Cyprus sees strongest foreign direct investment from Russia, US, UK, Luxembourg

Europe remained Cyprus’ biggest foreign direct investment partner in 2024, with inward FDI stock from the continent standing at €295.29 billion, according to the latest data released by the Central Bank of Cyprus (CBC).

The figures were published in the central bank’s annual Foreign Direct Investment report for 2024, which provides a comprehensive overview of developments in FDI stocks, transactions, income, geographical distribution and sectoral activity in Cyprus.

“The Foreign Direct Investment publication, which is released annually, provides an overview of the major developments in the FDI of Cyprus and examines the level, the fluctuations, the associated income, the geographical breakdown and the sectors of economic activity related to these investments,” the central bank said.

“The specific analysis is based on data collected and compiled by the External, Economic & Government Finance Statistics Section of the Statistics Department of the Central Bank of Cyprus,” the CBC added.

The report showed that net FDI stock remained in negative territory in 2024, declining to €41.86 bn from €34.86 bn in 2023, meaning inward FDI continued to exceed outward FDI.

This decline was attributed to a sharper fall in outward FDI stock, which dropped to €331.75 bn in 2024 from €366.00 bn a year earlier, mainly due to lower equity instruments, while debt instruments also decreased.

Equity accounted for 89 per cent of outward FDI stock in 2024, with debt instruments making up the remaining 11 per cent, a composition that has remained broadly stable over time.

Inward FDI stock also declined, reaching €373.62 bn in 2024 compared with €400.86 bn in 2023, largely driven by lower equity holdings, although debt instruments recorded a slight increase.

Equity represented 94 per cent of inward FDI stock in 2024, while debt instruments accounted for 6 per cent, reflecting a similarly stable structure over time.

The Central Bank of Cyprus explained that the parallel movements in inward and outward FDI were linked to the significant presence of special purpose entities, whose cross-border assets and liabilities tend to move in tandem due to limited interaction with the domestic economy.

The report highlighted that changes in FDI stocks were influenced not only by transactions but also by exchange rate movements, price changes and other volume effects such as reclassifications and write-offs.

In 2024, declines in both inward and outward FDI stocks were mainly driven by transactions, while positive exchange rate effects partly offset the reductions.

Over the longer term, transactions remained the main driver of FDI stock changes, with outward FDI transactions between 2018 and 2024 accounting for 68.5 per cent of the total change in outward FDI stock, while the corresponding ratio for inward FDI stood at 51.6 per cent.

Net FDI transactions stayed negative for the sixth consecutive year in 2024, amounting to €5.11 bn in net outflows.

Outward FDI transactions reached €22.47 bn in net outflows, driven largely by negative equity flows excluding reinvested earnings, while reinvested earnings remained positive at €8.11 bn.

Inward FDI transactions were recorded at €17.36 bn in net outflows, reflecting negative equity flows offset partly by positive reinvested earnings of €14.28 bn and debt instruments of €13.12 bn.

Net FDI income also remained negative in 2024 at €3.43 bn, compared with €2.62 bn in the previous year, indicating that income paid to foreign investors continued to exceed income earned abroad.

Income from outward FDI rose to €25.87 bn in 2024, supported by higher reinvested earnings, while income from inward FDI increased to €29.30 bn.

As a result, FDI returns strengthened, with both inward and outward rates of return rising to 7.8 per cent in 2024 from 6.7 per cent in 2023.

The report pointed to a near-perfect correlation between inward and outward FDI returns over the 2018 to 2024 period, a pattern again linked to the structure of special purpose entities.

From a regional perspective, Europe remained the dominant partner for Cyprus’ FDI, accounting for the bulk of both inward and outward stocks in 2024, followed by America.

Outward FDI stock to Europe fell to €202.64 bn in 2024 from €227.57 bn in 2023, while inward FDI stock from Europe declined to €295.29 bn from €321.34 bn.

The share of inward FDI stock from the euro area and the European Union stood at 35.5 per cent and 22.2 per cent respectively, higher than the corresponding shares for outward FDI.

The data showed that outward FDI was spread across at least 146 countries in 2024, while inward FDI originated from at least 176 countries, although more than 60.6 per cent of allocated FDI stock was concentrated in the top 10 partner countries.

Russia remained the largest partner for both inward and outward FDI, followed by countries such as the United States, Luxembourg, and the United Kingdom, depending on the measure used.

For the first time, the report included an analysis of inward FDI based on the ultimate investing economy, revealing that Europe remained the primary source at €212.87 bn in 2024, followed by America at €87.28 bn.

At sectoral level, most FDI stock continued to be concentrated in the tertiary sector, particularly financial and insurance activities, reflecting Cyprus’ role as a financial services hub.

Outward FDI stock in the tertiary sector declined to €216.01 bn in 2024, while inward FDI stock in the same sector fell to €367.35 bn.

When special purpose entities were treated as non-residents, net FDI stock declined further to €50.28 bn in 2024, compared with €42.70 bn in 2023, highlighting the significant impact these entities have on headline figures.

Under this adjusted view, inward FDI stock stood at €74.98 bn and outward FDI stock at €24.70 bn, with the majority again channelled to the tertiary sector.

The Central Bank of Cyprus said the report aimed to present a more objective picture of FDI developments by supplementing standard statistics with adjusted series that exclude the distorting effects of special purpose entities.