The Cyprus Economy and Competitiveness Council (SOAK) is recommending a comprehensive set of policies to encourage mergers and acquisitions, arguing that the small size of most Cypriot companies continues to hold back the country’s economic performance and competitiveness.
In a statement, the Council notes that business size is a decisive factor in productivity, innovation capacity and overall economic resilience. In Cyprus, around 90 percent of firms employ fewer than 10 people, which SOAK describes as a major structural constraint on growth. Larger firms, it explains, benefit from economies of scale, stronger bargaining power, easier access to financing, greater capacity for research and development, and enhanced ability to expand into international markets.
The Council emphasises, however, that large size alone is not a guarantee of success. Bigger companies can also face bureaucratic rigidity, slower decision-making and weaker proximity to customer needs, which can hamper competitiveness.
Structural weaknesses and policy inconsistencies
SOAK argues that despite years of discussions, Cyprus continues to implement conflicting policies that often discourage rather than support business consolidation. The Council’s intervention comes as Cyprus dropped to 44th place among 69 countries in the 2025 IMD World Competitiveness ranking, largely due to deteriorating economic performance and infrastructure weaknesses.
The Council notes that the government has already initiated reforms in taxation, justice and labour markets which could bolster competitiveness, while the Finance Ministry has prepared an action plan specifically aimed at facilitating mergers and acquisitions. These recommendations align with the broader strategic agenda outlined in Mario Draghi’s report on the future of European competitiveness.
Targeted growth and strategic considerations
Before implementing any measures, SOAK stresses the importance of defining clear strategic objectives and assessing potential side-effects on society, the environment and Cyprus’ relations with EU partners. It argues that policies must distinguish between sectors that benefit from scaling up and those that do not, ensuring that support is targeted and avoids unintended distortions.
The Council warns against creating new barriers for startups, which remain crucial to innovation and economic dynamism. It also stresses that policies must be consistent, noting that it is “irrational to encourage a business to stay small” because it risks losing subsidies or facing higher compliance costs, while overseas competitors grow through scale.
Proposed measures
The Council outlines a wide range of policy options, including:
• Strengthening the innovation ecosystem through accelerators, incubators and improved access to early-stage funding and mentorship.
• Establishing public digital platforms to connect potential buyers with local firms seeking growth or sale opportunities.
• Promoting Cyprus as a regional hub with access to Europe, the Middle East and North Africa to attract investment and corporate expansion.
• Enhancing bilateral investment agreements to facilitate foreign capital flows and support the outward expansion of Cypriot firms.
• Investing in digital infrastructure to streamline due diligence and remote transactions, and upgrading legal and financial expertise for cross-border mergers.
• Reassessing the application of the de minimis rule to avoid penalising firms that expand.
• Reducing unnecessary subsidies to small firms that lack long-term viability.
• Simplifying procedures, cutting fees and reducing tax burdens associated with mergers and acquisitions.
• Creating specialised public-sector units, including within the justice system, focused on corporate restructuring and M&A processes.
• Expanding non-bank financing options, revitalising the Cyprus Stock Exchange, attracting institutional investors and promoting corporate bond markets.
Financing challenges at the core
One of the most significant obstacles, according to SOAK, is the difficulty businesses face in securing financing for expansion. Cyprus lacks dedicated development finance institutions or national investment bodies that could help fill funding gaps left by traditional lenders.
The Council recommends exploring the creation of such an institution in Cyprus, or developing alternative mechanisms in cooperation with European bodies such as the European Investment Bank. The overarching goal, it says, should be improving access to diverse funding sources and reducing the cost of capital for businesses seeking to grow.