Who wouldn’t like the idea of Cyprus being a tech-oriented country and one of the global innovation leaders? But let’s hold our horses for a second. Is this a dream that can come true, or is it just wishful thinking?

The primary metric to measure economies in relative terms is their Gross Domestic Product (“GDP”). It's the monetary value of all completed products and services produced inside a country over a specific period; monthly, quarterly, or annually. It's an objectively quantifiable way to assess the prosperity of a nation. 

Usually, in countries with a higher GDP, citizens access and utilize better quality services, including health, education, entertainment, national security, and others. As a result, citizens are less affected by global social challenges, i.e., poverty. However, GDP measures only economic wealth and not other factors of social well-being, like environmental matters.

GDP’s growth is vital, as it signals that a country’s economy is growing and progressing. Therefore, the elements that are of greater interest are GDP growth factors.

The total wealth of an economy is defined by the economy’s technology level, quality of human resources, and capital assets. Any improvement in them contributes to the growth of the GDP. Let’s examine how specific variables help GDP grow:

1. Consumption: the amount of money people and families spend on products and services. Consumption increases demand, pushing firms to create more, hire more people, and invest in expanding their operations. This increased economic activity helps to drive GDP growth.
2. Investment: companies’ expenditure on capital goods such as machinery, equipment, buildings, and technology. Such investments boost output and productivity, adding to GDP growth. It is important to note that investment can originate from both domestic and foreign direct investment (FDI).
3. Government expenditure. When governments invest in infrastructure projects such as roads, schools, and hospitals, they create employment and improve the economy's overall productivity and efficiency. Furthermore, they can benefit human capital development and technology innovation, resulting in long-term economic growth.
4. Technological Progress: Technological progress is crucial to promoting economic prosperity. When new technology and innovations are implemented, businesses may create more output with the same or fewer resources. Technological breakthroughs frequently result in better efficiency, lower prices, and the creation of new goods and services. This increases GDP by boosting manufacturing capacities and offering new economic possibilities.

Even without examining all determinants (i.e., excluded net exports), it is evident that technology plays a significant role in GDP growth in the following ways: 

1. Limitless production increases: the more technology progresses, the more production goes in terms of quality, production capacity, and speed.
2. Attract Foreign Direct Investment: New investments are crucial for GDP growth. Without new investments, any economy will eventually reach its peak and decline.
3. Boost exports: Technologically advanced and innovative products/services are in high demand globally. Moreover, technology increases production and, eventually, exports.

The Cypriot economy has been mainly considered a services-oriented economy for the last decades. These services are traditionally considered accounting, legal, tax, and fiduciary. They are necessary to support servicing offshore business operations through Cyprus for tax and other purposes. 

Today, we all know that this is not the case anymore. We might remain a services-oriented economy. However, the type of services has changed. Let us compare the progress of “Professional activities” with “Information and Communication activities.” Professional Activities, among others, include Legal, Accounting, Tax consulting, and activities of Head Offices services. Information and Communication Activities, among others, include telecommunications, computer programming, consulting, and information service activities. 

According to CYstat data, in 2012, Professional activities contributed to GDP 2,1 times more than Information and Communication activities and were one of the top contributors to GDP growth. By 2020, the difference between the two shrunk significantly, and Professional activities were only 1,25 times bigger. Looking at 2022, the tables have turned. Information and Communication activities are marginally larger than Professional activities by 3%.

What happened? Have Professional services diminished over a decade? On the contrary, they have grown. Between 2012 and 2022, they have risen around 60%. Therefore, Information and Communications must have made colossal progress!

In 2012, Information and Communication activities were not even among the top 10 contributors to Cypriot GDP. Within 10 years, the progress exhibited is unmatched. From contributing 3,58% to GDP, the sector climbed to 8,98%, now the third biggest contributor (according to 2022 figures). Within this timeframe, the sector tripled its size, reflecting an enormous 243% increase in production!

The government has taken measures to attract ICT (Information and Communications Technology) companies to Cyprus, which proved quite successful over the last few years. We have seen international organizations like 3CX, ASBIS, Amdocs, eToro, MUFG, Wargaming transfer operations, or even their headquarters, to Cyprus.

The effect of such company relocation and the sector’s general growth is multifaceted. Part of professional and other activities offered are driven by such ICT companies, along with indirect contributions to Real Estate, HR services, and last but not least, tax contributions. Moreover, these relocations are done through Foreign Direct Investment, contributing to GDP growth. We can reasonably state that technology and communications are the leading force of our economy now. 

Invest Cyprus said, “It is now clearer than ever that establishing ICT companies in Cyprus can only benefit the island. Tech companies offer multiple advantages to our country, as they contribute horizontally across all sectors by creating new jobs, adding value to the economy, and increasing the tax base.”

When one sets goals and sees them met, it is a definite reason for celebration. And let’s focus beyond the targets of attracting foreign ICT companies to Cyprus. Looking at the progress made by Cypriot ICT companies, we hold a gold medal! One year ago, Cyprus was declared the first EU country to successfully implement a 5G network with 100% population coverage!

So how about holding our horses now? Well, we should! 

According to Panayiotis Ioannou, Regional Director of Education (previously Public Sector Director) for Southern Europe at Microsoft, “Government services can indeed play a significant role in fostering innovation. They can provide funding and grants for research and development, invest in infrastructure development, establish effective regulatory frameworks, promote education and skill development, and facilitate collaboration and partnerships. These initiatives create an environment that encourages innovation, supports the growth of new technologies, and addresses societal challenges. However, the effectiveness of government services in fostering innovation may vary based on specific policies, implementation, and local context.”

We can’t be a Tech-Hub if foreign companies utilize our incentives and produce value mainly for use abroad. We should start with the basics. Governmental services need to go online as soon as possible. We might be on our way to pairing with cloud services. However, we all feel it will not be an instant, magical solution. We hurt at the core of things. We lack the culture. We have yet to apply a strong and technology-oriented mentality to our governmental services as a country. And if the core is not a driving force, then, “Houston, we have a problem.”

But I can’t help but smile. Information and communications activities are a healthy economic sector that exhibits sustainable, impressive growth. The Cypriot human capital is both talented and educated in the field. Combine that with our national competitive advantage of working immensely hard when we want to, and then we have a winner! How about, for once, we place our bets not on the easy solution but on the correct one?