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Cyprus Economy: Strong Growth Ahead Despite Structural Challenges

Cyprus is poised to sustain strong economic growth in the coming years, according to a recent report from the Canadian rating agency Morningstar DBRS. The agency also predicts a steady decline in unemployment, which is expected to bolster the nation’s fiscal performance.

Despite these positive projections, the report highlights persistent hurdles facing the Cypriot economy. As a small, service-driven market, Cyprus remains highly susceptible to external shocks. Additionally, while strides have been made to reduce non-performing loans (NPLs), their levels still exceed the Eurozone average. Challenges in labour market productivity further restrict the nation’s economic potential.

On a brighter note, progress in addressing NPLs has been significant. Data from the Central Bank of Cyprus show that NPL ratios in approved credit institutions dropped to 6.8% in August 2024, a dramatic reduction from 43.7% at the end of 2017. This improvement represents an €18.9 billion decrease in absolute terms.

Morningstar DBRS anticipates this downward trajectory to persist but acknowledges that eliminating the remaining NPLs will require time. By mid-2024, credit acquisition companies managed exposures of approximately €21 billion, with 94% classified as non-performing.

The report also notes delays faced by KEDIPES, the state-owned asset management company. Challenges such as foreclosure moratoriums, the COVID-19 pandemic, and geopolitical tensions have pushed the company’s operational deadline to 2030.

Housing prices, meanwhile, have shown sustained growth. As of Q2 2024, property prices in Cyprus rose by an annual rate of 8.0%, with house prices increasing by 6.2% and apartment prices surging by 12.0%. Most of the real estate collateral tied to NPLs consists of residential properties, with Nicosia and Limassol identified as the most stable markets on the island.

While structural vulnerabilities persist, Morningstar DBRS’s analysis underscores Cyprus’ resilience and ability to adapt. Continued efforts to address NPLs, coupled with a robust housing market and improved employment metrics, suggest the nation is on a steady path toward economic stability and growth.

How Venture Capital Can Help Create Startup Fraud

Fraud Is Often A System Problem, Not Just A Founder Problem

A new report from Imperial College London and Emlyon Business School examines how venture capital-backed founders commit fraud and how investors can unintentionally create the conditions for it.

Published in June, the study draws on cases pursued by the U.S. Securities and Exchange Commission and the Department of Justice between 2000 and 2023. Its central conclusion is that fraud is not solely a founder problem, but can also stem from the incentives, expectations and governance structures surrounding startups.

High Expectations, Higher Risks

Several high-profile cases, including Charlie Javice of Frank, Gökçe Güven of Kalder, Do Kwon of Terraform Labs, and Alexander and Valerie Lau Beckman of GameOn, have intensified debate over where ambitious fundraising ends and fraud begins.

“Fraud is much more common and normalized in the startup world than we are ready to admit and accept,” Tim Weiss, one of the report’s authors, told TechCrunch.

Weiss also cited a University of Toronto study covering 654 fraud cases involving U.S. venture-backed startups between 2000 and 2023. Although fraud remained relatively rare, venture-backed companies were more likely to face fraud charges than non-VC-backed firms, while startups launched during overheated investment markets were 19% more likely to commit fraud later.

According to Weiss, pressure from investors and boards to deliver rapid growth can encourage misconduct, particularly in fast-moving sectors such as artificial intelligence.

The Three Stages Of “Façading”

The report, co-authored by Weiss and Nevena Radoynovska, identifies a three-stage process the authors call “façading.”

Surface façading begins with exaggerated claims about a company’s progress or traction. Reinforced façading involves creating evidence to support those claims, including fabricated contracts, invoices or revenue records. Deep façading extends the deception to the product itself through fake demonstrations and staged proof points.

Rather than beginning with a single act of fraud, the report argues that misconduct often develops gradually as founders attempt to sustain increasingly unrealistic expectations.

Investors Also Shape The Conditions For Fraud

One of the report’s central arguments is that investors are not always passive victims of founder misconduct. In some cases, they help create the conditions in which fraud becomes more likely.

According to the researchers, venture capital can “co-create fraud” by continuing to back founders who have previously been accused of misconduct, signaling that such behavior carries few long-term consequences. A separate University of Toronto study found little evidence that founders accused of fraud struggle to raise funding for new ventures, even when earlier cases attracted significant media attention.

“New investors and the broader VC market do not penalize past misconduct,” the report said, linking that pattern to Silicon Valley’s long-standing tolerance for failure.

Governance Plays A Critical Role

The University of Toronto study also identified governance as a key factor. Startups with founder-controlled boards were twice as likely to commit fraud as companies with investor-controlled or shared-control boards.

It also found that venture-backed companies going public were more likely to face securities class-action lawsuits within two years than private equity-backed firms. As startups remain private for longer while raising larger funding rounds, Weiss argues that governance has not kept pace with their growing scale.

“Founders do not have a professional body or association that could govern or enforce rules of entrepreneurial and investor conduct on how to be a good founder and what reasonable growth expectations are,” he said.

Calls For Stronger Oversight

Weiss argues that regulators should take a more proactive approach by introducing routine investigations and formal audits once startups reach significant funding thresholds, rather than waiting for whistleblower complaints or investor lawsuits.

The report also calls on investors to accept greater responsibility when aggressive growth targets contribute to governance failures. According to the authors, stronger oversight by both regulators and investors would help reduce the conditions in which fraud can develop.

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