Lessons learned from the Cyprus crisis

After the salvation of Cyprus from collapse after signing the EU bailout deal, the world of business and finance as well as many countries and economic alliances are now assessing the situation, which may lead to reformulating the concept of investment and investment trends in global markets.

This is exactly what concerns us in Arab countries, particularly the GCC states, considering that Europe is a major centre for investment and deposits facing potential seizure if the Cyprus experience snowballs to include other countries in the Eurozone.

Cyprus’ experience sends several messages on both the European and international levels. First, the European Union (EU) and the Eurozone will not hesitate to take any measure to protect the euro, even if this leads to a radical change in the European concepts regarding the sanctity of private ownership and protecting it from confiscation.

Second, the seizure of deposits may extend to other countries, such as Greece, Spain, Italy and Portugal, as announced by the EU, which reaffirmed that the action is limited to Cyprus only. However, this has created a state of uncertainty. If the financial situation worsens, this could lead to similar measures in these four countries.

According to international rating agency Moody’s, although Spain and Italy has so far showed resilience, there is fear of further chaos in Cyprus if the crisis spills over into other countries.

Therefore, the rest of countries in the world will take new precautionary measures to avoid confiscation of their deposits and investments in the Eurozone, especially since the seizure may not be limited to deposits, but may include other investments, such as real estate, stocks and bonds.

In real estate investment, there is a possibility of issuing a law imposing a significant percentage of taxes on rent or annual return, or even in case of a sale — estimated at over 80 per cent — which simply means acquisition, which might apply to stocks and bonds as well. This is simply because after the action taken in Cyprus there is nothing impossible in the investment industry.

As Europe and the US represent the world’s economic and military powers, no one can oppose even if its a superpower and nuclear country like Russia, which lost more than tens of billion of euros due to the Cyprus crisis.

Consequently, the talk for years about safe havens was only a big lie evidenced by the loss of Arab Spring countries’ assets and money invested in European countries, including money invested in Switzerland and Western countries despite desperate attempts to recover them.

This happens at a time when cash surpluses increased in oil-producing Arab countries, thanks to high oil prices, with the surplus reaching $51 billion (Dh187.5 billion) in Kuwait alone in the last 10 months. These huge amounts need to be invested in different channels where the local markets cannot absorb them.

Therefore, finding a solution to this problem must be different from the previous investment trends, while drawing lessons from the Cyprus experience, which can be repeated in more than one European country. Work can be carried out in various directions simultaneously. The first is to intensify domestic investments by investing in more strategic projects, including the joint Gulf venture projects, which contribute to the diversification of income sources and providing more job opportunities and constitute a guarantee for the future.

Second, it is necessary to redistribute and restructure investments and foreign deposits to include Asian and Latin American countries, such as Brazil, Russia, India, China and South Africa (Brics group), which have promising economic and investment prospects, and relatively unaffected by acquisition.

Third, promoting the GCC countries as a stable region for investment far away from the potential acquisition, where data indicate the possibility of attracting more than $70 billion as new European investments in the GCC countries after Cyprus crisis, one third of which will go to the UAE, which would have significant positive implications with regard to strengthening the position of the GCC countries as a stable area for international investments.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.