NICOSIA – With so many Russians and Russian money and Russian investors and Russian residents and Russian oligarchs it’s long been calle Moscow on the Med, Cyprus now may have to learn to live with less of what they’ve brought.
That’s come over Russia’s invasion of Ukraine that has forced the pro-Russian government of President Nicos Anastasiades to reluctantly back European Union sanctions that include barring Russian airlines and tourists.
That has set the island government that’s a member of the European Union – not including the northern third occupied by Turkish-Cypriots since unlawful 1974 Turkish invasions – scrambling to reach out to other foreign travelers.
But the worry goes beyond Russian tourists, the second-biggest market in the sector beyond those from the former Colonial ruler the United Kingdom, with more far-reaching financial repercussions.
The Russians have been coming for decades, their rich lured by being able to hide their wealth in Cypriot banks and welcomed by governments accused by critics of not vetting for money laundering and criminal activity, including through a now-canceled program granting residency permits and EU passports to wealthy investors.
Now, asked the news site POLITICO in a feature, what would happen if the Russians aren’t coming? And if they go away for good?
It’s a prospect frightening to the government and businesses, including the luxury resorts, hotels, bars, taverns, cafes and shops catering to them, including signs and huge billboards in Russian with offers.
“In Cyprus, Russian connections are everywhere,” the site noted.
It reported that the Russian tourists pour in and spend big and that there was 100 billion euros ($110.33 billion) in 2020 – when the COVID-19 pandemic broke out and essentially halted international travel and tourism.
That was nearly 25 percent of all Foreign Direct Investment (FDI) for the legitimate government, the kind of numbers that for generations have made politicians and businesses look the other way over any other worries about Russians.
POLITICO also noted the darker and greyer areas of Russian investments that have been tolerated, if not encouraged because of the money it brings to the Cypriots who benefit and don’t care what’s behind it.
That, the report said, includes money from arms dealers, gambling firms and pornographic websites showing abuse and exploitation of women, the country opening its arms to hardline foreign government officials carrying bags of cash.
As each embarrassment was reported, governments made small steps to move away from them but it took the invasion of Ukraine to bring a hard push – and even now officials said they reserve to right to break the EU sanctions and allow Russian airlines and tourists if too many go to Turkey instead.
At least five people on the EU’s sanctions list have assets in Cypriot banks, according to bank officials, the report said, the sanctions likely to hit the economy hard, with dozens of luxury units to go unsold without a Russian audience.
“The Cypriot economy is disproportionately affected compared to other countries due to the structure of the Cypriot economy and its reliance on Russian tourists,” Cypriot Finance Minister Constantinos Petrides told POLITICO.
“Based on our estimates, we expected to have one million tourists from Ukraine and Russia this year, some 20-25 percent of the tourist market of Cyprus,” Petrides said.
“Τhe key is the duration of this crisis. If this ends in a month, we will come out unscathed. If it lasts more, no economy will manage to come out clean,” Cyprus long said to have allowed dirty Russian money.
Despite the government saying otherwise, the site said that Cypriot authorities were initially against banning major Russian banks from the SWIFT international payment network.
And some Russian executives were looking to use Cyprus to get around the sanctions, the Russian state-owned VTB Bank quietly transferring all its shares in the Cypriot RCB bank to Cypriot shareholders, making it a 100 percent Cypriot-owned bank to avoid having assets frozen.
GOING WITH THE BANK FLOW
That must still be approved by the EU although VTB is one of the banks banned from SWIFT but finding a way around it so far.
In Cyprus, the service industry, including tourism, accounts for more than 80 percent of the economy – a largely Russian-dependent economy for which Cyprus – like the EU’s reliance on Russian oil and gas – is paying the price, the energy commodity long being used to essentially blackmail the bloc.
Cypriot hoteliers and tourism businesses are hoping visitors will come from other countries although the invasion has driven up energy and fuel prices that could limit customers for international air travel and cut into travel spending.
“We had a very good flow of bookings from Russia until the airspace closure was announced. Then everything froze,” Charis Loizides, President of the Cyprus Hotels Association told the site.
“We are in touch with the tour operators from Russia and they are disappointed,” he added. “We managed to survive the last two years under very difficult circumstances, and we hoped 2022 would bring us back to normal,” he said after two tough years of COVID that’s now abating.
Russia’s Ambassador to Cyprus Stanislav Osadchiy made an outright threat, showing the anger from Moscow.
“Where will Cyprus get its Russian tourists from? They won’t come,” he told a Cypriot TV station. “Where will they go — to Turkey, is that what you want? For them to go spend their money over there? Summer is coming up, you’ve closed your airspace — you shot yourselves in the foot.”
Loizides said it’s too late to count on a fuller recovery even if Russian airlines and tourists somehow are allowed to come because the Russian ruble has plummeted over the sanctions, leaving many Russian without little disposable income.
That will be especially damaging to coast cities such as Limassol and Famagusta that have been favorites for Russians as the spenders, unlike the British who, as the site noted of a local saying, “only buy beer, burgers and condoms.”
Many Cypriots are more concerned about their income than the sanctions or the brutality and deaths in Ukraine, although Ukrainians come to the island too, but not this year.
“It is as if we want to punish Russia and we are punishing ourselves,” Panicos Demetriades, former head of the central bank told the site.
“We are also punishing the Russians who need to be separated from the dictator of their country,” added Demetriades, also an emeritus professor at Leicester University. “Τhere are thousands of Russians who can’t stand Putin’s Russia and want to leave and we isolate them.”
The wealthiest Russians on the island have so much money they didn’t pull out even when Anastasiades, breaking a campaign vow, let banks confiscate 57.5 percent of bank deposits over 100,000 euros ($110,334) to save the institutions from collapsing in 2013 over bad loans to Greek businesses and big holdings in Greek bonds devalued 74 percent.
“The sanctions concerning the EU banking system do not affect Cyprus to a large extent, as Cyprus’ banking system has no exposure to Russia,” Petrides added of the plight.
“The banking system maintains one of the highest levels of capital adequacy and liquidity ratios. Τhe Central Bank of Cyprus has no reserves held by the Russian Central Bank abroad,” he said.
But there is still about 1 billion euros ($1.1 billion) in Russian deposits in Cypriot banks and customers count on trust, broken once in 2013 and this time around could be a deal-breaker for them.
“Cyprus is a small country and is known for its past relationship with Russia and the oligarchs, thus it is very difficult to support itself and could become a victim of sanctions,” said Demetriades. “Because of old sins, Cyprus is in the gray list and others are always suspicious.”