Need for Change

Cyprus is ranked 47th out of 189 countries in the 2016 edition of Doing Business, which may sound quite impressive, but it is also 25th out of the 28 EU member states. Melina Pyrgou, Director at Pyrgou Vakis Law Firm, looks at what needs to be done if the country is to climb the rankings and become more competitive.

By John Vickers

Gold: There are two areas where Cyprus’ ranking is quite shocking: 145th for dealing with construction permits and 143rd for enforcing contracts. Surely this is unacceptable for an EU member state?

Melina Pyrgou: There are some areas that Cyprus needs to upgrade. We are lagging behind in the use of technology in some departments and this slows down the processes. The Law Courts have not properly reviewed procedures for many years and, moreover, they are not using technology to the extent that they should. This means that processes are slow and the delivery of judgments is slow. The slow delivery of judgments leads people to resort to other laws for dispute resolution, which means an outflow of legal fees to other jurisdictions, which could otherwise have been incurred in Cyprus. The slow delivery of judgments has another repercussion: the interpretation of laws and contract terms is not available for lawyers to rely upon to advise their clients. This is especially a problem for new laws, where we may have no interpretation to rely on. Execution of judgments is another area that holds us back in the ranking. It was always well-known in Cyprus that the procedure to foreclose a property was slow. The sale of mortgaged property was – and continues to be – very slow. Despite a change of law, we have not seen extensive action in this area.

Gold: So what can be done?

M.P.: We could create specialized courts. We have seen this happen in the field of administrative law. We should be seriously considering this possibly with the introduction of commercial courts. This would assist complex cases being dealt with by judges who have expertise.

The Doing Business report itself mentions that economies with a more efficient judiciary system, in which the courts can effectively enforce contractual obligations, have a higher level of development, which leads to the fostering of  innovation and attracting foreign direct investment as well as securing tax revenues.

The Town Planning Department and the municipalities are also slow for the same reasons. Delays in this area created problems for foreigners seeking to buy properties in Cyprus due to the uncertainty of obtaining title to a property. The law has changed but I do not know how many title deeds have been issued pursuant to that change. The government should invest in these areas as they are key to continuing to attract foreign investors.

The report itself explains the issues and from it we can take guidance on how and what to improve. The report states that “Economies with a more efficient judiciary, in which courts can effectively enforce contractual obligations, have more developed credit markets and a higher level of development overall.”

Gold: It would appear that, for all the talk of making the country business-friendly and cutting red tape and bureaucracy, no real action is being taken. Do you agree and, if so, why do you think this is, given the need for Cyprus to attract international companies to take advantage of its tax regime, etc?

M.P.: A lot of talk about reform started in 2013. I know that the Government has plans to reform and this is the task of the Commissioner for Reform. What we need now is to review the processes, introduce technology and train staff. I understand that these are matters that take time and money and the government may not be willing to spend money in this way. However, it is the only way to keep up with the competition. At the Department of Registrar of Companies, there were some issues that were resolved quickly thanks to the input of the private sector. This is a great example of how cooperation between the private and public sectors can bring about the desired results in a fairly short period of time. Political will was also on the side of change because of the deadlines set by the Troika on certain issues.

Gold: What should the Government, the House … and also the private sector be doing to help rectify this situation?

M.P.: Time should be devoted to reviewing procedures, many of which are unnecessary. Citizens are required to present documents obtained from one government department to another, whereas the various departments could arrange for these documents to be exchanged among themselves – indeed, they could be shared electronically between departments. More money should be devoted to technology. We need systems that allow for the electronic filing of documents so as to minimize the flow of people to government departments so that the employees there can spend time on reviewing documents. This will also minimise human intervention which may, in certain cases, lead to corruption or bribery.

A focus should be placed on the key departments – the Department of Registrar of Companies, the Tax Department, the Land Registry and the Immigration Department – that affect the inflow and service of foreign investors. There should be close cooperation with the professionals who have foreign clients and their feedback should be considered seriously.

Gold: In fairness it should be pointed out that Cyprus is ranked 17th in the world for resolving insolvency and 25th for protecting minority investors but I would suggest that these two areas are quite new and so perhaps free of long-entrenched attitudes that still exist elsewhere. Would you agree?

M.P.: We must not forget that the ranking is based on a survey. The survey looks at whether we have laws in place that resolve insolvency issues and protect minorities. We do have laws. The question of their implementation is quite a different story. The insolvency laws are quite new and have not yet been tested in court. In both insolvency issues and the protection of minorities, the test is what will happen in a Court of Law. And the truth is that, in the courts, the processes are slow. This is the problem that we should be trying to resolve.

As a lawyer I feel that the Courts and their procedures have been neglected. Judges and lawyers alike are to blame for this. The fact that justice is not delivered quickly enough may also lead to no justice being delivered at all. The report states that “enhancing the efficiency of the judicial system can improve the business climate, foster innovation, attract foreign direct investment and secure tax revenues”. These are all good reasons for us to push for change.

Gold: Is it all a matter of political will or is a complete new mentality/mindset required in the civil service? Are you confident that something can be done?

M.P.: I think it is all of the above. You need a completely new mindset and the political will. Civil servants see the need for improvement but feel that they are not able to effect change themselves. This is where the professional associations can provide assistance – to work together with the public sector to identify needs and exert pressure on the Government and the House of Representatives to vote in appropriate laws, devote funds and other resources as necessary in order to implement measures which, in turn, will bring about the desired change. I am sure that change is possible. It is to everyone’s benefit to have a vision of a better future.