Cyprus: Small Island, Big Potential

(Note: I visited Cyprus in May 2019. This article, written then but never published, is a belated summary of what turned out to be a very exciting and memorable trip.) 

It’s a tourist draw with beaches and dark coffee. It’s also one of the foremost shipping hubs featuring ship management, crewing and chartering. A small island of scarcely more than a million people, Cyprus has four percent of the world’s global tonnage under its flag and plays a key role as a European Union country that prides itself on really taking care of the needs of shipping. 

Only Cyprus has a dedicated, autonomous ministry-level government agency which works together with the private sector to meet the needs of maritime economy – think Federal Reserve, but instead of monetary policy, it sets shipping policy for the vessels that sail under its flag. It’s an ambitious project, but the Cypriots are patient and have been pursuing their agenda for decades now. It’s paying off, as shipowners from the rest of the EU come to Cyprus seeking a friendlier way to do business. With regulations and bureaucracy choking off growth in hubs like Hamburg and Brexit triggering business headaches in London, Cyprus has positioned itself to take advantage of the ensuing chaos.

I had the pleasure of sitting down with Thomas Kazakos, the chief of the Cyprus Shipping Chamber, which is the industry’s lobby organization on this balmy Mediterranean island. Here’s the scoop.

It’s not easy facing the anger of big, traditional maritime countries like Germany. There, Cyprus has what can only be called a bad reputation. Germans think Cyprus-flagged ships are cheap, kill jobs for hardworking German seafarers on German-flagged ships and have poor safety standards – basically, Germans think Cyprus-flagged ships are flying a “flag of convenience.” 

It’s not a fair statement, says Thomas Kazakos of the Cyprus Shipping Chamber. He’s one of the best-networked men in Cyprus shipping; his relationships include top-level government officials and all the movers and shakers who are involved in Cyprus’ bustling maritime private sector. He thinks the accusations levied against Cyprus are ridiculous. “Cyprus applies 105% of all the relevant rules and regulations,” he states, in the demeanor of a man who is setting the record straight once and for all. “In terms of legality vs. fairness, the only thing that matters is whether it’s legal or illegal. We have multiple supervision agencies both relating to pure shipping and in terms of transport in general. And in terms of registration, there are much cheaper flags than ours.” He notes that the man in charge of the Commission, which is the entity in charge of the Cyprus Register, “goes by the book.”

Kazakosis swift to note that Cyprus is an EU-approved open registry as of 2004. It is not a “flag of convenience;” rather, its open registry status affords non-national born citizens the chance to register and operate a ship from Cyprus such that Cypriot owners are on parity with non-Cypriot owners. Cyprus was the first open registry approved by the European Union government. As such, Cyprus expands the law of the European Union to other nationalities who otherwise would have opted for flag states completely outside of the European Union. If the Cyprus registry were closed, owners without a physical presence in Cyprus would not be able to register. 

The island has an advantage as it can convince non-EU born shipowners to set up a full office in Cyprus and employ local people and it expands the legal standards of the EU to nationalities which otherwise would not be subject to it. But Kazakos admits that 40 percent of the Cypriot registry ships are under Greek ownership, with another 20 percent under German ownership. As such, there is some truth to the claim that the Cypriot registry cannibalizes other EU registries. But it does not do so using lower standards, by being a tax haven or by offering a flag of convenience.

Indeed, when it comes to the political back-and-forth between aggrieved Germans who are anxious about the loss of German-flagged vessels and resent shipowners seeking a better value proposition, Mr. Kazakos points out that Cyprus is “in the middle of nowhere” and “doesn’t have the political clout to impose its wishes on others.” Thus, anger about flagging out and any perceived loss of national prestige or opportunities for national seafarers should be directed at the political decision-makers who are above Cyprus. As a small country, all it can do is offer a compelling product for market forces outside its control. “If there is one thing that’s different in Cyprus than others,” Kazakos says, “it’s geographically small, but proportionally large in shipping’s development, but also in terms of its role.” 

It’s easier to complain rather than think about emulating a successful model. “It’s the familiarity and the community and the united voice vis-à-vis the industry which set Cyprus apart,” Kazakos adds. “It’s the shipping administration working hand in hand with the private sector.” In Germany and other high-regulation economies, on the other hand, every day new onerous regulations are imposed – by contrast, Cyprus looks like an opportunity to get back to business without being dominated by official concerns. It is an alternative to non-EU jurisdictions like Singapore or Hong Kong, where entirely different rules apply.

A big reason for Cyprus’ advantage in this regard is that it has a ministerial-level department dedicated to the needs of the shipping sector which is autonomous. Kazakos explained: “This proposal got unanimous support from all political parties to make the shipping administration autonomous under its own department, with its own portfolio, which is to say, shipping only, not even ports.” This department reports directly to the president and is based in the shipping hub of Limassol, rather than in the inland capital city of Nicosia. As a result, it’s a close-knit network and nobody has to wait long to talk to decision-makers. And the process of decision-making is streamlined and highly in tune with the inputs from the industry. There is not as much of a top-down relationship; rather, government and the private sector work together to make the maritime sector work. What some may see as lobbying, and therefore as undemocratic, has in fact benefitted from broad political support.

“If there’s one thing this association has managed in the last 30 years,” Kazakos says, “it’s to convince successive governments that shipping is an issue of national economy, and above party politics.” Kazakos tells a story of how the Cyprus registry got a “major shipowner” to come to Cyprus by going to a conference with all of the major government and private sector decision-makers in tow. They confronted the owner with “one voice,” as Kazakos put it, and persuaded him to remain in the European Union with his registry. 

Cyprus is developing a national shipping policy, Kazakos explains, which has projections looking up to 20 years ahead. “The government and CSC have been working on this vis-à-vis practical measures to improve the infrastructure on Cyprus. We are taking the needs of the customers into account, making things even more business friendly,” Kazakos adds. “When it comes to e-signatures/e-records, the shipping ministry is trying to do better. Streamlining the single ministry means that changes can be carried out faster and without as much hassle.  Modernization is ongoing.”

Further, Cyprus enforces the substance of European Union rules. For that, the island has the 11th largest fleet in the world and the 3rd largest in Europe. 72 million gross tons operate under the Cyprus flag. 9,000 people – both foreigners and Cypriots – make a living from shipping on Cyprus, along with 55,000 seafarers. Due to this good fundamental infrastructure, Kazakos thinks that the Cyprus register has the potential to grow painlessly. “We’ve built infrastructure from the regulatory side, up to the highest level, with our own self-standing ministry for shipping,” says Kazakos. “Even more important is the full compliance of Cyprus with all the international IMO/ILO/EU regulations. Cyprus has a large fleet, fully developed ship management company, and all the things you need from the supply side – parts suppliers, logistics and so on.” Since 24 March 2010, Kazakos says, the EU has also fully approved Cyprus’ (now very popular) shipping taxation system. Cyprus negotiated and observed for about 10 years in respect of its tax system, taking the best parts of other compliant systems and making sure to keep within guidelines. 

Kazakos immediately clarifies, however, that Cyprus “is not the cheapest vis-à-vis tonnage tax rates, but it has one of the best and most competitive systems. This is not a tax haven, it is not a zero tax regime.” Cyprus wanted to join the European Union as a full member, which means also fully compliant with tax rules. “It would take five minutes to read the law and if it was below EU standards, in terms of finance, security, safety or environment, Cyprus would have been rejected from EU membership,” says Kazakos. “Also, there have been no penalties levied against Cyprus. Cyprus’ taxation system comes up for regular assessment and renewal after a given number of years, there is an audit and then a decision is made to amend, edit or penalize. Cyprus has been assessed three times, no problems were ever identified.”

The Achilles’ Heel, as it were, of Cypriot shipping is the Turkish embargo. Following two successive Turkish invasions of the island, one third of Cyprus (the northern part) is still under a Turkish military occupation held to be illegal as per the United Nations and international law. Turkish ports are closed to Cyprus-flagged ships and any ships trading with Cyprus can run afoul of the embargo. All of this is a problem for Cyprus-flagged ships seeking to also do business specifically in Turkey. 

But Kazakos sees an opportunity in cooperation with Turkey, at least in the long term. Cyprus does not have a big merchant marine, but the island is only 70 nm away from Turkey. Cyprus has a fully-fledged shipping industry that could cater to Turkish shipping needs. It would be more beneficial for Turkish imports/exports to handle its shipping needs through Cyprus, making it cheaper ultimately for the end consumer – by taking advantage of the already existing nexus effects in the Cypriot shipping cluster. And, of course, it would be good business for Cyprus. Perhaps free trade and capitalism will eventually bring old enemies together, but right now it seems unlikely, especially with Turkey’s talks with the European Union regarding its accession atrophying due to lack of interest and commitment on both sides.

Kazakos and his friends are used to solving their problems without help from the outside. The previous decades have taught self-reliance. “We don’t go to the government and cry our eyes out,” he says. “We bring the expertise from our Cyprus Shipping Chamber members and try to identify two or three suggestions, which we then bring forward as our own policy proposal.” Cyprus now has three maritime academies, up from zero not too long ago. They teach both cadets and ratings. This is helping to cover the lack of Cyprus-trained sailors. Also, shipping is the most popular subject in all of the universities in Cyprus; there are both postgraduate and postdoctoral shipping programs. Particularly popular are the subjects of shipping finance and shipping and energy. Especially energy – with the discovery of large offshore oil and gas fields – is drawing fresh interest. So even without reaching a détente with Turkey, therefore, it seems like Cyprus is able to take its fate into its own hands.

Cyprus will continue to look for synergies and cooperation with its bigger competitors, says Kazakos. “Most member companies have offices globally, so it’s not to our benefit to work on a narrow-minded approach in a globalized industry. We work with the word ‘synergy/seanergy,’” he adds, turning a perhaps over-used word into pun that compels a dry chuckle. And what else makes Cyprus special? It’s working and living in a familiar atmosphere. “Loyalty matters. Many people work 20 or more years in their respective companies,” Kazakos summarizes. “There is trust in the industry.”

Now that sounds a lot like the shipping industry that I know and love.

This article appears courtesy of Kravets & Kravets, and it is reproduced here in an abbreviated form. It may be found in its original form here.