Cyprus Is Israel's New Offshore Conference Room

LIMASSOL - One look at the departure lounge for Flight No. 428 from Larnaca to Tel Aviv reveals that this is no ordinary group of travelers. There are no children among those waiting to take off, no seniors, no families and not even any couples. There are, however, quite a lot of men and more than a few women aged 30-60, who had come to our island neighbor for a visit of a day or two, or even for just a few hours, to meet with suppliers, clients and colleagues from abroad.

Many of the passengers chose Cyprus as a meeting place because it is the closest destination to Israel to which their overseas colleagues are willing to come. Those same colleagues have visited Israel in the past, but will not even consider another visit just now. Explanations range from "difficulties in obtaining life insurance policies" to "the boss won't let me because of the situation" and "family pressure."

The message behind those statements reflects what analysts, suppliers and purchasers from around the world feel: Israel is currently a frightening place that it is not worth visiting. "Let's say you were to be sent to Chechnya just now. Would you agree to go there?" asks an Israeli banker who recently went to Cyprus to meet a foreign banker.

The night flight from Larnaca lands after just 37 minutes, and during the wait for the suitcases at Ben-Gurion Airport there is further proof that this is no ordinary flight - only a few suitcases are waiting to be claimed. Most of the passengers did not even check any luggage, sufficing with a small carry-on case.

Two years of intifada and almost daily reports of the deteriorating security situation have taken their toll. The hotels in Tel Aviv enjoy only a slow trickle of visitors. The hotels in Nicosia, Larnaca and Limassol, on the other hand, are hosting more and more Israelis who have come to the island to meet their overseas counterparts.

Israeli companies associated with multinational corporations send their representatives to Cyprus in order to strengthen their relationships. Israeli companies that have board members who live overseas, such as Comverse, convene their board meetings in Cyprus. Professional conferences that have guest lecturers from abroad have been transferred wholesale to Cypriot hotels. One of the Israeli cellular operators recently held a number of such conferences in Cyprus and flew 200 of its employees over there.

Fewer tourists, more business travelers

The official figures of passenger movement between Cyprus and Israel do not indicate an increase in total passengers, but rather a decrease. According to data collected by the Israeli Civil Aviation Authority, in 2001 there were 121,000 passengers to and from Cyprus, up from 103,000 in 2000. During the first half of 2002, however, the figure dropped to just 39,000. The decline in passenger travel on the Israel-Cyprus route is the same as that throughout the air travel industry.

There has been a discernible change in the character of the travelers to Cyprus, with a considerable drop in the number of vacationers and a similar rise in the number of business travelers. "We definitely feel the change in the trend," says Kobi Zussman, Cyprus Airways' representative in Israel. "We operate a daily flight to Cyprus, and in the past one would have thought that it was a purely tourist destination. Now it is hard to operate the flight based on tourists alone. We checked and found wide-ranging business activity between the two countries, among other reasons due to the security situation, resulting in many Israelis traveling to Cyprus to meet with their foreign counterparts."

Zussman would not disclose any details about his clients, but did say that many of his Israeli passengers worked in banking, high-tech and industry, and were traveling to the island neighbor for board meetings, conferences and business meetings. "There has been a 30 percent increase in business travel, and this trend will only strengthen when Cyprus is accepted into the European Union," said Zussman.

Last week the chemical division of Exxon Mobil convened in Nicosia. The company wanted to show the technical staff and purchasers from Israeli food companies a new development in packaging. The American company's representatives refused to come to Israel and preferred to host 30 representatives of Israeli companies in Nicosia. The company covered all the hotel and dining costs, while the Israeli companies paid for the flights.

Israeli empathy

The list of companies that sent representatives to the conference include Jafora- Tabori, Telma, Osem and Elite. "We understand that they don't want to come to Israel due to the security situation," said one of the Israeli participants at the conference. "They admit it, and the truth is that one can empathize with them."

The participant added that there are even advantages to the situation that has been created. "Not too long ago I conducted negotiations with a European supplier. We haggled over the price and I invited him to Israel to continue the negotiations. In the end he agreed to my terms - as long as he wouldn't have to come to Israel."

Most of those interviewed for this article refuse to have their names printed, some because their employers forbid them to be interviewed and others in order to save their overseas counterparts the embarrassment this could cause.

A few of the foreign companies that operate in Israel, including the British bank HSBC and the American Citibank, send their Israeli employees to Cyprus or London to meet with their supervisors. Bank Hapoalim CEO Eli Yunis and Hapoalim board chair Danny Dankner flew to Cyprus two months ago for a hastily convened with their German partners in the Continental Bank, to discuss matters concerning this troubled bank. The Germans refused to come to Israel.

It is interesting to note that many Israelis understand the feelings of the foreigners. A senior Bank of Israel official flew recently to Cyprus to meet with analysts from the Moody's and Standard & Poors international rating companies. The official said that in the past two months contact has been maintained with these analysts mainly via conference calls. With the increase of reports in the Israeli media regarding fears of a downgrading of the banks, however, a face-to-face meeting was necessary. The meeting was attended by several central bank officials and senior executives of the large commercial banks.

In addition to being a venue for meetings, Zussman noted that Cyprus has also become a destination for Israeli investors who see the island's business potential thanks to the tax breaks offered to foreign companies. Israelis are investing in real estate, infrastructure and software houses. Five years ago the Israeli firm Amdocs founded the largest software house in Limassol, which currently employs some 800 workers, half of whom have come from India. Amdocs declined to provide details of its operations in Cyprus, but sources in Cyprus claim that despite Amdocs's cutbacks, the company is actually planning to expand its operations in Cyprus. Other Israeli companies are considering setting up plants and representations in Cyprus, including Castro, EVS and a startup called Smashing Concepts.

Michalis Firillas, Cyprus's economic attache in Israel, says that Cyprus can offer Israelis much more than a meeting place. "Corporate taxes in Cyprus are just 10 percent, high-tech companies have a 10-year tax exemption on profits and municipal taxes are much lower than in Israel."

In addition to the existing advantages, there is great business potential in Cyprus's bid to gain entry into the EU. Toward the end of 2002 the EU Commission is due to vote on the acceptance of new members. Cyprus views itself as a candidate for membership in 2004 and is making the necessary monetary and operational preparations to meet the EU's demands. Supermarkets in the main cities are already displaying prices in euros as well as in Cypriot pounds and the government is speeding up the liberalization of trade and foreign currency restrictions. If Cyprus becomes a member of the EU, it could become the Israeli gateway to Europe, at a distance of just 400 kilometers from Tel Aviv.