2021 Entrepreneurial Activity Review

For Cyprus’s entrepreneurs, 2021 was quite similar to 2020, at least in terms of numbers. The island’s TEA rate fell slightly from 8.6% to 8.4%, while its EBO rate actually increased to 8.6% in 2021 from 7.3% in 2020. The small uptick in the rate of established business activity is actually a significant accomplishment for Cyprus, as it means some previously new businesses were able to survive to get to the established stage, despite the myriad macroeconomic challenges faced by the country. As an island nation with a small population and a large tourism sector (23% share of GDP in 2019), COVID-19 clearly has a significant impact. While entrepreneurial activity, both TEA and EBO, understandably declined from 2019 levels (when TEA was 12.2%), two years of steady performance indicates that Cypriot entrepreneurship may have stabilized and could soon expand.

Cyprus’s 2021 early-stage entrepreneurs also have a similar outlook to 2020. This year, 43.6% of TEA respondents said it was more difficult to start a business than in the previous year, while in 2020 this rate was 42.1%. As macroeconomic conditions improve, this sentiment should similarly improve as more opportunities emerge in a growing economy. In one area, this appears to have already happened. The rate of Cypriot respondents who said they see good opportunities to start a business jumped precipitously to 50.2% in 2021, from 21.1% in 2020. Whether this translates into more people in Cyprus starting a business will require another year or more of results.

One potential constraint on entrepreneurial growth in the coming year is the rate of current entrepreneurs who see new business opportunities because of the pandemic. In 2021, only 39.4% of TEA respondents saw these opportunities, as did only 19.1% of EBO respondents. Considering COVID is still impacting Cyprus’s economy today, with its reliance on foreign visitors, entrepreneurs will have to shift strategy according to new business demands. Consumers have already adjusted their expectations and will favour those businesses that meet them.

2021 Framework Conditions Review

Despite the steady entrepreneurial activity of the past two years, many of Cyprus’s framework conditions scores declined modestly. First, in the area of finance, there is a disparity between the quality of Entrepreneurial Finance, which received a score of 3.6, 15th among GEM Level B economies, and the condition Ease of Access to Entrepreneurial Finance, which received a 4.3 score, seventh among Level B economies. This split indicates that financial institutions are not currently meeting the needs of entrepreneurial growth demands, but that there are more options to find financing, perhaps in the form of alternative lending.

All three of Cyprus’s governance-related conditions declined modestly in 2021. However, a score of 5.2 on the condition Government Policy: Taxes and Bureaucracy was still fourth highest among GEM Level B economies. The ease of paying taxes has recently been a strong point for Cyprus, supported by World Bank Doing Business rankings. Both the country’s market conditions (Easy of Entry: Burdens and Easy of Entry: Regulations and Market Dynamics) also decreased their scores in 2021, yet both were still ranked in the bottom half of GEM Level B economies. This is somewhat expected, given the limited domestic market (less than a million population) for entrepreneurs to access. Instead, Cyprus has focused on its strategic position between Europe and the Middle East to act as a business intermediary between the two regions. This position should generate more opportunities for Cypriot entrepreneurs as the world emerges from COVID-19 business restrictions.