During the period between 1963 and 1974 the Turkish-Cypriot economy exhibited
most of the symptoms of the economic underdevelopment. The principal reason
for this condition was the economic blockade faced and the fact that the
productive base of the country was inadequate. Ongoing economic activities
were dependent upon unstable factors which made development difficult.
During the period that followed with the help of new administrations and up to
date methods these problems were surpassed and a more stable and healthy
economy was attained.
Development planning primarily had focused on reactivating the manufacturing
and tourism industries while expanding agricultural exports. These efforts
have been successful to a certain degree, and following a period of rapid
economic growth, the economy has settled to a more modest and sustainable
The economy of Northern Cyprus is dominated by the services sector including the
public sector, trade, tourism and education, with smaller agriculture and light
manufacturing sectors. During the period from 1977 until 2003 GNP increased 37.5% at
constant prices of 1977 and reached 10,177.1 million TL (representing US$1,283.7
million). Agriculture is still important
in the North Cyprus economy where the main products are citrus fruits,
grapes and vine products, potatoes, and other vegetables. Manufacturing,
construction, distribution and other services are the major employers.
Tourism is the main growth industry producing the lifeblood of the economy,
foreign exchange. Plans to establish an industrial free zone in Famagusta
to attract foreign investment for exportable commodities have been implemented and are working successfully.
The economy operates on a
free-market basis, although it continues to be handicapped by the political
isolation of Turkish-Cypriots, the lack of private and governmental investment,
high freight costs, and shortages of skilled labour. Despite these constraints,
the economy exhibited an impressive performance over the past
two years, with growth rates of 9.6% in 2004 and 11.4% in 2003. Over the same
period, per capita income almost doubled reaching US$7,350 at the end of 2004,
compared with US$4,409 in 2002. This growth has been buoyed by the relative
stability of the Turkish Lira, the employment of over 5,000
the South Cyprus where wages are significantly higher, and by a boom in the
education and construction sectors. In 2003, the services sector accounted for
nearly two thirds of GDP, industry accounted for 11.6% of GDP, agriculture
10.6%, and construction 10.1%, according to statistics.
The easing of travel restrictions between the two parts of the island in
April 2003 enabled movement of persons (almost seven million crossings to date)
between the two parts of the island with no significant interethnic incidents.
In August 2004,
new EU rules allowed goods produced in
North Cyprus to be sold in
the South provided they met EU rule of origin and sanitary/phyto-sanitary
requirements. In May 2005, the Turkish-Cypriot authorities adopted a new
regulation mirroring the EU rules and allowing certain goods produced in the
south to be sold in the north. Suppliers of imported products in the
South Cyprus cannot directly serve the North Cyprus market and
vice versa. Despite these efforts, direct trade between the two sides on the
remains very limited.
Regarding the foreign trade,
Turkey remains, by far, the main trading partner of North Cyprus, supplying 60% of imports and absorbing over 40% of exports. In
a landmark case, the European Court of Justice (ECJ) ruled on July 5, 1994
against the British practice of importing produce from the area based on
certificates of origin and phyto-sanitary certificates granted by TRNC
authorities. The ECJ decision stated that only goods bearing certificates of
origin from the 'Government of Cyprus' could be recognized for trade by EU member
countries. The ECJ decision resulted in a considerable decrease of
Turkish-Cypriot exports to the EU - from US$36.4 million (or 66.7% of total
exports) in 1993 to US$13.8 million in 2003 (or 28% of total exports)-. Even so,
the EU continues to be the second-largest trading partner of North Cyprus, with a 25% share of total imports and 28%
share of total exports. Total imports increased to US$853.1 million in 2004 (from
US$477.7 million in 2003), while total exports increased to US$61.5 million (from
US$50.6 million in 2003). Imports from the U.S. reached US$7.1 million in 2004,
while exports to the U.S. were less than US$10,000.
North Cyprus is also seeking to
diversify its export markets and now sells almost half its exports to the Middle
East. The trading account continues in deficit and is offset by invisible
earnings, mainly from tourism, foreign aid and development loans (mainly from
Turkey), capital inflow, and income derived from the those working in South
Cyprus, British Sovereign Base Areas and the U.N. personnel.
Assistance from Turkey is crucial to the
Turkish-Cypriot economy. Under the
latest economic protocol signed between the two countries in 2005, Turkey undertakes to provide
North Cyprus loans and financial assistance totalling US$450 million over a three-year
period for public finance, tourism, banking, and privatization projects. Turkey
also provides assistance annually in the form of low-interest loans to
mostly Turkish entrepreneurs in support of export-oriented industrial production
and tourism. Total Turkish assistance to North Cyprus since 1974 is
estimated to exceed US$3 billion.