By Esra Aygin
A growing number of Turkish Cypriots live below the poverty threshold, while the income inequality between the richest and poorest segments of the society reaches unprecedented levels, a recent survey has revealed.
According to the 2021-2022 household budget survey conducted by the statistics institution in the northern part of Cyprus, almost 15 per cent of the population are currently living under the poverty threshold.
For comparison purposes, calculated with the methodology used in the European Union member states, the ratio increases to 22.8 per cent according to economists. This places the north among Romania and Bulgaria – the two EU countries with the largest percentage of people living below the poverty threshold.
The survey also shows that while poverty is growing, the high-income segment of the society is receiving a much larger percentage of the population’s total income. The Gini coefficient, which shows the degree of inequality in the distribution of income, is 0.37. According to economists, a Gini coefficient greater than 0.4 indicates that there is a big income gap in the society, which often leads to social and political instability or tension.
The survey results “show a huge inequality in income distribution, where the Turkish Cypriot middle class is fading into poverty, while the rich are getting richer,” economist Mustafa Besim explains to the Cyprus Mail. “The distortion in the distribution of income in the society has never been this bad.”
Besim highlights that GDP per capita has remained almost the same in the last 15 years – around 14,000 dollars – while the equality in distribution of income has deteriorated. The Gini coefficient in the previous survey conducted in 2015 was 0.33.
Making the situation grimmer, a calculation by the Cyprus Turkish Civil Servants Union Ktams has revealed that a family of four earning the minimum wage is not only poor, but is in fact living below the hunger threshold.
According to Ktams’ calculations, the hunger threshold – the amount needed to maintain a healthy, balanced and adequate diet – for a family of four as of October was 17,074 Turkish lira (about €557). The minimum wage is 15,750 Turkish lira (about €501).
“Those earning the minimum wage are left to starve,” Ktams head Guven Bengihan stated when announcing the findings. “People with minimum wage do not have the money they need to get enough food for their families.”
“I earn the minimum wage and have three children, who go to school,” Hamit Manga told the daily Yeniduzen a few weeks ago in a street interview. “I can only make ends meet because I do an extra job… I am worried about the future of my children. It looks like the only thing I will leave them will be debt.”
“It’s impossible to save money. We are only saving the day,” stated Mustafa Altinkalb in the same interview. “Many people are selling whatever they have just to survive. The rich have become richer, and the poor have hit rock bottom.”
“There is no middle class anymore,” said Mehmet Kadiri. “The rich lead super lives and the poor are struggling at the bottom… We are like a hopeless patient living on life support.”
One of the main reasons that distorted the distribution of income to this extent is inflation, according to economist Besim. Turkish Cypriots have been going through one of the worst economic crises in their history since 2021 as the Turkish lira continuously declined in value against most major global currencies. Just this year, the Turkish lira lost 40 per cent of its value. This has led to soaring prices in the northern part of Cyprus, where the economy is dependent on imports.
According to the Statistical Institute, the annual inflation was 78.6 per cent in October. The monthly inflation was 1.9 per cent, while the monthly food inflation was recorded as 3.3 per cent. Earlier this week, the price of bread increased a further 20 per cent.
Although the official currency in the north is the Turkish lira and people’s salaries are also paid in lira, many expenses like rent and school fees are in foreign currencies, which exacerbates the situation. As Turkish Cypriots, especially those on low or fixed incomes, have experienced a huge drop in their purchasing power leading to a decline in their living standards, they have also seen their debts cascade as most borrowing in the north is done in foreign currencies.
However, parallel to the increase in poverty and the income inequality, there is a huge amount of cash flow into some sectors such as construction and real-estate in recent years.
Ten of thousands of houses are being built and sold mostly to foreigners – mainly Russians and Iranians – in areas like Kyrenia and Iskele/Trikomo. Lack of reliable statistics and the overall problem of the unregistered economy makes it impossible to calculate exactly how big the construction and real estate sector is, but economist Merkan Hamit roughly estimates, looking at the construction projects and the prices, that property sales generate an annual 1 billion dollars in the north. This is almost one thirds of the gross domestic product.
It is estimated that the unregistered economy amounts to 80 per cent of the total economic activity.
According to the Chamber of Shopkeepers and Artisans (Ktezo), while small businesses, particularly in the food and beverage sector, are steadily going out of business, brokers, consultants and real estate agents, primarily run by foreign citizens, are taking their place. Data from Ktezo show that half of the small food and beverage businesses opened in recent years have closed down, while almost one third of new workplaces that have opened so far this year are linked to the real estate sector.
“There is a lot of economic activity in certain sectors, but due to a lack of effective public policies from adequate regulations, to controls and taxation policies, the revenue that is generated is not distributed equally to the society,” says Besim. “While certain segments of the society are getting ridiculously rich, others are not able to benefit from this economic activity… There is a very rich group on the one side, and then a very poor group on the other.”
The income inequality and the ensuing shrinking middle class has serious social implications, according to Besim.
“As the middle class becomes poorer, it starts spending its income solely on the basics such as food, health and shelter,” he explains. “The smaller the middle class, the smaller segment of the population spends on education, arts, culture. This completely distorts the social structure of the society as a strong middle class is required for a strong democracy. The lack of a strong middle class means those in power aren’t questioned or criticised. It is easier to govern societies with such a big income inequality. Unfortunately, this is where we are headed.”
