Since the Turkish Peace Operation of 1974, the controlled northern part of Cyprus has been dependent on Turkey economically and politically. But in 2003, this changed. Since April 23, 2003, to be precise, the “Turkish Republic of Northern Cyprus” (TRNC) economy has been able to make more contacts with the outside world, thereby building their economy.
The role of Turkey in the “TRNC” continues to be dominant. Turkey controls all governmental and institutional agencies. The Turkish Lira became the legal tender in TRNC in the early years following the invasion, which effectively establishing a monetary union with Turkey meaning Turkey’s economic and monetary problems would easily transfer to the “TRNC.” As a result, the economy of the “TRNC” suffered from problems of currency instability and high inflation during the 2000-2001 economic crisis in Turkey.
Economic activity in the northern part of Cyprus has accelerated following developments with UN-sponsored efforts for a lasting solution and the failure of the Anan Plan in 2004. However, the sustainability of this process would require well-designed macroeconomic and financial policies, a restructuring of the private and public sectors, and substantial assistance from outside sources.
There is no doubt that the island’s northern part holds vast economic potentials under the right set of circumstances. A combination of policies toward harmonization with the European acquis and further economic integration of the northern part with the government-controlled areas, and by extension with the EU, will open up ample possibilities.
Economic Overview and Current Position of Northern Cyprus
The political stance of the Turkish Republic of Northern Cyprus is dependent on Turkey. Because of the unrecognition in the international scene, Northern Cyprus’s economy, import, and export activities are carried out in Turkey. Despite the small size, Northern Cyprus’s economy has experienced high growth rates since 2003. North Cyprus applies a free market economy. Her per capita income was around $15.000 as of 2014.
The Turkish Republic of Northern Cyprus is dominated by the services sector, including the public sector, trade, tourism, and education. From a longer-term perspective, economic activities are gradually shifting from agriculture and manufacturing toward services, particularly trade and tourism, transport, communication, business, and personal services.
Tourism is one of the leading sectors in Northern Cyprus. Because of the geographical location, Cyprus has Mediterranean weather and flora. This is where the island gets its sunny days and sandy beaches from. Tourism has numerous potentials on the island, and most of the citizens work in the tourism sector. Public services remain an important contributory sector to overall economic activity, but their importance has experienced some decline in recent years as the private sector grows vigorously.
Construction value has more than doubled since 2000 and is getting stronger in recent years, rising by 35% in 2006 alone. As a result, the corresponding share in output rose from 3.3% in 1980 to 13.5% in 2006, constituting the most important GDP growth source.
Services in total registered a growth of 45% between 2000 and 2006, whilst their respective share in total industry output rose from 62.8% in 1980 to 65.8% in 2006. Growth was particularly strong in trade, business, and personal services, transport, and communication.
Higher education (universities) is one of the main services sectors for the Northern Cyprus economy. A large number of Turkish and international students study in North Cyprus universities every year. This situation also gives a boost to the real estate sector, where students are major renters. Also, the retired population from Europe (mostly North Europeans) buy and rent houses during the summer times. This, again, impacts the North Cyprus economy gradually.
Currently, there are twenty-four commercial and one development banks operating in Cyprus. Seven of the banks are of Turkish origin. They are deposited billions of dollars on the island. International banks, such as HSBC, ING, Garanti BBVA, QNB Finansbank, Groupama, AXA, and many others, are providing banking and insurance services.
Foreign Investor Activities and Incentives
Despite the non-recognition status, Northern Cyprus has integrated itself into the free market economy. Northern Cyprus has witnessed very rapid growth since the inception of the incentives packages and policies to foreign investors. TRNC constitution has laws that protect private property rights. Foreign investors can operate in different company types in Northern Cyprus:
- Local Company
- Foreign Branch Company
- Free Trade Zone Company
- International Business Company (Offshore Company)
Only foreign nationals with valid work permits can work in North Cyprus. Free trade zone companies and offshore companies are required for the non-citizen and citizen representatives in the companies.