GOLD Magazine by Kevi Chishios

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ISSUE 21 DECEMBER 2012 PRICE â&#x201A;Ź6.95 POWERED BY:

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Barclays. A bank with a tradition of strength. Itâ&#x20AC;&#x2122;s a tradition that has lasted in Cyprus for over 70 years, delivering the highest levels of local knowledge combined with unrivalled international reach. As one of our clients you will have access to our team of highly experienced professionals who provide seamless banking and corporate solutions. They are your gateway to the vast range of support and expertise available from Barclays globally. Whether you operate locally or internationally, our tradition of strength will help you create a culture of success. To find out more about how Barclays can help, go to barclays.com/wealth or call us on +357 22 654477* for our Nicosia office or +357 25 208000* for our Limassol office.

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*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and is authorised and regulated by the Financial Services Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Central Bank of Cyprus to conduct banking and investment business.

03/12/2012 16:21

ISSUE 21 DECEMBER 2012 PRICE â&#x201A;Ź6.95 POWERED BY:

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03/12/2012 16:21

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

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“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

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

03/12/2012 15:46

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

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“The favorable business climate, the excellent

telecommunications

infra-

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

03/12/2012 15:46

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

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“The favorable business climate, the excellent

telecommunications

infra-

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

03/12/2012 15:46

CIPA International Investment

Awards presented by

MAGAZINE

IMH & CIPA would like to congratulate the recipients of the

CIPA INTERNATIONAL INVESTMENT AWARDS Presidential Palace on 19 November 2012.

at the ceremony held at the

Alfa Capital Holdings (Cyprus) Ltd

SPECIAL AWARD TO MICHAEL ZAMPELAS

THIS PRESTIGIOUS EVENT WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE VALUABLE CONTRIBUTION OF OUR SPONSORS.

Many thanks to everyone who participated in the organisation of the CIPA International Investment Awards. ORGANISERS

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Issue 21 December 2012

10 EDITORIAL 12 UP FRONT 16 FIVE MINUTES WITH…

CIPA INTERNATIONAL INVESTMENT

AWARDS 2012

THE PSYCHOLOGY OF EFFECTIVE LEADERSHIP by Nikos Konstantinou 64 CHANGING TRENDS IN THE LEGAL MARKETPLACE by Irene Demetriou 78 BRAND DRIVES BUSINESS by Peter Economides 98

COVER PHOTO & PORTRAITS TAKEN BY JO MICHAELIDES AT THE PRESIDENTIAL PALACE, NICOSIA.

66 | TELLING IT LIKE IT IS

COME TOGETHER by Marios Klitou 18 HOW DID IT COME TO THIS? by George Theocharides 52

The ceremony The recipients The event

+ OPINION

ACCA President Dean Westcott on how to put Cyprus and the eurozone on the road to recovery.

70 | PROFESSION: BLUES-PLAYING THINKER

Interview with Stelios Anastasiades, founder and managing director of the Telia & Pavla advertising agency.

74 | WE CAN BE THE BEST Interview with Petros Livanios, Managing Director of Trident Trust Company (Cyprus) Ltd.

FEATURE

48 | DON’T PLAY THE BLAME GAME

58 | THE VIEW FROM THE EMERALD ISLE

Interview with Dr Gabriela Linda Guellil, Ambassador of Germany to Cyprus.

Why the case of Ireland is seen as a Troika bailout success.

54 | GETTING BETTER

62 | A MATTER OF TRUST

Doing business in Cyprus became easier this year.

The Cyprus International Financial Services Association (CIFSA)

82 86 88 92

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

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

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EDITORIAL

That Was The Year That Was

t’s that time of the year again, when we look back over the past12 months, trying to decide whether they were better or worse than the previous 12 and speculating about how the next 12 are likely to be. It’s fairly clear that, for Cyprus, 2012 has been far worse than all but the most pessimistic of commentators had predicted. It came as a shock to many when, in June, the government decided to request a still unspecified amount (in billions) of financial assistance for both the economy and the banking sector from the so-called Troika (European Commission, European Central Bank , International Monetary Fund). Six months on, a deal has yet to be signed but it appears that what everyone except the politicians and the union leaders knew – that when a country asks for billions of euros it has no choice but to accept the conditions on which the loan will be given – is likely to materialize by the end of the year. Consequently, as far as the economy is concerned, there can be little optimism for 2013 for the proverbial man in the street. On the other hand, Cyprus seems to have managed the six-month rotating presidency of the Council of the European Union as well as any other Member State and there have been some positive developments regarding tax legislation. If the Fiduciary Services Bill is finally approved early in the New Year, it will surely give a boost to the island’s standing as an international business centre. Throughout 2012, Gold has been a platform for a broad variety of opinions on issues of importance and interest to you, our readers. We are proud to have brought a somewhat disappointing year to a positive close with our presentation last month of the inaugural CIPA International Investment Awards, which you can read about in this issue. Thank you for your positive feedback and continuing support. See you in 2013!

John Vickers, Chief Editor

ISSUE 20 NOVEMBER 2012 PRICE €6.95

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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:

Chris Damianou, Irene Demetriou, Peter Economides, Alexis Erotocritou, Boris Lazic, Marios Klitou, Nikos Konstantinou, Steven Newbery, Chloe Panayides, Alexandros Pericleous, Dr. George Theocharides, Antonis Vidakis 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

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold ISSUE 20 NOVEMBER 2012

john@imh.com.cy

CIPA International Investment

Awards

Celebrating foreign investment in Cyprus

+ GEOFF BARNES, MICHAEL IZZA, PETER TWIGG NORDIC COOPERATION That’s What Friends Are For

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INTERVIEWS

LUIS MIGUEL BELEZA OLIVIER JANKOVEC KISHORE RAJVANSHY

ENTREPRENEURSHIP New Ecosystem Study for Cyprus

BROUGHT TO YOU BY

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

06/11/2012 10:15

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

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CMY

UP FRONT

Gold supports Exhbition

old, its publisher IMH and IN Business magazine are supporting an exhibition by Greek artist Pavlos Samios at the Apocalypse Gallery, Nicosia. The official opening of the exhibition is on Wednesday 12 December and it will remain open until 12 January 2013. Samios is Professor of Art at the Athens School of Fine Arts. (Apocalypse Gallery, 30, Chytron St., Nicosia. Opening hours: 9.00am1.00pm, 4.30pm-8.00pm)

CYPRUS REMOVED FROM RUSSIAN BLACK LIST

EMIRATES AND ARSENAL AGREE NEW £150 MILLION SPONSORSHIP DEAL

mirates, one of the world’s fastest growing international airlines, and Arsenal Football Club, announced a new £150 million deal last month which grants the airline a five year extension to their shirt partnership with the Club until the end of the 2018/2019 season. As well as being one of the biggest deals ever struck in the game, the agreement, worth £30 million a year for five years, extends and deepens one of the strongest and most recognisable partnerships in sport. “Arsenal’s strong appeal around the globe and ambitious approach to the game parallel our own approach to business, making them a valuable partner for our brand,” said Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group. As part of the deal Arsenal’s home will continue to be known as Emirates Stadium up to 2028.

yprus has officially been removed from the Russian list of offshore jurisdictions, often referred to as the ‘blacklist’. One of the direct effects

of this removal, which will come into effect on 1 January 2013, is that dividends received by Russian companies from Cyprus will be taxexempt in Russia. Also, transactions between companies of the two countries will not be subject to the onerous transfer pricing rules that apply to Russian companies when transacting with blacklisted countries. Following this development and in view of the excellent double tax treaty between the two countries, Cyprus remains the preferred route for inward and outward investments in Russia.

The Russian blacklist includes a number of countries and territories which are considered to offer preferential tax treatment and/or not provide disclosure and provision of information on financial transactions. Russian companies transacting with the countries included on their blacklist face burdensome tax implications as well as other strict reporting obligations. Following the recent ratification of the Protocol amending the Double Tax Treaty (DTT) between Cyprus and Russia, the Russian Ministry of Finance recently ordered the Removal of Cyprus from the list.

CANADIAN TO TAKE OVER AT THE BANK OF ENGLAND ark Carney will be the next Governor

of the Bank of England, succeeding Sir Mervyn King whose term comes to an end in July. The surprise decision makes a foreigner the most important unelected official in the UK. Carney has impressed with his experience as Governor of the Bank of Canada and Head of the Financial Stability Board, the regulatory body based in Basel that sets international banking rules. In selecting Carney to serve at the helm of the Bank of England, British Chancellor George Osborne has picked an outspoken former Goldman Sachs banker with expertise in central banking and international financial regulation. Osborne described Carney as “unique amongst the potential candidates in combining long experience of central banking, huge international credibility in economics, deep expertise in financial regulation and first-hand experience of private sector financial institutions”. Carney will serve for five years.

Mark Carney

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

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UP FRONT

WHERE THE MEGA-RICH LIVE

espite global economic uncertainties, the number of billionaires worldwide grew by 9.4% to 2,160, expanding their wealth by 14% to $6.19 trillion – a $760 billion jump over the previous year, according to research firm Wealth-X. Wealth creation among billionaires varied according to regions, depending on the extent of the economic slowdown in their part of the world. Here we list of the Top 10 countries with the most billionaires, as compiled by Wealth-X from August 2011 to July 2012.

1. UNITED STATES

BILLIONAIRE COUNT: 480

Total wealth: $2.05 trillion Despite the economic headwinds, there were 25 new billionaires in the US in the past year, a 5.5% increase on the previous year. Their combined wealth also grew by nearly 8%. American billionaires account for less than 1% of the population of those with $30 million or more, but control nearly a quarter of the group’s total fortune of $8.28 trillion. On average, they are worth $4.3 billion each.

2. CHINA

BILLIONAIRE COUNT: 147

Total wealth: $380 billion China ranks second in the world when it comes to the number of billionaires, but in terms of total wealth, the country is behind Germany and the U.K., tying with Russia for fourth spot. Billionaires account for 1.3% of those with $30 million or more in the world’s second biggest economy, while they control over 24% of the group’s $1.58 trillion wealth. On average, Chinese billionaires are worth almost $2.6 billion each.

3. UNITED KINGDOM

BILLIONAIRE COUNT: 140

Total wealth: $430 billion The UK has the largest number of billionaires in Europe but it still lags Germany in terms of total wealth of the group by $120 billion. The UK’s billionaires account for

1.3% of the population that is worth $30 million and more. They also hold nearly 33% of the total fortune of this group of ultra-rich. On average, these billionaires are worth $3.1 billion each. More than a third of UK’s ultra-rich are non-domiciled residents.

4. GERMANY

Total wealth: $550 billion Germany is the only eurozone country to make the list of the most billionaires, bucking the trend of declining wealth in the majority of the bloc’s nations. The country’s 137 billionaires account for less than 1% of the ultra-high net worth group but control nearly 27% of the total fortune. German billionaires are worth $4 billion each on average, and the cities with the most ultra-rich are Munich, Dusseldorf, and Hamburg.

5. INDIA

Total wealth: $190 billion Asia’s third largest economy, together with Japan and China, accounts for about 75% of the region’s ultrarich population. Billionaires in India make up 1.4% of the total ultra-rich (those with $30 million in assets) and control more than 20% of the combined fortune of this group. On average, Indian billionaires are worth close to $1.7 billion each but they lost nearly 6% of their total fortune, compared to the previous year.

6. RUSSIA

BILLIONAIRE COUNT: 57

Total wealth: $125 billion Despite Europe as a whole seeing a decline in its ultra-wealthy population, Switzerland’s rich grew by more than 7%. Its billionaires represent the top 1% of its 5,597 ultra-wealthy population and control more than 19% of the total fortune of this group. On average, these billionaires are worth $2.2 billion each.

9. BRAZIL

Total wealth: $300 billion Brazil is the only Latin American country to make the Top 10 countries with the most billionaires, even though the region’s ultra-wealthy population increased by 3.5% this year. The combined wealth of Brazil’s billionaires accounts for more than a third of its ultra-rich group wealth of $865 billion, even though they represent only 1% of that population. The group’s combined wealth decreased by more than 6%. Brazil’s billionaires are worth $6.1 billion each.

10. CANADA

BILLIONAIRE COUNT: 40

BILLIONAIRE COUNT: 97

Total wealth: $380 billion Billionaires account for 8.5% of the country’s ultra-rich individuals but they control more than 60% of the group’s combined wealth. The number of billionaires in Russia increased by 17 from last year, but their total wealth fell by nearly 29% in the same period. This year’s drop in wealth creation is a complete reversal from last year, when Moscow was described as the billionaire capital of the world by Forbes.

Total wealth: $190 billion As one of Asia’s key financial centres, Hong Kong is also home to some of the richest people with a billionaire count of 64 who make up 2% of the city’s ultrawealthy population but account for more than 40% of the group’s combined wealth. Slowing economic growth across North Asia has had a direct impact on Hong Kong’s 3,135 ultra-rich people.

BILLIONAIRE COUNT: 49

BILLIONAIRE COUNT: 109

CANADA

BILLIONAIRE COUNT: 64

8. SWITZERLAND

BILLIONAIRE COUNT: 137

SWITZERLAND

7. HONG KONG

Total wealth: $105 billion Billionaires account for only 0.8% of Canada’s ultrarich population but they own nearly 18% of the combined wealth of $595 billion in this category. The country’s ultra-wealthy population, however, saw its combined wealth decrease by 4% this year while the number of people in the group also fell nearly 4%. Canada’s richest person, David Thomson (owner of Thomson Reuters), saw his family’s net worth fall by $5.5 billion.

GERMANY HONG KONG

AUSTRIA RUSSIA

USA

CHINA INDIA BRAZIL

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INTERVIEW

five minutes with... In the last eight years, more than €600 million from Cyta has been deposited in the state coffers

Aristos Riris

CEO of Cyta

ou have taken over as CEO of Cyta at perhaps the most crucial time in its history, given all the talk of privatisation as part of a deal with the Troika. How confident are you in Cyta’s future? Whatever change to the organisation’s ownership comes about, two basic factors must be taken into account: the enormousl importance of services provided by an electronic communications organisation to an island nation with an unresolved political problem, and the income received by the state in the form of a dividend from Cyta every year. In the last eight years, more than €600 million from Cyta has been deposited in the state coffers. How else can such sums be found by whichever government is in power? The privatisation of Cyta would have serious social and financial repercussions as well as issues concerning the status and security of the state. Cyta’s success thus far shows that it has the know-how and the will to respond to the challenges of the competitive environment. Consequently, selling it off to a strategic investor is not going to add positive value. Our aim is to maintain the organisation’s leading position in the country’s electronic communications sector. Thanks to its long experience and our personnel’s expertise and affection for the organisation, Cyta can successfully respond to the enormous challenges of the times. If Cyta remains a semi-government organisation, can it continue to compete with the private sector?

I believe that flexibility is a basic factor in the functioning of any organisation operating in the free market. In the electronic communications sector, which is characterised by rapid technological developments, the ability to take and implement decisions is particularly important in dealing with the challenges of the market and the pressure of competition from alternative providers. It is imperative that the regulatory framework that governs Cyta be modernised and aligned with the requirements of an organisation operating in one the most dynamic market sectors.

The fact that Cypriots feel great confidence in the Cyta brand is very positive. We have gained our customers’ trust through our reliability and the respect we show them. One important competitive advantage is that we offer a complete range of products. At the same time, we are always ready to satisfy the needs of every customer. We can do this thanks to our excellent technological infrastructure, experience, know-how, quality, specialist staff and a customer relationship characterized by trust and familiarity. These are factors that are not gained easily.

Last year Cyta celebrated its 50th anniversary. What does it need to do in order to enjoy another 50 successful years? Each new year becomes more and more competitive. The digital age is rapidly changing customers’ attitudes, behaviour and demands and if we are to maintain the link with our customers and continue our organisation’s great history for another 50 years we need to be constantly growing and innovating. We operate in a transparent, sincere and direct manner and our unwavering aim is to maintain Cyta’s position as the leading integrated electronic communications organisation and to offer solutions that respond to our customers’ needs.

What is your vision for the organisation for as long as you are Cyta’s CEO? In the coming years I see Cyta standing out in the market because it has happy customers, proud employees, appreciative associates and competitors that respect it. Even in today’s difficult climate, I am convinced that Cyta can rise to the occasion and continue to be successful as it has been in the past. It is not our goal to simply survive but to continue to grow and develop for the benefit of our customers and society as a whole. I believe that the key to Cyta’s success is the formulation of a clear strategic approach and the ability to continuously adapt to the realities of the market and our sector as they develop. By adopting modern management tools and methods, I expect to reach the stage where every member of staff knows exactly where we are and where we want to go, and to have a clear picture of his/her own role in the achievement of our mutual goals and Cyta’s vision.

Although the telecommunications market will soon have been liberalised for almost a decade, Cyta remains the market leader in every area. Is the organisation’s success simply due to people’s unwillingness to change provider or is there more to it?

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

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OPINION

Come Together

Foreign investors are showing faith in Cyprus but we must be careful not to take them for granted

oreign investors are keenly aware of the present economic climate in Cyprus and they regularly express their concern about the latest developments. The fact that the government has been forced to request a bailout but, at the same time, seems unwilling to face up to the reality of what this means, has affected our standing as a jurisdiction but the damage is not irreversible. To the problems of the economy, Cyprus has added the extreme difficulties facing its banking sector and, understandably, investors are worried about the reliability of the island’s banks. Fortunately, the constant efforts of Cypriot service providers have, to a great extent, succeeded in reassuring their clients that their deposits are safe. Cyprus is fortunate to have an army of professionals who are constantly out there promoting the island as a business centre. It is my conviction that if we give these soldiers the right ammunition they can do a good job. An outward flow of funds has been observed but it is not significant at present. However, a number of foreign investors are currently keeping a watchful eye on the banks. Their decision on whether to move their funds elsewhere depends on how the banking problem is tackled and the amount of support that is given to the sector. I am confident that a responsible approach by all parties will provide the necessary confidence to foreign investors and Cyprus will continue to make progress as a reputable international business centre. If we put our house in order, any funds that may have been moved elsewhere will return. I am sure that with the correct handling we can regain the confidence of international investors who are keen as we are to see a resolution of our problems so that they continue to use Cyprus. After all, they have spent millions of euros on setting up their structures and offices in Cyprus and relocating their staff

To compete we have to deliver more quickly than our competitors

By Marios Klitou

here. They certainly have no wish to leave and the only reason for them to take such a decision will be if we push them out through our wrong handling of the current crisis. We hear a lot about Malta these days but, personally, I do not consider Malta as a serious threat, at least not for the time being. Cyprus is much bigger than Malta in the international business arena, currently registering about 20,000 companies a year compared to 3,500 in Malta. However, this does not mean that we cannot learn from Malta, especially regarding the initiatives it has taken in recent years to attract insurance companies, investments, funds, aircraft registrations, etc. A significant issue that we need to study concerns the benefits generated to the Maltese economy by the establishment of the country’s Financial Services Authority. In addition to paying closer attention to what our competitors are doing, there are other things that we can do in order to improve the country’s standing abroad. This includes the full online computerisation of the office of the Registrar of Companies and all relevant procedures. It is unacceptable in 2012 not to have an online system accessible to investors and professionals all over the world. The responsiveness of government departments must also improve drastically. To compete we have to deliver more quickly than our competitors. We may be making some progress but we definitely have to try harder. All these issues must be addressed in the course of a discussion among the relevant parties so that joint and concerted action is taken to improve the reputation of Cyprus as an international business centre. Everybody needs to come together – CIPA, CIBA, the country’s lawyers and accountants, the Central Bank and the banks, CySEC, the Stock Exchange, and other independent authorities – in order to discuss our vision of the future of Cyprus. Is this too much to ask?

info: Marios Klitou is the Chief Executive Officer of Baker Tilly in Cyprus. 18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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MAGAZINE

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03/12/2012 09:19

(l-r) Arthur McWhinnie, Managing Director of Bernhard Schulte Shipmanagement (Cyprus) Ltd, British High Commissioner Matthew Kidd, Averof Neophytou, Deputy President of the Democratic Rally.

John Tomich, Country Director Cyprus, Noble Energy Inc. (left) & Christodoulos Angastiniotis, Chairman of CIPA.

Panikos Demetriades, Governor of the Central Bank of Cyprus & Demetra Kalogirou, Chair of the Cyprus Securities and Exchange Commission.

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03/12/2012 09:23

(l-r) Evan Gavas, Country Director, Barclays, George Flouros, Vice President, Middle East Africa, NCR Corporation, & Sofoklis Aletraris, Minister of Agriculture, Natural Resources & the Environment.

Demetra Kalogirou, Chair of the Cyprus Securities and Exchange Commission & Dinos Hadjisavvas, Head of Compliance, Alfa Capital Holdings (Cyprus) Ltd.

(l-r) Loucas Marangos, CEO, TFI Markets, Chrysovalantis Karagiannis, Director of Lidl Cyprus & Androula Agrotou, Minister of Health.

(l-r) Christos Mavrellis, Vice Chairman of CIPA, Capt. Dirk Fry, Managing Director of Columbia Shipmanagement Ltd,.& Andreas Christofides, CEO, KPMG.

(l-r) Klas Gierow, Ambassador of Sweden to Cyprus, Dionysis Pirovolisianos, Store Manager, IKEA Cyprus & Philios Zachariades, Chairman, Employers and Industrialists Federation.

(l-r) Charis Papacharalambous, DirectorGeneral, CIPA, George Papanastasiou, Managing Director of VTT Vasiliko Ltd, Photis Photiou, Press Spokesman, Democratic Party.

(l-r) Andreas Demetriou, Managing Partner, Ernst & Young, Dr. Christoforos Hadjikyprianou, Managing Director of Laureate International Universities in Cyprus,Theodoros Parperis, President of the Cyprus Institute of Certified Public Accountants.

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03/12/2012 09:24

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03/12/2012 12:50

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Gold December 2012 .pdf

CMY

11/16/12

7:41 AM

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Pianist Guy Creen.

The electric string quartet Fortissimo.

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03/12/2012 09:30

Michalis Pilikos (Employers & Industrialists Federation) & Androula Agrotou, Minister of Health.

Antigoni Fakonti (Polakis Sarris), Roddy Kyriakides (Emilianides & Kyriakides) & Anna Homenko Fiduciana Trust (Cyprus) Limited.

Brand strategist and guest speaker Peter Economides.

Alexis Nicolaou (Sigma TV) and Andreas Theodorides (USB).

Michalis Pilikos (Employers & Industrialists Federation).

Melanie Steliou & John Vickers, Chief Editor of Gold, presented the evening.

Michalis Pillos & Melina Panagi (TFI Markets Ltd) & George Ioannides (SFS Ltd).

Nicholas Gerkotis, George Constantinou, Marios Kyriakides (Barclays) & Constantinos Meivatzis (IFG).

Nicolaos Beis (National Bank of Greece) & George Georgiou (Alpha Bank).

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03/12/2012 09:34

Chris Damianos (Eurofast), Photos Photiades (Photos Photiades Distributors Ltd), Kathy Christodoulou (Action Global Communications) & John Tomich (Noble Energy Inc.)

Liu Xinsheng, Ambassador of China & Averof Neophytou, Vice President of the Democratic Rally.

Andreas Petrides (Cyprus RadioTelevision Authority).

Alexis Tselepis & Deborah Page (Barclays).

Constantinos Kallis & Angelos Grigoriades (KPMG).

Dionysis Pirovolisianos & Sophia Vorka (IKEA).

Nicholas Theocharides (UPM), Natalia Kardash (Vestnik Kipra) & John Tomich (Noble Energy Inc.)

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Anita Orphanidou, CIPA.

George Georgiou (George Z. Georgiou & Associates LLC) & Cleopatra Kitti (FTI Consulting).

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Stefanos Papadopoulos (Charalambides Christis), Wayne Georgiou (C. Georgiou Lab Supplies Ltd) & Loucas Marangos (TFI Markets).

Rena Rouvitha (CDB Bank) & Evdokimos Xenophontos (Bank of Cyprus).

George Michail (IMH), Neoklis Sylikiotis, Minister of Commerce, Industry & Tourism, & Christodoulos Angastiniotis (CIPA).

Michalis Avraam (Michalis Avraam Chartered Accountants Ltd), Charis Anastasiou (Makis Anastasiou & Co) & Charis Papacharalambous (CIPA).

Constantinos Kallis, Maria Papacosta & Christoforos Anayiotos (KPMG).

Evan Gavas (Barclays), Tonia Ioannou (Consulco) & David Bestwick (Avanti Hylas).

Michael Leptos (Leptos Estates). Irene Anastasiou (Chrysostomides Advocates & Legal Consultants) & Demosthenes Mavrellis (Chrysses Demetriades & Co Law Office). Christos Patsalides (Christos Patsalides LLC) & Alexis Nicolaou (Sigma TV).

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Michalis Louis (Eurobank EFG) & George Georgiou (Alpha Bank).

Photis Photiou, Press Spokesman of the Democratic Party & Sofoclis Aletraris, Minister of Agriculture, Natural Resources & the Environment.

Marios Roussias, George Papanastasiou (VTT Vasiliko Ltd) & Zakis Hadjizacharias (KPMG).

Angela Pittashi â&#x20AC;&#x201C; Nicolaidou, Sylvia Saman, Tina Anastasiou (Raven Russia Management Company (Cyprus) Ltd) & Eleni Vickers (Alpari Group Ltd).

Andreas Neocleous (Andreas Neocleous & Co LLC), Christos Kyriakides (ICPAC) and Lefteris Hadjizacharias (KPMG).

Christos Koufaris (CIBA).

03/12/2012 09:38

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03/12/2012 14:52

INTERNATIONAL

Banks IN CYPRUS I

nternational banks constitute a major component of Cyprus’ status as a respected financial centre. The Cyprus banking sector, though highly focused on retail banking, is diverse as regards wholesale sector and international banking. Many foreign banks from the Middle East, Europe, Africa and Asia have chosen Cyprus as their hub, operating as subsidiaries, branches or representative offices. In 2004, Cyprus completely liberalised capital movements

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enabling the former International Banking Units to provide credit and full banking services as branches or subsidiaries of foreign banks. In 2011, the island’s Financial Services sector accounted for 9% of GDP. The Cyprus banking sector operated almost 900 branches and employed over 12,800 people in 2011. At the end of 2011, the banking sector held almost €54 billion in deposits and loaned over €53.8 billion. Today six domestic banks, five subsidiaries of foreign banks from EU

member states, three subsidiaries of foreign banks from non-EU member states, eleven branches of foreign banks from EU member states, sixteen branches of foreign banks from non-EU member states and one representative office operate in Cyprus, a total of 42. Cyprus-based international banks offer a wide variety of investment, commercial and private banking products, solutions tailor-made to the requirements of their clientele and, in some cases, retail banking for the domestic and international market.

03/12/2012 12:55

SPOTLIGHT ON INTERNATIONAL BANKS

Barclays B

arclays is a leading global wealth and investment manager providing international and private banking, wealth planning, trust and fiduciary services, investment management, brokerage services and research to private and intermediary clients around the world. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. With a presence in Cyprus for over 70 years, Barclays has a tremendous heritage on the island. As the only A+ rated international bank in Cyprus, Barclays offers world class corporate banking and investment management services to the Cyprus market. Barclays has offices in both Nicosia and Limassol with highly skilled local and international staff, including an on-site treasury team with access to London and global FX trading desks, as well as an expert Trade Finance team and investment specialists. The local team works closely with specialists across the Barclays Group including Private Banking, Corporate and Investment Banking, and Barclays Stockbrokers. One of Barclays’ greatest strengths is the broad range of wealth and investment management solutions it offers to corporate and intermediary clients. These solutions include: BANKING •C ompetitive rates on a range of current and deposit accounts • Available in all major currencies •2 4/7 secure, online banking – manage your account anytime, anywhere • Rapid international payments

•E fficient solutions for aggregation of client accounts INVESTMENTS •F ull range of traditional and alternative investments •S pecialist advice on investment products, portfolio construction, and investment strategies from fully-regulated advisers •F ully-managed, bespoke portfolios and tailored investment strategies •A ccess to powerful institutional products •W orld-class research and regular reports on portfolio performance CREDIT •C omprehensive choice of liquidity solutions •B usiness overdrafts •S hort-term working capital •S pecialist solutions for larger assets •F lexible terms and repayment structures FOREIGN EXCHANGE •E xtensive selection of exchange options, contracts and structured instruments •D edicated support from FX specialists and treasury managers TRADE • I mport and export Letters of Credit to reduce trade risks •C onvenient documentary collections •F lexible financial guarantees Through its experience over many years, Barclays in Cyprus has developed significant relationships with a wide range of corporate and intermediary clients, each with differing goals and business challenges. The local team in Cyprus understands the specific needs of corporate service providers and

international trading companies, including trust companies, fiduciaries, independent asset managers, offshore financial institutions, international ship management companies and family offices. As one of the largest global banks, trusted by 49 million customers, Barclays remains secure, strong, independent and dedicated to the Cyprus market.

CONTACT INFORMATION

Barclays

KEY CONTACTS Evan Gavas, Country Director Tel: (+ 357) 22654404 e-mail: e.gavas@barclays.com Savvas Constantinou, Head of Limassol Tel: (+ 357) 25208001 e-mail: savvas.constantinou@ barclays.com Maria Iacovidou, Head of Business Development Tel: (+ 357) 22654457 e-mail: maria.iacovidou@ barclays.com CONTACT DETAILS Head office address: 1 Churchill Place, London, E14 5HP, UK Cyprus Main Office: 2nd & 3rd Floors, 88 Dighenis Akritas Avenue, Nicosia Postal address: P.O. Box 27320,1644 Nicosia, Cyprus Tel: Nicosia Office (+357) 22654474, Limassol Office (+357) 25208000 Fax: (+357) 22875625 Website: www.barclays.com/ wealth e-mail: cyprus.enquires@ barclays.com

*Availab *Availab your te your te in Engla Central in Engl Centra supplement_foreign_banks.indd 40

03/12/2012 12:56

Barclays. Barclays. Barclays. Barclays. A bank with a tradition of strength. AAA bank bank bank with with with aatradition atradition tradition ofofof strength. strength. strength. It’s a tradition that has lasted in Cyprus for over 70 years, delivering the highest levels It’s aIt’s tradition a tradition a knowledge tradition that that that has has has lasted lasted lasted inin Cyprus in Cyprus Cyprus forfor over for over over 7070 years, 70 years, years, delivering delivering delivering the highest the highest highest levels levels levels ofIt’s local combined with unrivalled international reach. the As one of our clients of of local of local local knowledge knowledge knowledge combined combined with with with unrivalled unrivalled international international international reach. reach. reach. AsAs one As one one ofof our of our our clients clients clients you will have access tocombined our team ofunrivalled highly experienced professionals who provide you you you will will will have have have access access access toto our to our our team team team ofsolutions. of highly of highly highly experienced experienced experienced professionals professionals professionals who provide provide provide seamless banking and corporate They are your gatewaywho towho the vast range seamless seamless seamless banking banking banking and and and corporate corporate corporate solutions. solutions. solutions. They They They are are your are your your gateway gateway gateway to to the to the vast the vast vast range range range of support and expertise available from Barclays globally. Whether you operate locally ofof support of support support and and and expertise expertise expertise available available available from from from Barclays Barclays Barclays globally. globally. globally. Whether Whether Whether you you you operate operate operate locally locally locally or internationally, our tradition of strength will help you create a culture of success. oror internationally, or internationally, internationally, our our our tradition tradition tradition ofof strength of strength strength will will will help help help you you you create create create a culture a culture a culture ofof success. of success. success. To find out more about how Barclays can help, go to barclays.com/wealth or call us ToTo find To find find out out out more more more about about about how how how Barclays Barclays Barclays can can can help, help, help, gogo to go to barclays.com/wealth to barclays.com/wealth barclays.com/wealth oror call or call call ususus on +357 22 654477* for our Nicosia office or +357 25 208000* for our Limassol office. onon +357 on +357 +357 2222 654477* 22 654477* 654477* forfor our for our our Nicosia Nicosia Nicosia office office office oror +357 or +357 +357 2525 208000* 25 208000* 208000* forfor our for our our Limassol Limassol Limassol office. office. office.

*Available *Available *Available between between between thethe hours the hours of hours 0830 of 0830 ofand 0830 and 1700 and 1700 Monday 1700 Monday Monday to Friday. to Friday. to Friday. Calls Calls may Calls may bemay recorded be recorded be recorded for for security security for security reasons reasons reasons andand soand that so that so we that we may we may monitor may monitor monitor thethe quality the quality quality of our of our service. of our service. service. CallCall costs Call costs may costs may vary. may vary. Please vary. Please Please check check check with with with *Available between the hours of 0830 and 1700 Monday toand Friday. Callsmanagement may be recorded forproducts security reasons and soclients that we may monitor the quality of Call costs may vary. with your your telecoms your telecoms telecoms provider. provider. provider. Barclays Barclays Barclays offers offers banking, offers banking, banking, wealth wealth wealth and investment and investment investment management management products products andand services and services services to its to clients its to its clients through through through Barclays Barclays Barclays Bank Bank PLC Bank PLC and PLC and itsour and subsidiaries. its service. subsidiaries. its subsidiaries. Barclays Barclays Barclays Bank Bank PLC Bank PLC isPlease PLC registered is registered ischeck registered your provider. Barclays offers banking, and investment management products and services to itsOffi clients Barclays Bank PLC its subsidiaries. Barclays PLC by is registered in England in telecoms England in England andand is and authorised is authorised is authorised andand regulated and regulated regulated by the by wealth the by Financial the Financial Financial Services Services Services Authority. Authority. Authority. Registered Registered Registered No.No. 1026167. No. 1026167. 1026167. Registered Registered Registered Offi ce:Offi ce: 1through Churchill ce: 1 Churchill 1 Churchill Place, Place, Place, London London London E14and E14 5HP. E14 5HP. Barclays 5HP. Barclays Barclays Bank Bank PLC Bank PLC is PLC authorised isBank authorised is authorised the by the by the Central Central Central Bank Bank ofBank Cyprus of authorised Cyprus of Cyprus to conduct to conduct to conduct banking banking banking and and investment and investment investment business. business. business. in England and is and regulated by the Financial Services Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Central Bank of Cyprus to conduct banking and investment business. supplement_foreign_banks.indd 41

03/12/2012 12:56

SPOTLIGHT ON INTERNATIONAL BANKS

IBL BANK

Logo_IBLBank_CMYK.indd 1

IBL Bank is one of the leading Lebanese banks. The Bank traces its roots back to 1961 and has hence been at the service of its clients for more than fifty years.

IBL Bank continued to record double digit growth in 2011, anchoring the Group among the top Lebanese banks. In fact, total consolidated assets grew by 17%, with customer deposits remaining the main growth driver as they also registered 17% growth in 2011. In parallel, on the lending front, customer loans and advances rose by 28% during 2011, with the loans-to-deposits ratio reaching 18%, showing the high liquidity that IBL Bank enjoys – the highest net primary liquidity to deposits among the top Lebanese banks, and the second highest in foreign currency. Finally, mirroring the Bank’s conservative risk management framework, IBL Bank enjoys a strong capitalization, mainly constituted of core Tier 1 capital and healthy financial soundness evidenced by a Capital Adequacy Ratio (CAR2) of 13.8% while the minimum required solvency ratio is 8%. These outstanding results have not come at the expense of profitability as IBL Bank’s core business and high asset quality continued to

supplement_foreign_banks.indd 42

ensure a robust revenue stream, as showed by our Return on Average Equity (ROAE) of 16.8% and a Return on Average Assets (ROAA) of 1.2% while the cost-to-income ratio remained as low as 36%. Furthermore, IBL Bank recorded the highest growth in net profits amongst the top Lebanese banks.

In addition to these results, IBL Bank succeeded in solidifying the Bank’s long term strategy by achieving important milestones: enhancing our brand awareness, strengthening our Human Capital, anchoring IBL Bank as a universal bank through the regional network in Lebanon (19 branches), Cyprus (Limassol), Iraq (Erbil and Baghdad) and the establishment of a sister bank – IBL Invest – that offers investment banking, private banking and asset management services. The Bank’s Head-Office and main branch are located in Achrafieh, Beirut. The Limassol branch of IBL Bank was opened in January 2009. Since then, IBL Bank, Limassol offers traditional banking services including the opening and operating of current and savings accounts, credit facilities, trade finance and acceptance of deposits in EUR, USD and GBP on which competitive interest rates are offered.

12/8/10 11:38:03 AM

CONTACT INFORMATION

IBL BANK S.A.L. CYPRUS BRANCH 214, Arch Makarios Ave. 1st Floor, 3030 Limassol, Cyprus Tel: +357 25504444 Fax:+357 25504450 Ghada Shami Christofides Manager Tel: +357 25 504555 e-mail: gchristofides@ibl.com.lb Jacovos Georgiou Deputy Manager Tel: +357 25 504499 e-mail: jgeorgiou@ibl.com.lb Hussein Sayed Customer Service Officer Tel: +357 25 504433 e-mail: hsayed@ibl.com.lb LEBANON HEADQUARTERS Al-Ittihadiah Bldg Charles Malek Ave Achrafieh Beirut 2071 Lebanon Tel: +9611200350 Fax:+9611204524 Website: www.ibl.com.lb

03/12/2012 12:56

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03/12/2012 12:56

SPOTLIGHT ON INTERNATIONAL BANKS

RUSSIAN

COMMERCIAL BANK (CYPRUS)

ussian Commercial Bank (Cyprus) Limited was established on the 1st of August 1995, as an overseas unit of VTB Bank and a banking licence was issued by the Central Bank of Cyprus. Since the accession of Cyprus to the European Union in 2004, the Russian Commercial Bank (Cyprus) Limited has operated as a fully-fledged European bank. Russian Commercial Bank (Cyprus) Limited is a member of the VTB Group, a leading international financial services group of Russian origin with a business presence in more than 20 countries. The holding company of the Group is

supplement_foreign_banks.indd 44

VTB Bank Plc, one of the leading Russian banks, with the Russian government being the majority shareholder. Russian Commercial Bank (Cyprus) Limited is the only subsidiary amongst the local banking Units of Russian and CIS banks registered in the Republic of Cyprus. Today, the Russian Commercial Bank (Cyprus) Limited is one of the largest and most dynamic banks in the Republic of Cyprus. Russian Commercial Bank (Cyprus) Limited provides a full range of wealth management services for the structuring and administration of private and family capital, as

well as a wide range of services for corporate and individual clients.Â The Bankâ&#x20AC;&#x2122;s branches are located in Nicosia and Limassol, the representative offices in Moscow and London.

CONTACT INFORMATION

Russian Commercial Bank (Cyprus) Limited Tel.: (+357) 25 355722 | 800 00722 Website: www.rcbcy.com Reg.No 72376. Private Limited Company. Registered Office: 2 Amathuntos street, 3105 Limassol, Cyprus

03/12/2012 17:26

Your trusted banking partner At RCB, you will discover a wide range of individual and corporate financial services, tailor-made to suit your banking needs. Wealth management solutions

Classic banking products and services

Solutions for corporate and institutional clients

• Trust and fiduciary services, including structuring and administration of assets

• Euro and international currency accounts

• Customised lending solutions

• Internet banking

• Investment funds under RCB management

• Portfolio management services • Brokerage services • Structured products

• Broad range of fixed-term deposits • Credit cards

• Broad range of investment services for institutional clients

• Banker’s draft and cheque facilities

• Stock option programmes for management

Russian Commercial Bank was founded in 1995 and is headquartered in Limassol, Cyprus. The Bank is a member of the VTB Group – a leading international financial services group of Russian origin – and one of the largest international banks in Cyprus.

+357 25 355722 www.rcbcy.com Branches:

Nicosia | Limassol

Representative Offices:

London | Moscow

Russian Commercial Bank (Cyprus) Limited. Private Limited Company. Registration number: 72376. Registered Office: 2 Amathuntos street, 3105 Limassol, Cyprus. Russian Commercial Bank (Cyprus) is authorised by the Central Bank of Cyprus to conduct banking and investment business. RCB and the Russian Commercial Bank are trading names of the Russian Commercial Bank (Cyprus) Limited.

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03/12/2012 17:26

SPOTLIGHT ON INTERNATIONAL BANKS

Arab Jordan Investment Bank A WINDOW OF OPPORTUNITY

yprus, known for its favourable tax rates, stable business and friendly enviroment, boasts the lowest corporate tax rate in Europe, which aside from its favourable geographic location is one of the most prominent reasons for international business start-ups in the region. Arab Jordan Investment Bank

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offers specialist banking services to High Net Worth clients, providing access to high quality investment products and services globally, alongside its traditional banking operations. Through our network of branches, representative offices, subsidiaries and affiliated bank, we can provide our clients with tailor made products and solutions that fit their needs.

CONTACT INFORMATION

Arab Jordan Investment Bank

23, Olympion street 3035 Limassol Tel: (+357) 25351351 Fax: (+357) 25360151 Website: www.ajib.com e-mail: support@ajibcy.com

03/12/2012 14:50

Spotlight.... on Montenegro!

• Settle your property tax obligation? • Use corporate tax incentives? • Check if you are entitled for VAT return? • Take advantage of benefits offered for selling your operations in the business zone? • Use disability employment incentives?

I FIRMLY BELIEVE THE EURO WILL REMAIN A SUCCESS STORY Ambassador Guellil

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30/11/2012 15:25

INTERVIEW

DON’T PLAY THE

BLAME GAME EUROPE’S PROBLEMS CAN ONLY BE RESOLVED TOGETHER.. By John Vickers, Photography by Jo Michaelides

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 49

30/11/2012 15:25

INTERVIEW

t’s no secret that Germany and its Chancellor Angela Merkel are not everyone’s favourites these days. A tough line on the need to stop overspending and to stick to the EU’s rules on budget deficits has led to millions of people in the countries requiring financial bailouts blaming Mrs Merkel and her policies for their present hardship. This is not the case, says Dr Gabriela Linda Guellil, Ambassador of Germany to Cyprus, who tells Gold that her country is making its own sacrifices for the good of the eurozone. Gold: What are your views on the debate on Austerity vs Growth that is going on in many European countries? Ambassador Guellil: I think that this debate is a little bit misleading. We are talking about two sides of the same coin. We need sustainable consolidation of budgets which is a precondition for growth. On the other hand we need growth in order to enhance sustainable consolidation. Growth is necessary to create employment but we will not achieve growth without competitiveness so we are forced to consider both aspects seriously. The problems that we are facing have not come overnight. They are the result of the lack of competitiveness and of overspending and this has to be tackled.

smart solutions and reach lasting growth. We need to invest in competitiveness. I know that many people are frightened by the idea that they may lose many of the benefits that they have achieved over the past decades but, on the other hand, we must remain grounded and realise what has to be done, even though it may be tough. Europe is a region of prosperity and can jointly afford to tackle structural reforms. We have to withstand the competition from other major economies. In the end, all Europeans will have to contribute. It is not a fight between the ‘haves’ and the ‘have nots’. The aim is clearly not to increase the burden on those who are already suffering. In the end we want to have fair conditions, greater employment and prosperity for all, which is why all of us, including Germany, have to make sacrifices. Structural reforms implemented today will benefit mainly future generations, i.e. the children in Europe whom we cannot confront with a mountain of debt on their shoulders.

Gold: There seems to be a widely-held belief in some northern European countries that they – and German taxpayers in particular – are being forced to rescue the ‘lazy southern states’. Is this really what is happening? Ambassador Guellil: On her recent visit to Greece and on many other occasions – in the European Parliament as well as in our National Parliament, the Bundestag – Chancellor THE PROBLEMS OF Angela Merkel has emphasized her tremendous respect for the painful reforms undertaken, especially in Greece and elsewhere. It is known how strongly Germany feels about Europe. And I must say that BE A today my country is displaying unprecedented solidarity in Gold: Can austerity measures such as those real terms: German taxpayers are contributimposed by the Troika on Greece and Poring to the financial stability of the eurozone. tugal obtain the results envisioned by those Germany guarantees a tremendous amount of who negotiated the bailout packages? the overall financial needs. German financial Ambassador Guellil: As Ambassador to guarantees currently amount to about €300 Cyprus I cannot comment on Greece and Por- billion, that is as much as the German national tugal. But what I do believe is that the Troika budget. This is unprecedented financial supis well aware that lasting growth requires port. But we’re not doing it to be the nice competitiveness and modern structures. This guys; we’re doing it because we strongly believe is why they propose continued reforms and that our future lies in a common Europe. the consolidation of budgets. Most European On the other hand, it is my impression that economies have gone through a process of belt- our Greek and other partners completely tightening and budget reforms and this is what understand that European solidarity entails the Troika missions are all about: they want to responsibilities. Solidarity with the European introduce structured reforms to overcome the Stability Mechanism goes hand in hand with crisis. Growth remains absolutely essential but conditions and requirements of the Member we need to act responsibly. The solution to a States in question. Development in individual debt crisis cannot be more debt. The solution Member States must not threaten the stability to the crisis cannot be to repeat the mistakes of of the eurozone as a whole. The European the past. Let us not forget: the European crisis financial crisis and the European debt crisis is one of competitiveness so we want to achieve represent a crisis of confidence in the euro. It is

CYPRUS CLEARLY NEED TO BE ADDRESSED EVEN THOUGH THIS MIGHT PAINFUL EXERCISE

neither a crisis between North and South nor between old and young Member States. Gold: Much of the anger in the countries whose people are suffering from austerity measures is aimed at Germany and, in some cases, at the person of Chancellor Merkel. Is this fair? Ambassador Guellil: What we need is a coordinated effort, based on strong national reform agendas. Does anger help? Do accusations help? As Germans, we say yes to solidarity, yes to responsibility and yes to empathy. Of course, emotions are running high. There is a great deal of pressure. The crisis and the national reform efforts demand serious sacrifices from the population and demonstrations are the normal reaction in a democracy. The important thing is to tackle the problems and this is what we are trying to contribute to. Chancellor Merkel certainly has a lot of understanding for the many citizens in debt-ridden countries who complain that they have to pay for mistakes they did not make. When we met her at our annual ambassadors’ conference in August we naturally asked her how she felt about these personal attacks and her reply was, “If only it was about my feelings. But it is not. We don’t want the ship to sink. If I can make a positive contribution, I don’t care what people say about me”. We are trying hard to communicate that we understand, but again what needs to be said is this: there are no easy fixes for what is a complex situation, and it does not help to ignore the seriousness of this situation and look for scapegoats. Chancellor Merkel and the Federal Government are working hard to ensure that we Europeans, together, emerge from this crisis stronger than before. Gold: Turning to Cyprus, what, in your view, is the reason for the country’s current financial difficulties? Ambassador Guellil: It comes down to a package of reasons and circumstances. The Cypriot request in June asked for the support of international lenders concerning the state budget, with a strong focus on the situation of the banks. And of course, everybody agrees that there is the ‘collateral damage’ of the crisis in Greece given the strong involvement of the Cypriot economy with the Greek economy. It is my understanding that the Troika has been working to establish facts and figures as a basis for an agreement, to find the root causes and to tackle them in an adequate way. The problems – and there are many of them – clearly need to be addressed even though this might be a painful exercise. I strongly believe that Cyprus can tackle its problems and will be back to recording growth figures soon. Cyprus has the potential, especially the human resources, the know-how and the will to overcome the crisis.

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

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30/11/2012 15:25

It might take a certain time but I believe that my government and my country will do the utmost possible to support Cyprus during the coming period of change which is also a period of opportunities, Gold: Do you believe that Cyprus should raise its 10% rate of Corporation Tax, which is one of the main attractions for foreign companies using Cyprus for tax planning purposes? Ambassador Guellil: First of all let me underline that in Cyprus I observe close to unanimous support for this specific model of low taxation. It has been one of the main instruments for economic success in the past. and I think this message has been understood across Europe. In international fora, like the G20 or EU, a discussion is going on about how to establish a more balanced system of taxation. I personally believe that the tax systems in the various member states are so different that it will take considerable time to achieve harmonisation. The German position is that taxation is very much a sovereign decision, based on what countries consider their comparative advantages and needs. To my knowledge, the Troika has not asked for an increase of this flat-rate tariff of 10%. If the discussions on harmonisation of certain aspects of taxation continue, the situation might change in the long run, but I do not believe that this should be an issue of concern at the present time. Gold: Recently (in Der Spiegel and elsewhere) there have been allegations that Cyprus is not the ‘clean’ jurisdiction it claims to be regarding money laundering. Do you believe that there is any truth in this? Ambassador Guellil: Money laundering is an issue of importance and not only for Germany. So we try to collect information about the situation, the legislation and how it is being implemented. According to the information we have, the Cypriot legislation is consistent with EU standards and, according to MONEYVAL, “largely compliant” with international requirements. I can only rely on the information I have, and that goes for the media too: A report can only be credible when it is backed by proof. Regarding money laundering and Cyprus, I am not sure that there is any such proof. It is, of course, in the German and also in our common European interest to fight money laundering wherever it happens, in the EU and elsewhere. Gold: There are Russian deposits in places like London and Frankfurt, just as there are in Cyprus. Is Cyprus less trustworthy? Ambassador Guellil: From the figures we have from Moscow, Russian deposits in Cyprus are enormous and the flow of money

COUNTRY

Gold: Could you give us some facts and figures about Cyprus-German imports and exports? Ambassador Guellil: The Cyprus market is not very big, obviously, but our bilateral trade relations are very substantial. In 2011 the trade balance amounted to roughly €1 billion which is quite a lot. German exports to Cyprus are about three times the amount of Cypriot exports to Germany. Germany is one of the largest suppliers of goods and services to Cyprus – we are proud of the fact “TEP” banking and trust a local, national he Society the German brands aredesignation found everywhere (Trust anddestination Estate fields. and international of Trust here –STEP and itsupports is the fifth largest learning and business a wide-ranging and Estate of Cypriot exports. OnPractitioner), this we canwhich build STEP members can education and Practitioners network focusing further. Cyprus is also doing busiaffix to good their name, training programme, on the responsible (STEP) was founded ness with medicines and competing is highly-valued by was generic introduced stewardship of assets which in 1991 in the UK for instance, Spain or Israel in the worldwide. Cyprus in 2011, withemployers today and across the inwell, and today is the German market. And For let me also mention in further and more than generations. leading worldwide information: this context that just recently threewww. German 3,500 students professional body for The Cyprus branch stepcyprus.com worldwide of STEP was practitioners in the companiesare in Cyprus were awarded the Persons interested currently studying for fields of trusts, estates established in 2003 CIPA Investment Award.

WILL DO THE

UTMOST POSSIBLE

TO SUPPORT CYPRUS

DURING THE COMING PERIOD OF CHANGE WHICH IS ALSO PERIOD and localOF membership andA related issues. numbers now exceed 160 professionals from the island’s legal, accounting,

in applying for STEP qualifications. STEP Diplomas membership of of the Gold: Are you confident in the future and Foundation STEP Cyprus should euro and the eurozone? Certificates are widely contact secretary@ Ambassador Yes, I am. 100%. I recognised andGuellil: the stepcyprus.com

Gold: Do you think Cyprus should invest more in improving its status as an international business centre? Ambassador Guellil: It is my understanding that Cyprus has an excellent image as a business centre. Given its size, the extent to which Cyprus’ services are in demand is impressive. A good image is key and a good image does not come out of the blue. It needs a lot of investment in credibility, reliability, long-term planning, stability and many other factors. Here again competitiveness is decisive. It is the service quality that makes the difference, if a location caters for the needs of investors. Many international businesses in Cyprus underline that the rule of law and the quality of the legal system are also decisive. Business has increased enormously since Cyprus joined the European Union and this is another reason why Cyprus should be working actively to integrate further into the EU because this will add to its positive profile.

Gold: Do you envision a United States of Europe at some time in the future? Ambassador Guellil: The debate about the finality of the European Union already has quite a history. It has been and will continue to be an ongoing process. I believe points can be made for and against the need to define such a final vision. Traditionally, the European Union has developed around Jean Monnet’s method of “petits pas” (small steps), not around a final concept like a “United States of Europe”. In the end, the EU can only develop as far as its Member States and their citizens want it to. However, in view of important emerging powers on the global scene, and the immense challenges facing us, it is clear is that only a stronger and more integrated Europe – which was initially the motive for the creation of a strong European Union – will be in a position to address global challenges and to advance European interests. Our future certainly does not lie in the deconstruction of a large and powerful entity but in the further enhancement and construction of a strong edifice. The world is not waiting for the EU to get its act together. We must do that ourselves.

OPPORTUNITIES STEP has more than 16,500 members in 66 countries, providing them with

from Cyprus to Russia makes Cyprus the number one investor in Russia. This is impressive. But it is not a crime if Russians deposit money in Cyprus, London, Paris or Frankfurt! On the contrary, many international business centres are interested in Russian investments. There is a lot of financial involvement of almost all the European partners in Russia. I believe we are well advised not to generalize. In the end it is the investors’ choice where they deposit their funds and Europe simply needs to ensure that supervision mechanisms are in place and that there is no misconduct.

firmly believe the euro will remain a success story but we have to pull ourselves together and continue believing in its possibilities. The measures currently underway in Europe will strengthen fiscal coordination and cooperation further and I am convinced that in the end the euro and the eurozone will emerge from this crisis successfully. With a good, sound balance of risk assessment and seizing opportunities we will manage.

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OPINION

How Did It Come To This? The underlying reasons behind the Cypriot banking crisis

he island’s banking sector is facing considerable challenges as the two largest Cypriot banks seek state aid to achieve the desired Core Tier 1 capital ratio set by the European Banking Authority (EBA). The main problems started late last year with the infamous Greek PSI (Private Sector Involvement) and the overnight loss of about €4 billion from the sector and the Cyprus economy. Furthermore, the banks’ huge exposure to the Greek economy (estimated at around €25 billion) and to the real estate sector here in Cyprus led to a substantial climb in their non-performing loans following the rapid deterioration in the economies of both countries. Moreover, the two banks’ expansion into foreign markets (mainly the Balkans and Eastern Europe), though profitable in the boom years proved to be risky and expensive for them in the late recession years. As a result, the banks were continuously downgraded by the credit rating agencies, which automatically implied a loss of confidence by investors and an increase in the cost of borrowing. It should be pointed out, however, that the banks’ and the economy’s downgrades (as expressed in the rating agencies’ reports) were not only due to the banking crisis but also to the fiscal problems faced by the government and structural problems in the economy that need to be resolved. But how did the banking sector end up in this unfortunate situation? One factor is certainly the rather “loose” regulatory supervision that allowed the banking sector to grow so big that it dwarfs the country’s GDP (by approximately eight times) and to take excessive risks without properly diversifying their portfolio. We may have created institutions that are “too big to fail” but unfortunately they are also “too big to save”! It is ironic that while the regulatory authorities were being praised for protecting the banking sector from toxic products (asset/mortgage-backed securities, collateralized debt obligations, credit default swaps, etc.) at the height of the global banking crisis of 2007-2009, a few years later the simplest of securities and supposedly the least risky (sovereign bonds) were to prove fatal.

We may have created institutions that are “too big to fail” but unfortunately they are also “too big to save”!

By George Theocharides

Another underlying reason for the crisis was the excessive risk that banks were taking, either in the form of cheap credit given to real estate developers or through overexposure to the Greek economy and Greek government debt, without proper diversification of their investment portfolio. Buying risky securities (even on the secondary market) is acceptable given that the organisation properly assesses the risk and hedges the exposure (using credit default swaps would have certainly been one way). Here, of course, we have the classic example of moral hazard, i.e. bank executives making risky investments knowing that, in case of a negative outcome, the burden will not fall on their shoulders while, in case of a positive outcome, they are the ones to reap the rewards in the form of big bonuses. One could also cite the lack of proper and effective corporate governance as a prime determinant of the crisis. Good corporate governance can create shareholder value through the transparent disclosure of an organisation’s activities, holding directors accountable and creating an effective two-way communication between the Board and the shareholders. There are internal and external mechanisms that organisations can utilize to achieve these objectives. Internal mechanisms include the establishment of an independent Board of Directors with non-executive directors and the establishment of specialist committees (audit, risk, and compensation). External mechanisms can include legal duties imposed on directors, listing rules of exchanges that have to be adhered to, honest reporting of financial performance, and external audit of financial and other statements. Unfortunately corporate governance failed and this should prove an important and useful lesson, not only for the two main banks but for a number of other organisations in Cyprus. Finally, the global financial crisis that started from the US in 2007 and eventually spread to Europe in the form of a sovereign debt crisis is certainly a major underlying reason behind our country’s problems. This highlights the impact of globalisation and how contagion effects can propagate financial crises from one region or country to another.

info: Dr George Theocharides is an Associate Professor of Finance at the Cyprus International Institute of Management and Director of the MSc in Finance & Banking Programme . 52 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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GETTING BETTER DOING BUSINESS IN CYPRUS BECAME EASIER THIS YEAR By Kyproula Papachristodoulou

oing business in Cyprus has become easier this year and the country has moved up one place on the Doing Business Index 2013 to 36th place out of 185 countries from its 37th position in 2012. The annual index compiled as part of the International Finance Corporation-World Bank’s Doing Business (DB) project. The 2012-2013 assessment reveals that Poland is the most improved economy of the year while Singapore ranks first for the ease of doing business.

CYPRUS IS IN

PLACE IN THE RANKINGS FOR THE EASE OF TRADING ACROSS BORDERS

The project assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders. This year’s report data covers regulations measured from June 2011 to May 2012.

Starting a Business

According to data collected by DB, starting a business in Cyprus requires 6 procedures, takes 8 days, costs 12.4% of the country’s income per capita and requires paid-in minimum capital of 0% as a percentage of income per capita. Globally, Cyprus is in 37th place for the ease of starting a business, Germany comes 106th while the regional average

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DOING BUSINESS

(Eastern Europe and Central Asia) is 60. The best performance globally is New Zealand where it takes only one day to start a business.

Construction Permits

In the area of construction permits the report records the procedures, time and cost for a business to obtain all the necessary approvals to build a simple commercial warehouse in the economy’s largest business city, to connect it to basic utilities and to register the property so that it can be used as collateral or transferred to another entity. According to data collected by DB, dealing with the formalities to build a warehouse in Cyprus requires 9 procedures, takes 677 days and costs 51.1% of the country’s income per capita. Globally, Cyprus is ranked 80th for the ease of dealing with construction permits. For an entrepreneur in Germany it takes 14 days to legally build a warehouse, compared to 103 in Italy and 31 in Greece.

Getting Electricity

Getting electricity in Cyprus requires 5 procedures, takes 247 days and costs 86.5% of income per capita. Globally, Cyprus stands at 98 in the ranking of 185 economies on the ease of getting electricity. Germany is second while the regional average position is 123.

Registering Property

Doing Business records the full sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer’s name. According to data collected by DB, registering property in Cyprus requires 6 procedures, takes 28 days and costs 9.7% of the property value. Global-

CYPRUS: MAIN REFORMS IN 2012

• Cyprus made property transfers faster by computerizing its land registry. • It improved access to credit information by establishing its first private credit bureau. • It strengthened investor protection by requiring greater corporate disclosure to the board of directors, to the public and in the annual report. • It made paying taxes more costly for companies by increasing the special defense contribution rate on interest income and introducing a private sector special contribution and a fixed annual fee for companies registered in Cyprus. • It simplified tax compliance by introducing electronic filing for corporate income tax.

KEY FINDINGS

oland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency. • Besides Poland, nine other economies are recognized as having the most improved ease of doing business across several areas of regulation as measured by the report: Sri Lanka, Ukraine,

Uzbekistan, Burundi, Costa Rica, Mongolia, Greece, Serbia, and Kazakhstan. • Worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business as measured by DB. • Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration and facilitating trade across international borders. • Singapore topped the global ranking on the ease of doing business for the seventh consecutive year, followed by Hong Kong SAR, China, New Zealand, the United States and Denmark.

CYPRUS IMPROVED ACCESS TO CREDIT

INFORMATION BY ESTABLISHING

ITS FIRST PRIVATE CREDIT BUREAU

ly, Cyprus is in 99th place in the rankings. Economies worldwide have been making it easier for entrepreneurs to register and transfer property, such as by computerising land registries, introducing time limits for procedures and setting low fixed fees. In 2012, Cyprus made property transfers faster by computerizing its land registry.

Obtaining Credit

How well do the credit information system and collateral and bankruptcy laws in Cyprus facilitate access to credit? The economy has a score of 2 on the depth of credit information index and a score of 9 on the strength of legal rights index. Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Globally, Cyprus is ranked 53rd, the same as the regional average while Germany is 23rd, Greece 83rd and Italy 104th. When economies strengthen the legal rights of lenders and borrowers under collateral and bankruptcy laws, and increase the scope, coverage and accessibility of credit information,

they can increase entrepreneurs’ access to credit. In 2012 Cyprus improved access to credit information by establishing its first private credit bureau.

Protecting investors

DB measures the strength of minority shareholder protection against directors’ use of corporate assets for personal gain or self-dealing. The indicators distinguish three dimensions of investor protections: transparency of related-party transactions, liability for self-dealing and shareholders’ ability to sue officers and directors for misconduct. Globally, Cyprus stands at 32 in the rankings compared to the regional average of 62 with Germany at 100 and Greece at 117. Cyprus strengthened investor protection in 2012 by requiring greater corporate disclosure to the board of directors, to the public and in the annual report.

Paying Taxes

What is the administrative burden of complying with taxes in Cyprus and how much do

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DOING BUSINESS

firms pay in taxes? On average, firms make 28 tax payments a year, spend 147 hours a year filing, preparing and paying taxes and pay total taxes amounting to 23.0% of profit. Globally, Cyprus comes 31st out of 185 economies with the regional average being 95. Germany stands at 72 in the rankings. During the year under examination, Cyprus made paying taxes more costly for companies by increasing the special defence contribution rate on interest income and introducing a private sector special contribution and a fixed annual fee for companies registered in Cyprus. At the same time, it simplified tax compliance by introducing electronic filing for corporate income tax.

Trading Across Borders

According to data collected by DB, exporting a standard container of goods requires 5 documents, takes 7 days and costs $790 in Cyprus. Importing the same container of goods requires 7 documents, takes 5 days and costs $900. Globally, Cyprus is in 18th place in the rankings for the ease of trading across borders while the regional average is 107 and Germany comes 13th.

THE INTERNATIONAL FINANCE CORPORATIONWORLD BANK’S DOING BUSINESS 2013 REPORT IS THE 10TH EDITION OF THE SERIES. WITH 10 YEARS OF RESEARCH AND DATA, ITS ANALYSTS CAN SAY MUCH MORE ABOUT BUSINESS REGULATIONS TODAY THAN THEY COULD PREVIOUSLY. TEA TRUMBIC, A PRIVATE SECTOR DEVELOPMENT SPECIALIST AT WORLD BANK-IFC, SPOKE TO GOLD ABOUT THE PROJECT’S FINDINGS OVER THE YEARS. By Kyproula Papachristodoulou

Enforcing Contracts

How efficient is the process of resolving a commercial dispute through the courts in Cyprus? According to data collected by DB, enforcing a contract on the island takes 735 days, costs 16.4% of the value of the claim and requires 43 procedures. Globally, Cyprus stands at 108 in the rankings while the regional average is at 59, Germany comes 5th and Greece 87th.

Resolving Insolvency

Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic entities. Speed, low costs and the continuation of viable businesses characterize the top-performing economies. According to data collected by DB, resolving insolvency takes 1.5 years on average and costs 15% of the debtor’s estate, with the most likely outcome being that the company will be sold as going concern. The average recovery rate is 70.7 cents on the dollar. Globally, Cyprus is in 25th place among 185 economies while the regional average is at 80, Germany comes 19th and Greece 50th.

Tea Trumbic

KEEP IT

old: Is there any evidence that businesses make extensive use of the Doing Business report and indexes when taking their investment decisions? Tea Trumbic: Investors pay attention to many different indicators when taking their decisions and many studies have been done to assess exactly what drives their decisions. Even though the Doing Business indicators focus on small to medium-size domestic firms, many policy makers have associated improvements in the indicators with greater inflows of Foreign Direct Investment (FDI). And to answer questions like this one, this year’s report presents a case study on the relationship between FDI and the Doing Business rankings. While Doing Business does not measure FDI, cross-country correlations show that FDI inflows are indeed higher for economies performing better on the Doing Business indicators, even when taking into account differences across economies in other factors considered important for FDI. Gold: So what are your conclusions? T.T.: The results suggest that, on average across economies, a difference of one percentage point in regulatory quality as measured by Doing Business distance to frontier scores is associated with a difference in annual FDI inflows of $250–$500 million. This does not imply causality but it does show that Doing Business reflects more about the overall investment climate than only what matters to small and medium size domestic firms. In particular, these findings support the claim that economies that provide a good regulatory environment for domestic firms tend to also provide a good one for foreign firms. Other areas important to business – such as an economy’s proximity to large markets,

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SIMPLE AND TRANSPARENT the quality of its infrastructure services (other than those related to trading across borders and utility connections), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions, or the underlying strength of institutions – are not studied directly by Doing Business. Gold: Are the Doing Business reports utilized by governments when they take their regulatory decisions? T.T.: Yes, we have seen more and more governments using the report to identify bottle necks in their business regulatory environment. In fact, several governments have formed specific administrative bodies to track Doing Business-type indicators (time, cost and complexity of certain procedures). This year, the team received information from more than 150 governments informing us of the reforms and improvements they have achieved in the 11 areas measured by Doing Business. This shows that governments are increasingly using the report to track their business regulations and monitoring improvements. Gold: Have you discovered the ‘golden recipe’ for business regulation that could be used for attracting businesses? T.T.: Over the years, the Doing Business reports have found that the best environment for business is one where the regulations are simple and transparent. Striking the right balance

in business regulation can be a challenge and it becomes an even greater challenge in a changing world, where regulations must continually adapt to new realities. Just as traffic systems have to adjust when a new road is being constructed, regulations need to adapt to new demands from the market and to changes in technology, such as the growing use of information and communication technology in business processes. The economies that rank highest on the ease of doing business are not those where there is no regulation but those where governments have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector. In essence, Doing Business is about SMART business regulations: Streamlined, Meaningful, Adaptable, Relevant, Transparent. Gold: Have you seen concrete improvements made by the countries that you have appraised over the years? T.T.: A growing body of research has traced out the effects of simpler business regulation on a range of economic outcomes, such as faster job growth and an accelerated pace of new business creation. Small and medium size companies – the companies that the Doing Business report focuses on –create the largest share of new jobs worldwide. A lot of research has looked into the connection

Highincome ECONOMIES

CONTINUE TO HAVE THE MOST BUSINESSFRIENDLY ENVIRONMENT

between business regulatory reforms and job creation. In many cases, such research has been made possible by the 10 years of Doing Business panel data. We know of some 1,245 research articles published in peer-reviewed academic journals that refer to theDoing Business data. To just give you two examples: In Colombia, the introduction of a one-stop shop for business registration in different cities across the country was followed by a 5.2% increase in new firm registrations. These new firms are creating employment opportunities for many skilled and unskilled workers in the country. In Mexico, the introduction of a programme simplifying municipal licensing led to a 5% increase in the number of registered businesses and a 2.2% increase in employment. Gold: What are the major regulatory differences between high-income and low-income countries? T.T.: High-income economies continue to have the most business-friendly environment but business regulatory practices have slowly been converging as economies with an initially poor performance narrow the gap between themselves and the better performers. Among the 50 economies with the biggest improvements since 2005, the largest share – one third – are in Sub-Saharan Africa. Among the categories of business regulatory practices measured by Doing Business, there has been more convergence in those that relate to the complexity and cost of regulatory processes (business start-up, property registration, construction permitting, electricity connections, tax payment, and trade procedures) than in those that relate to the strength of legal institutions (contract enforcement, insolvency regimes, credit information, legal rights of borrowers and lenders, and the protection of minority shareholders). Two-thirds of the nearly 2,000 reforms recorded by Doing Business focused on reducing the complexity and cost of regulatory processes.

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THE VIEW

FROM THE

EMERALD ISLE “W

WHY THE CASE OF IRELAND IS SEEN AS A TROIKA BAILOUT SUCCESS. By Kyproula Papachristodoulou

hile some of what was agreed by Ireland with the Troika was wrong and it put too much pressure on ordinary citizens, the programme has also promoted major structural reforms.... that were necessary and very unlikely to be carried out by any government which would be fearful of the electoral consequences”. This is the view of Roger Acton, Director Europe of the Association of Chartered Certified Accountants. Gold spoke to Acton for an Irish view of what is happening in Ireland and how the general population views the Troika’s recipe for reform.

Gold: The IMF and the EU have publicly and repeatedly praised Ireland for its fiscal adjustment success, implying that the case of Ireland is proof that their fiscal consolidation recipe works well. How do you as an Irishman view their comments? Roger Acton: While it works well for the Troika, it is too early to say that there is “proof that their fiscal consolidation recipe works well” for Ireland. A key attraction for FDI into Ireland is confidence: confidence in the cost and competitiveness of doing business here, confidence in our continued membership of the Euro currency, and confidence in our legal and business infrastructure. Such comments

also help build confidence but they are only a small part of the overall confidence-building measures necessary. Not having violent public demonstrations, having moderate and capable politicians, having laws and regulations that are appropriate and a capable and well educated workforce are probably more important. Gold: Does the Troika recipe really work? R.A.: The issue here is that Ireland agreed to a programme in an environment of heavy political and economic pressure, combined with a media and political frenzy. Some of what was agreed was wrong and it put too much pressure on ordinary citizens. To that extent, many working people find themselves in financial difficulty now. That said, the Troika has played a central role in ensuring that the terms of the programme are met – an easy enough task I suppose given that it was always the stated objective of the government to have Ireland do whatever was necessary to return to the markets as soon as was possible. In addition to seeking to widen Ireland’s tax base, the programme has also promoted major structural reforms involving work practices, the public sector, pay and conditions, the tax and legal systems, access to the professions and so on. These reforms were necessary and were unlikely to be carried out by any government which would be fearful of the electoral consequences. Having an external driver to push

this agenda is good and actually suits “official” Ireland. Gold: Now that the dust has settled somewhat, what tangible results have been seen? R.A.: We have been able to return to the markets for three-month and one- year debt. This is good for confidence, both within Ireland and also further afield. It is also good to note that some confidence is starting to return to the stock market as well with the ISEQ up from 2,500 to 3,400 since the start of the year. Exports continue to shine, although they are slowing because of the recession in Europe. Some Irish companies are now recording excellent profits again, including Aer Lingus, Ryanair, Smurfit Kappa and so on. All of this will help with confidence and will signal to the Troika that their recipe works. However, if you have no job and are unlikely to get one, the view will be very different. So too, will be the view of anyone who depends on state services, heath, education, training, welfare, housing and so on – all of these services have been cut back drastically and this consequently hurts the most disadvantaged members of society. Gold: What could the EC, the ECB and the IMF have done in a different way in the case of Ireland? R.A.: When supporting its banking sector in its entirety, Ireland made a bad mistake. It

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IRELAND

should not have bailed out at all of its domestic banks. Anglo Irish Bank was a niche business and development bank with a ridiculous exposure to the property and building sector. Bailing out the non-retail depositors and bondholders of this bank was wrong and it set a bad moral hazard precedent. Non-retail depositors and bondholders obtained a return commensurate with the default risk and when the risk crystalized, they enjoyed a refund of their deposits anyway, without having to refund their risk premium returns. There is a public perception in Ireland that the bondholders were mostly European banks and that somehow pressure was put on Ireland to pay the bondholders to stop any EU bank failure contagion. All of this continues to be financed by the Irish tax-payer. Gold: Unemployment in Ireland remains high and many young Irish are forced to emigrate. On the other hand, the latest unemployment figures show a decrease. Do you think that Ireland is entering a turnaround phase that will gradually create growth, jobs and hope? R.A.: Like those of many small island nations, Irish people have always emigrated. Emigration is not necessarily a bad thing but, clearly, when the issue is forced upon a society, people will take a different view. Many people emigrate and many return with rich and diverse experiences, all of which add to the mix. Ireland has always maintained a close connection with its diaspora and there are many initiatives to have them return home for visits. Certainly, unemployment is much lower than in Spain or Greece. However, for those who are unskilled or who have the wrong skills, it will continue to be hard to get back into work. Foreign Direct Investment is key and many multinational companies continue to demonstrate confidence in Ireland by making further investment and expanding their operations further. It is harder for the SME sector to grow and provide employment because of the difficulties in securing appropriate finance to facilitate expansion. Gold: Despite all the difficulties, it is a fact that Ireland is committed and consistent and honours its obligations towards the Troika. How does it manage and why haven’t we seen much unrest on the streets of Ireland? R.A.: Irish people are realists and they recog-

nize the severity of the situation. Sure, there have been some protests and I expect that there will be some more after the December budget. However, our politicians and most of our trade unions are sensible and recognize that whipping up public opinion will not achieve anything. We also have a long history of social partnership where all of the key stakeholders work together towards a common solution. While there is much public anger at the bankers and others who were responsible for Ireland’s debt crisis, there is not as much general anger at the business community as in other countries. One reason for this is that there is good tax compliance in Ireland. There is a feeling that pretty much everybody pays their taxes and no real feeling that the rich don’t pay – all of the high earner tax incentives have been terminated. Many very high earners have fallen on hard times and have been declared bankrupt – there a feeling of equity and that many Irish people are together in the same position. Gold: How did Ireland manage to preserve its low corporate tax rate despite the pressure exerted by its European partners? R.A.: The 12.5% is a headline rate but France and other EU countries achieve similar and even lower effective corporation tax rates through incentives and allowances. If other EU countries were to attack the 12.5% rate, then Ireland would be entitled to demand the removal of other countries’ local incentives. Ireland has few allowances and incentives and therefore the 12.5% rate is very close to the real rate. 12.5% is a marketing tool for FDI to Ireland and we simply could not afford to lose this rate. However, I expect this to be a topical issue, particularly in Germany in 2013. Gold: Is there a real dilemma between austerity and growth?

R.A.: A recent IMF report suggests that the old formula that says every €100 of austerity will generate €50 of reduced growth is wrong. The correct figure is €90 to €150 reduction for every €100 taken out in budgets. Certainly there is a case to be made that you cannot stimulate an economy by continually taking money out of it – that much is self-evident. However, austerity is an emotive word. The Troika looked for a basket of measures, very few of which individually might be described as “austerity”. There is nothing “austere” about better banking supervision, there is nothing “austere” about removing waste in the administration of government, there is nothing “austere” about requiring the government to address personal insolvency in a more humane way or in reforming the legal and tax systems. Gold: Based on Ireland’s experience, what would you recommend Cyprus to do and not to do in negotiating and, later on, in implementing the economic adjustment programme? R.A.: Keep in place a social welfare safety net and make all new taxes proportionate. A public sector-wide agreement to cost savings and more efficiency would also help. Crack down hard on all tax evasion and perhaps consider a one-off tax amnesty to help kickstart this. An amnesty allows evaders to come clean with minimal penalties (but still paying the tax due) and also to come within the tax net in future years. I would also try to maintain a focus on economic growth and development in the future. Cyprus has excellent natural resources at its disRoger Acton posal and this will also

WHEN SUPPORTING ITS BANKING SECTOR IN ITS ENTIRETY IRELAND MADE A BAD MISTAKE. IT SHOULD NOT HAVE BAILED OUT AT ALL OF ITS DOMESTIC BANKS THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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IRELAND

HOW THE IRISH MADE THE

BAILOUT WORK IRELAND RETURNED TO GROWTH LAST YEAR FOR THE FIRST TIME SINCE 2007 By Kyproula Papachristodoulou

f you are Irish, unemployed and without any hope for finding a job in the foreseeable future, hearing the German Finance Minister telling you that he is totally confident about your future and that the fiscal consolidation programme for Ireland “works well” is not going to raise your morale. It takes more than the treasurer of Europe’s words to create jobs and hope for the future. Unemployment in Ireland currently stands at around 15% and is mostly long-term in nature. Thousands of young Irish citizens have been forced to emigrate, around 10% of the population lives below the poverty line (2010 CSO figures), 1.82 million people have less than €25 left at the end of each week after paying their bills and around 180,000 households are unable to pay their mortgages. Despite this, Ireland is doing well in implementing the Memorandum with its lenders (European Central Bank, European Commission and IMF). The Irish government appears to be dealing successfully with its bailout programme and the country’s Prime Minister, Enda Kenny, is creating a positive image for the future of his country to the outside world. Ireland looks likely to exit its EU and International Monetary Fund bailout on schedule by the end of 2013. In its latest evaluation report, the European Commission (summer 2012 review) said that the overall programme implementation on behalf of Ireland remains strong and fiscal consolidation is on track. The general government deficit for 2012 is expected to remain below the agreed ceiling (8.6% of GDP), though, according to the Commission, corrective measures by the government would be necessary to address emerging overruns in healthcare and welfare spending. The country returned to growth last year for

the first time since 2007 after its banking crisis. The 2012 real GDP forecast is about 0.4%. Downside risks have increased, however, the Commission said, primarily due to weaker prospects for growth in Ireland’s main trading partners. And indeed, the re-emergence of the eurozone debt crisis is weighing on Dublin’s recovery, just as it prepares its sixth austerity budget since the crisis began. Last month the country cut its growth forecast for 2013 and 2014, blaming slower export expansion caused by the difficult economic climate affecting its main trading partners. Dublin’s medium-term fiscal statement said growth to gross domestic product in 2013 was now expected to be 1.5%, down from the 2.2% forecast in April. Growth in 2014 was forecast at 2.5%, compared with the 3% projected in April. On the other hand, the financial sector continues to strengthen. Deleveraging is ahead of schedule and banks recorded deposit inflows for a fourth consecutive quarter, though deposit rates were higher. To reduce potential distortions in deposit pricing and remove obstacles to the flow of credit to the economy, the programme deleveraging monitoring framework was modified. Bank regulation and supervision continue to be strengthened, and important legislation was introduced to reform the personal insolvency regime facilitating the resolution of unsustainable debts. However, the Commission said that weak bank profitability remains a considerable challenge amid rising non-performing loans, high overall funding costs and low-yielding legacy loans. Domestic banks’ reliance on funding from the Eurosystem continues to remain sizeable. Structural reforms are progressing. Legislation to reform sectoral wage setting mechanisms and strengthen the competition law framework has been recently enacted, and

WEAK BANK PROFITABILITY REMAINS A CONSIDERABLE CHALLENGE steps are being taken to expand and improve activation measures. More needs to be done to eliminate or alleviate work disincentives and unemployment traps caused by some features of Ireland’s benefits system, and the recently announced plan to de-couple housing support from unemployment status would be a step in the right direction and should be rigorously pursued. Boosting growth is essential for programme success. In line with EU-wide efforts, the Irish authorities are exploring the scope to tap the expanded lending capacity of the European Investment Bank, combined with some resources from the national pension reserve fund, to finance new capital projects while remaining within the agreed deficit path. On account of this strong programme performance and improved sentiment reflecting supportive statements by European leaders in late June/early July, Ireland successfully returned to the market raising more than €5.5 billion of new funding through Treasury bills and bonds with maturities ranging from 3 months to 35 years. But, as the Commission points out, despite this substantial progress, important challenges remain. These include continued uncertainties in the outlook for trading partners’ growth, further financial market turbulence in the eurozone and the complexity of the ongoing financial sector reforms.

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

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FINANCIAL SERVICES

Glen Richards

ge International is an owner of Pembrid on the Board of is and , rus Cyp in Ltd g internationally, CIFSA. Whilst workin ons in Cyprus rati ope ed ish abl he est with Londoneer car l sfu ces after a suc titutions such ins g kin Ban based Private ate, and Priv st tWe Na S, as Coutts, RB erience in areas HSBC Premier. With exp x lending to portfolio ranging from comple nning, and UK construction, estate pla he is qualified ns, sio Pen al tion rna & Inte a member of the is and rds nda sta to UK Insurance and the Chartered Institute of iety. Soc e anc Personal Fin

A MATTER OF TRUST PROMOTING STANDARDS AND ETHICS IN THE INTERNATIONAL FINANCIAL SERVICES PROFESSION. By John Vickers,

Photography by Jo Michaelides

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he Cyprus International Financial Services Association (CIFSA) has been active since 1993, when it was called the Association of Cyprus Offshore Financial Services Companies. When Cypus joined the EU in 2004, the huge overhaul of the regulatory framework meant that different firms were required to seek regulatory status from different government bodies, and many were at a loss as to the right action to take. CIFSA stepped in to assist and guide those who needed such help. Today CIFSA is the official representative organisation in Cyprus for the European Federation of Financial Advisers and Financial Intermediaries (FECIF) which represents around 30,000 intermediaries operating across the 27 EU member states. Board member Glen Richards told Gold about the association’s work. Gold: What exactly does CIFSA do and why would a firm want to join the association? Glen Richards: CIFSA supports the International Financial Services profession, which includes a wide range of services such as insurance, advisory and investment firms. In order to qualify for full membership, an individual or firm needs to be licensed and/or regulated in Cyprus and must commit to our code of conduct, standards and ethics. This allows us to promote and keep an eye on the quality of advice they are providing and any complaints raised which, in turn, helps us identify developing trends that may result in a training need for a particular firm, or it may bring to our attention something which needs industry-wide clarification from CIFSA or from the regulator. Gold: So membership is a kind of guarantee that a company is working in the proper way? G.R.: Yes. Any member of the public can contact CIFSA to find out if an individual or a firm is a member and whether they are licensed and regulated here in Cyprus. Our aim is to give the public confidence when using a financial services professional so if we confirm that Mr. A or Company B is a member of CIFSA, the person making the enquiry knows that the member has committed to continuing professional development, to displaying the right behaviour, to abiding by the standards and ethics we rigorously promote, and to providing the best advice at all times. Gold: How does the industry feel about this? G.R.: CIFSA is respected as a collective body of professionals and the regulator considers our opinions to be unbiased and representing the industry as a whole. We’ve seen CIFSA’s influ-

ence and popularity surge recently. There has been a huge increase in membership applications in 2012 and I think it’s because, in these difficult times, people are taking more time and doing more research before deciding who to trust with their money. Furthermore, financial professionals are working in an industry which is changing at lightning pace: they have to keep up with changes to the law, changes in products, changes to tax regulations and so on and this has given many a new-found desire to upskill themselves. They can do this by becoming CIFSA members. This effort is rewarded by gaining clients’ trust and they have the right to use the CIFSA logo on their website/business card. We believe that all our members see an increase in business levels as a direct result of membership, so it’s a benefit to all involved.

Our aim is to give the public confidence when using a financial services professional Gold: You mentioned changes in the industry; are there really that many? G.R.: Most certainly. In the UK, the Retail Distribution Review (RDR) – which has changed the way in which financial advisory firms earn their income – is the most prominent change in recent times and it represents a huge overhaul of the industry. CIFSA is working closely with other bodies to keep an eye and provide an opinion on proposed changes to the EU financial services industry which could, of course, make a difference to all our member firms. If and when changes occur, we are ready to act and give guidance. We can also raise points and promote lobbying in support of our members where particular proposals may disadvantage them. These are some of the many tasks that go on in the background. Other changes include the significant overhaul

in QROPS (Qualifying Recognised Overseas Pension Schemes) regulation in the earlier part of this year and, of course, we have provided opinions on and kept ourselves abreast of developments in the proposed changes to the UK residency test, proposed changes to the Insurance Mediation Directive, and the proposed financial ombudsman service in Cyprus. Gold: Who are the members of the CIFSA Board? G.R.: They are all qualified industry professionals with many years of experience. St. John Coombes, our Chairman, has been in Cyprus for a long time, he has extensive experience and has witnessed the changes here throughout the years. The rest of the Board is made up of professionals operating mainly in Cyprus but also around the globe. Between us we have a very wide range of market experience and knowledge and a very good understanding of what’s going on in the industry, especially here in Cyprus. In a nutshell, CIFSA is connected in one way or another with most financial companies operating in Cyprus and we have a clear understanding of the challenges faced by the industry. Gold: Where is CIFSA going? What next? G.R.: Our aim will always remain the same: to promote high standards and ethics in our industry, with the aim of enhancing the its reputation with the general public. Over and above this, we want to increase our membership, to continue with our quarterly seminars, from which we receive great feedback, and to continue to provide support for our members and the public. Our seminars will continue to attract important sponsors and speakers, who come to Cyprus from their respective jurisdictions and our Board will continue to act in the interest of our members by being ready for any changes that may come our way. Our new website will be up early next year so the public can see exactly which firms have signed up to our strict codes of ethics and practice. Gold: Who attends your seminars? G.R.: They are open to members or potential members operating or working for financial services firms here in Cyprus. Associate membership is offered to those companies supporting the financial services industry – whether they be recruitment consultants, currency specialists, accountants or lawyers. This gives everyone an opportunity to share best practices, to draw upon the experience of others and, most importantly to grow their business. The final quarterly seminar of the year takes place on December 11 at the Amathus Beach Hotel and anyone who would like an invitation can CIFSA at info@cifsa.org

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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OPINION

The Psychology of Effective Leadership Intelligence and trustworthiness are no longer seen as key vital qualities

he difference between good and bad leadership can amount to all the difference in the world. History is not made by the groups with the greatest numbers or the most resources; it is made by groups motivated by great leaders to act together for a common cause. Under the leadership of Steve Jobs, Apple Inc. was not only rescued from bankruptcy in 1997 but, by the time Jobs died in October 2011, it had become the world’s most valuable company. Given the huge challenges the world is facing today, the need for an evidencebased approach for understanding the psychology of leadership – those mental states and processes that bind leaders and followers together and drive them towards common goals – has never been more pressing. It was previously thought that individual qualities such as intelligence and trustworthiness were vital to effective leadership. Leaders possessing those qualities were believed to triumph over whatever reality they confronted. However, recently, a different picture has emerged, one that focuses on social identity as the basis for understanding the psychology of leadership. According to this view, the success of a leader is closely tied to the social identity of the group, which determines the leader’s desirable characteristics and behaviour. This account is summarized in the four following principles: First, an effective leader must be seen as a prototype of the group, as “one of us”. It is no accident that Steve Jobs portrayed himself as a typical American. His legendary jeans and turtleneck served to make him appear representative of the group he wished to lead. Importantly, doing anything that sets a leader apart from his/her group is fatal. Acting superior or being overpaid is deeply damaging. According to J. P. Morgan, the only common characteristic of the failed companies with which he collaborated was the wide compensation gap between those at the top and the rest. Second, a leader must be seen to advance the best interests of the group. Although different groups define their interests in different ways, fairness is considered the defining characteristic of

It is no accident that Steve Jobs portrayed himself as a typical American

By Nikos Konstantinou

successful leadership. A fair leader resists feathering his/her own nest while, at the same time, making sacrifices for the group. President Obama distanced himself from his wealthier supporters by refusing to engage in accustomed exchanges with them, such as private meetings and White House photos. Yet, he still won the 2012 election. Third, a leader must skillfully mould the group’s identity and goals. The most effective leaders do not merely conform to the group norms; they define the group’s identity in ways that fit the policies they wish to promote. When Steve Jobs was once asked to do some market research to understand what customers wanted, he refused. “Customers don’t know what they want until we’ve shown them,” he replied. In a similar vein, the pioneering carmaker Henry Ford famously said, “If I’d asked customers what they wanted, they would have asked me for a faster horse!” Fourth, a leader must work hard to help members of the group live out their shared identity. Attempting to promote an identity that is out of touch with reality and has no clear plan about how it will be realized, is doomed to be discarded in favour of more realistic and practical alternatives. A leader will tell us how to act by telling us who we are, thereby helping us experience our values and identity as reality. In his inaugural address, John Kennedy praised his countrymen’s patriotism and then, in his most famous line, demanded: “My fellow Americans, ask not what your country can do for you; ask what you can do for your country.” Cyprus is currently facing its worst crisis in 40 years. The government and the political parties have to agree on unpopular measures, such as raising taxes and cutting pensions. In the absence of strong political leadership, such conditions can easily escalate. Just look at Greece. Weeks before Cyprus elects its seventh president, what the country really needs is a leader who will utilize the secrets of social identity to galvanize society’s energy into a coherent social force with worldchanging powers. Without this, anyone’s charisma will soon be forgotten and any vision will remain just another dream.

info: Dr. Nikos Konstantinou holds a PhD in Psychology from University College London. He is currently a Research Scientist at the Centre for Applied

Neuroscience at the University of Cyprus. 64 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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TELLING EUROPEAN ECONOMY

IT LIKE IT IS By Kyproula Papachristodoulou

ACCA President Dean Westcott on how to put Cyprus and the eurozone on the road to recovery

CCA President Dean Westco tt believes in telling it like it is. Asked if SM Es will be able to gain access to finance in the near future amid the present financial ma rke he leaves no room for illusion t turbulence, s. On the question of whether Cyprus can hope status to that of an internation to raise its al financial centre, he is not optimistic in the Cyprus he spoke to Gold abo short term. During a recent visit to ut these and other crucial issu es. Gold: The current economi c crisis has revealed many loo in the design of the Europ ean financial sector such as pholes insufficient supervision, a fragm ented banking sector, etc. Which areas need to be addressed as a priority by Europe? Dean Westcott: We ought to recognise that, since the crisis started, a lot of new measures have been put in place by the EU to improve

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Marina Theodorou xxxxxxxxx xxxxxxxxxx

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EUROPEAN ECONOMY

ding how much capital the way financial institutions operate, inclu rnance, the type and gove orate banks hold, the operation of corp the crisis has made what ore, herm Furt etc. tion, level of remunera operates across that r apparent is that to properly oversee a secto can offer oversight that tures struc n rvisio borders you must have supe EU needs a pan-European at the EU rather than national level. The national supervisors gside alon financial services supervisor to work ies with a crossentit r othe and s bank for on providing oversight border dimension. ing and sovereign Gold: How can the vicious circle of bank issue is not being adthe k debt be broken and why do you thin ns? tutio insti pean Euro the dressed as a priority by tly because exac e sever so been has crisis the of t D.W.: The effec crisis which cial finan a into ated what started as a credit crunch escal eurozone. the of parts in certa in crisis debt then fuelled a sovereign ip ionsh relat the g We need to interrupt that loop by addressin t term shor the In s. bank nal natio between member states and their are available ties facili ort supp cial finan EU the that we must ensure sovereign debt burden of to assist ailing banks without adding to the member states. sels over national budGold: Would giving more power to Brus omic policies? gets be detrimental to EU countries’ econ a common currency, D.W.: In a community of nations that share on another. As a t effec an have ber policy decisions in one mem when it comes to ially espec tion, dina coor close be t result there mus ing national budtiniz Scru . spending decisions at member state level is important bers mem zone euro een betw gets at the European level levels do not g owin borr to ensure that asset bubbles or unsustainable coordinasuch ns, optio y polic nal develop. Instead of limiting natio medium the arising in tion guards all member states from problems zone. euro the of ests inter and long term and protects the collective a scenario? Gold: How would the UK react to such member states like the le, who a D.W.: When it comes to the EU as to submit annual have do bers mem UK which are not eurozone obliged to follow the reports on their economies but they are not on their spending plans, ns datio men European Commission’s recom as the UK is not a member a situation which will remain for as long of the eurozone. for further integration of Gold: What action should be pursued the single market? uced significant benefits D.W.: The EU’s single market has prod it has enormous further for the European economy as a whole but ng the single market pleti com by potential, which can be achieved gy and improving ener for et mark mon com a for services, creating Also, more EU. the s the operation of the digital economy acros encourage and s’ shop ed ‘clos up liberalisation is needed to open e market singl the ore, further labour mobility in the EU. Furtherm sed focu be ld shou ts effor must become more SME-friendly and ntial, pote et’s mark e singl the of use full e on assisting SMEs to mak and ing draft when rule not least by applying the ‘think small first’ adopting legislation. SMEs will play a vital Gold: While it is widely recognized that the prevailing tight , very reco c omi role in the European econ the main reasons behind financing conditions seem to be one of pean level. What can Euro panthe weak economic recovery on a ce? finan to ss acce gain be done for SMEs to

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D.W.: It is estimated by the European Commission that SMEs account for 83% of employment, 75% of output and 58% of gross business investment in Cyprus. This last figure means that Cypriot SMEs will need to finance up to €1 billion of capital spending next year, not to mention the liquidity many of them need to keep them afloat. In the long run, the most efficient and sustainable way of improving SMEs’ access to finance is to improve their ability to produce financial information for management and finance providers, navigate their options when it comes to finance, and manage their cash flow on a day-to-day basis. Many businesses worldwide tend not to ask for advice (even from accountants) when preparing to seek funding, even though this is known to improve their prospects somewhat. However, even those who do generally tend to do so too late to materially change their investment-readiness and creditworthiness, because these are locked in by the nature of the business and the way it is managed on a day-to-day basis. Hence encouraging SMEs to engage finance professionals, either in practice or in house as part of a finance team, is an important element of the long-term solution to SMEs’ poor access to finance. Gold: Isn’t there also a danger of over-regulation stifling the chances of SMEs recovering faster? D.W.: It is important to ensure that financial regulations do not bias the financial system away from lending to SMEs. ACCA has repeatedly called for a re-think of Basel III and its European incarnation, CRDIV, which are the regulations governing banks’ capital and liquidity requirements. While ACCA strongly believes in the need for banks to hold more capital (and our members in Cyprus are probably more acutely aware of this than most these days) we are extremely worried that Basel III will give banks further incentives to avoid small business debt and reduce credit to SMEs without achieving much added financial stability in return. In the medium term, if EU leaders could agree on the details of the long-awaited Banking Union and a route out of the eurozone debt crisis, the difference this would make to SMEs’ access to finance would be immense. In the short term, however, not much can change the reality of a deleveraging banking sector like Europe’s, especially one in which many banks are practically insolvent. In such cases, we see a case for strong government intervention at the national and EU level – and if Cyprus’ credit rating deteriorates further, the latter may need to become further involved, as it is usually a government’s superior credit rating that makes its interventions effective. Gold: What is the role of the governments in helping SMEs to gain access to finance? D.W.: Government intervention typically comes in the form of bank recapitalisation or guarantees of SME loan portfolios. A more activist industrial policy that directs banks to lend to SMEs is likely to produce significant bad debts at a time when both the banks and the wider economy can ill afford them. Governments need to be clear where the market failures that they are targeting are to be found. Often banks and other finance providers will be making rational choices in the face of very limited information, and the government’s role is not to make them lend but to make them comfortable enough to lend. As a rule, many European countries are finding that what SMEs in particular need is more equity, as opposed to more debt. In such cases, incentivising venture capitalists and self-investing entrepreneurs as well as providing incentives for businesses to reinvest retained earnings can be a useful complement to other, more hands-on measures.

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Cyprus Gold: Cyprus is currentl y in a difficult economi c situation due to fiscal proflig acy and exposure to the banking sector and, as Greek a result, it has asked for a bailout from its European partn ers affect the island’s status . How do you expect this to as an international bu siness and financial centre? D.W.: ACCA’s surveys suggest that our members in Cyprus are already anticip ating a negative growth shock from the austerity measu res bailout, and economic un likely to follow the country’s cer rier to financial centre dev tainty is a fundamental barelopment. Hence it’s rea to expect that Cyprus’ pla sonable ns for an expanded role in the global financial architect ure will have to be put on hold in the short term. However , this is not to say that the country’s reputation as a fin ancial centre needs to be irreversibly tarnished. While it is tem pting to look to neighbo uring Greece for analogies, tha t is neither the two countries an unhelpful comparison as ’ economic problems no r their financial industries are very similar. A more apt analogy, assuming a swift recove ry can be effected, would be with Dubai which, following its bailout in late 2009, is now recovering fairly convin cingly in the Global Fin ancial Centres Index rankings to on ce again lead the Middle East. Gold: Many experts be lieve that more needs to be done, such as attracting intern ational banks and make necessary amendments the to a number of laws to encourage international business and investors. What is your view? D.W.: There is a limit to what progress Cypru s can expect while in the grips of a fin ancial crisis, but long-term ning is essential if the aft ermath is to be managed. planlatest Global Finance Ce The ntres Index stresses the need for financial centres to be we ll connected, as well as both broad and deep in terms of the ir expertise. Cyprus can seek to grow along any or all of these three axes but it’s important to establish what can and cannot be built in the me term. For instance, ties dium to other financial centre s and financial infrastructure can be built more quickly than a pool of technical experts, especi ally in Cyprus where the domestic labour market is just no t lar country’s potential natura ge enough. That said, if the l gas reserves match exp ectations, and can be tapped without risking renewed ten in the region, they could attract substantial expert sion ise to the island. In any case, it is important to distinguish between liquidity providers, and investors. Liquidity pro viders are generally attracted to a critical mass of borrowe lenders but equally they rs and need a set of rules govern ing trading that are not undu ly from trading mechanisms restrictive. They also benefit , including supporting clearing and settlement systems, which do not impose pro hibitive transaction costs. They tend to require relativel y large issue sizes and frequent and/or regular issuance or, altern long maturities. However atively, , when market rules and trading conditions are much mo re benign for liquidity pro viders than for other investors , a market can accumula te liquidity in good times, often fro m overseas, whose presen ce in the market is extremely vol atile.

Cyprus’ plans for an expanded role in the global financial architecture will have to be put on hold in the short term. Gold: Cyprus has come under attack for its low corporate tax rate. What is your view on the issue? Should countries be free to decide on their corporate tax rates? D.W.: With increased fiscal integration in Europe, the member states’ long-cherished monopoly on tax policy will be strongly challenged. ACCA believes that national sovereignty needs to be respected in matters of taxation as in everything else. However, tax co-ordination does not necessarily constitute a challenge to the country’s sovereignty. For instance, the ongoing discussions between Mauritius and India demonstrate that it is possible (though difficult!) for partners of asymmetric power to work together on tax while respecting each other’s sovereignty. Closer to home, Ireland was able to protect its corporate tax rate in the face of a similar bailout deal. There is no reason why Cyprus should not be able to do likewise, as long as its tax rate serves a genuine purpose. Gold: What contribution can the accountancy profession make to the efforts aimed at restoring investor and consumer confidence and creating the necessary conditions for growth? D.W.: Accountants cannot single-handedly solve the macro-economic problems faced by Cyprus and many other European countries. But they have a role in producing the reliable financial information that wholesale and retail financial markets thrive on. They can help make businesses more transparent and accountable, thus bringing investors into financial centres. They can ensure compliance and, beyond this, actual good conduct. Financial centres are brands first and foremost, and the quality and integrity of their staff is what decides their prospects.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Stelios Anastasiades

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PROFILE

f you don’t speak Greek you may be forgiven for thinking that the hugely successful advertising agency Telia & Pavla is named after its founders. But you would be wrong. There is no Mr. Telia and no Ms. Pavla sitting in their offices in the company’s impressive new Nicosia building. The words are the Greek equivalent of “full stop” or “period” and this unusual name (especially for one that was thought up in the 1980s) is indicative of the way its founder and managing director, Stelios Anastasiades, has always been a creative thinker in an out-of-the-box way. Anastasiades grew up on the east coast of the United States and spent most of his early life in Connecticut and, mainly, Delaware. He came here to serve his six-month military service – a shorter term was being offered to returning Cypriots for the first time – and he wanted “to get it over and done with and to feel comfortable to come back to Cyprus whenever I wanted to”. During those six months, army service notwithstanding, he fell in love with the place. “Coming to Cyprus was quite exotic for me,” he recalls. “It was quite an adventure so I told my parents that I was going to stay for a couple of years and figure out what I wanted to do. I had a lot of pressure from my Greek Cypriot father regarding what I should do with my life and at the time I was very much into filmmaking. To say the least, advertising, wasn’t among his top priorities for my future!” Anastasiades had studied mass media and communications but, by his own admission, he didn’t know the Greek language very well. “I tried to get into some of the advertising agencies and when they asked me if I was a designer I said ‘No, but I can think’. Their response was that they didn’t need thinkers and especially those that couldn’t speak their language!” Undeterred, he managed to find a job with a Cyprus-based offshore company working in marketing and communications, mainly for the Middle East and Saudi Arabian markets. ”I was anything and everything for them, working as an account executive, a copywriter, even a messenger sometimes. I did whatever they needed and it turned out to be invaluable experience”. His employers told him that, since they were not allowed to work in the Cyprus market, they would let him use their facilities in his

Profession:

BluesPlaying Thinker

Telia & Pavla, one of Cyprus’ most successful advertising agencies, is still going strong 30 years after it was established by a Cypriot from Delaware whose rudimentary Greek and apparent lack of qualifications led to a string of rejections from potential employers. By John Vickers Photography by Jo Michaelides

free time to do some advertising for the local market and make some extra money. This was the start of Telia & Pavla (“I wanted it to be different from everybody else”) which slowly began to grow. Fortunately or unfortunately, Stelios woke up one day and the offshore company for which he worked had disappeared overnight. “I had to decide from one day to the next what I wanted to do,” he says. “Keep up the rent and continue working my own company for the local market in the huge of-

fices that they had left behind, or move out? I decided to stick it out and it worked”. It certainly did. A few months ago, Telia & Pavla celebrated its 30th anniversary together with the grand opening of its own building, by holding a cocktail reception for around 450 friends and associates, featuring music by the Philly George Project, a jazz band from Philadelphia which Stelios had brought to Cyprus five years earlier for the company’s 25th anniversary party. Music has always played a major

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THE INTERNET IS AN ADDITION TO – NOT A REPLACEMENT FOR – MORE TRADITIONAL MEDIA role in his life, as evidenced by the electric guitar on his office wall and the miniature replicas on the shelves alongside a biography of his guitar hero Eric Clapton. He is no mean player himself and one of the ways he relaxes after a hectic day is “to pick up the guitar and play some blues”. The advertising industry may be hectic these days but that is not a particularly apt word for the fledgling sector 30 years ago. Stelios Anastasiades describes it thus: “The initial period was pretty ‘Mickey Mouse’! There was just one TV station that broadcast 5 hours each evening in black and white, and there was only one local magazine that had any colour pages – four pages in the middle – and that was the Radioprogramma Radio/TV Guide which was otherwise published in newsprint quality. So all the advertising agencies in Cyprus basically relied on the quality of their graphic design services because they didn’t really need anything else. If you wanted to do a film production at the time you really had to go abroad. There was only one local company that could shoot for you but it

still had to send the film abroad for processing as there were no facilities here”. Things began to change in the late ‘80s with the arrival of commercial television stations in Cyprus. That caused a boom in business for Telia & Pavla and its competitors because, faced with a choice of stations, clients found it much harder to decide how to do their media planning. The more complicated the industry became the more complicated advertising became and the more the advertisers needed professional services. Today there is a lot of talk about digital and online advertising but Anastasiades is very careful not to overstate the importance of any new media. “The way we see it, anything new that comes along is just one more way for us to be creative for our clients. There was a time when television was supposedly going to ‘overthrow’ radio but, as we all know, radio is still around and it’s got its own way of communicating and being used in advertising. Right now, even in America where digital is growing in leaps and bounds, there is a tremendous increase in the use of the Internet, computers and social

media but no decrease in TV viewing. The reason is simple: when you go on the Internet, you’re looking for something, aggressively searching for something. When you sit in front of the TV, you want to relax and we all still need that passive relaxation, alone or with the family, and to watch whatever happens to be on. Advertisers need to work out what kind of messages someone will be most receptive to in this passive state and what kind they should be receiving when they are on the go”. In other words, the Internet is an addition to – but not a replacement for – more traditional media. We have already seen that the predictions of how the Internet would mean the end of the printed word have proved wrong, despite the boom in e-books and magazines. “Many magazines are prospering right now because they have found a new outlet thanks to the iPad,” says Anastasiades, “but just like relaxing with the television, people still want to hold the paper version to read with their coffee without having to fumble around with a tablet. There are magazines that would have gone bust which are now available in an iPad version, especially specialist magazines. I have about 7 publications on my iPad right now that I could never find at a newsstand here. And I love the fact that I can have them but I still like the idea of having a magazine in my hands on Saturday and Sunday and relaxing with my coffee and being able to read like that. I don’t think that’s going to go away. At Telia & Pavla we like to say “and” rather than “not”. It’s not new technology in place of old; it’s the old plus the new technology”. Advertising in Cyprus is more or less in line with what’s happening everywhere else, though with an understandable slight delay. Digital has only started to take a foothold in the advertising industry here in the last couple of years whereas in America it’s been around for almost 10 years. However, Stelios Anastasiades sees a difference in approach on the part of advertisers: “In the States or the UK, if you want to launch a website or put something on Facebook you’ll go to the experts and you’ll pay a premium price. Here, even though we pay relatively little, cost tends to be the main factor rather than doing the best possible job. In America, it is very important to be correct in what you do and to know that you’re not going to do any damage to a brand – it is so easy for things to go wrong on the Internet. Here things are very haphazard; a case of ‘Let’s be on Facebook because everyone’s on Facebook’ without much planning”. This kind of short-term thinking is rather typical of Cypriot business, Stelios believes. “We don’t develop brands in the way that they do in other countries. Here, the idea is ‘I want to get sales tomorrow and we can thing long-

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

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PROFILE

term later’, especially now with this crisis. Internationally, a lot of multinational brands are actually increasing their advertising spending right now. If you ask the experts you’ll be told that there is a greater need to advertise during a downturn. Here, everyone understands this but they all say ‘Not now’! Of course, one of the problems is that people don’t have money. It’s not that they don’t want to advertise. The banks won’t lend them money so basically we’re all working with everyone else’s money and this is a really big problem because if one company owes another for 6 months and there’s no way to collect it, the one that is owed will pass on that delay down the line”. Less advertising obviously means less work and less revenue for agencies like Telia & Pavla which has seen a considerable fall in turnover without losing any significant clientele. “We started out this year with a 30% drop and through some aggressive marketing we have got some new business and we’re now looking at a less than 10% drop by the end of the year but it’s still significant because it’s the third year that we’ve had a downturn in turnover. We haven’t lost any clients, we have added clients. But we work on a commission basis which means that we are doing the same amount of work that we did last year for less income”. The only way to do some serious cost-cutting has been to cut salaries rather than people. “We had to streamline some of the salaries, especially those of people in senior positions who have been here for many years and have been getting increases upon increases. One of the biggest salary cuts was mine,” Anastasiades admits. The added burden of moving into a brand-new building could hardly have come at a worse time but the Managing Director of Telia & Pavla is upbeat: “We had been paying rent for five floors whereas with a slight increase in our costs we’re now paying a bank and in 20 years this building is going to be ours. In fact, within seven years, we’ll actually be paying less than we would have been if we had stayed and continued to rent so it’s a positive step”. There have been even greater, albeit less tangible benefits, from the move. “Even in this crisis situation and with salary cuts, the morale and the attitude of our people has changed dramatically,” he says with a distinct touch of pride. It is not surprising, given that the building has a wonderful cafeteria on the roof in what is a clear indication of how much the company takes care of its personnel. Of all the campaigns that Telia & Pavla have been involved in, Stelios’ all-time favourite is, perhaps surprisingly, one of the very first he did and it was for a not-very-sexy product called Laser washing powder. ”It was 1986

ONE OF THE BIGGEST SALARY CUTS WAS MINE

when the first Star Wars film had just been launched with great success. Laser was a local product competing with two giants from abroad and we told our client that the only way to be successful was to make the product look as if it was international. So we made the commercial in London in English, we rented the costume used by C3PO and the actual R2D2 robot, and we used the Star Wars theme. When the commercial was shown, Laser captured 22% of the market and one of the two competitors closed down. I was very proud because we had made the product such a big success. Unfortunately for us, not many people realised it was our work We were too good in hiding the fact that it was a local concept!” Has Stelios ever been tempted to leave Cyprus for ‘greater things’? Yes and no. “I’ve stood at that crossroads many times and wondered what I might have become if I had stayed in the US and how successful I could have been,” he admits, adding “I’m proud to say that I overcame those questions and I know that I wouldn’t have had the happiness that I’ve had here in Cyprus with my wife and my children. Despite the fact that I work in one of the most hectic industries, I still manage to relax and do things at weekends and enjoy

a family atmosphere. Being in advertising in New York or in California would have been so hectic I would probably have had a heart attack by now!” So he not only has his health but has tangible proof of his standing in the business too: He was once offered the chance to take over BBDO’s Italian operations and he turned it down. “I couldn’t do it because my life is here, my family is here,” he says, “but the satisfaction of managing to achieve that kind of recognition is tremendous”. Having celebrated Telia & Pavla’s 30th anniversary, Anastasiades is now making plans for the next decade but he is a realist. “The next 10 years will probably be my last in the company so it’s basically grooming the next management team that will take over after I retire,” he says. Of course, the very word ‘retirement’ sounds strange. He is only 57 right now. But, he notes, “I hope I am clever enough to know when it’s time to step back and let the younger people take over”. One sure thing is that the Anastasiades home will be echoing to a lot more blues guitar when he no longer has to put in a full day at the office. And there will still be plenty of time for thinking too.

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Trident Trust

he Trident Trust Group was established in the UK 36 years ago and gradually expanded internationally. At present it operates 34 offices in 24 countries. Trident Trust has an extended and successful track record of more than 35 years of providing third party, independent, professional corporate and trust services to many major financial institutions and professional intermediaries worldwide. Trident Trust Company (Cyprus) Ltd was established in 1996 and Petros Livanios has been the operationâ&#x20AC;&#x2122;s Managing Director since.

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FIDUCIARY SERVICES

We Can Be The Best CYPRUS HAS THE POTENTIAL TO BECOME A TRULY COMPETITIVE JURISDICTION AND A MAJOR INTERNATIONAL BUSINESS CENTRE BUT SERIOUS WORK STILL REMAINS TO BE DONE. By John Vickers, Photography by Jo Michaelides

etros Livanios, Managing Director of Trident Trust Company (Cyprus) Ltd, has worked in the fiduciary and corporate services industry for 30 years. He has observed and been part of the country’s transformation into an international business centre and he knows the present situation as well as anyone. So he has no difficulty in ‘selling’ the advantages of Cyprus to clients, but he is a realist who knows that the island could be doing so much better. “Cyprus is a much more attractive regime than many of the competitive jurisdictions,” he says, “particularly regarding legislation, the tax regime, the network of double taxation treaties and the fact that we have a high level of very knowledgeable, talented professionals. Add to this the more cliché attractions – the weather, the food, the lifestyle, etc. – and the country has a great deal to offer companies and investors”. There is, however, a twofold downside. One comes in the form of the much-maligned Department of the Registrar of Companies which, says Livanios, is a source of enormous problems to fiduciary providers, law firms and accountants. “We cannot move as fast as we would like to or as similar departments in other jurisdictions and our clients suffer from delays and they cannot conclude or complete transactions that in some cases concern hundreds of millions of euros. The registrar of companies unfortunately does not understand the commercial side of the business; despite the evident growth of past years, and the expectation that it would realize the importance of its contribution to the Jurisdiction’s image as a business centre, it is still just another bureaucratic civil service department”. The other major problem that is holding back the fiduciary services sector and affecting Cyprus’ reputation as a reliable jurisdiction is the continuing lack of regulation in the fiduciary services sector. The law, which was due to be enacted almost 8 years ago, so as to comply with a European Directive, is still pending before the House of Representatives. Petros Livanios sees this as a key issue if the island is to be taken seriously as a business centre. “I remember being approached by the Central Bank of Cyprus just before we joined the EU. As the Managing Director of the Cyprus operation of a Group with a wide international presence, I was asked to provide samples of the regulations governing the fiduciary services sector in other jurisdictions, which I did, while emphasizing however that it would be a mistake to over-regulate the sector as it would have adverse effects on the jurisdiction. Draft legislation was drawn up, based on regulations from other jurisdictions. However, it has been amended several times since then due to objections raised by various interested parties and a lack of consensus. This delay has resulted in the creation of a negative image of the fiduciary sector and the Jurisdiction as a whole. Despite this, the fiduciary sector agreed to accept these amendments provided that the law was passed as soon as possible in order to help the reputation of the jurisdiction. “We often face difficulties in promoting Cyprus as a jurisdiction because we are not regulated,” says Livanios. “It’s as simple as that and since things are becoming more and more transparent, serious investors want to see that they are working through a regulated environment”. The Committee on Financial and Budgetary Affairs is meeting shortly to discuss the bill again and we have stressed to the Committee Chairman that it is vital that the law be passed as soon as possible. One simple reason why we want this regulation to come about is that, at present, fiduciary providers cannot be recognised as introducers to the banks so they cannot send them business and

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FIDUCIARY SERVICES

It is paradoxical that we are recognised as introducers to Swiss banks but to not to Cypriot banks other methods need to be utilized to support the banking sector of Cyprus. It is paradoxical that we are recognised as introducers to Swiss banks but not to Cypriot banks and so we are obliged to redirect funds to foreign banks, hence out of Cyprus”. It is hoped that the relevant law will be passed before the end of the year or at the beginning of next year at the latest. “Once this happens”, says Petros Livanios, “I believe that we can go outside and sell Cyprus in a much better and more attractive manner. It will affect the industry in a very positive way. Big groups of companies that do everything in a transparent manner want to know that they are working through a regulated fiduciary provider and to show that they are not operating through a tax haven or an unregulated jurisdiction.” The lack of regulation has also led to serious damage to the island’s reputation because of what Livanios calls ‘the cowboys’ who took advantage of the boom of 2007-2008 when the country was attracting a lot of business from different directions. “The market started to fill up with cowboys who, without realizing, have almost succeeded in destroying the reputation of the jurisdiction with the very poor quality of services they provide to clients and the extremely cheap prices that the big providers cannot compete with (nor do we want to). The law will force them either to comply, in order to be licensed, or to stop and put an end to the erosion of the image of Cyprus as a jurisdiction which we are trying to upgrade”. Apart from proceeding with regulation and cutting bureaucracy, what more can be done to make Cyrus even more competitive? Plenty, says Livanios. “We need to introduce new products that other jurisdictions already have in place which can attract new investors. I am referring specifically to the Funds industry. Legislation is now in place to promote Cyprus as a Funds centre and the cost of establishing and administering a Fund in Cyprus can be one fifth or one sixth of the cost in other jurisdictions in Europe. We should be working in this direction to attract more investors who can establish and administer their Funds in Cyprus with underlying companies – Cypriot vehicles – that can invest in emerging markets. We have to promote Cyprus in that area as well. An aggressive campaign should be organised by a number of parties with the support of the government and decisions on

how public money is spent should be directly related to the contribution of each sector to GDP and growth strategy. This is for CIPA, CIBA, the Cyprus Fiduciary Association, the lawyers’ and the accountants’ associations. It needs to be a combined effort because the business we can attract to Cyprus is enormous and we should not see each other as competitors. The pie is huge. There is a big piece for everybody, as long as the quality and professionalism is there”. The lack of regulation and fierce competition from other jurisdictions would be a major problem at the best of times. Given that the effects of the global financial crisis are still being felt, how is the fiduciary sector faring both internationally and locally? Petros Livanios identifies two levels of impact: a decrease in new projects because funds are not available to proceed with new projects, particularly in the construction/real estate sector or in the oil business. At the same time there has been a considerable increase in restructuring. Businesses that could not survive the crisis have been sold so the acquisition of those structures by new investors and buyers has led to a lot of restructuring. “We have experienced the same thing here in Cyprus as well, so the crisis has affected us by bringing about a change in the nature of our business but business has continued, which is a positive thing. And of course, even during a crisis, those who have money and are willing to invest can get some good deals”. The local banking crisis and the government’s request for a bailout has affected the fiduciary services sector, Livanios says, in the sense that new investors are very hesitant to use Cyprus. “The instability in the banking sector worries them and the fact that the negotiations with the Troika have not been completed yet so they cannot be sure whether any of its demands will affect key issues, such as the Corporate Tax rate, makes them reluctant to use Cyprus. As a result, a lot of work

The moment we have big banks here, we’ll be able to call ourselves a financial centre too

that could come to Cyprus is being redirected to competitor jurisdictions. Moreover, we have experienced a lot of ‘attacks’ from competitor jurisdictions like Luxembourg, Malta, the Netherlands and Switzerland which have been approaching clients using Cyprus and urging them to move out and transfer their funds to other countries or restructure and stop using corporate entities here and replace them with Luxembourg or Maltese companies, etc.”. Fortunately, to date, they have not been very successful. “I have to admit that the clients of Cyprus are very loyal,” Livanios explains. “They like Cyprus for various reasons so they are not very keen to redomicile. We have experienced a lot of queries from clients asking us whether they should move out or transfer their funds from the Cypriot banks to foreign banks. Here at Trident Trust we have managed to keep all of them in Cyprus and we continue to support the jurisdiction and the local banking system”. Luxembourg and Malta are obviously capable of attracting business but Petros Livanios believes that Cyprus is capable of competing with both. “We don’t want to compete with Luxembourg on pricing because it is very expensive but we can compete on the quality of services provided. And while Malta is closer to Cyprus regarding fee levels, the Maltese are not as efficient as the Cypriots. They happen to be better marketers than us and enjoy greater support from their authorities in developing the services industry further. So, provided that the private sector initiatives in Cyprus are supported to the extent they deserve, we can compete very easily with Malta and we want to compete with Luxembourg in terms of quality. If we can combine these two things – a high level of professionalism and attractive fees, the business is out there waiting for us”. So, all in all, the Managing Director of Trident Trust Cyprus is optimistic about Cyprus’ future as an international business centre, “especially if we have a very small push from the government side and we manage to identify ourselves as having been an international business centre for the last 30 years. I keep hearing people say that Cyprus should become an international business centre but if we continue to say this we will never get there. We have to start selling Cyprus as an international business centre, not as something we hope to become. We have already reached an impressive stage. We need to believe in ourselves and let the world know about our quality and professionalism. The other effort that we should be making concerns foreign banks. We need to attract the big players in the market, especially those in the banking sector. The moment we have big banks here, we’ll be able to call ourselves a financial centre too.”

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

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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

OPINION

Changing trends in the legal marketplace Law firms need to operate like other successful businesses

n today’s volatile markets, businesses are having to rethink existing corporate strategies and internal business development in order to become competitive and grow. Law firms have traditionally opted out from such practices since the legal profession has always depended upon a straightforward client-service relationship: clients give them work and they do it. However, such a simplified perception of legal services no longer suffices for success and law firms must offer something more in order to survive. While offering more should be the firm’s objective, by offering too much it might run the risk of losing focus and demonstrating a lack of expertise. Law firms in Cyprus need to reconsider their target group and position themselves as true business entities with a development plan, introduce new products and services and focus on staff education and training. A heavy reliance on company formation and incorporation as well as administration and management activities has saved many from going downhill but in view of the economic crisis and challenges in the investment sector, such activities no longer offer an easy way out. The direct challenges faced by our services industry by jurisdictions such as Malta and Luxembourg, as well as competition from non-lawyers and corporate entities, demonstrate that law firms must really go that extra mile to attract high-calibre clients and big cases by creating a business opportunity or by making an introduction to another client. Research and innovation must gain centre stage in law firms’ activities. Participation in national and European-funded programmes should be pursued with vigour while focus must also be placed on new products and services. With sweeping technological solutions presented on a daily basis, law firms can take action to integrate billing methods, to design and promote mobile applications and become actively involved in publishing research and studies on their areas of expertise. Education and training of staff is also a fundamental aspect of research and innovation; providing vocational training to staff reinforces em-

Small firms of up to 10 employees should best concentrate on niche markets

By Irene Demetriou

ployee loyalty and develops highly-skilled personnel. Internal organisation is a prerequisite for realigning a law firm as a true business entity. A law firm should be able to make a distinction between an area of practice and a sector of expertise, even though the distinction is at times blurred (as in the case of energy); by default , small firms of up to 10 employees lack the capacity for participating in every area of legal practice available and should best concentrate on niche markets. Marketing is instrumental for law firm success and should take centre stage in firms’ activities. Usually snubbed by local law firms, media such as websites, brochures, newsletters and events can make or break a deal; you just have to take a look at the websites of giants in the legal profession such as Latham & Watkins, Allen & Overy, Clifford Chance, Slaughter & May to see how much effort (and money) is devoted to marketing. Social media marketing is perhaps the most effective form of marketing in business today. Law firms have traditionally restricted marketing to ads in legal magazines and periodicals which are mainly received by respective legal firms and colleagues but not clients. According to internal research performed at Andreas Neocleous & Co LLC, media such as Twitter and LinkedIn are extensively used by law firms abroad to market a new capability, notify clients of legal developments, cross-sell their firm’s services and expand their existing client and network base. Experience databases and Knowledge Management are also two fundamental aspects of the exchange of best practice and training of new staff. An efficient KM system removes workload from supervisors while increasing work independence and the research skills of trainees and newly hired employees. The law profession itself has changed considerably, as it tries to incorporate wider notions of business consultancy, financial planning and social skills. Law firms with honest intentions and long-term goals must become more socially engaged and pursue dynamic policy re-orientations if they wish to be considered regional leaders in their field.

info: Irene Demetriou is Business Development Manager for Andreas Neocleous & Co LLC. 78 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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coming soon… The future of telecommunications in Cyprus is evolving and this evolution is happening fast. The 2nd Telecommunication Conference aspires to highlight and showcase this evolution. It aims to highlight future developments and give practical examples on how to deal with them, supplying you with “tools” for the course in the field. It is a unique opportunity to discuss the short term and long term future of the sector, but also for networking with top-level executives. Operators Outlook | Regulatory Outlook | Redefining strategy in a period of transition | Is it time to re-invent the revenue model? | Can the Telcos win or is it all OTT?

The conference is addressed to: • Management and Professionals from the telecommunications and related sectors: Telecommunication companies / providers from the following departments: Senior management | Strategy | Commercial | Technology and IT | Network development | Regulatory affairs | Product and services development | Store development | Marketing • Telecoms retailers • IT companies • Network & IT Systems integrators • Accounting and audit firms and other consultants • Market research

For further information: IMH, Aigaleo 5, 2057, Strovolos, P.O. Box 21185, 1503, Nicosia. Tel: +357 22 505555, Fax: +357 22 679820, e-mail: events@imh.com.cy, website: www.imh.com.cy

Thursday 24 January 2013, Hilton Park Hotel, Nicosia, Cyprus Organizer

Communication Sponsors

Sponsors

{December 2012}

ISSUE

82 Good Returns Plus a Social Contribution

+ BOOK REVIEWS MONEY: The Moneyless Manifesto: Live Well. Live Rich. Live Free By Mark Boyle 85 LIFESTYLE: The Casual Vacancy By J.K. Rowling

{money}

82 Good Returns Plus a Social Contribution There are more rewards than financial profit with Green and Ethical Investment Projects. 84 Distressed Asset Investing Finding opportunities and addressing the risk. 85 More Financial Firms Need to Act on MiFID II

{lifestyle}

92 Sweet Childhood o’ Mine Investing in toys.

{tax&legal}

88 Wind of Change New legislation tackles the problem of late payments.

{business}

86 PWC’s Dedicated Intellectual Property Team

91 Better Than Expected The new Cyprus-Ukraine Double Tax Treaty.

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{MONEY}

GOOD RETURNS PLUS A SOCIAL CONTRIBUTION There are more rewards than financial profit with Green and Ethical Investment projects.

By Steven Newbery

IN RECENT ISSUES OF GOLD, STEVEN NEWBERY OF ALTERNATIVE GLOBAL SOLUTIONS HAS WRITTEN ABOUT OPPORTUNITIES FOR GENERATING PROFITS AND OUTPERFORMING BANK INTEREST USING GREEN AND ETHICAL INVESTMENT PROJECTS. WHAT HAVE HIS INVESTMENTS ACHIEVED THIS YEAR, OVER AND ABOVE THE ENHANCED RETURNS TO INVESTORS?

hen I was asked to write the positive effects that our investments have had throughout 2012, I admit that I smiled with pride. Investors sometimes forget about the ethical side of the investments offered by AGS but while the sector is considered as ‘alternative’ – and to that end is put in a box like ‘mining’, ‘manufacturing’, ‘consumer’ or ‘energy’ – it’s important to remember that this particular ‘sector’ makes a very real difference to the lives of so many people who can

only dream of having things that most of us take for granted. I would like to remind our investors and those considering entering the alternative investment sphere that there are millions of people in this world who struggle to provide the most basic of needs to themselves and their families, but green and ethical investments on the market can help them and reward the investor too. Poverty is the principle cause of hunger throughout the world. It is not only the vastly unequal distribution of income on this planet that is a cause of poverty, but lack of resources, conflict, and population growth.

The World Bank estimates that over 1.3 billion people in the world live on $1.25 a day or less – imagine trying to eat, sleep, wash, and live on $1.25 a day – or less! This really puts into perspective that €5+ cappuccino we buy without thinking twice. One in seven people in the world are malnourished – that’s 13.1% of our population, a staggering statistic. It is not good news when the United Nations World food agency tells us that food prices the world over are at their highest and are still on the rise. This is all in addition to what I have written in previous issues of Gold about an increasing population living longer.

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

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alternative investment

{Rice being donated to the local community at AGS’s chosen agricultural investment project Africa}.

Saving the rainforest is critical to maintaining clean air and a healthy environment. By saving your rainforest one acre at a timed you absorb nearly half a ton of carbon dioxide (CO2) – or one ton of CO2 for every 2.471 acres. Reducing CO2 emissions reduces the thinning of the ozone layer.

I am extremely proud that AGS, through its partners’ project in Sierra Leone alone, has helped thousands of needy local people and their families. Through the rice-farming project, over 350 local people are now employed from the immediate vicinity and the surrounding villages. This means that 350 people, at least, are able to take home muchneeded income to their families and to provide essentials such as food, water, hygienic and humane living conditions and, sometimes more importantly, a sense of security. To help more, and to allow for some money to be saved and spent on essentials other than food, the project donated over 9 tons of rice to the local community last month alone. This not only saves them having to purchase rice at all but it also means that they do not have to pay over-inflated prices for imported rice because Sierra Leone cannot and does not yet produce enough rice to feed its own population – although together this is something we can change.

In addition to food and jobs, I’m also extremely proud of the project’s contribution towards another very basic need that most of the world takes for granted – education. When the project began in 2009, the local school was attended by fewer than 50 children; we have now managed, due to employment, to increase that number to 150 very happy children. That’s a 200% rise. This is still nowhere near enough, but we feel that, together with our investors, we can build on this in the coming months and years and make an even bigger difference to the lives of these disadvantaged children. We have also invested $20,000 in a charcoal briquette machine. This can produce 2 tons of charcoal a day from old straw and rice husks which the local community uses for cooking and which, in turn, assists in the preservation of the neighbouring rainforests. We also know that, as with many places in Africa, medical needs and malaria are a real challenge in Sierra Leone. We have used funds to support not only the school infrastructure but a medical infrastructure and medical kits too. On our last trip we arranged for 100 mosquito nets to be distributed free of charge as part of the fight against malaria. Another fact which I feel compelled – and indeed humbled – to tell you about is this: recently, one of our clients passed away, leaving his assets to his wife. Without hesitation she performed an act of great kindness by donating his land to the local community with the aim of building a walk-in health clinic to be used by people from the village and the surrounding areas. It is with pleasure that I can confirm that the clinic is now at the building stage and will be there for years to come as a monument to our client’s kindness and willingness to help others. It is difficult to even begin to estimate how many hundreds and thousands of people’s lives this will make a difference to.

WE BELIEVE EVERY INVESTOR SHOULD HAVE SOME EXPOSURE TO ETHICAL AND GREEN INVESTMENTS

Here at AGS, whilst we appreciate that the world’s injustices cannot be undone overnight, and poverty and hunger cannot be solved quickly, we are proud to be doing our bit. For the mathematicians, investment analysts or ‘Alpha-seekers’, let me note that we have done all of this whilst generating returns of over 14% for our clients. This speaks for itself and don’t feel that I need justify this sector any more than I have done so already. Of course, ethical investing doesn’t stop at those individuals who need help in countries far away from our own. To those who are reading this and remembering the saying ‘charity begins at home’, I say yes, to an extent I agree. So what about helping our children, our grandchildren, and our great grandchildren? Well, our chosen Carbon projects involved in both re-forestation and de-forestation are well on track to saving 50,000 hectares of rainforest which is the size of Wales. What does this mean? By saving the plants and trees of the rainforest you are contributing twofold – first by eliminating the continuing release of greenhouse gases into the atmosphere and the subsequent destruction brought about by burning our most precious storage containers – trees – and second by reversing the existing carbon dioxide emissions through the absorption of carbon by the plants and trees. Trees in the rainforest work like the lungs of the earth in reverse fashion from our own breathing. Trees absorb carbon dioxide emissions in the atmosphere and release clean oxygen. The rainforest is the single greatest source of the air that we breathe, accounting for a full 20%. Alternative Global Solutions is a provider of investment projects which offer enhanced returns over more traditional forms of investment. We are not an aid organisation and we are committed to assisting our clients to achieve a greater financial reward. However, if we can accomplish this whilst improving the lives of those less fortunate than ourselves, then why not? For these reasons, we believe every investor should have some exposure to ethical and green investments. For information on alternative investment projects please contact the AGS team on +357 7000 0289 or at info@agsethical.com.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

money_investement.indd 83

Gold 83

30/11/2012 15:54

investment Alexandros Pericleous Antonis Vidakis

{money}

Distressed Asset Investing Finding opportunities and addressing the risk

By Antonis Vidakis & Alexandros Pericleous Photography by Jo Michaelides

n a global environment where capital is scarce, how organisations manage their capital agenda today will define their competitive position tomorrow. This requires business leaders and executives from across the enterprise to examine new strategic options relative to financing, resources and revenue growth. It is in this context that distressed asset investing represents a powerful opportunity. Distressed asset acquisition can be a shrewd deployment of corporate or private equity and hedge fund capital. In Cyprus, which is experiencing a contraction in economic activity due to a maturing public and private “wall of debt”, a deepening banking sector crisis and austerity measures underway, we expect that the number of distressed assets will continue to rise. Simply put, a distressed asset is an asset that is placed on sale because its owner is forced to sell it. Typically, such assets are sold at substantially below-market prices to achieve the often strict sale deadlines. From the outset, distressed asset sellers trade with a handicap and even more so in Cyprus where the market infrastructure (auction houses, trading platforms, investment community) is small, which means less competition and, therefore, higher buyer negotiating power. Executed competently (from a buyer’s perspective), distressed asset acquisitions can be an effective deployment of capital for corporations, private equity houses and other

investors. Such acquisitions might provide buyers with large assets – such as equipment or technology, licenses/patents, know-how, revenue streams, or even a new geographic customer base – for a fraction of what they might otherwise cost. Medium-sized businesses might be able to buy smaller companies whose distress stems from a lack of scale, enabling the acquirer to expand its volume and geographic footprint. Often, companies acquire distressed assets as a means of securing access to technologies or other elements within a

Distressed asset acquisition can be a shrewd deployment of corporate or private equity and hedge fund capital supply chain. Alternatively, a company might acquire a distressed asset simply as a defensive measure to prevent capabilities, capacity, technology or other advantages from falling into the hands of a competitor. In an ideal transaction, assets would be acquired with minimal capital expenditure, blend perfectly with the acquirer’s business model, integrate seamlessly with operations, and extend scale and efficiency, generating above-average returns for decades.

Almost by definition, distressed asset acquisitions are rarely ideal. Accepting that along with opportunity comes risk, prudent investors should respect the complexities that are involved in sourcing, valuing, negotiating and acquiring distressed assets. The challenges associated with such purchases are many, each potentially threatening the buyer’s return on investment. Moreover, these transactions tend to take place in compressed timeframes, adding greatly to the risks of overlooking hidden liabilities, or overpaying. Once acquired, distressed asset turnaround is itself a complex endeavour. Underestimating the effort needed to turn around operations, to meld new and existing businesses, and to increase potential capacity online and generate new revenue streams, is vital to making an investment decision. Companies most likely to prosper in the growing distressed asset environment will be well-informed and prepared. To conclude, distressed asset investing is a huge commitment in management time and capital. By employing the services of professional advisers such as Ernst & Young to support the transaction, investors can tap into the global experience, resources and skill set on offer as well as an independent expert’s opinion. In our next article we shall delve deeper into the key considerations of distressed asset transactions.

info: Antonis Vidakis, CFA, CBA, is a Director and Alexandros Pericleous is a Senior Advisor, Transaction Advisory Services, Ernst & Young. 84 Gold the international investment, finance & professional services magazine of cyprus

www.pw

A c M

August 2012

financial instruments

{money}

More Financial

Services Firms Need to Act on MiFID II

www.pwc.com/mifi

ccording to a PwC European-wide survey, just over half of firms within all financial services industry sectors are considering MiFID II within the context of the wider regulatory change landscape. The report, Are you taking control of the MiFID II agenda? also reveals that although it is too early for firms to establish the cost of MiFID II, over half have allocated budget and have undertaken some initial activity in 2012. George Lambrou, Advisory Services partner at PwC Cyprus said, “Despite MiFID II deadlines being pushed back, it remains a key component of wider regulatory reform. Our survey findings show that a number of firms have already set up working groups and are raising internal awareness, conducting initial high-level impact assessments and undertaking analysis of the potential scenarios of MiFID II outcomes. Financial services firms are right to act sooner in order to set their future strategy and develop related systems and processes to prepare their business for MiFID II. ”

ing Are you tak the control of nda? Mi FID II age

August 2012

The key findings of the Report are: • S urvey respondents expect and acknowledge that MIFID II will have major strategic impacts and will significantly influence their systems and business models •R espondents are not clear on the cost of dealing with MiFID II, but over 50% have allocated budget and undertaken some initial activity in 2012

BOOK REVIEW The Moneyless Manifesto: Live Well. Live Rich. Live Free By Mark Boyle (Permanent Publications, 2012),

Asset Managers appear to have done less work on this compared to broker dealers, retail banks and private banks •M any firms will be considering undertaking a strategic analysis of the impacts before the end of 2012. Asset Managers appear to have done less work on this compared to broker dealers, retail banks and private banks • S urvey respondents seem to believe that lobbying is unlikely to change the minds of regulators or politicians with regard to MiFID II. Over half of respondents stated they would not undertake lobbying at any stage. •B roker dealers have engaged more actively in lobbying as opposed to asset managers and retail firms. •A s the impact of MiFID II will be more significant for broker dealers, the majority of them have a relatively good understanding of the technical requirements within the MiFID II proposals and are including implementation plans for MiFID II in the context of the wider regulatory reform agenda •O nly 56% of survey respondents said they were considering the draft legislation for MiFID II within the context of the wider landscape of regulatory change. “Recognising the importance of considering MiFID II within the broader landscape of regulatory reform should help firms manage their change programmes in a more effective manner, compared to those who intend to deal

RRP: £14.95 (£10.49 from amazon.co.uk) ark Boyle became The Moneyless Man in November 2008 when he set out to try living completely without money for 12 months – not spending, earning, saving or using it. His first book The Moneyless Man: A Year of Freeconomic Living, published in 2010, documents this journey. Having successfully completed the first year of moneyless living, Boyle continued to live moneylessly for almost three years. The aim if this new book is to support, inform and encourage others who would like to explore the possibility of living with less. Boyle takes us on an exploration that goes deeper into the thinking that pushed him to make the decision to go moneyless, and the philosophy he developed along the way. Bursting with radical new perspectives on some of the vital, yet often unquestioned, pillars of economic theory and what it really means to be ‘sustainable’ as well as creative and practical solutions for how we can live ‘more with less’, it reveals Boyle as one of the world’s most thought-provoking voices on economic and ecological ideas.

with MiFID II in isolation,” George Lambrou concluded. “MiFID II is not just a compliance exercise. Given the magnitude of commercial and operational impacts, successful implementation will require the early involvement of relevant business lines and key functions such as IT and operations.” Acting now on MiFID II in the context of wider regulatory reform will help firms react to the market changes that arise early, in order not to lose profitability or surrender market share to competitors.

the international investment, finance & professional services magazine of cyprus

Gold 85

wC’s P Dedicated Intellectual advertorial

{business}

Property Team

ntangibles account for some three-quarters of the Fortune 500’s total market capitalisation. According to Leonard Nakamura, a US Federal Reserve economist, Intellectual Property (IP) assets absorb US$1 trillion of investment funds every year – roughly the same as total corporate investment in physical assets. The reasons are easy to grasp, as numerous recent publications show that IP investment often offers the “key to the kingdom” of stakeholder’s wealth. The new Cyprus income tax provisions for IP, which came into effect on 1 January 2012, offer tax efficient investments in IP with an effective tax rate of anything between 0% to 2% through proper advance tax planning. The new development is definitely a step in the right direction towards putting Cyprus on the international IP map. That said, there is always room for improvement. We are of the view that the scope of the current tax provisions on IP could be expanded to cover a much wider range of IPs explicitly and with clarity. We are the market leaders in offering professional services in Cyprus. Our professional team is unrivalled and offers enormous seamless expertise in providing tailored solutions to our clients. We provide total ‘turn-key’ solutions covering all aspects of setting up and maintaining IP through Cyprus. An IP dedicated team is commissioned to deal with the whole spectrum of IP-related matters, thus providing speedy solutions and responses by leveraging on our expertise. In particular our team can assist you with: • S etting up efficient Cyprus IP holding structures • IP planning •A nalysis of efficient IP rights exploitation scheme • Valuation of intangibles assets • Royalty benchmarking analysis;

Our Dedicated IP Team:

Tony Hadjiloucas - Partner Tony has 16 years’ experience,e chiefly as an expert in the area of IP valuation, exploitation and management with PwC firms in three countries, including 10 years in London. He has assisted many of the world’s largest consumer goods, technology and media companies in extracting value from their IP and regularly provides commercial or valuation advice on transactions involving IP or IP-rich companies, alliances, licensing, restructuring and disputes. In his current role in Cyprus, he also helps IP-rich clients with all aspects of implementing and operating Spyros A. Evangelou – Partner international structures, including company administration and compliSpyros has an LL.B (Hons), he is Barance, reporting, IP function design, rister of Gray’s Inn, a TEP (Trust and corporate strategy etc. Tony has spoEstate Practitioner) and an Advocate ken at IP conferences worldwide and of the Supreme Court of Cyprus. His authored numerous publications. He practice areas include Business Law, serves on the faculty of the United Company Law and Tax Law. Spyros Nations World Intellectual Property has a special interest in Trusts and he Organisation and has been a guest has been advising clients on setting up trusts among others for personal, succes- lecturer on IP matters at the Kellogg School of Management, the London sion, asset protection and commercial Business School and Imperial purposes. Spyros has been invited as a speaker at various local and internation- College. Tony has provided expert witness testimony in a number of al seminars and conferences on trusts, high-profile arbitration and litigation tax and related issues. cases relating to IP. Constantinos Andreas Iosif Constantinou – Partner - Senior Manager (IP champion) Constantinos is a Partner in the AssurAndreas has significant experience of ance & Advisory Service Line, leading Cyprus local as well as international Deals and Corporate Finance comtax structuring aspects. Andreas was petency. He has extensive experience seconded to PwC Russia in April in the provision of Corporate Finance 2010 for a two-year period which Services and, in particular, valuations, assisted him in developing a deep M&A advice, the preparation of knowledge of the Russian market and, business and strategic plans, as well as feasibility studies and advice to clients in in particular, of Russian tax aspects all areas of economic activity (manufac- which are relevant to cross-border turing, trading, the tourism and service transactions from/to Russia, including IP-related transactions. industries). Stelios A. Violaris – Partner Stelios is an international tax structuring partner who deals mostly with the tax affairs of a number of large multinational and local client groups and private equity funds, mainly active in the fields of financial services/investments, insurance, pharmaceuticals and real estate. Stelios devotes a significant amount of time to advising clients in their initial structures/set-ups, group reorganisations/restructurings and mergers & acquisitions transactions including the tax optimisation of their Intangible/IP asset class within such frameworks.

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

Andreas Iosif

Constantinos Constantinou

Spyros Evangelou

Tony Hadjiloucas

Stelios Violaris

Intellectual Property (IP) assets absorb US$1 trillion of investment funds every year

www.pwc.com.cy

Intellectual Property

We are the market leaders in offering professional services in Cyprus. Our professional team is unrivalled and offers enormous seamless expertise in providing tailored solutions to our clients. We provide total ‘turn-key’ solutions covering all aspects of setting up and maintaining IP through Cyprus. For more information please contact: Stelios A Violaris Partner, Direct Tax Services stelios.violaris@cy.pwc.com T: +357 22 555 300

Constantinos Constantinou Partner, Deals and Corporate Finance Deals and Corporate Finance constantinos.constantinou@cy.pwc.com T: +357 25 555 700

Tony Hadjiloucas Partner, Global Compliance Services tony.hadjiloucas@cy.pwc.com T: +357 25 555 270

Andreas Iosif Senior Manager, Direct Tax Services andreas.iosif@cy.pwc.com T: +357 22 553 657

Spyros A Evangelou Partner, In charge of Legal Practice S.A. Evangelou & Co LLC spyros.evangelou@cy.pwclegal.com T: +357 22 559 900

PwC Cyprus Julia House, 3 Themistocles Dervis Street, CY-1066 Nicosia, Cyprus P O Box 21612, CY-1591 Nicosia, Cyprus T: +357 - 22 555 000 F: +357 - 22 555 001 www.pwc.com.cy

payments

{tax&legal}

Wind of Change

New legislation tackles the problem of late payments By Alexis Erotocritou

In countries such as Cyprus, where no effective measures have been taken until now, the new law is a very positive development

ery welcome new legislation was recently enacted by the House of Representatives: the Law on Combating Late Payment in Commercial Transactions, which came into force on 27 July 2012, transposes Directive 2011/7/EU into national law and effectively, abolishes previous legislation in the area of late payments. The law, which is identical in many respects, to the Direc-

tive, entitles a seller who does not receive payment for goods and/or services within 30 days of the payment deadline to collect interest (at 8% above the European Central Bank rate) plus â&#x201A;Ź40 as compensation for recovery of costs. For business-to-business transactions, a 60-day period may be negotiated subject to conditions. The seller may also retain the title to goods until payment is completed and may claim full compensation for all recovery costs. Statistics indicate that insolvencies lead to the loss of 450,000 jobs in the EU and outstanding annual debts of â&#x201A;Ź23.6 billion while 57% of businesses in Europe claim to have problems with liquidity. An increase of 10% has been observed since last year and 50% since 2008. Many small and medium sized enterprises (SMEs) are going bankrupt on a daily basis due to late payments or non-payment of their invoices. Moreover, research studies indicates that significant financial and administrative burdens are placed on businesses as a result

info: Alexis Erotocritou is an Associate at Chrysses Demetriades & Co LLC 88 Gold the international investment, finance & professional services magazine of cyprus

of late payments. Some countries have initiated effective measures to combat late payments, including the UK which is considered to be an exemplar across Member States in its approach to challenging the long-standing culture of late payment because of its early adoption of legislation and its wider strategy for improving business awareness. In countries such as Cyprus, where no effective measures have been taken to combat late payments until now, the new law is a very positive development.

Commercial transactions

The new regime entitles the creditor to receive interest for late payment without the need of a reminder when the following conditions are satisfied: (a) the creditor has performed its contractual obligations; and (b) t he creditor has not received the amount due on time (unless, of course, the debtor is not responsible for the delay).

The scope of the new law is very wide and it is intended to cover all commercial transactions, irrespective of whether they are carried out by private or public undertakings and public authorities. Consequently, it applies to transactions between main contractors and their suppliers and subcontractors. Lawyers should be aware that the liberal professions are also covered since broad meaning is given to the terms “undertaking” and “commercial transactions” so as to encompass all transactions between undertakings which lead to the delivery of goods or the provision of services for remuneration. In simple terms, the applicable rate of interest for late payment will be 8% plus the European Central Bank´s intervention rate. This rate is not negotiable and any rate below this threshold is, in principle, considered to be grossly unfair. Where the above conditions are satisfied, the creditor is entitled to interest for late payment from the end of the period for payment fixed in the contract, or, if such payment date is not fixed: (i) within 30 days from the date of receipt by the debtor of the invoice; here such date is uncertain, 30 days after (ii) w the date of receipt of the goods or services; (iii) 30 days after the date of the receipt of the goods or services, where the debtor receives the invoice earlier than the goods or the services; (iv) where a procedure of acceptance is provided for in the contract and if the debtor receives the invoice earlier or on the date on which such acceptance or verification takes place, 30 days after that date. It is important to mention that there are provisions which aim to prevent unreasonably long periods of time for the payment for goods or services supplied. A norm of 60 days is mentioned but this can be altered, provided that it is expressly agreed between the parties in the contract and it is not grossly unfair to the creditor (see below). This is likely to mean that buyers will not be able to simply change their standard terms and conditions to allow for longer payment terms. In addition, companies which previously enjoyed lengthy payment terms from their clients will face difficulties in maintaining them as a result of the new law. The law does not affect the ability of the parties to agree on payment schedules providing for instalments.

Many small and medium sized enterprises are going bankrupt on a daily basis due to late payments or non-payments of their invoices Compensation for recovery costs

An interesting innovation is the statutory right to compensation for the incidental costs of recovering late payment. Where interest for late payment becomes payable, the creditor is entitled to obtain from the debtor a fixed sum of €40, without the need for a reminder, as compensation for the creditor’s internal recovery costs (i.e. time spent by employees on chasing the matter up). In addition, the creditor is also entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment. An example of this would be the expenses incurred in instructing a lawyer or employing a debt collection agency.

Unfair contractual terms and practices

In order to avoid instances where companies with significant bargaining power would be able to contract out the rules on late payment, it is clear that if a term in the agreement, a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is “grossly unfair to the creditor”, it will be considered invalid and unenforceable. In determining gross unfairness to the creditor, all the circumstances of each case must be considered, including any gross deviation from good commercial practice, contrary to good faith and fair dealing, the nature of the product or the service and whether the debtor has any objective reason to justify deviation. The law goes on to specify certain examples considered as grossly unfair, including contractual terms or practices which exclude interest for late payment.

Retention of title

Another welcome development is that the new law allows the seller to retain title to the goods until they are fully paid for, provided that such a provision has been expressly agreed between the buyer and the seller before the delivery of the goods.

Recovery procedures for unchallenged claims

A fast-track judicial procedure is also available and judgment can be obtained (i.e. the order for payment by the Court) within 90 days from the date of the application to the Court, provided that the debt or aspects of the procedure are not disputed. The periods for service of documents and any delays caused by the creditor (e.g. periods devoted to correcting applications) will not be taken into account when calculating the period above.

Public authorities

The new law will also apply to commercial transactions taking place between undertakings and public authorities. The relevant provisions are very similar to those applying to commercial transactions but with a number of small differences and certain “generous” derogations.

Conclusion

The new law is intended to create the mechanisms for driving payment on time and all written contracts and invoices should set out a clear expectation from the outset on behalf of each of the parties, to assist for this purpose. It is important to understand that legislation is also only useful where invoicing is accurate and timely. In the English Consultation Paper, there is an assumption on the part of both the supplier and customer that their standard terms apply and the evidence suggests that over half of all transactions take place with no prior agreement on payment terms. The most impressive statistic is that only one in ten suppliers regularly credit-checks customers. This is common in Cyprus too. In considering the impact of the new law, it is important to understand that it is not a panacea for late payment. Resorting to legal action is not a practical option, due to costs and to the fact that most supplier relationships are long-standing. Therefore, it is of outmost importance to check that the customer is capable of making payment by undertaking a credit check, to ensure that the personnel involved in the credit management are adequately skilled and that invoices are properly addressed, dated and completed with a good description of the services/goods.

the international investment, finance & professional services magazine of cyprus

Gold 89

ADVERTORIAL LEXISNEXIS – TOLLEY EXAM TRAINING

{TAX&LEGAL}

The Advanced Diploma

in International Tax THE ADVANCED DIPLOMA IN INTERNATIONAL TAX (ADIT) CAN ADD VALUE TO YOUR BUSINESS AND HELP YOU TO SET YOURSELF APART FROM OTHER PROFESSIONALS.

By Amanda McDonough CTA ACA, ADIT Tutor

he ADIT qualification is provided by the Charted Institute of Taxation (CIOT). Although this is a tax qualification, it offers benefits to lawyers and accountants as well as tax professionals. As stated on the CIOT website, this is a qualification that is suitable for all professionals. One of the attractive aspects of the ADIT qualification is that you can study for it on a modular basis so it fits in well with a busy professional and social life. In fact, Paper I (Principles of International Taxation) and Paper III F (Transfer Pricing) option, entitle you to apply for certificates from the CIOT so if you are not sure you have enough time available to study for the full qualification you can begin by taking just one paper and this will allow you to see how much commitment is needed and how much the ADIT qualification can add to your professional skills. ADIT Paper I is a good place to start your study as it is a non-jurisdictional paper that looks at key international issues that affect professionals working across borders. The areas you will look at on the course for this paper will include: • the relationship between domestic law and double tax treaties • interpretation issues relating to the application of double tax treaties • tax avoidance, including how govern-

ments and international bodies are working together to prevent tax avoidance and • tax havens, looking at how they are currently viewed in the international sphere, including the OECD papers on tax havens and harmful tax practices. All of these topics are important to anyone working in an international environment. Transfer pricing is also an important topic today. Look at the press and you will note that many governments are becoming more aggressive when it comes to transfer pricing. Transfer pricing is one of the areas that is included in the ADIT Paper I syllabus there is also a separate option paper (Paper IIIF) that looks in detail at the impact of transfer pricing in the global market place. As part of your course for Paper III F, you will look in depth at the OECD guidelines on transfer pricing and have the opportunity to take part in case studies involving the analysis of functions assets and risks. As for paper I, this paper is nonjurisdictional so your study will include consideration of rules in various countries such as Russia, India and the UK. You may sit the modules in any order you wish so if, for example, the TP paper is the one you are most interested in, you may begin with that paper and then decide whether to do the full qualification or just apply for the transfer pricing certificate.

Amanda McDonough CTA ACA, ADIT Tutor

THIS IS A QUALIFICATION THAT IS SUITABLE FOR ALL PROFESSIONALS. To find out more about registering as an ADIT student or to view full syllabus details, please visit www.adit.org.uk or contact a member of the Education Team at the CIOT by emailing info@adit.org. uk For more information on Studying for the ADIT qualification in Cyprus, contact Christos Theophilou at KDC Chartered Accountants Ltd. Tel: 22875730, by e-mail at ctheophilou@kdc.com.cy or via the website www.kdc.com.cy or Eleni Stylianidou at the Pantelis Stylianides Institute of Accountancy. Tel: 22871287

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

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double taxation

BETTER THAN EXPECTED THE NEW CYPRUS-UKRAINE DOUBLE TAX TREATY

{TAX&LEGAL}

By Boris Lazic & Chris Damianou

ollowing the visit of Ukranian President Victor Yanukovich to Cyprus, Cyprus and Ukraine signed the long-awaited new treaty for the avoidance of double taxation (DTT) on 8 November 2012. The new DTT will replace the current treaty between the two countries which was signed between the Soviet Union and the Republic of Cyprus in 1982.

WITHHOLDING TAX RATES

The withholding tax rates (WHT) provided in the treaty are: • Dividends (Article 10): 5% WHT, if the holding participation is at least 20% or the direct investment is €100,000. In all other cases the WHT imposed will be 15%. • Interest (Article 11): 2% WHT. • Royalties (Article 12): 5% WHT on income from copyright of scientific work, trademarks and formulas. 10% WHT in all other cases. Cyprus will not impose any Corporate Income Tax (CIT) or any Special Defence Contribution (SDC) on dividends paid from the Ukrainian company. Similarly, on the distribution of dividends by the Cyprus company to shareholders, there will be no WHT imposed, as Cypriot domestic legislation does not impose any WHT.

BENEFICIAL OWNERSHIP

In order to benefit from the favourable provisions of the new DTT, the recipient of the income must be the beneficial owner of that income, regardless of whether it involves income from dividends (article 10), interest (article 11) or royalties (article 12). Cypriot domestic legislation does not provide a definition as to who constitutes a ‘beneficial owner’ but the Ukrainian tax legislation does. In fact, the beneficial owner for Ukrainian purposes is the individual who is entitled to receive the said income (nominees and agents are excluded).

PERMANENT ESTABLISHMENT (ARTICLE 5)

The Permanent Establishment (PE) provisions contained in the new DTT are in accordance with the OECD Model Treaty. However, there have been some additions made to the definition of PE, including a warehouse or other structure that is used for the sale of goods. In addition, any supervisory activities carried out in connection with a construction or installation project for a period exceeding 12 months in any given year will also be considered as a PE.

THE SIGNING OF THE NEW DTT HAS BEEN BROADLY WELCOMED IMMOVABLE PROPERTY (ARTICLE 6)

Any income generated from immovable property located in either of the Contracting States, may be subject to tax at the state where the immovable property is located.

CAPITAL GAINS (ARTICLE 13)

It is of utmost importance to mention that gains realised by Cyprus residents from the alienation of shares in Ukrainian real estate companies will not be taxed in Ukraine. In practical terms, this means that when a Cyprus company has a shareholding participation in a Ukrainian company possessing immovable property located in Ukraine, it is Cyprus that has the right to impose capital gains tax on the sale of such shares. However, Cyprus does not impose any Capital Gains Tax on the sale of securities (including shares), provided that such a Cyprus company does not own immovable property located in Cyprus.

ELIMINATION OF DOUBLE TAXATION (ARTICLE 21)

Income tax which may be payable by a resident of a Contracting State in the other Contracting State shall be tax deductible in the state of residence. Such deduction will be equal to the income tax paid in the other Contracting State.

EXCHANGE OF INFORMATION (ARTICLE 26)

The exchange of information provisions contained in the treaty are identical to those of the OECD model treaty. Namely, information will be exchanged where it is ‘foreseeably relevant’ for the purpose of carrying out the provisions of the DTT and domestic laws. Contracting States however, are not required to carry out procedures which are in violation of their domestic laws. The new DTT between the Ukraine and Cyprus will come into force in the year following ratification by both signatory countries. In the case of Cyprus, ratification can be carried out within 10 days. Therefore, if Ukraine carries out all the relevant procedures that its domestic legislation requires before the end of this year, the new DTT could come into force on 1 January 2013.

EUROFAST TAXAND’S TAKE

The two countries have been trying to renegotiate their DTT for many years. The old DTT was used extensively by investors entering Ukraine and it is no wonder that Cyprus is the biggest investor in Ukraine with a stunning 25.6% of total investments. The Ukrainian parliament has also unsuccessfully attempted to cancel the DTT a number of times and so the signing of the new DTT has been broadly welcomed. Generally the DTT is better than expected. Although there are new WHT rates for dividends, royalties and interest, these are generally insignificant while the good news comes from the taxation of Capital Gains.

info: Boris Lazic is a Tax & Legal Advisor and Chris Damianou is Director – International Tax at Eurofast Taxand. www.eurofast.eu THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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investing in toys

Sweet Childhood oâ&#x20AC;&#x2122; Mineâ&#x20AC;Ś

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In an age when the gifts of Christmas have become multitudinous and meaningless, often being lost or forgotten within a year, a new challenge is arising alongside the fortifying desire of adults wanting to retell the toy stories of their childhoods: to acquire a gift that will gain in value. By Chloe Panayides

Little did the Toy Retailers Association (TRA) know that in releasing its ‘Dream Baker’s Dozen’ list of the 13 most hungrily anticipated toys for this Christmas, it would also expose a hotly burning investment fire around which, so far, only a resolute handful have huddled for warmth: the nostalgia-driven toy market. Alongside the usual suspects of the latest and greatest technological gadgets making an appearance on the list, old classics belonging to the childhoods of adults the world over – such as Cabbage Patch Kids and Lego – are also very much present amid a clamorous consumer encore (a collective cry that is certainly not limited to the voices of the current young). American toy industry consultant, Chris Byrne, claims that the toy industry has always reflected adult culture. Imagine the bursting opportunity that now exists in targeting adults driven by the nostalgia of their youthful years, and the desire to reacquire the playthings of their past. Considering the sheer volume and return of the toy market in general (the UK alone spent over €3.6 billion in 2011), and then the added zest induced by Christmas habits (of this UK-figure, the December holiday was responsible for €1.2 billion or 34% of annual sales), it is no surprise that the toy market blinks with a particularly bright halo on investor-savvy people’s radar around this time of year. And whilst the toy companies may be

commended for supplying reproductions to assuage the demand, a closer look at the buying and selling activity that has already come to pass proves, undoubtedly, that nothing can replace an original or vintage edition for the nostalgicfilled toy seeker. Take, for example, the pristine condition, vintage edition 1965 Barbie doll that sold at auction house Christie’s in 2006 for over €11,000. With a then purchase price varying between €2.30 and €4.70, the seller made a phenomenal profit. What is notable about this example (besides the return) is the number of winters the seller and the doll had to weather in order to warrant such a healthy selling price. Being nostalgia-

Impressive profits tend to come into play some 40 to 50 years following the toys’ production driven, this particular faction of the toy market swells alongside the maturing of the children who once delighted in their childhood trinkets. Impressive profits, therefore, tend to come into play some 40 to 50 years following the toys’ production. And, indeed, an investor’s persistence will be utterly negated should the toy not also stand the test of time, emerging untarnished. If these caveats are heeded symbiotically, the prosperity potential boils: take the already exampled worldfamous Barbie doll. Barbie – full name, Barbara Millicent Roberts – burst onto the childhood scene in America in 1959 with flair and flamboyance. The thought-child of businesswoman, Ruth Handler (herself inspired by the German doll, Bild Lilli), Barbie was entrusted to the American toy company, Mattel, which naively began manufacturing the doll to simply fill a conceived gap in the market; beholding, instead, the birth of a beloved cultural icon.

Over 50 years later, Mattel now confidently conjectures that there are 100,000 committed Barbie collectors worldwide. Angela Knox, spokeswoman for the unofficial UK Barbie Club, home to more than 450 members, explains: “Nostalgia is a key driving force for Barbie collectors. Models and clothes from the Swinging Sixties, for example, are particularly sought after among adults who want once again to own their childhood favourites.” Furthermore, she states assuredly: “The market is healthy, with values rising steadily. Dolls that I purchased in the late eighties for €35 now go for between €400 and €450.” In fact, the older the Barbie, the more desired and sought-after the doll is. The lucky individuals who purchased the first ever Barbie released in 1959 – innocently suggestive in her black and white swimsuit and high heels – for a

2013 Dream Toys

T 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

hese are the 13 toys that the Toy Retailers Association (TRA) expects to be the big sellers this Christmas. Yes, it really does include Furby and Twister… Cabbage Patch Kids Furby InnoTab 2 Pirate Ship Bucky LeapPad 2 Olivia’s House (Lego) Mines of Moria (Lego) Deluxe Glendragon Castle Monster High Ghouls Rule Dolls My Moshi Home Nerf N-Strike Elite Hail-Fire Twister Dance Web Shooting Spider-man

the international investment, finance & professional services magazine of cyprus

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investing in toys

Top 10 Toys in the Attic

hether meticulously handmade or elaborately embellished with jewels, the following are the world’s most expensive childhood playthings.

Barbie: €238,000

A Barbie dressed in a black strapless party dress, stilettos and a necklace featuring a one carat pink diamond surrounded by three carat white diamonds obviously enamoured a buyer at Christie’s auction house in 2010 in New York, who paid €238,000 for it.

Doll House: €201,275

a Heritage auction in 2003 for €156,000.

Steiff Teddy: €153,000

Dressed for the occasion of its selling by Louis Vuitton, this teddy bear made especially for the ‘Teddies de l’An 2000’ commanded €153,000 at auction.

Toy Boat: €152,600

The world’s most expensive toy boat was built by the German manufacturer Märklin in 1912. It was sold by Sotheby’s in December of 2010 for the record price of €152,600. A 37-inch model of the ocean liner Lusitania, the boat included features such as working anchors and chains.

Monopoly: €114,900

British author Sir Neville Wilkinson committed 25 years to building Titania’s Palace. Completed in 1922, it contains 18 rooms filled with handcarved mahogany furniture and 3,000 miniature works of art from around the world. Some 56 years later, it was sold at a Christie’s auction for €201,275, a record that still stands today.

Despite having appeared in hundreds of upgraded variations, the most expensive copy of Monopoly ever sold at auction is the earliest surviving example, made in 1933. Hand-made, the set features a circular board cut from oilcloth along with hand-made hotels and printed instructions. It was sold at the same auction as the world’s most expensive toy boat for a record price of €114,900.

Toy Soldier: €156,000

Hot Wheels: €110,000

The prototype of the ‘all American hero’, G.I. Joe, hand carved and painted in 1963 by inventor Don Levine, sold at

In 2009, Hot Wheels produced its four billionth toy car and cel-

mere €2 and have maintained the doll unblemished in its original box, may now reasonably be asking for anything in a range bookended at the lower limit by €7,500, with an upper crust that just keeps rising. Even without the box, the said Barbie, if her original factory-

ebrated its 40th anniversary. To mark the occasion, a Hot Wheels car was commissioned in the shape of a jewel-encrusted Otto model made from white gold, featuring 2,700 diamonds, and rubies for tail-lights: all for a scorching sale price of €110,000.

Toy Robot: €58,000

‘Machine Man’ is a mechanical toy robot produced in Japan in the late 1950s. With only ten to fifteen known examples remaining, it is a highly sought-after vintage toy. It is unsurprising, therefore, that it sold at Sotheby’s in New York in 1997 for a still standing record price of €58,000.

Lego: €21,000

In 2009, celebrated toy retailer FAO Schwarz created a life-size Batman Lego statue at its flagship New York store. Standing 6ft 6ins in height and weighing 500lbs, the plastic Dark Knight came complete with a cape, an age recommendation of “9 and above” and a price-tag of €21,000.

Gameboy: €19,500

The most expensive Gameboy ever sold had a price tag of €19,500. It came complete with a case, a few games, and was plated in 18k gold with its display screen’s edges further frosted with diamonds.

Mattel confidently conjectures that there are 100,000 committed Barbie collectors worldwide

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

lacquered hair has been maintained in perfect form, may still command a fetching €3,000. Whilst every Barbie should have an authentic stamp date on the right cheek of the doll’s bottom, the 1959 Barbie is exclusively further distinguished by the holes in the bottom of her feet used to set her upon a stand, which were later discontinued. Older models, in general, are also discernible by certain tell-tale signs of natural aging, including the use of copper-based earrings that have oxidised causing ‘green ear’, and a sweaty or pale body resulting from the use of unstable plastics. Knox advises that before venturing to invest, such details must be learnt flawlessly to safeguard against the flood of forgeries that have become far too prevalent and, holding no value, should certainly be feared. For those wishing to start small, Knox reveals a fecund opportunity in the growing interest in Barbie’s clothes and accessories. To accompany her elaborate fictional biography, over 120 new outfits are produced each year, coupled with a range of luxury goods, spanning sports cars, houses and swimming pools, stables, and more than forty pets. Most recently, key couture designers, such as Vera Wang, Anna Sui, and Tarino Tarantino, have created fashion costumes to decorate Barbie. Certain accessories no longer available for purchase are thus finding their way into collectors’ hands in exchange for upwards of €150. Recognising that the Barbie trademark is flowering devoid of wilt, Mattel is fuelling the fire by producing various collections with limited sale numbers, coercing collector and seller to contend. Insiders have confessed to keeping their eyes on any doll from the Platinum Collection – of which only 1,000 are produced worldwide – this Christmas. For an estimate of €65, a doll from this range may be slightly dearer than your average Barbie, but complete with elaborate costume it will be sure to please any doll lover, and serve as greater potential for return in the future. Not to be outdone by this lavish lady, an even older range of toys – and the

wishing

you happiness, prosperity & continued success

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investing in toys

If in its original box, the price of a soughtafter toy may double upon sale traditional darling choice for boys – may also be considered as being a gift hot in value this Christmas: die-cast model vehicles. Indeed, the intensity of collectors’ admiration for these miniature models is described as having particularly peaked in recent years. Gordon Gardiner, a toy expert for auctioneer Toovey’s in Washington, West Sussex, explains: “A wave of nostalgia has created a recent boom in interest for die-cast model vehicles manufactured by Dinky, Corgi and Matchbox. These were picked up for pocket money when new, but the best examples now fetch hundreds of pounds.” Lindsey Amrani, Editor of specialist magazine Model Collector, agrees, alluding to a sudden surge of investment in these miniature models over the last few years, with the most sought-after examples being known to fetch two to three times their auction estimate. Dinky Toys penetrated the market first in 1931, capturing the then wide open want for quality metal toy cars, and succeeding as the most popular and thus collectable. The seller of a pre-war ‘type 22’ delivery van displaying the name of London cycling firm, W.E. Boyce found this out when he received €24, 880 for his piece in 2008; not a poor taking for a toy that was once worth a mere 20p at the time of its original circulation. Another collector sold his boxed set of six miniature vans for €43,500. Production of Dinky Toys may have discontinued in 1979, but there are still over 1,000 model-types in circulation: an intricate web of choice to navigate for a novice. Where would you begin in your quest to distinguish priceless from valueless? Experts advise that the purchasing of a guidebook is essential; The Great Book Of Dinky Toys and Dinky Toys And Modelled Miniatures, both by Mike and Sue Richardson, come highly

recommended. Likewise, consulting die-cast miniature vehicle associations and specialist magazines will put aspiring investors in touch with experts who may expound past, current and changing trends. For example, current popular factions of Dinky Toys for collectors are headed by the ‘22’ range of six vehicles, followed by ranges ‘23’ (sports cars), ‘24’ (motor cars) and ‘25’ (commercial vehicles). Furthermore, seasoned veterans in this trade may importantly assist in ascertaining the brandvirtue of a model under consideration. One tell-tale sign – that even the novice may become sensitive to – is if the colour looks overly fresh. Paint naturally loses its lustre over time, thus anything too buoyant should be suspected as being either fraudulent, or as having fallen into the hands of a restorer. Collectors do not take kindly to the latter, with restoration conceived as destroying original craftsmanship, and therefore lowering the overall value of the model. However, the ultimate unique selling point, which transcends taste and demand, is condition: unscathed and unblemished is the only way that a model should be purchased, and if in its original box, the price may double upon sale. Indeed, it is true for all toys is that they are absolutely expected to be in pristine condition, as well as being snugly fit into their undamaged original boxes, to be able to make an impact for the trader. This is the paradoxical downfall considering that toys are purchased primarily for play (still, this does mean that even the least likely of toys to become collectibles have a chance of one day heating up in value, pending a handful of seekers and even fewer still surviving examples in good condition). Whilst the imperativeness of toys’ condition for collecting status might inspire some to wrap gifts this Christmas and thereafter place them somewhere far out of reach of eager hands, gripping toy stories begin precisely with the act of play, and the creation of the sweetest childhoods to be recalled, and encored.

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

BOOK REVIEW The Casual Vacancy By J.K. Rowling (Little, Brown, 2012)

RRP: £20.00 (£9.00 from amazon.co.uk)

.K. Rowling is the author of the bestselling Harry Potter series of seven books, which have sold over 450 million copies in more than 200 countries and have been turned into eight blockbuster films. But there is more to Rowling and in this, her first novel aimed at adult readers, she has not only confirmed her skills as a storyteller (something which was never in doubt) but has come up with a brilliant, gripping and entertaining evocation of British society today. An exquisite and moving black comedy, it has received a huge range of reviews, from ecstatic to deeply critical, the latter one suspects simply because of the author’s name. Featuring grimy casual sex, self-harm, rape and heroin addiction, as well as parish politics, it could hardly be more different from the books that have made her famous. It is ambitious in its scope and themes, dealing with big moral and political questions, and allows readers to lose themselves in a dense, richlypeopled world. The book touches on familiar subjects but approaches them with great originality and skill.

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Brand Drives Business

THE LAST WORD

The biggest challenge business faces today is how to change… and not change. By Peter Economides

What is a brand? Here is how the American Marketing Association defines it: A name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. In other words, a brand is like the mark that I would have left on my cattle, in order to distinguish my herd from yours. In fact, that is where the word comes from. “Brand” is the German word for “fire” – what you use when you burn a mark on your cattle. Much like a tattoo, it’s an indelible mark that sets you apart from others. Angelina Jolie has a dragon tattoo on her left arm. But it’s not her brand. It’s a logo. Angelina – all of Angelina – is her brand. And quite frankly, I don’t care if she has a dragon, a dog or a pussycat on her arm. A brand is nothing more than the impressions that are left in people’s heads. Your head. My head. Everyone’s head. Because everything communicates. Everything Angelina says. Everything she does not say. Everything she does. Everything she does not do. We all have brands, whether we like it or not. Because we all leave impressions. They are like footprints that we leave behind us. I mean, even my dog has a brand. If my dog was a biter (he’s not) he’d leave the impression of being a nasty, aggressive dog. Brand is reputation. And branding is the process of managing reputation. Simple. And that applies to you, to your neigh-

bourhood, the city you leave in, the country you live in. And it certainly applies to the supermarket you shop at and to each of the products you add to your basket. We live in a world of multiple choice.

A brand is nothing more than the impressions that are left in people’s heads

And with more than 40,000 products in the average supermarket, brand reputation simplifies choice. If you are happy with the choices you make one time, you’ll be back for more. That’s how brand loyalty is built. It’s also how companies build market share and long-term sustainability. I was taught that brand drives marketing. But now I realize that brand drives business. Because brand drives growth. Brand drives sustainability. Someone once said that the only thing you can be sure about is change. True. The business environment evolves. Technology evolves. Consumer attitudes and behaviour evolve. Business must evolve too. Or die, as Charles Darwin might have said. Brands must evolve. But they need to stay true to themselves. And this is the biggest challenge business faces today. Change… but don’t change. Great brands have always known this. It’s how Coca-Cola has stayed young for 120 years. And it’s how Apple went from nearbankruptcy in 1997 to the world’s most valuable corporation in 2012. And then there’s the flipside. Remember Kodak? The name which captured our childhood memories has disappeared in the face of change. Brand drives business. Brand drives growth. Brand drives sustainability. Because everything communicates. As Tony Hsieh, CEO of Zappos, says, “Every phone call is a chance to build the Zappos brand.” Yes. Tony gets it.

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

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

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