Local businesses embrace AI but face skills gap challenges

Cyprus is steadily emerging as a regional player in digital innovation, technology adoption and artificial intelligence, transforming itself into a competitive hub in the Eastern Mediterranean.

At the core of this evolution is a growing recognition among policymakers, business lead ers and technologists that the digital economy is no longer optional, it is foundational.

According to Georgios Komodromos, an official at the deputy ministry of research, innovation and digital policy, digital transformation is crucial in improving the country’s competitiveness and economic growth.

“The vision of establishing Cyprus as a regional hub for innovation and technology is closely linked to the country’s digital transformation and the creation of a comprehensive digital ecosystem,” Komodromos stated.

He explained that Cyprus is in its strongest position yet to pursue this vision, citing the country’s strategic geographical location and stability as key advantages.

“Cyprus is a conduit between developing regions in the field of technology,” he said.

“This is a critical asset we must leverage further to showcase the country’s potential as a technology and innovation centre and as an investment gateway from and to the EU,” he added.

The tech sector’s contribution to GDP is now around 10 per cent, a figure that underscores the pace of digital growth.

The island is also home to a growing number of multinational firms and startups.

Cyprus’ upward trajectory is affirmed by European and global reports, including the State of the Digital Decade Report, which measures EU member states’ digital readiness.

Cyprus is said to be advancing steadily in gigabit connectivity and in the proportion of ICT specialists within the workforce.

In innovation, Cyprus continues to pursue ambitious goals. However, according to the European Innovation Scoreboard 2025, Cyprus recorded a 14.6-point drop compared to the previous year, bringing its score to 84.1, now below the EU average for moderate innovators. The island, previously ranked among Europe’s Strong Innovators for three consecutive years, is now classed as a moderate innovator, though it retains the fourth highest improvement in the EU since 2018, up 17.6 points overall.

This apparent decline is not a reflection of deteriorating performance but rather a result of changes in the European Commission’s assessment criteria. Metrics where Cyprus had previously excelled, such as employment in high-knowledge sectors and broadband penetration, were replaced with new indicators focused on technology imports from non-EU countries and environmental production efficiency. According to the deputy ministry, these changes “highlight areas that remain challenging but also present opportunities for future growth”.

Despite the shift, Cyprus remains a standout performer in trademark applications, joint public-private publications, and international scientific collaborations. It also ranks third in the EU for the share of its population with higher education. At the same time, persistent weaknesses in business spending on R&D, venture capital, and high-tech imports underscore structural gaps.

Cyprus also rose nine places to 45th in the 2024 Global Startup Ecosystem Index, breaking into the global top 50 for the first time.

Patent applications saw a 23.3 per cent rise, and the country ranks second in innovation among nations in North Africa and West Asia.

However, despite this progress, Komodromos acknowledged the need for continuous improvement.

“There are, of course, areas that need targeted action to ensure we stay on the path of progress and achieve even more,” he said.

“Our aim is to build on the momentum created, to implement solutions and tools with an immediate impact on both the country’s competitiveness and people’s daily life,” he concluded.

The deputy ministry reaffirmed its commitment to this goal, noting that recent European Commission data in the ‘State of the Digital Decade 2024’ report shows Cyprus making tangible progress.

Deputy Minister of Innovation Nicodemos Damianou explained that these indicators now serve as a strategic guide, allowing the government to tailor national priorities to meet European targets.

These efforts are complemented by strong digital uptake among Cypriot businesses.

Data from the Cyprus Statistical Service (Cystat) shows that 84.1 per cent of companies with ten or more employees offer mobile devices with internet connectivity, and 88.1 per cent allow remote access to corporate email.

Additionally, 71.7 per cent permit remote access to company documents, and 66.3 per cent provide access to customer relationship software or accounting systems.

E-commerce is also growing, with 23.5 per cent of businesses receiving orders online, and 22.7 per cent using websites or apps to sell goods and services.

AI adoption is accelerating, with 7.9 per cent of businesses using such technologies in 2024, up from 4.7 per cent the previous year.

Among large enterprises, that figure jumps to 34.9 per cent.

Most AI use cases focus on text mining, machine learning and data analysis through deep learning.

To further bolster innovation, the Research and Innovation Foundation (RIF) recently launched €24.25 million in new funding opportunities for businesses, researchers, and public sector bodies.

These include four major programmes: Step (up to €2 million per project), Seed (supporting start-ups with up to €500,000), Innovate (for new product development), and Boost, a blended finance tool.

Additional funds are earmarked for AI in Government, research infrastructure, and international cooperation. RIF said these efforts aim to build a dynamic, resilient and competitive innovation ecosystem across Cyprus.

However, as digital capabilities rise, challenges remain.

Cystat data shows that only 27.5 per cent of businesses employ ICT specialists, and just 15.3 per cent provide them with training.

Recruitment is another hurdle. 12.2 per cent of businesses tried to hire ICT personnel, but over half of those faced difficulties due to a lack of qualified candidates. This skills gap risks slowing momentum.

Security, on the other hand, is a clear priority. Ninety-five per cent of businesses have strong password policies, 90 per cent conduct regular data backups, and 67.3 per cent use virtual private networks for secure access.

Nearly half of all businesses (49.4 per cent) now invest in online advertising, double the rate in 2016.

These include geographically targeted ads, search engine marketing and ads based on user browsing history.

Meanwhile, the public sector is waking up to the importance of cybersecurity in this environment.

PwC’s “2025 Global Digital Trust Insights Survey” reveals that only 2 per cent of organisations have implemented cyber resilience actions across all areas.

Furthermore, fewer than 50 per cent of chief information security officers (CISOs) are significantly involved in key business decisions.

Only 36 per cent of respondents felt prepared for cyberattacks such as hack-and-leak operations, while just 28 per cent were confident in their defences against deep fakes and social engineering threats.

CISOs and CEOs are also misaligned, with a 13-point confidence gap in their views on AI and resilience compliance.

In the public sector, 35 per cent of CEOs reportedly become active in cybersecurity matters only after a breach, higher than the average of 32 per cent across other sectors.

A major obstacle to cyber resilience is poor data quality and inconsistent systems, a problem cited by 55 per cent of respondents.

In response, firms like PwC Cyprus are leveraging AI to bridge operational gaps.

The introduction of ChatPwC, a generative AI assistant, is a step towards embedding innovation in daily operations.

CEO of PwC Cyprus, Philipos Soseilos, described the tool as “a major milestone in the organisation’s continuous journey of digital transformation”.

ChatPwC supports real-time content generation, decision-making, and data analysis, all within a secure, internal environment.

“With this powerful tool, we are revolutionising the targeted search for information,” Soseilos said.

“This will help our people save time and increase productivity within a completely secure digital environment,” he added.

Ethical use of AI and effective data management were also central themes at the 15th Nicosia Economic Congress.

Head of Technology and Digital at Hellenic Bank, Christos Eojourian, discussed the importance of generative AI, cloud migration, and the need for seamless digital customer experiences.

He stressed that responsible AI use will be a key source of competitive advantage in the future.

Eojourian also outlined key barriers to transformation, including outdated systems, a shortage of skilled personnel and complex regulations.

He advocated for collaboration across government, academia, and business to build a unified digital vision for Cyprus.

It should be mentioned that the evolving role of chief information officers (CIOs), an increasingly important position for organisations, was recently examined by global market intelligence firm IDC, which stated that these executives must now become orchestrators of AI-powered value creation.

Where once their focus was on IT operations, CIOs today must guide strategic innovations and translate digital capabilities into measurable business success.

Technology is no longer simply a tool; it is the bedrock of competitiveness.

Indeed, Cyprus has made measurable progress across nearly every facet of its digital landscape.

From AI adoption and cybersecurity upgrades to cloud transitions and startup growth, the island is well-positioned for a tech-driven future.

However, success will depend on continued investment in people, infrastructure, and ethical frameworks.

As Cyprus redefines its economic narrative through technology, it has an opportunity not just to catch up, but to lead.