Financial Mirror 2015 04 08

FinancialMirror OREN LAURENT

JEFFREY SACHS

Is it time to GoDaddy with your next investment? - PAGE 14

The need to finance education for all - PAGE 19

Issue No. 1129 €1.00 April 8 - 14 , 2015

“It’s time to act in aviation and shipping” TRANSPORT MINISTER TALKS ABOUT THE NEED FOR CHANGE - PAGES 10- 11

Efforts continue to lift Turkish embargo on shipping PAGE 14

April 8 - 14, 2015

2 | OPINION | financialmirror.com

FinancialMirror

At last, serious work in shipping

Published every Wednesday by Financial Mirror Ltd.

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The annual meeting of the Cyprus Chamber of Shipping was, as expected, a platform for the government to declare its commitment to the maritime sector and the usual promises of reforms and pledges of continued support.

Only this year, the government seems to mean it and work is already underway to plan the future of shipping, probably the only stabilising factor of the economy in recent years and one that continues to generate revenues for the state and jobs.

In his address, President Anastasiades referred to the study that will determine the future role of shipping and the direction the maritime sector will take.

A lot has been said by so many government officials and departments that it is hard to swallow such a radical change to the sector that has stagnated in recent years and is no different from the maritime model of the 1970s. Two decades ago, the Cyprus flag had more vessels and a bigger capacity than it does today, but the numbers have been hurt by the Turkish embargo (hence, the need for a solution), competition from rival jurisdictions that are more flexible (Malta, Bahamas, etc.) and various cycles that have actually been to our benefit, such as getting rid of the rusty old boats over a decade ago and alignment with stricter

international safety regulations.

This time, the government means business and this slow process seems to be reviving hopes among the ship-owners and managers of shipping companies that change is coming. This change will start showing its face by the end of summer and in time for some announcements at the Maritime Cyprus conference in September.

The key word at the Chamber meeting was “sustainable” shipping. This is not just a cliché, but one that will make or break the future of the Cyprus flag.

In order for Cyprus to return to the boom days of when shipping was the main driver of the services sector (and the lifeline of Limassol), we also need to see some commitments from other sectors as well.

A damning report by the Cyprus Investments Promotion Agency last week collected the complaints by foreign executives and leaders of major international companies based on the island.

It’s no good saying that the ‘one stop shop’ concept is working, when it is not. Red tape still rules and delays in ordinary functions are making Cyprus look like the turtle of the international business world.

What Cyprus needs is a mentality change, a lobotomy even, because we cannot go forward if we have people in the government machine not willing to embrace change.

Otherwise, all the plans and studies will have been in vain.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

ERM by June, cards cartel, tax amnesty Cyprus was expecting to hear from EU officials when it would enter the ERM2 euro-area waiting room, probably by June, while in other news, the island’s two main banks were offering identical (almost cartel-like) card loyalty schemes and the government’s tax amnesty netted a total of CYP 119 mln, according to the Financial Mirror issue 614, on March 30, 2005.

ERM entry: Cyprus is expected to hear from EU officials on an exact timetable for entry into the European Rate mechanism, with Finance Ministry sources suggesting the end of the first half of 2005.

20 YEARS AGO

Stability for tourism, Minister at EBRD Hoteliers called for a stabilisation in prices and costs that were pushing Cyprus farther away from rival destinations, while in London, Finance Minister Christodoulos Christodoulou met with officials from the EBRD who praised Cyprus efforts to start an investment bank in Krasnodar, according to the Cyprus Financial Mirror issue 106, on April 12, 1995.

Tourism prices: Hoteliers association (Pasyxe)

The rate at which the CYP will be locked to the euro will be set at the upcoming Ecofin meeting by the European Central Bank and the Central Bank of Cyprus, already fixed at 1.7086 euros.

IMF reforms: The IMF issued a 53-page progress report on Cyprus, generally seen as favourable, but raising concerns about rising labour costs that make the economy uncompetitive, as well as a need for more structural reforms, excessive lending in real estate and an unregulated Co-operative sector. (Ed’s note: Told you so…?)

Banks cartel: Bank of Cyprus and Laiki were revising their card loyalty schemes and upped their threshold to redeem bonuses by 40-45%, forcing cardholders to rush to redeem their points ahead of

the move. Hellenic already announced a similar move in December.

Tax amnesty: The government has raised CYP 119 mln from the one-off tax amnesty for the declaration of secret or other incomes earned up to December 2002. Finance Minister Makis Keravnos said this means that CYP 2.5 bln funds or sources of income were declared.

Orphanides gifts: Retailing giant Orphanides Hypermarkets (remember them?) is giving away 17 Mitsubishi Colts to mark its 17th birthday. Chairman Chris Orphanides said the company had embarked on a three-year expansion drive that will include more store openings.

TC elections: Opposition DISY leader Nicos Anastasiades and the party’s executive members met with Republican Party (CTP) leader Mehmet Ali Talat who said that he will put forward new proposals to resume peace talks after the April 17 elections in the north.

chairman Kikis Constantinou told the annual meeting that urgent measures need to be taken to return to profitability and that a stabilisation policy must be adopted by all parties to help keep costs low. President Glafcos Clerides told the same meeting that any increase in tourist traffic should no create illusions that the problems have been overcome, and that his administration was looking to attract investments in new areas such as gold courses, ports and marinas, and leisure parks.

EBRD praise: Finance Minister Christodoulos Christodoulou, who was attending the EBRD

Governors’ meeting in London, was praised for Cyprus’ efforts to launch an investment bank in Krasnodar, a project involving the Cyprus Development Bank, the EBRD and Greece’s Commercial Bank (Emporiki).

Port dispute: Limassol port workers facing redundancies went on an indefinite strike demanding that the Ports Authority recall its decision fro their dismissal based on a lack of work. But the strike by 87 workers had not yet affected the smooth operation of the port.

Shipping: Cyprus currently ranks fourth in world shipping based on the size of its merchant fleet with 5% of world shipping now carrying the Cyprus flag. In 1994, the Cypriot fleet grew 5.3% to 2,641 ships and its capacity was up by 4.3% to 25.3 mln tonnes.

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April 8 - 14, 2015

financialmirror.com | CYPRUS | 3

Red tape and slow state services still trouble foreign investors Bureaucracy, the lack of confidence in the banking system, the financial crisis and long delays in the completion of procedures by the state sector are the four main disadvantages for foreign investments in Cyprus, according to the results of a survey for 2014 conducted by the Cyprus Investment Promotion Agency (CIPA) for the second consecutive year.

The four main advantages of Cyprus are, according to the results, the tax regime, location, the good professional services and the level of human resources.

The survey was carried out for CIPA by Noverna Analytics and Research with the participation of 119 foreign-owned companies in Cyprus, primarily in shipping, consulting and financial services, energy and another 15 sectors of the economy. The survey’s main aims were to appraise Cyprus as a business centre and investment destination, the extent to which foreign investors are satisfied with Cypriot services, but also to evaluate the Cyprus economy more generally.

The survey concludes that there is room for improvement for Cyprus as a destination for investments and businesses.

According to the findings, improvement is needed in the banking sector which 4 out of 10 companies describe as restrictive for the businesses, the public services which one out of three describe as slow and restrictive, speed in decision making which four out of ten describe as slow and restrictive, incentives for companies as more than 3 out of 5 companies say these are not enough for investors and the cost of living, which 6 out of 10 companies describe as particularly expensive.

An attractive corporation tax, the fact that Cyprus is an EU member state, productive human resources at a reasonable cost, a high-level of professional services, the legal framework for companies and the living standard and low criminality rate are among the positive characteristics which describe Cyprus as a business centre, according to the the survey.

The poorest satisfaction of foreign investors which participated in the survey, as regards state services, concerns the Department of the Registrar of Companies, the Migration Department, the Urban Planning Department, the Land Registry, the Customs Department and the Department of Labour.

As regards Troika’s contribution in achieving positive reforms in Cyprus, 26 described it as very positive, 27 as positive, 26 as moderate, 9 not so positive and 7 not positive at all.

Presenting the results of the survey, CIPA Director General Charis Papacharalambous said foreign investors had voiced optimism about the course of the economy, recognising the growth prospects.

He said that foreign investors consider that Cyprus has room for improvement in forging a national economic/investment strategy and in offering incentives to investors.

As the survey shows, foreign investors are monitoring the changes taking place in the economy and wish to see the speediest possible implementation of the planned strategic reforms and the structural changes which aim to make Cyprus more hospitable to foreign investments.

Addressing the event, CIPA Chairman Christodoulos Angastiniotis referred to the results of the survey, noting that “although in the last two years Cyprus has taken substantial steps towards financial consolidation, something which is reflected in foreign investors’ expectations on the economy until 2020, a lot remains to be done. Improving the business climate and dealing with bureaucracy remain the challenges that we must overcome over the next few months.”

“For CIPA it is essential and extremely important to hear what foreign investors have to tell us. This information, coming as it is from those who have a direct interest, constitutes a very useful tool for better planning and in order to improve,” he added.

April 8 - 14, 2015

4 | CYPRUS | financialmirror.com March CPI up 0.5% on petrol The Consumer Price Index for March increased by 0.58 units or 0.51 % to 115,31 units compared to 114,73 in February, mainly due to increases in the prices of petroleum products and certain clothing and footwear items. According to data from the statistical office Cystat, decreases were recorded in the prices of electricity and certain fresh vegetables.

The rate of inflation for March decreased by -1.9% compared to -1.4% in February and -2.3% in March 2014. For the first quarter period of January-March, the CPI recorded a decrease of -1.5% compared to the corresponding period of 2014.

13-week T-Bill oversubscribed The Public Debt Management Office of the Ministry of Finance announces that Thursday’s 13 week Treasury Bills auction for EUR 200 mln was oversubscribed and the average yield was 2.68%, lower than 2.84% at the previous auction on March 3.

The PDMO said a total amount of EUR 286.6 mln were submitted, down from the previous auction that had received bids of EUR 321.7 mln.

The accepted yields ranged between 2.40% - 2.75%, compared to 2.50-2.95% in the previous round.

Building permits up in January Building permits, authorised by the municipal authorities and the district administration offices, were slightly up in January, the Statistical Service announced.

It said that building permits stood at 404 compared to 396 in the same month of the previous year.

Their total value reached EUR 75.5 mln and the total area 80,400 square metres, compared to EUR 78.6 mln and 65,600 square metres in January 2014.

Primetel: 4G will boost local market share Primetel, the island’s third mobile network operator that secured its license 14 months ago, plans to boost its small market share with the introduction of its high-speed fourth generation long-term evolution (4G LTE) platform launched last month.

From a 2.71% market share of all mobile users last June, Primetel has expanded its business to 3.39% at the end of December 2014, behind state-owned Cyta’s 65.3% (June 2014: 66.1%) and South Africa-owned MTN’s 30.4% (June 2014: 30.1%), according to data from telecoms regulator OCECPR. Only Primetel and MTN introduced 4G on February 11, expecting to erode Cyta’s market share over the next few months, as the government telco will not introduce its 4G until summer.

“As the newest entrants, we have the advantage of investing in the most modern technology and the fastest network,” Primetel’s CEO Hermes Stephanou told a press briefing.

“We need to satisfy our shareholders with our small market share, but we do this with a high quality service.

During our ten years of operation as a telecom and Internet provider, we have learnt from our past and moved on,” he said, adding that the telco’s 3G and 4G service coverage has reached 50% of Cyprus and will soon rise to 60%.

“We have 550 points (of transmission and relays) for the 3G platform and a further 200 for the 4G service,” Stephanou said.

Looking ahead, he said that he had recently told a company staff conference that “broadband is mobile” that is expected to rise from current speeds of 70Mbps to 300Mbps.

“Unfortunately, the technologies are not out there to support such speeds. By 2020, the industry estimates that this speed will multiply by eightfold,” Stephanou said.

Primetel is upgrading all its mobile subscribers to 4G, while for April it is offering the 4GB broadband package for free. The normal 1GB broadband service starts from 10 euros a month and rise to 34.90 for 20GB. Meanwhile, Stpehanou said that Primetel’s Hawk submarine cable system from Europe to Egypt and Israel, via a trunkline to Paphos, is a regional hub serving up to 200 mln people in the eastern Mediterranean and the Middle East, with the Yeroskipou landing datacentre receiving the ISO 27000:2013 from Cyprus certification agency CYS, the first company in Cyprus to get one.

The Hawk cable, launched in June 2011 by Reliance Globalcom, has so far cost 200 mln euros and there are plans to expand this further into the Middle East that will be able to serve 300 mln people. The cable system has a capacity of 2.7 Tbps and spans a distance of about 3181 km.

The Greek crisis and the clash of philosophies within the EU

By Andreas Theophanous Listening to German Finance Minister Wolfgang Schäuble and his Greek counterpart Yanis Varoufakis speaking about the recent Eurogroup agreement on Greece, one could be forgiven for thinking that they were talking about two completely different texts.

There are obviously deep differences between them over substance and status that are far from being resolved.

The outcome is unclear. Both sides have bought time as Greece’s proposed revenue raising measures undergo further scrutiny in the Eurogroup. Greece can claim that it has achieved success by winning more flexibility on demands that it run a 4.5% primary surplus. It can also point to increased understanding from Eurogroup partners on

conditional financing for social measures and the need to avoid additional austerity measures as steps in the right direction.

Germany can stress Greece’s commitments on debt repayment; the fact that its economic adjustment programme will continue to be assessed by the European Commission, European Central Bank and the International Monetary Fund; and an undertaking from Athens to avoid unilateral measures.

Greece continues to emphasise the need for a fundamental change in the European Union’s economic philosophy. It insists that Troika-inspired austerity programmes have left the country with unacceptable levels of poverty. Regardless of ideology, the the level of dissatisfaction in the country means the new Greek government will find it impossible to pursue similar policies to its predecessor.

In contrast, a hegemonic Germany insists on maintaining the current economic philosophy, not because it is good for Europe, but because it considers it beneficial for its own interests. This is despite the

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recession now knocking on Germany’s door.

For Berlin, it seems, ideology and status are the top priorities.

Inevitably, the clash of the two philosophies will continue. One could hope the philosophy underpinning current eurozone policy changes to encourage growth without losing sight of the need for economic restructuring and rationalisation.

The years of crisis have laid bare deep flaws in the eurozone’s architecture, and not just because of Greece.

Ireland, Spain, Portugal and Cyprus are in essence confronting different facets of the same problem. Change will require Germany to adapt its philosophy and perspective, but unfortunately, German thinking continues to confuse household economic management with macroeconomics. In the short term, the most likely scenario is more friction and demands for austerity measures aimed at strict fiscal discipline. It is doubtful whether this can be sustained over time.

As things stand, it is impossible for Greece to pay off its debts and meet its broader economic policy obligations. The private and public debts cannot be repaid under conditions of a deep and sustained recession.

These conditions risk leading Athens to financial collapse and exit from the eurozone, despite declarations by officials on all sides on the importance of Greece staying in the currency bloc. Even default within the eurozone would create serious complications well beyond Greece.

The Greek government is emphasising the necessity to step up measures against fraud, corruption and tax evasion. The implementation of these measures will be very effective, if accompanied by a policy of substantial tax cuts at all levels and severe penalties for non-compliance. Otherwise, it will be very difficult for the government to raise the necessary public revenues.

While the debate about Greece continues, forthcoming elections in several other eurozone countries will further influence

developments. The continuation of Germany’s obsessive policy approach will result in more friction and increased risk of eurozone exits, by design or accident. Recent recriminatory statements at intergovernmental and European level make it obvious that solidarity has evaporated and the EU has degenerated into a modern Tower of Babel. It is unfortunate that ECB Governor Mario Draghi put specific conditions on the inclusion of Greece in the bank’s monetary expansion programme. In this, the ECB appears to be acting more as a member of the troika, rather than respecting its central bank mandate.

Developments in the coming months will be decisive for Greece and the rest of the eurozone. If the EU does not understand the broader implications of the Greek crisis and the need for a deep reflection on its future course, the Union will miss a golden opportunity to restore its reputation, both domestically and on the international stage.

The eurozone crisis constitutes the most serious challenge facing the EU since its establishment. Many technocrats, diplomats, academics and politicians were aware of the weaknesses underlying the eurozone’s foundations, but they could not foresee the depth and the extent of the problems exposed by the crisis.

It is no surprise that the conventional economic philosophy behind austerity is being seriously challenged way beyond Greece, in the United States, Britain and in Brussels itself. It is essential that the shortcomings of this philosophy are addressed quickly and effectively. If not, the problems will only get worse. There is a growing risk that the ideological obsession with austerity will endanger the entire European project.

Andreas Theophanous is Professor of Political Economy and President of the Centre for European and International Affairs of the University of Nicosia

April 8 - 14, 2015

financialmirror.com | CYPRUS | 5

Cap restrictions lifted, President eyes jobs and growth 280 mln for development projects, 9 subsidy schemes for employment €2 Cyprus lifted all capital restrictions on Monday that were imposed on the island two years ago when the economy reached a melting point and international lenders offered a EUR 10 bln bailout plan, conditional to rebuilding the overborrowed banking system and reforming the public sector.

“The full lifting of capital controls marks the full restoration of confidence in our banking system and the stabilisation of the economy,” President Nicos Anastasiades said on Friday, announcing a series of measures that aim to boost growth and create new jobs.

He said that Cyprus was now on “a course of total reversal of an unprecedented crisis we were called to deal with. We managed to avert total collapse and restore the international credibility of our country, to stabilise our banking system and … to exit from the memorandum”, signed with the Troika of international lenders.

He added that “indications suggest that we may not need all EUR 10 bln from the memorandum and some of this money may be better utilised as low-cost finance to fund development projects.

The President announced six key measures to revive the economy.

These include lifting all restriction on capital transfers, launching public development projects and infrastructure worth EUR 280 mln, fast-tracking European Investment Bank lending, incentives to boost jobs, incentives to boost the construction and tourism sectors, and speeding up and transparency of the tenders process for public contracts, with harsh sanctions for those who break the rules.

Anastasiades said the Cabinet decided on Thursday to speed up development projects worth EUR 200 mln within 2015 in the areas of environmental and town planning, sewerage and infrastructure, and road improvements.

A further EUR 80 mln will be used on mature projects such as upgrading of hospitals and building new health centres, construction and upgrading of schools, and improving the tourist infrastructure and road networks, with all projects expected to get underway by the autumn.

As regards EIB funds, Anastasiades said that the a government guarantee will allow the second phase of the University of Cyprus campus to get underway at a cost of EUR 162 mln for new facilities and laboratories, as well as a solar park that will make the campus self-sufficient on energy.

He said that the Cabinet also approved a series of nine subsidy schemes for employment, gaining of work experience and training of the unemployed at a cost of EUR 58 mln. Last year, he added, four similar programmes were implemented that gave jobs to 6,200 people and that this year that number may be exceeded.

As regards extending Sunday shopping hours, the President said that his administration actively supported liberalising the retail sector and as a result, some 7-7,500 were employed, albeit on a part-time basis.

He said the financing for all the measures will come from the EUR 400 mln budget surplus recorded in 2014 and European funds.

The Council of Ministers also decided to boost private investments by extending the period for town planning incentives, introduced in April 2013, especially in the construction and tourist industries.

Answering questions from the press, Anastasiades said that the prospect of converting the Bank of Cyprus emergency liquidity assistance (ELA) owed to European banking authorities into long-term bonds, was raised twice with the European Central Bank.

“This is a sensitive matter which cannot be discussed in public, nor is it allowed (by ECB regulation). On the other hand, ELA does not prevent dependent banks from moving ahead,” he said.

In its annual report for 2014, Bank of Cyprus said ELA had been reduced to EUR 7.4 bln and direct ECB funding to EUR 880 mln, while by March 31 this year, ELA and ECB funding were further reduced to EUR 6.9 bln and EUR 800 mln, respectively.

As regards tapping into European Commission chief Jean Claude Juncker’s EUR 300 bln growth budget, the President said that the Finance Ministry, CIPA and the chamber of commerce KEVE are working to identify large and mature projects to offer to foreign investors.

Avoiding to give a projection for growth rates, Anastasiades said the announced measures aim to boost prosperity of the general public and in turn the general numbers. He said that with confidence returning, and yields on government bonds now below 4%, the government may return to the international markets soon after April 17, when parliament is expected to finally approve the long-overdue framework on foreclosures and insolvencies, while securing primary homes in cases where mortgage holders are bankrupt.

As regards hydrocarbons exploration, Anastasiades denied that the national ‘energy plan’ was put on hold.

“They continue. Noble Energy said it will announce its commercial plans, we have renewed our contract with Total and ENI is readjusting its programme due to technical reasons after two failed drills.”

“But all oil majors are currently revising their plans due to the falling crude prices and in effort to cut back on exploration spending.”

April 8 - 14, 2015

6 | COMMENT | financialmirror.com

Don’t let a crisis be wasted – Proposal for a Green Tax Reform in Cyprus

By Theodoros Zachariades The recent economic crisis in Cyprus has given rise to many recommendations on how to stimulate the economy and increase employment, by adopting a ‘new economic model’. At the same time, the country is faced with several energy and environmental challenges – low energy productivity, the highest water scarcity problem in Europe and among the highest per capita waste generation rates in the continent.

The economic downturn of recent years has helped Cyprus meet some intermediate environmental targets, but this compliance is only temporary: as economic growth is expected to resume, it will be increasingly difficulty for the country to fulfil its international energy and environmental commitments.

This policy brief attempts to demonstrate that it is possible to simultaneously address the above concerns, i.e. reconcile economic growth and job creation with environmental protection, with the aid of a ‘Green (environmentally friendly) Tax Reform’ (GTR). By definition, a GTR (also called green fiscal reform) involves a reform of the national tax system whereby there is a shift of the burden of taxes towards environmentally damaging activities such as unsustainable resource use or pollution. The proposed GTR for Cyprus will mainly comprise: - Introducing a carbon tax to apply on fuels used across all economic sectors, and increasing taxation on the use of resources (e.g. water) and other environmentally harmful activities (e.g. waste production, air pollution and use of fertilizers and pesticides); while at the same time, - Decreasing labour taxation (e.g. by reducing social security contributions of both employers and employees).

As Cyprus is currently running balanced public budgets, this reform can be designed so as to prove revenue-neutral: the extra revenues to be generated through environmental taxes can be roughly equal to the public revenues lost through the reduction in labour taxes. The economy is labour-intensive, hence the reduction in labour taxation is expected to lower costs of most enterprises even despite the increase in energy costs; a few exceptions may need to be addressed in a targeted manner. Part of the additional revenues can also be used to compensate low-income households for the increase in their energy bills, or finance green investments such as energy refurbishments in buildings or improvements in public transport infrastructure.

This reform can be implemented gradually over a longer period (e.g. five years) in order to provide time to firms and consumers to adapt to the new situation. At today’s quite low international crude oil prices, a carbon tax will not increase fuel prices substantially, so that rising energy costs should be manageable by all households and firms.

There are multiple environmental benefits. Individuals and enterprises will gradually adjust their investment decisions and consumption behaviour in order to adapt to the new tax system, thereby reducing the use of energy in industry, buildings and motor vehicles, and substituting towards low-carbon or zero-carbon energy sources. This in turn will reduce the energy import dependency of Cyprus, and thereby improve its persistent current accounts deficit; improve air quality by reducing the emissions of other air pollutants too; and contribute to climate change adaptation since e.g. a better insulated building is less vulnerable to high external temperatures.

More than 20 years of experience in a number of EU member states shows that a Green Tax Reform can be beneficial for the economy and employment. Traditionally,

tax systems have relied on direct taxes of labour and income in order to generate public revenues. In the European Union, for example, direct taxes accounted for two thirds of total tax receipts in 2012; environmental taxes accounted for merely 6.1% of the total, and their relative contribution (as a fraction of national GDP) has been declining since 20005. This endangers employment and economic growth as it increases the cost of labour, in addition to encouraging tax avoidance and illegal labour. At the same time, as most energy-using and natural resource-depleting activities are taxed below their socially optimal levels, this constitutes a subsidy to environmentally harmful activities; such subsidies account internationally for billions of Euros each year.

A shift from labour to environmental taxation can change this picture. In several case studies around Europe it has been clearly demonstrated that energy/environmental taxes are less detrimental to employment and growth than other direct and indirect taxes. If the environmental tax increases are accompanied by reductions in labour taxation, the overall effect can be beneficial in both macroeconomic and environmental terms. Such a reform reduces distortions on economic activity and changes relative economic prices, thereby fostering innovation and encouraging investment in green economy sectors, which can create a competitive advantage for the economy.

In the case of greenhouse gas emissions this reform is certainly needed: if economic growth rebounds, the emissions of economic sectors that are not subject to the EU Emissions Trading System (ETS) will start increasing again, and Cyprus will not be able to comply with the significant emission reduction targets for year 2030 as decided by EU leaders in October 2014. A carbon tax can decrease these emissions substantially over the medium term. In a similar fashion, taxes on other environmentally harmful activities can considerably reduce the level of environmental degradation in areas such as fertilizer and pesticide use, waste generation, and water overconsumption.

Nineteen ‘Green Tax Commissions’ have been formed in European countries in recent years, with the objective to examine the potential of environmental fiscal reforms. As a result, eight countries (Denmark, Finland, France, Germany, the Netherlands, Portugal, Sweden and the United Kingdom) have adopted such reforms, while Ireland has employed partial measures in the same direction (carbon tax, plastic bag levy), and the government of Italy is also at an advanced stage of adopting similar measures.

Major international organisations such as the OECD, the IMF and the World Bank have underlined that Green Tax Reforms are the most efficient way to ensure both fiscal sustainability and environmental protection. The European

Commission, in the frame of the ‘European Semester’ process of monitoring the macroeconomic stability of member states, has recommended to many countries the adoption of environmentally-oriented fiscal reforms and has commissioned relevant studies for this purpose. This is in line with the EU’s broader strategic initiative for a ‘resourceefficient Europe’ achieving a ‘circular economy’. Recently, the European Parliament’s Economic Affairs Committee has also urged European governments to shift taxes away from labour to environmentally harmful activities, and the Council of EU Environment Ministers has emphasised that “shifting taxation from labour to pollution, energy and resource use in a budgetary neutral manner may be an appropriate tool to promote employment creation and greening the economy”.

In conclusion, the ‘new economic model’ for Cyprus that is under discussion after the recent economic crisis cannot be prescribed or defined ex ante. It will be the result of several factors including the ingenuity of individuals and enterprises, societal choices, technological improvements, and changes in the international policy landscape. A government’s role is to formulate long-term targets and provide a coherent policy environment that can enable realising these targets. In this context, this policy brief claims that it is possible to switch Cyprus to a low-carbon economy in the medium to long term, in line with the broad EU sustainability strategy, thereby promoting employment and economic growth while at the same time achieving significant environmental improvements. A Green Tax Reform is essential for this purpose. Recent experience in many European countries has shown that such a reform is economically and politically feasible, beneficial for economic growth and environmental protection, and with manageable side-effects.

Therefore, there is a need for the formation of a Committee on Green Tax Reform that within a six-month period should prepare a concrete proposal for a revenueneutral environmental fiscal reform, along with an assessment of its economic, environmental and social implications. The Ministries of Finance and the Environment as well as professional associations from the private sector must participate in this Committee, which can also include members from other governmental departments, stakeholders from the private sector, NGOs and academia and should preferably be chaired by an independent entity of either the public or the private sector.

Theodoros Zachariadis is an Assistant Professor at the Department of Environmental Science and Technology, Cyprus University of Technology, and Economics Research Centre, University of Cyprus. t.zachariadis@cut.ac.cy

April 8 - 14, 2015

financialmirror.com | COMMENT | 7

Financial Reporting and the responsibilities of the Board members and Audit Committee

By Rakis Christoforou Managing Director Global AML Services Ltd

Financial misstatement usually starts small, intended as “just an immaterial adjustment or omission” to improve corporate results. But as the need to maintain improved results continues, so does the need to maintain deception.

A financial misstatement usually involves senior management of public companies, who are in a unique position to perpetrate financial misstatement by overriding controls. As a consequence, the role of the board of directors, audit committees, external and internal auditors is critical in properly addressing financial misstatements and override of controls. At times of negative economic environment, when targets are much harder to achieve, increased pressure is imposed at corporate level for better results and this creates incentives for financial misstatement and fraud.

But financial misstatement and fraud could also occur at lower levels of management when middle corporate managers may claim that they did not realise that they were committing a financial misstatement or fraud, but saw themselves as simply doing what was expected of them by senior management. Middle managers and other employees committing this type of fraud may not be doing it for a direct personal gain, but because senior management created the impression that the manipulation (or omission of adjustment/action) is needed, it is for the best interests of all, and after all this is what is expected of them by senior management.

The Role of the Board of Directors and Audit Committees When faced with a material financial misstatement or fraud, it is more likely that senior management either knew about it, should have known about it, or have caused it by putting pressure on lower-level employees. Such behaviour may be rationalised as: “We were sure that business was going to turn around in the near future and most probably next year, we were protecting company jobs in this way, we

did not intend to cause any harm to anybody including investors, etc.”

Senior management has the primary responsibility for the financial reporting process and for implementing controls to deter and detect financial misstatement and fraud. But at the same time in addition to senior management, the board of directors, the audit committees, the internal and external auditors have complementary and interconnected roles in delivering high-quality financial statement reports to the investing public and other interested counterparties. The Board of directors and audit committees are responsible for the oversight of a company’s business operations and control environment.

The audit committee in particular is responsible for overseeing not only the financial statement reporting process but also the company’s external auditors and the internal audit function.

In this respect, board and audit committee members of public companies are expected to be of high morale, well educated and experienced in their line of business, and have a sound understanding of the company’s business and its industry. At the same time, board members are expected to put less trust on a company’s senior management, perform their own due diligence on significant issues and challenge a company’s management actions and decisions. In other words, board members should be sceptical of senior management and ask questions about critical company matters.

The Critical Role of the Audit Committee Audit committee members should not only possess the qualities described in the previous paragraph but also have a working understanding of International Financial Reporting Standards (IFRS) in order to be in a position to challenge senior management with questions on risks that could potentially create incentives for financial misstatement. Such probing questions should be addressed to senior management, external and internal auditors. Audit committee members are expected to have an active role, and not a passive one, when dealing with significant financial statement reporting issues.

The audit committee should be in a position to utilise both internal and external auditors in order to properly evaluate the effectiveness of management’s actions with regard to financial reporting matters. Even though the role of the audit committee is not to be directly involved in the management of the company, its role and responsibility is clearly to oversee the financial reporting activities and procedures of the company.

At the same time the audit committee should not only be

Sullet International Inc. (In Voluntary Liquidation) (BC No. 1741773) Notice is given that Sullet International Inc.: - is in voluntary liquidation - Commenced voluntary liquidation on 13th March 2015 - Theano Lechnou is the liquidator whose address is at: 12, Igoumenitsas Street, CONNECTEDSKYHOUSE, 2027, Strovolos, Nicosia, Cyprus Theano Lechnou Liquidator

Vicolo Corporation (In Voluntary Liquidation) (BC No. 523854) Notice is given that Vicolo Corporation: - Is in voluntary liquidation - Commenced voluntary liquidation on the 1st August 2014 - Theano Lechnou is the liquidator whose address is at: 12, Igoumenitsas Street, CONNECTEDSKYHOUSE, 2027, Strovolos, Nicosia, Cyprus Theano Lechnou Liquidator

VIRGINIA INVEST & FINANCE S.A. (In Voluntary Liquidation) (BC No. 690201) Notice is given that VIRGINIA INVEST & FINANCE S.A.: - Is in voluntary liquidation - Commenced voluntary liquidation on the 1st August 2014 - Theano Lechnou is the liquidator whose address is at: 12, Igoumenitsas Street, CONNECTEDSKYHOUSE, 2027, Strovolos, Nicosia, Cyprus Theano Lechnou Liquidator

MANDER HOLDING & FINANCE LTD. (In Voluntary Liquidation) (BC No. 1064312) Notice is given that MANDER HOLDING & FINANCE LTD.: - Is in voluntary liquidation - Commenced voluntary liquidation on the 1st August 2014 - Theano Lechnou is the liquidator whose address is at: 12, Igoumenitsas Street, CONNECTEDSKYHOUSE, 2027, Strovolos, Nicosia, Cyprus Theano Lechnou, Liquidator

in a position to understand the exposure to management override of controls but also to take remedial action and mitigate the possibility that an override could occur.

To conclude, the audit committee’s most important role is to set the tone at the top making it clear to other board members, senior company management, internal and external auditors that they should be doing the right thing at all costs by strictly following the financial reporting standards despite the consequences such an action could have on the company’s reported financial results.

Global AML Services Ltd specialises in Anti-Money Laundering services, the Foreign Account Tax Compliance Act (FATCA) and Financial Forensic Investigations. Rakis Christoforou is the first Certified Public Accountant (CPA) in Cyprus to be Accredited in Business Valuation (ABV) and Certified in Financial Forensics (CFF). He is a member of a number of professional associations including the Institute of Certified Public Accountants of Cyprus (ICPAC), the UK Chartered Institute for Securities and Investment (CISI), the American Institute of Certified Public Accountants (AICPA), the Chartered Global Management Accountants (CGMA) and the Association of Certified Fraud Examiners (ACFE).

April 8 - 14, 2015

8 | SHIPPING | financialmirror.com

Efforts continue to lift Turkish embargo Study on the ‘Future of Shipping in Cyprus’ in the hands of steering committee

President Nicos Anastasiades said that his government will continue its efforts towards the lifting of the illegal Turkish restrictive measures against Cyprus shipping.

In his address at the Annual General Meeting of the Cyprus Shipping Chamber in Limassol, President Anastasiades said that his presence at the meeting “manifests the importance that the government places on one of the main pillars of the development of the Cyprus economy, its shipping industry”.

He also said that “the close cooperation between the government and the private shipping sector will not only continue, but will be enhanced even further”, adding that Cyprus and its shipping industry “need to adopt a modern and flexible approach in order to adapt to the competitive international shipping environment”.

As such, he added, “the Chamber’s involvement in the formulation of the government’s maritime policy and its overall cooperation and contribution towards the continuous growth of the Cyprus Registry and of the local shipping industry is significant and much appreciated”.

In this respect, he said, “the Minister of Communications and Works commissioned a study for the ‘Future of Shipping in Cyprus’ and established a steering committee to guide the process.”

The overall objective of the study, the President said, “is to develop a comprehensive strategic development plan for the Cyprus shipping industry. The study has been very recently concluded and proposes strategic policies that would strengthen the Cyprus Merchant Fleet and the Cyprus Maritime Cluster, having as a guideline the short and long term benefits to the Cyprus Economy”, he added.

He added that “the discovery of hydrocarbons in our Exclusive Economic Zone (EEZ) creates new challenges and opportunities for our shipping industry to further evolve and widen its horizons, creating relevant synergies. New and vibrant shipping and energy projects can be launched and the relevant government policies will definitely include this new exciting perspective in mind, when being developed”.

Nonetheless, he said, “we should not forget that shipping is an international activity and the free movement of goods and raw materials worldwide is essential for the economic development of any country”.

In this respect, he noted, “the lifting of the illegal Turkish restrictive measures against Cyprus shipping, in force since 1987, would certainly have a positive economic and political impact. My government will continue its efforts towards lifting the Turkish embargo, which will lead to great growth prospects of the Registry and consequently, the growth of Cyprus shipping in general”.

Referring to the latest developments as regards the economy of Cyprus, Anastasiades said that “as a result of the hard work by everybody and the consistency in implementing the obligations we have undertaken under

Large ship losses reach lowest point in a decade Martime disasters involving passenger ships have certainly made headlines across the world in recent years.

Notable examples include the Costa Concordia disaster, Sewol ferry sinking and Norman Atlantic ferry fire, all of which brought passenger safety into focus.

Interestingly, however, despite these high profile mishaps, the number of ships lost at sea is declining. Back in 2007, 170 large vessels were lost and this fell to just 75 in 2014, according to Allianz Global Corporate and Specialty.

About 22% of all losses between 2009 and 2013 can be attributed to machine damage/breakdown with fire accounting for 16 percent. Hull damage and collision made up 9% of all losses each while 8% were due to storms.

Even though the declining number of sinkings/losses may seem like good news for insurance companies, the increasing size of container ships may actually lead to bigger losses.

The Mediterranean Shipping Co’s MSC Oscar became the largest container vessel in the world this year. Almost as long as four football fields and with a 19,224 teu capacity, a serious mishap involving a vessel like this could cost upwards of $1 bln. (Source: Statista)

well-known conditions, not only did we manage to disprove the assessments and predictions referring to a total collapse of the economy, but at the same time we have succeeded to restore the international credibility of our country, to stabilise our banking system and we are now in a course of recovery and exit from the country’s economic adjustment programme”.

“With determination, we took particularly difficult

decisions and we implemented a very difficult, but necessary, programme, without overlooking the social role of the state.

It is for these exact reasons, that (on Friday) I announced the final and comprehensive lifting of the restrictions in capital transfers,” he said.

President Anastasiades reiterated that the sustainable growth of Cyprus shipping is one of the priorities of the Cyprus government.

Top of the ship-management rankings Ever since Cyprus realised the political, economic and social importance of shipping, as early as 1963, the island’s registry has boomed and today ranks tenth among international merchant fleets - with 1,857 ocean going vessels of a gross tonnage exceeding 21 mln – and is continuously upgrading its services in order to offer a high standard of support to international shipping and a reputation of a “Flag of Progress”, according to the Department of Merchant Shipping.

Cyprus is a leading ship-management centre with 60 companies based on the island. Several of these companies rank among the largest in their category Cyprus also ranks among the top five countries in the world with the largest number of third party ship-management companies. Among the ship-management companies based in Cyprus, 87% are controlled

by Cypriot and EU interests. They employ 40,000 seafarers out of whom 5,000 are EU nationals.

The share of the fleet managed from Cyprus in the world ship-management market constitutes another interesting aspect – according to government estimates, the total fleet managed from Cyprus represents 20% of the world third–party ship-management sector (out of 10,000 ships in the world ship-management market).

April 8 - 14, 2015

financialmirror.com | SHIPPING | 9

Adami: “We can develop a sustainable shipping model for Cyprus”

Cyprus flag ‘needs rebranding and restructuring’

Minister sees the need to enhance competitiveness of maritime cluster

The Ministry of Transport, Communications and Works will do its utmost to enhance the competitiveness of the Cyprus flag and its maritime cluster, Minister Marios Demetriades has said, noting that “our shipping product needs rebranding and restructuring.

Addressing the Annual General Meeting of the Cyprus Shipping Chamber, Minister Demetriades said that Cyprus has become “a fully-fledged, well-known and respected maritime centre, combining both a sovereign flag and a resident shipping industry which is prominent for its high quality services and standards of safety”.

He noted that “despite the international adverse economic conditions and the financial difficulties that our country has faced in the last years, the Cyprus shipping sector has managed to maintain its competitiveness and perspectives, as a result of combination of efforts from the public and private sectors. Shipping has, in fact, evolved in recent years, into one of the leading drivers of our economy and is helping Cyprus navigate to recovery, in its capacity as a gateway of foreign investments to our island”.

Given its importance, he added, “shipping and its sustainable growth is one of the main concerns and priorities of the government”.

“Both myself, as the political head of merchant shipping, and our government realise that the shipping sector has stagnated during the last years and action is needed.

This is due to both the increasing competition that Cyprus faces from competitive maritime centres, as well as the problems that the shipping industry has been experiencing in recent years. Our shipping product needs some kind of rebranding and restructuring. We need to become more aggressive in promoting our flag and intensify efforts to attract more

companies to the island”, he said.

The Minister noted that “in an effort to develop a comprehensive strategic development plan for the shipping sector, a study has been recently completed. The study proposes measures that would strengthen the Cyprus merchant fleet and the shipping cluster”.

Taking into consideration the study, he said, “as well as other recommendations made from both the Department of Merchant Shipping and the private sector, we are planning to implement a number of operational changes in the next few months.

Among others, it includes the offering of incentives to the private sector for business development, the strengthening of offices abroad, the intensification of promotion events and other operational changes, including upgrading of our software programmes and 24 hour service for our clients”.

“I also intend to create a permanent link between the private and public sector with the objective to find ways to promote shipping in Cyprus. Our first mission will be to prepare a package of incentives that could be offered to maritime companies to relocate to Cyprus”, he added.

In the medium term, he said, “we also need to change the way we work, by providing the Department of Merchant Shipping with the necessary flexibility to fulfil both its regulatory, as well as its business development role. It has already been included in the terms of reference of the restructuring study, which is currently under review”.

He expressed his conviction “that the shipping industry of Cyprus secures through its knowledge, expertise and adequate human capital, the further development and growth in the sector and revitalisation of the Cyprus economy”.

Capt. Eugen Adami, President of the Cyprus Shipping Chamber, told officials and delegates at the 26th Annual General Meeting at the “Four Seasons” Hotel, in Limassol, that, with the introduction of specific additional measures related to the lifting of the Turkish embargo on Cyprus ships, the creation of an “Institute of the Sea” and the upgrade of the Maritime Administration, Cyprus can successfully develop a “Sustainable Shipping Model”.

In this respect, Capt. Adami appealed to all political parties to give serious consideration to the findings of the “Study for the Future of Cyprus Shipping”, which was initiated by the Ministry of Transport and urged them to approve the relevant bill pending in Parliament for the creation of an “Under-Secretary for Shipping”.

The CSC President said that the new position, in combination with the formation of a comprehensive national policy on shipping, will give the necessary impetus for further growth and enhancement of this sector which is so important for the economy.

In his address to the CSC meeting, President Nicos Anastasiades praised and congratulated the Chamber for its continuous contribution and active involvement in further developing of shipping sector.

He also described shipping, as one of the main sectors helping in the full recovery of the economy and as a catalyst for new economic growth.

President Anastasiades also referred to the study and stated that based on its findings,

the prospects for further development of Cyprus shipping is both tangible and viable.

During the meeting, Andreas Chrysostomou, Acting Director of the Department of Merchant Shipping (DMS), also gave a presentation about the latest developments. Chrysostomou has been nominated by the Cyprus government and is one of the main candidates for the position of Secretary General at the International Maritime Organisation (IMO), for which the Transport Minister is also lobbying to secure, together with members of the CSC and other active ship owners and ship-managers.

April 8 - 14, 2015

10 | INTERVIEW | financialmirror.com

It is time to act!

- Transport Minister says air connectivity is better, airport fees must be lowered

- EY study on shipping underway, DMS reform more important than Deputy Minister it some time. With new companies introducing additional flights I believe prices will come down at the end of the day. Because Aegean is introducing flights directly to Heathrow, British Airways is putting additional flights, we have a number of companies with flights to Gatwick or relative airports, so the prices should come down.

“I think the government acted very fast.

In basically getting additional companies to cover the gaps (after the Cyprus Airways closure). We acted very fast in introducing the new incentives scheme, and with the new season that started at the end of March, all these changes are being implemented. So, we should see lower prices within the next months. But let’s wait and see.”

The Ministry of Communications and Works is changing its name and with it the whole philosophy of a government office that had basically stayed the same ever since the Republic was founded.

The addition of the word ‘Transport’ is not just a simple change to the signage, but one that better reflects how the Ministry has evolved and represents the greater responsibility of the state as a regulator and owner of assets and less that of a service provider.

Transport, Communications and Works Minister Marios Demetriades told the Financial Mirror in an interview that his office now has a say in a very big part of the real economy, as it includes aviation, shipping, public transport, telecoms, the post and public works.

With these sectors evolving themselves, the Ministry could not stay out of this cycle and internal restructuring is taking place there as well, in line with the general reform of the greater public sector.

“It is time to act!” he said on several occasions, calling for all stakeholders to take advantage of the opportunities that arise to make Cyprus more competitive.

With the tourist season just started, Demetriades believes that air connectivity in Cyprus is now better, with more capacity available and airlines entering the market, refuting suggestions that the island would be isolated after the demise of national carrier Cyprus Airways.

On the other hand, the Ministry has commissioned a study that will overhaul the maritime industry, because he is confident that with the right incentives and Cyprus shipping finding its own niche, the sector will flourish again and contribute significantly to the recovery of the economy.

And reforms are not limited to just shipping and aviation, as the postal service will gain autonomy and the public transport sector will see novelties that were long overdue, helping to improve transport times, and making travel more efficient.

AVIATION: Connectivity remains at very high levels “Connectivity in Cyprus has been and remains at very high levels. This year, for example, 1.1 mln seats have gone and 1.2 mln have been added. So, overall, there are many more seats added than what has left. New destinations have also been added, for example to Germany and Italy, and the frequency of some other routes has increased, for example to Israel, and I believe this will increase even further.

“From the routes that used to take place, all destinations have been covered. Connectivity remains at very high levels, and our aim is to increase that as much as possible. As a Ministry, in reality we do three things – the first is to implement as fast as possible the ‘open skies policy’. We offer the various rights we have with third countries, as well as some traffic rights after the suspension of Cyprus Airways, and routes that had not been operated for many years, especially to the Middle East. We traffic will also increase. The second thing we do is to try to keep the cost at low levels, as regards fees at the airports. We have introduced a new

MARITIME – A new strategy in 3 months’ time

incentive scheme which is much better than the previous one because it not only covers new routes, but it also rewards companies that increase the number of passengers on existing routes. We have started now discussion with the airports operator Hermes to find a way to decrease the cost of the passenger taxes. These discussion will take a number of months and maybe necessitate some changes for the concession. The third thing we are doing is as the Civil Aviation Authority we encourage the maximum number of companies and accommodate as many companies as possible to come and base their operations in Cyprus. For all these there we are in close cooperation with Hermes. I had a meeting with the board of directors and shareholders of Hermes a couple of months ago and we agreed that we will form a steering committee to find ways to increase connectivity in Cyprus.

“About tourism, it’s a catch 22, chicken-and-egg. It is not only necessary to put on new destinations and new routes.

What we need to do is to support those routes and this is where the role of the Ministry of Commerce and Tourism and the CTO come in. We need to support more actively the new routes that we introduce. And this is something that we plan to do, as a government, and we need to make changes in the ways we promote tourism as well.”

Although the number of flights from Heathrow is increasing, prices are still not coming down. Will they ever, we asked the Minister.

“Obviously the more competition we have, the lower prices we shall have. This is the basic rule of the market.

Now, what we are doing in agreement with Hermes, is monitoring the prices, just to see the impact of prices and how prices compare with last year. Regarding whether prices will fall or whether they should fall, basically we should give

“The first thing I want to say is, regarding the new way of thinking of our shipping industry, it is time to act!

“As soon as I took over the Ministry, it was very easy to realise that the shipping sector had been stagnant, and not only because of internal reasons. If somebody is realistic and knows shipping how it works, realises that this is like a fallacy. The shipping sector in Cyprus has been stagnant for a number of reasons, because of the (Turkish) embargo, our competitors, especially in the registration of ships are growing at much faster paces than us. Now, does that mean that we shouldn’t do anything about it? Of course not. I’ve said this before, ‘now is the time to act!’

“Before you act, you have to do some planning, and we have to have the right way of thinking, a strategy. What I have been doing for the last 12 months, apart from taking a much more active role in the sector of shipping, I have spent a lot of time to visit companies at least once every three months. I’ve been on a number of trips abroad, either to London or Athens and a number of other countries to promote the Cypriot candidacy for the IMO of our Acting Director of the Department (of Merchant Shipping).

“What is the solution for taking the sector forward? I am presenting to the Council of Ministers the new plan, at least the principles that we should base our solution on. So, we are introducing a number of short-term measures and some medium-term measures. The solution for the restructuring of the Department is to give it the the necessary flexibility to do it’s work well. Because the DMS has been operating very efficiently for the last years but it hasn’t changed, it has not evolved. And of course this goes for whole government.

We’ve had our government since 1960 and we haven’t introduced any major changes. Now, we have the opportunity to introduce major changes. We are changing the name of the Ministry to reflect the sectors that it represents. And it will put more emphasis on transport, because most of the things the Ministry does have to do with transport.

“I am convinced that the way forward for the Department (of Merchant Shipping) is to evolve, to become more independent, more flexible. And on the other hand I do believe that we need to do some internal restructuring and place more emphasis on the business development part. So, at the moment we are doing three things – regulatory, operational-technical, and business development – and we need to put more emphasis on the latter. But in order to

April 8 - 14, 2015

financialmirror.com | INTERVIEW | 11

achieve that to do it more efficiently and more effectively, we need it to operate not as a department of a ministry, but as an administration or as an agency, and this is what they do abroad.

“Regarding the Deputy Minister (for Shipping), have in mind that the only country that has this concept is Greece.

In all the other countries it is under the Ministry of Transport, but what they do have is more flexibility, either as an agency or an administration. We need to give the necessary flexibility to the department to have a different mentality, to be more focused on the development, to be more flexible in serving the needs of the ship owners and the shipping sector, which they are doing very successfully, just as in countries like Malta, the U.K. and Ireland. In Greece, they have the Deputy Minister, but that office is also responsible for the ports and the coastline, so we are talking about an entirely different thing.

What I have included in the guidelines of the people doing the restructuring study is for the Department to be more independent, to be more flexible. I have already discussed this with the industry as well, and I will have further meetings with them. So, we are already acting on it.

“Regarding the short term, we are also introducing a number of measures, including a more professional way to promote shipping, using for example a specialist company, strengthening regional offices. We don’t need any more inspectors, what we need is additional people for business development. Introducing a package for companies that would like to settle in Cyprus, within the shipping sector, bringing in the private sector in promoting our flag, and also some operating improvements that will give more service our clients, the ship owners.

“One of the first things I did, was to bring the private and public sector together. And we came up with this EY study, whom we brought in through a tender. This is a study financed by the government, by CIPA, and I would like to thank its chairman, Christodoulos Angastiniotis personally.

Some of these ideas are included in my proposals to the Council of Ministers.

“I have tasked a steering committee to come up within three months with a package that we could offer to companies willing to settle in Cyprus within the maritime sector. I do believe that we need to attract as many companies as possible to the island, because in this way of course we are promoting employment, and having a real impact on the economy.

“Of course in Malta they have a much bigger number of ships registered under their flag, and Greece of course, but they don’t have the big cluster (in Malta), whereas we do, and we need to enlarge that cluster as much as possible. In Greece they have about 200,000 people employed in their maritime cluster, whereas we have 4-4,500. There is potential for growth in our cluster, definitely.

“I have asked for some additional information to be included in the study and asked EY to not only do a

comparison of the shipping sector with other centres, but also to come up with what specific incentives provided to companies within the maritime sector, and give this to the steering committee.

“The shipping sector is vital to the economy. It had a large growth in the first years and it has been stable in the last years. We need to know the real reasons and not to come up with things that we don’t really understand. We have to be honest with ourselves. There’s no magic solution for shipping. It will be a slow and painful process, but we can definitely do more things to promote shipping. And we definitely want shipping to be a bigger part of our GDP. And we can do that. I’m very optimistic, otherwise, I would not spend so much time on shipping.

“Our tax system is a very attractive one, it is approved by the European Union, and we will not see any changes. And this is what companies need, they need stability. The taxation is very good, but they need other incentives. I don’t want to predetermine the package, but I’m talking about getting easily work permits, for example the one-stop-shop should be a major part of this package.

“For the package for companies, I have called a meeting in April with the private sector, I will give the EY report, and I will tell them come up with a specific package within three months, I want to have it before the end of the summer so that we can implement it.

“For example, AC Nielsen had two major centres in Europe – one in Geneva and one in Oxford. One of the reason they went to Geneva was that they were offering lower taxation for the managers of the company. It was part of the package. It was not specific to the company. For example, I would like to see more ship owners and managers based in Cyprus.”

LIMASSOL PORT: On track with privatisation of services “We are proceeding with the privatisation of services at Limassol port and we are on track. We have Rothschild as financial consultants and concluded with the legal consultants. By the end of April we will go for tenders, by the end of the year to definitely find investors, maybe this will take up to the end of March (2016) to sign all the contracts and complete all the paperwork. But we should more or less finish by the end of the year or beginning of the next.

“There is interest for the port, let’s wait and see how it will materialise. I am optimistic.

“In the case of Larnaca, if everything goes well, in the summer they will start working in the port. There was a problem with the funding, now I think Zenon joint venture is working on this. As regards the claim that the operator was already cashing in on port fees and revenues, we involved the auditor general to make sure the contract would satisfy the

original terms, and there would not be any deviation. It is our job to make sure the interest of the Cyprus Republic are protected.

“But what I will say to the unions, because they have been on strike and nobody knows why, that everyday we have strike at the port we lose 1 mln euros in income for the economy, so they should be very careful when they stage their strikes. I had several meetings with them, I assured them that their basic rights would be protected. The right of strike should be utilised, but in the ports and shipping sector, they should be three and four time careful before going on strike.

NICOSIA BUSES: GPS tracking and ticket machines The public bus services are now efficient, attitudes have changed, but unfortunately there are not many passengers.

Why is that?

“The buses was the first area I touched when I took over at the Ministry. We have a 3-year plan and it was a bit of a mess. There were a lot of disputes and we created a specialised team to deal with the buses and we resolved a lot of the conflicts.

“The other thing we did , we passed the proposal for the introduction of the GPS system, and the system for automatic cancelling of tickets, or smart ticketing. That tender has already finished and we will start implementing the new system in 2015. We will know where every bus is and at every stop passengers will know when the next bus arrives.

It will be done gradually. Smart ticketing will also allow us to do many things that now we cannot do. We will be able to improve the service to the customers and also improve the route. As regards the absence of ‘cyclical’ routes, it is true that buses only serve direct routes and not across town. We have just finished a major exercise of optimising the bus network.

“We have also taken the decision to bring in new buses, so we have started the process of purchasing or hiring, like a request for interest, to introduce a number of new small buses, and especially to replace the ones in Larnaca and Limassol where we have a lot of old buses.”

POST OFFICE – A new model “We want to transform the Post Office into a company that will belong as a separate entity, to the Ministry but will have the necessary flexibility. It can not continue as a department of the ministry. We will also offer the full Citizens’ Bureau services from the post office. This year it will be introduced from the four main post offices, one in each major town.”

April 8 - 14, 2015

12 | COMMENT | financialmirror.com

Fine Wine Boutique Italian style and sophistication in Limassol Fine Wine Boutique, since opening in 2009, has proved itself as one of the most pleasant and satisfying places to buy or consume good wine. Nicolas Protopapas, who enjoyed a long and successful career in the hotel industry, possesses a well-educated palate in wines and is particularly adept at pairing them with the foods that will best enhance their finest qualities.

The shop’s speciality is Italian wine, and Nicolas stocks 180 different labels, but he also carries a few select bottles from France, Greece, Chile, South Africa and the US, plus top-shelf grappas, brandies, Proseccos and sparkling wines. He recently moved his theater of operations from the seaside tourist area to a larger, warmer venue at 86 Spyrou Kyprianou (close to the Germasoigea entrance to the A1 highway). This will provide more space for his high-end Italian deli and French charcuterie items, plus a longer wine bar, and an innovative Mozzarella Bar boasting a delectable menu of five different, very fresh Mozzarellas, served with homemade bread, greens, cherry tomatoes and the choice of at least a dozen fine wines or Proseccos by the glass.

After six, when the shop truly shines in its double role as wine bar, the ambience is relaxed and joyful, with Nicolas’ natural generosity of spirit setting and maintaining an overall bon vivant tone to the evening. Cheese plates, panini, servings of tagliata (sliced steak), elegant carpaccio (raw, poundedflat beef), artisanal pizza and homemade tiramisu can be enjoyed on the outside terrace where the young (and old) sophisticates of Limassol indulge in a glass or two of the most civilised of thirst quenchers. This is a place for quiet conversation and the sharing of quality wine with friends and/or romantic partners. There is no giant plasma TV blaring football matches or the rantings of hysterical politicians or unruly commentators.

REVIEW by Gastronomicos

Nicolas Protopapas chats with customers

On a recent visit we enjoyed a duo mozzarella plate (buffalo and smoked) with a glass of an excellent blend from Da Luca of the Primitivo and Merlot grapes from Puglia. The spheres of mozzarella were bursting with freshness and delicate taste, the chewy, garlicky bread was still warm from the oven and the wine, served in a smartly designed glass, was deeply rich, displaying the subtle earthiness typical of the vineyards of southeastern, Adriatic Italy. The mozzarella having vanished from our plates, we carried our still half-full wine glasses to a table under the palm trees to enjoy the fresh air and watch the world go by. If there is a better way to spend an evening in Limassol, please let me know.

Fine Wine Boutique, 86 Spyrou Kyprianou (next to Bank of Cyprus), Limassol. Tel: 25 430 606 or 99 622 269. Open 9am to midnight . Happy Hour (with 25% discount) 6-7:30 pm

In the Kitchen this week, a lentil or two…

Lentils come on various forms. I like the green ones cooked slightly al dente and used as a minced meat alternative in a pasta sauce. They make a delicious pilaff, too, just lentils and rice cooked in stock, or with some additions, like this one…

Moutzientra (Lentil and Rice Pilaf) Adapted from “The Food and Wine of Greece” Ingredients for six servings

170g/6oz dried lentils, washed 1 litre / 32fl oz water 1 bay leaf 1 small chilli pepper (or less, to taste) finely chopped 1 garlic clove, peeled and finely chopped 250g / 8oz peeled and chopped plum tomatoes 4 tbsp olive oil 1 medium-large red onion, peeled and sliced 155g /5oz long grain rice Method 1. In a medium-size saucepan, bring lentils and water to a rolling boil over high heat.

2. Add bay leaf, hot pepper, garlic, and tomatoes.

3. Lower heat to medium-low and simmer, covered, for about 35 minutes, stirring occasionally with a wooden spoon, until lentils are softened but not cooked through.

4. While lentils simmer, heat 2 tablespoons of the oil in a large heavy skillet and saute onion until translucent.

5. When lentils are softened, add rice and onions to pot and simmer for about 20 minutes longer, until rice is cooked.

6. Add more water, if necessary, and stir occasionally to keep mixture from sticking to bottom of pot.

7. Remove pot from heat.

8. Discard bay leaf and mix in remaining 2 tablespoons olive oil.

9. Cover with a cloth for 10 to 15 minutes to retain moisture, minerality and supple fruit flavours, but it doesn’t overpower the flavours of the chicken.

For my second dish I have adapted an Indian cook book recipe, which uses red lentils (these look orange uncooked and go a golden yellowy-brown when cooked).

Everyday Dal Ingredients for four servings 225g / 8oz red lentils 2 tbsp sunflower oil 1 medium onion, thinly sliced 4 garlic cloves, crushed 1 tbsp finely grated ginger 1/2 tsp each powdered chilli, coriander, turmeric (or a pinch of each plus a level tsp of medium curry powder) 1 tsp salt 300g / 11 oz canned plum tomatoes, finely chopped Method 1. Rinse the lentils till the water runs clear and put them in a deep saucepan with 60 cl cold water.

2. Bring to the boil, lid tightly, turn down the heat and simmer gently for 10-15 minutes till soft.

3. Meanwhile, fry the onion gently in the oil till golden, which should take 10-15 minutes.

4. Add the garlic and ginger and fry for a further 4 minutes.

5. Sprinkle in the spices and salt, stir, add the tomatoes, bubble up, cover, turn down the heat and simmer for 8 minutes or so, till the tomato begins to darken.

6. Stir in the lentils with a draining spoon, adding water to make a thick purée.

7. Cover again and simmer for another 10 minutes. For a soupier dal, add more water.

Send me your news! To be published in Cyprus Gourmet, here and on-line. Email: editor@eastward-ho.com

Stavros wins TGI Friday’s World Bartender Championship Stavros Loumis, who is part of the Larnaca TGI Friday’s team, has won the 24th finals of the Friday’s World Bartender Championship in Dallas, Texas, having competed with 10,000 other bartenders to get to the finals, that also marked the fiftieth anniversary of the international restaurant chain. Stavros thrilled the jury with his skills and special technique in ‘flairing’ and came home with

his propeller trophy, representing the driving force that the bar has in the development of the restaurant. This is the third award for the local TGIF operator that also won the International Franchisee of the Year in 2013 and the International Developer of the Year in 2014. TGI Fridays said it is celebrating by offering “one plus one” on all drinks and snacks during Happy Hour.

April 8 - 14, 2015

financialmirror.com | PROPERTY | 13

Leptos Group inaugurates new sales office in Dubai Leptos Group enlarged its global network with the addition of one more office – a new branch in the United Arab Emirates. The company hosted a cocktail reception on March 29 to officially launch the new UAE offices in Dubai, in the striking building of the “Emirates Financial Towers” in the heart of Dubai’s International Financial Centre.

The inauguration was held under the patronage of the embassy of Cyprus represented by Fadi Al Shebli as well as officials from the embassies of Greece and Iraq.

The group’s Director, Pantelis Leptos and Marketing Manager for the Dubai office, Marios Pashardis, also greeted and received a number of guests and high caliber business

personalities within the UAE, as well as several friends and associates.

Following Pashardis’ welcoming speech and introduction of the company, Group Director Pantelis Leptos emphasised the significance of the office’s presence and credibility in Dubai and the group’s intention to remain in the UAE “for as long as it takes” to serve the entire Gulf region.

The inauguration was completed with a venue and a beautiful set up under the stars of Dubai, the illuminated downtown skyscrapers and especially that of Burj Khalifah’s Tower in the background, completed with the guests’ congratulations and best wishes for the Leptos Group success.

Foreclosures and buyers - where to from here?

You have to give credit to AKEL for pushing ahead with the legislation for non-foreclosures of those properties that buyers have paid but remain trapped in the seller’s mortgages. This is a remarkable effort whose outcome into law caused a temporary relief to exposed buyers because the President has not yet signed the relevant law.

With the implementation of the law, the free transfer by creditors of the properties should now be enforced, because the attitudes today by some bankers/financiers is not to allow the free transfer even if a transfer release has been issued, or if a bank guarantee has been issued for the transfer (thus, in effect, breaking the law).

The question that remains is, although the banks will not be able to foreclose on the property that has been fully paid, they should allow transfers if the buyer has paid the 100% of the sales price, as well as the relevant municipal and property taxes.

The logical way to proceed is for the financiers to allow transfers, by deducting mortgages and removing any pending ‘memo’ on specific properties, since they will no longer be able to foreclose anyway. This way, the lender is not worse off according to the law.

Here, there might be a problem as it makes sense for financiers to stop lending as they will not be able to foreclose on mortgages. But this is a future concerns of lenders (and does not precede the new law), who should exert stricter control over the developer’s revenues from sales, and that they were indeed received, placed in the project’s account and disbursed only with the approval of the bank (eg. for use by the civil engineer where there are works). Any surplus income or cost per unit should be retained by the bank until the completion of the project. This way, if there are unsold

µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

units at the end, the surplus in the account should be used for other costs (including property, municipal and income tax, etc.).

This new legislation will also put banks on a more sustainable footing as regards new projects and buyers/sellers, where: i. where it is financing the developer there should be closer monitoring of costs and revenues according to a budget controlled either internally by a team from the bank or by external consultants who will act on behalf of the bank. ii. When financing buyers where the seller is also the guarantor as part of the so-called “corporate guarantees”, the guarantor should also participate in evaluating the buyer, since until now the bank used to evaluate the borrower and disregarded the guarantor, throwing the responsibility onto the guarantor, but with allowing the guarantor to evaluate the buyer. iii. Any non-fulfillment of the purchaser’s obligations, who in the meantime has submitted the title deeds and therefore the guarantor cannot get back the sold unit to resell and thus cover the guarantee, is great injustice against the seller. Therefore, with some regulatory changes, the cancellation of the deposit and the recovery of possession by the guarantor with ‘vacant occupancy’ (there are several tricks that currently apply to purchasers) should be done automatically and without long court procedures, provided that the seller has fulfilled his obligations. Thus, the seller

can also be covered for his guarantee. As the wording of the ‘corporate guarantee’ currently stands, which is common to all lenders, the buyer retains possession, collect any rents etc. and the guarantor (seller) is called to cover the debt of the borrower, but without being able to repossess the property, to re-sell either by auction or otherwise, and to return any difference to the buyer or bank. iv. At present, the methodology for mortgages and guarantees does not take into account of any variations in property prices. When prices are on the rise there is no particular problem, but if they are falling (as it is now), any difference would have to borne by both, i.e. the bank/seller/developer, and the buyer. This could mean a higher risk for lenders and may be reflected in the level of interest or collateral.

These and other issues are in need of further discussion, but the issuance of title deeds needs to be put on a new basis with simple procedures and not as it is today. With the failure of the construction amnesty (which can be corrected by a simple decision of the Cabinet), and the unenforceable practice that exists today, the priority of the seller/lender should be the issuance of title deeds. This is where the participation of the lender is necessary, and not the current trend of independent foreclosure. This is to the benefit of lenders which is why there are reports of mass foreclosures.

For example, if there is a single project with 30 units and no titles, who will buy them? While if there are 30 separate title deeds it is safer for all, thus increasing their value while reducing the risk for everyone. This will also help to avoid the so-called mass foreclosures and the sale of mortgage portfolio to third parties.

We will continue to monitor the developments. www.aloizou.com.cy ala-HQ@aloizou.com.cy

40% of Peninsula already sold, first villas delivered in Limassol Marina The first villas at Limassol Marina have been delivered to their owners.

Surrounded by the sea, the Peninsula Villas offer private berths attached to their garden or direct access to the beach as part of an integrated marina development. They benefit from uninterrupted views of the sea and come complete with their own swimming pool, garden and parking.

Limassol Marina’s spa and fitness club, dining, shopping and cultural facilities are now all fully operational and within a

stone’s throw from each villa.

To date, 40% of the first phase of Limassol Marina’s Peninsula Villas have been sold with prices starting from EUR 1.5 mln.

Limassol Marina has already established itself as one of the most attractive and sought-after projects across Europe with sales of the luxury apartments having surpassed 85% and contracts in excess of EUR 170 mln already signed for the luxury residences on the sea.

April 8 - 14, 2015

14 | WORLD MARKETS | financialmirror.com

Should you go for GoDaddy?

By Oren Laurent President, Banc De Binary

GoDaddy, known for its provocative advertisements as much as for its web hosting services, is now the centre of debate again. This time, the tech firm’s recent IPO has split analyst opinion, with many expressing their strong and opposing convictions about the merits of the company and its financial potential. Here’s what you need to know about the controversial, new GDDY shares.

In its first day of trading on the New York stock exchange on April 1, GoDaddy Inc raised around $600 mln. Such was the euphoria that often accompanies big brand IPOs that the opening price of $20 per share was significantly higher at $26.15 when the markets closed at the end of Wednesday trading. An incredible 23.14 mln shares of the hotly anticipated stock changed hands during the course of the one day. But the recent history of tech firms going public should teach us that this early excitement could easily die down.

GoDaddy’s CEO, Blake Irving, summed it up perfectly, “It’s an important [day], but it’s just a milestone. And then the hard work begins.”

Those keenly buying the stock point out that GoDaddy’s revenue has risen over 50% in the past three years. It now

boasts over 4,000 employees and 13 mln customers, and has grown from internet domains to offering website building and hosting services for small and medium-sized businesses.

Around half of all small businesses in the US are not yet online, leaving plenty of room for growth in the domain and hosting industry. As a leading and recognised brand in this market, and with a breadth of new products, GoDaddy has great potential to expand.

For more cautious investors, however, the fact that the firm has a long-term debt of around $1.3 bln, and has lost $3.5 mln over the last two years, undermines all talk of growth. While its losses may have been smaller in 2014 to 2013, the company is still far from profitable. On top of that, it now faces additional competition from companies like Amazon and Google who have recently jumped on the domain name bandwagon. These internet giants will be hoping to attain a high market share and vie for the small businesses which move online.

Can GoDaddy compete in its own market space? When the firm attempted to go for an IPO in 2006, it pulled out of the deal due to unfavourable market conditions. That happened to be the same year that Google released its free web hosting service. For critics, its previous fail is a bad omen. Yet, arguably, the fact that it has chosen to risk the same route again suggests that the company must be more confident now of its ability to thrive in the market. CEO Irving certainly tried to convey this impression. He said that the high demand for GoDaddy’s services at present as well as the technological advances made since 2006, justify the current

timing of the IPO. If it wants to stay in the game and reap the rewards of financial success, GoDaddy will have to stay trendy for its customers and simultaneously prove to investors that it can be taken seriously. Until that happens, traders may be best sticking to short-term options and profiting from the volatility.

Is Priceline going to $1,500?

By Chris Lange The Priceline Group Inc. (NASDAQ: PCLN) has made a strong push since January. Strong earnings in February and a solid business plan for Priceline’s international expansion have drawn the attention of analysts. As a result, Argus initiated coverage of Priceline with a Buy rating and a $1,480 price target, implying an upside of 24% from current prices.

The firm also believes that strong fourthquarter results eased investor worries that foreign-exchange headwinds would cause growth in international bookings to slow. In the first quarter of 2015, international bookings are projected to increase 17% to 24% in constant currencies.

The five-year earnings growth rate forecast is 20%. In the past three years, Priceline has repurchased $1.2 bln of its stock. In February, the board authorised a $3 bln share buyback programme. Reflecting in part share repurchases, Argus projected 2015 earnings per share (EPS) of $60.20 and 2016 EPS of $70.50.

Shares appear favourably valued at 16.5 times the Argus 2016 EPS estimate, compared to the five-year historical range of 8 to 24. The firm believes the company’s leading position in the global online travel market, history of positive earnings surprises and exposure to the growing Chinese market warrant a multiple near the top of the historical range. In view of the large untapped market for online bookings, the firm expects the shares’ forward multiple to move higher.

Priceline expects the bookings for the first quarter of 2015 to grow 14% to 21% in constant currencies. International bookings are projected to increase 17% to 24%.

On February 18, Priceline reported fourth-quarter revenue of $1.84 bln and EPS of $10.85. Revenue and earnings were up 19% and 29%, respectively, for the quarter.

The consensus estimates had been for revenue of $1.8 bln and EPS of $10.10. The positive earnings surprise reflected 27% higher international bookings in constant currencies.

Priceline is willing to sacrifice near-term margins in order to grow over the next several years. Considering the company’s strong margins, healthy cash balance and rapid growth, Argus considers this a wise decision. Argus expects revenue to increase 14% in 2015, to $9.6 bln. In 2016, driven by

strong growth in bookings, revenue is expected to rise 15% to $11.0 bln. Despite weak foreign currencies, the firm expects a higher volume and modestly higher prices, helped by economic recovery in Europe.

On Monday afternoon, shares of Priceline were up 2.7% to $1,191.89, in a 52-week trading range of $990.69 to $1,329.90. The stock has a consensus analyst price target of $1,362.36. (24/7 Wall St.com)

Deutsche Bank’s top picks for oil services upcycle If there is one thing that has played out before, it is the boom and bust cycle in the oil industry. As a result there have always been some predictable “playbook” trades to take advantage of the up and down stock moves. In a new report, the analysts at Deutsche Bank agree history repeats itself, but this time may be a little different.

While the Deutsche Bank team believe oil market supply and demand fundamentals are beginning to tighten, and in the past this was the time to begin buying energy stocks for the reversal, they think this upcycle will be far more subdued in the overall pace of the move. The also think that the well service companies could be the biggest beneficiaries.

The Deutsche Bank analysts’ three top oil service stock picks are Basic Energy Services Inc. (NYSE: BAS), Key Energy Services Inc. (NYSE: KEG) and Superior Energy Services Inc. (NYSE: SPN).

Mexico, Arkansas, Kansas and the Rocky Mountain and Appalachian regions.

Portfolio manager Dmitry Balyasny just bought a significant chunk of the stock. In a filing with the Securities and Exchange Commission, the firm reported buying a whopping 2.6 mln shares of the stock.

The Deutsche Bank price target is $10, which is down from $14. The Thomson/First Call consensus target is $7.99. Shares closed on Friday at $6.89.

By Lee Jackson

Basic Energy Services This company provides well site services essential to maintaining production from the oil and gas wells within its operating area. It employs more than 5,100 employees in more than 100 service points throughout the major oil and gas producing regions in Texas, Louisiana, Oklahoma, New

Key Energy Services Investors may benefit from a substantial fall in this stock’s price since last summer. Down a gigantic 80% from highs posted a year ago, the company may be a way for investors looking to get substantial leverage on an oil services stock, and at this price level, Key Energy Services could be a takeover candidate.

The company bills itself as the largest onshore, rig-based well servicing contractor based on the number of rigs owned. It provides a complete range of well intervention services and has operations in all major onshore oil and gas producing regions of the continental United States and in Mexico, Colombia,

Ecuador, the Middle East and Russia.

The Deutsche Bank price target is $3. The consensus target is posted at $2.45. Shares closed Friday at $1.85

Superior Energy Services Superior Energy Services serves the drilling, completion and production-related needs of oil and gas companies worldwide through its brand name drilling products and its integrated completion and well intervention services and tools, supported by an engineering staff who plan and design solutions for customers.

The Deutsche Bank analysts feel that the company should benefit on both the pumping and well service side of the industry. They also feel that Superior could be the single biggest beneficiary of potential divestitures coming from the Baker Hughes Inc. (NYSE: BHI) and Halliburton Co. (NYSE: HAL) merger.

Investors are paid a 1.6% dividend. The Deutsche Bank price target is $27, and the consensus target is $25.18. The stock closed Friday at $22.06.

With two stocks trading under $10, investors not only have a way to put together a larger position of these top picks, they may also have a way to play consolidation in the industry as well. (Source: 24/7 Wall St.com)

April 8 - 14, 2015

financialmirror.com | MARKETS | 15

NBG among top Greek bank credit downgrades

By Jon C. Ogg Greece’s credit ratings woes are not yet over. It turns out that Fitch Ratings has downgraded the key Greek banks, following its downgrade of Greece’s sovereign rating on March 27. Included in the downgrade are National Bank of Greece S.A. (NYSE: NBG), followed by Piraeus Bank, Eurobank Ergasias and Alpha Bank.

Only the National Bank of Greece has been included in this review because it is the only actively traded American depositary shares (ADSs) in New York. Fitch’s downgrade pertains to the long-term issuer default ratings (IDR), and National Bank of Greece saw its rating cut to CCC from B- in the call. Fitch further said that the viability ratings (VR) were cut to ccc from b-.

Perhaps the only good news here is that the four banks’ ratings have been removed from Rating Watch Negative (RWN) now that the downgrade has arrived. If you go deeper,

NBG’s shares have so far ignored the downgrade. After all, who is surprised when a credit rating downgrade occurs in Greece?

Fitch went on to note that the downgrades reflect Greece’s weaker economic prospects putting the asset quality and solvency at further material risk for the banks. Another issue was the liquidity and funding pressure that is expected to generate added deposit outflows until a compromise deal between Greece and its creditors is reached. Fitch said: “The deterioration in operating conditions increases the risk to Greek banks’ already weak funding and liquidity due to continued deposit outflows, whilst repo markets remain closed. The system has lost EUR 24 bln of domestic private sector deposits since November 2014, or 15% of the total, in line with our expectations. As a result, central bank funding increased to EUR 104 bln at endFebruary (26% of system assets), of which 63% is from the Emergency Liquidity Assistance (ELA). Remaining ELA collateral buffers (around 35% of system domestic

private sector deposits) seem sufficient to face additional deposit outflows, but will come under more pressure as loan quality deteriorates. Moreover, ELA is only available temporarily for solvent banks and its capacity is subject to approval by the ECB. This makes the funding and liquidity of Greek banks extremely sensitive to any changes in the ECB’s supervisory arm’s opinion of the

banks’ solvency.”

On the NBG specifically, Fitch added that the longterm state-guaranteed debt of NBG and Eurobank has been downgraded to ‘CCC’, in line with Greece’s Long-term IDR. “State-guaranteed debt issues are senior unsecured instruments that bear the full guarantee of Greece.

Consequently, their ratings are the highest of the issuer’s Long-term IDR and Greece’s Long-term foreign currency IDR. These banks’ state-guaranteed debt ratings are sensitive to any changes to Greece’s sovereign ratings.”

NBG shares ignored the ratings downgrade in New York trading. They were up 6% at $1.305 in mid-afternoon trading on Monday. That being said, NBG’s 52-week trading range is $0.98 to $5.73. (24/7 Wall St.com)

The US market’s silver lining Marcuard’s Market update

by GaveKal Dragonomics We are no bulls on the US market. Even if growth remains solid, our view is that US equities will struggle to post yet another year of outperformance given that valuations are already stretched, the Federal Reserve is no longer the easiest central bank in town, and the US dollar is no longer supercompetitive.

Even worse, decent growth is not a given. While we remain relatively upbeat about the US growth outlook over the next 12-24 months, we have to admit that much of the recent data has been uninspiring. While Europe and Asia have surprised on the upside this year, US data has mostly come up short. So what is an investor to do?

One option would be simply to underweight or avoid the US equity market. Indeed, we continue to recommend shifting equity portfolios away from the US and toward Asia, where valuations are more attractive, monetary policy is easing, currencies are either stable or competitive, the fall in oil prices is paying handsome dividends, and economic integration led by China has the potential to provide a structural tailwind.

But for investors who need or want to maintain some US equity exposure, where can capital best be put at risk?

Recognising that there is significant overlap, we recommend the following: 1) Overweight domestics, while avoiding US multinationals and exporters. Obviously the driver here is the stronger US dollar, but a healthier US consumer also plays into this trade.

2) Overweight service providers, underweight companies producing and/or holding inventories of goods.

This is not just a restatement of our first call. Sure, a lot of service providers are domestics, while a lot of goods’ producers and traders are multinationals or exporters (or compete with foreigners). But this call is also geared to recent price falls in commodities and manufactured goods.

Inventory-to-sales ratios have shown a worrying rise in the manufacturing and wholesale sectors, as output prices have fallen faster than the book value of inventories (produced with materials bought nine months ago). This helps to explain why a lot of the recent US data misses have come from the manufacturing sector.

3) Overweight US housing and residential construction. Much housing data has been good recently: new home sales have picked up in the last three releases after two years of stagnation. Pending new home sales have also ticked up. And house prices are showing early signs of a reacceleration, after appreciation slowed to 5% in 2014. This makes sense to us. The improved labour market situation bodes well for household formation and housing demand.

With the exception of yesterday’s ADP estimate, labour market data has been strong this year. And although aggregate wage growth has been lacklustre in nominal terms, it has been strong in real terms. Plus more and more businesses are announcing wage hikes (McDonald’s became the latest example last week). Given the lull in construction following the housing bust, our estimates suggest that this rebound in demand in an environment of low mortgage rates will drive a pick-up in construction. Of course there is overlap here with our first two calls. US homebuilders are domestically focused, with almost no exchange rate exposure. For all these reasons, homebuilders may be the

Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance.

Investments in foreign currencies are subject to exchange rate fluctuations.

Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11.

www.marcuardheritage.com

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

0-0.25% 0.50% 0.05% 0-0.10% -0.75%

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.18 0.51 -0.02 0.07 -0.85

0.22 0.54 0.00 0.09 -0.84

0.27 0.57 0.01 0.10 -0.81

0.40 0.68 0.07 0.14 -0.73

0.69 0.97 0.20 0.26 -0.61

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.77 0.89 0.09 0.15 -0.73

1.06 1.08 0.13 0.16 -0.61

1.30 1.23 0.18 0.19 -0.46

1.48 1.36 0.25 0.23 -0.32

1.75 1.53 0.39 0.34 -0.08

2.00 1.69 0.57 0.53 0.15

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

1 CHF

100 JPY

1.0856

1.4869

1.0387

0.8340

1.3697

0.9568

0.7683

0.6986

0.5609

0.9211 0.6725

0.7301

0.9627

1.0451

1.4314

119.90

130.16

178.28

0.8029 124.55

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH

14400 1.4873 1.8012 25.272 6.8808 14.4115 1.0858 2.233 275.65 0.64733 3.1803 0.3954 17.4 8.0645 3.7408 4.0676 55.3575 8.6203 0.9624 23.51

AUD CAD HKD INR JPY KRW NZD SGD

0.7684 1.2475 7.7518 62.36 119.88 1090.75 1.3253 1.3567

BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED

0.3770 7.6272 27993.00 3.9318 0.7082 0.3007 1511.75 0.3849 3.6404 3.7511 11.8513 3.6730

AZN KZT TRY

1.043 185.67 2.5853

AMERICAS & PACIFIC

Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA

Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham ASIA

Opening Rates

1 USD 1 EUR 1 GBP

brightest silver lining in a largely unattractive market.

Perhaps this is why the S&P 1500 homebuilder index has outperformed year to date, breaking out of its two-year trading range last week to set new cycle highs.

Weekly movement of USD

CCY\Date

10.03

17.03

24.03

31.03

07.04

CCY

Today

USD GBP JPY CHF

1.0746

1.0507

1.0876

1.0742

1.0875

0.7123

0.7087

0.7279

0.7266

0.7302

130.69

127.43

129.98

128.96

129.89

1.0628

1.0583

1.0509

1.0405

1.0399

GBP EUR JPY CHF

1.4869 1.0856 119.90 0.9627

Last Week %Change 1.4784 1.0742 120.05 0.9686

+0.58 +1.06 -0.13 -0.61

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira Note:

* USD per National Currency

April 8 - 14, 2015

16 | WORLD | financialmirror.com

Why Europe backs Obama on Iran

By Carl Bildt

Israeli Prime Minister Binyamin Netanyahu seems close to ordering a general mobilisation of his country’s military, and Republicans in the United States are preparing for a ferocious battle with President Barack Obama’s administration, in the wake of the framework nuclear agreement with Iran. And yet the framework deal has been almost universally welcomed in Europe. What accounts for this disconnect within the West over a key regional and global threat?

Several factors are at work. One, certainly, is that Europe – or, more precisely, the United Kingdom, Germany, and France – has been engaged in the talks with Iran for more than a decade. Even as former President George W. Bush branded Iran a part of an “axis of evil,” the key European Union members insisted that diplomacy was better than war.

And, step by step, the European approach has been vindicated. Critical to that outcome, of course, was the US intelligence community’s reports that all the evidence pointed to Iran having long ago – in 2003 – abandoned concrete plans to develop a

nuclear weapon.

It is easy to see why the Iranians would have done so. So long as Saddam Hussein, who had launched a brutal eight-year war against Iran in the 1980s, and whom influential Westerners openly accused of seeking to acquire nuclear weapons, remained in power, the Iranian government’s plan to develop nuclear weapons followed a certain realist logic. Once the US military ousted Saddam’s regime in 2003, Iran’s most acute security threat vanished.

Moreover, there has long been a tactical difference between US and European policies toward Iran’s nuclear programme. At times, the US seemingly sought to eradicate any knowledge of nuclear technology from a country of which it is deeply suspicious, whereas the European approach was to seek reliable assurances that Iran would never develop a nuclear weapon. At the end of the day, the US recognised that any realistic policy needed European support, while Europeans saw preventing a rush to war by the US or Israel as a central policy objective.

It should also be said that Europeans have never been overly impressed with America’s hardline approach toward that other charter member of the axis of evil, North Korea, and its nuclear ambitions. Refusing to negotiate with the North Korean regime, and imposing the most stringent sanctions on it, has not stopped it from either acquiring nuclear

weapons or accelerating its development of both nuclear and missile technologies.

Among the significant issues that need to be sorted out before the end-of-June deadline for reaching a final deal with Iran is to agree on the details of the gradual suspension, and eventual repeal, of economic and diplomatic sanctions against the country.

While this will be the subject of a fierce political battle in the US, it is likely that the European Union will be far more willing to move ahead.

Indeed, Europe has sound reasons to lift the restrictions on Iranian oil exports.

Additional supplies of oil to global markets will keep prices down or depress them further. Apart from the economic gain for Europe’s economies, low oil prices yield important strategic benefits – particularly with respect to constraining Russian President Vladimir Putin’s revisionist ambitions in Ukraine and elsewhere.

Needless to say, the US and Europe should stick to a common approach on the sanctions issue. But were a more militant policy approach by the Republicancontrolled Congress to prevail, America might well find that it loses the ally that makes the key difference for the sanctions’ success. Indeed, on this issue, the US might rapidly find itself isolated from all other global actors.

Europe is certainly not naïve about the nature of the Iranian regime. France, with its

historically strong convictions on issues concerning nuclear proliferation, has taken a particularly firm stance during the talks. But Europe is also acutely aware of the consequences of the rapid increase in violent conflict and suffering in its immediate neighbourhood; indeed, Europeans see those consequences daily in the flood of refugees trying to reach its shores. Another war in the Middle East is clearly not in its interest.

Finally, Israel is a key factor underlying the differences between the US and Europe when it comes to Iran. Though Netanyahu’s shrill words still have an attentive audience in the US, most of Europe regards his position as being only a little short of ridiculous.

Thus, it is nearly certain that, assuming a final agreement with Iran is reached in June, Europe’s backing for it will be unanimous – or close to it – and that it will be eager to support Obama in his battle with opponents of the deal at home. The framework agreement has vindicated Europe’s approach to resolving the nuclear dispute. The West has every reason to maintain that approach in the months ahead.

Carl Bildt is a former prime minister and foreign minister of Sweden. © Project Syndicate, 2015. www.project-syndicate.org

The future of the Iran nuclear deal

By Richard N. Haass “There’s many a slip twixt the cup and the lip,” goes the old English proverb. Something seemingly resolved and certain in fact is neither. If no such expression exists in Farsi, I predict one soon will.

The reason, of course, is the “Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Programme,” the framework just adopted by Iran and the P5+1 (the UN Security Council’s five permanent members – China, Britain, France, Russia, and the United States – plus Germany). The agreement constitutes an important political and diplomatic milestone, and it contains more detail and is broader in scope than many anticipated.

But, for all that, the text leaves unanswered at least as many questions as it resolves. In reality – and as the coming weeks, months, and years will demonstrate – major issues have yet to be settled. It is closer to the truth to say the real debate about the Iran nuclear accord is just beginning.

The framework places significant limits on Iran’s nuclear programme, including the number and type of centrifuges, the sort of reactors, and the amount and quality of enriched uranium that the country may possess. Standards are set for the inspections needed to provide confidence that Iran is fulfilling its obligations. And provision is made for easing economic sanctions once Iran has verifiably met its commitments.

The bottom line is that the agreement will provide an estimated one-year warning from the moment that Iran might decide to build one or more nuclear weapons to the point at which it could achieve that goal. This assessment assumes that the monitoring called for in the accord will detect any Iranian non-compliance early enough to enable a coordinated international response, particularly the reintroduction of sanctions, before Iran could acquire nuclear weapons.

There are no less than five reasons not to assume the deal will enter into force or have the desired impact. The first involves the next 90 days. What was announced was an

“Many in the US and Europe will want the sanctions to remain until Iran has fully met its obligations” interim framework; a formal, comprehensive accord is supposed to be completed by the end of June. In the meantime, there could easily be changes of heart and mind as those who negotiated the interim deal return home and face criticism from their governments and publics over its terms. Already, significant differences are emerging in how the US and Iranian sides are representing what was negotiated.

A second concern stems from the specific issues that remain to be resolved. The most difficult might be the timing of when various economic sanctions are to be removed – the issue of greatest concern to Iran. But these same sanctions are also the source of the greatest leverage over Iranian behaviour, which means that many in the US and Europe will want them to remain in place until Iran has fully met its critical obligations.

A third source of doubt is whether the various parties will approve any long-term pact. The two main uncertainties involve Iran and the US. So-called hardliners in Iran will undoubtedly object to an agreement with the “Great Satan” that places limits on their country’s nuclear ambitions. But there is also a widespread desire among Iranians to get out from under economic sanctions, and Iran will approve a pact if Supreme Leader Ayatollah Ali Khamenei favours it, which he presumably does.

The uncertainties are greater in the US. President Barack Obama must contend with a far more complex political environment, beginning with Congress. There is widespread

and understandable concern about leaving Iran with any nuclear capabilities, about the adequacy of provisions for monitoring and inspection, and about what will happen in ten or 15 or 25 years when various limits on Iran expire.

Persuading Congress to approve the final pact and/or lift sanctions is anything but assured.

This question of gaining political approval is closely tied to a fourth area of concern: how any final agreement is implemented. The history of arms control suggests there will be occasions when Iran, which has a record of withholding relevant information from UN weapons inspectors, is suspected of not living up to the letter, much less the spirit, of what was negotiated. Agreement is needed on the process for judging Iranian behaviour and for determining appropriate responses.

The fifth concern stems not so much from the accord as from everything else about Iran’s foreign and defense policies. The agreement is only about Iran’s nuclear activities. It says nothing about Iran’s missile programmes or support for terrorists and proxies, much less about what it is doing in Syria or Iraq or Yemen or anywhere else in the turbulent Middle East, or about human rights at home.

Iran is a would-be imperial power that seeks regional primacy. Even a nuclear agreement that is signed and implemented will not affect this reality and might even make it worse, as Iran could well emerge with its reputation enhanced and a long-term option to build nuclear weapons intact.

Obama is right: A nuclear agreement of the sort outlined is preferable to Iran possessing nuclear weapons or going to war to prevent that outcome. But any agreement must also generate widespread confidence in the US and the region that it will place a meaningful ceiling on Iran’s nuclear programme, and that any cheating will be discovered early and dealt with firmly. This will not be easy; indeed, it is no exaggeration to predict that the effort to generate such confidence may well prove as demanding as the negotiations themselves.

Richard N. Haass is President of the Council on Foreign Relations and the author, most recently, of Foreign Policy Begins at Home: The Case for Putting America’s House in Order. © Project Syndicate, 2015. www.project-syndicate.org

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In defense of Angela Merkel The recent cover of Der Spiegel showing German Chancellor Angela Merkel in front of the Acropolis surrounded by Nazi officers serves an important purpose: it finally poses, in a way that cannot be evaded, the question of Germanophobia in Europe.

The abuse of Germany has dragged on for quite some time. Demonstrations in Cyprus in March 2013 included banners bearing caricatures of Merkel done up as Adolf Hitler.

Giornale had no scruples about devoting its headline for August 3, 2012, to the emergence of the “Fourth Reich.” Likewise, conspiracy websites in the countries of northern Europe claim that Germany’s eagerness to support Ukrainian President Petro Poroshenko against Russian President Vladimir Putin is a reenactment of Hitler’s subjugation of Ukraine.

Then there is France, where the game seems to be to see who can come out on top in populist denunciations of the new and detestable “German empire.”

From the extreme right, National Front leader Marine Le Pen chides Merkel for the “suffering” that she is imposing on the peoples of Europe. From the opposite extreme, we have the Left Party’s Jean-Luc Mélenchon thundering against Merkel’s “austerity” policy and inviting her to “shut up.”

The problem with this Germanophobia is not simply that it is stupid, or that it is yet another symptom of the decomposition, before our eyes, of the noble European project of integration and ever-closer union.

No, the problem with today’s Germanophobia is that, contrary to what the sorcerer’s apprentices who stoke it would have us believe, their behaviour is not a sign of their opposition to the true fascism that lies on the horizon, but rather of their allegiance – and even contribution – to it.

Why? There are several reasons. For starters, to oppose Germany’s social, economic, and foreign policies by equating Merkel with Hitler is to banalise Hitler. However legitimate disagreement with those policies may be, Germany is one of the continent’s most scrupulous and exemplary

By Bernard-Henri Levy

In Valencia at around the same time, on the occasion of the annual Fallas celebration, there was Merkel as an evil headmistress delivering to the head of the Spanish government and his ministers “The Ten Commandments of Angela the Exterminator.” She ended up being burned in effigy in the flames of the bonfires of St. Joseph.

Two months later, in Portugal, similar parades featured the same Hitlerised Merkel caricatures, borne by howling demonstrators dressed in mourning clothes and decrying the German leader’s “policy of massacring the poor.”

And, naturally, there was Greece, where the phenomenon reached its apogee during the near-riots of October 2012, in which the world was treated to the spectacle of Nazi and German flags flown together – and then burned together – before the Acropolis in scenes that presaged the Der Spiegel cover.

In Italy, the right-wing daily newspaper Il

democracies. To say that it resembles in any way the Nazi regime – which in Europe still stands for the destruction of democracy (indeed, civilisation itself) – is to exonerate that regime, and to reassure and encourage today’s neo-fascists, allowing them, whether intentionally or not, to reenter the public debate.

What is more (and this is key), those keenest to discredit Merkel just happen to be the same people who do not hesitate to waltz with Viennese neo-Nazis or to form an alliance, as in Athens, with the leaders of a genuinely extremist party. All of the clamor raised around a Germany that has supposedly “reunited with its demons” masks the voice of fascistic parties – from Greece’s Golden Dawn to Hungary’s Jobbik, Slovakia’s SNS, Belgium’s Vlaams Belang, and Bulgaria’s Ataka – that are in the process of establishing themselves in Europe.

It should also be noted that Merkel is a woman, and that hatred for women – the disdain in which they, right alongside the Jews, were regarded by the racist theoreticians of the 1920s and 1930s – has been an essential dimension of every expression of fascism. Likewise, the slogans slung about in Valencia in October 2012 – with demonstrators urged to chant at the chancellor’s effigy, “You will love money above all else” and “You will honor the banks and the Bank” – had the unmistakably foul odour of the old mantras about “the golden calf” and the “cosmopolitan plutocracy.”

People have finally come to understand that anti-Americanism, born on the extreme right and fed, in Germany, for example, by the philosophy of Martin Heidergger and his acolytes, is a fixture of fascism.

It is now time for us to understand that the same is true of Germanophobia. In

France, it appeared with the French antiSemitic novelist and activist Maurice Barrès, who saw in the philosophy of Immanuel Kant a vehicle for the “Jewification” of European minds. It triumphed with Charles Maurras’ Action Française and its protracted war with “Jewish and Germanic abstractions.” And it culminated with the red-brown cells that, even today, on sites that I prefer not to mention, offer “grub” and a “hideout” for persons willing to “bump off” the “bosses” on the chancellor’s “payroll.”

The history of ideas has its logic, reason, and folly, its unconscious and its trajectory.

It is both futile and dangerous to deny any of them.

That is why, today, it is critically important, in the face of a dark force that is rising, swelling, and unfurling in Europe, to defend Angela Merkel.

Bernard-Henri Lévy is a leading French philosopher and writer, and is one of the founders of the “Nouveaux Philosophes” (New Philosophers) movement. His works include Left in Dark Times: A Stand Against the New Barbarism. © Project Syndicate, 2015. www.project-syndicate.org

The growth conundrum Laura Tyson and Jonathan Woetzel The world faces a major dilemma. While rapid economic growth, such as that realised over the past 50 years, is critical to support development, we now also know that it can have serious adverse consequences, particularly for the environment. How can we balance the imperatives of growth and development with the need to ensure sustainability?

The unprecedented growth of per capita income during the last 20 years has lifted more than one billion people out of extreme poverty. In developing countries, life expectancy has increased by 20 years since the mid-1970s, and the illiteracy rate among adults was almost halved in the last 30 years.

But rapid economic growth has placed enormous pressure on the environment. Moreover, it has been accompanied by rising income inequality, which has now reached historic highs within many countries (though, across countries, such inequality has declined). Given this, one might argue that slower growth would be good for the world.

In that case, the solution would be at hand. According to a new report by the McKinsey Global Institute (MGI), aging populations and declining fertility rates in many parts of the world could dampen global growth considerably over the next 50 years.

Indeed, even if productivity were to expand at the same rapid rate as during the last half-century, global growth would fall by 40%, far below the anemic rate of the last five years. Employment growth is also set to slow significantly.

As a result, even with slower population growth, per capita income growth would fall by about 19%.

To be sure, GDP would still triple, and per capita income would double, over the next 50 years. Nonetheless this rate of long-term growth would constitute a sharp break with the six-fold GDP expansion and nearly three-fold increase in per capita income of the last 50 years.

Despite its potential benefits, especially for the environment, the impending growth slowdown carries significant risks. While growth is not an end in itself, it enables the achievement of a broad set of societal goals, including the creation of economic and employment opportunities for millions of vulnerable and poor people and the provision of social goods like education, health care, and pensions.

So, how do we ensure that these imperatives are fulfilled, despite demographic and environmental constraints? The first step is to secure economic growth through productivity gains.

The needed acceleration in productivity growth – by 80% to sustain overall GDP growth and by 22% to sustain per capita income growth at the rates of the last half-century – is daunting. But, based on case studies in five economic sectors, the MGI report finds that achieving it, though “extremely challenging,” is possible – and without relying on unforeseeable technological advances.

Three-quarters of the potential pickup in productivity could come from “catch-up” improvements, with countries taking steps – modernising their retail sectors, consolidating automobile production into a smaller number of larger factories, improving health-care efficiency, and reducing food-processing wastage – that have already proven effective elsewhere. The rest can come from technological, operational, and business innovations – for example, developing new seeds to increase agricultural yields, using new materials (such as carbon-fiber composites) to make cars and airplanes lighter and more resilient, or digitising medical records.

Another significant growth opportunity lies in boosting

the employment and productivity of women. Today, only about half of the world’s working-age women are employed.

They earn about three-quarters as much as men in the same occupations, and are over-represented in informal, temporary, and low-productivity jobs.

Even if gains in female labour-force participation and resource-efficient productivity growth sustain high rates of economic growth, one key challenge remains: income inequality. In fact, there is no simple relationship between growth and income inequality; after all, inequality has been increasing in both slow-growing developed economies and fast-growing emerging economies.

According to the French economist Thomas Piketty, income inequality rises when the return on capital exceeds economic growth, meaning that, by itself, faster economic growth would reduce inequality. Using a different approach, economists at the International Monetary Fund also find a positive relationship between lower income inequality and faster growth, concluding that policies that redistribute income can foster faster, more sustainable growth.

Growth still matters. As demographic tailwinds turn into headwinds, and environmental challenges become ever more apparent, businesses and governments need to think carefully about how to improve resource efficiency while fostering more inclusive economic growth.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Jonathan Woetzel is a director of the McKinsey Global Institute. © Project Syndicate, 2015. www.project-syndicate.org

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Fighting climate change region by region A new global agreement to address climate change is taking shape, with the United States joining the European Union in formally submitting its plan to cut greenhouse-gas (GHG) emissions to the United Nations Framework Convention on Climate Change (UNFCCC). The US has sent a strong signal by being one of the first to offer this commitment to concrete climate action. In the days ahead, many other countries, including China and India, are expected to add their plans to the mix.

Together, these plans (known as “intended nationally determined contributions,” or “INDCs”) will represent a collective global effort to invest in a prosperous, low-carbon future.

And today, we, as co-chairs of The Climate Group’s States & Regions Alliance, call on national government leaders to join that effort with ambitious climate plans. We make this call to our national leaders because we believe it is right, and because we know it is possible.

We believe it is right because, as the leaders of large state and regional governments, responsible for implementing our own climate plans, we have learned that addressing climate change is both a duty and an opportunity. It is a duty, because climate change now affects our everyday lives. And it is an opportunity, because promoting sustainable development creates new clean-technology jobs and more diversified, greener and resilient economies.

We know it is possible because we are doing it. Each of our regions has reduced GHG emissions to 1990 levels or below; and, since we began, our economies have more than doubled in size. This has been achieved partly through the innovative policies adopted by our respective governments.

of consumers. This also positions South Australia as a leader in new energy industries. The state now accounts for more than 40% of the country’s operating capacity for windgenerated power, and has one of the world’s highest penetration rates for solar (one in four households has a photovoltaic system).

Now we are looking to the future. We have taken the lead, working to cut emissions by 20% by 2020 in the Basque Country and Québec, and by 60% by 2050 in South Australia – but we need partners at the national level. In our regions, businesses need consistent, long-term policy signals in order to make further investments toward a low-carbon economy.

Working together, subnational and national governments can achieve much more than when working apart.

So, as we prepare for the UN Climate Change Conference in Paris in December, we encourage our national leaders not to waver. On the contrary, they should join us at the forefront of the fight against climate change by putting forward ambitious national plans that leverage the leadership of subnational governments to achieve the needed GHG emissions reductions.

By Philippe Couillard, Inigo Urkullu and Jay Weatherill A carbon market covering 85% of GHG emissions is at the center of the Québec government’s strategy for fighting climate change. On January 1, 2014, Québec linked its carbon market with California’s, creating the largest regional carbon market in North America. All the revenues generated by the sale of Québec emission units go into the province’s Green Fund, and are reinvested in initiatives aimed at further reducing GHG emissions and helping Québec’s residents adapt to the effects of climate change. Québec will invest more than $3.3 bln toward this goal by 2020, contributing to the growth of its economy.

The Basque Country established a programme called Local Agenda 21, designed to support the creation of local sustainability plans across the region. As a result, almost all Basque municipalities have adopted such plans, consisting of more than 25,000 projects in areas such as mobility, waste management, and economic development. These local plans are now driving sustainable development in the region, with knowledge sharing among municipalities laying the foundation for further progress.

South Australia, meanwhile, has developed the most supportive regulatory framework for renewable energy investment in Australia, enabling an increase in renewables’ share in power generation from virtually zero in 2003 to almost 40% today.

This shift is putting downward pressure on wholesale electricity prices and offsetting the cost of South Australia’s Renewable Energy Target in the short term, all to the benefit

Philippe Couillard is Premier of Québec. Inigo Urkullu is President of the Basque Country. Jay Weatherill is Premier of South Australia. They are the co-chairs of The Climate Group’s States & Regions Alliance, a group of 27 global state and regional governments committed to working together to address climate change. © Project Syndicate, 2015. www.project-syndicate.org

The solar price revolution

By Klaus Topfer A silent revolution is under way. In November, Dubai announced the construction of a solar energy park that will produce electricity for less than $0.06 per kilowatt-hour – undercutting the cost of the alternative investment option, a gas or coalfired power plant.

The plant – which is expected to be operational in 2017 – is yet another harbinger of a future in which renewable energy crowds out conventional fossil fuels.

Indeed, hardly a week seems to pass without news of a major deal to construct a solar power plant. In February alone, there were announcements of new solar power projects in Nigeria (1,000 megawatts), Australia (2,000 MW), and India (10,000 MW).

There can be no doubting that these developments are good for the fight against climate change. But the major consideration driving them is profit, not the environment, as increased efficiency in energy distribution and, where necessary, storage, reduces the cost of producing renewable energy.

As efforts to improve the management of electricity from fluctuating sources yield further advances, the cost of solar power will continue to fall. Within ten years, it will be produced in many regions around the globe for 4-6 cents per kilowatt-hour, according to a recent study by the Fraunhofer Institute for Solar Energy Systems (commissioned by the think tank Agora Energiewende). By 2050, production costs will fall to 2-4 cents per kilowatt-hour.

As Patrick Graichen, Agora’s executive director, points out, most forecasts of the world’s future energy supply fail to take into account solar power’s looming victory over its fossil-fuel competitors. Updating them

would paint a realistic picture of the costs and impact of our energy production and consumption on the world’s climate, reveal the importance of renewable energy to economic development, and enable better planning of energy infrastructure.

We should not underestimate the tremendous potential the sun and wind have for building global wealth and fighting poverty. As solar power becomes increasingly cost-effective, countries located within the planet’s sun belt could develop entirely new business models as cheap, clean energy enables them to process their raw materials locally, adding value – and profit – prior to export.

Unlike large-scale conventional power plants, solar installations can be built in months; in addition to being cost-effective, they provide a quick means of responding to growing global demand. And, because solar plants can generally be operated independently of complex interregional electricity grids, they provide less developed countries a way to electrify their economies without building expensive new infrastructure.

Solar power plants thus could play the same role for energy that mobile phones did for telecommunications: rapidly reaching large, underserved communities in sparsely populated regions, without the need to invest in the cables and accompanying infrastructure that once would have been necessary. In Africa, 66% of the population has gained access to electronic communications since 2000. There is no reason why solar power could not do likewise for access to electricity.

The time to invest in large-scale solar energy production is now. For starters, construction costs for solar power plants are finally low enough to produce electricity at a competitive, stable price for more than 25 years. The price of oil may have plunged for now, but it will rise again. Solar power plants provide insurance against fossil fuels’

inherent price volatility.

Even more important, the cost of capital currently is very low in many countries. This is a decisive factor for the economic viability of solar power plants, because they need very little maintenance but require relatively high upfront investment. The Fraunhofer study shows that differences in capital expenditure are as important for costs per kilowatt-hour as differences in sunlight. Solar power is currently cheaper in cloudy Germany than in sunny regions where the cost of borrowing is higher.

The amount of sunlight that shines on a country is impossible to change. But the cost of capital is something over which a country can maintain a certain amount of control. By creating a stable legal framework, providing credit guarantees in the context of international agreements, and involving central banks in large-scale investments, governments can help to make solar power more accessible.

Factors like these explain why

international climate policies increasingly focus not only on solar power, but on other forms of renewable energy as well.

Technological breakthroughs have boosted these energy sources’ competitiveness relative to fossil fuels. As a result, instruments that make their adoption more affordable are becoming some of the most important weapons we have in the fight against climate change.

Klaus Töpfer, former Executive Director at the United Nations Environment Programme, former Under-Secretary-General of the United Nations, and a former German environment minister, is Executive Director at the Institute for Advanced Sustainability Studies in Potsdam and Council Chair at Agora Energiewende. © Project Syndicate, 2015. www.project-syndicate.org

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A massacre in Africa

By Gordon Brown

Why is it that schools and schoolchildren have become such high-profile targets for murderous Islamist militants?

The 147 students killed in an attack by the extremist group Al-Shabab at a college close to Kenya’s border with Somalia are only the latest victims in a succession of outrages in which educational institutions have been singled out for attack.

Last December, in Peshawar, Pakistan, seven Taliban gunmen strode from classroom to classroom in the Army Pubic School, executing 145 children and teachers. More recently, as more than 80 pupils in South Sudan were taking their annual exams, fighters invaded their school and kidnapped them at gunpoint. Their fate has been to join the estimated 12,000 students conscripted into children’s militias in the country’s escalating civil war.

Every day, another once-vibrant Syrian school is bombed or militarised, with 2 mln children now in refugee camps or exiled to makeshift tents or huts. And this week will mark the first anniversary of the extremist group Boko Haram’s nighttime abduction of 220 schoolgirls from their dormitories in Chibok, in Nigeria’s northern Borno state. With continued assaults on local schools, Boko Haram has escalated its war against education – making the last two years Nigeria’s worst in terms of the violation of children’s rights.

In the past five years, there have been nearly 10,000

attacks on schools and educational establishments. Why is it that schools, which should be recognised as safe havens, have become instruments of war, and schoolchildren have become pawns in extremists’ strategies? And why have such attacks been treated so casually – the February abduction in South Sudan elicited barely any international comment – when they in fact constitute crimes against humanity.

In the depraved minds of terrorists, each attack has its own simple logic; the latest shootings, for example, are revenge by Al-Shabab for Kenya’s intervention in Somalia’s civil war. But all of the recent attacks share a new tactic – to create shock by exceeding what even many of the most hardened terrorists had previously considered beyond the pale. They have become eager to stoke publicity from the public outrage at their methods, even transmitting images of their crimes around the world.

But there is an even more powerful explanation for this spate of attacks on children. A now-common extremist claim is that education is acculturating African and Asian children to Western ways of thinking (Boko Haram in the local Hausa dialect means “Western education is a sin”). Moreover, extremists like Boko Haram and Al-Shabab calculate that they can attack schools with impunity.

Hospitals tend to be more secure, because the Geneva Conventions give them special protection as safe havens – a fact often recognised by even the most murderous of terrorist groups. Until recently, we have done far too little to protect schools and prevent their militarisation during times of conflict. But, just as wars should never be waged by targeting hospitals, so combatants should never violate schools.

Once slow to respond, the world is now acting. Thirty countries have recently signed up to the Lucens or Safe School guidelines, which instruct their military authorities

how to prevent schools from being used as instruments of war. Leila Zerrougui, Special Representative of the UN Secretary-General for Children and Armed Conflict, recommends designating abductions of children from schools a “trigger violation” for the naming of terrorist organisations in the secretary-general’s annual report to the Security Council.

And, thanks to the United Nations Children’s Fund (UNICEF), the Global Coalition to Protect Education from Attack, the Global Business Coalition for Education, and former Nigerian Finance Minister Ngozi Okonjo-Iweala, Nigeria has now piloted the concept of safe schools. This has meant funding school guards, fortifications, and surveillance equipment to reassure parents and pupils that everything possible is being done to ensure their school is safe to attend.

Now, under Prime Minister Muhammad Nawaz Sharif, Pakistan is adopting the safe school plan.

In a year when there are more local conflicts than ever – and in which children have become among the first (and forgotten) casualties – it is urgent that we make stopping attacks on schools a high priority. In dark times, children and parents continue to view their schools as sanctuaries, as places of normality and safety. When law and order break down, people need not only material help – food, shelter, and health care – but also hope. There is no more powerful way to uphold the vision of a future free from conflict than by keeping schools running.

Gordon Brown, a former UK prime minister, is United Nations Special Envoy for Global Education. © Project Syndicate, 2015. www.project-syndicate.org

Financing education for all Of all of the investments needed to achieve sustainable development, none is more important than a quality education for every child. In a knowledge-based world economy, a good education is vital for finding decent work; achieving good health;

secondary levels. The time has come to create a Global Fund for Education to ensure that even the world’s poorest children have the chance to receive a quality education at least through secondary school.

This is how malaria, AIDS, and vaccinepreventable diseases have been battled successfully in the past 15 years. The United States, the United Kingdom, Norway, Sweden, and other governments teamed up with the Bill and Melinda Gates Foundation, private companies like Novartis, GlaxoSmithKline, Ericsson, Sumitomo Chemical, and others to ensure that lifesaving vaccines, medicines, and diagnostics could reach the poorest of the poor. The results have been remarkable: millions of lives have been saved, and economic growth has been boosted.

We must now do the same for education.

Though access to primary schooling has expanded dramatically over the past two decades, a transformative breakthrough in quality learning and secondary education has remained out of reach – until now. The spread of computers, mobile phones, and broadband coverage to the poorest regions of the world could – and should – ensure that every child in low-income countries has access to the same trove of online information and quality learning materials as children in high-income countries.

Scaling up the use of information and communications technology (ICT), together with improved access to educational innovations, trained teachers and village education workers, and better measurement of learning outcomes, would enable low- and middle-income countries to create highquality education systems within the next 15 years. In the meantime, students in impoverished rural schools that currently lack books, electricity, and trained teachers

By Jeffrey D. Sachs building functioning communities; developing the skills to be a dependable parent; and growing up to be an engaged and responsible citizen.

Indeed, it is no surprise that the most brutish and violent groups in the world, such as Nigeria’s Boko Haram, attack education.

And it was right on the mark to award the 2014 Nobel Peace Prize to Malala Yousafzai, the Pakistani teenager shot by the Taliban for her brave advocacy of girls’ education.

When the world’s governments launch the Sustainable Development Goals (SDGs) this September, they will rightly put education for all children at the forefront, alongside ending extreme poverty, hunger, and death from preventable and treatable causes. Yet, while many poor countries have increased domestic financing for education, the international community has not yet done its part. Aid for education remains too low and too fragmented.

In advance of adopting the SDGs, at the Conference on Financing for Development in July, the world has the chance to put real resources behind the Education SDG. The three major types of partners convening in Addis Ababa – governments, philanthropists, and top companies – should pool resources to enable impoverished countries to scale up education, especially at the pre-K and

would be connected online – via solar panels and wireless broadband – to quality educational materials, free online courses, and other schools, thereby closing a resource gap that, until recently, seemed insurmountable.

The world even has the organizational leadership to make this possible. The Global Partnership for Education is a worldwide coalition of governments and NGOs that has been working for more than a decade with the world’s poorest countries to help them scale up quality education.

Yet, despite the GPE’s tremendous success in encouraging poor countries to mobilize their own budget resources to expand the reach and quality of their educational programs, rich countries have not adequately supported this effort by closing the financing gap these countries face.

The GPE should be supported to help build a true Global Fund for Education to ensure that every low-income country that puts in place an effective national strategy and domestic financing would have international support to accomplish its goals.

The additional financing required is modest. UNESCO recently estimated the annual education “financing gap” of lowand lower-middle-income countries – to cover education up through lower secondary school – to be around $22 billion. Ensuring the scale-up of upper-secondary school and ICT access might raise the needed annual sum to around $40 billion, with detailed cost estimates still to be made. Such aid would be needed only until today’s poor countries achieve enough economic progress to cover the education bill on their own.

That $40 billion might seem like a lot of money, but consider this: The world’s richest 80 people have an estimated net worth of around $2 trillion dollars. If they would devote just 1% of their net worth each year, they would cover half the global financial

need.

Facebook, Google, Ericsson, Huawei, Samsung, Microsoft, Cisco, and other ICT giants could cover at least another $10 billion per year, in cash and in kind. A few forward-looking governments could then close the remaining $10 billion gap. As we have seen with immunization, this is the kind of partnership that is needed to take the SDGs from rhetoric to reality.

The beauty of a new Global Fund for Education is that, once it got underway, it would quickly attract supporters from around the world. Arab governments would want to ensure that all Arabic-speaking children receive a decent ICT-backed education; Brazil and Portugal would surely contribute to ensure that Africa’s many Portuguese speakers benefit from scaled-up education systems. Innovative high-tech companies would scramble to put their learning tools in front of the world’s children. Local universities would train teachers and villagers on how to maximize the potential of these new technologies.

The stars – the SDGs, the ICT giants, mobile broadband, online learning, and philanthropists – are aligning for such a scenario. A Global Fund for Education, announced at the Conference on Financing for Development, would be the best news possible for today’s children everywhere and a dazzling inauguration for the SDGs.

Jeffrey D. Sachs is Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University. He is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. © Project Syndicate, 2015. www.project-syndicate.org

April 8 - 14, 2015

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Will China’s infrastructure bank work?

By Kenneth Rogoff

With China set to lead a new $50 bln international financial institution, the Asian Infrastructure Investment Bank (AIIB), most of the debate has centered on the United States’ futile efforts to discourage other advanced economies from joining. Far too little attention has been devoted to understanding why multilateral development lending has so often failed, and what might be done to make it work better.

Multilateral development institutions have probably had their most consistent success when they serve as “knowledge” banks, helping to share experience, best practices, and technical knowledge across regions. By contrast, their greatest failures have come from funding grandiose projects that benefit the current elite, but do not properly balance environmental, social, and development priorities.

Dam construction is a leading historical example. In general, there is a tendency to overestimate the economic benefits of big infrastructure projects in countries riddled by poor governance and corruption, and to underestimate the long-run social costs of having to repay loans whether or not promised revenues materialise. Obviously, the AIIB runs this risk.

That said, there are huge infrastructure needs across developing Asia, and it is high time for China to play a greater role in international lending institutions. Moreover, the official US argument – that China should invest its money in existing institutions, such as the World Bank and the Asian Development Bank, because a Chinese-led bank would likely have governance problems – smacks of hypocrisy. Good governance? Is the US prepared to relinquish its historical prerogative to choose the World Bank president?

Likewise, the US worries that China may use the AIIB to advance China’s economic and political interests. But anyone who is even vaguely familiar with the US approach to multilateral lending knows that no other country has been as adept at exploiting its power and leverage for strategic gain.

With China’s growing importance in the world order, it needs to be given space to forge its own approach to global economic leadership. Frankly, a relatively small infrastructure bank seems as good a place as any to start.

Besides, China is already pouring money into the developing world, often through highly opaque channels. To the extent that the AIIB normalises a portion of Chinese development assistance, and subjects it to scrutiny from the new bank’s advanced-country members, the new bank’s existence should be all for the better.

With its penchant for constant experimentation and improvement, one might even hope that China will draw lessons and apply them to all of its developing-country lending. Who knows, maybe the existing development banks will learn something.

While the world should generally welcome China’s initiative, the real question is what kind of aid developing Asia needs. Anyone who has worked in developing countries understands that weak institutions and poor governance are often far bigger obstacles to growth than a lack of funds. And, however great a project looks on paper, practical implementation is often a sobering experience. Costs invariably far exceed initial estimates, and planners often woefully underestimate the skills and funding needed to ensure maintenance and repairs.

My interpretation of the World Bank’s record is that its

role has been most consistently positive when it helps countries with “soft” development infrastructure: technical assistance and serving as a global knowledge bank. When its main role has been to provide financial muscle, the results have been less impressive. In China itself, for example, World Bank money has not been so important quantitatively, yet the Chinese generally credit the Bank for having helpful blueprints and information.

Indeed, a strong case can be made that development aid would be more effective if it took the form of outright grants, rather than loans that ultimately need to be repaid. Headline aid numbers might seem less impressive, but long-run results would be better. Moreover, the world is awash in liquidity right now, and even where a government’s own money is inadequate, it is often possible to establish publicprivate partnerships to build genuinely high-return projects.

Competent government is a far scarcer commodity than cash.

Unfortunately, it is far from clear that the Chinese model of infrastructure development can be exported universally.

China’s strong central government overwhelms opposition from people displaced by new roads, bridges, and dams, and for many years ran roughshod over environmental concerns and workers’ rights. The parallels to the old Soviet Union are striking.

Some developing countries in Asia work differently. In democratic India, for example, it took eight years to rebuild Mumbai’s airport, because courts forced the government to respect the rights of squatters on its outskirts.

Given the legacy of problematic loans and projects funded

by Western-led infrastructure banks, it is reasonable to ask whether another one is needed, as opposed to reforming existing institutions. Still, if the AIIB views itself mainly as a knowledge bank, rather than a funding vehicle, it could provide real added value. We should evaluate the AIIB by how it chooses and fosters projects, not just by how much financing it provides.

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University. © Project Syndicate, 2015 www.project-syndicate.org

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