Financial Mirror 2015 04 15

FinancialMirror STAVROS N. YIANNOUKA

JEFFREY SACHS

The secret of Singapore’s success in education - PAGE

Krugman’s anti-Cameron contradiction - PAGE 16

19

Issue No. 1130 €1.00 April 15 - 21 , 2015

The plot thickens…

Deputy A-G claims conspiracy

PROVIDENCIA SKELETON COMES OUT OF THE CLOSET - PAGE 3

Could Apple go much higher, maybe even over $200?

PAGE 14

April 15 - 21, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Courts in need of an attitude change

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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Veteran lawyer Eleni Vrachimi recently stated the obvious – that the island’s judicial system is archaic and needs a revamp. She was not condoning the system itself, but the attitudes that seem to rule over some of the judges, especially in the Supreme Court and the way some appointments take place.

Having been in the profession since 1962, Vrachimi has never been afraid to criticise the wrongdoings of her peers – either in the legal world or in politics, from where she departed quite vociferously eleven years ago. For that she has been labeled a ‘firebrand’ and even a ‘rabble rouser’.

But when it comes to the justice system, she touched upon a taboo subject that many do not want to discuss, for fear of opening a Pandora’s Box with legal repercussions to actions dating back to 1963 when the intercommunal strife also blemished the three year old Constitution.

On the one hand, Vrachimi says that the twochamber system (Supreme Court and Constitutional Court) has been merged into one, with constitutional challenges handled by an ad hoc panel of judges and, thus, no oversee of the Supreme Court itself.

On the other hand, she argues that Cyprus

needs more competent and highly educated judges who should be bred from among the family of lawyers, with a minimum number of years in experience.

But what upsets her most is the way judges sit high above everyone else and look down at the floor of lawyers and ordinary folk dragged to appear before them, as if a Caesar frowning upon gladiators in the arena.

“No one is allowed to doubt the absolute right of the judges,” Vrachimis said, an attitude that causes many to lose respect in the judges themselves.

We have often heard of one or another judge favouring a lawyer, resulting in a ruling that would leave many gaping in horror. But when lawyers start doubting the Supreme Court judges, then something must be wrong and in dire need of repair.

There have even been cases where defending lawyers, who appeal to the Supreme Court because their client has not enjoyed fair justice, have been reprimanded because the sum in question or the penalty that is in doubt may be just three or four digits.

With all the scandals and filth that our society has been witnessing in recent years and months, it is imperative for the judges to keep a clean house. And in order to do so they must be, and appear to be, fair in all their decisions.

THE FINANCIAL MIRROR THIS WEEK OTEnet, Thunderworx and Teledome, that said that Cyta’s 75% dominant position and reduction of rates from 3.9c a minute to 2.4c was aimed at hurting them. Meanwhile, the regulator also blocked a request by Cyta to hike the monthly rental fee for fixed telephony from CYP 5 to 8, with the final rate probably

ending up at CYP 7.

Bank costs: Data from the European Central Bank showed that banks in Cyprus have the second highest cost rates among the new EU member states, with the cost to income ratio at 76.9% compared to 63.1% for the ten new members and 65% average of the whole

EU. The highest was in Lithuania with 77.7%.

Deposits down: Central Bank data showed that deposits fell by CYP 71.2 mln in February to CYP 13.2 bln, but still at 200% of GDP and mainly in time deposit accounts, meaning the banking system is not yet vulnerable to a big run on deposits if there were a crisis.

Rich List: Seven Cypriots made it into the Sunday Times Rich List – Chris Lazari (GBP 700 mln), Andreas Panayiotou (600 mln), Stelis Hadji-Ioannou (480 mln), Theo Paphitis (135 mln), Antonis Yerolemou (115 mln), and Stephanos and Stelios Stephanou (66 mln). Singer George Michael also made the list at GBP 65 mln.

Oil at $100? Goldman Sachs said the oil market may be in the early stages of a ‘super spke’ which could push crude to $105 a barrel due to global demand and instability in producing countries.

Benchmark Brent was climbed 61c to $54.90.

it has acquired a controlling stake in Philiki in a deal worth CYP 7.5 mln, with the buyout negotiated

by Nicos Shacolas, Chairman of Paneuropean, CTC and FW Woolworth. Having secured the 32% owned by Strongylos, Ellinas and Antoniades, Shacolas secured another deal with Philiki founder Doros Orphanides and partners Petrides and Watts for a further 25% stake.

True lies: Former President George Vassiliou was expected to call a press conference after he publicly accused Finance Minister Christodoulos Christodoulou of giving out false finance figures. A few days earlier President Glafcos Clerides said the

public deficit had been lowered from 5.8% of GDP during 1991-92 when Vassiliou was in office, to 2.2% of GDP that was within Maastricht Treaty deficit guidelines. Vassiliou said that it had actually increased to 3.2% in 1995 from 1.9% in 1992.

‘192’ charges up: Cyta will raise the charge for directory enquiries from 5.2c to 18.2c a call, in order to stop subsidising certain services, said the telco’s Chairman Michalakis Zivanaris.

Denktash trouble: Turkish Cypriot leader Rauf Denktash is expected to win the second round of the ‘presidential elections’ in the north after securing 40% in the first round. But his main rival will be former faces pressure to proceed with peace talks and he could be challenged by former Dervis Eroglu who got 24% of the votes in the first round.

10 YEARS AGO

Telecom rate cuts, bank costs soar State-owned telco Cyta has ignored the regulator’s orders to reverse international call rate cuts, while raising the monthly rental from CYP 5 to 8 has been blocked, and a ECB report found that Cyprus banks have among the highest cost to income rations among new EU member states, according to the Financial Mirror issue 615, on April 6, 2005.

Telecom cuts: Cyhas ignored calls from the telecoms regulator forcing it to reverse the steep price cut in international call rates, saying that it has not been informed of the decision, which followed complaints from alternative providers Areeba,

20 YEARS AGO

Paneuropean takeover, row over financial data Deal-maker Nicos Shacolas is about to be crowned Insurance King after Paneuropean took control of Philiki in a deal worth CYP 7.5 mln, while former President George Vassiliou and Finance Minister Christodoulous Christodoulou are at odds over the financial figures that may be exaggerated, according to the Cyprus Financial Mirror issue 107, on April 19, 1995.

Insurance deal: Paneuropean Insurance said that

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April 15 - 21, 2015

financialmirror.com | CYPRUS | 3

Deputy Attorney General Rikkos Erotokritou (left) tried to deflect allegations against him by saying Attorney General Costas Clerides (right) ordered the suspension of a probe into Providencia

The plot thickens…

- Deputy A-G claims conspiracy - Providencia skeleton comes out of the closet - Inquiry finds Erotokritou was ‘bribed’

Deputy Attorney General Rikkos Erotokritou blasted an independent probe into his attempts to offset a loan with now-defunct Laiki, which he is currently challenging at the Supreme Court, saying the investigation was a smokescreen and in reality aimed at cutting short any attempt to investigate a multi-million dollar scandal involving a Russian inheritance.

Erotokritou called a press conference where he embarked on a three-year journey, highlighting his efforts to get the Law Office to investigate the illegal possession of a holding company called Providencia, in fact a trust set up by the late Oleg Zakharov in 2002 for his three children, by the fund’s present administrator, to the detriment of Zakharov’s underaged daughter.

Providencia is the 85% owner of Rosinka International Residential Complex, a vast real estate project outside Moscow that has allegedly fallen into the hands of corrupt officials and members of the underworld.

Erotokritou said that he had asked the present and past Attorney Generals to look into the case, which the latter refrained from doing.

He said this ‘cover up’ was the reason why his 500,000 euro loan with Laiki, which he tried to offset against his deposits in the bank that were bailed-in, hence lost, came to light, because the lawyers for legacy Laiki, initially failed to show up in court fro the hearing. After the court found in Erotokritou’s favour, the lawyers from Andreas Neocleous & Co. appealed and reinstated the bank’s efforts to foreclose on

the loan.

This episode was allegedly described by Central Bank Governor Chrystalla Georghadji as a ‘bribe’ in a statement by former Central Bank Executive Board Member Stelios Kiliaris.

Having made the allegations during a parliamentary hearing, in an effort to show that Georghadji was running the central bank as she liked, Kiliaris subsequently quit.

Georghadji then sent a letter to Erotokritou denying she ever made the statement.

The fact that the Deputy Attorney General was involved, forced Attorney General Costas Clerides to call for a probe, tasked to former judge Panayiotis Kallis.

Clerides said that Kallis believes that Erotokritou had in fact been bribed by Neocleous and, according to the report, Erotokritou made a deal with the firm. In exchange, Erotokritou would order the prosecution of several Russian nationals against which Neocleous had disputed ownership of “Providencia Ltd”.

The individuals to be prosecuted were Russian lawyers Igor Zhigachov, administrator of the ‘Spring’ and ‘Oasis’ trust funds, as well as Armen Davidyan, Tatiana Schegolova, Alaxander Zakharov and others.

Clerides said that the evidence found that a criminal case could be charged against Erotokritou.

He noted that the Kallis’ report is not binding and said it was a “grim day” for the Law Office of the Republic.

Erotokritou countered by saying that said that if there are

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indications that he had been bribed, the Attorney General should also be investigated, as, according to Erotokritou, he ordered the suspension of the case against the Russian nationals after receiving a call from their lawyer Pambos Ioannides.

Erotokritou also opened another old wound by suggesting that Ioannides was involved in the Milosevic cases in the 1990s. At the time, Pambos Ioannides was a junior partner in the law office of Tassos Papadopoulos, that represented Laiki in most cases involving the Milosevic money laundering and the conspiracy coordinated by the then-manager of Beogradska Banka in Nicosia, Borka Vucic.

Erotokritou said that if he is to face criminal charges, then the bank accounts of Costas Clerides, former Attorney General Petros Clerides, Pambos Ioannides, Andreas Neoclous should also be investigated, including his own.

He also alleged that the Registrar of Companies Spyros Kokkinos may also be involved in the Providencia scandal as he allowed for the shareholder and directorate change of the company, with the consent of Neocleous who was the administrator of the trust at the time.

Costas Clerides was also disappointed that President Nicos Anastasiades got involved in the case by issuing a statement whereby he expressed his “grief and concern”.

The President said that the cabinet on Wednesday would look into the appointment of “independent criminal investigators to probe the new data” revealed by the Kallis report and Erotokritou’s claims.

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April 15 - 21, 2015

4 | CYPRUS | financialmirror.com

Inflation retreats -1.4% in March The rate of inflation in Cyprus for March, as measured by the Harmonised Index of Consumer Prices (HICP) was -1.4%, the Statistical Service Cystat announced.

The inflation for March decreased at a rate of -1.4%, and -0.8% for February. For March 2014, the corresponding rate had also been decreased at -0.9%.

Trade deficit narrows on rise in exports, fall in imports The trade deficit dropped in January to EUR 99.6 mln, compared to 285 mln in January 2014 as imports dropped and exports were up, according to the statistical service Cystat.

Total imports/arrivals (imports from third countries and arrivals from other EU member states) in January amounted to EUR 357.9 mln, compared to 396.1 mln in January 2014.

Total exports/dispatches (exports to third countries and dispatches to other EU member states) in January rose to EUR 258.3 mln from 111.1 mln in January 2014.

Exports/dispatches of domestically produced goods, including stores and provisions, were totalled EUR 63.3 mln, whilst exports/dispatches of foreign goods, including stores and provisions, were EUR 195 mln in January.

IMF sees GDP growth 0.2% in 2015, 1.4% in 2016 The IMF World Economic Outlook for 2015, released on Tuesday, foresees a 0.2% GDP growth for Cyprus this year and 1.4% in 2016.

The report, which was presented by the IMF’s top adviser Olivier Blanchard, comes before the Spring Meetings of the World Bank Group and the International Monetary Fund, in Washington DC, which will take place on April 17-19.

It estimates that the consumer price index will be negative at -1% in 2015 and will return to positive rates at 0.9% in 2016.

For 2015, the IMF predicts that the deficit in the current account will remain at -1.9% (as a percentage of GDP) and will go down to -1.4% in 2016.

Finally, it estimates that unemployment will fall in 2015 to 15.9% (down from 16.2% in 2014) and a further percentage point in 2016 (14.9%).

For the eurozone, the IMF report expects that growth will be around 1.5% in 2015 reflecting restriction in supply and demand. Inflation for the eurozone is predicted to remain at 0.1% in 2015, a percentage below the ECB’s long-term target.

Hotels offer cut-rates for summer A total of 111 hotels, hotel apartments and tourist villages have introduced special reduced rates for April and continuing to the summer, the Hoteliers Association Pasyxe announced.

The special rates for “local tourism” start from EUR 16 per person in a studio for two and EUR 20.50 per person in a double room in a hotel.

The rates are available for viewing online at the Pasyxe qwebsite www.cyprushotelassociation.org and at the CTO websites www.visitcyprus.biz and www.visitcyprus.com .

Interorient CEO at the helm of Shipping Chamber Themis Papadopoulos, CEO and owner of Interorient Navigation, was elected as the new President of the Cyprus Shipping Chamber (CSC) during its AGM earlier this month for a two-year term.

According to an announcement issued by Interorient, Papadopoulos is familiar with all the Chamber’s affairs as he has been a member of the board since 2006. He succeeds the outgoing President, Capt Eugen Adami who, in his capacity as President since 2009, has helped the CSC successfully execute its mission.

The CSC is Cyprus’ main resident shipping association incorporating more than 170 member companies.

In his first statement as Chamber President, Papadopoulos emphasised the necessity to maintain a strong Cyprus shipping industry, as the ever-growing global shipping market demands high quality operations and services. He pointed out that his main aim for the Chamber Themis Papadopoulos inaugurating a new Interorient office in the Far East last month is to work very closely with the Born in 1974, Themis Papadopoulos graduated from the Government, the House of Representatives and all the Chamber associates, in order to ensure that Cyprus University of Warwick before joining Interorient Navigation maintains and increases its attractiveness both in terms of a in 1997.

He was appointed CEO in 2004, a position which he holds high quality and safety conscious Registry, as well as a competitive and business-friendly base of operation for within the Group today. He is a director of numerous companies including Tufton Oceanic Finance Group and shipping and shipping related companies.

To achieve this aim, Papadopoulos said he looks forward CDB Bank. He is also a Vice Chairman of the Cyprus Marine to working very closely with all his colleagues on the CSC Environment Protection Association (CYMEPA).

Interorient is a founding member of the Cyprus Shipping board, and in particular with the Vice Presidents who will be allocated specific areas of responsibility, as a well-coordinated Chamber and has played a leading role in the emergence of team. He also wishes to enhance even more, the harmonious Cyprus as a global shipping centre. Interorient is also a relations between the Chamber’s member-companies by founding member of CYMEPA as well as an active member of bringing them closer to the work, events and activities of the industry organisations such as BIMCO, Intertanko and Intercargo.

Chamber.

Bank of Cyprus appoints senior advisor to Chairman Ackermann Bank of Cyprus has appointed veteran finance expert Michael (Mikis) Hadjimichael as Senior Advisor to Chairman Josef Ackermann.

For the past four years, Hadjimichael was Deputy Director of Capital Markets and Director of Emerging Markets Policy at the Institute of International Finance (IIF), the worldwide association of financial institutions based in Washington DC. His responsibilities included global macroeconomic policy, sovereign debt crisis in the Euro Area and the Greek PSI, and sovereign debt restructuring issues.

Prior to joining the IIF, Hadjimichael had a 28-year career at the International Monetary Fund in

Washington DC where he served as Assistant Director in the Policy Development and Review Department (2001-2008) and Office in Europe (1997-2000); as Division Chief and Mission Chief in the African Department (1988-1997), and as economist in the European Department (1981-1998).

He has worked on more than 80 developed, emerging markets and low-income countries in all geographical areas, and has published several research papers on issues related to adjustment in growth in sub-Saharan Africa, and the CFA Franc and the Euro.

Hadjimichael is a graduate of economics from the Kapodistrian University in Athens and holds a PhD

in economics from the London School of Economics. He is also accredited as a Certified Financial Analyst.

April 15 - 21, 2015

financialmirror.com | CYPRUS | 5

MFS to discuss challenges in banking and shipping

52 papers to be presented in 15 sessions; Amihud, Hartouvelis keynote speakers

The Spring 2015 Multinational Finance Society (MFS) conference will be held in Larnaca this weekend under the auspices of the Cooperative Central Bank with special emphasis this year on banking and shipping.

“The conference aims to expand the academic and practical contributions of MFS in scholar and business communities in Cyprus and overseas by stimulating and promoting academic activity in finance and to encourage the dissemination of scientific research among scholars, practitioners and government policymakers,” said Panayiotis Andreou, co-chair of the organising committee and Assistant Professor of Finance at the Cyprus University of Technology.

“The conference is also a unique opportunity to discuss top priority issues in the global banking industry that affect financial markets and professional practices in different countries around the world. For the first time, the conference programme also includes two sessions with papers on shipping finance, which is a research field that the Society’s meetings aim to embrace,” Dr Andreou said.

This is the second time the spring MFS meeting is taking place in Cyprus, with the first held last year, also in Larnaca.

“Scholars and practitioners embraced this year’s call for papers with great enthusiasm. We received 116 submissions of high quality research papers making the refereeing process a very difficult task. Of those, 52 have been accepted to be presented in 15 parallel sessions by researchers from Germany, Switzerland, France, the US, UK, Greece, Israel,

Turkey, Canada, United Arab Emirates, New Zealand, Finland, Ireland, Norway, Belgium and Cyprus.”

The event, on Friday to Sunday, April 17-19, will also host two outstanding keynote speakers.

Prof. Yakov Amihud has been invited to act as the first keynote speaker. He is the Ira Leon Rennert Professor of Entrepreneurial Finance at Stern School of Business, New York University, and will deliver a plenary talk on his latest research, entitled “The Pricing of the Illiquidity Factor’s Systematic Risk”.

Prof. Gikas Hardouvelis will also deliver a plenary talk at the conference. Prof. Hardouvelis is a Professor of Finance and Economics as the University of Piraeus and the former Minister of Finance of Greece and will give a plenary talk on “Economic Distress Inside the Monetary Union”.

The conference will also host a roundtable discussion on Saturday, entitled “The New Era in Financial Intermediation, Stability and Regulation”. The roundtable discussion at 3.30pm at Apothiki 79, aims to bring together some of the most influential academics, policymakers and business leaders to discuss top priority issues in the banking industry.

It is open to the public.

The panellists for this event are Prof. Panayiotis

Theodossiou (Professor of Finance at CUT and Member of the National Economic Council), Nicholas Hadjiyiannis (Chairman of the Cooperative Central Bank), Dr. Kostas Mavrides (MEP), Prof. Andreas Charitou (Professor of Accounting at University of Cyprus) and Prof. Nikolaos Philippas (Professor of Financial Management at University of Piraeus).

The conference is hosted at a building of great cultural importance for the town of Larnaca, the “House of Arts and Literature” that is housed in the renovated elegant and grand Ottoman Bank structure. The “House of Arts and Literature” is located close to the “Municipal Art Gallery” that hosted the 2014 MFS Symposium.

Dr Andreou said that the conference is a success thanks to the contribution of the Department of Commerce, Finance and Shipping (CUT), Centre for Quantitative Research in Financial Economics (Durham University Business School) and the Cooperative Central Bank, with the Mayor of Larnaca, Andreas Louroutziatis, and the Municipal Council providing support and hospitality. The co-chairs of the conference are Dr Dennis Philip and Panayiotis Theodossiou.

Supporting the conference are the Cooperative Central Bank, UCLan Cyprus, Central Bank of Cyprus, Larnaca Municipal Cultural Centre, Larnaca Municipality, Larnaca Tourism Board, CYTA, Cyprus Tourism Organisation, Financial Mirror, ToThemaOnline and Cyprus University of Technology.

For details visit www.mfsociety.org

April 15 - 21, 2015

6 | COMMENT | financialmirror.com

ECB’s QE could run out of eligible bonds from some governments The European Central Bank (ECB) could run out of bonds to buy from many euro area governments under its quantitative easing (QE) programme because an increasing share of yields are falling below its eligibility threshold, Moody’s Investors Service said in research published on Tuesday.

The ECB might have to amend the rules that govern its EUR1.1 trln programme or risk running out of eligible bonds before its QE programme is due to end in September 2016.

“Even if the pace of decline in bond

yields slows in the remainder of the year, the ECB could run out of eligible bonds from some governments by the turn of the year,” said Marie Diron, author of the report.

The announcement of the QE measures in January has fuelled declines in euro area government bond yields. A growing share of bond yields have fallen below the deposit rate threshold, currently -0.2%, at which the ECB has said it won’t buy assets.

Under the QE programme’s terms, the ECB will only buy government bonds with

an outstanding maturity of between two and 30 years and with yields no lower than the central bank’s -0.2% deposit rate. In addition, the ECB won’t buy more than 25% of a given issue or 33% of bonds from a given issuer. In Germany, more than a quarter (28%) of government bonds with a maturity of between two and 30 years have yields below -0.2%, compared to just 5% when the ECB announced the QE programme in January.

Assuming that bond yields continue to fall half as fast as seen in recent months, Moody’s calculates that the ECB would run

out of eligible bonds from the governments of Austria, Finland, France, Ireland, the Netherlands and Portugal.

Only Spanish and Italian government bonds would be available through to the end of the programme.

While the QE programme may raise growth and inflation expectations and, in turn, lifts yields, the effects may be relatively small in the lifetime of the QE programme. If yields keep falling, the ECB may have to amend the criteria which dictate which bonds it buys in order to reach the target size of the programme.

Business leaders support EU and want UK to stay Bankers want Juncker Plan cleared of state aid rules European Union rules banning state aid to businesses should not apply to guarantees issued to boost investment under the three-year EU investment scheme, some of the key contributors to the plan said on Monday, according to the EU news and policy site EurActiv.

The European Investment Bank (EIB) and the EU’s main national promotional banks, including Germany’s KfW and France’s Caisse des Dépôts, expressed their view in a letter to be addressed to the European Commission.

The letter said public guarantees should be available below market prices to make the investment plan of Commission President Jean-Claude Juncker work, said Franco Bassanini, head of Italy’s promotional bank Cassa Depositi e Prestiti.

“Were these guarantees considered as illegal state aid, we can forget about the Juncker plan,” Bassanini told journalists, arguing that the riskier projects funded with the plan needed favourable treatment or would be shunned by investors.

Jyrki Katainen, the Commissioner in charge of the plan, said that talks were ongoing to clarify how state aid rules would apply to the Juncker Plan, an investment scheme intended to use leverage to generate EUR 315 bln of investment in Europe over three years.

National promotional banks of Germany, France, Italy, Spain and Luxembourg, have said they would be ready to contribute billions of euros to projects financed by the European Fund for Strategic Investment (EFSI), the vehicle to be set up by the Juncker Plan, but only for projects in their own countries.

The European Commission would have preferred national contributions to go directly into the EFSI’s coffers because that would increase the leverage effect of the fund, which has capital of EUR 21 bln.

But contributions from national promotional banks are still important for the success of the plan, because they will decrease the risk for private actors when they invest in EFSI-sponsored projects, such as airports or broadband networks.

The banks fear that with state guarantees priced at market levels and subject to strict state aid rules, risks for private investors will be too high, reducing the appetite for investments.

A new survey by The European Business Awards, sponsored by RSM, involving business leaders from 32 countries across Europe shows strong support for the EU. In all, 84% of European business leaders believe their country’s membership of the EU has a positive impact on their business, 83% believe it has a positive impact on their country and 79% believe it has a positive impact on them personally. Furthermore, 67% believe they have a role to play in promoting the EU to their country’s wider population.

The main reasons given in support of the EU were the economic advantages brought by membership, the competitive position a united Europe has against China, Russia and the US, and the importance of integration, stability and unity in the current climate. Costs and bureaucracy were the focus of the minority view.

“These strong results show that for the European business community the case for the EU is clear; the benefits far outweigh the costs,” said Adrian Tripp, CEO of The European Business Awards.

“From a business perspective, people see the value in the commercial opportunities; from a wider perspective, stability and integration are key.”

“At the European Business Awards, we see these benefits of the EU on a day to day, firm to firm, country to country basis. It creates economic opportunities, breaks down barriers and builds understanding. A united European business community is integral to a safer future for all of us,” Tripp added.

The survey conducted by The European Business Awards, Europe’s largest business competition now in its ninth year, and supported by RSM since its inception, also asked business leaders whether the UK should stay in the EU. The results show that 86% of European business leaders think the UK should stay, with 11% saying the UK should

leave. The survey also shows that the majority believe a UK exit would have a negative impact on all concerned.

Of the responses, 84% of business leaders believe a UK exit (Brexit) would have a negative impact on the EU itself, 76% think it would have a negative impact on the UK economy, and 67% think it would have a negative impact on their own country’s economy.

Of the respondees who think the UK should stay in the EU, 25% were from the UK. “The Eurozone is the biggest trading partner for the United Kingdom and the potential impact of the UK exiting the EU would be highly significant to our clients around the world,” said Jean Stephens, CEO of RSM, the seventh largest network of independent audit, tax and advisory firms.

“This survey clearly shows that European and UK business leaders feel strongly that Europe must maintain its competitive edge in the global marketplace and that the UK’s membership is key to doing so.”

A total of 437 European business leaders from 32 European countries took part in the survey, including 124 from the UK, representing over 25 sectors with the heaviest representation coming from IT and technology, manufacturing and the FMCG sector.

Respondees were business heads of companies who have been recognised and rewarded by The European Business Awards, which has a strict criteria for entry in the fields of financial success, growth, ethics and innovation.

Sizes of companies ranged from SMEs to big multinationals.

The European Business Awards is now in its 9th year. It attracted over 24,000 businesses to the competition last year and in the public vote generated over 150,000 votes from across Europe. http://www.businessawardseurope.com

MEPs back ringfencing €5 bln of Juncker Plan for energy efficiency By a single vote, MEPs passed an amendment ringfencing up to EUR 5 bln of Juncker Plan money for energy efficiency projects.

The unexpected victory means Kathleen Van Brempt, a Belgian Socialist, now has the mandate to negotiate a dedicated efficiency fund with the Council of Ministers.

“It will be a tough battle,” Van Brempt, of the Parliament’s Industry, Research and Energy (ITRE) Committee told EurActiv.

She is the lead MEP on the ITRE’s report on the European Fund for Strategic Investments (EFSI), which is the legislation putting the Juncker investment package into practice.

The plan foresees EUR 16 bln of EU money and EUR 5 bln of European Investment Bank funds being used as investor risk guarantees, to unlock EUR 315 bln public and private investment over the next three years.

It was widely thought that the push to earmark funds in the EFSI would fail.

The EFSI is the legislation putting the Juncker Plan into practice.

The European Commission, which opposes a ringfence, sits in on the talks to help broker a deal. Both Council and Parliament must agree an identical bill before it becomes law.

MEPs also backed amendments safeguarding research funding for programmes like Horizon2020 being

used for EFSI-supported projects. The European Commission proposed a cut of EUR 2.7 bln in Horizon2020 from 2015 until 2020.

“Our researchers, our universities around the EU, need this money if we want to keep our future-oriented vision and to enhance competitiveness and global strength,” Van Brempt said.

On Monday, EIB Vice-President Jonathan Taylor told EurActiv the EIB did not have a formal position on the idea of ringfencing funds. But, in general, it was desirable to have as much flexibility as possible to avoid the risk of funds being stranded if there were not enough high-quality products to invest in.

April 15 - 21, 2015

financialmirror.com | COMMENT | 7

The business of government is not business

By Dr. Jim Leontiades Cyprus International Institute of Management

During the days of apparent prosperity, before the 2013 bail-in, the country’s rapid economic growth encouraged a false sense of security, as well as an attitude of “live and let live”. No one was inclined to look too closely at inefficiencies or possible corruption.

Obvious incompetence, high prices as well as a low level of service were tolerated, particularly in government-owned companies.

Recent revelations and scandals now provide evidence that a number of government enterprises operated at a level of inefficiency and corruption not seen outside certain lessdeveloped countries in Africa and Asia.

The deficiencies of these nationally owned companies was often recognised, but excuses were offered. Cypriots had been warned, for example, of the great difficulties that would follow the demise of Cyprus Airways (CY). A small island nation without its own airline! Would the country become isolated? How would tourists arrive? How would Cypriots travel to other destinations?

In the event, the indebted airline that has cost the taxpayer many millions in subsidies has disappeared with scarcely a ripple. According to reports, airline passenger seats to Cyprus have actually increased. So has competition and seat availability, as well as the number of special reduced

President to visit Israel, Lieberman talks energy, defence Nicos Anastasiades is expected to visit Israel soon after Prime Minister Benyamin Netanyahu concludes his ‘unity government’, Spokesman Nicos Christodoulides said, after the President met with outgoing Foreign Minister Avigdor Lieberman, who was on the island on a private visit.

Anastasiades visited Jerusalem in May 2013, and last June he invited Netanyahu to visit Cyprus.

Christodoulides told state radio CyBC on Tuesday that the talks at the presidential retreat in Troodos focused on defence, energy, the economy and tourism.

He added that discussions also included regional issues, such as the latest developments in Iran.

“There are several issues where we have a common approach, which we plan to enhance further through dialogue. There is a political will both on behalf of (the government in) Nicosia and Jerusalem to strengthen these ties,” Christodoulides said.

Meanwhile, in statements over the weekend, Lieberman said that he would not sit in the new ‘unity government’, with Netanyahu probably keeping the Foreign Ministry for his own Likud party, with Knesset members Gilad Erdan and Silvan Shalom headed for the seat.

He told Israel Radio that Yisrael Beitenu would not sit in a unity government and if faced with such a reality, would prefer to sit in the opposition.

fares. Recent testimony before a parliamentary committee revealed certain practices that help to explain the company’s lack of competitiveness. Reports of the testimony by CY’s previous legal advisor and former accountants refer to “mismanagement”, “ineptitude” , “bloated bonuses” and “too close ties with political parties”, as well as the use of a company plane to fly the car of a CY manager’s son to a more convenient location.

even railroads. Again, there were predictions of the chaos that would follow if these industries fell into private hands.

Instead, major gains in efficiency and productivity were recorded. The same companies that required state subsidies to survive now contribute to government tax revenues. Of course, there were also problems, but today, not even the political parties that opposed privatisation are willing to suggest a return to nationalisation.

EXPERIENCE ELSEWHERE

POLITICAL PARTIES AND PATRONAGE

France, Britain, Germany, Holland, Spain, along with most other European countries privatised their “national” carriers a long ago. Olympic Airways, the Greek airline, began life as a private company. I still remember my first trip on Olympic when that airline, popular and profitable at the time, was owned by Aristotle Onassis. The airline’s motto was “Your Greek holiday begins the moment you board the plane”. On entering, passengers were greeted with Greek music and a selection of traditional Greek sweets, courtesy of the airline. Small, smart, touches that helped make the airline successful and well known internationally. Onassis sold the airline to the Greek government when his son was killed in an airplane accident in 1973. Once it was nationalised, the main “courtesy” offered by Olympic was to Greek politicians who received free air travel. It has been downhill for the airline ever since.

Those best placed to judge the merits of national companies are countries which have had the most experience with them. After the reunification of Germany, almost 8,000 state-owned East German companies were privatised. Since the 1980’s, there have been over 170 German privatisations.

German electricity production is now 95% privately owned.

In Britain, the Labour party led the campaign to take the “commanding heights” of industry into government ownership, part of a strategy for radical reform and modernisation. The result proved to be disastrous. The era of Margaret Thatcher followed, bringing with it the mass privatisation of gas, electricity, telecommunications, steel,

Cyprus lags well behind most European countries in this respect. Despite the evidence, privatisation encounters strong opposition on the island. Nationally owned companies are sometimes referred to as “national wealth”, even though they often depend on taxpayer financed subsidies to remain viable. Those that make a “profit” do so because they are monopolies. They can set whatever price they like on their product.

Profitability is automatic, the consumer pays through higher prices.

Despite their obvious deficiencies, political parties usually support nationally owned companies. In return, they supply jobs for the party faithful. This system of mutual backscratching puts effective management far down the list of priorities. They have also proved to be a fertile ground for corrupt practices. They are at the centre of what the President has referred to as the “Augean stables”.

As this country struggles to move toward a new economic model, the role of government will be critical. In a free market economy, the primary role of government is to set the framework of laws and regulations governing the country and its industries. Businesses operate within this framework.

Politicians and their political parties are not suited either by background, experience or past performance to take on the role of business “owners”. They do not have ownership responsibilities or objectives. Their interests lie elsewhere.

Where they have assumed such ownership the results have been disappointing. Cyprus is no exception.

April 15 - 21, 2015

8 | COMMENT | financialmirror.com

An American Success Story

By Dr Rainer Zitelmann Tony Hsieh, Delivering Happiness. A Path to Profits, Passion and Purpose, New York, Boston: Business Plus, 2010, 272 pages In late July 2009, Internet trader Amazon.com announced the takeover of Zappos.com, an online shop for shoes and clothes. The volume of the deal was valued at $1.2 bln. Just 35 years old at the time, the company’s CEO, Tony Hsieh (pronounced “Shay”), made at least $214 mln from this deal alone, not counting the money that his former investment firm Venture Frogs made through the deal. Born in 1973 to a family of Taiwanese immigrants, Hsieh describes in his autobiography how he came to be so successful.

After graduating from Harvard with a degree in computer science, Hsieh went to work for the software company Oracle in 1995. He was well paid, but felt bored all day because he had nothing truly challenging to do. One weekend, he and a friend had an idea that they turned into the company LinkExchange shortly after. “If you ran a Web site, then you could sign up for our service for free. Upon signing up, you would insert some special code into your Web pages, which could cause banner ads to start showing up on your Web automatically. Every time a visitor came to your Web site and saw one of the banner ads, you would earn half a credit.”

So, if 1,000 people visited your website you would get 500 credits. These 500 credits meant that your own website would be advertised 500 times for free through the LinkExchange network. “The extra 500 advertising impressions left over would be for us to keep. The idea was that we would grow the LinkExchange network over time and eventually have enough advertising inventory to hopefully sell to large corporations.”

They mailed the idea to 50 websites and were surprised when half of them responded positively within 24 hours. It soon turned out that they had discovered a gold mine with their idea. Within months after starting LinkExchange, a person called Lenny called from New York and stated he was looking into a possible acquisition of the company. They met with Lenny, and much to their amazement he offered to pay them a million dollars for a company just months old that had yet to turn a profit. Hsieh declined, but the offer showed him that he was on the right track. In December of that year, he received another call, this time by Yahoo! co-founder Jerry Yang. Yang had collected a billion dollars through the IPO of Yahoo! that year, and was offering Hsieh to buy his company for $20 mln. “The first thought that came to my mind was Wow. The second thought that came to my mind was: I’m so glad we didn’t sell the company to Lenny five months ago.”

To Hsieh, the situation felt like a déjà vu, except the sum offered was much higher – a lot higher. Hsieh again turned the offer down, though.

He prepared to take the company to the stock market, when the Russian Rouble crisis and the collapse of the Long

Most successful film franchises in history Furious 7, the latest installment in the Fast & Furious film series, made headlines over the past few days after scoring the ninth-largest opening weekend in U.S. box office history. So far, Furious 7 has proven the highestgrossing film of 2015 and propelled the franchise into billion dollar territory. According to Box Office Mojo, the Fast and Furious franchise has now grossed just under $1.2 bln domestically. How does that compare with Hollywood’s other leading franchises?

Overall, the Marvel Cinematic Universe series of superhero films including Iron Man, The Avengers and Thor: The Dark World, is the most successful movie franchise, grossing a grand total of $2.95 bln at the North American box office. Harry Potter comes close behind with $2.4 bln, while Star Wars rounds off the top three with $1.92 bln. The gross $1.2 bln taken in by the seven Fast & Furious films places the franchise fourteenth on the overall list of the most successful North American film franchises. The top 15 is completed by the Hunger Games with $1.17 bln.

Term Capital Fund struck – causing the IPO plans to be shelved. Yet since the company had high expenses and next to no revenues, it urgently needed fresh cash. They asked Netscape and Microsoft whether they were interested in investing, and both said they were not, but wanted to buy the company outright. Microsoft offered $265 mln – and Hsieh sold the company.

Hsieh and his friends decided to set up an investment fund that would invest in other promising Internet companies. He collected $27 mln among former LinkExchange employees. One of those who applied for financing through the fund was a young man named Nick Swinmum who had started a website for selling footwear – shoesite.com.

Initially, Hsieh thought the idea absurd – as did most people. Who would want to buy shoes without trying them on first? He quickly learned, though, that the US shoe market had an annual turnover of $40 bln, and that no less than 5% of it represented mail order sales. Moreover, mail order sales were the fastest growing segment in the shoe business.

Nick did admit, however, that he knew nothing about the shoe business, so Hsieh made it a primary condition for investing that Nick find someone who did. Once Nick had met this condition, a new business idea was born. The Internet portal, now renamed Zappos.com, would partner with hundreds of shoe brands and forward incoming purchase orders directly to the shoe companies, which would deliver the shoes in their own right. First talks to footwear manufacturers, however, were less than encouraging, most of them had misgivings. Hsieh’s fund did not have a lot of money left for new commitments because it had already invested in another 27 promising Internet companies.

Over the next two years, Zappos struggled to stay alive, repeatedly on the brink of bankruptcy. Every few months, Hsieh would contribute cash from his private account. He remained convinced that the idea underlying Zappos was sound, but he was not sure whether he would manage to keep the company alive long enough, given the high monthly losses. Jobs were cut, and the salaries of the remaining staff were cut, too. Yet he realised that cuts alone will not suffice to turn a company around.

Hsieh and his staff tried to think of ways to do things differently than before in order to make the company a successful business. The problem with Zappos was above all that the company was unable to collaborate with many popular shoe brands because these could not deliver shoes directly to the end customer. Hsieh therefore decided to build up his own inventory of shoes, doing which would require another $2 mln in investments. He was prepared to stake everything on one card. “This was a ‘bet the company’ plan… Continuing with the drop-ship-only route that we had been on and dying a slow death didn’t sound like very much fun. It would just be delaying the inevitable.”

Since most footwear manufacturers would not deliver to online shops but to “proper” traditional shoe stores only, they improvised a shoe store in their own office rooms and in addition acquired a small shoe store in a small town. Sales did go up, from $1.6 mln in 2000 to $8.6 mln in 2001, yet the

company kept losing money month after month. More than once, it nearly folded.

In this situation, Hsieh decided to sell all his entire property in order to keep the company alive – along with a party loft he had become particularly fond of. However, nobody wanted to buy the property at its cost price, and so he finally had to settle for a “fire sale” that netted but 60% of the cost price.

Sales continued to rise, totalling $32 mln in 2002. It appeared the company was headed in the right direction. It was in this situation that Hsieh defined a much bigger goal for the company, a simply unbelievable goal for most employees. He wanted sales to top one billion dollars by 2010 at the latest. It was surely an important decision, and the right one to make, because difficult situations call for lofty goals in order to provide motivation and the energy to keep going. If your goals are too modest, they will not give you the power you need.

The next setback occurred in 2008, when the financial crisis got all US companies in trouble. As a precautionary measure, Zappos let 8% of its workforce go. Yet the company’s strategy kept paying off, and in July 2009 it was taken over by Amazon, known mostly as an online book seller. Amazon paid the owners of Zappos $1.2 bln worth of Amazon stock, and made Zappos a wholly-owned subsidiary.

Dr. Rainer Zitelmann heads Dr. ZitelmannPB GmbH, Germany’s leading consulting company for the positioning and communication of real estate companies and fund companies. www.zitelmann.com - info@zitelmann.com

April 15 - 21, 2015

financialmirror.com | COMMENT | 9

Vive la France – a Gallic reflection or two The other day I was talking to our youngest son, who is in educational publishing and who sells crime books on the internet as a sideline (www.standfastbooks.co.uk), about meals and food in fiction.

My view, admittedly not from enormous knowledge, was that authors in general don’t describe meals, menus or cooking in much detail; and that, perhaps, it is because they themselves don’t have much interest in the subject.

I cited the example of Iris Murdoch and her husband/fellow author John Bayley, who ate appallingly badly. “Ah”, he said, “Have you read any of the Monsieur Pamplemousse books?” Read them? I asked, I never heard of them. I was missing a treat, I was told.

M. Pamplemousse is a fictional French restaurant guide inspector who doubles as a detective. The accounts of his doings are littered with meals and menus, quite mouthwateringly described. He is not above an amorous dalliance, either. The plots are implausible, funny and rattle along at an excellent pace.

Within a few days a packet containing a copy of “Monsieur Pamplemousse on the Spot”, published in 1986, was handed to me by our postman.

A light, frothy story that zips you through its 156 pages, it opens in the three-Michelin starred restaurant of a top flight French provincial hotel, where M. Pamplemousse is dining. His detective senses are immediately aroused when he is informed that the world-famous house speciality, the “Soufflé Surprise”, is off. Soon, he is investigating the reason: the disappearance of the dessert chef responsible for the dish.

Monsieur P., as befits a Frenchman, who is always on the look-out for a romantic interlude to enliven his days, encounters a young German woman, Brunhilde, matron of a local girls’ school, who is tall, blonde, blue eyed and possessed of a “balcon formidable”.

With seduction in mind, he organises a picnic and purchases a spread so fine that the seduction cannot fail. As he sets out his ground-sheet in the shadow of his Citroen 2CV, he describes his epicurean offerings: “ ‘Take this gateau de foies blonds de volatile, par exemple’. Some people might say that it does not matter how or where it came from; the fact that it is created from Poulet de Bresse means nothing to them. But to me, the knowledge that by law for the whole of its life, it will never have had less than ten square metres of land to itself, to run about on and to feed naturally, will also mean that its flesh will be juicy, and that will sharpen my appetite and thus increase my enjoyment.

He took out two more packages and held them up. ‘Knowing that this ham was smoked over pinewood and juniper berries high up in the mountains where the air is crisp, will add romance to the flavour. And when we follow it with this’ - he unwrapped the Reblochon ‘the knowledge that the word reblocher means the last and richest dregs of milk from the cow’s udder will not make it any more digestible, but it will warm my heart.’

‘You are interested in food?’ The thought was evidently a new one. ‘If I am fortunate

Patrick Skinner

enough to live to be ninety,’ said Monsieur Pamplemousse, ‘and if I am equally lucky and continue to eat three meals a day it will amount to a grand lifetime’s total of over one hundred thousand meals. It would be foolish not to be interested in something which has occupied so great a part of one’s life and is in part responsible for its continuation. It would be even worse than economising on the bed in which one spends perhaps a third of one’s existence’.”

This essentially French philosophy, remarkably, is written by an Englishman, Michael Bond, a name which may be unfamiliar even to British readers. To them I will simply say: “Mr Bond also wrote the Paddington Bear books”. So he’s alright for a pension! With Pamplemousse he invokes the French atmosphere most capably.

There are some who complain that the French table is too rigid, too formulaic, too similar.

To them, I offer some three-course meals devised by the great French chef Edouard de Pomiane. None is complicated. In several cases, the opening course or the dessert can be bought in from the Deli.

Some Luncheon Menus Noodles Czechoslovakian style, Rib steak with onions, Cucumbers with sour cream, Cheese Fruit salad Smoked haddock English style Veal scallops Zingara, Green salad, Coeur à la crème Fruit Hot boiled shrimp, Fried sausage patties, Green-pea puréeàà, Cheese Fruit Poached eggs with black butter Fried veal scallops, Green peas, Green salad with cream dressing, Cheese Fruit Smoked sausage and olives, Loin lamb chops, Sautéd potatoes, Green salad, Cheese Chocolate éclairs Burgundy snails, Quail à crapaudine, Asparagus salad, Cheese Fruit

la

Tripe à la mode de Caen, Green peas with ham, Green salad Coeur à la crème with pineapple Scrambled eggs with truffles, Venison cutlets, Chestnut purée, Green salad, Cheese Fruit These menus are from an enchanting little book by the great man entitled “French Cooking in Ten Minutes”.

I don’t know about the ten minutes, but what I can tell you is that the recipes are sublime.

The book is still in print. Several editions, as well as other works by Pomiane are available from Amazon. I recommend them strongly.

Bon Appetit!

Send me your news! To be published in Cyprus Gourmet, here and on-line.

Email: editor@eastward-ho.com

Cavalli wine and vodka presentation Tommaso Cavalli, sone of the famous designer adn brand entrepreneur Roberto Cavalli, will be in Cyprus for a special presentation of the Roberto Cavalli Vodka and the Cavalli Tenuta Degli Dei wines, at the Tokio Bar in Limassol on Thursday, April 16.

The event, subbed the Butterfly Party and “Fashion on the Rocks”, starts from 10pm.

A presentation will also take place earlier in the day, at 5pm, at the Four Seasons, by Georgios Kassianos, Sommelier and wine writer.

For details call 25 321313.

April 15 - 21, 2015

10 | INVESTOR | financialmirror.com

Companies with

By Jon C. Ogg

Could Apple go much higher, maybe even over $200?

Corporate earnings season is upon us, and the largest company by market cap is set to report in the coming week. The new Apple Watch has already debuted. With all this commotion surrounding Apple Inc. (NASDAQ: AAPL) in the near future, analysts have weighed in on the tech giant to shine some light on what to expect.

Argus reiterated its Buy rating for Apple raised its price target to $145 from $135, implying upside of 15%, without including the dividend. The firm has another more forward-looking price target, via a two-state discounted free cash flow model, that gives a value for Apple north of $200.

The official price target mainly reflects ongoing strength in iPhone, along with positive signs of Mac demand for the calendar first quarter of 2015.

Argus raised its fiscal 2015 and 2016 sales and earnings per share (EPS) forecasts for Apple. Despite year-to-date market outperformance after an equally robust 2014, Apple shares remain attractively valued, given that its operating fundamentals continue to run ahead of share price appreciation.

Argus now expects sales of 56.0 mln iPhone units, up from 53.0 mnn, and iPhone revenue of $38.2 bnn, up from $35.5 bnn. Argus also nudged up expectations for Mac units in the second quarter of 2015.

Given a stronger expected contribution from the iPhone, Argus raised its 2015 fiscal year earnings forecast to $8.78 per share from a prior $8.55. The firm also raised its 2016 fiscal year forecast to $9.44 per share from $9.10. With no significant adjustments, events or charges in any period, the long-term EPS growth rate forecast for Apple is 13%.

Argus gave its opinion on the new Apple Watch: “We are not counting on much of a

contribution from Apple Watch in and of itself; as technology products go, it is more wanted than needed. And in its first iteration, Apple Watch is likely more of a cost center than an earnings driver, meaning it could be a tiny hit to Apple’s massive earnings. However, this new product keeps Apple relevant and top-ofmind for consumers as the smartphone space enters the sluggish summer months leading up the new product launches in the fall.”

The firm also believes that the Apple Watch, though likely irrelevant or even slightly negative to the 2015 fiscal year earnings, keeps Apple relevant and on top of consumers’ minds as the smartphone space enters the sluggish summer months leading up the new product launches in the fall.

Among its strengths, Apple Watch was called a nifty fitness tool, in that you can monitor your heartbeat, workout performance and other metrics with a glance at your wrist. The firm said that a weakness of the Apple Watch is that we are not all buff 20-somethings in spandex.

Shares of Apple were down 0.6% to $126.01 Tuesday morning. The stock has a consensus analyst price target of $139.72 and a 52-week trading range of $73.05 to $133.60.

Having a $145 target versus a $135 price target is still more upside than seen before.

The problem is that it is still not that big for Apple investors. Now consider that $200 objective on the longer-term horizon.

Apple’s market cap is now about $735 bln, but a rise to $200 would give Apple a market cap approaching $1.2 bln.

Even if Apple buys back and retires another $100 bln in stock, it would be a $1 trln value if Argus is close to being right here. (Source: 24/7 Wall St.com)

The debate over whether investors prefer stock buybacks or dividends will continue in the years ahead.

Companies use both tools under corporate governance for returning capital to their shareholders. And now the $50 bln buyback plan announced by General Electric will bring stock buybacks and dividends under focus again. 24/7 Wall St. wanted to evaluate two things about stock buybacks in modern times: the largest buyback announcements at one time and the companies that have bought back the most stock.

S&P Capital IQ showed that companies in the S&P 500 spent over $553 bln buying back stock in 2014 alone, the highest reading next to the $589 bln spent in 2007 for stock buybacks from S&P 500 companies. S&P further indicated that buybacks and dividend growth were expected to continue in 2015.

The list of largest share buybacks is dominated by technology giants. This should be of little surprise. If one sector can generate billions of dollars quickly and then find themselves in need of offsetting dilution or shrinking their total share count, technology is at the top of the list.

24/7 Wall St. has evaluated the biggest stock buybacks of modern times. A true raw number of total dollars used for share buybacks is very difficult to generate down to even the closest billion. Just a few technology giants and mega-cap companies have spent literally hundreds of billions combined in modern times to repurchase their shares.

With General Electric Co. (NYSE: GE), the $50 bln stock buyback announced earlier this month will be among the biggest ever in a single announcement. GE’s annual report showed that it used $1.9 bln for buybacks in 2014, and the buyback plan in 2013 was for up to $5.1 bln. It has spent much more than this in total over the years, what looked to be over $20 bln in the prior ten years or so.

24/7 Wall St. has evaluated big buybacks from the following: Apple Inc. (NASDAQ: AAPL), Cisco Systems Inc. (NASDAQ: CSCO), Exxon Mobil Corp. (NYSE: XOM), General Electric Co. (NYSE: GE), Intel Corp.

(NASDAQ: INTC), International Business Machines Corp. (NYSE: IBM), Microsoft Corp. (NASDAQ: MSFT) and Procter & Gamble Co. (NYSE: PG). A reference has also been provided for each company’s market cap, and future plans and dividends has been included for each company as well.

If you want to know why the total buybacks are not exact to the penny at each company, there is a whole host of reasons.

Many companies do not show their total number of dollars back to the inception.

Shares outstanding through time include dilution from stock options, convertible preferred shares that converted, restricted stock and even from acquisitions.

Independent websites that track buybacks often have numbers that simply are all over the place. Many companies also group their dividends and buybacks together for total

capital returned to their shareholders.

As a reminder, many buybacks do not reduce the total share count on a 1:1 basis through time. Companies issue stock options and give restricted stock grants, or they use treasury shares to make acquisitions — all of which can offset or minimise the raw number of shares being repurchased against the float. Still, you will see that companies have to now make announcements of $20 bln or so to make the top buybacks of all-time in the year and years ahead. As a reminder, April is the beginning of corporate earnings season for the first quarter of 2015. This means that the buyback count is certain to grow even further.

Apple Market cap: $740 bln Dividend yield: 1.5% Back in April of 2014, Apple said it planned to use more than $130 bln of cash under the expanded programme by the end of calendar 2015, increasing its share repurchase authorisation to $90 bln from the $60 bln target disclosed in 2013. At the earnings report in January 2015, Apple said: “We spent over $8 bln on our capital return program, bringing total returns to investors to almost $103 bln, over $57 bln of which occurred in just the last 12 months.” That is inclusive of dividends and buybacks combined, and that former seven-for-one stock split allowed it to be included in the Dow Jones Industrial Average.

What is almost a certainty here is that Apple will increase its dividends again. Still, investors such as Carl Icahn are likely to outline how more buybacks would be beneficial as well. Icahn himself once proposed even larger buybacks, but he has since backed off, other than passive commentary on the matter. Apple has more than half of its business outside of the United States now, so it was not alone in recent communications that most of its cash is overseas.

Cisco Systems Market cap: $143 bln Dividend yield: 3.0% Cisco might not hold any records for onetime stock repurchase announcements. Still, John Chambers has used buybacks to keep the float lower and to offset employee stock options and shares that were used to make

April 15 - 21, 2015

financialmirror.com | INVESTOR | 11

the largest buybacks of all time its endless number of acquisitions. Cisco is a company that deserves kudos for clear communications in its earnings releases, as it spells out each time how many shares were bought and for what price, as well as showing what the cumulative tally has been over time. The flip side of the equation is that the most recent count of 5.1 bln or so shares outstanding compared to about 5.8 bln as of the same time in 2009.

As of January 24, Cisco had repurchased and retired 4.4 bln shares of its own common stock. It was also profitable if you look at the average share price versus recent trading, as the average price for stock buybacks was listed as $20.73 per share, bringing the total buybacks to about $90.7 bln since the company began its stock buyback plan.

this article, after announcing its $50 bln buyback plan. Investors will want to know that GE has already shrunk its outstanding share count from around 10.6 bln shares to about 10.0 bln shares. Buybacks are not new here, but what is new is that GE, at least as of the new plans on Friday, intends to shrink its share count down to 8.0 bln to 8.5 bln by 2018.

GE’s restructuring into an industrial conglomerate is going to generate billions of dollars for the parent company — $30 bln or so from real estate sales, near term. Another part of the funding will be from a repatriation of some $36 bln in capital that is currently locked up overseas, which will create a $6 bln tax payment. The spin-off of the post-IPO shares of Synchrony Financial (NYSE: SYF) will come into play as far as GE’s plan to now keep the dividend static through 2016, where GE may still be able to claim that the dividend was raised without an official payout boost due to the size of Synchrony.

Exxon Mobil Market cap: $151 bln Dividend yield: 3.1% Exxon Mobil may have slowed its share buybacks as the price of oil has plunged, but the oil and gas giant used over $13 bln for share buybacks alone in the year 2014. What is amazing is just how many shares this company has bought back — even in the wake of its $40 bln or so acquisition of XTO Energy in 2010.

Exxon had more than 6 bln shares outstanding as recently as 2006, but this was down to about 4.2 bln shares most recently.

Exxon’s buybacks have been jokes about taking the company private over the next 15 to 20 years, but it almost certainly will take a return to higher oil for that to occur. Exxon may now focus on raising its dividend, a move that was still expected to occur in the first half of 2015, even with lower oil prices.

General Electric Market cap: $287 bln Dividend yield: 3.3% General Electric is the whole impetus for

Intel Market cap: $151 bln Dividend yield: 3.1% Intel’s 2014 annual report signalled that the board’s original approval of share purchases had been amended to allow up to $65 bln for share buybacks, including some $20 bln of an increase that had been approved in 2014, with some $12.7 bln remaining available to be used for buybacks as of the end of 2014. Intel said that, as the end of 2014, it shrank the float from 5.6 bln shares to 5.1 bln in just five years, with a total of $54.2 bln in combined dividends and buybacks sent to shareholders in that five years.

Now, go back even further to January 2011. At that time, Intel said: “Since the company’s stock buyback program began in

1990, Intel has repurchased approximately 3.4 bln shares at a cost of approximately $70 bln. Taken together since their inception, Intel’s dividends and stock buyback program have returned approximately $91 bln to shareholders.”

under Satya Nadella may have run into headwinds after a stellar reception in 2014. A multibillion debt filing from February indicated that Microsoft still had $31 bln remaining under its prior $40 bln stock buyback plan.

What investors need to consider here is that Microsoft has had two prior stock buyback plans of $40 bln each, so if it completes the planned buybacks by the end of 2016, then it will have used $120 bln or so to repurchase shares.

Also note that Microsoft’s shares outstanding count is still 8.2 bln. That means it takes a lot to move the needle.

IBM Market cap: $151 bln Dividend yield: 3.1% IBM has been the king of financial engineering to grow earnings per share, having reduced its share count even in 2013 by a third since the beginning of 2000. The company keeps buying back more and more shares as well. Its core business has not grown, but spending billions has helped it shrink the float even with the dilution of stock options, restricted stock and other share-growing activities tech companies have.

While IBM has used less cash to repurchase stock of late, at the end of December 2014 IBM had approximately $6.3 bln remaining from the current share repurchase authorisation and promised to seek higher buyback approvals ahead. After shrinking its float by 8% or so in the past year, IBM has spent well over $160 bln between dividends and buybacks alone since 2000 to return capital to shareholders. Big Blue now has less than a billion shares outstanding.

Microsoft Market cap: $342 bln Dividend yield: 3.0% Microsoft has been buying back stock on and off for years now, and its dividend yield is impressive. Growth has been sporadic and a restructuring to cloud and mobile first

Procter & Gamble Market cap: $225 bln Dividend yield: 3.1% This is not a company that investors automatically think of for huge stock buybacks.

After all, consumer products rarely come with the same margins as software and popular consumer electronics gadgets. Still, if you go back to early in 2005, around the time Procter & Gamble planned to acquire Gillette, the company signalled that it would spend around $20 bln acquiring its own shares for the 18 months ahead. The Wall Street Journal at the time had said it would be $18 bln to $22 bln.

In 2005, it was not common at all to see companies announce even a $10 bln buyback — let alone $20 bln. As recently as 2008, Procter & Gamble had just over 3 bln shares outstanding, and it now has closer to 2.7 bln.

With a Buffett deal for Duracell and with the company divesting so many non-growth brands, it seems logical that the consumer products giant could look to shrink its float even further.

The earnings report from January 2015 showed that it used $4.25 bln in 2014 and $4.0 bln in 2013 for share buybacks.

(Source: 24/7 Wall St.com)

5 top Deutsche Bank dividend stocks to buy While the market shifts focus to second quarter earnings, many investors are hearing more ominous calls from Wall Street pundits warning of a plunge. Some point to worries about the debt markets having another flash episode. Others note that stocks are simply overpriced. The key for investors wanting to stay long is buying good value.

New Deutsche Bank research highlights the best global stock picks from the firm’s Quantitative Strategy group. The following U.S. companies have defensive qualities and pay better than average dividends.

Darden Restaurants (NYSE: DRI) This is one of the largest casual dining restaurant operators worldwide, with operations in the U.S. and Canada and a total of 1,504 restaurants under the Olive Garden, Longhorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Yard House brand names.

Management returns much of its free cash to shareholders through share repurchases and dividends (3.2%). The Thomson/First Call consensus price target for the stock is $69.09. The shares closed Monday at $68.60.

Home Depot (NYSE: HD) One of the top consumer discretionary stocks on Wall

Street, Home Depot is coming into the sweet spot of the year for sales. It is also becoming a darling of some quantitative hedge funds, as some see the stock as way undervalued on an intrinsic basis. In addition to the company’s already huge domestic presence, some Wall Street analysts have pointed to the recent troubles at Sears Holdings and Lumber Liquidators as even more solid impetus for the home improvement giant. They also note that merger and acquisition targets may be on the company’s radar. Investors are paid a 2.06% dividend. Deutsche Bank puts a $108 price target on the stock. The stock closed most recently at $114.44.

Macy’s (NYSE: M) This is one of the nation’s top retailers, and analysts at Wall Street firms have applauded the great strides it is making in improving its online sales. Many also feel that the mid-teens earnings-per-share growth profile over the next several years is achievable, driven by low single digit samestore sales growth, e-commerce and improvements in store productivity.

Investors are paid a 1.8% dividend. The Deutsche Bank price target is posted at $71. The stock closed Monday at

$69.15.

Lockheed Martin (NYSE: LMT) Lockheed Martin is a top aerospace and defence stock, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defence spending. The company has also developed a supersonic T-50 trainer in conjunction with Korea Aerospace Industries, which is also reported to be considering a clean-sheet design. The T-50 entered service in 2002 and likely has the inside track for the new Air Force trainer without a clean-sheet design. Investors are paid a solid 3.05% dividend. The Deutsche Bank price target is $220. The stock closed at $197.05.

Verizon Communications (NYSE: VZ) This top telecoms company offers consistent and steadily growing dividends. The company recently purchased $10.4 bln worth of new spectrum during the first-quarter government auctions, and it is planning to continue to expand and improve its 4G LTE network, which it bills as the nation’s largest. Investors are paid an outstanding 4.5% dividend.

The consensus price target is $51.54. The stock closed Monday at $49.04 a share. (Source: 24/7 Wall St.com)

April 15 - 21, 2015

12 | PROPERTY | financialmirror.com

Rome: below-average potential, above-average risk The meaning of residential property in Rome is much higher than in other European capitals. Rome’s high preference for home ownership helped to foster many years of continuously rising prices for both town houses and condominiums. However, the period of strongly rising sale prices has ended for now, due to the comparable subdued current economic situation. Similar to other Italian towns, purchasing prices for home ownership are dropping. Within the next economic cycle, we expect demand for home ownership, supported by an improved income situation, to recover. The outstanding development will for now come to an end, due to the moderate purchasing price growth rate projected for the coming years.

By Franz Wolfgang Kubatzki Rome, as Italy’s capital and main administrative centre, has a very large public sector. Another factor tending to reinforce this characteristic is Rome’s status as Italy’s largest university city, and the location of numerous research facilities. Rome, together with Milan, is Italy’s largest financial location and also the most important transport junction. International transport connections are very good.

Overall, the region has great growth potential. However, the oversized public sector dampens the dynamism of the overall performance. Furthermore, national economic and fiscal policies have not been particularly conducive to growth in recent years, either.

Feri rates Rome as a business location “D”, which is upgraded from the fourth quarter of 2013. It translates into “below average potential, above average risk”. With this rating result the city ranks 24th in the comparison of European Metropolises.

Office Real Estate Regarding office real estate Feri rates Rome “B”, which is unchanged compared to the fourth quarter 2013. The city ranks fifth among office locations of European Metropolises.

Rome’s office market with its size of more than 9 mln square meters is the second largest market of Italy and is, compared to other European office locations, of average size.

Due to Rome’s function as political centre it is generally interesting for businesses. Demand is relatively inflexible, thus the quality of office space is relatively low compared to Europe. The scarcity of high quality office space is also reflected by a positive trend of rent development since the mid-1990s as well as in comparably high rents. Primarily, risks are seen in transparency and volatility.

The European crisis and the economic and debt crisis have hit Italy’s office market sharply. This is especially visible in Rome. Companies appear rather reluctant on the rental market which reflects in take-up on space. Weak demand has pressured rents.

Due to the difficult rental situation, building activity has dropped significantly. There was even no delivery of new office space in 2013. Building activity in 2014 (30,000 sqm) is also strongly below its long term average (135,000 sqm).

Indeed we expect rents to stabilise in 2015. However, it requires a clear impetus of the employment market for a turnaround in the rental market.

During the economic crisis rental yields for prime office space were rising. Together with a decrease in rents this caused lower prices. Future performance will depend both on rental development and by a shift of rental yields.

Before the crisis hit the market rental yields had continued to decrease. Since the accession to the Monetary Union the market is more interesting to foreign investors.

Beside greater security, the increase in liquidity has also made its contribution. Another factor was the improved

Cities with the highest price for a square meter of luxury property How many square meters of luxury property can you buy for $1 mln? The tiny Principality of Monaco has a reputation as a playground for the rich and famous, and it also boasts the highest millionaire density in the world. If you plan on investing in an upmarket apartment there, you better start saving. One million U.S. dollars will get you a mere 17 square meters of luxury property in the tiny city-state, according to Knight Frank’s latest Wealth Report.

Hong Kong is another well known destination for the world’s super rich and it has one of the highest billionaire populations in the world. Unsurprisingly, given that space is at a premium, luxury property prices are sky high. Fractionally cheaper than Monaco, $1 mln will buy about 20 square meters of upmarket property in the dense city.

London is also extremely expensive – you can purchase 21 square meters for $1 mln.

There is a slight gap to New York in fourth place where a million will get you 34 square meters, while Geneva and Singapore round off the top five with 39 square meters each. (Source: Statista)

wolfgang.kubatzki@feri.de quality of office stock. The uncertainty on credit markets and the tightening of credit terms caused increasing rental yields.

For the years to come we expect a fair rental yield of 5.9%.

Thus we view the current market slightly below its fair value.

Retail Real Estate In the comparison of European Metropolises regarding retail real estate Rome placed 20th with a rating result of “B+”, which is upgraded from the fourth quarter of 2013.

Prime locations, as well as secondary locations benefited from rising rents in the past. Many renovation projects and other improvements put in place for the “Holy Year 2000” enhanced Rome’s infrastructure, reinforcing the city’s attractiveness for tourists. The retail sector benefited most from the extra purchasing power of tourists. Due to the current economic crisis, Italy’s consumption and rate of expansion has dampened. Inner-city prime locations are less affected by this development. Rome’s demographic outlook and income growth prospects remain fairly positive. This, along with ongoing robust tourism, should enable retail rents to continue to trend upward over the medium term.

Residential Real Estate When it comes to residential real estate, Rome placed 22nd among European Metropolises with a rating result of “C”, unchanged compared to the fourth quarter 2013.

Rents for both existing and new apartments in Rome began to rose steadily for many years.This development came to an end in 2008. The worsening of the economy and the retrogressive income development affected the rental market negatively. Rome’s rental market, similar to other regions in southern Europe accounts for only a quarter of its whole residential market, far lower than the typical ratio for comparable Northern European cities. Rome’s reputation attracts people from all over the world. This factor, in conjunction with an ongoing tendency towards more singleperson households, will support further rent increases in future years. Rome is burdened with a large stock of older, almost unmarketable apartments, but this will have a positive impact on the development of rents for high-quality, wellequipped units, both existing and new.

Feri EuroRating Services AG is a leading European rating agency, specialising in the analysis and valuation of investment markets and investment products.

The Feri Real Estate Market Rating currently includes more than 150 cities in Europe, in the United States and in Asia. http://frr.feri.de/en/our-company.aspx

Italy capital outlows rise to €27 bln in March A net total of 27 bln euros in capital flowed out of Italy in March, according to a publication by the Banca d’Italia.

“This could be partially due to speculative overseas bank transfers by Italian banks, which are now investing the money that they received from the European Central Bank’s bond acquisitions in the context of the QE program outside of Italy,” explained Hans-Werner Sinn, President of the Ifo Institut.

The outflow seems to mark a continuation of a process triggered by the announcement of QE that started as early as August 2014, with limited temporary backflows occurring in October 2014 and January 2015. The Target overdraft credit that Italy has received from the Eurosystem - and that made such capital outflows possible - now stands at 192 bln euros.

It remains unclear where the money from Italy has been transferred to, added Sinn.

Germany is one potential destination. The Bundesbank has stated that its own claims against the Eurosystem rose by a substantial 18 bln euros in March and now total 532 bln euros. This means that the Bundesbank has granted other central banks in the Eurosystem overdraft credit totalling 532 bln euros via the Target system. Target claims cannot be declared due and, unlike in the US Federal Reserve System, they are not settled in the Eurosystem.

Interest is merely added to the debt at a rate of 0.05%.

April 15 - 21, 2015

financialmirror.com | PROPERTY | 13

Bankers and property management Having studied in the press the proposals of lenders to allow the direct use of properties that are either given to them in debt exchange and / or from foreclosures, seem to be reasonable, in general terms, because these will help banks to collect as much as possible from the disposal or exploitation of real estate and because these will help the Cypriot real estate market and at the end the day the borrowers themselves, who regardless of the amount of the sale remain in most cases personal guarantors.

Transfers - It is expected that when the borrower acquires the property he will have to pay transfer fees and capital gains taxes, plus the property taxes. So, in addition to the loan, the borrower will be burdened with an additional 15-30% of the purchase value.

There could be some reason that n some cases to relieve the lender and or borrower from such transfer fees, or even capital gains (which as mentioned above is burdened on the borrower).

3 years hold - Lenders are obliged to offer into the market any properties that they repossess or acquire because they can no longer hold on to them for more than three years. Lenders want to extend this period to five years, which again sounds reasonable and this may even be increased to 7-8 years as if hundreds of properties are suddenly dumped in the market during this period of crisis, not only would this trouble the real estate market even more, as well as lenders, causing further declines in prices something that will even hurt the borrowers as the value of their collateral would also drop with negative implications for all.

Subject to a recovery of the market in five (or 7-8) years, the gradual supply of properties acquired by the lenders makes sense.

Developments – There is also reason in the lenders’ proposal to allow the completion of half-finished projects, for example in a development of 30 plots that already has 22 buyers, where the separation is not yet completed as EUR 100,000 may still be needed for asphalting and payment of electricity fees to the EAC. What makes more sense is for the lender to complete the project as this will allow the issuance of title deeds, thus relieving the existing 22 buyers and maybe even increasing the possibility of selling or increasing the value of the remaining eight plots available, as these will now have title deeds. Similarly, any unfinished projects, such as residential homes, could be undertaken by the lender for completion and subsequent partial sale of units. Thus, the transfers of repossessed properties could be made directly to a subsidiary of the lender and this company

• To clarify what is available in the possession µy Antonis Loizou issue, ie. is the property rented to an institutional Antonis Loizou F.R.I.C.S. is the Director of Antonis tenant and they be evicted, Loizou & Associates Ltd., Real Estate & Projects or perhaps may have been Development Managers rented by the lender deliberately at low or even will have the responsibility to complete the long-term rent contracts for, say, 12 years. project.

• The amounts due to the state by others Rentals – In a similar fashion, the rental and if the immovable property taxes, of constructed projects should also be municipal taxes and sewerage fees have been allowed, so that these units, such as hotels, settled. are not condemned to wear, and to secure a • Financing buyers – Unfortunately, in tenant, even with a reduced rent, to ensure order to regain the upper hand the lender income to the lender. This is not wrong. must consider offering to potential and solid Tenants, who for one reason or another, buyers, some form, of financing. During this cannot meet the provisions of their contract, period of absence of any funding, any longshould be immediately evicted without being term facility offer by the seller-lender will be subjected to the current lengthy court proceedings where we also see some tricks, such as long-term contracts, institutional tenants, etc.). This way, the lender will collect more and as mentioned above the borrower will also benefit.

Maintenance and Management - The lender should be able to maintain the seized properties and manage them at least for the period of five years (or 7-8), so that the property cannot fall into disrepair, while by managing it, it may also collect rents, such as in the case of holiday homes, until the property is disposed of.

Management Groups - Projects or properties that have been seized would be better if they were to held or managed by groups, either bankers or others who know the subject, otherwise and in view of the limitation of three years, they will be forced to pass on these properties to funds buying distressed debt which is the worst solution both for lender and for borrowers and certainly the worst for the Cyprus property market. This is a very serious matter because to date we have nor yet seen any good come out of such sales and management of possessed portfolios. At present, lenders maintain a website without any specialised management and without the proper response time, which could extend to at least 10-15 hours or even over weekends and holidays, believing that this way they will be able to attract buyers. How wrong they are!

To achieve their goal lenders need to do the following (apart from the aforementioned suggestions): • To clarify the properties in terms of their legal status – whether there are building permits, as they were erected, if not can the building get a permit, where the proper implementation of the town planning amnesty must be indtroduced.

Sapphire wins ‘Best Office’ award The Sapphire business centre in Limassol, a luxury commercial and office project created by Property Gallery Developers & Constructors Ltd., has won the Best Office Development and Best Mixed-use Architecture awards in Cyprus by the International Property Awards.

The sapphire-shaped project in the heart of Limassol is an unusual mixture of glass and wood and employs the Swiss-patented ‘cobiax’ system that replaces the burdensome reinforced concrete used by conventional contractors, that results in improved sound and and weather proofing, and absence of horizontal beams that leads to space saving and the easier installation of the energyefficient HVAC system.

The 2,000 sq.m. project has commercial and shopping spaces on the ground floor, with remaining four floors enjoying comfortable working space and views to the sea. http://cypruspropertygallery.com/

a powerful tool in helping to market the property.

Accountants/Administrators – We see with amazement that most lenders outsource the management and rental of properties to administrators who have little knowledge of the subject, nor do they offer any commission or finder’s fee to real estate agents to promote their properties and thus try on their own, by placing some advertisements, believing that this way they will succeed where others have failed.

Unfortunately, most will be disappointed and with them the lenders who contracted the management to them, to the detriment of the initial and distressed borrowers. www.aloizou.com.cy ala-HQ@aloizou.com.cy

April 15 - 21, 2015

14 | WORLD MARKETS | financialmirror.com

The egos that lie behind the Iran deal

By Oren Laurent President, Banc De Binary

The internet is wholly confused about the current deal on the table with Iran. It’s no wonder. You may expect a range of opinions on such a controversial topic, but the bizarre reality is that Obama, McCain and Ayatollah Khamenei have all described the raw content of the deal in very different terms. To get to the bottom of this, we need to look at the egos and attitudes of those involved.

Barrack Obama has made it his mission to reach a diplomatic solution to limit Iran’s nuclear programme and keep the country one year away from producing a nuclear weapon. America has led the negotiations alongside Russia, China, France, Germany, and Britain, and reached a preliminary agreement on April 2; the fine tuning and technical details are to be agreed by June 30. Although Obama claims that if the end deal is not in US interests, he would refrain from signing, in his eyes that could be tantamount to failure and increase the risk of war. So, he is trying to win over the Republicans, Israel, Saudi Arabia, and UAE who are concerned about the threat of an Iranian bomb to Middle East and global stability.

Obama’s insistence that sanctions will be phased out gradually only if Iran follows through with the various components of the deal, is to reassure those who are rightly skeptical about trusting the extremist Iranian regime. But the US President isn’t the only salesman in the equation.

Iran’s leadership is divided between radicals and reformists with specific agendas.

The radicals, namely the Revolutionary Council led by the

OPEC attacks oil industry for loss of 100,000 Jobs The Organisation of the Petroleum Exporting Countries (OPEC) says that unbridled competition within the oil industry has cost 100,000 jobs.

However, that figure is not one OPEC has cited based on its own research. It comes from a Bloomberg report on analysis from one source Swift Worldwide Resources, which is a tiny energy industry recruiting firm. The cartel might have picked a more reliable source, because its decision to choose a single quote from Bloomberg undermines its entire argument.

The OPEC argument about the causes of falling prices favours it over other sources of supply. In the OPEC Bulletin Commentary March 2105, the group’s leaders write: “Yet, when it comes to the supply of petroleum, there is a stubborn willingness of some non-OPEC producers to adopt a go-italone attitude, with scant regard for the consequences. These parties consider producing to the maximum as being the norm. To them, rationalising the development of one’s precious natural resources in keeping with market demands appears to be an alien concept.”

OPEC’s multi-decade de facto control of worldwide oil prices does not make it into the analysis. The cartel has in the past been accused of setting oil prices in a manner that helps the treasuries of its members. A good example is when oil spiked over $120 in 2008. OPEC did not flood the market with supply to rapidly bring down those prices, which affected the global economy .

OPEC management also points out: “However, looking at developments over the past eight months, there is clearly still a lot to do. Whether one is a producer, consumer or investing oil major, planning for the future becomes a precarious, almost impossible task when having to factor in an oil reference price that is prone to wild fluctuations.

The price of crude has been halving since the summer of last year. This has been brought about by a combination of factors led by oversupply and exacerbated by the actions of speculators.”

Supreme Leader, Ayatollah Khamenei, have adopted a narrative whereby the West is determined to crush Iran, and a nuclear bomb will act as the best deterrent against western intervention. The reformists believe that working with the West to abolish sanctions is the best way to secure the country’s present prosperity and are handling the negotiations, but they are ranked lower than the Revolutionary Council. They are under pressure to reach a deal that will satisfy Khamenei and not be interpreted as appeasing the West. That’s why we have Iranian voices, including Khamenei himself, saying that they will not allow inspections and that the final deal must grant immediate relief from all sanctions.

Obama sees the discrepancy as a tactical issue: “There may be ways of structuring a final deal that satisfy their pride, their optics, their politics, but meet our core practical objectives.” His political rivals are far more wary and hardheaded.

Republican John McCain described the Supreme Leader’s comments as “a major setback” and 367 members of the U.S. Congress appealed to Obama that “verifiable constraints on Iran’s nuclear programme must last for decades.” While Obama is conscious of the changing nature of geopolitics and is judging the deal by the restrictions and checks that it will impose on Iran over the coming decade, many Republicans are judging the same deal by its longerterm implications. They worry that once the UN, EU and US lift sanctions, it will be harder to make the case for implementing them a second time round, and Iran could simply continue its nuclear programme at a later date.

Another crucial discrepancy arises from the inevitable and complicated technicalities of nuclear weapons: it is not clear exactly how many centrifuges and how much enrichment equates to a one-year break out time. Thus, those in favour and those opposed are drawing on different expert opinion to

say how much warning time the same deal would give the West if Iran raced to build a bomb.

If Obama wants to win over skeptics, he is going to have to clarify the break-out time and clear up ambiguities about the exact rate of sanction relief in the final version of the deal.

That’s not to say his critics will like it. But these are crucial details. The public deserves to forge an opinion based on the facts and not on the various politically twisted versions of events.

Analyst cautious on Boeing free cash flow

By Jon C. Ogg When Boeing Co. (NYSE: BA) reported earnings in January, some analysts were surprised at the huge boost the company reported in its free cash flow (FCF). In the third quarter of 2014, Boeing’s FCF totaled just $317 mln, and in the fourth quarter FCF rose by a factor of nearly 14 to $4.33 bln. How did that happen?

According to aerospace analyst David Strauss at UBS, Boeing was able to pull forward advances and progress payments for new airplanes due to the “very strong order cycle and increasing production rates over the last several years driving large customer prepayments.”

Here is how the aircraft maker gets paid for a new airplane, according to Strauss, as cited by Leeham News & Comment: “When a customer places an order, assuming an order is for further out than 18-24 months, Boeing collects a small down payment at ~2% of the purchase price (1% of list), which is recorded as an advance (liability) on its balance sheet. Then roughly 18-24 months prior to delivery, the customer begins making additional payments to Boeing, with roughly 40% of the purchase price (20% of list) in total due prior to delivery. Initially, these prepayments are also recorded as advances.

“Once Boeing begins aircraft production, it re-classifies advances as progress payments, which is a contra asset within its inventory account. The customer pays the remaining ~60% balance at the time of delivery.”

UBS says that its model for estimating Boeing’s advances and prepayments has “correlated well with actual prepayments other than during 2014.” Strauss also notes that total prepayments are forecast to average around $2 bln for 2015 to

2017, about $2 bln to $3 bln less than the average for 2011 to 2014. Boeing’s average FCF for the four years from 2011 to 2014 is $5.2 bln, according to data compiled by MarketWatch.

Strauss outlines UBS’s forecast for Boeing ahead of the company’s scheduled April 22 earnings announcement: “We think cash generation will come through below expectations as 787 cash costs improve at a continued slow pace, while tougher pricing in the backlog, pension and cash taxes are headwinds.

We continue to see risk to the large aircraft production cycle, as deliveries as a percentage of the installed base are well above

normal levels, while higher interest rates have the potential to limit further growth and cheap fuel makes older aircraft more attractive relative to new.”

The headwinds that UBS outlines could be magnified by the loss of loan guarantees if the U.S. Export-Import Bank’s charter is not renewed in June. That could force the company to provide the loan guarantees itself and add to its FCF difficulties. Other headwinds include orders for the current version of the 777 and deferred production charges that could continue to rise for the next quarter or two.

Boeing shares were down fractionally Tuesday morning, at $152.78 in a 52-week range of $116.32 to $158.83. (Source: 24/7 Wall St.com)

April 15 - 21, 2015

financialmirror.com | MARKETS | 15

The Eurozone’s sustainable recovery Marcuard’s Market update

by GaveKal Dragonomics Eurozone retail sales registered their first month-onmonth fall in five months in February, prompting fears that Europe’s consumer-driven revival may be faltering.

Since last May the price of oil has fallen -32% in euro terms, lifting real wages by 2% and boosting consumer purchasing power across the eurozone. Over the last three months, however, oil has rebounded 22% from its January low, eroding some of the European consumer’s purchasing power gains.

Happily, there are several reasons to believe the recovery will continue.

Eurozone money supply is now expanding rapidly. The M3 broad money measure grew at its fastest pace since April 2009 in February. Admittedly, M3 on its own is not the most reliable indicator of reflation in action.

A better guide is the inflation-adjusted M3 gap—the difference between the M3 stock of money and the trend level of M3 stock. In recent months this gap has begun to close for the first time since 2011, indicating that disinflationary pressures have abated.

The rise in M3 has been propelled partly by aggressive European Central Bank policymaking even before quantitative easing kicked off last month, partly by the eurozone’s current account surplus, and partly an emerging recovery in lending to the private sector—notably in Germany—now that banks have deleveraged and recapitalized.

However, a breakdown of eurozone money supply also shows encouraging signs. With yields on time deposits unattractive thanks to the ECB’s ultra-loose policy, consumers and businesses have been shifting money out of fixed term accounts and into demand deposits. The upshot is

a rapid increase in the amount of liquid cash in the system that can be called on immediately to fund either consumption or investment—usually a signal of gathering reflationary pressure.

Construction activity is picking up in Germany. The German construction PMI recorded its second consecutive monthly expansion yesterday to 53.3. New construction orders rose for the first time in three years, while suppliers’ delivery times deteriorated as they struggled to keep up with rising demand and input cost inflation rose to a three-month high.

As a result, the 12-month outlook is the most optimistic for more than four years. Construction is strong across all three sectors of the market, but housing is the best performer, suggesting that the health of demand for new homes will support German consumer spending.

Confidence is recovering in Italy. Italian investment sank to its lowest level for more than 20 years in 4Q14. Now however, there are signs that things are changing. In March, business confidence—a leading indicator for investment— hit its highest level since June 2008. Meanwhile, the weak euro is attracting international investors to Italy.

ChemChina’s headline-grabbing purchase of Pirelli last month was no one-off deal. According to data compiled by Bloomberg, China has spent US$14 bln on acquisitions in Italy over the last 12 months, more than in either the US or the UK. Cheaper oil, monetary policymaking that is now firmly ahead of the curve, greater confidence in the eurozone’s banking system following last year’s Asset Quality Review, emerging loan demand, and a long-awaited pick-up in German consumer demand should all combine to create a sustainable acceleration in the eurozone economy. A major rebound in the oil price could still scupper the recovery, but that looks improbable.

Despite the strong rally in eurozone stocks so far this year,

Buy on China skepticism Marcuard’s Market update

by GaveKal Dragonomics Widespread skepticism about the power of monetary policy at the outset of easing cycles can provide great investment opportunities. Despite clear lessons about the effects of central bank activism in the US in 2009, Japan in 2012 and Europe in 2014, international investors still doubt the quality of the bull run in China’s onshore stock markets ignited by the People’s Bank of China.

As a result, even though the Shanghai A-share market has climbed 66% in six months, repeatedly setting new sevenyear highs on elevated turnover, the H-shares of Chinese companies listed in Hong Kong have failed to keep up, rising a comparatively meagre 29% as foreigners have held back from the market.

International investors do not question the potential for a sustainable rerating of Chinese assets because they doubt the PBOC’s commitment to reflation. It’s just that most think they can afford to wait. In recent years, the knee-jerk response to aggressive central bank easing has been currency depreciation, which initially at least has offset the contribution of any stock market rally in international benchmarks.

Although Chinese A-shares are not included in benchmark indexes, the same attitude has prevailed. So far, investors have decided to bide their time, expecting a renminbi depreciation.

However, as we have argued before, devaluation is not in China’s interests. Beijing needs exchange rate stability both to advance its international financial agenda and to preserve domestic financial stability. With China’s leaders pressing for the inclusion of the renminbi in the International Monetary

www.marcuardheritage.com

Fund’s Special Drawing Rights basket this October, the central bank is highly unlikely to countenance any significant currency depreciation against the US dollar over the coming months.

With a closely managed exchange rate, unlike most other emerging markets, China has the tools to counter the potential tightening effects of any capital outflows by easing domestic policy without letting go of its currency. And with both nominal and real interest rates well above zero, China has plenty of room for effective easing unconstrained by the zero lower bound, and without the threat of falling into a liquidity trap.

More importantly, if they are combined with further structural reforms, the central bank’s easing measures could help to channel credit flows towards productive investments.

While the jury is still out on this, one of our preferred indicators, which tracks the relative performance of the listed private sector versus listed state sector companies, is showing encouraging signs.

After a worrying underperformance in 4Q14, which could imply capital funneled into the wrong hands, privatelyowned enterprises are attracting renewed investor interest this year after delivering solid profit growth in 2014.

The risk for international investors is that when they wake up to the resilience of the renminbi and of private sector earnings, they will find themselves forced to pay a much higher price for Chinese stocks. The valuation gap between the onshore and offshore markets is still wide, with mainland listed A-shares trading at a premium of almost 30%.

But with Beijing allowing more mainland funds to enter the Hong Kong market, the gap can close very quickly.

Indeed, with Hong Kong’s H-share index of locally listed mainland companies up an impressive 4.5% last week, wallflower investors who continue to hang back may soon be in danger of missing the party.

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.

in US dollar terms the MSCI EMU index is still close to the bottom of its 20-year trading range against the MSCI US. Given the eurozone’s positive fundamentals, we recommend that global investors continue to maintain unhedged overweight positions in eurozone stocks versus the US.

Eurozone economy recovers slightly, growth seen at 0.2-0.5% in Q1-Q3 The Eurozone’s economy is expected to recover slightly in 2015, according to three leading research institutes.

Gross domestic product looks set to grow by 0.4% in the first three quarters of the year, versus just 0.2% and 0.3% in the third and fourth quarter of 2014 respectively, said the results of calculations by the Ifo Institute (Munich), INSEE (Paris) and Istat (Rome).

In the wake of the euro’s depreciation, the economy was boosted by an upturn in exports, coupled with robust growth in private consumption fuelled by low energy prices. Disposable income levels are also expected to rise. Investments will increase slightly too, stimulated by improved lending conditions, rising domestic demand and the need for replacement investments. The three institutes expect investments to grow by 0.2%, 0.4% and 0.5% respectively in the first three quarters of 2015.

Based on the assumptions that the price of a barrel of crude oil remains at 56 dollars and that the euro-US dollar exchange rate stabilises at 1.10, prices are expected to fall by 0.3% in the first quarter of 2015.

Prices will fall by only 0.1% in the second quarter. A positive inflation rate of 0.1% is subsequently expected for the third quarter.

This forecast is based on the assumption that the agreement between Greece and its creditors in the Eurozone holds firm.

April 15 - 21, 2015

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Krugman’s anti-Cameron contradiction UK growth has been slightly slower, but the British economy has also faced, among other factors, the headwind of sharply falling North Sea oil production during this period, whereas the US benefited from a shale-oil boom

By Jeffrey D. Sachs It is truly odd to read Paul Krugman rail, time and again, against the British government. His latest screed begins with the claim that “Britain’s economic performance since the financial crisis struck has been startlingly bad.” He excoriates Prime Minister David Cameron’s government for its “poor economic record,” and wonders how he and his cabinet can possibly pose “as the guardians of prosperity.”

Hmm. In recent months, Krugman has repeatedly praised the US economic recovery under President Barack Obama, while attacking the United Kingdom’s record. But when we compare the two economies side by side, their trajectories are broadly similar, with the UK outperforming the United States on certain indicators.

Consider, first, the unemployment rate.

In the fourth quarter of 2007, the UK’s rate was 5.2%. When Cameron’s government took office in May 2010, it was 7.9%. In the most recent reporting period (November 2014-January 2015), it was 5.7%. In the US, the unemployment rate in the fourth quarter of 2007 was 4.8%, 9.8% in March-May 2010, and 5.7% in November 2014-January 2015.

In both countries, the unemployment rate is therefore slightly above the pre-crisis (end2007) level, with no significant net difference over the business cycle from the end of 2007 until now.

Next, let’s look at the employment rate, which in the UK stood at 72.9% of the population aged 16-64 at the end of 2007. It fell to 70.4% by the time the Cameron government came to power, but since then has risen strongly, to 73.3% in November 2014-January 2015, an all-time high. In the US, by contrast, the employment rate was 62.8% at the end of 2007, 58.6% in MarchMay 2010, and then only slightly higher, at 59.2%, during November 2014-January 2015 – still below the pre-crisis level. This suggests that there are more discouraged workers in the US than in the UK. Finally, there is output growth. In the UK,

real (inflation-adjusted) GDP fell by 3.8% from the fourth quarter of 2007 to the second quarter of 2010. It then rose by 8.1% from that point until the fourth quarter of 2014. In the US, real GDP fell by 1.6% from the fourth quarter of 2007 to the second quarter of 2010, and then rose by 10.5% from then until the fourth quarter of 2014. Thus, both countries have experienced moderately high and broadly similar growth rates since May 2010, when Cameron’s government took power.

Yes, UK growth has been slightly slower, but the British economy has also faced, among other factors, the headwind of sharply falling North Sea oil production during this period, whereas the US benefited from a shale-oil boom.

Obviously, neither of these long-term trends can be fairly attributed to the governments currently in office. In any case, during the past two years, from the fourth quarter of 2012 to the fourth quarter of 2014, the US economy grew by a cumulative 5.6% while the UK economy grew by 5.4%, essentially the same as the US. Krugman seems to make much of the fact that the UK did not bounce back even more strongly from a larger output decline

between the fourth quarter of 2007 and the fourth quarter of 2010 – a fall that occurred before the Cameron government took office.

That is true, and measured UK productivity growth has remained low, but nobody can be sure why.

Perhaps the unsustainable pre-2008 bubble was larger in the UK; perhaps the UK’s structure (particularly the larger share of finance in its GDP and the continued decline in energy output) made the initial downturn less reversible. The UK has been more vulnerable than the US to the eurozone’s prolonged crisis. Moreover, subtle differences between the US and UK in national income accounting should be taken into account in comparing productivity trends.

The International Monetary Fund’s estimate of the output gap for both countries does not suggest that, as of 2014, the UK is more cyclically depressed than the US. Indeed, in the IMF’s estimates at least, the opposite is the case. The IMF puts the UK output gap (as a percent of potential GDP) at 1.2%, compared to 3.5% in the US. Of course, both estimates are subject to questions of interpretation; the IMF assumes, for

example, that the UK was operating well above potential GDP in 2006-8.

The fact is that the US and UK economies look rather alike in their overall cyclical patterns, with sharp downturns from 2007 to 2010 followed by recoveries in both jobs and GDP since then, and with a fairly rapid pace of recovery in the past two years.

So, if Krugman praises the Obama recovery, he should also praise the Cameron recovery. They are very similar.

Perhaps more notable is that both the US and UK economies have cast considerable doubt on Krugman’s oft-repeated view that a robust recovery would require further fiscal stimulus, a position that he maintained at least until 2013. The post-2010 recoveries in both countries came despite significant cuts in the structural (cyclically adjusted) budget deficit, suggesting that both recoveries occurred in the face of fiscal contraction.

According to the IMF estimates, the structural budget deficit was cut from 8.4% of potential GDP in 2010 to 4.1% in 2014 in the UK, and from 9.1% to 4% in the US during the same period.

Rather than lambasting Cameron while lauding Obama, Krugman should be praising both countries for their recoveries. The truth is that – barring another Greek tragedy – both the UK and US are finally out of the post-2008 crisis. It is time for both countries to move beyond short-term macroeconomic policy and turn their attention to the challenges of long-term sustainable development.

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

Risk of ‘Brexit’ is a stronger credit driver than uncertainty over election, says Moody’s The uncertainty over the outcome of the forthcoming general elections in the United Kingdom is not affecting the sovereign’s credit profile of Aa1 ‘stable’, Moody’s Investors Service said, adding that in contrast, an increased likelihood of the UK leaving the EU could result in negative rating pressures over the medium-term.

According to Moody’s, neither a period of political uncertainty following the elections nor the composition of the next government would likely affect the UK’s credit profile. The rating agency noted that all major parties are committed to further fiscal consolidation, even if the approach and pace differ to some extent.

The rating agency also pointed to the UK’s strong and

stable institutions, which should ensure a smooth running of government during any interim period. The potential transfer of fiscal responsibilities to Scotland and other subnational governments would not pose a significant risk to the UK government’s fiscal strength.

Moody’s noted that the election outcome will provide greater visibility on whether a referendum on the UK’s membership in the European Union will be held. While it remains unclear whether this would indeed lead to an exit, if the likelihood of the UK leaving the EU were to increase, Moody’s said it would analyse the impact on the UK’s growth prospects.

As the EU accounts for around 50% of the UK’s goods

and 36% of its services exports, a withdrawal from the EU could have negative implications for trade and investment, both ahead of the event and following it.

The medium-term impact — which is the relevant timeframe from a credit perspective — would depend on what alternative trade agreements the UK could negotiate with the EU. Moody’s expects that the UK would manage to negotiate some form of new settlement that replicates at least part of the current trade freedoms, but notes that the absence of such a settlement would adversely affect investment and growth and have negative implications for the UK’s credit standing and rating.

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Why Europe needs to save Greece

By Anders Borg The fundamental problem underlying Greece’s economic crisis is a Greek problem: the country’s deep-rooted unwillingness to modernise. Greece was subject to a long period of domination by the Ottoman Empire. Its entrenched political and economic networks are deeply corrupt. A meritocratic bureaucracy has not emerged. Even as trust in government institutions has eroded, a culture of dependency has taken hold.

The Greeks, it can be argued, have not earned the right to be saved. And yet a Greek exit from the euro is not the best option for either Greece or for the European Union. Whether or not the Greeks are deserving of assistance, it is in Europe’s interest to help them.

The OECD, the European Commission, the International Monetary Fund, and the World Bank have emphasised, in report after report, the fundamental inability of Greece’s economy to produce long-term sustainable growth. The country’s education system is sub-par and underfunded. Its investments in research and development are inadequate. Its export sector is small. Productivity growth has been slow.

Greece’s heavy regulatory burden, well described by the World Bank’s indicators on the ease of doing business, represents a significant entry barrier in many sectors, effectively closing off entire industries and occupations to competition. As a result, Greece’s economy struggles to reallocate resources, including workers, given the rigidity of the labour market.

After Greece was allowed to enter the eurozone, interestrate convergence, combined with inflated property prices, fuelled an increase in household debt and caused the construction sector to overheat, placing the economy on an unsustainable path. In the years before the beginning of the financial crisis, current-account deficits and bubbly asset prices pushed annual GDP growth up to 4.3%. Meanwhile, public spending rose to Swedish levels, while tax revenues remained Mediterranean.

In the eight years that I served on the EU’s Economic and Financial Affairs Council, I worked alongside seven Greek ministers, every one of whom at some point admitted that the country’s deficit numbers had to be revised upward. Each time, the minister insisted that it would never happen again.

But it did. Indeed, the pre-crisis deficit for 2008 was eventually revised to 9.9% of GDP – more than 5% higher than the figure originally presented to the Council.

And yet, as bad as Greece’s economy and political culture may be, the consequences of the country’s exit from the euro are simply too dire to consider. In the end, such an outcome would be the result of a political decision, and the European values at stake in that decision trump any economic considerations.

For starters, a Greek exit from the euro would be a devastating blow to Greece.

Without the support of the European Central Bank, the country’s banking system would be shut off from international markets. The overall use of the euro-system liquidity assistance to Greece came close to EUR 90 bln in early 2015. The government would have to close the banks for a week or two, print emergency currency, strictly limit households’ access to their deposits, and introduce capital controls. When the market opened again, the new drachma would depreciate by 30-40% before finding an equilibrium.

To make matters worse, the economic crisis could lead to a political meltdown, making it impossible to enact the structural reforms that Greece desperately needs. Indeed, one of the main causes of the country’s deep economic problems is its dysfunctional political system. The period of fiscal restructuring – during which the deficit was cut from 9.9% of GDP in 2008 to 8.9% in 2012 – already sparked considerable civil unrest. A deeper economic crisis could spark a sharp rise in social and political instability. Ejecting such a precarious democracy from the eurozone would be deeply irresponsible.

Europe also needs to consider the geopolitical

environment. Increased tension caused by the conflict in Ukraine risks destabilising other parts of the continent.

Expelling Greece into such an unstable international environment would leave the region more vulnerable to those – particularly Russia’s current leaders – who believe they would benefit from a weaker, less unified Europe.

There are more important questions raised by the crisis in Greece than whether the country deserves to be rescued by European taxpayers. At stake are fundamental values and strategic considerations that are central to the European project. Europe is simply more European with a stable partner in Athens.

Anders Borg, a former Swedish finance minister, is Chair of the World Economic Forum’s Global Financial System Initiative © Project Syndicate www.project-syndicate.org

Creative self-disruption Like many readers, I still vividly recall when Nokia was the dominant player in mobile phones, with over 40% of the market, and Apple was just a computer company. I remember when Amazon was known only for books, and when dirty taxis or highpriced limousines where the only alternative to public transport or my own car. And I recall when the Four Seasons, Ritz Carltons, and St. Regises of this world competed with one another – not with Airbnb.

Now, I may be old, but I am not that old.

These changes happened recently – and fast.

How did they occur? Will the pace of change remain so rapid – or even accelerate further?

And how should companies respond?

An industry can be transformed by topdown economic, financial, political, and regulatory changes. But companies like Airbnb, Amazon, Apple and Uber, exemplify a different kind of transformation: agile players invade other, seemingly unrelated industries and brilliantly exploit huge but previously unseen opportunities. Importantly and counter-intuitively, doing so serves their own core competencies, rather than those of the industry that they seek to disrupt.

Indeed, rather than using existing approaches and processes to compete, these entrants created radical new game plans, rewriting the target industry’s rules. Their creativity and passion enabled them to subdue – and in some cases even destroy – less adaptable giants remarkably quickly.

Central to these companies’ success has been their understanding of a fundamental trend affecting nearly all industries:

By Mohamed A. El-Erian Αuthor of When Markets Collide

individual empowerment through the Internet, app technology, digitalisation, and social media. If existing companies hope to compete in this new environment, shaped by both top-down and bottom-up forces, they will to have to adapt, preempting disruptive new players by figuring out how to disrupt themselves. Otherwise, they could face a fate similar to Nokia, which was disintermediated by one tech company (Apple) and acquired by another (Microsoft).

In this effort, companies must recognise that both demand and supply factors are or will be driving the transformation of their competitive landscapes. On the demand side, consumers expect a lot more from the products and services they use. They want speed, productivity, and convenience. They want easy connectivity and expanded scope for customisation. And, as the success of TripAdvisor shows, they want to be more engaged, with companies responding faster to their feedback with real improvements.

On the supply side, technological advances are toppling long-standing entry barriers. The online car service Uber adapted existing technologies to transform a longsheltered industry that too often provided lousy and expensive service. Airbnb’s

“supply” of rooms far exceeds anything to which traditional hotels could reasonably aspire. An existing company would have to be highly specialised, well protected, or foolish to ignore these disruptions.

One traditional industry in which progress is being made is the automotive branch, where companies are pursuing digitalisation. Though new entrants could disrupt incumbents’ production platforms – Elon Musk’s Tesla Motors is a clear example – they are rare. These days, the more pervasive competitive threat comes from companies in other domains that can erode the customer value proposition after the car is sold. Companies are recognising that, over time, the digital experience in the cars they produce will command a larger share of the consumer surplus, owing largely to the potential for substantial profit margins and economies of scale. As a result, they are adapting their vehicles to the new sharing economy, helping people to remain wellconnected in the car, expanding the scope of after-sale services, and preparing for the shift away from individual car ownership toward car sharing.

Banks are also adapting, but much more slowly and hesitantly. If they are to make progress, they must move beyond simply providing apps and online banking. Their aim should be holistic engagement of clients, who seek not only convenience and security, but also more control over their financial destiny.

In these and many other industries, the competitive landscape is undoubtedly

becoming more complicated and unpredictable. But four general guidelines can help managers effectively adapt their mindsets and business models to facilitate orderly and constructive self-disruption: First, companies should modernise core competencies by benchmarking beyond the narrow confines of their industry.

Second, they should increase their focus on customers, including by soliciting and responding to feedback in an engaging way.

Third, managers should recognise the value of the data collected in their companies’ everyday operations, and ensure that it is managed intelligently and securely.

Finally, the micro-level forces that have the potential to drive segment-wide transformations should be internalised at every level of the company.

Companies that apply these guidelines stand a better chance of adapting to what is driving today’s rapid reconfiguration of entire industries. The bottom line, once again, is supply and demand: More than ever, people want – indeed, feel empowered to expect – cheaper, smarter, safer, and more efficient tools to live a more self-directed life.

Companies that fail to deliver will find that their days are numbered.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of President Barack Obama’s Global Development Council and the author, most recently, of When Markets Collide. © Project Syndicate, 2015.

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China’s not-so-new not-so-normal I just spent a week in China, where I participated in the Boao Asia Forum, a conference similar to the annual gathering of the World Economic Forum in Davos. The topic of my panel was what President Xi Jinping has called the Chinese economy’s “new normal”: an era of relatively slower growth, following three decades of doubledigit economic expansion.

But what strikes me most about China’s economy is how remarkable it is. Indeed, its performance continues to astound me.

Though it undoubtedly faces plenty of challenges, the key question is how likely they are to bring down the economy.

Of the four BRIC countries – Brazil, Russia, India, and China – Xi’s is the only one that has met my expectations for growth so far this decade.

From 2011 to 2014, the Chinese economy grew at an average annual rate of 8% per year. If it continues to grow by around 7% for the rest of the decade, as the authorities and many observers expect, it will achieve an average pace of expansion of 7.5%, in line with my projections.

The phrase “new normal” is a clever bit of messaging by China’s leaders, who must explain to the country’s 1.4 bln citizens why the economy will no longer be growing by 10% a year.

But there is nothing normal about an economy that is already twice as large as the next largest, Japan, and will possibly outstrip the European Union within the next five years.

I was in China primarily in my role as Chair of the British government’s Review on Antimicrobial Resistance; but I also sought

By Jim O’Neill

opportunities to speak to people about the challenges facing the economy. Many international observers have been worried about the country’s oversupply of housing and the related credit boom, making me wonder whether I have been overly sanguine about these risks. But my conversations persuaded me that both problems are likely to be manageable.

To be sure, the housing market is in the doldrums. But, as many pointed out to me, this is partly the result of deliberate government measures to deflate it (also comforting is the fact that consumers are in general not overleveraged). Some builders will experience problems with credit, and so might some local authorities. But spending by the central government is such a small percentage of the country’s total GDP that policymakers have a lot of room for maneuver if intervention becomes necessary in these areas.

Foreign observers frequently speculate that the Chinese authorities may be deliberately overstating the economy’s strength. But it is equally possible that the size of some sectors is being understated.

After spending a few days in Beijing, it was abundantly clear that China is undergoing a boom in Internet use, including as a

consumer platform. Online commerce is offsetting some of the other weaker areas of the economy, and its full impact might actually be underreported in official statistics.

I do worry that the government is not moving fast enough to grant the country’s millions of migrant workers official residency in the cities where they work and live.

Migrants’ continued lack of access to public services might prevent a large rise in consumption as a share of GDP. But, as I was told during my visit, the central government’s reluctance to move more quickly reflects its wariness of imposing immense fiscal pressures on local authorities.

Another area of serious concern is health care. At some stage, the central government will have to address the sector’s deficiencies.

I learned about one example when discussing antimicrobial resistance, to which the government has responded by attempting to limit the quantity of antibiotics a patient may take. The trouble is that many hospitals and doctors rely on drug sales for a large portion of their revenues, which creates a powerful incentive to find ways to circumvent the rules.

Pollution remains a grave challenge as well. But it must also be noted that China’s carbon dioxide emissions declined notably in 2014, offering what is perhaps the first tangible evidence that the country is making some progress on this front. Energy efficiency and renewable energy use are both on the rise as well.

Most important, despite the challenges it faces, the Chinese economy’s singular

importance is now widely recognised. The country’s recent international achievements – particular its ability to secure the backing of the United Kingdom, France, Germany, and Italy for its Asian Infrastructure Investment Bank in the face of opposition from the United States – imply a high degree of confidence that China will address its problems successfully.

China’s role within existing international financial institutions could change this year as well.

In December, the International Monetary Fund will consider adding renminbi to the basket of currencies that comprise the Fund’s unit of account, known as Special Drawing Rights, alongside the US dollar, the euro, the British pound, and the Japanese yen.

And the world is still waiting for the US to implement a 2010 reform of the IMF that would strengthen the position of China and other large emerging economies in the institution’s governance structure. Given the significance of the Chinese economy, continuing to leave this unaddressed is anything but normal.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management, is a visiting research fellow at Bruegel, the Brussels-based economic think tank, and Chair of the British government’s Review on Antimicrobial Resistance. © Project Syndicate, 2015. www.project-syndicate.org

American leadership in a multipolar world

By Paola Subacchi Giving up the spotlight is never easy. The United States, like many aging celebrities, is struggling to share the stage with new faces, especially China. The upcoming meetings of the International Monetary Fund and the World Bank – two institutions dominated by the US and its Western allies – provide an ideal opportunity to change that.

The US must come to terms with the reality that the world has changed. The longer the US remains in a state of denial, the more damage it will do to its interests and its global influence, which remains substantial, if more constrained than before.

The world no longer adheres to the static Cold War order, with two blocs locked in open but guarded confrontation.

Nor does it work according to the Pax Americana that dominated in the decade after the Soviet Union’s collapse, when the US briefly emerged as the sole superpower.

Today’s world is underpinned by a multipolar order, which emerged from the rise of developing economies – most notably China – as major actors in trade and finance.

The US – not to mention the other G-7 countries – now must compete and cooperate not only with China, but also with India, Brazil, and others through expanded forums like the G20.

To this end, the US must show leadership and adaptability. It cannot refuse to support China’s efforts to expand its role in global governance. Nor should it issue harsh rebukes to its allies when they do not follow suit, as it did when the United Kingdom announced its intention to join the new China-led Asian Infrastructure Investment Bank.

The US seems to be stuck in the Bretton Woods system, the rules-based order – underpinned by the IMF and the World Bank, with the US dollar at its heart – that emerged after World War II. The Bretton Woods system institutionalized America’s geopolitical supremacy, leaving

the old imperial power, the UK, to step aside – a step that it took graciously, if a little desperately, given its grave postwar economic situation.

Over the years, however, the Bretton Woods system, with its mix of liberal multilateralism and market-oriented economic policies, has come to symbolise the AngloAmerican dominance of the global economy that much of the world now criticises, especially since the global financial crisis. In particular, the Washington Consensus – the set of free-market principles that influences the policies of the IMF, the World Bank, the US, and the UK – has generated considerable resentment, especially after the Asian financial crisis of the 1990s.

Against this backdrop, it is hardly surprising that China has been using its growing global influence to help engineer a new economic order – one in which the US dollar does not reign supreme.

Zhou Xiaochuan, the governor of the People’s Bank of China, China’s central bank, has repeatedly called for a shift toward an international monetary system that allows for the use of multiple currencies for payments and investment.

Such an approach would reduce the risk and impact of liquidity crises, while decoupling the international monetary system from the “economic conditions and sovereign interests of any single country.”

Of course, China believes that its own currency, the renminbi, should eventually play a central role in this new monetary system, so that it reflects China’s role not only as a leading engine of global economic growth, but also as the world’s largest creditor. Indeed, together with the other systemically important economies (the US, the UK, Japan, and the eurozone) China drives trends that, for better or worse, extend far beyond its borders.

Since 2009, China’s leadership has been pursuing a set of policies that encourage the use of the renminbi in regional trade and reduce its dependence on the dollar in international payments. But expanding the renminbi’s role in the international monetary system is just the first step toward institutionalizing a multipolar world order. China has also spearheaded the establishment of new multilateral institutions, with AIIB following on the heels of the New

Development Bank, created with other major emerging economies (Brazil, Russia, India, and South Africa).

By taking these steps, China’s leaders have called attention to the inadequacy of the existing international monetary system, and its institutional framework, in today’s complex, multipolar world economy. In particular, China’s agenda highlights questions about America’s capacity to provide the needed liquidity to support international trade and finance.

To be sure, the US is right to wonder whether the new order that China hopes to build will be as open and rulesbased as the American-led order – the one that gave China the market access it needed to achieve its spectacular economic rise. But the answer to that question can be found only by engaging China on the issue of reform of global governance – not by denying that change is needed at all.

As the US stubbornly pursues a policy of containment toward China – exemplified in its fight against the AIIB’s establishment, its relentless accusations of currency manipulation, and its refusal to ratify IMF reforms that would increase China’s influence – it risks losing its ability to shape what comes next.

The result could be a world of fragmented blocs – an outcome that would undermine not only global prosperity, but also cooperation on shared challenges.

The Spring Meetings of the IMF and the World Bank offer an important opportunity to signal a new approach toward China.

And there could be no more credible signal than US support for the renminbi’s addition to the basket of currencies that the IMF uses to value its international reserve asset, the Special Drawing Right. America will be in the spotlight once again. But how will it perform?

Paola Subacchi is Research Director of International Economics at Chatham House and Professor of Economics at the University of Bologna. © Project Syndicate, 2015. www.project-syndicate.org

April 15 - 21, 2015

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Asia’s multilateralism

By Joseph E. Stiglitz The International Monetary Fund and the World Bank are poised to hold their annual meetings, but the big news in global economic governance will not be made in Washington DC in the coming days. Indeed, that news was made last month, when the United Kingdom, Germany, France, and Italy joined more than 30 other countries as founding members of the Asian Infrastructure Investment Bank (AIIB). The $50 bln AIIB, launched by China, will help meet Asia’s enormous infrastructure needs, which are well beyond the capacity of today’s institutional arrangements to finance.

One would have thought that the AIIB’s launch, and the decision of so many governments to support it, would be a cause for universal celebration. And for the IMF, the World Bank, and many others, it was.

But, puzzlingly, wealthy European countries’ decision to join provoked the ire of American officials. Indeed, one unnamed American source accused the UK of “constant accommodation” of China.

Covertly, the United States put pressure on countries around the world to stay away.

In fact, America’s opposition to the AIIB is inconsistent with its stated economic priorities in Asia. Sadly, it seems to be another case of America’s insecurity about its global influence trumping its idealistic rhetoric – this time possibly undermining an important opportunity to strengthen Asia’s

developing economies.

China itself is a testament to the extent to which infrastructure investment can contribute to development. Last month, I visited formerly remote areas of the country that are now prosperous as a result of the connectivity – and thus the freer flow of people, goods, and ideas – that such investments have delivered.

The AIIB would bring similar benefits to other parts of Asia, which deepens the irony of US opposition. President Barack Obama’s administration is championing the virtues of trade; but, in developing countries, lack of infrastructure is a far more serious barrier to trade than tariffs.

There is a further major global advantage to a fund like the AIIB: right now, the world suffers from insufficient aggregate demand.

Financial markets have proven unequal to the task of recycling savings from places where incomes exceed consumption to places where investment is needed.

When he was Chair of the US Federal Reserve, Ben Bernanke mistakenly described the problem as a “global saving glut.” But in a world with such huge infrastructure needs, the problem is not a surplus of savings or a deficiency of good investment opportunities.

The problem is a financial system that has excelled at enabling market manipulation, speculation, and insider trading, but has failed at its core task: intermediating savings and investment on a global scale. That is why the AIIB could bring a small but badly needed boost to global aggregate demand.

So we should welcome China’s initiative to multilateralise the flow of funds. Indeed, it replicates American policy in the period following World War II, when the World Bank was founded to multilaterise

development funds that were overwhelmingly coming from the US (a move that also helped to create a cadre of first-class international civil servants and development professionals).

The World Bank’s assistance was sometimes overburdened by prevailing ideology; for example, the free-market Washington Consensus policies foisted on recipients actually led to deindustrialisation and declining income in Sub-Saharan Africa.

Nonetheless, US assistance was, overall, far more effective than it would have been had it not been multilateralised. Had these resources been channeled through America’s own aid agency, policymaking would have been subject to the vagaries of development thinking (or the absence of reflection) from one administration to another.

New attempts to multilateralise flows of assistance (including the BRICS countries’ launch of the New Development Bank last July) are similarly likely to contribute significantly to global development. Some years ago, the Asian Development Bank defended the virtues of competitive pluralism. The AIIB offers a chance to test that idea in development finance itself.

Perhaps America’s opposition to the AIIB is an example of an economic phenomenon that I have often observed: firms want greater competition everywhere except in their own industry. This position has already exacted a heavy price: had there been a more competitive marketplace of ideas, the flawed Washington Consensus might never have become a consensus at all.

America’s opposition to the AIIB is not unprecedented; in fact, it is akin to the successful US opposition to Japan’s generous New Miyazawa Initiative of the late 1990s,

which offered $80 bln to help countries in the East Asian crisis. Then, as now, it was not as if the US were offering an alternative source of funding. It simply wanted hegemony. In an increasingly multipolar world, it wanted to remain the G-1. The lack of money, combined with America’s insistence on flawed ideas about how to respond to the crisis, caused the downturn to be far deeper and longer than it should have been.

That said, US opposition to AIIB is harder to fathom, given that infrastructure policy is much less subject to the influence of ideology and special interests than other policymaking areas, such as those dominated by the US at the World Bank. Moreover, the need for environmental and social safeguards in infrastructure investment is more likely to be addressed effectively within a multilateral framework.

The UK, France, Italy, Germany, and the others who have decided to join the AIIB should be congratulated. One hopes that other countries, both in Europe and Asia, will join as well, helping to fulfill the ambition that infrastructure improvements can raise living standards in other parts of the region, as they have already done in China.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. © Project Syndicate, 2015. www.project-syndicate.org

The secret of Singapore’s success Lee Kuan Yew’s achievements have been the subject of much global discussion since his recent death. But one aspect of his success has been little mentioned: the investments that he, and his successors, made in education.

His strategy, he would often remark, was “to develop Singapore’s only available natural resource, its people.”

Today, Singapore routinely ranks among the top performers in educational attainment, as measured by the OECD’s Programme for International Student Assessment (PISA). Moreover, though a city-state of just five million people, Singapore boasts two universities among the top 75 in the latest Times Higher Education World University Rankings, the same number as China, Japan, and Germany.

How did that happen? What did Lee Kuan Yew and Singapore do right?

For starters, it should be emphasised that Singapore’s education system was not designed de novo by Lee Kuan Yew and his colleagues. Rather, it was built on the very solid foundations inherited from Singapore’s British colonial past.

In contrast to many of his contemporaries among postcolonial leaders, Lee Kuan Yew was not afraid to embrace whatever elements from that past that would prove useful to the nation-building enterprise.

Nowhere is this approach more evident than in education.

Many of the country’s premier educational institutions – for example, the National University of Singapore (founded in 1905), Raffles Institution (founded in 1823), and the AngloChinese School (founded in 1886) – significantly predate independence in 1963. Moreover, the curriculum for secondary education is modeled on the British O level and A level qualifications (with some adaptation to account for the generally higher average attainment levels of students in Singapore). And, though infrastructure is by no means neglected, the primary focus of educational investment is students and teachers.

A national system of generous scholarships enables the

By Stavros Yiannouka best students to avail themselves of an education at some of the world’s premier universities, even as Singapore develops its own world-class institutions. Moreover, with starting salaries above the national median, the teaching profession attracts, develops, and retains some of the best graduates.

Moreover, Singapore’s education system is unabashedly meritocratic (some might say elitist) in its focus on identifying and developing the very best talent and, equally important, directing it toward public service. Government scholarship recipients are obliged to serve in the public sector for a minimum of two years for every one year of study.

The same meritocratic approach governs the development and promotion of teachers. Top-performing teachers are given leadership responsibilities without excessive regard to tenure, and there is a revolving door between the education ministry, classrooms, and school administration. Educators are frequently seconded to carry out policy work. Many subsequently choose to return to the classroom.

The elitist tendency in Singapore’s education system is tempered by the fact that quality education is available for all levels of academic aptitude. Singapore is rightly proud of its elite secondary and tertiary academic institutions, but one could argue that the hidden gems of the system are the hundreds of neighborhood schools, institutes for technical education, and polytechnics that provide high-quality education for all.

Singapore’s education system is relentlessly forwardlooking. From adopting bilingualism with English (in addition to the mother tongue of Mandarin, Malay, or Tamil),

to its focus on science, technology, engineering, and mathematics (STEM), Singapore anticipated many of the key education strategies being adopted by today’s policymakers.

The choice of English was driven by history and a multiethnic society’s need for a common language. But it was also a prescient recognition of English’s rapid emergence as the lingua franca of global commerce and science, and that once entrenched it was likely to remain so for decades, if not centuries, to come. In this regard, too, Lee Kuan Yew distinguished himself from other post-colonial leaders of his generation. Rather than pandering to narrow nationalist sentiment and opting for the majority language and culture, he and his colleagues chose to adopt a global language for a global city.

Finally, Singapore’s education system evolves with the times and in light of new evidence. In the 1990s, Singapore’s policymakers, concerned that their approach to education might be somewhat regimented and overly focused on STEM, began to provide avenues for excellence in the humanities, arts, and sport. That rebalancing is still ongoing, with a new emphasis on identifying ways to foster creativity and entrepreneurship.

For Singapore’s founding father, education went beyond formal schooling. As he put it in a speech in 1977: “My definition of an educated man is a man who never stops learning and wants to learn.”

Indeed, Singapore’s world-class education system will be one of Lee Kuan Yew’s most enduring legacies. It was fitting that his state funeral took place at the National University of Singapore.

Stavros N. Yiannouka, former Executive Vice-Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is Chief Executive Officer of the World Innovation Summit for Education (WISE), an initiative of the Qatar Foundation.

April 15 - 21, 2015

20 | BACK PAGE | financialmirror.com

Winning Sri Lanka’s peace

By Ranil Wickremesinghe Winning a war or revolution, only to lose the subsequent peace, is one of the grim political truths of our time. In Iraq, a quick military victory over Saddam Hussein’s regime soon gave way to insurgency, civil war, and the rise of the murderous Islamic State. In Libya, Syria, Yemen, and elsewhere, the hopes unleashed by the Arab Spring have similarly turned into an often-violent despair.

Today, a half-decade after the end of its 36-year civil war, Sri Lanka is at a crucial moment in its own efforts to consolidate peace and secure its long-term benefits. Newly elected President Maithripala Sirisena and I, as prime minister, are determined to win that peace, and to help our country become what it always should have been: a prosperous Asian island of democracy, civility, and open society.

The risks of a failed peace are appearing only now, because, since 2009, when the war with the Tamil Tigers ended in an enormous spasm of violence, the government led by former President Mahinda Rajapaska made only the most half-hearted of efforts to bring about reconciliation with our Tamil citizens.

Reconstruction of war-ravaged Tamil districts, as well as other parts of our society damaged by years of fighting and terrorism, has barely begun.

That neglect was part of a deliberate strategy by Rajapaska, who saw keeping Sri Lanka on a semi-war footing, and our Tamil citizens aggrieved and alienated, as the most effective way to maintain his iron-fisted rule. But, though his divideand-rule strategy worked for a while, allowing him to concentrate an unprecedented amount of power in his own hands, it could not hide the truth of our social divisions and continuing impoverishment. So, in the presidential election of this past January, Sirisena stunned the world by creating a winning coalition of Sri Lankans of all faiths and ethnicities who want to rebuild their democracy, not continue down the path of authoritarian rule.

In the months since Sirisena’s triumph, Sri Lankan democracy has been revived, and the hard work of building a

durable domestic peace has begun. We plan to quickly call a parliamentary election, which will take place one year ahead of schedule, in order to replace Rajapaska’s echo chamber with a fully functioning assembly, one that holds the government to account.

Moreover, presidential power is now exercised within the limits established by law, not according to the whims of one man. Our judges no longer feel intimidated. Our business leaders no longer fear shakedowns and takeovers by the president’s greedy family members and cronies.

As we liberate all of our citizens from fear, we will rebuild Sri Lanka as PM Ranil Wickremesinghe (left) with President Maithripala Sirisena a free society.

The authoritarian model of capitalism that Rajapaska introduced to our country, and democracy, tolerance, and the rule of law constitute the only that much of the world seems to be embracing nowadays, is route to long-term peace and shared prosperity. Sadly, the help that we have received so far is too little to enable my not for us.

Of course, some of our neighbours are advising us to take government to be as effective as it can and should be in a different path, to reform our economy and not worry too rebuilding our country and resetting our strategic position in much about re-establishing political freedom. Our experience the world.

Still, there is reason for hope. Though our political with authoritarian rule, however, is that it undermines the goal of post-conflict reconciliation and reconstruction by its institutions need a thorough overhaul, I am proud to say need to maintain our society’s divisions artificially. The best that, despite Rajapaska’s best efforts to corrupt and hollow way to avoid a relapse into conflict and arbitrary rule is to them out, our victory was made possible because the election ensure that Sri Lanka’s leaders are held accountable through commission and court workers adhered to the law. Equally important, when the votes were counted, Sri Lanka’s military representative institutions.

But we cannot fully turn the page on authoritarian rule, leaders honored their oaths and bravely rebuffed Rajapaska’s restore the full range of democratic freedoms, and rebuild our unconstitutional order to annul the election and maintain economy in an inclusive way on our own. Too much of our him in power.

These acts of civic heroism form a strong basis on which country’s wealth has been damaged by war, taken flight abroad, or been siphoned off through corruption. We simply to refound Sri Lanka’s state and society. With the world’s lack the resources to undertake the great task of help, we will do just that. reconstruction without assistance.

So we need the world’s democracies to stand with us and Ranil Wickremesinghe is Prime Minister of Sri Lanka. support us, lest our people become discouraged and be tempted by the autocratic forces waiting in the wings to return to power in the coming parliamentary election. We © Project Syndicate, 2015. need to demonstrate to our people that reconciliation, www.project-syndicate.org

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