GOLD Magazine by Kevi Chishios

ISSUE 20 november 2012 PRICE €6.95

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the international investment, finance & professional services magazine of cyprus

Gold ISSUE 20 november 2012

CIPA International Investment

Awards

Celebrating foreign investment in Cyprus

+ GEOFF BARNES, MICHAEL IZZA, PETER TWIGG NORDIC COOPERATION

That’s What Friends Are For

INTERVIEWS

Luis Miguel Beleza Olivier Jankovec Kishore Rajvanshy

ENTREPRENEURSHIP

New Ecosystem Study for Cyprus

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

More than just a holiday destination with pristine white beaches and 300 days of sunshine, Cyprus can also cater to your business needs ranging from registering and setting up your company’s operations to managing your EU, North African and Middle Eastern clients at a considerably lower cost.

As well as being an EU country and a member of the European Monetary Union since 2008, Cyprus enjoys the lowest corporate tax rate in the EU of 10%. Cyprus belongs to those jurisdictions on the OECD White List which have substantially implemented the internationally agreed tax standard. In addition to this, Cyprus provides efficient business services, has a transparent legal and regulatory system and is committed to sustainable growth. Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.

Cyprus Investment Promotion Agency Tel + 357 22 441133 Fax + 357 22 441134 www.cipa.org.cy info@cipa.org.cy

Ministry of Commerce, Industry & Tourism Trade Service Tel: + 357 22 867100 Fax:+ 357 22 375120 www.mcit.gov.cy/ts ts@mcit.gov.cy

“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime, communication system, banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd

“The favorable business climate, the excellent

telecommunications

infra-

structure, the well educated and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s. Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros

©2012 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.

Need to make better and more-informed decisions about how to strategically manage capital and transactions in a changing world? Let us help. Ernst & Young’s Transaction Advisory Services team provides integrated and objective advisory including:

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See More | Opportunities

“Declare the past, diagnose the present, foretell the future.” — Hippocrates

See More | Opportunities

10 EDITORIAL 12 up front 18 FIVE MINUTES WITH…

issue 20 november 2012

54 CIPA 20 International

keeping the

Recognising foreign companies that have contributed to the Cyprus economy

Investment

Financial services professionals and foreign investors remain positive about Cyprus

Awards

Grasping the Opportunity to Drive Jobs and GrowthProfessional services in Cyprus 34

+ opinion Don’t Take Things For Granted by Markos Kyprianou 40 The End of the Innocence by Andrew Demetriou 42 The Multiplier Effect by Constantinos Charalambous 56 Don’t cut the muscle, cut the fat instead By Andrie Neocleous 66

Celebrating foreign investment in Cyprus

The Greatest Destination in the Universe by Peter Economides 90

52 | Green Oil

A clean and ethical way of powering the world.

54 | Much Ado About Nothing? The experts say that Cyprus has achieved the correct balance between bank confidentiality and the authorities’ need to combat crime.

58 | Welcome to Airport City Olivier Jankovec, Director-General of ACI Europe, on the changing face of Europe’s airports.

62 | New Man at the Helm

44 FEATURE

Andreas Demetriou is the new Managing Partner of Ernst & Young Cyprus.

22 | Legal Aid to the Economy of Cyprus

36 | The Future is Not What it used to Be

Four leading lawyers explain how new and proposed legislation will enhance Cyprus’ reputation as an international professional services centre.

Peter Twigg doesn’t have a crystal ball but he thinks he knows a great deal about things to come.

28 | Where’s the Dilemma?

44 | That’s What Friends Are For

The Ambassadors to Cyprus of three Nordic Interview with Dr. Luis Miguel Beleza, former nations discuss cooperation, the global Minister of Finance and Governor of the financial crisis and the future of the euro. Central Bank of Portugal.

32 | Ten Not Four

48 | Climbing to the Top

A new study makes the case that nurturing the Geoff Barnes, CEO and President of Baker entrepreneurial ecosystem in Cyprus will also Tilly International, on the problems facing the foster organic growth in the next two to five accounting profession and more. years and beyond. 8 Gold the international investment, finance & professional services magazine of cyprus

68 72 76 82 84

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

www.pwc.com.cy/risk-assurance-consulting

Risk Assurance Consulting From Compliance to Competitive Edge

EDITORIAL

“If you don’t show appreciation to those who deserve it, they will stop doing the things that you appreciate.”

e all know how much it can mean to us when someone says ‘thank you’ or makes a point of telling us that we have affected them in a positive way. Many people would say that a few kind words or a gesture of appreciation are more valuable than material rewards. It may be difficult to think about large companies in the same way as people, even though their achievements ultimately come down to the decisions and attitudes of their human resources, but it is perhaps something that we should give more thought to. This is one of the reasons behind the decision by the Cyprus Investment Promotion Agency (CIPA) and Gold to inaugurate the CIPA International Investment Awards, which will be handed over later this month to the representatives of several companies that have invested directly in Cyprus or contributed to the country’s economic and business development. The awards are a tribute and a ‘thank you’ gesture to a number of the firms, their owners and employees, that have helped Cyprus establish itself as a reputable international business centre. I know that the one thing that you want to read now is the list of the award winners. However, at the time of writing, only the companies themselves are in possession of this information, so I must ask you to wait until Monday, 19 November when the award ceremony takes place at the Presidential Palace in Nicosia or until the December issue of Gold, in which there will be full coverage of the event and profiles of the award-winning companies. The winners of the first CIPA International Investment Awards operate in various sectors of the economy and the sector was not one of the criteria on which the decision to honour them was based. All the awards are equal in value and will be given to several firms that have been in Cyprus for a relatively short time and to others with a long and successful presence on the island. More on this next month. Meanwhile, Gold continues to ask the experts for advice on what Cyprus needs to do in order to improve its competitiveness as a jurisdiction offering an attractive tax regime and a well-regulated, high-quality professional services sector. This time we turned to four of the country’s top lawyers dealing with foreign investors and requested their views on a number of legal issues relating to the country’s standing as a regional services centre and you can read what they have to say starting on page 23. Several of this month’s Opinion pieces also contain concrete proposals about how to improve the services offered to investors (as well as what to do about the Cyprus economy), while virtually all of the many interviewees featured in this month’s magazine have something to say about how the island can improve, from avaiation and tourism (Olivier Jankovec, page 58), to accountancy (Geoff Barnes, page 32), regulation (the Nordic Ambassadors, page 44), and shipping (Kishore Rajvanshy, page 72). And we also include an exclusive preview of a pioneering study on the need to nurture an entrepreneurial ecosystem in Cyprus (see page 48) similar to that in a number of countries, including Israel, Ireland and Estonia. If its recommendations are taken seriously by the private and public sector alike, Cyprus as a whole will doubtless be saying ‘thank you’ to its authors a few years from now. As Andreas Neocleous notes, “We should not be too proud to learn from others”. What’s more, we should not be too proud to show our appreciation to those who have brought about some of the positive things which Cyprus can be justifiably point to as being responsible for its slowly but steadily growing global reputation. Gold and CIPA are taking a first step in this direction later this month with the CIPA International Investment Awards which, we hope, will be only the first of many.

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

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

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ISSUE 20 novEmbEr 2012 PrICE €6.95

the international investment, finance & professional services magazine of cyprus

CIPA

International Investment

Awards

Celebrating foreign investment in Cyprus

+ GEoFF bArnES, mICHAEl IzzA, PETEr TwIGG nordIC CooPErATIon That’s what Friends Are For

InTErvIEwS

lUIS mIGUEl bElEzA olIvIEr JAnkovEC kISHorE rAJvAnSHy

EnTrEPrEnEUrSHIP new Ecosystem Study for Cyprus

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:

Dr. Constantinos Charalambous, Andrew Demetriou, Peter Economides, Isavella Frangou-Pavlou, Chris Hadjikyriacou, Christos P. Kinanis, Markos Kyprianou, Boris Lazic, Christos Mavrellis, Andreas Neocleous, Andrie Neocleous, Steven Newbery, George Pamboridis, Chloe Panayides Art DirectION:

Anna Theodosiou Senior designer: Maria Kyriakou Photography:

Olesia Constantinou, Jo Michaelides Marketing Executive:

Kevi Chishios

SALES & BUSINESS DEVELOPMENT EXECUTIVE:

Phivos Karayiannis

Advertising Executives:

Irene Georgiou, Christopher Constantinou Operations Manager:

Voulla Nicolaou

Subscriptions:

Kevi Chishios Printers:

Cassoulides Masterprinters contact: 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus Mailing address: P.O.Box 21185, 1503, Nicosia, Cyprus Tel: +357 22505555, Fax: +357 22679820 e-mail: gold@imh.com.cy website: www.goldmagazine.com.cy subscriptions: goldsubscriptions@imh.com.cy

Gold September 2012 .pdf

CMY

9/27/12

9:35 AM

up front

Diplomatic Service cookbook launch

Christina afxentiou British high commission CheF

he British High Commission in Nicosia recently celebrated the publication of Diplomatic Service, a cookbook featuring signature finger food recipes by the BHC’s long-serving chef, Christina Afxentiou. The book contains 80 recipes including tartlets, cold and hot canapés, kebabs and desserts. Proceeds from sales will benefit projects of the Cyprus Red Cross and the Cyprus Paralympic Committee. With a career spanning over 20 years at the

Lufthansa

introduces mobile boarding pass

ollowing the launch of the new Passbook app for the iPhone iOS 6 operating system, Lufthansa passengers can have their boarding pass issued in the appropriate format. From now on, they can also opt to have their mobile boarding pass delivered via the Passbook

function on their iPhone. Once passengers have successfully completed the mobile check-in procedure, their boarding pass will be sent to their iPhone and saved to the new Passbook app. The mobile boarding pass can then be called up at any time, even without Internet access. As Passbook is time and location aware, the boarding pass will appear on the passenger’s lock screen in time for the flight. By the end of this year, in the second phase of development, Lufthansa aims to integrate the update functionality. If, for example, the departure gate changes, information in boarding passes stored in Passbook is automatically updated and the user is notified of the change. No

British High Commission, Christina Afxentiou has deservedly earned a reputation as a canapés connoisseur/ specialist. She describes creating them as like “painting in miniature, where the skill is to include all the taste and pleasure of a full meal in one perfectly formed morsel”. Diplomatic Service is on sale at the offices of the Red Cross offices and at the Moufflon Bookshop in Nicosia (Tel: 22665155).

further action is required. Lufthansa is one of the first airlines worldwide to make the Passbook functionality available to its customers.

Haji-Ioannou honours his €1 million promise for peace in Cyprus

t a packed ceremony in Limassol last month, finalists in the Stelios Award for Business Co-operation in Cyprus and other VIP guests witnessed the handing over of cheques worth €250,000 to this year’s winners. The awards are sponsored by the Stelios Philanthropic Foundation,

the education-toentrepreneurship charity headed by easyGroup founder, Sir Stelios Haji-Ioannou. Over the last four years, each of 20 joint ventures comprising one Greek Cypriot and one Turkish Cypriot entrepreneur has received €50,000 in cash – a total of €1 million pledged to peace on the island.

This year, around 30 applications were received by the Stelios Philanthropic Foundation with the stipulation that teams must comprise at least one member from each of the island’s Greek-Cypriot and TurkishCypriot communities. The final stage involved an in-depth assessment of the entrepreneurial partnerships by the

Foundation’s management with the five winners each presented with a €50,000 cheque by Sir Stelios. Haji-Ioannou said during the event, “I am very proud of this year’s entrants. They have proved that the spirit of entrepreneurship can overcome the division and mistrust that has scarred our island since 1974. I believe this is another

small but significant step in the continuing process of breaking down the barriers between our two communities and ensuring lasting peace. What the politicians have failed to achieve in the last 38 years, the entrepreneurs are now achieving by themselves!” He added that many of this year’s applications were from businesses formed less

Stelios HajiIoannou

than year ago. “We see this as tangible proof that change for peace is in the air on the island and the spirit of entrepreneurship is alive and well in Cyprus. This is despite the economic crisis and despite the best effort s of the politicians who do nothing to ensure lasting peace on the island’’.

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up front

intelligence, independence and integrity Do you have what it takes to be Governor of the Bank of England? By Kyproula Papachristodoulou

HM TREASURY'S PRESS AD FOR THE VACANT POSITION OF GOVERNOR OF THE BANK OF ENGLAND

Paul Tucker

Sir Mervyn King

ho could have foreseen back in 2003, when Mervyn King was first appointed Governor of the Bank of England, that there would come a day when his job would be advertised in a magazine? It doesn’t make a huge difference that the magazine happens to be as prestigious as The Economist. This still is a major novelty for a country that fanatically abides by tradition. In 2003, spirits were high. Europe and the UK were finally looking ahead with optimism after a few years of minor doom and gloom, and Mervyn King was deemed to be the right person for the job. Until then, the appointment had always tended to be from within the Bank, with the incumbent grooming his or her successor. Such was the case with King, who had been Deputy Governor (1998-2003), Chief Economist and Executive Director (from 1991), and a non-executive director of the Bank (1990-1991). Times have changed. The global financial crisis has made people more skeptical than ever about those who oversee and implement economic and monetary policies, while politicians are more aware of the need to convince the electorate that they make appointments on merit. And this is an important job. The

Governor is also Chairman of the Monetary Policy Committee (MPC), with a major role in guiding national economic and monetary policy, and is therefore one of the most important public officials in the UK. So, for the first time in history, the job was advertised on 14 September. The vacancy notice placed in The Economist called for someone with an “advanced understanding of financial markets and good economic knowledge” and a need to inspire “confidence and credibility both within the bank and throughout the financial markets”. The ideal candidate will also possess “intelligence, independence and integrity” and experience at other central banks – or indeed within the Bank of England – will be helpful but commercial bankers are not ruled out. Candidates who have worked “at the most senior level in a major bank or other financial institution” will also be considered. The advert was placed amid frenzied speculation about potential candidates – ranging from the current deputy governor Paul Tucker to former top civil servant Lord O’Donnell and Lord Turner, Chairman of the Financial Services Authority. The name of the successor to Mervyn King will be announced by the end of the year. The salary is expected to be more than £375,000

Gold Mag - Clock - Nov 2012.pdf 1 23/10/2012 13:22:03

CMY

up front

Nicolas Theocharides of UPM Ltd

George Kouttas and Andreas Elia of Laiki

Ashok Kumar, High Commissioner of the Republic of India, and British High Commissioner Matthew Kidd

Philokypros Andreou of Phil Andreou

Antoinette Albus of Citco (Cyprus) Limited

Radoslav Zuberec of Penta Investments Ltd

Dr. Judith Shapiro, professor in the Department of Economics, LSE, Lord Michael Howard, Former Secretary of State for Employment, Secretary of State for the Environment and Home Secretary, UK, and George Papaconstantinou Former Minister of Finance, Minister of Environment, Energy & Climate Change, Greece

Dr. Luis Miguel Beleza, Former Minister of Finance and currently Senior Adviser to Banco Commercial Portugues, Portugal

Christis Christoforou of Deloitte Ltd

‘What next for Europe?’ THE 3rd LIMASSOL ECONOMIC FORUM

Elias Neocleous of Andreas Neocleous & Co LLC

Stathis Kittis, Chairman of Cyta

Marina Kovalskaya of S.L. Capital Services Limited

Ramin Habibi of Rating Developments Ltd

ignificant views in the critical debate in Europe about “What do we do next?” were voiced during the successful 3rd Limassol Economic Forum that took place last month at the Four Seasons Hotel under the auspices of the Cyprus Presidency of the Council of the European Union. The Forum was a platform for a high-level discussion on a multitude of issues affecting the everyday lives of ordinary citizens in Europe and on political, economic and business issues in the Eastern Mediterranean region. The Forum, which featured prominent speakers from the world of local, regional and international economic and business

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

affairs, was chaired by George Papaconstantinou, a former Minister of Finance of Greece. Among the speakers was Lord Michael Howard, the former UK Home Secretary, who spoke about the future of the eurozone, arguing that there will probably be no Greek exit from the single currency. The Forum was organised by IN Business magazine in association with the London School of Economics and Political Science and LSE Cyprus Alumni. The Forum was supported by the Cyprus Shipping Chamber, the Limassol Chamber of Commerce and Industry and Limassol Municipality. It was sponsored by Andreas Neocleous & Co LLC, Deloitte, Laiki Bank, and the Phil Andreou Group.

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28/09/2012 16:36

interview

five minutes with...

Cyprus has a good reputation as a financial centre but that is something it should never take for granted

Michael Izza

Chief Executive of ICAEW

hat contribution has the accountancy profession made on an international level to the efforts aimed at restoring investor and consumer confidence and creating the necessary conditions for growth? I believe that the contribution that the accountancy profession makes worldwide is often underestimated. Accountants not only offer their professional services to businesses across the world but they also are in businesses, driving them forward and working on their strategy as CFOs and CEOs. Accountants are going to be very much at the forefront of the economic recovery around the world. We’ve suffered from a financial crisis caused by the financial markets, the problems have been accentuated by imbalances and accountants are very well placed to restore that equilibrium and to find a basis on which we can move forward. Cyprus is now a respected player in the financial services sector at EU level. How do you see the profession developing here in the coming years? Cyprus does have a good reputation as a financial centre and as a place to do business in the Eastern Mediterranean but that is something it should never take for granted because a reputation can be lost overnight.

We have seen big corporates and big professional firms losing their reputation in a very short period of time. Take a look at what’s happening in London and what has happened to bankers in the past few years. When I was a young professional, bankers were respected individuals. Now if you see a banker you might cross to the other side of the street! That is what can happen if a profession loses sight of its ethics and its values. To be a trusted individual is something that has to be earned; it cannot be taken for granted. Cyprus finds itself in a good position today but it needs to continue to invest in that to make sure that it isn’t taken away. Recently we had a graduation ceremony here in Cyprus with 127 new Chartered Accountants. They are all talented young people and when we look at the future of Cyprus, they are going to be the ones who will help attract inward investment to the island. They are the potential CFOs and Managing Directors of the gas industry tomorrow. I do not think Cyprus is saturated but, clearly, you do not want everyone in Cyprus to be an accountant! Do you think that the economic crisis has impacted the profession of accountants irreversibly? No, I don’t. I think that there has been some impact but if you take the auditing

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

part of the profession, nobody is asking any questions about the auditors of insurance companies or asset management businesses. The whole focus has been on banks. There are certainly some legitimate questions that can be asked about what the auditors have been doing and how we can improve things. I think those are good questions to ask. But is it irreversible? No. We have to accept that there have been shortcomings and do something about them. The statutory audit directive is currently under review. What is the ICAEW’s stance on this? There are a number of recommendations that the European Commission is making which will improve quality and which we should work with the Commission to implement. The key to this being good legislation, however, is to make sure that it is proportionate and that the failing of some large financial institutions across Europe doesn’t lead to financial services businesses being strangled everywhere because this is a very difficult time economically. And if too much regulation is imposed, not just on financial services but on all businesses, it will strangle the recovery before it’s started. So it’s about proportionality and making sure that member states can implement it as they see fit in their jurisdictions.

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Presents the

CIPA International Investment

Awards republic of cyprus

Presidential Palace, Nicosia, 19 November 2012

he ceremony for the first CIPA International Investment Awards, presented by Gold and honouring international investors in Cyprus as well as individuals and companies that have contributed to the development of the island as an international business centre, will be held on Monday, 19 November at the Presidential Palace in Nicosia. The prestigious awards ceremony, which will take place under the auspices of the Cyprus Presidency of the Council of the European Union, will be preceded by a Grand Gala Dinner for some 300 invited guests from the government and political leadership, business leaders, foreign investors, professional service providers (lawyers, accountants, fiduciary service providers, bankers, etc.) and others. The event, which will be addressed by an international guest speaker, will be streamed live online and part of it will be televised. Cyprus is now a reputable international business centre, attracting companies and High Net Worth Individuals to invest in the island. Tens of thousands of corporations and individuals use Cyprus companies for tax planning purposes. The provision of professional services to this community of international investors has become on of the most important sectors of the Cyprus economy. Indeed, it is expected to supersede tourism as the biggest contributor to the country’s GDP by 2013. The CIPA International Investment Awards are thus a tribute and a ‘thank you’ gesture to some of those who, thanks to their investment, have helped Cyprus establish itself as a reputable international business centre. They recognize not only companies that have created a value added element to the economy of Cyprus and have established operations and provided employment opportunities here but also those that provide services to international investors and help to attract foreign investment to Cyprus and/or have made a significant contribution to the professional services sector which continues to grow in importance. The threefold mandate of the Cyprus Investment Promotion Agency (CIPA)

is to promote Cyprus as an attractive international investment centre in key priority growth sectors, to advocate reform to improve the regulatory and business environment and infrastructure and to provide investor support with aftercare and further development services. Gold is the International Investment, Business and Finance Magazine of Cyprus, published by IMH. Since its first issue in April 2011, it has remained true to its stated aims, one of which is to contribute to the promotion of Cyprus as an international business and investment centre and, by extension, to promote the professionals offering services to this sector. The partnership between CIPA and Gold for the CIPA International Investment Awards is thus a natural one, based on mutually-held objectives. The CIPA International Investment Awards will be given to companies, individuals and funds that have made a direct investment in any sector of the Cyprus economy, including banking and financial services, information and communication technologies, shipping, energy, health, education and tourism. They will have established their headquarters in Cyprus or invested in a Cyprus Company. Also eligible for an award are individuals and companies that have contributed to the development of Cyprus as an international business centre, by offering services in the legal, accounting, audit, tax, corporate, fiduciary, management, trust, arbitration, shipping and ship management, private banking, wealth management, investment and fund management sectors. The recipients of the first CIPA International Investment Awards have been chosen by an awards committee comprising members of the Board of Directors of the Cyprus Investment Promotion Agency (CIPA) and representatives of Gold. Decisions were taken by consensus. The names of the award-winners will not be made public before 19 November 2012. Gold and CIPA are delighted to have Barclays as the Gold Sponsor of the award ceremony, together with three Silver Sponsors: Ernst & Young, KPMG and TFI Markets. There will be full coverage of the whole event and profiles of the award-winning companies and individuals in the December issue of Gold.

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

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new and proposed legislation will enhance Cyprusâ&#x20AC;&#x2122; reputation as an

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the international investment, finance & professional services magazine of cyprus

Gold 23

legislation

Christos P. Kinanis

Managing Director,

Kinanis LLC, Law & Consulting an Cyprus still be considered a serious competitor with other major jurisdictions, given that the economy and the banking system require an EU bailout? The main advantages of Cyprus as a competitive jurisdiction such as the tax system are still in play and Cyprus remains a globally recognised financial centre. Have you yet seen any concrete results from the recent amendments to the laws on Trusts, Intellectual Property and others? There has been a gradual but steady growth in the demand for Cypriot international trusts following the recent amendments to the relevant legislation of 1992 which has now become a more attractive and modernised piece of legislation. Lifting the prohibition of a Cyprus international trust holding immovable property on the island, as well as the amendment rendering the Cyprus international trust as a vehicle difficult to attack, have been the most robust amendments. With regard to Intellectual Property, the results with the amendments have been immediate. The amendments to the Income Tax law have established Cyprus as the ultimate royalty and holding structure jurisdiction. Which legislation do you believe needs to be amended/promoted in order to foster growth at this crucial time for the economy? The recently-amended international trusts law must definitely be promoted in every possible way to attract more foreign investors to the island and to make them realise that Cypriot international trusts have the potential to be used as a channel for foreign investments into or through Cyprus with plenty of benefits. An important bill which is still pending approval by the House of Representatives concerns the Fiduciaries Law. Once this draft law comes into force, it will regulate fiduciary services in the Cypriot market with the aim of ensuring effective market

regulation as well as enhancing the quality of firms offering fiduciary services and, of course, improving the reputation of Cyprus as an international business arena. The draft law on Cell Companies should also come into play. Moreover, the Companies Law can be amended in order to remove any barriers to utilising Cypriot companies. As a legal professional offering services to international investors/companies and High Net Worth Individuals, what changes would you like to see for your profession to thrive and grow? More extensive promotion of Cyprus abroad as an international financial centre would, of course, be good for firms such as ours offering services to international investors. The funding granted to the Cyprus Investment Promotion Agency

Amendments to the Income Tax s ru yp C d e h s li b ta s e ve a h w la as the ultimate royalty and n

io t c i d s i r u j e r u t holding struc

(CIPA) should increase so as to aid the Agency in its activities to promote Cyprus as an intentional business centre. Millions are spent on advertising Cyprus as a tourist destination; the same should be done to promote Cyprus as a financial centre. Moreover, the services offered by the public sector could become more methodological and swift so that we can service international investors efficiently and promptly. What is your view on the indirect criticism included in the Troika draft proposals regarding the implementation of the requirements with regard to beneficial ownership on behalf of lawyers and accountants? (Excerpt: …..”Finally, supervision should be stepped up to ensure that the requirements with regard to beneficial

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

ownership are effectively implemented, in particular for lawyers and accountants”…) As a matter of fair competition, all professionals should use ‘know your client’ procedures and carry out proper and extensive due diligence. In our opinion the industries that might be lacking in this respect are mostly non-lawyers and non-accountants as these other providers are not regulated. The anti-money laundering provisions in force should be strictly adhered to and followed by all. It is up to the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus to make sure that their members are up to the required standard. We expect that this is a matter that will be dealt with sufficiently and thoroughly by the new Fiduciaries Law.

Christos Mavrellis

Partner & Head of the Company & Commercial Department, Chrysses Demetriades Advocates/Legal Consultants

an Cyprus still be considered a serious competitor with other major jurisdictions, given that the economy and the banking system require an EU bailout? The fact that Cyprus has required an EU bailout does not by itself make Cyprus a non-serious competitor with other major jurisdictions. However, if a solution is not reached soon with the Troika, if the present uncertainty is protracted and, on top of everything else, the banking system in Cyprus continues to be demonized and accused left, right and centre as being on the verge of collapse, then our competitive position – which, despite the problems, has been maintained, mainly due to the high level of professionalism of those involved in the services sector – will inevitably suffer. Have you yet seen any concrete results from the recent amendments to the laws on Trusts, Intellectual Property and others? I have not seen any notable increase in business as a result of recent amendments to the laws on Trusts, Intellectual Property and others. The amendments are certainly adding to Cyprus’ position but we should not lose sight of the fact that we are still in the middle of a global financial crisis which needs more than just certain amendments to some laws in one particular jurisdiction to be overcome. Which legislation do you believe needs to be amended/promoted in order to foster growth at this crucial time for the economy? There are some pieces of legislation which need to be updated and modernised and, in this respect, I may say that the Companies Law is constantly being updated in line with developments internationally but there still remains a lot to be done. It is of the utmost importance that the full

computerisation of Registry of Companies takes place and direct access to it is achieved so as to cut bureaucracy and increase efficiency. There are also some laws in the pipeline such as the Non-UCITS Funds Law which will open up new opportunities. A law creating the necessary legal framework for international foundations could add to Cyprus’ arsenal and I understand that this is being promoted. Another piece of legislation which may be considered a necessity, especially given the economic circumstances in which many small and medium sized Cyprus companies have found themselves, will enable such companies to seek protection of the court in order to be given an opportunity to enter into arrangements with their creditors and avoid liquidation which would cause serious problems not only to the companies themselves but also to their creditors. Such legislation, known as Chapter 11, exists in the United States as well as in the UK, Ireland and in many other countries and it has proven very beneficial to all parties concerned. As a legal professional offering services to international investors/companies/ High Net Worth Individuals, what changes would you like to see for your profession to thrive and grow? In addition to the introduction of amendments and full legislation, to which reference is made above, it is very important to cut bureaucracy, simplify procedures and shorten the time for decision-making on all issues in which government services and departments are involved. What is your view on the indirect criticism included in the Troika draft proposals regarding the implementation of the requirements with regard to beneficial ownership on behalf of lawyers and accountants? (Excerpt: …..”Finally, supervision should be stepped up to ensure that the requirements with regard to beneficial ownership are effectively implemented, in particular for lawyers and accountants”…) I cannot really understand the grounds for the criticism included in the Troika’s draft proposals. Cyprus was included in the first tier for the Group Eight meeting in London some years ago as one of the countries in which transparency is practiced. Cyprus fully observes international conventions on the prevention of money laundering, it has introduced the relevant laws and has created the necessary agency.

It is of the importance that the full computerisation of Registry of Companies takes place As regards exchange of information, since 2008 it has unilaterally introduced into its domestic legislation the Assessment and Collection of Taxes Law, provisions reassembling those of Article 26 of the OECD Model Convention, under which on certain conditions and with the consent of the Attorney-General, the Director of the Department of Inland Revenue may provide information on beneficial ownership for companies. I suspect that Troika has been misinformed in this particular issue and this could, in my opinion, be the reason for the remarks you mention.

the international investment, finance & professional services magazine of cyprus

Gold 25

legislation

Andreas Neocleous

not seen – nor would we expect to see – a step change in the number of new trusts or intellectual property holding structures being established. These projects need careful analysis, which can take months, and thorough planning once an in-principle decision has been reached.

Which legislation do you believe needs to be amended/promoted in order to foster growth at this crucial time for the economy? A draft law to regulate all providers of trustee and corporate services, including lawyers and accountants, has been awaiting enactment for almost six years. During that time, numerous unregulated and unscrupulous businesses have taken the opportunity to set up in Cyprus and take advantage of the lack of regulation for all sorts of criminal purposes. Enactment of the draft law would give Cyprus an effective and robust regulatory framework, and confirm its place as a reputable, reliable financial centre.

Founder, Chairman of the Board Andreas Neocleous & Co LLC an Cyprus still be considered a serious competitor with other major jurisdictions, given that the economy and the banking system require an EU bailout? The fact that Cyprus is suffering some economic difficulties, which we all hope will be resolved soon, should not affect the island’s competitiveness as an international centre. Investors need international financial centres for a very simple reason. When they are investing large sums of money, often billions, they do not want to be reliant on the legal system and institutions of a country they do not know, and therefore do not trust. Both banks and companies prefer to work through an intermediary country whose legal system and institutions they are familiar with and trust, and which is preferably neutral in terms of taxation so as to avoid adding extra tax costs. This happens globally – most western investment into China is routed through Hong Kong, just as most investment into south-east Asia is routed through Singapore. Investors are very conservative and these trusted jurisdictions give them the reassurance they require in order to invest. Cyprus has played the same role with regard to Russia and the CIS countries. Business opportunities and ambitions in Russia and the CIS have developed much faster than their legal infrastructure and investors prefer to route their investment through a territory whose legal infrastructure they are familiar with and trust. The assets themselves are located in the country in which the investee business is located, not Cyprus, and the state of the public finances and banking system are of limited concern to the investor in the short term. Have you yet seen any concrete results from the recent amendments to the laws on Trusts, Intellectual Property and others? Since the amendment of the respective laws we have had an upsurge in new enquiries and a number of projects that were in the pipeline are proceeding but as yet we have

As a legal professional offering services to international investors/companies/ High Net Worth Individuals, what changes would you like to see for your profession to thrive and grow? My hope is that we can react positively to our current difficulties and see them as a “wake-up call”. Instead of expecting investors to come to us we must attract them, by offering the financial products and services they need, and the quality of service they expect. This will require a fundamental change of attitude in many quarters. International investors, particularly those investing millions, and sometimes billions, have a choice over where they invest. If we make it more expensive for them to do business in Cyprus, by continually increasing taxes and other burdens on the private sector, they will go elsewhere. If we provide them with third-rate service, and if the civil servants they deal with continue to treat them with indifference and surliness, they will go elsewhere. We should not be too proud to learn from others. Despite having no natural resources other than its people Singapore has developed into one of the world’s most prosperous and stable nations. It has achieved this by a combining an impeccable reputation with innovation and a customer service ethic. It welcomes investors and makes it as easy as possible for them to do business. All the information potential investors need is available on the Internet in a language they can understand. Through the Internet they

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

can interact with government departments and register for tax and any services they need, again in a language they can understand. Compare this with the situation in Cyprus, where most government departments’ websites are available only in Greek and any business can only be done by visiting the department and waiting several hours to see an unhelpful official. If we wish to attract investors to Cyprus we must make it as easy as possible for them.

Good regulation

benefits all honest

people

I am as proud as any of my cultural heritage but by making official documents and information available only in a language that they do not understand we place obstacles in their way and give them the message that we do not want their business. We must ensure that we all, in the public sector and the private sector, provide an efficient and courteous service to overseas investors. Proud as we may be of our country, we need to put aside the attitude that we are doing investors a favour by having them here. It is they who are doing us a favour by investing in Cyprus, paying their taxes and providing employment to Cypriots. I should like to see the current economic difficulties act as a catalyst for change to make Cyprus leaner and better-equipped to meet the challenges of today’s world. Leaner, in the sense of having eliminated wasteful public expenditure and being more ready to work for what we want, rather than expecting it as of right. Better-equipped, in our attitude to the investors on whom we rely for our livelihood, whether we are in the private sector or the government sector. We need them far more than they need us. What is your view on the indirect criticism included in the Troika draft proposals regarding the implementation of the requirements with regard to beneficial ownership on behalf of lawyers and accountants? (Excerpt: …..”Finally, supervision should be stepped up to ensure that the requirements with regard to beneficial ownership are effectively implemented, in particular for lawyers and accountants”…) As I said earlier, I should welcome better regulation and, in particular the enactment of the draft law I referred to, which would provide what the Troika has asked for. I believe that the future for international financial centres lies in providing impeccable service, not only in terms of responsiveness but also in terms of integrity and transparency. This makes sense both ethically and in practical terms. We do not want our country to be a haven for criminals and criminal activities, and large international businesses and reputable wealthy individuals do not want to risk their good name by being associated with “tax havens” used by sleazy businesses as a cover for criminal activities such as tax evasion and money-laundering. Good regulation benefits all honest people.

George Pamboridis

Managing Partner

Pamboridis LLC an Cyprus still be considered a serious competitor with other major jurisdictions, given that the economy and the banking system require an EU bailout? Yes. Cyprus is still one of the major players in the global arena of international business centres. As long as the local economy does not drastically affect the fiscal policies of the Cyprus Government towards companies beneficially belonging to foreigners, it will not affect Cyprus’ position as an international business centre. The deterioration of our banking system, on the other hand, may have potential consequences for Cyprus’ position as an international business centre but solely as far as clients have opted to use Cyprus for asset protection purposes. This, however, would represent a small part of Cyprus’ business in this field, less than 20% I would say. Have you yet seen any concrete results from the recent amendments to the laws on Trusts, Intellectual Property and others? Unfortunately the introduction of these pieces of legislation coincided with the global financial crisis and the eurozone crisis. Our natural target group finds itself in the middle of this situation and this fact, along with the bruised image of Cyprus as a strong independent economy, has rendered any attempts to promote Cyprus in these fields as irrelevant. It will be a while before we can go out and seek new business using these fields as our main argument. Which legislation do you believe needs to be amended/promoted in order to foster growth at this crucial time for the economy? We need to introduce motives for foreign investment in Cyprus. We should target High Net Worth Individuals from Asia Pacific with immigration laws and corporate investments in the field of new technology and services, through a combination of low personal taxes, easy immigration and work permit procedures and tax exemptions for generated income for specific time periods (e.g. 5 years), provided a minimum invest-

There is

nfoo room

r crooked practices any more ment is committed (e.g. €5-7 million). This needs to be carried out carefully since it must not conflict with areas where unemployment has already gone through the roof. As a legal professional offering services to international investors/companies/High Net Worth Individuals, what changes would you like to see for your profession to thrive and grow? Allow the participation of non-lawyers in the share capital of law firms (e.g. up to 25% of equity); provide for the possible raising of capital through alternative modes for expansion of practice; give motives to the professionals to employ new people through tax breaks and social insurance contribution exemptions; convene more Double Tax Treaties with foreign countries; convene more bilateral agreements for the enforcement of judgments and arbitration awards. What is your view on the indirect criticism included in the Troika draft proposals regarding the implementation of the requirements with regard to beneficial ownership on behalf of lawyers and accountants? (Excerpt: …..”Finally, supervision should be stepped up to ensure that the requirements with regard to beneficial ownership are effectively implemented, in particular for lawyers and accountants”…) This is fair comment and I agree. If Cyprus really wants to rank amongst the best international business centres, it needs to implement 100% the letter and the spirit of the relevant anti-money laundering legislation of the EU. There is no room for crooked practices any more.

the international investment, finance & professional services magazine of cyprus

Gold 27

eurozone

Whether it’s austerity vs growth, or the euro vs national currencies, we really have no choice, says Dr. Luis Miguel Beleza, former Minister of Finance and Governor of the Central Bank of Portugal. By Kyproula Papachristodoulou

hen talking about the future of the eurozone and the lessons learnt as a result of the current financial crisis, Dr. Luis Miguel Beleza, former Minister of Finance and Governor of the Central Bank of Portugal, is clear and precise. During a panel discussion at the 3rd Limassol Economic Forum where ex- ministers of finance and European Commissioners discussed the state of the European economy and expressed their views on the current debate on austerity and growth, Beleza appeared to be extremely pessimistic about the future of the single currency. Speaking to Gold later, he explained that he wouldn’t describe himself as a pessimist but rather as a realist. “The current economic policies pursued by the European Union will work in the end. The breakup of the eurozone is unlikely. There is no clear case for a breakup and there would be no advantages to it whatsoever,”he says. Dr. Luis Miguel Beleza is adamant in his view that the only reason why a country like Greece or Portugal would exit the eurozone would be if its European partners decided not to finance it any longer. “In

such a case, the government would run out of money,” he explains. “As you know, the eurozone countries cannot print money; only the ECB can do so. So if a government ran out of money, the only way out would be to resort to the good old days when the state asked its Central Bank to lend it or otherwise to print money. But this means breaking one of the major rules of the eurozone so in such a case that country would have to give up the euro”. Apart from this scenario, is there any other good reason for a country to step out of the eurozone? “No,” says Beleza, “there isn’t. It would have to go through a tremendous devaluation of its currency because an exit at this point in time would not happen in the context of quiet economic development but in the midst of an economic crisis”. Depositors would probably choose to transfer their money out of the country and that alone would instantly lead to a huge devaluation. As Luis Miguel Beleza puts it, “Everybody knows that if you leave the euro, you will have a weaker currency than the euro. The size of the devaluation is unknown.” Any possible competitive advantage that might arise from devaluing the country’s currency would very shortly disappear because of the negative effect of high inflation. At the end of the day, he believes, “The country would probably lose and it would

Where’s the 28 Gold the international investment, finance & professional services magazine of cyprus

Dilemma?

Marina Theodorou xxxxxxxxx xxxxxxxxxx

eurozone

lose dramatically. A possible exit would mean a prolongation of the hardship. Argentina comes to mind…” So if a country is forced to choose between staying in the eurozone and continuing the austerity plan or leaving the eurozone, what does it do? For Beleza there is no real dilemma: “You don’t have a choice. If you are even a bit sensible you will not leave the euro unless if you are forced out. The way I see it happening is the way I have just described, which is not totally out of the question. A country would only leave the eurozone because of lack of money to honour its obligations. Otherwise I can see no benefit for a country dropping the euro”. Despite all the merits of the single currency, there has been a great deal of civil unrest on the streets of many EU countries. So what went wrong? Did the Troika make major errors when designing the austerity programmes? Not really, says Luis Miguel Beleza. “There were no real mistakes but there was no precedent. The bailout process was virgin territory”. He adds that some of the forecasts carried out by the three bodies in charge of the bailout programmes have been too optimistic. “These things happen, of course. I was a student of Paul Samuelson at MIT and I remember him telling us that we shouldn’t make forecasts. But if we really had to make forecasts, then we should make a lot of different ones”.

who says that he or she should not be obliged to bear the entire burden. After all, it was the private sector that had been lending to Greece and benefiting from the interest rate!” The orderly default by Greece has allowed the country to avoid most of the consequences of the situation. “I am confident that if Greece were to leave the euro, all of its problems – even the ones that seem to have been solved at this point – would come back to haunt the country and the Greek people”. How disastrous would it be for the eurozone and the rest of the world if Greece left the euro? “I do not think it would be a complete disaster. I am a moderate believer in contagion. You have to be a little sick for the contagion to create a catastrophe. There is a lot of contingency planning. Some of the losses to be incurred by the banks and other companies are already on their balance sheets. If Greece leaves the eurozone it will not be catastrophic for other countries but I foresee a major upheaval in Greece.” If Luis Miguel Beleza was assigned to redesign the eurozone, what would he do differently? “I’m very much in favour of the banking union,“ he says. “If I could, I would implement a pan-European system of supervision tomorrow. I know that it would be very difficult because some countries do not want it and some of them have very

When you are in the opposition, you can promise a lot of things. When you are in power, things turn out differently Beleza believes that the most common forecasting errors by the Troika lie in three main areas: the size of the deficit and, therefore, the debt; unemployment; and the depth of the recession but he still insists that “the Troika is innocent. Over-optimistic forecasts are common practice, especially in the context of a severe crisis and this one was unprecedented”. So what is the solution? “We have to be realistic and tell people the truth. It is very likely that austerity programmes will hit harder than predicted. This is something we have to live with. Some people claim that we could have done better but nobody has convincingly told us how”. There were hopes some months ago when Francois Hollande was elected President of France but, says Beleza, “He has done nothing differently yet. When you are in the opposition, you can promise a lot of things. When you are in power, things turn out differently.” Politicians should know that overspending and non-prudent fiscal policies will eventually lead their countries to the edge of the cliff. “We are the ones who have put ourselves in our current position. We all knew the risks but we continued spending like there was no tomorrow.” Asked if he considers that it was wrong to force private creditors to accept a share of the default risk in the case of Greece, he says, “If you have no other alternative, then you have to force a ‘haircut’. I never saw any alternatives, only politicians saying that there was another way but they could not tell us what that other way was. The real alternative was bankruptcy but that would have resulted in extremely negative consequences. I wouldn’t have chosen it. I can see the point of view of those who say that by forcing the private sector to get involved in the haircut, we have made the private sector look less positively at the eurozone. But I can also understand the point of view of the German taxpayer

good reasons for not wanting it. But that would be my first priority”. Some are already arguing that the concept of a banking union means explicit intervention in the sovereignty of the eurozone countries. “I know that some countries reject such a development because they consider it an intervention in their internal affairs and their sovereignty,” says Beleza. “But what do they really mean? Sovereignty is nice in theory but we have already given up our sovereignty in the area of setting interest rates, for example. The German budget is of interest to me and to you and to France. We already have shared sovereignty.” While Beleza is fully in favour of taxes being determined by national parliaments, he says, “That is enough. Mrs. Merkel’s budget matters a lot to all the European countries. It is crucial for Portugal, for example, so it is absolutely reasonable to have some common strict guidelines on the budgets. I do not know if I would be ready to allow full control of my country’s budget by the European Commission but is it not reasonable for the Commission to have the mandate to analyze and to make comments, recommendations and maybe a little more regarding national budgets?” Beleza is also fully in favour of statutory control over the level of public deficit and debt under one condition: “That we have an effective mechanism to enforce it”. Finally is there a real dilemma between austerity and growth? “No there isn’t, at least I don’t see one. Without healthy public finances there can be no growth but without austerity public finances will not be healthy. Taxpayers are not stupid. They understand that poor public finances cannot support growth in the long term. If a country cannot establish reasonably sound public finances then it cannot gain credibility and access in the capital markets. So austerity measures may be essential to bring back conditions for growth. Where’s the dilemma? ”

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Geoff Barnes

Accounting

Ten not Four Geoff Barnes has stopped using the phrase ‘Big Four’ to refer to the accounting firms Deloitte, Ernst & Young, KPMG and PwC. “Every time we use it we’re helping them with their marketing strategy,” he says, preferring to talk about the ‘Global Ten’. But then he would, wouldn’t he? As CEO and President of Baker Tilly International, which is one of the ten, he has much to be proud of. During a recent visit to Cyprus he spoke to Gold. By JohnVickers, Photograph by Jo Michaelides

the international investment, finance & professional services magazine of cyprus

Gold 33

Accounting

n these difficult times, few professions are immune to the effects of the global economic downturn and, perhaps surprisingly, accounting and audit are no exception. Surprisingly, because most people would imagine that whether enterprises are thriving or facing difficulties, they still need accounting and audit services. Geoff Barnes, CEO and President of Baker Tilly International, knows better than most how some long-held ideas about his profession are gradually changing, due to issues affecting the Big Four and others. In fact, he makes an effort not to refer to the Big Four in favour of the broader Global Ten: “In fairness, whether we like it or not, the Big Four do a phenomenal job. As a former partner in Deloitte, I’m not a Big Four basher, but the issues facing the Top 10 networks are very similar”. According to Barnes, there are three main challenges facing his profession, the first of which is thresholds, beneath which a statutory audit of a company is not required. “This is not new and it’s all to do with the concept of reducing the administrative burden on small businesses,” he explains. “It has been the case in Scandinavia, for example, for many years and it is usually based on three criteria: the number of employees, the total assets and total revenue. In the ‘old days’, it didn’t matter if you were the owner of a corner restaurant or ICI: you needed an audit. Now you don’t. To put that in context, it is estimated that 98% of all the companies in the world are private businesses. If these thresholds continue to rise, which is what has happened recently in Denmark, Sweden and Norway, there will a point at which audit drops out of a country’s scenario”. This would obviously mean a loss of business for the audit firms and while governments are keen to demonstrate that they are helping small businesses, the tax authorities, the banks, the credit rating agencies, suppliers and a whole bevy of stakeholders are not very happy: they want and need to know that there has been an independent audit. The second issue of concern has to do with regulation which, says Barnes, continues to be a challenge. “Many countries have not adopted the international reporting standards that we apply. Even the US has not bought into this and, without harmonisation, it is very difficult to ascertain the true value of a company, especially if it has subsidiaries around the world and each country has its own national-

ly-driven regulation. We operate in more than 130 countries so regulation is a major issue for us. Harmonisation is inevitable but it’s slow in coming.” The third issue concerns recruitment to the profession. “There has been an amazing dynamic change in the people coming into our business in the sense that around 67% of the people now going into accounting are women,” Barnes explains. “Women are playing a greater role in business life internationally and they want to play an even greater role. Some 20 of the CFOs of the FTSE100 companies are women, which may still be a small number but, compared to how things were even 15 years ago, it’s a big shift. There

Around

67%

of the people now going into accounting are women is a small but growing number of CEOs as well. In my view, there is no better start than by being given a key to the business world as a qualified Chartered Accountant. Men seem to be moving more into MBA qualifications, particularly in the States”. So why is this seemingly positive trend an issue of concern for the accounting profession? It seems that it is the usual story: “Women have babies and many of them don’t come back to us,” says Geoff Barnes. “I think it’s great that women are getting more involved in business life but if you look at the number of female partners in the Top 10 accounting firms, it’s still tiny. It’s 14% at Ernst & Young and in London, Baker Tilly has 200 partners, of whom only 16 are women. We have so many female students but we are not retaining them and this is a major business challenge”. Last year Baker Tilly in London interviewed about 1,000 people for about 100

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

positions. PwC had 6,000 applications for 1,000 positions. More than 60% of those employed were women. “I am told that clients prefer women as auditors,” says Barnes, “because they are seen to be more diligent, more attentive, maybe more hardworking, easier to deal with, etc., so there is a great demand in the business but I’m not sure what can be done to encourage more of them to stay or to return once the children are at a certain age”. A related challenge for audit is that as it becomes more and more IT specialised, there is a marked decline in the number of young people that want to stay on and be audit partners. “These kids coming in from top universities with excellent minds believe that as we introduce more software into the audit methodology, there is less brain power needed so auditing at that level is not fulfilling for them. There is an element of truth in this. Last year I attended a conference at which it was predicted that within a decade there will be software that will completely

eliminate the human element from auditing. It could happen”. The other main area of concern for the accounting profession over the past two years relates to the proposals tabled by Michel Barnier, the European Commissioner responsible for internal market and services, under whose jurisdiction accounting and banking fall. In February 2010 he introduced a Green Paper of what Geoff Barnes describes as “mindblowing proposals” for the audit profession. “There were three key issues. The first was that there should be a mandatory rotation of audit firms so as to avoid the accusation that a firm could not perform an independent audit if it had a long and close relationship with its client. It was also suggested that there should be joint audits (the French system) and a segregation of audit and non-audit services. This was also based on a perceived need to be independent. Barnier’s thinking was that if you are a company’s auditor but you are receiving several million euros for consulting work from the same company, can you truly be independent when it comes to your audit? In some countries, like Italy, this segregation is already in place. The Big Four were lobbying like crazy because this represented a major change whereas the middle market firms like ours saw the proposals as possibly offering great opportunities in due course”. Since its introduction, the Green Paper

has been watered down again and again and it recently went before the European Parliament, supposedly for rubber-stamping and it has come back with 2,309 comments on the proposals. “Many of the original proposals have all but disappeared,” says Barnes.

“On the rotation of audit firms, the Green Paper spoke of 6 years. Now it is 25. That sees most people through their professional careers! So in the end it looks unlikely that there will be any major changes”. How difficult is it for a firm like Baker Tilly to compete with the Big Four, even if it can count itself among the Global Ten? “We have to identify the areas where we can compete,” Barnes explains. “We have to be realistic. Worldwide we have 30,000 people. PwC has 250,000. If we were asked tomorrow to become the auditors of HSBC we couldn’t do it. But if we were asked to be auditors of a major manufacturer or retail group, then subject to having the physical resources, we could. Our market, our ‘sweet spot’ is the owner-managed business. Globally we audit more than 1,000 publicly listed entities but that represents only 8% of our revenues. One of things coming out of the Barnier proposals is not joint audits but shared audits. The buyers of our services – the CFOs, the audit committees, etc. – are aware that they need to look at the way they approach their audit firm appointments. So what is happening now is that, for example, the buyers in the FTSE 100 realise that they don’t need PwC doing all the subsidiaries in all the countries around the world. So, for instance, KPMG audits Aviva but Aviva may well contract with the Baker Tilly firms to do the subsidiary audits. It’s cheaper. I can see much more shared audits in the future”. Geoff Barnes is extremely pleased with the local branch of Baker Tilly. He looks around the firm’s Nicosia offices with pride: “They have a very Manhattan feel about them. They don’t remind me of what I would call a typical Cypriot accounting firm and the people here are very smart. They have a great reputation, which counts for so much these days. There is high quality and there is technology, including our international computerized audit methodology which is all online and paperless. Taking it is a bold move for this firm and I have every confidence that it is going to deliver. There is no reason to believe that its growth is going to be curtailed”. Despite the positive outlook for Baker Tilly in Cyprus, the country as a whole is facing major problems right now but Geoff

If Cyprus was a whollyowned subsidiary of my parent company and it was making profits because of the 10% tax rate I don’t think I’d be having sleepless nights about it! Barnes, a self-confessed optimist by nature, is confident that both the eurozone and Cyprus will eventually see better days. “I don’t see the eurozone breaking up. Mario Draghi’s statement that the ECB will do ‘whatever it takes’ has already brought some stability. There’s a long way to go and there are still some major challenges out there but I believe that the Germans are mellowing and there is clearly a will on the part of other countries to see this through. I also think that Cyprus will start to prosper again. There is a problem in the banking sector but other countries have been through exactly the same thing. Cyprus is not big enough to cope with this particular situation without external assistance, that’s all. Cyprus will get through this just as others will. The fact that government is looking for a €15 billion bailout is not very important in the broader scheme of things”. Austerity measures clearly have to be taken and they may hurt for a while but they can’t be escaped, says Barnes who notes that Cyprus is by no means alone in its current predicament: “Everybody I speak to in every country I visit has

the same issues,” he says. “No-one has been immune to this internationally and everybody’s had to tighten their belts. People are being asked to accept pay cuts, organisations are being forced to privatize, VAT is changing in different parts of the world, index-linked pensions have already been kicked into touch in many places… On the other hand something needs to be done to keep people’s morale high and that is a very difficult thing to do. It’s a big challenge for every economy, even without the current problems we are all facing”. One of Cyprus’ main advantages for foreign investors and companies is its low (10%) corporate tax rate. There has been talk within the EU of a unified European corporate tax initiative but although the EU has made remarkable progress in many areas, Geoff Barnes sees the likelihood of a common tax rate across Europe as “some way off. There many other areas that need to be tackled first. If Cyprus was a whollyowned subsidiary of my parent company

and it was making profits because of the 10% tax rate I don’t think I’d be having sleepless nights about it!” Finally, what is Barnes’ view of the whole “taxing the rich” debate in Europe and elswehere. Should high net worth individuals contribute more towards failing state finances? The answer is not quite as obvious as it may seem. “Forget percentages,” says Barnes. “Recent figures in the UK show that 70% of revenues for the Exchequer were raised in London and the surrounding area. Is there a bigger concentration of rich people there? The answer is yes. And they are obviously paying. There is another question here: if you tax people too much, will they run away? The Times recently described London as the firth largest French city because of the number of French people living there and intending to live there. The French government’s idea to tax anyone earning over €1 million at 75% is not a good one. There is evidence that such a strategy can do a lot of damage. People are already paying a lot of tax and personally I think they are taxed enough. It’s natural in times of downturn to view someone who drives a Rolls Royce or a Ferrari and has a big house with a maid as someone who really ought to be paying more but you don’t want to kill the goose that lays the golden egg. The right balance needs to be struck.”

futurism

The Future is Not

Peter Twigg doesnâ&#x20AC;&#x2122;t have a crystal ball but he thinks he knows a great deal about things to come. By John Vickers,

What it used to Be Photograph by Jo Michaelides

futurism

A lot of human endeavour and

hen, as a teenager, Peter Twigg read Alvin Toffler’s 1970 bestseller Future Shock, it was a defining moment. The idea that rapid technological and social changes were leaving people disconnected and suffering from “shattering stress and disorientation” or “future shocked” had such a profound effect on him that today he calls himself a futurist and devotes a great deal of time and effort to examining some of the same issues that Toffler looked at more than 40 years ago. “I was in awe of the potential to predict the future,” he recalled during a visit to Cyprus in October during which he gave a presentation hosted by the Cyprus Chamber of Commerce & Industry on “Understanding the Present, Predicting the Future – Knowing Where We Are Going”. In fact, he admits that he is not sure that anyone – himself included – can predict the future: “You can’t say with 100% certainty that this or that is going to happen but you can assign varying degrees of probability to potential events in the future and that’s part of what futurism is about – It’s an art or a science that is coming of age at the moment, Large companies, including Shell, British Telecom and many others, are beginning to see the worth of employing futurists to help with their strategic vision, to watch out for the unexpected ‘black swan’ events that happen in life, and to assess threats and risks to their businesses.” Between reading Alvin Toffler’s lifechanging book and lecturing in Cyprus, Twigg has been active in various areas. In the 1980s he was a financial markets trader

Five Predictions 1.

SPACE: In 200-300 years there will be

in Australia and it was during this time that he came to understand the nature of financial markets and how they operate. “That laid a framework for me to be able to analyse and determine where things are going” he says. More recently he “felt an impulse” to see what he could do with the futurism concept which, “is very much an experiment on my part. I’m still defining my business model and finding out my own limitations in this whole process”. Some 20 months ago he launched the website Emerging Events.com which states that it is “dedicated to helping people make sense of the present, understand the past and plan for the future. Through pattern based modelling and systematic analysis of world events we help you understand the risks and opportunities that the future holds.” Twigg says that “I’m putting my predictions out there for people to see and I guess I’ll stand or fall by them” adding that since his focus is on the macro-picture of economics and politics, his main predictions so far have not been proved wrong since they have yet to happen. Rightly or wrongly, futurism is dismissed by many people as being in the same category as astrology and the like. How does Peter Twigg defend or define it? “A lot of human activity is repetitive in nature so having a perspective of history, being able to see the consequences of actions by using public choice theory, game theory and other economic tools, you can start extrapolating consequences. And you see that a lot of human endeavour and human activity is purely mechanistic. My role as futurist is to point out that, for example, the consequences of us going into a prolonged major economic crisis might be a war and that we need to do something to circumvent those events. This has to be a good thing”. Regarding the present global financial crisis and all its varied local effects, Peter Twigg

groups of people choosing to live in space, either on space stations or on planets. Governments will start this for military purposes first.

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

MEDICINE: In the next 10 years we’ll see lots of improvements in medical techniques while cures for various cancers and diseases such

and his fellow futurists must surely have seen it coming? “I was late getting onto the bandwagon,” he admitted, “but basically what happened was a steady consequence of events that just snowballed and became very predictable. In October 2007 I saw what was happening in the stock market and by the end of November I was positioning myself because I knew that something was afoot. Then everything started to slowly cascade down. What happened with Lehman Brothers moment was one of those classic moments that is going to be repeated sometime in late 2013 or early 2014. This crisis is definitely not over”. Twigg is very much a believer in the idea that history repeats itself. In fact he sees the current economic situation in the industrialised world as the completion of a cycle that has been going for the past 225 years and peaked in 2000. Between now and when the cycle completes and makes way for a new one, he foresees “a lot of suffering”. He also agrees with those who say technology may change but human nature never will. “There is this animal part of our nature that still seeks to express itself through violence. And while technology is advancing, the things that drive markets are still fear and greed; these are still the underlying forces that cause people to invest or liquidate their investments or panic. It’s fascinating”. One of his favourite words when he talks about all this is the ancient Greek word hubris (an excess of ambition, pride, etc, ultimately causing the transgressor’s ruin) which he sees as common in today’s politicians as it was in the people with whom Plato and his peers were familiar. So what makes a futurist focusing on the economy different from an economist? “In the next 20 years they’ll be hanging the economists along with the financial planners and may politicians too!” is Twigg’s joking answer. His more serious response

as Alzheimer’s will come through.

RFID CHIPS: Our children’s children will probably be the first

generation to have little RFID (Radio Frequency Identification) chips implanted in the back of their hands which will contain their social

human activity is purely mechanistic is to say that “Many of the economists’ assumptions are totally wrong. I’m talking in particular about Keynesian economics which, in my opinion, didn’t work in the 1930s during the great depression, didn’t work in the 1970s when we suddenly found ourselves in a high inflation, high unemployment, low growth environment, and didn’t work recently either. I’m a great admirer of Frederick Hayek and a great believer in his work. He basically said that things have to be determined by the free market rather than by governments who think that they know best”. So, is he optimistic? “For humanity, I’m extremely optimistic. When I look at the flow of information coming across my desk I do get depressed every now and then because I don’t see any short-term situation that’s going to save our bacon. We are in for difficult times and yet beyond those difficult times I am optimistic,” is his answer. His optimism stems from issues such as robot technology, the present generation’s command of computers and cures for major illnesses. “Our capacity to invent new things and come up with new solutions is extraordinary,” he says. There are, of course, others who are extremely pessimistic about the future of humanity, even at the basic level of being

T h is cr isisly is def in i tre not o ve Peter Twigg is the CEO of the UK-based company Emerging Events. The company uses scientific based prediction services for navigating the future. Through pattern-based modelling and systematic analysis of world events, it helps individuals, corporate and government clients internationally to understand the risks and opportunities that the future holds, providing predictions and advice that are independent, robust and relevant. The company’s advice rests on non-linear approaches to economic and social forecasting. For more information: www.emergingevents.com

security information, medical history, bank details, etc. They will swipe the back of their hand on a scanner to pay for things.

SOCIETY: The baby boom generation is moving towards retirement and this will have serious consequences as they move to smaller homes and

need more nursing care. Investments will have to be liquidated to create income streams for retirement. Many will die in poverty or from depression after seeing see

able to feed the world’s population. Twigg acknowledges the problems: “There is no doubt about that there have to be improvements in agricultural and food production techniques if we are to sustain such a population but I believe that we will find a way. It’s an absolute tragedy that there are food shortages in some parts of the world and we have to look very carefully at why this is happening. My criticism is of the way governments interfere in the whole process of allocation of resources for political purposes. I believe that by the end of this century the whole concept of the nation state as we know it at the moment will have been seriously eroded. Maybe we will move to a one-world nation and a lot of institutions are in place for that to happen or maybe we’ll see the division of nation states into much smaller entities or structures. Does Peter Twigg envision a United States of Europe? “Well, that’s the plan on the table isn’t it?” he says with a smile, adding that “It’s a question of timing. There is a huge clash between politics and economic reality and the framework for long-term economic prosperity for the world is extremely limited at the moment. The politicians and the bureaucrats need to realise that their attempts to control everything are just hubris. They haven’t changed since ancient times.” On the specific circumstances affecting many of the world’s economies today, Twigg believes that by the end of this year we will know which way things are going: “There are two possible short-term economic scenarios: We will either go into an inflationary spike led by the United States, followed by a crunch, or we’ll go straight into a deflationary spiral caused by China or the banking situation. My reading of the markets would seem to indicate that we’ll be entering a deflationary spiral. In August the Chairman of the Federal Reserve fixed his mortgage so maybe that’s a clue!”

a lot of their wealth eroded. They will demand and obtain euthanasia.

ROBOTS: Robot technology is making

remarkable progress and soon robots will be doing a lot of the manual labour that is currently done by people in factories, businesses and homes.

the international investment, finance & professional services magazine of cyprus

Gold 39

opinion

Don’t Take Things For Granted Increased taxation is not the way to reduce unemployment and encourage growth.

here is no doubt that Cyprus is facing the most serious economic challenge since the Turkish invasion of 1974. The once bright example of economic development in the EU is now on the verge of bankruptcy. What is now needed is to face the situation, no matter how unpleasant, with realism and not with populism. As in all cases in life, in order to deal with a problem one has to admit to it first. However, there has been an inexcusable reluctance by the Cyprus Government to admit early on and in time that there were problems that had to be solved. Instead it chose to live in a fantasy world where Cyprus would be immune from the global financial crisis, even though it relies on foreign investors, capital and tourism. The crisis, however, exposed the weaknesses of the economy and, in particular, the fact that it was neither competitive nor productive. We have now reached the point where we can no longer sweep the problems under the carpet, problems that no government until now wanted to face – and bear the political cost – but rather found it easier to just cover the additional cost. This was a formula that worked for as long there was enough money. On the other hand, there is now an opportunity to correct the structural problems of the economy, and especially public finances, in order to make Cyprus more competitive and its economy more resilient to pressures from abroad. One problem is the civil service and public administration. Once the pride and boast of Cyprus, it has evolved into a bureaucratic burden, blocking development with long delays in the decision-making process, inefficiently absorbing most of the public funds and still operating with obsolete methods. Any attempt to reduce the number of civil servants, as things stand today, will fail. It will only lead to undermining the level and the quality of services offered to citizens, and will eventually require new staff but in a different capacity,

The civil service has evolved into a bureaucratic burden, blocking development

By Markos Kyprianou

e.g. as contractual agents but at a similar cost. The most effective and immediate solution is outsourcing. In the 21st century there is definitely no need for government services in many of the areas covered today. This will help employment, reduce government costs not only for these services but also the total payroll, take services to competitive levels and increase income tax revenues from these enterprises and their employees. Shortcut solutions such as increasing taxes or – even worse – introducing new ones, are not the answer. It makes economic common sense that in times of recession you do not increase taxes. Not only do they stifle development and business initiatives but they never produce the desired income results, creating a vicious circle which requires that new measures be taken. On the contrary, one of the main targets should be fighting unemployment by reducing the cost of employment for small and medium sized businesses, which are the backbone of the Cyprus economy. Flexibility is needed. New business initiatives also need encouragement and support by generally reducing costs and simplifying procedures for new business activities, while offering incentives. Real estate is one of the worse-hit areas of the economy. Additional taxation will not help. It should have been adopted at the time of the bubble, not during this recession, especially when the banks are not issuing new loans. By increasing taxation and taxing sales, the real estate sector will be even worse hit. This will not benefit the economy. Tax stability is very important to foreign investors and businesses on the island. Even small changes can cause unease. We must realise that we need foreign investments and not the other way around. There is a great deal of competition from other fiscal jurisdictions. Our priority must be to once again become an attractive competitive destination for foreign capital and investments and not to take things for granted.

info: Markos Kyprianou is a former Minister of Finance and Minister of Foreign Affairs. He was European Commissioner for Health & Consumer Affairs from 2004-2008. 40 Gold the international investment, finance & professional services magazine of cyprus

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2:27 PM

opinion

The End of the Innocence Time and money have finally run out for the government but there is an even greater underlying problem in Cyprus

e stand today in the shadow of the worst financial crisis that Cyprus has ever faced. Our people are more dejected and more pessimistic than they were after the 1974 invasion. Our politicians have demonstrated a disappointing inability to rise to the challenge. The President refuses to blame himself or his government for the crisis, having forgotten how, not so long ago, he and his Minister of Finance assured us that the Cypriot economy was intrinsically sound and isolated from the crisis that was taking hold in the rest of the eurozone. The President’s blaming of the banks for the present crisis is not entirely without foundation (though it is not the whole truth either) but it has further undermined investor confidence in Cypriot banks and, in turn, led to an unprecedented outflow of foreign and local deposits at the worst possible time. At the same time it has dealt a body blow to the most vibrant sector of the Cypriot economy: Professional Services. However, I truly believe that the most significant factor in bringing on the Cypriot financial crisis is the social malaise that has existed since independence in 1960. It is the same social malaise that makes students at local universities take to the streets whenever an increase in the retirement age for civil servants is announced. It is expressed in the modern Cypriot dream of sending one’s children abroad to study and then to use connections with those in authority to secure employment for them in the civil service or a semi-government organisation. Sadly we are all guilty of perpetuating this malaise, and none more so than the political parties which, without exception, have historically made an art form of trading votes for jobs. As if this were not bad enough, successive governments have traditionally given in to public sector wage and benefit demands unrelated to

info: Andrew Demetriou is an Advocate at Ioannides Demetriou LLC 42 Gold the international investment, finance & professional services magazine of cyprus

We are about to witness economic, social and cultural changes that will mark and change our country and our people forever

By Andrew Demetriou

productivity or value gained for money spent. This has led to a bloated and inefficient public service which represents far more of the GNP than is acceptable or manageable. These are not just my views but those of the majority of Cypriots and, now, of the Troika too. The economy will eventually be revived but I fear that we are about to witness economic, social and cultural changes that will mark and change our country and our people forever. The age of Cypriot innocence is over. We shall witness a fragmentation of society and a drastic reduction of the middle class that has been the driver of economic success, and a nation in which the “haves and have nots” are brought into a sharper focus. The social effects of a contracting economy are devastatingly soul-destroying on an individual and on a national level. Each shop closed on a high street is a family without employment or income. Each loan called by a bank is a business closed and a family plunged into unproductive debt. The majority of our new university graduates are unemployed. The debts incurred by their parents to educate their children are outstanding without the prospect of additional family income to reduce the financial burden that these represent to most families. The economy, which is vital to our social wellbeing as a nation, must be the next President’s first priority. Tax increases and spending and benefit cuts are clearly short-term fixes. The challenge lies in tackling the larger issues. The public sector must serve the public in an efficient and cost-effective manner and it must stop being a vehicle for the political parties. This is a big “ask” since the next President will undoubtedly go through a term of extreme unpopularity as a result of the financial crisis which he will inherit. But if he can find it within himself and his party to rise to the challenge and eradicate the malaise, he will be doing the greatest possible service to the country.

(L-R) Anu Saarela, Ambassador of Finland, Kirsten Geelan, Ambassador of Denmark, Klas Gierow, Ambassador of Sweden

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

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NORDIC COOPERATION

THAT’S WHAT FRIENDS ARE FOR

IN TODAY’S INCREASINGLY FRAGMENTED WORLD, THE MODEL OF NORDIC COOPERATION IS GAINING MANY ADMIRERS. GOLD BROUGHT THE AMBASSADORS TO CYPRUS OF THREE NORDIC NATIONS – DENMARK, FINLAND AND SWEDEN – TOGETHER FOR A WIDE-RANGING DISCUSSION ON ISSUES INCLUDING THE GLOBAL FINANCIAL CRISIS, THE NEED TO ADOPT GREENER POLICIES, RELATIONS WITH CYPRUS, AND THE EURO. By JohnVickers, Photography by Jo Michaelides

old: When we talk about Nordic cooperation, what precisely do we mean beyond the concept of good neighbourliness? Kirsten Geelan, Ambassador of Denmark: Thank you for the opportunity to speak about Nordic cooperation. When one hears about Scandinavia there is the impression that peace and prosperity have always existed there. In fact the opposite is true. The Nordic countries fought each other for centuries and saw territories and alliances shifting and changing. But we have managed to move beyond and see the benefits of working together. Formal cooperation between the Nordic countries is one of the oldest forms of multilateral cooperation in

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NORDIC COOPERATION

Y SOME PEOPLE SA T THE THAT IF WE GE ED EUROZONE SORT G OUT, EVERYTHIN ORY. D Y K N U H E B L WIL IMPLE IT’S NOT THAT S the world. We have developed a social model based on openness, transparency and welfare for people in need. However it’s important to remember that the Nordic model is not a static model, it is a dynamic model that adapts to changing socio-economic conditions. A perfect example of this is the O resund region between Denmark and Sweden. This has become a transnational hub of social and economic activity that benefits everyone in the region. Anu Saarela, Ambassador of Finland: In the beginning the cooperation dealt mostly with educational and cultural issues but it quickly expanded to cover other areas, including legal, social, and economic fields as well as transport, communications and environmental protection. Among the most important achievements is the Nordic Treaty on Free Movement. In fact the Nordic countries were pioneers in setting up a passport union. Signed in the early ‘50s, the treaty made passports unnecessary. In addition we have developed a common labour market and agreed on a convention on social security. The official intergovernmental body for Nordic cooperation is the Nordic Council of Ministers, in addition to the official inter-parliamentary session, the Nordic Council, that was formed in 1952. The work of the Council and of the Council of Ministers revolves around a common understanding of democracy and shared social values, which help to maintain and foster dynamic development, to promote freedom of movement and to enhance skills, competitiveness and cohesion throughout the region. The Secretariat of the Nordic Council of Ministers is in Copenhagen. Klas Gierow, Ambassador of Sweden: At the same time it is important to note that the Nordic countries are not a monolithic block

but rather a patchwork. On many issues we choose different paths. Three Nordic countries are members of NATO, three are members of the EU and one is knocking on the door and we are all parties to the Schengen agreement. That said, the different paths we have chosen over the years regarding the economy, defence and politics have not stopped us from establishing concrete and practical ways of cooperating. One of the driving forces behind our cooperation is geography. There is a bridge between Malmo (Sweden) and Copenhagen (capital of Denmark) which is used by 20,000 people every day; there are ferries connecting Helsinki and Stockholm; Norwegians go shopping in Sweden and make up the largest tourist numbers, while many Swedes go to Norway to work. Three of Sweden’s biggest trading partners are Nordic. In the framework of the Nordic Council of Ministers the focus continues to be on elimination of obstacles to cross border collaboration. Gold: Given that the global financial crisis has affected virtually every country, has there been some kind of joint method of dealing with it in the Nordic countries or has each one had to tackle the situation in its own way? Anu Saarela, Ambassador of Finland: We share a similar tradition of aspiring towards balanced budgets, sound economic policies, and old-fashioned frugal, prudent housekeeping. Our countries set common goals for achieving sustainable growth and high employment but we each use our own tools and strategies. At the beginning of the ‘90s, for example, Finland tried to find its way out of the difficult financial situation by implementing severe cuts whereas Sweden had a more relaxed policy on spending.

Klas Gierow, Ambassador of Sweden: When they take decisions, our political leaders and government ministers are very aware of what is going on in each of the Nordic countries. This enables us to make informed policy decisions. Over the years, the Nordic countries have facilitated and created a competitive knowledge infrastructure. Innovation and educational excellence are important ingredients of a healthy economy. Promoting these fields offers ways out of the crisis by creating jobs. Gold: How have your countries dealt with the financial crisis and avoided finding yourselves in the position of Cyprus which needs a bailout from the Troika? Kirsten Geelan, Ambassador of Denmark: No country is an island and obviously we’ve all been affected in various ways. We are experiencing rising unemployment and seeing higher public deficits than we would like. At the same time Denmark has managed to maintain its credit rating high and the country is increasingly being seen by international investors as a stable economic centre. Denmark has pursued a policy of austerity measures including numerous layoffs in the public sector, while at the same time investing in growth initiatives. It’s also important to note that irrespective of the party in government there is a tendency for a broad consensus on economic policy. This is also another common feature of the Nordic countries that economic policies are long term and don’t change dramatically depending on which government happens to be in power. Anu Saarela, Ambassador of Finland: I agree that this is a global crisis so no country has been untouched by it. However, both Finland and Sweden went through huge problems in the 1990s. We had deep recessions, problems with interest rates, excessive lending, unemployment and the public deficit. We had to impose severe austerity measures in order to recover. The good thing is that we both recovered very fast and a strong boom followed. We had different strategies – we made cuts, Sweden raised taxes – but the end result was the same. By 2000 our budget surplus had reached its pre-recession level and I believe we learnt lessons that have made the recent crisis a bit easier to deal with. Klas Gierow, Ambassador of Sweden: Yes, we had a banking crisis at the beginning of the ‘90s. Taxpayers had to help the banks that suddenly found themselves facing serious problems, but so did the banks’ shareholders and customers. Later on in the decade, a new government succeeded in putting the country’s public finances in order. Since then our economy has gone up and down. We faced another difficult situation in 2009 when the economy contracted by 5% but in 2010 we bounced back and I think that the reason we were able to get back on our feet so quickly

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was due to what we did in the ‘90s. None of us is invulnerable; we have all been affected but we have learnt our lessons and created a more resilient framework for our economy. Gold: Do you think the problem in Cyprus is entirely down to its banks’ exposure to Greek debt or are there other things that need to be tackled? Anu Saarela, Ambassador of Finland: As we have already noted, this is a global crisis and it has hit every country in Europe hard. Our main goal should be to fix the problems at the European level, even though action of course needs to be taken at national level too. We all have to make our economies work better and Cyprus is no exception. Reforms are needed and growth cannot be debt-driven. Competitiveness is key. We all have to ensure that Europe remains competitive and attractive. The problems started in the banking sector and the European banking system as a whole needs reform. Kirsten Geelan, Ambassador of Denmark: These are issues that we have been dealing with for a number of years. Denmark did not experience the banking crisis that we saw Sweden and Finland. But we did have a severe economic crisis in the ‘80s when, frankly, our public spending went out of control. We have also learnt some tough lessons. For example there is no such thing in Denmark as not being able to let go of public sector workers if needed. At the same time it is worth remembering the principle of “flexicurity”, an employment policy model – which on the one hand enables high mobility in the labour market and at the same time provides a generous social safety net. Gold: How can Cyprus do more to consolidate its position as a regional services centre? Kirsten Geelan, Ambassador of Denmark: This year a Danish bank (Saxo Bank) opened a branch in Cyprus, primarily focusing on the Russian and Eastern European markets. There is obviously interest in using Cyprus as a hub. It is clear that the banking sector in Cyprus has gained a significant position. One particular of area of concern, however, is the need to improve adherence to international standards. Anu Saarela, Ambassador of Finland: I think the only way for our countries to remain com-

petitive is to try to be the best in our chosen field. High level innovation and education is essential to this. To my mind, what Cyprus has as a great bonus is its high standard of language skills. I agree that the sector needs to apply the highest international standards and benchmarks. If this is implemented, there is no reason why Cyprus should not do well. Klas Gierow, Ambassador of Sweden: I agree with what has been said. Generally speaking, getting the economy in order by tackling the problems in the banking sector and the public sector will improve the country’s image and make it more attractive to investors and companies wishing to establish branch offices here. By doing that, Cyprus will show that it has the ambition and the will to put its house in order. This will have a very positive effect. Gold: All three countries make extensive use of natural gas and Denmark has been energy independent for some years. What is your advice to Cyprus regarding this new resource? Kirsten Geelan, Ambassador of Denmark: Diversify your energy production. This is a golden opportunity for Cyprus to shape its energy policy, and to increase the use of renewable energy – in particular solar energy with a view to making Cyprus self-sufficient. That should be the guiding principle for any country, big or small. Denmark’s vision has been clear for many years: 100% independence of fossil fuels. We started from a position of being 99% dependent on oil imports. In 1972 we found ourselves unable to pay for energy and that was the start. Today, Denmark gets 22% of its national energy consumption from renewable energy. Energy is another sector in which the Nordic countries are collaborating very closely. There is an energy trade between the Nordic countries. Anu Saarela, Ambassador of Finland: It’s a fascinating process, a bit like the stock market with countries buying and selling energy. I agree that the discovery of natural gas is a golden opportunity to build capacity and to diversify the economy and there is also, of course, the environmental aspect. Natural gas is a very friendly form of energy with the least pollution and emissions so it’s definitely good news for Cyprus.

Klas Gierow, Ambassador of Sweden: Norway is a key actor in this sector and I think it’s a very good thing that Cyprus and Norway are already getting together and collaborating. Norway has long experience in diversifying and saving money for the future, avoiding easy consumption, looking at sound investments. There is a lot that Cyprus can learn from Norway Gold: As the only member of the Eurozone, has Finland suffered or thrived better than its neighbours? Anu Saarela, Ambassador of Finland: We have found the euro a good choice. Most people are in favour of the euro and there is a general consensus that the single currency has to be defended. It gives us stability and it gives companies the kind of stability that they need for their long-term prospects. The eurozone is not without its problems and we have to face them, make the euro stronger and make Europe more competitive. I believe that we can fix it. Kirsten Geelan, Ambassador of Denmark: Denmark is not part of the eurozone but our currency has been pegged to the euro for many years. The crisis in the eurozone is European. There are some institutional aspects that can be improved and we hope that discussions on strengthening fiscal and monetary collaboration will produce results. At the same time it is important to maintain a broad perspective. Klas Gierow, Ambassador of Sweden: It’s interesting to see how similar we are but there are always small differences as well. We are outside the euro, we are not pegged to the euro and nobody is talking about the possibility of joining the eurozone right now. Sweden has been doing quite well outside it but that does not mean that we are not interested in it. The eurozone is immensely important to the Swedish economy. At the same time we feel that the decisions that need to be taken are very important and should not be taken too hastily. They need to be taken with due consideration for the effect that they will have on the whole of the EU edifice. One complication is that we are in the midst of an acute crisis and any decisions will have consequences of immense importance so it’s a tough situation for the political leaders of Europe. We want the euro to work.

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entrepreneurship

g n i b Clim to

the top

With the Cyprus economy facing its deepest crisis since 1974, a new study makes the case that nurturing the entrepreneurial ecosystem in Cyprus will also foster organic growth in the next two to five years and beyond. By JohnVickers, Photography by Jo Michaelides

uthored by economist Marina Theodotou of Curveball Ltd, an independent economic intelligence consultancy, with sponsorship from KPMG in Cyprus and Cyproman Services Ltd., the study tackles these challenges, highlights the opportunities for Cyprus and sketches a roadmap to nurture the entrepreneurship Ecosystem in Cyprus and take a Cypriot start-up to an IPO and ringing the opening bell at NASDAQ in 2020. Theodotou and representatives of the two sponsoring firms spoke to Gold about the study and its conclusions. Marina Theodotou came up with the idea of a study on the need to create an

entrepreneurial ecosystem in April 2012 after reading Start-up Nation: The Story of Israel’s Economic Miracle by Dan Senor and Saul Singer. “I was very inspired by it,” she recalls, “and I saw the similarities with Cyprus as well as some of the big differences. And in the end, one of my conclusions was that if they can do it, we can do it too”. By July 2012 she was in Tel Aviv meeting in person many leading figures featured in the book. Israel has many best practices worth exploring including the Angel Law, a tax incentive for angel investors, the formation of accellerators and the crosspollination and collaborative efforts between the private sector, government and academia with programs like Yozma, and StarTau. Theodotou was aware that while there are so many well-educated young people in Cyprus, there is no mechanism whereby someone who

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

comes up with a great marketable idea – one that could possibly succeed beyond the confines of the island – can actually take it further. It’s all a matter of culture, she says, pointing to the findings of the last European Entrepreneurship Report in which the Cypriots topped the list of those wanting to be self-employed. “Unfortunately, there is a gap in terms of having that dream and making it come true,” she says. “The Cypriots are extremely risk-averse. We fear failure whereas in other societies and in the countries we looked at for this study, such as Israel, Ireland or Estonia, the attitude is that failure is OK because when you fail you learn and you start again”. It should be pointed out that “selfemployed” in the terms of the European Entrepreneurship Report means doctors, lawyers and accountants, rather than company managers and not so long ago, another

(L-R) Marina Theodotou Costas Christoforou Christophoros Anayiotos

entrepreneurship

report suggested that almost no young people in Cyprus want to go into the private sector. They obviously do as long as they can be wellrewarded professionals. Theodotou agrees that the Cypriots tend to view the whole concept of being an entrepreneur differently from their counterparts elsewhere and the study makes a point of distinguishing between opportunity-driven and necessity-driven choices. “When it comes to the former, we rank pretty low because it means that you get an idea that is bankable and marketable and you are willing to go against the odds to make it happen. We are not seeing enough of that.” Marina Theodotou knows all about being willing to go against the odds – she even had

Our g oal a nd

to persuade the sponsors of the study that it was something worth backing. Christophoros Anayiotos, Board Member in the Advisory Services of KPMG explains why he had second thoughts: “We had to think twice before proceeding, partly because of our track record as a nation of not being able to promote entrepreneurship. There have been some public sector attempts in the past – creating incubators and trying to generate new businesses which have failed – and perhaps this affected our thinking. When we looked again at the idea, however, we decided that not only could KPMG benefit from the findings of the study but also that we would be making a significant contribution to the community by trying to create this ecosystem. We quickly

the b ig

Cyprus c halleng e is

to take a Cyprus s tartup

to the NASDAQ in 2020

came to realise, too, that when we talk about innovation and entrepreneurship we no longer confine ourselves to Cyprus these days. One of the main problems that has traditionally held back people from engaging in riskier ventures has always been this concept of Cyprus as a small country that can’t possibly take on the rest of the world but thanks to globalisation and technology, ideas are more mobile these days and they can go around the world, irrespective of the size of a country’s GDP. Skype, for example, is a great example of a small country thinking big and achieving great results. It put Estonia on the map.” The Skype story is just one of those noted in the study which defines and highlights the key stakeholders and drivers of entrepreneurship ecosystems and Venture Capital activity, examines how Cyprus performs in these drivers vis-à-vis a peer group of countries in the EU (Denmark, Estonia, Ireland) and Israel, the best in class performer, identifies key opportunities for improvement, recommends a set of best practices adapted to Cyprus’ needs, including the tax regime, and provides a fivestep roadmap to foster the entrepreneurship ecosystem in Cyprus by 2020 in line with the EU Single Market Act and EU2020 goals. The five steps for 2013-2020 are: launching a pilot entrepreurship ecosystem in the Nicosia region, passing an angel investor tax incentive law, fostering accelerators, launching a wide PR social media campaign and going to NASDAQ in 2020 to ring the bell. When Costas Christoforou, General Manager of Cyproman Services was approached about the study, he, too, was initially hesitant. “I did wonder if it might be yet another collection of interesting ideas that would end up in a drawer somewhere but the more I discussed it with Marina and Christophoros, the more enthusiastic I became,” he says. “Given that our company employs mostly young people, I decided that it was worth sponsoring this study, partly so that we would gain insights and put them into practice ourselves. We formed a team in the company and soon we had come up with some suggestions of our own to ensure that the end result would be as useful as possible. I am very glad that we did.” The standard definition of an entrepreneurial ecosystem is that the term refers to all the elements – individuals, organisations or institutions – outside the individual entrepreneur that are conducive to (or inhibitive of) the choice of a person to become an entrepreneur,

g in g n a h c t r a t s o t e it’s tim

or the probabilities of his or her success following launch. Organisations and individuals representing these elements are referred to as entrepreneurship stakeholders and they may include customers and markets, the legal and regulatory framework, universities, the private sector, investors, banks, research centres, ‘voice of the industry’ and more. “The media has a role in all this, too,” Theodotou notes, “by giving a platform to new startups to help create a paradigm shift in people’s minds so that they can see that entrepreneurship is good, as happened in Estonia with Skype, for example (Estonia is one of the countries we looked at in this study). The better educated and the more informed the media is about entrepreneurship, the better it will detect what is happening in other countries and bring the success stories to people’s attention”. The study notes the important role of the private sector, including encouraging more investment in Research & Development, organisations such as the Cyprus Investment Promotion Agency (CIPA) and what it calls ‘voice of the industry’, meaning professional associations, Chambers of Commerce, foundations, NGOs, organisations like the Cypriot Enterprise Link, and events such as hackathons (marathon sessions at which computer programmers, graphic designers and others collaborate intensively on software projects), all of which help to create the ecosystem. The role of the public sector is partly restricted to providing the legal and regulatory framework, and for a specific reason. As Christophoros Anayiotos notes, “Given that governments are traditionally bureaucratic, it’s probably wise to focus on the other components and then bring the public sector in towards the end. In this way the government is presented with a ready-made solution rather than having to participate in the riskier venture of setting things up”. A key aspect of the entrepreneurial ecosystem is that each one is different. “We don’t want to resemble others but to adopt and adapt what others have done to our particular needs and capabilities and come up with our own entrepreneurship ecosystem model. One size does not fit all”. So what does Cyprus lack and what are its

everyone’s mentality

already a pioneer in this area”. So what do they hope to do with the study? First of all, to ensure that it is read by as many key people as possible. It is hoped that policymakers in the public sector will act on some of the recommendations, for example. “I think it has come at a good point in time,” says Christophoros Anayiotos. ”Given the state of the economy, people want something to look forward to. Young people today are no longer attracted by the bank job that their parents dreamed of so it’s time to start changing everyone’s mentality and promoting this entrepreneurial culture”. The study will be available on November 7 in print and online and will be distributed widely in the EU, US and Asia via the social media. It will go to Israel as well through IATI and others and will be shared with organisations such as Endeavor, the biggest organisation focusing on entrepreneurship ecosystems abroad and the Kauffman Foundation in the United States. Theodotou has already contacted Endeavor about looking at Cyprus. She is also in contact the Global Entrepreneurship Monitor (GEM) to get Cyprus ranked in the global survey for the first time. Initiatives like these will put Cyprus on the VC radar globally and will attract venture capital investments in Cyprus. Costas Christoforou has a very simple suggestion regarding the study and Cyprus: “I think we should give it to the presidential candidates and ask for their comments on it and what they intend to do. We want people to take notice and that will be one immediate way”. Beyond the obvious goal of having the study read by as many people as possible, the overall objective is, of course, to create a proper entrepreneurial ecosystem in Cyprus. “KPMG’s global commitment to such initiatives is well-known,” says Christophoros Anayiotos, “but through our involvement in this study we look forward to helping the community to create more businesses which are sustainable in the future. Cyprus needs innovative and sustainable ideas. Now that we have this study, we are thrilled by the challenge and very pleased to be part of this initiative”. “And we are looking forward to being in New York in eight years’ time,” says Marina Theodotou. “We can do it!”

and promoting this

entrepreneurial culture key strengths? “Cyprus lacks several components including the required culture and a school curriculum that focuses on innovation and risk appetite,” says Costas Christoforou. “We are behind other countries and jurisdictions where access to finance through venture capital and private equity funds is concerned. We also need to be able to promote and publicize our success to key opinion leaders, angel investors and venture capitalists, both locally and globally”. Marina Theodotou adds: “We don’t promote Cyprus to the depth and breadth that it deserves. This is an area in which the government could play a role within Private-Public Partnerships to set up, for example, a venture capital fund that would help create an accelerator to take new companies through. Our goal and the big Cyprus challenge is to take a Cyprus startup to the NASDAQ in 2020. Chrysalis LEAP (www.chrysalisleap.com), the first accelerator in Cyprus is a private sector initiative to mentor and secure funding for startups kicking off in January 2013”. That may seem like a hugely ambitious goal but, say the three people behind the study, it is not unattainable. Christophoros Anayiotos points to the fact that the entrepreneurial activities of the island’s lawyers and accountants (“going to Russia, Ukraine, etc., and persuading all those people to come and use Cyprus for their tax planning as well as financial services”) are responsible for the huge growth in the professional services sector over the last few years, something that might have appeared an impossible task at its inception. “We need to capitalize on what has been done so far because the professional services sector now has the expertise and the capacity to take companies to IPOs and to create venture capital funds, says Theodotou and Christoforou agrees. “The Funds Industry is still in the infancy stage in Cyprus but there are very good people here with the required financial and legal background who can support this segment and, within a very few years, we can have a very good industry. KPMG is

the international investment, finance & professional services magazine of cyprus

Gold 51

green

OIL

A clean and ethical way of powering the world By Steven Newbery

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ALTERNATIVE INVESTMENT

ur world today faces a very difficult reality as oil, food and water prices continue to rise to unprecedented levels. This is partly driven by the exploding population growth which is expected to increase from 6.8 billion in 2011 to 8 billion by 2020. Within the space of only 9 years we shall have to cope with more than double today’s production of oil, food and water. Coupled with this increasing

2007 to a binding EU-wide target to source 20% of their energy needs from renewables, including biomass, hydro, wind and solar power by 2020. The UK set a target of 15% of its energy to come from renewable sources by 2020. The Australian government passed bills in 2009 which set out the legislative framework committing Australia to sourcing 20% of its energy needs from renewables by 2020. The United Nations estimates that $148 billion was invested in new wind, solar and other renewable energy assets in 2007. This represents a 60% increase over 2006. The United Nations Environment Programme estimates that annual investment in renewable energy, energy efficiency, carbon capture and storage needs to reach $500 billion by 2020. With access to bank development finance still constricted around the world, the new green technologies that could make mass production a reality are still in short supply and, so with it, is Green Oil.

Green Oil is not actually a new energy product but one that has been used on a small, local scale for hundreds of years. However, large commercial plantations are becoming increasingly viable as the price of energy increases and the world looks for more sustainable sources of energy. Global demand for renewable energy is increasing at an astounding rate. Green electricity, the most important form of energy operating in this fast-growing renewable market, represents a volume of about 400 billion kWh each year in the EU and is valued at tens of billions of euros annually. Crude oil accounts for around 35% of global energy consumption, making it the biggest energy source in the world. Around 83 million barrels of oil are consumed every day, two-thirds being used for transport. China is currently consuming in excess of 9.2 million barrels per day, which is placing tremendous pressure on the rest of the world. In fact, surplus oil production capacity could entirely disap-

Surplus oil production capacity could entirely disappear by the end of this year population demand, weather problems are adding strain to production and pushing prices up at a rapid rate. Ecological disasters such as the oil spill in the Gulf of Mexico and the nuclear power leak in Japan are contributing to a change of mentality by governments around the world as they see the cost of prolonging the imminent change to renewable energy. As a consequence, global demand for renewable energy is increasing at an astonishing rate – largely driven by government environmental policies and the increasing economic viability of green technologies. Governments are increasingly setting targets for the use of renewable sources of energy to try and reduce the amount of carbon emitted into the atmosphere to combat climate change: European leaders signed up in March

WHAT IS GREEN OIL?

Very simply, green oil is the oil derived from the seeds of crops such as Jatropha, Oil Palm, and Silverleaf. The basic process involves planting fast growing trees that will be productive within two or three years, at which point the seeds can be harvested and crushed to produce green oil which can be used to generate electricity, bio-fuel, bio-jet fuel, animal stock feed, bio-fertilizer, and bio-herbicide. The uses that earn the highest revenues are electricity generation, bio-fuel and bio-jet fuel. The aviation industry has recognised that Green Oil is probably the only potential replacement for petroleum-based fuel, one that will enable it to reduce significant carbon emissions of over 650 million tonnes annually.

pear by the end of this year and by 2015 the shortfall in output could reach 10 million barrels per day in the US alone. This will have a significant global, economic and political impact. Given these sobering facts about non-renewable oil, it’s no wonder the demand for Green Oil continues to grow at such unprecedented rates. Achieving a sustainable future balance between global economic growth, energy supply and climate protection is one of today’s greatest challenges. Alternative Global Solutions Ltd offers enhanced returns on environmental and sustainable investment projects that allow anyone to take part in the fastest growing industry of this century. For further information on green oil and alternative investment solutions, contact AGS on (+357) 70000289.

info: Steven A. Newbery is the Director of Alternative Global Solutions Ltd THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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BANKING SECRECY

Much Ado

About Nothing? ARE DOMESTIC SECRECY INTERESTS ARE FIGHTING CURRENT EUROPEAN EFFORTS TO INCREASE TRANSPARENCY? THE EXPERTS SAY THAT CYPRUS HAS ACHIEVED THE CORRECT BALANCE BETWEEN BANK CONFIDENTIALITY AND THE AUTHORITIES’ NEED TO COMBAT CRIME. By Kyproula Papachristodoulou

he recent public debate about whether Cyprus is able to protect international and local investors as far as bank confidentiality is concerned does not appear to be based on fact but rumour. Banking secrecy is extensively supervised and controlled by international and European bodies. It is also a matter of longestablished practice but the fact is that today, even the most strict and secret destinations in terms of depositor information are under heavy attack. The US and many European countries have launched an undeclared war against the Swiss tradition of letting foreigners hide money from their home tax authorities in secret bank accounts. And to a certain extent the strategy has worked, by forcing a bank to pay a stiff fine

and hand over thousands of names of alleged American tax evaders or by signing deals with the Swiss government to solve the problem. However, many Swiss banks are still refusing to release data to America’s tax inquisitors and are willing to pay hefty fines for not revealing the identities of European depositors. Cypriot legislation contains all the necessary checks and controls to ensure, on the one hand, bank confidentiality for current and potential investors and, on the other, compliance with all European and international regulations to combat money laundering and international crime. Michael Kammas, Director General of the Association of Cyprus Banks, told Gold that banking secrecy is protected in Cyprus, subject to clearly defined exceptions envisaged by the Cypriot legal framework. “With its high quality banking and other professional services,

and statutory protection of banking secrecy, Cyprus has managed to tread a fine line between being an attractive business and financial jurisdiction, while complying with European and international rules such as the OECD Model Agreement and the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing,” he explained. The existing legal framework seems to work well for all parties, says Charis Papacharalambous, Director General of the Cyprus Investment Promotion Agency (CIPA). “Banking Secrecy is well protected in Cyprus, in part by the Banking Laws of 1997 to 2012. At the same time, the present legal framework foresaw and introduced some important and necessary safety valves that ensure that confidentiality is subject to specific and safeguarded exceptions which ensure that the law also complies with

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

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The EU clearly has a major political responsibility for tackling the problem relevant EU directives as well as international rules by organisations such as the OECD”. The line between confidentiality and exceptions where information should be disclosed is often extremely thin. “I would argue that the existing legislative framework in Cyprus and the mechanisms involved do offer a quite well-balanced environment which is what any serious financial centre should aim to have,” Papacharalambous notes. Banking secrecy has always been tightly monitored in Cyprus. Over the years, Cypriot law has been formulated in such a way as to protect legitimate and internationally accepted bank confidentiality and to reveal information only under strict conditions after all the controls and safeguards have been met. Today, the banking law contains provisions on professional secrecy and banking secrecy. It states that all persons who carry out or have carried out a task on behalf of the bank, and the auditors or experts commissioned by the Central Bank, are subject to professional secrecy. According to the legislation, none of the confidential information that a person becomes aware of while carrying out his profes-

What Is Banking Secrecy?

anking secrecy is no different from legitimate confidentiality. A bank won’t publish your account details on the Internet, in the same way that a doctor won’t post details of your ailments on his surgery door. This is perfectly normal and acceptable. Problems occur when there is a refusal to share this information with the legitimate authorities and bodies that need it, in order to tax wealthy taxpayers appropriately, for example, or to enforce its criminal laws. Cypriot legislation ensures that banks reveal information to the authorities, provided that the right procedures are followed.

sional duties may be disclosed to any person or authority, except in a concise or collective form so that the identity of the bank does not emerge, unless the case comes under a criminal investigation. The banking law also contains provisions on secrecy, noting that the duty to maintain bank secrecy does not apply where the information is given to the police under the provisions of any law or to a public officer who is duly authorised under that law to obtain that information or to a court in the investigation or prosecution of a criminal offence under any such law. The Prevention and suppression of money laundering and terrorist financing law also provides that Cyprus courts may, upon application by the investigator, make an order for the disclosure of information by any person, including service providers involved in financial businesses or other activities, who appear to the court to be in possession of the information to which the application relates. Violation of the law regarding the prohibition of disclosure for the protection of information in the investigation process results in criminal liability. The lifting of banking secrecy is allowed for tax purposes. The tax collection law specifies that the tax authorities can require and receive information from a bank, though only after submitting a written request to the Attorney-General and sending written notice to the person who is under the audit. To avoid “fishing expeditions” by the tax authorities in a particular country, they are obliged to provide specific information simultaneously to the Attorney General and the bank, including the identity of the person under investigation, a description of the information required, the reasons why they consider that the requested information is possessed by the bank, a justified time period by which they require the information and a written statement by the tax authorities verifying that they have exhausted all other means at their disposal to gather the requested information.

FINANCIAL SECRECY INDEX

On the 2011 Financial Secrecy Index, compiled by the Tax Justice Network (TJN), an independent organisation launched in March 2003, Cyprus is ranked 20th. This ranking is based on a combination of its secrecy score and a scale weighting based on its share of the global market for offshore financial services. According to the country’s report as issued by the TJN, Cyprus accounts for slightly less than 1% of the global market for offshore financial services, making it a tiny player compared with other secrecy jurisdictions. The TJN’s assessment is based on 15 key financial secrecy indicators, reflecting the legal and financial arrangements of Cyprus. The index was launched in October 2011.

TOP 20 RANK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

SECRECY JURISDICTION Switzerland Cayman Islands Luxembourg Hong Kong USA Singapore Jersey Japan Germany Bahrain British Virgin Islands Bermuda United Kingdom Panama Belgium Marshall Islands Austria United Arab Emirates (Dubai) Bahamas Cyprus

The fact that United States is a top secrecy jurisdiction, both at a federal level and on the level of individual US states, is immensely significant with respect to the politics of financial secrecy and the possibility of tackling it. Moreover, half of the top 20 jurisdictions on the FSI are European Union member states or their dependencies: the Cayman Islands, Luxembourg, Jersey, Germany, British Virgin Islands, Bermuda, United Kingdom, Belgium, Austria, and Cyprus. The EU clearly has a major political responsibility for tackling the problem. Domestic secrecy interests are fighting current European efforts to increase transparency.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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opinion

The Multiplier Effect The truth about the Troika’s plans for the Cyprus economy

e have recently witnessed the ongoing media debate between the political parties regarding the recommendations of the Troika and the government’s response in the form of measures which were conveyed to the Troika on 6 October. Unfortunately, there appears to be a general misconception regarding the effectiveness of the Troika’s measures and the government’s countermeasures as regards the Cypriot economy. The measures set forth by the Troika aim to reduce the government budget deficit to 4% of the country’s Gross Domestic Product (GDP) in 2012, to 2.5% of GDP in 2013 and to 1%+ in 2014 with the hope of achieving a balanced budget in 2015. The government responded to these recommendations essentially by producing a six-page document (the remaining pages are a translation of the Troika measures in Greek) asking for a one-year extension in order to achieve something close to a balanced budget. The government’s initial response from an economic point of view revealed that this rather poor document made absolutely no economic sense whatsoever. There was no mention of the financial sector, where the Troika measures are the strictest. Furthermore, fiscal structure measures are largely ignored for the sake of short-term fiscal changes. Even the proposed fiscal measures are characterized by rough calculations with no economic foresight. Points 21 and 23 of the government’s response document shows a constant stream of expected revenues from increases in taxes imposed until 2016. The initial document was later amended to include the financial sector and the fiscal measures were negotiated with the political parties, trade unions and other stakeholders. However, the problem of declining economic development was not resolved. The problem with the proposed counter measures is that the government is assuming that for four years the economy will exhibit what we call in economics “ceteris paribus” (meaning “all other things being equal”) but this Latin expression of economic characteristics remaining constant does not apply in this case because of the

The government’s rather poor document makes absolutely no economic sense whatsoever

By Constantinos Charalambous

multiplier effect. The multiplier effect basically describes a spending cycle where government cuts in its own spending or increases in taxes will lead to a decrease in aggregate spending and thus aggregate production. In turn, this will result in a decrease in aggregate income received by households as companies, especially small to medium sized ones, will be forced to dismiss staff because of the aforementioned decreased demand. The effect on household consumption, aggregate production and GDP will thus be negative. This cycle will then be repeated either until the government takes expansionary measures for economic recovery or there is an external shock to the economy, such as increasing investments, which will offset the contractionary effect of government policies. According to a study conducted by Cerdeiro and Wirkierman, the latest figure of the Cypriot multiplier is estimated to be 2.5. The government is proposing a reduction in expenses of approximately €1.8 billion by 2016. Applying the multiplier effect reveals an estimated €4.5 billion fall in GDP or aggregate production in Cyprus. The largest decrease of €1.3 billion in GDP will be witnessed in 2016 according to the government proposals. Due to the anticipated poor state of the economy in the years to come, it is therefore unintelligent to suggest that there will be a steady stream of income from taxes. It is only natural that lower incomes will result in lower taxes received by the government. The Troika measures are harsh and the appropriate negotiation is necessary. But this negotiation must be the product of discussion among all the political parties for the purpose of minimizing the adverse effects that these measures will have on the aggregate economy and the average citizen. The truth is that the Troika is not targeting economic development in its proposals. Instead, it is focusing on the government budget while it is flexible about measures that can lead to economic development. The 2015 timeframe imposed by the Troika is not to achieve economic recovery. This will come at a later stage through hard work and after careful fiscal and financial restructuring. We will ultimately be our own saviours and it is time to step up or shut up!

info: Dr. Constantinos Charalambous is an Associate Professor of Economics and Head of the Department of Research and Development at PA College in Larnaca.

He is Associate Editor of the Cyprus International Journal of Management and he maintains a popular economics blog at www.everyday-economist.com. 56 Gold the international investment, finance & professional services magazine of cyprus

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Aviation

Welcome to Airport City 2012 has not been a good year for Europe’s airports, with 48% of them currently making a loss and passenger numbers up just 1% compared to 8% in non-EU countries. Capital expenses have risen by 20% in the space of one year. These statistics, coupled with the fact that 20 major airports are expected to experience congestion levels similar to those of Heathrow by 2035, mean that Olivier Jankovec, Director-General of ACI Europe, the European trade association for the airport sector, has plenty of work to do. He spoke to Gold during a recent visit to Cyprus. By John Vickers

irports used to be places we went to in order to catch a plane to somewhere. And while this main activity has not changed, today’s airports are much more, often resembling shopping malls, while what the PR firms like to call the ‘airport experience’ has improved beyond recognition. It all comes down to money and competition, says Olivier Jankovec. “Twenty years ago most airports were merely infrastructure providers, all part of the state administration and dependent on public financing. The main mission of an airport was to take care of the national airline, even if it meant losing money. With the liberalisation of aviation in Europe, the game changed completely and airports went through a transformation process whereby they established themselves as businesses in their own right. When people say that airports look more like shopping malls these days, there’s a very good reason for it. This is what is actually paying for the infrastructure. Increasingly, the airlines don’t want to pay for it – sometimes they actually want to be paid to fly to a particular airport (I won’t mention one airline in particular but you know the one I mean!). Airports are now competing with each other to attract airlines and passengers so they look for revenue opportunities elsewhere, hence the shopping”.

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

Aviation

Privatisation is clearly a growing trend which, presumably, ACI Europe views as a positive development? “As an association we’re neutral in terms of the ownership model,” says Jankovec. “Being public or privately owned makes no real difference. What matters is that the airport is managed in a commercial way and can make its own management choices and be run as a business”. The commercial aspect of airports has evolved tremendously in recent times as they move from targeting passengers to targeting visitors. They have become much more sophisticated and diversified places and, says Jankovec, we are seeing a lot of creativity. “Munich Airport, for example, operates a brewery on the airport site. Athens Airport has been very good at developing a whole commercial area outside the terminal. Dusseldorf has a research centre at the airport. More and more places are adopting the concept of what we call the ‘airport city’ so it’s not surprising that 48% of airport revenues in Europe come from non-aeronautical sectors. These additional activities help develop traffic potential and connectivity because if there is more economic activity around the airport, it’s easier to attract airlines and create new demand for services”. The business sense behind the ‘airport city’ idea is clear from the revenue statistics. The global financial crisis and the eurozone crisis in particular have affected traffic, which means less aviation revenue for the airports and in 2011, revenue from airlines fell by 7%. Despite the crisis, however, there was a 14% increase in revenue from commercial activities. So airports are looking beyond airlines and travellers to make their money and the two airports in Cyprus are no exception and they could obviously do a lot more attract non-flying visitors. They also need to build a partnership with the other stakeholders in order to sell Cyprus better as a destination, Jankovec suggests. “People still want to go on holiday and Cyprus is trying to reinvent itself as a destination so as to be different from its competitors. It’s very important for the airport to be able to work with the local tourism industry. Moreover there needs to be greater liberalisation of traffic rights and the adoption of the Open Skies policy. Of course, there is the question of protecting Cyprus Airways but ultimately a country needs to look beyond the airline and at the greater good.” On the Open Skies policy, Jankovec is very clear that Cyprus

needs to proceed with the adoption of the policy which, he says, will have very important benefits for the island’s economy. “The European Commission is willing to move forward and replace the quite restrictive existing agreements concluded between individual states of the EU and those outside with EU-negotiated and signed agreements that promote an open sky regime, he says. “We have it with the US and Canada but we need to move quickly with the emerging countries because Europe will be increasingly reliant for its trade capabilities on them. The markets of China, India, the Gulf States, Latin America are still restricted but with ‘Open Skies’ with them it will create new business opportunities

double by 2035, but building the airport capacity needed to cater for this is increasingly difficult. “By 2035 some 250 million passengers will not be able to fly due a lack of airport capacity,” says Jankovec. “Of course, not all airports are in the same situation as Heathrow but up to 20 major European airports will face congestion levels like Heathrow by then. It’s very difficult to build new airport capacity, very often for local political and environmental reasons and this has to do with the fact that the aviation industry has an image and a reputation that doesn’t match the facts. The maritime sector’s carbon footprint is greater than that of the aviation sector but nobody thinks about it”. The most obvious problem at airports is security, which now accounts for 27% of airport operating costs while an average of 41% of airport staff is security- related. It needs to be re-examined, says the Director-General of AIC Europe: “It impacts greatly on the quality of the airport experience. It’s negative on the costs side, negative on the service side,” he says. “Since 9/11 we’ve added new constraints and security measures in a reactive way and in the end they are probably not even very effective because, in the end, everything is predictable. If I am a potential terrorist it’s relatively easy to know what kind of measures and controls I will be subject to when I go to the airport. Every passenger is treated as a potential terrorist and this is nonsense. We would like to see a new philosophy for aviation security where the focus is not so much on systematic detection but on having more deterrents in the system, such as unpredictability which makes things more complicated for a terrorist. The European Commission has published a document showing a willingness to change the philosophy of the system, which is very encouraging, and although we have been making that plea for three years, for the first time I’m feeling quite optimistic on this issue”. Jankovec is also optimistic that his members will overcome their problems and return to profit but they depend a lot on the performance of the economy. “Airports reflect the state of the economy,” he explains. “Once we have turned the page of the eurozone crisis and economic recovery starts, the demand for air transport will also pick up. At the moment there is too much uncertainty and 48% or Europe’s airports are loss-making. Once people start flying and spending again, the industry will thrive”.

Every passenger is treated as a potential terrorist and this is nonsense for the airports. Some major national airlines in Europe are trying to block the negotiations because they benefit from the restrictive agreements and they don’t want more competition but if we don’t liberalise quickly with these countries, we risk not maintaining our global relevance in the Asian market. China is planning to open 78 new airports by 2020. In Europe, if I look at the situation optimistically, I see just four new airports. Over the past 75 years, America and Europe have traditionally been the biggest aviation markets in the world. That leadership is fading and by 2016 Asia Pacific will be the biggest in the world and by 2035 it will be nearly twice the size of the European aviation market”. The adoption of an ‘Open Skies’ policy is just one of the major issues facing Europe’s airports. Eurocontrol predicts that air traffic in Europe will nearly

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

Global recession or big opportunity? We believe that the companies which succeed after the downturn are those which have the vision to plan ahead. Deloitte has the experience, insight and knowledge to help you identify opportunities, make plans and implement them. Be one step ahead, visit www.deloitte.com/cy

ÂŠ 2012 Deloitte Limited

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

accounting

New man at the helm As the new Managing Partner of Ernst & Young Cyprus

Andreas Demetriou has been entrusted with the challenge of steering the firm through the stormy waters of the Cyprus and EU economies. By Kyproula Papachristodoulou, Photos by Jo Michaelidou

accounting

Gold: As the new Managing Partner at Ernst & Young Cyprus, what is your main ambition for the firm and yourself? Andreas Demetriou: The firm’s ambition remains the same, to deliver exceptional client service. We aim to attract the best people and help them achieve their potential. For me, it is key to establish a compelling vision, to be appropriately challenging and supportive and thus contribute to the development of the next generation leaders of our firm. Continuing to deliver consistent high quality client service and investing in our people is the best way to grow our business and build the Ernst & Young brand and its marketplace standing. Gold: Do you plan to introduce new services? A.D.: Our global firm has invested in dedicated industry centres that serve as hubs for sharing industry-focused knowledge and experience. Ernst & Young is the most globally integrated firm, with one methodology, across all our geographical areas. This structure enables us to mobilise 167,000 people quickly and allocate them to projects in the right place at the right time. We have already started and plan to expand further the provision of Advisory and Transactions services to local clients, using a pool of over 150 people based in Athens and Nicosia. These are “best of class” professionals, dedicated to providing solutions in areas such as mergers and acquisitions, valuations and business modelling, managing risk and improvement in business performance. Also, we are expanding the scope of our services to international business companies. In addition to the four main services, we now offer accounting, compliance, secretarial and reporting services. Our teams specialising in this sector are being strengthened with the addition of more executives, including Russian-speaking partners and managers.

clients view the current economic situation? A.D.: Faced with a fiscal squeeze, uncertainty over the sustainability of public finances and weak private consumption, most businesses are putting investments on hold. Some companies have remained profitable during 2012 but many are in survival mode. Not only are profits being squeezed but they face an increased risk of losses from bad debts and impairment of other assets. Furthermore, because some banks need to rebuild their own balance sheets and hold more regulatory capital, they may be unable to renew or increase funding, or they will demand substantially higher interest rates. We are therefore unlikely to see substantial investments from local businesses. Their focus in the short term is on cash flow and cost containment.

Emphasis should be placed on structural reforms which

Gold: Does the current economic situation present additional risks to your firm? A.D.: The challenging business climate of the past few years does place additional pressures on our clients and also on our firm. Our people focus on doing the right things and we have a global code of conduct which guides us if we face any challenging situations. We believe that, by upholding our values and acting with professional integrity, we will maintain our reputation for offering exceptional service to our clients and also manage our risk. Gold: What is your reading of how your

in the medium term can generate growth and enhance job creation investment and innovation

Gold: What is your evaluation of the Troika’s approach towards resolving Cyprus’ economic problems? A.D.: At this point in time, the Troika’s final proposals and the Government’s counterproposals have not yet been finalised, so any comments will, of necessity, be of a general nature. The Troika is reported to favour “front loaded” austerity measures – mainly cuts in wages and other government spending. Everyone recognizes the need to put our house in order and restore sound public finances the soonest. At the same time, emphasis should be placed on structural reforms which, in the medium term, can generate growth and enhance job creation, investment and innovation. Our

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

approach should be to negotiate in good faith with the Troika and seek to find a balance, i.e. to make the required adjustments to our public finances over a reasonable period of time while making sure that we avoid paralysing the economy and causing social unrest. Gold: Do you think the Troika’s proposals will impact the financial services sector? A.D.: Up to now, we have not managed to decouple the issues of the government deficit and financial support for the country’s two main banks. It would be preferable if the funds for the recapitalisation of the banks were provided directly by the European Stability Mechanism (ESM) as this would alleviate concerns regarding the sustainability of the public debt. A solid and efficient banking system has been a key contributory factor in the development of the economy of Cyprus, including our success as an international business centre. We need to ensure that any measures to reduce its size do not undermine this role. The increase in regulatory capital should be phased in over a longer period so as to give the economy a chance to improve. Similarly the period during which a bank is required to enforce its collateral cannot be shortened overnight. Such a dramatic change, even though it would facilitate the clean-up of the banks’ balance sheets from irrecoverable debts, would also adversely affect many households and sound businesses with short-term liquidity problems. Gold: What needs to be done to create the necessary conditions for growth and to make Cyprus more attractive and competitive as a business centre? A.D.: Research has shown that investors rank market appeal and stability as the most important criteria when taking their investment decisions. As a country, we began to see the warning signs many years ago but we did not have the courage to tackle our problems in a decisive way. The Government and the House of Representatives must act quickly, decisively and in a rational way to address the imbalances that have appeared in the economy and to implement the necessary structural changes that will ensure the sustainability of public finances. Boosting employment is also an urgent priority and we can do this by finding the right balance between flexibility in labour legislation and job security. A business-friendly environment is also necessary to encourage investment from local and international investors. Above all, there must be the political will, backed by action, to do the right things.

opinion

Don’t cut the muscle, cut the fat instead Organisations should not risk cutting costs in areas that create true customer value

long period of sustained growth had allowed poor cost management habits to creep into many organisations, with few of them having a clear view of what drives costs. Now, the financial crisis has made cost management the biggest priority for most organisations. By having a competitive cost structure in place, implementing an effective strategy and investing in the future, they can withstand pressures during a period of financial crisis and emerge stronger afterwards. To achieve this, an organisation needs an effective cost management framework. Important actions need to be taken, such as analysis of the costs structure, prioritizing opportunities to cut costs, and understanding which costs drive revenue and which ones do not. Organisations should not risk cutting from areas that create true customer value. Don’t cut the muscle. Cut the fat instead. Costs of Staff and Facilities: Information is the lifeblood of a business. When employees are actively using information to create new business opportunities, the cost of their time is offset by the value these activities bring to the organsation. Cost of handling documents: An average employee in your company spends at least an hour dealing with documentation. What’s his average salary? Cost of information gone missing: Depending on the criticality of this information, such a loss may be dramatically higher than the cost in labour to find a misfiled document or to reproduce one. Cost of warehouses: One average four-drawer cabinet requires 1.95 square metres of space, while an outsource partner can hold the same amount of documents in 1.67 square metres. Cost of Physical Documents: A retention policy can help control the size of inactive file storage costs. How much time does your staff spend on searching through files whose life cycle has ended, reviewing them in order to avoid costly mistakes? And how about shredding the inactive files with in-house staff and equipment? It makes much better sense for those employees to work on more critical tasks than finding a seven-year-old client agreement.

By outsourcing your records management function, your company will realize a significant reduction of costs and exposure to risks

info: Andrie Neocleous is a Document Solutions Consultant at Fileminders. 66 Gold the international investment, finance & professional services magazine of cyprus

By Andrie Neocleous

The ability to retrieve the information fast improves operations and increases employee productivity, providing your organisation with a significant competitive advantage. An outsource partner will assist you to gain control by cutting the hidden costs of storing unnecessary data and help you focus on your core business by providing you with custommade solutions. The integration of professional records management services into your organisation’s day-to-day functions will enable your staff to access information quickly and easily. Costs of Litigation Readiness: Imagine receiving a request from the VAT Authority to produce all the relevant paperwork needed for a significant legal action within 10 business days. In order to avoid penalties, your company might be forced to pay employees overtime as they sift through huge amounts of files. Properly indexed and stored records at the offsite Records Centre of an outsource partner result in a quicker retrieval and delivery procedure. The faster you get your hands on your records, the sooner your business can resume operating. Costs of Risk Exposure: Consider, for example, the fines and penalties associated with the inability to show consistent processes for protecting vital records against disasters. Ensuring disaster recovery and business continuity is essential to the very survival of your business. An outsource partner will minimize your exposure to litigation and maximize your vital records’ protection via state-of-the-art intrusion detection and alarm systems, fire detection and suppression equipment and, in some cases, onsite security personnel. A professional partner has seen and done it all. Based on hundreds of customer engagements, your records management partner can offer you services on an à la carte basis. By outsourcing your records management function, your company will realize a significant reduction of costs and exposure to risks by identifying inefficiencies in your current records management system, designing corrective actions and implementing solutions. Your organisation’s value, efficiencies and capabilities will be greatly increased. Furthermore, your records management system will enable you to focus on what’s really important.

{November 2012}

issue

Ship Financing S.O.S.

{money}

68 Onwards and Upwards Can anything stop the price of gold from rising further?

{business}

72 Master of the Fleet Kishore Rajvanshy, Managing Director of Fleet Management Ltd., on the problems facing the global shipping industry. 74 Ship Financing S.O.S. While the demand for ship finance is strong, banks are no longer willing to issue loans.

+ BOok review

MONEY: The Clash of the Cultures: Investment vs. Speculation By John C. Bogle

{economy}

76 Impact investing An emerging asset class.

BUSINESS: The Future of Private Equity: Beyond the Mega Buyout By Mark Bishop 75

79 PwC Global Revenues Rise to US$31.5 billion Revenue growth in Europe despite economic uncertainty

ECONOMY: The Price of Civilization: Economics and Ethics After the Fall By Jeffrey Sachs

80 Slipping and Sliding Cyprus falls 11 places in the Global Competitiveness Index

LIFESTYLE: Sweet Tooth By Ian McEwan

{tax&legal}

82 New fast track procedure for granting immigration permits By Boris Lazic

83 Registering Intellectual Property Rights in Cyprus New tax incentives were recently introduced to attract the registration of Intellectual Property (IP) rights in Cyprus.

{lifestyle}

84 An Epic Odyssey Investing in books. 88 Liquid Thinking comes to Cyprus Damian Hughes comes to Cyprus.

the international investment, finance & professional services of cyprus

Gold 67

gold

Onwards and Upwards

{money}

Can anything stop the price of gold from rising further?

By Isavella Frangou-Pavlou

AB Strategy (Cyprus) Ltd is an investment firm offering investors, amongst other services, direct access to gold futures, London Loco gold and silver and gold ETFs, as well as physical gold through its sister companies. In March 2012, the firm’s research team successfully predicted that the $1,550/oz level would be the starting point of a rally for gold . KAB’s analysts have been tracking gold for a long time and now they think that another bull market has come. K.C. Chan, the firm’s Founder and Chairmanf shared his thoughts with Gold about the latest trend regarding the precious metal. Gold: How do you explain the current price of gold? K.C.Chan: Gold’s strong upward spiral started off in the middle of August 2012 at around $1,600/oz as expectations grew that the US Federal Reserve would activate a new round of quantitative easing. The Fed’s decision on Sept. 13 confirmed the market predictions. The stalling global economy has forced almost all major countries to take stimulus measures and the inflation-hedging demand for gold is rising as people lose faith in paper money, even in the generally-accept-

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

ed strongest currency – the dollar. Investors are again buying into gold to preserve their capital. Though in a correction wave at the moment, gold has gained 15% in 2012, reaching a yearly high at around $1,800. Gold: Do you still believe that the price of gold will reach $2,000 by the end of this year? K.C.C.: Yes, gold is likely to continue climbing for the rest of 2012 and once the historical high of $1,924/oz is pierced, the $2,000 level will not be the top. I have kept a bullish view on gold since 2009. At that time, it had just experienced a 9-month correction, from March to November, 2008. If we compare that with gold’s recent pulling back and consolidation from September 2011 to May 2012, we find that the price has only repeated two significant corrections in its long steady upward trend. Inflation has been there, regardless of economic booms or stagnating growth, and gold always receives help from the depreciation of currency. Besides the fundamental reason – that currencies are losing their attractiveness mainly due to the QEs in the major economies of Japan, Europe and the US – the hard asset shows its strength from a technical analysis point of view. The basics of the Wave theory, the MFI (Money Flow

Gold: Could it be entering a bubble phase? K.C.C.: No, I don’t think so. Gold’s long rise has constantly been accompanied by statements such as “Gold has been in – or is going into – a bubble phase”, especially by investment pundits who say that a product without yield should not appreciate so substantially. But gold defies all the rumours and its price keeps reaching new highs. Gold is not a financial instrument that you can assess in terms of yield. Its major use for the past 2,500 years has been as a medium of exchange. It is a symbol of wealth all over the world and although it is not a direct currency today, it is a pure currency hedge. There is still strong demand for gold globally, from Central Banks to ordinary people. Gold: What is the main factor influencing gold right now? K.C.C.: There are actually two main factors influencing the price of gold: Quantitative Easing and European sovereign debt. The Fed’s statement on September 13 outlined an open-ended new bond-buying programme, which raises the prospect

K.C.Chan

Resource: World Gold Council, KAB

350,00 300,00 250,00 200,00 150,00 100,00 50,00 0,00 ’Q 03 1 ’Q 04 3 ’Q 04 1 ’Q 05 3 ’Q 05 1 ’Q 06 3 ’Q 06 1 ’Q 07 3 ’Q 07 1 ’Q 08 3 ’Q 08 1 ’Q 09 3 ’Q 09 1 ’Q 10 3 ’Q 10 1 ’Q 11 3 ’Q 11 1 ’Q 12 3 ’Q 1

Gold: Others have gone even further and predicted that the price of gold will reach $3,000. What do you think about that? K.C.C.: $3,000 is too far away from here. I am bullish on gold, but that does not mean that there will be no correction, particularly after the upcoming rally. The price may undergo a medium-term correction or a throwback from the medium target that will drag the price down below $2,000 again. It is meaningless to project the possibility of gold reaching the $3,000 level or not.

Chart 1: Demand from China and India

Index), CCI (Commodity Channel Index) and RSI (Relative Strength Index) as well as a failing descending triangle pattern all indicate that gold will reach $2,050-$2,200 before the end of the first quarter of 2013. Investors should be cautious, however, as gold is in a correction wave, which will likely draw its price below $1,690 in the short term, providing a good entry point for investors wishing to buy into gold.

The Great China (Tonnes)

of inflation down the line and draws investors looking for a hedge into precious metals. The Bank of England left interest rates unchanged at 0.5% for the 45th month in a row on September 4 and kept purchase assets at £375 billion. The ECB, in the meantime, also left its main policy rate on hold at a historic low of 0.75% and President Draghi sparked hopes that the bank would intervene to buy sovereign bonds. Gold investments are widely expected to be rewarded as Central Banks maintain extremely low rates and pump more newlycreated money into the financial markets. Sovereign debt has had a mixed effect on gold. Risk hedging will buoy the price but the crisis may drain liquidity out of the financial markets and make dollar stronger, which will put pressure on the price of gold.

Gold is likely to continue climbing for the rest of 2012

India (Tonnes)

Gold: What need to happen if gold is to reach new records prices? K.C.C.: Let’s be simple and clear: gold will hit new record prices. Central Banks around the world are trying to stimulate their respective economies; almost all the major countries are entangled in debt problems; the eurozone is in hot water; the US, Japan and China are also on the edge. Governments are printing money, which goes against economic principles, and the legal tender is becoming fragile as more people are worried about financial failure. A physical asset is sought in order to preserve wealth and gold is an attractive option. Gold: How is physical demand trending? K.C.C.: As the price moved sideways around $1,600/oz in the first half of 2012, consumers became more cautious about buying gold while investors had a mixed reaction to the unclear gold trend. Physical gold demand fell from 1097.60 tonnes to 990 tonnes in the 2nd quarter of 2012, but as the price resumes its uptrend and investors seek inflation hedging assets, demand will grow. Gold: Where do you see the main demand for gold coming from? K.C.C.: China and India have a strong influence on global consumer demand, as the

gold

Chart 2: Russia gold demand and oil price

Resource: Bloomberg, Thomson Reuters GFMS, World Gold Council 120 100 80 60

last year, far wider than that of currency pairs like EUR/USD, with a range of about 0.9%, or stock indices such as the S&P500, at around 1.3%. The more volatile an instrument is, the greater the risk but also the more sizeable its return potential will be. Fortunately, gold has a trend. It is wise for general investors, who can enjoy the profits on bullish gold and limit their risk exposure in the meantime, to invest a portion of their capital in gold.

40 20 0

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Russia gold demand (Tonnes) Oil (US$/bbl) Note: Gold demand excluding central bank purchases/sales. Brent oil price used.

two countries account for 45% of physical demand globally. Demand declined in the most recent quarter due to price uncertainty and the depreciation of the rupee, but demand from India has begun to bounce recently. Hopefully, China will take action to stimulate its economy, especially after the 18th Party Congress in November. Outside India and China, retail investment grew by 16% yearon-year to 195.2 tons as investors across most other regions favoured buying on price dips over taking profits. Additionally, Russia has now become one of the most important players in the global gold market. Between 2002 and 2011, Russian gold demand grew at an average annual rate of 34.8%, so it is strong and definitely worth noting. Gold: Why are Central Banks becoming net buyers of gold? K.C.C.: Central banks have been purchasing gold, especially during the 2nd quarter of this year, as the price has corrected. The net purchases of gold by Central Banks will total 493 tons for the year, up from 457 tons in 2011, according to Thomson Reuters GFMS. Gold is an indispensable supplement to a state’s base reserves; it can help stabilize currency value and is good for financial security. The more gold a Central Bank holds, the more credit its currency will gain. Gold: What percentage of an investment portfolio should be in gold and in what form?

K.C.C.: The percentage of an investment portfolio invested in a specific financial product depends on the risk preference of the investor. However, a good way is to invest according to its leverage. Let’s say we buy bonds with 80% of the investment capital; therefore we are left with 20% to play with riskier products. If the product has 10-times leverage, we invest 10% out of the remaining 20%. Once we have determined what portion of the portfolio should be invested in gold, there are a number of gold-based products to choose from. The most direct way is to buy the actual metal but profit can be limited if only a small amount is invested. Then there are gold futures, which are probably the riskiest. Generally, leverage is over 100 times so the high potential of both risk and return is clear. Gold ETFs have become more popular lately and they are possibly the best way to invest in gold. Buying gold ETFS is like purchasing gold stocks and the entry fee is low as we buy in grams for each contract. The last option is to buy shares in gold mining companies. Their stock prices usually rise and fall with the price of gold but stock prices also rise and fall based on management performance and that makes investment judgment more difficult. Gold: How does volatility in the price of gold compare with that of other financial instruments? K.C.C.: Gold is one of the most volatile instruments in the financial markets. Its average daily trading range has been about 1.5% over the

info: Isavella Frangou-Pavlou is Sales and Marketing Manager at KAB Strategy (Cyprus) Ltd www.kabonline.com 70 Gold the international investment, finance & professional services magazine of cyprus

BOOK REVIEW The Clash of the Cultures: Investment vs. Speculation By John C. Bogle (John Wiley & Sons, 2012)

RRP: £19.99 (£13.99 from amazon.co.uk)

n this hard–hitting look from one of the financial sector’s most active participants, Vanguard Group founder John C. Bogle urges a return to the common sense principles of long-term investing, challenging conventional wisdom and offering a tried-and-true way of thinking as an antidote for presentday ills. He recounts the history of the index mutual fund, how he created it, and how exchange-traded index funds have altered its original concept of long-term investing. He also presents a first-hand history of Wellington Fund, a case study on the success of investment and the failure of speculation, and sheds new light on the dramatic change in the culture of the mutual fund industry. The book concludes with ten simple rules to help investors meet their financial goals. This, Bogle’s 10th book, completes the trilogy of bestsellers, beginning with Bogle on Investing: The First 50 Years (2001) and Don’t Count on It! (2011) and it is a must-read for investors who want to understand the forces working against them and what to do about it to maximize their investment returns.

F O R U M

The forum is under the auspices

COMMON AGRICULTURAL POLICY

Planning the Future Together from

farm to fork Rural Development beyond 2013 • What is the Common Agricultural Policy (CAP) and what are the policies due to be adopted after 2013? • Who will decide our agricultural policy after 2013? • The food chain and how it is affected and shaped by the new CAP. • The vision for rural development beyond 2013. • How will the CAP help farmers, rural areas and, by extension, the Cypriot economy? • Does the Cypriot rural economy have a future? • How can competitiveness be strengthened among the various agricultural sectors? • The Forum provides a platform for views and proposals. The objective of the Forum is to inform all relevant parties about Cypriot agriculture, the latest achievements and developments, CAP programmes and rural development, and new opportunities for Cypriot agriculture to regain its role as a driver of growth.

Admission Free: The Forum is for farmers, animal breeders, traders, consumers, journalists, directors and general managers of companies active in the agricultural sector, directors and officials of relevant ministries (e.g. Ministry of Agriculture, Natural Resources & the Environment, Ministry if Education & Culture, Ministry of Commerce, Industry & Tourism), organisations and associations involved in agriculture.

Free Entrance Prior registration is essential

Thursday 13 December | Hilton Park Hotel | Nicosia For further information: IMH, Tel: +357 22 505555, Fax: +357 22 679820, e-mail: events@imh.com.cy, website: www.imh.com.cy Supporters

Organizer

MINISTRY OF AGRICULTURE, NATURAL RESOURCES AND ENVIRONMENT

The CAP Project is supported by the European Union, DG Agriculture and Rural Development. The European Commission is not responsible for the content of print advertising.

shipping

{business}

Master of By John Vickers

FML Ship Management Cyprus Ltd, the only ship management company operating out of Nicosia, celebrated its 5th anniversary last month. Among the guests was Kishore Rajvanshy, Managing Director of the parent company, Hong Kong-based Fleet Management Ltd. Rajvanshy founded the company in 1994 and under his guidance it has seen rapid and steady growth from a single bulk carrier at the start to its present diversified fleet of more than 260 vessels and various offices around the world. Over the years, Cyprus has become an important hub for shipping and ship management companies Kishore Rajvanshy

old: How much has shipping (and Fleet) been affected by the global financial crisis? Kishore Rajvanshy: Slowing world trade, coupled with a huge order book, has caused freight rates to collapse across all ship types â&#x20AC;&#x201C; tankers, bulk and containers. As a result, ship owners are facing

immense liquidity problems. Ship valuations have dropped and some ships in their late teens are being sent to scrap. Moreover, because the banks themselves are struggling in this crisis the refinancing options are limited. Fleet, being a service provider to ship owners, is working more closely with owners to ensure that vessel maintenance does not suffer. Also we must now closely watch out for owners at risk of default and pay more attention to risk management. Gold: What are the main problems that the shipping industry has had to deal with in 2012? K.R.: The main issues for 2012 concerned financing and piracy. In the area of finance, these were (a) liquidity for ship owners in face of drying revenue streams, (b) reduced margins for Charterers as freight markets lack volatility and hence arbitrage opportunities, (c) a drying

the Fleet order book and defaulting owners for shipyards that are now becoming reluctant ship owners and (d) reduced profitability for the service iIndustry which includes ship managers, insurers and ship suppliers who are unable raise margins to cover inflationary pressures. Although piracy seems to have abated off Somalia, helped in large measure by the use of armed guards, we now see increased piracy along West Africa and in particular in Nigeria where ships are hijacked for their cargoes. Gold: How confident are you that things will change in the near future? K.R.: Unless shipyards in China consolidate and/or scrap rates increases, the situation pertaining to the oversupply of ships and weak freight markets will not change in the near future. The use of armed guards has stemmed piracy incidents. Even so, there are chances of the model being duplicated in other parts of the world, causing a spike. Gold: Has Fleet itself been affected by the piracy problem? K.R.: Fleet has had to increase its resource base, both at sea and ashore, to ensure adequate monitoring of ships that pass the pirateinfected trade lanes. Fleet insists that owners arrange guards for the Gulf of Aden transit Gold: Even in Cyprus, shipping has always been a rather low-profile industry. Would you like to see a change in this?

R.K.: We have seen over the years that Cyprus has become an important hub for shipping and ship management companies. They play an important role in the Cypriot economy and will also help during the recovery of the economy in the near future. Cyprus should feel proud of this fact and should take some bold steps to keep the companies and the professionals on the island. Shipping activities will increase even further if the issues with Turkey are settled.

technical office inland? R.K.: It came about purely by chance. One of the companies in Cyprus gave up the vessels under its management and during the course of discussions we decided that we could keep the existing office and use it as our own branch office. We are the only ship management company in Nicosia and we have no problem running our office from here. We do miss the sea sometimes, though…!

Gold: Are you optimistic about the future of the industry and the company? R.K.: The future of shipping is secure in that it is a derived demand of world trade which is not easily reversed. And so long as shipping remains, Fleet will continue to serve its principals in earnest.

Gold: Cyprus is already a major shipping centre but are there things that it could do to become even bigger? R.K.: It has to make things attractive to keep shipping talents in Cyprus as it is very hard to find experienced technical staff. I am also of the opinion that these people should be exempted from paying social insurance and income tax. And of course, if Cyprus can come to some agreement with Turkey so that Cyprus ships and ships managed by Cyprus companies can call at Turkish ports with out any problem, that would be good for everyone.

Gold: You’re in Cyprus to celebrate the 5th anniversary of Fleet’s local office. How significant an event is this for the company? R.K.: This is a very important milestone for our branch office. The presence of so many important people at this event indicates trust and faith in our company. The office operates about 25 ships under full technical management and we are looking to double our strength over the next few years. Gold: It’s unusual for a shipping-related company to be based in Nicosia rather than Limassol or in a coastal area. Was there a particular reason for setting up the Cyprus

Slowing world trade, coupled with a huge order book, has caused freight rates to collapse Demetris Nicolaou

the international investment, finance & professional services magazine of cyprus

Gold 73

shipping

{business}

Ship

g n i c n a Fin By Kyproula Papachristodoulou

s.o.s.

ince the economic crisis and the recession began in 2009, the troubles of the global shipping industry have multiplied. The high price of oil, an oversupply of vessels, the low freight rates and depressed values are just some of the problems facing the industry which is struggling to cope with yet another challenging landscape. “Shipping cycles are not new. We have been through them before and will do so again,” Janos Koenig, Managing Director of Eurofin, told the Cyprus Shipping Forum in Limassol last month. “But now there is a new killer more dangerous than before. Bank finance is not available in any significant quantity. This has not occurred since the 1930s and it will not change any time soon,” Koenig added.

While the demand for ship finance is strong and is predicted to remain, banks are no longer willing to issue loans for this purpose. “Banks will not return in the near term. Ironically, they have not left because of the shipping downturn, since all the major shipping banks have a proud history of supporting clients through the cycles. They have left because of external pressures: the eurozone crisis, BIS II & BIS III increases in regulatory capital requirements and continuing industrial world economic stagnation,” Koenig said. Furthermore, capital adequacy pressures on banks may mean that they cannot continue to support owners through the cycle. More distressed, unfunded assets will increase and prolong downward pressure on ship values. Janos Koenig predicts that even top-drawer shipping companies will struggle to renew and modernize their fleets. Bank lending still dominates ship financing. The global ship finance portfolio of $500bn consists of $450bn in drawn loans

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

and $50bn in committed but undrawn loans. Around 70-75% Janos of ship finance is domiKoenig nated by syndicated loans and bank lending from European Banks. Iossif Kiouroukoglou, Vice President of Greece & Cyprus Investment Banking at Bank of America Merrill Lynch, pointed out that the recent perceived “bottoming out” of ship prices has attracted the attention of private equity firms looking for distressed opportunities but with mixed results so far. He said that private equity sponsorship has been successful, albeit still relatively limited but PE firms have become much more educated about the sector. “Investors remain selective and very focused on sponsors’ track records, governance, attractive economics and exit liquidity.” As Kiouroukoglou sees it, “Current challenges around the funding gap could be the starting point for a market rationalization, potentially leading to recovery in rates and renewed investor interest.”

Bank finance is not available in any significant quantity. This has not occurred since the 1930s Jean Richards, CEO of SecondWind Shipping Ltd., talked about alternative financing solutions. She pointed to financing through bond issuing, bareboat charters with purchase options, sale and lease back, tax-driven leasing models, finance from yards, local banks and export credit, Islamic finance and last but not least, cash. As she explained, alternative finance is not available to distressed owners or for helping smaller owners expand. Any availability would be kept close to home for countries and financial institutions to sort out their own problems. Big, she stressed, is currently very beautiful and “Cash is still king.” Nevertheless, Richards sees “new

2% 3%

40%

5% Traditional Sources of capital for shipping

36%

Non Ship Mortage Loans Tax Lease Investors Equity Funds Bond & Public Equity KG/KS Markets Bilateral Lending & Other Syndicated Loans

70-75% of Ship Finance

opportunities for new investors to buy new or second hand and for owners to take advantage and expand.” Thomas Mazur, partner at Corporate Finance - Restructuring Services of Deloitte & Touche Germany, concluded the session be setting out the shipping industry’s options on loan restructuring.

BOOK REVIEW The Future of Private Equity: Beyond the Mega Buyout By Mark Bishop (Palgrave Macmillan, 2012)

RRP: £26.00 (£24.70 from amazon.co.uk) he private equity industry is at a crossroads. In the easy money years between 2004 and 2008, it was awash with investment, debt was easily obtained and some rash, over-leveraged deals were done by the so-called ‘mega buyout’ funds. Today, fund managers are dealing with the legacy of that era. This book contains exclusive interviews with the leaders of many of the world’s most successful and innovative funds including Steve Klinsky and Ajit Nedungadi of New Mountain Capital and TA Associates, Jon Moulton and Wol Kolade of Better Capital and ISIS Equity Partners, and Derek Sulger, an Anglo-American who founded Lunar Capital, which backs indigenous entrepreneurs. The interviews deal with issues such as how private equity managers can best create enterprise value and out-perform public markets, techniques for differentiating a firm’s capital, the sustainability of private equity in emerging markets, the role of the industry in low-income countries and alternatives to the established limited partnership governance model. Essential reading for anyone working in or with the private equity industry, anywhere in the world.

the international investment, finance & professional services magazine of cyprus

Gold 75

investment

{business}

Impact investing An emerging asset class In a world where government resources and philanthropists are insufficient to address global social problems, impact investing is the best new alternative for channeling large-scale private capital for social and environmental benefit. The impact investing market is now entering the mainstream and is emerging as an alternative asset class, forcing investors to re-consider the nature of their portfolios and start looking afresh at the idea of intersecting ‘money and meaning’.

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

impact investing

financial return

Profit maximizing

‘One-way’ philanthropy low

mpact investments can be broadly defined as investments made into companies, organisations and funds with the intention to generate measurable social and environmental impact alongside a financial return. While certain types of impact investments can be categorized within traditional investment classes (such as debt, equity, venture capital), impact investments are generally defined by a double bottom line of giving profit and impact equal standing or at least paying considerable attention both to financial return and social and/or environmental impact. Impact investing should not be confused with socially responsible investing (SRI) or social entrepreneurship. Impact investing, unlike SRI or social entrepreneurial schemes, does not concern negative screening, which is used to avoid investing in projects which may likely cause a social or environmental harm. The underlying rationale of impact investing is to actively capitalise market-based products and services to tackle global pressing problems in relation to social and environmental issues. The concept of impact investing has gained loyal supporters across a wide range of sectors and regions. Private equity funds which aim to provide growth capital profitably to businesses that provide social services are growing

high

By Irene Demetriou

low

social return

high

Regional distribution of and providing access to education and health novation. Impact investment impact investments care as well as housing for underprivileged portfolios tend to be more The regional distribusocial groups. Also, clients of leading private diversified than public tion of transactions plays banks and pension funds are calling on their equity portfolios, as a a part in the assessment investment managers to offer impact investbroader focus on sector geof investment opportuniment options. Prominent family offices are ography or impact pursuit ties. A strict geographic actively seeking impact investment opporis maintained. Furthermore, focus or country-specific tunities that can help them execute impact portfolio managers and asset focus usually entails high investment deals in sectors such as sustainable managers should bear in mind investment risks hence most George agriculture to urban infrastructure. Private that impact investing comes with Soros, Impact impact investors choose to diversify foundations are also seeking to partner with Investor an inherent friction between impact geographically. In attracting impact investment banks and development finance and financial return as well as a stroninvestments, emerging markets are institutions to make impact investments in ger need to commit the investee to maintainway ahead of regions such as Latin America, sectors and regions related to their social mising a mission focus. Sub-Saharan Africa, South & Southeast Asia sions. JP Morgan predicts that by 2020 there and Eastern Europe, with Russia & Central could be between $400 billion and $1 trillion Impact or return? Asia gaining the majority of investors. The US invested this way, generating cumulative prof- In general, impact investments must accom& Canada rank first in impact investing from its over ten years of between $183 billion and modate a wide range of impact goals and developed markets, with Western Europe lag$667 billion. Impact investing has also atreturn targets. The option to choose one or ging way behind. tracted philanthropists such as George Soros, the other should not really exist. When impact a hedge-fund manager, and Pierre Omidyar, investing first appeared, the nature of most Sector distribution the founder of eBay, as well as banks and portfolios treated financial performance and of impact investments pension funds. Currently, micro-lending in impact as dependent variables in inverse proAs in the case of geographic focus, the sector in developing countries dominates the impactportion, where increasing one variable should which the investor operates carries risk which investing arena, but non-debt initiatives in decrease the other. The impact versus profit must be addressed. Some impact investors sectors like agriculture, education, technology debate differentiated between ‘impact first’ or choose to specialise in a particular sector to and energy are gaining ground. As impact ‘financial’ first’, placing investors in a dilemma investing is mainly accessed through private of choice; in reality, the distinction only creates leverage a competitive advantage while others prefer to spread their activities across several equity, institutions and wealthy people are barriers for impact investing to scale as an acsectors. Microfinance is the sector which is the biggest impact investors. cepted asset class. most popular among impact investors with A two-dimensional framework A study by J.P Morgan and the Impact investment portfolios Global Impact Investment Net- food & agriculture and clean energy & tech are unique in their ability to work (GIIN), using a sample also gaining ground. operate in a certain business of 52 impact investment Impact invest with success sector while being designed portfolios, demonstrated Impact investment opportunities are aimed to address one or more that 46% of them balimpact objectives related ance impact and financial at providing important services to the 4 bil• Profit orientation lion people at the base of the social hierarchy to that chosen business return while 60% • Impact and financial in developing countries. The Base-ofsector. The success of the think that there is no return correlation Pyramid approach (BoP) offers an available investment lies to a great tradeoff between impact • Intentional and profit opportunity and the recognition extent in the cohesion of and return. Interestingly, measurable impact of this opportunity covers up for market this two-fold framework. For the research also showed failures or information asymmetries whereby example, an impact investment that 62% of impact investors a lack of information prevents efficient providing access to health operates would sacrifice financial returns for market-based allocation of resources to within the wider business sector of healthgreater impact. The recent financial crisis take place. Concentrating on social and/or care and at the same time concentrates on its has reduced the polarisation of the profit vs. impact objective of improving basic welfare for impact debate since those investors focusing people in need. on a ‘financial first’ were forced to reconsider the sustainability of their business and the Microfinance is the sector Portfolio risk power of value creation while, at the same which is most popular Impact investments carry the same risks that time, investors with a social and/or environamong impact investors would arise from a traditional investment in mental focus have realised that placing capital the same sector or region. Investors must, efficiency on equal terms with the investment’s with food & agriculture and clean energy & tech also therefore, assess the risk profile that results impact agenda is a fundamental component gaining ground from their particular impact thesis and infor success.

Features of an impact investment:

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Gold 77

investment

Switzerland are also the best performers in many areas of sustainability. The EuroThe importance attached pean Commission has also to impact when discussing integrated sustainability business activities has not objectives into its Europe only entered mainstream 2020 growth strategy asset classes but has also while the Organisation for occupied policy-makers, Economic Co-operation governments and internaand Development (OECD) environmental deficiencies naturally covers is undertaking the Better Life up for this ‘market failure’ while providing a tional institutions across the Pierre Omidyar, Impact globe. The issue of social and enInitiative which includes social return on investment. Investor vironmental sustainability as directly and environmental metrics. Finally, Private investments in SMEs are the best linked to growth and competitiveness the United Nations Development way to achieve large impact at the local socioProgramme (UNDP) has included concepts economic level. SMEs are innovative and fresh has been particularly analysed by the World Economic Forum in its Global Competiof social and environmental sustainability and business entities and contribute a major portiveness Report, 2012-2013. As the Report equity in its human development assessment. tion to national income as well as significantly comments, social sustainability enables all contribute to employment. Furthermore, Impact investment and investing in SMEs creates a subsidiary business members of society to experience the best possible participation and security thus maxiCyprus: the way forward increase for suppliers, likely to benefit undermising their potential to contribute to and According to The Global Competitiveness privileged social groups. benefit from the economic prosperity of the Report 2012-2013, the most problematic Impact investments in a private equity fund factors for doing business in Cyprus are acor a private equity fund of funds are usually the country they live in while environmental sustainability ensures an efficient management of cess to financing, excessive government bumost stress-free routes for investment. reaucracy and insufficient capacity to innoImpact investing should have a sector rather resources to enable prosperity. The findings vate. Impact investment can, in fact, prove than individual business focus. The investment of the Report demonstrate that there is not necessarily a trade-off between being competi- to be a customised alternative to stagnated will have a more concrete impact if it is made tive and being sustainable. In fact, countries investments in a country which clearly lacks at an early stage, when companies are innovatwhich are the top of competitiveness such as the capacity for large-scale local production ing and open to suggestions. but with a sound entrepreneurial culture in place. As both investors and asset managers have started reconsidering their approach in relation to portfolios, it is evident Storebrand has SAIF-Prometheus is administers life Bridge that the financial crisis has forced a committed $50 million a new sub-fund that insurance products. It International re-positioning towards asset classes, to microfinance and will be launched by provides affordable life Academies is whereby an asset class is no longer social investments. AlphaMundi in 2013, cover for individuals a company which defined simply by the nature of The nature of the in partnership with living with HIV or Type pioneered a model its underlying assets, but rather Storebrand portfolio GVEP International, 1 or Type 2 diabetes of private education by how investment institutions was a function of the a British NGO with who commit to follow for the poor. The market at the time a decade-long track an appropriate health company’s schoolorganise themselves around it. (2005), when debt record of renewable monitoring and in-a-box training Impact investment as an asset class funds focused on energy SME treatment program. program provides is therefore relevant to all economicrofinance. Through capacity-building a standardized mies, regardless of their market size the years, their equity in Latin America curriculum for students Storebrand is or macroeconomic environment. allocation has evolved and Sub-Saharan in the slums of a financial institution The complexity of today’s global and today this is Africa. Prometheus Kenya for a cost of in Norway offering economic environment has made roughly split between will provide debt about $4 per month. pension, insurance, it more important than ever to debt and equity. and equity financing Early investors got asset management recognize and integrate concepts as to SMEs and small involved because of and banking services. infrastructure social and environmental sustainphilanthropic intent but The institution invests AlphaMundi, a projects in the since then Bridge has in microfinance and commercial entity ability in investment and growth. solar, hydro, wind, expanded to 82 other social investments to in Switzerland, Impact investing can pave the way biomass and biogas schools. The business contribute to economic is exclusively towards fundamental development sectors, to facilitate is now thinking about development in dedicated to and progress and it clearly teaches access to renewable expanding to other emerging economies impact investing by one basic lesson, explaining the energy in Subcountries. and at the same time providing debt and success of such investments abroad: Saharan Africa, with generate a positive equity financing only when we start considering an emphasis on to profitable and AllLife designs, financial return. As impact at large, can we then make East Africa. of Dec 30, 2011, scalable ventures. distributes and an impact at home.

Impact investment as an asset class is relevant to all economies, regardless of their market size or macroeconomic environment

Impact investment in policy-making

Impact Investing: Best Practices

info: Irene Demetriou is Business Development Manager at Andreas Neocleous & Co LLC. 78 Gold the international investment, finance & professional services magazine of cyprus

PricewaterhouseCoopers

PwC Global Revenues Rise to US$31.5 billion {economy}

Revenue growth in Europe despite economic uncertainty

wC, the world’s leading professional services network, has reported record total gross revenues of US$31.5 billion for the fiscal year ended 30 June 2012. At constant exchange rates, PwC’s total global revenues rose by 8%. PwC firms reported particularly strong revenue increases of 13% in both North America and South America. This sustained growth follows a similarly strong performance last year and consolidates PwC’s market position in the region. Revenue growth in developing markets of the Middle East and Africa was also strong – up 15% – reflecting the commitment and increased investment in the region by the PwC network. PwC firms in Asia continued to grow well with FY 2012 revenues up 8%. The PwC network’s aggregate revenues also increased in Europe, despite the impact on growth of the uncertain outlook for the eurozone. PwC firms reported revenue growth of 4% in Western Europe and 8% in Central and Eastern Europe, both higher growth rates than in the previous year. Overall, PwC firms enjoyed underlying revenue growth in all its major markets around the world both developed and developing. Revenues from developing markets now account for 20% of PwC’s aggregate global revenues. They are expected to reach 40% by 2017. In addition to boosting revenues, PwC also continued its focus on recruiting talented people and investing in the training and development of its workforce. In FY 2012 PwC firms recruited a record 20,500 graduates, making PwC one of the largest graduate recruiters around the world. PwC firms plan to recruit and train an even larger number of graduates in the year ahead. In total, PwC expanded its workforce by 7% in FY 2012, taking the total number of people to over 180,000 for the first time. “PwC’s ability to increase revenues in all key markets in a challenging economic climate is testament to the trust that clients have in the quality of PwC work, the talent of our people and the strength of the PwC network,” said Dennis M. Nally, Chairman of PricewaterhouseCoopers International Ltd. “We are in the midst of a global economic rebalancing. Economic growth in the developing markets will continue to outpace

Economic growth in the developing markets will continue to outpace expansion in the more established economies

Dennis M. Nally

expansion in the more established economies. That shift heightens the ongoing need to attract talented, skilled people and make sure they are located where our clients require them. We are committed to making the investments to recruit and retain the best people and to focus on consistently providing the highest quality services.”

Aggregated revenues of PwC firms by service line (US$ millions) change at FY12 at FY12 FY11 at FY11 % change % constant ex. ex. rates ex. rates rate Assurance

14,864

14,393

3.3%

3.4%

Advisory

8,702

7,458

16.7%

16.9%

Tax

7,944

7,372

7.8%

7.9%

Gross revenues

31,510

29,223

7.8%

8.0%

Expenses and disbursements on client assignments

(1,852)

(1,755)

5.5%

5.1%

Net revenues

29,658

27,468

8.0%

8.2%

FY12 revenues are the aggregated revenues of all PwC firms and are expressed in US dollars at average FY12 exchange rates. FY11 aggregated revenues are shown at average FY11 exchange rates. Gross revenues are inclusive of expenses billed to clients. Fiscal year ends 30 June. The allocation of revenues between Lines of Service has been restated for FY11 to reflect the current organisation structure.

the international investment, finance & professional services magazine of cyprus

Gold 79

competitiveness

{economy}

Slipping and Sliding Cyprus falls 11 places in the Global Competitiveness Index By Kyproula Papachristodoulou

For purposes of the WEF index, competitiveness reflects the level of productivity of a country, based on its institutions, policies and economic factors. To create the Global Competitiveness Index (GCI) score for each country, the WEF ranks more than 100 economic indicators divided into 12 broad categories that quantify the extent to which a country is competitive. This year, Switzerland tops the overall rankings in the Global Competitiveness Report for the fourth consecutive year. Singapore remains in second position with Finland, in third position, overtaking Sweden (4th). These and other Northern and Western European countries dominate the top 10 with the Netherlands, Germany and United Kingdom ranked 5th, 6th and 8th respectively.

Jennifer Blanke

yprus’ not so flattering macroeconomic and fiscal performance over the past few years is one of the main reasons behind an eleven-place fall on the latest World Economic Forum (WEF) Global Competitiveness Index. The island is currently ranked 58th out of the 144 countries evaluated compared to 47th in 2011, 40th in 2010 and 34th in 2009. The country’s competitiveness is now lower than almost every other EU country. The Global Competitiveness Report 20122013 assesses the competitiveness of 144 economies that make up almost 99% of the world’s GDP, providing insight into the drivers of their productivity and prosperity. Jennifer Blanke, Head of the Global Competitiveness Network at the World

Economic Forum, told Gold that even though the macroeconomic environment has been worsening in many advanced economies as a result of the economic crisis, “Concerns such as rising debt and low national savings are of particular concern in Cyprus”. Blanke indicated that three areas are relevant to Cyprus’ declining performance compared with past years: institutions and governance, the macroeconomic environment and financial markets. Regarding financial development, she noted that “There is a particular decline in the perceived soundness of the country’s banks, perhaps not surprising given the strong interlinkages with Greece’s economy and the difficulties faced there”. Indeed, this year business leaders have indicated that a lack of access to finance is the most problematic factor they face in doing business in Cyprus. These concerns also seem to have led to lower public trust in politicians.

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

Cyprus

Global Competitive Index Score: 4.3 GDP per capita: $30,571 (Ranking: 29th)

GDP (PPP): 23.7 (Ranking: 107th)

Debt as a percentage of GDP: 71.8% (Ranking: 28th) Individuals using Internet: 57.7% (Ranking: 44th) Infant mortality rate: 3.2 per 1,000 live births (Ranking: 13th)

The United States (7th), Hong Kong (9th) and Japan (10th) complete the top 10. As is the case in other southern European economies, Cyprus ran into worsening budget balances and rising debt when growth slowed. “When a country’s GDP does not grow, the government revenues follow suit. However, spending does not adjust as quickly”, Blanke commented, admitting that in this respect the macroeconomic situation in Cyprus has certainly been influenced by the overall regional crisis. But this is also linked to the island’s competitiveness. “The European framework might have played a role in the

country’s credit rating and cost of refinancing the public debt”, she said. ”However, the main difficulty is inherent in the economy”. As she aptly pointed out, “The more competitive economies in Europe have, for the most part, weathered the crisis comparatively well. These are the countries that have all of the factors necessary for being productive in place”. Cyprus needs to find a way forward. Improving Cyprus’ competitiveness would increase its productivity, thereby encouraging investment. “While actions clearly need to be taken in the short term in order to calm financial markets and restore confidence,

BOOK REVIEW

global competiveness index 2012-2013 rankings position

country

position

country

Switzerland

Canada

Singapore

Norway

Finland

Austria

Sweden

Netherlands

Belgium

5 6

Germany

Saudi Arabia

United States

Korea, Rep.

United Kingdom

Australia

Hong Kong SAR

Ireland

Japan

Italy

Qatar

Turkey

Denmark

Portugal

Cyprus

Greece

Taiwan, China

and to rein in public spending, increasing competitiveness in Cyprus will require a holistic and long-term approach to improve areas such as government efficiency, infrastructure, competition, and labour market efficiency”, Blanke said. “The country’s innovative capacity in particular needs to be improved in order to continue to increase productivity, coming up with new products and processes or new ways of doing things”.

The Price of Civilization: Economics and Ethics After the Fall By Jeffrey Sachs (Vintage, 2012)

RRP: £9.99 (£8.23 from amazon.co.uk)

n this very readable and thoughtprovoking book (the title of the book is taken from a quote by Oliver Wendell Holmes Jr: (I like to pay taxes. With them I buy civilization), one of the world’s most brilliant economists reveals why we must and can change our entire economic culture in this time of crisis. Sachs argues powerfully that after the recent global recession, where quick fixes were implemented instead of sustainable solutions to systemic problems, a new cooperative, commonsense political economy is needed: one that stresses practical partnership between government and the private sector, demands competence in both arenas and occasionally insists on carefully chosen public and private sacrifices. In this new era of global capitalism, he believes that we have to forget partisanship and solve these enormous problems together, clinically and holistically, just as one would approach the eradication of a disease. Sachs shows how government, business and citizens can find common ground – on bank accountability, the decentralising of social services and taxing the super-rich – as a way to achieve our shared goals of efficiency, equity and sustainability.

the international investment, finance & professional services magazine of cyprus

Gold 81

immigration

{tax&legal}

New fast track

procedure for granting immigration permits

By Boris Lazic

he Cyprus Immigration Authorities have issued an announcement regarding a new and accelerated procedure for the purpose of granting immigration permits for Cyprus to third country nationals (i.e from non-EU Member States) who intend to invest in Cyprus. The first requirement is that an applicant should have a minimum annual income of €30,000, derived from sources other than employment in the Republic of Cyprus. Such sources of income may be from employment abroad, pensions from abroad, shares received from a company, rental income from immovable property, interest received from bank deposits, etc. Should an applicant have a dependent person with him/her, the annual income of €30,000 will be increased by €5,000 for each dependent person. Owning immovable property in Cyprus with a value of €300,000 or more is the second requirement. It is important to note that proof of payment for at least €200,000 must submitted to the Immigration Authorities together with the application for an immigration permit, which must also be accompanies by a title deed for the immovable property or a contract of sale. Such a contract of sale must have already been lodged with

Boris Lazic

the Department of Lands and Surveys (Land Registry) prior to its submission to the Immigration Authorities. The third requirement is for an applicant to have at least €30,000 deposited in a Cypriot bank account. Such an account should be guaranteed for at least a three-year period. Additionally, it should be noted that the funds located in such a bank account must have been transferred from abroad. Finally the fourth, fifth and sixth requirements respectively demand that the applicant should have a clean criminal record, submit a

The new requirements are intended to accelerate the procedure as well as to assist the Cypriot economy during times of crisis. statement that he/she does not intend to be employed or engage in any form of business in the Republic of Cyprus and to visit Cyprus at least once every two years. These requirements have been issued pursuant to Regulation 6(2) of the Aliens and Immigration Regulations. They are intended to accelerate the procedure for the granting of an immigration permit as well as to assist the Cypriot economy during times of crisis.

info: Boris Lazic is a Tax & Legal Adviser at Eurofast Taxand. www.eurofast.eu 82 Gold the international investment, finance & professional services magazine of cyprus

Eurofast Global holds 5th SEEM Conference

urofast Global’s 5th Annual South Eastern European & East Mediterranean (SEEM) Conference took place in Thessaloniki, Greece last month with over 70 participants from the region including team members from Eurofast offices in Cyprus, Greece, Romania, Bulgaria, Croatia, Slovenia FYR Macedonia, Albania, Serbia, Montenegro, Bosnia, and associates from Turkey, Russia, Switzerland and the UK. The two days of the conference were devoted to strategic issues including presentations on the firm’s service lines, such as mergers & acquisitions, the reinforcement of the payroll and tax team as well as enhancement of the company’s marketing strategy. Eurofast also announced the opening of new offices in Georgia, the enhancement of the Egyptian team and the introduction of the Cy tax desks in Moscow and Kiev. For further information: www. eurofast.eu

intellectual property

Registering

Intellectual Property Rights in Cyprus

{tax&legal}

Cyprus is now the most attractive EU onshore jurisdiction for IP registrations

yprus has always been a traditional location for holding and financing companies thanks to the fact that it has the lowest corporate tax rate in Europe, no exit costs along with no withholding taxes on outbound payments in relation to interest, dividends and royalties. In addition to the existing beneficial tax provisions, new tax incentives were recently introduced to attract the registration of Intellectual Property (IP) rights in Cyprus. The Cyprus Income Tax Law was recently amended to allow for an 80% exemption on the net income generated from the utilisation of patent, trademark or any other IP rights registered in Cyprus. Net income in this case is defined as income from IP minus all expenses attributable to the specific income. This exemption results in an effective tax rate of 2% from the utilisation of Cyprusregistered IP (since the corporate tax rate is 10%). The same exemption applies in cases of any gain arising from the disposal of such IPs, even though there is always the option to dispose of the shares of a Cyprus

company holding the IP rights, which will result in 0% tax. In addition, the rate of capital allowances on such intangibles has been set at 20% of the cost of acquisition. The amendment to the Income Tax Law has retrospective effect from 1 January 2012. It is worth noting that the definition of patent rights and intellectual property rights has been amended to correspond to the meaning of the local Patent Rights Law of 1998, the Intellectual Property Law of 1976 and the Law regarding trademarks. This development ensures that uncertainty is lifted with regard to which types of IP rights are covered. IP rights include, amongst others, patents, trademarks/ service marks, designs, Internet domain names, software copyrights, secret formulae, know-how, research and development, lists, rights to scientific, literacy or artistic work, rights related to industrial or commercial work. As a result of the above amendments, Cyprus is now the most attractive EU onshore jurisdiction for IP registrations and IP holders and developers now have a material tax incentive for registering their IPs on the Island. Cyprus’ flat 2% effective tax rate beats the UK’s ‘Patent Box’ as included in the 2012 Finance Bill (effective from April 2013), which provides for an effective tax

TT Audit Limited has extensive experience in relation to the registration of IPs in Cyprus and can provide a holistic tax planning solution for both local and international IP holders and developers. It can also provide accounting, audit and taxation compliance services, thus providing a one-stop shop solution for IP clients. Heading the HTT IP Team is Adonis Theocharides (atheocharides@ httaudit.com.cy), a Director of HTT Audit Limited. Evagorou 27, Eirini Tower 6th floor, office 61, CY-1066 Nicosia, Cyprus Tel.: + 357 22670680 Fax: + 357 22670681 e-mail: info@httaudit.com.cy Website: www.httaudit.com.cy

rate of 10% on profits attributed to patents and certain other similar types of intellectual property (supplementary protection certificates, regulatory data protection and plant variety rights). It is also more favourable and straightforward than Malta’s complicated tax regime regarding IP-related income, with an effective rate ranging from 0%-5% subject to numerous conditions and tax refund processes. Luxembourg’s effective tax rate for IP income is slightly lower than 6%. Cyprus has concluded Double Tax Treaties (DTTs) with more than 45 countries including the majority of the European Union member states, the USA, Canada, India, China, Russia and the CIS countries. The Cyprus treaty network covers more than 80% of the global GDP. Structures can be formed in accordance with any particular DTT and local legislation to optimize the IP holders’ tax savings.

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{lifestyle}

An Epic Odyssey With the advent of online texts and e-book readers, some are already predicting the end of the printed word. Not so, say fervent bibliophiles. The investment value of books is merely entering a new, prosperous chapter. By Chloe Panayides

Tall pile of books by Kevin Millar

investing in books

Bibliophiles, as those who harbour a deep-rooted love of books are universally described, are certainly avid readers and some even pursue the collecting of books with a commitment akin to that of being engaged in a treasure hunt. Whilst the personal value of this pot of literary gold need not be doubted, of late the economic aspects have attracted particular attention, in the light of technological developments. But it is too early to be singing an elegy for books as we know them. Despite the popularity of the Kindle and a host of other e-readers, the passion that drives a bibliophile in his or her quest has not been extinguished and the riches to be

wrought from tangible literary creations have not been lost. Unlike some select investor markets, whereby an unpremeditated purchase of €10 might one day accrue a sale price of €1 million, book collecting represents a long-term and stable investment. Devoid of liquidity, books do not permit a quick withdrawal of a large amount of cash when needs be, and without fixed prices (meaning that the same three books in the same condition sold at three separate auction houses may result in markedly varied sale prices), the book market is neither easy nor particularly accessible to navigate. Indeed, any strategy for book collecting resulting in financial reward need be underpinned by patience and expertise. You must manage your expectations and engage in the hunt for the right investment in a measured and informed way. John Windle, owner of John Windle Antiquarian Books in San Francisco, likens book collecting to the ownership of a savings account: “Books tend not to lose value over the long-haul. It’s not a bad place to put money with a reasonable expectation that it will grow.” The main catch that book collectors must contend with, says Windle, is the

Taking Care of Your Investment

hile books are meant to be handled, read and appreciated, it is not true that they are indelicate objects, needing little care to maintain their condition. Whilst a book will not physically shatter if dropped, its price may take a terrible tumble once signs of wear and tear begin to show. Careless treatment will surely result in long-term damage, not only physical but financial if the title is keenly sought after by collectors.

Books tend not to lose value over the longhaul. It’s not a bad place to put money with a reasonable expectation that it will grow dealer’s mark-up, which traditionally amounts to double the purchase price. “If you buy a book from me at $2,000, for you to get your money back you’re going to have to wait until it’s worth $4,000 and a dealer will pay you $2,000 for it,” he explains. “That cycle is typically about seven years.” Thus, to enjoy financial rewards, a book collector must excel in practicing patience, enduring two seven-year cycles: the first seven years will see your investment returned; the second cycle may see the book appreciate beyond the original purchase price, resulting in a dealer making you a healthier offer. How does a potential investor in books commence the hunt for the right purchases? How do you learn to distinguish between books worthy of attention that

You should consider taking these easy steps to maintain your investment in pristine condition. •B ooks should ideally be shelved allowing for a perfect ‘fit’; that is, snugly but not tightly. •L arge books, such as atlases, bound newspapers or art folios, are best stored flat on shelves as opposed to being stood vertically. •T he rate and extent of damage wrought on books is accelerated by fluctuations and extremes in temperature and humidity; it is best to store them in a cool, dry and stable environment. •P rotection from sunlight is paramount to ensure that fading does not occur, or worse still, the possibility of a rotting spine.

•W hen wanting to extract a book from its shelved position, take care to remove by its sides, as opposed to beckoning it out by the top of the spine with a finger. •E nsure that both covers are supported, held firmly in the palms of hands; the joint damage by allowing a cover to drop is dire. • I f dampness is detected, usually in the form of small pink mould growths accompanied by a musty smell, the books affected should be left standing in warm circulating air. •A void wrapping books in newspaper or cardboard boxes; the acid present in these two materials may deteriorate your books’ condition.

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investing in books

As New, Fine or Very Good?

ood selling and buying practice depends heavily upon the correct and faithful usage of some universally acknowledged and accepted terms of condition that supplement a potential buyer’s knowledge of the product under consideration. What, exactly, constitutes, ‘Fine’? And just how good is ‘Very Good’? Whilst it is always advisable to see and study the prospective purchase, it is not always possible. The use of the Internet as a trade forum has aggravated the already widespread tendency of sellers to employ a mere two adjectives to relate an entire book’s overall condition, due to restrictive programmes that do not permit adequate descriptive space. Keep the following in mind when considering a purchase. It may be vital in ensuring that you obtain exactly what you are paying for.

promise a financial return from those that are merely food for the soul? The general consensus is that you need to consider age and scarcity – combinable as ‘edition’ – and condition. With regards to edition, great care must be taken to correctly distinguish between a true first edition (that is, the very first appearance of the work), and copies of a reprint (a facsimile edition). A quick search of

“As New” is tantamount to the condition of a book when it is published. Its state is immaculate, it has barely been handled and it is devoid of signs of ‘life’. Books that are “Fine” are those which, including their dust jackets if applicable, possess no defects. Though lacking in the crispness that prevails prior to being possessed and circulated, there are otherwise no traces of previous ownership. “Very Good” is often employed to depict a book that betrays minor evidence of wear and tear. Defects, however, should be noted in further detail. As a rule, anything less than very good breaches the boundary of the condition that book collectors should be seeking to protect their investment. Evidence of wear to avoid inheriting includes – but is not limited to – a previous owner’s signature, price-clipped dust jackets, soiling or smudging of the pages, tender binding joints, and leather peeling.

the online book portal Alibris, under the criteria ‘Charles Dickens’, ‘Hard Times’, and ‘First Edition’, yields 81 results with publishing dates spanning 1854 to 1972. These cannot all be first appearances, which are customarily coveted for their rarity in number. Hard Times In the debate between first ediby Charles Dickens tions and facsimiles, John Windle (1854) relates the example of the 2010 reprint of an obscure illustrated text by mathematician Oliver Byrne called

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

The First Six Books of the Elements of Euclid. The new version may be easily purchased for €45. Following this reissue, however, Windle noted greatly increased interest in the two original editions that he owned; both came with an asking price of €21,150, and both of sold within one week. Still, the importance attached to reprints that have either been signed or include an additional note on the text by the author himself should not be underestimated. The third edition of Isaac Newton’s Philosophiae Naturalis Principia Mathematica, for example, is considered to be the most valuable collectible version, due to the inclusion of Newton’s initial comments on calculus. Finding that really big pot of gold at the end of the rainbow Philosophiae Naturalis is undeniably dependent Principia Mathematica upon the discovery of by Isaac a desired edition that, Newton importantly, is as close to pristine condition as is available. This may even supersede all other variables. Allen and Patricia Ahearn, authors of Collected Books, explain it thus: “We cannot stress enough how important it is to understand that the physical condition of a book – how worn or, hopefully, unworn it is – has a large impact on its value. In real estate, it may be ‘location, location, location’; in book collecting, it is ‘condition, condition, condition’”. Some experts confidently assert that an otherwise keenly sought-after book might find its going price slashed in half if it is in poor condition. Whilst the factors of edition and condition might seem to narrow the market somewhat, the potential of book collecting is wonderfully blown open by the very basic multiplicity of interest within the millions of people engaged in this trade. Discerning subjects to be targeted, therefore, depend very much on demand. The most obscure of titles may be imported with great value if there is a collector with an interest in it. This applies to a colourful array of genres, fields of studies, and authors. Physical characteristics, such as special binding or an early use of a new printing process, may

Harry Potter and the Rare First Edition

illions of young (and not so young) people have read the Harry Potter books but when the first title in the

series (Harry Potter and the Philosopher’s Stone) by the then-unknown author JK Rowling was first published in 1997, it had a print run of just 500 copies. Of those 500 copies, 300 were distributed to libraries which has helped increase prices for the remaining 200. The majority of the Philosopher’s first edition first printings are now in the hands of collectors. The rare book business first took notice of Rowling in 1999 when

quick-witted speculators began buying up first editions of the Philosopher’s Stone in the hope they would increase in value. The phenomenon took off and so did the prices as collectors, many of them first-time collectors, began picking up the books. Prices now range from €30,000 to €40,000 depending on condition and it is possible that the demand for the original Philosopher’s Stone could continue for decades

also contribute to a book’s within reach of innumerable finrising market price. gertips and have facilitated mulAnd trying to ascertain tifaceted circulation, have merely worth based upon a newly-reserved as a playful challenge to leased work’s initial reception the ardent book collector. Indeed, may result in a dire oversight. the professionals depict the true J.D. Salinger’s The Catcher treasure hunter as being as much in the Rye was not originally inspired by the chase as the prize; a success when published in thus, this contemporary ubiquity The 1951 while it is now prized of texts and forms seems to have Catcher in the Rye by and considered the epitome of ignited a passion to pursue original J.D. Salinger (1951) the bildungsroman. The quest to works with even greater tenacity. attain a signed first edition would And for the novice, online resources probably empty a collector’s pocket may be depicted as a wonderful exploby €45,000. sion of accessibility. From Your Old For those with deep resources, original Books to The Antiquarian Booksellers’ manuscripts perhaps present the most Association of America, Alibris, and The lucrative treasure trail to follow. As rare Independent Online Booksellers’ Asas a first edition might be, a manuscript sociation, buyers and sellers are certainly represents the parchment upon which not short of each other. the work in question was first, singularly That said, seasoned bibliophiles also and exclusively, brought to life by the seem to resoundingly agree that nothing author. The world’s most valuable man- can replace the value of building personuscript ever sold at auction belonged, al relationships with professional book once upon a time, to the ultimate icon dealers who are perceived as mentors of the Renaissance, Leonardo da Vinci. and advisors to all intents and purposes. The paper upon The so-called folk wisdom of the trade, which he meticuwhich is passed on via this personal lously documented passage, coupled with insider informathe development of tion as to the whereabouts of certain his Codex Hamtexts, may never be translated virtually. mer was purchased Book fairs, such as the London Book by Bill Gates Fair and Frankfurt Book Fair, should be back in 1994 for considered a prime resource for meeting The Codex $30.8 million, and like-minded bibliophiles and for finding Hammer by Leonardo thereafter made electronia seller’s best pieces. da Vinci cally available for all to see. As long as the passion that directs Is this a dilution of its rarity the book collector’s hunt does not fade, and, therefore, desirability? books are not at risk of becoming obsoAlmost certainly not. lete. Thus, the prosperous odyssey is far The e-books and e-readers of the digi- from over.In fact it is just riding an epic tal age, which have brought certain texts wave.

to come. Many buyers of JRR Tolkein’s first editions are people who read his books as children and became collectors much later in life when they had the financial resources to do so. In case you wondering whether your copy of Harry Potter and the Philosopher’s Stone is a 1997 first edition, first issue, look for the crediting of “Joanne Rowling,” not JK on the title page. Then call your insurance company…

BOOK REVIEW Sweet Tooth By Ian McEwan (Jonathan Cape, 2012)

RRP: £18.99 (£10.99 from amazon.co.uk) f you enjoy modern literature you can’t avoid Ian McEwan and while many readers were not taken with Solar, those who loved On Chesil Beach and many of his previous novels will not be disappointed. Set in 1970s Britain, which is superbly recreated with all the detail and colour you would expect, this cleverly written, multi-layered novel is a story of deception, duplicity, the manipulation of truth and, not least, the power of literature. Serena Frome has a brief affair with an older man during her final year at Cambridge, and finds herself being groomed for the intelligence services. A compulsive reader of novels, she is sent on a ‘secret mission’ which brings her into the world of Tom Haley, a promising young writer. First she loves his stories, then she begins to love the man. Can she maintain the fiction of her undercover life? Serena must abandon the first rule of espionage – trust no-one. McEwan’s mastery dazzles in this superbly deft and witty novel full of stories within stories of betrayal and intrigue, love, and the invented self.

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seminar

{lifestyle}

Damian Hughes

Liquid Thinking comes to Cyprus Damian Hughes, founder of the LiquidThinker company and author of several bestselling books will be in Nicosia this month to conduct two sessions at the 11th Management and Human Capital Conference at the Hilton Park Nicosia.

amian Hughes, founder of the LiquidThinker company which takes the methods used by great achievers and shows, in easy steps, how you can adopt them into your own life and business in order to achieve your dreams and ambitions, has been involved in a variety of sectors. A former England schoolboy footballer and Manchester United football coach, he was a Human Resource Director for Unilever, where he led a turnaround in performance at the UK’s oldest manufacturing

site in Port Sunlight before carrying out similar work in Africa and the US. Other achievements include helping Beaverbrooks the Jewellers achieve recognition as the winner of the Sunday Times Best Company to Work For award in 2007, supporting the Department of Education in tackling some of Britain’s poorest performing schools and helping them to achieve unprecedented exam improvements, and creating the successful employee engagement programme implemented at Grant Thornton, Liverpool which saw a record 13% business growth within 12 months as a result. He now runs his own change management consultancy, LiquidThinker Ltd, helping a wide range of individuals, teams and industries achieve similar employee engagement and success. He also works as a change management consultant and sports psychologist for Sale Sharks, Warrington Wolves, the England and GB Rugby League teams and he runs a Manchester inner-city youth club which has helped reduce crime and help many young people find a purpose in their lives, from stopping crime to winning Olympic medals. Hughes is the author of several best-selling books on the Liquid Thinking concept – Liquid Thinking, Liquid Leadership, The Survival Guide to Change, Change Catalyst, Change Inspiration and How to Change Absolutely Anything – as well two acclaimed boxing biographies: Peerless, the story of

Sugar Ray Robinson which was nominated for the 2007 William Hill Sports Book of the Year award and Hitman: the Thomas Hearns Story which he co-authored with his father Brian Hughes. Damian Hughes will conduct two sessions at the 11th Management and Human Capital Conference on “Managing People and Companies in Times of Crisis”. The first will look at topics such as Behaviours and Visibility, Emotional Intelligence, Attitude, Beliefs, Culture and Three Stages of Change. The second session will be divided into separate examina-

‘‘the skills taught can be invaluable and, if applied, can change your life.’’ Sir Daley Thompson

tions of the left (rational) and right (emotional) sides of the brain and how to make the best use of both. The 11th Management and Human Capital Conference takes place on Wednesday 21 November at the Hilton Park Hotel, Nicosia. It is organised by IMH and PwC, sponsored by Cablenet and George Z. Georgiou. Media sponsors are IN Business and InBusinessNews.com. For more information, visit www.imh.com.cy

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The Greatest Destination in the Universe

the last word

If travel is not facilitated to Planet Europe, billions of travelers will go elsewhere By Peter Economides

I grew up in South Africa. A white kid on a black continent. Acutely aware of the cultural schisms in that strange place. And then I moved to Hong Kong. And I felt I was on another planet. A cultural adventure with so much to be discovered. Like grasshoppers kept in cages as pets. One of my early projects was the introduction of Nescafé to the Chinese. Coffee in a tea culture thousands of years old. That’s when I learnt that, to the Chinese, Europe was another planet too. And it was their burgeoning fascination with this planet that allowed us to sow the seeds for the success of Nescafé amongst the Chinese. They aspired to aspects of Planet Europe. Twenty years later their fascination with this other world is expressed in the consumption of luxury brands, motor cars, cognac, wine and many other European products. And the same is happening in other countries with a growing middle class. Brazil, Russia, India – along with China, the so called BRIC countries. But it’s also happening in other countries in Asia, Latin America and Africa. Travel is the ultimate way to explore another culture and these markets are waking up to it. In 2010, 12.5 million Indians travelled abroad. The number for China was 57 million. And by 2020, the numbers are estimated at 50 and 100 million respectively. European policymakers are scrambling to attract their fair share but they have not yet made much headway. Only 460,000 Schengen visas were issued to Indians in 2011. And just 1,026,000 to the Chinese. There are two things that seem to march on relentlessly. Technology and and world demographics. Technology killed Kodak. And world demographics could

challenge Europe’s position as the world’s top tourist destination. Think about it. In a period of slow economic growth, per capita GDP increased by 42.3% between 2007 and 2011 in India and by a whopping 57.4% in China.

Europe is a wonderful mosaic of sights and sounds and feelings and emotions and aspirations

Consider the high growth rates in Brazil and Russia and you’ll easily understand that close to three billion consumers are coming on stream. Three billion! That is almost half the world’s population. Anyone who has studied sociology will know of Maslow’s hierarchy of needs. This model describes rising aspirations brilliantly well. Once the basic physiological and safety needs are met, societies move on to the higher needs of love and belonging, esteem and self actualization. Droves of Chinese are travelling to Australia, throughout Asia and the United States to visit migrant friends and family. Indians are doing the same in South Africa, the United States and the United Kingdom. They are satisfying their need for love and belonging. And the luxury resorts in Asia, the Pacific and Indian Oceans are picking up their fair share of “esteem seekers” in search of luxury and bragging rights. Planet Europe. It’s the place for self actualization. The home of Western art, culture, gastronomy. The problem with Europe is its distance. Geographical and cultural. It’s a challenging journey for an inexperienced traveller. Europe can do much to stimulate the early flow of visitors from emerging nations. And I believe it will do so most successfully if it is mindful of its distance. Europe is a wonderful mosaic of sights and sounds and feelings and emotions and aspirations. The beauty of this planet must be communicated. But easy travel, too, must be facilitated. And the time is now. Because these three billion new consumers will travel. And if they don’t travel to Europe, they will travel elsewhere.

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

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