GOLD Magazine

ISSUE 25 APRIL 14 - MAY 13, 2013 PRICE €4.95

5 291295 000577

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POWERED BY:

YES WE CAN

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Cyprus remains an extremely attractive jurisdiction

14 EXPERTS DISCUSS THE FUTURE OF PROFESSIONAL SERVICES

+ RAKIS CHRISTOFOROU, ROLF MEAKIN, PHILIP VAN DALSEN ENERGY

VTTI’S €300 MILLION INVESTMENT

INTERVIEWS

ANDREY DASHIN MARIA-JOSÉ SOBRINI JOHNY STAVRINOU

PRIVATISATION THINKING OUT OF THE (PHONE) BOX

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

100% SECURED CLIENT FUNDS

In the midst of global economic uncertainty, nothing is more important than investing with someone you trust. With a strong and unwavering presence in Cyprus, ForexTime prides itself in being a sound and reputable investment firm with the experience, knowledge and skill to deal with whatever the markets may be experiencing. Capable of weathering any financial storm and adamant in protecting our clients’ funds in a secured banking system, we will always strive to ensure maximum performance, customer satisfaction and confidence in your dealings with us.

WITH FOREXTIME, INVESTMENT GRADE BANKING IS A GUARANTEE.

www.forextime.com, info@forextime.com, Tel: +357 25 558777 ForexTime Ltd is regulated by the Cyprus Securities and Exchange Commission (CySEC) license number 185/12 There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved still seem unclear to you, please seek independent financial advice. Š 2013 ForexTime Ltd.

issue 25 april 14 - may 13 2013

6 EDITORIAL 8 up front 16 FIVE MINUTES WITH…

17 YES WE CAN

+ opinion

The bailout agreement reached with the Troika undoubtedly marks the end of an era for the Cyprus banking system but how will it affect the country’s professional services sector?

35

ndrey dashin, the millionaire russian businessman behind the alpari family of online forex service providers and, more recently, of his own new venture forextime, has no intention of quitting cyprus now that things have suddenly become tough. in this exclusive interview he dismisses the german press’s money laundering allegations as “mass media noise”, praises the professionalism of those involved in the services sector and explains why he pays to keep the road leading to the limassol village where he lives free of litter and rubbish.

By JohnVickers, Photography by Jo Michaelides

Gold: Given the success of Alpari, what made you create ForexTime?

Andrey Dashin: In Alpari we hired the best professionals to sit on the Board of Directors while the main shareholders mainly restricted themselves to being just that and were not involved in the day-to-day business. But I’m young and very active and I felt the need to do something, to create a new company in which I could implement my own ideas – sometimes controversial ideas! – and my own vision. In Alpari there were many people, all mature industry professionals, who shared this vision and my expectations and so I have brought them with me to ForexTime.

Fortunately everything is going according to plan. As an international company it doesn’t rely exclusively on activity in Cyprus so in this sense it is “crisis-resilient”.

Gold: You set up ForexTime knowing that Cyprus was already negotiating a bailout with the Troika, which suggests that you were, in a sense, making a point and stating your faith in Cyprus. Would you agree with this interpretation?

A.D.: Yes and I still believe in the future of Cyprus because it still has the prerequisites that will enable it to continue as an international financial centre. First of all, the people here are top quality professionals. From the standpoint of the labour market, I have always believed that Cyprus offers me good opportunities. The other side of this equation concerns regulation and the Cypriot authorities. The financial authorities and, from what I know, the people in the new government are experienced, business-oriented people. I believe in these people. We speak the same language. I’ve had many conversations with them and I know how they think and what they want. We’ve been able to establish a very good, close collaboration between the business community and the authorities and I believe that this stable partnership will be maintained.

Real

businessmen turn a negative situation into something

posItIve

Gold: Do you believe that the countries of the eurozone and their partners were specifically targeting Russian money when formulating a bailout plan for Cyprus?

A.D.: No, I don’t. First of all, I don’t believe in the “nationality” of money. Money is money. Secondly, I don’t believe in these conspiracy theories about Russian money and money laundering. I discount them as “mass media noise” which we need to dispel and see the root cause of the problem: that the Cyprus banking system had become disproportionately overblown and we all knew this. Implementation of this bailout will mean that the Cyprus banking system is going to shrink – I don’t know by how much – but it is going to emerge smaller but stronger. I also think that these measures are actually going to bring very healthy changes to Cyprus as a whole.

Think about it. It can be done

by Peter Economides 82

60 | The One and Only Rakis Christoforou is one of only 18 Forensic Accountants outside the USA

62 | Preparing for the Internet of Everything Maria José Sobrini, Director of IBSG Mediterranean, Cisco, on the importance of social networks and the cloud to business

52

xxxxx

Why Great Service Just Isn’t Good Enough

By Mike McCormac 47

78

76

have preconceptions about Russians and maybe about Cyprus as well. So the mixture of a perceived “shady image” for both Cyprus and Russians has led to this idea that we are involved in some sort of illegal activity. How do I feel? I’m pretty calm about this to tell you the truth. I don’t feel that I need to dispel these rumours. If someone wants to believe them, it’s up to them. Let them live under an illusion. But that’s all this is: baseless rumours.

I don’t belIeve In the

“nationality” of money.

Money Is Money

40

Gold: There has been a lot of talk, especially in Germany, about alleged money laundering of Russian money in Cyprus.

As a Russian businessman taking advantage of what Cyprus has to offer, how do you feel about all Russians being seen in the negative light?

A.D.: People in certain countries obviously

48 Gold the international investment, finance & professional services magazine of cyprus

xxxx

MARIA SOBRINI

InformatIon and CommunICatIons teChnology (ICt) Is helpIng more and more CompanIes, organIsatIons and even governments around the world Improve theIr performanCe. whIle the more far-sIghted ones are adoptIng Cloud ComputIng, others are lookIng even further ahead to the fourth phase of the Internet, the “Internet of everythIng”. marIa José sobrInI, dIreCtor of Ibsg medIterranean, CIsCo, Is dedICated to showIng busInesses and organIsatIons how to take advantage of InformatIon and CommunICatIons teChnology (ICt). she spoke to gold about the ImportanCe of e-CommerCe, soCIal networks and the Cloud to busIness, and gave her predICtIon about the next bIg thIng. By John Vickers

44

56

PrEParing for thE

Internet of EvErything

56 Gold the international investment, finance & professional services magazine of cyprus

Gold: It’s surely no secret that companies can improve their performance in a variety of strategic areas by aligning their ICT infrastructure with their business goals. Are there still companies out there that are unaware of this basic idea?

Maria-José Sobrini: Although there are very few companies which are unaware of this basic idea, many of them take bad decisions. In general when companies fail, conventional wisdom blames external factors: the economy, regulatory actions, and geopolitical challenges are but three prime culprits beyond the control of decision makers. In reality, however, bad decisions –factors within the control of companies themselves – are what overwhelmingly cause firms to lose their leading positions. Over the past 10 years, 159 of the 500 largest companies globally by revenue have been displaced. And in many cases, company executives may not have realized the impact of their own decisions or they may not have been well informed when they made them.

This observation is supported by a survey of 1,028 executives and 993 junior managers and individual contributors conducted by Cisco’s Internet Business Solutions Group (IBSG). Though many of their subordinates begged to differ, 71% of executives rated their performances and decision-making abilities from “good” to “excellent.” These included leaders in financial services, where 439 bank failures since 2008 continue to leave a legacy of economic malaise, and retail executives, who have seen 37 major companies file for bankruptcy protection in their industry since 2010.

The good news is that a revolution in decision-making stands to change things for the better. Cisco IBSG calls it Decision-Driven Collaboration.

This new model represents a fundamental transformation in the way leaders perceive and manage collaboration in the

Those in the IT community need to stop acting like vendors and, instead, focus on helping people solve problems

62

workplace. It is supported by breakthroughs in collaboration tools, including video, mobility, social media, cloud services, and cutting-edge analytics.

But it begins with recognition that everyone is a decision-maker. And while the executives still make the final call, expertise from all corners of the organisation is welcomed into the process. The ultimate payoff is millions of better decisions (not just big, critical decisions, but smaller, daily ones as well) that are fact-based, highly informed, and ever more efficient and effective.

Gold: Given the speed at which technology is changing and developing, isn’t there a danger that companies may need to be constantly investing in new products rather than in their core business?

M.J.S.: Technology should allow companies to concentrate on their core business and it should make business process flow much easier. If IT does its job right, it will be deeply embedded in the fabric of every business process over the next few years. IT and business groups will work together seamlessly. To do this, though, those in the IT community need to stop acting like vendors and, instead, focus on helping people solve problems. We are rapidly approaching an “inflection point” in the industry where we’ll need IT leaders who are experts in business first and IT second. IT needs to become a business partner.

IT professionals and businesses must speak the same language. Businesses must ask how IT can help solve its business goals, and IT leaders must help business leaders achieve their goals.

Gold: In your experience, are successful companies generally open to innovation or do you regularly come across a mentality of “we have always done things this way”?

M.J.S.: Successful companies are not just open to innovation but most of the time they are leading it.

We can see an explosion of new technologies that create new winners and losers in nearly every industry. In an engagement with a major global manufacturer, Cisco IBSG identified three key factors in the product innovation process that companies must clearly understand and be able to orchestrate. They must develop a technology strategy, arrange and manage ecosystem partners, and prepare and execute detailed plans for managing market interactions, from initial introduction through full-scale market management.

How well they deliver on this model will help determine whether a company will be a disruptor in its market space or one of the disrupted.

59 68

Gold: How significant are social networks to business today?

M.J.S.: I’ll just mention some numbers and leave the conclusions to your readers. A whopping 90% of young people use their smartphones to help them face the day, often before they get out of bed!

Even before a cup of coffee, young people grab their smartphone. They’re checking it for e-mails, texts and social media updates. The phone has become as much a morning ritual as the toothbrush. The gap between my generation and younger ones in how we use technology is getting smaller. Interestingly, as we older folks are getting more comfortable with technology (and seeing its value), younger people are getting less starry-eyed. For example, more than a third of the young people that we surveyed suspect that people present themselves differently online than in the physical world. This year’s study also found that three out of four don’t trust Internet sites to keep their data private, and nearly a third are very concerned about security and identity theft. This younger generation’s relationship with technology is really maturing.

the international investment, finance & professional services magazine of cyprus

Gold 57

FEATURE 35 | “I Believe in Cyprus”

48 | Thinking Out Of The (Phone) Box

Andrey Dashin has no intention of quitting Cyprus now that things have suddenly become tough

No-one will lose out through the proposed privatisation of Cyta, says global expert Rolf Meakin.

40 | Heeeere’s Johny!

52 | Regulation, Regulation, Regulation

One of the best-kept secrets on the Cyprus business scene

44 | VTTI’s €300 million investment Multiple benefits expected for the local economy

CySEC Vice-Chairman Andreas Andreou on the long-overdue Fiduciaries Law and what it means

56 | Realism Blended With Optimism No change to IBL Bank’s development plans, says Manager Ghada Shami Christofides

4 Gold the international investment, finance & professional services magazine of cyprus

68 72 74 76 78

{money} {business} {economy} {tax& legal} {lifestyle}

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EDITORIAL ISSUE 25 APRIL 14 - MAY 13, 2013 PRICE €4.95

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POWERED BY:

Yes We Can… and We Must

I

t is the former British Prime Minister Harold Wilson who is credited with first uttering the saying “A week is a long time in politics”. Here in Cyprus we have had extraordinary proof of the truth of Wilson’s words over the past month and, in particular, during the period 15-25 March when the country’s banking sector came crashing down in spectacular fashion following a week of tough negotiations with the Troika of international lenders on the terms of a financial assistance package.

Somewhat ironically for Gold, our March issue, featuring a cover story/interview with the new President, was published on 14 March, just one day before the world of Cyprus changed so dramatically. In that issue, Nicos Anastasiades spoke about the importance of the professional services sector: “It is probably the only one that has proved resilient in this recession and this resilience indicates that, if we actively try to change things for the better, the possibilities are almost unlimited.”

Today, the sector is being called upon to show just how resilient it is, following the extraordinary events surrounding the island’s two main banks and the effect that the resolution of Laiki and restructuring of Bank of Cyprus may have on professional services, investors, high net worth individuals and Cyprus-based companies. As you will see in our latest cover story, opinions are divided on how easily and how soon the sector will recover but the overall view of the professionals, experts and commentators with whom we spoke is that, despite the blow that has undoubtedly been dealt to the island’s reputation, Cyprus retains most – if not all – of the attractions and advantages that have been its main selling points for investors over the past decade.

Flexibility is a key quality in business and while, for the past two years, business leaders and experts have repeatedly told Gold that any attempt to change the 10% rate of corporate tax would spell disaster, they are now – unanimously – expressing the view that the rise to 12.5% will not have a noticeable effect on investment decisions. Fears that major companies would relocate or take their funds elsewhere have also proved to be unfounded, at least for now. Restrictions are still in place, so it is difficult to judge but, for example, many lawyers and accountants are happy to report that their foreign clients are not rushing to Malta or Luxembourg and, on page 36, you can read how at least one leading Russian businessman, Andrey Dashin, views the situation.

To say that the Cypriots are still in shock is an understatement. As Dashin says in our exclusive interview, “It’s one thing to know about a situation and another to wake up one morning and discover that your bank account has just got smaller.” However, while the professionals working in the financial sector have also suffered a blow, they are showing remarkable fortitude and determination not to let the banking crisis sound the death knell for their own area of expertise. This is, of course, the only approach possible if the sector is to quickly regain its damaged prestige.

While a week is a long time in politics, a year often seems to fly past: this issue marks the second birthday of Gold. Over the past 24 months, we have attempted to bring you, our readers, a clear and objective analysis of all the issues concerning the professional services sector, international business, finance and investment in Cyprus. As you will see in this month’s cover story, various writers have warned during this time about the need to restructure the overextended banking sector. One of our key stated objectives from the start has been to play a role in promoting the country as a leading regional business and services centre. This has not changed. We shall continue to seek out success stories, to publicise the advantages that Cyprus undoubtedly has over its competitors, and to provide a platform for the voices and views of the professionals offering legal, accounting, fiduciary and other services.

This year, the economic/political/social situation on the island is too serious for us to indulge in cheerful birthday celebrations but we are proud to be here and grateful for your continued support. I sincerely hope that we shall have genuine cause for optimism in April 2014.

YES WE CAN

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Cyprus remains an extremely attractive jurisdiction

14 EXPERTS DISCUSS THE FUTURE OF PROFESSIONAL SERVICES

+ RAKIS CHRISTOFOROU, ROLF MEAKIN, PHILIP VAN DALSEN ENERGY

VTTI’S €300 MILLION INVESTMENT

INTERVIEWS

ANDREY DASHIN MARIA-JOSÉ SOBRINI JOHNY STAVRINOU

PRIVATISATION THINKING OUT OF THE (PHONE) BOX

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

PUBLISHED BY IMH ISSN 1986 - 3543

MANAGING DIRECTOR:

George Michail

GENERAL MANAGER:

Daphne Roditou Tang

MEDIA MANAGER: Elena Leontiou EDITOR-IN-CHIEF:

John Vickers

SENIOR EDITOR:

Kyproula Papachristodoulou CONTRIBUTORS TO THIS ISSUE:

Christina Antoniou Pierides, Andreas Christofides, Peter Economides, Loucas Marangos, Mike McCormac, Stephen Michaelides, Steven Newbery, Andreas Neocleous, Chloe Panayides, Olga Rybalkina, Polakis Sarris, Savvas Savouri, George Savvides, George Theocharides ART DIRECTION:

Anna Theodosiou SENIOR DESIGNER:

Alexia Petrou

PHOTOGRAPHY:

Jo Michaelides

MARKETING EXECUTIVE:

Kevi Chishios

SALES & BUSINESS DEVELOPMENT EXECUTIVE:

Phivos Karayiannis

ADVERTISING EXECUTIVES:

Irene Georgiou, Christopher Constantinou OPERATIONS MANAGER:

Voulla Nicolaou

SUBSCRIPTIONS:

John Vickers, Chief Editor john@imh.com.cy

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6 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

editorial.indd 6

09/04/2013 14:39

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Dividends:

up front

Cyprus and Spain conclude Double Tax Treaty

A

0% withholding tax applies if the beneficial owner is a company (other than a partnership) holding at least 10% of the capital of the company paying the dividend. A rate of 5% applies in all other cases.

0% Interest:

withholding tax. fter negotiations lasting several years, a Double Tax Treaty was signed in February between Cyprus and Spain.

Royalties: At the signing ceremony, the Spanish 0% withholding tax Ambassador to Cyprus, Anna Salomon applies with respect to Perez, said that the Treaty would facilicopyrights of literary, artistic tate investments from Cyprus to Spain and vice versa, or scientific work, including and that marked a strengthening of economic relations films, any patent, trademark, between the two countries. The new Double Tax Treaty secret formula or process will enter into force three months after it is ratified. or information concerning Until the new agreement takes effect unilateral relief for industrial, commercial or scientific experience.

Spanish taxes paid will continue to be available under domestic tax legislation.

The most significant provisions of the treaty, which Capital follows the OECD Model Convention, are shown Gains: right: Gains from the disposal of immovable property are taxed in the country in which the immovable property is situated. Gains from the disposal of shares or comparable interests (other than those listed on the Stock Exchange of either country) deriving more than 50% of their value from immovable property, are taxed in the country in which the immovable property is situated. Gains from the disposal of any other type of shares are taxed in the country of which the seller is resident.

The Treaty will facilitate investments from Cyprus to Spain and vice versa

Cyprus Business and Real Estate Forum in Ukraine

A

two-day Business and Real Estate Forum was held at the Premier Palace Hotel in Kiev, Ukraine on 29-30 March 2013 with the participation of 18 Cypriot companies.

Organised by MIBS Group with the support of the Cyprus Chamber of Commerce & Industry (CCCI), the right) aging (Left to Cyprus Investment Promotion tis ni (Man Shiapa Group), Chrisus), a n e El pr r, MIBS r Agency (CIPA), the Embassy k of Cy Directopoulos (Ban (Ambassadol s Papado as Vryonide ine), Generad of Cyprus in Ukraine and the Evagorprus to Ukra , Markos an Cyprus Tourism Organisation, of Cy Pitigorech , Mikhail Sergeyria Shiapanisin Group). the event was Ma , Ma (CEO v Kroto addressed by the Ambassador of Cyprus to Ukraine, Evagoras Vryonides, Markos Shiapanis of MIBS Group, Igor Pondolev from the

Ukrainian Chamber of Commerce and Industry, Charis Papacharalambous, Director-General of CIPA, lawyers Polakis Sarris and Antigoni Fakonti (Polakis Sarris & Associates), Polis Kourousides (Total Valuations), Andreas L. Papadopoulos (Hellenic Bank), Nicos Chimarides (PwC Cyprus) and Costas Hadjicosti (Abacus).

Presentations were later made of the Developers that took part in the event: from all the regions of Cyprus: Aliada, Aphrodite Hills, Aristo Developers, Chaps Developers, Karma Developers, Giovani Developers, Oikos Group, K & P Christou, Kouroushi Bros, Pafilia, Property Gallery, Vavlitis Group and Zantis Group of Companies.

Throughout the two days of the Forum, an exhibition of properties in all districts of Cyprus was open at the venue.

The Forum was followed by a press conference at which the participants answered questions from 22 representatives of the Ukrainian and international media. A Gala Reception was later attended by more than 200 Ukrainian businessmen and government officials.

8 Gold the international investment, finance & professional services magazine of cyprus

Banc De Binary registers in four major European countries

F

ollowing the recent successful launch of Banc De Binary in Cyprus and the acquisition of a Cyprus Securities and Exchange Commission (CySEC) licence, the company has further enhanced its credibility and reputation as an industry leader by reaching another significant milestone by gaining a foothold in the European market.

Within a three-month period, Banc De Binary has made huge steps towards establishing binary options as a regulated investment tool. As a result of its efforts, the company is now registered with the UK’s Financial Services Authority (FSA), the German Federal Financial Supervisory Authority (BaFin), Spain’s Comision Nacional del Mercado de Valores (CNMV) and the Italian Commissione Nazionale Societa e la Borsa (CONSOB), following Cyprus’ lead in the regulation of binary options. These developments will allow the firm to accept new investors from the UK, Germany, Spain and Italy. Banc De Binary founder and CEO, Oren Laurent, said: “We have long voiced our desire to expand into these markets and through the registration of Banc De Binary in the UK, Germany, Spain and Italy now we can serve investors throughout Europe. Our clients can be assured of the highest level of professional standards, customer service, financial security and transparency in their transactions with us”. Banc De Binary offers investors four types of accounts, all with the guarantee of their premium 24/7 service facilities. With state-of-the-art award-winning trading platforms, Banc de Binary offers trading on more than 90 tradable assets and additionally provides daily market research reviews.

Pissarides meets Essex University alumni

Shipping Remains in Cyprus and Supports the Economy

T

he Board of Directors of the Cyprus Shipping Chamber (CSC) held an official meeting with the Minister of Communications & Works, Tasos Mitsopoulos, on 2 April 2013. During the meeting, the Minister was briefed about the operational problems faced by shipping companies, as a result of the current situation of the Cyprus economy following the 24 March agreement reached with the Eurogroup. There followed a discussion on measures that will allow shipping companies in Cyprus to continue to operate normally and provide significant support to the economy.

Laiki Bank customers

in UK

pe esca levy

Following a proposal by the Chamber, it was decided to initiate a joint promotional campaign on the shipping companies’ commitment to remain in Cyprus and the advantages of Cyprus as a reliable and competitive maritime centre.

The Minister stressed the importance attached by the new government to the local shipping industry and thanked the CSC for the continuous support provided by the Cyprusbased shipping companies to the country’s economy.

T

housands of customers with funds in the UK arm of Cypriot bank Laiki will escape any levy on their accounts.

The Bank of England’s new Prudential Regulation Authority (PRA) has announced that all those whose accounts are in credit will be automatically moved to Bank of Cyprus in the UK. This means that up to £85,000 of their deposits will be protected under the UK compensation scheme. But 15,000 Laiki customers with an estimated £270m in their accounts in the UK are being told their money is safe. On average, Laiki customers in the UK have £18,000 in their accounts. About 5% of customers have more than £85,000, according to Bank of Cyprus UK. Any money above that amount would not be guaranteed by the UK compensation scheme, but the Bank of England confirmed that all deposits had been moved to Bank of Cyprus UK.

Jotun Cyprus opens new Limassol office

J

otun, one of the world’s leading manufacturers of decorative paints, marine, protective and powder coatings, has just opened its new office in Limassol. The event was attended by the Norwegian Ambassador to Greece and Cyprus, Sjur Larsen, and the President and CEO of Jotun A/S, Morten Fon. Products of the Jotun Group, which has 71 com-

panies and 36 production facilities on all continents, are available in more than 90 countries through its own subsidiaries, joint ventures, agents, branch offices and distributors. Jotun’s total sales in 2012 amounted to €2.12 billion. The Group has more than 9,000 employees.

Jotun was founded in 1926

by Odd Gleditsch in Sandefjord, Norway, where its head

office is located. To this day the Jotun Group remains under the private ownership of the Gleditsch family. Jotun Cyprus Ltd was formally established in 2011.

Jotun stated earlier this month that it believes strongly in “a future on and for Cyprus” and, to this end, is now investing in new and modern offices with a view to future growth.

N

obel Prizewinning economist Professor Christopher Pissarides met with University of Essex alumni and prospective students at a special evening held at the Eleon Leisure Park in Nicosia on 15 March.

The event offered 85 alumni and 30 prospective students, plus their guests, a chance to meet one of the world’s most celebrated economists who has also recently taken on a key role within the new Cypriot government as head of the newly-formed Economic Policy Council.

Professor Pissarides, who completed a Master’s Degree at Essex after obtaining a First in Economics, talked about his memories of the University and his academic career including his work on the economics of unemployment, especially job flows and the effects of being out of work, which led to him receiving the 2010 Nobel Prize in Economic Sciences. Jo Rogers of the University of Essex Development and Alumni Relations Office said: “This was a unique chance for our alumni and prospective students to hear Professor Pissarides speak about his work and his recollections of his time at Essex. We are immensely proud of Professor Pissarides’ achievements and delighted he has maintained close links with the University and our Department of Economics throughout his career. Those links were celebrated last year when the University awarded Professor Pissarides an honorary degree. The evening was also a great chance to network with fellow Essex alumni. We have incredibly strong links with Cyprus and have more than 200 Cypriot students studying at Essex at the moment. The support of our alumni community and their success helps the University of Essex continue to be one of the most popular destinations for students from Cyprus looking to study at a UK university.”

up front

The Most Fun Airports

A

irports have traditionally been places to avoid unless you are forced to use them. Going through lengthy security checks and queuing up to show your passport are hardly enjoyable experiences but

once you are inside, more and more airports around the world are trying to make your stay as interesting and exciting as possible.

In Europe, 48% of airport revenues actually come from non-aeronautical sectors as they attempt to liven up the pre-flight experience by providing a variety of weird and wonderful distractions to keep weary travellers enter-

tained. From live music concerts to contemporary art exhibitions and from IMAX cinemas to public ice rinks, some have so much going on they’re on the verge of becoming travel destinations in themselves.

CNN selected seven of the world’s biggest and busiest airports where entertainment and leisure services are taking off in a big way.

➊ San Francisco

➋ Seoul-Incheon

➌ Singapore

➍ Nashville

Elaborate art installations are now a common fixture at airports around the world, but San Francisco International (SFO) was offering travelers an insight into the aesthetic more than 30 years ago. The SFO Museum – comprising more than 20 galleries across four terminals – was inaugurated in 1980 and continues to host an ever-changing schedule of exhibitions on a diverse range of subjects.

Passengers are free to browse the airport’s myriad exhibits while nonflying visitors on day trips from the San Francisco Bay Area are also able to stop by. Recent events include a collection of pan-Asian ceramics dating as far back as the seventh century AD and a photographic expose on the secret life of plants.

Incheon Airport on the outskirts of Seoul, South Korea, has earned a reputation for travel excellence.

The sprawling complex is one of the world’s busiest passenger and cargo hubs, snapping up the Airports Council International world’s best airport in air service quality award for seven consecutive years. Integral to this success is the wide selection of fun activities and facilities to keep waiting passengers occupied. An ice rink, casino, spa and sauna represent just a few of the cool distractions on offer. A five-minute shuttle drive away from the airport, travellers can tee off for a relaxing round on the airport’s 18-hole Incheon Golf Club course.

Singapore’s Changi Airport may claim to be Southeast Asia’s premier air cargo hub, but it’s also one of the original innovators in the field of airport entertainment. The giant facility was one of the first to introduce free Wi-Fi areas whilst a roof-top pool and Jacuzzi has been open to passengers since the late 1990s. Amenities introduced in recent years include an interactive art gallery, children’s fun slide and an on-site nature trail. Free city tours of Singapore are also available to any passenger with a stopover of five hours or more.

Nashville has long been considered one of the cradles of American music. Elvis Presley, Dolly Parton and Johnny Cash have all been fixtures of the city’s famed recording studios.

Keen to play up this lively musical past, Nashville International Airport puts on regular live concerts for travellers and music enthusiasts alike. Four stages – one located outside security and three more beyond – host upwards of 100 free events every year.

Country music and jazz performances are staples here but rock bands and traditional Celtic acts are also a common sight.

➎ Munich

➏ Sydney

➐ Hong Kong

Munich is famed for its Oktoberfest beer festival and the city’s airport aims to bring a sample of the alcohol-fueled fun to thirsty passengers. Airbau, a Bavarian-style tavern complete with its own brewery and traditional German beer-garden, serves up over 110,000 gallons of homemade hops from its home in the airport’s Terminal 1 every year. Like all genuine Oktoberfest celebrations, Airbau also plays host to a lively music program during busy periods and an outdoor beer garden.

Potted plants are a common adornment in many airport waiting areas, but the Qantas First Lounge at Sydney International Airport, Australia, takes green decor to altogether more holistic levels. The luxury facility is home to a 30-metre vertical garden, comprising 8,400 plants. The giant installation is incorporated into the facility’s restaurant and day spa treatment rooms, where passengers can relax with a massage or refreshing shower. A business centre and library, meanwhile, offer optimum quiet space for working travellers.

At 13.8 metres high and 22.4 metres wide, Hong Kong International’s on-site cinema is the world’s only airport IMAX and the largest cinema in the Chinese territory. Hong Kong residents as well as travellers are able to access the cinema given its landside position at the airport. Both 2D and 3D movies are regularly shown, including the latest Hollywood blockbusters and so called “edutainment” features.

10 Gold the international investment, finance & professional services magazine of cyprus

12 Gold the international investment, finance & professional services magazine of cyprus

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14 Gold the international investment, finance & professional services magazine of cyprus

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the international investment, finance & professional services magazine of cyprus

Gold 15

interview

five minutes with...

Cyprus is a dynamic European country and it will continue to be a key business centre at the heart of the Mediterranean

Philip van Dalsen CEO, MTN Cyprus

Y

ou have been appointed at a crucial time for Cyprus. How much of an extra challenge does this mean for you?

One of the main reasons that made me accept this position is the challenge that comes with it. I fully understand the difficult, changing times Cyprus is going through. And of course it takes a lot of teamwork, expertise and effort to emerge winners from this situation. At the same time, however, we need to work unconventionally, making moves that will pleasantly surprise the market and the consumer. My personal experience in issues such as market growth initiatives, network extension, product innovations and the aggressive market introduction of value offers makes me feel safe and confident that MTN will emerge stronger and consumers will benefit from this competition.

How would you describe the Cyprus telecommunications market, compared to those you have previously worked in?

Cyprus is a dynamic European country and it will continue to be a key business centre at the heart of the Mediterranean.

It is also laying the foundations to become a major energy centre, which will be valuable to European energy security.

It is a mature telecoms market and one of the most developed markets for the MTN Group, which has just announced that it will utilize the country as a springboard for innovative products and services. Definitely, these are unique characteristics that constitute an interesting professional challenge for me. So I am very happy to have opened a new page in my career here.

The Cypriots have traditionally embraced technology, especially mobile telephony and Internet products. How do you intend to keep their attention beyond selling the latest phones?

As MTN, we share the Cypriots’ love of technology and innovation. Our mission is to lead the delivery of a bold, new Digital World to our customers and, at the same time, always offer more to our subscribers. MTN has proven that it lives up to its promises, having a track record of leads in the country: We were the first to bring in 3G, the first to totally revamp its network which is now the most modern in Cyprus (an investment worth ₏20 million), the first to bring MTN HSPA+,

16 Gold the international investment, finance & professional services magazine of cyprus

the fastest mobile network, to Cyprus.

Today, in the era of mobility and connectivity, high-speed Internet and data, we are here to always offer more. This will be reflected to our upcoming market proposition.

Earlier this month people were marking the 40th anniversary of the first mobile phone. Aren’t you glad that you are involved in the industry now rather than then?

You bet I am! We are grateful to the telecoms pioneers but we now live a brave new, connected world with endless possibilities. We have bold visions, which were unthinkable in the past, and this is getting more and more exciting.

What do you foresee as the next trends in telecommunications?

There will be an explosion of demand for data from both business and personal users, as people get used to the convenience of always having the Internet close by. The cause of the expansion of mobile broadband is the increased demand for of smartphones and tablets. So, we will be launching more and more exciting products and plans to meet the growing demand.

YES WE CAN T

XXXX

HE BAILOUT AGREEMENT REACHED WITH THE TROIKA UNDOUBTEDLY MARKS THE END OF AN ERA FOR THE CYPRUS BANKING SYSTEM BUT HOW WILL IT AFFECT THE COUNTRY’S PROFESSIONAL SERVICES SECTOR? HOW DID A COUNTRY THAT WAS PRAISED BY THE IMF AS RECENTLY AS 2011 FIND ITSELF SCRAMBLING TO FIND €5.8 BILLION IN LESS THAN A WEEK OR FACE CERTAIN BANKRUPTCY? HOW DO THOSE WORKING WITH FOREIGN INVESTORS FEEL ABOUT THEIR FUTURE? THESE QUESTIONS AND MORE ARE ANSWERED ON THE FOLLOWING PAGES AS WE ASK EXPERTS FOR THEIR VIEWS ON WHAT IS NEXT FOR CYPRUS. AS OUR TITLE SUGGESTS, WHILE THE PROFESSIONALS ARE UNDER NO ILLUSIONS ABOUT THE DIFFICULTIES THAT LIE AHEAD, THERE IS A FEELING THAT THE COUNTRY WILL EVENTUALLY EMERGE STRONGER AND BETTER AS AN INTERNATIONAL BUSINESS CENTRE AND A JURISDICTION FOR INVESTMENT.

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A Tragic Tale of Cypriot Mistakes and Eurozone Flaws

BY KYPROULA PAPACHRISTODOULOU

After the Setback, Recovery is the Only Option

SIX LEADING PROFESSIONALS LOOK AHEAD

View from the Top

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EIGHT RESPECTED EXPERTS WRITE FOR GOLD

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COVER STORY

YES XXX WE CAN

A Tragic Tale s

e k a t s i M t o i r p y C f o

and Eurozone Flaws

THE BAILOUT AGREEMENT AND ITS EFFECT ON CYPRUS’ TWO MAIN BANKS

C

yprus’s economic model, as we knew it up to 16 March, is now history. The unprecedented and controversial Eurogroup decision of that day and, most importantly, the amended decision of 25 of March have changed the island and its economy irreversibly. The large banking sector, which was equal to about eight times the country’s GDP, with a contribution of up to

By Kyproula Papachristodoulou countless EU, IMF and credit rating agencies warnings as well as those from officials and economists within the country over the past few years. But equally, it is hard to argue with the view that the IMF and the other eurozone countries decided to kill off the main source of income and future prosperity of the island – and may have succeeded.

Until very recently the IMF itself considered Cyprus’ economic model viable. The preliminary findings of the IMF’s February 2011 staff visit stated that the “long-term prosperity in Cyprus depends in large part on its continued growth as an international business and financial centre, which rests upon a foundation of sound public finances”.

The truth is that the island’s 1.1 million people did not have a lot of options

Until very recently the IMF itself considered Cyprus’ economic model viable.

14% to the state tax revenue on an annual basis, around 8% to the country’s GDP and almost 13,000 jobs, has been drastically downsized in line with the Eurogroup’s stated goal of reaching the EU average (around 3.5 times GDP) by 2018.

It is true that Cyprus largely brought this upon itself, choosing to ignore the

beyond the financial sector which, with 35,300 jobs, is the major employer outside tourism. Cyprus may have oil and gas wealth but it is, as yet, largely untapped.

The arrival of the Troika in early July 2012 – after Cyprus officially admitted that it needed financial help fund its fiscal and bank recapitalization needs – turned into something of a nightmare as the

government – desperate to avoid austerity measures in view also of the upcoming presidential elections – delayed negotiations and sought a loan deal with Russia: a deal which was never achieved.

The draft Troika memorandum which was submitted for negotiations to the Cyprus government at the end of July – and was ignored for more than two months – proved inadequate when, around November 2012, the Presidential Palace decided to restart negotiations and seek a compromise with the European lenders and the IMF. It was clear all along that the fiscal needs of the island were about €6.5-€7 billion.

What was left for investigation were the banks’ recapitalization needs. In late 2012, in preparation for the upcoming EU-IMF programme, the Cypriot authorities mandated PIMCO to conduct a thorough stress test of the country’s banks. Conducting the tests was a prerequisite of the draft memorandum and fixed Troika policy for all ailing European countries (Greece, Ireland and Portugal) receiving a loan.

The results of the PIMCO exercise were not made public but press reports suggested capital needs of up to €10 billion. The test itself, the assumptions used and the methodology proved controversial and a number of respected analysts and politicians questioned their accuracy and rationale. Nevertheless, the results were adopted by the Troika and all the subsequent calculations on the banks’ recapitalization needs were based upon these test results.

In short, this is how Cyprus came to require a massive loan of €17 billion, equal to100% of its GDP which would raise its

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public debt to 140% of GDP. The eurozone and the IMF insisted that the bailout be kept limited to 100% of the island’s GDP and this, in turn, led to the – so far – unique and controversial raid on bank deposits, once the initial idea of taxing protected deposits under €100,000 had been dropped.

Many observers are of the opinion that the “medicine” administered by the Eurogroup to solve Cyprus’ huge financial problem, on the recommendation of the IMF and the ECB, was designed to finish off rather than cure the patient.

Cyprus’ eurozone partners – especially Germany, Finland and the Netherlands, but also France – together with the IMF, appear to have decided that the island’s economic model, which relied on a large banking sector, should be killed off. Indicative of the prevailing attitude towards Cyprus’ economy is the German Finance Minister’s statement on 5 April: “We don’t like this business model [i.e. a big bank-

ing sector with large foreign deposits] and we hope it is not successful and when it becomes insolvent, as in Cyprus, they can’t expect it to keep being financed…When a euro member’s banks become insolvent, they can’t expect other countries to make their banks solvent again”.

Illustrative of the French stance towards the Cyprus bail-out/bail-in package is the French Finance Minister’s statement to Canal Plus TV on 24 March: “To all those who say that we are strangling an entire people...

Cyprus is a casino economy that was on the brink of bankruptcy.”

European leaders seem to have forgotten what really went wrong with Cyprus’ banks. Last year, they suffered heavy losses when the eurozone forced a restructuring of Greece’s sovereign debt, wiping around €4.5 billion off the balance sheets. Of course, Cyprus had “taken this hit for the team”, in the sense it had been encouraged to support Greek bonds to counter the debt crisis. And it did not demand – as it clearly should have done – any compensation. It was the Greek crisis, and all the mistakes made there by the eurozone and the IMF, that triggered the Cyprus banking crisis and a new determination in Frankfurt, Berlin and

The government avoid austerity me- desperate to also of the upco asures in view min elections - delay g presidential ed negotiations

Fiscal Goals

T

he final agreement between Cyprus and the Troika stipulates that, at the moment, putting public finances on a sustainable path is of overriding importance in order to stabilise the economy and to restore the confidence of companies, citizens and foreign investors in the longer-term economic prospects of Cyprus.

IN THIS CONTEXT, THE OBJECTIVES ARE: To continue the ongoing process of ① fiscal consolidation in order to achieve a

3% of GDP primary surplus in 2017, 4% of GDP in 2018 and maintain at least such a level thereafter.

To correct the excessive general gov② ernment deficit as soon as possible.

③ To fully implement the fiscal measures

agreed in the 23 November 2012 staff-level agreement and the additional fiscal consolidation measures agreed for 2013, totalling 1.5% in 2013.

To achieve the annual budgetary tar④ gets as set out through high-quality permanent measures, and additional measures in the outer years, in particular to reduce the growth in expenditure on the public sector wage bill, social benefits and discretionary spending while minimising the impact of consolidation on vulnerable groups.

To maintain fiscal consolidation over ⑤ the medium term, converging towards Cyprus’ medium-term budgetary objective, by containing expenditure growth, improving the structure of taxation and undertaking fiscal-structural measures, including the implementation of a Medium-Term Budgetary Framework designed in accordance with EU specifications.

We Told You So…

“But how did the banking sector end up in this unfortunate situation? One factor is certainly the rather “loose” regulatory supervision that allowed the banking sector to grow so big that it dwarfs the country’s GDP (by approximately eight times) and to take excessive risks without properly diversifying their portfolio. We may have created institutions that are “too big to fail” but unfortunately they are also “too big to save”! It is ironic that while the regulatory authorities were being praised for protecting the banking sector from toxic products (asset/mortgage-backed securities, collateralized debt obligations, credit default swaps, etc.) at the height of the global banking crisis of 20072009, a few years later the simplest of securities and supposedly the least risky (sovereign bonds) were to prove fatal.

Another underlying reason for the crisis was the excessive risk that banks were taking, either in the form of cheap credit given to real estate developers or through overexposure to the Greek economy and Greek government debt, without proper diversification of their investment portfolio. Buying risky securities (even on the secondary market) is acceptable given that the organisation properly assesses the risk and hedges the exposure (using credit default swaps would have certainly been one way).

Here, of course, we have the classic example of moral hazard, i.e. bank executives making risky investments knowing that, in case of a negative outcome, the burden will not fall on their shoulders while, in case of a positive outcome, they are the ones to reap the rewards in the form of big bonuses.”

(GEORGE THEOCHARIDES, DECEMBER 2012)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

YES XXX WE CAN

It was the Greek crisis, and all the mistakes made there by the eurozone and the IMF, that triggered the Cyprus banking crisis Washington to restrict the size of bailouts, particularly when the money is used to recapitalize banks.

One should remember that when Cyprus was preparing to join the EU in 2003, European Commission reports did not find any problems with its banking sector. Neither did the European Central Bank – which threatened to pull the plug last month – when evaluating Cyprus’ fitness to join the eurozone in 2007. Ironically, when Cyprus adopted the euro in January 2008, as the

storm clouds of the financial crisis were gathering on the horizon, the ECB promised the island that the euro would protect its banks. “For a small, open economy like Cyprus, euro adoption provides protection from international financial turmoil which often has a disproportionate impact on smaller economies,” said Jean-Claude Trichet, Head of the ECB at the time.

The IMF, which conducted an evaluation of the Cyprus economy on an almost yearly basis, has never previously criticized the coun-

try’s banking sector. On the contrary, in the October 12, 2011 Article IV Consultation Concluding Statement of the Mission, the IMF said that “Cyprus’ large banking sector, with assets of over eight times GDP, is a pillar of the economy, directly generating a high share of jobs and income, and indirectly supporting other business services. Cypriot banks have a number of strengths, including limited exposure to securitized assets and predominant reliance on deposits rather than wholesale market funding”.

t n e m e e r g A h The 25 Marc

O

n 25 March, the Eurogroup reached an agreement with the Cypriot authorities on a financing programme. According to the terms of the deal, large depositors, many of whom are non-residents including some from Russia, are set to bear a much higher burden. The involvement of large depositors is, however, restricted to Laiki Bank and Bank of Cyprus. The Government considered that, under the circumstances, it was the best available deal and it avoided the worst-case scenario of a potential bank and sovereign default and Cyprus exiting the eurozone.

The programme focuses on bank restructuring and it includes strict and harsh policy conditionality on the issues of fiscal consolidation, structural reforms and privatisation. The Eurogroup and the IMF will contribute €10 billlion (just €1 billion will come from the IMF, despite the fact that, in previous programmes, it has contributed up to one-third of the total funds.)

THE MAIN DETAILS OF THE BANKING SECTOR DEAL ARE AS FOLLOWS: ❶ L aiki will be resolved immedi-

ately – with full contribution from equity shareholders, bond holders and uninsured depositors – based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework. Laiki will be split into a good and bad bank. The bad bank will be run down over time.

❷ The good bank will be folded into

Bank of Cyprus, using the Bank Resolution Framework. It will take €9 billion of Emergency Liquidity Assistance with it. Only uninsured deposits in BoC will remain frozen until recapitalization has been effected, and may subsequently be subject to appropriate conditions.

The Governing Council of the ECB will provide liquidity to the BoC which will be recapitalized

through a deposit/equity conversion of uninsured deposits with a full contribution by equity shareholders and bond holders. The conversion will be such that a capital ratio of 9% is secured by the end of the programme.

❸ T he programme money (up to €10 billion) will not be used to recapitalize Laiki and Bank of Cyprus.

❹ Branches of Laiki Bank, Bank

of Cyprus and Hellenic Bank in Greece were sold to Piraeus Bank in Greece.

❺ T he Bank of Cyprus deposit/equity conversion of uninsured deposits will be applied as follows:

(a) Total loans and credit facilities of the customer on 26 March 2013 at the Bank of Cyprus are deducted from the deposits exceeding €100.000. If the sum of the balances of loans and credit facilities is greater than or equal to the amount of deposits exceeding

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€100.000, then the resolution measures are not applicable to this client.

If the sum of the balances of loans and credit facilities is less than the deposits exceeding €100.000, then the following apply: (b) 37.5% of this difference is automatically converted into Class A shares of the Bank of Cyprus, with voting rights and dividends. (c) 22.5% of this difference is temporarily ‘frozen’ and possibly part or the whole of it will be converted into Class A shares of the Bank of Cyprus with voting rights and dividends for the purposes of the bank’s resolution. In this regard, an independent valuer will be appointed for the valuation purposes of the Bank of Cyprus. Not later than 90 days from the completion of the valuation, all or part of that percentage might be converted into shares and the remainder returned to the depositor.

To the extent that the 22.5% will be re-deposited, the interest will be calculated retrospectively together with a small increment. (d) The remaining 40% of the difference was temporarily ‘frozen’ for liquidity purposes. Subsequently 10% of this was unfrozen. However, interest continues to be calculated for this deposit based on the existing interest rate, plus an increment of 10 basis points.

This amount will be ‘unfrozen’ in a short period of time and will not be used for resolution purposes.

After the Setback,

Recovery is the

Only Option

W

e put a number of questions to professionals working in all areas of the services sector about how they expect the bailout agreement and the resolution of the banking crisis to affect their work and their clients’ business and investments. Their responses reveal varying degrees of optimism – and pessimism in a couple of instances – but the overriding impression is that Cyprus and their specific sector will recover, though it will take a great deal of effort and hard work. Moreover, the undoubtedly painful measures that have been taken will eventually be seen as necessary corrections to problems that have been mounting over the years but remained unresolved.

O H W S WHO’ Christis M Christoforou Chief Executive Officer, Deloitte Limited Andrew Demetriou Director Ioannides Demetriou L.L.C. Marios Klitou Chief Executive Officer, Baker Tilly, Cyprus

Oren Laurent President, Banc De Binary Dr George Pamboridis Senior Partner, Pamboridis LLC George Theocharides Associate Professor of Finance, CIIM

❻ T he current capital of the Bank of

Cyprus (shares, securities convertible into shares, bonds) is converted into new shares: • Existing ordinary shares are converted into new Class D shares.

• Existing securities which are convertible into shares are converted into new Class C shares.

• Existing bonds are converted into new Class B shares.

• Voting rights and dividends for the above-mentioned new classes of shares (B, C, D) may be exercised only if the total dividends to be given to holders of Class A shares reach the original contribution plus interest at an annual rate of EURIBOR-3 months plus 10%.

• Class A shares have full voting rights and dividends.

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COVER STORY

YES XXX WE CAN

HOW SERIOUS A BLOW TO THE PROFESSIONAL SERVICES SECTOR IS THE RESOLUTION OF LAIKI BANK AND THE RESTRUCTURING OF BANK OF CYPRUS? Christis Christoforou: Nobody can deny that this banking crisis will impact the professional services sector. Other than the immediate hit to productivity, which is clear, there will be a long-term effect, the extent of which we cannot yet measure. First, we can

prosperous years, we are faced with the challenging task of explaining to our clients and the international business community that Cyprus is still one of the best options in Europe. The restructuring of the two Cypriot banks has created problems for our clients and it is critical that these issues be addressed and resolved in the best possible manner without any unnecessary delays. It is very important to consider the future of the sector very closely. Over the last twenty years we have done no real planning of the

George Theocharides: Undoubtedly, the events that have taken place in the last few weeks have dealt a big blow to the professional services sector (and to other sectors of the economy). Our reputation as an international services centre has suffered and it will take a lot of effort on our behalf to regain the confidence of our foreign clients. Nevertheless, I believe that the situation is manageable, provided we take the right measures.

The key to recovery is for all the financial service companies to invest time and money in winning back their clients’ trust all appreciate the contraction in the domestic market – clients, business colleagues and friends have had significant funds expropriated. This will impact their working capital liquidity and future capital investment.

Some businesses may not survive while others will naturally cut costs and their activities, all of which will flow through to the demand for professional services. Second, in the international market, the impact is yet to be fully understood and time will tell whether and to what extent there will be a loss of existing business and a reduction in new business opportunities. This will depend on how badly the reputation of Cyprus has been tarnished and how well we in the business community, as well as the Government, can safeguard that reputation and rebuild it through our deeds and actions, both right now and going forward.

Andrew Demetriou: The restructuring or resolution per se is not the issue. It is the manner adopted. The actual plundering of account balances in excess of €100,000 at Laiki and the effective decimation of the balances at Bank of Cyprus has shattered investor confidence in Cyprus. Cypriots and foreigners cannot wait to get their money out.

Marios Klitou: The current situation is very serious for the accounting profession in Cyprus. After a number of positive and

way forward in Cyprus. This failure has led to the disaster we are now facing. We have to carefully plan the way forward by bringing all the interested parties together. We have to plan for the Cyprus of 2025, which means taking corrective action and preparing plans that will bring Cyprus back onto the radar of the international business community, for good reasons this time.

Oren Laurent: It has been a setback, particularly for those firms that were banking with them, but in my view, Cyprus’ expertise in financial services will not go to waste. It will be difficult at first as the banking system restructures, but in the long term, Cyprus has proved that it can make a big success of its services sector. Recovery is the only option. The key to recovery is for all the financial service companies to invest time and money in winning back their clients’ trust.

George Pamporidis: Apart from the direct blow suffered by the sector as well as our clients (i.e. loss of funds, loss or haircut of deposits, loss of banking facilities like issuing of LCs or Bank Guarantees, etc.) the biggest loss is the one that Cyprus’ image or brand will suffer as a result of what’s happening. We have worked hard to bring Cyprus to the top tier of International Business Centres and it was blown into thin air overnight.

THE 10% CORPORATE TAX RATE HAS LONG BEEN ONE OF CYPRUS’ MAIN ‘SELLING POINTS’ TO FOREIGN INVESTORS. HOW MUCH WILL THE PROPOSED RISE TO 12.5% AFFECT INVESTMENT AND THE SECTOR OVERALL? Christis Christoforou: The 10% rate was a much-coveted achievement used for marketing Cyprus as an international financial centre. It was a characteristic that is easily understood. In reality, however, I expect that this rate increase will not significantly affect the vast majority of international business in Cyprus. The other key characteristics of our tax system – the exemption from tax on gains from disposal of shares and other securities, the exemption from tax on dividends and the advantages of our 50 plus tax treaties – all remain. If your taxable profits are nil, then 10% or 12.5% of nil is still nil.

It will be a matter of hard work on our part as advisers to make this message clear.

Andrew Demetriou: I do not believe that this is significant. More significant are the stripping of bank accounts and the lack of trust in the banking sector.

Marios Klitou: Having in mind what has happened in Cyprus in the last few weeks, the increase in the corporate tax rate is certainly unfortunate and could be considered as negative point in promoting Cyprus. But

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Christis Christoforou: The attractions are the same. What has changed? If anything – and it pains me to say so – the truth is that one of our key advantages will become even sweeter: the talent pool of available young, educated and proactive business-minded professionals will get bigger over the coming months. This probably means lower labour costs and lower operational costs overall and they are already very competitive internationally.

We Told You So…

“Cyprus will most likely have to submit to EU bailout funds within the next 18 months but this is not necessarily a bad thing. If you have a political process that is not capable of doing what needs to be done, then having an external authority dictating corrective measures is good for the country overall... In that way, the politicians here will have someone else to blame for the implementation of corrective but painful reforms… Right now Cyprus needs to recapitalise its banking sector, so why not make investing in these banks tax-deductible over the next 10 years? The alternative is that the state raises the money, so why not let the people let invest where there is a need? This is what happened during the Swedish banking crisis and it allowed capital to be deployed very efficiently…

Governments should be incentivising their comp nies populations to get the that havea osen to invest inch money that they have Cyprus stashed under their mattresses back into the economy and to create jobs.”

ISSUE 15 JUNE PRICE €6.95 2012

POWERED BY:

00001 >

WHAT CAN YOU POINT TO AS THE CONTINUING ATTRACTIONS OF CYPRUS AS A JURISDICTION WITH ADVANTAGES OVER ITS MAIN COMPETITORS?

Andrew Demertriou: The tax rates and the double tax treaty network. Nothing else.

Marios Klitou: The main points that give Cyprus the edge over other European jurisdictions are the non-taxation of capital gains from the sale of shares, the non-taxation of dividends received

by Cyprus companies, and the absence of withholding tax on the payment of dividends by Cyprus companies. Additionally, the low corporation rate, the low taxation on royalty income, the very wide network of double tax treaties and the excellent level of services offered by the Cypriot professionals are all advantages over our competitors.

Oren Laurent: In my experience, Cyprus has many advantages. The business consultancy services and regulatory environment are well organised, and there is an experienced workforce. As a European Union member state, Cyprus also offers companies like ours a gateway into the European markets.

George Pamboridis: Cyprus continues to offer many competitive advantages.

However, there is no point in trying to highlight these to anyone now. We have lost our credibility as a country and our politicians have deprived us of our professional credibility so if we start travelling again in order to promote these advantages we will be dismissed as unreliable. It will take a long, long time before we can restore our standing. What was built over decades collapsed overnight.

George Theocharides: For the past 1520 years, Cyprus has been the main centre for professional services in the Eastern Mediterranean, linking Europe, North Africa, and Middle East. I don’t see this trend changing despite the difficulties of the times. To my mind, the advantages of Cyprus as a jurisdiction over our direct competitors – Malta, Luxemburg and Ireland – have to do with the low corporate tax rate (despite the proposed increase), the excellent network of double tax treaties, and a number of other benefits related to an efficient tax system (corporate income tax exemption for capital gains and dividends, and no withholding tax on interest payments and dividends). Another important advantage

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if we tackle this properly, it can be managed and explained to work positively and in our favour. The international business people using Cyprus are showing understanding and their decisions will not necessarily be affected negatively by this development.

Oren Laurent: The 2.5% rise in corporate tax has been dwarfed by all the other factors in the bailout. Since a 12.5% tax rate on profits is still very competitive in EU terms, I don’t see the rise being any kind of hurdle for companies looking to establish themselves in Cyprus.

George Pamboridis: The tax rate in itself is not a problem. It never was. The issue is the loss of our credibility and reliability as a jurisdiction determined to provide a stable environment in order to attract foreign investments. We lost that overnight too.

George Theocharides: I do not see a large impact on the professional services sector of the rise in the corporate tax rate to 12.5%, as this rate is still one of the lowest in the European Union. On the other hand, a few companies might decide to leave as the tax imposed on them will increase by 25% (from 10% to 12.5%), but more importantly, they might lose their belief in our tax system, fearing that further tax increases might be forthcoming (at the request of the Troika) in the near future. This is unavoidable, but overall I estimate that the impact will not be so severe.

Cyprus continues to offer many competitive advantages

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30/05/2012

11:47

(STEEN JAKOBSEN, JUNE 2012)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

YES XXX WE CAN

of Cyprus is the excellent human capital that we possess, with highly-educated professionals working in the fields of law and accounting (audit and taxation) as well as other corporate services.

WHAT CONCRETE PROPOSALS WOULD YOU SUBMIT TO THE GOVERNMENT AT THIS POINT IN TIME IN ORDER TO HELP THE SECTOR? Christis Christoforou: There are many, most of which have been raised in the past and the current situation only heightens the urgency of addressing them. I’m thinking of the effectiveness of the public sector – timeliness of results, ease of access (online services), new resources in technology and up-skilling public servants. This is vital in business-facing services such as the Registrar of Companies, the Inland Revenue and the VAT office. It is also essential in the legal system – faster and effective court processes and dispute resolution. This is not a time for cost-cutting. It is a time for investment.

We want the ability to spend less time on procedures and more time on advising our clients about how to develop and grow their business. This will result in higher tax revenues for the Government and bring them in sooner.

Andrew Demetriou: To cancel the resolution process for both Laiki and Bank of Cyprus. To deduct 10% from all balances in all financial institutions on accounts of over €100,000 and then to issue bonds related to the hydrocarbon explorations to all persons who have had funds deducted from their accounts so as to ensure repayment with interest. To agree with the Eurogroup that all bank balances in Cyprus up to €500,000 will be guaranteed by the establishment of a fund that will be set up by the banks in conjunction with the Government.

Marios Klitou: The most important service that the government and the various government authorities can offer the sector is a return to normal business life. We understand that Cyprus is going through tough and challenging times. We have to try to get back to the normal flow. This is the only way to persuade foreign business people that Cyprus is back. If we fail to administer this, we will suffer severe consequences.

Oren Laurent: The government would

do well to get back to basics. To stimulate GDP, we’d need to see serious efforts to approach foreign investors and attract new businesses. Identifying and encouraging areas of profit in the economy is important.

Increasing support for entrepreneurs by streamlining red tape would have a spectacular effect on the number of new companies that set up here.

George Pamboridis: “Get out of the way and stay out of our way so that we may rebuild our economy.” The less they interfere the faster we will get out of this mess. Privatise all departments which are crucial for our sector, such as the Office of the Registrar of Companies, and bend over backwards to accommodate every request from the sector’s representatives. We know what we are doing whereas the State is totally ignorant and lost.

George Theocharides: The goal right now should be to promote the sector as much as possible to foreign companies and funds, as we need to regain our lost reputation. This promotion should be directed at existing clients, making it clear to them that Cyprus can still offer excellent services, but also to prospective clients from abroad. Such an initiative can be monitored by the government, with the participation of all interested parties – the Cyprus Investment Promotion Agency, the Cyprus Fiduciary Association, investment firms, lawyers, and accountants, as well as individual companies. Everyone can help in their own way to get the right message out.

HOW OPTIMISTIC ARE YOU THAT CYPRUS CAN REGAIN AND/OR BUILD ON ITS REPUTATION AS AN INTERNATIONAL BUSINESS CENTRE? Christis Christoforou: I am cautiously optimistic. This is a chance for the Cyprus business model to shed any past practices that led to mistakes and anomalies in our economy and to focus on being a true service-orientated centre of high-value business.

Andrew Demetriou: On a scale of 1 to 10….minus 20. The government is doing nothing at all.

Marios Klitou: Unfortunately, current developments have damaged the reputation of Cyprus as a business centre. While this damage is not irreparable, it will be very tough to regain the confidence of the people that

trusted us in the past. Certainly there is a serious issue with the losses suffered by foreign investors. All stakeholders should consider what measures need to be taken in order to alleviate these losses. This exercise is very difficult as it takes only one action to damage the confidence built over several years.

The most important element for Cyprus is to avoid any decisions that will further damage our reputation. We have to implement the necessary measures that will rebuild, step by step, the confidence of foreign business people.

Oren Laurent: Very optimistic, given time, effort and strong campaigns reaching out to investors.

George Pamboridis: This is our darkest hour. It will be hard and it will require a lot of sacrifices and effort. But I am sure that if we are left alone to rebuild the image of the country and the state keeps a low profile, we will eventually get back on our feet.

George Theocharides: I am fairly optimistic that we can regain our reputation as most of the benefits of Cyprus as an international business centre are still there. Obviously, recent events in the banking sector have also affected the professional services sector but with hard work we can regain our lost reputation. Furthermore, the restructuring of the banking sector means that in future we will be able to have a healthier banking industry with better governance and supervision.

DO YOU INTEND TO TAKE IMMEDIATE STEPS TO ATTRACT NEW BUSINESS? HOW? Christis Christoforou: Deloitte has already mobilized all its local and global resources

This is not a time for cost-cutting.

It is a time for investment

24 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Christis Christoforou: Soon the dust will settle. Be patient and look at the

We Told You So…

“Cyprus is also caught deep in the euro debt crisis. The domestic commercial banks’ assets, at 5 times (€92 billion) the country’s GDP, are heavily exposed to Greece both through their bond portfolios and loan books. The former are at relatively manageable levels but, with an anticipated economic deterioration in Greece, the latter are worrisome. We therefore expect government intervention of varying degrees in Cyprus’s largest banks. Raising the required estimate of €3.6 billion from the market to increase the core Tier 1 ratio and to buffer versus further losses due to Greek sovereign debt will prove difficult in this critical environment. Through a partial nationalisation of the banks, the confidence of Russian and other foreign depositors in our banking system should recover. If the upcoming elections in Russia develop favourably, the financial services sector, now the driving force of the Cypriot economy, should, if all else remains equal, continue to prosper.

Consequently the banks will survive and related INVEST MENT industries, such as law firms and professional services organisations, will continue to develop.”

ISSUE 10 JANUARY 2012 PRICE €6.95

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One step forward, Two steps back

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FROM THE EXPERTS

PETROS LIVAN IOS, DARIOS MELA S

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PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

4

12/03/2012

12:55

(PERSELLA IOANNIDES JANUARY 2012)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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ENT, BUSINES

ISSUE 10 JANUARY 2012

WHAT WOULD YOUR MESSAGE BE TO CURRENT AND POTENTIAL INVESTORS IN CYPRUS?

reality of the situation. This has been a crisis of a “too big” banking sector and a “too big” and mismanaged government sector. These are now being corrected. The good remains – Cyprus’s corporate law framework, the tax system and the Cypriots’ hardworking and entrepreneurial spirit.

Andrew Demetriou: Register your companies here but keep your money and accounts offshore.

Marios Klitou: The message is clear.

Cyprus remains a very important business centre in Europe and we will regain our damaged reputation through hard work and continued contacts with the international business community. Business people using Cyprus should not spontaneously react to the events in Cyprus. They should leave the dust to settle before they take serious decisions which should only be taken after a thorough discussion with their advisors in Cyprus. In this way they will be able to mitigate any damage suffered and avoid wrong decisions that will create even more issues.

Oren Laurent: My message would be that Cyprus’ potential has not changed, despite the setbacks connected to the bailout. It still has an experienced professional services sector and a banking sector that will emerge from the restructuring stronger and better than it was before.

The stormy weather will pass and the opportunities will always be there, so long as you don’t let the rain obscure your view.

George Pamboridis: If they want to listen: the high standard professionals are here and will remain here to add value to your global business at very competitive rates. What brought you here initially will eventually bring you back.

George Theocharides: The message would be not to lose faith in our services sector, because most of the benefits are still there and, most importantly, we continue to have very capable, educated, and professional people that can meet the needs of our clients.

Gold

to ensure that the word is clear. We have hosted web seminars and issued News Alerts to our global client contact network throughout the crisis. We have business emissaries travelling to our core markets. We continue to sponsor business events such as the recent Eastern Mediterranean Gas Conference. We are consulting with the government, both directly and through representation at CIPA, ICPAC, the Chamber of Commerce and other bodies for more business-friendly practices and laws.

It is back to business as usual with the emphasis on investment in relationships with clients – existing and prospective.

Andrew Demetriou: Yes. We shall search overseas markets in other areas such as Africa where we can introduce our expertise in fields other than financial services.

Marios Klitou: Our intention now is to keep our clients informed about developments in Cyprus and to help them resolve the problems that they are currently facing. I believe that CIPA and the CCCI should restructure their marketing campaign, taking into consideration what has happened in Cyprus in the past month. We have to inform the international business community and explain the current situation in Cyprus to them regarding the banking system and the effects on the taxation system currently in place. This will limit the damage that other business centres may cause us through misinformation.

Oren Laurent: Our efforts to attract new business are always intense and on a daily basis. No company can afford to be complacent or rest on its laurels. The times are challenging and we have to rise to the challenge.

George Pamboridis: No. The industry must re-think its model and re-invent Cyprus as an investment destination.

Only after this process is completed can we start to re-brand and re-launch.

It is back to business as usual

Gold 25

09/04/2013 14:23

Alpha Bank Cyprus Ltd presents the:

Cyprus Economy: is there order out of the chaos?

Confirmed Speakers Theodoros Parperis

Dr. Jose Barrionuevo

Panicos Demetriades (invitation)

Luis Campos E Cunha

Former Director of Global Sovereign Strategy Group at Lehman Brothers, Leader of the team of investment banks that restructured Argentina’s sovereign debt, Managing Director, StormHarbour, USA

Chairman President, The Institute of Certified Public Accountants of Cyprus (ICPAC) Cyprus

The 2013 agenda includes Keynote addresses • The future of the distressed economies in Europe • Europe’s Outlook: Not yet out of the woods • Cyprus Economic Outlook for 2013 – 2014 • Cyprus Growth and debt challenges • The outlook of the Banking Sector in Cyprus • Can Countries Survive an IMF/Troika Adjustment Programme and Return to Growth?

• Lessons learned from the Irish, Greek and Portuguese Bailouts • Fiscal Stabilisation Programmes: The Case of Portugal • The Greek and Cypriot Financial Crises: Similarities and Differences. Restoring Financial Stability and Confidence.

Panel Discussions The Banks CEOs discussion: The Future of Banking in Cyprus.

What is the role of the Banking Sector in the “Post Memorandum Cyprus?”

The Economists’ panel discussion: Analysing the new Economic Reality of Cyprus. Economists, Academics and Financial Media personalities discuss economic future of Cyprus

The congress is addressed to: CEOs and CFOs of companies from all sectors of the economy, Enterpreneurs, Senior Managers, Professional Accountants and Auditors, Industry Leaders and Policy Makers

Former Minister of Finance, Professor of Economics, Universidade Nova de Lisboa, Portugal

Governor of the Central Bank of Cyprus, Cyprus

Dr. Nikolaos Georgikopoulos

Eddie Hobbs Financial Advisor, Author Presenter of TV shows: RIP of Republic, Show me the money, Ireland

Financial Economist, Visiting Research Professor New York University-Leonard N. Stern School of Business, Research Fellow in Financial Economics at KEPE, Greece

Guillermo Nielsen

Dr. Petr Zemcik

Former Secretary of Finance Argentina, President of Strategic Investments, Argentina

Director of Economic Research, Moody’s Analytics, UK

Wednesday 22 May 2013| Hilton Park Hotel | Nicosia Keep updated about the conference by visiting http://www.imh.com.cy/3rdnicosiaeconomiccongress For further details, participation fee and registration contact: IMH, Aigaleo 5, 2057, Strovolos, P.O. Box 21185, 1503, Nicosia. Tel: +357 22 505555, Fax: +357 22 679820, e-mail: events@imh.com.cy, website: www.imh.com.cy Supported by

Coordinator

Gold Sponsor

Communication Sponsors

Main Sponsor

Organizers

VIEW FROM THE TOP Articles by Andreas Christofides, Loucas Marangos, Stephen Michaelides, Andreas Neocleous, Olga Rybalkina, Polakis Sarris, Savvas Savouri and George Savvides.

LEADING PROFESSIONALS FROM THE LEGAL, ACCOUNTING, FIDUCIARY, FOREX AND OTHER SECTORS EXPRESS THEIR VIEWS ON CYPRUS’ FUTURE AFTER REACHING AGREEMENT WITH INTERNATIONAL LENDERS ON A BAILOUT DEAL. THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

YES XXX WE CAN

Tough Measures

By Andreas Christofides

Will Bring Stability

FOR INVESTORS, CYPRUS STILL HAS ONE OF THE MOST FRIENDLY TAX SYSTEMS IN EUROPE

C

yprus is facing its largest financial crisis since the Turkish invasion in 1974.

Indeed, some analysts claim that the situation now is even worse. A series of decisions at the European level, together with structural problems in the Cyprus economy, led the country to ask for financial assistance from the European Commission, the European Central Bank and the International Monetary Fund (“The Troika”) in June 2012.

The negotiations resulted in the Eurogroup’s decision on 25 March to resolve Laiki Bank and restructure Bank of Cyprus, which will be recapitalized through a deposit/equity conversion of uninsured deposits.

I appreciate the fact that depositors in the two banks will be seriously affected and that this will undermine the confidence of investors in the Cyprus banking system.

However, I believe that through hard work we will manage to stabilize the business environment and bring the economy back to growth.

The agreement on a financial support package, although onerous in some of its terms, will bring back stability to the market and eliminate uncertainty. The European Central Bank’s decision to allow the use of the Emergency Liquidity Assistance mechanism will provide sufficient liquidity to the financial system, so as to absorb possible reactions by depositors.

The financial services sector corresponds to 40% of the country’s Gross Domestic Product, contributing €8 billion to the national budget. Any shrinkage of the sector will undermine the country’s ability to repay its debt, something which raises questions about the Eurogroup’s intentions when tak-

The increase in th corporate tax rate e is manageable and expected to negais not ti affect internatiovnely business in Cypr al us

ing its decision on a deposits haircut.

The decision also provides for a 2.5% increase in the corporate tax rate to 12.5% and a flat solidarity fee of 10% for three years in relation to bank interest income. The increase in the corporate tax rate is manageable and is not expected to negatively affect international business in Cyprus in any significant way. Cyprus will still have one of the most friendly tax systems in Europe with no taxation imposed on the sale of shares, full participation exemption on dividend income, no withholding tax on dividends, interest and royalties, no thin cap rules, no exit charges, effective tax on royalty income of 2.5%, interest income taxed being taxed only on a thin margin only and so many other benefits.

The process of resolution of the two largest financial institutions in the country will surely cause a lack of liquidity in the market, driving Cyprus into a long depression period. The European Commission predicts that the economy will shrink by 15% this year. It is therefore necessary to take measures that will confine the negative effects of the bailout agreement.

We need to provide tax and other incentives for repatriating funds that will be invested in the real economy and for attracting foreign investments, especially businesses undertaking Research & Development. It is essential to reduce bureaucracy and create fast-track procedures for new investments, and automating IT systems need to be put in place in government departments, especially the office of the Registrar of Companies and the Inland Revenue.

The coming months will be extremely difficult since the decisions relating to the two major banks will affect both Cypriot businesses and the confidence of foreign in-

vestors. However, the other financial institutions have not been materially affected and, hopefully, no significant outflow of deposits will be experienced in foreseeable future.

We need, though, an immediate plan to assist local companies to overcome the initial shock and return as quickly as possible to ‘normal’ operations, thereby safeguarding as many jobs as possible, followed by a full and comprehensive strategic plan that will bring the economy back to growth.

Besides its attractive tax system, Cyprus still has a lot of competitive advantages, such as its geographical location and highly educated manpower. KPMG has drafted a plan targeting specific categories of investors to help Cyprus regain its credibility and attract new investments. I personally believe that the Government should speed up the processes for developing the structures necessary for the commercial exploitation of the country’s natural gas resources. This will give a boost to the economy and generate new jobs while, at the same time, Cyprus will have the opportunity to make alliances with other countries. Finally, we need to implement targeted measures to enhance the quality of our tourist product, since that industry can help the economy reduce the negative effects of the Memorandum.

info: Andreas Christofides is the Managing Director of KPMG Ltd in Cyprus.

28 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Down But

Not Out

By Loucas Marangos

THE CRISIS IN THE BANKING SECTOR AND THE ISLAND’S TARNISHED IMAGE DO NOT MEAN THE END OF CYPRUS AS A SERVICE CENTRE

T

he Chinese have a very apt curse: “May you live in interesting times”. We are certainly living in times of change with the local economy undergoing what is probably the biggest shock that any developed economy has experienced since World War II. Cyprus is probably not an exception; it is merely the first to experience the effects of the new dogma of “bank resolution”.

The European Union has decided to kill a sacred cow and, as a result, deposit safety is no longer a given as depositors will be required to contribute to the bail-in of failing banks. Our problem is that the bank resolution framework involves the two largest banks on the island. Things will certainly be different and significantly more difficult from now on for the local economy.

There are immediate and obvious results from the loss of savings and wealth, the introduction of capital controls and the contraction of economic activity. There are also longer-term implications of the gradual redistribution of deposits from the low-rated peripheral banks to higher-rated banks which will result in differentials in interest rates and banking activity.

We now need to manage the aftermath of the collapse of a sector that was the foundation of our services-based economy.

Most commentators agree that, in the shorter term, the local economy will un-

dergo a dramatic adjustment including a significant contraction in demand and investment, credit rationing, high unemployment and restricted capital flows.

But however bad our current predicament may be, it is urgent that as a country we define and implement a new strategy for an economy that will be based on sounder foundations. It is interesting to speculate about what part the professional and financial services sector will play in the new Cyprus economy.

The current state of our banking sector and the emerging European Union strategy on the resolution of banks make it extremely difficult for Cyprus to regain its position as a banking centre. The future landscape of Cyprus banking will probably be characterized by smaller banks servicing local individuals and small corporates. The contraction in banking activity will adversely affect economic activity both directly and indirectly.

Undoubtedly the crisis in the banking sector and the tarnished image of Cyprus as a financial and professional services centre will have significant repercussions on the wider services sector. It does not, however, necessarily spell the end of Cyprus as a service centre.

One of the major factors driving the expansion of the banking sector was the existence of educated professionals, lawyers, accountants, fiduciary services firms, a competitive tax regime and a sound legal framework. Despite the early

difficulties due to client defections, to a large extent the advantages of Cyprus are still intact and, although diminished, the existing customer base can form the basis for the reinvigoration of economic activity in the sector.

Additionally, the financial services sector, which has experienced significant growth and employment opportunities in recent years, remains well-protected from the immediate aftermath of the crisis as most financial services firms act as transaction processors and generally use foreign banks, which has protected them from direct financial losses as a result of the deposit haircut. Firms in this category are more concerned with reputation risk due to being headquartered in Cyprus.

The degree of success regarding client retention will depend on private initiative but also on the ability of the government to quickly stabilize the banking system and deal with uncertainty, as well as on its willingness to provide proper incentives for foreign businesses to remain in Cyprus. The economic strategy must be a combined effort by both the private and the public sectors.

Undoubtedly there are many challenges and a great deal of uncertainty ahead of us. The economic impact of the crisis will be felt for a very long time but no crisis, however devastating, can totally destroy economic activity. Economies adjust to new realities and growth returns. Markets have short memories and if we rebuild the economy they will come back.

The financial services sector remains well-protected from the immediate aftermath of the crisis

info: Loucas Marangos is the Chief Executive Officer of TFI Markets

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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YES XXX WE CAN

Facing

The Future

By Stephen Michaelides

IT’S NOW TIME TO CHANGE THE BLEAK PICTURE OF CYPRUS AND LOOK AHEAD WITH CONFIDENCE

I

n the build-up to joining the EU in 2004, Cyprus transformed itself from an offshore tax haven to a jurisdiction which complied fully with EU directives and OECD initiatives against harmful tax practices. This development, in combination with the many tax incentives offered to the international tax planner, a familiar, UKbased legal system and an ever-increasing network of double tax treaties, led to an explosion of foreign-owned companies in Cyprus. This brought with it many good years for accountants, lawyers, fiduciary services providers and our banks.

This tremendous growth was especially true in relation to the CIS countries, where the strength of the double tax treaty as well as religious links have meant that Cyprus has become a firm favourite of wealthy businessmen (most notably Russian), as a place to park their personal wealth and hold their business interests.

Unfortunately for Cyprus, this growth in Russian business coincided with several factors which put Cyprus in the spotlight (or the sights?) of the powerful in Europe: High-profile Russian oligarchs and their glamorous lifestyle have attracted a great deal of publicity recently, with many questioning the origins of their immense and sudden wealth. Offshore tax havens and aggressive tax planning by large multinationals have also received a lot of coverage in the media, as well as criticism from various political circles, with many questioning the ethics (rather than the legality as such) of such practices. With the increasing use of Cyprus in tax stuctures, our name was inevitably associated with some of these practices and we have been accused of being part of the problem Moreover, our government’s delay in

finalising a bailout during 2012 put us firmly in the pre-election period in Germany. This provided an easy target for opposition parties to put pressure on the government through the populist argument that they should not bail out “the tax haven where rich Russians are hiding their illgotten gains”.

I believe we could have dealt with the above ‘friendly fire’ as long as our banks were able to stand on their own two feet (or as long as the amounts involved were manageable). However, in my opinion, the final nail in the coffin came with the signing of the haircut of Greek bonds. The hit taken by our big banks meant that, from that day, we were at the mercy of our European partners and the IMF. Hence the mess we are in.

Whether we feel badly treated or not, we have to deal with today’s reality: the local economy is going to take a significant hit and things are going to get worse before they start getting better. Inevitably new industries and sectors will start popping up but the never-say-die attitude of us Cypriots may be tested even more than in 1974.

However, there is light at the end of the tunnel in the shape of offshore gas reserves and now that the bailout agreement has given us some breathing space, we should start to seriously look at ways of cashing in sooner rather than later, even if this means having to accept a discount on the reserves’ real value. In George Lakkotrypis we have a bright, open-minded and down-to-earth Minister of Energy, Commerce, Industry & Tourism with experience in the real world of commerce. Let’s hope he can deliver and, at the same time, we can navigate the associated and inevitable political (or worse!) brinkmanship.

On the positive side, the crisis we are experiencing was (and remains) a banking

Our tax regime remains the mos attractive in thet eurozone crisis. Cyprus has now turned a page (even the IMF says that we have solved our structural problems) and we have managed to contain the damage to the two problematic banks. Most importantly, our tax regime remains the most attractive in the eurozone and this means that we can start talking to our international clients with confidence about the future.

This message needs to go out loud and clear from everyone involved – the accountants, the lawyers, the fiduciaries, CIPA, etc. – and we need to stop painting this bleak picture of the future of our services sector. I have spoken to dozens of clients over the last few days and not one (I repeat – not one) is looking to move his company elsewhere.

If we manage to get through the next 1-2 months without any further adverse developments, there is good reason to be optimistic that the vital funds generated by our overseas business clients will continue to flow while the rest of the economy realigns to the new realities.

info: Stephen Michaelides is a Partner at Grant Thornton (Cyprus) Ltd.

30 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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I

am sure that others writing on these pages will do an excellent job of highlighting the benefits that Cyprus still offers international business despite the best efforts of our friends in Europe and the IMF, so I should like to make some more general observations on the current situation.

We are going through uncharted waters and it seems that every day new and graver consequences of the decisions taken in Brussels regarding our country emerge. Many people in Cyprus face great hardship and I fear that, for a time at least, things will get worse as the effects of the new measures are felt. Our economy and our very nation have suffered a major blow and we must rebuild them both.

We can emerge from the ruins and return to prosperity, but it will require a concerted effort from all of us. It is also important that we seek to understand the reasons for our downfall so as to avoid becoming vulnerable again.

By Andreas The financial and Neocleous business services sector has been a main driver of the economy and source of employment for the past few decades and, with traditional industries in decline and some years to wait before our energy resources can be commercially exploited, it has to be the main driver of our recovery.

Our success in business services has been built on three pillars, namely our robust and transparent legal system based on AngloSaxon law, our accounting and bookkeeping sector which adheres to international standards and our comprehensive banking and financial services. Since it is clear that our

banking sector is to be severely scaled down we shall have to find other means of meeting our clients’ needs in this last regard. There are no rigid requirements as to where Cyprus companies, trusts or other entities should maintain their bank accounts, and it is perfectly feasible for them to operate bank accounts with any bank in Cyprus or, indeed, elsewhere.

I am encouraged by the fact that to date none of my firm’s overseas clients has indicated an intention to move their business away from Cyprus. On the contrary, many have assured us of their continued support and confidence and have expressed their sympathy for our national predicament. In the long run we will be better off without any “fly-by-night” clients that do desert Cyprus.

We can all help by correcting any misapprehensions people may have about Cyprus and presenting ourselves in the most positive way. Over the past few days I have been interviewed by several foreign media organisations and I have taken care to show Cyprus in the best light, and to emphasise that Cyprus is still open for business. My partners and I have also been making our voices heard with the government to ensure that the business services sector is not unnecessarily harmed by such measures as have to be taken, and we will continue to do this.

Cyprus’s history as an international trading centre dates back to the beginning of civilisation. We have overcome greater difficulties in the past and I am confident that our innate resilience and talents, coupled with our country’s strategic location and excellent professional services, will

We Told You So…

“At the moment, the Cypriot banks appear to have plenty of liquidity. But one remarkable characteristic of this financial crisis is the ability of the international markets to fulfil their own worst fears simply by thinking about them. The vicious cycle for Cyprus has already started. Central Bank Governor Athanasios Orphanides has warned that Cyprus might have to enter a support mechanism. The international media is now talking as though it is a certainty.

Now our local banks will have to answer questions from investors, rating agencies and lenders not only about their exposure to Greece but their exposure to the Cyprus government as well. That might make them reluctant to lend to the government (at least TO P at an affordable price) and hey presto!, the government cannot roll law fir ms iN CYPrUs over its debt and has to go cap in hand to the EU for support.”

ISSUE 06 SEptEmb Er 2011 prICE €6.95

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CYPRUS WILL OVERCOME ITS PRESENT TROUBLES BY DINT OF EFFORT, MUTUAL SUPPORT AND COOPERATION

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plUS:

monEy / bUSInESS EConomy tAX & lEGAl lIFEStylE / opInIon

(FIONA MULLEN, SEPTEMBER 2011)

We can emerge from the ruins an return to prosper d ity allow us to overcome our present troubles.

We will rise from the ashes, not miraculously like the phoenix, but by dint of effort, mutual support and cooperation, and we will emerge stronger and better. To paraphrase Seneca: “As gold is tempered by fire, so men are tempered by adversity.”

info: Andreas Neocleous is an advocate and the Founder and Chairman of Andreas Neocleous & Co LLC.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 31

09/04/2013 15:06

COVER STORY

YES XXX WE CAN

A New Start for Cyprus?

THE BAILOUT HAS HARMED THE COUNTRY AND ITS FINANCIAL SECTOR BUT THEY WILL ULTIMATELY EMERGE STRONGER

T

here always comes a time when unresolved negligence and mistakes that accumulate over years of inaction catch up and inevitably create an explosive situation that cannot be easily corrected. The Cyprus crisis is no exception. However, every crisis is a passing phenomenon, so long as the right steps are taken to ease the pressures and, slowly but surely, rectify the situation.

Recent events in Cyprus over the past few weeks, especially the resolution of Laiki Bank and the restructuring of Bank of Cyprus, have dealt a serious blow to the professional services sector.

The final agreement poses great difficulties for the industry and it has brought harm both to the country and the finanBy Olga cial sector.

Rybalkina Had certain economic issues been

addressed earlier, it is very likely that they could have been handled with less pain and this situation could have been avoided. But there is no point in dwelling on the ‘what ifs’; the banking sector is now undergoing what I call essential “surgery”. This “surgery” will restore its health and give it strength. The reaction to the 2.5% increase in the corporate tax rate was fuelled by the uncertainty which was felt by everyone but, in essence, it is not such a significant increase and should not affect the financial sector at all. Very few other European countries offer a lower corporate tax rate than Cyprus, or even the same one; in fact, the majority have a higher rate.

To deal with the recent events on the island, the Cyprus government will have to undertake an enormous and gruelling task.

It should first take action to remove the element of uncertainty which has been created; only then can the trust that has been lost be rebuilt. The industry will not suffer a complete breakdown, no, but the government must place emphasis on fixing all that was wrong and problematic before; on the things that were not being done correctly and people still ignored. When those faulty parts of the industry are mended, trust will be restored in all those investors who have chosen to stay in Cyprus and see the crisis through. The government will have to become more investor-oriented and must prove to investors that it is able to both handle and promote their interests. It is a challenging task and it will be a lengthy process but it can be done. Confidence must be brought back to the island and suitable conditions for business development must be created. The banking system needs time to heal; if needs be, the government should employ financial experts to help cure it and when all the bad debts are cleared, Cyprus can make a new start and

regain its reputation as an international business centre.

ForexTime has not been affected by the current crisis in Cyprus and we do not need to take any immediate steps to deal with the recent economic events. As a global company, we conduct business all over the world, not just in Cyprus; business therefore continues as usual, unhindered by the current economic climate.

If I could say anything to current and potential investors in Cyprus, it would be not to panic. Difficulties happen every day, everywhere and to everyone; such is life.

Panic will never make a situation better, so stay calm, calculate the extent to which this crisis has affected you and, from then on, make the appropriate decisions to deal with it. This could just be an opportunity to start anew and right what’s wrong.

Every new beginning is an opportunity to start afresh. By building on the lessons of the past and removing the hindrances of inefficiencies, we can move forward with restored confidence towards a stronger financial future.

The government must place emphasis on fixing all that was wrong and problematic before

info: Olga Rybalkina is Chief Executive Officer of ForexTime Ltd.

32 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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09/04/2013 15:06

Deadlines, Ultimatums, Agreements and Rebuilding DESPITE AUSTERITY MEASURES AND HARSH DEMANDS, THE GOVERNMENT HAS REAFFIRMED ITS COMMITMENT TO THE PROFESSIONAL SERVICES SECTOR

L

ast month, statements were repeatedly made by a select few – albeit influential – political leaders of our European partners, claiming that “Cyprus’ economic model has failed”. Nothing could be further from the truth. Since the Turkish invasion of1974, Cyprus has built a very successful financial services sector which developed around its attractive taxation system (Double Taxation Treaties with over 40 countries), the country’s inclusion on the OECD’s “white list”, a highlyeducated pool of financial and legal professionals, an excellent system of communications and infrastructure, and also on account of the island’s convenient location. It has, in fact, been such a successful economic model that it appears to have caused concern among competing jurisdictions.

What caused the problem – and this is an undeniable fact – is that the two largest banks in Cyprus had incurred huge losses on account of their exposure to the Greek debt crisis and subsequent PSI (directed by the European Commission) and due to non-performing Greek-held loans. It is also true that Cyprus was burdened with an excessive public sector. These factors, coupled with the global financial crisis, eventually led to a downgrade of the Cyprus economy and to the country’s request for funding from the European Stability Mechanism (ESM) last June. The ESM imposed a series of austerity measures upon the people of Cyprus, including a reduction to the number of public sector employees, salary cuts, the abolition of many other benefits, tax increases, etc, which, although harsh, were readily adopted.

Then, on March 15, the sudden decision of the ECB to suspend any further funding towards Cypriot banks via the Emergency Liquidity Assistance mechanism, left the Cypriot President with no room for negotiation. In

fallacy of its decision, the Troika then attempted to make amends and a mea culpa was expressed by the Eurogroup’s president. The damage to Cyprus’ reputation, however, had already been made.

The terms of the eventual agreement were such that they satisfy the Eurogroup’s aim of reducing the size of Cyprus banking sector and they concern the two main banks on the

By Polakis Sarris island: Laiki Bank will immediately enter a process of resolution and Bank of Cyprus will be restructured.

The agreement, onerous as it is, opens the way for Cyprus to sign a Memorandum of Understanding (MoU) with the Troika in order to bring about the necessary reforms required to reduce the public debt. The measures to be included in the MoU are, to a large extent, known and many have already been brought into effect.

Among the proposed measures is an increase in the rate of corporation tax from 10% to 12.5% which still leaves Cyprus with a most attractive regime for holding companies on account of the tax-free flow of dividends through Cyprus, short, Cyprus was asked to come up with €6bn no taxation imposed on the sale of shares, no in cash (33% of its GDP) within five days or withholding tax on dividends, interest and royalface bankruptcy. No country in the world could ties, no thin cap rules and an IP regime with an reasonably be expected to comply with such a effective tax rate of 2.5%. Most importantly, demand, which leaves many unanswered ques- however, the Cyprus government has reaffirmed tions. its commitment towards the financial services The agreement reached in Brussels on the sector and international business, thus sending morning of March 25, which put an end to a clear signal of its importance to the country’s the uncertainty over Cyprus’ economic future, economy. was the culmination of a series of deadlines Recent events have brought about immense and ultimatums hastily imposed by the Troika suffering and economic loss to a lot of people. over a one-week period on the island’s newlyThe repercussions on the Cyprus economy and elected government (just 20 days in office). The its people will, no doubt, be severe. However, Troika’s initial directive was to impose a one-off our country’s history has proven that, regardless 6.75%-10% bank levy on all deposits, thereby of any setbacks, the Cypriots never lose faith and violating the Union’s own directives and acquis will always rise to the challenge of restoring the communautaire on the safeguarding of deposits economy and their lives and, at the same time, up to €100,000. This caused an outcry the do justice to the many international investors world over and the proposal was flatly rejected who have been caught up in these most unfortuby the House of Representatives. Realizing the nate of circumstances.

The Cyp will rise riots challentgo the restorin e of econom g the ya their liv nd es

info: Polakis Sarris is an advocate and the owner of Polakis Sarris & Co LLC

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 33

09/04/2013 15:06

COVER STORY

YES XXX WE CAN

Fortune Favours

The Brave

DESPERATE TIMES DEMAND DESPERATE MEASURES. NOW IS THE TIME TO SEEK DÉTENTE WITH TURKEY

L

et me begin my economic assessment for Cyprus with this point: matters are going to get materially worse. Once this sad truth is accepted, recovery will come sooner and more swiftly if those in the Republic take a bold decision: to engage in détente with Turkey. The simple truth that we Greek Cypriots must accept is that now is the time for a rapprochement with Turkey. Let us remember, after all, that as much as the Greek Cypriots feel betrayed by the EU, so do many Turks feel shamefully cold-shouldered by the same organisation, one whose economic fortunes will stumble from bad to worse.

The recent events that have unfolded in Cyprus are part of an ongoing sequence of unpleasant shocks, not simply within the eurozone but in the wider EU. And whilst attention has been focused on the eurozone – and led to gross exaggerations of its potential to fragment – the looming problem of what awaits non-euro nations has been overlooked. Unlike Cyprus, Greece and other distressed countries within the euro bloc, all those other European states with sovereign currencies can – and very likely will – devalue against the euro. My confidence in this belief is based on considerable historic precedent, from Argentina to Indonesia and on many other instances of significant exchange rate corrections over recent decades. Once these currency corrections occur – next year is my guess – deflationary pressures within the eurozone will worsen and make Japan’s lost economic decades an ever-closer and alarming template for the eurozone.

By Dr Savvas Savouri

Rather than allowing itself to be drawn even further into this maelstrom, Cyprus must forget the naïve notion of breaking away from the eurozone and break open talks with Turkey. Those aghast at the mere suggestion of this should remember that desperate times demand desperate measures. The plain fact is that, whilst the European economies are generally facing up to an unpleasant future, Turkey promises to be one of the brighter economic lights.

Seeing clearly that its entreaties to join the EU have been rejected, Turkey can now focus its growth away from the EU and, for a start, on ever-closer economic engagement with its neighbour Russia.

There is also even more lucrative potential with the Turkic language-speaking former Soviet Republics. Azerbaijan, Uzbekistan, Kazakhstan et al are enjoying strong resource-driven growth from which Turkey has already been benefiting. Cyprus can watch Turkey’s economic rise or – far more sensibly – it can engage with it.

In short, Greek Cypriot leaders must put aside ill feelings over an event which is coming up to its 40th anniversary and ensure that the country has an economic future. After all, when a national emergency hits there is no room for petulance or prejudice, just pragmatism. All options have to be considered, however great a reticence there is to do so. And for Cyprus this is as serious a national emergency as it has ever faced; yes, it is even on a par with the events of 1974.

Would Turkey be open to conciliatory tones from Nicosia? I think so. The reason I believe that Ankara is open to détente is that it will quickly see the economic conta-

When a national emergency hits there is no room for petulance or prejudice, just pragmatism gion from the Republic of Cyprus into the self-proclaimed TRNC. The north cannot fail to suffer as free-spending travellers across the Green Line will not now be so free-spending. Moreover, ‘cheap’ northern property and land will find itself in competition with ever-cheapening assets across the south.

As for alternatives to my suggestion, I see none. I find fanciful the idea that China will come to the rescue. Indeed, rather than the Chinese arriving I see both the Russians and the Britons decamping. As for capitalising on the still largely unquantified oil and gas around the shores of Cyprus, this has promise but it will be more quickly achieved with Turkey’s help rather than hindrance.

It could be argued that what has happened to Cyprus is the best thing possible, forcing a reappraisal of its ability to be stubborn in its demands for reunification and being economically disengaged from Turkey.

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund.

34 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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09/04/2013 15:06

The Day After… and The Month After MARCH 15 WAS NOT THE END OF THE WORLD AFTER ALL

I

t was approaching 10am on Saturday 16 March and Elpida was waking after a good night out at a carnival party at the start of the long weekend.

Her home town of Limassol is renowned not only as the international business centre of Cyprus, in which she enjoys a successful career as a fiduciary service provider, but also for its annual carnival celebrations.

As she browsed her smartphone while sipping her coffee, Elpida saw an early message from a colleague. At first she could not understand what it was about. Only after reading the message several times did she begin to comprehend the severity of its content. It was not going to be a relaxing weekend after all! The message indicated that the previous night’s Eurogroup meeting to help resolve the financial problems faced by Cyprus and its banking system had resulted in what appeared to be the end of the world: an unprecedented and totally unforeseen decision to enforce a haircut on bank deposits.

As she started searching for more information, a cold sweat came over her. As a person who knew very well where her and her country’s interests lay, any concern for personal or company losses were left aside.

She was thinking of her clients who had their money in Cyprus banks and the devastating blow that they would suffer.

A dark realisation began to form in Elpida’s mind of the impact which the Eurogroup decision could have. After so many years of hard work by the professionals of Cyprus to attract foreign investors to the island, and the pro-business approach of successive governments to developing a favourable and strong tax and legal regime, the huge success of the country, especially in the years following EU membership, looked likely to be overturned in just one night.

Days passed, uncertainty and confusion reigned, scenarios changed by the hour, with the following two long weekends unfortunately no better than the first. The

end result seemed even scarier than the initial scenario: the closing down of the country’s second largest bank and a severe haircut on deposits held in the biggest one.

Yet in the midst of all the gloom, there was a small glimmer of hope. Elpida realised that, during this period, not a single client had expressed the desire to restructure outside Cyprus. As her mind became clearer after her initial panic, she could see the reasons for this.

While it was not the best solution for depositors and other investors in the two main banks, the Eurogroup’s decision was being implemented in the best way possible, in terms of constraining losses to where the problem had originally arisen.

The other banks and cooperatives would not suffer any damage from the refinancing programme.

In addition, what Elpida had always argued about Cyprus being an international business centre but not a financial centre – mainly due to the absence of international banks and financial institutions – had for once worked in a positive way. Even the total €67 billion deposited in Cyprus (including deposits by Cypriots) seemed tiny when compared with the total number of companies registered on the island and other competing countries such as Luxembourg and Singapore, where the equivalent figure would be in trillions of euros.

Furthermore, the international business sector had remained relatively unscathed by the tax and other measures agreed between Cyprus and its lenders. Even the planned increase in the Corporate Tax rate was not expected to significantly affect companies of foreign interests, especially based on the current model of Cyprus, which mostly serves holding and investment companies.

Combining the above with a modern and flexible legal regime, the island’s welleducated human capital, first-rate infrastructure, strategic geographical location and a plethora of other advantages, there was no doubt that Cyprus would continue

to be an attractive location for international business and tax planning.

Elpida was under no illusions. She knew that such developments would inevitably result in some casualties sooner or later, especially for clients that had suffered a loss on their deposits. But she was also confident that, with a great deal of hard work, the vast majority of her clients could be retained and that it was now in Cypriot hands to kick-start the economy with

By George a solid banking Savvides foundation and with the lessons well learned by everybody. She could begin to look to the future with confidence and hope…

iot r p y C n i w It is no kick-start hands to my with the econo nking a solid ba n and foundatiolessons with the ed by well learny everybod

info: George Savvides is a partner at Fiducenter (Cyprus)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 35

09/04/2013 15:06

INTERVIEW

36 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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10/04/2013 09:24

NDREY DASHIN, THE MILLIONAIRE RUSSIAN BUSINESSMAN BEHIND THE ALPARI FAMILY OF ONLINE FOREX SERVICE PROVIDERS AND, MORE RECENTLY, OF HIS OWN NEW VENTURE FOREXTIME, HAS NO INTENTION OF QUITTING CYPRUS NOW THAT THINGS HAVE SUDDENLY BECOME TOUGH. IN THIS EXCLUSIVE INTERVIEW HE DISMISSES THE GERMAN PRESS’S MONEY LAUNDERING ALLEGATIONS AS “MASS MEDIA NOISE”, PRAISES THE PROFESSIONALISM OF THOSE INVOLVED IN THE SERVICES SECTOR AND EXPLAINS WHY HE PAYS TO KEEP THE ROAD LEADING TO THE LIMASSOL VILLAGE WHERE HE LIVES FREE OF LITTER AND RUBBISH.

By JohnVickers, Photography by Jo Michaelides

Gold: Given the success of Alpari, what made you create ForexTime?

Andrey Dashin: In Alpari we hired the best professionals to sit on the Board of Directors while the main shareholders mainly restricted themselves to being just that and were not involved in the day-to-day business. But I’m young and very active and I felt the need to do something, to create a new company in which I could implement my own ideas – sometimes controversial ideas! – and my own vision. In Alpari there were many people, all mature industry professionals, who shared this vision and my expectations and so I have brought them with me to ForexTime.

Fortunately everything is going according to plan. As an international company it doesn’t rely exclusively on activity in Cyprus so in this sense it is “crisis-resilient”.

Gold: You set up ForexTime knowing that Cyprus was already negotiating a bailout with the Troika, which suggests that you were, in a sense, making a point and stating your faith in Cyprus. Would you agree with this interpretation?

A.D.: Yes and I still believe in the future of Cyprus because it still has the prerequisites that will enable it to continue as an international financial centre. First of all, the people here are top quality professionals. From the standpoint of the labour market, I have always believed that Cyprus offers me good opportunities. The other side of this equation concerns regulation and the Cypriot authorities. The financial authorities and, from what I know, the people in the new government are experienced, business-oriented people. I believe in these people. We speak the same language. I’ve had many conversations with them and I know how they think and what they want. We’ve been able to establish a very good, close collaboration between the business community and the authorities and I believe that this stable partnership will be maintained.

main_story1_dashin.indd 37

REAL

businessmen turn a negative situation into something

POSITIVE

Gold: Do you believe that the countries of the eurozone and their partners were specifically targeting Russian money when formulating a bailout plan for Cyprus?

A.D.: No, I don’t. First of all, I don’t believe in the “nationality” of money. Money is money. Secondly, I don’t believe in these conspiracy theories about Russian money and money laundering. I discount them as “mass media noise” which we need to dispel and see the root cause of the problem: that the Cyprus banking system had become disproportionately overblown and we all knew this. Implementation of this bailout will mean that the Cyprus banking system is going to shrink – I don’t know by how much – but it is going to emerge smaller but stronger. I also think that these measures are actually going to bring very healthy changes to Cyprus as a whole.

have preconceptions about Russians and maybe about Cyprus as well. So the mixture of a perceived “shady image” for both Cyprus and Russians has led to this idea that we are involved in some sort of illegal activity. How do I feel? I’m pretty calm about this to tell you the truth. I don’t feel that I need to dispel these rumours. If someone wants to believe them, it’s up to them. Let them live under an illusion. But that’s all this is: baseless rumours.

I DON’T BELIEVE IN THE

“nationality” of money.

MONEY IS MONEY

Gold: There has been a lot of talk, especially in Germany, about alleged money laundering of Russian money in Cyprus.

As a Russian businessman taking advantage of what Cyprus has to offer, how do you feel about all Russians being seen in this negative light?

A.D.: People in certain countries obviously

10/04/2013 09:24

INTERVIEW

THE CYPRUS BANKING SYSTEM IS GOING TO EMERGE SMALLER BUT STRONGER Gold: Do you think that a significant number of companies – whether Russian owned or otherwise – will relocate away from Cyprus after what’s happened?

A.D.: From my experience and from my discussions with my fellow countrymen, I don’t see them ready to pull their companies and their money out of Cyprus. It’s true that the Russian business community is quite nervous but we need to see the next steps regarding restrictions on capital movement and all these new bank-related measures. What we’ve seen so far doesn’t look particularly scary. The restrictions are reasonable and we can live with them but we need to see what’s going to happen after the first ones are lifted. If these are the only restrictions, the situation will be fine.

Gold: So it didn’t cross your mind to get out of Cyprus?

A.D.: No. I believe that we’re going to survive this crisis and become even stronger.

Gold: What are your expectations for ForexTime and for Cyprus as a regional business centre in 2013?

A.D.: As far as ForexTime is concerned, the company will have been in its first year of operations so I don’t expect anything beyond what I have planned. As for Cyprus, what concerns me the most is the existence of so many rumours surrounding the bailout package.

Rumours can cause far more damage than any restrictions on capital. I want to see the steps that the Cyprus government will take to improve the country’s image. Obviously it’s now in Cyprus’ interest to bring in world-renowned audit firms to carry out all the checks that are needed on its anti-money laundering procedures and to clarify all the accusations of shady dealings. So a marketing or PR campaign is needed but it must be based on something tangible. Cyprus needs to have credible and convincing reports about the clarity and transparency of its financial system and once it has them, then it’s a question of a good PR job to promote the findings.

Gold: Although, as you have said, the banking sector has been seriously affected, do you think that the broader professional services sector will be hit to a similarly severe degree?

A.D.: No. I think the general public is going

main_story1_dashin.indd 38

to be hit the most because there are going to be some quite drastic budget cuts and they will affect the most vulnerable. People have been saying for a long time that changes were needed and everyone knew they were inevitable but when they finally come they always strike them as being unexpected. It’s one thing to know about a situation and another to wake up one morning and discover that your bank account has just got smaller.

Gold: Do you expect the bailout package to bring about specific changes that will affect you and your business?

A.D.: I don’t think there will be any specific changes. For my business, the most important thing is that Cyprus is an EU member state which has the same regulation as other European Union countries so in this sense I don’t expect any changes. I’m hopeful that there won’t be any drastic changes to the regulatory framework in the future.

Gold: You will be aware that many people in Cyprus were hoping that there might be some kind of last-minute offer of assistance from the Russian government, which didn’t materialise. Did this surprise you?

A.D.: I was partly surprised but I think the main reason why Cyprus hasn’t yet received any Russian assistance is that Russia wanted to be involved in the negotiation process from the very beginning and it wasn’t. As I see it, Russia decided to observe the process from the sidelines. However, I still believe that Russia is going to come up with some help. The provisions of this bailout package and the current banking restrictions are not too “heavy” to spoil relations between the two countries. Our ties are stronger than that.

Gold: You and your partners started Alpari at a time when Russia was going through very difficult times Having been financial crises in your own country, what would your message be to the Cypriots who are looking around and wondering how the island is going to deal with the situation?

A.D.: First of all I’m realistic and I believe that the best opportunities arise in times of uncertainty and calamity. This is second nature to me so it wasn’t hard for me to start my own company during the first Russian crisis. As a businessman in a crisis, I am thinking more about taking opportunities than how to save

my money or something like that. I would tell my Cypriot colleagues that we need to discern opportunities and grab them. That’s what real businessmen do. They turn a negative situation into something positive.

Gold: When I first spoke to you for Gold 15 months ago, you told me that you were hoping to start a farm and possibly purchase a winery. Have you made any progress on these two projects?

A.D.: No. I haven’t yet been able to turn these dreams into reality but they are still in my plans. Of course, implementing them is probably going to be a lot cheaper than it would have been before. That’s the businessman talking again!

Gold: If Gold wants to talk to you again in five years’ time, will I be able to find you in Limassol or will I have to fly to another country?

A.D.: I hope that I’m going to stay here because, from both a personal and a business perspective, I feel very comfortable in Cyprus and in Limassol. Of course, like everyone, I have some concerns and disappointments.

One example is how the local authorities deal with litter and rubbish in the streets but these are minor issues. During crises and tough times, I think that business people need to get involved and help out in any way they can. So, for example, I pay for someone to sweep and clean the road leading to my village because the authorities don’t have the money. Under more normal circumstances I would probably not be doing such a thing – I would most likely tell them that it’s their job and that what I’m paying my taxes for – but in a crisis we all need to be more flexible and take on some responsibilities to help the state or those in need in some practical way. I believe that as business people we have a responsibility and together we can overcome all our problems, big and small.

I STILL BELIEVE IN THE FUTURE OF CYPRUS 10/04/2013 09:24

PROFILE Johny Stavrinou

J 40 Gold the international investment, finance & professional services magazine of cyprus

T

here are very few people around the world who have not heard of SHARK, the popular energy drink. Lesser-known is the fact that the brand originated in Thailand, which is one of the world’s biggest consumers of energy drinks. The really big surprise, however, is that the man overseeing no fewer than 62 markets in Europe, the Middle East and Africa is doing so from an office in Larnaca.

Johny (“That’s how it was spelt on my birth certificate”) Stavrinou was born in Durban, South Africa, to parents originating from Rizokarpaso and who left the island in search of a better life in 1972. The original plan was for a 5-year stay but the

1974 Turkish invasion changed that and so their first son was not only born but raised and educated in South Africa. “I came to Cyprus quite often as a kid and so I identified with my country and my culture from a very young age,” he recalls.

He also jokes that he was involved in business very early in life “simply because I could add up 1+1= 2 and do it English!” but he believes that observing the family business provided him with some essential and invaluable knowledge: “Among other things it taught me the value of business itself, the value of time in business, the value of quality service and, in particular,

the value of being able to sell something that you truly believe in and to have the confidence to take somebody’s money for it. Such a transaction, with all these attributes, is an honest one that is guaranteed to bring a second purchase.”

Stavrinou invested in his flair for business by studying for an MBA and, in 1994, when there was a great deal of uncertainty about the country’s future following Nelson Mandela’s election and the end of apartheid in South Africa, he decided to come to Cyprus (“to see what it had to offer”). Temporarily leaving his MBA qualification aside, he found a job with a Limassol radio station and presented a programme (perhaps unsurprisingly called “Johny B. Goode”) featuring Greek and English music. “It was a lot of fun,” he remembers but he

ntire I am part of an e ing ok nation that is lo ent mom forward at this

Johny!

Gold reveals one of the best-kept secrets on the Cyprus business scene.

By John Vickers.

Photo by Jo Michaelides.

the international investment, finance & professional services magazine of cyprus

Gold 41

PROFILE

e when c n ie r e p x e y m In enefit the perfect place b e h t o t n w o d s it come acy fortionalan internar c u a e r u company b , y r t n of the cou servicing Africa, w o d Europe and the of the win t u o o g o t s m e Middle East.” e s Although he had alwas obliged to go back to South Africa until 2004 when the family took a final decision to sell up and return to Cyprus.

Stavrinou began his first ‘proper’ job with Hermes Airports (as Commercial Manager for Paphos) before his involvement with SHARK and its makers Osotspa came about in a typically Cypriot way when someone working for the company had become acquainted with a member of the Cyprus Rugby Federation of which Johny Stavrinou is proud to be the Honorary President (“Breaking the world record for consecutive victories is great. I remember how, in 2004, it was impossible to find a rugby ball here. And now, look at where we are!”). Stavrinou’s name came up as a potential candidate to head a small office in Cyprus and manage the local market.

Following a “challenging and testing selection process, including a 5-hour interview in Zagreb”, the original proposal was expanded and Stavrinou suddenly found himself in charge of 62 markets.

The reasons why Osotspa had chosen Cyprus as its regional office reflect the successful marketing that the island has been carrying out for many years: “Cyprus has a great reputation for its favourable tax regime but it’s much more than that,” says Stavrinou. “The services you get in Cyprus are top quality and the legal and financial people who advise you or manage your company for you are of the highest professional standards. They care about you. The reputation of Cyprus extends beyond tax issues. It is known as a place where, if you put your company here and entrust Cypriot companies to advise you on financial and legal matters, it’s guaranteed that you will be looked after as if the company is their own. I have seen for myself how local service providers are always willing to go the extra mile, not to impress you but because they want to.

So Cyprus is a strategic location, it has an attractive tax regime, it provides quality service that you will rarely find in neighbouring countries… These alone make it

ways been in touch with his Cypriot roots, when he finally started working on the island, Johny Stavrinou came up against substantial cultural differences with what he had come to know in South Africa.

“At the end of the day, the result of a business transaction in South Africa or Cyprus is exactly the same but the actual process is quite different,” he says.

“When I first came to Cyprus, the laidback attitude did bug me, I must admit!

Negotiations were very concise, precise and professional but I often wished that more decisions could be made at the table instead of after lunch, dinner and 40 cups of coffee! However, since those early days I have come to view this way as a very good Mediterranean strategy which allows you to reflect on what has happened and to put things into perspective, so that you can then move on. Now I quite like that approach as long as it’s not too laid-back.”

It was obviously a good move for Osotspa to open an office in Cyprus but are there things that could be done to make things even better and more attractive to business? The latest situation notwithstanding, Stavrinou is more than happy with the island’s services sector. “I think that we just need to maintain what we already have and build on that. We have quality, professional services, setup services that are faster than anywhere else I know of, and whether you’re dealing with the port authorities, customs officials or ministries, in my experience when it comes down to the benefit of the country, bureaucracy seems to go out of the window.”

How does Johny Stavrinou go about dealing with the 62 markets on the three continents that fall under his supervision? “It’s simple. I listen,” he tells me.

“The most important thing in my opinion is to listen to what each of

42 Gold the international investment, finance & professional services magazine of cyprus

those 62 markets is telling me. I need to know what they want from me. In each of those markets, SHARK is not what I tell them it is but what they tell me it is. We treat each market separately.”

Stavrinou is at his most animated when talking about SHARK and his eyes light up when I ask him how the drink is promoted: “SHARK is a cool, young, fresh, party, have-a good-time lifestyle energy drink associated with liberalism, free expression, fun times, fashion, and a non-discriminatory, be-what-you-want philosophy! And it’s great!” he adds, and this is not just sales talk. He means it. “We very rarely communicate the energy drink part of it,” he goes on. “It’s the lifestyle that is promoted much more. In all our regions the basic communication for SHARK is exactly the same but how we expedite it is quite different. For example, Kenya, Tanzania and Uganda are markets that are geographically quite close to one another but the marketing in each one is quite different from that in the others. So if we have a TV advert, for example, we make sure that it has the right cultural connections. In the case of the Middle East, as you can imagine, it’s a major challenge but you have to respect people’s culture and this approach is very much appreciated. We do things specifically for them rather than associate them with something global, which is what most other brands are doing. We’re not talking at them from Cyprus or Austria or Thailand and hoping that they hear us. When we speak to them, we speak directly.”

The result of this strategy is that SHARK will make one TV commercial for Europe, one for Africa and one for the Middle East, and then adapt it to the specific markets of each region. Similarly, an online advertising campaign may be regional and while the objective is the same for all countries, the strategy will be adapted to each particular one. “The most

As Cypriots we a re have a fantastic fortunate to characteristic: survival is in ou r DNA

obvious way is to have things in the local language,” Stavrinou explains, “but the music we use in each country will also be local. It’s very important to connect with the culture of each market. You can’t simply dream up an international marketing campaign and hope to have precisely the same effect in, for instance, the UK and in Tanzania.”

Following the resolution and restructuring of Cyprus’ two biggest banks, many commentators have not hesitated to herald the demise of the professional services sector. I ask Stavrinou how he feels about what has happened and what his thoughts are as he looks ahead to six months or a year from now and beyond.

it’s easy to sell a product once but in order to sell it again you need a lot of customer service and bit of marketing. We have that.

We’ve established ourselves in the services industry as good customer service people.

As I said before, we go the extra mile, not because we want to show off but because we really want to and that makes the Cyprus services sector a sellable, credible, bankable, trustworthy product that people will come back to again and again. So yes, I am down about this particular situation but there is light at the end of the tunnel.

We can all see it and we have no other choice but to make our way towards it.

This doesn’t mean to get to it as quickly as possible but as strategically as possible

The Cyprus serv ices s credible, banka ector a sellable, ble, trustwort hy product that pe ople will come back to again and aga in “I think you’ve hit the nail on the head in the wording of your question. We’ve got to look ahead,” he replies. “We have no choice but to look forward and I feel that I am part of an entire nation that is looking forward at this moment. As Cypriots we are fortunate to have a fantastic characteristic: survival is in our DNA. We’ve survived so many difficult situations, come back and done better. We’ve been struck down again and we’ve survived again. Each time we’ve got back onto our feet and we’ve grown taller and even more proud. Yes, we are complainers; yes we cry and we point fingers but at the end of the day people get down to work and do something.”

Stavrinou views the Cypriots as “supremely patriotic people” for whom the common goal is exactly the same for all, “no matter whether you’re a hairdresser or a house cleaner of the manager of SHARK or a top lawyer in a major firm. Miraculously, people get together and they do what they have to do.”

On the specific question of how the present crisis will affect the services sector, he remains optimistic. “I always say that

so that it becomes brighter month by month, year by year. Eventually we’ll get there, I’m very optimistic about that.”

If he sounds an optimist by nature, that is not entirely true, he says. “In my life I’ve had far too many negative things happen to me. I ought to be a pessimist!” He does concede, though, that he tends to see most things in a positive light. “The only problem that we cannot solve is knowing the precise time we’re going to die. Everything else has a solution – whether shortterm, long-term, difficult or easy. To me the ultimate strategy in anything – from selling energy drinks to enjoying a happy personal life – is simplicity. Bring the problem down to its simplest form and deal with it. I think this is what we are all doing now.”

Johny Stavrinou turns 40 this year and he believes that it is now up to his generation to pave the way for a brighter future for those who are younger than him and to create opportunities for them.

“We cannot sit back and allow those who have lived two thirds of their professional life and are ready to retire to go back to

square one and do things for us,” he says.

“That would be irresponsible on our part.

People in my position who have the ability to do something for young people, for institutions, non-profit organisations or universities must realise that they have a responsibility to pave the way – or at least add a couple of avenues – for the youngster who is thinking right now, ‘Where am I going in this country that is on the brink of bankruptcy?’ It’s now up to us.”

Where does Stavrinou see himself at 50? Still here and marketing SHARK? “I still want to be on the island of Aphrodite, that’s for sure,” he states confidently. “This is home for me, the place where I’m very proud to be. I very much doubt if you’ll find a prouder Cypriot than me – or one who criticises the place as much as I do! But ten years from now, I would still like to be part of this company and involved in marketing this brand and representing it at a global level.

Osotspa Europe Ltd in Cyprus is a subsidiary of Osotspa Co., Ltd in Bangkok Thailand, a 120-year old company and a world leader in speciality drinks. It possesses supreme business ethics and prides itself on the supportive, trustworthy and respectful relationship that it has established with its consumers, partners and staff in and outside Thailand. My vision is to proudly mirror these attributes within our operations. I am extremely honoured and proud to be part of the Osotspa Group and even more so to be representing it. Moreover, the global energy drinks industry has reached about 5 billion litres per year and it’s a growing sector so it’s an exciting place to be.”

Finally, I ask Stavrinou if he has purposely kept a low profile for himself and the Larnaca office. “Yes I have, because I believe that the brand is the protagonist.

Cyprus is actually one of our biggest markets and it has become the showcase for the SHARK brand. It is the Cypriot consumer that motivates us to keep the liquid in those cans as it is and to make sure the events we organise are of the highest order. The demands of the Cypriot consumer motivate us to make all our markets at least as good as Cyprus. I didn’t intend to keep the business aspect a secret but, if that was the case, it looks as if it’s out now!”

the international investment, finance & professional services magazine of cyprus

Gold 43

VTTI’s ₏300 million investment will have multiple benefits for the local economy

By Kyproula Papachristodoulou, Photography by Harris Kyprianou.

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investment

2.

I

n the midst of the most severe financial crisis that Cyprus has ever experienced, investments such as the one that VTTI B.V. is making at Vasilikos through its wholly owned subsidiary VTT Vasiliko, is an excellent model for what can be done in the immediate future to put the country back on the path to growth. The international company which owns and operates oil storage terminals around the world has chosen Cyprus among all the countries of the region to invest in a vast project to turn the island into a hub for storing and trading oil products.

“VTTI wanted to invest in an oil terminal in the Eastern Mediterranean which is considered a region of great commercial activity for oil products yet does not have adequate facilities to store them. Cyprus, Lebanon, Egypt and Turkey were evaluated and Cyprus was chosen as the country that meets a specific set of criteria”, George Papanasta-

This is a massive project that will financially revitalise the region of Vassilikos and Cyprus in general

siou, Managing Director of VTT Vasiliko told Gold.

As Papanastasiou pointed out, Cyprus has a favourable geographical location, it is an EU member state (and therefore adopts the concept of bonded warehousing which favours the activities of such terminals), it has deep sea waters close to shore that can accommodate large vessels, it has a modern economy, and offers a very good level of service and a highly qualified English-speaking workforce. “Generally, Cyprus has many advantages for attracting investments”, he concluded, while not omitting to mention that “There is still room for improvement.

For example, lengthy and complex licensing procedures should be simplified.”

VTT Vasiliko is investing €300 million in Cyprus, which represents about 1.7% of the country’s GDP. This amount does not include investments in the provision of other services, created to support the operation of the Terminal such as towage service, ship pilotage, a chemical laboratory etc.

The core activity of VTT Vasiliko Ltd is

the storage and management of oil products.

Oil shipping companies will be able to lease space in the Terminal in order to store the products that they market to Cyprus and the broader Eastern Mediterranean area and beyond.

Moreover, the jetty of the Terminal can be used for securely loading and discharging oil products between ships – something that now occurs in the open sea – with all the risks that it entails, thus making Cyprus a hub for this activity. The VTT Vasiliko Terminal can also serve as an alternative solution to the needs of the local market when the business activities of petroleum marketing companies will need to be removed from Larnaca.

Finally, Papanastasiou noted that, “The VTT Vasiliko Terminal can be a quick and economical solution for the repatriation of the Cyprus Republic’s strategic stocks which are stored in Greece and the Netherlands, and also aid in freeing up the site of the energy centre at Vasilikos for creating the LNG Terminal which is a project of national significance.”

the international investment, finance & professional services magazine of cyprus

Gold 45

investment

George Papanastasiou

VTTI B.V.

VTTI is an international company that owns and operates oil storage terminals.

Founded in 2006, VTTI is a joint venture of two companies, with investments in oil storage terminals on five continents with a total capacity of 8.6 million m³. VTTI’s shareholders are the Dutch giant Vitol, the world’s largest trader of energy products today, and MISC, a leading shipping company whose main shareholder is Petronas, the national oil company of Malaysia.

VTT Vasiliko Ltd is a private Cypriot company and a wholly-owned subsidiary of VTTI B.V.

VTT Vasiliko could serve as an example of development projects creating job opportunities across a wide spectrum of sectors.

In the current construction phase of the Terminal, the company employs 15 people while J&P – the construction company – employs around 350.

According to Papanastasiou, once the Terminal becomes operational, around 50 people will be employed in permanent positions. Also many job positions are being created in service provision companies that will support the Terminal and its shipping activities. “These are companies that will offer tug boating services and the pilotage of tankers approaching the VTT Vasiliko pier, companies managing waste from the tankers, and quality control services for oil.

This is a massive project that will financially revitalise the region of Vasilikos and Cyprus in general” he said.

VTT Vasiliko’s project is indeed massive and will change the investment climate of the island where, until now, most major investment projects have been related mainly to the tourism sector. In the first phase, the Terminal will have 20 tanks with a storage capacity of 357,000m³ of fuel (petrol, diesel, jet fuel, gasoil) and with the completion of the second phase, capacity will reach 543,000m³ with 8 additional tanks. In the third phase, which is under study, 12 tanks will be constructed for gasoil and the Terminal’s total capacity will reach 858,000m³. There will be a jetty with four berths for tankers from 10,000 tons to 160,000 tons. The jetty will extend 1,200m offshore and will have two loading arms per berth per product with a capability of loading/discharging at 1,250m³ per hour.

“We estimate that the jetty will serve 550 tankers a year. Furthermore, tankers will be

46 Gold the international investment, finance & professional services magazine of cyprus

It will have multiple positive effects on broader society, from jobs created to the reduction of fuel costs due to increased competition served for the loading of oil products due to the lack of infrastructure near the shore, something that today happens off the coast of Cyprus.” As Papanastasiou told Gold, last year approximately 250 such loading operations took place. It is interesting to note that so far 221,560 man hours have been completed without any work-related accident, injury, damage or environmental incident, a achievement which is considered particularly important for a project of the size of the VTT Vasiliko Terminal.

The first and second phases of the project, including the jetty, will come into operation in May 2014, Papanastasiou said, adding that the third phase, which is still under study, will be completed within one year from the date of assessment.

It is the company’s estimate that the Terminal will make Cyprus a hub for storing and trading oil products, and will yield substantial financial benefits for the island.

“It will contribute with capital injections to the Cypriot economy and it will have multiple positive effects on broader society, from jobs created to the reduction of fuel costs due to increased competition”, Papanastasiou stressed.

The Ports Authority is expected to benefit to the tune of approximately €18 million per year from port duties, while the State will have additional revenue from customs duties and the taxation of companies that market their products through the Terminal.

Most importantly, though, “The project strengthens international confidence in Cyprus for foreign investments and business activities at a time when the country is in urgent need of revitalizing the economy.”

opinion

Why Great Service Just Isn’t Good Enough Value has to exist in the eyes of the customer for your prices to be deemed acceptable

A

constant problem in business today is being able to justify a price and not have to discount it in order to stay away from a race to the bottom.

Ultimately, it’s all about proving the value of what you’re offering.

The challenge is to come up with something that is really perceived as valuable by the customer.

I have heard people tell me so many times that they want to charge premium prices because they have ‘great product quality’ or ‘exceptional customer service’. That sounds good but sorry, it’s just not going to work. The problem is that ‘great quality’ and ‘exceptional service’ are concepts, not tangible facts. Nobody would argue that they are not nice to have but, described in those terms, they are certainly not essential and by extension, therefore, not worth paying a premium for.

Value has to exist in the eyes of the customer.

Here is an example I came across just this week: a printing company is offering a threeyear warranty on its promotional banners and the owners believe that this justifies a price premium. But when you ask their customers how they use the banners, they typically have a maximum life of three months before the next promotion comes along and renders the old banners outdated and on their way to the landfill.

So what value can a three-year warranty possibly have to the customer?

This is a great example of value being in the mind of the supplier, not the customer. It is easy to come up with an internal perception of value but much harder to come up with the customer’s perception. If you want to avoid having to

Consumers are three times more likely to buy in order to solve a problem rather than to gain a benefit

By Mike McCormac

discount, however, that is what you have to do.

So how do you find out what your customers value? And how can you build that into what you do day-by-day in order to sell more and avoid the discounting trap? It sounds simple but, actually, all you have to do is ask them.

Keep in mind that people generally buy things to solve problems they face – it’s a proven fact that consumers are three times more likely to buy in order to solve a problem rather than to gain a benefit. So the obvious question is: What is the problem your customers have, to which your products and services are the solution? And the obvious next question is this: Is there any part of the customer’s problem which your products and services don’t solve? That can be a very productive area to look at, for ways of adding to the scope of the products and services you sell so as to increase their value to your customers – and, of course, to you.

Another way of thinking about this is to attach a financial impact to the customer’s problem. You can use that amount to determine the value – and, therefore, the price – that your solution will command in the customer’s mind.

Many businesses make the mistake of assuming that their cost price and their selling price are in some way linked. They are not. The only thing that your selling price is linked to is the value of your products and services to the customer.

Being able to demonstrate a strong link between the customer’s problem, how your products and services address that problem, and the benefits of their use is a sure-fire way to be able to justify your price and have great answers to the “I want a discount” problem. Yes, it takes a bit more work than adding 30% to your cost price and then telling everybody about your excellent customer service. But the work will be justified, simply because it will bring results. It will help you sell more and it will help you justify the pricing and margins your business deserves.

info: Mike McCormac is a freelance business consultant working with companies in Cyprus, Europe and the USA to help them grow their businesses.

mike@salessuccesandmore.com. the international investment, finance & professional services

Gold 47

PRIVATISATION

Thinking

Out Of The (Phone) Box No-one will lose out through the proposed privatisation of Cyta, says global expert Rolf Meakin.

By John Vickers. Photo by Harris Kyprianou

he arguments for and against privatisation of state-owned organisations are fairly straightforward and, until very recently, were still being hotly debated in the media and among the employees of Cyta, the EAC and the Ports Authority. Now there is a widespread acceptance of the inevitability of the privatisation of all three organisations and, as a consequence, the whole question is being re-examined in-depth and the fundamentals of what it will mean are finally being discussed in a clearer manner.

Rolf Meakin is a senior partner in PricewaterhouseCoopers’ global advisory practice with over 20 years’ experience of advising telecommunications operators on the design and implementation of their commercial, investment and organisational strategies. He has seen both good and notso-good results of privatisation but he is convinced that, provided that it is done properly, the benefits are there for all to see.

“For privatisation to work, a number of

48 Gold the international investment, finance & professional services magazine of cyprus

conditions need to be in place. The first is the existence of an effective and efficient regulatory framework,” he says. “In the absence of this, privatisation can actually be very damaging, especially if it is simply transferring a monopoly into private hands, which can be even worse than leaving it in public hands. The regulatory framework is absolutely essential and it involves both economic regulation – prices, the investment – and also the protection of consumers.”

Privatisation often goes hand in hand with competition, though in the telecommunications sector competition is now the norm in most countries, including Cyprus. The second condition required for a successful privatisation process, says Rolf Meakin, concerns clarity from the government about what it is trying to achieve by privatising an organisation. “There is a whole spectrum of goals that might be set by government. For example, it could be trying to maximise the proceeds it can

Rolf Meakin

PRIVATISATION

It is almost universally the case that the value of the telecommunications company goes up after privatisation receive in the short term due to a crisis, or it could be trying to bring additional talent to the organisation’s human resources, which would imply a different type of privatisation and a trade-off between value and who you actually sell the shares to. So certain goals need to be defined by government.”

The term “privatisation” is quite a broad one and there are many different types. In the telecommunications industry, the most common are public stock market listings and the strategic sale of a stake – typically with significant manager influence – to a qualified partner that is expected to stay invested for the long term and to contribute not just money but also human resources, talent, intellectual property and so on. Moreover, such partners usually get into the business for more than financial gain.

“Thinking about the companies I know that have built up portfolios,” says Meakin, “they are obviously looking at the financial business case of the investment in a particular territory but they have wider considerations. As they build up a portfolio they get greater scale in a multinational sense so a company like Vodafone, for example, came from the UK and is now present in scores of countries. That greater scale then allows it the opportunity to obtain economies when developing products which it can do once and then roll them out across multiple

Before privatisation there needs to be a clear regulatory framework and clarity regarding the goals

territories. So there is an external benefit to a company from enlarging its portfolio.”

In Rolf Meakin’s view, it’s up to the government to consider the goals of the privatisation and to define precisely what it expects the strategic investors to bring to the country. These could be the development of the local talent pool in a particular area, for example through collaboration with universities, particularly in a high-tech area such as telecommunications. In such a case, privatisation may be viewed as a means to transfer knowledge, technology and management talent to the local labour pool. “Any privatisation essentially comes down to a negotiation between a willing seller and a willing buyer and it’s for the seller to define any non-financial value requirements it has,” says Meakin.

The view that is constantly being put forward in Cyprus these days is that a profitable state-owned organisation such as Cyta brings in money for the government, the country and the people whereas if it were in private hands all of that would simply be enabling some individual or company to get richer. Rolf Meakin is aware of the fact that it is what he calls “an emotive subject” but he says that the way in which one evaluates a state-owned organisation needs to be based on clear facts. “It’s understandable that people inside and outside Cyta should have these concerns but one needs to compare the organisation’s overall financial contribution before privatisation and its expected contribution afterwards. It is essential to weigh up what the country is getting from Cyta at present.”

That amounts to about €60 million as a dividend to the state plus perhaps €8€10 million in taxes. It is then possible to develop a business plan based on private ownership and, within that business plan, make projections for revenue and profit and what the tax regime will be. “You don’t have to assume that the tax regime will be the same for an entity that is whollyowned by the state as it is for one that is in private hands,” he notes, “so by making those calculations you can work out what privatisation will mean. Obviously, another key element here is the lump sum that the

50 Gold the international investment, finance & professional services magazine of cyprus

government will receive up front in return for equity in the company and that has to be factored in to any calculations as well.”

Cyprus’ long tradition of semi-government organisations may have been good for the employees in terms of salaries and benefits but it is no longer a model followed by many other countries. “Let’s take Europe as an example,” says Rolf Meakin. “There are 42 countries in Europe if we go as far as the border with Russia. Of these, 36 have privatised their telecommunications companies and only six still remain fully stateowned – Cyta is one of them. The others are in places like Belarus and Jersey. Private sector ownership has been the mainstream for the past 10 years and it is worth noting that the change has happened under all kinds of political regimes – centre left, centre right, etc. – and all of these companies are unionised.”

Cyta is clearly in a minority regarding the legal and regulatory framework under which it operates and 36 out of 42 is a convincing proportion of privatised telecommunications organisations. So is the transfer to the private sector invariably successful?

“Generally, though not always,” Meakin admits. “There have been cases where the switch hasn’t really lived up to everyone’s expectations. One example would be Ireland. The Irish government originally sold a strategic stake in Eircom to a consortium of two foreign operator/investors (Dutch and Swedish) who, after a period of time, decided that the conditions under which they had to operate did not give them the flexibility they needed. There came a point when they exited from the business by selling their stake to financial investors, who tend to look at the investment from a purely financial rather than an industrial perspective. They have clearly defined criteria for when they want to get their return. In the Eircom case, they went down the private equity route and leveraged up the company highly so a lot of debt was brought in. It was quite a challenging regulatory environment with competition and the buyers found themselves struggling to meet their debt commitments. That is ob-

viously not a situation that anyone – the government, the first or the second investors – would have planned or wanted. So these things need to be thought through extremely carefully.”

There has been a small number of cases where private equity has been the route to privatise a telecommunications company and, in the majority of those cases, Rolf Meakin holds the view that it has not worked. “In private equity there is typically a three-year time horizon to realise the value of the investment,” he explains, “and it’s not long enough, either from a capital point of view or from a human resources and restructuring point of view either. My personal opinion is that telecoms is a long-term, capital-intensive business so it makes sense to have investors with that sort of time horizon.”

And there is no shortage of success stories, one of which is already being cited as a potential model for Cyta and other stateowned organisations in Cyprus: Portugal Telecom. Meakin first worked with the company in 1988 and, he recalls, “Portugal Telecom was very similar to Cyta in terms of being a 100% state-owned agency (actually two agencies geographically dividing the country) which privatised through an IPO in 1995. In preparation for that, the company was merged and

corporatized, which is a necessary step that Cyta will need to go through as well, and then it was sold on the stock market. The company has maintained a very strong financial performance and it is one of the leading companies in Portugal. Moreover, it has now made significant investments in Brazil – a much bigger market – which it would never have been able to do it if had remained in state hands. It is quite highly regarded in the industry in terms of its (all Portuguese) management capability so I would point to it as a mid-sized company that took the step of privatisation, which wasn’t an obvious thing for Portugal to do, and it’s gone pretty well.”

While there are various privatisation schemes available to Cyprus, Meakin is keen to point out that most of them explicitly provide for the people working in the business to participate in its new ownership.

“It’s done in different ways,” he explains. “There are different types of employee share ownership plans. With a listing on the stock market you directly have a value of the share that you can then use to construct different types of schemes, options and investments. But even if the company is going to be privately held by a strategic partner/operator, schemes can still be created that allow the employees to share in the appreciation in value of the company. It is almost universally the case that the value of a telecommunications company goes up after privatisation.”

There will always be an argument about whom the value is being created for through privatisation, Meakin says, but value is definitely created. “It’s created through the enhanced performance that comes with having the same freedom that the private sector has in terms of recruiting talent, making quicker investment decisions without having a bureaucratic procurement procedure or having to work within a state budgeting process,” he notes, adding that “With this freedom, the new company generally tends to perform better than the old one.”

Ironically, Cyta’s management, in particular, has been calling for greater flexibility for many years now but successive governments have turned a deaf ear to their repeated plea.

Now the required flexibility may finally come, but at what price to the organisation’s approximately 2,500 employees? There is a very evident fear among them that someone is going to come along, buy the organisation and throw half of them out. It won’t happen, insists Meakin.

“This is an understandable concern but if a strategic partner comes in – for example a foreign telecom – it is not going to bring in scores of people on the ground. It will put a handful of people into the management structure but it recognises that the business needs to be run by people who know and live in the market. There is a separate question about whether the people in the organisation are flexible and able to rise to the challenge of competing with the private sector. That’s what it’s all about.” He gives an example: “If MTN has a crack marketing director, then Cytamobile-Vodafone has to have an equally good one. The people working in a privatised Cyta will be 98% Cypriots because the investors won’t want – nor will they have the means – to ship hundreds of people here.

They will still need those people to be doing their jobs. A fair question will be: ‘Are these people the right ones to compete with the private sector?’ When a public entity is transferred to the private sector, its employees need to be prepared to acquire the skills that will justify them having that job, just as if they had applied for the equivalent job with a private sector competitor.”

Such an attitude, Rolf Meakin says, will ensure that those working for semi-government organisations in Cyprus need not fear privatisation.

“There is no way in which, if the government decides in the next year to sell Cyta, the Ports Authority and the Electricity Authority, thousands of foreign nationals will be taking away their employees’ jobs. It won’t happen. Foreign investors would never want to do that. They want to keep the people who know what they are doing working there.”

Telecommunications is a long-term, capital-intensive business the international investment, finance & professional services magazine of cyprus

Gold 51

FIDUCIARIES LAW

Andreas Andreou

52 Gold the international investment, finance & professional services magazine of cyprus

Regulatio

Regulation Regulation, Regulation, Regulation,

The long-overdue Fiduciaries Law will ensure that service providers are professional and qualified.

T

By John Vickers. Photograph by Jo Michaelides.

he long-overdue law on the Regulation of Fiduciaries, Administration Businesses and Company Directors, which transposes the provisions of Directive 2005/60/EC into national law, was enacted by the House of Representatives in December. Among the changes that the original draft law underwent was the shifting of supervisory responsibility from the Central Bank of Cyprus to the Cyprus Securities and Exchange Commission (CySEC).

Andreas Andreou, Vice-Chairman of the CySEC, tells Gold about the provisions of the new law and what it means for the professional services sector.

Gold: Let’s start with the basics. Can you define what fiduciary services are, according to the new law?

Andreas Andreou: Αdministrative services or, as they are customarily called, fiduciary services are services or activities provided by companies which specialize in the management of private companies. Section 4 of the law regulating companies providing administrative services defines such services as the administration or management of trusts, the administration or management of companies (which includes the

provision of directors, secretary and registered address for legal persons as well as holding such persons’ share capital), the provision of general or limited partners in partnerships, the opening or managing of bank accounts and the safekeeping of financial instruments on behalf of clients, including acting as a depositary.

Gold: Why was the new law necessary?

A.A.: It is no secret that over the years, Cyprus has gained a well-deserved reputation as an trusted upcoming international business centre.

The law aims at ensuring that fiduciary providers follow best practices, especially with regard to antimoney laundering procedures

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FIDUCIARIES LAW

Many successful companies registered in Cyprus offer international fiduciary services to thousands of foreign-owned companies and individuals. As a result, and in order to ensure that all the components of the financial services sector – including fiduciaries – abide by the highest standards, it was essential to put the appropriate legislation in place.

Gold: How important is the new law?

A.A.: Extremely important. This is not just another law. It brings the additional protection that is demanded in all the world’s main business financial centres and, in this way, investment and business in Cyprus is encouraged even further. Moreover, the new law sets the record straight with regard to many unfounded accusations against Cyprus regarding money laundering. The Cyprus Securities and Exchange Commission is now entrusted with the authorisation and supervision of fiduciary providers and although the law exempts lawyers, accountants and their subsidiaries from the obligation to go through the application procedure, entitling them to a licence as of right, such licensees are nevertheless supervised by their respective regulatory bodies: the Council of the Cyprus Bar Association and the Council of the Institute of Certified Public Accountants of Cyprus (ICPAC) which outsources this function to the UK-based Association of Chartered Certified Accountants.

Gold: The law aims to bring proper regulation to the sector. How does it achieve this?

A.A.: The law aims at ensuring that fiduciary providers follow best practices, especially with regard to anti-money laundering procedures, in line with the relevant European directive. Firstly, those directing a fiduciary company’s operations must undergo a screening process to indicate that they are of good repute and experience and possess adequate academic and professional qualifications, to satisfy the Commission that they are capable of providing sound and prudent management. Τhe shareholders of a fiduciary firm must be identified to the Commission which has to be convinced of their suitability. Where there is a legal person in the shareholding chain, the identity of the natural person managing it, as well as that of all shareholders up to the final natural person, should be disclosed and assessed.

Furthermore the licenced person has a responsibility to ensure that his/her employees are of sufficiently good repute and have the necessary skills, knowledge and expertise to perform their responsibilities.

Gold: What else does CySEC insist on?

A.A.: There should be a relationship either with an internal or external legal advisor and a compliance officer, who must be appointed upon approval by the Commission.

The head offices of the licenced person should be in Cyprus and, in the case of trustee services, whenever a trust is subject to Cyprus Law at least one trustee should be resident in Cyprus. Within four months of the end of each financial year, the licenced person is obliged to prepare audited financial statements which should reflect the true and fair position of the licensee. These should be kept at the licensee’s head office and be readily available if requested by the Commission.

Most importantly, each fiduciary firm must appoint a Money Laundering Compliance Officer and follow the provisions of the third European Money Laundering directive which, among other things, requires that regulated firms have in place an anti-money laundering compliance manual describing the policies and measures undertaken by the licensed person for the prevention of money laundering. This is notified to employees who have a responsibility to apply it. A monthly report is prepared and submitted to the Commission which includes details of total client deposits, internal suspicion reports and reports of the Compliance Officer to the Unit for Combating Money Laundering (MOKAS). A detailed annual report, which includes a number of issues and information focusing on measures taken for the prevention of money laundering, should be prepared and, before submission to the Commission, be approved by the licenced person’s board of directors.

Gold: Without sanctions for breaches of these regulations, the law would not be effective. How severe are the penalties in such cases?

A.A.: First of all, a licence may be withdrawn by the Commission if the licenced person does not comply with or breaches the law or the anti-money laundering legislation, or is found to have obtained a licence under false pretenses, or is not serving his clients’ interests. Furthermore, any unauthorised person found to be providing services or any authorised person found to be in breach of his obligations can face criminal charges. If found guilty, there is a maximum prison sentence of 5 years or a fine of up to €350,000 or both. Criminal liability may be imposed not only on the entity offering the service but also on the licensee’s directors and management. Τhe law also provides for administrative sanctions in cases where it is breached, with a maximum fine of

54 Gold the international investment, finance & professional services magazine of cyprus

Τhe Law provides for administrative sanctions in cases where it is breached, with a maximum fine of

€500,000

€500,000 or €1,000,000 in case of a second offence. Any person breaching the law is liable to compensate anybody who has sustained a loss as a result. Finally if any person obtains a benefit from such a breach which exceeds the administrative fine, the Commission may impose a fine of up to double the benefit obtained by the said person.

Gold: You mentioned that lawyers and accountants are excempt from the obligation to be licenced by the CySEC. Are there any other exemptions?

A.A.: The law is flexible and, for example, does nor require people acting as directors of a company whose shares are listed on a regulated market or which is subject to regulation by a competent authority and is obliged to appoint independent non-executive directors to be regulated; similarly, if the majority of a company’s shares is owned by the state or public authority. One may also be a director or secretary of a company in which he owns at least 25% of the share capital without regulation, or where the company is the sole employer of that person. The same applies to the provision of trustee services for a trust where the person is a settlor or all the beneficiaries are himself and close family members, or if he acts as a trustee in a trust created by the will of a natural person. That said, such persons are still obliged to comply with the Law on the Prevention and Suppression of Money Laundering and Terrorist Financing.

Gold: How can a member of the public or a company seeking fiduciary services verify that a particular company is regulated?

A.A.: As far as the Commission is concerned, we shall maintain a public registry of licenced persons and update it on our website. Each licensee will obtain a unique number and his details, including the services he offers, will be recorded in this registry. The website will also have links to the registries of the Cyprus Bar Association and of the Institute of Certified Public Accountants.

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Ghada Shami Christofides

BANKING

Realism Blended With Optimism No change to IBL Bank’s development plans.

By John Vickers, Photograph by Jo Michaelides.

I

t’s probably fair to say that Ghada Shami Christofides, Manager of the Limassol-based Cyprus branch of the Lebanese IBL Bank has seen a lot worse crises than the one currently facing Cyprus. She came to Cyprus from war-ravaged Lebanon in 1981, having studied Business Administration at the American University of Beirut and, after working for an offshore company, joined BNP Paribas where she held several posts over a period of 25 years until its closure in 2011. She was then asked to join IBL which has been operating in Limassol since 2009, though, as she told Gold, “it

was in 2012 when we really entered the local market and it’s since then that we have been getting more and more domestic clients.”

Like most Lebanese banks, IBL Bank (formerly Intercontinental Bank of Lebanon) wanted to have a presence in an EU country and the geographical proximity of Cyprus, in conjunction with the country’s well-known advantages for business, made it the perfect choice. At present IBL Bank, Limassol, offers what Christofides calls “the usual services – savings accounts, term deposit accounts, transfers and on the credit side, loans, overdrafts, letters of credit, letters of guarantee, and other commercial services but soon we

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BANKING

I believe that the Cypriot people need to be supported right now

hope to extend our services to include more retail-oriented services such as issuing chequebooks and payment cards, etc.”

These days, IBL is one of Lebanon’s best-performing banks in terms of growth in deposits and loans. It also enjoys the highest Primary Liquidity ratio among the top Lebanese Banks. “We have a very a good capital adequacy ratio so it’s a financially sound bank,” says its Cyprus manager.

Although many of the bank’s customers are, not surprisingly, Lebanese, it has a growing number of local and international depositors.

For IBL and other foreign banks, the downsizing of the Cyprus banking sector may actually affect their operations though the Manager of IBL is quick to point out that “The Bank has been planning to develop its business in Cyprus for some time and there are no changes to those plans. Naturally, we shall be monitoring the situation closely but we do not expect to be affected in a negative way by what’s happened. We have to be patient and possibly more cautious but I believe that the Cypriot people need to be supported right now. If we can do that, it will obviously be good for us in the long term as well.”

Will the resolution/restructuring of the country’s two largest banks eventually prove to have been a positive step? Ghada Shami Christofides has no doubts about this: “I sincerely believe so, yes, despite the pain it will cause. I think people will learn to manage their finances better and banks and companies will have to manage their businesses better too. I’m optimistic.

Essentially Cyprus has been forced to do what it should have done on its own but didn’t manage to for one reason or another. In the long term this is definitely going to be good for Cyprus.”

While banking is the sector of the economy that has been affected most obviously by the bailout deal with the Troika, the professional services sector, which has proved to be crucial to Cyprus in recent years, could take a hit. Does Christofides believe that it will inevitably be affected too?

“I think we should be honest,” she says. “Of course it will be affected. People have lost confidence and it’s going to take a while for them to come back to Cyprus and encourage others to come. It’s going to take a lot of hard work but Cyprus still has many advantages; indeed it retains all those that we could have talked about six months ago. I don’t think for a moment that most people are going to leave but it’s clear that some will. So while it’s good to be positive, we have to be realistic and the fact is that Cyprus is going to be affected, especially in the short term. Eventually, though, things will be fine and I actually expect Cyprus to experience an economic boom in the future. If the current situation is managed well and the new prospects for the energy sector are dealt with properly, this is going to be the place to be. And I can assure you that I want to be here too!”

All over the world, bankers and the banking industry in general have been at the receiving end of a barrage of negative publicity surrounding everything from financial scandals to outsize bonuses in recent years. The Cypriots now have particularly good reason to have lost confidence in the system. Will people here and elsewhere eventually regain their confidence in banks?

“They will,” says Ghada Shami Christofides. “Some bankers certainly needed to change the way they were doing certain things and they are already implementing those changes. Slowly the public will regain confidence. We all need banks, we need their support. I think the sector as a whole has been forced to learn a few hard lessons but where change is necessary it will come about.”

As someone who has seen her native country recover from much more serious crises than those affecting just the economy, she is wellplaced to judge how Cyprus will be able to deal with this latest situation and she has no doubts about this ability: “Cyprus has a lot of smart, well-educated professional people,” she says, “and this alone is enough to ensure that the country will get out of this. There is no denying that it is a tough situation. Let’s not forget that what has happened here – the haircut of bank deposits – has not been seen anywhere else in the world, as far as I know, or certainly not on this scale. It won’t be easy and it will require patience but I am sure that the Cypriots are going to turn this around.”

Given the broadly-accepted political picture of Lebanon over the past three decades, it comes as something of a surprise to learn that the country’s financial sector has been consistently successful. There are good reasons for this, Christofides believes: “Firstly, the financial sector in Lebanon has been very well managed. This is due, to a great extent, to the fact that we have a very strong Central Bank Governor who has exerted the right amount of control over the banks. Compared to their counterparts in many other countries, Lebanese banks overall are doing very well, “, she adds, “that the Lebanese have been bankers for a very long time. All of those in positions of authority are highly-experienced and well-educated and, of course, they manage the banks well and conservatively. This is very important.”

As a woman heading a bank in Cyprus, Ghada Shami Christofides might be considered something of a rarity but she is quick to point out that this is not the case: “I’m not the only one! There are four of us in the Association of International Banks here in Cyprus. I can assure you that I have never come across any kind of discrimination as a female bank manager.”

Asked where she sees herself in five and 10 years’ time, Christofides replies unhesitatingly, “I definitely see myself in Cyprus, heading a larger IBL network.

However, not too large because one of the competitive advantages of IBL is that we offer extremely good, personal service. This is very important. We go out of our way to help and we genuinely like our clients. Many of my clients are my friends and many of my friends are my clients as well”.

This sounds like a good recipe for success.

I expect Cyprus to experience an economic boom in the future. This is going to be the place to be

58 Gold the international investment, finance & professional services magazine of cyprus

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ACCOUNTING

The One And Only

Forensic Accounting is becoming a specialist area for which there is growing demand. At present, approximately 2,000 accountants worldwide are Certified in Financial Forensics but only 18 of them are working outside the USA. One of them is Rakis Christoforou who is now on a mission to encourage more of his colleagues to obtain the qualification which, he says, has a significance that goes far beyond the narrow world of accountancy. By John Vickers, Photograph by Jo Michaelides

A

s a job description, “Forensic Accountant” sounds like a combination of exciting, mysterious detective work and…, well, accounting. For Rakis Christoforou, who recently became the first Cypriot to be entitled to describe himself as Certified in Financial Forensics, that’s exactly what it is. “It certainly requires more than a little detective work,” he says, “because we have to look behind the numbers, to check what has really happened in a particular case. We don’t look only at financial statements and accounts. Forensic accountants need to check agreements, minutes of meetings, correspondence, messages. Things are not always what they seem”.

The Forensic Accountant (the ‘forensic’ part is key – meaning that he/she will

be looking for evidence to be brought before a court of law and, Christoforou notes, “we always work with lawyers”) may be called upon to investigate a case of financial statement fraud or to implement systems to prevent such a situation from arising. “We also work as mediators in financial disputes; we are associated with business valuation (I have also recently qualified as an Accredited Business Valuer) and may be called in when companies are discussing a merger or acquisition. Directors are frequently tempted to overstate a company’s assets in order to sell at a higher price and we have a very important role to play there. We also become involved in bankruptcies, reorganisations and even family disputes. Forensic Accountants do much more than check for fraud”.

What made Rakis Christoforou decide to wake up at 5am, study for 2-3 hours before going to work and then

60 Gold the international investment, finance & professional services magazine of cyprus

do the same thing after work and at weekends for almost two years?

“First of all, I love accounting!” he explains. “As professionals, I think we should all be trying to increase our knowledge because we live and work in a changing world. I have always been someone who likes to improve and learn.

The two most recent qualifications that I have obtained are among the latest in the world and it was a big challenge for me to get them”. In addition to the many hours of study that were needed, Christoforou

Forensic Accountants

do much more

than check for fraud

We are dealing in moral and ethical issues and we need to ensure transparency and good regulation had to take 15 courses and sit exams for each of them. The final Forensic Accountancy exam is a 4-hour paper dealing with 180 cases. The Business Valuation is even tougher – a 7-hour written paper for which the pass rate is even lower. And for some people, success in the exams is still not the end of the process: to be Certified in Financial Forensics, candidates must have gained 1,000 hours of practical experience as well as a number of credits that require other exams. It is hardly surprising that so few accountants have obtained the qualification.

“It’s not easy,” Christoforou admits, “and it requires a great deal of sacrifice.

Basically, anyone wishing to become a Forensic Accountant will have to give up all his/her free time for a couple of years.

Luckily I had the support of my family.

Without it, I wouldn’t have been able to do what I have done. But I believe it’s worth it in the end and we are going to need many more accountants specialising in this line of work. In the past 20-30 years, there has been a huge increase in the number of cases of fraud that could not be brought in front of a judge due to a lack of supporting evidence. The development of the Internet – online business, instant transactions, etc. – has created a new reality. Forensic Accountants are also looking into computers, so we have to combine accounting, legal and technological knowledge. It’s a challenge but a worthwhile one”.

On a recent visit to New York, Christoforou saw for himself that more and more

accounting firms are setting up their own in-house Department of Forensic & Valuation Services while many companies specialise exclusively in these services.

“In the United States, it’s become very big because of what happened in the Enron, WorldCom and other high-profile cases. The American government and the American Institute of Certified Public Accountants realised that they needed to be able to convict those responsible for serious fraud, so they created this qualification,” he says.

Is there are need for this qualification in Cyprus? Most definitely, says Christoforou. “I want to encourage more professional accountants obtain it. Right now we all know that Cyprus is in the spotlight because of allegations of money laundering. One of the Forensic Accountant’s areas of focus is precisely that, together with ensuring proper corporate governance.

We are dealing in moral and ethical issues and we need to ensure transparency and good regulation”. Rakis Christoforou sees bad practices, including nepotism, favouritism, etc., as a major source of problems in Cyprus ever since independence. “If we had had Forensic Accountants in place at the time of the Stock Exchange scandal, for example, I believe that many of the problems that arose would have been prevented. Companies were being listed on the CSE and claiming to be worth millions when, in reality, their value was a few thousand pounds”.

Christoforou says that he knows of at least one company from that time which listed fixed assets of property that it did not own. “And their accounts were audited!” he notes wryly. “So demand certainly exists for the Forensic Accountant’s special skills in Cyprus and PwC has now become the first major accounting firm here to create a special department. This is an excellent first step”.

How does it feel to know that he is one of only a couple of thousand people in the world who know what he knows?

“I feel proud to have achieved something that was not easy but I also feel a great responsibility to encourage other professional accountants to obtain this qualification,” he says. “I strongly believe it’s the only way that, within the profession, we

can help improve Cypriot society. I don’t want to remain the only Forensic Accountant in Cyprus or one of a handful in Europe because there are limits to what I can do”.

Surely it requires more than accountants and lawyers to improve society?

“Of course,” he concedes, “but we have to start somewhere. Our culture needs to change. We often hear people saying, ‘What can I do? I’m not going to change the world’ but we have to try. We may not succeed 100% but even 1% is an achievement”.

Rakis Christoforou is not only a passionate accountant. He is obviously a great idealist.

“I try!” he says. “In the end it’s a matter of getting one’s priorities right. And if I can do something that makes the world a better place in some way, I’ll be happy.

Now that I have successfully completed this particular professional project, I feel personal satisfaction but it’s more than that. I think I’ve done something good”.

ict

MARIA SOBRINI

Information and Communications Technology (ICT) is helping more and more companies, organisations and even governments around the world improve their performance. While the more far-sighted ones are adopting Cloud Computing, others are looking even further ahead to the fourth phase of the Internet, the “Internet of Everything”. Maria José Sobrini, Director of IBSG Mediterranean, Cisco, is dedicated to showing businesses and organisations how to take advantage of Information and Communications Technology (ICT).

She spoke to Gold about the importance of e-commerce, social networks and the cloud to business, and gave her prediction about the Next Big Thing. By John Vickers

Preparing for the

Internet of Everything

62 Gold the international investment, finance & professional services magazine of cyprus

Gold: It’s surely no secret that companies can improve their performance in a variety of strategic areas by aligning their ICT infrastructure with their business goals. Are there still companies out there that are unaware of this basic idea?

Maria-José Sobrini: Although there are very few companies which are unaware of this basic idea, many of them take bad decisions. In general when companies fail, conventional wisdom blames external factors: the economy, regulatory actions, and geopolitical challenges are but three prime culprits beyond the control of decision makers. In reality, however, bad decisions - factors within the control of companies themselves - are what overwhelmingly cause firms to lose their leading positions. Over the past 10 years, 159 of the 500 largest companies globally by revenue have been displaced. And in many cases, company executives may not have realized the impact of their own decisions or they may not have been well informed when they made them.

This observation is supported by a survey of 1,028 executives and 993 junior managers and individual contributors conducted by Cisco’s Internet Business Solutions Group (IBSG). Though many of their subordinates begged to differ, 71% of executives rated their performances and decision-making abilities from “good” to “excellent.” These included leaders in financial services, where 439 bank failures since 2008 continue to leave a legacy of economic malaise, and retail executives, who have seen 37 major companies file for bankruptcy protection in their industry since 2010.

The good news is that a revolution in decision-making stands to change things for the better. Cisco IBSG calls it Decision-Driven Collaboration.

This new model represents a fundamental transformation in the way leaders perceive and manage collaboration in the

Those in the IT community need to stop acting like vendors and, instead, focus on helping people solve problems workplace. It is supported by breakthroughs in collaboration tools, including video, mobility, social media, cloud services, and cutting-edge analytics.

But it begins with recognition that everyone is a decision-maker. And while the executives still make the final call, expertise from all corners of the organisation is welcomed into the process. The ultimate payoff is millions of better decisions (not just big, critical decisions, but smaller, daily ones as well) that are fact-based, highly informed, and ever more efficient and effective.

Gold: Given the speed at which technology is changing and developing, isn’t there a danger that companies may need to be constantly investing in new products rather than in their core business?

M.J.S.: Technology should allow companies to concentrate on their core business and it should make business process flow much easier. If IT does its job right, it will be deeply embedded in the fabric of every business process over the next few years. IT and business groups will work together seamlessly. To do this, though, those in the IT community need to stop acting like vendors and, instead, focus on helping people solve problems. We are rapidly approaching an “inflection point” in the industry where we’ll need IT leaders who are experts in business first and IT second. IT needs to become a business partner.

IT professionals and businesses must speak the same language. Businesses must ask how IT can help solve its business goals, and IT leaders must help business leaders achieve their goals.

Gold: In your experience, are successful companies generally open to innovation or do you regularly come across a mentality of “we have always done things this way”?

M.J.S.: Successful companies are not just open to innovation but most of the time they are leading it.

We can see an explosion of new technologies that create new winners and losers in nearly every industry. In an engagement with a major global manufacturer, Cisco IBSG identified three key factors in the product innovation process that companies must clearly understand and be able to orchestrate. They must develop a technology strategy, arrange and manage ecosystem partners, and prepare and execute detailed plans for managing market interactions, from initial introduction through full-scale market management.

How well they deliver on this model will help determine whether a company will be a disruptor in its market space or one of the disrupted.

Gold: How significant are social networks to business today?

M.J.S.: I’ll just mention some numbers and leave the conclusions to your readers. A whopping 90% of young people use their smartphones to help them face the day, often before they get out of bed!

Even before a cup of coffee, young people grab their smartphone. They’re checking it for e-mails, texts and social media updates. The phone has become as much a morning ritual as the toothbrush. The gap between my generation and younger ones in how we use technology is getting smaller. Interestingly, as we older folks are getting more comfortable with technology (and seeing its value), younger people are getting less starry-eyed. For example, more than a third of the young people that we surveyed suspect that people present themselves differently online than in the physical world. This year’s study also found that three out of four don’t trust Internet sites to keep their data private, and nearly a third are very concerned about security and identity theft. This younger generation’s relationship with technology is really maturing.

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ict

The transformation from data to information will help us make faster, more intelligent decisions, and control our environment more effectively Gold: Isn’t there a danger that e-commerce and online transactions may lead to an end to bricks-and-mortar shops and businesses?

Is this inevitable?

M.J.S.: The “new normal” world of retailing is challenging retail players to reverse vacancy rates and sales declines, create enhanced customer experiences, reduce labour and construction costs, deepen brand differentiation, optimize small urban formats, and justify investment in innovation. Sales are shifting dramatically from brick-and-mortar stores to the Internet. Highlighting the power of this market transition, Forrester Research expects online clothing sales to grow at 10% CAGR while offline sales are projected to increase at a rate of just 3%. In the United States, early retail adopters of e-commerce are already showing strong online revenues. Forrester Research states, “Online shopping will continue to cannibalize in-store shopping as consumers become more familiar and begin, in many cases, to prefer the convenience of online shopping.” As these trends continue in force, retail-

ers should look for new solutions to mutually reinforce and grow both in-store and online sales.

Gold: Governments around the world are trying to be more efficient and productive and to push economic growth in these difficult global times. How essential is ICT to the success of their strategy?

M.J.S.: Across the globe, the public sector – including government, defence, education, healthcare and public safety, to name some of the key verticals – all face one clear and present challenge: the reality of increased service requirements bonded to constrained or even declining budgets. Demographic shifts, increased social expectations, and a dramatically more complex and dangerous world are driving enhanced Public Sector requirements to serve the citizenry. However, global economic volatility – including the real or perceived need to reduce deficit spending – is reducing public sector leaders’ ability to pay for these services utilizing traditional models. Indeed, the public sector actually offers several examples of where they will lead the private sector in transformational approaches, including cloud computing services, cyber security, mobility, and video.

The 4 critical market drivers are:

1) The financial crisis forcing and accelerating the level and rate of change,

64 Gold the international investment, finance & professional services magazine of cyprus

2) The growing maturity and availability of Cloud and XaaS offerings,

3) An increased focus on foreign and domestic terrorism and cyber security, with its increasing implications for private sector, and

4) Governments looking to technology to improve the efficacy and efficiency of service delivery in key mission areas - Intelligence, Defence, Economic Development, Education, Healthcare, and Safety.

Gold: How significant is Cloud Computing going to be in the next decade?

M.J.S.: In the second annual Cisco Global Cloud Index (2011-2016), Cisco forecasts global data centre traffic to grow fourfold and reach a total of 6.6 zettabytes annually by 2016. Global cloud traffic, the fastest-growing component of data centre traffic, will grow sixfold, from 683 exabytes of annual traffic in 2011 to 4.3 zettabytes by 2016. This year’s forecast confirms that strong growth in data centre usage and cloud traffic are global trends, driven by our growing desire to access personal and business content anywhere, on any device.

When you couple this growth with projected increases in connected devices and objects, the next-generation Internet will be an essential component to enabling much greater data centre virtualisation and a new world of interconnected clouds.

The phone has become as much a morning ritual as the toothbrush

Maria-José Sobrini

Maria-José Sobrini manages the Internet Business Solutions Group (IBSG) of Cisco in the Mediterranean territory. Cisco›s IBSG works with many of the world’s leading companies and organisations to help them become more competitive through effective business processes and intelligent ICT deployment. In recent years she has focused on international projects around urban development and growth, government transformational initiatives and financial institutions innovation programmes. She collaborates with a number of universities and business schools as a frequent speaker on courses and in seminars. Maria-Jose is a qualified engineer, having graduated from the Politécnica University of Madrid, and before joining Cisco she worked for Ernst & Young and for Coopers & Lybrand.

Last year she was a keynote speaker at the eGovernment Conference organised within the context of the Cyprus Presidency of the Council of the European Union.

Gold: How exactly is the enterprise migration to the cloud progressing?

M.J.S.: In 2010, the Cisco Internet Business Solutions Group sought answers in a wideranging survey. At the time, the path to the cloud was just beginning for many enterprises.

Today, with cloud evolution accelerating into an increasingly essential process, we decided to capture the current state of cloud migration. In short, a majority of executives are embracing cloud and feel that it helps them meet some of their biggest challenges. As in our 2010 survey, fears persist – with privacy and technology concerns foremost among them – but today they are seen as inhibitors to cloud adoption, not deal-breakers. Key drivers include cost savings (which outweigh trepidations about initial investment); agility; and “bring your own device” (BYOD), which is driven by employees but enabled by cloud. Regardless of how they are doing it, companies are moving to the clouds, even if they are just beginning the journey.

More than a third of the companies represented in our survey run cloud to improve general IT efficiency; another third are planning or building clouds. And interestingly, we found that solutions never converged in a single cloud; rather, they produced a multitude of clouds. The benefits of this game-changing technology are ever more obvious, and the Enterprise Journey to the Clouds is gaining unstoppable momentum.

time. Then, in the Networked Economy, we saw the birth of e-commerce and digitally-connected supply chains. It changed the way we shopped and how companies reached new markets. We’re currently in the Immersive Experiences phase, which is dominated by social media, collaboration, and widespread mobility on a variety of devices. This is completely transforming the world of work.

At the same time, we’re entering the “Internet of Everything”. This phase brings together people, process, data, and things, turning information into actions that create new capabilities, richer experiences, and unprecedented economic opportunities for businesses, individuals, and countries. This transformation from data to information will help us make faster, more intelligent decisions, and control our environment more effectively. The Internet may not be our only answer, but it is the one technology that has the potential to address many of the challenges we face, while creating unprecedented opportunities.

Gold: What do you predict as being the single most significant development in ICT that will assist business in the foreseeable future?

M.J.S.: Definitely the next phase of the Internet: the “Internet of Everything”.

The Internet can be seen in four distinct waves, each phase having a more profound effect on business and society. The first phase – about 20 years ago – was Connectivity. This is when getting connected online felt like a miracle! During this “fixed” computing stage, you had to go to the device to connect, your connection speed was limited, and content was just beginning to populate the “Net.” Still, it was an exciting

Gold: How does Cisco intend to play a role in developments?

M.J.S.: We’re entering the age of the “Internet of Everything,” where we’re going to connect the unconnected – including people, process, data, and things. And it’s in this new world where we’ll talk to each other in entirely new ways. As a result, networked connections will become more relevant and more valuable than ever before. As we connect the previously unconnected, amazing things will happen and amazing

experiences will be created. We’ll also see unprecedented opportunities for countries, businesses, and individuals. For Cisco, this is our DNA, our heritage. We have been leading the world in connecting the unconnected. And we’ve been preparing our customers for this very moment. Together, we’ll be creating new connections at a rate never seen before. And it’s these new connections that will unlock vast human potential. The “Internet of Everything” builds on the foundation of the “Internet of Things” by adding network intelligence to a wide variety of physical elements, such as TVs, Refrigerators, monitors, medicine packaging, and more, to allow convergence, orchestration, and visibility across previously disparate systems. This is the future.

In the United States, early retail adopters of e-commerce are already showing strong online revenues

the international investment, finance & professional services magazine of cyprus

Gold 65

Early Bird Booking Register before 14th of May and save up to €100!

Book now at +35722505555/ events@imh.com.cy

Ingredients for success & lessons to learn Thematic sessions:

4th & 5th of July 2013

• Hospital and Clinic Management & Operations • The Economics of Hospitals and Clinics • Hospital Investments & Financing/ Investment Opportunities • Quality and Performance Management • New Technology, Solutions & Equipment • Best Practices in Private and State Hospitals

Top 7 Reasons to Attend!

1 2 3 4 5 6 7

Actively participate in a high level forum with leading experts from the most effective hospitals and clinics from European, Middle Eastern and Mediterranean countries Learn different strategies & approaches to managing a hospital or a clinic Listen to best practices for financial control and cost reduction in order to save money Learn how to successfully manage your workforce, increase employee satisfaction and productivity Get informed about IT solutions for hospitals and clinics Discover how to unlock investment opportunities in the Health Care Sector Listen to case studies and best practices from top hospitals

EXC NETWELLENT ORK OP whil PORTUN ING I e luxu enjoyin TIES ry of g envi a 5 s the ronm tar ent

Confirmed Speakers How to really save money for your hospital: Recognising and treating Obstructive Sleep Apnoea - The Lincolnshire experience Director of the Sleeping Mr. Michael Oko Disorders Centre, UK

Management, control and accounting in the Healthcare Sector: Public versus Private Dichotomy

Prof. Raquel Alves

Professor at Instituto Politécnico de Leiria, Portugal, Researcher at TECSI, Brazil - Portugal

Assessing clinical and financial performance: The CHESS Model

Investment opportunities and processes in medical establishments

M.D, M.H.A., CEO of Chaim Sheba Medical Center, Israel

Director of WHO Collaborating Centre for Public Health Training and Education, Imperial College London, UK

Prof. Salman Rawaf

Prof. Zeev Rotstein Clinical Management: Why good practice really matters in conducting clinical trials in hospitals?

Global Operations Manager of ClinServ InternationalMrs. Corinne Aad Lebanon, ClinGroup Holding, Lebanon

A day in the life of a Hospital General Manager Director of Assuta Hospital Ltd., Chairman of Maccabi Institute for Health Services Research, Israel Prof. Joshua Shemer

Dr. Yaron Bar-El

Putting guidance into practice in a hospital setting – practical experience from NICE

Ms. Val Moore

MFPH, MSc, PG Cert Ed, Implementation Programme Director of National Institute for Health and Care Excellence (NICE), UK

The importance of organizational restructuring and change in healthcare

Dr. Gabriel Polliack

Prof. Humberto R. Ribeiro

Professor at Instituto Politécnico de Bragança, Portugal, Researcher at TECSI, Brazil - Portugal

Computerized tools for quality assurance: From electronic health records to business intelligence

Public-Private Partnership, The experience of Ribera Salud

MD, MHA, Associate Director of Rambam Health Care Campus, Israel

CEO of Ribera Salud Group, Spain Mr. Alberto de Rosa Torner

Overcoming managerial conflicts, economic constraints and everyday dilemmas to achieve excellence

Clarity is King!, HIMS [hospital management information systems] alone will not produce optimum performance

M.D, M.H.A, Deputy Director of Hadassah Medical Center-Ein Kerem, Israel

Managing Director of Australian Health Solutions Mr. Peter Dumble Global Pty Ltd (AHSG), UAE

Who should attend?

The conference will bring together all the key players involved in Hospital and Clinic Management, including State and Private Hospitals, Medical Centres, Clinical Laboratories, Pharmaceutical Companies and other Healthcare Institutions. More specifically: Operations Managers, Managing Directors, General Managers, Managers and Executives, Hospital Administrators, Medical Directors/Executive Directors, CEOs/CFOs, Medical Equipment & Devices Suppliers and Providers, Public Health Agencies, Healthcare Advisors, Healthcare Policymakers, Members of Health Associations and Directors of Quality & Patient Safety.

4th & 5th of July 2013, Grand Resort, Limassol, Cyprus Keep updated about the conference by visiting www.hospitalmanagementconference.com For further details, participation fee and registration contact: IMH, Aigaleo 5, 2057, Strovolos, P.O. Box 21185, 1503, Nicosia, Cyprus.

Tel: +357 22 505555, Fax: +357 22 679820, e-mail: events@imh.com.cy, website: www.imh.com.cy

Communication Sponsors

Supporters

Media Partners

Organizer

{April 14 - May 13, 2013}

issue

25

76

+ BOok review MONEY: The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It

By Anat Admati & Martin Hellwig 71 ECONOMY: Heavens on Earth: How To Create Mass Prosperity 75

By J.P. Floru

68

{money}

68 Growing Money on Farmland Africa and Australia provide good opportunities 70 Still On Track The eurozone financial services industry appears to be ready to turn the corner 71 Get Smart!

Smarter implementation of regulatory change could save banks 24% of costs

72

{business}

72 Forex Recruitment Soars in 2012 The latest edition of the annual Cyprus

Recruitment Index shows a massive increase in demand for personnel in the Forex sector

TAX & LEGAL: Tomorrow’s Lawyers: An Introduction to Your Future

By Richard Susskind

77

LIFESTYLE: Bruce

By Peter Ames Carlin

81

74

{economy}

74 German cities top commercial real estate investment prospects Investors continue to seek safe havens 75 Signs of Recovery After increased EU Ports activity in the first nine months of 2012, the fourth quarter saw a slowdown

76

{tax&legal}

76 FATCA Cyprus and the Foreign Account Transaction Compliance Act

78

{lifestyle}

78 Fly Me To The Moon Investing in Space Memorabilia goes into interstellar overdrive

the international investment, finance & professional services of cyprus

Gold 67

alternative investment

{money}

Growing Money on Farmland Africa and Australia provide good opportunities By Steven A. Newbery

W

hilst most major equity markets showed some signs of recovery over the course of 2012 – both the S&P 500 and FTSE 100 posted decent gains – serious concerns remain about global recovery in mainstream stocks and bonds. In fact, it is a very mixed picture for equities; the Shanghai Composite, for example was down year-on-year (to mid-December 2012) and the rally for US stocks still leaves the S&P below the 2008 peak level.

The rally in European share prices still leaves the major index for that region down on its values five years ago, while the

Farmland is the only property sub-sector that continues to show inflation-beating gains on capital and income FTSE 100 is below its 2008 peak and Japan’s Nikkei 225 index is also down on its 2008 levels. This means that investors – rather than traders – continue to lose money on equities, on a capital appreciation basis, and dividend levels of late are unlikely to have offset those losses.

In the US, whilst 2012 was a good year for dividends generally, there were still many leading companies which cut their

68 Gold the international investment, finance & professional services magazine of cyprus

dividends or simply maintained them. The outlook for bonds remains arguably bleak, with investors fighting a battle to beat inflation – a battle which they are unlikely to win.

Traditional property markets in developed countries also remain difficult. In the UK, for example, while both residential and commercial property values have continued to rise in London, other parts of the country are still seeing values decline.

And within commercial property, even in London real challenges remain for the retail segment. US house prices have begun to recover, but from an extremely low base.

However, the market there has taken heart from news that construction activity has picked up. As with so much else in the US economy, however, how far this rally will go would appear to depend on a resolu-

tion of the county’s fiscal problems. Huge debt and budget deficits – and the political wrangling that goes with them – still hang over America. And this is the rub for many developed countries where debt issues and political uncertainty dominate the landscape, undermining investor and business confidence.

Tullett Prebon, a leading money markets firm, recently emphasised that European economic and currency woes are far from resolved. In a piece entitled The Gift that Keeps on Taking, Tullett said, “For us, traditional stocks and shares are still ‘the gift that keeps on taking’ and the reason why we remain firmly focused on a broad range of alternative assets.”

Farmland - a ‘Must Have” Asset Class

“You have to buy in a place where it rains, and you have to have a farmer who knows what he’s doing. If you can do that, you will make a double whammy because the crops are becoming more valuable.”

We have been quoting Jim Rogers, Chairman of Singapore-based Rogers Holdings, for some time and see no reason to stop doing so. Farmland is the only property sub-sector that continues to show inflation-beating gains on capital and income just about anywhere in the world.

The need to produce more food for the world’s rising population continues to put pressure on farming assets and prices for soft commodities.

In its most recent annual report (International Farmland Focus 2012), land agent Savills states that the global farmland index (averaging prices around the world) rose from 100 in 2002 to over 500 by the end of 2010, with no sign of prices falling in 2011-2012. Indeed, in regions such as central Europe, Latin America and Africa, prices are rising by well over 10% a year – by 24% in Argentina last year for example.

Savills also highlights Australia, noting an average 15% rise in land values in 2011.

While it has no detailed information for much of Africa, its report provides information on selected countries which shows that land prices there remain cheap in comparison with other parts of the world. Savills also notes that “since 2000, 62% of the large-scale land acquisitions were located in Africa”.

Against that background, Alternative Global Solutions (AGS) offers a geographically wide range of farm investments from Africa to Australia. In Africa our chosen project continues to progress its major rice farming venture, with income returns averaging 14%.

Investment is simple and starts from £11,250 per 5 acres (including £600 cultivation fee per acre). There are no other ongoing charges. Investors receive a 49-year lease on their plots under a legal system based on British law. The project itself provides many local benefits to the local community: a share of the harvest, employment, rent, education and healthcare support. An endorsement from the High Commissioner for Sierra Leone in the UK reflects the project’s successes locally and underpins government support for the business and its investors.

Australia

“Western Australia’s commercial wheat belt is worthy of a closer look when considering where to acquire land internationally,” says Savills. The agent’s report highlights many reasons for the country’s attractiveness to investors: its proximity to Asia, excellent infrastructure, and a highly efficient arable sector. The country also has a relatively low cost of acquisition to produce a tonne of grain in comparison to other grainproducing regions globally and a strong historic economic track record.

AGS’s chosen offering is for investors to acquire a 40-year lease on 3-hectare plots costing £9,000 in Western Australia’s wheat belt, in an area where the local shire government describes itself as having “an abundance of water”. The land has been surveyed and assessed by one of the leading agriculture consultancies in the region, and is deemed to be “highly suitable for high-

The average price of a hectare of land in North America last year was US$7,400 and over US$22,000 in Europe yield wheat production. The purchase price includes all set-up and ongoing management costs.

Western Australia’s land values rose by 11% in 2011 (Savills) and are predicted to continue to rise. Given the bullish forecast for this part of the world, and the past history of rising capital values, AGS is confident of substantial gains over short to medium investment periods. In fact the anomaly in the prices of arable land in Australia versus prices in other developed countries is vast. For example, the average price of a hectare of land in North America last year was US$7,400, and over US$22,000 in Europe and you can well pay more for prime arable land that is needed to grow wheat. Moreover, these prices take no account of development and ongoing farming costs.

Western Australia has an exemplary developed economy, a secure legal system and a quality support infrastructure and it is one of the few economies that has continued to grow throughout the financial crisis and to maintain stable government finances. In addition, Australia has welldeveloped export relationships with the rest of the Asia-Pacific region and a strong currency that is likely to stay strong.

At AGS we approve only what we consider to be the very best of projects for distribution to our client base. Only after a strict due diligence process is carried out and track records from project managers and the land itself have been checked do we approve any farmland project for promotion. During 2013 AGS, through exclusive arrangements with its global partners, is able to offer market leading investment opportunities in: wheat farming, timber, green oil, forestry, rice farming and many more.

In next month’s issue of Gold, Steven Newbery will be looking at the sector which has delivered both the highest growth and highest yield returns within the commercial property sector over the last decade: Self Storage.

info: Steven A. Newbery is the Director of Alternative Global Solutions Ltd. info@agsethical.com the international investment, finance & professional services magazine of cyprus

Gold 69

financial services

Still {money}

On Track

Cyprus has been challenging but the eurozone financial services industry still appears to be ready to turn the corner

T

he Cypriot debt crisis is a timely reminder that the problems in the eurozone are not over and that economic recovery for the region is on a fragile, uneven trajectory, but the Eurozone Financial Services Forecast predicts that, while localized problems can’t be ruled out, the collective pain for the financial services sector in the eurozone is almost over. Many key indicators for the sector are expected to return to modest growth in the next 18 months, and banks in particular should be in a position to start lending and help drive the economic recovery in 2014.

Andy Baldwin, Head of Financial Services, Europe, Middle East, India and Africa (EMEIA) at Ernst & Young comments: “The market response to the Cypriot debt crisis was actually fairly encouraging in that it demonstrated that the major European economies are now quite well insulated from national crises in smaller states.

“The financial services sector remains the principal mechanism for distributing investment capital to the wider economy and it now needs to play a vital role in the economic recovery. There is a sense that the industry as a whole is close to turning a corner, however the forecast is divided between north and south, and also between systemically important financial institutions (SIFIs), which continue to strengthen, and smaller national banks, for whom the near-term outlook is less certain.”

After contracting by €856 billion last year, total assets in the eurozone banking sector are

forecast to fall by €500 billion in 2013 before returning to growth in 2014. Total assets have already broadly stabilized in Germany, France and the Netherlands, while Italy and Spain are expected to follow next year.

Marie Diron, Senior Economic Adviser to the Eurozone Financial Services Forecast says: “Although on aggregate deleveraging in the eurozone will continue at some pace this year, we believe the most destructive phase has now passed and that banks in the stronger economies have already turned the corner. 2013 should be the last year of asset shrinkage, and 2014 is looking much healthier.”

Lending to businesses and households fell 1.7% across the eurozone last year and this contraction is expected to continue in 2013, but at a slower rate of 0.5%.

There is still a pronounced north-south divide in the cost of bank borrowing and, as a result, the peripheral economies will experience a more marked contraction in lending this year. Lending in Spain is forecast to contract by 5.1% in contrast to positive growth of 0.8% in Germany and 0.6% in France.

However, total lending across the eurozone is expected to start to grow again in 2014 at a rate of 2.9%, which includes a modest (0.9%) return to growth in Spain.

Non-performing loans will peak this year, driven by peripheral economies As a result of the rise in non-performing loan (NPL) rates in the peripheral economies, NPLs in the eurozone will peak at a euro-era high of 7.2% this year, up from an estimated 6.7% at the end of 2012. NPL rates are already declining in France, Germany and the Netherlands this year but will climb to a peak of 10.2% in Italy and are forecast to reach

70 Gold the international investment, finance & professional services magazine of cyprus

Banks should be in a position to start lending and help drive the economic recovery in 2014 12.8% in Spain, notwithstanding the recent transfer of problematic assets to SAREB. Interest rate rises remain an outside risk but insurers need to plan their response Concerns that the economy could gather pace more quickly than anticipated under Ernst & Young’s baseline forecast, causing the European Central Bank (ECB) to increase rates more quickly, should be taken seriously by insurers. If the eurozone does not shrink this year and grows by 1.7% in 2014, which is faster than the 1.1% baseline forecast, inflation would then hit 2.8% by the end of 2014, causing the ECB to increase interest rates from 0.75% to 1.25% in 2015, rather than keep them on hold until the middle of 2017. Tenyear eurozone government bond yields would rise from 3.4% in mid-2014 to 4.7% by the end of 2015.

Andy Baldwin says: “Despite the low probability of interest rates rising, the effects are sufficiently large to warrant scenario planning by insurance companies. The rapid rise in interest rates and higher financial stress would hit insurers through their bond-heavy balance sheets. Insurer’s core business would also be affected with lapse rates likely to rise, for example, as customers switched into alternative products offering higher yields, and new business would suffer as the economy slows.”

banking

{money}

Get Smart!

address the way they do business and so command a significant part of their annual change budgets. Unrelenting regulatory change will remain with us for the foreseeable future so a new approach to managing the resulting change is critical. A more agile, proactive and coordinated approach to implementation can ensure that waste is reduced, resources are used more efficiently and regulatory schedules are met.”

BOOK REVIEW

Smarter implementation of regulatory change could save banks 24% of costs

N

ew research from PwC has found that if banks adopted a smarter approach to their regulatory reform programmes, they could save 24% of the costs of their implementation programmes.

Banks face a number of challenges as an unprecedented wave of regulatory demands continues to gather force. Looking ahead, conditions are expected to remain challenging over a long period. Consideration of the continuous stream of regulatory announcements, consultation papers and reviews highlights the fact that this is set to become even more complex over the next few years.

More agile, proactive and coordinated planning and execution will allow banks to: Improve on poor delivery quality. The vast majority of organisations not employing portfolio management reported that less than 10% of projects met the key performance indicators.

This phenomenon was even starker for more complex portfolios.

Reduce financial costs associated with programme overrun. The average project overrun is 24% of budget and schedule, although this

The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It

By Anat Admati & Martin Hellwig (Princeton University Press, 2013)

Unrelenting regulatory

change will remain

with us for the foreseeable

future

number increases by a factor of ten in many of the larger, more complex projects facing ‘black swan’ risk events.

Stelios Constantinou, Partner in charge of the banking industry at PwC Cyprus said: “Banks have always faced regulatory-driven change. What sets the current environment apart is the sheer volume of significant new regulation being introduced. Factors complicating the volume of work to be done include tight timelines, the degree of uncertainty around interpretation and inconsistency between regulators – all of which aggravate the delivery risk. Plus, the regulations require banks to fundamentally

T

RRP: £19.95 (£15.56 from amazon.co.uk) he authors accomplish the near impossible by translating the arcane world of banking regulation into plain English.

Indeed, they claim that the general public doesn’t understand banking in general, partly because bankers themselves promote confusion, and that they have written this book to combat it. They provide a forceful and accessible analysis of the recent financial crisis and offer proposals to prevent future financial failures. They assert that requiring banks to raise more capital by issuing stock and less through borrowing will be extremely beneficial for the financial system. In their words, “If banks have much more equity, the financial system will be safer, healthier, and less distorted.” Admati and Hellwig are clearly quite alarmed about the current state of affairs. “Today’s banking system, even with the proposed reforms, is as dangerous and fragile as the system that brought us the recent financial crisis,” they write. In Cyprus many of us have only just realised that there is more to banking than we ever realized. This book is an eye-opener.

the international investment, finance & professional services magazine of cyprus

Gold 71

recruitment

{BUSINESS}

us Recruitment Index The latest edition of the annual Cyprt Solutions shows a massive published by GRS Global Recruitmen the Forex sector and growth in increase in demand for personnel in International Business.

D

ata from the latest Cyprus Recruitment Index, released in February by GRS Global Recruitment Solutions, shows a 190% increase in job placements made by GRS within the Forex & Binary Options sector for 2012 compared to 2011, accounting for 33.45% of all GRS placements in 2012. Donna Stephenson, GRS director and co-author of the Cyprus Recruitment Index, says, “Over the last few years we have seen growth in the Forex sector in Cyprus and we at GRS have channeled our energies into this market. Cyprus continues to be an attractive destination for businesses that operate in the financial and investment sectors and, in particular, Retail FX trading, with most recent demand coming from binary option firms”.

The Corporate Services sector fell from first to second place, registering the second highest activity in permanent recruitment

in 2012. However, whilst demand continued and the corporate services sector accounted for 14.75% of GRS’s placements, demand actually fell by 39% on 2011.

GRS projected growth in the investment services and finance and banking sectors, confirming an increase of 12.24% and 125% respectively for 2012.

The fund sector in Cyprus is growing with 94 ICIS Funds as of November 2012. “The need for fund-related professionals is growing as more funds are being registered in Cyprus but there is a local shortage of experienced talent available to this sector,” states Donna Stephenson.

Other increases in demand were noted in the oil and gas sector, while the legal services sector was up 50% on 2011 for hiring.

The biggest falls in terms of permanent recruitment were in the Audit (60%), insurance (60%) and IT (50%) sectors.

Despite the gloomy forecasts of global markets, the Cyprus Recruitment Index figures demonstrate that the international business sector, which makes up a high percentage of GRS clientele, is still driving the economy.

Although general unemployment increased, GRS recorded a 3rd successive year of growth in permanent and temporary hiring in 2012, up by 15.8% on 2011 and 21.2% on 2009.

Overall, GRS registered a small decrease of 3.4% on permanent recruitment over 2012 compared to 2011, which did not mirror the rise in unemployment across the Cyprus economy as a whole.

Figures from the Cyprus Recruitment Index reveal the quality as well as the quantity of placements with a highly-educated workforce (38.9% at Degree level and 28.7% at Masters level).

72 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

business_latest recruitment.indd 72

09/04/2013 13:19

The above statistics are based on permanent job placements made by GRS in Cyprus during 2012 and do not necessarily reflect a complete overview of the Cyprus recruitment and labour market.

Percentage breakdown of Positions in 2012

These statistics are based on permanent job placements made

by GRS in Cyprus during 2012 and do not necessarily reflect a complete overview of the Cyprus recruitmentand labour market.

The diversity of the workforce available is displayed in the index with 43% Cypriots, 7% Cypriots from abroad, 34% other EU nationals, 10% Russian/Ukrainian, 1% Chinese and 5% other Third Country Nationals. GRS director Steve Slocombe explains: “Candidates from overseas have excellent language skills and they also bring international work experience. Our clients’ demands for these two aspects means

that we are reaching further to bridge the skills gap. Our reputation and online presence enable us to attract the best talent to Cyprus”.

The Cyprus Recruitment Index shows the facts about recruitment in Cyprus with incisive accounts from industry leaders that bear testament to the GRS statistics. As a barometer of the Cyprus economy, the recruitment records point out where demand exceeds supply and

vice- versa. Steve Slocombe says, “Our aim in producing the Index is to give an overall view of the economy in Cyprus, highlighting the areas of growth and decline and providing an illustrative understanding of the market through recruitment figures”.

The Cyprus Recruitment Index is available as a free download from www.grsrecruitment. com.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

business_latest recruitment.indd 73

Gold 73

09/04/2013 13:19

property

German cities top commercial real estate investment prospects

{economy}

Investors continue to seek safe havens

erman cities dominate the investment prospects for Europe’s commercial real estate sector as investors continue to favour safe haven locations according to Emerging Trends in Real Estate Europe 2013, a real estate forecast published jointly by the Urban Land Institute (ULI) and PwC. The ranking of 27 cities across Europe, based on respondents’ expectations for market performance in 2013, sees Munich top the league table followed closely by Berlin in second place and Hamburg in fifth position, with investors taking comfort from each of the cities’ strong local micro-economic climate and resilient property market conditions.

London, which is seen by many as Europe’s ultimate safe haven market, is the largest riser in this year’s report taking third position. Investors continue to be attracted by the size and liquidity of its real estate market, the stability of sterling as a currency and its ability to stand alone from the rest of the UK and Europe’s economic issues.

Overall, the cities that are ranked highest are the larger Western European centres with international appeal and better economic prospects. In contrast, the worst performing cities were those in countries at the heart of the eurozone crisis or struggling to cope with the consequences of the 2008 financial meltdown such as Athens, Lisbon, Dublin, Madrid and Barcelona.

Approximately 80% of the respondents surveyed for the report believe that the eurozone crisis has presented their own business with new opportunities. However this relative optimism is tempered by a general consensus that there will be little improvement in the overall European economy or the region’s real estate market during 2013. Survey participants were more pessimistic about the outlook for cities’ property markets than they have been since 2004 and 45% of the respondents expect capital values to remain stagnant until 2017.

The report notes that the tempered optimism

is a result of real estate companies restructuring their business over the past five years and now beginning to deploy new strategies to profit in challenging economic and property market conditions. The top five European real estate investment markets in 2013 are predicted to be Munich, Berlin, London, Istanbul and Hamburg.

One of the areas causing the industry the most concern is the availability of debt and the estimated £350-£600 billion lending gap caused by the banks continuing to undertake a structural reduction in commercial real estate lending.

The report shows that up to 43% of businesses found it harder to secure debt during 2012, with 56% of the industry expecting there to be less debt available for refinancing and new investment in 2013.

This pessimism is particularly felt in Portugal, Greece and the Benelux countries although a reduction in debt availability is also expected in Spain, Italy and Turkey. In contrast, over 60% of businesses in the UK expect an unchanged or improved borrowing environment, even though individual banks remain reluctant to act as sole lenders on deals of more than £50 million.

The report outlines the following “best bets” for 2013: Concentrate on value-added locations in key cities - Core properties might be hard to find but there are pockets in key cities that appeal to dominant occupiers such as telecommunications, media and technology (TMT) firms and creative enterprises.

Hunt for institutional-quality properties in suspended animation - Banks are more willing to release good assets in need of capital expenditure and clever asset management, before values decline further.

Look for deals in Ireland and Spain - Develop relationships in the right places. Ireland may be most accessible through lenders outside of NAMA, while in Spain, now is the time to start conversations with key players such as SAREB.

74 Gold the international investment, finance & professional services magazine of cyprus

The cities that are ranked highest are the larger Western European centres with international appeal and better economic prospects Opportunities from buyers of distress - Buy loans and properties out of larger portfolios acquired by opportunity funds and use management expertise to increase income and value.

Follow the money - Europe is a key destination for tourists from China and other emerging markets and tailoring retail, hotels and leisure investments for this spend can bring rewards.

Team up with a local player in a local market - Find a company in a secondary city that can provide intelligence about where bargains can be found, which assets for sale should be investigated or avoided and what properties are about to come to market.

Refurbish buildings to green standards - Seek out good buildings with slight “blemishes” and turn them into strong performing green assets.

Top 10 European Cities for Existing Property Investments 2013 Ranking 1

Munich

2

Berlin

3

London

4

Istanbul

5

Hamburg

6

Paris

7

Zurich

8

Stockholm

9

Moscow

10

Warsaw

2012 Ranking

2 4 10 1 7 6 8 5 9 3

Signs

shipping

of Recovery

{economy}

After increased EU Ports activity in the first nine months, the fourth quarter saw a slowdown in the Netherlands, Malta, Cyprus and Poland

By Kyproula Papachristodoulou

I

n 2011 the United Kingdom regained its position as the largest maritime freight transport country in Europe, after falling behind the Netherlands in 2010. According to the latest Eurostat estimates, the UK was followed by Italy and the Netherlands, with shares of 13.5% and 13% respectively.

Spain remained the fourth largest maritime freight transport country in the EU in 2011 and France was the fifth largest. Ports in Turkey handled 359 million tonnes of goods in 2011, ranking it between France and Spain.

Eurostat says that the total weight of goods handled in EU ports in 2011 is estimated at 3.7 billion tonnes, a rise of 1.7 % compared with 2010.

There were continued year-on-year increases in EU port activity in the first three quarters of 2011. However, this recovery came to an end in the fourth quarter of the year, interrupting a pattern of growth which goes back to the first quarter of 2010.

The growth in EU port activity in 2011 was mainly due to increased volumes in the inward movement of goods. Despite the annual increases in the gross weight of goods

Seaborne Passenger Transport

T

he volume of seaborne passenger transport in the main EU-27 ports decreased by 4.7 % from 2010 to 2011 and it was about the same as in 2009-2010. The sustained fall in the European maritime transport of passengers in recent years has mainly been caused, Eurostat says, by decreased transport to or from ports in a number of the largest maritime transport countries, such as Italy, Greece, the UK and France. The number of seaborne passengers transported to or from the main ports of Italy fell by 8.0% to 41 million passengers in 2011, while the volume of seaborne passenger transport through Greek ports fell by 7.1% to 39 million passengers.

Cyprus had the highest share of total tonnage unloaded in 2011 handled in EU ports following the economic downturn, overall port activity in the EU was still lower in 2011 than the level recorded 6 years earlier.

Rotterdam, Antwerp and Hamburg maintained their positions as the three largest EU ports in 2011, both in terms of the gross weight of goods and the volume of containers handled. The 20 largest ports accounted for 37% of the total tonnage of goods handled in the countries reporting data in 2011.

Rotterdam on its own accounted for 8.6% of the total tonnage. The number of passengers passing through EU ports is estimated at more than 385 million in 2011, a decrease of 3.5% compared with 2010. The main reason for the fall is a reduction in the numbers of passengers embarking and disembarking in Italy and Greece, the EU’s two leading countries for seaborne passenger transport.

Port activity grew in most European countries in 2011. The largest increases were recorded in Latvia, Lithuania and Slovenia, all with rises of more than 10.0% in the tonnage of goods handled in their ports compared with 2010 (from relatively low levels). In contrast, decreases in port activity were recorded in the Netherlands (-8.7%), Malta (-7.1%), Cyprus (-5.6%) and Poland (-3.0%). Port activity in the acceding state of Croatia also decreased from 2010 to 2011 (-10.1%).

In general, more seaborne goods are unloaded than loaded in the majority of EU countries. Cyprus had the highest share of total tonnage unloaded in 2011, followed by the Netherlands and Malta. However, for Romania (agricultural products), the three Baltic countries (oil products) and the EEA country Norway (crude oil), outward movement of goods prevailed.

BOOK REVIEW Heavens on Earth: How To Create Mass Prosperity

Y

By J.P. Floru (Biteback, 2013) RRP: £12.99 (£8.96 from amazon.co.uk) ou may be surprised by the idea of correlations between Britain’s Industrial Revolution, 2013 Communist China, post-World War II America and Pinochet-era economics but there are many surprising revelations in this book which looks at eight countries that have drastically reformed their economies to create durable growth and prosperity: China, Hong Kong, New Zealand, USA, Singapore, Germany, Chile and the UK. The book explains how failing countries became and are becoming rich, with lots of anecdotes, entertaining facts and figures, and good oneliners (“When tax is 50%, you work one day out of two for the state and you are only half free.”) and it is also positive, recommending a number of ways in which prosperity can be increased: reducing the size of the state, privatisation, cutting state spending, deregulating, lowering taxes, ensuring the rule of law, increasing safety, abandoning state privileges and promoting free trade. This is not only a must-read for anybody interested in politics or economics at any level, it should be required reading for every Cypriot politician.

the international investment, finance & professional services magazine of cyprus

Gold 75

tax evasion

{tax&legal}

T

he Foreign Account Transaction Compliance Act (FATCA) is a major step in the fight against tax evasion by US citizens holding investments in offshore accounts to avoid their US tax obligations. According to the relevant law, foreign financial institutions (FFIs) such as banks, insurance companies and investment companies, as well as non-financial foreign entities (NFFEs) that refuse to identify their US account holders or investors, are subject to a 30% withholding tax on certain payments they receive. This tax is imposed on US income received directly or indirectly by the above entities, such as interest or dividends paid by a US firm and the gross proceeds from the sale of securities. The tax is withheld on all such US income received, irrespective of whether it belongs to clients or to the entity itself.

FFIs and NFFEs can avoid the withholding

tax by entering into a direct agreement with the Internal Revenue Service (IRS) to implement FATCA provisions, namely to carry out due diligence checks on existing and new depositors/investors to identify US persons, to disclose US account details to the IRS and to carry out withholdings on payments to entities that do not comply with FATCA. Apart from the disproportionately high cost of compliance and a tight implementation timeframe, European banks have also been greatly concerned with the incompatibility of FATCA with EU data protection rules. Presently there is no legal basis in EU or Cyprus national law to ensure the lawful processing of the data within the scope of FATCA. This, in effect, would mean that even if an EU institution entered into an agreement with the IRS, it would be violating its own data protection rules by carrying out the required data exchange.

In response to the above, five EU countries have announced their intention to sign a bilateral intergovernmental agreement (IGA) with

the US, whereby their financial institutions will not need to sign a direct agreement with the IRS and the exchange of information will take place on an automatic basis through the tax authorities. A model of this Agreement is now ready (“Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA�) and an IGA based on this has already been signed between the US and the UK. The US is willing to sign this bilateral agreement with other interested countries.

Members of the Association of Cyprus Banks have concluded that it would be advantageous for the financial sector in Cyprus to comply with FATCA through an IGA and have communicated their position to the Ministry of Finance as well as other stakeholders. The Ministry of Finance, taking into consideration the merits of this proposal, intends to sign an IGA and has informed the US authorities of this intention.

An agreement at sovereign level means that individual Cypriot institutions will not have

By Christina Antoniou Pierides

Cyprus and the Foreign Account Transaction

Compliance Act (FATCA)

Having both

Cyprus & Greece

enter into an identical IGA with the US makes compliance

much simpler

for cross-border Cypriot and Greek banking groups

76 Gold the international investment, finance & professional services magazine of cyprus

to enter into agreements with the IRS directly.

This will resolve important problems of FATCA implementation, including data protection conflicts. An IGA will also address another important issue for Cypriot financial institutions, given their presence in non-EU countries – most notably Russia. Under the proposed FATCA regulations, a financial group that signs a FATCA agreement directly with the IRS will still be considered non-compliant if it has subsidiaries in jurisdictions where FATCA cannot be implemented. However, this issue does not arise if the financial institution is located in a jurisdiction which has entered into an IGA, even if some affiliates of the institution are located in countries that are not FATCA-compliant. It is understood that, at present, Russian law does not allow the adoption of FATCA by Russian domestic financial institutions and that the Russian government has significant reservations about signing an IGA. Should Russia choose not to sign, the operations of Cyprus financial institutions with Russian affiliation will not be penalized, provided that Cyprus has entered into an IGA. Given that Cyprus and the US already have a bilateral tax treaty that provides for the exchange of information, Cyprus will enter into a FATCA IGA Model 1, the same as the one signed by the UK, (the “reciprocal version”) whereby Cypriot FFIs will report details on identified US accounts to the Cypriot Tax Authorities rather than to the IRS and the US and Cyprus will exchange information about each other’s taxpayers. The Ministry of Finance wants to conclude the IGA and then draft legislation to implement FATCA in Cyprus.

Following a meeting between the relevant tax official dealing with FATCA IGAs in the US Treasury and her Cypriot counterpart, it has emerged that the US authorities do not wish to amend the FATCA IGA Model 1 other than to include country-specific financial entities and products that should be exempted from FATCA obligations (in Annex II of the IGA).

Also, it is understood that discussions for signing the IGA will be held directly between the US Treasury and the Cypriot Tax Authorities rather than involving other official state channels, in order to expedite matters.

The Greek authorities have also decided to enter into an IGA (the “reciprocal” version) and have already had meetings with US Treasury representatives to advance this. This is an important development for Cypriot banks which have a significant presence in Greece, while Greek banks have a number of subsidiaries in Cyprus. Having both Cyprus and Greece enter into an IGA with the US, and also the fact

An agreement at sovereign level means that individual Cypriot institutions will not have to enter into agreements with the IRS directly that the IGAs will be identical, makes compliance much simpler for cross-border Cypriot and Greek banking groups.

Cypriot banks have mobilized their project teams, and conducted impact assessments in preparation for the introduction of FATCA. The Association of Cyprus Banks has set up ad-hoc committees to address legal, compliance and implementation issues and holds regular meetings with the Ministry of Finance official handling FATCA implementation. Following a request from the Ministry of Finance, the Association’s members have identified possible financial entities and products to be included in Annex II of the IGA and have also solicited the input of other Associations and interested parties. In addition, the legal committee of the Association has formed an ad-hoc committee to advise the Ministry of Finance on the necessary changes to Cyprus’ legal framework in order for the banks to comply with their requirements stemming from a FATCA IGA without violating data protection laws and banking secrecy.

Representatives of the Association have held a meeting with the Commissioner for Personal Data Protection to brief him on FATCA, the Cypriot government’s intention of signing an IGA and the data protection issues that arise.

The Commissioner shares the Association’s view that financial institutions will not have to seek the permission of account holders identified as US persons in order to process their data for FATCA purposes, as long as Cyprus enters into an IGA and the island’s IGA obligations are transposed into national legislation.

Association representatives have also discussed with the Commissioner the possible means of informing account holders of how FATCA will impact them. The Commissioner has also been informed on the need to modify the existing US-Cyprus double tax agreement to ensure the protection of personal data, data security and the prohibition of the relevant data being sent to anyone other than the tax authorities of the US and Cyprus.

According to the model IGA, financial institutions must have new account procedures in place by 1 January 2014, review pre-existing high value individual accounts by 31 December 2014 and other pre-existing accounts by

31 December 2015. This project requires the involvement of numerous departments, such as compliance, O&M, IT as well as Operations and the deadlines imposed by the effective dates are considered to be very tight. Therefore, even though the final FATCA guidelines have not yet been published and an IGA between Cyprus and the US is still pending, financial institutions (including fund managers and custodians) do not have the luxury of waiting for these to be finalised before forging ahead with their FATCA implementation plans.

BOOK REVIEW Tomorrow’s Lawyers: An Introduction to Your Future

By Richard Susskind (OUP Oxford, 2013)

F

RRP: £9.99 (£9.99 from amazon.com.uk) or Richard Susskind (best-selling author of The End of Lawyers?), the future of the legal service will be a world of virtual courts, Internet-based global legal businesses, online document production, commoditized service, legal process outsourcing, and webbased simulated practice. Legal markets will be liberalized, with new jobs for lawyers and new employers too. The author identifies key drivers of change, such as the economic downturn, and considers how they will impact on the legal marketplace.

He sketches out the new legal landscape as he predicts it, including the changing role of law firms, in-house lawyers, and the coming of virtual hearings and online dispute resolution. The third and final section focuses on the prospects for aspiring lawyers, predicting what new jobs and new employers there will be, and equipping prospective lawyers with penetrating questions to put to their current and future employers. Insightful, thought-provoking and challenging, the book presents a reasoned approach to how legal providers can succeed in this challenging environment (and how they will fail if the forces for change are ignored). Thinking ahead? Read this.

info: Christina Antoniou Pierides is a Senior Officer at the Association of Cyprus Banks. The views and opinions expressed in this article are those of the author and

do not necessarily reflect the official policy or position of the Association.

the international investment, finance & professional services magazine of cyprus

Gold 77

{lifestyle}

Fly me to the moon Investing in Space Memorabilia goes into interstellar overdrive.

Out of the infinite darkness of space exploration comes a finite amount of space memorabilia: historic, highly sought after, and blinking brightly on the alternative investment radar. By Chloe Panayides

space memorabilia

R

eminisce, if you will. Transport yourselves back to July 20, 1969. Where were you?

What were you doing? For at least 500 million people the world over, this day remains indelibly ingrained on their minds: they bore witness – with great trepidation, excitement, and wonder – to NASA’s Apollo 11 mission successfully landing on the Moon. Neil Armstrong’s “one small step for a man” onto this otherwise unexplored celestial orb certainly did engender one “giant leap for mankind”. And, as this pioneering event is immortalised as a mnemonic constellation in the minds of individuals who watched on as the world moved on, the unending thirst to own a piece of this history has intensified astronomically.

How much so, you ask? Coinciding with the 40th anniversary of the Apollo 11 mission, the navigational chart utilised by Armstrong and fellow Moon-treader Buzz Aldrin to determine their precise position on the moon’s surface sold in 2009 at Bonhams New York for €172,000, complete with Aldrin’s signature and, incredibly, residue of moon dust. The piece, which had previously been housed at, and impec-

cably maintained by, the Smithsonian’s National Air and Space Museum in Washington, DC, had been tagged with an expected selling price bracket of €55,000 to €70,000. A simple piece of space memorabilia turns suddenly and spectacularly into a shooting star, illuminating the present investment fecundity surrounding all things space-related.

Generally speaking, items orbiting the auction scene connected with space and commanding such high returns may be demarcated into two primary spheres: ‘flown’ items, encompassing any object that has been taken into space, and items signed by notable astronauts.

Autographs have garnered particular attention of late. October 2011 saw a photograph signed by all 12 astronauts to have stepped on the Moon – ‘moonwalk-

Experts are confident that the 50th anniversary of the Apollo 11 moon landing in 2019 will blast figures off stratospherically ers’ – purchased at auction in America for €20,110; even more impressive considering that the PFC40 Autograph Index indicated such pieces as having an average value of €15,300. Indeed, records suggest that the average value of a signed moonwalker’s photo has risen by 564.1% over the period from 2000 to 2011.

The signature of one astronaut in particular has the distinction of being credited as one of the world’s most valuable. Neil Armstrong stopped signing autographs in 1994, limiting the number in circulation, and raising the number on the supply’s price tag. Whereas in 2000 one may have been able to purchase Armstrong’s signature for €650, this value had shot up to €8,870 in 2012; an increase of an incredible 981.8%. Following his death in August

Last but not Least

I

tems connected with the very first Moon landing have risen sharply in price and have thus fallen out of reach of certain collectors, who have turned their attention, it appears, to pieces flown on the final NASA Moon mission: Apollo 17, the last Moon landing in history.

The famous ‘Robbins Medallions’ – so named after the company that minted them – were produced for, and flown on, every manned US mission since Apollo 7. Medallions could only be purchased by astronauts, with anywhere between 255 to 450 pieces having been made for each expedition.

Of the 300 medallions belonging to 1972’s Apollo 17, only 80 were flown; the fewest of any Apollo mission.

Supported by this rare distinction, these medallions have, in contrast to their counterparts from other missions, grown in value by 9.82% between 2008 and 2012.

Reflected in average figures, their price tags have altered from €20,570 to €30,388.

The latter end of 2012 saw another sudden growth spurt: auction house Heritage, sold an Apollo 17 flown Robbins Medallion (accompanied by a letter of authenticity from its previous owner, astronaut Jack Lousma) for €42,100, far beating its high estimate of €27,400, and giving credence, also, to the old saying that last is definitely not least.

the international investment, finance & professional services magazine of cyprus

Gold 79

space memorabilia

Cyprus’ Celestial Challenge innovative thinking and collaboration. Most recently, Science Hack Day was staged on April 6-7 at the Home for Cooperation in Nicosia, where the focus was placed upon the designing of apps, robotics and relevant gadgets.

An official release from The Cyprus Space Office explained: “With the rise of Citizen Science projects and private companies developing the capabilities for space travel, the time has come for Cyprus to develop its plans to join the international community in exploring space.”

The organisation’s macro-aspirations include ith eyes longingly challenge? To land a robot on the Moon by the the creation of unmanned and manned orbital end of 2015. piercing the sky launch vehicles, the training of teachers, and the With a $20 million (€14.82 million) prize at the and hopes high, utilising of space industry developments to drive a newly-launched finish line, Synergy Moon (alongside its fellow local economy and support job creation.

Cypriot company 24 teams) is working feverishly to succeed in Trifouki elaborates: “The benefits (of space safely landing a robot on the surface of the Moon, has set its travel) include monitoring our environment, ensuring it travels 500 metres over the lunar sights on space surface and sends audiovisual data back to earth. research into improving our health and transport exploration. systems, and developing technology which can The Cyprus Space Office is contributing The Cyprus Space Office is a proud new member fuel innovation and create jobs to boost our heavily on the education front, with head Sotira of Synergy Moon, a private space company economy. The possibilities are endless.”

Trifourki developing projects that encourage competing for the Google Lunar X Prize. The

W

2012, experts were quick to declare values as being expected to soar and, sure enough, an auction held by Bonhams New York on March 25, 2013 saw an image (taken from the telecast by the Apollo 11 lunar space camera) that had been signed by Armstrong sell for €11,800.

Flown items have, likewise, been generating impressive – and pleasantly surprising – numbers in the auction market. In Bonhams’ aforementioned auction (aptly named ‘The Space History Sale’), a flown United States flag, made of silk and spanning a mere 4 by 6 inches, inspired one buyer to bid a winning €15,650.

Indeed, inspiring history seems to be the very key to being able to demand, and command, such high figures. Many experts agree that the idealisation of man at his finest hour, and the desire to own items pivotal to stirring narratives, is the crux upon which space memorabilia is balanced. A recent UK-based study suggests that the gen-

eration who watched impressionably as initial advancements were made in space in the 1960s and ‘70s (the so-called baby boomer generation) is now in control of 80% of the nation’s wealth. Desire, demand, and ability to deliver payment have grown hand-in-hand. Consider the sale of an Apollo 13 checklist (p.79 top left) upon which astronaut James Lovell hurriedly made crucial calculations that would see the spacecraft safely guided home, averting disaster, following an oxygen tank explosion. It came up for auction in 2011 at the Dallas-based auction house, Heritage. Straight out of Lovell’s personal collection, the checklist was given a pre-sale estimate of $25,000, yet the document, which may be construed as being demonstrative of human bravery and brilliance under duress, actually sold for a staggering €304,000.

Michael Riley, Senior Historian at Heritage Auctions, explains the differ-

80 Gold the international investment, finance & professional services magazine of cyprus

ence in price thus: “There are few space artefacts as evocative or important as this little booklet. Without these successful calculations and the fast transfer of the information from one computer to the other, the Apollo 13 crew would not have known their position in space, possibly causing the outcome of the already illfated mission to be quite different.”

The power of this rarity – singular items with even more singular stories – within the world of space memorabilia is not to be underestimated. And, furthermore, whilst all flown items and those attached to pioneers in this faction of research and development are attentionworthy, it is the one-and-only, irreplaceable ‘firsts’ that are the true captains of this investment-ship (such as Armstrong’s signature).

Perhaps the greatest example of a stellar ‘first’ is the sale of the Vostok 3KA-2 capsule, the world’s first spaceship.

Sent into orbit three weeks before Yuri Gagarin became the first man ever to reach space, the capsule was accompanied by a human dummy and Zvezdochka, the dog,and completed a single orbit of the Earth in 1961. The iconic capsule was purchased at Sotheby’s New York in April of 2011 by Russian businessman, Evgeny Yurchenko, for a breathtaking €2.2 million.

Alongside already established historyadmiring – and no doubt patriotic – American investors, Russian counterparts are likewise carving their signature into the space scene, making significant purchases. Thanks to the participation of wealthy Russian buyers, 2011 also saw a flown spacesuit worn by Alexei Leonov garner a healthy €189,440.

Looking ahead, experts are poised from a vantage point eagerly anticipating certain catalysts that are imagined to engender energy yet to have been felt in the market.

Experts are confident that the 50th anniversary of the Apollo 11 moon landing in 2019 will blast figures off stratospherically. Similarly, with the existence of only 12 men in history to have walked on the Moon’s surface, and Moon mission’s having been suspended indefinitely

subsequent to 1972, experts are conscious of the effect that will unravel as these significant men whose feats have yet to be matched, pass away. The youngest surviving moonwalker, Charles Duke, is 77 years of age.

It is thought that competition – in the form of items newly-imbued with space significance – will only come about following a member of mankind successful reaching and breaching Mars, the best

The so-called baby boomer generation is now in control of 80% of the nation’s wealth estimate of which is 2035.

On a practical level, highly positive for those who are space-curious is the superb provenance attached to space memorabilia, as well as the liquidity. Regarding the former, numerous leading items are made available directly from astronauts’ personal collections. The authenticity of pieces exempt from these compilations may just as easily be verified, in light of the meticulous nature with which every detail of a space mission is recorded, via data logging and interviews; technical equipment and flight suits are, likewise, always accompanied by documentation.

Howard Weinberger, space memorabilia expert and author, explains the significance of this provenance: “Every spacecraft part has a serial number – even the bolts. An artefact’s greatest value to the potential buyer is detailed and credible documentation.”

Experts, therefore, recommend that, supported by the plethora of information available to confirm authenticity, prospective buyers should be vigilant in verifying the item under their consideration with third-party sources.

And, indeed, the ability to move space memorabilia around the market is conveniently flexible. From specialist dealers, to dedicated auctions (both live and online), and private sales, tracking down an item of interest should not be met by deterring hurdles; particularly notable

is the hosting by major auction houses Christie’s and Bonhams of concentrated space memorabilia sales a couple of times a year.

Unlike the moon that waxes and wanes in its monthly cycle, the space memorabilia market is displaying signs that people’s wonder worldwide over all things extra-terrestrial is not subject to the same inconstancies. It would seem that the dark side of the moon lies only in the challenge to acquire limited items which fellow collectors are also vying for. Let the space race begin: commencing countdown.

BOOK REVIEW Bruce

By Peter Ames Carlin (Simon & Schuster UK, 2012)

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RRP: £20.00 (£11.00 from amazon.com.uk)

ans of Bruce Springsteen know that there has not been an objective biography available until a few months ago when, by some strange publishing coincidence, two appeared almost simultaneously. One (E Street Shuffle: The Glory Days of Bruce Springsteen and the E Street Band) is by Clinton Heylin, the acclaimed author of several excellent books on Bob Dylan, but against the odds, this is the better of the two. Indeed, it is the best, most interesting and exciting book ever been written about Springsteen, perhaps not surprisingly since the author was given remarkable access to his management, band members, friends and family. Springsteen’s youth, his obsession with music, his struggle to break through and his subsequent rise to superstardom are described in a very honest portrayal of its subject. He comes across as somewhat moody, often lacking in empathy and treating his bandmates poorly. Such details of a hugely talented, though flawed artist, make the story all the more engaging.

If you like the music, you’ll definitely want to read the book.

the international investment, finance & professional services magazine of cyprus

Gold 81

Think about it.

It can be done

the last word

Summarising a resilient nation

By Peter Economides

I first came to Cyprus in the Eighties.

But I really came to understand the Cypriots many years later, during the Nineties.

That’s when I first met my dear and close friend, the late Andy Hadjicostis, in New York. It was he who gave me my first taste of the Cypriots. Charming. Personable.

Doggedly determined. And remarkably adept at the game called survival. So adept that survival means to thrive. The Cyprus miracle.

Years later I worked with Bank of Cyprus. My brief was to develop a brand positioning which would better reflect the values and belief system, both of the bank and the society. Because that is where great brands live. Where belief and value systems overlap and coincide. It’s what creates that most powerful of things called brand loyalty.

In a previous column I presented my view that a brand is not a logo. Well it’s not a slogan either. These are signatures.

And in the best cases they summarize everything the brand stands for. Just do it. Think different. Open happiness. Come to Marlboro country. Σκέψου το, γίνεται. (Think about it. It can be done.)

That’s the line I developed for the Bank.

It was not something that came to me in a flash of creative inspiration. Nor was it the result of laborious analysis. That’s not the way I work. It came to me after hours of interviews within the Bank’s ecosystem.

Interviews with managers, employees, customers, the media, trade unionists and politicians. After hours spent interacting with Cypriots over drinks, a dinner, in

The real European crisis is not an economic one. It’s a social crisis

taxis. It came because it was right. And it came as a natural summary of everything I had discovered about this remarkable little island nation.

A nation that had been to hell and back again. A nation with the resilience needed to survive in its position on the volatile geopolitical fault line that it occupies.

Over the past few weeks I have witnessed the most remarkable cliffhanging television.

I was riveted to this bizarre combination of drama and comedy, soap opera and epic serial. But it was tragic. Always tragic.

Because you suspected how it would end.

With the instant dismantling of the single biggest industry on the island. Σκέψου το, γίνεται.

And I was struck by this thought: that the real European crisis is not an economic one. It’s a social crisis. And the real deficit is a democracy deficit. A humanity deficit.

And it felt as if some kind of protestanttype punishment was being handed out. To people portrayed in the media as masters of a money laundering “casino economy”.

My biggest fear is this. By and large, the world does not know that much about Cyprus. The image that is being formed right now will stick and Cyprus will become what the media is portraying. That is sad.

But I know that the Cypriots will bound back. Because the Cyprus miracle is not a miracle. The Cypriots are. Σκέψου το, γίνεται.

Think about it. It can be done.

info: Peter Economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens. Follow Peter on facebook at http://www.facebook.com/economidespeter or on Twitter @petereconomides

82 Gold the international investment, finance & professional services magazine of cyprus

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Cyprus remains an extremely attractive jurisdiction

14 experts discuss the future of professional services

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