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THE INTERNATIONAL BUSINESS DIVISION OF HELLENIC BANK IS CONSIDERED A MAJOR PILLAR OF THE GROUP’S SUCCESS AND A TESTAMENT TO ITS DEMONSTRATED ABILITY TO DEAL EFFECTIVELY WITH THE CURRENT FINANCIAL CRISIS WHICH HAS SWEPT THE COUNTRY.

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On the Road to Recovery

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Gabriela Guellil Roy Ogen Vasilis Zertalis

BUSINESS

Local CEOs express confidence

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MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

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CYPRUS ON THE ROAD TO

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Gabriela Guellil Roy Ogen Vasilis Zertalis

BUSINESS

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MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

Issue 36 March 14 - April 13 2014

6 EDITORIAL 8 up front 14 FIVE MINUTES WITH…

The Road

to Recovery Accounting, Audit & Tax Advisory Firms in Cyprus

One year after the traumatic events of March 2013, Cyprus is at last beginning to find its feet again. Three positive evaluations by the Troika, the successful recapitalisation of the country’s leading banks, the restructuring of the Cooperative banking sector, a timetable for key privatisation programmes and signs of new investment all indicate that the island is heading in the right direction and that growth will return in 2015. We look at key sectors of the economy and present the views of those who are closest to what’s happening.

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FEATURES 32 | “Germany has stood firmly by the side of Cyprus” Interview with the German Ambassador to Cyprus, Dr. Gabriela Guelil.

36 | Conferences & Presentations Photos from recent corporate events.

40 | Virtual MasterCard Is Here The Cyprus-based Lamda Group is at the forefront of the e-payment business.

43 | Quality + Value for Money = Market Success The Commercial Director of Carrefour Cyprus on how the company has managed to keep its 17 stores in Cyrus full of customers.

48 | So Far, So Good Smaller companies in the professional services sector can now take advantage of their flexibility and adaptability, says the CEO of Prospectacy.

70 | Too Much Potential to Ignore Erik Malinen, Director of Marinetek (Cyprus) Ltd., believes that the time is ripe to invest in the luxury maritime industry on the island.

72 | Company Heads Express Confidence CEOs in Cyprus are positive about mediumterm growth prospects

76 | Small and Medium-Sized Enterprises (SMEs) The European Perspective

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EDITORIAL

One Year On

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his time last year, the March 14, 2013 issue of Gold hit the newsstands featuring the very first interview in Cyprus with the newly-elected President, Nicos Anastasiades and a cover boldly declaring “Cyprus Means Business”. By an unfortunate quirk of timing, less than 48 hours later on March 16, the Government agreed to a €10 billion bailout to avoid bankruptcy and recapitalise the country’s banking system with extremely harsh terms. This year I am confident that what you read in this issue will not have been neutralised by some earth-shattering event (the Ukraine-Russia crisis notwithstanding) if you picked up your copy of the magazine a couple of days after its official publication date. The damage that was done 12 months ago has not been repaired, of course, but fortunately there is much more to this month’s cover story about Cyprus being on the road to recovery than mere wishful thinking. We did not choose the key figures who express their views about the current state of affairs and the prospects for their particular sector in the hope that they would give us a rosy picture of the future (I acknowledge that we did not request the opinions of any opposition politicians who doubtless have their own agenda when it comes to talking about the economy) but the fact is that cautious optimism and restrained confidence can be seen in virtually every statement that we received (starting Page 16). From foreign investors to representatives of the professional services sector, from bankers and economists to real estate developers, the message coming from them is that things are still difficult and much work needs to be done but they believe in the future of their sector and in the future of the country and its economy. In addition to the people whose views feature in this month’s cover story, you will find a number of articles closely related to this first anniversary of the bailout and the even more infamous bail-in of unsecured bank deposits. First and foremost, the Ambassador of Germany to Cyprus, Dr. Gabriela Guelil, answers some tough questions about her country’s alleged and actual role in last year’s Eurogroup decisions. Chancellor Merkel and German Finance Minister Wolfgang Schäuble have come in for some scathing criticism from various quarters in Cyprus, much of which the straight-talking Dr Guelil feels – not unsurprisingly – is unfair (Page 30). We also feature interviews with several people who are directly involved with investment and business in Cyprus, including Michalis Panayides, Commercial Director of Carrefour Cyprus (Page 41), Erik Makinen, Director of Marinetek (Page 68), Chris Panayiotou, CEO of the Lamda Group (Page 38), as well as Vasilis Zertalis of Prospectacy, a relatively small corporate service provider which was recently singled out by the New York Times as one of several companies leading the revival of Cyprus’ fortunes (Page 46). Additionally, we report on the opinions expressed during last month’s PwC/IMH panel discussion about the views of CEOs in Cyprus and how confident they are in the future not only of their own company but of their sector and the broader business environment (Page 72). One year on from the events that some have seriously described as being worse than the 1974 Turkish invasion, Cyprus is still beset by problems and as the Government doggedly persists with implementing the bailout agreement signed with the Troika, the louder do the voices of dissent ring out. Members of the House of Representatives have never been guaranteed to do the right thing and the recent vote and re-vote on the Privatisation bill showed that they are not afraid to display an astonishing degree of brinkmanship – even when a miscalculation could mean economic disaster for the country – in order to avoid being seen to take the hard but right decisions for the population as a whole. Things will not get any easier for President Anastasiades but it is imperative that he remain dedicated to the course on which he has started out if Cyprus John Vickers, is still to “mean business” as he told this magazine 12 months ago.

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up front

Action Global

Continues Russian Expansion

ction Global Communications continues to expand, with plans in place to further establish itself in Russia come the second quarter of 2014. Action Russia, founded in 2002 as a leading independent agency with a unique portfolio of international and local clients, will now grow its network of offices and correspondents, spanning the entire Russian territory. Action Global describes the impetus for engaging in such vast expansion plans as being to add to the wealth and breadth of its services, complementing its overall strategy of

targeting untapped markets. “These are really exciting times for us, as we approach new audiences and offer clients across Russia a truly allencompassing solution,” Tony Christodoulou, CEO of Action Global Communications (pictured) explained. “Russia is not only Moscow and St Petersburg and that is why a wider reach and approach is a necessity. We have already set the ball in motion for our growth plans, working towards this goal for over seven months now,” Christodoulou added. In the second half of 2014, Action Russia will launch an impressive network that reaches from Khabarovsk and Vladivostok in the Far

East region of Russia, to St Petersburg, Kaliningrad, and Novgorod in the North West. Other key locations will include Yekaterinburg in the Ural region, Tatarstan’s prosperous capital Kazan, Bashkortostan’s industrial capital of Ufa, and Siberia’s capital Novosibirsk, the third most populous city in Russia. With offices in more than forty countries, Action Global retains a presence in Central and Eastern Europe, the Balkans, the CIS countries, the Caucuses, Central Asia, the Middle East, North Africa, and the Mediterranean. The company was founded by Tony Christodoulou in Nicosia in 1971.

‘Investing in People’

Certification for Nexia Poyiadjis

exia Poyiadjis – a prominent Nicosia partnership of chartered accountants and business consultants – has recently been accredited with the Investors in People Certification. Launched in 1991, Investors in People is one of the UK’s leading people management standards, and international benchmark of good practice in the area of human resource management and development. Investors in People is an internationally recognised quality standard, which requires participating organisations to focus on their human resources and reflect on various issues pertaining to how they utilise, monitor, communicate with, train, assess, and reward their people.

It provides tools for evaluating current practices, as well as a model for improving on past performance through adopting recommended policies and strategies. Nexia Poyiadjis describes the Investors in People accreditation as reflecting the importance and value it places on its human capital, as well as underlining its commitment to continue investing in its people. Founded in 1969, Nexia Poyiadjis currently operates three offices in Cyprus: in Nicosia, Limassol, and Kakopetria.

Louis Cruises Joins CLIA

Europe’s Executive Committee

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

ouis Cruises has been invited to participate in the Executive Committee of Cruise Lines International Associate (CLIA) Europe. The CLIA represents the leading cruise companies operating in Europe, with 43 members and 36 executive partners. CLIA Europe promotes the interests

Alexander the Great Beach Hotel Tops TripAdvisor Awards

anika Hotels & Resorts have announced that their flagship hotel, Alexander the Great Beach Hotel in Paphos, has earned the prestigious Traveller’s Choice 2014 Award, ranking it 1st among the overall top 25 best hotels in Cyprus. Indeed, all Kanika Hotels & Resorts claimed their place among holidaymakers’ favourites in Cyprus: the Olympic Lagoon Resort in Agia Napa ranked 1st among the family hotels and 10th, in the overall top 25 hotels, while the Elias Beach Hotel in Limassol came in 4th among the family hotels and 24th overall. These results are based on independent and voluntary reviews on TripAdvisor, the world’s largest interactive travel forum with user-generated content. TripAdvisor is respected and valued as the go-to address for firsthand, unbiased and candid reviews submitted by travelers themselves. More awards were given to Kanika Hotels by renowned tourism organisations for 2013/2014 such as the Travelife Gold Award for Sustainability in Tourism, the Gold Award from TUI UK & Ireland, the Top Performer Award from SAGA, the Excellence Award from Thomas Cook UK, the Highly Recommended Award from Zoover Awards and the Holiday Check Award from Top Hotel. Kanika Group’s Executive Chairman, Spyros Karaolis, said: “These latest awards prove that Kanika has not only identified what today’s holidaymakers appreciate but has implemented it to a very impressive extent. Our vision is to offer the leading hospitality experience in Cyprus with innovative facilities and excellent services inspired by the ethics and values of our company”.

of cruise operators within Europe, liaising closely with the EU institutions: the commission, the Parliament, the Council of Ministers and their Permanent Representatives as well as with the European Maritime Safety Agency (EMSA). Commenting on the invitation, Kerry Anastassiadis, CEO of Louis Cruises, noted: “It is a great honour and pleasure to be able to work

even more closely with our colleagues in Europe. We certainly look forward to contributing our utmost towards the fulfilment of the noble goals and aims set by CLIA Europe”. The Executive Committee is responsible for the implementation of all the activities of CLIA Europe and of the national associations in each of the countries in that region.

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Hellenic Bank

Index Tops Reliability

he Cyprus Reliability Index has rated Hellenic Bank as the most reliable credit institution on the island. The index compares ratings of the 10 most prominent Cyprus credit institutions, basing results on 500 consumer ratings collected in a RAI Consultants survey. The bank received the highest ratings of the 10, improving its position on the index compared to last year by being ranked first for reliability among both the commercial banks and credit institutions used by businesses. The bank’s subsidiaries – Pancyprian Insurance and Hellenic Alico Life – have both also gained positive media attention in recent months for their impressive rankings in similar surveys. The latter was recently ranked first for reliability in the category of ‘life insurance companies affiliated to a bank’ and second for reliability among ‘all life insurance companies’ in Cyprus The former was also ranked first for reliability among the non-life insurance companies in the same survey.

Lanitis Bros Celebrates 70th Anniversary

he company is one of the largest distributors of non-alcoholic beverages in the country, renowned as the franchised bottler of The Coca-Cola Company. Now a member of the CocaCola Hellenic Group, the company’s growth in its 70 years has been impressive. To celebrate the occasion,

the Group is launching a new campaign aimed at recognising the immense support it has gained the general public over the years. The campaign, “We grow up together, together we go on” will also focus on promoting the values of Lanitis Bros. The company is one of the most prominent privately owned companies on

the island, contributing extensively to the local economy. According to an official announcement, Lanitis Bros has invested €51 million in Cyprus over the last eight years, operating three manufacturing and bottling plants on the island, employing 350 people. The company boasts 182 products in total, 80% of which are made in Cyprus.

©Corbis ©Corbis ©Corbis ©Corbis ©Corbis

ith works of art from Cyprus, Greece and Europe, the Anastasios Leventis Gallery is poised to opens its doors on March 23. Art lovers will have the unique opportunity in Cyprus to view the works in a modern, 4,500m²-space, constructed to environmentally-friendly standards on Leonidou Street in the centre of Nicosia, just off of Archbishop Makarios III Avenue. The gallery will exhibit over 800 works, including paintings, drawings, water colours and objets d’ art. The Director of the Anastasios Leventis Gallery, Loukia Hadjigavriel, said that the project cost over €20 million, making it one of the biggest projects undertaken in Nicosia in recent years. It is expected to employ 25 to 30 members of staff. The gallery’s highlights include numerous works by celebrated artists such as El Greco, Canaletto, Boucher, Renoir, Monet and Chagall as well as major Greek and Cypriot painters.

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up front

Paphos is Top Wedding Destination

IronFX Global Announces Official Partnership with FC Barcelona

ronFX Global, one of the leaders in online trading, has announced its official partnership agreement with FC Barcelona, one of the most successful professional football clubs in the world. With this sponsorship agreement, IronFX Global becomes FC Barcelona’s Official Partner with worldwide association (except for Spain), marketing and promotional rights for the use of the FC Barcelona brand and players.

Javier Faus, first vice president of FC Barcelona commented: “We are extremely pleased to become associated with such a strong brand and a company that has a great passion for our team and our values. This will be a positive partnership for the Club and we are looking forward to working together with IronFX Global as we continue to build and move the Club forward.” Markos A. Kashiouris, Chairman & CEO of IronFX Global commented: “For a global firm like ours, partnering with one of the most successful football

clubs in the world is the perfect match and evidences the leadership of IronFX Global in the worldwide online trading arena. The FC Barcelona motto ‘Mes que un Club’ (More than a Club), embodies the philosophy upon which IronFX was founded: fair practices, pioneering attitude, innovation and top quality in every aspect of our operations. We look forward to success in the new season for FC Barcelona and continuing worldwide success and excellence for IronFX Global.” IronFX Global is headquartered in Limassol, Cyprus.

European Parliament

Campaign from IMH

NEXT STOP european parliament

MH has been assigned by the Directorate General for Communication of the European Parliament to carry out the European Parliament Road Show project’s communication campaign. The campaign is addressed to all Cypriot citizens but more specifically to those under 30 and aims to inform them of the role of the European Parliament and about the importance of voting in the European elections taking place in May. In this context, a Mobile Information Unit (eurobus) equipped with the latest technology and com-

EUROPEAN PARLIAMENT

munication infrastructure has started visiting public and private secondary schools, universities and colleges to provide up-todate information about the European Parliament, its importance in the EU decision-making process and its relevance to our everyday lives. The eurobus is decorated with the colours and logos of the European Parliament. MEPs will also be visiting schools and colleges to talk to students and answer their questions. The project is supported by the European Parliament Office in Cyprus and co-funded by the European Parliament.

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

Cybarco to Restore Kuwait

National Museum

hrough its affiliate company, Cybroc – whose activities are focused in the Gulf region – Cybarco has taken on the restoration and expansion of the Kuwait National Museum, with a 49% share. The museum suffered damage during the Gulf war, thus prompting the restoration and modernisation of the space spanning 145,000m². Currently comprised of four buildings, traditional Kuwaiti architecture is to be upheld in the already existing structures, whilst plans are in place for the development of two new buildings, which will be imbued with futuristic characteristics. Two overhead bridges are to connect the original buildings with the new additions.

aphos has been recognised as one of the best wedding destinations in the world, as voted by travellers in an online poll. Traveller feedback and industry research, which is collated by FlipKey.com – a vacation and rental company, part of the leading travel site TripAdvisor – found that Paphos ticked many of the important boxes for couples tying the knot. The best wedding destinations accolade is new, and has only been initiated this year. Paphos is described on the FlipKey site as: ‘The most fashionable spot for destination weddings in the Mediterranean.” Hundreds of thousands of euros are generated by couples taking advantage of civil weddings at the four municipalities of the Paphos district every year. Other top wedding destinations on the site include Tuscany in Italy, Bali in Indonesia and Cabo San Lucas in Mexico.

Neo & Bee Launches Flagship Bitcoin Branch

yprus-based Neo & Bee opened its first branch in the Engomi suburb of Nicosia last month. Neo is the world’s first physical portal for digital monetary services. The company aims to help those looking to manage their own money without the need for intermediaries like banks. The company also hopes to simplify the use of the digital currency, preventing the user from having to deal with bitcoin’s technological complexities. As part of the launch, Neo released three products: The Instant-Access Bitcoin Wallet: A standard bitcoin wallet that allows users to store their funds. Neo’s Time-Locked Wallet: This will allow consumers to hold their bitcoins for a pre-determined amount of time, allowing them to convert back to euros on an agreed date for the value at which they were when the wallet was established or the value of bitcoin at the time of the exchange. Merchant Wallet: It is available to merchants would wish to accept bitcoin payments. The company also has point-of-sale terminals available for merchants, for which they will charge a rental fee, in addition to monthly fees for online payment gateways.

up front

The

W World’s

Happiest Countries 1 Denmark

Happiness Score: 7.693

With one of the best healthcare systems anywhere, crime rates close to zero, no pollution and stable economic growth even during times of recession, Denmark is officially the world’s happiest country. It is one of the top 10 countries when it comes to gender equality. The Government even pays people to travel by bicycle instead of using a car. No wonder people are happy there.

2 Norway

Happiness Score: 7.655 Norwegians are famed for their healthy lifestyle and diet, and for their ability to party. Thanks in part to the prudent management of the wealth earned from its oil reserves, Norway has developed a much-admired socialist system and an enviable

standard of living. The country also takes great care of its other natural resources and is famed for its parks, mountains and forests.

3 Switzerland

Happiness score: 7.650 Switzerland has long been renowned for its tranquility, safety, punctuality and reliability but it is also an extremely high-tech country and one of the world’s most modern and stylish tourist destinations. What’s more, the population is the healthiest in the Western hemisphere and yet the government has the lowest spending on healthcare in the developed world. It does, however, invest in education and people.

4 The Netherlands Happiness Score: 7.512 When 91% of a country’s population state that they lead a very

happy and a satisfied life, successive governments have clearly been doing something right. With its low crime rate, liberal attitudes, fabulous culture, laid-back lifestyle and the highest proportion of broadband connections in the world, the Netherlands is a good place to be, despite the weather which doesn't seem to bother anyone.

5 Sweden

Happiness Score: 7.480 Like the other Nordic countries, Sweden is seen as a very safe country to live in and, despite relatively extreme weather conditions, a place where people enjoy nature to the full. It has a highlydeveloped public transport system, a powerful independent media and enviably transparent politics. Free education (including university) and generous social

here do the world’s happiest people live? What is the best place to live, work, raise your children and retire? The annual report by the UN’s Sustainable Development Solutions Network has some answers. Happiness depends on a variety of factors, including income, social support, generosity, freedom from corruption, life expectancy and freedom of choice. Out of a maximum score of 10, the top country gained 7.693 so there is obviously some way to go even there. Below we list the Top 10. Cyprus is ranked 34th with 6.466 while the occupied area of the island is 69th with a score of 5.463.

security grants add to Swedes’ overall happiness.

children are the best readers in the world”. With a high life expectancy, a good work/life balance, low corruption levels and wide access to an excellent healthcare system, Finns are not surprisingly happy.

6 Canada

Happiness Score: 7.477 Canada frequently wins plaudits as the best place to visit, work, invest and study and its tourism industry generated more than $81.9 billion last year. Other studies have ranked it in the Top 10 most peaceful countries in the world, and it renowned for its generous pension schemes and health care system as well as for an outstanding banking sector.

8 Austria

Happiness Score: 7.369 Almost 25 million tourists visited Austria last year, most of them going to the capital, Vienna, and Mozart’s birthplace, Salzburg though the skiing and mountain resorts in the Austrian Alps are also popular. Thanks to its cultural life, education system, stable economy and high employment, 90% of the country’s citizens say that they are satisfied with their housing and other key facilities.

7 Finland

Happiness Score: 7.389 As home to Nokia, it’s not surprising that Finns own more mobile phones per capita than anywhere else. However, Finland also has 100% literacy and, according to the OECD, “Finnish

9 Iceland

Happiness Score: 7.355 Topping the list of the world’s Top 10 cleanest

NORWAY

FINLAND

Sweden

AUSTRIA

ICEland

The Netherlands CANADA

Switzerland

AUSTRALIA

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

countries and ranked 8th wealthiest country in the world (with the 6th highest GDP), Iceland may be cold but it is safe, it offers mothers 9 months fully-paid maternity leave and it is virtually crimefree. Life expectancy for both men and women is among the highest anywhere.

q Australia

Happiness Score: 7.350 Its healthy outdoor lifestyle, outstanding natural beauty and stable economy are just three of the reasons why Australia has such a happy population. Its people are also multicultural, young and open-minded. Cities like Sydney, Melbourne and Perth have everything you could ever want, plus low pollution levels and a modern and efficient infrastructure. A much-admired educational system and great sporting traditions are added extras.

E L PR I M E RO C H RONOMA S TE R 19 6 9

W W W . Z E N I T H - W A T C H E S . C O M

Acknowledged as the world’s best chronograph, it is a descendant of the legendary El Primero ﬁ rst unveiled in 1969 and proudly bears the iconic colours of the ﬁ rst high-frequency automatic column-wheel chronograph calibre. Beating at a rate of 36,000 vibrations per hour, this daring feat embodies the exceptional expertise of the Manufacture.

Zenith_HQ • Visual: Ch1969Steel • Magazine: INBUSINESS (CY) • Language: English • Issue: 4.5.2013 Doc size: 210 x 280 mm • Calitho #: 04-13-85672 • AOS #: ZEN_04893 • FM 23.4.2013

interview

five minutes with...

Roy Ogen General Manager, European Headquarters, Banc De Binary

hat was the fundamental vision behind the establishment of Banc De Binary? Banc De Binary was formed in 2009, and since then, our multilingual, experienced Account Managers, Customer Support, and award-winning high-tech trading platforms have put our company at the forefront of binary options trading. Our founder’s vision was for a new kind of trading company: one that focused on high quality binary option trading services and solutions. There was a gap at the quality end of the market and a real absence of binary option trading platforms to provide this level of service to the experienced trader – which is where Banc De Binary came in. Why was Cyprus chosen as the prime location to host such an important segment of the company? Cyprus was the obvious choice; not only is it the first jurisdiction to license binary options under financial instrument laws, it is also a world-class business and financial destination. Banc De Binary was the first exclusively binary option company to be licensed in Europe. Limassol is where our headquarters are based. The company is a Cyprus Investment Firm (CIF), licensed and regulated by the Cyprus Securities and Exchange Commission (CySEC) under license no. 188/13.

Why has binary trading caught on so well? Binary options give traders back the power to focus solely on making correct price predictions in volatile markets. In many cases traders are able to make successful predictions because of market volatility, because they only have to choose two possible asset price directions: Up or Down. These price trends are more obvious during periods of volatility, and trading a binary option with the trend – whether Up or Down – is simple. These conditions are exactly why binary options are enjoying such a boom right now. 2013 saw Europeans face rather a challenging economic environment. How, in your professional opinion, has this affected clients’ attitudes towards the trading industry? In many ways, the turbulence in financial markets in recent years has boosted Banc De Binary’s popularity, because traders now view the idea of more traditional speculative trading as far too risky and riddled with hidden complexities. Binary options have successfully carved out a niche that focuses on straightforwardness, known risk and the ability to capitalise in volatile markets. In the EU, Binary Options became a popular alternative investment during the crisis, due to their simplicity. Our clients are looking for

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

more transparency and simplicity in their investments. Complexity increases risk, and investors are concerned by the complexity of the financial instruments that are available on the market. We saw one local example with the Convertible bank securities that many investors bought, but did not truly understand. What adjustments do you expect to see within the trading industry this year? I expect to see more licensed binary options brokers in the EU, and the sector to expand further as more regulatory authorities begin to view Binary Options as a serious financial instrument. Cyprus has pioneered the licensing of binary options, and will continue to influence the level of their acceptance in other EU markets. Finally, what goals does Banc De Binary have for 2014, both locally and globally? Locally, our goal is to continue building good relations in the business and wider community by growing our team of quality Customer Service and Account Managers, and doing outreach activities similar to our Philippines Aid collection drive. Globally, our goal is to continue expanding into the EU markets, and raising awareness about Binary Options and how they are the fastest-growing alternative investment online today.

COVER STORY

YP US By John Vickers

Exactly one year after the traumatic events of March 2013, Cyprus is at last beginning to find its feet again. A series of positive evaluations by the Troika, the successful recapitalization of the country’s leading banks, the restructuring of the Cooperative banking sector, a timetable for key privatisation programmes and signs of new investment all suggest that the island is heading in the right direction and that growth will return in 2015.

ome are calling it a minor miracle. Twelve months after the people of Cyprus were told the frankly shocking terms of the €10 billion loan arrangement that would save the country from bankruptcy, Finance Minister Harris Georgiades is talking about a return to the international markets ahead of the projected 2016 date. The resolution of the once-powerful Laiki (Popular) Bank, the 47.5% haircut of deposits in excess of the EU-wide protected level of €100,000 in Bank of Cyprus came as a bolt out of the blue for most people; in March 2013, the prophets of doom at home and abroad were out in force.

And yet the economy did not shrink by 20% after the collapse of the banking sector; it did not even shrink by 8.7% as the Troika had expected. The final figure for 2013 is 5.4%, which would not normally be anything to celebrate – Finance Minister Georgiades acknowledges that the country is still undergoing “the most serious recession since the Turkish invasion in 1974” – but under the circumstances it is quite remarkable. What’s more, tourism held up last year (with an increase in revenue) and the projections for the 2014 season are positive. The shipping industry has similarly proved to be resilient while the other key sector in recent years – professional services – has not been as badly affected as was originally

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feared. Few international companies have left the island and, though the numbers are down, new companies have continued to register in Cyprus. At the same time, it is broadly recognized that 2014 is going to be a year in which little progress is made. Unemployment has yet to reach its expected peak and all the key indicators continue to head in the wrong direction. So what is the reality of the situation? Gold sought the views of 18 key figures playing a variety of roles in different sectors of the economy – public finances, banking, foreign investment and new investment opportunities, professional services, real estate and tourism – and we present them on the following pages.

10 DAYS

THAT SHOOK CYPRUS Saturday 16 MARCH:

The Government led by newlyelected President Nicos Anastasiades agreed to a €10 billion bailout to avoid bankruptcy and recapitalise the country’s banking system in return for a series of drastic measures which would hit the country’s savers. The terms of the deal meant that savers would sacrifice up to 10% of their deposits in a move which would raise as much as €6 billion.Under the deal, bank deposits of more than €100,000 would be hit with a 9.9% one-off levy. Under the €100,000 threshold, there would be a 6.7% ‘haircut’.

Sunday 17 MARCH:

The government postponed a planned emergency session of parliament to debate the controversial bailout as the scale of opposition to its terms became clear. Negotiations were underway to keep bank branches closed for a further day as President Anastasiades needed to get the legislation ratifying the deal through parliament before the banks reopened or face a run on accounts.

Monday 18 MARCH:

Cypriot politicians worked on a plan to cut the levy on small depositors to 3% or less ahead of a crucial parliamentary vote, which was delayed until Thursday afternoon. It

PRIVATISATION nder the €10 billion financial

assistance package agreed with the Troika last year, the Government was obliged to draw up a plan for the privatisation of the country’s semi-government organisations, starting with the three most profitable, with the aim of securing €1.4 billion by the end of 2018. Earlier this month, the House of Representatives passed (at the second time of asking) a bill outlining the procedures to be followed. The plan is for the Cyprus Telecommunications Authority (Cyta) and the Cyprus Ports Authority (CPA) to be

was also agreed that Cyprus’ banks would stay closed until Thursday. Germany applauded the ‘bail-in’ idea but Russian President Vladimir Putin called the proposed ‘haircut’ of bank deposits “unfair, unprofessional and dangerous”.

Tuesday 19 MARCH:

The House of Representatives rejected the bailout terms, with more than half of MPs voting against the controversial bank levy and 19 MPs choosing to abstain. Cyprus turned to Russia for help as Finance Minister Michalis Sarris travelled to Moscow in the hope of securing a massive loan.

Wednesday 20 MARCH:

The Central Bank of Cyprus announced that banks in Cyprus would not re-open until at least the following Tuesday, as the government rushed to assemble a Plan B and the Finance Minister asked Russia for a further €5bn. The Church of Cyprus offered to help by offering its entire wealth to support the country’s economy. Eurozone ministers openly discussed the possibility of Cyprus leaving the eurozone in an emergency call.

Thursday 21 MARCH:

More details emerged of the conference call held between eurozone

denationalised by the end of 2015 and the Electricity Authority of Cyprus (EAC) to be privatised by September 2017. For Cyta, the plan envisages streamlining and restructuring, followed by the offering of shares to the organisation’s employees either individually or collectively (with the percentage to be decided by March 2015). A strategic investor will be sought by the end of 2015. Again, there are no pre-set details about whether the Government will retain a majority or minority stake. The plan does stipulate, however, that Cyta’s various operations will not be separated. The Cyprus Ports Authority will remain

ministers on Wednesday night, with one official describing emotions as running “very high”. New plans drawn up by Cypriot politicians dropped the bank levy and as part of their ‘Plan B’, they proposed setting up an ‘investment solidarity fund’. The European Central Bank warned Cyprus that it would cut off its emergency liquidity assistance after 25 March unless an EU-IMF programme was in place. Seven bills were submitted to Parliament “relating to the reorganisation and recovery of the Cypriot banking system”.

Sunday 24 MARCH:

Cyprus’ two biggest banks rationed the amount of cash savers could withdraw every day. Savers at the Laiki Bank and Bank of Cyprus were hit by new cash limits of €100 a day. During emergency discussions in Brussels, Cyprus was warned that it faced disorderly default and an exit from the eurozone unless it bowed to the Troika’s demands.

Monday 25 MARCH:

Plans were discussed to impose a levy of 20% on deposits of more than €100,000 in Bank of Cyprus.

A last-ditch deal for a €10 billion bailout was agreed in the early hours of the morning. It would safeguard small savers but inﬂict heavy losses on uninsured depositors, including wealthy Russians, and keep the country in the eurozone. The country’s second largest bank, Laiki (Popular) Bank, would be closed down as part of the deal, with the raid on uninsured Laiki depositors expected to raise €4.2 billion. Bank of Cyprus, the island’s largest lender, survived but investors not protected by the €100,000 deposit guarantee would suffer a major “haircut” – a forced loss on the value of their investment –over the coming weeks of almost 50%. The eurozone admitted that “no date is fixed” for banks to reopen in Cyprus and that they could remain closed after Tuesday, after a week of being closed.

in state ownership as the regulatory authority, but port operations will be outsourced. The Government will proceed with a licensing round for Limassol port while work at Larnaca port will be carried out under a Public Private Partnership programme. The plan provides for the privatisation of the Electricity Authority of Cyprus by the end of 2018. The organisation`s operations will be unbundled (electricity generation, high voltage transmission network, low voltage distribution network and electricity supply). Furthermore, the privatisation plan will later be applied to the Cyprus Stock Exchange, the state`s 51% stake in

Forest Industries and its 11.9% stake in the Pancyprian Bakers Company. The Cyprus State Fair Authority will be dissolved and its immovable property sold. The Government will also explore the possibility of privatising another five state-owned organisations and the selling off of state-owned land. The approval of a privatisation plan was a precondition for the disbursement of the €187 million third tranche of financial assistance. The government believes that the target of collecting €1.4 billion is feasible and the money raised will be used to reduce Cyprus` rising public debt, expected to peak around 126% in 2015.

Friday 22 MARCH:

Finance Minister Michalis Sarris’ talks in Moscow came to nothing as Russia refused to extend the terms of an existing loan and would not contemplate lending Cyprus an additional €5 billion. The House of Representatives adopted laws allowing for a good bank/bad bank split in failing lenders, the creation of a ‘solidarity fund’, and capital controls. Proposals for a bank levy returned to the table, with talk of a levy of more than 10% on deposits greater than €100,000. The House backed a levy of less than 1% on bank deposits below €100,000.

Saturday 23 MARCH:

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A PREREQUISITE FOR ATTRACTING SERIOUS FOREIGN INVESTMENT IS THE CREATION OF TRUST AND THE INTRODUCTION OF COMPETITIVE INCENTIVES DELIA VELCULESCU Mission Chief for Cyprus, International Monetary Fund

ur mission’s main conclusion is that the financial assistance programme remains on track, although challenges remain. We have found that the macro-fiscal performance has been better than expected. Regarding growth, we expect output to have fallen by around 6% last year. This represents a deep and painful recession, which is coupled with falling wages and rising unemployment. Still, it remains close to 3 percentage points better than the initial programme forecast. The performance of the fiscal accounts has also exceeded programme targets by a significant

margin. This is as a result of both prudent execution of budgetary spending last year, and of better revenue performance due to the macroeconomic outturn. There are signs of stabilization in the banking sector. The two large banks have been recapitalized and Bank of Cyprus is making progress in implementing its restructuring plan. All preconditions for the recapitalisation of the cooperative sector have been fulfilled, and we expect the recapitalisation of the sector to proceed shortly. Finally, deposit trends are showing signs of stabilization in recent months. The outlook for this year remains difficult, as the economy continues to adjust. We have not changed the programme forecast for 2014 and beyond, which projects output to fall by 4.8% this year and to modestly grow next year by about 0.9%. Given that the macroeconomic uncertainty surrounding the outlook remains

large, the authorities will need to continue to implement the 2014 budget prudently, building on their strong fiscal performance to date. In the financial sector, one key challenge is dealing with a very high level of non-performing loans. In this regard, banks and cooperatives will need to put in place adequate arrears management frameworks, and the authorities will need to reform the debt-restructuring legal framework to provide incentives for borrowers and lenders to negotiate and reach solutions to workout debt. Another key challenge is to normalize payment flows in the economy while safeguarding financial stability. The authorities have a milestone-based roadmap to guide this process. With key milestones now completed, the second stage of gradual relaxations of restrictions is expected to start shortly.

democracy and enhance the credibility of our institutions. But above all, we have to set the basis for a better Cyprus in the immediate future.

AVEROF NEOPHYTOU

Chairman, Democratic Rally (DISY)

he year 2014 is probably the most critical in our country’s path towards economic consolidation. Our first and foremost challenge is to ensure the stabilization of the economy, while addressing the multitude of the social problems that were created. Secondly, we have to work hard to improve the quality of our

A PREREQUISITE FOR ATTRACTING SERIOUS FOREIGN INVESTMENT IS THE CREATION OF TRUST AND THE INTRODUCTION OF COMPETITIVE INCENTIVES Bankruptcy and an exit from the eurozone and the European Union’s security does not constitute

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Turning to structural reforms, where the authorities’ agenda is very ambitious, the challenge is to accelerate reform implementation. Given the currently difficult but unavoidable economic adjustment, a key priority is the implementation of social welfare reform, which will introduce a guaranteed minimum income scheme to protect vulnerable households during the downturn. It is also important is to take measures to fight tax evasion to ensure that everyone pays their fair share, as well as to advance the broad reform of the revenue administration to increase both its efficiency and its effectiveness. Public financial management also needs to be strengthened by adopting and implementing the new fiscal responsibility and budget systems law. Finally, the adoption of the privatisation law is essential to kickstart the privatisation process.

an option worth considering. The only viable way for Cyprus is within a united Europe, and with even “more Europe”. Let’s not forget that the tough loan agreement before us was essentially a lifejacket in order to avoid the disorderly bankruptcy of the country; a risk resulting mainly from our own mistakes. We have undertaken to faithfully implement these necessary adjustment reforms, within the agreed timelines. This is the only way to get out of the Memorandum and return to the markets the soonest possible. The three very positive Troika reviews and the forthcoming disbursement of the fourth tranche contribute to stability and create a cautious optimism that we will succeed. So does the upgrade of the economy by S&P last November. Despite the dangers that still remain, our banking system is slowly stabilizing with all our banks fully recapitalized. The Cypriot economy is proving to be far more resilient than originally anticipated. As far as public finances are concerned, important ground has already been covered, driven by cost reductions rather than imposing new taxes. The public sector has been reduced by 1,500

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DR ALEXANDROS APOSTOLIDES

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ne of the most difficult economic concepts for politicians to understand is the idea of dynamic equilibrium. Political economy is based on the idea that it is next to impossible to return to a past condition once expectations are altered. The Cypriot bailin and the very severe economic downturn that followed are creating similar problems with tax evasion. This is a real worry for Cyprus. The bail-in has changed expectations of the fact that deposits are not always safe; it is threatening to make tax evasion more socially acceptable as well. Cyprus was not known to have particularly severe tax evasion problems, at least for households. The same might not be said for companies, since Cyprus did also function as a centre for company (many of which are “brassplate”) registration.

Although issues existed, the general consensus is that the high zero percent income tax threshold for Cyprus (one is taxed after making €19,500) combined with a relatively professional tax service, has allowed Cyprus to avoid the severe tax evasion issues of Italy or Greece. And yet the way the bail-in was handled in Cyprus creates future risks in this respect. Unless they are addressed, the Troika-led effort to increase efficiency in tax collection will fail. Firstly, the fact that deposits were used to cover bank losses while those two banks were under Central Bank control has created additional incentives for professionals to mis-record their incomes. Anecdotal evidence suggests a severe drop in declared incomes of the self-employed. Many feel justified to risk the possibility of being captured for tax evasion until they recover the amount that was bailed in. They blame the government

system that led to their deposits being affected and resent being taxed (as they see it) twice: once for having an account in Laiki or Bank of Cyprus and again for their earned income. Thus worryingly, tax evasion now seems more acceptable that in the past, at least for Cypriots who were bailed in. The Government has a role in preventing this condition becoming the new equilibrium by proactively tackling the issue. The Cypriot tax authorities are running a pilot project where luxury car registration is matched to personal income statements; yet this needs to be stepped up and integrated with in situ raids, following the example set in Italy. Tax authorities need to have a task force that can monitor traffic in the multitude of bars and restaurants in downtown Nicosia to ensure that VAT is being charged and paid. Yet the easiest answer is perhaps the one that is often missed by politicians. Lowering the tax burden of a population who finds its income stretched is an eminently good idea. Transparency is also important. A lagged disclosure of who is investigated and convicted will help restore the public perception of tax evasion. Yet ultimately in Cyprus, as in all other bailout countries, structural reforms are focused on the proximate and not the ultimate causes that created such social distortions in the first place.

people when compared with the previous year by applying a strict policy of zero recruitment. The social reality, of course, is that this year will be a very difficult one. An increase in unemployment and the swelling of the social problems this entails is expected. Social problems must be addressed and our fellow citizens who are most in need must be supported to the extent that the state of our economy allows. In these difficult times, social solidarity must guide everyone’s actions. On the other hand, even though confidence in the banking system is slowly returning, the ability to grant new loans remains almost non-existent, and our banks are practically unable to finance business activity. These parameters, coupled with the large increase in non-performing loans, require the restructuring of sustainable and viable loans. To revive the economy, new capital is needed for investment. With the huge liquidity and funding problems we are faced with, the only way out is to attract investment from abroad. A prerequisite for attracting serious foreign investment is the creation of trust and the introduction

of competitive incentives. In parallel, it is in this light that we must consider privatization: as a tool for attracting foreign investment, creating jobs and driving growth for the benefit of consumers, taxpayers, and employees. Credibility is the only reliable vehicle for the creation of a better future. To build credibility, we must both rely on the old and on the new dynamics that the Cyprus economy can utilize. There are sectors that have contributed to the progress and prosperity of recent decades, such as tourism, the construction industry, professional services, and shipping. At the same time, a new growth engine is emerging with the extraction and exploitation of hydrocarbons. New structures need to be created to make the country reliable in relation to the management of its hydrocarbon reserves and create the conditions for the development of synergies with neighbouring countries in terms of their exploitation. These are relationships that we do not want to limit only to energy but to expand into many areas of cooperation. It is important, however, not to consider energy as the vehicle to escape the necessary reforms

we all know we have to implement. We have to move forward with changing and redesigning our economic strategy. It is a design over time that requires the development in parallel of additional business sectors with high added value; sectors such as education, health, technology, research, and innovation in which Cyprus, with its proven outreach, can be competitive and play an important regional role. The development of new sectors that will contribute substantially to the GDP of the country is a very large but, nevertheless, essential challenge. Our goal is to build a better Cyprus. A Cyprus that will be a true equal and credible member of united Europe. A Cyprus that can provide economic and national security to its citizens and can make the most of its geographical and geostrategic position. A Cyprus that can create the conditions conducive to the solution of our national problem and the reunification of our country. To plan and begin implementing this strategy is the great challenge of 2014. The dilemma for all of us today is whether to move boldly forward or continue to look backwards.

Economic historian, European University Cyprus

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IF IT PLAYS ITS CARDS RIGHT, CYPRUS WILL BE BACK ON ITS FEET MUCH SOONER THAN WE THINK

JOHNY ABUAITAH CEO, Windsor Brokers Ltd

yprus’ financial situation is quite difficult at the moment and it will take some time to overcome the current economic obstacles. We believe that Cyprus needs to regain its confidence and improve its bureaucracy; these are things that will

help attract investment. We were affected last year; there were concerns over Cyprus’ reputation and the safety of client funds. We reassured our clients by letting them know that we have risk management policies in place so there was no reason for concern. People have to realize that no matter where an investment firm is located, its viability during tough economic times depends essentially on its internal strength rather than its location. Windsor was

he international investment world sees significant opportunities opening under the macroeconomic prospects being developed in relation to a number of factors such as Natural Gas discoveries and the increased competitiveness of the economy as costs come down and a more attractive investment environment is defined through the legal and structural measures that are being implemented as well as through various incentives announced by the government. Foreign investors know that Cy-

ranked one of the top 10 Cyprus Investment Firms with the highest capital reserves at the beginning of 2013. We are confident, however, that this phase will benefit Cyprus in the long run. People here have experience, they are educated and also think collectively. This time, you can see less talk and more action; restructuring on a political, economic and social level is already underway. People are now more aware of the reality of

prus is open for business. They realize that the country is on track for a quick and firm recovery. They are also aware that the Government has accelerated a series of reforms in order to create a more business-friendly environment. Additionally, Cyprus offers numerous incentives targeting different sectors which are constantly being reviewed and enhanced in an effort to continuously improve the country’s investment environment. Foreign investors have the insight to understand the opportunities in sectors such as energy, tourism, shipping, infrastructure projects, research and innovation, and professional services. CIPA, with the knowledge and networks it has amassed over the years, has already undertaken the role of central coordinator for all actions aimed at attracting and promoting investments, in close cooperation with the Government

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things and are doing something about it. And yes, Cyprus is still a high-calibre services and business-friendly centre. We expect the economy to stabilize by the end of 2014/beginning of 2015 but we believe that sustainable growth will require a minimum of 5 years. It is also a matter of perspective as many investors seize investment opportunities during such periods. It is essential to proceed gradually and effectively to restore long-

and the private bodies. The Government, aware of the emphasis we need to place on attracting investments, has provided CIPA with additional funding to support the Agency’s efforts to re-establish the country’s image. This, of course, is a slow and challenging process, which requires continuous effort. Additional substantive reforms and improvements are needed if we want to look forward to kickstarting the economy. For example, CIPA operating as a true one-stop-shop service would be an important step towards accelerating procedures to attract Foreign Direct Investment. CIPA is ready and has the knowledge and expertise to advise the government on all issues related to attracting foreign investments.

term confidence in the country – both internally and externally. Economic restructuring and new laws will definitely play a vital role in the country’s progress. We must not forget that Cyprus has several aces in hand – its location, infrastructure, jurisdiction, human resources, culture and climate are very important and should not be taken for granted. If it plays its cards right, Cyprus will be back on its feet much sooner than we think.

CHRISTODOULOS ANGASTINIOTIS Chairman, Cyprus Investment Promotion Agency (CIPA)

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GEORGE MOUNTIS

Director of Business Development, Emergo Wealth

he Cyprus economy was already on a downward spiral for two to three years so it is unfair to state that the Memorandum of Understanding (MoU) is to blame for the decline in property values and demand. Before the MoU, property prices in Paphos, Famagusta and Larnaca were down by 30-40% compared to 2007, while Limassol and Nicosia were on a downward path from 2011 onwards, with reductions of 20-25% (Land Registry, 2013). With the signing of the MoU, the market has been ‘frozen’ and it is anticipated that prices will drop further as the affordability ratio of net income to house prices is further strained. Nevertheless, all these MoU reforms are going in the right direction to create a reliable and dynamic banking and real estate sector. Yes, heavy austerity and recession might be in place for the next 2-3 years and everyone agrees that, after such a severe

ANDREAS DEMETRIADES

Press Spokesman, Association for Large Scale Investment Projects

he events of the first quarter of 2013 placed the economy and society of Cyprus in front of unprecedented challenges. However, the Cypriot economy, with the business world as its pillar, has shown signs of resilience which allow us to look to the future with cautious optimism. We have been through an extremely large crisis but, despite this, the impact on the economy has not been as severe as we had expected. There is a more general problem with liquidity in the economy. There is difficulty in securing funding, considering the cost of investment schemes, which amount to tens or even hundreds of millions for each project. The only way out we have left is to attract investors. We have no doubt that demand in Cyprus’

construction industry will return. We have already noted keen interest on the part of investors from China, Russia, America, Canada, the Middle East and elsewhere. However, they are waiting to see the banking system and the general economic situation stabilise before they invest. There are bureaucratic issues that need to be overcome, especially regarding the issuing of town-planning permits or licences under a multitude of terms, restrictions or demands, which burden the sustainability of investment schemes, without adding any significant value to the said investment schemes. We have in our possession a licence containing 75 pages of conditions! You understand that if an investor is faced with such a licence, investment interest will be withdrawn. Red tape and the lack of adequate incentives to improve the viability and profitability of investment schemes kill economic growth. The execution of those large-scale development projects that are pending (some are in development, others are trapped in red tape) will be the catalyst for kickstarting the development process and opening new job positions. The capital investment of projects represented by the Association for Large Scale Investment Projects exceeds €8 billion, with prospects of opening over 7,000 jobs. Besides these new jobs, the state will also reap tax benefits, while new investment opportunities for the broader economy are certain to emerge.

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blow to Cyprus’ lucrative banking and financial sector, the country will be pushed into a deep recession. Perhaps the issue one should consider is what would have happened if all these reforms that Cyprus needed for years had already been undertaken, making its financial and real estate sectors stronger and more transparent. And yes, investors from overseas have already started arriving on the Island, looking for opportunities to invest in anything from large-scale real estate projects to operating hotels and acquiring non-performing loans. They have seen this scenario play out elsewhere and they know that in 2-3 years’ time, the economy will start growing again, provided that the country streamlines its public sector, strengthens its supervisory bodies, and restructures its banking industry. Cypriots will be left to benefit from providing services to these new foreign end buyers, and, in time, they are likely to realise that had they spent more time scrutinising their Government and dealing with their problems rather than pushing them under the carpet, the island would have been a much better place to live and work today.

PHILIP VAN DALSEN CEO, MTN Cyprus

he MTN Group sees MTN Cyprus as a springboard for the development and introduction of innovative products and services that may be applicable to other MTN Group markets in future. At a turbulent time for the telecommunications industry, MTN is and will remain a keystone of stability in Cyprus. The country has a bright future as it also lays the foundations to become a major energy centre of great value to European energy security. Cyprus has always managed to overcome its difficulties and I am sure that it will again emerge stronger from the current crisis. With their valuable indigenous characteristics of hard work and perseverance, the Cypriots are going to exploit the advantages of the island and again create a bright future.

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IOANNIS CHARILAOU

President, Institute of Certiﬁed Public Accountants of Cyprus

ANGELOS GREGORIADES

President, Cyprus Investment Funds Association

he investment funds sector in Cyprus is well positioned to become one of the major pillars of our financial industry in the coming years. In addition to the numerous tax benefits and availability of experienced service professionals, our legal framework reflects a harmonization with the relevant EU Directives covering UCITS funds, UCITS Management Companies and Alternative Investment Fund Managers. Concurrently, the upcoming enactment of the Alternative Investment Funds legislation (which will replace the existing International Collective Investment Schemes legislation) will establish a competitive legal framework and strongly place Cyprus on the map of credible funds jurisdictions. Immediately following the events of March 2013, the funds industry experienced a slowdown. However, during the second half of the year, a substantial number of both ICIS and UCITS were established by foreign promoters, showing that confidence still remains in the sector. The level of activity is expected to grow over the next year in light of the recent and upcoming developments in our legal framework. The Cyprus Investment Funds Association (CIFA) was established with the purpose of promoting the Cyprus investment fund industry both at a local and international level, while at the same time providing support to its members, being engaged in the development of related regulatory aspects and encouraging the maintenance of industry standards and professionalism. CIFA is committed to working diligently on achieving this mission, while ensuring that Cyprus remains at the forefront of related issues and positions itself as a jurisdiction of choice.

lthough the forecasts of a quick recovery of the Cyprus economy were severely negative, I believe that the facts eventually proved them wrong. Undoubtedly things remain critical, since the country relies on the financial support of the Troika. However, the country avoided bankruptcy and, after the resolution of the banking sector, it seems that things are on a trajectory for improvement. One of the major factors for being “too strong to die” is the resilience of the professional services sector, which managed to retain the great majority of its international clients in Cyprus. Due to the haircut of bank deposits and the related adverse publicity, coupled with what were unprecedented developments for Cyprus and the unavoidable uncertainty they caused, it crossed everybody’s mind that foreign investors and companies would ﬂee Cyprus. To the surprise of many, this did not happen. In my opinion, this was a result of a blend of various factors, such as the benefits that these firms enjoy in Cyprus, the quality of services received, the competitive rates charged and ease of doing business here as opposed to other jurisdictions. There have, of course, been many cases where international firms sought refuge in other jurisdictions but their decision to remain domiciled in Cyprus gives a clear answer. The whole package of services rendered provides a champion product to international firms to keep their presence in Cyprus. We should bear in mind

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that professional services and the revenues derived from international clients provided the majority of the country’s’ GDP, hence its importance to the economy is vital. Given the current situation, one could be very concerned about the progress of the economy for 2014. Local companies face many challenges, most of them caused by the lack of liquidity in the market. Many things depend upon the availability of cash and the inﬂow of new funds. On the other hand, should the government respond positively to a couple of very serious issues (such as its compliance with OECD requirements, elimination of the dangers of being placed on blacklists, enhancement of transparency and AML procedures, etc.) with a parallel improvement in banking procedures, more foreign investors would most probably opt for Cyprus for their business. This could also have a positive effect on the local market as well, since fresh money from abroad will be induced into the system. I believe that improvements to the economy, together with the much-aspired recovery, could be greatly facilitated by the following: • Political and economic stability are of paramount importance • Elimination of the risks that Cyprus might be considered as a tax haven or a place with minimal transparency • Restoration of its rating in various organisations, such as the OECD • Improvements to procedures followed in the government structure, cutting red tape and unnecessary overheads • Provision of incentives for foreign investors to invest in Cyprus • Cooperation between the public and private sector • Modernisation of legislation and the passing of new laws

to enrich the catalogue of services and products offered in Cyprus. • Promotion of Cyprus as an international business centre Regarding the above, ICPAC has suggested to the President of the Republic a number of measures for the swift recovery of the economy. In addition, we are in close cooperation with the Ministry of Finance and its departments, and have submitted our views on the effective operations of the Double Tax Treaties section, and the Tax Tribunal. We have dedicated our own resources to assist the Ministry of Energy, Commerce, Industry & Tourism to fulfil its obligations at EU level. In addition, we have undertaken bold initiatives to bring about the much-desired improvement at the Office of Registrar of Companies and assist the Inland Revenue Department to succeed in its very difficult mission of complying with the recommendations of the Global Forum of Transparency and Exchange of Information. There a lot to be done. These tasks have to prioritised and religiously executed and monitored. And most importantly, we should all be committed wholeheartedly to doing what needs to be done.

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ver the past year, we have heard and read so many times about the huge blow to the image of Cyprus as a reputable international business centre, caused by the decisions taken as part of the financial rescue package offered to the country by its international lenders. However, as time has passed, we have started seeing evidence of the remarkable resistance shown by the international business sector, which was initially believed (even within the country) to be heading for its demise. The main reason behind this resilience has to do with the fact that Cyprus has maintained all of the advantages which have always made it attractive for international business. Indeed, it has been very welcome to have this perception reinforced by statements recently made by the Troika, with the sector considered to be among the main pillars on which our deeplywounded economy should base its recovery. So, thankfully, international investors and professional advisors have not turned their back on us, even if some of them suffered heavy losses from the decisions taken last March. The question should now be, “How do we build on that?” Do we follow the trendy message “business as usual”, which some were so proud to proclaim even when the bail-in was put into

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try, as large countries and collective bodies such as the OECD, President, the G20 and the Cyprus Fiduciary Global Forum unAssociation dertake a relentless effort to completely reshape how things work, with initiatives such as BEPS (Base Erosion and Profit Shifting), automatic information exchange and Foreign Account Tax Compliance Act (FATCA) being but a few of the “new kids on the block”. We should also put our house in order by correcting wrongdoings and eliminating inefficiencies that we have allowed to be around for so long, so much so that we have almost learned to live with them. Such actions should be reinforced by making sure that we have the correct regulatory frameworks in place which are uniform, robust and fair and are consistently and effectively applied. We have shown resilience in the face of crisis and we have everything needed to turn this into a great opportunity: Cyprus’ strategic geographical location, its top grade infrastructure, the well-educated and experienced people, the advantageous legal and tax regimes and so many other benefits. We also have a remarkable tenacity never to give up and to always fight to find solutions in order to survive and prosper. We can do it!

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€17.4

€10.674

Public Debt (€ billion)

action, or do we aim higher? As part of the group of people who are on the “front line” in the battle to attract and service international clients, as well as to promote Cyprus abroad, we truly believe at the Cyprus Fiduciary Association that this is a golden opportunity to raise the standards of quality of our offering and to enhance the image of our country. If there is one lesson that this Armageddon we have been through over the past year has taught us, it is that reputation is everything. We may claim that we have been unfairly treated in areas such as anti-money laundering checks, requests for introducing registers of employees of service providers, etc. but what we should be frank enough to admit is that we have not done enough to set our image and reputation at a level at which only the name of the country would dispel any bad thoughts. Peter Economides, the brand strategist and former columnist of Gold, comes to mind here, since he wrote in a previous issue of the magazine about building a country brand. It’s undoubtedly not an easy task, but we can start from the basics such as setting out a strategy for the international business sector, which would shape a clear picture of where we want to be in 5, 10 and 15 years’ time. This strategy should take into account the huge wave of international developments affecting the indus-

THANKFULLY,

INTERNATIONAL INVESTORS AND PROFESSIONAL ADVISORS HAVE NOT TURNED THEIR BACK ON US

2012

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 23

ﬁnancial services

DEMETRA KALOGIROU Chair, Cyprus Securities & Exchange Commission

he most pressing need for Cyprus currently is to regain its credibility and restore its image as an important financial and business hub internationally. This can be done through various key measures. First of all, since without a doubt a credible and secure financial sector is one that is vigilantly supervised, it is imperative for Cyprus to enhance

the supervision of its financial sector by strengthening the supervisory authorities. This will create the conditions for restoring confidence in the wider economy and attracting investments faster than anticipated. Secondly, infrastructure improvements are necessary to create a more businessfriendly environment. This can be done through measures to increase productivity and efficiency, to fight bureaucracy, unnecessary delays and bottlenecks, and to implement online and simpler procedures where possible. Despite tight finances, investment is necessary to maintain and

2010

2011

0.9 % 2012

2013

2014

2015

61.3 %

-2.4 %

-4.8 -6 % %

enhance the key advantages of the economy of Cyprus in order to return to a path of economic growth. Incentives should be offered to investors who show interest in setting up their businesses and/or investing in other ways in Cyprus. Despite the current challenges, the Cypriot economy retains the strategic advantages that have positioned it among the most attractive destinations for investment. Therefore, we believe that the medium- to long-term outcome of the current woes will be a stronger financial sector that serves as a driver for innovation, job creation and economic growth.

Public Debt to GDP Ratio (%)

GDP Growth (%)

1.3 % 0.4 %

ﬁna

A CREDIBLE AND SECURE FINANCIAL SECTOR IS ONE THAT IS VIGILANTLY SUPERVISED

2010

71.5 %

2011

86.6 %

2012

112 %

119 % 115 %

2013

2014

2015

THE CYPRUS FINANCIAL SECTOR IS AND WILL REMAIN AMONG THE LARGEST IN THE EU. THE MAIN CHANGE WILL BE THAT BANKS ARE BECOMING LOCALLY FOCUSED: THEY ARE SELLING THEIR INTERNATIONAL OPERATIONS AND LIMITING THEIR PRESENCE ABROAD 24 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

ANDREY DASHIN Founder, ForexTime Ltd

ast year I expressed my belief that the Cyprus banking system would eventually emerge smaller but stronger. I have spent an entire year watching the new Government in its tireless efforts to reform the system and alter all the factors which had led the country to the state it was in by March 2013. Just the other day, I was very pleased to read that Fitch Ratings had upgraded the viability ratings of Cyprus’ banks, a resounding step in the direction of a more positive economic future that Cyprus is working towards and a confirmation of my own faith in the island.

banking

ﬁnancial banking

s banking

ﬁnancial serv

ancial serv ﬁnancial services

banking

COVER STORY

banking banking

MICHALIS LOUIS CEO, Eurobank

t’s a fact that two of the 39 banks operating in Cyprus faced severe problems but it is wrong to say that the whole system was in trouble. The remaining banks are well capitalised, liquid and some of them very profitable. Although capital controls were imposed on the banking system in March 2013, the majority of the banks are now operating under normal working conditions, with any new funds coming to Cyprus being free of any restrictions. The banking system was large in comparison to the GDP of the country, but other major business centres also have large banking sectors. Even today, the Cyprus banking system is three and a half times the country’s GDP, but it is still four times smaller than that of Luxembourg. The problems in Cyprus were not caused by the size of the banking system. Banks had been investing depositors’ money into long-term assets outside Cyprus, but they are now working to improve the equality of the asset side of their balance sheets, with their assets becoming significantly more liquid, transparent, and of higher quality. Cyprus and its banks successfully passed the anti-money laundering tests conducted by Moneyval and Deloitte Italy last April. We are the only country in the eurozone to have done so. We have a high level of compliance with statutory and regulatory requirements and a report by the Financial Action Task Force has found Cyprus significantly more compliant than a lot of eurozone countries and better than many of its critics. Regarding liquidity, Cyprus is again witnessing increased inflows from foreign residents

NICHOLAS HADJIYIANNIS

Chairman, Cooperative Central Bank

he Cooperative Credit Sector was just recapitalised with the injection of new capital of €1.5 billion, as prescribed in the Memorandum of Understanding agreed between the Government of Cyprus and Troika. This new injection is reinforcing our capital base

of €1.3 billion (31/12/2012) to withstand the extreme scenario of losses from non-performing loans as defined by the relevant exercise of PIMCO. Our effort is now focusing to implement the agreed and approved restructuring plan which encompasses three pillars: (1) Reorganisation of the looselyheld cooperative sector as one entity under the management of the Cooperative Central Bank (2) The successful fulfilment of the strict and demanding regulatory requirements under our

into the banking system. International companies continue to work and use Cyprus as their hub, while companies that left Cyprus are gradually returning and using our banks. In October 2013 alone, non-EU residents’ deposits increased by €407 million. At the same time, we are witnessing the deleveraging of the banking system. Clients are using their deposits to pay off their debts, and funds that were previously in current accounts are now being fixed with the banks for longer periods in an indication that depositor trust is coming back. I would go as far to say that in December 2013, the Cyprus banking system was the only one in the eurozone where all the banks had a core tier one ratio of 9%. The Cyprus financial sector is and will remain among the largest in the EU. The main change will be that banks are becoming locally focused: they are selling their international operations and limiting their presence abroad. They have changed their risk appetite, they have become significantly more conservative and they would like to maintain strong capital liquidity. They are again attracting foreign investors who are looking to capitalise on the expected recovery of the Cyprus economy. The sectors that the new Cyprus banking system will finance are specialised agriculture, light industry, education, healthcare and shipping. Energy will become a major player and, of course, there are also golf courses, hotels and the casino project. All this is happening in a much stricter supervisory and regulatory environment.

enrolment in the EMU Single Supervisory Mechanism as one of the four local systemic banking institutions and (3) Successfully facing the challenges to our balance sheet regarding the loan portfolio and the high percentage of the non-performing loans. A newly-formed Division within the Cooperative Central Bank is currently updating our policies and procedures, something that will enable us to tackle centrally the problem of non-performing loans. These efforts are targeted

at modernising the Cooperative sector, implementing strict corporate governance and internal audit frameworks, increasing efficiency and exploiting economies of scale. These will drive back the Sector to a track of sustainable and continuous profitability during the restructuring period of 2014-18.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 25

COVER STORY

banking

banking banking bankingbanking

banking

banking banking

banking

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

2010

2012

2013

2014

18.4

19.2

16.1

11.8

7.9 2011

2015

Public Finances

7.139

7.079

4.719*

2010

2011

2012

2013

8.218

5.036*

Total Revenue (€ billion)

8.271

IT CAN BE SAID THAT THE IMPLEMENTATION OF THE BANK OF CYPRUS RESTRUCTURING PLAN SO FAR IS AHEAD OF SCHEDULE

6.3

ollowing the Eurogroup’s decisions of March 2013, Cyprus has embarked on an economic adjustment programme aimed at restoring the health of the financial sector, continuing the ongoing process of fiscal consolidation, and implementing appropriate structural reforms that will support competitiveness and sustainable and balanced growth. The two largest domestic banks, Laiki Bank and Bank of Cyprus, have been resolved, with the good part of Laiki being folded into Bank of Cyprus which has been restructured and recapitalised with shareholders, bondholders and depositors of over €100,000 ‘bailed-in’ to restore adequate capital buffers. The bank has started deleveraging and will focus its operations on domestic core banking products. Its restructuring plan has been approved by the Central Bank of Cyprus, in consultation with the Troika, and its implementation is closely monitored. It can be said that the implementation of the restructuring plan so far is ahead of schedule. The Cooperative sector is also undergoing considerable restructuring under the programme. The number of Coop-

Unemployment (%)

7.115

Director, Bank Supervision and Regulation Department and Licensing Section, Central Bank of Cyprus

erative Credit Societies will have been reduced from 93 at the beginning of the programme to 18 by the end of March 2014 while the State will be the owner of the Cooperative Credit Societies through the 8% ownership of the Cooperative Central Bank which will receive state aid for its recapitalisation to the extent of €1.5 billion. The mergers are proceeding according to plan while the release of the €1.5 billion was subject to the approval of the restructuring plan of the Cooperative Central Bank ,which has just been approved by DG Competition. For many years, the banking sector in Cyprus, in common with some other countries, adopted poor risk and credit management practices, dominated by asset-based lending, and an overexpansion in the real estate market. The consequences of such practices can be disguised in an expanding, booming economy, even appearing as successful while real estate prices rise, demand remains at strong levels and income growth targets supersede the basic principles that should govern any business or lending transaction – the ability of borrowers to repay their debts. There have certainly been problems in banking sector supervision. In this respect, the Central Bank of Cyprus, in consultation with the Troika, has already proceeded with the strengthening of the legal framework for supervision and with the issuing of a number of Directives to that effect including, for example, the Directive on Arrears Management, the Directive on Loan Origination and the Directive on Loan Impairment and Provisioning Procedures. At the same time, supervision of the Cooperative Credit Institutions has

8.035

YIANGOS DEMETRIOU

Total Expenditure (€ billion) *Figure applies to period January to September 2013

passed, by law, to the Central Bank of

Cyprus. The Supervision Department of the Central Bank has been strengthened and is expected to be strengthened even further to cater for the obligations that derive under the Single Supervisory Mechanism. The legal and regulatory framework for supervision is continuously under review so as to ensure that the shortcomings of the past are not repeated.

real estate real esta real real estate real estate estate real estate

real esta

real estate

real estate LAKIS TOFARIDES

President, FIABCI Cyprus

urther to the bail-out decision, the banking sector was called upon to get its finances right through a bail-in. The combined effect of the two was harsh by any standard or measurement, and it has taken a heavy toll on the real estate sector. Sales slumped to low levels such as the sector had never experienced before. The reason for the impact on the sector is that depositors either lost money or saw their bank accounts frozen or blocked due to banking restrictions. Confidence and loan-availability have disappeared from the market and one can only wonder where the sector found the resilience and resources to survive such a devastating blow. From March until the end of 2013, I maintained the view that we had better talk about managing the crisis rather than recovering from its consequences. And indeed, the sector has done well, adjusting and responding quickly to the challenges in the market. Once local demand plunged, the only way out of the crisis was to focus

on export-oriented sales. Assisted by policies introduced to stimulate demand by third country foreign investors, the sector seized the opportunity and did what it was essential for its survival. In the meantime, the local property market is slowly but steadily getting back on track, mainly by gaining confidence and seeing banking restrictions gradually lifted. In my view the sector managed the storm well, and it is now sailing safely towards calm waters, gaining the confidence without which no real estate sector can possibly exist. The Cyprus economy in general, including the land development sector, is experiencing a recession. It is a situation that no-one is pleased with. But recessions offer opportunities and pose challenges for change and adjustment which, if taken, could turn out to be for the benefit of the sector. The property market could reinvent itself and lay the foundations for a new era of success. It is my firm belief that more professionalism, a greater responsiveness

availability of client financing have reduced demand for real estate. Indeed, the past year has been a very difficult one for the construction sector. However, in the midst of this crisis, we have managed to sell â&#x201A;Ź500 million worth of properties to third

PANTELIS LEPTOS

Chairman, Cyprus Land and Building Developers Association

he real estate sector, like all industries in Cyprus, was shocked by the events of March 2013, in particular the bail-in. The subsequent lack of liquidity, the blocking of deposits and the

real estate

to what the market demands, a broader focus on and concern about the economic aspects of land development projects, and more emphasis on equity than on debtfinance, will be some of the new concepts and fundamentals that will help form the new strategy of the sector. Above all, costefficiency and green, sustainable technology are a must, safeguarding value for money for the purchaser. The sooner this new perspective is taken on board, the better it will be for individual developers and the sector as a whole. I believe the worse is over and the sector is now wiser and ready to take on new challenges. Confidence and a relaxation of banking restrictions are key factors in the immediate and more distant future of the sector. If we do well on these simple but essential features of property investment, I donâ&#x20AC;&#x2122;t see any reason why Cypriots will not return to property. Indeed, they have tried other forms of assets and lost heavily. For the foreign property investor, our natural environment and advanced service-related sector are still tempting, while on issues of safety and security we are doing well. These are major tenets on which third country foreign investors lay emphasis when deciding on property investments. Subject to the above premises, the short- and longterm outlook of the sector looks promising. One should not forget that it has a long track record of success and, if given time to adjust, it has the capacity not only to do well but also serve as an engine to kickstart development for the whole economy.

country nationals. This was the result of a well-designed strategy, based on the experience of the real estate developers to attract investors and potential buyers. Cyprus has a unique ability to attract foreign investors from many countries. We must capitalize on this ability and continue to be the safe/neutral country of our region. We need to create a more business-friendly environment and to change the negative psychology by looking forward at the

huge prospects that Cyprus has to offer: its geographical location, tourism, the climate, its culture and, now, the gas industry. In 2014 we expect to see the gradual recovery of the Cyprus economy. By attracting fresh foreign investments, land and building developers have a leading role to play in this effort. The Cyprus real estate market is relatively small and so even the smallest increase in demand will have a positive effect on the current low price levels.

CYPRUS HAS A UNIQUE ABILITY TO ATTRACT FOREIGN INVESTORS FROM MANY COUNTRIES

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 27

inv

investmen

COVER STORY

investment projects

investment projects VENUS ROCK GOLF RESORT The Venus Rock Golf Resort in Paphos is set to be Europe’s largest seaside

project, covering 2375 acres of land in total. The development will include two 18-hole golf courses, designed by golfing legend Tony Jacklin, as well as a 7- star Royal Venus hotel. The project will also feature over 15,000 square meters of commercial land, two community sports centres, 3,000 luxury private homes, commercial and leisure facilities, convenience stores, shops, coffee houses and restaurants. Contact: Aristo Developers Ltd. and China Glory International Investment Group (CGIG) Tel: (+357) 26841920

LIMNI BAY

Limni Bay will be an iconic Mediterranean resort, in harmony with the natural beauty and culture of the island. The development will include a 225 room 5-star Boutique Hotel, a Jack Nicklaus signature 18-Hole Championship Golf Course and a 1,800 square metre Golf Clubhouse, a Gary Player Signature 18-Hole Championship Golf Course, a second clubhouse (for the Player Course), several restaurants and an assortment of resort housing products to include luxury townhouses and apartments, seaside villas, sea view villas, golf view villas and garden villas. The central focus of the coastal parcel is the 5-Star boutique hotel. Contact: Shacolas Group Tel: (+357) 22740000

MINTHIS HILLS RESORT Offering pure escapism and blending

the restorative power of nature with the luxury of the 21st century, the Minthis Hills Resort includes a wide variety of facilities to accommodate the affluent individual. Designed by renowned firm Woods & Bagot, the project – built around its championship 18-hole golf course – also features a boutique hotel, spa and fitness centre, business centre and conference facilities. The private, luxury villas of the Minthis Hills Resort are shaped to the natural contours of the hills to minimize building height, maximize views and preserve the beauty of landscape. Contact: Pafilia Property Developers Ltd. Tel: (+357) 26848847

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

NEAPOLIS SMART ECOCITY A new mixed-use development by the Leptos Group,

the Neapolis Smart EcoCity development aims to be the first EcoCity in the EU. The project will include a stateof-the-art Health Park, a Private Campus University as well as dedicated green parks and open areas spanning in excess of 70% of the total project area. A theme park, a cultural centre, a commercial park with a high-street retail and international business centre will also be built, including theatres, museums and a wide selection of restaurants and entertainment outlets. Clustered residential properties ranging from basic homes to luxury villas will be offered, all designed to incorporate the latest innovative eco principles, supported by the intelligent infrastructure of the EcoCity. Contact: Leptos Group Tel: (+357) 26811410

LANITIS FARM GOLF

The Lanitis Group has undertaken a leisure and residential golf project on the site of its existing citrus plantations in the Fasouri area in Limassol. Fasouri enjoys an upgraded road network and close proximity to the Limassol Marina, the new masterplanned business area of Limassol, commercial projects, leisure facilities and the unspoilt beauty of Lady’s Mile beach. The project will be an integrated leisure and residential community project that includes a championship 18hole golf course designed by world-renowned golf architect Cabell Robinson, as well as a central country club, amenity parkland, sports facilities as well as luxury villas and apartments. Contact: Lanitis Farm Gold Ltd. Tel: (+357) 25820933

vestment pr investment projects

LIMASSOL MARINA Limassol Marina is an

exclusive waterfront development designed by a world-renowned team of architects and engineers. It combines approximately 250 elegant private residences and a full-service luxury marina with exclusive restaurants and shops, to create a lifestyle uniquely shaped by ‘living on the sea’. The marina boasts a total capacity of 650 berths, for yachts of up to 115m in length and is the first full service superyacht marina on the island. Just a stroll away from the heart of Limassol, the marina is designed to blend seamlessly with the city’s historic harbour, old town and mediaeval castle. With its breathtaking views, and outstanding range of facilities, Limassol Marina is destined to become the most exclusive marina resort in the Mediterranean – and one of the finest in the world. Contact: Limassol Marina Ltd. Tel: (+357) 25 022 600

investment projects

nt projects

KIMONAS PROJECT

Located on a prime site on the Phinikoudes beachfront in Larnaca, it combines a mix of hotel, retail, serviced apartments and public use. Built on 5,504m2 of land, it is conceived as a unique, high-end, multi-purpose centre in the heart of town, with a range of mutually supportive uses, forming the basis of an economically and socially sustainable, coordinated development. The project perimeter will consist of retail shops and restaurants extending along Zenon Street and the Phinikoudes promenade, providing a connection with the city’s central business district behind. An organic interior will define the heart of the project, ‘the courtyard’, inspired by local, traditional Mediterranean architecture. It will offer a monumental and prestigious entrance for the hotel and a private haven for residents at the same time. Contact: Lefkaritis & Hassapis Developers Kimonas Ltd. Tel: (+357) 24848118

MAKRONISOS MARINA The Marina in Agia Napa will

combine a 600-berth fully-serviced marina, with premium, luxury residences, offering additional sports and leisure facilities. The development will feature several sports grounds, swimming pools, water features, plazas, a dedicated heliport, yacht club, crew lounge and spa as well as a wide range of restaurants and

bars. The residential development is equally impressive, its state-of-the-art architectural design satisfying today’s discerning buyers’ needs and preferences. It comprises of a selection of luxury detached houses situated on an exclusive sandy beach and on a purpose built island offering private mooring berths, as well as modern apartments within a high rise tower. All properties enjoy unobstructed views of the Mediterranean Sea and Contact: Caramondani Group have to an exclusive concierge serTel: (+357) 22818140 vice, available 24/7.

LORD BYRON TOWERS

Set to be the tallest twin tower building complex in Cyprus, the Lord Byron towers in Nicosia will consist of 10,000² of office space. Planning and design of the building has been entrusted to the skills of Scott Brownrigg, a London-based consultancy with broad experience in high rise developments. Its primary concern was to create a landmark iconic building whose size, luxury and aesthetics will provide a unique landmark office development. Designed for office and commercial development and currently the largest commercial office development in Cyprus, the towers will also feature dedicated parking, with 215 spaces. Contact: Tofarco Tel: (+357) 22300105

LIMASSOL LANDMARK The project provides a new destination for Limassol. A hub of living, relaxation, culture and entertainment in the heart of the city. The Limassol Landmark, located on the seafront of Limassol, is designed by the renowned international architects Atkins who have designed so many recognizable projects around the globe. The project is a 34 storey tower

with a unique design and layout consisting of luxurious serviced residences, a spa, health club, business centre, concierge, tennis court and children’s playgrounds. The project has a large commercial plaza with retail shops and restaurants as well as three level of public car parking. The tower comprises of two and three bedroom apartments, Duplex Apartments and Penthouses with private swimming pools. Contact Pafilia Property Developers Ltd. Tel: (+357) 26848847

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 29

a cyprus settlement COVER STORY

a cyprus settlement

A Cyprus

settlement

hile the prospect of more natural gas discoveries in the country’s Exclusive Economic Zone is already giving a boost to public sentiment, it is hard to gauge how a majority of the population views the prospect of a settlement of the 40-year-old Cyprus problem (some argue that it dates back 50 years) which appears to be drawing ever closer. A measure of how significant the latest moves on Cyprus are may be seen in the simple fact that the two largest political parties on the island – the ruling Democratic Rally (DISY) and the power behind the previous government, AKEL – are united on the need to resolve the issue once and for all. However, after 40 years of division and the demonization of the 2004 UN plan which led to its rejection by 75% of the Greek Cypriots, it will take a major campaign to secure a ‘Yes’ vote this time, especially given that any settlement is bound to resemble the one rejected ten years ago. The fact that the late Tassos Papadopoulos’ promised ‘European solution’ never materialized, that the residents of Morphou and Famagusta would have regained their properties some years ago and that the number of Turkish troops would have been on its way down from a maximum of 6,000 to 600 nine years from now are all things that may persuade the majority Greek Cypriot population that it is worth taking a chance on reunification and peace. At this time of economic/financial auster-

ity, it is perhaps ironic that, unlike in 2004, no-one is talking about how the Greek Cypriots will have to pay for the required rise in the standard of living of the Turkish Cypriot community. There can be no doubt that what happened in Cyprus 12 months ago has made many people re-think many of the views that they previously considered unchangeable. The idea that the Republic enjoyed a thriving economy and a healthy banking sector came crashing down overnight. With unemployment at a record high, many essential benefits cut and businesses closing down every week, it is not so easy to justify the €385 million spent on maintaining the National Guard in 2012 or the fact that defence spending has risen by 50% over the past decade, when that money could have been spent on a new Cyprus or, at least, on helping the old one survive. Money talks the world over and in Cyprus it has again started shouting loudly. Ten years ago, the Greek Cypriots thought that they didn’t need anyone’s cash – including $500 million promised by the United States for building a new Federal Republic of Cyprus – but since last year, things have changed. On the one hand, Cyprus needs all the financial assistance it can lay its hands on and, on the other, the country has unexpectedly gained something that others think worth making political sacrifices for – natural gas. If this surprise discovery can turn Cyprus and Turkey into economic partners instead of sworn enemies, while provid-

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

ing Israel with a reliable partner in the region, it is clearly worth an effort from the US and the EU to try and bring about an agreement. There can be no doubt that reunification would well and truly kickstart the economy and open up a huge new market to Cypriot companies and entrepreneurs. No-one should be under any illusions about the difficulties involved. The failure to bring about a settlement owes much more to Turkey’s unwillingness to move on the issue than any hesitation on Cyprus’ part. A simple goodwill gesture by Turkey would immediately place great pressure on the Cyprus Government to reciprocate and yet it has refused even to fulfil its obligations that would allow it to move forward on EU membership. It will take much more than words to break the 40-year deadlock but miracles have happened in Cyprus before.

AFTER 40 YEARS OF DIVISION IT WILL TAKE A MAJOR CAMPAIGN TO SECURE A ‘YES’ VOTE THIS TIME

opinion

The ABC of Good Governance More than one approach is needed to ensure real and lasting change

nfortunately, there is no “silver bullet” to kill the ‘bad governance monster’ that stalks this country. Determined and concerted efforts by many people over many years, using complementary approaches, are the only way to ensure real and lasting changes to ‘the way we do things around here’. Nevertheless, we must resolve not to succumb to fatalism because of the size of the task at hand. One way of making the challenge less daunting could be to devise a strategy for good governance that is as easy to remember as ABC. A is for All: This refers to the need for all relevant actors and stakeholders to contribute towards a good governance environment by exercising their rights and fulfilling their responsibilities. The Cypriot banking crisis is a case study in what can happen if they fail to do this. The Independent Commission for the Future of Cyprus Banking Sector identified, amongst other things, the following underperforming stakeholders: international agencies, national policymakers, local supervisory and regulatory bodies, auditors, boards of directors, senior management and shareholders. Looking further afield, the global financial crisis also raised serious doubts about, inter alia, elected representatives, credit rating agencies, the financial media and supposedly sophisticated investors. A good governance environment depends on all actors and stakeholders being sufficiently informed, empowered and engaged. B is for Both/And: This refers to adopting a mix of governance approaches for optimum results. Different approaches include the UK’s voluntary principles-based “comply or explain” system and the US’ compulsory rules-based “comply or else” system. Each has its advantages and disadvantages and should be judged on its merits and without prejudice. Dogmatic allegiance to one or the other should be replaced with an innovative and open mind. A complementary mix may produce better outcomes.

We must resolve not to succumb to fatalism because of the size of the task at hand

By Petros Florides

One example could be the introduction of corporate governance standards including, amongst other things, a Code of Conduct and non-prescriptive guidance for effective application. This would provide the benefit of flexibility associated with a principles-based system. Importantly, to avoid token observance or even abuse, demonstrable adherence to these standards should be incorporated into directors’ legal duties - with personal liability for breach. This would provide the benefit of rigour associated with a rules-based system. In contrast to the above, such a complementary mix of different approaches could be described as a mandatory standards-based “apply and explain, or else” system. C is for Context and Content: Context refers to the conditions and culture that exist to the benefit, or detriment, of good governance. An example is the need for any system of governance in Cyprus to tackle our cultural idiosyncrasies that include cronyism, tokenism, short-termism, populism, scapegoatism, clientism and tribalism. Not admitting to these situational realities has negated efforts towards good governance to date. When adopting the UK’s voluntary “comply or explain” approach, Cypriot policymakers did not adequately consider the obstinate nature of ‘the way we do things around here’. The result was a system of governance that has proven to be unfit for purpose. It could even be argued that it is dangerous, given the false sense of comfort provided. Content refers to governance best practices that should be reinforcing. This can be illustrated by the interdependency of transparency, accountability, probity (i.e. honesty, fairness, justice) and sustainability. None of these can deliver comprehensive good governance alone but rely on, and support, each other to be most effective. An ABC strategy could facilitate the development of a plan for implementing good governance in Cyprus in a way that is clear and methodical.

Petros Florides is Regional Governance Advisor for World Vision International, and Executive Officer of World Vision Cyprus. He is also on the board of the Institute of Directors (Cyprus), co-founder of the Cyprus National Advisory Council for the Chartered Institute for Securities & Investments, co-founder of the Institute of Risk Management Cyprus Regional Group, and a Chartered Management Accountant. The views in this article represent those of the author and not any other individual or organisation. the international investment, finance & professional services

Gold 31

germany & Cyprus

ne year after the Eurogroup’s unanimous decisions on Cyprus and the signing of a Memorandum of Understanding with the Troika, many people continue to believe that Germany was, in some way, solely responsible for the imposition of austerity measures on the island. We invited Dr. Gabriela Guellil, the German Ambassador to Cyprus, to respond to the frequentlyalleged and repeated accusations about her country’s role in what some commentators have described as the greatest tragedy in the country’s post-independence history. She willingly took up the challenge, revealing among other things how it felt to her personally to experience the vilification of Chancellor Angela Merkel and her government.

Gold: How upsetting was it for you 12 months ago to see people demonstrating with photos of Chancellor Merkel defaced with an Adolf Hitler moustache and articles appearing in the press comparing WW2 Germany with your country today? Gabriela Guellil: Chancellor Merkel is committed to the European Peace project. Europe is our destiny. Europe is us. Therefore, Angela Merkel wants all members of the European family to be strong. She acknowledges the responsibility that Germany has for further European integration. This was the substance of her first statement after being sworn in for the third time as the head of government shortly before Christmas 2013. What message is being given by comparing today’s Germany with the Third Reich? Why do people evoke such a dark period of our history? Is it Nazi terror to assume responsibility?

We feel a lot of understanding, sympathy and sadness for those who are “paying the bill” for past mistakes. The worst part is the burden on the young generation and, first and foremost, it is their situation that has to be addressed. But an outburst of hatred and defamation will not do the job. Nasty pictures and comments on social media will not improve the situation. So, of course, it is not amusing to realize that there are people who seem to be focusing all their negative emotions on Germany and the German Chancellor. It is hard to understand and even a little bit frightening. But I trust that the majority of Cypriots realize that much of the present crisis was home-made. The way forward is a difficult one, since restructuring and reforms are unavoidable. Cyprus will need support on this road and Germany – through the European Union – is one of the countries offering that support.

“Germany has

stood firmly by the side

of Cyprus” By John Vickers, Photograph by Jo Michaelides.

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

s We will not be successful if we stand alone and do not recognize the impact of the world around us

germany & Cyprus

Gold: Although the Eurogroup’s decision last March was taken by Cyprus’ 16 partners in the eurozone, there is a widely-held perception that Germany decides and the others follow. Isn’t there some truth in this? G.G.: Decisions taken by the Eurogroup are collective decisions and they are published as decisions taken by all members of the group – including Cyprus. Assuming responsibility includes taking firm positions. Germany’s contribution is crucial for the further progress in the European Union. Our positions on important issues are well-known and we discuss them with our partners. We want cohesion and consensus. Germany, like any other partner, has to compromise. This is the reality in Europe and it is the strength of European democracies. Gold: Some commentators have noted that Cyprus was unfortunate that the bailout talks came during Germany’s national election campaign and that Chancellor Merkel needed to be seen taking a tough stance with a country that had been accused of moneylaundering by a section of the German press. How do you respond to this? G.G.: Parliamentary elections took place in Germany in September 2013 so early in 2013 the election campaign was not in full swing yet. But why is it necessary to refer to coincidental domestic political developments in Germany as “unfortunate” when explaining the collective decision of the Eurogroup – and the IMF – about the bailout? Does it imply that the decision could have been different? I wish the rescue package had been less tough on Cyprus but, by March 2013, the situation had deteriorated in such a way that urgent action had to be taken – there was no easy way out. The alternative would have been the bankruptcy of the State. It is true that Cyprus received a large amount of negative media coverage and it was “making headlines” at the time, coming under heavy fire in the months preceding the bailout but, in the end, the agreement that was brought about passed the hurdle of parliamentary approval that was required in a number of Eurogroup countries. In my view, even if they are considered very hard today, the future will show that the measures taken were part of the solution and not of the problem. Gold: In your interview with Gold last year, on the issue of press reports of money-laundering you said that “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.” You were proven correct too but could Chancellor Merkel ignore someone like German opposition party MP Carsten Schneider who was telling Der Spiegel that “We can’t use German taxpayers’ money to guarantee deposits of illegal Russian money in Cypriot banks”? G.G.: Since I have to rely on official documentation with regard to the assessment of the money laundering issue, I would refer to the Memorandum of Understanding on Specific Economic Policy Conditionality agreed upon between Cyprus and the Eurogroup last spring. It stipulates that “the anti-money laundering framework will be strengthened in line with best practice. While Cyprus’ anti-money laundering

This led to a huge overexposure in the real estate sector. If you look at the proportion of private debt and non-performing loans in Cyprus and in other European economies you will realize that Cyprus has beaten all the records. With 60% of the economy depending on the financial sector, there had to be changes. This is the gist of the economic adjustment programme which is now being implemented. I understand that many Cypriots are hesitant to confront this cruel reality, especially those who had an easy ride throughout the boom years, but my message on this is clear: Dreams of a return to the previous business model are false. Promises to resuscitate the previous business model will deliver disappointment. Gold: Even the former Finance Minister of Cyprus, Michalis Sarris, said last year that Germany was “wondering how a small country, like Cyprus, with no industrial output, could have such prosperity” and again there is a widely-believed suspicion that Germany wanted to attract some of those foreign deposits. Is this just another conspiracy theory? G.G.: I am left with the impression that a considerable part of the accumulated prosperity in Cyprus was linked to a credit bubble. In January we learned that Cypriot banks are in deep trouble with €19 billion of non-performing-loans – about €24,000 per capita. If Germany had the same per capita NPL level, this would sum up to more than €2,000 billion NPL nationwide. It is very dangerous if a substantial part of a nation’s lifestyle is based on lending leading to spending – and this is unfortunately the nightmare that people and the business community are now living when it comes to paying back the debt. As long as the economy was growing rapidly, nobody worried but when problems arose, they triggered a downward spiral. This has been experienced elsewhere. With regard to Germany’s interest in attracting foreign deposits, the reality is that Germany does not have to worry about financial investments.

I wish the rescue package had been less tough on Cyprus regime had received an overall positive evaluation in the 2011 Moneyval report, the authorities are committed to further enhancing their standing by taking a number of measures, in line with recommendations made by the IMF staff. The authorities are following an action plan to implement commitments”. If this is a conditionality that the Cypriot authorities accepted, why should we not look forward to a sound evaluation? Gold: Both Chancellor Merkel and Finance Minister Schäuble said that Cyprus’ business model was “not sustainable” and had to change. But everyone knows that, for example, Luxembourg’s model is in many ways even more flimsy than that of Cyprus. How do you respond to the accusation that Luxembourg is safe because of the German banks operating there while there are none in Cyprus? G.G.: The Minister of Finance has repeatedly and publicly stated that the pre-crisis business model of Cyprus was not sustainable. On this my government agrees. The banking sector was oversized. The heavy influx of financial investments had led to a growth bubble – easy money was accessible to almost everybody.

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

Gold: At the last Limassol Economic Forum, you personally came under fire from German MEP Jorgo Hatzimarkakis. He obviously has Greek sympathies but didn’t you feel that it was too much to take from one of your own parliamentarians? G.G.: At the Limassol Economic Forum we heard many different voices. In my view, the

I am convinced that the reform process currently under way will make the Cypriot economy more competitive, thus laying the foundations for a brighter future

most convincing arguments were those of the Cypriot Minister of Finance, Harris Georgiades. MEP Hatzimarkakis has decided to run for the European Elections in Greece this year and he will not be a candidate for the Liberal Party in Germany anymore. This might explain a little bit why he sounded very much like an opposition politician in Greece. With the elections for the European Parliament coming up in May, it is not surprising that he made use of the opportunity to address the feelings of his future electorate. We talked before Mr. Hatzimarkakis had to rush to the airport and we agreed to meet and discuss his views in greater depth on his next visit to Cyprus. In any case, let me make it clear that a German MEP would not be accountable to a German Ambassador.

Gold: Can you understand why there has been such anti-German sentiment in Cyprus, Greece and elsewhere or did it come as a complete surprise? G.G.: Does it come as a surprise that negative feelings arise in a situation of stress? And are accusations a promising way out of a situation where so many – mainly young – people are unemployed? The commemorations for the outbreak of the First World War 100 years ago remind us of the importance of remaining ever aware of what an achievement of civilization it is that small and large member states – once opponents in conflicts on our war-torn continent – can cooperate to find joint solutions in a peaceful manner. The loss of trust in the European project, which has accompanied the crisis in Europe in recent years and is particularly prominent among the young generation – which is suffering from unemployment and a lack of future prospects in large parts of the European Union – holds great dangers. In this kind of atmosphere, it is easy to fall back on nationalist rhetoric, sung to the catchy tune of criticism of Europe. Given our history, we must firmly resist this. Gold: Have the consequences of the crisis in Cyprus played out as you expected them to? Have things been better or worse? G.G.: Cyprus has started to implement an ambitious economic adjustment programme and it is encouraging that, while the programme seems to be on track as evaluated by the Troika in its first three missions, economic growth has shrunk by less than expected in 2013. Howev-

er, there is no doubt, that the situation remains critical, mainly in the financial sector. The path to economic recovery is a painful one and it is not a short one. But targets have been set and they can be met. Even if things get worse for some parts of society for some time to come, the important message is that the crisis can be overcome. Let us focus on the young generation – and the prospects for our children and grandchildren. Gold: Even if we ignore the more extreme reactions to what happened in Cyprus, it cannot be denied that Chancellor Merkel has shocked and disappointed people in many countries, on the one hand by talking about European solidarity and on the other by supporting policies that could hardly be further away from a spirit of solidarity. Don’t the Cypriots, Greeks, Portuguese and others have a point? G.G.: Germany’s approach to the crisis is a balanced one. Previous detrimental developments in economies have to be corrected. Germany has never lacked solidarity. German taxpayers are contributing very considerably to the European Financial Stability Mechanism. Germany has stood firmly by the side of Cyprus and other EU member countries to provide muchneeded financial support when they had no access to other resources. All along, Chancellor Merkel has been fighting to strengthen Europe by introducing fair and feasible solutions. Gold: Do you believe that, despite the hardship that is currently being felt by many Cypriots, the “solution” that was imposed in March will prove to have been a good one in the future? G.G.: The decisions taken in March last year served as the way to avoid bankruptcy. This alternative would have been much harder on the economy and on the people. Time will tell if the measures taken are sufficient. Personally I am convinced that the reform process currently under way will make the Cypriot economy

more competitive, thus laying the foundations for a brighter future. Seen from this angle, there can be no doubt that these decisions were part of the solution rather then the problem. There is a lot of psychology involved in economic developments. Looking back in mourning will certainly not help anyone to get out of the mess. It requires confidence to focus on the way forward.

Gold: Another former Minister of Finance, Vassos Shiarly, recently asked a European Parliament delegation: “Did the Troika ever consider the impact on Charities? I happen to be the Chairman of the Cyprus Anti-Cancer Society, the largest charitable organisation in Cyprus. Our Society’s funds were haircut and we have seen donations dwindle. To be able to continue our charitable work, we had to reduce salaries by an average of 25%, to make 10% of our nursing staff redundant but, worst of all, we had to close down a section of the cancer hospice and to send people home… to die.” Any comments? G.G.: Many sad developments have taken place following the bailout decisions but I lack the imagination to list what the consequences of the bankruptcy of the state would have been. I deeply regret the impact of the haircut on accounts that were destined to promote charitable purposes, not only but including that of the Cyprus Anti-Cancer Society. However, when a patient (the economy) can only survive cancer if a malign tumour is operated on, the consequences of the intervention are unavoidable. I wish Mr. Shiarly all the strength and determination needed to fight the situation. Gold: Do you think any of your colleagues in the German diplomatic service can have had a more difficult 2013 than you? G.G.: Yes, I can certainly imagine this. 2013 was a challenging year for many of my colleagues and their families around the globe. The number of “difficult postings” is on the rise – crises and natural disasters, civil wars and terrorist threats are our everyday enemies. Looking back: yes, 2013 was a challenging year for me; looking forward: I believe that 2014 will be a challenging one as well. We all do our job but we all need support and friendship in this endeavour, because we will not be successful if we stand alone and do not recognize the impact of the world around us.

the international investment, finance & professional services magazine of cyprus

Gold 35

pRESENTATION

PwC 17th Annual Global CEO Survey

he local findings of the 17th Annual Global CEO Survey were presented during an event organised by PwC on 18 February at the Hilton Park Hotel, Nicosia. More than 120 CEOs and General Managers attended the presentation by Philippos Soseilos, Advisory Services Partner at PwC Cyprus. Following the presentation, there was a panel discussion on the local results. The panellists were George Petrakides, Country Manager of Microsoft Cyprus, Phidias Pilides, President of the Cyprus Chamber of Commerce & Industry, Philip van Dalsen, CEO, MTN Cyprus and Sir Christopher Pissarides, winner of the 2010 Nobel Prize in Economics and Chairman of the Council of National Economy. The discussion was coordinated by John Vickers, Chief Editor of Gold.Â

Philippos C. Soseilos, PwC Cyprus, during his presentation

Antonis Vouros, Vouros Group & Phidias Pilides, Cyprus Chamber of Commerce & Industry

CEOs and General Managers filled the conference hall.

Antonis Skoullos, Oracle; Nicos Theodoulou, PwC Cyprus & Bambos Charalambous, Ministry of Energy, Commerce, Industry & Tourism

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

Evgenios Evgeniou, PwC Cyprus, gives his welcome address

Evgenios C. Evgeniou, PwC Cyprus; Phidias Pilides, Cyprus Chamber of Commerce & Industry; Nondas Metaxas, Cyprus Stock Exchange

George Vassiliou, former President of Cyprus & Sir Christopher Pissarides, winner of the 2010 Nobel Prize in Economics and Chairman of the Council of National Economy

The panel discussion: Philippos C Soseilos, PwC Cyprus; Sir Christopher Pissarides, winner of the 2010 Nobel Prize in Economics and Chairman of the Council of National Economy; Phidias Pilides, Cyprus Chamber of Commerce & Industry; George Petrakides, Microsoft Cyprus; Philip van Dalsen, MTN Cyprus & John Vickers, Chief Editor, Gold.

PRESENTATION

Neo

Neo & Bee: “A New Era in Business Transactions”

Neo and Bee panelists: Danny Brewster, Neo and Bee; Tuur Demeester, Macrotrends.be; George Ioannou, George Papageorgiou, Neo and Bee; Dr. Christos Vlachos, University of Nicosia and Maria Terezopoulou, Neo & Bee

Maria Terezopoulou, Neo & Bee Ltd

he Neo & Bee event, “A New Era in Business Transactions” was held on 25 February at the Four Seasons Hotel, Limassol. Over 130 delegates not only had the opportunity to discover the answer to the highly-publicised question Who is Neo? but also to be informed about Bitcoin, Neo’s innovative services and the Bee Payments and Transactions Network. The event was organised by Neo&Bee Ltd, the first worldwide company offering bitcoin services to businesses. An identical event was held at the Hilton Park Hotel, Nicosia, on 24 February.

Danny Brewster, Νeo & Bee Ltd

Delegates fill the conference hall

Maria Terezopoulou, Neo & Bee Ltd, Chris Economides and Aris Sakorafos, Lumiere TV explain the benefits of using NEO & Bee services

Live demonstration of the Bee card

Tuur Demeester, Macrotrends.be

George Papageorgiou, Neo & Bee Ltd

Delegates fill the conference hall

the international investment, finance & professional services magazine of cyprus

Gold 37

CONFERENCES

4th Information, Technology and Telecommunications Conference and Exhibition

he Cyprus Information Technology Enterprises Association (CITEA) organized the 4th ICT Conference and Exhibition at the Filoxenia Conference Centre, Nicosia, on 7 February. It was attended by more than 350 participants from all sectors of the economy. In parallel with the conference, an exhibition was organised enabling delegates to meet with IT leaders/experts on solutions and tools to help their business survive the financial crisis.

A full conference hall.

presents the 4th exhibition & conference

Dr. Stelios D. Himonas, Director of the Department of Electronic Communications at the Ministry of Communications & Works & 5 Exhibition Area

CITEA kiosk

Information Communication Technology Telecommunications

Networking Cocktail

Markos Kallis, CITEA

CIM Natural Gas Forum

he CIM Natural Gas Forum took place on 27 February at the Four Seasons Hotel, Limassol. Over 170 delegates heard two experts in the field of Natural Gas â&#x20AC;&#x201C; Prof. Jonathan Stern, University of Oxford, and Dr. Sergei Vinogradov, University of Dundee â&#x20AC;&#x201C; on the implications, challenges, and opportunities of the discovery of Natural Gas for Cyprus. The forum, organized by CIM, marked its 30th anniversary in Limassol.

Delegates to the CIM Natural Gas Forum.

A full conference hall.

Dr. Sergei Vinogradov, LL.B., Ph.D., Senior Lecturer at Centre for Energy, Petroleum and Mineral Law and Policy, Director of LL.M. programme, University of Dundee

Gary Lakes, Director, Energy Program, European Rim Policy and Investment Council (ERPIC)

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

CITEA Chairman Panicos Akritas

opinion

Unhappy 30th Birthday! A new Cyprus-US Double Tax Treaty is long overdue

By Costas Markides

nlike wine, double tax treaties have an inverse relationship with ageing. The older they get, the less appealing they become to investors since tax laws change rapidly and current anti-avoidance techniques render most of their provisions obsolete. It follows that their application by the respective tax authorities is less predictable which, in turn, increases the level of uncertainty for investors. As we are all (or should be) aware, uncertainty not only kills investment but the mere prospect of it as well. This month marks the 30th anniversary of our double tax treaty with the United States of America but, in all honesty, there is not much to cheer about. Having been concluded back in 1984, when Cyprus was an offshore tax regime offering international business companies a flat tax rate ten times lower than the normal corporate rate (4.25% versus 42.5%) and taking into consideration the aversion of US technocrats and the Internal Revenue Service towards offshore or preferential tax regimes, one can easily understand why the respective convention has not been used extensively to date. The many “safety valves” which were adopted in the text of the 1984 treaty –and more specifically the provisions of Article 26 entitled “Limitation of Benefits” (LoB) aiming primarily to avert and, at the same time, prevent possible treaty abuses (widely known as “treaty shopping”) by third country investors looking to structure their investments in the US through Cyprus – are so harsh in detail and narrow in application that even investors with bona fide intentions and a valid business purpose have been reluctant to use it. In addition to the inherent complexity which LoB clauses usually feature by default, there is no process available under the current tax treaty that allows the competent authorities of each country to address the applicability of the LoB provision prior to such an issue actually arising in a transaction. More specifically, there is no discretionary determination clause located within the LoB provision of the current treaty which would provide for this process. As such, a taxpayer may only request competent authority assistance when an issue under the LoB provision has already been raised by the IRS or the Inland Revenue Depart-

Uncertainty not only kills investment but the mere prospect of it as well

ment in Cyprus. Investors are not able to request assistance directly from the US Internal Revenue Service (through a private letter ruling, for example) since the LoB clause is, by exception, an issue not covered under the advanced ruling process. Thirty years later, we firmly believe that the stars have finally fully aligned and the time is right to renegotiate Cyprus’ existing treaty with the United States. Modernizing and updating the decades-old provisions in order to reflect reality – that is, the current geopolitical status and economic conditions in which Cyprus operates today – is not only a necessity, it is also fair. Since the treaty with the US was signed in 1984, Cyprus has acquired the status of a full and equal member of the European Union (since 2004) and been a member of the eurozone since 2008. It has been in full compliance with all OECD standards against harmful tax competition, the European acquis communautaire and all EU Directives. Since 2002 there has been a single flat corporate tax rate (now 12.5%) which applies uniformly to all Cyprus resident companies and the former distinction between local and “international business” companies has been forever put to rest. Following the discovery of large quantities of hydrocarbons and significant natural gas reserves in Cyprus’ Exclusive Economic Zone in the eastern Mediterranean basin and the hands-on involvement of US oil and gas companies, combined with the stated intention of the US government at the highest level (US President and Vice-President) to assist the Cyprus economy to rekindle and recover from the current, unprecedented economic crisis, he conclusion of a new and modern double tax treaty with the United States is essential. No serious individual or group is going to route new investments through Cyprus based on a decades-old treaty and that’s a fact. Although the Cypriot side has tried unsuccessfully over the years to renegotiate and conclude a new treaty with the United States, its efforts have not produced any tangible results since the US was not particularly interested in reaching a new agreement, nor did the political will exist to push forward with a new treaty. If the US is indeed interested in undertaking a more active role and is serious about strengthening ties with Cyprus, then what better chance to prove its intentions than by concluding this long-overdue Double Tax Treaty?

info: Costas Markides is a Member of the Board of KPMG.

the international investment, finance & professional services

Gold 39

E-PAYMENTS

Virtual Master C THE CYPRUSBASED LAMDA GROUP IS AT THE FOREFRONT OF THE E-PAYMENT BUSINESS

Soon the proportion of virtual prepaid cards to prepaid cards will be 50-50 40 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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l r Card Is Here

By John Vickers, Photograph by Jo Michaelides.

Gold: Tell us something of Lamda Group’s history. Chris Panayiotou: Lamda Group was established in 2007 as an international payment service company that specializes in the processing of Internet-based payments and card services. Lamda offers innovative, secure and reliable solutions to the international market, assisting in the development of the e-payment field, which is considered particularly important for the development of e-commerce. Even though Lamda is a continuouslyevolving company, it has a smooth and efficient structure, with the flexibility to react to individual customer needs, so it can be said with certainty that it prides itself on providing customised solutions. These services are only accessible through a fully secured state-of-theart international network system; the company has achieved Level 1 in the PCI DSS (Payment Card Industry Regulators) certification, which is the highest that can be achieved in the industry. PCI covers 12 major categories of information security, including network design, data storage, intrusion monitoring and the use of security-aware IT policies. Our compliance meets and exceeds these industry standards as an integral part of commitment to end-to-end security.

Gold: Why Cyprus? C.P.: In recent years Cyprus has established itself as an important international business centre due to its excellent infrastructure, geographical location and advantageous tax system. Cyprus’ ideal geographical position has encouraged the international business community to set up offices on the island for trading in Central and Eastern Europe, the Middle East, North Africa and further afield. Commercial banking in Cyprus operates at a very sophisticated level and like its legal system counterpart, follows the British model. Commercial banks have very strong correspondent networks throughout the world and

carry out traditional and specialized international financial transactions.

Gold: How easy is it to obtain a Virtual MasterCard? C.P.: The process of applying for a Virtual MasterCard is very simple. All you have to do is to log onto the Lamda Group website (www.lamdagroup.com) and provide us limited personal data such as your full name, address, date of birth, e-mail address and phone number. Additional information such as nationality, a colour copy of your ID/passport, proof of address, proof of funds could be required in case of higher card limits. Gold: Has business been affected by what has been going on in Cyprus over the past year? C.P.: Cyprus is facing some of its toughest economic challenges in decades. It is very important for business leaders to take a fresh and objective look at their own business in order to devise plans for sustainable growth into the future. We must therefore adapt, trusting in ourselves and being open to the view that, whereas the crisis has created problems that need addressing, at the same it presents opportunities. We pride ourselves in providing the best solutions for everybody and I can say that our business has not been negatively affected at all; in fact, we have seen the reverse: business is growing since people don’t trust the banking sector anymore. More people have started using prepaid cards more often since the crisis began: they want to know their money is safe, without the fear of a new “haircut” or the worry that they might register unnecessary debt. Moreover, we have created products to satisfy all our clients: we have virtual cards, prefunded cards, prepaid cards and the Lamda eWallet. We actually propose a solution where Lamda cardholders have all the features of a bank in their hand, without having to maintain

a bank account, which they can manage by themselves: the creation and cancellation of cards, tracking funds movement within the card and carrying out transfers from and to the card through the online Lamda interface .

Gold: What are your projections for takeup of the prepaid Virtual MasterCard in 2014? C.P.: While more consumers are buying prepaid cards for gifts rather than for their own use, a 2013 survey revealed that the percentage buying for self-use is rising. This trend is even more apparent for virtual cards, which are increasingly being delivered by mobile devices, either by Short Message Service (SMS) text or via a mobile application. More than one in four consumers bought virtual cards within the year preceding the survey; half purchasing them as gifts and half for their own use. It is clear that the trend towards virtual cards is increasing fast for the obvious reasons of instant card creation, easy and convenient handling (since it is not physical) and the strongest trend is for virtual prepaid, prefunded cards that are instantly issued and already loaded. It is clear that soon the proportion of virtual prepaid cards to prepaid cards will be 50-50. Gold: Why would someone decide to sign up for a prepaid Virtual MasterCard? C.P.: The card accounts are accessible by users via the Internet in a completely secure and user friendly environment. With Lamda Card Services, no confidential and financial information is revealed. This not only keeps the information safe but it also protects clients’ privacy when carrying out transactions online. The use of “virtual cards” replaces the need for a physical plastic card. The Lamda Prepaid Virtual card is designed specifically for use on the Internet. It is like any MasterCard and has all the advantages and characteristics of any other magnetic MasterCard.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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E-PAYMENTS

Business is growing since people don’t trust the banking sector anymore The Prepaid Virtual MasterCard makes it easy for online transactions since it gives you access to millions of web shops globally. It gives you a secure and anonymous footprint when shopping and the independence to immediately use it when and where you want with just a few clicks. Lamda Card Services issues a 16-digit card number as well as an expiry date and a CVC code in real time. We have also recently launched the Lamda Prepaid Prefunded card that is instantly loaded on issue and is completely anonymous. Gold: So these cards are for people who want a MasterCard but don’t have a bank account? C.P.: Yes. Lamda Group offers cardholders the opportunity to verify purchases and expenses in a safe and easy way without running the risk of unnecessary debt. When payments are executed with a card, it can often lead to overspending and unnecessary debt without people even noticing. There is no interest or late fees applied to any of our cards and no need for cardholders to go through any credit check. Most importantly, they do not need to maintain a bank account connected with the card, thus avoiding the costs of maintaining an account. Cardholders can use their Internet access to monitor movements on the card, as well as full management of the card account. What can I do with a prepaid Virtual MasterCard that I can’t do with a normal MasterCard? C.P.: The Virtual MasterCard can be used instantly online anywhere MasterCard is accepted. One of the big benefits of using a virtual prepaid card is that it significantly limits the liability of the individual who uses it. The most important feature of the Virtual card is that it prevents the risk of identity fraud. While the mag-stripe card is more vulnerable to skimmers which can pick up the encrypted information on the strip and use it to counterfeit cards, it’s very hard for fraudsters to skim virtual cards because there is no swiping involved in completing a transaction. Gold: Many people are still reluctant to use their normal credit card to make on-

line payments. Why should they be any less reluctant to use a Lamda card? C.P.: The confidential and financial information is not revealed. This not only keeps the information safe but also protects clients’ privacy when carrying out transactions online. Our offer in terms of card types is varied and they are designed to meet everybody’s requirements. Here are some examples: ➠ The Lamda Prepaid Prefunded Virtual Card is designed specifically for use on the Internet. These cards can be issued at any denomination up to € 250 (the funds will be pre-loaded and ready for use after activation). It can also be issued and distributed to clients through an API set up between Lamda and an online merchant. ➠ Lamda Virtual Prepaid Cards can be used for intended annual loads up to € 40,000 and are reloadable. This card offers anonymity, since the name of the cardholder is not linked to the card. This card is considered as if its holder carries cash, and is accepted at all locations where MasterCard is accepted. ➠ The Silver Lamda Prepaid Debit MasterCard ensures a safe and secure spending tool for travellers and students. The funding limit is 2,500 euros annually. The Silver cards can be cobranded and personalized. ➠ The Black Lamda Prepaid Debit MasterCard is the card with the highest deposit limit worldwide in the prepaid cards sector. It is a flexible tool to control spending both for individuals and businesses without the risk of overdrafts. It is a world-class card that can be co-branded and personalized for your business. ➠ The Lamda Gift Card is the ideal product for individual and company gifts. Lamda Gift Cards are issued anonymously and are available in several denominations - €50, €75, €100, €150, €200 and €250. They can be co-branded and personalized. Gold: Aren’t payments by mobile phone going to make credit cards (even virtual ones) redundant soon? C.P.: The prepaid cards industry is growing fast. It will not be one basic service for one small group, but rather a diverse set of features for a wide audience. The buzz around mobile payments has been growing

to an uproar in the past couple of years, and there’s a solid role for prepaid in those applications. Device proliferation and increasing smartphone use have paved the way for the smarter exploitation of mobility among businesses. It is now the age of local search, context-based mobile experiences, sentiment analysis-based marketing, wearables and cloud-based marketing. Lamda Group is keeping up with the latest trends in this sector as well. A cross-platform, multi-channel mobile payment solution – the Lamda Processing Payment Widget – is used by consumers to pay for digital goods over their mobile device. The widget integrates into websites or smartphone apps and presents the most convenient mobile payment solution for merchants who don’t want to get involved in payment API integration. Gold: What are your short-term and long-term plans for the company? C.P.: In the short term, Lamda Group is aiming for the Cypriot market and the main goal is to become the Number 1 prepaid card issuer in Cyprus; we want to promote Lamda Card Services and our products to gain recognition. We are also promoting the Lamda loyalty scheme within our local merchants. Through the loyalty programme, simply by presenting a Lamda card, purchasers are entitled to a discount on the current purchase. In the long term, we want to become well known in Europe and worldwide as well. We want our cards to be internationally recognised and to offer additional products that complement our cards. Gold: How much do you personally use a prepaid Virtual Mastercard? C.P.: As it is designed specifically for use on the Internet, I personally use the Lamda Virtual Mastercard every time I shop online since it is completely secure and confidential, but every time I need to make payments in physical stores or I need to withdraw cash, I use my Black Lamda MasterCard. The Black Lamda MasterCard is for people who intend to upload funds to the card not exceeding €50,000 annually, and is the card with the highest deposit limit worldwide.

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Quality + retailing

=Market Success G

old spoke to Michalis Panayides, Commercial Director of Carrefour Cyprus, about how the company has managed to keep its 17 stores across the island full of spending customers.

Gold: Consumers suffered a serious blow in 2013. How did this affect Carrefour Cyprus? Michalis Panayides: Undeniably, 2013 was a very difficult and challenging year for Cypriot consumers. Due to the financial recession, daily consumption plummeted and buying habits changed. However, Carrefour Cyprus (which, since 2012, has belonged to Marinopoulos S.A., the exclusive franchisee of Carrefour in Greece, Cyprus and the Balkans), has managed to maintain its position in the market as the leader in sales in the retail business. With the support of the biggest Greek retailer, our company has managed to remain the most profitable in Cyprus. With 17 stores and over 1,100 employees, Carrefour Cyprus is also the country’s biggest employer. Despite the difficulties of 2013, the company has successfully adjusted its strategy to this new economic situation. Responsible pricing policy has always been a top priority for Marinopoulos S.A., and, therefore, we are always committed to implement our valuefor-money philosophy. Aiming to satisfy the needs of our consumers, we focus on making

Although it is widely believed that food and grocery stores are always the last to be affected by a recession, the last 2-3 years have not been easy for the main supermarket chains in Cyprus: one collapsed and another went into administration. The emergence of so-called ‘community stores’ offering basic supplies to the most needy indicates the depth of financial problems in some areas of society. That said, the main players have adapted to the new circumstances and are doing their utmost to remain competitive and profitable.

extensive offers, both in terms of duration and pricing. Gold: Would you say that your growth strategy significantly differs from that of your competitors? In what way? M.P.: Being part of Marinopoulos S.A., Carrefour Cyprus is oriented towards a continuous growth market strategy. In order to achieve this, the company closely monitors local and international socio-economic trends, so as to plan this strategy based on the numerous business models implemented throughout its modus operandi. This is the main objective of our policy. Gold: Though much smaller, how competitive is the Cyprus market compared to others, where the Marinopoulos Group is active in? M.P.: The profound recession of 2013 has transformed the Cyprus market into a very competitive one. Not many other countries have such special market conditions. Within this framework, Carrefour Cyprus always tries to offer high quality products, combined with its value-for-money philosophy. Gold: Do you set and implement your strategy independently of your competitors or do you need to react to what they do? M.P.: As a result of its leading position, continuous efforts and constant improvement, Carrefour Cyprus actually shapes the market’s pricing policy and, more importantly, consumer satisfaction indexes. As mentioned earlier, we closely monitor all initiatives taking place in our market, aiming to further improve our products and portfolio of of-

fers. Reaching high levels of Consumer satisfaction is a never-ending job! Gold: The Marinopoulos Group has always made a point of supporting local farmers and suppliers. How feasible is this, though, in a country like Cyprus where international brands are clearly preferred over local ones? M.P.: Marinopoulos S.A. demonstrates its commitment to community growth in every operating market. Regardless of the competition, our company prefers local supply chains, in order to promote local products and suppliers. In our stores, Cypriots can find 100% Cypriot meat and 100% Cypriot bakery products. Moreover, we distribute a wide variety of fresh fruit and vegetable products, 50% of which originate from Cyprus. Carrefour’s halloumi is, of course, produced in Cyprus. Our commitment to local production and supply is also confirmed by the fact that 90% of our food products come from local producers and suppliers. Gold: What are your plans for 2014? M.P.: Customer satisfaction remains our top priority. Our main objectives for 2014 include better prices, even better quality, and excellent service through our store network. In addition, we are planning to further support the local economy by extending our range of local products. Since giving back to society is a key pillar for Marinopoulos S.A., we will continue to whole-heartedly support our “Breakfast” CSR programme which was launched in February 2013. Through this programme, we offer free meals to school students in Limassol and Paphos and we predict that by the end of the current year 400,000 meals will have been provided.

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The International Business Division of Hellenic Bank is considered a major pillar of the Group’s success and a testament to its demonstrated ability to deal effectively with the current financial crisis which has swept the country. Photography byJo Michaelides

t was back in the ‘80s when the offshore department of Hellenic Bank was first established in Limassol, with clients of the shipping industry at its core. At the time, nobody could really have predicted the significance of the role it would play in the future development and prosperity of the organisation. By 1990, the Bank had established the first International Business Centre (IBC) of its kind by integrating that offshore department within its operations and the rest is simply history. Today, the International Business Division at Hellenic is rightfully considered a major pillar of the Group’s success and a testament to its demonstrated ability to deal effectively with the current financial crisis which has swept the country. The four IBCs (two in Nicosia, one in Limassol and one in Larnaca) along with the Shipping Business Centre in Limassol and Representative Offices in Moscow, Saint Petersburg, Kiev and Johannesburg, all staffed by highly experienced professionals, spearhead the Group’s commitment to this lucrative and highly successful line of business. Antonis Charitou, Head of the International Business Division, states things plainly: “Everything that has happened has made us work even harder, with greater focus and vigilance, to ensure that our clients come back to us, again and again. Times are difficult but if we reflect on the past year, our ability to cope successfully with all the challenges we have faced is a testament to the quality of our people and the quality of our organisation. I feel confident that we will come out of this crisis stronger than ever and better days lie ahead of us.”

Iacovos Iacovides Manager IBC Larnaca

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

George Agrotis Manager IBC Eleftheria Square

2013: A Rocky Road

Despite everything that happened last year, with the country falling under the spell of the Troika, the Hellenic Bank Group maintained a comfortable level of liquidity with no dependence on the European Central Bank, nor on the interbank market and without receiving any form of state aid. The significance of all this is reflected in the successful recapitalisation of the Group. A total of €358 million was raised, some €64 million more than the required €294 million based on the ‘extreme scenario’ of the due diligence conducted by PIMCO. All this also had a positive effect on the

Christakis Tsangaris Manager IBC Athalassa

International Business Division which remained vibrant throughout the crisis. Nevertheless, the international business sector’s resilience was also due, to a certain extent, to some key fundamentals that would hold strong throughout this testing period. The country’s rock-solid experience in corporate structuring and tax planning gained throughout the years was still in place. Cyprus’ network of almost fifty double taxation treaties remained intact, providing a good framework for companies operating out of here. Despite the rise in the corporate tax rate to 12.5%, it still remains one of the most competitive in Europe. The high number of seasoned professionals in the areas required to have a world class international business centre are still based here. Cyprus did not move from its location at the crossroads of three continents.

The island’s very favourable ranking, compared to other EU countries, regarding anti-money laundering regulation in the Basel Institute on Governance report and in the Financial Action Task Force (FATF) report has not changed. The list can go on. All of these things have, in some way, helped mitigate the negative effects of what happened a year ago, and paved the way for the International Business Division at Hellenic to better manage the storm.

The International Business Centres

In 1990, in an effort to better serve the needs of its growing international clientele, Hellenic Bank adopted the concept of the

International Business Centre (“IBC”) and was the first financial institution in Cyprus to implement such a concept. The first IBC was founded in Limassol by integrating the existing offshore department into its operations. Following the immediate success of the Limassol IBC, a similar concept was introduced in Nicosia and later in Larnaca. By 1997, the Limassol IBC had achieved ISO 9002:1994 quality certification. It was the first IBC in Cyprus to achieve such certification for its Banking operations. This accreditation would form the cornerstone of the Bank’s commitment to quality and service for years to come. Moving forward to 2002, Hellenic Bank successfully launched its Net Banking platform to better serve its international clientele. In the process, it was awarded the prestigious “Best Online and Multi-channel Banking Team” award at the European Banking Technology Awards. More than a decade after the initial ISO 9002:1994 certification of the Limassol IBC, the Bank’s commitment to quality and improvement was reaffirmed through its accreditation with ISO 9001:2008 quality certification for all of its International Business Centres in 2009. By 2010, through continuous investments in technology, the quality of service had been further improved. The customercentric approach adopted by the organisation ensured excellence in service coupled with confidentiality and security. Each International Business Centre client was assigned a dedicated Relationship Manager who acted as a liaison, enabling the client’s business to access the Bank’s services effectively and without delays. Finally, in 2012, another major milestone was attained with the opening of a second International Business Centre in Nicosia, currently located off Eleftheria Square in the heart of the business district of the capital.

The Representative Offices

In 1998, Hellenic Bank capitalized on the expertise acquired from being the first bank to lay the foundations for specialized international business centres in Cyprus by establishing Representative Offices in Moscow and Johannesburg. Since 2008, the global presence of the Bank has expanded to include Representative Offices in Saint Petersburg and Kiev. These offices provide

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spECIAL ADVERTISING FEATURE

information about the Bank and support business people interested in establishing business activity in Cyprus.

The Shipping Business Centre

The shipping sector had been successfully served by Hellenic Bank years before the inception of the International Business Centre. Since then, a sizeable portfolio of reputable customers from the shipping industry has been developed. This customer portfolio consists of some of the best-known companies in the business with activities ranging from ship owning, ship management, chartering, bunkering, marine insurance and others. Dedicated to exclusively serving the shipping business community of the island and capitalizing on the Bankâ&#x20AC;&#x2122;s longstanding affiliation with the shipping industry sector, the Hellenic Bank Shipping Business Centre, established in 2013, is the first of its kind in Cyprus. All the know-how and expertise accumulated throughout the years is now available under a single roof. Through the mixture of core and customised services, combined with a highly experienced team of professionals, the Hellenic Bank Shipping Business Centre can now provide a new level of experience to this select group of clients. As a member of the Cyprus Shipping Chamber, the Shipping Business Centre is also a keen supporter of the focal purpose of the organisation which is the promotion of the interests of Cyprus Shipping and the advancement of the reputation of the Cyprus flag.

1990: The Bank establishes the first IBC of its kind in Limassol, Cyprus.

2007/8: Representative Offices are established in St. Petersburg, Russia and Kiev, Ukraine.

1997: The Limassol IBC achieves ISO 9002:1994 quality certification, the first IBC in Cyprus to obtain such certification for its banking operations.

2009: The Bank gains ISO 9001:2008 quality certification for all of its International Business Centres.

1998: Representative Offices are inaugurated in Sandton, South Africa and Moscow, Russia. 2002: The Net Banking platform is successfully launched so as to better serve the Bankâ&#x20AC;&#x2122;s international clientele.

Tryfonas Anastasiou Manager IBC Limassol

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

2012: A second International Business Centre is established in Nicosia 2013: The Hellenic Bank Shipping Business Centre is launched. It is the first of its kind in Cyprus.

Antonis Charitou Head International Banking

Key contact details

International Business Division 131, Archbishop Makarios III Avenue & Ioannis Polemi Avenue, 5th Floor, 3021 Limassol, Cyprus Tel: +357 25 502 411 Fax: +357 25 502 484 e-mail: a.charitou@hellenicbank.com Nicosia Athalassas International Business Centre 173, Athalassa Avenue, 4th Floor, Strovolos, 2025 Nicosia, Cyprus Tel: +357 22 501 888 Fax: +357 22 501 993 e-mail: ibcnicosia@hellenicbank.com Nicosia Eleftheria Square International Business Centre 1, Evagoras Avenue, 1065 Nicosia, Cyprus Tel: +357 22 501 700 Fax: +357 22 663 168 e-mail: ibc.eleftheria@hellenicbank.com Limassol International Business Centre 131, Archbishop Makarios III Avenue & Ioannis Polemi Avenue, 2nd & 3rd Floor, 3021 Limassol, Cyprus Tel: +357 25 502 000 Fax: +357 25 502 485 e-mail: ibclimassol@hellenicbank.com

Services

The International Business Division offers a wide array of products and services under its umbrella. These include deposits, payments, credit facilities, debit and credit cards, Internet banking services, treasury and foreign exchange services, private banking services, custodian services, trade finance services, insurance services, escrow account services and brokerage and advisory investment services. In addition, solutions can be tailored to meet the specific requirements of each and every client.

2011: The first fully-functioning branch commences operations in Moscow.

Larnaca International Business Centre 3-7 Archbishop Makarios III Avenue, 6016 Larnaca, Cyprus Tel: +357 24 503 535 Fax: +357 24 659 101 e-mail: ibclarnaca@hellenicbank.com

Angelos Costa Manager Shipping Business Centre

Shipping Business Centre Corner of Gladstone & 1, Evangelistrias Street, Agathangelou Business Centre, 1st floor, 3031 Limassol, Cyprus Tel: +357 25 502 700 Fax: +357 25 345 430 e-mail: sbc@hellenicbank.com

So Far, So Good Thanks to Patio coctail - wine - tapas bar, Nicosia

corporate services

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

Smaller companies in the professional services sector can now take advantage of their flexibility and adaptability, says the CEO of Prospectacy.

L Thanks to Patio coctail - wine - tapas bar, Nicosia

By John Vickers, Photograph by Jo Michaelides.

ast month, the New York Times published an article about Cyprus in which Vasilis Zertalis, CEO of the corporate services provider Prospectacy was quoted extensively. His optimistic outlook for 2014 and the firm’s expansion plans helped give a positive spin to the whole NYT story but just how representative is his company of the broader sector? “I would say that we are representative of the smaller offices,” he told me in his office in central Nicosia. “The big and mid-size companies have had to shrink but for firms like ours it’s easier to handle costs, manage prices and expand as required. If a ‘Big Four’ firm needs to register 1,000 companies to feel that it has had a good year, we will say that for 50 or 100. It’s easier for smaller operations to get out there, to go and see people and to form partnerships. I think the larger firms have been more involved in damage control over the past couple of years rather than trying to expand further and create new markets.” Prospectacy was set up in 2009 by Zertalis and a partner, both of whom had worked for KPMG and other audit firms before deciding to form their own company. “The crisis hadn’t yet hit Cyprus at the time, though plenty of people were telling us that it was not a good time to start a business and hard times were on the way,” he recalled, “But if you’re confident you take your chances and that’s what we did. Our core business is tax planning, mostly for companies, and every-

thing else is built around it. And, in spite of everything that has happened in the past 12 months, we’ve managed to do well.” Zertalis was quoted in the New York Times article as saying that “The Russians won’t leave because they really don’t have any other option. They lost money in the haircut, but when it comes to business they will continue to use the island because returning to Russia is not a better solution for them.” Is this really the case? He certainly believes that it is and he argues that, although there are plenty of Russians and Russian companies in Cyprus, most of their money was always somewhere else. “We are talking about trillions of euros, not the oft-quoted figure of €30 billion. What was in Cyprus was a very small percentage,” he insisted. And he went on: “I don’t see our relationship with Russia lasting forever. What has been going on all these years will stop. It is clear that President Putin wants to find a way of keeping Russian money in Russia. I am sure that Russians will still live here and buy property, etc., because it’s not only the tax system that attracts them to the island. It’s the whole environment and the way of life, so Cyprus will continue to be on their list of destinations for buying a holiday home, and so on, but the professional services sector needs to look elsewhere” Zertalis believes that the Government needs to focus on drawing up Double Taxation Treaties with other countries rather than simply retaining and maintaining existing economic and financial relationships. “Not everyone is in crisis. There are countries that are growing and we should go after them. There are plenty of markets in Asia and Latin America, for example, that will see Cyprus as a gateway to the much bigger European market.” While firms such as Prospectacy are not

going to sit around and wait for government action, Zertalis acknowledges that Double Taxation Treaties help. “They are an additional tool for us and they definitely give us an competitive advantage,” he said. On the other hand, he does not foresee the Government’s rumoured efforts to attract foreign banks to Cyprus bearing fruit in the near future. “I’ve heard the rumours but my main question is why any foreign bank would want to establish itself in Cyprus at this moment. There isn’t much of a local market to penetrate and those that are here have been downsizing and even closing branches,” he told Gold. “It’s possible that a big name might decide to come here and enter the retail market, open lots of branches and guarantee that people’s money would be safe. But even then, it would come under the Central Bank’s regulation so nothing would be 100% certain. Frankly, I don’t see any reason for a foreign bank to open at this time.” It’s well-known that in recent years, most of the money that came to Cyprus – including the much-talked-about Russian money – never stayed here but simply passed through and that, in Vasilis Zertalis’ view is “just one of the many mistakes that our bankers have made. They never managed to create the product that would have kept this money on the island. Even some of those who were sending their money to Switzerland were doing it through Cyprus. Of course, Switzerland has a longstanding traditional banking system but why couldn’t we do the same? It’s not possible now, obviously.” If foreign banks are hesitant to set up operations at this time, what about investors in other sectors? Are they looking at Cyprus as a place where they can pick up cheap

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corporate services

distressed assets or do they believe in the essential reliability of the country with all the advantages that we have always advertised? “The vultures are already here of course!” Zertalis replied with a laugh, “and the rumour going around is that everything here is for sale at the right price. There is interest on the basis of both of the scenarios you suggest but in either case the price has to be low because of the perceived risk. Cyprus is not London where anyone investing in a property market that is down knows that it will eventually recover. We have been involved in a couple of deals and we’ve seen that if you drop your price by 10% nobody is interested. If you drop it by 20% they are still not interested. So it ultimately comes down to how low the seller is willing to go. Things in the real estate market are quite tough right now. As for the citizenship scheme, I don’t think that people are going to come and buy a property just for that purpose.” One year on since March 2013, how does Vasilis Zertalis feel about the prospects for both the local economy and the investment environment? “I feel positive about this year, he replied firmly. “I don’t think the economy is going to crash but we are still unstable. We can’t be sure that MPs aren’t going to decide to say ‘That’s enough’ and refuse to pass legislation that is part of the agreement we have signed with the Troika. As long as we have instability I don’t see how people will be persuaded to invest. They may trust the present government more than the previous one because it has taken action but the political system and the economy remain unstable. The banking system is still unable to finance the needs of the market in the way it used to and this will take some time.” That doesn’t sound like an optimistic point of view. “No, it is! I believe that what happened 12 months ago was necessary. We have been forced to take measures that we didn’t have the courage or the political will to take by ourselves. Obviously there are negative factors in some of the Troika’s demands and I can understand both the people that are protesting and the Government which is trying to find a compromise. But we don’t need such situations to create even more instability – the issue of privatisation, the fact that one of the parties has withdrawn from the government, etc. If we didn’t have

I don’t see our relationship with Russia lasting forever. What has been going on all these years will stop to deal with these things I wouldn’t hesitate to say that 2014 will be a good year. But current events and others down the road are creating instability and scaring people away. Investors who have forgotten about 2013 and are looking at Cyprus with fresh eyes are going to stay away for even longer when they see what’s happening. And it won’t take much for someone to say that maybe they should be looking elsewhere to make their investment.” Under such circumstances, how easy is it to convince investors that Cyprus is a better jurisdiction than, say, Malta or the Netherlands for them to do business? It’s not easy, Zertalis said, noting that Malta, in particular, started after Cyprus but has now surpassed us in many areas. “We were stuck in our traditional views for a long time and since the work kept coming in, nobody really felt the need to develop our product and make it better for the future. That’s why Malta is now at least one step ahead of us in so many areas,” he said. “I think Malta is now going through what Cyprus did in the late 1990s,” he added. “Business is coming in, it thinks that one of its main competitors is out of the game so it’s comfortable and we are the ones who are having to make the effort to get business. This will change eventually.” On the question of persuading investors that Cyprus still has considerable advantages over competing jurisdictions, Zertalis said that there is greater resistance than before on their part but benefits such as the large network of double tax treaties and the country’s highly-qualified professionals eventually play a positive role. Attracting new business is not easy but by making personal contact

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

and going after it, Cypriots are now doing more than their competitors elsewhere. “It used to be said that Cypriot banks were not professional in their dealings and that they were very expensive compared with others internationally,” he said. “Now that we’re working with foreign banks, we realize how good and efficient the Cyprus banking system actually was. I believe that many companies and individuals that left last year will come back to Cyprus and they will keep using us for tax planning and other business purposes.” So how optimistic is the CEO of Prospectacy about Cyprus’ long-term future? “I feel positive about the future because what happened served as a wake-up call,” he said. “We are now trying to fix things, to change things, to be proactive and to create new products. The Cyprus Securities and Exchange Commission (CySEC), for example, is very active and is now very fast to implement EU directives and regulations. We need to create new markets before Russia decides to close the door on us but I believe that we will do it.” On a more personal note, how does he see the future of his company over the next three years? Again, with optimism and for good reason: “This year people understand the situation here. Things are stabilizing and I hope that the current situation won’t take us two steps back. We shall be promoting Cyprus as a place with a very well-educated and well-trained workforce and proposing the country as an attractive alternative to companies looking to establish a presence in Europe and manage their European operations from here. We’ve been doing well and being a small firm means that we can adapt to circumstances much more easily than a large corporation can and we can be flexible. The well-known quotation [often wrongly attributed to Darwin] that “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change” is a pretty accurate description of what a company like ours can do. So we need to take advantage of the situation, get better and grow. A crisis always brings about opportunities so it’s matter of looking to resolve it and, at the same time, gain some benefit from it. In brief, I would say ‘So far, so good’.

SPECIAL ADVERTISING FEATURE

ENERGY T

he discovery of natural gas in Cyprus’ offshore Exclusive Economic Zone is arguably the most significant development in the country’s recent history, one that has the potential to change not only the economy but Cyprus’ place in the EU, which is looking for ways to reduce its dependence on Russia for its gas imports. Some observers believe that Cyprus can become a major energy hub in the region, though uncertainty over the size of the gas reserves and the need to forge economic alliances with countries such as Israel are issues that complicate the situation. Meanwhile, the island’s economic and financial problems have focused attention on the need to look to renewable energy sources, especially solar power, as a way of reducing costs as well as environmental harm. On the following pages, experts from a variety of firms involved the provision of services to the broader energy sector express their views on how the successful exploitation of the island’s new-found resource is likely to affect its future prosperity and how their companies’ specific expertise can play a part in Cyprus’ new energy industry.

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SPECIAL ADVERTISING FEATURE

ABB

ABB PROVIDES OUTSTANDING ENGINEER AND LEADING EDGE TECHNICAL SOLUTIONS FOR THE OIL & GAS INDUSTRY

he knowledge and experience we have built up through working with world leaders in oil and gas enable us to ensure that we can deliver powerful solutions for LNG/LPG, Oil & Gas processing and terminal automation. ABB´s consulting and support services deliver the results needed, helping to lower process safety risks, improve reliability, raise operational efficiency, guarantee legislative compliance, maintain integrity and ensure that operators are getting the most from their capital investment. In the oil and gas sector time really is money. Our role is to help maximize the return on investment through asset reliability assessment, risk-based inspection and maintenance, plant performance and asset integrity studies. WHY ABB SOLUTIONS ARE BETTER IN-DEPTH INDUSTRY EXPERTISE AND SUPPORT ABB’s broad portfolio of services for automation and power provide world-class support, the

CONTACT DETAILS

highest level of competence, and deep understanding of your systems, applications, and processes. ABB services improve equipment productivity, minimize costs throughout the complete lifecycle, and extend the useful equipment life. Products and Solutions: Advanced Control & Optimization, Control Systems, Generators, Motors, Drives & Power Electronics , Oil & Gas Measurement, Analyzers & Analytical Solutions, Electrical/ Integrated Project Solutions, Instrumentation, Safety Systems, Control Room Design, Power Management Systems, Analyzers & Analytical Solutions, Control Room Design, All Electric Compressor Drive Systems. THE LEADER IN CONTROL SYSTEMS As the number one ranked distributed control system provider in the world for over 10 years, ABB lays claim to a broad knowledge base including hardware, software, applications (continuous control, batch, QCS and DCS-based SCADA), project services (project design through project management and startup), and non-contract maintenance services. DESIGN OF SAFE, EFFICIENT AND EFFECTIVE CONTROL ROOM ENVIRONMENTS. The control room is the most important room in an oil and gas facility, yet many are

poorly designed. In addition to potentially contributing to operator error, badly-planned control rooms will fail to attract the caliber of operator needed to run today’s highly integrated process facilities. A total control-room environment, focused on operator needs, promotes fast, safe and correct decision-making. It gives operators easy access to the information they need through fully interactive displays and allows them to quickly exchange critical information with colleagues. In such an environment, operators stay alert, engaged and proactive at all times, in full control of routine tasks and ready to tackle the unexpected. ADVANCED SERVICES Analyzing and utilizing automation data effectively is paramount to decisionmaking and response time. ABB process and asset optimization services use a proven, continuous improvement methodology, special tools, and knowledge of the systems and processes in your operation to identify improvement opportunities. ENGINEERING AND CONSULTING ABB offers consulting services to identify key potential for improvement in the areas of industrial asset management, production processes and op-

erations infrastructure. Our highly qualified experts have an in-depth knowledge of the needs and best practices in the Oil, Gas and Petrochemical industry, whether you have a single or a comprehensive technical/organizational issue. MAINTENANCE AND FIELD SERVICES Effective predictive, preventive and corrective maintenance practices maximize the performance of your automation and production equipment. ABB service personnel are trained in the latest diagnostic, repair and maintenance practices to ensure high value for your maintenance investment. Maintenance solutions such as condition monitoring help to predict equipment failure and prevent costly downtime.

Our solutions allow realtime access to gas processing and terminal operations at a minimum cost of investment, operation and maintenance. ABB also provides total automation, electrification and telecommunications solutions that ensure safe, environmentally- friendly and profitable LNG operations.

ABB PROCESS AUTOMATION INDUSTRY SOLUTIONS / GIG Oil & Gas | Tel: 210 28 91 541 | E-mail: industry.solutions@gr.abb.com

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

Digital Oilfield at your fingertips? Definitely.

ABBâ&#x20AC;&#x2122;s fully integrated process and power automation solution brings process control, safety, electrical distribution, power management systems and telecoms, together on a common System 800xA platform, reducing the need for highly skilled specialists. The effect on capital expenditure is one of reduction: reduced hardware, engineering, control room footprint, commissioning risk and schedule. Meanwhile productivity is improved through reduced maintenance, lower energy consumption, less downtime, with increased asset management. www.abb.gr/oilandgas

ABB SA Process Automation Industry Solutions / GIG Oil & Gas Î¤el: 210 28 91 541 E-mail: industry.solutions@gr.abb.com

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SPECIAL ADVERTISING FEATURE

ABS

ADDRESSING NEW OFFSHORE CHALLENGES

ABS is one of the world’s leading classification societies. Its mission is to serve the public interest as well as the needs of its clients by promoting the security of life and property and preserving the natural environment. Since providing the first classification services to the offshore industry in 1958, ABS has been setting offshore industry standards and offering timely technical guidance as the industry has moved farther offshore and into more challenging environments. Today, the offshore industry is facing a new generation of technological challenges. In recent years, the offshore industry has expanded into increasingly deeper waters – in the Gulf of Mexico (GoM) and offshore Brazil and West Africa – and with the continuing depletion of existing known oil reserves, it is expected that this trend will continue for future developments. ABS has moved with industry as it has pushed the boundaries of deepwater technology. Firstgeneration semi-submersible units classed by ABS were able to drill in 200 metres water depth. The sixth-generation semi-submersibles being designed today

are capable of drilling in 3,000 metres water depth. ABS also is involved in the classification of the next generation of drillships, which are higher-specification units, rated for operation in water depths of 2,000 metres or greater. Many of these drillships are intended for ultra-deepwater operation at depths to 3,500 metres. The offshore sector continues to develop and adopt new technologies and novel concepts, and ABS plays an important role in this effort. Since classing Neptune, the first spar installed in the GoM, ABS has worked with the industry as spar designs have been modified and improved and installation has moved beyond the GoM. ABS has classed all three generations of spars – classic or caisson, truss and cell – and is currently looking at new hybrid designs. Like the spar, the individual components brought together in a modern drilling unit continue to evolve, and the way they interact is critical to safe and efficient operation. The components and systems have to function together in a manner that can be controlled by the operating team onboard. This is an important driver behind ABS’ research and development, the results of which are influencing new notation development. A suite of ABS classification Rules and Guides addresses these issues, and enhanced standards and associated notations for the classification of drilling systems are a key component. In response

CONTACT DETAILS

to operators’ desire for a more comprehensive approach to asset management, new standards formalize an integrated systems approach to classification. Associated notations can be used by operators to show compliance with class requirements and demonstrate the effectiveness of their maintenance programs. The latest notations developed by ABS for the drilling sector include: Integrated Software Quality Management (ISQM), Systems Verification (SV), DRILLSHIP, Asset Integrity Management (AIM) and Rapid Response Damage Assessment (RRDA). Existing notations that have been enhanced include: Classification of Drilling Systems (CDS), Hull Inspection and Maintenance Program (HIMP), Reliability Centered Maintenance (RCM) and Environmental Protection (ENVIRO-OS or ENVIRO-OS+). Underlying ABS’ development of class notations is the proper management of risk during the life cycle of an asset. Demand for ABS’ engineering review has grown beyond traditional class services to be able to meet the more sophisticated needs of the rapidly expanding offshore industry. This includes the increased application of risk and probabilistic analyses of design safety, viability and practicality. ABS offers risk-based facility inspection programs specifically calibrated to a particular site that clearly identify areas that merit special attention. ABS’ move

toward more specialized services have led to greater recognition of the contribution a class society can make to facilitate installation safety and integrity. The ABS offshore Asset Integrity Management programme is an example of the evolution of class in response to industry demands, whereby structures, equipment, traditional survey regimes and prescriptive Rules are being complemented with more proactive risk management processes. Another move ABS has made to offer specific guidance is the formation of a Global Gas Solutions Team. The LNG landscape is changing rapidly, and ABS recognizes the value that can be delivered by focusing LNG resources to better serve a significant and dynamic market sector. The US-based team of ABS gas specialists gathers together an extensive knowledge of LNG floating structures and systems, gas fuel systems and equipment and regulatory and statutory requirements. Drawing on its global experience, the team will help clients with specification reviews, risk and hazard assessments, bunkering suitability reviews, and new construction project management and training. For decades, ABS engineers and surveyors have demonstrated that they have the practical work experience and technical knowledge needed to handle the most challenging offshore projects. Ultimately, this is the result of ABS’ collaborative approach toward addressing offshore technology issues – working in close cooperation with regulators, academia and the industry to advance offshore technology innovation and operational safety.

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Christos Konomis, Managing Director

Aerotricity Ltd AEROTRICITY LTD IS A LIMITED LIABILITY COMPANY INCORPORATED IN CYPRUS SINCE 2003 AND IS OPERATING IN THE RENEWABLE ENERGY SECTOR. ITS MAIN FOCUS IS ON WIND ENERGY.

he company is governed by a Board of Directors with a vast and substantive expertise in areas such as strategic planning, design, project financing as well as construction and project management. The companyâ&#x20AC;&#x2122;s Managing Director, Mr. Christos Konomis, brings years of experience from the

Banking and Investment sectors. Aerotricity Ltd consolidates and manages all aspects of project development, including responsibility for resource assessment, site selection, permitting, interconnection, planning, construction, long-term operation as well as project reporting and administrative management, project financing, equity investment and community relations. Its first venture is the Kambi Wind Farm, situated on the hills adjacent to the villages of Kambi and Palekhori in central Cyprus. The project is the result of careful planning, meticulous design and a blend of construction and operation experience from Cyprus and the mainland of Europe. For the overall design of the Wind Farm, the resources, knowledge and expertise of several prominent companies in the industry were utilized. The venture has been approved by the United Nations Secretariat for the Clean Development Mechanism (CDM) and can earn saleable certified CO2 emission reduction (CER) credits provided under the Kyoto Protocol. Phase A of the Kambi Wind Farm (2,4MW) was completed in spring 2012, making use of 3 ENERCON GmbH Wind Energy Converters (WEC) already installed and

in operation. ENERCON GmbH, one of the leading global wind turbine manufacturers with more than 19,000 wind turbines installed in over 30 countries, maintained overall responsibility for the construction and operation of the project. Infrastructure work on the outstanding 7.68MW Phase B of the Kambi Wind Farm are expected to commence in the last quarter of 2014. Phase B foresees the installation of a new type of ENERCON turbine, with a rated power of 2350kW each, that incorporates the latest technology worldwide with several advantages such as lower installation costs and higher energy production. The full implementation of the project will help boost the local economy through the new investment to take place and the creation of new jobs. The realisation of the project will also significantly contribute towards the reduction of the greenhouse gas emissions and the diversification/sustainability of the power generation sector in Cyprus. In addition, it will contribute towards achieving Cyprusâ&#x20AC;&#x2122; objective of promoting and using renewable energies and more specifically in achieving the EU 2020 target of 20% of energy production coming from renewable sources.

CONTACT DETAILS Address: 35, Constantinou Paleologou Street, 1015 Nicosia, Cyprus | Tel: +357-22818555 | Fax: +357-22818559 e-mail: info@aerotricity.net | Website: www.aerotricity.net

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Deloitte

ow important can the oil & gas sector become for Cyprus and the broader region? The potential impact of the discoveries can be extremely significant both on the socio-economic front as well as on the geopolitics of the region. Natural gas has the potential to provide the necessary energy supply to meet growing regional demand at a lower cost, thus helping the competitiveness of the regional economies. Furthermore, in the case of Cyprus, there will be revenues from the future export of the island’s gas

reserves, the emergence of a new industry that will attract direct foreign investment in significant infrastructure projects (such as the liquefaction plant and pipeline facilities) as well as the need for a great number of other support services. All these are expected to create thousands of jobs, boost the construction industry and the ailing property market and have a favourable indirect effect on many other sectors of the economy such as financial and professional services and tourism. Furthermore, it will alleviate the over-reliance of the economy on financial services and tourism and will diversify the “country risk” in the eyes of foreign investors. The potential positive impact on the Cyprus economy as well as the broader region, provided adequate reserves are confirmed, can be very significant.

INTERVIEW WITH NICOS PAPAKYRIACOU, PARTNER, OIL & GAS LEADER npapakyriacou@deloitte.com

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Where do you stand on the ‘pipeline vs LNG plant’ issue? This is a complicated issue with many unknown factors influencing the result but I will try to simplify it for the benefit of your readers. The LNG solution is more costly but it offers more flexibility compared to the pipeline solution. Building an onshore LNG facility would not only allow Cyprus to maximize its options providing access to the world’s highest gas prices, currently in the East Asia, but could also potentially turn Cyprus into a regional energy hub, especially if part of the facility could serve some of Israel’s exports to international markets. Additionally, its construction is also expected to create a lot of jobs as it would be the biggest single investment ever made on the island. The two options are not mutually exclusive because if very signifiCan Cyprus play a role in Eucant reserves are discovered and rope’s energy security strategy or the Cyprus problem is solved, is the country too small to make both could be justified on ecoa substantial contribution? nomic as well as on strategic The EU would certainly welcome grounds. the opportunity to diversify its sources of gas imports and reduce Do you think that imported its over-reliance on Russian imLNG for use by the Electricity ports and Cyprus could benefit Authority of Cyprus (EAC) strategically if it were in a position is going to have a substantial to facilitate such diversification. effect on consumers’ monthly However, the issue is not so simbills? ple because it will depend on the This will strictly depend on quantity of gas reserves discovered the offers that DEFA (Natural in Cyprus and its neighbours, the Gas Public Company) receive. method of exporting to Europe Cyprus wants to import gas (pipeline or LNG), the prevailfrom early 2015 until late 2018 ing prices of gas in Europe and or even later until its own natuthe Far East and, of course, the ral gas discovered offshore in geopolitical balances and alliances Block 12 becomes available for of the regional players at the time. use by the EAC. Putting aside If significant oil and gas reserves the environmental consideraare discovered and, at the same tions and concentrating on the time, we choose our moves in the financial impact on consumers, geopolitical arena of the region one would expect that if DEFA carefully, then Cyprus could podecides in favour of any of the tentially play a significant role in offers for the import and delivEurope’s energy security. This is ery of LNG to the EAC, this even more significant if one conwould have at least a noticeable siders recent events in Ukraine. impact on consumer prices.

INTERVIEW WITH NICOS KYRIAKIDES, PARTNER, HEAD OF FINANCIAL ADVISORY SERVICES, SPECIALISING IN RENEWABLE ENERGY PROJECTS

nkyriakides@deloitte.com

recent survey revealed that more than half of all CEOs globally (63% in Cyprus) view high or volatile energy costs as a potential business threat to their organisation’s growth prospects. What can companies do about this problem? The best way to insulate business enterprises from increases in energy prices is to hedge against volatile energy costs and reduce their dependency on energy providers. To do so, enterprises may look into ways of improving the energy

efficiency of their buildings and business operations, particularly those engaged in heavy manufacturing industrial production, thereby reducing their overall energy consumption. Additionally, they may also consider investing in acquiring their own energy production capacity to cover their needs, utilising renewable energy technologies, such as photovoltaics and by applying under the relevant Government schemes. Given Cyprus’ mild, warm climate, shouldn’t the Government be investing more in solar power and encouraging people to install photovoltaics? Despite being one of the privileged countries enjoying high solar irradiation, Cyprus is currently covering only a small fraction of its

energy needs from solar energy. Its use could help reduce our high dependency on fuel imports for electricity generation as well as the production cost, and improve the competitiveness of our business enterprises. Through the introduction of robust incentive schemes, the Government should encourage further investment in medium and large scale Renewable Energy Projects in photovoltaics and solar technologies. The EU recognises these advantages in Cyprus and in the last two years has awarded funding for one project with a total installed capacity of 50 MW and a second 50 MW project is on the final short list. They are both using concentrated Solar Power Technologies, one of them with storage capabilities. The EAC has long maintained that the private sector has not shown any interest in taking over any of its activities, despite a theoretically liberalized energy market, because the profit margins involved are so small. Do you agree with this or are other factors at play? The reason why we have not seen significant investment in this field so far is primarily due to recent developments in the economy, which have unavoidably had an impact on the cost and availability of financing. Improvements in the performance of the economy is expected to reduce the negative effects or completely remove these barriers. However, certain investments in the generation of electricity from renewables have been undertaken and have reasonable returns. When the electricity market becomes completely liberalised and the framework under which it operates is updated, investors from the

private sector will be in a better position to calculate their costs and compete in the market with the EAC and other producers on a fair basis. The introduction of a more precise and transparent mechanism for the determination of the cost of transmission and distribution of electricity will also facilitate the whole process. Do you think the EAC should be privatised? Why? (or why not?) This is a challenging question on a complex and very sensitive topic but in our opinion the EAC should ultimately be privatised. In preparing for privatisation, the EAC should undergo a restructuring and transformation process which will include an “unbundling” of its activities. The aim of the restructuring process is to maintain and enhance the value of the EAC through cost-cutting and the introduction of new efficient and effective processes, which will contribute towards becoming more competitive and able to resist the pressure when it will be operating and competing in an open and liberalised market with other strong players. The protection which the EAC has enjoyed for so many years has unavoidably led to inefficiencies which need to be identified and removed. The EAC should be restructured and modernized to attract potential investors. Privatisation, combined with the liberalisation of the electricity market and proper regulation, will also lead to a reduction in the price at which electricity is offered to consumers and to a better quality of service. The forces of a competitive market will lead to more efficient and competitive operations by all the players in the market, which will ultimately benefit consumers.

CONTACT DETAILS To obtain information about Deloitte’s services on Energy & Resources please refer to www.deloitte.com/cy (Nicosia office: + 357 22360300 | email: infonicosia@deloitte.com - Limassol office: + 357 25868686 | email: infolimassol@deloitte.com)

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EnergyIntel Services Ltd ENERGYINTEL SERVICES LTD HAS BEEN AT THE FOREFRONT OF THE SOLAR ENERGY BUSINESS SINCE 2006, OFFERING SPECIALIZED SOLUTIONS, PRODUCTS AND SERVICES TO PROFESSIONALS AND INDIVIDUALS, BOTH IN TERMS OF PRODUCTION, CONSERVATION AND ENERGY CONTROL.

OUR MISSION: WE MAKE THE SUN WORK BETTER FOR YOU The sun is our friend, collaborator and our industry. We always add extra value; creating the solutions that are getting the most out of the sun. We can utilize its energy to generate HEAT, produce COOLING, deliver HOT WATER and sustain ELECts clientele includes companies TRICAL POWER – and even - building owners - mechanical merge these into one solution. We provide solutions that and electrical installers, archicomply with almost every tects and other construction possible need. We make a consultants and individuals virtue of always delivering the seeking solutions to maximize right solution – no matter the the energy efficiency of their complexity, size or individual buildings, new or existing. need. ΕnergyIntel already has eight Our highly- qualified team years of experience, during which has completed several so- identifies the need, selects the best solution to be implelutions with proven reliability. Having established itself in the mented and guarantees the result. Our product portfolio is market for its consistency and the outcome of our extensive the high standards of service it experience in the renewable provides, the company underenergy sector, including longtakes projects from the initial stage of solutions selection until term relationships with custhe installation is complete and tomers. It is based on a strong commitment to research and maintenance after delivery. development, as well as indusHaving established its superitry-wide standards which adority in quality and service, in dress both customers’ business 2009 EnergyIntel expanded to and technology demands. the provision of a new range of products under the name PRODUCTS & SERVICES ECOhoME. For more informa- EnergyIntel Services Ltd oftion, visit www.ecohome-store. fers a wide range of optimum com. solutions to exploit solar 60 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

energy. Whether the need is for heating, cooling, hot water and/or electrical power; we are able to accommodate every customer’s needs in the right system configuration: • SOLAR THERMAL & COOLING Sonnenkraft: Having entered into an exclusive partnership with Sonnenkraft, premier provider of solar systems in Europe, Energyintel is able to offer high performance solar heating systems: A thermal installation consists of a series of collectors on the roof. These collectors are capable of absorbing the radiation from the sun and turning it into heat, hot water or both. SorTech: Using heat to produce cold: cooling today – and in the future! Using heat to efficiently cool commercial and residential buildings: With SorTech’s chillers, this is not only a bold vision but a widely tested and proven reality. These innovative chillers are most suitable for thermal cooling at low driving temperatures. In combination with a solar thermal installation, combined heat and power plant (CHP), district heat or local heat it is possible to achieve a new dimension in energy efficiency. This

not only saves resources and protects the environment but also pays off financially. See for yourself how efficient our sustainable cooling technology is. SorTech has system solutions available to optimally suit your installation needs. • HEAT PUMP & SOLAR The HP12M air-water heat pump in combination with the Sonnenkraft solar heating system results in a complete heating system without the need for any other auxiliary heating. Solar panels heat up a buffer tank where the upper part is used for hot water storage. A fresh water module uses this water to generate hot water for domestic use. The remaining energy in the buffer tank is used to heat the building. The heat pump is only used when there is not enough solar energy in the tank to fulfil the heat demand of the building. It also only operates when there is an instant need for energy and using cutting edge modulating compressor technology, ensures that it is highly efficient. Free solar energy is used when there is a need for frost protection, ensuring a coordinated and highly efficient design. • SMART ENERGY SYSTEMS PAW introduces innovative system technology for solar and

hydraulics. The PAW modular components undergo a series of approved and reliable quality checks. Every product series is developed and designed with great attention to detail. Systems provide solutions for: - Easier selection - Simple and Quick Installation - Easier maintenance - Insulated and - Perfectly design products • RADIANT HEATING & COOLING The underfloor radiant system is not only considered as

the best heating system for winter but also as an excellent solution for summer cooling. A single, invisible and lowenergy-consumption system allows users to create the best living environment all year round, with no need for any additional installations. Rooms climate-controlled by such a system are comfortable, spacious and quiet, ideal for family well- being where there are no unpleasant draughts, currents of air or dust. Moreover, complete solutions for ceiling and wall radiant systems are alternatively proposed for heating and cooling

with amazing results. Ceiling cooling is considered the ideal for Cyprus’ climatic conditions, providing maximum comfort and avoiding draughts of air and noise. • PHOTOVOLTAICS PV – Photovoltaics – is one of the most effective ways of generating electricity from the sun. With a PV-solution from EnergyIntel Group, you are assured of a low-maintenance installation and the option of rebate from your normal power supplier. Produce all your electricity for free! It has the best warranty in the market because of its pre-

mium European quality. Easy to install and very low maintenance Live Projects are the proven capability of our company! Our development project team is among a handful of industry professionals with experience in both the design and construction of medium and large-scale solar projects across Cyprus.

DIRECTOR AND KEY EXECUTIVES: Eugenia Herodotou Marios Alexadnrou

CONTACT DETAILS ENERGYINTEL SERVICES LTD | 36, Kypranoros Street., Stores 16-22, 1061, Nicosia | Tel: +357-22380707 | Fax: +357-22376900 e-mail: info@energyintel.com.cy | Websites: www.energyintel.com.cy & www.ecohome-store.com

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H Ioannides Demetriou LLC

ADVOCATES AND LEGAL CONSULTANTS CYPRUS ENERGY LAW FIRM OF THE YEAR FOR 2014 CYPRUS MEMBER OF THE ENERGY LAW GROUP

INTERVIEW WITH ANDREW DEMETRIOU, DIRECTOR, IOANNIDES DEMETRIOU LLC 62 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

ow important can the oil & gas sector become for Cyprus and the broader region? The promotion and expansion of the oil and gas sector is a key economic and political factor for both Cyprus and the region in general. For Cyprus it is clear that the oil and gas sector, if it achieves its full potential, will be a major contributor to the Cypriot economy in the long term. The whole oil and gas sector has to be well managed, however. The existing licenses for exploration and production must be properly managed so that they achieve the desired objectives within the timeframe envisaged by the licenses and the Production Sharing Contracts. It goes without saying that the gas or oil that will constitute the Republicâ&#x20AC;&#x2122;s share has to be monetized and invested wisely and prudently for the future in an appropriate manner. This is the key in the oil and gas industry. Can cooperation among countries in the energy sector contribute to peace in the broader Eastern Mediterranean/Middle East region? I do not believe that oil and gas in itself will overcome

deep-rooted political conflicts such as, for instance, the relationship between Lebanon and Israel in the same manner as the discovery of gas in the Cypriot EEZ has not brought the Republic of Cyprus closer to Turkey or, for that matter, the Turkish Cypriots. In our case it may, in fact, be a potential source of conflict. Twelve months ago, there was a sense of euphoria in Cyprus about the first discovery of natural gas reserves in the country’s Exclusive Economic Zone. Given that the reserves in Block 12 appear to be smaller than originally anticipated, do you think that the celebrations were premature? The euphoria was understandable. I do not know if it was premature. Given the economic meltdown that followed the discovery, it can be said that it still represents a silver lining in the economic cloud that has engulfed Cyprus. Can Cyprus play a role in Europe’s energy security strategy or is the country too small to make a substantial contribution? I do not believe that the size of the country is of any significance. What is significant is the size of the reserves of Cyprus and the cost of extraction. The other significant factor is the CONTACT DETAILS

manner in which Cyprus will be connected to the European energy grid, be it through a gas pipeline or through an interconnector cable. I believe that there could be significant benefit in producing power in Cyprus using a proportion of the profit gas of both Cyprus and Israel and thereafter exporting this to Europe by way of the interconnector cable that was the subject of a cooperation MOU between Cyprus, Greece and Israel last year. There are, however, technical problems to be overcome and I also believe that there is great pressure from abroad for other solutions, such as a pipeline through Turkey. We also have to remember that the energy security of both Cyprus and, indeed, Israel will also be secured as both are in their own way small and isolated electricity systems. Cyprus being an island is geographically isolated and Israel is politically isolated as it is surrounded by hostile states. Do you think that imported LNG for use by the Electricity Authority of Cyprus (EAC) is going to have a substantial effect on consumers’ monthly bills? It depends on the price that can be achieved through a long-term gas supply agreement. The criterion is that this process will only be activated if it will result in a significant saving as compared

to the existing fuel which is HFO. If this saving cannot be achieved, there is no point in changing for the sake of change. A recent survey revealed that more than half of all CEOs globally (63% in Cyprus) view high or volatile energy costs as a potential business threat to their organisation’s growth prospects. What can companies do about this problem? We have no alternative but to save on energy and to cut energy costs to the minimum possible. It should be noted that, following the Vasilikos explosion and as a result of the economic crisis, there has been a decline of almost 30% in energy demand in Cyprus as opposed to an annual increase in energy demand of between 7% and 11% at the turn of the decade. Given Cyprus’ mild, warm climate, shouldn’t the Government be investing more in solar power and encouraging people to install photovoltaics? Yes and as photovoltaics become more efficient and reduce in costs it will certainly do so. This, allied to “net metering”, will significantly increase the use and attractiveness of solar energy. The EAC has long maintained that the private sector has not shown any interest in taking over any of its activities, despite a theoretically liberalized energy market,

because the profit margins involved are so small. Do you agree with this or are other factors at play? It is clear that the private sector has not responded to the challenge and opportunity presented by the liberalization of the energy market. The investment required to challenge the EAC is enormous. The relative immaturity of the regulatory regime is also a significant factor in the lack of interest from Independent Power Producers. Additionally, the dominance of the EAC, which is an organisation that demonstrated its capability and the expertise of its staff with the rebuilding of the Vasilikos power station, is also, I believe, a significant factor in keeping any potential competitors at bay in the short term. Do you think the EAC should be privatised? Why? (Or why not?) I am privileged to be the legal advisor of the EAC so please allow me to refrain from replying this particular question. It has been acknowledged that the privatisation of the EAC, if it ever occurs, is some years away and it is clear that it will not be an easy task. A transparent and credible regulatory regime is an essential first step in the privatisation of any sector of the economy. There is a lack of independence and transparency in the regulatory process at present. This must be remedied as soon as possible.

Head Office: 2, Diagorou St., ERA House, Floors 7-12, 1097 Nicosia, Cyprus. | Tel: (+357) 22022999 Fax: (+357) 22022900 | Website: www.idlaw.com.cy | e-mail: info@idlaw.com.cy

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Pamboridis LLC

INTERVIEW WITH DR. GEORGE PAMBORIDIS, MANAGING PARTNER, PAMBORIDIS LLC

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an cooperation among countries in the energy sector contribute to peace in the broader Eastern Mediterranean/Middle East region? If the predictions of 60tcf of Natural Gas (NG) in our EEZ are 50% correct, this would be good enough to force us to recalibrate our whole economy to focus exclusively on the NG business. Imagine how big that would be if we also discover oil. The numbers in this area of business are astronomical in comparison to the size of our economy. Just to construct a single infrastructure project – a proper LNG terminal – we could be talking about an investment of €10 billion. In a country with a GDP of €16 billion or so, this is huge by any standard. Add to that other infrastructure projects like the land gas network, the pipelines to get the NG ashore, new port facilities, offshore shipping needs; this is just the basic infrastructure before we start pumping out our NG or oil. Similarly, the discoveries in Israel could have a huge impact

on the Israeli economy but also on the commercial relations of that country with its neighbours like Egypt, Jordan and, why not, Lebanon. Lebanon and Syria will probably make discoveries soon and the region’s total reserves could establish the East-Med as a solid alternative source of NG for Europe which is now almost totally dependent on Russia. By any standard, what we are witnessing in East-Med has the potential to transform the economy, the geopolitics and the future of all the region and its peoples.

proportion. They raised the bar too high talking about how NG would change everything immediately, etc., causing people to be disappointed with what we have discovered up to now. However, this was silly. By any standard, a single discovery, even if it is a low as 3tcf, is something huge for our country and our economy. This reserve on its own could cater for all the country’s energy needs for 100 years or even more. How we managed to make this a source of disappointment is a matter for the psychologists or psychiatrists to explain.

Can Cyprus play a role in Europe’s energy security strategy or is the country too small to make a substantial contribution? As a hydrocarbon producer with what we have at hand right now, I would have to say ‘No’. But Cyprus can take the initiative to lead the whole region of East-Med in becoming the alternative source of energy which could contribute to European Energy Security. Cyprus is ideally placed to act as the common denominator between all our neighbouring countries and lead this project. After all, we are the only EU member in the region. But unless we claim this role, it will not be handed out to us.

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Where do you stand on the ‘pipeline vs LNG plant’ issue? Geopolitically the LNG plant is an absolute “must”. However, “money talks” as the Americans say. Nothing can be achieved unless and until the figures add up to make the LNG plant commercially viable and I think that, unless we can secure 6-7tcf either from our EEZ or indeed from the surplus destined for export in Israel (Leviathan), the LNG cannot materialise. Do you think that imported LNG for use by the Electricity Authority of Cyprus (EAC) is going to have a substantial effect on consumers’ monthly bills? Unfortunately I do not agree with that assessment. We need to think outside the box and seek drastic solutions like, for example, the possibility of importing electricity from Israel. A recent survey revealed that more than half of all CEOs globally (63% in Cyprus) view high or volatile energy costs as a potential business threat to their organisation’s growth prospects. What can companies do about this problem? I have no idea. I am in no position to advise CEO on financial issues. Given Cyprus’ mild, warm climate, shouldn’t the Gov-

ernment be investing more in solar power and encouraging people to install photovoltaics? Of course it should. Unfortunately we have yet to see a comprehensive energy policy in this country and that is a shame. The EAC has long maintained that the private sector has not shown any interest in taking over any of its activities, despite a theoretically liberalized energy market, because the profit margins involved are so small. Do you agree with this or are other factors at play? I am sceptical about any statement coming out of the EAC as most of their actions indicate that they are struggling to enhance their monopoly and their prerogatives. But I am in no position to assess this on my own with no access to the actual data. I am sorry but this is not within my expertise. Do you think the EAC should be privatised? Why? (or why not?) I believe that states should stay out of business since, by definition, states are bureaucratic, corrupt and inefficient. Private partners should be running business ventures for governments and governments should, at best, be just a shareholder controlling, checking and nothing more.

Head Office: Pamboridis House, 45, Dighenis Akritas Ave., Nicosia | Tel: (+357) 22752525 | Fax: (+357) 22752800 | Website: www.pamboridis.com | e-mail: info@pamboridis.com

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interests will be central to any decisions made and actions taken, cooperation in the energy sector could lead to the existence of common interests and that could be a contributing factor towards peace in the region. One should also take into account that important energy developments in our region will not be independent of the global developments in the industry.

PwC

INTERVIEW WITH CONSTANTINOS TALIOTIS, PARTNER IN CHARGE OF THE ENERGY TEAM, PwC CYPRUS

ow important can the oil & gas sector become for Cyprus and the broader region? The successful commercialization of hydrocarbons by any country, in what is a very competitive global industry, requires as a minimum the adoption of best industry standards and a long term strategy. Successful countries in this sector like Norway have managed to achieve a contribution

to their economy of more than 20% of their GDP amounting into hundreds of billion of euros. The contribution to a small economy like Cyprus and regional economies from the state revenues from hydrocarbons (including potentially transit tariffs) and from the service industry that can be created to support the exploration and production of these resources, can therefore be very important. These benefits, though, will not come without the necessary effort. Can cooperation among countries in the energy sector contribute to peace in the broader Eastern Mediterranean/Middle East region? While each country’s domestic

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Twelve months ago, there was a sense of euphoria in Cyprus about the first discovery of natural gas reserves in the country’s Exclusive Economic Zone. Given that the reserves in Block 12 appear to be smaller than originally anticipated, do you think that the celebrations were premature? It is usually the case that operators’ announcements about gas discoveries contain a range of estimates of probable reserves with probabilities attached to these estimates. The case of the discovery in Cyprus was no different; the possibility of the reserves finally being significantly different from the initial estimates always existed. However, it should not escape us that Cyprus and its partners succeeded in coming up with a world-class discovery in a very challenging environment from the first exploration attempt in Block 12 while the equivalent track record in similar projects around the world is around one success in every six attempts. Given the potential of the East Med region (a USGS report makes reference to a total of 350 tcf of gas and 3.5bbl), the discoveries in Egypt and Israel and the fact that exploration activity is at the very beginning in the Cyprus EEZ, one can be optimistic for the future, without forgetting the associated risks of exploration work in ultra-deep waters.

Can Cyprus play a role in Europe’s energy security strategy or is the country too small to make a substantial contribution? Global proven reserves (i.e. those for which the recovery is reasonably certain - at levels above 90%) currently stand at around 6,600 tcf. You will therefore appreciate that the currently identified yet not proven reserves in the Cyprus EEZ of 5tcf will not make Cyprus a global gas player. Given, however, the existence of substantial quantities of what is called stranded gas offshore Cyprus (i.e. the excess of gas discovered over the needs of the home country), any viable commercialization solution for the Cyprus gas would eventually include substantial exports. The fact that Cyprus is a member of the EU and its strategic location in the East Med, as well as its proximity to the gas and potentially oil reserves, should allow the country to play a significant role in relation to the diversification of energy supply of Europe. This potential was highlighted in a May 2013 presentation on “Energy priorities for Europe” by the President of the European Commission, JM Barosso during which he pointed out the importance of the East Med energy reserves – and thus Cyprus- in relation to the Southern Gas Corridor. Where do you stand on the ‘pipeline vs LNG plant’ issue? Various monetisation options for Cyprus gas have been analysed and discussed to date. Some of the factors used to rank the options available include the resource selling price (net back margin), the project cost, technical feasibility, time to market, geopolitical risk/ security, local return to the economy, regulating obstacles and bankability/ investability. In a number of instances, the Cyprus

onshore LNG was ranked ahead of options such as a pipeline and even FLNG. One key area where the pipeline option was falling behind was in relation to geopolitical risks. Factors like transit country risk and cooperation with neighbouring countries, especially those with proven reserves, should be considered further, which could allow Cyprus to achieve the minimum quantities of gas needed for an onshore LNG project. Given continuing changes in the global gas market – a number of new producers will come into the market by 2021-2022 – and having in mind that a change to any one of the factors referred to above can lead to different outcomes, the timing of any final commercialisation decision can be critical. Do you think that imported LNG for use by the Electricity Authority of Cyprus (EAC) is going to have a substantial effect on consumers’ monthly bills? We are probably aware that in Cyprus currently, despite recent small reductions, we still have some of the highest electricity bills in Europe. The cost of fuel for the EAC was standing at around 59% of total expenditure and amounted to €0.1481 for each kwh sold with the average cost of fuel consumed by the EAC at €581.3 per metric tonne. Imported LNG can therefore potentially reduce consumers’ bills. A recent survey revealed that more than half of all CEOs globally (63% in Cyprus) view high or volatile energy costs as a potential business threat to their organisation’s growth

prospects. What can companies do about this problem? One of the benefits that companies can expect from natural gas is that it is cheaper than electricity. According to Eurostat, the 2013 European average natural gas cost is significantly lower than the corresponding electricity cost. Given Cyprus’ mild, warm climate, shouldn’t the Government be investing more in solar power and encouraging people to install photovoltaics? In the context of the targets set in Cyprus’ National Action Plan (NAP) the Government has been encouraging the investment in Solar PV parks (current and planned output capacity is equal to approximately 86MW) via the introduction of the Fit in Tariff scheme, by which it subsidises the price at which electricity produced via Solar PV parks is sold to the EAC. In addition to the above, the net-metering mechanism

has recently been introduced according to which the total electricity used by a consumer is netted-off with the electricity produced through his investment in Solar PV systems. Additional steps could be taken to promote the investment in photovoltaics, such as the simplification of the process to be followed by a potential investor, the increase of the quota in the NAP for the production of energy via photovoltaics and other measures associated with the production of energy from renewables for residential and industrial use. The EAC has long maintained that the private sector has not shown any interest in taking over any of its activities, despite a theoretically liberalized energy market, because the profit margins involved are so small. Do you agree with this or are other factors at play? The private sector has not engaged in the electricity market as the cost of dual fuel infrastructure (i.e. ability to consume both oil

and natural gas) is very high. Importing natural gas will alleviate this problem and potentially allow new entrants to join the electricity market. Do you think the EAC should be privatized? Why? (or why not?) Privatisations are part of the loan agreement with the Troika and the relevant framework legislation has just been passed by the House of Representatives. Privatisation is a tool that, if used appropriately, can bring about benefits for businesses, consumers, the State and the economy in general, including the EAC becoming more competitive through the restructuring process. In the context of the privatisation of the EAC, it is important to have in place a robust regulatory regime. I therefore believe that careful and methodical preparation is key before a privatisation process begins and definitely before final decisions are taken.

CONTACT DETAILS Head Office: Julia House, 3 Themistocles Dervis Street, CY-1066 Nicosia | Tel: +357-22555000 | D: +357-22555522

Fax: +35722 555001 | Email: c.taliotis@cy.pwc.com | Website: www.pwc.com.cy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 67

SPECIAL ADVERTISING FEATURE

ow important can the oil & gas sector become for Cyprus and the broader region? Extremely important. If handled wisely, it can turn Cyprus and the entire region into a prosperous area for all people. Not only it will create new job opportunities but the standard of living will be upgraded. Governments and local authorities will have the means to provide a better life. However, if personal interests and ambitions are allowed to prevail it could prove to be anathema. There are many examples of countries that have oil and yet they also have internal conflicts and poverty.

Staroil INTERVIEW WITH GEORGE PETROU, CEO, STAROIL CYPRUS 68 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Can cooperation among countries in the energy sector contribute to peace in the broader Eastern Mediterranean/Middle East region? Yes but it is not an easy task. The countries in the region have different cultures, border and religious conflicts and different goals. Can their differences be bridged? It is important for Cyprus to examine all its options, choose its allies and plan ahead.

Twelve months ago, there was a sense of euphoria in Cyprus about the first discovery of natural gas reserves in the country’s Exclusive Economic Zone. Given that the reserves in Block 12 appear to be smaller than originally anticipated, do you think that the celebrations were premature? Not at all. The truth is that there was a discovery of gas which can be extracted. The fact that it was less than initially anticipated only means that, with this discovery alone, we may not be able to justify the investment in the LNG plant. However, based on the available information, there is a good chance of discovering additional quantities of gas in other blocks. Therefore people have every reason to look forward to the future. Can Cyprus play a role in Europe’s energy security strategy or is the country too small to make a substantial contribution? It all depends on the size of the discovery. If substantial deposits are discovered, then yes, Cyprus can be an important player in the supply chain for Europe. I don’t think it matters that Cyprus is a small country. Where do you stand on the ‘pipeline vs LNG plant’ issue? Many views have been ex-

CONTACT DETAILS

pressed on this issue. I personally think it is premature to reach a conclusion and express a valid view. Without knowing the extent of the deposits, it would be risky to conclude the means of transportation. The decision should also take into account the potential target export markets.

available. Installing energy- efficient equipment helps but it will never manage to lower costs to the desirable level. Alternatively, we can move the production of items with a high energy demand to other countries with lower costs. Just as many organisations did when labour costs started to become prohibitive.

Do you think that imported LNG for use by the Electricity Authority of Cyprus (EAC) is going to have a substantial effect on consumers’ monthly bills? It all depends on the price of the LNG that the EAC will buy. If it buys LNG at market prices, I do not expect a substantial reduction in the price of electricity, unless the Authority finds a way to reduce its operating costs considerably, the reduction will be rather small if any.

Given Cyprus’ mild, warm climate, shouldn’t the Government be investing more in solar power and encouraging people to install photovoltaics? The government should look into the long-term benefits of photovoltaics and encourage / subsidize consumers to install where possible. Times are, of course, difficult, but think of the jobs that can be created and what the country can save. Large consumers such as industries and hotels would need a serious investment which, at present, we will not be able to afford. Long- term low-interest loans could be the solution.

A recent survey revealed that more than half of all CEOs globally (63% in Cyprus) view high or volatile energy costs as a potential business threat to their organisation’s growth prospects. What can companies do about this problem? I feel that there should be a combination of actions. Whatever an organisation does, there will always be countries with much lower energy costs, either because fuels are subsidized or because cheaper forms of energy are

The EAC has long maintained that the private sector has not shown any interest in taking over any of its activities, despite a theoretically liberalized energy market, because the profit margins involved are so small. Do you agree with this or are other factors at play? I have doubts as to whether any investor will show interest in taking over the EAC as it is currently operated. Margins may be low but, if surplus staff and salary

ith petrol stations located all over the island, STAROIL serves motorists with quality fuels and lubricants at competitive prices. STAROIL commenced its operations in 2006 with the main aim of filling the gap which existed in the field of Commercial Fuels supply. STAROIL became the first Cypriot oil company to import and distribute fuels directly to commercial customers. With a fuel terminal in Nicosia and satellite storage in other towns, STAROIL has the capability to deliver promptly and in a safe manner, high quality fuels at competitive prices, using proven transporters and company-owned tanker lorries. As of 2011, STAROIL began the expansion of its activities into the retail market of automotive fuels. In 2013 STAROIL was accredited with ISO 9001:2008 Quality Assurance certification for its quality of services, as verified by the International Quality Certification Network IQNet and the Cyprus Certification Company(CCC).

levels are managed with thorough reorganisation and cost control, it could prove a profitable investment. Do you think the EAC should be privatised? Why? (or why not?). Provided that there is competition in the market, privatisation is good. The investor will ensure that costs are kept to a minimum. Otherwise, if the monopoly continues, there is no guarantee that electricity will be cheaper.

Address: Yeri Industrial area, P.O. Box 12598, Latsia, 2251 Nicosia, Cyprus | Tel: 357-22575004 | Website: www.staroilcyprus.com

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Gold 69

investment

Too Much Potential to Ignore

Though the word ‘superyacht’ does not immediately inspire images of Cyprus’ coastlines and marinas, it may well do so in the not-so-distant future. With the financial crisis only highlighting the need to further develop new sectors of the economy, Erik Malinen, Director of Marinetek (Cyprus) Ltd., believes that the time is ripe to invest in the luxury maritime industry on the island. By Effy Pafitis

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

he Marinetek Group, founded in Finland in 1994, is an internationally-recognised brand name known for specialising in developing premium marinas and advanced floating solutions. Over the last 15 years alone, Marinetek has built over 2,000 marinas in 35 countries, from the Arctic Circle to the Persian Gulf. It has been involved in some of the world’s most prestigious marina projects, including Palm Island in Dubai, Port Hercule in Monaco, Porto Carras in Greece and, most recently, the Sochi Winter Olympic Village in Russia. It has also been involved in the development of Limassol Marina, having been awarded the contract for the supply and installation of floating concrete pontoons and mooring systems in 2012. A year earlier, the Marinetek Group had established an office in Cyprus because, as Director Erik Malinen told Gold, it believed that Cyprus had – and continues to have – “too much potential to ignore.” “Within the international maritime industry it is clear that, despite its current financial trials and tribulations, Cyprus is a hot-spot for future marina construction,” he explained. “There are many projects at their preliminary stages which will expand and, indeed, transform the island. Under the current Government’s maritime plan, Cyprus will have four new marinas in the coming years, plus a private 450-berth marina planned for the Ha Potami area near Paphos as part of the Venus Rock Golf Resort and Marina. It is essential for Marinetek to have a strong presence in such a burgeoning market, which is why we decided to invest in the island.” In March 2013, nine months after the Limassol contract was signed, Marinetek’s installation in Limassol was completed. The Marina now boasts a total capacity of 650

berths, for yachts of up to 115m in length and it is the first full service superyacht marina on the island, providing facilities and services of the highest standards, equipped with a team of experienced marina professionals to ensure the smooth running of all operations. Cyprus has been a holiday destination of choice for millions of people each year thanks to its beaches, clean sea, warm climate, hospitable locals, intriguing culture and long, fascinating history. Its relaxed pace of life and high standard of living should – theoretically – make it a very favourable location to welcome the affluent yachting community. Despite this, Erik Makinen maintains, “Cyprus literally did not exist as sailing destination until now, with the completion of the Limassol Marina. Once the remaining marina projects are completed, the island’s tourism product will be far superior to what it is today,” he said. “This is extremely important because, by improving the product, we shall also improve the calibre of tourist that the island attracts. For obvious reasons, it is far more beneficial to the economy to have a surplus of high-net-worth tourists arriving in Cyprus than any other kind, and increasing revenue to the economy as a whole. We maintain the view that the developing maritime sector is absolutely key in efforts to attract high-net-worth tourists and investors and we are confident that Marinetek Cyprus will play a central role in this industry.” It has long been argued that the development of the Limassol Marina and others will have a direct effect on tourism. Erik Makinen shares this view. “If all goes to plan,” he said, “over the next ten years Cyprus will acquire a new upscale image as a very significant tourist and yachting destination with an excellent infrastructure, superstructure and quality services for both locals and tourists. In Limassol, for example, the completed waterfront development is already changing the face of the town and improving the image of Cyprus as an attractive destination on a global scale. This development alone has definitely enriched the island’s tourist product already.” A unique feature of the planned new marinas is that they are all located close to town centres and will thus indirectly enhance local business in all the main coastal towns, thereby contributing to and increasing revenue. Noting his earlier use of the phrase “If all goes to plan”, we asked Makinen what might cause things to go awry. He recalled the fact that the Government had originally devised a strategic plan to upgrade the island’s maritime tourism, using the Build-Operate-Transfer (BOT) model. “This involves a strategic investor who finances, builds and manages a project for a number of years, before transferring it

THE DEVELOPING MARITIME SECTOR IS ABSOLUTELY KEY IN EFFORTS TO ATTRACT HIGH-NET-WORTH TOURISTS AND INVESTORS back to the state,” he explained. “Due to the current economic depression and banking crisis, however, the remaining four marina projects are facing funding difficulties, resulting in the projects being delayed, or even postponed indefinitely until appropriate funding is found. The largest Cypriot banks which initially showed interest in providing the funding are now backing off, asking for additional guarantees and higher interest rates. Finally, the consortia involved are seeking further foreign funding and investors.” For those who are unaware of the specifics, Makinen explained that, under the present Government’s plan, Larnaca Marina would be upgraded to 2,200 berths, Paphos to 1,000, Agia Napa to 650 and Paralimni to 250-300. All of these new government-backed marina projects use Design-Build-Finance-Operate (DBFO)-style 35 year concession contracts that are awarded to experienced, qualified private sector consortia. Despite the air of uncertainty that currently surrounds the remaining Paphos, Larnaca, Agia Napa and Paralimni Marina projects, Erik Makinen and Marinetek Cyprus remain positive. “We are very pleased to have attracted a good balance of high-calibre local and international buyers so far,” he said, “and we are confident of the positive impact this will have on local businesses and the Cyprus economy as a whole. We have reason to maintain our optimism. Marinetek Cyprus has had customers from Russia, Europe and even the Middle East – all major market areas – enquiring about maritime investments in Cyprus in recent months. This leads us to believe that there is sufficient foreign interest to enable the Government to renegotiate the current marina agreements with the interested parties and to ultimately secure the future of these projects and the maritime sector.” As for the company’s ambitions, Erik Makinen says they are simple: “To continue providing our superior services, and establish ourselves as the leading pontoon and equipment supplier to all future marina and waterfront developments on the island.”

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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business confidence

our future

Company Heads Express Confidence

CEOs in Cyprus are positive about medium-term growth prospects By Chloe Panayides

ccording to the local results of PwC’s 17th Annual Global CEO Survey, business leaders in Cyprus are less confident about the growth prospects of their company over the next 12 months. Only 32% say they are confident that their revenues will grow during 2014, when the respective percentages reached 71% and 85% in the eurozone and globally. However, CEOs in Cyprus feel more optimistic about their medium-term growth prospects with 75% of them expressing confidence about their prospects for increased revenues over the next three years.

This year’s survey was based on the participation of 70 CEOs in Cyprus, who shared their thoughts and concerns regarding the future of their companies. According to the survey results, 29% of participants see product and service innovation as the main opportunity for revenue growth followed by new markets (23%) and increasing share in existing markets (23%). As regards the economic and policy threats faced by businesses today, CEOs in Cyprus are mostly concerned about the government’s response to fiscal deficit and debt burden (83%), the increasing tax burden (77%) and the lack of stability in capital markets (70%). In addition, for the second consecutive year, the survey identified bribery and corruption

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

(66%) as one of the most important business concerns for CEOs in Cyprus followed by high or volatile energy costs (63%) and shift in consumer spending and behaviour (63%). When asked about their restructuring plans over the next year, 93% of CEOs in Cyprus cited cost reductions, followed by entering into a new strategic alliance or joint venture with a percentage of just 33%. According to the survey, even though CEOs are focusing on cost reductions, 60% of respondents believe that their headcount will remain the same over the next 12 months when the respective percentage in 2012 was 31%. The percentage of CEOs who say that their headcount will decrease during the next 12 months has dropped to 23% from 50% in 2012, offering a

note of optimism to the economy and society in general. 40% of CEOs in Cyprus have seen a positive change in their relationship with clients however, they feel that the level of trust that providers of capital (57%) as well as the Government and regulators (51%) have in their industry has deteriorated. Concerning the role of the state, 93% of CEOs in Cyprus believe that the government should first ensure financial sector stability and access to affordable capital and then create a more internationally competitive and efficient tax system (47%) in order to attract investments and new capital. The local findings of the 17th Annual Global CEO Survey were presented at an event at the Hilton Park Hotel in Nicosia. In his opening address, Evgenios C. Evgeniou, CEO, PwC Cyprus, said that, whilst confidence levels on a global basis surpassed those expressed in Cyprus, he believes that by becoming increasingly innovative, with an outward looking attitude, Cyprus, too, can restore itself to precrisis prosperity. In fact, he said, Cyprus has the opportunity to thrive on a whole new level, if key concerns – such as trust, and stability both financially and politically – are addressed appropriately and responsibly. “The message I’d like you to keep,” Evgeniou explained, “is the importance of businesses adapting to new environments. It’s not an easy road. It requires patience and determination. Our objective should be to emerge not just from the Troika’s supervision, but overall as a more competitive, dynamic, and sustainable growth jurisdiction.” Following the presentation of the results by Philippos Soseilos, Advisory Services Partner at PwC Cyprus, a panel discussion took place with George Petrakides, Country Manager of Microsoft Cyprus, Phidias Pilides, President of the Cyprus Chamber of Commerce & Industry, Philip van Dalsen, CEO of MTN Cyprus and Sir Christopher Pissarides, winner of the 2010 Nobel Prize in Economics and Chairman of the Council of National Economy. The discussion was coordinated by John Vickers, Chief Editor of Gold. In response to a question probing the nature of the survey’s outcome, Nobel laureate Sir Christopher Pissarides began the discussion describing the results as being very predictable for a country in its second year of recession. Referring to what some deemed as being a discrepancy in cost-cutting (specifically changes to head count), Pissarides explained: “In 2012, CEOs expressed a propensity to reduce headcounts by 50%; in 2013, this figure fell to 23%. This result is far from puzzling. It reflects what you would expect: in the first year, numbers are shed; in the second year, numbers are consolidated to effectively restructure the business. Those in financial difficulties will have

already got rid of excesses – with the exception of the Government!.” Pissarides stated: “I’m pleased I’m not surprised. It means that CEOs are acting responsibly and maturely. These were textbook responses, even.” Touching on one of the key concerns that emerged from the survey – that of the problem of bribery and corruption – Pissarides clarified his belief, supported by a recent Eurobarometer survey, that the pervading problem in Cyprus stems from the practice of using connections to move ahead in one’s career. Devoid of meritocracy, Cyprus finds itself in a vulnerable position. Pilides agreed but noted that, in his view, a key finding that should cause profound alarm is the lack of trust currently being experienced in Cyprus. “Companies used to be able to import raw materials easily. Now, they have to pay in advance, and use cash, no less. Cyprus has utterly lost its credibility, and this is hurting daily business practice, not to mention growth.” The lack of trust extends to semi-government organisations, which Pilides described as being centres for corruption and ineffectiveness. Here, Pilides referred to recent statements by the Chairman of the Electricity Authority of Cyprus who said that by making 300 people redundant in its quest to make savings, it would be able to better serve the population than previously. Questioning the veracity of this, and the implications overall, Pilides described this lack of transparency and therefore trust as being a major concern for the people of Cyprus, who are now literally paying for these discrepancies. On a more positive note, George Petrakides expressed his view that the survey gives a snapshot of current conditions, and urged Cyprus to leave the past behind, focusing its energies on the years to come. “Today is, therefore, not the conclusion of a great initiative, but rather the start,” he said. Van Dalsen agreed that this is where the focus should lie. Part of moving forward, he maintained, is finding suitable solutions to overcome the hurdles in one’s path: “I was surprised by the lack of interest in mergers and acquisitions expressed in the survey by Cyprusbased CEOs. If you’re going through difficulties, why not seek out a partner? It’s a sound solution,” he told the gathering. An additional issue brought under the spotlight was the lack of interest expressed by CEOs in investing in technological developments. Petrakides stated: “It’s a disappointing result. Technological advances are vital. It’s something we can actually influence and leverage compared with external forces over which we have little control. The benefits are endless – we can drive innovation and maintain

Our objective should be

to emerge as a more competitive, dynamic, and sustainable growth jurisdiction - Evgenios C. Evgeniou

In Cyprus,we are moving out of sync with the rest of the world - Philippos Soseilos If you don’t innovate,

you lose out - Philip van Dalsen

The results of the survey

mean that CEOs are acting responsibly and maturely Sir Christopher Pissarides

We need to take the future of our companies in our own hands by driving innovation internally and inspiring others to make changes too George Petrakides

A key finding that should cause profound alarm is the lack of trust currently being experienced in Cyprus Phidias Pilides

our competitiveness. But are we ready for this in Cyprus? 60% of respondents said that they will make these changes in the next 3 to 5 years. We do not have the luxury of this timeframe, though; it is not viable. We need to adapt sooner, rather than later. The sooner we adapt to new environments, the better off we will be. We need to be proactive, not reactive.” Concurring, van Dalsen explained: “If you don’t innovate, you lose out. Technology helps you to save money – it makes you more efficient and effective. CEOs don’t seem to be planning enough.” Petrakides concluded: “We are facing challenges – there is no doubt about that. However, instead of blaming external forces, we need to take the future of our companies in our own hands by driving innovation internally, and inspiring others to make changes too.” On this note, Philippos Soseilos, who had earlier presented the results of the PwC survey, made the following observation: “I actually feel that, in Cyprus, we are moving out of sync with the rest of the world. The main finding of this survey suggests that, globally, businesses are moving from being embroiled in a battle of survival, to truly embracing growth challenges. “Perhaps in Cyprus we are not quite there yet. We have to be bolder strategically.”

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m u i d e M d Small an Sized Enterpr ises (SMEs)

mall and medium-sized enterprises (SMEs) constitute 99% of companies in the EU. They provide two thirds of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU. Nine out of ten SMEs are actually micro enterprises with less than 10 employees. Various action programmes have been adopted to support SMEs such as the small business act which sums up all these programmes and aims to create a comprehensive policy framework. Recently new proposals have been put forward on Horizon 2020 and COSME aiming at increasing the competitiveness of SMEs through research and innovation, and providing a better access to finance for SMEs. By Frédéric Gouardères

Legal Basis Small and medium-sized enterprises (SMEs) operate mainly at national level, as relatively few SMEs are engaged in cross-border business within the EU. However, independently of their scope of operations, SMEs are affected by EU legislation in various fields, such as taxation (Articles 110-113 TFEU), competition (Articles 101-109) and company law (right of establishment – Articles 49-54). The Commission’s definition of SMEs can be found in Recommendation 2003/361/EC. Objectives Micro, small and medium-sized enterprises make up 99% of all businesses in the EU. SMEs are about 21 million in number, employing about 133 million people and are an

essential source of entrepreneurial spirit and innovation, which is crucial for the competitiveness of European companies. EU policy for SMEs aims to ensure that Union policies and actions are small-business friendly and contribute to making Europe a more attractive place for setting up a company and doing business. Achievements A. General SME Policy Current SME policy in the EU largely falls within the scope of the ‘Europe 2020 – A Strategy for Smart, Sustainable and Inclusive Growth’ (COM(2010) 2020) which aims to make the EU the most competitive and dynamic knowledge-based economy in the world. Europe 2020 puts forward

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

seven flagship initiatives; four of which pay particular attention to improving the framework conditions and the business environment for SMEs: ‘Innovation Union’ (COM(2010) 546), ‘A digital agenda for Europe’ (COM(2010) 245), ‘An industrial policy for the globalisation era’ (COM(2010) 614) and ‘New Skills for New Jobs’ (COM(2008) 868). B. The Small Business Act (SBA) The most comprehensive and encompassing initiative on SMEs to date was brought forward by the Commission in June 2008 in the form of the small business act (SBA) as a communication (COM(2008) 394). The SBA aims to create a new policy framework integrating the existing instruments and

building on the ‘European Charter for Small Enterprises’ and the ‘Modern SME policy for growth and employment’. In this, it takes a ‘political partnership approach with Member States’ rather than proposing a fully-fledged Community approach. The SBA aims to improve the overall approach to entrepreneurship in the EU by ‘thinking small first’. 1. Smart Regulation Cutting red-tape and bureaucracy is a high priority for the Commission in the SBA. Making public administrations more responsive to SMEs’ needs can make a major contribution to the growth of SMEs. The ongoing implementation process of the Services Directive (2006/123/EC) should contribute to this goal, reducing regulatory barriers to cross-border service activities. The amendment of the Late Payments Directive (public authorities are required to pay within 30 days as a security guarantee for SMEs) and the directive on e-invoicing (making e-invoices equal to paper ones) is particularly helpful to small businesses. Furthermore, modernisation of the EU public procurement policy means that SMEs now experience lighter administrative burdens when accessing public procurement and have better opportunities for joint bidding. The same approach is found to simplify financial reporting obligations and to reduce administrative burdens for SME via the modernisation of both public procurement in the European Union and existing Accounting Directives (78/660/EEC and 83/349/EEC), see COM(2011) 684. 2. Access to Finance Financial markets have often failed to provide SMEs with the financing they need. Some progress has been made over the last few years in improving the availability of financing and credit for SMEs through the provision

of loans, guarantees and venture capital. The European financial institutions – the European Investment Bank (EIB) and the European Investment Fund (EIF) – have increased their operations for SMEs. However, the SBA still identifies access to finance as being the second largest problem faced by individual SMEs. More than €1 billion has been made available between 2007 and 2013 in the CIP programme, which should enable financial institutions to provide a total of €30 billion to an estimated 400 000 SMEs. Moreover, the improved availability of microloans is also provided for. In November 2011, the Commission furthermore proposed an ‘action plan to improve access to finance for SMEs’ (see COM(2011) 870). Amongst other things, the action plan includes policy initiatives to ease SMEs’ access to venture capital markets. The action plan also aims to present solutions in 2013 to eliminate the tax obstacles to cross-border venture capital investment.

In 2008, a new exemption regulation (GBER — General Block Exemption Regulation) on state aid was adopted. Under the new rules, SMEs can receive investment aid of up to €7.5 million for a given project without having to notify the Commission. The initiative also aims to facilitate environmental protection projects and promote female entrepreneurship. Furthermore, a number of state aid guidelines, including on risk capital, will be revised to achieve Europe 2020 objectives and respond to SME needs.

3. SMEs in the single market Both the Commission communication ‘Towards a Single Market Act – For a highly competitive social market economy’ (COM(2010) 608) and the SBA stress the need for the continuous improvement of framework conditions for businesses in the single market. Various initiatives and measures exist or are planned to facilitate the establishment and operation of SMEs in the internal market. SMEs have been granted derogations in many areas, for example as regards competition rules, taxation and company law.

5. Taxation The open consultations leading to the SBA contained questions on the most common problems SMEs face in the internal market. Taxation was named as being one of the three most important issues. Although the rules on indirect taxation are to some extent harmonised under a Community framework, direct taxation (including company taxation) remains an entirely national competency. This has a considerable impact on the compliance costs and the administrative burden in cross-border business, bearing disproportionately high on SMEs as they tend to have fewer resources than bigger companies. Furthermore, according to the midterm review of the SBA, the Commission will propose initiatives relating to the functioning of VAT in order to limit the administrative burden on businesses and to promote crossborder activity. The first step in this direction was the Commission communication (COM(2011) 851) on ‘The future of VAT. Towards a simpler, more robust and efficient VAT system tailored to the single market’ of December 2011.

4. Competition Policy The EU’s state aid policy has, for a long time, treated SMEs favourably, recognising the special difficulties they face due to their size.

C. EU Programmes and Networks for SMEs Examples of SME policies and networks aimed at SMEs include firstly general support

the international investment, finance & professional services magazine of cyprus

Gold 77

European union

Info: Frédéric Gouardères is a DG Research and Innovation Program Officer

services for SMEs in the EU, for example the ‘Enterprise Europe Network’, ‘Solvit’, ‘Your Europe – Business’, ‘SMEs and the environment’ and ‘Dealing with chemicals: national REACH helpdesks’. Secondly, support for innovation and research includes the ‘IPR Help Desk’, ‘SME Techweb’, ‘Network of FP7 National Contact Points (NCPs) for SMEs’, ‘China IPR Helpdesk for SMEs’, ‘European Business and Innovation Centres (BIC) Network – EBN’, ‘Innovation networks’, ‘Gate2Growth’, ‘CORDIS Incubators Service’, ‘CORDIS European Innovation Portal’ and ‘Electronic marketplaces’. D. SMEs and Research Research and innovation are crucial to the sustainable success and growth of SMEs in the EU. The current, Seventh Research Framework Programme (FP7), running from 2007 through 2013, contains significant support dedicated to SMEs, to the tune of 15% out of its total budget of EUR 54 billion. The new proposal Horizon 2020 (20142020) aims at creating a better and more comprehensive support environment for research and innovation activities of SMEs. Major simplification should be achieved through a single set of rules. As part of this approach, SMEs will be encouraged to participate through a new ‘specific SME instrument’, aiming to fill gaps in funding for earlystage, high-risk research and innovation by SMEs. Besides FP7, the Eurostars programme, managed by Eureka, also provides support to European SMEs with high R&D intensity. E. COSME Programme for the Competitiveness of Enterprises and SMEs The ‘Programme for the Competitiveness of Enterprises and SMEs’, COSME, was proposed by the Commission in November 2011 (see COM(2011) 834). COSME is largely

NEXT STOP european parliament

continuing the activities under the current CIP programme, thereby having the following general objectives: Improve access to finance for SMEs in the form of equity and debt: An equity facility for growth-phase investment as well as a loan facility, which will provide SMEs with direct or other risk-sharing arrangements with financial intermediaries to cover loans; Improve access to markets inside the Union and globally: Growth-oriented business support services will be provided via the Enterprise Europe Network to facilitate business expansion in the single market as well as outside the EU; Promote entrepreneurship: Activities will include developing entrepreneurial skills and attitudes, especially among new entrepreneurs, young people and women. According to the Commission, the programme is expected on a yearly basis to help 39 000 firms to create or save 29 500 jobs and launch 900 new business products, services or processes. The EP is expected to give its final opinion on COSME in the autumn of 2012. After that, the legislative process can move forward with voting at Council level. THE ROLE OF THE EUROPEAN PARLIAMENT As early as 1983 the European Parliament (EP) declared a ‘Year of Small and Mediumsized Enterprises and the Craft Industry’ and launched a series of initiatives to encourage their development. Since then the EP has consistently demonstrated its commitment to encouraging the development of European SMEs. A few recent examples: In June 2010, the EP adopted a resolution on ‘Community innovation policy in a changing world’. In this resolution, it emphasises the need to create conditions whereby risk capital will be more readily available for the SMEs. The EP calls for the development of SME financing tools such as microcredit, venture capital for people seeking to invest in innova-

EUROPEAN PARLIAMENT

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

tive enterprises, or ‘business angels’ to sponsor business projects by young researchers,. It also calls for Member States and the Commission to create tax, financial, business and administrative incentives for investment. In March 2011, the EP adopted a resolution on ‘an Industrial Policy for the Globalised Era’. Amongst other things, the EP calls on the Commission to press on with the implementation of the SBA in order to reduce administrative burdens and ensure better access to financing opportunities for the SMEs. It also calls for an update of the definition of SMEs with a view to allowing for a greater flexibility in specific industrial sectors. Furthermore it urges the Commission to increase SMEs’ participation in the framework programmes for research and development. In May 2011, the EP adopted a resolution on ‘the Small Business Act Review’. In it, the EP, amongst other things, calls for Member States to adopt the last remaining proposal on the European Private Company Statute. The EP also stresses its concern that the SME test has not been applied properly and consistently in all new legislative proposals; particularly at national level. In addition, the EP warns Member States about ‘gold-plating’ by exceeding the requirements of EU legislation when transposing Directives into national law. In October 2012, the European Parliament adopted a resolution on Small and Medium Sized Enterprises (SMEs): competitiveness and business opportunities — 2012/2042 (INI). In it, the EP highlights a set of domains such as the reduction of administrative burdens, support to competitiveness and jobs creation, launching of start-ups, access to information and finances. Announced for October 2013, two resolutions on ‘Reindustrialising Europe to promote competitiveness and sustainability’ 2013/2006(INI) and on ‘Promoting the European cultural and creative sectors as sources of economic growth and jobs’ 2012/2302(INI) should provide important contributions to SME policy field.

The project is co-funded by the European Parliament. The European Parliament is not responsible for the content of this article.

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{March 14 – April 13, 2014}

ISSUE

+ BOOK REVIEWS

MONEY: Buffett’s Bites: The Essential Investor’s Guide to Warren Buffett’s Shareholder Letters By L.J. Rittenhouse 84

{money}

81 Investing in Complex Products CySEC repeats ESMA warning to investors of risks involved

{business}

86 Strategic Opportunism: How to make your own luck By Andrey Dashin. 87 Economic Crime Rising Globally Nearly 40% of companies say they are victims of fraud. 80 Planning A Sale A third of global companies planning a sale and 80% of global executives are open to offers at a time of growing M&A activity, according to a new EY report.

{economy}

90 Troika Needs Fixing Ministers must also shoulder responsibilities, say MEPs. 91 CI Upgrades Cyprus Limassol-based international credit rating agency affirms Cyprus’ outlook as Stable.

{tax&legal}

92 Tax News G20 Agrees on Global Tax Transparency Standard Agreement to Protect Euro from Counterfeiting 93 ‘Cause I’m the Taxman Who pays the most income tax?

BUSINESS: Youtility: Why Smart Marketing is About Help not Hype By Jay Baer 89 ECONOMY: In 100 Years: Leading Economists Predict the Future By Ignacio Palacios-Huerta

LIFESTYLE: Art as an Investment? By Melanie Gerlis

{lifestyle}

94 Bohemian Rhapsody Investing in Art 98 A Day In The Life Elias Neocleous

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Gold 81

investment

{money}

Investing in Complex Products

CySEC repeats ESMA warning to investors of risks involvedBy Isavella Frangou-

he Cyprus Securities and Exchange Commission (CySEC) recently drew the attention of the investing public to the investor warning of the European Securities and Markets Authority (ESMA) regarding the risks of investing in complex products. ESMA is concerned that during the current period of low investment returns, investment firms have responded to the search for higher returns by offering complex investment products causing inexperienced retail investors across the EU being tempted to invest in com-

Pavlou

plex financial products, which they may not fully understand and which can end up costing them money they cannot afford to lose. According to the warning, “complex products are often aggressively marketed. Advertisements sometimes use enticing slogans such as ‘absolute return’, ‘guaranteed’, and ‘hedged growth’, or advertise returns far in excess of deposit account returns that are currently available from banks. These headline promises often turn out to be misleading, or mean something different to what you may have understood. Investors often do not understand how these complex products work. More specifically, the associated risks, costs, and expect-

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

ed returns are in many cases not immediately apparent or easy to understand.” The key messages of the warning underline to investors that if they do not understand the key features of the product being offered, or the key risks involved, they should not invest. The public is advised to always check if the company with which it is in contact or intends to cooperate with is authorized to provide investment services in its country. The public can check by visiting the website of the national supervisory Authority in its country of residence. If the company is not authorized or regulated, it is more likely that it does not comply with investor protection regulations

and there is an increased possibility that the people who intend to cooperate with the said company may not have access to complaint procedures or compensation schemes. Accepting that EU regulatory requirements in this area (as set out in the Markets in Financial Instruments Directive (MiFID)) should already “be sufficient, if correctly applied, supervised and enforced,” ESMA felt it necessary to provide a detailed opinion to national competent authorities (NCAs), serving as both a reminder of their existing duties and obligations when regulating the marketing and sale of complex products under MiFID, as well as providing additional colour with respect to the approach that should be taken in order to ensure compliance. The existing approach under MiFID, it feels, is the right one. The execution, however, is lacking – particularly with respect to the conduct of business rules, such as information to clients, suitability and appropriateness. Accordingly, the intention is to find some “common ground where possible for distribution frameworks of complex structured products across the Union”. Alongside the Opinion, ESMA has also published a shorter document for the benefit of market participants, specifically addressing the risks of investing in complex products (the “Risk Warning”) The Risk Warning sets out (in limited detail), some of the principal risks that are inherent in investing in complex products (liquidity, leverage, market and credit risk), as well as details pertaining to the types of products that such investment risks apply. The principal features of both the Opinion and the Risk Warning are explored further below.

Complex Products

MiFID does not specify in detail precisely what constitutes a “complex product” (although it does define “non-complex” products). ESMA considers that everything that is not non-complex should be regarded as complex, and it has decided to set out some detailed examples of complex products and product types. Specifically, these include products that: • are derivatives or contain embedded derivatives; • are made up of one or more underlying financial instruments that are difficult to value or have been structured in a way that makes it difficult to assess the risks involved and the likely performance scenarios; • incorporate opaque (i.e., non-market-standard) indices; • effectively lock investors in for a fixed period

(without adequately explaining the exit barriers); • are subject to complex pay-off formulae (potentially including multiple variables); and/or • contain conditional or partial capital protection rights (including where such rights can be withdrawn). The Opinion further develops its definition, by listing some specific examples of products that it believes should be considered complex. These include, amongst others, contracts for differences, convertible or exchangeable bonds, warrants, certificates, certain types of derivatives, credit-linked notes and asset-backed securities. In fact, ESMA’s view is that “the vast majority of structured products” can be considered to be complex.

Organisation and Controls

ESMA sets out a number of requirements in the Opinion relating to the internal controls and processes of firms when developing and selling complex products. NCAs are required to (among other things) monitor relevant internal controls (including any trading platforms that give access to complex products), ensure that firms do not offer advice with respect to products that are not in their client’s best interests, and ensure that relevant staff (including those establishing a product’s target market and assessing the needs and circumstances of clients) are adequately trained and have a detailed understanding of the workings and nature of relevant products and financial markets. In addition to the above, ESMA requires that NCAs ensure that firms assess whether the complex product should be sold on an advised or non-advised basis to their target clients. Sales of complex products on a non-advised basis should be monitored to ensure that any categorization of clients is robust and correctly reflects the status of each client. Any such assessment should also take into account any identified conflicts of interest (which must be managed appropriately).

Suitability and Appropriateness

MiFID already requires that, when providing investment advice, firms obtain all necessary information with respect to a client’s knowledge and experience, financial situation and investment objectives, in order to recommend particular services or financial instruments which are suitable.

It is worth noting, however, that there is no requirement for the Risk Warning to be provided directly from issuers to potential investors

However, in July 2012, ESMA published its “Guidelines on certain aspects of the suitability requirements,” which stated that investment firms should consider whether they require additional (more in-depth) information from clients when dealing with complex instruments. The Opinion further develops this requirement by providing that NCAs should monitor the additional information required, ensuring that it is sufficient for the purpose of establishing: • the client’s objectives and attitude to risk (in particular, in relation to investments that involve leverage and those linked to highly volatile asset classes); • any time horizons for the investment (taking a possible lack of liquidity into account); • whether the client will have sufficient funds to cover reasonably foreseeable future commitments and comfortably afford possible losses (taking into account the amount of capital loss exposure); • the client’s awareness of charges, risks and costs relating to a product and the way in which these variables might impact return; and • the depth of a retail client’s knowledge and experience (this should include looking at prior transaction experience). Although this is already required under MiFID9, ESMA’s view is that firms should not over-rely on a client’s self-assessment and NCAs must ensure firms have policies and procedures in place to check that client information is accurate and up to date. This requirement applies with respect to tests for both suitability and appropriateness. When assessing appropriateness, MiFID already requires that, where a firm determines that a product is not appropriate for a client, it must warn the client; and where the client does not provide sufficient information to assess his or her knowledge and experience, it requires the firm to warn the client that it will not be able to make an appropriateness determination. ESMA requires NCAs to carefully monitor the internal controls and processes of firms that have high numbers of clients that fall into this latter category.

investment

Disclosure

ESMA is concerned about ensuring that all clients are fully aware of the total costs and charges applicable to each complex product. As a consequence, the Opinion requires that NCAs encourage firms to disclose cash values (even example ones), as well as the relative impact that charges may have on future performance. Firms should also disclose any potential consequences for seeking to sell or exit earlier than originally planned. This requires an explanation of how long clients need to hold their investment. In addition, clients should be made aware of circumstances where an early withdrawal may result in return of an amount less than the principal invested as a result of charges being applied. The Opinion also gives guidance with respect to the application of MiFID’s “fair, clear and not misleading” principle: • the realistic likelihood of receiving headline (maximum) returns should be clearly explained and not be the primary feature of any communication; • jargon and technical terms should be avoided (such as “absolute” or “hedged”); and • national investor compensation schemes (and whether they do or do not apply) should be highlighted. In addition, product offerings for complex products should be very clear when setting out any details relating to capital protection (including the extent to which it applies). They should also highlight the impact of any leveraging or embedded derivatives and explain the functioning and legal effect of any product “wrappers”.

investing in complex products. In summary, the Risk Warning: • highlights certain “Key Messages,” including the need to understand the key features of the products being sold (and recommendation to obtain legal advice where necessary), to be aware of market terminology that may be misleading, to consider the ability to trade in and out of the product and to understand what the total costs are; • defines “complex” products in a fashion similar to that set out in the Opinion; • sets out certain key risks and disadvantages of investing in complex products—including liquidity risk (inability to sell the product, at least without incurring a significant loss, before the end of its term), leverage risk (the possibility that losses can be multiplied), market risk (complex products often expose an investor to one or more underlying markets) and credit risk (the inability of the product issuer to meet its contractual obligations should always be taken into account); and • refers to the importance of being aware of product costs, which are often higher with respect to complex products (since investors are paying for the underlying features of the investment). It is worth noting, however, that there is no requirement for the Risk Warning to be provided directly from issuers to potential investors. Its effectiveness, therefore, appears to be seriously limited, since it is not immediately obvious how ESMA or NCAs will ensure that the Risk Warning will be seen by the retail investors whom they are most focused on protecting.

Monitoring and Execution

Relationship with Other EU Initiatives

The Opinion provides some further guidance with respect to ongoing risk assessment by NCAs. ESMA’s view is that the greater the complexity of the product, the greater the scrutiny of the firm’s compliance function should be. Finally, ESMA also requires that a firm’s choice of execution venues (for the purchase and sale of complex products) and the application of its best execution policy be carefully monitored.

Risk Warning

As referred to above, ESMA has also published a Risk Warning to complement the guidance provided in its Opinion. Unlike the latter document, which provides guidance to NDAs, the Risk Warning is intended to be reviewed by market participants who are considering

Although this is the first time that ESMA has published its views with respect to complex products generally (and not just suitability issues), its Opinion should also be viewed in the context of a host of similar initiatives at EU Member State, EU and global levels. The PRIPS initiative in the EU, for example, focuses heavily on the marketing and sale of certain investment products (those involving an indirect exposure to underlying assets) to retail investors. In some individual EU Member States, the complexity of certain investment products, among other things, dictates whether or not more stringent product regulations will apply. Other initiatives may also arise, perhaps on a more sectoral basis, as a result of recent harmonized European principles for the oversight of financial products development.

info: Additional information and comment from Morrison & Foerster newsletter 84 Gold the international investment, finance & professional services magazine of cyprus

ESMA considers that everything that is not non-complex should be regarded as complex As outlined above, ESMA’s Opinion is directed specifically towards NCAs (not individual firms) and is intended only to assist and provide colour with respect to ensuring compliance with MiFID as it already exists today.

BOOK REVIEW Buffett’s Bites: The Essential Investor’s Guide to Warren Buffett’s Shareholder Letters By L.J. Rittenhouse (McGraw-Hill Professional, 2014)

R.R.P. £10.87 (£10.29 from amazon.com.uk) arren Buffett is one of the most successful investors in history. His now legendary annual letters to Berkshire Hathaway shareholders offer lessons about life, business, and the art of investing that are essential to creating long-lasting wealth. They are based on Buffett›s dogged pursuit of the Golden Rule of owner/manager partnership: treat shareholders the way you would want to be treated if you were in their place. Rittenhouse clearly recognises and appreciates the ideals and values underlying Buffett›s practices that have made him the second richest man in the US and here she highlights 25 tantalizing nuggets of wisdom from the last 10 years, affording an inside look at Buffet’s unconventional ways that have created Berkshire Hathaway›s unrivalled success. Each one is enhanced with practical information and a timeless moral that can be applied to the reader’s own wealth-building strategies. With unflinching honesty and insight, Buffett talks candidly about what makes a company worth investing in, when to re-evaluate your portfolio; and how to invest safely and wisely for the long haul. He should know.

Strategic

strategy

{business}

Opportunism: How to make your own luck Having a vision is the most important part of being at the head of a business “If you can dream - and not make dreams your master; If you can think - and not make thoughts your aim…” Rudyard Kipling By Andrey Dashin

to its realisation. But is it so realistic that parts of the bridge won’t fall through on the long journey to your destination? And if they do fall through, is that always necessarily a bad thing? When setting future targets for the growth and development of your business, creating a plan is a timeless tactic and an absolute necessity. After all, it takes focus and precision to succeed. But what happens when your plan begins to inhibit your freedom to adapt to an ever-changing environment? An environment governed by trends, by issues of the current market and the actions of your competitors?

There’s no such thing as leaving things to chance

Andrey Dashin

aving a vision is the most important part of being at the head of a business and, sure enough, creating a solid bridge to get there is instrumental

You need to be able to keep your head, not lose sight of your target and, at the same time, be flexible enough to adjust your plan according to the changes that the current environment dictates. This is the idea that strategic opportunism is built on: long-term plans shouldn’t crumble in the face of change. Knowing what you want and how to get it is a definite sign of a strong character, but business is 50% about planning and 50% about grabbing opportunities before they slip through your fingers. Trends, new products and even obstacles can arise out of nowhere sometimes; make sure you can dodge the bullets, stay current and be at the forefront of

innovation, no matter how your initial plan started off. A marriage of long-term and shortterm of objectives is the best way forward; being stuck in your ways will only thwart progress and cause you to trail behind the rest. I think that all business owners should remember that a wise decision today is not necessarily a wise decision tomorrow. Strategic opportunists have the ability to revise their long-term plans from time to time, to question how appropriate they are for the specific time period and even to experiment a little with fresh ideas. Fear of being led astray shouldn’t be an issue if you keep your eyes on the target. Confining your vision within a rigid plan will suffocate it. Without deviating entirely from the strategy you have set in motion, learn to recognize opportunity when it’s staring you in the face. Long gone are the times when five-year plans were fully functional in the corporate sphere. We live in a world where technology is advancing at the speed of light, competition around the world is fierce and unexpected developments may be of the utmost importance to the mission you are working towards. So keep your eyes wide open for signs of new developments and always be prepared to make any needed tweaks to your long-term plan. If you can master strategic opportunism, you can become the master of your luck. There’s no such thing as leaving things to chance; your luck is what you make it to be. So be a strategist, but never forget to be an opportunist.

info: Andrey Dashin is the founder of ForexTime Ltd (FXTM), Chairman of the Board of Directors and shareholder of the Alpari brand. The content in this article

comprises personal opinions and ideas and should not be taken or misunderstood as investment advice.

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

fraud

{business}

Economic Crime Rising Globally

conomic crime against businesses and other organisations continues to rise around the world. Some 37% of respondents, a 3% rise since 2011, say they have been victims of economic crime, according to PwC’s 2014 Global Economic Crime Survey. And about 25% say they have been victims of cybercrime, as fraudsters increasingly turn to technology as their main crime tool. PwC’s global survey, the most extensive on the subject, found that theft remains the most common form of economic crime, reported by 69% of respondents. It is followed by procurement fraud (29%), bribery and corruption (27%), cybercrime (24%), and accounting fraud (22%). “Classic asset misappropriation remains a concern, but procurement fraud is on the upswing as discussions and projects with our local clients confirm. Therefore, we have further invested in dedicated tools to assist our clients in tackling such threats with efficient prevention and detection methods” states Pierre-Francois Wéry, Forensic Services leader at PwC Luxembourg. Vincent Villers, IT Security leader at PwC Luxembourg, adds that, “In Luxembourg, collaboration and interconnection between actors is of strategic importance. Whether it is sharing knowledge and best practices to prevent incidents, or sharing information on incidents that occurred, collaboration will be key in adapting digital security measures. Collaboration will help build the necessary trust in the market place. Cybersecurity must be at the top of organisations’ agenda, public and private.» Other reported crimes include human

resources fraud, money laundering, intellectual property or data theft, mortgage fraud and tax fraud. The exact direct loss associated with economic crime is difficult to assess. Among crime victims, a total of 20% place the financial impact of economic crime on their organisation at more than US$1 million and 2% of victims – representing 30 organisations – put the impact at more than US$100 million each. For the first time this year, the survey measures procurement fraud, reported by nearly 30% of respondents. Procurement fraud is seen as a double threat, victimising businesses both in their acquisition of goods and services and in their efforts to compete for new opportunities. Respondents also report significant collateral damage in such areas as employee morale, cited by 31%, and in corporate reputation and business relationships, both reported by 17%. Despite the financial and collateral effects of crime, just 3% of respondents said incidents of fraud have impacted their company’s share price. “Like a stubborn virus, economic crime persists despite ongoing efforts to combat it. No organisation of any size anywhere in the world is immune to the impact of fraud and other crimes,” said Steven Skalak, PwC Forensic Services partner and lead editor of the survey. “Those committing economic crime succeed by adapting to shifting global conditions like reliance on technology and the expansion of emerging economies.” “Even worse than the direct financial impact of economic crime is its threat to a wide range of business systems that are the lifeblood of corporate operations. Economic crime damages internal processes, erodes the integrity of employees and tarnishes reputation,” he added.

Nearly 40% of companies say they are victims of fraud

Cybersecurity must be at the top of organisations’ agenda, public and private Economic crime is a pervasive, global threat. Regionally, economic crime is most prevalent in Africa, where 50% of respondents say they have been victims, though down from 59% in 2011. It is followed by North America, 41%, Eastern Europe, 39%, Latin America and Western Europe, each 35%, Asia Pacific, 32%, and the Middle East, 21%. By industry, economic crime is most common in the financial services, retail and consumer and communications sectors. Nearly 50% of respondents in each said they have been crime victims. Financial services organisations are victims of high levels of cybercrime and money laundering, while retail and consumer and communications companies have suffered most from theft. Hospitality and leisure, and government, both 41%, also report high crime levels. The profile of the typical fraudster is middle-aged males with a college degree or higher level of education who have been with their organization for a substantial period. Globally, almost half of all frauds are committed by employees with six or more years of experience and almost a third are committed by employees with three to five years of experience. To download a copy of 2014 Global Economic Crime Survey: http://www.pwc. lu/en/fraud-prevention-detection/globaleconomic-crime-survey.jhtml

the international investment, finance & professional services magazine of cyprus

Gold 87

Planning corporate divestment

{business}

About the survey

A third of global companies planning a sale and 80% of global executives are open to offers at a time of growing M&A activity, according to a new EY report.

third (33%) of global businesses are planning a sale in the next two years according to a new report from EY. The annual 2014 Global Corporate Divestment Survey, which surveyed more than 700 corporate executives globally, also reveals that 80% of global executives are open to offers for prized assets and a 30% premium would bring a majority of execs to the deal table. In terms of options, 55% of global executives would consider a full sale of their business compared to 34% who would opt for a carve out and 14% an IPO. Pip McCrostie, EY’s Global Vice Chair Transaction Advisory Services, says: “Divestments are now a fundamental part of business strategy – selling is becoming as great a focus for many CEOs as buying, with strategic divestments and capital redeployment

offering a route to value and growth. “The pace of innovation, changing purchasing patterns and the return of modest growth to the global economy – means business leaders will need to more regularly re-assess their portfolios and strategic goals to maximize their growth. Selling – while often leading to a short-term dip in the top-line – can lead to longer-term growth as capital is redeployed into higher growth core activities, expanding into new markets or developing new products.” With 80% of executives open to offers even for prized assets, a 30% premium on a ‘fair’ price will bring half to the deal table. Higher prices will be needed to lure the trophy from the cabinet for others and contrary to the old adage, not everyone ‘has a price’ – 20% of executives say they would not sell a valued asset for any premium. McCrostie continues: “Business leaders are

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

he EY Global Corporate Divestment Study analyzes leading portfolio review and divestment strategies. Results are based on 720 interviews with corporate executives surveyed over September and October 2013 by FT Remark, the research and publishing arm of the Financial Times Group. The survey includes respondents from the Americas, Asia Pacific, Europe, the Middle East and Africa. While a broad range of industries is included, the study focuses on five key sectors: consumer products, life sciences, oil and gas, power and utilities and technology.

Half the respondents don’t conduct regular portfolio reviews to assess new growth opportunities revealing what premiums to a fair price would bring them to the deal table to sell prized assets. At a time when we see renewed focus on deals following years of historically low M&A activity, these insights into price expectations will be interesting reading for potential buyers.” As with all aspects of M&A, different factors drive divestment activity across industries. Life Sciences should be the most active divesting sector, with 41% expecting to sell in the next

A Sale Key Findings C

ompanies can create shareholder value by regularly assessing whether each business unit in their portfolio is contributing to strategic goals and long-term growth. In particular, portfolio reviews help companies determine: • How to allocate capital in alignment with the core strategy • How to effectively meet current and future market needs • The value of each business unit on a standalone basis and its contribution to the entire organisation • Whether to divest or to invest additional capital in a business Strategic divestments are key to raising capital and deploying it into a company’s core business. The latest Global Corporate Divestment Study found that more than half of the surveyed companies have made a major divestment in the last two years. However, companies are leaving money on the table. Only 41% of executives said that their strategic portfolio review drove their last divestment decision. This is despite the fact that 80% of those who base their divestment decisions on their portfolio review experienced a higher valuation multiple in the remaining business after their last divestment. • 85% saw an increased valuation multiple in the remaining business following their last divestment when it was based on an updated definition of core operations • 80% experienced a higher valuation multiple in the remaining business after their last divestment when they based strategic divestment decisions on their portfolio review • 53% said portfolio review effectiveness could be improved if a clearer link was made between results and subsequent actions

two years – the main reason being regulatory change. The key driver for divestments in Consumer Products is off-trend product (58%), followed by 44% who said reduced demand or market share would make them consider divesting. In the fast moving Tech sector, half of executives said the biggest trend prompting them to consider divestments is big data and analytics developments, followed by cloud innovations and mobile as companies re-evaluate their core business and competitive positions. More than half of respondents have divested an asset in the past two years. The vast

Better stakeholder returns are derived from divestments determined by strategic reviews than those undertaken opportunistically

majority of those (80%) that pursued a strategic rather than opportunistic approach to a sale saw a positive impact on their valuation as a result – half of those experienced greater benefits than anticipated, compared to only a fifth of companies 12 months ago. However, even though a third plan a divestment, further opportunities to fully optimize value remain. Half the respondents don’t conduct regular portfolio reviews to assess new growth opportunities. Only 41% undertook a strategic portfolio review to drive their last divestment; 52% said their executive board was involved in setting portfolio review goals. McCrostie comments: “Businesses extracting the most value from divestments regularly redefine their strategic core business and determine whether to invest, acquire or divest. The survey clearly finds better stakeholder returns are derived from divestments determined by strategic reviews than those undertaken opportunistically. “Leading companies that consistently analyze their core business through portfolio reviews, dedicate resources to make better informed decisions and are prepared to act strategically rather than opportunistically achieve the most successful divestments – fully aligned to the strategic priorities of their business. The divestment plans of global executives will be a vital part of a developing M&A story for 2014. Deal value is currently running 150% higher than 2013 and 2012. In terms of US$1b+ deals, it is 400% higher. With 15 US$1b+ deals and three US$10b+ megadeals already announced, we are seeing a very robust start to 2014.” McCrostie concludes: “After five years of

depressed M&A activity we may now see a modest improvement in the global deal economy as companies move from a ‘mend and extend’ approach to ‘spend’. A consistent rather than patchy improvement in the global macro-economic picture is providing the foundation for greater investor confidence. Competition for assets may increase – so could competitive positioning among wouldbe sellers. This changing deal context will foster even greater stakeholder scrutiny to ensure divestments are effective and executed strategically to extract maximum value and support the long-term growth agenda.”

BOOK REVIEW Youtility: Why Smart Marketing is About Help not Hype By Jay Baer (Portfolio Penguin, 2014)

R.R.P. £15.07 (£13.33 from amazon.com.uk) he difference between ‘helping’ and ‘selling’ is just two letters and Jay Baer offers a new approach: if you sell something, you make a customer today, but if you genuinely help someone, you create a customer for life. Putting “Being Helpful” at the heart of your business in 2014, the author argues, is the one strategy that will work to make the company more successful and proposes various simple steps to achieve this. They include identifying and understanding your customers’ needs and working out the best way to respond to them, making “Being Helpful” a mindset and ensuring that it is a continuous process. In today’s alwayson, hyper-saturated marketplace, product messages no longer break through like they used to. Providing helpful information to customers does and this art of being deeply valued by your customers is what Baer calls Youtility. Others may think it’s obvious or just being smart but these days customer loyalty is earned and retained or lost one transaction at a time. This is an excellent book.

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Gold 89

european parliament

{economy}

Troika Needs Fixin say MEPs

he Troika (EU/ECB/IMF) may have helped four EU countries out of the crisis and prevented it from getting worse but flaws in the way the Troika worked hindered national “ownership” of economic reforms, and compromised transparency and accountability, says a European Parliamentary Economic and Monetary Affairs Committee resolution passed this week. The report on the committee’s inquiry into the workings of the Troika, drafted by Othmar Karas (EPP, AT) and Liem Hoang-Ngoc (S&D, FR), was approved by 31 votes to 10, with 2 abstentions. It highlights many weaknesses and recommends urgent improvements. It also delves into the individual cases of each of the four “programme countries” (Greece, Ireland, Portugal and Cyprus). The report acknowledges that the immediate aim of avoiding disorderly defaults was achieved and that the challenges that the Troika was set up to tackle were “immense”. It also deplores the fact that EU institutions were made a scapegoat for the adverse effects of reforms, even though it is finance ministers who should bear political responsibility for them. The findings focus on problems internal to the Troika. “The three independent institutions of the Troika had an uneven distribution of responsibility between them, coupled with differing mandates, as well as negotiation and decision-making structures with different levels of accountability, all resulting in a lack of appropriate scrutiny and democratic accountability as a whole”, says the text.

National parliaments were too often left out of the equation. “When consulted, national parliaments were faced with the choice between eventually defaulting on their debt or accepting memoranda of understanding negotiated between the Troika and national authorities”, says the text, adding that European guidelines should be established to ensure appropriate democratic control of such measures.. The Troika system is criticised for taking a “one-size fits all” approach, without due consideration for differing circumstances on the ground, and its inability to adapt policy prescriptions when these prove ineffective or based on wrong assumptions, as happened when forecast growth did not materialise and fiscal multipliers proved greater than anticipated. But EU finance ministers, particularly in the Eurogroup, are also criticised for failing to give clear and consistent political pointers to the Commission as regards the aims sought in return for financial assistance. In its de facto capacity as final decision-taker on financial assistance and conditionality, the Eurogroup is urged to shoulder its political responsibility for the bailout programmes. As a first step, the report advocates laying down clear, transparent and binding rules of procedure for the interaction of the Troika institutions and regulating the allocation of tasks between them. An improved communication strategy is also an “utmost priority”, says the text. Adjustment programmes would also need to come with a “Plan B” in case assumptions prove wrong. The memoranda of understanding which underpin all programmes will need to reflect the social and employment

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National parliaments were faced with the choice between eventually defaulting on their debt or accepting memoranda of understanding negotiated between the Troika and national authorities dimensions better, so that these are not sacrificed unnecessarily, as has sometimes been the case. Each country placed under a programme should moreover benefit from a “growth task force” to ensure that budget cuts are accompanied by growth-friendly measures. Finally, much better involvement of social partners, national parliaments and the European Parliament will be necessary, to ensure the vital accountability and sense of ownership. In the medium term, the institutional setup of the Troika is first in line for reform. The report recommends a radical rethink, with the IMF to be used only “if strictly necessary”, the ECB present only as a “silent observer”, and the European Commission’s role taken over by a “European Monetary Fund” (EMF). A proposal for the establishment of an EMF should be tabled by the Commission by the end of 2014. These findings and recommendations will be put to a plenary vote this month, together with the findings of a parallel report drawn up and already adopted by the Employment and Social Affairs Committee. The next European Parliament will be invited to follow up the work done so far in greater depth.

banking

CI Upgrades

Cyprus

{economy}

The Government’s commitment is sufficiently strong to ensure further Limassol-based international credit rating agency affirms disbursements of ESM-IMF assistance and the avoidance Cyprus’ outlook as Stable. of any funding gaps over at least the next 12 months apital Intelligence (CI), 3.1% of GDP, while the overall budget deficit

the international credit rating agency based in Limassol, has revised Cyprus’ Long-Term Foreign Currency Sovereign Rating to B- from C+ and its Short-Term Foreign Currency Rating to B from C. The outlook for the ratings is affirmed at Stable. In an official announcement, CI notes that the change in Cyprus’ ratings reflects the following factors: • Declining short-term financing risks, owing to the good progress being made by the Government in delivering on the economic programme agreed with, and fully backed by, the eurozone member states through the European Stability Mechanism and the International Monetary Fund. • Better-than-expected fiscal and economic performance with key outturns exceeding targets in 2013, as well as tentative signs that the banking sector is beginning to stabilise. The Government has successfully completed three rounds of review by the group of international lenders (the Troika), having progressively met the conditions outlined in the Memorandum of Understanding (MoU). Reforms implemented so far have included a large-scale restructuring of the banking system, including the recapitalisation of the Cooperative banking sector, as well as measures to strengthen fiscal discipline and other structural reforms. Although there is an ongoing risk that the programme could suffer setbacks, particularly in view of the significant opposition to some required reforms – including privatisation – CI believes that the Government’s commitment is sufficiently strong to ensure further disbursements of ESM-IMF assistance and the avoidance of any funding gaps over at least the next 12 months. Public finances continued to improve in 2013, and fiscal performance outperformed quantitative targets by a substantial margin. The general Government primary budget deficit fell to 1.8% of GDP (3.3% in 2012), undershooting the target level by about

is expected to have declined to 5.1% of GDP (6.4% in 2012). With a number of structural fiscal reforms already implemented and others planned for, public finances are expected to continue improving over the intermediate term and the primary balance is currently expected by CI to post a modest surplus by 2016. The economic contraction has so far been less than expected, reflecting the resilience of the business and service sectors and the drawdown of personal savings by the household sector. Real GDP contracted by an estimated 5.4% in 2013 – well below the programme assumption of 8.7% – and is tentatively expected by CI to fall by another 5% in 2014, before stabilising in 2015. Notwithstanding the above developments, CI describes the economy as being very weak, and risks to the economic outlook remain high. The debt overhang in the business and household sectors is very large and the banking crisis has undermined the country’s mediumterm growth prospects by eroding investor confidence and severely constraining access to credit for local businesses. Moreover, the public finances are not yet on a stable path and concerns about long-term sustainability remain a major constraint on the ratings. At present, public sector debt is expected to gradually decline towards a still-high 105% of GDP by 2020. However, debt dynamics could easily reverse and are sensitive to various risks, including weaker-than-expected economic growth, fiscal slippage, or additional bank recapitalisation needs. Still, the outlook for the ratings has been registered as Stable. This means that Cyprus’ ratings are likely to remain unchanged in the next 12-24 months, provided key credit metrics evolve as envisioned by CI. The Stable outlook balances the uncertainty surrounding public debt sustainability and the deleveraging of the private sector against the resilience of key parts of the service economy, and the tentative stabilisation of the banking sector. CI has been providing credit analysis and ratings since 1985, and now rates over 400 Banks,

Corporates and Financial Instruments (Bonds & Sukuk) in 37 countries. A specialist in emerging markets, CI’s geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, SouthEast Asia, the Far East, and North and South Africa. The company’s head office is in Limassol, Cyprus with additional analysts based in Hong Kong and New Delhi, India.

BOOK REVIEW In 100 Years: Leading Economists Predict the Future By Ignacio Palacios-Huerta (Editor) (MIT Press, 2014)

R.R.P. £17.95 (£15.84 from amazon.com.uk) n his 1930 essay Economic Possibilities for Our Grandchildren, John Maynard Keynes offered predictions that, read today, range from absolutely correct to spectacularly wrong. This book follows in Keynes’s path, with ten prominent economists – including some Nobel laureates and several likely candidates – offering their ideas about the world of the 22nd Century. In scenarios that range from the optimistic to the guardedly gloomy, these thinkers consider such topics as the transformation of work and wages, the continuing increase in inequality, the economic rise of China and India, the endlessly repeating cycle of crisis and (projected) recovery, the benefits of technology, the economic consequences of political extremism, and the long-range effects of climate change. Daron Acemoglu discusses how trends of the last century (including uneven growth, technological integration and resource scarcity) might translate into the next; Robert Shiller offers an innovative view of future risk management methods using information technology and Alvin Roth projects his theory of Matching Markets into the next century, focusing on schools, jobs, marriage and family, and medicine. Fascinating.

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tax news

{tax&legal}

G20 Agrees

on Global Tax Transparency Standard

lgirdas Šemeta, EU Commissioner for Taxation, has welcomed the G20 Finance Ministers› agreement on a new global standard, which will reinforce the fight against tax evasion and improve tax transparency worldwide. At their recent meeting in Sydney, the G20 gave the green light to the global standard for the automatic

exchange of information. They are due to agree implementation plans at their next meeting in September. The new standard was developed by the OECD, with strong support and input from the EU. Šemeta said: “This agreement is another boost for transparency and fairness in global taxation. The EU knows the value of automatic information exchange in fighting tax evasion, and has been its international flag-bearer for years. As such, we brought significant, practical input to the table in developing this new global standard. Our focus has been on a standard that

Agreement to Protect Euro from

Counterfeiting

he European Commission (EC) has welcomed a political agreement on the proposal to better protect the euro from counterfeiting through EUwide criminal law measures. The agreement follows two so-called trilogue meetings between the EC, the European Parliament and the Council of

Ministers. The breakthrough, endorsed by member states, is thought to indicate that Europe is willing to take all measures necessary to fight counterfeiting of the euro. Member states will have to make sure that such behaviour is punishable with effective and deterrent sanctions everywhere in Europe. Vice-President of the EC, Viviane Reding and Commissioner Algirdas Šemeta said: “This agreement will strengthen confidence in our most valuable asset: the euro. It will also help to protect honest businesses and citizens from ending up with fake money in their pockets. It is a strong and unified response to protecting our currency and clamping down on the criminals that threaten it. “One thing we do regret however: that co-legislators could not agree on the introduction of minimum sanctions for the most serious offences. The guarantee of a minimum 6 month jail sentence

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

can be smoothly and effectively implemented, with minimum disruption for our businesses.” He added: “I am very glad that this is reflected in what was adopted. I thank and highly commend the OECD for the excellent work they have done. Now, the EU must continue to lead by example in tax good governance. We intend to implement the new standard along with those countries which have committed to its early adoption. And we will be encouraging our neighbours and international partners, including major financial centres, to do the same.”

It is a strong and unified response to protecting our currency and clamping down on the criminals that threaten it.

would have been an additional deterrent to crimes against our common currency. This idea was supported by the European Central Bank. Mario Draghi knows what is good for the euro.” The agreed legislation aims to crack down on criminals who counterfeit euro notes and coins – a crime estimated to have led to damage of at least €500 million over the past decade. The agreed new measures strengthen cross-border investigations, by ensuring that investigative tools provided for in national law for organised crime or serious cases can also be used in cases of counterfeiting of currency. The new instrument also introduces common maximum penalties, including imprisonment of at least eight years for production and five years for distribution, for the most serious counterfeiting offences.

global tax rates

‘Cause I’m The

Taxman…

{tax&legal}

Who pays the most income tax?

ncome tax has been a much-debated issue for decades. In 1966 The Beatles recorded their song Taxman which was George Harrison’s protest against the 95% “supertax” rate introduced by Harold Wilson’s Labour government, which the band had to pay. “Should five per cent appear too small / Be thankful I don’t take it all” they sang as the Inland Revenue took almost all their admittedly huge earnings. Today the top rate of tax in the UK is less than half that but it’s still a source of controversy. In France, President Francois Hollande’s election campaign promise to tax salaries above €1 million at 75% was not surprisingly met with howls of protest by those earning such an amount. His policy was struck down by the courts in 2012 who ruled it unconstitutional but he then amended it so that the employer became liable to pay the amount. Tax rates vary dramatically depending on which country you live in. PwC recently crunched the numbers for the G20 nations. For each country, the firm calculated how much a high earner on a salary of $400,000 (£240,000) in 2013, with a mortgage of $1.2m (£750,000), would have left after all income tax rates and social security contributions. They assume this person is married with two children, one of them aged under six. These are their findings. In each country, the wage earner takes home the following proportion of his or her salary. 1. Italy - 50.59% (takes home $202,360 out of $400,000 salary) 2. India - 54.90% 3. United Kingdom - 57.28% 4. France - 58.10% 5. Canada - 58.13% 6. Japan - 58.68% 7. Australia - 59.30% 8. United States - 60.45% (based on New York state tax) 9. Germany - 60.61% 10. South Africa - 61.78%

11. China - 62.05% 12. Argentina - 64.02% 13. Turkey - 64.64% 14. South Korea - 65.75% 15. Indonesia - 69.78% 16. Mexico - 70.60% 17. Brazil - 73.32% 18. Russia - 87% 19. Saudi Arabia - 96.86% (so you take home $387,400 out of the $400,000 salary) In most of these 19 rich countries (the 20th member is the EU) the take-home pay is between $230,000-$280,000. But one important thing to consider when comparing the top rate levels of tax is the threshold where the rate kicks in, because the differences are massive. “In the UK, the 45% top rate of tax kicks in at an income level of around $250,000 (£151,000) compared to Italy where the top rate of 43% comes in at $125,000,” says Ben Wilkins, a tax partner at PwC. Outside the G20, the Danish government

Tax rates applied to

Tax rates applied to married with no children, on an couples with single people

average salary

for their country. 1. Belgium 42.80% 2. Germany 39.90% 3. Denmark 38.90% 4. Hungary 35% 5. Austria 34% 6. Greece 25.4% 7. OECD Average 25.10% 8. UK 24.90% 9. USA 22.70% 10. N. Zealand 16.40% 11. Israel 15.50% 12. Korea 13% 13. Mexico 9.50% 14. Chile 7%

two children

1. Denmark 2. Austria 3. Belgium 4. Finland 5. Netherlands 6. Greece 7. UK 8. Germany 9. OECD Average 10. USA 11. Korea 12. Slovakia 13. Mexico 14. Chile

34.8% 31.9% 31.8% 29.4% 28.7% 26.7% 24.9% 21.3% 19.6% 10.4% 10.2% 10% 9.5% 7%

taxes workers at 60% on all earnings over $60,000. Most of us can only dream of earning a salary that would attract the top rate of tax, so what about ordinary earners? It is difficult to compare tax rates. Income tax is only one tax – most of us will pay other kinds of tax, like social security, and those with children might get some tax relief. The statisticians at the Organisation

Greece is the only country where you pay more tax if you are married with children for Economic Cooperation and Development (OECD) have done some analysis of average salaries. “At the top end of the distribution we have Belgium where single people pay 43% of earnings in income tax and social security contributions (or national insurance), followed by Germany with 39.9%,” says Maurice Nettley, head of tax statistics at the OECD. “The lowest rates are paid in Chile at 7% and Mexico at 9.5%.” In Germany the rate drops from 39.9% to 21.3% because of generous child tax credits. Across the OECD, tax rates drop by an average of 5.5% for married couples with children. Greece is the only country where you pay more tax if you are married with children.

Global Tax Variations 43% average tax paid in Belgium 7% average tax paid in Chile Married couples in Czech Republic pay 5.6% In Saudi Arabia, high earners pay 3% In Germany, couples married with children pay 19% less tax

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Gold 93

Portrait of George Dyer Talking by Francis Bacon sold for €51 million last month

{lifestyle}

Bohemian

Rhapsody

Rejecting Thomas Edison’s famous expression that “Genius is 1% inspiration, 99% perspiration”, the art market is proving that these two qualities are actually required in equal parts to ensure that risks are calculated and losses are subdued by the gain of being able to behold one’s purchase and draw pleasure from it. In fact, it makes for a masterpiece investment. By Chloe Panayides

investing in art

aint a picture, if you will, of economic landscapes worldwide in 2013. What would they look like? Cyprus’ landscape, no doubt, would be marred by rising debt, plummeting revenues, and detrimental instability in the banking sector. Feeling inspired? It’s doubtful. If there’s one lesson to be heeded from the flourishing ups and devastating downs of economic activity over time, it is that none are exempt from the effects of market fluctuations. More and more, the concept of varying one’s investments, and taking truly calculated risks to reduce the sting of losses due to prevailing, and yet unpredictable, market conditions, is being internalised into good business practice. So how does all of this relate to the art market? Michael Moses, co-creator of the Mei Moses Family of Fine Art Indexes of art values, suggests that art prices are highly non-correlated to stock prices. Thus, he advises, when your stocks are down, your art might be up, helping to reduce volatility in your overall investment portfolio. Whilst the veracity of this cannot be doubted, one important question does linger, considering, in particular, the acute illiquidity of the art market: what happens if your art is down? Despite the flourishing of art funds within the last decade or so – comprised of advisors who view artworks as sources of long-term profit, buying and selling pieces regardless of personal preference, purely with the intention of sharing the monetary

profits thereafter – experts seem to be becoming more uniform in their view of late: to truly engage in the art market with the least amount of risk, art should be, precisely, for art’s sake. More than simply advising, this view seems to constitute a full blown rhapsody of the Bohemian creed. Just as the market originally developed out of people’s love of the art form – why else would battling bidders and belligerent buyers have driven up prices in the first place to acquire their desired pieces? – so it should continue, with real profit coming to those who are invested, first and foremost, in the art work itself, accepting financial gains as being a pleasant secondary effect. A Forbes’ article on investing in art con-

Over the last decade, the term ‘vintage’ has come to describe anything at least 10 years old cludes: “True art collectors are those who understand that when a masterpiece comes your way, its true value lies not in what it costs, but, rather, in what it gives.” Kathryn Graddy, an economics professor at Brandeis University, agrees, explaining: “There is no guarantee of increasing value and potential for profits, even if art consultants or a private-equity art fund is used. Art pays dividends in the form of enjoyment of purchases.”

And considering experts’ estimate that of all paintings ever bought, a mere 0.5% are made available for resale – testament to the sheer adoration collectors harbour for their treasures – it’s not too much of a stretch to accept this as being true. Let’s go back to the question, then: what if your art is down? Supported by the above view, the catastrophe seems to have been averted and risk dissipated, as the true art collector will behold his or her piece and draw inspiration from it, appreciating that it was worth every penny; just as a car enthusiast would part with €1 million for a top model Ferrari, never worrying about getting the money back, because the end itself fully justifies the means. Thus, investing in art is becoming, more and more, akin to the actual process of painting a masterpiece: initially, inspiration is required; a great deal of it. Thereafter, perspiration: patience, focus, and hard work, resulting in a masterpiece investment. Before commencing on this journey, let’s consider the facts. Original works of art are absolutely unique and thus rarity personified. As good as a giclée – a fine art digital print – may be, it remains, precisely, a print: created by a machine as opposed to the talented hands of an artist, and one of very many copies circulating. For those who revere the form, the desire of owning an original painting, brought to life by an artist who was instrumental, no less, in the evolution of art, is palpable, and the explosive sale prices proof of how

Three Studies of Lucian Freud: Painted in 1969 by Francis Bacon, the triptych sold in 2013 for a record $142.4 million. Francis Outred, of Christie’s Europe, described the piece as a “true masterpiece that marks Bacon and Freud’s relationship”.

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A Day in the Life

Elias Neocleous

The Advocate, Partner and Head of the Corporate and Commercial Department at Andreas Neocleous & Co LLC on the allure of the legal profession, the pleasures of fatherhood, and the importance of maintaining a good work/life balance.

“After 6-7 hours sleep I get up for breakfast at 6.30am every day. I believe in maintaining a healthy diet and lifestyle and that first meal is important. I then drive my daughter to school, which is something I adore because, although she’s only five years old, she manages to ask me a million questions on the way! I start my working day by going through all my correspondence and checking my favourite websites (including Gold News!) to find out what’s going on in Cyprus and abroad. Every day has a certain pattern – as a lawyer I need to keep on top of clients’ cases, I have office management duties, internal meetings, etc. – but my routine is frequently disturbed. Things never go exactly according to plan and, since the extraordinary events of last March, they have been even more hectic than before. Like most boys, when I was younger I wanted to be an astronaut or a footballer for a while but having a father who was a lawyer gave me the chance to understand better than my friends what it meant to work in the legal profession. I came to like the idea of analysing and interpreting situations, and using arguments and logic. My father told me that I was intelligent enough to choose the career that would best serve

my interests and my passions and he left the decision to me. When I went to study law at Oxford, I always knew in the back of my mind that, if for any reason I didn’t like it, it would still offer me a sound foundation upon which I could build any other career. In the end I did like it and I decided to become a barrister. I have never regretted my choice of career, which allows me to meet people and, most importantly, to try and help them solve their problems in a good, moral way. I find this a very honourable and satisfying thing to be doing. On the corporate and commercial side, a good lawyer builds bridges, creates deals and helps the parties achieve their objectives and, to me, this is equally fulfilling. Of course, being a lawyer can be exhausting, too, and we sometimes get to see the very worst in people! Afternoons at work can be more hectic than mornings. Partly due to our time zone difference, it is when clients tend to contact us from abroad but I do my best to get home at 7pm to play with my daughter before her bedtime and to enjoy the company of my wife. Unfortunately, I frequently “take work home” in the sense that my mind rarely switches off from cases and clients but I recognise the importance of doing so and, while

Spain is a remarkable and beautiful country

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