Nicosia, Cyprus June 17, 1997

"Cyprus 2000"

 

It is a great pleasure to be here tonight. If I am not mistaken, this is the CyABA’s first dinner meeting, which marks an important milestone in this young organization’s already impressive short life. The CyABA took a long time to get started, largely for bureaucratic, not business, reasons. But once launched, it has established a track record that would be the envy of any organization.

I have been involved in establishing a similar organization in another country and we did a good job, but nothing to compare to CyABA. I will never forget the first CyABA board meeting. President Jacovides led us through a discussion of goals and objectives, complete with charts and overhead projector, that would have been the envy of any Fortune 500 company. At our Board meeting last week, we were told CyABA would have its own internet site by early July -- amazing.

This great start stems from the hard work of the officers of CyABA and the members of the Board. Their energy and creativity have gotten CyABA off to a great start -- and shown in the process why Cypriot businessmen and women make such great business partners. Pat Nelson and I have enjoyed working closely with the Board of CyABA and I expect that same close relationship to continue when Clark Price, Pat’s successor arrives next month. Because the CyABA is a forward looking, dynamic organization, I thought it would be useful to talk tonight about the future. My goal in doing this is to start a discussion within CyABA that we can carry on and perhaps use to shape some of the organization’s activities this year and next.

We are approaching the end of the millennium; there are now less than 1,000 days to go until the year 2000. As we get nearer to this milestone date, many people are thinking about what lies ahead. As with anything that is epochal in nature, the serious is mixed with the bizarre. In the latter case, we are already hearing strange predictions from various cultists, particularly from my state of California, about what will happen after the year 2000. But the coming of a new millenium is also an opportunity for serious reflection -- and a chance to shape the future, rather than be shaped by it.

What I would like to do tonight is to talk about the future, specifically Cyprus’ economic future, and what can be done to shape it in the most constructive way possible.

The future, of course, is shaped by the present. So I think it is important to say a word or two about how the economic environment Cyprus must deal with is changing now and how this is likely to affect Cyprus in the future.

More than ever before, change has become a part of our lives. We see evidence of that every day in the press, in the technologies we use at home and work, and in the expectations of our children. Major economies and economic groupings such as the EU are changing -- re-evaluating themselves and adapting to the global economy. In the United States we experienced substantial and difficult change in the Eighties. What looked like a painful pill to swallow at the time, has resulted in benefits that all Americans are reaping today, including millions of new jobs, higher earnings and increased international competitiveness.

The currents of change we feel today will be the predominant theme of the global economic future. Change at both the macro level, involving national policy decisions and planning, and at the micro level, involving firms and private initiative. The macro policy changes will foster competition and move further away from regulation. At the micro level, private organizations will continue to re-invent themselves through restructuring and re-engineering as they seek to respond to market and technological changes.

Change is nothing new for Cyprus, which has gone through many changes throughout its long history. The economy that Cyprus inherited from its colonial past relied heavily on government regulation. Various rulers before the British -- the Venetians, Ottomans, Lusignians, etc. -- also had things done from the top. Independence, in 1960, marked a new era for Cyprus, with its own challenges and problems. The disaster of 1974 was followed by intense reconstruction, which resulted in what many called an "economic miracle."

No doubt, the high standard of living Cyprus enjoys today is attributable, to a large extent, to the creativity and hard work of Greek Cypriots after 1974. But also, one has to recognize that Cyprus has benefited during its recent past from external factors, including instability in the region, for example in Lebanon.

Today, many experts are saying the Cypriot economy is sending out strong signals that it needs to change to adapt better to global and regional trends. The solid growth rates of the Cypriot economy in the Eighties have been replaced by erratic growth rates in the Nineties, underlining, in my book, the need for reform. It is clear that the recipes of the past will not work in the future for Cyprus. The environment around Cyprus is becoming more competitive. Lebanon is coming back as a commercial and financial center, Egyptian ports are competing with Cypriot ports, and others in the region, such as Jordan and Dubai, are seeking to establish themselves as regional business centers. To keep up, Cyprus will have to become more competitive. Poets tell us "No man is an island" but, in today's global economy it is clear that "No island is an island."

The economic situation in Cyprus today reminds me in some ways of the U.S. experience through the rough period from 1975 to 1985. Obviously, the scale of things is different here, but there are a number of parallels:

-- for starters, the dollar was overvalued (as some believe the Cyprus Pound is today);

-- whole sectors of American industry seemed headed for the scrapyard -- such as steel, automobiles and machine tools. I am told that some 40% of Cypriot clothing firms have shut down in recent years and only two footwear manufacturers are still in business;

-- and, of course, the U.S. trade deficit was getting worse.

So what did the U.S. do to cope, and what did U.S. companies do to become competitive again?

-- companies made major investments in new plant and equipment. The key word here is "investments;"

-- corporations restructured;

-- and, the U.S. Government pursued aggressively freer and fairer international trade agreements abroad and more competition through deregulation at home.

The result was the U.S. economy got moving again. New jobs were created, productivity soared and exports boomed. Since 1985, the United States has created nearly 18 million new jobs in the private sector. (During the same period, the EU created fewer than seven million.) U.S. productivity increased by ten percent from 1982 to 1990, and by an additional eleven percent through 1995. The U.S. share of world manufactured exports has also risen substantially.

One of the best examples of how restructuring has helped the U.S. is telecommunications. The breakup of AT&T into seven regional companies in the early Eighties was a very controversial move at the time. After all, AT&T had been a very efficient organization of 800,000 employees -- the largest in the U.S. -- offering telephone rates at about two-thirds those in Europe. So many people were wondering, why divide this great company? Years later it has become apparent that it was a good move. As a result of competition after the break up, telephone rates dropped further and great new private companies emerged offering new products and services. This has created a much more robust sector in the long term, setting the standards and competing worldwide.

Change can be painful, but it is necessary if an economy is to grow and prosper. For example, we have all read about companies like AT&T or IBM getting smaller, but a number of new companies, like MCI, Sprint, Sun MicroSystems and Gateway Computers have grown. The net result is that there are substantially more (and better) jobs in the technology industries in the U.S. today, despite the downsizing of many large firms. This all came because change was allowed and encouraged.

The structure of U.S. capital markets also deserves special mention. One of the most important reasons why so many new, revolutionary technologies continue to come out of the U.S. is the availability of risk capital. Many American companies, like Hewlett-Packard and Apple computers, started off in someone's garage; but they had good ideas and were able to attract the capital needed to grow and become the great multinational companies they are today.

This is not to say that the U.S. model is necessarily the best, or that all countries in the world should imitate it. For one thing, the government's role in the economy in the U.S. has always been much less than in any other country. After the break up of the Soviet Union, we have seen several examples of how NOT to go about restructuring in certain Eastern European economies. Clearly, then, each country needs to find its own path to future prosperity.

But I cite the example of the U.S. economy and U.S. firms to provide a positive illustration that responding to change, embracing it and allowing it to occur can yield great dividends. There are many advocates for the status quo or those who say not this year, maybe next year. You do not have to look far to find illustrations of what that approach can bring to an economy or to a firm.

Cyprus has already taken some steps down the path to change. Membership in the World Trade Organization and the advancing Customs Union agreement with the European Union have greatly liberalized the trade regime in Cyprus. The government's recent decision to liberalize foreign direct investment regulations and its reported plans to liberalize the financial system are all steps in the right direction.

But in my view, more needs to be done.

Cyprus has three economic assets: its people, its location and the weather. Favorable weather was a crucial factor in the development of tourism. But tourism is fickle; it is not a sector on which an entire economy should be based. Cyprus' location gives it the opportunity to serve a much larger economic region. Since Cyprus has no natural resources to speak of, what it can provide this larger economic region is services. Capitalizing on its location and its human talent, Cyprus can become a regional center of excellence for all types of services, including consultancy, medical, engineering and education services.

But this thought brings me to my opening point about the millennium. With increasing global and regional competition and some statistical indications of economic weakness, I believe Cyprus needs to start thinking hard and fast about what its economic future will be. Cyprus needs a strategic vision of where it wants to go economically.

Unlike in ancient times, however, visions today do not just happen -- they have to be worked for and achieved.

To help produce a strategic vision for Cyprus, I believe the business community should take the lead by launching a Cyprus 2000 project. The purpose of the Cyprus 2000 project would be to develop a strategic vision and business plan -- not, let me stress, a bureaucratic five-year plan -- for the Cypriot economy for the year 2000 and beyond. Cyprus 2000 would involve government, business and labor in an effort to produce a shared strategic vision of what Cyprus needs to do to keep its economic miracle alive and growing well into the next century. A first step in shaping such a vision would be to decide where Cyprus should focus its efforts. As a small economy, Cyprus cannot do everything, but it can choose those activities where its location and human resources give it a chance to excel. As I have said earlier, services and other knowledge-based activities would seem to be a logical choice for Cyprus. Being a small country, it should be easier for Cyprus to form consensus of business, labor and government on which sectors should have priority. Having decided on priority areas, Cyprus 2000 can help focus the country on the policies needed to help Cyprus stay competitive for the year 2000 and beyond. These policies may include more aggressive financial sector reform, telecommunications reforms needed to keep Cyprus current with the technologies and services needed to sustain a service-oriented economy, or any other policy reforms needed to achieve Cyprus’ targets for the future.

A key area that will need attention is education. Clearly, for Cyprus to remain competitive in the next century, particularly if it seeks to become a regional center of excellence, it is crucial to have an educational system that produces the people needed to provide world-class services and keep up with rapidly changing technologies. The results of a recent study by UNESCO comparing educational systems world wide suggest that all those concerned with Cyprus’ economic future, particularly its business community, should pay more attention to Cyprus’ educational system.

The educational system in the United States has gone through considerable changes in recent years, mainly because of pressure from the American business community and an ever-more competitive job market. Changes to the American educational system have not been without controversy, but changes already made and the many still to come have been and will be important to America’s future economic competitiveness and success.

I want come back to my idea of a Cyprus 2000 project. What is it and how should it be pursued?

I am not going to provide a blueprint tonight, since I believe that is something the Cypriot business community, including CyABA, should do. But let me suggest one way to start the process. A conference called Cyprus 2000 could be organized for the spring or fall of 1998. This conference could be sponsored by a combination of business and government, with labor participation. Organizations like KEVE, CyABA and others would take the lead in launching and managing it. The purpose of the conference would be to bring together local business, labor, academic and government leaders with outside experts to review the building blocks of a strategic vision for Cyprus’ economy for the year 2000 and beyond. The conference would be part of a national dialogue on the economy that would help build support for the changes needed to make Cyprus an acknowledged regional center of excellence. It could be followed by another conference 6 - 12 months later geared to selling the concept of Cyprus as a regional center to foreign investors, companies and governments.

I put this idea forward tonight in the form of a challenge to CyABA. If you think this idea has merit, consider what you can do as an organization to move it forward. For example, would a CyABA-sponsored program this fall that helped focus Cypriot business and government officials on the challenges ahead for small economies in the coming decade be useful to building support for the concept of a Cyprus 2000 project? Would it be useful to start talking to KEVE, the Ministry of Commerce and others about this idea?

One of my reasons for having this discussion tonight, at the CyABA’s inaugural dinner, is to emphasize the need for a more active involvement of the Cypriot business community in helping shape the future course of the Cypriot economy. Cypriot business people should be involved in helping to galvanize a strategic vision about where Cyprus is going economically. Business is geared to the future and to the market. Business people know that change is inevitable and that it brings opportunities -- if you are prepared to take advantage of them. But if business sits on the sidelines or is not involved constructively in helping develop a national vision for the future, then it , and the nation, will pay a price. This brings me to the end of my crystal ball gazing. Let me close by saying that it is not so important how I see Cyprus' future. The real question is how the Cypriots see Cyprus in the new millennium and how they go about developing and implementing their vision for the future.