MONEY AUG/SEP 2013 ISSUE 20

BUSINESS | LIFESTYLE | DESIGN

The FINANCIAL issue

Issue 20 AUGUST/SEPTEMBER 2013 €5 WHERE SOLD

Interview with Finance Minister EXPLORING Microfinance

Cushioning your bond portfolio The new family business act

The best way to predict the future is to create it

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Welcome

Contents As the budget approaches, there is the usual speculation of what that black briefcase holds.

Will the budget for 2014 keep the country’s finances on the right track? Will we remain resilient as other EU member states – there is talk of yet another bailout for Greece – still struggle with the effects of the economic downturn?

In this issue of Money, we aim to end the speculation by interviewing Finance Minister Edward Scicluna, who confirms that government’s priority is to raise the economy’s output potential, thus enhancing Malta’s capacity to grow. The Minister also discusses cheaper energy, tackling tax evasion and encouraging success stories, such as the Maltese financial sector. With one of the lowest female labour participation in Europe, the budget for 2014 will also seek to encourage more women to join the workforce.

What is sure is that all eyes will be on the current administration as it delivers its first budget.

In this issue, Mario Duca, President of the Malta Association of Family Enterprises, analyses the proposed legislation for a new Family Business Act. With three fourths of local businesses being family run, this will certainly be an important piece of legislation – combined with the existing financial and tax legislation, all the economy is set to benefit if this legislation is properly enacted.

Another two important issues which we highlight in this issue are China’s 7.5 per cent growth rate and news that the US Federal Reserve will be tapering $85bn worth of monthly bond purchases. These issues might lie outside our shores – however, in today’s world, a financial ripple is felt all around the globe.

On the first topic, Chris Grech and Calvin Bartolo analyse the potential negative impact of China’s growth. In an in-depth study, Mark Vella argues that we should keep a close eye on any Fed tapering and the potential that this introduces volatility in bond markets once again.

In this issue, we also read about the best ways to market Malta as financially stable, discuss the benefits of microfinance and travel to thriving Istanbul.

Read on and enjoy.

AUGUST /SEPTEMBER 2013 12 Sound, solvent and resilient

38 Climbing the great wall

Finance Minister Edward Scicluna reassures Veronica Stivala that Malta’s banking and financial sector has proven itself sound and resilient.

Why does a 7.5% growth rate in China mean bad news, ask Chris Grech and Calvin Bartolo.

With three fourths of businesses in Malta being family run, we need a strong legislative framework to help family businesses achieve continuity, says Mario Duca.

What’s your operating system?

According to Sean Patrick Sullivan, choosing a digital ecosystem determines your chances for happiness and prosperity even more than your national citizenship.

40 Of interface 17 All in the family and ideology

21 Narrowing the generation gap

Can a one-party state ever achieve economic liberalisation? Money focuses on Cuba.

25 Limiting your exposure

52 Spendthrift

How will Fed tapering and interest rate expectations impact your bond portfolio, asks Mark Vella.

30 It’s a two-way thing Editor Anthony P. Bernard anthony@moneymag.me Consulting Editor Stanley Borg stanley@moneymag.me Advertising Matilde Melo matilde@becommunications.com Design Jon Calleja jon@weareporridge.com Printing Progress Press Distribution Mailbox Direct Marketing Group

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44 IS Cuba libre?

How can young entrepreneurs gain further representation in the business community, asks Reuben Buttigieg.

Effective communication is not just a message in a bottle, says George Larry Zammit. Rather, it’s an ongoing conversation between the brand and its followers.

34 A growing sector

What do you buy someone who has it all? Money stretches its budget.

54 This is grand I’ll have a martini with my minaret, says Mona Farrugia as she falls in love with Istanbul.

58 The Bluesman’s blog In New York, it’s a mayoral mayhem of personal crusades and sexting, says The Bluesman.

Malta has established itself as one of the safest and best run financial centres in Europe, says Bruno L’ecuyer.

Money is published by BE Communications Ltd, 37, Amery Street, Sliema, SLM 1702 All rights reserved. Reproduction in whole or in part is strictly prohibited without written permission. Opinions expressed in Money are not necessarily those of the editor or publisher. All reasonable care is taken to ensure truth and accuracy, but the editor and publishers cannot be held responsible for errors or omissions in articles, advertising, photographs or illustrations. Unsolicited manuscripts are welcome but cannot be returned without a stamped, self-addressed envelope. The editor is not responsible for material submitted for consideration.

10 - Money / Issue 20

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Interview

12 - Money / Issue 20

Sound, solvent and resilient

Finance Minister Edward Scicluna reassures Veronica Stivala that Malta’s banking and financial sector has proven itself sound and resilient. He also discusses cheaper energy, tax evasion and encouraging higher female participation in the workforce. Photos by Marc Casolani.

M

alta’s banking system is sound, solvent and resilient, Finance Minister Edward Scicluna reassures me. But what makes Malta’s economy more resilient than say, Cyprus?

Professor Scicluna explains that although total assets of Maltese banks amount to what appears to be a very high percentage of the GDP – that’s approximately 800 per cent – the core domestic banks and systemically important banks represent only 218.2 per cent of GDP. “That is below the EU average, while international banks amount to 493.7 per cent.” In addition, he notes how, unlike Cyprus, “The domestic banking sector debt has low exposure to the sovereign debt of peripheral crisisridden European countries”.

This means that domestic core banks do not suffer from the systematic risks which have led to various downfalls in the banking sectors of various European countries.

Furthermore, international banks operating in Malta conduct limited business with local residents as their main investors are overseas.

“Thus, the impact their actions could have on

the Maltese economy is considerably limited.”

In fact, data published by the European Central Bank repeatedly places the Maltese banking system as the most solvent in the European Union. Furthermore, a recent World Economic Forum Report ranked Malta 13th worldwide for the soundness of the banks.

Similarly, credit rating agencies Fitch and Standard & Poor’s, Bloomberg News Service, Nomura Global Services, the European Commission, and more recently the IMF concluded that Malta’s risk of contagion from other ailing member states is low, and that Malta’s banking and financial sector has proven itself sound.

The Finance Minister has recently presented his prebudget document for 2014.

What will government’s priorities be for next year?

Government’s first priority will be to raise the output potential of the Maltese economy with the aim of enhancing Malta’s capacity to grow, says the Finance Minister.

“This will be done through further investment in Malta’s infrastructure as well as

“Another macroeconomic target is to increase the labour supply by raising female and older worker participation rates.” through the encouragement of lifelong learning alongside initiatives aimed at increasing the labour force activity rates.”

Other main priority areas include: attaining fiscal sustainability through strengthening the fiscal framework and addressing tax evasion; safeguarding the successes achieved by the Maltese financial sector; and promoting a diversified and balanced economy by embarking on new economic activities with the purpose of strengthening Malta’s international competitiveness.

What are Malta’s short and mid-term financial and economic targets?

Speaking about public finances, the Finance Minister points out how Malta’s goal is to

permanently get Malta out of the excessive deficit procedure by reducing the deficit-to-GDP ratio below the three per cent, while also putting in place measures to decrease the general government debt.

In this light, government intends to focus on the elimination of inefficiencies and waste in the public sector, especially in some of the state-owned enterprises while at the same time preserving capital expenditure and strengthening revenue mechanisms.

“Furthermore, government will also address tax evasion, while also strengthening the fiscal framework through the adoption of fiscal rules, the establishment of a fiscal institution, and the establishment of the medium term budgetary framework.”

Money / Issue 20 - 13

Interview

consumers. Government will also be focusing on improving the operation of ARMS Limited, and also launching schemes that will facilitate the uptake of renewable energy technologies.”

Another area of concern is Malta’s female labour participation, which is the lowest among other small European member states.

In its electoral manifesto, the Labour Party committed itself to creating an economic environment which would encourage more women to join the workforce. What has government done so far to implement this plan?

“As was promised in the run up to the 2013 election, government intends to provide free childcare centres to enable more parents to work,” says Prof. Scicluna.

Other targets include: boosting investment in the private sector and enhancing the competitiveness and transparency of the products and service markets to strengthen consumer protection.

“Another macroeconomic target is to increase the labour supply by raising female and older worker participation rates and reducing unemployment especially among the longterm unemployed. We will also invest in education and training to enhance the skills of the labour force.

“All this should lead to achieving higher standards of living for the betterment of the country and its citizens.”

14 - Money / Issue 20

With specific reference to the energy budget, what are government’s plans to generate energy at lower prices, and to procure fuel?

In order to be able to secure cheaper energy and a more diversified energy mix, government’s priorities include: securing a power purchase agreement and gas supply agreement with the private sector; concluding the conversion of the Delimara plant to gas, as well as the conclusion of the interconnector project which will link Malta to the European grid.

“This will allow government to pass on the benefits of a more efficient energy sector to the final

Government also plans to expand existing childcare facilities – such as the Klabb 3-16 and other similar after school care services – to afford working families much-needed flexibility in their working hours. Towards this goal, government also intends to strengthen nonformal education after school activities such as Hilti, Klabb Pepprina and Malta Writing Programme.

Government is also planning to enhance the employability and human resource potential of unemployed women by equipping them with the necessary skills and training to meet the requirements of job seekers. Additionally, government intends to further incentivise female participation in the work force through income tax

breaks for those women entering the work force.

In a recent statement, Central Bank Governor Prof.

Josef Bonnici said that, “If our economy is diversified Malta will increase its resilience”.

What is government doing to diversify our economy?

Prof. Scicluna points out how over past weeks, government has been exploring various avenues to further diversify the economy.

“With regards to the maritime sector, in which government is confident that Malta can become a centre of excellence, government has tabled various projects such as the transformation of the Marsa ex-ship building site to a Maritime Park, which will generate greater economic growth and further diversify the economy.”

Malta Enterprise will continue to support investment in essential sectors including the aviation services, the film industry, life sciences and digital games by helping them access the required finance and develop the capacity to expand and innovate, the Finance Minister explains.

“Additionally, government will increase investment that goes into research and technology and in other sectors in which Malta had a strong track record, such as the engineering industries.

“Government has also opted to extend the Micro Invest and the Micro Guarantee Schemes as well as the High Energy User Scheme which are intended to encourage new businesses.”

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Business

Mario Duca is Managing Partner at 2M Management Consultancy Limited and is President of the Malta Association of Family Enterprises. For more information visit www.mafe.org.mt

All in the family With three fourths of businesses in Malta being family run, we need a strong legislative framework to help family businesses achieve continuity, says Mario Duca.

T

he Malta Association of Family Enterprises (MAFE) has been lobbying with the political parties and other bodies to develop proposals for the formulation of a legislative framework that will assist family businesses and their advisors in planning and preparing for the transition of a business from one generation to the next.

MAFE is pleased to note the launch of the consultation phase for the enactment of a Family Business Act which will be a unique piece of legislation. If properly drafted, Malta will also benefit as a nation when combined with the existing financial and tax legislation.

No one doubts that family businesses form a major part of the business sector in Malta and are thus a crucial part of the Maltese economy. This makes it essential that the long-standing concerns

and difficulties faced by family business owners are addressed and supported by government.

Family businesses will drastically improve their chance to prosper through generations if they are provided with the legal structures to sustainably plan for and transfer the business, management, wealth and ownership of the family enterprise through the generations.

Governments have failed to address these crucial issues in relation to family businesses, particularly with regards to governance procedures, economic planning and transmission and clear definitions of ‘family’ in relation to business and a clear definition of what is understood with the term ‘family business’.

For this reason, MAFE has been at the forefront in putting forward recommendations and suggestions

to enable both previous and current government to consider the actual enactment of the Family Business Act. We are very satisfied to note that the current government has actually made this one of its electoral platforms to implement and has recently launched the consultation phase. At this point one must state that for such an Act to be effective one cannot simply consider the creation of incentives solely in relation to ownership transfer but the approach has to be a holistic one.

To this end the Family Business Act has to clearly establish from the outset what is understood by the word ‘family’ for the objective of a family in business and also to establish who is a ‘family business’. Another objective that must be tackled is that of establishing the collation of statistics since unfortunately no such data exists in Malta in relation to family businesses.

Money / Issue 20 - 17

Business

Unfortunately in Malta’s legislation we do not have a clear definition of the term ‘family’. The definition of ‘family’ in local legislation is mainly derived from the Civil Code and related case law but can differ from other sections such as in the commercial code. Sociologists have developed countless arguments segmenting the family into nuclear, extended and so on, but at law it is important to define who is ‘family’ for the objective of a ‘family in business’ since through law we assign definite rights and obligations as a consequence of a person being part of a family in business.

At this point one should ask whether the definition of ‘family’ should represent current and prospective socio-demographic trends such as unmarried couples (also pursuant to the Co-Habitation Bill, married couples not sharing the same family name, civil partnerships, same gender partnerships, etc.), or should we retain the traditional term of the family. The clarification of the term ‘family’ must guarantee a holistic coverage of societal needs and developments in the family business sector but at the same time we have to make sure that this is not open to abuse, thus ending up with everyone being termed as a family business. On the other hand we cannot put families in business into a strait jacket in relation to the meaning of ‘family’ since one has to allow for the specific family to have the right whom to consider as ‘family’ when it comes to business related considerations.

The foremost corollary of a family business is the influence that family members have on the enterprise’s ownership, governance, and management participation. Indeed, at the outset, the term ‘family business’ brings to mind the notion of a sole trader, where a company is owned and operated by a single person, or a small father-and-sibling business.

Yet this cannot be further from the truth.

Maltese family businesses permeate through all sectors of the economy and are not limited to size.

The EU Expert Group on Family Business in 2009 had proposed a

18 - Money / Issue 20

“Family businesses have proved to be one of the most adaptive segments of the business community during the past economic crisis.” definition which brings together three important aspects of family businesses, namely the family, the business itself and the issue of ownership. The definition reads as follows: A firm, of any size, is a family business, if: • The majority of decision-making rights is in the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parents, child or children’s direct heirs.

• The majority of decision-making rights are indirect or direct.

• At least one representative of the family or kin is formally involved in the governance of the firm.

• Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 per cent of the decision-making rights mandated by their share capital.

Indeed this reflects a commonly accepted definition developed by The Family Entrepreneurship Working Group established by the Finnish Ministry of Trade and Industry in 2009.

Further definitions that apply in other EU member states often include the requirement of either share ownership or management of the business by family members.

The Maltese economy depends heavily on the continuity and success of family businesses. In fact, family businesses have proved to be one of the most adaptive segments of the business community during the past economic crisis. MAFE therefore stresses the importance of the support family businesses need both to operate successfully and to be sustained through generations. It is no use spending millions of euros in assisting new businesses which over the years end up being family businesses, helping them to grow through various incentives, handhold and assist them to internationalise and after 30 or 40 years of operations and growth at the point of succession these family enterprises find a total vacuum in legislation and a concrete wall that hinders their continuation through succession.

The legislative vacuum that currently exists within the Maltese legal framework and the lack of recognition by the state tend to discourage many families from continuing with their family businesses. The launch of the consultation process for the enactment of a Family Business Act has indeed been a breath of fresh air.

This is why government must continue to strive to make sure that a solid legal framework is established that will facilitate succession which will allow families in developing future strategies for the continuation of family businesses in Malta. Now it is also in the interest of all family businesses to participate in the consultation process in which MAFE is actively participating. MAFE has been compiling its feedback to government. It is in the interest of Malta as a whole to preserve and motivate such businesses, particularly through economic incentives and a legislative infrastructure which encourages their establishment, growth and continuity if they so desire.

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Micro finance

Reuben Buttigieg is Managing Director of Erremme Business Advisors and President of the Malta Institute of Management.

Narrowing the generation gap How can young entrepreneurs gain further representation in the business community, asks Reuben Buttigieg.

M

icrofinance, mutual guarantee schemes and crowdfunding are three financial instruments that could very well be the solution to the economic crises in many EU member states. In fact, the European Economic and Social Committee has, on various occasions, recommended to the European Commission to look into these instruments.

In one of its opinion papers, the EESC states that, “Hybrid capital that presents an alternative to bank lending must be boosted as well. The emergence of new financial actors must be supported, as must be that of new intermediaries providing both innovative financial solutions and business advice. Crowd funding is a good example to mention and participative banking could be another option to take into consideration.”

The EESC adds that, “The encouragement of microfinance and more specifically that with specific investment policies on the lines of Shariah microfinance could also give rise to new entrepreneurial activities whilst helping to fight poverty in certain regions. In this context, a Commission

communication envisaging, addressing and encouraging alternative financing methods should be developed to ensure that these are on a level playing field with financing methods such as conventional finance.”

Tailored forms of hybrid capital containing elements of grants, equity and debt capital (such as profit sharing loans) should be strengthened, because they suit SMEs and micro-enterprises better both in the early stages and throughout their life cycle.

The issues continue to increase in importance particularly when it comes to youth employment and youth entrepreneurship. This to the extent that the European Commission is trying to take various actions in order to address this. Regrettably, once again these instruments have not entered into the list of solutions. However, this does not prohibit the individual member states to take them on board as the specific measures to combat youth and female unemployment.

From the recently published official employment statistics, it is evident that Malta has an increasing number

of unemployed youths, particularly male youths. One could come up with various arguments regarding youth unemployment, including skills mismatch. However, there is presently a lack of publicly known accurate and systematic data on youth. Such statistics would enable Malta to identify the weaknesses and the potential of our youth and perhaps encourage and assist them in finding alternative ways to be employed.

Various studies in the UK have identified a number of important factors in the promotion of youth entrepreneurship – these include the creation of employment opportunities for both the self-employed youth as well as other young people.

Other benefits are that enterprise might help youth develop new skills and experiences that can be applied in other sectors and to many other challenges in life. In an era of promoting innovation, youth enterprise needs to play an important role. It is no news that younger generations are normally more creative than older generations – it has always been like that and it will probably always be.

Although research has not as yet been carried out in this sector, it is clear that youth entrepreneurs are currently facing particular difficulties.

Young people tend to start their enterprise with lower levels of initial capital than older business people. This may be attributable to the fact that these face larger problems of access to resources such as finance. This in itself may lead to other lack of resources, such as space. For instance, more young people tend to operate from homes.

Another major problem which our youth entrepreneurs face is the lack of a network of contacts. Studies in other countries have identified that youths tend to bring less contacts to their enterprise then their older counterparts. There may be two reasons for this: first is a lack of aggressiveness and stamina from the youths themselves; and second is a business community that is doing its utmost to keep young newcomers out. Whatever the reason, in Malta youth entrepreneurs seem not to be represented in the business community.

How can these financial instruments assist youth entrepreneurship?

Money / Issue 20 - 21

Micro finance

Banking

The merits of cash in your portfolio Microfinance invests in small projects and in small sums which would not particularly interest larger funds.

We have seen various success stories in this area such as Grameen Bank whose founder Muhammad Yunus is a Noble Prize winner. Unfortunately the existent legislation does not facilitate the creation of such funds or banks. Authorities like the Malta Financial Services Authority should be more forward looking and find ways how to encourage the creation of such funds. So far local authorities certainly did not give the right message to this kind of funding.

“In an era of promoting innovation, youth enterprise needs to play an important role.”

Another option is crowdfunding, which seems to be working in other jurisdictions but not in Malta, where there are a number of legislative issues. This is due to lack of appropriate legislation in the financial services and also apparently VAT issues created solely and exclusively by Malta. Crowdfunding is the collective effort of individuals who network and pool their money to support efforts initiated by other people or organisations. Crowdfunding is used in support of a wide variety of activities including village initiatives. This could also be done online. Malta is not new to crowdfunding, perhaps not in a manner that finances business and enterprises but certainly in other initiatives. However, these were never official and hence our legislation does not seem to cater for this.

Mutual guarantee schemes may be another instrument that can assist access to finance. Mutual guarantee schemes member organisations support healthy organisations and ideas with a sound business project – these organisations would otherwise not be able to access loan finance due to a lack of collateral and own funds.

By granting a guarantee, guarantee societies provide a substitute for the missing collateral and allow the credit institution to grant the loan by sharing in the default risk. Government should encourage and incentivise such schemes in Malta.

In Malta we certainly need to take these instruments on board. We are still suffering from the old coach syndrome of playing the game with old winning strategies and failing to understand that the game is different for such strategies to work.

22 - Money / Issue 20

Holding your money in liquid form means keeping it in cash or investments that are easily converted to cash. In an investment context, the definition of cash expands to other types of cash investments, including short-term investment vehicles such as money market funds, treasury bills, corporate commercial paper and other short-term securities which are on the lower end of the risk scale.

There are three main reasons why investors should ideally allocate a portion of cash or cash related investments in their portfolio. First is liquidity. It measures the extent to which individuals have cash or assets that can be quickly converted into cash to meet immediate and short-term commitments. Unlike the emergency reserve, which is intended for just-in-case purposes, think about cash set aside to cover known commitments, as money that is already spent.

than long-term bonds. In fact, cash investments are meant to be the more defensive part of a portfolio. That may seem counter-intuitive given the low rates of return on cash, but cash provides flexibility when markets come under pressure. Cash should be more about safety than income or risk for higher returns.

There are various vehicles for holding cash such ascurrent or savings accounts, with immediate access to funds, to meet the day-to-day expenses.Fixed term deposits and treasury bills provide a medium to longer-term alternative. These investments are likely to be less liquid than a savings account and consequently the ideal maturity of T-bills or short-term contracts should match that of the obligation.

An alternative can be cash funds.

Money market funds invest in shortterm debt instruments. They are actively managed within transparent Money reserved for short-term guidelines and offer security of capital, commitments should not be invested liquidity and competitive sector in the stock market. Instead, it should related returns. be kept in cash, cash investments, or Cash funds are highly liquid, so it is short-term investments with minimal easy to withdraw your cash when you risk to the value of the capital. need it. Thus the funds tend to attract Second is flexibility. By holding a investors who need to park cash for proportion of your portfolio in cash, short periods of time. you can take advantage of investment Managed by Valletta Fund opportunities.Particularly, in times Management Limited, the La Valette of volatile markets, investors may Euro Malta Money Fund provides opt for a little more cash. Even for investors the opportunity to achieve ultra-aggressive investors, a modest an attractive rate of return on cash cash allocation provides investing balances, while ensuring a high level ammunition when short-term market of liquidity for investors. As at July volatility reveals attractive valuations.

31, 2013, the fund size was in excess Being fully invested has its benefits, of €723 million. The fund offers a however it restricts investors from retail and an institutional class with responding quickly to market a running yield of 1.0346% and opportunities. In addition, a cash 1.1446% respectively*. allocation can provide flexibility to rebalance your portfolio.

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Third is stability. Historically, cash mt. Alternatively, you can visit any investments have been less correlated to other asset classes. Cash investments Bank of Valletta p.l.c. branch or your licensed financial intermediary. are, on average, far less volatile *Running Yield as at July 31, 2013 is net of the fund’s fees and expenses. This yield, which constitutes the income that the assets of the fund generate in relation to their value or market may vary and are not guaranteed. Past performance is not a guarantee to future performance.

The value of the investment may fall as well as rise. Investments should be based on the full details of the prospectus, which may be obtained from Valletta Fund Management Limited, Bank of Valletta branches and other licensed financial intermediaries. VFM is licensed to provide investment services in Malta by the MFSA. The La Valette Funds SICAV plc is licensed by the MFSA. Issued by VFM, TG Complex, Suite 2, Level 3, Brewery Street, Mriehel BKR 3000.

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Bonds

Mark Vella graduated with Honours in Banking & Finance and started his career as a senior investment officer at one Malta’s largest banks, later on becoming an investment manager on Fixed Income and Structured Products. He moved to Calamatta Cuschieri as Head of Treasury Operations and also managed Calamatta Cuschieri’s proprietary fixed income portfolio. As Investment Manager, Mark acts as a voting member on various Investment Committees entrusted with the management of UCIST collective investment schemes. Mark is currently Co-Investment Manager of the Calamatta Cuschieri High Income Bond Fund – EUR and Calamatta Cuschieri High Income Bond Fund – USD.

Limiting your exposure How will Fed tapering and interest rate expectations impact your bond portfolio, asks Mark Vella.

M

uch has been said over the summer months about if and when the US Federal Reserve will taper $85bn worth of monthly bond purchases. Some argue that it is only a matter of time while others do not appear too convinced that it will happen before year end. In the meantime, a recent Bloomberg survey shows that 65 per cent of the 48 economists who took the survey believe that official tapering will be announced in the forthcoming Federal Open Market Committee meeting in midSeptember.

What is for certain is that the debate has caused a stir in financial markets and has got market analysts re-thinking their strategies and portfolio managers re-positioning their portfolios in the wake of a major change in interest rate expectations.

But what is this Fed tapering really about? The term “tapering” began to form part of everyday jargon in the

financial markets from May 22 of this year, when US Federal Reserve Chairman Ben Bernanke stated before Congress that the Fed may taper (or lessen) the bond-buying programme (better known as quantitative easing) in the coming months. This announcement brought with it a bout of heightened volatility across all asset classes causing a stir in the bond markets. US Treasuries sold off for the better part of June and July while benchmark high-grade European government bonds and the corporate bond market also had their fair share of a market correction.

Ever since the financial crisis broke out, the world’s largest central banks have adopted a number of measures and strategies aimed at safeguarding their domestic economies which were on the brink of financial meltdown. In the US, the Federal Reserve embarked on a number of quantitative easing programmes, with the most recent one being the $85billion worth of monthly

bond purchases – this effectively means that the Fed is expanding its balance sheet by pumping $85bn worth into the economy.

Quantitative easing was never really intended to last forever. In fact, in previous testimonies, Bernanke had made it clear that the continuation of the programme was dependant on incoming economic numbers, namely GDP, unemployment and inflationary data. Last May 22, Bernanke stated that, “If we see continued improvement and we have confidence that that’s going to be sustained then we could in the next few meetings... take a step down in our pace of purchases.”

This was just one of many statements made by Bernanke that day. However, it was the one that received the most attention by the markets because it came at a time when investors were already concerned about the potential market impact of a reduction in a policy

Money / Issue 20 - 25

Bonds

that has been so kind to both equity and bond markets. Having said that, it is apparent from the minutes of the June FOMC meeting revealed that support for quantitative easing and Fed tapering is by no means unanimous.

To a lesser extent, the Federal Reserve is closely looking at economic data coming out of Europe and China, which numbers give FOMC members a good gauge on the state of the global economy and the pace of economic growth which could infiltrate the US economy.

As opposed to the US, yields in the Eurozone appear to be somewhat capped by growth, which remains structurally fragile. The ECB continues to be dovish providing lower-for-longer guidance while short-term political uncertainty persists, such as the forthcoming elections in Germany and political instability in Italy and Portugal.

While Bernanke’s tapering statement did not represent an immediate and obvious shift from one asset class to another, it nonetheless startled the markets. In the recovery that has followed the 2008 financial crisis, both equity and bond markets have produced remarkable returns despite lacklustre economic growth. The general consensus is that the Fed policy (and other leading central banks too) is the reason for this disconnect.

Once the Fed begins to withdraw liquidity from the market, we might well begin to see markets perform more in line with economic fundamentals, a scenario which bodes well for equity markets and not so much for bond markets.

In fact, in the wake of the Fed’s announcement, bonds sold off sharply, while equity markets began to exhibit higher volatility than they had previously. Market participants need to appreciate that tapering is not an immediate, dramatic event. Instead, it is likely to take place over an extended period of time so as to create minimal market disruption. The fact is that tapering does not represent a sudden end to quantitative easing, nor is it likely to be a steady, predictable decline. Instead, it is expected to be a bumpy process that takes place over a period of a year or more.

26 - Money / Issue 20

That leaves us with having to digest all the information thrown at us, from FOMC meetings and their respective minutes, ECB meetings, global economic data, market movements (such as interest rate movement and movement/ shifts) as well as credit spreads between the high grade bonds and high yields bonds. It is this concoction of information which forms the basis of setting market direction, interest rate expectations and portfolio positioning.

It then comes as no surprise if the large part of investors notice that the valuations of their bond portfolios have been, to the say the least, volatile since mid-May. With nominal GDP growth in the US on the rise, personal consumption showing signs of reprieve and unemployment slowly improving, the likelihood of tapering commencing sooner rather than later seems to have increased.

In view of these developments, it is of paramount importance for investors to position themselves adequately and cushion their bond portfolios for any expected volatility and possible re-pricing. In a scenario where interest rates are expected to increase, the long end of the yield curve is not where you would normally want to be, as long dated bonds are most susceptible to a market correction. Although the entry points could be deemed to be attractive, the potential de-valuations in longer dated bonds could more than offset the yield potential on the investment, rendering the risk-reward trade-off insufficient in the long term. In anticipation of steepening benchmark yield curves (since yields at the longer end of curve increase at a faster rate than yields at the shorter end of the curve) shorter dated bonds will not only offer a superior riskreward trade off but will also provide the investor the opportunity to plough back maturing proceeds in the bond market at more attractive yield levels.

Default rates remain anchored at low levels (robust corporate earnings and contained corporate leverage levels should help prevent further downgrades) and are expected to remain

“In view of these developments, it is of paramount importance for investors to position themselves adequately and cushion their bond portfolios for any expected volatility and possible re-pricing.” so as global economic activity picks up. This renders the process of stock selection crucial as we feel that from this point forward, exposure to market risk is unavoidable. It is choosing those bonds which are less volatile than the market (in a rising interest rate scenario) which will prove to be the winning formula. Having a bond portfolio laden with winners is close to impossible, but keeping a well-diversified portfolio of good credits will ensure investors are rewarded commensurately. Selectively, high yield bonds offer a decent buffer against higher rates. Despite its risk profile, the high yield market is likely to outperform high-grade bonds over the next six to 12 months but could well come under pressure in the longer run.

Going forward, we keep a close eye on the forthcoming ECB meeting on September 5, 2013 and more importantly 18 September to take cue on where the markets are heading. What is certain is that the market seems to have priced in an imminent announcement of tapering in the FOMC’s 18 September 2013 meeting (a reduction from $85billion to $70-$75billion in monthly bond purchases seems to be on the cards).

Anything surprising to either the upside or downside could see volatility in bond markets emerge once again.

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Insuring your luxury home Bonds

Calamatta Cuschieri is one of Malta’s largest financial services firms. The company offers a wide range of services across a variety of financial assets-these include Independent Investment Advice, Live Online Trading, Investment Management and Discretionary Portfolio Services amongst others.

Calamatta Cuschieri & Co. Ltd., Company registration number C13729 (‘CC’) is licensed to conduct investment services in Malta by the Malta Financial Services Authority.

This article is prepared for information purposes only and does not constitute investment advice or marketing communication. It does not constitute an offer or invitation to any person to buy or sell any investment or to enter into any business relationship with Calamatta Cuschieri.

This article is based on information obtained from reliable sources but which have not been independently verified.

Calamatta Cuschieri is under no obligation to update the information in this article. No person should act upon any recommendation in this document without first obtaining professional investment advice. Calamatta Cuschieri does not accept liability for any actions, proceedings, costs, demands, expenses, loss or damage arising from the use of all or part of this article.

The information in this article is valid at the time of going to print.

28 - Money / Issue 20

A sizeable portion of your wealth is invested into your home. This means that if anything should happen to it, you would want an insurance policy which is comprehensive enough to protect your investment and assist you in restoring it to its former state.

Standard home insurance policies are ideal for most homes, but they usually don’t include the coverage which owners of luxury homes require. The Middlesea Home insurance offers a broad coverage and offers you the flexibility to tailor your policy to meet your unique needs, including customised options for contents.

The Middlesea Home Policy provides coverage against loss or damage to the buildings and contents of your home including valuables such as collectibles, antiques, paintings and other works of art, jewellery, watches and furs, while guaranteeing maximum client confidentiality.

The Middlesea Home insurance comes with the added benefit

of free Home Assistance, which is a 24 hour, 365 days a year Comprehensive Emergency Service, designed to assist you in case of an emergency at home such as electrical failure, leakages or the need of a locksmith.

Invest in a policy which provides you with coverage as unique as your home, at the best possible price. A good insurance policy will help you to save a fortune tomorrow, without costing you as much today.

For more information on how you can protect your luxury home, contact Middlesea Insurance or any of its intermediaries.

Middlesea Insurance staff will be happy to assist you in drawing up the right policy for you.

Middlesea Insurance p.l.c.

(C-5553) is authorised by the Malta Financial Services Authority to carry on both Long Term and General Business under the Business Act, 1998.

COM NO 290813 779.

Marketing

It’s a two-way thing

Effective communication is not just a message in a bottle, says George Larry Zammit. Rather, it’s an ongoing conversation between the brand and its followers.

E

very brand seeks to establish a competitive advantage in the marketplace. Since the invention of the modern printing press to the evolution of the internet, communication has consistently been a critical success factor in the marketing and promotional mix.

With the emergence of digital media and devices, communication between brands and customers has become much easier, yet much more sophisticated and complex. Due to the importance of effective communication through various media, the term ‘integrated marketing communication’ was coined to manage this process.

According to Bennett and Stirology, integrated marketing communication is, “the development of marketing strategies and creative campaigns that weave together multiple marketing disciplines that are selected and then executed to suit the particular goals of the brand.”

To borrow Chris Fill’s DRIP model, effective communication must: differentiate by positioning the brand; reinforce by reminding and reassuring customers about the brand’s credentials; inform by making aware and educating customers about the brand’s benefits; and persuade by encouraging customers to take action and engage with the brand.

30 - Money / Issue 20

Your word is your promise

Consistency is essential to integrated marketing communication – whatever you say and how you say it must be communicated consistently through all media channels you use. As in product packaging and graphic design, communication must be identical from all touch points reaching consumers.

Content is king

Every brand has a story to tell – however, a compelling story mainly relies on good quality content.

Content is king and this is central to the marketing efforts of successful brands as a lot of time and resources are dedicated to create relevant and engaging content.

Would you trust a brand if its message is inconsistent? Wouldn’t that effect your perception of the quality and reputation of the brand? Trust is built through consistency so make sure that your brand values are clear and not misunderstood.

Be truthful to what the brand wants to be. Communicate in a reliable manner to ensure you are taken seriously. Most importantly, keep it simple and easy.

The phrase ‘content marketing’ has been coined to continue promoting the role of content in delivering effective communication. Content is not only a set of photos or artwork – it could be a video clip, article and other assets which express and evangelise the brand story.

According to the Content Marketing Institute, USA, content marketing is, “A marketing technique of creating and distributing relevant and valuable content to attract, acquire, and engage a clearly defined and understood target audience – with the objective of driving profitable customer action.”

Thus, it is not surprising to note the recent transformation of marketing departments from advertisers to publishers. Traditional advertising no longer has centre stage in a brand’s campaign. Ongoing two-way communication between the brand and its followers (customers) needs to be maintained and managed. This is how communication goes viral by disseminating the right content to customers. Customers become ambassadors and help in spreading the word. Nothing beats word-ofmouth marketing.

Focus on your target audience

Who really bothers with what you have to say? Do you really know with who you are communicating? Knowing your audience means that your communication will be more successful.

Communication has become an organic conversation between brand and customers. There are many types of customers out there willing to interact with the brand – however, not all customers intend to interact with you in a positive manner. Constructive criticism is a reality and it is here that brands make the quantum leap in creating an open and candid conversation with its customers.

Find your audience. Target cleverly.

Make the pitch and may the conversation begin.

George Larry Zammit is Marketing Manager at Arkadia Marketing Limited and an affiliate member of the Chartered Institute of Marketing.

Fashion takes flight The Boss Store Malta located beside Gate 1, Departures Lounge, Malta International Airport has just re-opened following recent renovation works.

The revamped store features a selection of fine shirts, ties and leather accessories in addition to the BOSS Green and BOSS Black casual clothing collections.

Be in the right place at the right time

What’s the use delivering a sermon in an empty cathedral? Where’s the fun in organising a party when nobody can come? Why bother putting up a poster in a dead alley? Don’t you want to hang out and mingle where the crowd is?

You have great content. Your reputation and integrity are intact. You know who you are looking for. Finally you need to ensure you are in the right place to start shouting out your message. As it might sound complex, this is actually where the fun begins. This is where your endeavours start to set in motion.

Nowadays, there are so many communication channels to choose from.

From traditional to digital channels, the most important factor is selecting the right mix of channels which will sufficiently reach your target audience. All this of course within the limitations of your budget. This is where your communication becomes integrated. This is where it all comes together.

Certainly the size of your marketing budget makes a big difference in how widespread your campaign is. That

said, digital channels have made communication more frequent, cost effective, and efficient than ever before.

Digital communication does not start and end with Facebook. There are many more channels to utilise especially when one considers the rapid increase in smartphones, tablets and other portable devices. Therefore, do not underestimate e-mail, apps, and RSS feeds. Other social and professional networks should be considered such as Twitter, LinkedIn, Google+, and Instagram amongst others.

Also Google products such as Adwords, Maps, and remarketing lists should not be ignored.

Still, you need to stay focused on the customers you want to target with your communication. Integrated communication does not mean that you have to be everywhere for everyone.

After all the definition of the word ‘integrated’ is the combining or coordinating of separate elements so as to provide a harmonious, interrelated whole.

Therefore be an effective communicator by presenting engaging content in a consistent manner to the right customers at the right place and time.

The latest Boss Fall 2013 Collection is available in store.

The Boss Store at MIA is open Monday to Sunday from 06:00 22:00 hrs. For more information call on +356 2202 1003.

I’ll have mine with ice Polaar Icymagic eye roll-on combines Siberian Ginseng which instantly restores tone, radiance and vitality, with Tetrapeptides, which provide help to maintain elasticity to the eye contour area.

The massaging bead applicator provides a refreshing effect and reinforces the draining action contained in the formulation to avoid the appearance of dark circles and puffiness. Proven results indicate users experience a decongested eye contour and the reduction of dark circles within 15 days of regular use.

Money / Issue 20 - 31

what

a great combination your firm benefiting from membership to FinanceMalta Membership advantages include: Company profile on our website • Participate in webinars & podcasts • Opportunities to showcase your firm • Business networking & educational events • Access to market intelligence reports & branded marketing materials • Complimentary passes to some of Europe’s most important financial services events • Opportunity to take part in road shows, press briefings, workshops and educational clinics •

more information on:

www.financemalta.org/register

Scan QR Code

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with your smartphone

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FinanceMalta

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FinanceMalta

FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - Malta | info@financemalta.org | tel. +356 2122 4525 | fax. +356 2144 9212 FinanceMalta is the public-private initiative set up to promote Malta’s International Financial Centre

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Integrated Business Solutions Seamless integration between finance and operations is key to the success of any business, says John de Giorgio, Managing Director of Shireburn Software Limited.

How does the integration of company systems with finance contribute to business efficiency?

The integration of company systems with finance is today a necessity in the efficient operations of any organisation, large or small, be they inventory, retail, payroll, distribution, production, sales and e-commerce.

The Shireburn Financial Manager (SFM) provides high levels of integration with an array of other business solutions within the Shireburn Business Suite (SBS). These have all been developed specifically for the local market, with usability, practicality and automation at the core of all systems. This level of integration and automation greatly reduces duplication of data entry, effort and error.

Do your products also contribute towards business expansion?

All Shireburn solutions are scalable from small one-man operations to larger corporations alike. Our systems are therefore not cumbersome for a start-up or small operation, but can also grow as the business does, both in size and operations. With each system developed, our aim continues to be to enhance business operations, make them more efficient, saving them time and money.

As a business expands through new channels of operation and new markets, the required Shireburn solutions or modules can be “plugged in” to continue to ensure full integration throughout all business operations.

New points-of-sale are installed for new outlets, and a Business Intelligence (BI) module for retail operations can be installed in order to continue to have a clear view of performance within multiple outlets, categories, sectors, etc.

As small distribution operations expand, the Shireburn Distribution module can be implemented to assist distribution operations by enabling the processing of sales orders, the allocation of items to routes or vehicles for delivery, and reconciliation following the completion of a trip. It also includes other functions that are otherwise labour intensive and require user intervention and duplication of data entry.

The Shireburn solution also encompasses specific modules created for salespersons on the move – the Shireburn Tablet Solution. These modules allow salespersons to access, from their tablet, client information and history, and process sales orders on the move without having to return to base.

Does this also address business needs when expanding to e-commerce?

Whether taking your business online is a milestone, or whether the time has come to replace your existing online store with a more integrated solution, e-commerce operations can only offer a smooth running solution with high levels of integration in place, primarily with finance and inventory.

This allows real time quantity checks, online orders to be automatically processed as sales orders, sales to integrate to accounting and much more.

The Shireburn eStore solution allows our clients to take their business online and use a platform that readily and directly integrates with our finance and inventory systems.

Information is power – how do Shireburn solutions help businesses use data to achieve continuous improvement?

The full integration of the Shireburn business solutions enables the collection of data from the various functions and the analysis through BI dashboards and reporting. This allows for easy performance analysis and assessment of KPIs. Management can now get the information they need at the touch of a button on any web browser and tablet.

What about integration with back office operations?

Our solution allows payroll functions, vacation leave management, time and attendance and other HR management functions to be fully integrated with our accounting solution.

In particular, payroll is directly integrated with SFM, such as with P&L and bank reconciliations. Once again, this automates the process and provides one point of data entry.

For more information and demonstrations contact Shireburn Software on 2131 9977, sales@shireburn.com or visit www.shireburn.com

Money / Issue 20 - 33

Finance

A growing sector Malta has established itself as one of the safest and best run financial centres in Europe, says Bruno L’ecuyer.

Photos by viewingmalta.com

M

alta has emerged as a leading onshore international financial centre in the Mediterranean with a leading position based on its close proximity to Europe and European institutions, sophisticated communications infrastructure, sound investment-oriented legislation, solid regulation, world-class professional services and a highly qualified financial community. Malta is an EU democracy, with an accessible top-tier and a single regulator, the Malta Financial Services Authority.

The new government is committed to providing an investor-friendly environment, encouraging foreign investment and ensuring that Malta maintains a reputation for being a wellregulated jurisdiction for the conduct of international finance.

Continuity in the development of Malta’s international financial centre lies in the role that FinanceMalta plays, consulting with government, regulator, stakeholders, professionals as well as the local and international industry, travelling the world to keep Malta positioned in a relevant way for practitioners. We seek to support operators at every level and have developed many channels to communicate advantages that the jurisdiction enjoys which make it attractive in several segments: banking, insurance, funds, trusts and wealth.

FinanceMalta’s recent annual conference attracted heavy attendance from the EU’s investment community and from around the world. The conference featured speakers from the European Central Bank, government, MFSA, economic ratings houses such as Bloomberg, The Financial Times,

34 - Money / Issue 20

leading hedge funds, investment officers, investment consultants, family offices and professional practitioners. Moreover, Malta was the leading country in attracting monetary financial institutions within the eurozone throughout 2012, according to a recent statement by the European Central Bank.

Stability and standards are key. Malta offers a compelling lifestyle and its banks were given a clean bill of health in midJuly by the International Monetary Fund.

With a population of just over 420,000, Malta’s economy is based for the most part on tourism, ICT and international financial services. The gross value added contribution the sector makes to the economy both directly and indirectly is estimated to be moving towards 15 per cent of the GDP and directly or indirectly employs about 10,000 people.

Having won international respect for the excellence of its financial services industry and establishing itself as one of the safest and best run financial centres in Europe, Malta’s legal and regulatory framework now holds major appeal.

Financial services reduce the country’s economic vulnerability and is a longterm strategy to penetrate international markets for foreign direct investment.

With year-on-year growth we believe that our advocacy of the jurisdiction

will assist in creating a climate conducive to high quality. Moreover, the World Economic Forum’s Global Competitiveness Index 2012-1 placed Malta at 15th out of 144 countries in the league for financial market development.

In order to encourage the growth of the Maltese financial services jurisdiction and become increasingly competitive in attracting foreign direct investment, successive Maltese governments have sought to conclude double tax treaties with important trading partners and emerging countries. Treaties are in force with 70 countries – this year agreements were signed with Russia and Azerbaijan, while last year we signed a bilateral tax treaty with Switzerland, amongst others.

These international fiscal arrangements are aimed at preventing double taxation and fostering a productive spirit of co-operation between the Maltese tax authorities and their international counterparts. They also act as a formidable deterrent against fiscal evasion. The role which these treaties play within Malta’s tax regime is of paramount importance, since they often succeed in providing legal clarity and flexible solutions to a wide array of issues frequently encountered in the world of cross-border trade and global finance.

The OECD Model Convention is followed

Bruno L’ecuyer is Head of Business Development at FinanceMalta, the public-private initiative set up to promote Malta’s International Financial Centre.

as a basis in the negotiation process. Any negotiations begin as a process to update or amend the OECD’s Model Convention, a clear element in Malta’s standing as a quality onshore EU jurisdiction.

One by-product of this competitive approach is avoiding brain drain from Malta. As the opportunities in the financial services sector are among the best-rewarded jobs available, FinanceMalta is working with stakeholders to ensure that more qualified individuals enter the industry as it grows. FinanceMalta has been involved in various initiatives to ensure that Malta has the right talent and qualified employees in the financial services industry – this is crucial for the industry to grow and compete globally.

The demand for talent continues to grow with new players entering the market with the issuance of new licences in a number of key categories.

FinanceMalta expects greater demand for talent in the financial sector as both existing and new players continue to expand their operations using Malta as a base for operations. In particular, the demand for talent is on the rise in insurance, wealth management, compliance, and corporate services.

personnel to date. The ILS is involved in high level training for senior staff, while the IFSP aims to elevate and advance financial knowledge to make Malta more competitive. Human capital development and training for finance received a boost with the recent establishment (via the Malta Funds Industry Association agreeing with the University of Malta) on the launch of elective funds related 14week courses starting in 2012. In addition, a three-month programme on fund administration originally launched by the Institute of Financial Services has now turned into a two-year diploma offered by the University of Manchester.

To date, almost 2,000 graduates have completed finance-related courses at the University of Malta since 2006, and over 700 have enrolled in MCAST’s Diploma in Banking and Financial Services. The big picture is to equip participants with skills and qualities desired by employers.

“

and developing relationship building with intermediaries and holds many briefings for visiting delegations with presentations on key Maltese financial services centre characteristics, status of international initiatives and principal changes in product legislation. This is bolstered by extensive global conference participation, sponsorships, exhibits and presentations.

We are seeing substantial demand from a number of hedge fund managers who are choosing to shift their operations to Malta in response to the rising costs of business and the growing regulatory burden in their domicile. Malta is emerging alongside London, Geneva and Luxembourg, as another European location for fund managers keen to maintain flexible operating arrangements.

Positive coverage by both Bloomberg and The Financial Times further reinforced this interest. The net asset value of the 443 locally based Collective Investment Schemes stood at almost €10.5bn at the end of December 2012.

Shireburn Business Suite

One big family.

At the junior level there’s a shortage of personnel entering the financial services employment market. Salaries in many segments of the industry are on the rise. This sector remains a major source of employment. Ensuring a sufficient supply of skilled human resources to meet the expected continued expansion The MFSA and FinanceMalta play an of the sector remains a challenge. important role in facilitating the training FinanceMalta has recently developed of new graduates in the financial services its Finance Jobs section on its website to industry. The MFSA’s financial services promote its members’ vacancies related careers portal: http://careersinfinance. to finance and to create more visibility of mfsa.com.mt helps young people plan a the opportunities that exist for students. career in the financial services industry This would hopefully encourage more in Malta. Other institutions have also students to take up courses related to played their part in raising awareness this growing sector. POINTOFSALE PAYROLL/HR including MCAST, MITC, IFS, ILS, MIM, IFSP, STEP, IoD and MIA have provided FinanceMalta is leading the deepening training for over 2,000 mid-skill level of international outreach by supporting

Politically stable with English as one of the island’s official languages and 330 days of sunshine each year, Malta is becoming a destination of choice for individuals, assets and business and provides one of the highest quality lifestyles in the region. Excellent private schools, safety and a buoyant property market underpins the Mediterranean lifestyle, coupled to daily international connections to Europe, Africa, the Middle-East and Asia. This makes Malta continually attractive as the domicile of choice in the region.

INVENTORY

ACCOUNTING

For more information visit www.financemalta.org

The Shireburn Business Suite allows you to better manage your business processes, leverage information and monitor performance.

No business is too small or large for our solution - a scalable software that allows you to implement single modules as well as the

Secure your business entire suite. The SBS is a multi-channel solution offering support for retail, wholesale, distribution, salesperson’s tablets, payroll and Every business, however large or small, has critical data that needs to be secured and backed up. Data loss through hardware failure, theft, loss or a full e-Commerce offering, all integrated into your Shireburn accounting and inventory systems. other damage can be costly and inconvenient and while many companies back up their data to tape, an automated off-site back-up solution provides an additional level of security for little cost.

Get in touch to view a demo and discuss your requirements.

In the event of data loss, Shireburn Vault will allow you to simply download your data or, in the case of a major disaster, have a technician deliver your data on external media right to your door within hours of the data loss event. Shireburn Vault is a cost-effective risk management solution that enables companies to address e-security and business continuity issues.

1983–2013

30

Try the Shireburn Vault 30-day free Trial for business data back-up with no obligation – visit www.shireburn.com/vault and register today. For more information visit www.shireburn.com/vault or contact the Shireburn team on +356 2131 9977 or sales@shireburn.com

shireburn.com/sbs I 2131 9977

YEARS

Money / Issue 20 - 35

Shireburn Business Suite

One big family.

PAYROLL/HR

POINTOFSALE

INVENTORY

ACCOUNTING

The Shireburn Business Suite allows you to better manage your business processes, leverage information and monitor performance.

No business is too small or large for our solution - a scalable software that allows you to implement single modules as well as the entire suite. The SBS is a multi-channel solution offering support for retail, wholesale, distribution, salesperson’s tablets, payroll and a full e-Commerce offering, all integrated into your Shireburn accounting and inventory systems.

Get in touch to view a demo and discuss your requirements.

shireburn.com/sbs I 2131 9977

1983–2013

30 YEARS

Banking

Your savings partner

FCM Bank is inspired by transparency, honesty and integrity, says Luke Calleja, Financial Controller, FCM Bank.

Photos by Marc Casolani.

have no hidden costs or charges.

Where does FCM invest its funds?

FCM is building a quality investment portfolio mainly made up of fixed income bonds predominantly based in the EU. Our investments are well diversified in terms of geography, industry and sector.

FCM Bank started operating in June 2012, which means you are still a fairly new entrant. Is this an advantage or a disadvantage?

Being one of the newest players to join the other banks in Malta has its challenges.

The main advantage is that having a blank canvas has allowed us to design all our processes with our clients’ modern day savings needs in mind by focusing on flexibility within a sound regulatory framework. We also have no troubled assets following the banking crisis. While having a strong control framework, we have also managed to achieve a high degree of flexibility.

The disadvantage of being new is getting our ‘voice’ heard over the noise of the other banks. Moreover, the same amount of national and EU regulation applies to larger banks as well as to relatively new banks such as FCM. While this exerts a significant administrative burden, it also translates into a high degree of trust and confidence that our clients have in us.

A strong regulatory framework is also what gives the local banking industry such high standing on an international level. This

has been confirmed by the European Commission and the International Monetary Fund in their recent reports on Malta which have both given Malta’s banks a clean bill of health. FCM is proud to be part of the local banking industry.

FCM operates in a competitive landscape. How has FCM differentiated itself in the industry?

We are a fully licensed bank and yet we consider ourselves a savings partner rather than a traditional bank and our relationship with clients reflects this. Banks in Malta compete on a number of fronts including product offerings, accessibility and brand with less focus on pricing and interest rates. We are a specialist focusing on savings products and in particular on fixed term deposits. Being a streamlined operation with very low operating costs has allowed FCM to offer highly preferential rates.

We are seeing an increased interest in our products. This is due to the fact that people are saving more generally as well as specifically as a result of how we communicate with our clients. We are very transparent when speaking to our clients – for instance, we

FCM boasts a strong financial position with low leverage, high liquidity and high capital adequacy ratios.

What corporate governance and risk management does FCM adhere to?

FCM has set up a strong corporate governance and risk management framework based on best practice principles and in line with all regulations. The overarching aim is to protect the interests of all stakeholders, particularly our depositors.

FCM adopts a robust governance framework with a bank-wide risk management approach, tailored to suit our requirements while taking into consideration the Principles on Internal Governance issued by the European Banking Authority and implemented locally by the MFSA. FCM’s governance structure is based on three lines of defence with well-defined lines of responsibility split between functions owning and managing risks; functions overseeing management of risks; and functions providing independent assurance in relation to risks.

Having such a structure in place means that the interests of all stakeholders and particularly our depositors are

safeguarded at all times, while additional protection is also afforded to depositors through the Depositor Compensation Scheme which FCM Bank forms a part of.

FCM has recently celebrated its first anniversary. What is your current strategic focus?

We are in the process of launching a revamped website with an electronic application form to make it easier for clients to sign up. We are also focusing on identifying a cutting-edge banking platform that will best suit the needs of all stakeholders involved.

All these are being actioned while at the same time we are expanding our existing customer base.

What about the future goals of FCM? We benefit as a result of Malta’s sound fiscal policies, established regulator, local talent and political stability.

The investment in the local financial services sector over the past decade has helped attract investors and other entrants in the sector.

Our aim is to become a household name in Malta and for FCM to become the Number 1 for direct savings in Malta. While our main priority is the local market, FCM will eventually look to utilise its market knowledge to expand overseas and fly the Maltese flag proudly.

Since we are a Maltese bank, we also want to continue giving back to society through our corporate social responsibility programme.

FCM Bank wants to be like Malta – looking at establishing itself on a longterm basis by pursuing steady and well-planned growth.

Money / Issue 20 - 37

Market Report

Climbing the great wall Why does a 7.5% growth rate in China mean bad news, ask Chris Grech and Calvin Bartolo.

Source: Societe Generale Cross Asset research

T

he growth rate in China is declining but while a two per cent growth in Western nations is good news nowadays, a 7.5 per cent growth in China roils the market. Why? Chinese consumers spend only 36 per cent of GDP compared to 50 per cent in most other Asian countries and 70 per cent in the US. Domestic spending in China is subdued because in a Confucian culture, households feel responsible to provide for their family’s education and medical costs especially when there is no meaningful welfare state in place.

Saving is good. The Chinese are only allowed to save with local banks and in turn these use deposits to finance loans to build factories and infrastructure.

Indeed, the largest component of GDP in China is capital expenditure. According to Societe Generale, 50 per cent of the nation’s output is invested in capital expenditure, a rate far higher than other

38 - Money / Issue 20

emerging countries. High returns also encourage capital formation. China has an abundant labour supply which keeps the price of labour low and Chinese exports are cheaper because the currency is ‘managed’.

These dynamics create an excellent environment for capital formation, which in turn increases productivity and GDP in the future.

China invested even more since 2008.

Fuelled by the $585 billion fiscal stimulus programme rolled out in 2009, capital expenditure increased at a rate faster than the other components of GDP (see Chart 1). The purpose of the stimulus package was to minimise the impact of the global financial crisis on China. Its stimulus package was double the 2009 US $787 billion fiscal stimulus package when one takes into account that the size of the US economy is three times larger than that of China.

The programme was successful in terms of growth figures. According to the World Bank, China registered a growth of 9.2 per cent in 2009 and 10.3 per cent in 2010. The downside to this huge stimulus packet is that Beijing pumped money in an already overheated economy.

The programme focused on infrastructure projects and rebuilding areas damaged by the Sichuan earthquake. State-owned banks funded the projects and state authorities chose the interest rate and picked the beneficiaries. Central planners dislike the private sector as they perceive it as a threat to the wellbeing of state-owned entities. For this reason, the state-owned companies receive easy bank loans while private companies are simply cut out.

The stimulus package set out the allocation for each type of investment and local governments and state companies went on a borrowing spree

Chris Grech and Calvin Bartolo are co-founders of blackdigits.com.mt, a financial website which allows users to analyse the financial statements of local listed companies. Data is available for free. The aim of blackdigits.com.mt is to create a community-based website where users may share their views and knowledge on companies listed on the local market.

to fund these projects. State planning invariably misallocates resources and we are sure this happens in China too.

Indeed, reporters speak about vast areas of unoccupied housing, rarely used bridges and roads leading to nowhere.

Investment in capital assets has propped up the Chinese economy but is now its Achilles’ heel. A build up in inventory occurs in every boom. The last financial crisis was characterised by the construction of excess commercial and residential property. Excess kilometres of railways were laid during the railway revolution and the same happened with fibre optic in the dot.com bubble. To make matters worse, a large portion of recent growth in China has been undertaken by an inefficient public sector financed by state-owned banks lending injudiciously.

The IMF estimated that in 2011, China had 40 per cent of excess capacity in the manufacturing sector. When excess capacity meets cooler demand after a long price rally, the bubble bursts. Buyers postpone purchases when demand drops and they continue postponing purchases when they realise prices will go down. This is what worries markets when GDP growth starts declining.

The second problem with weak growth in China is that growth rates lower than six per cent will not sustain the rate of migrant workers moving from rural to urban areas. Property prices have soared on the expectation that this shift will persist for many years – but if GDP growth rates plunge, less people will migrate to cities and pressure on property prices will mount even further.

The rate at which capital investment in China has grown is not sustainable and must start increasing at a lower rate.

Indeed, we are pretty sure this is already happening and the signs are quite evident. Australia, an economy that boomed from the sale of raw materials to China used for its infrastructure projects, is cooling down and the Reserve Bank of Australia is contemplating an

interest rate cut at the time of writing.

Prices of copper and other raw materials are also down.

Irrespective of what China is reporting in its GDP growth figures, capital formation in China must have gone down and in any case, will go down once the stimulus package runs out.

If capital investment accounts for half the nation’s output and was the main component driving growth, a decline in capital formation means weaker GDP growth figures.

“When excess capacity meets cooler demand after a long price rally, the bubble bursts.”

China is stuck between a rock and a hard place. Capital formation needs to cool down but this would decrease output and implode the asset price bubble. A currency devaluation to export more would trigger a currency war and increasing consumption to make up for lower capital investment is difficult to attain because the middle class population is not there yet.

China has already taken measures to pick up the slack. We expect China to introduce tax rebates, add more stimulus or massage the reported figures if need be. The solution however is to decrease investment and replace it with consumption or exports so that inventory stops piling up and consumption improves capacity utility.

Net exports, as can be seen from Chart 1, is not a material GDP component in China and with weak demand in Europe and a shaky recovery in the US, it is unlikely that the western world will contribute to Chinese exports. Increasing consumption is not easy either. Premier We Jiabao told the National People’s congress in early 2010 that there is “insufficient internal impetus driving economic growth”. The middle class drives consumption because it has lots of discretionary spending – however, it is estimated that only eight per cent of the Chinese population belongs to the middle class and it will take at least a decade for that to rise substantially.

The veneration of rapid growth in China is reminiscent of the admiration for Japan back in the 1980s. Like Japan, China’s stellar growth was partly driven by an asset bubble which is likely to implode. The timing is never easy to determine but in the meantime we will feel safer if our investments are not correlated to China’s growth.

The views and opinions expressed in this article are solely of the authors and do not reflect the views of the users of the website, its affiliates or of any financial institution. This article is published solely for informational purposes and is not to be construed as a personal recommendation, a solicitation or an offer to buy or sell any securities or related financial instruments.

Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. The authors do not accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

Money / Issue 20 - 39

Technology

Of interface and ideology What’s your operating system?

According to Sean Patrick Sullivan, choosing a digital ecosystem determines your chances for happiness and prosperity even more than your national citizenship.

I

n Who’s Your City, Richard Florida – esteemed public intellectual, University of Toronto professor, and founder of The Creative Class Consulting Group – argues rather compellingly that where we live, work, and play matters more than ever.

Running counter to predictions and prognostications regarding the death of distance – an often-promised benefit of telecommuting technologies and social-media networks – Florida makes a rather plain observation, then backs it up with reams of research: people have personalities; places do too; only when they match can an individual hope to achieve sustainable happiness, prosperity, and influence.

In his conversation about geography, Florida speaks not of cities, nations or continents but rather mega-regions, zones where priorities, economies, and workforces are more important than borders, boundaries, government, or policy. It’s a game-changing approach because it forces us to recognise where we actually are, to question whether our success is the result of hard work and fair play or simply membership in clubs whose laws and customs just so happen to work for our tastes and temperaments.

May I be candid? Having lived in a wide variety of cities, I agree that (even when working from home) place is everything.

If it were not, if all that mattered was one’s ability to access the internet, then being in prison wouldn’t be all that bad, would it? However, I would go a step

40 - Money / Issue 20

further than Florida and suggest that, when strategising our life plans, we take a look at other, more metaphorical forms of geography and citizenship.

For instance, to conduct our daily affairs, we work inside one or more digital ecosystems. I’m not talking about social networks, but rather the operating systems through which our social networking happens. I’m talking about the digital interfaces, landscapes, and ecosystems offered by Apple, Google, and Microsoft.

It’s peculiar how indiscriminate we are when selecting our go-to ecosystem.

We look at specs and speeds, plans and prices, features and benefits, hype and hearsay. But rarely do we ponder what our choice of iOS, Chrome, or Windows says about us, how it confines and liberates us. Nor do most of us ask ourselves whether or not we’re actually aligned with the world views and political implications undeniably (if unintentionally) embedded in the conceptual passports for which the operating systems serve as proxy.

The following reviews are intended to start the conversation in your own head, not to mention the ones you could and should be having with your partners, vendors, colleagues, and customers.

In these critiques, I don’t bother with standard evaluative criteria but rather touch upon more subjective matters, such as narratives and alignments, design and utility, organisation and experience, implications and recommendations.

Finally, you’ll be exposed to some new ideas for each ecosystem to improve itself and make more of a positive difference in the world we share. Most of them will seem outrageous and impossible, and for good reason – they are. Still, if we’re willing to embrace the metaphor of operating system as postnational passport, then we must also be willing to look beyond the banalities of money and popularity, into the world of social dividends and political advantages.

Fortunately, there seems to be a (digital) territory for everyone. And, best of all, at least for now, we’re free to choose.

Apple

Favoured by artists, intellectuals, and other self-diagnosed progressives, Apple has maintained a think-different narrative for almost 30 years. In 1984, its Macintosh exploded onto the scene, with a Ridley Scott-directed spot borrowing from Orwell’s novel named for that same year. As is often the case when countercultural movements become too beloved and therefore too entrenched, the company’s truly innovative thrust seems to have derailed, transmogrifying the Cupertino empire into an elitist, realitydistorting, hero-worshipping tech cult whose most recent campaign, Made in California, offers a chillingly Riefenstahlesque reversal of its launch commercial.

Rather than offering liberation from a life spent watching, and being watched by, screens, Apple now seems to be content playing benevolent dictator, as the provider of those same screens, one’s clearly more captivating than one’s own

Sean Patrick Sullivan is a copy writer, content producer, and creative director. As our North American correspondent, he writes about design, culture, business, technology, innovation, and sustainability.

friends, lovers, and children. Because that soft digital glow is now a warm orange rather than Scott’s and Orwell’s cool blue, and we’re supposed to surmise that our new big brother only has good things in (Apple) store for us.

Apple’s promises of ease and elegance haven’t fared much better. While the company’s devices are well-designed and manufactured, using them has become increasingly tiresome, thanks to questionable manoeuvres such as requiring users to create, maintain, and remember not one account but two, an Apple ID that unlocks the power of iTunes and an iCloud account that provides access to a range of quite frankly under-powered and over-hyped cloud services. A loyal Apple user for years, I’m at the point where iCan’t, and I know many people who are starting to feel the same way.

If Apple ever chooses to reclaim its revolutionary appeal – or to win back the hearts and minds of the tree-huggers they lost when it was revealed that an iPhone’s lifetime carbon footprint is greater than that of a large refrigerator – options abound. First, it can publicly denounce its own planned-obsolescence strategy in favour of devices with replaceable parts that last for a decade or more. Of course, they’d have to cost more, but the lesson implied could single-handedly change the rules of engagement for consumer goods. Or, in a less controversial gesture, but one with equally instructive benefits, the company could start to chip away at the cult of ownership by offering rentals exclusively through its signature stores.

From a critical-cultural perspective, with the widening gap between what it says it is and what it actually is, Apple represents the best and worst of the luxury-goods market. Its interface, much like a Chanel suit, is lauded for its looks, even though comparisons to Microsoft and even up-and-comer Ubuntu reveal that it’s actually quite antiquated.

Ironically, Apple seems to have noticed this, dressing up its new releases in neon shades, just like Karl Lagerfeld did when he took over the house of Chanel.

While it would eat away at market share to reposition itself as what it actually is – an image- and status-based luxury brand guilty of transgressions far worse than actual houses of haute couture and perpetual indulgence (tax evasion and indentured servitude, anyone?), it would also be honest.

Google

Capitalising upon lowest-commondenominator values of affordability and convenience, Google is currently doing a magnificent job winning hearts, minds, and market share, especially in middleclass families, where resources are stretched thin, where multiple devices are the rule, and where there’s lots of reason to cry over spilled milk, at least when it short-circuits your teenager’s third Chromebook in a semester.

Still, if Apple is a luxury brand masquerading as an enlightened oasis, then perhaps it’s best to think of the privacy-redefining Google as a junk-food manufacturer, blending and extruding a cornucopia of cheap, addictive, dubiously sourced ingredients into morsels so tasty one barely notices they’re lethal. Or that they linger – just as consuming cheap chocolate tends to result in blemishes on one’s face, spending too much time working, playing, or browsing via Chrome leaves one algorithmically targeted for life, leaving no room for individuals to use the internet as it was meant to be used: to grow, to change, improve, enlighten. Alas, when it comes to Google, you’re only as good as your last key-word search. At least over at Apple, you’re still a human being, however beholden to a fetishised object as you may be. Here, at Google, you’re not even a person – you’re an input and an output.

Perhaps due to its origins as a searchand-advertising giant, Google’s offerings are saddled with a discriminating customer’s trinity of horrors: an inconsistency of interface, a dubiousness of ethics, and a deficit of horsepower. But rather than upgrade its anaemic office equivalent, which might actually result in some poor user creating something of genius, the enterprise adored by surveillance states everywhere has

chosen to invest a substantial portion of its gigantic R&D budget to Google Glasses. A natural point of departure for an organisation with shamelessly transhumanist aspirations, the Glasses project signifies a willingness to invade one’s personal space and manipulate one’s orientation to the actual lived environment, with a sort of insouciant flair perhaps best reserved for a reboot of The Matrix trilogy.

To its credit, Google’s own devices are remarkably well-named, segmented, organised, and merchandised, arguably better than either of its competitors.

Google Plus, perpetually still trying to make “fetch” happen, offers users a socialnetworking service with tremendous potential as a project-management tool for a scattered global workforce. And I’m sure there must be some sort of advertising-industry award for making family computing look as fun, dynamic, and carefree as going to the beach.

Nonetheless, Google remains an operating system and digital ecosystem best reserved for those with no money or power, no taste or style, no pride or selfprotectiveness, people who want it cheap no matter whom it hurts, even oneself.

Microsoft

I have very fond memories of Microsoft. Upon exit from university in 1994, I treated myself to my very first major purchase, an IBM (now Lenovo) ThinkPad loaded with the latest version of Windows. Organising information into a ruthless, deliriously cascading sequence of files, folders, subfolders, and so forth, the interface taught me how to cluster and categorise to stunning effect. Plus, in all its monochrome glory, it reminded me of GEOS (a nerdy high-school fascination) but with far more power.

Then, Microsoft started tinkering with Windows. That – the early 2000s – was when I jumped ship, first to Apple, then to Google, before my return to the stunning and spectacular Windows 8 earlier this year. It seemed to me then, as it does now, that the Redmond, Washington-based company thought it was speaking to the consumer market

Money / Issue 20 - 41

Technology

when it in fact had no idea, context or talent for speaking with, much less developing products and services for, anything other than information technologists.

Anyway, when I migrated back to Microsoft, it was out of necessity – there weren’t any ecosystems left for me to critique or reject. Plus, from what I was hearing, the company’s new ecosystem – consisting of not just Windows and Office but Xbox, Skype, Skydrive, and more – was entirely different from any of the gimmicky, misguided updates I had observed from afar over the past couple of decades.

Of course, because most of that intelligence was coming from tech bloggers, not always the most positive or imaginative bunch of people, “entirely different” was a nice way of saying “even worse”.

And, if you poke around, that’s still mainstream opinion on the subject of Microsoft, Windows, the Surface, and the rest of its products and services. Word on the street is that the company – and its operating system – is dead as a doornail.

But none of that is true. In fact, as someone who loves technology but only when it serves (never enslaves) humankind; and as someone who works with design, interface, and experience on a daily basis; I’m here to report that the Microsoft ecosystem may not be the most loved or the best understood, but it is the most inviting, engaging, delightful, and potentially revolutionary operating system ever brought to the consumer market.

free bottle of spirits and mixers with every 10 person booking On presentation of this advert

42 - Money / Issue 20

Why, then, does everyone seem to loathe it? First of all, not only is it a category disruptor, but it’s also a legacy disruptor bearing only a conceptual/theoretical relationship to Windows iterations of yore. Second, in the only area of the company that seems to have escaped massive overhaul and re-invention, Microsoft still seems incapable of marketing and communicating its devices and services to consumers. When you watch a commercial, you get a vision, a promise, a sneak preview of some spectacular possibility. Then, if you choose to conduct some research, you’ll find a plethora of howto videos produced by Microsoft on everything from taking notes to adding drivers. But the middle ground is quite simply missing.

Only by engaging this conversation – not by tinkering with its start buttons – can Microsoft ever hope to let the world knows what it’s offering: a bold new spin on digital citizenship.

Country Profile

IS Cuba libre?

Can a one-party state ever achieve economic liberalisation? Money focuses on Cuba.

W

e all have our own image of Cuba, built on layers of popular culture and media stereotypes. It’s the country that, frilly as a cocktail, is spiked with danger – the cruel home from which Tony Montana in Scarface, like thousands of Cubans, escapes. It’s the land where freedom is buried under romantic layers of crumbling but beautiful buildings flying Che Guevara’s proud and mythical features. All against a soundtrack of salsa Cubana and classic American cars that run on decrepit engines.

But that is just the brochure surface.

Underneath is a country that struggles under more than 40 years of US sanctions.

That is an amazing feat in itself.

Because more than anything, Cuba – like the 87-year-old Fidel Castro – is a survivor. It has survived more than 40 years of US sanctions, which were introduced with the intention of toppling Fidel Castro’s government. Moreover, the island nation has persisted despite the collapse of its one-time supporter, the Soviet Union.

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The level of government control in Cuba is straight out of George Orwell’s 1984. Ever since the fall of Fulgencio Batista’s US-backed dictatorship in 1959, Cuba has been a one-party state led by Fidel Castro and, since February 2008, by his younger brother Raul. The Castro dynasty controls the Cuban people and all aspects of Cuban life through the workings of the Communist Party, government bureaucracy and state security.

Cuba does have its success stories.

The one-time billion dollar support from the Soviets enabled Castro to build strong health and education systems – just consider that 99.8 per cent of the population is literate. And yet, its economy is stagnant because four decades of US sanctions have seriously hindered the diversification of Cuba’s economy – in fact, the largest contributors to the Cuban economy are the Cubans living abroad, who send money home to their relatives.

But in recent years, there have been some attempts at economic

diversification. Admittedly, Cuba has no choice but to generate economic growth.

The country is only kept afloat thanks to subsidies worth $5bn a year from Venezuela. This agreement was signed

by Fidel Castro and the late Venezuelan president Hugo Chavez – however, many analysts are predicting that Venezuela’s new president Nicolas Maduro will push to renegotiate the agreement.

One of the biggest changes introduced

by Raul Castro is that Cubans are finally being allowed to buy and sell homes – this comes five decades after Fidel Castro’s government expropriated all private property. Billions of dollars in property assets are now up for grabs.

Of course, there is an odd streak to this liberty – this is Cuba, after all. While Cubans can be active on the property market, property lawyers and agents cannot – in fact, they are illegal. Also, sellers caught lying about the price of property are sent to prison.

That said, relaxing property laws is good news. And it’s not just about the property – the change is about

Cuba in numbers 11.2M

The Cuban population amounts to 11.2 million.

77

Life expectancy for Cuban men is 77 years. For women, it’s 81 years.

Sugar

Cuba’s main exports are sugar, tobacco, medical products, coffee, nickel and citrus.

allowing Cubans to assume individual responsibility rather than rely on the state. In fact, Cuban businesses are now allowed to hire employees while new lines of credit with no legal ceilings are being introduced.

This is in clear violation of UN sanctions, which prevent the supply, sale or transfer of arms and material to North Korea – however, Cuba argued that the fighter jets, parts and missiles were only being sent to North Korea for repair and return.

There are also signs that Cuba is opening up to other countries. Friendly countries are helping Cuba diversify its economy – China, for instance is helping Cuba develop its own oil industry while Venezuela, even though its own economy is ailing, supplies it with cheap fuel. Russia is exploring Cuba’s offshore oil deposits, which are believed to be substantial. Even the relations with the US have eased a bit, following the election of President Barack Obama who in April 2009 said he wanted a new beginning in Cuba.

Recently, Cuba was also in the news when it refused NSA whistleblower Edward Snowden to board a flight from Russia to Cuba. Snowden eventually accepted a year’s asylum in Russia – however, the political grapevine has it that Cuba refused to assist Snowden after pressure by the US, which wants to try Snowden on espionage charges.

Of course, Cuba has maintained its naughty streak in international politics.

Last July, a ship was intercepted in the Panama Canal, with 25 containers of Cuban military equipment hidden beneath 10,000 tonnes of sugar. The equipment, which wasn’t listed on the ship’s manifest, was probably intended for North Korea.

Of course, Cuba’s economic liberalisation will take time. After all, economic growth and diversification is not just about legislation – it is also about a change in mentality. And it will not be easy or painless – at some point, unemployment benefits will have to be cut while the state sector, which employs millions of Cubans, will have to shed workers. But that is the price Cuba has to pay for spending decades in the economic freezer.

99.8%

99.8 per cent of the Cuban population can read and write.

$12,195

The GNI per capita ranges from $3,946 to $12,195.

2.66M

From 1990 to 2010, the number of tourists visiting Cuba rose from 360,000 to 2.66 million.

100,000

In 2012, some 45,000 homes were sold.Unofficially, that number is closer to 100,000.

94%

94 per cent of the population have access to sanitation facilities.

Money / Issue 20 - 45

Photography: Kris Micallef / Stylist: Carlton Agius / Model: Leslie Spiteri / Hair: Christian Pisani @ Toni & Guy Mexx blazer, €179 / Mexx trousers, €89.95 / Esprit shirt, €39.95 / Armani Jeans sneakers, €167.50

The Outdoors Type

Hilfiger Denim sunglasses, €110.00 / Armani Jeans t-shirt, €50.00 / Hilfiger Denim jeans, €129.00 / Armani Jeans belt, €85.00 Opposite: Tom Tailor Shirt €35.95 / Celio Chinos €39.99

Mexx blazer €179.00 / Mexx shirt €42.95 / Armani Jeans chinos €145 / Ecco shoes €134.90 / Carpisa holdall €49.90 Opposite: Esprit shirt, €45.95 / Mexx trousers, €75.00

Luxury

Spendthrift What do you buy someone who has it all? Money stretches its budget.

The sky is the limit

Stand up, stand out

The Breitling Transocean Unitime Pilot combines an innovative caliber featuring an ultra-practical worldtime system, with a technical look echoing Breitling’s grand tradition of watches for aviators.

The Transocean Unitime Pilot is also available with a blue dial, a polished red gold case, as well as in a 1,000-piece limited series with a black steel case and bracelet. A true aviator’s chronograph.

Black and white zebra-print ponyskin, neonpink patent leather cap toe and gold metal studded embellishment – these Christian Louboutin loafers certainly aren’t for those who will shy away from making an impact.

52 - Money / Issue 20

Two wheels good

Listen to this

Naughty games

Morgan Motor Company, which still builds cars using ash frames and hand-built coachwork, has unveiled the Morgan Two bicycle.

Combining modern technology with old-fashioned craftsmanship design, the limited edition Morgan Two is lightweight and features race-style aluminium wheels and a hand-stitched leather saddle by the famous British maker Brooks.

Designed with more than a nod to the matte 1970s, the Control V2 headphones by Eskuche are uniquely designed. The baby blue combined with the leather-looking headband and ear pads are finished with chrome accents. Brilliant.

This ultra luxe backgammon kit

by Alexandra Llewellyn Design is made from iron wood with goldplated hinges, ebony and walnut detailing, leather-lined shakers and laser cut dice. Inlaid with photographs of nude pin-ups, everyone is a winner.

Elegantly waisted

Pocket this

Carry me home

Loro Piana’s woven waxedcotton belt is trimmed with leather and finished with a sleek silver buckle. Elevate casual outfits to new style heights.

This brown crocodile bi-fold wallet by Bottega Veneta is an elegant way to keep all your essentials in order.

Perfect for weekend breaks, this luxurious, hand-crafted black and white holdall by Valextra will pack all your essentials.

Money / Issue 20 - 53

Travel

This is grand I’ll have a martini with my minaret, says Mona Farrugia as she falls in love with Istanbul.

P

eople in Istanbul don’t like their traffic but oh how they love to talk about it. They are avid users of traffic sourcing apps. They constantly message each other updates on which bridge is more packed with cars and trucks while taxi drivers take huge detours to filch a few more lira from unwary customers.

In fact, life in Istanbul revolves so much around traffic that it’s like the weather for the Brits – a constant source of stress but a favourite topic of conversation.

All of this goes some way to explain why the guidebooks tell you to never trust flat rates from taxi drivers but to go with the meter. The excuse for the cheaters is, as you can imagine, traffic.

What makes this traffic jam truly bizarre is that Turkey has the second most expensive fuel in the world, after Norway. Moreover, they pay 60 per cent tax on fuel. That’s strange, considering that Turkey is surrounded by oilproducing ‘stans. Moreover, Turkey also produces oil and has Shell, BP and Turkish Petroleum refineries.

But enough of fuel – after all, as a visitor, the traffic will not affect you as much as if you were living there,

54 - Money / Issue 20

although if you are in Istanbul on business, you can take a few half hours of transport time into consideration when going to meetings.

The city itself is utterly gorgeous and for the first time in many years, upon my return to Malta, I instantly wanted to board a flight back to Istanbul. Visually, Istanbul is like our Valletta, albeit on a much larger scale – it combines vintage charm with contemporary liveability. It’s thrilling yet safe – there are no pickpockets, no jostling and hardly any beggars anywhere. The old areas may be packed with people, trying to sell you everything from tea to leather, yet it isn’t the assault on the senses of, say, Marrakech. Architecturally it is similar to Maltese towns and cities, with minarets instead of steeples and domes, the buzzing Bosphorus instead of the Med. The Turks, though, use their buildings more wisely and dedicate rooftops to bars and restaurants which enjoy astounding views.

Istanbul is extremely relaxed. These people invented cafés as we know them today and appreciate caffeine-fuelled conversation. I spent hours at my favourites, drinking coffee and, in the evening, champagne and martinis. It is a Muslim city, but very liberal. The test

of any predominantly Muslim country is a visit during Ramadan – I’ve been in Tunis, Cairo, Marrakech, Tripoli, the UAE and even Kuala Lumpur during Ramadan and been hassled and stressed out. But in Istanbul, I was able to drink wine whenever I felt like it, instead of when religion dictates. And you can wear whatever you like, including shorts. In fact, as far as clothing was concerned, I could have been in Malta, without the muffin tops.

Moreover, the people in Istanbul are no show offs. Even along the Bosphorus, where Jaguars, Mercedes, Audis and Beemers triple park as their owners enjoy extended brunches on a Sunday afternoon, there is no look-at-me behaviour.

So stylish is this town that it feels much more European than Malta is.

There is a thriving middle class which contributes economically, buying local designer clothing, eating out regularly and drinking at clubs. The restaurants they frequent are of a truly high level, the food extraordinarily good in most cases – fresh and inventive. From the simple lunch of fire-scorched kebabs near the entrance to the Grand Bazaar to the outstanding meal on the top floor at Mika, you will be hard pressed to have bad food anywhere.

Where to stay Food and travel writer Mona Farrugia edits www.planetmona.com and runs Angelica in Valletta. www.angelicamalta.com

What to do in Istanbul Take a Bosphorus cruise.

Find a short one unless you really like spending hours on a huge ferry with loads of people and weak coffee. The weekend sunset cruises will stop you at seaside restaurants.

There are bookshops wherever you look, a clear sign of a reading nation.

They are all individual, rather than international, bedecked in beautiful woods and brass. And most of them have a cat welcoming you in.

The cat situation in Istanbul is heartwarming. It feels as if any outlet has its own charming, longhaired mascot guarding its door. I found myself stopping and petting them regularly, bonding with the owners over their cats’ stories.

Istanbul is wonderfully green. Not that fake greenness of water-sucking turf on roundabouts but with huge, 100-yearold trees lining every single avenue. It is also very blue and a day at the pool of the Four Seasons Bosphorus hotel will open your eyes to the sheer spectacle of the strait connecting the Black Sea and the Sea of Marmara. From tiny boats bopping up and down, to the gorgeous yachts dropping owners off for coffee to the huge container-laden tankers, you will see them all.

Old gypsy-like women frying chips and young couples practising tightrope walking in the park. Forget the stress of London or the dirt of Rome – Istanbul is the city you want to spend your next long weekend in.

Do all of the tourist sites. From the Grand Bazaar and the Blue Mosque to the Topkapi Palace, they are all incredibly beautiful.

Top notch The Four Seasons on the Bosphorus is outstanding in style and service, one of only two five-star hotels with a pool in this area. The attention to detail is spot-on – from the little cushions to support your back on the lounger to the high-level service and language skills even from the pool boys.

Bargain. Buy nice things and try to not contribute

to world ugliness by purchasing fakes. The world has so many fake Louis Vuitton bags that even the real thing is starting to look unreal now.

Spend a day at the hammam. The traditional

ones are normally a little bit too much (women with swinging boobs peeling off three layers of skin) and the modern ones too five-star hotel spa. I found the Kilic Ali Basa Hamami, built in 1580 and fully restored. If you want a massage (the hammam experience does not include it) it is best to book. Kemamkes Mahallesi, Hamam Sokak 1, 34425 Tophane, Istanbul. www. kilicalipasahamami.com Enjoy the café life. At the House Café Bosphorus, the customers ooze wealth from every pore as they play around with glasses of beer and fruit juice while nibbling at a pizza. Shift dresses in linen and leather abound, silk t-shirts are washed to look like dismembered cotton. Quieter, but still chic, is the House Café in Nisantasi: a gorgeous explanation of how café design should be. A cappuccino costs €4. Also try Kiva, a super cool place under the Galata Tower with mezes and cocktails. www.housecafe.com

Historic The Pera Palace Jumeirah is where Agatha Christie is rumoured to have written Murder on the Orient Express. They have a gorgeous lift (the first in Turkey) still in operation and the original carriage from the Orient Express itself. Bought by the Jumeirah group (owners of Emirates) some years ago, it still seems to be finding its feet.

Breakfast is good but limited, my room was turned down only twice out of five nights and the view even from the bathroom promised on the website turned out to be of a car park, and only when standing in the bath. The Molton Brown amenities promised online were horrible hotelstandard, only changed on the last day after many complaints.

Eat out as much as possible. Highlights include a drink at 5.Kat - the cocktails and the view were divine. Incredibly good shish kebabs of liver, chicken, lamb and beef at the Durumcu Mustafa, near the Grand Bazaar. www.durumcumustafa.com Book dinner at the truly world-class Mikla, atop the Marmara Pera Hotel. Fabulous

modern-Turkish food, excellent service and a truly incredible 360 degree view. pera.themarmarahotels.com Visit Anjelique, one of the most gorgeous clubs on the Bosphorus for cocktails, drinks and dinner. Face control operates at the door but getting in is not as difficult as they make it out to be. www.anjelique.com.tr

Boutique The House Hotel in Galatasaray may not have a lift or baths but the transformation of this old house by designers Autobahn has translated into high quality rooms even for the below ground-level ones that start at €100. The House Hotel on the Bosphorus is pricier but has a fabulous view and a great café and restaurants.

Money / Issue 20 - 55

Golf

The green grass of home Money applauds the Royal Malta Golf Club’s 125th anniversary celebrations.

01.

01. President inaugurates new RMGC clubhouse The 125th anniversary celebrations of the Royal Malta Golf Club commenced on June 2 when President George Abela, patron of the club, inaugurated the rebuilt clubhouse.

The clubhouse now offers firstrate facilities for members and visitors and these were shown to President Abela by Paul Stoner, the club’s chairman accompanied by the captain, David Debono and lady captain, Felicity Dix. Upon his arrival Dr Debono explained to the President how the club had progressed since its foundation in 1888.

Dr Debono stressed how this was done from the members’ own resources and with much hard work by a committed management.

President Abela congratulated all those involved on this wonderful achievement.

Dr Abela also acknowledged

56 - Money / Issue 20

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that more land would enable the club to expand further for the benefit of Maltese and visitors alike.

as well as a golfing clinic led by golf professionals Henning Shultze Doering and Bart Bolen.

02. UBS Golf Trophy and fun day Putting competitions, longest drive and nearest to the pin competitions were some of the activities held as part of the RMGC’s 125th anniversary celebrations in early June.

One of the sponsors ofthe RMGC anniversary celebrations, UBS also sponsored the UBS Junior Golf Trophy, a competition for RMGC Junior Academy members. An evening reception and presentation was held on June 5 to close the activities.

These activities formed part of three events sponsored by UBS held as part of the RMGC’s 125th anniversary celebrations.

The celebrations commenced on June 2 and included a members’ week followed by a visitors’ week, which saw some 130 visitors from 34 royal clubs throughout the world joining the RMGC to mark this occasion.

The UBS Golf Trophy, an 18-hole mixed stableford competition was held on June 4.

On June 5, adults and children participated in a fun golfing day

UBS is a Swiss, global financial services company whose headquarters are located in Basel and Zürich, Switzerland. The company has a long tradition of supporting sporting and cultural events and organisations the world over, including competitions such as the Hong Kong Open.

03. IIG Bank Club Championship The three-day IIG Bank Club Championship is the highlight of the year. After two days Nicky Beck was three shots

03.

clear of JJ Micallef and Andy Borg. Following close on their heels a further three or four shots behind were Danny Holland, Quint Van Beek and Ruud Critien.

Sadly Nicky Beck lost his way on the final day, as he pitched his ball in a hedge on the 10th and was unable to take a drop no nearer the hole – this forced him to the second option and he had to go back to where he had played the shot and take a penalty drop.

Andy Borg and JJ Micallef remained level until the seventh hole and then JJ Micallef double bogeyed the eighth, putting Andy Borg in the lead. On the 12th Andy Borg achieved a 40ft putt from off the green – this placed him four ahead and at this late stage in the match in an unassailable position.

Andy Borg ended the three days with a score of 206, JJ Micallef with 212 and Danny Holland with 213.

04.

Running concurrently was the Centenary Plate – this was for those lesser players and those who do not make the cut of the best 20 for the final day of the championship. Stephen Jones was the winner, while Hans Klotz came in second place and Nigel Stibbs in third. Nigel Stibbs, the Chief Executive of IIG Bank was present after the competition to present the prizes.

04. Golfers from New Zealand winners of the Emirates Cup A team of four golfers from South Africa, New Zealand and Malta won the prestigious Emirates Cup held at the RMGC, as part its 125th anniversary celebration. Paul Stoner from the Royal Malta Golf Club (Malta), Marilyn and Michael Brain, from the Royal Cape Golf Club (South Africa), and Andrew Meehan from the Royal Wellington Golf Club (New Zealand) emerged winners with 93 stableford points.

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More than 200 golfers participated in the Emirates Cup tournament, which was the biggest field in a golf competition ever in Malta in one day.

Emirates Malta Manager Paul Fleri Soler presented the winning team with an Emirates crystal trophy, specially brought over from Dubai for the occasion. This will be permanently showcased at RMGC. RMGC Captain Dr David Debono said, “The Emirates Cup tournament was a great success, with so many golfers representing Royal Golf Clubs from different countries. By partnering with Emirates for this year’s special anniversary celebrations, we have been able to host one of the prestigious tournaments ever at our golf club.”

Overseas golfers travelled to Malta from Scotland, England, Ireland, Guernsey, Jersey,

Wales, New Zealand, India, South Africa, Australia, and Canada.

Emirates is one of the leading supporters of major golf tournaments across the globe and is the official airline sponsor of 12 events worldwide. Beyond the European tour international schedule, Emirates sponsors the Boeing Classic (USA), the Thailand Open (Thailand) and the Emirates Australian Open (Australia).

05. HSBC help RMGC celebrate 125 years Supported by HSBC, the RMGC played host to 170 golfers from more than 20 countries around the world.

The prestigious HSBC 125th Anniversary Cup was won by the Royal Wellington Golf Club. A close second was the RMGC, represented by David Debono, Felicity Dix, JJ Micallef and Laine Tutane.

“This competition was a great

success both in terms of the quality of golf on show as well as the international turnout of golfers participating from all over the world. In this way, it has been a fitting celebration of the RMGC’s 125 years’ legacy while also aptly reflecting the international connectivity that HSBC brings,” said HSBC Malta CEO Mark Watkinson, during the presentation ceremony and which was held at the RMGC. Club Captain David Debono thanked HSBC for its invaluable support in making this event a big success.

This year, the Royal Malta Golf Club celebrates its 125th anniversary. For more information visit www.royalmaltagolfclub.com

Money / Issue 20 - 57

New York

The Bluesman’s blog In New York, it’s a mayoral mayhem of personal crusades and sexting, says The Bluesman.

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f it can be said of anyone that he has outstayed his welcome, it can definitely apply to New York City Mayor Michael Bloomberg. Hailed as a politically centrist moderate with no axes to grind, quite a change to Rudy Giuliani, and out of reach of lobbyists by virtue of his billions, he came to the end of two terms, in 2009, with his popularity mostly intact.

Unfortunately he decided to run for a third term. The fact that mayors and dozens of other elected officials are limited to two four-year terms and are barred from running for re-election for a third time barely made him flinch and he proposed revising the city’s 15-year-old term limits law. He managed to get the powers that be to see it his way and got an exception to this restriction passed, allowing him to contest the mayoral election.

It was a close call despite his large coffers funding his run, but he squeaked in. Unfortunately it seems that he had run out of solid ideas benefitting the majority and started on personal crusades. Clamping down on smoking in indoor and outdoor public spaces, cycling as transport and banning the sale of soft drinks over 16 oz – all sensible notions but the feeling built up that he was acting too much like an over-protective nanny. In fact the soda ban was nixed by the State Supreme Court just before it was due to come into effect. As for the bikes, such contention with the location of the racks. A lot of residents complained, organised sit-ins and were otherwise vociferous when racks taking up large chunks of precious parking space were earmarked for their blocks. Some prevailed, others didn’t and Bloomie came out looking like a bit of a bully.

So that’s the background to this upcoming election. But wait, there’s more. A couple of years ago a 46-year-old Congressman, Anthony Weiner had the ‘misfortune’ of accidently misdirecting a tweet of a picture of his cotton-covered bulge which wound up on a 21-year-old college student’s device, and thus, the Nation.

Sadly Wiener was married and had been regaling the ladies

58 - Money / Issue 20

The Bluesman is a Maltese sound engineer working in New York.

with his sexting for quite a while. Initially hemming and hawing and expressing doubts as to whether the image was him or not, with his wife Huma (a Hilary staffer) by his side, he eventually resigned and attempted to put it all behind him. The Weiner jokes eventually faded.

Last May he entered the race for mayor and quickly became the frontrunner. But then, it turns out that once a Weiner ‘weiner’ snapper... A year ago in interviews he was discussing how much he felt like a new person, while his new persona, using the name Carlos Danger (please!), was at it again. In the light of these new pics sent to a keen fan of his, people are suggesting it’s time for him to pull out. Whether he would have had the leadership style necessary to effectively handle this raucous city or not and whether, as a Jew with a longsuffering Muslim wife, the couple might have become symbolic of peaceful coexistence or not will remain unknown. Another unknown is will he indeed take himself out of the running?

In February of 2012 a 17-year-old youth was shot and killed during a physical altercation with a neighbourhood watch volunteer in a gated community in Florida. The media rushed to grab and distort, if necessary, any facts that would help them divide, sorry inform, the country about this latest example of racism. True the deceased was black, but somehow the fact that the other man was part Hispanic was ignored, and so was the fact that his last name is Zimmerman –

so it became a white/black issue. Much was made of the fact that Trayvon Martin was only visiting his dad, but nothing of why he doubled back and jumped George Zimmerman. Much was made of the supposition that Martin was targeted because he was black and wearing a hoodie, but nothing of the fact that there had been at least one break-in in the neighbourhood and nothing of the fact that in the tropical winter twilight it would have been impossible to see what colour the face under the hoodie was. The picture constantly on the media was of Trayvon looking around 12 years old in his hoodie – no talk of what his 6’2 footballplaying frame would have looked like at dusk. Florida has a stand-your-ground law which adds to the usual rules of self-defence the option to not run away and the use of deadly force if need be and that’s why the all-woman jury found Zimmerman not guilty. A needless death?

Of course, but as long as it is legal to carry guns this is the consequence of circumstances at the crossroads of misadventure.

The two stories come together because another mayoral candidate, Bill Thompson, attacked the NYPD’s stop and frisk laws, where police can stop anyone if suspicion merits, as a form of racial profiling. Another of Bloomberg’s babies, designed to keep guns off the streets, received with mixed reactions and protests from the black and Latino communities. On the other hand being found carrying a small quantity (up to 25 grams if you’re interested) of personal use marijuana is no longer an arrestable offence.

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