Medvedev visits Cyprus amid Russian investment boom

Russia, Cyprus share Orthodox Christianity and historic rivalry with Turkey.

Nicosia: Russian President Dmitry Medvedev visited Cyprus on Thursday amid a surge of Russian investment and tourism in the Mediterranean resort island.

It was the first visit by a Russian head of state and came amid intensified UN efforts to broker reunification of an island divided between the internationally recognised Greek Cypriot government and the breakaway Turkish Cypriot administration in the north.

Shared Orthodox Christianity and a common historic rivalry with Turkey mean the two countries have long enjoyed close relations. Cypriot President Demetris Christofias is a Russian speaker and a communist who enjoyed close Cold War ties with the then Soviet Union.

The two governments are to sign some 15 agreements during the visit, covering tourism, health, investment, energy, trade and tax, official spokesmen said.

Russia`s RTS bourse is also to sign a cooperation agreement with the Cyprus Stock Exchange, said Medvedev`s top foreign policy aide Sergei Prikhodko.

Cyprus is a popular destination for Russian capital, and Russian tourists have become the island`s second-largest number of visitors behind those from former colonial power Britain.

Present most conspicuously in the banking, energy, financial services and property sectors, "Russia is an extremely important nation for the economy of the island”, said Phidias Pilides, board chairman of the Cyprus Investment Promotion Agency.

Official figures show that investment in Russia through Cyprus over the past five years has totalled USD 52.18 billion (EUR 37.54 billion), while Russian investment in Cyprus reached USD 15.96 billion (EUR 12.37 billion).

"Cyprus is effectively the offshore financial services centre for Russia," said Chris Weafer, chief strategist at Russia`s UralSib investment bank.

"Moscow is keen to ensure that the island state is not used as a tax evasion centre -- or, at least not for much longer."

A tax agreement is one of the key accords to be signed during Mevdedev`s visit.

Since it joined the European Union in 2004, Cyprus is not the tax haven it was for some following the collapse of the Soviet Union. But the tax regime remains attractive.

"The old cultural and political connections between Moscow and Nicosia, the fiscal regime and the very low Cypriot tax rates attracted Russian investors to Cyprus en masse. They set up offshore companies and immediately re-injected their money into Russia via Cyprus," said economist Simeon Matsi.

"Cyprus should have raised its taxes. But at 10 percent ... it remains very attractive and for the Russians it is useful to have connections with an EU member state," said Matsi, who estimated that Russians account for 20 percent of the money deposited in the central bank.

Russians have invested heavily in the island`s real estate sector.

"Today, 40 percent of property buyers are Russian, 40 percent Cypriot and 20 percent British," said estate agent Peter Christofi of Antonis Loizou and Associates.

Cyprus` internationally recognised Greek Cypriot government has long looked to Russia for support in resisting Western-backed peace proposals for resolving the island`s decades-old division that it charges have been weighted towards Turkish interests.

"Russia`s stance is of great importance since, being a permanent UN Security Council member state, it is in a position to play and does play an important role as regards the Cyprus issue," government spokesman Stephanos Stephanou told reporters ahead of Medvedev`s visit.

In April 2004, Moscow used its veto as a Security Council permanent member to block adoption of a British- and US-sponsored draft resolution endorsing a UN reunification blueprint for the island that was strongly opposed by the Cypriot government.

It was the first time in a decade that Russia had used its veto.

Bureau Report