Breaking news

Cyprus Tech Sector Propels Economic Growth and Reshapes Talent Landscape

Robust Economic Expansion

At the recent TechIsland Summit, Christophoros Anayiotos, Head of Deal Advisory at KPMG Cyprus, delivered a compelling assessment of the island’s burgeoning tech ecosystem. The 2024 report highlights that the technology sector now contributes 16% of Cyprus’ total Gross Value Added (GVA), up from 12.6% in the previous year. Overall, the sector’s economic impact is estimated at €8.5 billion, with direct contributions of €4.7 billion and an additional €3.8 billion generated indirectly.

Sectoral Contributions and Productivity

Using the Leontief Input-Output Model, the study covers key areas including ICT, professional scientific and technical activities, as well as tech-driven financial and insurance services. Notably, the ICT segment itself delivers €3.4 billion in direct GVA, while professional services and financial operations contribute €840 million and €505 million respectively. This horizontal spread of technological influence underscores the industry’s pivotal role in driving multifaceted business growth.

Resilience During Economic Downturns

Even amid challenging economic conditions, the tech sector has demonstrated remarkable resilience. In the pandemic-stricken year of 2020, while the broader Cypriot economy contracted by 3%, the ICT sector experienced a robust growth rate of 21%. This momentum accelerated further to a striking 38% growth in 2021, reinforcing technology’s role as a stabilizing economic force.

Divergent Trends in Employment

Anayiotos’ analysis reveals that the tech sector now sustains over 62,000 full-time equivalent jobs in Cyprus, with 45,900 direct and 16,300 indirect roles. For every €1 million in increased sector revenue, approximately 13 jobs are generated. Despite the overall employment surge, there has been a significant shift in workforce composition. In 2015, Cypriot nationals comprised 88% of ICT employees; by 2024, this figure dropped to 50%, with non-EU nationals accounting for 42% and other EU citizens 8% of the workforce.

Cyprus as an EU Leader in ICT

Cyprus now holds a prominent place in the EU, ranking second in the EU27 for ICT’s share of national GVA at 11.4%, a notable rise from 9.4% in 2023. Furthermore, the island leads the bloc in ICT GVA growth, posting a remarkable 347% increase between 2015 and 2024. With a top-five ranking in GVA per ICT employee—whereby each contributes approximately €130,000, compared to the EU average of €116,000—the country’s technology workforce has expanded at an annual growth rate of 12.1%, from 9,300 in 2015 to 26,000 in 2024.

Strategic Imperatives for Future Growth

Anayiotos emphasizes the need for strategic enhancements to sustain this expansion. Key recommendations include improving air connectivity, joining the Schengen Area to boost mobility, and attracting more international banking institutions. Additionally, introducing tax incentives designed to favor stock options is considered crucial in luring and retaining skilled talent. Addressing the limited capacity in private education is also vital to accommodating professionals relocating with families.

Investing in Talent and Digital Transformation

Looking forward, investments in education and digital upskilling remain paramount. There is a clear call for a national initiative aimed at promoting STEM careers, elevating the digital skills of both students and educators, and accelerating the digital transformation of public services. Moreover, streamlining legal procedures will be critical to improving the overall business climate and competitiveness.

AI Spending Is Complicating The Fed’s Fight Against Inflation

Silicon Valley leaders have long argued that artificial intelligence will make technology and services dramatically cheaper. OpenAI CEO Sam Altman has described a future where intelligence becomes extremely inexpensive, while Tesla and SpaceX CEO Elon Musk has predicted that AI and robotics will create greater abundance and drive down costs.

So far, those benefits have yet to materialise at scale. AI adoption remains relatively slow, while the enormous investment needed for data centres and AI infrastructure is putting pressure on electricity prices, supply chains and other costs. For the Federal Reserve, this creates a difficult balancing act: AI could eventually boost productivity and reduce inflation, but its current buildout is contributing to higher prices.

OpenAI chief economist Ronnie Chatterji said AI needs to be adopted by organisations and generate measurable value before its broader economic impact becomes visible in productivity statistics.

AI Adoption Remains Uneven

Capital spending on AI infrastructure in the U.S. is expected to reach $581 billion this year, according to Goldman Sachs Research, with global investment potentially reaching $1 trillion.

Despite the scale of spending, adoption remains far from universal. A May survey by the U.S. Census Bureau found that 17% to 20% of U.S. businesses reported using AI, with adoption significantly higher among large companies.

Companies that have implemented AI at scale also highlight the challenges. Julie Averill, former CIO of Lululemon, said successful deployment requires changes in employee behaviour and trust in the technology. OpenAI has observed a similar divide: its most advanced business users deploy AI at around eight times the rate of average companies.

Why Productivity Gains May Take Time

Economists point to the limits of automation. AI can perform individual tasks effectively, but many jobs combine tasks that are difficult to automate.

Stanford professor Charles Jones refers to these as “weak links”. Radiology, for example, involves interpreting scans but also communicating with patients and working with colleagues. AI can automate part of the job without eliminating the profession itself.

As a result, the full economic impact of AI may not become clear until businesses adopt the technology more broadly and reorganise their operations around it.

AI Adds To The Fed’s Policy Challenge

AI’s economic impact has become part of the Federal Reserve’s policy debate. Fed Chairman Kevin Warsh has argued that AI could eventually become a significant disinflationary force by increasing productivity and strengthening U.S. competitiveness.

Other officials are more cautious. In July, the Fed kept interest rates at 3.5% to 3.75%, while some officials expressed concern that AI infrastructure spending could add to inflationary pressures.

Minneapolis Fed President Neel Kashkari pointed to massive data-centre investment as a new source of demand. Household electricity prices rose 10% in the two years through July, compared with a 6.2% increase in overall consumer prices. Meanwhile, shortages of chips and other AI components are pushing up costs. JPMorgan Chase estimates that DRAM prices could rise 400% by the end of 2026 compared with 2024.

Warsh has consequently adopted a more cautious tone, saying that while AI investment is laying the groundwork for future growth, the timing and scale of its economic effects remain difficult to predict.

For the Fed, the challenge is clear: AI could eventually deliver major productivity gains, but the cost of building that future is already showing up in the economy.

Aretilaw firm
The Future Forbes Realty Global Properties
Uol
eCredo

Become a Speaker

Become a Speaker

Become a Partner

Subscribe for our weekly newsletter