Unit for Administrative Reform

Presidency

Action Plan for Growth

1st Progress Report

______________________

June 2015

1

1. INTRODUCTION

The sustainable growth of the Cyprus economy will only be achieved if fiscal consolidation and financial stability is complemented with a

robust and sustainable new growth model. To this end, an Action Plan has been developed, in line with Measure 7 of the Memorandum of

Understanding (February 2014). The reforms and measures included in the Action Plan aim at enhanced competitiveness and a more

transparent and efficient environment for conducting business in

Cyprus.

Implementing the reforms is a priority across the Government. The Action Plan was prepared by the Presidency, submitted to the project

partners on 9 October 2014 and discussed with the European Commission in Brussels. Consequently, the Action Plan was discussed

with the Permanent Secretaries of the Ministries and with focus groups of the private sector and certain changes have been

incorporated, which are depicted in the Updated Action Plan, which has been approved by the Council of Ministers (February 2015).

Furthermore, prioritization of the activities took place, in order to make the whole effort more focused and effective.

This document provides an update against the key priorities of the

Action Plan for the period up to June 2015. Emphasis is given on

horizontal, cross sectoral level measures, which aim at improving the overall business environment, encouraging investment and

entrepreneurship and promoting e-governance and on significant sectors of the economy such as tourism and research and innovation.

The implementation of the Action Plan is overall on track and no

major delays are expected as regards the priority measures.

2. SETTING UP THE INSTITUTIONAL FRAMEWORK

In order to implement the Action Plan timely, the Cyprus Government

proceeded with the assignment of a dedicated single body for the development, coordination and enforcement of the Action Plan. The

Single Body, named the Presidency Unit for Administrative Reform, under the political supervision of the Deputy Minister to the President,

was given the mandate to design, develop, coordinate and enforce the Action Plan. The Unit for Administrative Reform consists of five (5)

Units as follows: 1) Public Administration Reform Unit, 2) Strategy

Unit, 3) Smart Regulation Unit, 4) Investments and Entrepreneurship Unit and 5) E-Government Unit. This Single Body has the coordinating

role in supporting the government in its efforts to return to a sustainable growth path by coordinating, facilitating, and monitoring

2

the implementation of the reforms depicted as measures in the Action Plan. More details on the Unit (including its structure, personnel, and

goals) can be found in the website:

http://www.reform.gov.cy/crcs/crcs.nsf/index_gr/index_gr?opendocument

3. PROGRESS IN IMPLEMENTING THE PRIORITY MEASURES OF

THE ACTION PLAN

The actions that are considered of high priority by the Government,

and the main progress achieved so far is presented here below.

3.1. FORMULATING THE STRATEGIC ECONOMIC DIRECTION FOR GROWTH AND COMPETITIVENESS.

Tourism

Tourism has been identified as a major pillar for the recovery of the

economy following the 2013 crisis. Nevertheless, Tourism suffers from important structural problems, hampering its competitiveness. For

these reason, the following priority measures are under implementation:

- Assessment of the institutional framework of the tourism sector

The assessment of the institutional framework is being undertaken within the framework of the functional review of the Ministry of

Energy, Commerce, Industry and Tourism (MECIT) which has started in Q2 2015 and is expected to be completed by December 2015.

The Assessment of the current Cyprus Tourism Organisation (CTO)

Law, which will examine the factors hampering competition, will take place within the framework of the work undertaken by the Presidency

and MECIT for the simplification of procedures which started in Q2 2015.

- Development of a Tourism Growth Strategy

A study will be undertaken for the development of a Tourism Growth

Strategy, including an action plan with timeframe for the implementation of the strategy. The Tender Procedure has been

initiated with the publication of the relevant documents on the 15th of May. The original deadline for the submission of proposals was the

25th of June but an extension of 1 week has been granted following requests by potential Tenderers. The study is expected to be delivered

by Q1 2016.

3

A high level Steering Committee has been set up, comprised of the competent Ministers in the areas of tourism, connectivity and growth,

the Chairman of the Board of Directors of CTO and the Chief

Executive Officer of Hermes Airports Ltd, establishing an enhanced coordination mechanism among the relevant stakeholders. In

addition, two Sub- Committees have been formed in the areas of Tourism and Connectivity.

The Sub–Committee on Tourism is currently examining the

formulation of short term measures for the enhancement of the sector, in anticipation of the completion of the study for the

development of a comprehensive Tourism Strategy.

- Connectivity

The overall objective of this measure is the enhancement of Cyprus’

air connectivity, through the promotion of actions relating to the open air policy, the incentives provided to airlines, the airport charges and

the available traffic rights.

As regards the open air policy, the Action Plan of Cyprus’s Aero-political Strategy is implemented according to schedule and will be

reviewed yearly.

Regarding the review of the current incentives scheme, a new scheme has been agreed with Hermes Airports Ltd and put in place in March

2015. The new extensive package of six incentive schemes offered by Hermes aims to further strengthen the passenger and tourism traffic

to Cyprus.

Furthermore, a dialogue for the encouragement of airlines to provide

new routes and direct connections to Cyprus is currently ongoing.

In addition, the auction of the available traffic rights was completed and successful airlines were designated in early April 2015.

Legal advice has been asked from the Attorney General with respect

to the potential of extending the Concession Agreement between the government and Hermes Airports, which would enable a potential

review of the airport charges, aiming their reduction for further strengthening air connectivity.

In addition, the Sub–Committee on Connectivity that has been

established, is working on the overall issue of connectivity and preparing recommendations.

Shipping Industry

The shipping sector is one of the major sectors of the economy and the following actions are under way for the enhancement of its

4

competitiveness and the international reputation of Cyprus as a maritime center, as well as for the improvement of infrastructures:

- Enhancement of the competitiveness of the shipping industry

The Council of Ministers in March 2015 approved a framework of measures for the recovery and further development of the shipping

sector, on the basis of a study conducted by independent experts aiming at the elaboration of a holistic Strategic Development Plan for

the improvement of the competitiveness and the international position of the Cyprus Shipping Industry. A number of Ad hoc Working Groups

was established in April 2015 by the Ministry of Transport, Communication and Works (MTCW), in order to make specific

proposals for the implementation of this framework. The Groups will present their conclusions to the Minister of Transport by the end of

July 2015.

Also, the functional review of the Department of Merchant Shipping is

ongoing since March 2015. The review will allow for the effective and flexible operation of the Department, contributing to the sector’s

competitiveness.

Green Energy

The Government, realizing Cyprus’s potential to be transformed into a green and energy efficient economy, has set the determination and

optimization of the energy mix as a priority, aiming to exploit its renewable energy sources in a sustainable manner.

- Optimisation of energy mix and introduction of a competitive

electricity market. Promotion of renewable energy sources. Energy efficiency

The objectives of the measures under this section are to formulate

and adopt a new electricity model, to promote renewable energy sources (RES) and to promote actions for a more efficient use of

energy.

Regarding the new electricity model, following public consultation conducted by Cyprus Energy Regulatory Authority - CERA, (completed

on 26/1/2015), CERA published on 12/5/2015 a Regulatory Decision titled “Detailed Electricity Market Design is adopted”. The Decision

describes all the arrangements and regulatory interventions proposed for the functioning of a competitive electricity market in Cyprus.

Regarding the promotion of RES, a study, conducted by the

International Renewable Energy Agency (IRENA) was submitted to the Government in April 2015. In order to evaluate the effects on the grid

stability from the deployment of RES on the basis of the findings of

5

this study and the integration of intermitted renewable energy sources, a study was undertaken by the Joint Research Center (JRC)

which is on-going and expected to be completed in 2016. In addition,

the National Action Plan for the Promotion of RES is currently under revision based on the results of the IRENA study and a first draft is

expected to be delivered in Q3 2015.

Regarding the increase of energy efficiency, MECIT has secured: a. Funds of 1.6 million Euro from the EU Interregional Programme

“Greece – Cyprus 2007 – 2013, ENERGEIN” for improving the energy efficiency in existing public buildings during the period 2014

– 2015.

b. Funds of around 52.9 million Euro from the EU structural and cohesion funds for 2014-2020 in order to provide financial

incentives for the energy renovation of existing buildings (households, industrial and public), which also includes installation

of RES systems and the promotion of nearly zero energy buildings.

To implement the above Programme, MECIT has announced two subsidy schemes, called “Save – Upgrade” which will mainly finance

deep renovation in households and commercial buildings of enterprises.

In addition, MECIT is cooperating with DG EPCD for the preparation of

a call for expression of interest, aiming to finance pilot projects of combined heat and power generation in regional authorities and

public universities.

Education

Education and training entails a horizontal policy element, affecting the growth prospects of all economic sectors. Increasing the skills,

knowledge, capability and flexibility of the workforce is a critical

element in the ability of the sectors to achieve their potential for growth.

- Aligning the Education and Training System to the needs of

the labour market Some of the measures promoted towards the implementation of this

action are:

a. The approval of the Strategic Planning for the System of Technical and Vocational Education and Training 2015-2020 in April 2015 by

the Council of Ministers, which aims to ensure an integrated, attractive, flexible and high-quality technical and vocational

education and training system that meets the current and future needs of the Cyprus economy.

6

b. The mapping of the Higher Education Area in Cyprus which has shown that vocational, undergraduate and post graduate

programmes of study in areas with high demand have been added

in almost all Higher Education Institutions to meet the needs of the labour market and society.

c. The transfer of responsibility of the New Modern Apprenticeship Scheme to the Ministry of Education and Culture.

d. The setup of a Committee to prepare a study and recommendations with respect to the recognition of the Post

Secondary Institutes of Vocational Education and Training, as tertiary level education.

e. The submission of a bill amending the relevant legislation aiming at a new more effective system of recruitment of teachers to the

House of Representatives for approval. f. The submission of the final proposal by an appointed Committee

for the introduction of a new evaluation system of teachers and school work to the Ministry which is currently studying the

financial and other aspects of its implementation.

g. New school timetables and new curricula are currently being finalised which will be implemented as of September 2015.

Adequacy targets and attainment targets are being introduced in the new curricula.

Research and Innovation

In order to address the fact that Cyprus’s performance in research

and innovation lags behind member states of comparable development level, the following measures are being promoted:

- Development of a Strategy for Research and Innovation.

The objective of this measure is to develop a comprehensive strategy for research and innovation for Cyprus taking into account the

findings of the Study by the National Commission on Research,

Innovation and Technological Development (NCRITD), and the current fiscal constraints.

The main findings and recommendations of the NCRITD study have

been identified as well in the Smart Specialisation Strategy (S3CY).

The S3CY includes an Action Plan, to be implemented over the period 2015 – 2022, with measures amounting to €139,5 mln. The Action

Plan of S3CY is expected to also address the main issues of the R&I system in Cyprus such as the inclusion of SMEs in RTDI activities and

the attraction of private sector in RTDI investments, the establishment of synergies between the research and academic

community with the business world and the enhancement of extroversion of the Cyprus RTDI system.

7

- Improvement of the Research and Innovation Governance System

The findings of the Strategy by the NCRITD regarding the institutional

framework and the R&I governance system have been examined and the Presidency’s Unit for Administrative Reform has formulated

proposals for the restructuring of the current governance system. These proposals are currently under consideration at political level.

Achieving Balanced Growth

Monitoring the implementation and performance in relation to

international benchmarks is needed as part of the goal to provide all tradable sectors with an investment friendly institutional and legal

framework and to remove impediments / reduce the cost of doing business, in order to attract investments and become competitive at

international level. The incorporation of the monitoring of international indicators into the national policy framework will

facilitate the design of the necessary actions and policies in order to

improve these indicators.

- Monitoring of International Benchmarking Reports and Indicators

The objective of this measure is to undertake a competitiveness benchmarking exercise for determining Cyprus’ performance in terms

of international competitiveness across a range of indicators and to examine the possibility of issuing competitiveness reports on a regular

basis.

A proposal on the possible format and structure of a Competitiveness Report, containing benchmarking analysis based on selected

indicators, to be published annually, has been prepared and is currently under consideration. The aim of the report will be to provide

an analytical tool for assessing the performance of Cyprus, to

facilitate the dialogue with the private sector, as well as to contribute setting the agenda for reforms aiming at competitiveness

improvements. A draft list of indicators for monitoring performance to be included in the report has been compiled. This includes composite

competitiveness indicators published by international organisations, outcome indicators as well as indicators which measure the drivers of

the competitiveness.

- Improve Cyprus’ rankings in global indices. The aim of this measure is to examine the possibility of introducing a

mechanism, in coordination and collaboration with all public entities and Cyprus Investment Promotion Agency (CIPA), with the aim to

identify and propose reforms that will improve the rankings of Cyprus.

8

A mechanism has been put in place to improve the rankings of Cyprus. Starting with the World Bank’s Doing Business Indicators, a

series of meetings took place with all relevant public entities including

CIPA, the contact body in Cyprus for the World Bank’s Doing Business Report. The aim of the meetings was the identification of problematic

areas and bottlenecks per indicator that have a negative impact on the rankings of Cyprus. Discussions are underway aiming at proposing

specific improvements for each indicator.

3.2. ENCOURANGING STRATEGIC INVESTMENTS AND

CREATING A GROWTH ORIENTED ENTREPRENEURSHIRP ECOSYSTEM

Investment

Investment is a key contributor to growth. Cyprus suffers from low

capital formation in relation to other European countries and it is thus

necessary to develop a comprehensive strategy to promote investments and establish the necessary legal framework and fast

track mechanism for strategic investments.

Furthermore, a business friendly environment needs to be developed, that will enhance competitiveness and generate growth and jobs. The

main actions that have been put forward for this area together with their progress are listed here-below.

- Introduce a Law for Attracting and Facilitating Investment

A study in order to introduce a fast track procedure for strategic investment is well under way (the kick off meeting with the contractor

took place on 23rd of March 2015). The aim is, through changes in the way applications for strategic investments are handled and a new

legal framework, to speed up and reduce administrative burden for

strategic investors. The new system is expected to come into place early in 2016.

- Simplification of procedures for the employment of highly

qualified third country nationals Simplifying the procedures for granting employment visas to highly

skilled third country nationals will facilitate foreign investment. In this respect, the procedure that is currently being followed for the

employment of highly skilled third country nationals, is under review in order to be simplified as much as possible.

9

Entrepreneurship

The government’s ambition is for Cyprus to acquire a competitive

environment in which to start and grow a business. Given the critical role that the Small and Medium Enterprises play in the domestic

economy and considering the unemployment challenge Cyprus is currently facing, especially among university graduates, significantly

increasing the a number of entrepreneurs and start-ups is hugely important for Cyprus’ economic growth.

- Develop a Strategic Framework for Promoting

Entrepreneurship and Enhancing SMEs Competitiveness In order to increase entrepreneurial activity in a more friendly

business environment, a National Policy Statement on the development of the Entrepreneurial Ecosystem in Cyprus, will be

prepared. The National Policy Statement will lead to specific actions under 4 pillars: (i) Enterpreneurial Culture, (ii) Business Environment,

(iii) Access to Finance and (iv) Access to Markets. A number of

meetings between the competent Working Group and wide stakeholder consultation is taking place the last few months, with the

aim to have the National Policy Statement approved by the Council of Ministers in Q3 2015.

In order to prepare more targeted grant schemes for the

programming period 2014-2020, an ex-post assessment of the MECIT schemes implemented during the 2007-2013 programming period is

underway, financed by the Support Group.

- Improve the Regulatory Framework for business set up/operation

A new Impact Assessment mechanism, including an SME Test, will be developed by the end of 2015.

- Establishment of an Entrepreneurs Office In order to promote business activity and entrepreneurship in Cyprus,

with special emphasis to support for start-ups, an Entrepreneurs Support Centre will be set up. The Centre will, undertake all

operations of the existing One-Stop-Shop and also assist existing and new entrepreneurs through the appointment of project facilitators,

mentoring mechanisms, development of funding networks, knowledge sharing, licensing etc. An Open Call has been launched for experts on

the final formulation of the Centre.

10

3.3 COMBATING BUREAUCRACY FOR ALL AND REMOVING

BARRIERS TO GROWTH FOR BUSINESS

Smart Regulation

Despite the attractive business tax regime, the current regulatory

frameworkrk suffers from a number of problems which negatively affect economic activity and do not allow Cyprus to exploit its full

potential as an attractive place to live and do business. Some sectors are over-regulated, or have either an obsolete or distortive legislation

and regulatory framework. The main actions that have been put forward for this area together with their progress are listed here-

below.

- Establish a mechanism for implementing smart regulation An updated Action Plan on Smart Regulation is under preparation.

Experts from the UK Better Regulation Delivery Office (BRDO) have realised a scoping mission in Cyprus, in March 2015. The Action Plan

is expected to be approved by September 2015.

- Improving (Simplifying or Eliminating) Administrative

Procedures Selected activities of simplification have been initiated in:

a. Tourism: an assessment of the existing legislation and procedures is taking place, aiming at reducing the administrative burden by

25%. The results of the study are expected in September 2015. b. Construction permits: This is an area were serious delays in

investment have been identified. For this reason, the Ministry of Interior is expected to get technical assistance, for delivering a

new legislation framework to replace the existing building legislation framework implemented in Cyprus related with the

building and planning permit procedures (i.e. the Town and Country Planning Law as well as the Streets and Building Law).

c. Simplification of procedures are also promoted in selected

processes of the Social Insurance Service and the Department of Civil Registry and Migration.

The modernisation and simplification of these services/procedures in

conjunction with the simplifications/modernisations in the Company’s Registrar and the Tax Department will substantially reduce the

administrative burden for the benefit of both people and business and improve the business environment.

3.4. MOVING TO A DIGITAL ERA FOR THE GOVERNMENT

The use of Information and Communication Technologies (ICT) is a

key horizontal factor for growth. Despite some progress observed in the past few years, Cyprus still lags behind the EU average in a

11

number of important ICT indicators, such as the demand and the supply of e-government services.

Digital Strategy and E-Government

This pillar of reform focuses on flagship e-government projects, the main progress of which is indicated here below:

- Establishment of a call centre which will act as a teleservice

single point of contact (SPOC) The Call Centre will be implemented in two phases:

Phase I: From 02/03/2015, the Call Center is operated by the Citizen

Service Centers (CSC). Citizens/businesses can call the number 1434 nationwide to have the following services:

a. Information on the procedures for the 97 services already provided by CSC.

b. Submission of applications for 18 services (from the 97 services),

through telephone. c. Information on the status of requests for a number of services

provided by CSC.

Phase II: This concerns the operation of a permanent integrated solution for Call Center, which will be operated by an external

operator (outsource), using the number 1434. The completed Call Center will be a communication center that will accept applications

from multiple communication channels (telephone, SMS, email) and will provide the following services:

a) Information on the procedures for all the services that the public sector offers to citizens/businesses (around 500 services).

b)Information on the status of requests. c)Information on the contact details of all government bodies (eg

phones, postal addresses, URLs, etc).

The Call Centre is expected to start its operation at the beginning of

2016.

- Selection of new services to be provided online through the

government gateway (“Ariadni”) Through this action, the Internet will be used more effectively to

provide information and more public services online. The Government

Gateway - "Ariadne", will provide information on the procedures for all the services that the public sector offers to citizens and businesses,

information on the status of requests and public services online.

The selection of new services is underway.

12

- Review and redefine the existing national ICT/e-government structure and the responsibilities of each of the involved

actors

It has been decided that this action will be part of the functional review of the Ministry of Transport, Communications and Works,

which has started.

At the same time, a Digital Strategy Group has been created, with decision of the Ministerial Council of 3rd of June 2015, in which

relevant stakeholders of the public, academic and private sectors participate. The Group will review the Government’s structures for the

Digital Strategy.

Furthermore, the Council of Ministers on 13 of May 2015, has decided to replace the Executive Computerization Board with the

E-government Board, with representatives at the highest level. The objective of the e-gov board is to approve all the e-gov actions,

monitor the progress of the e-gov actions and give solutions on

significant problems that affect the implementation of e-gov actions.

The E-government Board will be supported by the Presidency Unit for Administrative Reform (e-government team).

- Development of a Web-Portal for SME’s

The portal for the Point of Single Contact will serve also as the web portal of the Entrepreneurship Support Center. For this reason the

Point of Single Contact will be expanded in order to include all the necessary information/ links. A template for the web portal content is

being prepared. The web portal is expected to be developed at the end of 2015.

- Digitalization of all schemes granted for the Enhancement of

Entrepreneurship

For this action, the Greek Government will provide the Digitization System to the Cyprus Government (in the context of an MoU signed

by the two parts concerning the promotion of entrepreneurship). The Government will need however to configure the system to adapt it to

the Cypriot legislation and procedures.

The system is expected to be in operation at the beginning of 2016.

- Introduce “e-signature and eID” policy and assess the “Electronic Certification System of the State”, in order for

the state’s system to be able to support electronic signatures and other electronic security services

A new memo is being prepared with the several options for the provision of electronic signature and e-authentication which will be

submitted to the e-goverment Board by the end of July.