The economic consequences of the 1974 conflict

This segment was in Keith Kyle's original narrative, and has been placed in this "sidebar" to shorten the main narrative's length.  It is also somewhat dated (1984), but still provides a useful snapshot of economic conditions in the late 1970s and early 1980s.

The territory which the Turkish Army had seized for the Turkish Cypriots contained most of the country's cargo-holding capacity in the port of Famagusta, the great majority of its tourist industry (65 per cent of existing tourist accommodation and 87 per cent of the hotel beds under construction), half the agricultural exports, including 75 per cent of the citrus fruits, and nearly half of its industrial production. Faced with the task of providing relief for the vast mass of refugees and the need to build up fresh assets to replace those that are gone, Government planners went in for labour-intensive projects and maximum incentives with few planning restrictions. The Cyprus tourist industry which had been the money-spinner of the country's first decade had grown very quickly from very little since 1960. What had been done before could be done again.

Although it had been assumed that the north had most of the tourist attractions, necessity forced the Greek Cypriots to look to the potential assets of the rest of the island. There was an uncontrolled building boom---Limassol was sacrificed to the spirit and even Paphos imperilled---but there is now a mood of careful planning. Although the investment in tourism has proved a triumphant success the Government is determined to diversify, and to move up-market. >We have had a settlement of accounts opened by the invasion=, I was told. >Now we have to choose new directions.= The act of choice is not easy because so much hangs on the kind of capital-intensive investment that is made. Cyprus is handicapped by her tiny internal market and the fact that she has not made up, in terms of balance of payments, for having lost the citrus exports in the north. One big boost has come from the self-destruction of Beirut, which has greatly improved the chances of turning Cyprus into an economic, financial and servicing centre for the Middle East. >Cyprus's geographical location has been the cause of all her troubles=, her planning chief Dr Aristidou told me. >Now we are going to make it work for us.=

(Greek) Cyprus's rapid economic recovery could not have come about without the initiative and sheer hard work of the people (many of whom do two jobs a day and some three). But it is also true that proportionately they have attracted a high quantity of international help. The Turkish Cypriots in the north do not share in this except for their aid from Turkey and various modest amounts from international schemes where the aid has to be divided on a four-to-one (population ratio) basis. Nor, of course, do they have access to the World Bank, to the EEC and to bilateral credit facilities. This is a great grievance to them. But it springs from the source of all their present complaints which is that the Government on the Greek Cypriot side of the 'Green Line' in Nicosia is universally acknowledged (except by Turkey) as the Government of the whole island.

As the Government of the whole it receives and allocates foreign aid grants and loans; as the Government of the whole it represents Cyprus at IATA where it ensures that Ercan (Greek name: Tymbou), which the Turkish Cypriots have converted from a small landing-field into a full-sized airport, is unused except by Turkish planes; while at the Universal Postal Union Congress at Rio de Janeiro in 1979 the Government of Cyprus secured a declaration that Turkish Cypriot postage stamps were >illegal and of no validity=. The same argument is used to stop the purchase of citrus exports from the north. Every effort is made to discourage ships from going to Famagusta even to the extent of imprisoning a ship's captain who was so incautious as to stop off afterwards in the south of the island. The Greek Cypriots defend their embargo by saying that it is the only answer that is open to them to reply to the illegal occupation of more than a third of their country by the Turkish Army and the theft of their assets.

A visitor to the north of Cyprus cannot avoid noticing a change from the dynamic pace of life in the south. As the UN Development Programme Report on Cyprus (March 1982) put it: >The economy of the North has stagnated and has become heavily dependent on assistance from Turkey=. This should not be misunderstood. The economy may be stagnant but North Cyprus is neither lethargic or depressing. There is in fact a great sense of relief from the tensions and miseries of living in enclaves and a determination by the people to make a go of their own society. Although it is a small community and, except for the law courts (which were located in the Turkish section of Nicosia) it has had to build everything up from the beginning, the apparatus of government is in place, there is a lively multi-party politics which went on unhindered during the period of military government in Turkey and reasonable press freedom. There is no doubt either that the declaration of I independence of November 1983 was very popular.

Turkish Cypriot publications put the present population of North Cyprus at 153,000, whereas the latest (1982) estimate by the Government of Cyprus of the Turkish population of the islands is 121,000. The difference may partly relate to estimates of birth rate but clearly is connected with the number of Turkish immigrants from the mainland who have settled down. Thousands of families came over in the first years after 1974 to occupy some of the houses left vacant by Greek Cypriot refugees and to try to keep the economy going. The local press reported friction between some of them and Turkish Cypriots. A substantial number certainly returned to the mainland but many are clearly intending to stay.

There is not much official unemployment (2.65%) but the 1983 report from the State Planning Organization says that with such a high proportion being employed in the services sector, >lack of productivity and disguised unemployment are the two important resultant problems=. There are 13,000 people of all grades in the civil service, which is kept at that rather surprising figure so that too many educated people shall not emigrate, and only 8000 in industry other than construction. The great aim is to expand that sector but to do that the Turkish Cypriots have got to interest outside investors. They are trying hard with Famagusta where they have established a free port and zone with an attractive prospectus of incentives for foreign investors; they can point to the establishment of a Saudi-owned Islamic Bank. But there are not yet many takers. That is one of the reasons for proclaiming independence. They are hoping for early recognition from four Muslim states---Pakistan, Bangladesh, Malaysia, Indonesia. If they get it they can see Famagusta taking off.

But at the same moment the dependence on Turkey is very great. In 1983 the Turkish lira became the official currency of North Cyprus confirming the area's reliance on Turkey's rocky economy, resulting in a three-figure rate of inflation in 1970, descending to 24% by the end of 1983. Turkey pays for about two-thirds of the total budget, including virtually the whole of the development budget and over half of the operating budget. Exports, mainly oranges and lemons---Britain being the best customer---have since 1980 covered an increasingly smaller proportion of imports (only 33% in 1982). Tourism has to try to fill the gap but the large numbers of Turks who came at first from the mainland to spend their holidays in North Cyprus have been dropping off, though the gradual increase in non-Turkish tourists has begun to compensate. Offseason, despite the mild climate, North Cyprus can seem a very dead place indeed. And the necessity to bring in every tourist by Turkish airlines has in practice ruled out cheap charter flights from West European capitals.

Clearly much of the employment is, in effect, seasonal. One estimate of the comparative incomes north and south of the Green Line that was made for 1981 puts per capita income for the Turkish Cypriots at $1100 and for Greek Cypriots at $4400. The Turkish Cypriot authorities tell potential investors in the Investors Guide for December 1983 that >Skilled or unskilled labour are always available with very low wages. The minimum wage at present is ,70 sterling per month plus 15 % social benefits=. That wage is little more than enough to pay a month's rent for married quarters. But some Turkish Cypriots are clearly making money. Some of the neatly painted shop fronts in Kyrenia and Turkish Nicosia reveal shelves lined with videos and other electronic goods from the Far East to tempt the Turkish >baggage tourist= from the mainland. To those with the flair and connections to see that there was a market which would attract people to Cyprus who were starved of such goods at home have gone the rewards.

Varosha, a southern suburb of Famagusta, presents a remarkable spectacle: a long row of skyscraper hotels (located rather too close to the waterline, one would think, for sunbathing) totally empty and abandoned. Though they are on the Turkish Cypriot side of the line, the Turkish Cypriots have never felt that they could run them. They are fenced off from the rest of the town though that does not restrain visits from the giant rats which inhabit them. DenktaÕ has always intended to use Varosha as a bargaining chip with the Greek Cypriots; an agreement that Greek owners and staff could comeback and open up Varosha for tourism (after spending the large sums that will be required by now for putting the buildings in order) in advance of a final settlement being reached has several times been offered. But the Greek Cypriots have always complained that the offer has been surrounded by impossible conditions. Ten years have passed and the emptv line of luxury hotels moulders away.

Photo: Turkish settler family in north Nicosia, 1999. Settlers from mainland Turkey now comprise 50% of Turkish Cyprus.  Photo and copyright by Nike Zachmanoglou.

See also some useful economic analysis in Zenon Stavrinides' excerpt.