02US$
47.45TL

TABLE OFCONTENTS
Page
SUMMARY ANDCONCLUSIONS 1
1.GENERAL BACKGROUND A
2.THEECONOMIC SITUATION OFCYPRUSPRIORTO1974 jgf.f
3.THESOUTHERN PARTOFCYPRUS JtfS
3.1.Population andemployment Jfr^
3.2.Recenteconomicdevelopment ^
3.2.1.Grossdomestic production bysectoralorigin 4Sr
3.2.2.Thestructure ofresource allocation -T"6
3.2.3.Publicexpenditure andGovernment finance 7
3.2.4.Moneyandbanking,prices 7
3.2.5.Thebalanceofpayments andexternal debt ]]
3.3.Analysis ofthemain"sectors to
3.3.1.Agriculture 12
3.3.2.Manufacturing industry j5
3.3.3.Transport andpower
3.3.4.Tourism "' ]7
3.4.Outlook 17
3.4.1.Plan .17
3.4.2.Performance '19
4.THENORTHERN PARTOFCYPRUS 20
4.1.Population andemployment 20
4.2.Recenteconomic development 21
4.3.Thedevelopment oftheprincipal sectors ■22•
4.3.1.Agriculture 22
4.3.2.Industry 22
4.3.3.Tourism 23
4.4.Prospects 23
ANNEXES
Annex1:SouthCyprus-Employment bysector 26
Annex2:SouthCyprus-GDPbycategories ofexpenditure 27
Annex3:SouthCyprus-Maindomestic exports . 28
Annex4:SouthCyprus-Importsbyorigin 29
Annex5:SouthCyprus-Mainagricultural products 30
Annex6:Northern Cyprus-1977Grossdomestic product 31
Annex7:Northern Cyprus-1979Budget . 32
Annex8:Northern Cyprus-ForeignTrade 33
Annex9:Northern Cyprus-Balanceofpayments 34

CYPRUS
SUMMARY AND CONCLUSIONS
Cyprus ,thethird largest island intheMediterranean ,has atotal popu­
lation ofover 650000people .Some 525000live inthesouthern part ofthe |
island ,theremainder inthenorthern area . i
- j
;
Theisland hasregistered since thebeginning ofthesixties upto1973
afairly rapid economic growth ofabout 6.5'%(1)peryear onaverage ,onthe
basis .ofhigh export growth .TheGDPpercapita was about US$1500in1973 .
Agriculture occupying about athird ofthepopulation -,hasbeen modernised through
irrigation ,andlight industries expanded rapidly aswell astourism .
\
Asaconsequence ofthe 1974 events ,more than 200000people became refu­
gees and thenorthern part suffered considerable material damage .Thesouthern
part had totake care ofabout 185000refugees andunemployment jumped to25%.
Considerable external aid ,remittances andprivate capital inflows coupled with
thedynamism oftheGreek Cypriot entrepreneurs and theexpansionary Government
policy stimulating demand andinvestment ,have resulted inanew rapid economic
growth (+12.5 %p.a.). By1978 ,unemployment hadpractically disappeared ,in­
dustrial development hadgained momentum ,andGDPperhead climbed toabout
USt2500 .However ,thegrowth rate slowed down to6.3 %in1978 when labour
andcapital were effectively fully employed andinflationary pressures built up,
reflecting signs ofoverheating with high consumption ,lowsaving and awidening
trade andcurrent account deficit (US$160mnin1978 ).Considerable capital
inflows ,partly inform ofprivate investment capital from Greek Cypriots living
abroad ,however enabled thearea tofinance thecurrent account deficit and to
build upitsforeign exchange reserves .They attained attheendof1978 the
equivalent ofUS$376mncorresponding toabout 7months ofmerchandise imports .
Theoverall indebtedness -corresponded attheendof1978 toUS$292mn (22%of
GDP).Theservicing ofthis debt represents about 5%ofgoods andservices
export earning . ' ■ > '
(1)Fx<-ept where otherwise indicated ,-,all .growth rates areexpressed inreal
terms .

-2-
South Cyprus faces several constraints .Inagriculture asinindustry ,
productivity will have tobeincreased .Scarcity ofwater forirrigation and
fragmentation oftheholdings will have tobeovercome byfairly large investments
toraise andadapt agricultural production .80%ofthemanufacturing establish­
ments employ less than five persons ,and there isashortage ofskilled labour .
Tourism isflourishing ,"butcapacities andrelated infrastructure need tobe
adapted topresent requirements .Certain road links ,which aretheonly trans­
port mode ontheisland ,arebottlenecks .Water supply isamajor probtt£s.^r-?«4 _^
power capacities will have tobeincreased .
TheGovernment isatpresent implementing afurther plan covering the
period 1979-81 .Thetargets are toconsolidate thepost-1 974achievements and
toassure thelonger term viability oftheterritory 'seconomy while maintaining
theoption ofrestoring theeconomic unity oftheisland .Thestrategy isto
overcome thestructural weaknesses oftheeconomy byincreasing productivity
through apolicy offostering more capital-intensive projects .Theoverall
growth rate isforecast toslow down to5%p.a.inorder toreduce theinternal
andexternal imbalances oftheeconomy .
Fixed capital formation over thethree years plan period isprovisionally
estimated atUS$1.4bnincurrent prices ornearly 28%ofGDP asagainst 21%
inthe1975-78 period .Itisoptimistically expected tobefinanced totheextent
ofover 43%bydomestic savings ,which assumes afairly high increase inthe
marginal propensity tosave ,well inexcess ofaverage past experience .Simi­
larly ,theforecast stabilisation ofthecurrent account deficit atabout US$
160mnperyear appears tobeaslightly optimistic target .Ifthese targets
arenotrealised there would beaneed toraise additional foreign financing .
However ,thepresent debt service ratio of5%leaves room' forfurther foreign
borrowing .
Inthelonger term ,theskilled andflexible labour force andtheemphasis
placed ontraining ,coupled with proven entrepreneurial skill andeffective
liberal economic policies ,arecomparative advantages infavour ofacontinuous
development ofthearea 'sproduction andexport .

Incontrast tothefavourable past development andprospects inthe
South ,theNorth isexperiencing severe difficulties infurthering economic
progress due toitsisolation anddependence onTurkey ,thedamages suffered
and thelack ofdomestic andforeign resources .GDPpercapita isabout half
thefigure inthesouth ,unemployment andunderemployment arehigh andagricul­
tural andindustrial productivity islow .Theindustrial base isweak andagri­
culture isthemajor activity inthearea .Citrus constitutes 70%ofitsexports
Tourism does notfulfil itspotential asaforeign exchange earner since over
80%ofthehotel occupants areTurks .TheTurkish Cypriot administration has
established apreliminary Plan for theyears 1978-82 aiming ata7%GNPgrowth
rate .Theinvestment expenditure over theperiod isestimated atabout US$
100mn,assumed tobefinanced totheextent of67%from domestic savings .
Theaverage savings ratio isexpected tobesome 18%.These targets aredefi­
nitely ontheoptimistic side inview ofthepast development andthepresent
rather bleak situation .Asaresult ofitsinternational isolation ,thearea
will continue torely onTurkey .Since 1974 there isnoorhardly anytrade
ormovement ofCypriots between thetwoareas .
Generally ,itisclear that therather favourable prospects ofthe
southern part ofCyprus aresensitive tothecontinuation ofarelatively
stable political climate .Ontheother hand ,theunfavourable prospects of »
thenorthern part could bereversed ifthediseconomies ofseparate development
were removed .Any steps towards increased cooperation between thetwocommu­
nities would permit improved resource allocation . '

-4-
1.GENERAL BACKGROUND
The island ofCyprus ,the third largest intheMediterranean after
Sicily andSardenia ,covers 9251sqkmandlies some 60kmsouth ofTurkey and
about 100kmwest ofSyria .The total population oftheisland in1974 was
around 640000 ,ofwhich are 80%Greeks and 20%Turks .
Geographically ,Cyprus consists offour main regions :Kyrenia inthe
north andtheimposing Troodos Ridge inthesouth (1953mhigh )form between
them alowland open totheSea ateast andwest ,thefertile Mesaoria plain .
Small coastal plains inthesouth andnorth also offer good agricultural land
anditisinthis area ,with theexception ofNicosia ,that themajority of
thetowns aresituated and thepopulation isconcentrated .These areas also
offer the main tourist amenities .
Rainfall isconcentrated in .thethree winter months ,December to
February ,and iserratic .Serious droughts occur atleast once inadecade .
There arenorunning rivers ,although theisland iscriss-crossed bydryriver
valleys that become fast-flowing torrents during periods ofheavy rainfall with
consequent severe erosion ofsoil .Thesummer months arehotanddryinland
andhotandhumid onthecoast .Inwinter ,snow isaregular feature inthe
highest parts oftheTroodos massif .
2.THE ECONOMIC SITUATION OFCYPRUS PRIOR TO1974
Between theearly 1960 'sand 1973 ,Cyprus enjoyed quite vigorous economic
growth ,ofabout 6.5 %perannum (1)onaverage ,based mainly ontherapid growth
ofexports .GDPperhead rose toabout 1520US$.
Agriculture remained theprincipal economic activity intheisland ,
occupying about athird oftheworking population andsupplying consistently
18%to20%ofthecountry 'sGDPandmore ingood years .Thedevelopment of
irrigation hadbrought modern agricultural techniques totheMesaoria Plain ,
centred oncitrus cultivation .The secondary sector accounted for 27%ofGDP
andgave employment to25%oftheworking population .Thefood processing ,
garments andfootwear industries hadshown brisk growth ,mainly due tofast-
rising exports .Theservices sector occupied 40%oftheworking population
butcontributed 57%ofGDP ,mainly from tourism (which accounted for 8%of
GDP )andservice activities resulting from thepresence offoreign military bases .
(1)Except where otherwise indicated ,all gro.Wth rates areexpressed inreal terms

Judicioti I'faiagemerit oftheGovernment budget aud thesupply ofbudget
surpluses tothebanking system upto1971 ,combined tohelp keep inflation down
toless than 5%perannum .Therising value oftheCyprus pound against the
dollar in1973 reduced theimpact onlocal prices oftheincreased -cost ofimports
Thetrade balance showed widening deficits between 1970 and 1973 ,inspite
ofthedoubling ofagricultural exports ,mainly ofcitrus andpotatoes .However ,
income from tourism andearnings resulting from thestationing offoreign troops ,
reduced thedeficit inthebalance ofpayments oncurrent account (1973 :US%
81mn).Thenet inflow ofcapital -particularly private investment capital -
pushed theoverall balance into surplus .Ontheeve oftheuprising ,gold and
foreign exchange reserves stood atUS$200million ,equivalent to8months'
imports in1973 .
3.THE SOUTHERN PART OFCYPRUS
3.1 .Population andemployment
Total population inthesouthern part ofCyprus isestimated at525000 .
Theaverage density for this part oftheisland isabout 89people perkm2 .
Nicosia inthecentre ,Limassol andLarna caonthesouthern coast andPaphos
inthewest are themain agglomerations ;they grew considerably witt \therefu­
gees after theeffective division ofthe island in1974 intensifying the fast
urbanisation process witnessed previously .
The labour force consists ofabout 200000people ,ofwhich only 2%
were without employment in1978 and 6.4 %working temporarily abroad ,mainly
with Cypriotic construction companies intheMiddle East .While ofdecreasing '
importance ,themajority remains employed inagriculture ,whereas construction ,
manufacturing andtrade areincreasing their share ofthelabour market (see
Annex 1).
3.2 .Recent economic development
3.2.1 .Grossdomestic production bypectoral origin
Since independance theeconomy ofCyprus hasbeen based essentially ona
free market system .However ,after 1974 Government influence became ofnecessity
■-j-or2imporraot inorder toovercome thesevere economic problems created bythe

-6-
division oftheisland andtheresettlement ofabout 185000refugees .Action
was taken under twoindicative emergency economic plans 1975 /76and 1977 /78.
Thethird emergency plan 1979 /81isnowbeing prepared .
Ingeneral ,theachievements oftheeconomy have been theattainment of
thetargets .They have been exceeded insome aspects due toasuccessful re­
orientation ofdomestic production towards exports and theinflow ofsubstantial
amounts offoreign aid .GDPhasgrown atanimpressive average annual rate of
15.8 %between 1975 and 1977 .However ,thegrowth rate slowed down to6.3 %in
1978 when labour andcapital were effectively fully employed andinflationary
pressures built up,reflecting signs ofoverheating with high consumption ,low
savings andwidening trade andcurrent account deficits .Theexpansionary drive
ofthefiscal andmonetary policy was restrained ,and theinternational compe­
titiveness appears tohave suffered somewhat from rising production costs .The •
rapid overall growth lifted GDPpercapita toabout 940hC(2520US$)in1978
atcurrent market prices ,afigure comparable with countries like Portugal ,
Yugoslavia andMalta .
Themain impetus toeconomic expansion hascome from theconstruction
sector and themanufacturing industries (Table 1).Construction benefitting from
substantial public allocations hasbeen byfar thefastest growing sector ofthe
economy reflecting theneed toprovide housing for therefugees ,toconstruct new
factories andtourist facilities and toimprove thetransport infrastructure .The
contribution made bythesecondary sector totheGDPhasconsequently risen from
30.4 to37%.Incontrast ,theaverage growth ofagricultural production was
very slow (1.5 %)and itscontribution tothedomestic product hasfallen from
17%to12.5 %.The large service sector hasachieved anaverage growth rate of
11.4 %and its contribution rose to48.2 %.
3.2.2 .The structure ofresource allocation
Total domestic expenditure exceeded GDPover theperiod 1975-77 byan
average 10.5 %reflecting asignificant resource transfer from abroad .Private
andpublic consumption have absorbed onaverage 95.8 %ofGDP (Annex 2).Growing
incomes and therestoration ofgeneral confidence increased theurge toreturn
toformer standards ofliving andcontributed toadeclining propensity tosave .
Consequently ,private consumption increased rapidly atarate of17.7 %p.a.
against 14.2 %forpublic consumption .Optimistic entrepreneurial expectations
andanexpansionary Government policy resulted inarenewal ofprivate foreign
capital inflows .Gross fixed capital expenditure (Table 2)rose atarate of
49.3 %peryear andtheinvestment propensity grew from 15%ofGDPin1975 to
25.6 %in1978 .Machinery andequipment formanufacturing andtransport purposes
together with lodgings fortherefugees repres^pted the rnaj*rinves item .

. t-7-
National savings (including net transfers andnet factor income from
abroad )have financed adeclining proportion ofinvestments (50%in1978 against
90%twoyears earlier ).Theterritory therefore relied increasingly onexter­
nalfinancing .
3.2.3 .Public expen diture andGovernment finance
Consolidated Central Government revenues (1)have increased atarate
of22.5 %p.a.between 1975 and 1978 incurrent terms andnowrepresent 22%
ofGDP .Indirect taxes account for48%pftotal revenues .Current expendi­
ture hasconsistently exceeded current revenue but itsrelatively slower increase
permitted aconsiderable reduction ofthecurrent deficit (Table 3).
Expenditure forpublic safety anddefence absorbed amajor but falling
share ofcurrent expenditure ,whereas interest onpublic debt hasdoubled in
absolute terms inthelast twoyears to8.1 %ofcurrent expenditure .Capital
expenditure wasexpanded substantially ,andvia theRelief Fund forDisplaced
Persons major emphasis was putonhousing .Other capital outlays have been con­
centrated onwater supply andagriculture aswell astransport andcommunication .
With total public sector expenditure growing ataslower pace than the' "
overall economy ,andrevenue increasing double itsrate ,thedeficit .declined
both inabsolute terms and ,significantly ,asaproportion ofnominal GDPfrom
14.3%in1975 to6.7 %in1978 .Foreign grants ,mostly from Greece and the
UNHigh Commission forRefugees contributed substantially tofinancing thedefi­
cit .Thereduction inresources available from these sources last year ,led to
asignificant increase inborrowing requirements andtheGovernment had torely
onforeign loans .Themain source in1978 was a40mn$medium-term Euro-credit .
3.2.4 .Money andbanking ,prices
Thebanking andmonetary system insouthern Cyprus iswell developed .
Eleven commercial banks areestablished ,five ofwhich areforeign ,mostly
British .Inaddition ,there isacooperative central bank acting ascentral
clearing institution for agreat number ofcooperative credit societies ,exten­
ding loans mainly totheagricultural sector .Twofinancial institutions inclu­
ding theCyprus Development Bank provide long-term loans mainly toindustry and
the tourist sector .
(1)Categories ofCentral Government revenues andexpenditures include Ordinary
andDevelopment Budgets ,Special Relief Fund forDisplaced Persons ,Social
Security Funds andPublic Loan Funds . .

SouthCyprus
GDPGROWTHRATESANDSTRUCTURE (inconstant 1973factorcostsand%)TABLE 1
I
11978
C£nuiA
1975/761nnualGrowth Ra
1976/77 Ites
I1977/78 Iaverage
I1975/78Stru
1975 Iicture
I1978
.Agriculture 38.7 +8.4 +0.2 -3.7 +1.5 17.0 12.5
2.Miningandquarrying 7.0. +8.3 +10.8 -2.8 +5.2 2.8 2.3
3.Manufacturing 47.1 +29.4 +15.5 +9.0 +17.7 13.3 15.2
4.Censtruction 24.0 +33.0 +53.6 +25.0 +36.7 4.3 7.8
5.Electricity ,gas,water 5.3 +17.5 +8.5 +3.9 +9.8 1.8 .7
6.Ttransport 38.2 +23.4 +22.4 +5.8 +16.9 .0 12.3
7.Wholesail andretailtrade 54.6 +21.0 +25.9 +6.0 +7.3 15.6 17.6
8.Banking ,insurance 16.0 +9.0 +21.5 +8.8 +13.0 5.I5.2
9.Ownership ofdwellings 18.1 +4.3 +5.4 +2.3 +4.0 7.4 5.9
10.Publicadministration 25.8 +0.9 +6.7 +7.5 +5.0 10.3 8.3
!1.Services 34.6 +10.2 +18.8 +7.5' +12.0 11.3 .2
GDPatfactorcost 309.4 +15.2 +16.4 +6.3 +12.5 100 100
Source :Planning Bureau

TABLE 2
SoQth Cyprus
GROSS FIXED CAPITAL FORMATION BYASSET AND SECTOR
(incurrent market prices )
t
I Share in%
1978 MCfc 1975 1976 1977 1978
Construction 66.3 55.8 54.9 50 .1 52.5
-Dwellings 36.8 13.9 28.1 26.8 29 .1
-Non-residential 14.0 17.1 9.2 11.0 11.1
-Civil engineering 15.5 24.7 17.6 12.3 12.3
Transport &machinery 60.1 44.2 45 .1 49.9 47.5
-Transport equipment 26.9 5.3 12.5 16.2 21.3
-Machinery &equipment 33.2 38.9 32.6 33.7 26.3
G.D.F.C.F. 126.4 00 00 00
Agriculture Π.5 14.5 10.9 8.7 9.1
Mining 1.6 3.2 2.11.2 1.3
Manuf acturing 20 .Γ 17.4 17.0 21.6 15.9
Electricity ,gas ,water 3.6 6.6 6.6 3.8 2.8
Construction 4.3 '3.9 1.7 3.8 3.4
Transport 32.4 21.1 19.5 22.1 25.6
Wholesale &retail trade 5.4 6.1 4.3 4.1 4.3
Banking ,insurance 0.9 1.3 0.7 0.6 0.7
Services 8.0 9.7 6.7 5.9 6.3
Public administration 1.8 2.4 2.4 1.2 1.4
Housing . 36.8 13.9 28.1,26.8 29 .1
Source ;Planning Bureau

-10-
South Cyprus
CONSOLIDATED CENTRAL GOVERNMENT ACCOUNTS
HCtTABLE 3
1975 1976 1977 1978
provisions
1.Current revenue
ofwhich -taxes
2.Current expenditure
ofwhich -wages ,sclaries
-goods ,services
-subsidies ,transfers
3.Current déficit
4.Capital expenditure
-investment
-transfers (1)
5.Net lending
6.Budget déficit
7.Financed from
-grants 2)
-netdomestic borrowing (2)
-netborrowing abroad (3)54.0
39.9
78.8
30.4
18.0
27.6
-24.8
8.4
7.9
0.5
3.0
-36.1
13.2
20.6
2.362.9
47.2
79.0
32.9
19.6
23.2
-16.1
19.2
16.5
2.7
3.3
38.6
15.2
-0.9
24.381.9
63.9
91.1
36.0
24.5
28.4
-9.2
22.2
17.7
4.5
2.6
34.0
24.3
-3.3
13.099.3
79.3
103 .1
43.0
25.4
31.8
-3-.8
25.2
17.7
7.5
4.2
-33.2
13.6
17.3
2.3
(1)loan repayments from thePublic loan Funds
(2)incl .use ofcash balances
(3)incl .IMF transactions
Source :IMFandPlanning Bureau

TheCentral Bank ofCyprus has theultimate responsibility ,after con- .
sultation with theGovernment ,forregulating thesupply ofmoney andcredit
andformulating exchange policies .Itsrole is,inaddition ,tosupervise the
functions ofthecommercial banks and toactasthefinancial agent oftheGovern­
ment . – -
1
Monetary authorities ,intheimplementation oftheir credit regulation
policies ,rely mainly onindirect controls via theliquidity ratio requirements
but also byissuing directives .Inline with thebuild-up ofinflationary pres­
sures andslower rate ofGDPgrowth ,theCentral Bank hasshifted itsoriginally
expansionary orientation toapolicy ofamore moderate money growth bygradually
increasing theminimum liquidity ratio .
Theaverage rise inretail prices waslimited to3.8and4.2 %in1975
and 1976 .Labour was abundant atthat time andcapacity wasunderutilised .Fur­
thermore ,a25%decrease insalaries was imposed after the1974 events .With ful
employment ,marked wage increases andrising demand ,price rises jumped toover
7%in1977 and 1978 .Rents andbasic consumption items aresubject toprice con­
trol ,andthetripartite Advisory Price Council continues toactively monitor most
other consumer goods .
3.2.5 .lhe_balance_of_ga^ments_and_external_debt
Thebalance ofpayments ofSouthern Cyprus iscaracterised byarapidly
growing deficit oncurrent account :37mnUS$in1975 ,equal to5.4 %ofGDP ,
and 160mnUS$(12.1 %)in1978 .This outturn istheresult ofarising trade
deficit which iscovered toadeclining extent bythesurplus oftheinvisible
balance (Table 4).
Theemphasis putonexports hasresulted inasatisfactory growth rate
of32.5 %p.a .incurrent prices between 1975 and 1978 ..However ,theneed tore­
place lost goods andrebuild production facilities aswell astherising demand
forrawmaterials ,intermediate andconsumer goods ofabooming economy ,led to
anexpansion ofimports with asimilar growth rate .Thetrade deficit consequent­
lymore than doubied to358mn$in1978 .Onaverage ,exports covered only 53%of
imports intheperiod unuer consideration .Thesmall decrease ofexports in1978
was theresult ofasignificant reduction inagricultural exports ,mainly potatoes
and alower growth inindustrial expor.ts asaconsequence ofadecline incompeti -
tivity .
Thereorientation oftheeconomy hasaltered thepre-1974 composition of
theexport trade ,asshown inAnnex 3.Newagricultural products ,mainly potatoes
andfresh vegetables ,have found markets whereas thetraditional citrus crop has

-12-
lost ground .Clothing ,fabricated from imported rawmaterials ,have significantly
increased their share inexports .Imports arecomposed mainly ofrawmaterials
andintermediate goods ,machinery andtransport equipment ,consumer goods incl .
cereals and fuels .
Recently ,important changes have taken place inthedirection oftrade .
Arab countries absorb now 44%ofdomestic exports asagainst 27%in1975 , i
whereas theshare ofEECcountries (mainly theUK)hasdecreased toabout 36%. 1
Eastern bloc countries also have lost some ground to7%ofthetotal .Onthe *
import side ,however EEC (UK,Italy ,Germany )remained themain suppliers andeven -
increased their share tohalf ofallshipments ,whereas Greece 'spart was reduced ;
by50%(Annex 4). , J
Inspite ofsubstantial grants andtransfers ,netearnings fron invisi -
bles areinsufficient tooffset thetrade deficit .Consequently ,arapidly growin
current account deficit had tobefinanced increasingly from external resources .
Aconsiderable netcapital inflow ,partly inform ofprivate investment caDital
from Greek Cypriots living abroad andGovernment borrowing ,however enabled the
area tobuild upitsforeign exchange reserves .They attained attheend oflast
year theequivalent ofUS$376mncorresponding to6.6months ofmerchandise
imports .
Asshown inTable 5,theoverall indebtedness (excl .short-term borrowing )
corresponded attheendof1978 toUS$292mnor22.1 %ofGDP ,upfrom 14.3 7,
three years earlier .Theservicing ofthis debt (repayment andinterest )repre­
sents about 5%ofexport earnings from goods andservices .
3.3 .Analvsis ofthemain sectors
3.3.1 .Agriculture
Value added 1978 :12.5 %ofGDP
Employment :25 %ofallemployed
Investments 1975 /78 : 8.2 %ofG.F.C.F.
Asinallcountries with alarge agriculture sector ,itssignificance goes
beyond theabove quoted figures notonly because animportant part ofthemanufac­
turing sector relies onagricultural inputs ,butalso because thedistribution and
theservice industries aswell asexport earnings depend ontheagricultural out­
put .Inrecent years sagricultural production grew slowly at1.5 %p.a.
Inthiye after thedivision oftheisland when numerous refugee far­
mers from fhenort' :-opened newoften small-sized holdings with Government assis­
tance ,tVr -number ciholdings hasincreased andtheaverage size decreased .The
agricul .uif 1^ndisnowcultivated insome 43800holdings with anaverage size
o£4.6ha .However ,more than half ofth^T hav^anarea ofless than 3ha .

-13-
TABLE 4
-South Cyprus
BALANCE OFPAYMENTS
(MCfe)
1975 1976 1977 1978
1.Exports f.o.b . 52.4 102.7 24.2 122.0
2.Imports f.o.b . -110.9 -163.4 -228.2 -255.6
3.Trade balance -58.5 -60.7 -104.0 -133.6
4.Invisible receipts 86.1 112 .1 137.6 148.9
ofwhich -foreign visitors exp .>5.4 20.7 23.8 n.d.
-foreign military exp . 27.8 28.2 . 32.8 n.d .
-private remittances 5.6 5.4 5.8 n.d.
-official aid 21.0 19.5 23.9 n.d .
5.Invisible payments -41.3 -55.7 -69.6 -74.9
ofwhich -freight ,insurance -11.2 -17.6 -25.1 n.d .
-exp .ofvisitors and
students abroad ,■ -9.6 -9.7 -11.8 n.d.
-interest payments . -3.7 .-4.9 -6.4 n.d.
6.Invisible balance 44.8 56.4 68.0 74.0
7.Balance oncurrent account -13.7 -4.3 -36.0 - -59.6
8.Net capital inflow 3.0 17.5 34.8 59.3
ofwhich -long term loans 0.8 9.4 17.0 n.d .
-other private l.t .capital 3.8 13.3 16.9 n.d.
9.Errors and omissions -3.6 4.6 '3.4 4.9
10.Overall surplus ordéficit (-) -14.3 17.8 2.2 4.6
Source :Central Bank

-i]4-
TABLE 5
South Cyprus
Foreign Debt
End ofPeriod
Cfcmillions (1)
1975 1976 1977 1978
A.Government (2) 14.4 42.5 58 .1 67.2
B.Public Corporations (3) 17.8 19.121.1 35.5
C.Foreign Suppliers Credits 1.9 1.5 1.5 1.7
D.Other (4) 2.2 2.0 3.7 4.5
TOTAL 36.3 65.1 84.4 108.9
NOTES :
(1)
(a)Conversion inCfcwas based onmiddle market rates ineffect atthe
end ofeach year .
(b)Includes long-term debt ,only (over oneyear maturity ).
Includes I.M.F. facilities outstanding which amounted attheend
of1974 ,1975 ,1976 ,1977 and 1978 toCfc2.8 ,Cfc3.7 ,Cfc20.6 ,
Cfc20.0 and Cfc15.2 million respectively .
Includes Electricity Authority ofCyprus ,Cyprus International (State )
Fair Authority ,Sewage Boards ,Cyprus Development Bank ,Cyprus Tele­
communications Authority ,Grain Commission ,Cyprus Airways ,Cyprus
Boradcasting Corporation andCyprus Ports Authority .
Includes Cyprus Petroleum Refinery ,Cyprus Cement Company ,Hellenic
Chemical Industries &Cyprus Pipes Industries butdoes notinclude
credit toother private sector .(2)
(3)
(4)
Source :.Central Bank

-!5-
The total cultivable area has been estimated at201 000haand its use
isshown inthefollowing table :
Land Use ,1977 ,inhectar
Irrigated not irrigated total
Temporary crops 13091 52251 65342
Permanent crops 10464 40126 x 50590
Temporarily fallow 3358 26236 29594
Grazing land 3195 3195
Forests 3903 3903
Uncultivated land 32541 32541
Scrub .desert 15928 15928
TOTAL 26913 174 181 201 094
Thebreakdown ofagricultural output bymain crops ,asgiven inAnnex 5,
shows thekeyrole ofvegetables especially potatoes ,intheeffort togrow higher
value export crops .Together with citrus they are themain agricultural foreign
exchange earners .Theterritory isself-sufficient infruits andvegetables .Itis,
ontheother hand ,dependant onimports ofcereals foranimal feed and ,inspite
ofgrowing local production ,meat anddairy products .Innormal years ,however ,
theoverall external trade balance oftheagricultural sector ispositive .
Thescarcity ofwater isamajor problem inCyprus .Thetotal irrigated
area comprises about 27000ha (over 13%)intheGovernment controlled area .Some
large newirrigation projects areunder review andpartly under construction .They
will inthelong term increase significantly -theirrigated area .Inthemeantime ,.
alarge portion ofagricultural production willremain dependant onrainfed crops ,
which nowrepresent about half oftheproduction value andaresubject tolarge annual
fluctuations .Inview ofthedevelopment efforts inirrigation ,theoutput of
crops ,such asordinary andearly vegetables ,table grapes ,andcitrus anddeciduous
fruit will increase substantially ,butwill have toface increasing competition on
international markets .
3.3.2 .Manuf açturing indus tr^
Value added 1978 :15.2 %ofGDP
Employment 1978 21 %oftotal employment
Investments 1975 /78 :15.4 7,ofG.F.C.F.
Industry isregarded asoneofthepriority sectors fortheterritory s
economic' development andapart from agriculture hasplayed themajor role in
% >•

- fi-
providing jobs fortherefugees .Thesector isdominated both interms ofemploy­
ment andoutput byexport-oriented footwear andclothing industries ,which have
benefitted from strong demand from abroad over thelast years .Incontrast ,
industries processing agricultural produce ,traditionally Cyprus' most important
manufacturing activity ,recorded smaller gains owing toadrop inexternal demand .
Theproduction ofconstruction materials wasfavoured bytheintense building
activity andrecorded substantial growth .Thecement factories work tocapacity .
Themanufacturing sector consists of4858establishments (1976 census )
ofwhich 80%employ onaverage less than five persons .Textile ,wearing apparel
and leather industries are dominant with 38%oftheestablishments and 36%of
theindustrial workforce .Next inrank arethe 5600workers infood ,beverages
andtobacco manufacturing in667establishments ,andthe 3100people engaged in
I
the 1000establishments ofthewood andfurniture industries .Traditionally ,
Cyprus has afree enterprise economy andindustry isinprivate ownership .
Manufacturing isnowfacing newconstraints which imply aneed for re­
structuring inorder toassure further growth .Ingeneral ,establishments are too
small ,have alimited financial base ,andbeing labour-intensive ,have recently
suffered from ashortage ofskilled workers .Wages have increased significantly
andaffected international competitivity .Thedomestic market ,moreover ,,issmall .
Mergers ,larger industrial units andmore capital-intensive production methods
areenvisaged toovercome these problems .
3.3.3 .Transgort andpower
Inland transport istotally dependent onroad .There arenorailways and
coastal shipping isnegligeable .Thegreat bulk oftheinternational trade remains
seaborne andgoes through themain port ofLimassol .International airservices
have expanded rapidly anduseLarnaca airport ,since Nicosia airport isoutof
service .
Thesector plays amajor role in 'theterritory 'seconomy with avalue
added nearly ashigh asagriculture (12.3 %ofGDP)andhasabsorbed 24.3 %of
total investment inthe1975 /78period with theexpansion oftheport ,airport and
road capacity and thevehicle fleet .
Theavailable power generating capacity reached 268.5 MWin1977 ofwhich
264were from twooil-fired (consumption r251000 tin1977 )povar stations by

_ 17_
theGovernment owned Electricity Authority ofCyprus .Thecompany serves the
whole island .Capacity uptonowhaskept pace with demand (583mnKWhin1977 )
which has grown at arate <ofabout 10%p.a.since 1975 andnearly 11%in
theGovernment controlled area .Industry isthemost important client absorbing
40%oftotal consumption followed bycommercial (28.9 %)anddomestic users (25%)
Inview oftheforecast growing demand and theageofoneofthepower stations ,
asubstantial investment programme isenvisaged .
3.3.A. Tour ism
After the1974 events ,theGovernment succeeded inre-establishing
confidence andstarted again toparticipate inthebooming tourism sector .In1978 ,
217000tourists®were attracted toitsareaspending about US$80mnor25%of
total exports .Many newhotels have been built toreplace those lost inthenorth ,
often financed byprivate foreign capital from Cypriots living abroad .Attheend
of1978 ,'79hotels with about 8700beds were inoperation .The tourist season
hasbeen lenghtened toalmost 12months ,and theorigin ofthevisitors hasbeen
further diversified ,though Britain isstill themost important source .
3.4 .Outlook
3.4.1 .TheGovernment .isatpresent implementing afurther Plan covering the
period 1979-81 .Thetargets are toconsolidate thepost-1974 achievements and to
assure thelonger term viability oftheterritory 'seconomy while -maintaining the
. ' .option ofrestoring theeconomic unity oftheisland .-Thestrategy istoovercome
thestructural weaknesses oftheeconomy byincreasing productivity through a
policy offostering more capital-intensive projects .This policy presupposes an
increase inthesize ofproductive units *andwill ,asaconsequence ,result in
growing capacities .Enterprises using local rawmaterials will beparticularly
promoted toincrease added value andreduce theimport component ofdomestic
production .Efforts totrain andretrain labour will becontinued .Theoverall
growth rate isforecast toslow down to5%p.a.inorder toreduce theinternal
andexternal imbalances oftheeconomy .Thefollowing table shows thepast and
expected real growth rate bySector .
ι ·
(1)asagainst 264000inthewhole island m1973 ,.

18
Growth target ofthe 1979 /81Plan
(in%p.a.)
Realised Plan Share
1975 /78 1979 /81 1978 1981
Agriculture ,mining andquarrying 2.1 2.9 14.8 13.9
Indus try (1) 20.1 7.1 37.0 39.0
Trade ,banking ,services ,administr . 11.3 4.A 48.2 47.1
GDP 12.5 5.2 100.0 100.0
(1)incl .construction ,electricity ,gas ,water and transport .
Fixed capital formation ,over thethree year Plan period isexpected to
amount to531mnC£ (US$1.4bn)incurrent prices which isequivalent to27.7 %
ofGDP ascompared with 21%between 1975 and1978 .Inreal terms ,theaverage annual
growth rate isforecast atabout 10%.Thebulk ofinvestment will continue togo
into housing which will even increase itsshare to28%according topreliminary
\
figures .Thehousing policy will become more selective andconcentrate onlowcost
housing toaccomodate theremaining refugees living intents andassist thelower
income groups .Inmanufacturing ,theemphasis will beplaced onrestructuring and
linking existing sectors inorder toincreasd productivity andeconomies ofscale .
Newexport-oriented ,more capital-intensive activities will befostered byincen­
tives .Theuse oflocal rawmaterials (1)isencouraged and acomprehensive explora­
tion programme forminerals andquarrying materials isenvisaged .Several industrial
estates arebeing established andtheGovernment isstudying thepossibility of
establishing anewindustrial zone .Ininfrastructure , transport andwater
projects gethighest priority .Inorder toalleviate thewater problem ofthearea ,
expand thecultivated land andenhance theviability ofagriculture ,several large
scale water projects arebeing realised orunder consideration :Paphos irrigation
project ,Pitsilia rural development project ,Vasilikos Pendaskinos project ,and
Nicosia water supply scheme .Other investments inthis sector concern theimproving
oftheuse ofwater inirrigation .
Inthetransport sector several projects forincreasing thecapacity of
existing roads andthebuilding ofnewlinks have been executed orareplanned :
theNicosia-Limassol ,andLimassol-Paphos links are themain projects .Thepurchase
of aircraft byCyprus Airways isincluded intheinvestment programme .
Inagric ulture ,several projects areenvisaged forsoil conservation and
re-forestation ,land consolidation anaestablishment oflivestock areas tomeet
(1)There areknown exploitable deposits ofasbestos ,chromium minerals ,cupreous ,
andiron pyrites ,zinc minerals ,bentonite ,lime ,quarrying materials .

themeatanddairyshortages .Touristprojectsareencouraged bylong-term loans.
TheElectricityAuthorityplanstwonew60MWoil-firedpowerstationswiththe j
aimofreplacing oneoftheexistingandincreasing supplytomeetgrowingdemand.
Intheservicesector,thedevelopment andexpansion ofnewfieldssuchastransit '
trade,consulting engineering ,insurance ,bankingandshippingisencouraged .' j
OverA3%ofthetotalinvestment expenditure isexpected tobefinanced
bydomestic savingsasagainst23.5%inthelastyears.Thisimpliesasubstantial
increase inthemarginalpropensity tosave,whichhadrecentlyfallentoabout
6%ofthenational income.ThePlanforecasts anaveragerateofabout37%inthe
years1979-81 .Thiscompares to'over20%inthewholeofCyprusbeforethe
divison .
Incontrast tothepastdevelopment ,exports (+10.9%p.a.incurrent
terms)andinvisible receipts ,incl.grants (11.2%)areexpected togrowquicker
thanimports (+9.A%)andinvisible payments (+7.9%)sothatthecurrentaccount
deficitisassumedto--remainatsomeUS$160mnp.a.asin1978.Netcapital
importsofaboutthesameamountperyearareenvisaged ,andtheforeignexchange
reserves shouldbemaintained .
3.A.2.Inviewofthepastperformance oftheeconomywhichexceeded inmany
respects theplanneddevelopment ,andtheabilityanddetermination ofthepublic
authorities totakenecessary measures ,theobjectives ofthenewplandonot
ingeneral seemtobeover-optimistic .
t
•■Thereare,however ,twomajorpotential constraints oftherealisation
oftheplannedobjectives .Thefirstandpossibly mostcriticalistheassumed
dramatic changeinthemarginal propensity toisave.Thesecondisthedangerthat
imports maycontinue toriseatafasterthanexpected paceinviewofthehigh
propensity toconsume .
Intermsofthetradebalance,theforecast exportgrowthrateof10.9%
perannumagainstaslightsetbackin1978appearssomewhat ,optimistic .AgriculturaltoftheEECexportstotheEECfacerestrictions andtheenlargemen willnoteasetheproblem,

-20 -
whereas industrial exports have started tofeel thestronger competition from
similar products ofother lowcost countries .Both developments maylead tofurther
increase the current account deficit .
While thepresent very lowpropensity tosave canbeexplained bythe
urge tore-establish former consumer standards ,theplanned assumed rate iswell
inexcess ofaverage past experience .Both constraints would have asaconsequence
theneed toraise additional foreign borrowings ,which inview oftherelatively
lowdebt service ratio of5%should bepossible .
Inthelonger term ,theskilled andflexible labour force and the
emphasis placed ontraining ,coupled with proven entrepreneurial skill and
effective liberal economic policies ,arecomparative advantages infavour of
acontinuous development ofthearea 'sproduction andexports .
/
4.THE NORTHERN PART OFCYPRUS
4.1 .Population andemployment
The northern part ofthe
island has apopulation ofabout 150000people distributed over aterritory of
some 3500 sqkm .This corresponds toanaverage density ofover 40people perkm2 ,
which isless than half thedensity inthesouth .Nicosia ,Famagusta ,MOrphou
andKyrenia are themain urban areas ,where themajority ofthepopulation lives .
Theregion 'slabour force amounted tosome 46000people in1977 .According to
some indications it is fair to assume that theunemployment rate
exceeds 10%andthat underemployment ishigh .Agriculture provides jobs for41%
ofthelabour force ,only marginally more than thenumber active intheservice
sector .Manufacturing andconstruction ontheother hand employ only aminor
proportion oftheworkers .
Estimated labour force bysector
1977 %
Agriculture 18817 40.8
Manuf acturing 4509 9.8
Construction 2360 5.1
Services (public andprivate ) 18529 40.2
Government 580 1.3
Unemployed 1337 2■9
Total labour force 4.6132 100.0

-21- ;
î
S
• ■ •••■.• 'i
'i
;
4.2 .Recent economic development ,
< !
f
Owing totherecent establishment and theslow build-up ofan'administra - !
tion ,figures ontheeconomic development are scarce and those available have tobe »
i
iinterpreted cautiously .Ingeneral ,thelocal administration seems tohave adopted [.
theTurkish economic system with astrong influence of .thepublic sector leaving |
little room forprivate entrepreneurial skill .TheTurkish lira hasbecome the ;
official currency andTurkey isthemost important trading .partner ,subsidising :
thelocal budget heavily . !
> . . >
I
Asshown inAnnex 6,GDP atcurrent prices (1)isestimated at3.7bnTL
(US$190mn)in1977 .GDPper'head is24500TL(US$1260),which isabout half
theamount inthesouthern part oftheisland .Theeconomy isstrongly oriented
towards theagricultural andservice sector ,with tourism and trade con­
tributing themajority ofGDP .Industry including electricity ,water ,
mining andconstruction produces only about 14%ofGDP .
Public andprivate consumption seem tohave exceeded in1977 thelocally
produced resources bysome 18%.Theterritory relies substantially andincreasingly '
ohhelp andborrowing from abroad .The1979 budget expenditures (seeAnnex 7•)will j
only becovered to51%bylocal revenue ;thebalance isexpected toconsist ,
ofaid . .
Thetrade deficit hasmore than quadrupled between 1975 and1978 to
1.4bnTL (US$54mn)last year (Annex 8),inspite ofexports increasing slightly
'* N !'
more rapidly than imports .Turkey 'sshare isfalling continuously but this trend
would tend tobereversed this year asaconsequence ofarecent decree banning
alltrade inconsumer goods andfoodstuffs with countries other than Turkey .
Though anagricultural area ,food andbeverages represent over 40%of
imports andexceed agricultural exports .Intermediate products andequipment
'constitute half ofallimports while oilandpetrol absorb thebalance .Exports
ontheother hand consist primarily ofagricultural products ,over twothirds of
which are citrus .
Thesmall surplus inthebalance oninvisibles (Annex 9)stemming mainly
from tourism ,only partially covers thetrade deficit ,leaving a1978 current
account deficit of977mnTL (US$39mn)asagainst 705mnTL (US$36mn)
in 1977 . Indications onthefinancing ofthedeficit arelacking .
(1)Inflation exceeded 55%in19/8,

_22-
Equally ,figures onthe amount andmaturity ofthe external debt are
not available .
4.3 .Thedevelopment oftheprincipal sectors
4.3.1 .Agriculture
More than half oftheagricultural area ofsome 165000haisdevoted for
thegrowing ofcereals and aquarter isgrazing land .Only about 8%ofthe -land
iscultivated intensively with plants such ascitrus ,wine ,vegetables ,tobacco .
Citrus isboth themain export product andforeign exchange earner oftheterri­
tory .Asinthesouth ,theadministration encourages early vegetables forexport
butsuccess uptonowhasbeen limited .Animal production isconcentrated ongoats ,
milk andeggs andhasregistered some progress inproducing poultry andlamb .
There ishowever asignificant meat shortage .Thegood 1978 cereal harvest did
notcover thelocal needs ,though invegetables theterritory isself-sufficient .
The area succeeded inselling anincreasing proportion ofthecitrus pro­
duction abroad after thedivision oftheisland ,mainly totheUK (52%)and
Turkey (29%).
State farms have been established topromote modern production methods
andnewcrops .Onthewhole ,thearea 'sagriculture suffers asinthesouth from
thescarcity ofwater forirrigation ,andoverpumping haspol ,luted theacquifers
wj.th seawater ,which isdestroying some ofthecitrus plantations near thecoast .
4.3.2 .Indus try
Theindustrial base ofnorthern Cyprus isweak .Theindustrial develop­
ment suffers from international isolation ,therestricted domestic market ,the
small size ofestablishments ,lowproductivity andthelack ofskilled labour .
After thedivision ofCyprus ,State Economic Enterprises have taken over amajor
proportion offormerly Greek owned enterprises .Due tothewardamages andlack
ofknow-how andskills ,industrial production only slowly recovered after 1974 ,
andin1978 according toprovisional estimates ,output stood atabout 57%of
capacity .Themain industries concern food andtobacco related tolocal agri­
cultural production ,andsome factories ,mainly small ,fortextiles ,shoes ,
furniture ,plastics ,cement andmetal working (galvanised steel pipes ).They
provide jobs foratotal 5500 ,upfrom 3500in1975 .About cn»quarter ofthe
total industrial production isexported .

-23-
A.3.3.Tourism
Thenorthern part ofCyprus was one ofthemajor tourist areas before the
division .There were twocentres :one atFamagusta and the
other atKyrenia . Hotel capacity now isestimated at2500beds .
Since 1976 ,tourism restarted ,andinthe first nine months of1978 about
54000tourists were registered inhotels ,about thesame number astheprevious
year .Thefacilities arehowever promoted mainly inTurkey andtheproportion .of
Turkish visitors isover 80%.Thus tourism does notfulfil itsfull potential as
aforeign exchange earner .
4.4 .Prospects
. .. haveThelocal authorities established afive year development plan for
theperiod 1978 to1982 ,aiming ata7%p.a.growth rate ofGNP .Theplan is
based onestimated 1976 and1977 macro-economic aggregates which will have tobe
adjusted (1).Theplanned investment over theperiod amounts to4.6bnTL (about
US$100nm),with amajor emphasis being placed onthemodernisation ofagri­
culture ,mainly byimproving thewater supply .Theirrigation anddevelopment of
theMorphou area ,where citrus i-sgrown ,isthemain' project .Asinthesouth ,
housing absorbs animportant part oftheinvestment budget .Transport andcommunica­
tions rank second intheplanned investment effort with road building taking the
major share .Themajor project istorealign andimprove theexisting Nicosia -
Kyrenia road .Industrial investment isforecast tobeconcentrated onre-'equipping
those factories which have not yetstarted production after 1974 and toattract new
establishments .They concern primarily light industries like electrical appliances ,
TVandwashing machine assembly ,dye-stuffs ,detergents ,orrelated toagriculture
andfood :orange juice andconcentrate ,water andbeverage bottling ,animal feed–
stuffs and ice-cream .
Total investment over theplanperiod isprojected tobefinanced by
67%from domestic ,public andprivate ,savings ,leaving 1.5bnTL (US$32mn)
toexternal financing .Thebudget deficit isassumed toremain high andforeign
aidisexpected tocover aquarter toathird oftheoverall expenditure .Inspite
ofanassumed doubling ofexports (+14.7 %p.a.incurrent terms )andnettourist
earnings ,thecurrent account will remain indeficit .
(1)TheGD?figure aswell asitscomposition isacknowledged tobeincorrect .
Itdiffers from themore recent figures given inAnnex 6.

-24-
The plan sgrowth target isdefinitely ontheoptimistic side inview of
thepast development oftheNorth Cyprus economy and itspresent rather bleak
situation .Theeconomic prospects oftheterritory donotappear very favourable ,
since they depend toalarge extent onTurkey -itself inadelicate position .
Thearea ,furthermore ,isisolated from third markets andproductivity ofthe
agricultural andindustrial sector islow .Substantial investments arenecessary
toincrease water availability foragricultural production ,which isthebackbone
oftheterritory 'seconomy .Sufficient domestic savings forfinancing theplanned
investments arenotavailable andthearea will continue todepend heavily on
external financing .Theconfused political situation with strong Turkish influence
ishardly conducive totheattraction ofprivate foreign capital .Since the
"Turkish Federated State ofCyprus "isnotinternationally recognised andhasno
monetary authority ,aidwill continue tocome mainly from Turkey .

-25-
ANNEXES

_26-
ANNEX 1
I
%
South Cyprus
Emp1nvment bysector
19761978 %1978
Agriculture
Mining
Manuf acturing
Construction
Electricity
Transportation
Trade
Banking
Public Administration
Services
Total employed45220 44100 26.0
2330 2020 1*2
30290 35690 21.0
11310 16850 '9.9
1350 1360 0,8
7700 8800 5-2
16950 19300 11-4
3210 3700 2.2
m77n 11450 6.716950
3210
1077016850 '9.9
1360 °-8
24820 26600 ' '1
153 950169870 100.0
Source Planning Bureau

ANNEX
South Cyprus
GDPBYCATEGORIES OFEXPENDITURE (in1967prices )
(Cbmillion )
1.Final Consumption
-private ,
-public
2.Gross domestic fixed capital
formation
3.Change instocks
4.Net foreign sector1975
160.6
137.0
23.6
16.8
3.6
-20.71976
180.6
157.2
23.4
20.5
5.8
-13.21977
220.6
189.8
~30.8
34.0
5.8
-27.9Average yearly grpwth
rate (%)
+17.2
+17.7
+14.2
+42.3
+26.9
+16.1
Source :Ministry ofFinance ,Economic report 1977
V

-28-
South Cyprus
Main domestic exports (l)AIsNEX 3
I 1975 1 1977! 1978
ooo Cfc i % ooo Ch |% ooo Cfa iL_J
Potatoes 7725 15.8 19435 17.7 l10772 I10.4
Fresh vegetables 846 1.7 2192 2.0 2518 2.4
Citrus ,grapes 7546 15.5 9377 8.6 10179 9.8
Clothing 3450 7.1 11983 10.9 16322 15.8
Footwear 1758 3.6 5933 I5.4 7104
I6.9
Portland Cement i5980 j12.310556 !
i9.6 8306 8.0
Asbestos 2127 4.4 i4381 4.0 3724 3.6
Wine ,grapemust 3780
I7.7 6147 ;5.6 5778 5.6
Cigarettes '1321I2.7•3815 I3.5'5915 15.7 |
(l)excl .re-exports
Source :Ministry ofFinance ,Imports &Exports Statistics

Imports byorigin
975 1977 1978
EEC
Eastern bloc
Arabian Countries
Greece
Japan
Other45.9
9.7
9.5
12.2
3.9
18.845.3
8.2
8.5
8.3
5.0
24.750.8
7.0
8.1
6.3
5.4
22.4
Total 100 100 100
Exports bydestination
EEC
Greece
Arab Countries
Eastern bloc
Other1975
43.6
4.2
27.7
10.9
13.61977
38.8
2.0
44.4
6.7
8.11978
36.4
1.7
44.1
7.0
10.8
Total 100 100 100
Source :Ministry ofFinance ,Imports &Exports Statistics

-30 - ANNEX 5
South Cyprus
MAIN AGRICULTURAL PRODUCTS
1.Citrus
2.Fruit ,nuts
3.Grapes
4.Olives ,carabs
5.Vegetables
6.Cereals1975
82601
20879
172 720
33528
187 793
83312Tons
1976 1977
82296
21488
167 640
42672
273 275
90424104 658
23520
155448
27940
295 882
80264Value 000 Cb
1975
3669
1732
6239
4520
12174
43741976 1977
3955
2147
6880
4 .008
23777
47175041
2726
7451
4464
24417
4474
Source =Ministry ofFinance ,Agricultural Census 1973

AN'.'-hX b
Northern uyprus
1977 Gross Domestic Product
(incurrent prices )
7.Banking andprivate services
8.Public services
9.Import dutiesth*GinTL
709.1 19.3
Agriculture - .363.4 9.9
2.Indus try _ .
–mines and quarrying
-manuf acturmg
-electricity andwater
3.Construction
4.Trade
5.Transport andcommunications15.4
287.4
60.6
156.9 4-3
801.9 21.8
253.3 6.9
" 257.7 7-0
6'Ee"S . - ,35.8 3.7 .
Total773.2 21.0
228.2 6.2
3679.5 " 100
Source :Turkish Cypriot administration

-32.
ANNEX 7
Northern Cyprus
1979 Budget
-milTL-
1.Revenue
-Local 1234.6
-Aid from UNHCR 67.0
-Aid from Turkey ' 378.0
-Foreign aid ( 634.3
2313.9
2.Current expenditure 1241.3
transfers 688.6
1929.9
3.Current surplus 384.0
4.Capital expenditure 503.5
-Infrastructure ,incl .water 274.1
-Agricultural development 71.4
-Trade,' industrial development 19.5
-Tourist development 5.0
-Social services
(education ,refugees ,etc.) 133.5
5.Overall déficit 199.5
Source Turkish Cypriot administration

A^'NLX
Northern Cyprus
Foreign Trade
1977 /78 1978 /79--
"^TtT ^Jh
1.EXPORTS
Agrumes
Potatoes ^\
Other agricultural products
Manufactured products
Mining products
Total319.7
32.5
39.0
52.3
37.0
480.566.5
6.8
8.1
10.9
7.7
100.0639.3
54.2
89.1
68.7
27.3
878.672.8
6.2
10.1
7.8
3.1
100.0
2.IMP0RTS
Food and beverages
Fuels andlubricants
Fertilizer andseeds
Machinery ,equipment
Intermediate products
Total666.1
75.4
10.6
287.6
473.7
1513.444.0 941.0
5.0 168.9
0.7 48.9
19.0 391.6
31.3 679.9
100.0 2230.342.2
7.6
2.2
17.6
-30.5
100.0
Source :Turkish Cypri otadministration

-34-
ANNEX 9
Northern Cyprus
Balance ofpayments
-mnTL-
1.3.77-28.2.78Estimate
1.3.78 -28.2.79
Exports
Imports
Trade déficit
Tourism receipts
Tourism expenditure
Other invisibles (net )
Invisible balance
Current account deficit480.5
.1513 .A
-1032.9
825.0
330.0
167.0
328.0
- 704.9878.6
2230.3
-1351.7
1035.0
460.0
200.0
375.0
- 976.7
Source :Turkish Cypri otadministration