Creating a comfortable environment for Russian financial tourists helped create Cyprus' current problems, so it would appear to be a questionable decision to pin recovery hopes on a similar type of traveler.
As the debt crisis tore down Cyprus’s financial industry, some euro partners accused its banks of running a casino for Russians. Now the island is banking on Russians in casinos to help rebuild the economy.
Cyprus has prepared a draft law on casino licensing and operation and is awaiting the findings of a study, due within weeks, on the potential size of the market, Commerce, Tourism and Industry Minister George Lakkotrypis said this week.
“We will move very fast,” Lakkotrypis said in an interview in Nicosia on June 17. “We are interested in attracting investments for a resort that will incorporate a casino as this will help to improve our tourist product and make Cyprus a year-round tourism destination.”
President Nicos Anastasiades is trying to mitigate the effects of an international bailout that forced the country to shut its second-largest bank. The economy is set to shrink about 13 percent over the next two years as the financial industry, inflated by Russian funds, declines because of capital controls and a levy on most deposits over 100,000 euros ($134,000).
With tourism making up about 19 percent of gross domestic product, casinos may provide a boost, particularly from visitors from Russia, where practically no legal casinos are left.
Cyprus would fit the bill of “a place that’s easy to reach for a few days or weeks in the sun where you can find a variety of entertainment venues,” said Paul Herzfeld, a former deputy chief executive officer of Casinos Austria AG who founded gaming industry consultants Herzfeld Consulting in Vienna. “Cyprus could be for Russians what Mallorca is for Germans.”
The number of Russian visitors to Cyprus rose almost 15 percent in April compared with a year earlier, according to the Cyprus Statistical Service, even as the country slapped restrictions on Russians moving their money from the island. The number of Britons and Germans, historically the country’s two- largest source markets, fell 13 percent and 39 percent.
The potential for a new casino in Cyprus is “excellent,” said Warwick Bartlett, CEO of Isle of Man-based Global Betting and Gaming Consultants. “Cyprus is strategically located close to the Middle East with many of its wealthy citizens currently travelling to London to gamble. But the real potential is from wealthy Russian visitors.”
Annual gambling spending in Russia is about $170 per person compared with an average of $82 worldwide, he said.
Russia banned most gambling in 2009, outlawing casinos and slot-machine halls, and established four far-flung zones across the country for development as gambling areas. Now most wealthy Russians travel to gamble legally, with neighboring countries such as Belarus having seen a surge in business, Bartlett said.
Cyprus agreed on March 25 to a 10 billion-euro loan from its European partners and the International Monetary Fund after first requesting aid in June last year.
The country struggled to get a bailout as German politicians accused the nation of being a money laundering center for Russian depositors. Moody’s Investors Service estimated there were about $19 billion of non-resident Russian corporate deposits in Cyprus as of Sept. 1, 2012.
French Finance Minister Pierre Moscovici said on March 24 as he traveled to Brussels to meet his counterparts that the Cypriot parliament seemed to prefer to protect its “casino economy” rather than its citizens.
Cyprus has been divided since the Turkish invasion of the north of the island in 1974. The Republic of Cyprus in the south has been slow to capitalize on the casino potential while authorities in the north of the island have been attracting tourists from Russia, Israel and the Gulf states for gambling since the early 1980s.
Opening casinos in the south might benefit both sides of the divide as Turkish Cypriots, who are banned from northern casinos, could travel south to gamble, while northern casino operators would welcome a bigger pool of potential gamblers, said Mustafa Besim, associate professor of economics at the Eastern Mediterranean University in northern Cyprus.
Global gaming revenue will reach $182.8 billion by 2015, up 55 percent from 2010, with casino revenue in Europe, the Middle East and Africa projected to increase 12 percent to $18.3 billion, according to a report published in December 2011 by accounting firm PriceWaterhouseCoopers LLP.
Building a casino industry “isn’t a quick fix,” said Hermann Pamminger, spokesman for the Brussels-based European Casino Association, which represents about 800 casinos and 55,000 employees. “If you want a sustainable casino industry you have to decide on the best strategy. Done correctly, a regulated casino market would benefit the Cyprus economy.”
A Cyprus Tourism Organisation study in 2007 forecast revenue from tourism might be boosted by as much as 190 million euros a year. Cyprus raised an estimated 1.93 billion euros from tourism revenue in 2012, according to the statistical service.
While casinos can stimulate an economy, key decisions for Cyprus include whether to choose standalone exclusive “neighborhood” casinos or “destination” casinos, Herzfeld, the consultant in Vienna, said. “If Cyprus wants to attract affluent people from Russia, or the Middle East, resort casinos have the advantage as they can provide a more or less seamless experience of high quality,” he said.
The Association of Cyprus Travel Agents favors resort casinos for attracting affluent visitors, said Victor Mantovani, president of the Nicosia-based group.
“The problem is that they need much higher investment and we don’t know at this time if these funds can be found,” he said. “In Cyprus, we love study after study that all more or less tell us the obvious. Let’s hope that the recent financial crisis will finally change us and we start making decisions.”
With assistance from Georgios Georgiou in Nicosia. Editors: Maria Petrakis, Rodney Jefferson. To contact the reporter on this story: Paul Tugwell in Athens at [email protected]. To contact the editor responsible for this story: Jerrold Colten at [email protected].
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Photo credit: A man drinks beer near ATMs outside a branch of the Bank of Cyprus in Nicosia. Yannis Behrakis / Reuters