Financial Mirror 2015 06 03

FinancialMirror JEAN PISANI-FERRY

RICARDO HAUSMANN

Small steps to European growth PAGE 17

GDP growth and the education myth BACK PAGE

Issue No. 1136 €1.00 June 3 - 9 , 2015

The happiest countries in the world

DENMARK, ICELAND TOP OECD ‘BETTER LIFE INDEX’ -

YANIS VAROUFAKIS: Austerity is the only deal-breaker SEE PAGE 16

PAGE 9

PAGES 10-11

June 3 - 9, 2015

2 | OPINION | financialmirror.com

FinancialMirror

We need an attitude change first

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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Before we can even start talking about resolving the Cyprus problem, or even the prospects of extracting low-cost energy from the offshore natural gas fields, those in power ought to get their blinkers off and start bringing about change, especially as regards attitudes, based on the bottom-up model and not the top-to-bottom schematic.

We would have hoped that the economic crisis would have forced some changes, or at least a return to the old values our society used to be proud of a long time ago – honesty, tolerance, fairness.

Only last week, Interior Minister Socratis Hasikos declared that Cyprus has earned 2 bln euros from taxes levied on property sales and from investments by foreign national, earning them the right to a Cyprus residency permit, or even a Republic passport. The 2 bln figure was nothing new, as it was reported in this newspaper several months ago. What is, ironically, new is the effort by officials to put a lid on the matter as it may upset other rival jurisdictions or even EU officials, while US embassy officials go ballistic every time a passport is handed to a Russian “investor” or Iranian property buyer.

The paradox in this whole issue is that while the government seems to be bending backwards (and over) to accommodate “mega investors”, it is doing absolutely nothing to change the

discriminatory attitudes of some officers at the Immigration Dept. It is a shame that ordinary folk who have worked hard, contributed their taxes and have been actively taking part in local society, are still subjected to the almost racist attitude that used to prevail in the 1980s and 1990s and could be denied a passport, even after a 7-year wait, while those flashing their platinum credit cards get their citizenship within the day, almost like buying it off the supermarket shelf.

We used to think that the troubles there were the result of certain high-ranking official in the Migration Dept., but it turns out that this attitude continues to prevail at all levels, no matter how hard the Reform Commissioner tries desperately to convince us that he is trying to instil change.

What, then, could be said of the police nowadays, where one would think that with more supposedly educated young officers being recruited, attitudes should have abandoned the notions of the 1960s. In fact, as one particular case recently proved, when a young pair of traffic officers pulled over a motorist for what they believed was a traffic violation, the audacity with which they both declared “well, who do you think the judge will believe?” goes to show that present day officers allow or even encourage such mentality, which simply puts citizens off from regaining their trust in officers of the law. In effect, this attitude often back-fires.

Attitudes can change. It’s just that government ministers cannot be bothered to deal with some issues within their departments, which some may say are minor, but we say are fundamental.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

EU tax, new Cyta tariffs The professional services sector was bracing for a new EU-wide tax rate of 15% on interest from July 1, expected to impact all high net-worth individuals, while Cyta was about to introduce a new tariff policy, with ISDN gong up 50% and ADSL unchanged, according to the Financial Mirror issue 621, on May 18, 2005.

EU tax: With only 40 days to go for the EU Savings Tax Directive (EUSD) to kick in, professionals were scrambling to put the accounting and banking details of their high net-worth clients in order. The

new directive orders all EU member states to exchange information with each other about all EU residents who earn interest on savings and investments in one member state, but live in another. A 15% rate will be deducted at source.

Cyta tariffs: Cyta introduced a new tariff policy on fixed telephony and monthly rental fees. The connection fee will rise from CYP 30 to 37 and the fixed line monthly fee from CYP 5 to 6.95. ISDN connection will rise from CYP 40 to 60 and the monthly fee from CYP 8 to 13.40. Call

charges for fixed to fixed telephony will drop from 2c per 2 minutes to 0.88c per minute and 0.76c off peak hours. ADSL rates remain unchanged.

Interest rates: Cypriot businesses are paying much more for their loans than their peers of all the six ERM2 entrants. According to Eurostat, the 3month money-market interest rate in the eurozone was only 2.14%, but in Cyprus it was 282 basis points higher at 4.96%. In Slovenia it was 4.05%, in Latvia 3.26% and so on.

CDB profits: The majority state-owned Cyprus Development Bank reported a profit before provisions for NPLs of CYP 1.9 mln, from a loss of 2.7 mln in 2003.

stock market could double within the year, said Miles Morland, CEO of Blakeney Management.

Interamerican approval: Interamerican Insurance has received a nod of approval from the Ministry of Finance as an ‘approved investment status’ allowing other funds and even insurance companies to invest in this stock, according to Chairman Demetris

Kontominas.

CSE bill progress: The House Finance Committee is determined to press ahead and meet its own target of approving amendments to the Stock Exchange Law and the new regulations before the summer recess, while the Association of Stock Brokers is seeking a seat or some level of say on the CSE board.

Trade Fair opens: The largest ever annual Trade Fair opened with the aim of becoming a platform to promote export opportunities between Europe, Cyprus and the Middle East. Britain is still the largest trading partner, US trade is on the up, Cyprus ranks 6th for Greek exports and Trade with Israel is up 20%.

20 YEARS AGO

Best performing market, Interamerican gets OK Cyprus ranked among the best performing markets in the first quarter of 1995, while Interamerican got its ‘approved’ status to allow investments, according to the Cyprus Financial Mirror issue 113, on May 31, 1995.

Best performer: The Cyprus stock market was up 24% in the first quarter of 1995, and although Turkey has since topped the charts, the island’s

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June 3 - 9, 2015

financialmirror.com | CYPRUS | 3

Delek sets sights on bigger stake Israeli energy giant wants 20% more

Israel’s Delek Group is offering Houstonbased Noble Energy $155 mln to acquire an additional 19.9% stake in the Block 12 license, boosting its holding from the current 30% to 49.9%.

Delek said in a statement on the Tel Aviv Stock Exchange that negotiations are in the initial stages, and there is no certainty that they will mature into any binding agreement.

As it stands, Noble Energy is the operator of Block 12 with 70% interest. Partners Delek Drilling and Avner Oil Exploration, both Delek Group subsidiaries, each hold 15%.

“We are in preliminary and nonbinding discussions with Delek and other parties about acquiring working interest in our Block 12 license holdings. Those discussions are continuing, and we have not finalised any agreement with any party, including Delek,” Noble said in a statement.

Energy Minister Giorgos Lakkotrypis, who has been coordinating all exploration prospects, called it a positive development.

It indicated interest in investment in the project, at a time when fuel and gas prices were now starting to fall, he added.

At the beginning of this year, Noble was in talks with officials in Cyprus over how to develop the 4.54 tcf gas reservoir Aphrodite, after neighbouring operators ENI-Kogas and France’s Total failed to find significant discoveries that would justify their exploration plans. Cyprus has also stepped back from initial plans to build an onshore natural gas liquefaction plant, as the Noble’s reservoirs alone would not sustain such a plant. Talks are underway with Egyptian plant operators to pipe Aphrodite’s gas output once it comes on

stream.

In May 2014, Noble received approval for a two-year renewal for its Cyprus project, setting the expiration date for May 2016, buying enough time to evaluate development scenarios for Block 12.

Failure to execute successful development scenarios for Block 12 in the Cyprus Exclusive Economic Zone and the adjacent Leviathan within Israel’s EEZ could reduce Noble’s future growth and have negative effects on its operating results, the company said recently in its annual report.

In February 2015, Noble suspended further investments in the expansion of Tamar, and initial development of Leviathan until regulatory issues were resolved with the Israeli government.

Leviathan is Noble’s largest exploration discovery in its history with an estimated 19 tcf of gross natural gas resources, representing the largest deepwater natural gas discovery in the world in over a decade. Noble had anticipated that the first phase of development at Leviathan to be approved in 2014.

As of 2013 when Tamar went into production, it was estimated to contain gross mean resources of 10 tcf of natural gas which was first discovered in 2009.

Noble operates Leviathan with a 39.67% interest. Its partners include Delek Drilling (22.67%), Avner (22.67%), and Ratio Oil Exploration (15%).

Noble also operates Tamar with 36%. Its partners include Isramco Negev 2 LP (28.75%), Delek Drilling (15.625%), Avner (15.625%) and Dor Gas Exploration (4%).

Alpen Invest to showcase portfolio in Nicosia and Limassol Alpen Invest, nominated recently for the award of “Best Fund in South East Europe” by Capital Finance International, will be presenting its strategies and prospects for future investments in Cyprus on Wednesday and Thursday.

Addressing the financial services community – including wealth management firms, as well as legal and audit firms – the two events will take place on une 3 and 4, at the Press House in Nicosia and Crystal Lounge Bar and Restaurant in Limassol, respectively.

Both events start at 5.30pm.

Alpen Invest is Slovenia’s largest independent mutual funds management company. An asset management company, regulated by the Slovenian Securities and Exchange Commission with an EU compliant UCITS fund (Alpen.SI), since its inception Alpen has consistently outperformed its benchmark with a third of the fund invested in highly liquid assets. Alpen Invest also manages another two funds: Alpen.Developed that invests primarily in the equity of large companies in developed markets (U.S., EU, Canada, and developed Asia-Pacific), as well as Alpen Emerging, that seeks to capture dynamic opportunities in emerging economies.

“We are excited to be presenting Alpen Invest to a Cypriot audience for the first time, and we are looking forward to showcasing its impressive results and strategies for future investments”, said Savvas Liasis, Chairman of the Board of Directors of Alpen Invest.

“We have identified some very attractive investment opportunities, and we hope to take advantage of them in the near future”, added Liasis.

For information call 22873204.

June 3 - 9, 2015

4 | CYPRUS | financialmirror.com

Bank of Cyprus Q1 profits at €29 mln Bank of Cyprus announced EUR 29 mln in first quarter after-tax profits, a turnaround compared to a loss of EUR 337 mln in the last quarter 2014.

The Common Equity Tier 1 capital (CET 1) ratio (transitional basis) dropped marginally to 13.9%, compared to 14.0% at end-2014, while the fully loaded CET 1 ratio remained unchanged at 13.4%.

The bank said in an announcement that gross loans and customer deposits totalled EUR 24.1 bln and 13.6 bln, respectively, with the loans-to-deposits ratio improving to 138%, compared to 141% at Q4 2014 and a high of 151% on 31 March 2014.

The emergency liquidity assistance (ELA) was reduced by EUR 500 mln to EUR 6.9 bln, while post-results, ELA was further reduced by EUR 500 mln to EUR 6.4 bln, nearing the half mark from the EUR 11.4 bln in April 2013.

Non-performing loans (in arrears for more than 90 days) totalled EUR 12.79 bln and accounted for 53% of gross loans.

The bank said it remains “appropriately capitalised”, with the CET1 ratio (transitional basis) at 13.9% at 31 March 2015 (compared to 14.0% at 31 December 2014). Adjusting for deferred tax assets, the CET1 ratio on a fully-loaded basis totalled 13.4% on March 31.

Net interest income (NII) for 1Q2015 totalled EUR 225 mln in line with the previous quarter.

Total expenses reached EUR 102 mln, down 11% from EUR 114 mln in 4Q2014, mainly due to increased non-

recurring and other operating expenses. Hence, the cost to income ratio improved to 38% from 41% in 4Q2014.

Profit before provisions and impairments, restructuring costs and discontinued operations for 1Q2015 was EUR 170 mln, compared to EUR 167 mln for 4Q2014. Provisions for impairment of customer loans (continuing operations) for 1Q2015 amounted to EUR 148 mln, compared to the elevated provisions of EUR 248 mln for 4Q2014.

Profit after tax from continuing operations (excluding restructuring costs, discontinued operations and net loss on disposal of non-core assets) in the first quarter totalled EUR

57 mln, compared to a loss of EUR 107 mln for 4Q2014.

Group customer deposits were up nearly 450 mln to EUR 13.611 bln, compared to EUR 13.169 bln on 31 December 2014. Group gross loans totalled EUR 24.1 bln, compared to EUR 23.8 bln on 31 December 2014.

CEO John Patrick Hourican said that the bank reduced ELA by EUR 500 mn and continues to stabilise its deposit base while maintaining its capital position.

“The loan to deposits ratio improved to 138%, partly because of the continuation of positive customer flows.

Furthermore, the improvement in the bank’s core results continued, with profit after tax from continuing operations totalling EUR 57 mln, compared to a loss of EUR 107 mln for 4Q2014,” he said.

He added that the bank’s significantly strengthened capital position and overall improvement in its financial position enhance its funding options and will facilitate access to the capital markets, especially following the recent successful debt raising by the Republic of Cyprus.

He said that depending on market conditions and investor appetite, the bank will assess the possibility of raising wholesale funding, with the proceeds of such funding used to reduce ELA. Hourican also pointed out that the adoption of the foreclosure legislation and insolvency framework is a significant step in enabling the bank to tackle its delinquent loans and improve asset quality.

Moody’s: BOCY covered bonds hiked to B3, ELA reduced

Unemployment at 16.1% in 2014 The unemployment rate for 2014 reached 16.1% of the labour force (17.0% males and 15.1% females) compared to 15.9% in 2013, according to the revised figures of the Labour Force Survey released by the Statistical Service Cystat. The figures have been revised based on the new weighting factors resulting from the final estimated population of 2014.

The unemployment rate for young persons aged 15-24 was 36.0% of the labour force of the same age group compared with 38.9% in 2013.

According to the Labour Force Survey, the number of employed persons amounted to 362,741 (185,122 men and 177,619 women) and the number of unemployed persons to 69,547 (38,045 men and 31,501 women).

PDMO sells €12 mln in 6-year bonds, cuts future rates The Ministry of Finance sold 6-year government bonds worth EUR 12 mln in its monthly offer this week, but also proceeded to lower the interest rates for a second time that had made the retail bonds attractive to individual investors. The Public Debt Management Office said that for the May bonds, the Republic received 92 offers for the total of EUR 11,918,700, of which 5 mln were foreign investors.

On Wednesday, the PDMO said it was lowering the interest rate on future bonds starting from the September series, to be offered on August 3-20. Thus, the rate will be lowered to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 48-60 months and 3.25% for 60-70 months. This will generate an average 6-year yield of 2.79%, down from the 4% average at the launch of the programme. As a consolation prize, the PDMO said that the present rates will be maintained through the current and previous bond issues, until they expire.

Moody’s Investors Service has upgraded from B3 (on review for upgrade) to B1 the ratings on the mortgage covered bonds of the Bank of Cyprus, despite the high risk from the default of non-performing loans or failure of recovery.

The rating agency has also affirmed the Caa3 deposit, (P) Caa3 provisional senior unsecured debt ratings and caa3 standalone baseline credit assessment (BCA) of the bank. The Not-Prime commercial paper and short-term deposit ratings have also been affirmed. Moody’s said the affirmation of the ratings reflects the progress the bank has made with its restructuring plan through the early disposal of foreign assets, the reduction of emergency liquidity assistance and the stabilisation of its deposit base despite the abolition of deposit controls in Cyprus.

As part of its deleveraging strategy, the bank has sold its operations in Ukraine, assets in Romania as well as loans in Serbia and the UK, allowing the bank to refocus on its key

domestic market. The asset sales, the early repayment of a sovereign bond and a successful capital increase have also allowed the bank to reduce its emergency liquidity assistance (ELA) to EUR 6.5 bln as of April 2015 from a peak of EUR 11.4 bln in April 2013.

Although declining, funding reliance on central banks, which accounted for 27% of assets as of April 2015 according to Moody’s estimates, remains large. Moreover, the bank faces a large stock of non-performing loans (NPLs) and low cash provisions (loan loss reserves) against losses from these exposures.

A reduction in the volume of NPLs, improvement in the cash coverage of NPLs and a material decrease in central bank funding could help in further rating rises, Moody’s said, but warned that risks remain in the deterioration in the bank’s asset-quality metrics which would significantly erode capital buffers or an increased reliance on Euro-system funding.

Coop Bank Q1 profits at €37 mln The Cooperative Central Bank reported net profits of EUR 37.1 mln in the first quarter of the year, down from EUR 41.2 mln in the fourth quarter of 2014, mainly due to a drop in interest income as well as an increase in provisions by EUR 22 mln to EUR 3.04 bln.

“This profitability was achieved within a quarter that was marked by a courageous reduction of interest rates.

Our aim is to continue to converge Cyprus rates with the European average in order to help the economy regain its competitiveness,” said board Chairman Nicolas Hadjiyiannis.

“The Cooperative Bank that we are planning ahead will be even stronger and innovative so as to serve our thousands of members and customers,” he added.

However, despite lowering interest rates in order to help its cooperative clients, operational costs were reduced in the first quarter, while the bank has

maintained its level of non-performing loans at 44.1% of its loanbook, far below the national level of above 50%.

The bank’s balance sheet increased by about EUR 260 mln from the previous quarter to EUR 14.2 bln that includes EUR 1.29 bln in own funds, with the Core Tier 1 capital adequacy ration dropping marginally from 13.6% to 13.3%. The government bailed out the bank with a EUR 1.5 bln capital injection last year and it is now nationalised, having merged all local Cooperative Credit Societies under one

roof, but the group is not statecontrolled and aims to consolidate the Cooperative sector further by selling off non-core assets and reducing its operational expenses.

With net interest income (NII) dropping to a quarter, from EUR 378.9 mln to EUR 89.5 mln, operating profits reached EUR 59.9 mln due to a continued reduction of costs that helped cut the cost-to-income ratio marginally to 37.2%.

The bank currently employs 2,670 people, 33 less than the previous quarter, and aims to reduce this number further to 2,580 by the end of 2017.

Total loans and other facilities reached EUR 10.03 bln, down 100 mln from the previous quarter, due to a fall in demand and continue deleveraging by retail and corporate customers.

NPLs increased by EUR 200 mln to EUR 6.9 bln, while deposits also rose by EUR 242 mln to EUR 12.6 bln.

June 3 - 9, 2015

financialmirror.com | CYPRUS | 5

President inaugurates VTT Vasilikos terminal President Nicos Anastasiades inaugurated the VTT Vasilikos Ltd terminal for the storage and management of petroleum products, which he said was “in line with our own vision to create a hub for trading petroleum products in the strategically important region of the eastern Mediterranean.”

The terminal, with an investment of EUR 300 mln, constitutes the springboard for development in the Vasilikos area and it is the largest private energy project ever constructed in the Republic, he said.

Anastasiades said that due to its strategic location, the terminal connects the markets of Europe and the Black Sea with those of the Middle East and Asia, highlighting its significance for the wider region as deliberations are taking place for upgrade of the Suez Canal to allow ships of larger capacity to pass by this strategic naval passage. The project, he said, also helped the government overcome a longstanding problem in Larnaca where the old refinery and oil storage tanks were based.

Already, the Cyprus Organisation for Storage and Management of Oil Stocks has concluded a three-year agreement with VTTV for the rental of storage space to maintain and manage the national oil stocks that are being kept at the Cyprus Petroleum Storage Company’s facilities.

Anastasiades noted that the cost of storing the national stocks in the VTTV facilities will

remain at the same level, while, at the same time, an opportunity has been created to repatriate the reserves Cyprus kept abroad, securing a strategic advantage in case of a sudden energy crisis.

He added that the Council of Ministers has approved a series of compensation measures for the benefit of the eight communities of the area, always in collaboration with the local leadership and in line with their demands.

At the same time he said that the project

BOCY, CIIM launch start-up programme with seed-money Bank of Cyprus and the CIIM Business School have set up a start-up programme to provide innovative business ideas with seed money, facilities and support services.

The programme aims to encourage startups comprising two to five persons to submit their business plan which, if successful, will be rewarded with 10,000 euros, free office space in Nicosia and IT support from MTN for a whole year, in addition to mentoring and business advice from Deloitte, Lellos P. Demetriades law office and the advertising agency Innovation / Leo Burnett.

Instead of investing in the form of venture capital, the programme will take a 6% stake in the successful start-ups that will be selected. The deadline for applications is July 23 and the programme will be repeated in Limassol next year.

“Cyprus lags behind in R&D (research and design). This is a small kernel of an idea aimed at doing more and talking less,” said Bank of Cyprus CEO John Hourican.

“Now, we’re closing a chapter and getting

back on our feet,” he said, adding that all seeds, some may not grow, but it is important to help young businesses and entrepreneurs flourish and thrive.

Yiannis Liveris, who heads the programme in Nicosia, said that if the idea is innovative with growth potential, also known as a minimum viable product (MVP), it does not have to be limited to only young applicants or university graduates.

“We also want people of all ages and most importantly, experiences, to apply,” he said.

Liveris said that the online application form at www.ideacy.net is user-friendly and easy to navigate.

The first three months will be the ‘accelerator stage’ where successful candidates will receive hands-on training, followed by an incubator stage of 6-9 months where they will get valuable information and advice from the programme mentors.

Liveris added that potentially, the network of mentors may also help find long-term investors for the start-ups.

constituted an economic achievement for Cyprus, as it started in the middle of the economic crisis.

As of Friday, Cyprus officially forms part of the countries where oil is traded for the purpose of reaching the international markets, said George Papanastasiou, Managing Director of VTT Vasiliko Ltd. He added the project was built by J&P according to the VTTI Group’s highest technological and safety standards, fully financed by the parent company, VTTI B.V.

and its shareholders Vitol and MISC. The terminal consists of 28 tanks, with a total capacity of 544,000 cu.m., a 1.5 kmlong marine jetty and four berths that can accommodate vessels from 5,000 up to 160,000 DWT. Papanastasiou said that the terminal will be the most competitive oil storage and management facility in the eastern Mediterranean, since the increased costs of other contributors involved in the transport of oil via Cyprus are in the process of being reduced through legislative arrangement.

On his part, Rob Nijst, Chief Executive Officer of VTTI B.V., said that “as investors in the project, we take pride in the completion of the construction of a state-of-the-art, world class terminal, which will support Cyprus’ ambition to become a leading energy hub in the eastern Mediterranean and which will contribute significantly to the Cypriot economy”.

Nijst said that VTT Vasiliko Ltd is a 100% subsidiary of VTTI B.V, a multinational company based in Rotterdam, partly listed at New York Stock Exchange. VTTI owns and manages 12 similar oil terminals on five continents, with a total capacity reaching 8.5 mln cu.m.

Nijst also announced the possibility of further investments in Cyprus, such as the expansion of the terminal and other energy infrastructure projects.

June 3 - 9, 2015

6 | CYPRUS | financialmirror.com

English-language universities in Cyprus – good or bad? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

Ever since the University of Cyprus was established, I have opposed the use of Greek instead of English as the main language of teaching. Because of this foolish sense patriotism from the days of the Clerides presidency, this remarkable university only attracts locals and some Greek students, and has lost all foreigners and certainly all Turkish Cypriots, which would have transformed the university into a meeting place and for socialising, while foreign students maintain warm ties to Cyprus when returning to their countries. As a result of this language barrier, the Turkish Cypriot side now has 20,000 students in its mainly English-speaking universities who pay tuition. We have also lost the opportunity to attract foreign graduates who would by now have returned or moved on to other foreign countries, particularly in the Middle East, and we have lost of course many Europeans, particularly those from the former Eastern European countries. As a result, we have a university that is primarily supported by the Cypriot taxpayer and does not justify enough revenues to pay for its own expenses.

This wrong decision has left the door wide open for private English-speaking universities to attract those foreign students that should have gone to UCy. When referring to English-speaking universities, allow me to have strong reservations regarding most of these universities and the English-language colleges.

From my own experience, teachers seem to have very limited knowledge of the professional level of English and

many lessons are often taught in a form of Greek-English.

Tests and assignments are either in Greek or English, depending on what suits the student and makes you wonder about the level we have here – books in English, lessons in Greek-English, assignments and notes in Greek-English and in the end the graduate gets a degree that as regards language proficiency is probably the worst that could possibly be provided.

Because there will be many who will criticise me for these views, I urge the Ministry of Education to seriously consider these concerns, otherwise we would be doing the worst possible thing to Cyprus that aspires to become an international centre of learning and education.

I reiterate yet again that practitioners who do not command and excellent standard and are proficient in the professional use of the English language (and not that which is heard in clubs and pubs) should have no future, either in Cyprus or abroad.

Let me just refer to some simplistic talk that I hear in public that so-and-so “is a very good lawyer who graduated from England” which is a widely used reference for almost all professions. In present-day Cyprus, which wants to become a serious international and offshore centre, the proper use of English or any other leading international language is a must, while learning additional languages ??such as as Russian, Mandarin, etc., should be considered as a major qualification and excels that of a Masters or PhD degree. Most work conducted on an international basis nowadays uses at least the English language, while on the international scene we have often seen the gradual and increasing use of English Law standards, such as a more frequent use of the British Courts and arbitration courts, in addition to those employed for international contracts.

Applications for employment that we receive as an office are often rejected immediately if the applicant does not know

what I would like to refer to as “business English”, while where we made the mistake and hired the well-known GreekEnglish candidates, we were burdened with a double cost, both in terms of communication with foreign customers, to write reports, etc., as well as to hire a second person to correct them afterwards.

When a young person wants to study in a foreign country, that foreign university in an attempt not to downgrade the level of its teaching, either requires the applicant to attend at least one year’s intensive learning of that language (also known as ‘foundation courses’) or insists on entrance examinations being conducted in the main teaching language of the university.

The whole situation is regrettable and certainly deans and rectors are mostly responsible, as very often admission standards are lowered purely for financial reasons.

Some might recall the tireless efforts of the former Rector of the University of Cyprus, that remarkable Professor Tsogopoulou and the unrestrained hostility she faced from the then Chairman of the Education Committee of the House, and now President of the Republic, who kept on criticising her on a constant basis.

The efforts for a bicommunal university (hence Englishspeaking) thus failed, freely allowing the Turkish Cypriots be achieve what we could not with our narrow-mindedness and the constant intervention of the ‘wise’ politicians, such as the incident during the inauguration of the University where Ms. Tsogopoulou dared to sit the Ambassador of Greece in the second row and what she suffered later from the continued attacks from the House Education Committee.

So, food for thought for all that perhaps changing the main language the University of Cyprus to English might not be a bad idea and if so, it should be done son. www.aloizou.com.cy ala-HQ@aloizou.com.cy

BAT-Photiades improve market share

Toyota Cyprus aims for 500-car Guinness record Local Toyota distributors Dickran Ouzounian & Co. are hosting a record-breaking attempt on Sunday, June 7, by trying to get at least 500 cars in a 2.5 km tour around Nicosia and beat the Danish record of 426 Toyota vehicles.

The event, that will be monitored in order to enter the Guinness World Records, is part of the company’s 50th anniversary events to commemorate the arrival of the first Toyota saloons in Cyprus in 1965.

Sunday’s event starts at the GSP Stadium in Nicosia at 10.30am and participants with any Toyota model and age will have to register in advance at www.toyota.com.cy .

The event will have a fund and fund-raising nature, as local suppliers will be selling snacks and drinks with proceeds going to the cancer patients charity PASYKAF.

After a three-year collaboration, British American Tobacco Cyprus and the Photos Photiades Group presented their plans for further investments and commitment to contributing to the island’s economic recovery.

In a joint announcement, BAT Cyprus and Photos Photiades Group said that their overall investments exceed EUR 15 mln a year, while the tobacco company has paid EUR 520 mln in taxes in recent years.

Addressing the event, Finance Minister Harris Georgiades stressed the

important contribution of both companies in supporting the economy, noting that their business activities have helped maintain and create new jobs, and simultaneously open up new prospects.

Having started their cooperation during a difficult time for both the retail sector and the economy, the two companies have so far covered 95% of tobacco product outlets across the island.

The Photiades Group’s wealth of experience and history in the retail sector, combined with BAT’s leading

position in the tobacco products’ market has led the latter to increase its markets share.

Outlining the next steps, the Head of Finance at BAT Cyprus, Marios Argyrides, said: “We have an ambitious plan for the Cypriot market and the challenges it faces, filled with innovations and actions that, above all, will benefit the Cyprus economy.”

The two companies announced their joint collaboration with the Cyprus Red Cross, with a new social responsibility initiative to help 20 families over the next few months.

June 3 - 9, 2015

financialmirror.com | CYPRUS | 7

Need for asset management units for banks to recover The Chairwoman of Hellenic Bank has called for the creation of asset management vehicles or companies so that banks can properly deal with the vast problem of nonperforming loans and the glut in the property market.

Addressing the bank’s 41st AGM, Irena Georgiadou told shareholders “our priorities include the effective management of NPLs and responsible growth,” with CEO Bert Pijls adding that the aim is to turn the crisis into an opportunity for growth.

Georgiadou noted that 2014 was a year which posed great challenges and presented many changes and big opportunities. As regards the economy, she emphasised the significance of implementing important reforms which will assist in attracting new investment.

Georgiadou emphasised the role that, through responsible monetary and credit transactions, the banking system is called upon to play in order to achieve sustainable growth.

She described non-performing loans as the greatest challenge faced by the country’s financial system as a whole and pointed out that their correct and successful management requires specialised knowledge. In this context, she highlighted the need to swiftly create the circumstances which will allow the establishment and operation of ‘asset management vehicles or companies’.

According to reports, the government is already pondering setting up a ‘bad bank’ that will undertake the troubled

mortgages, probably under the auspices of the existing Housing Finance Corporation, a state-owned lender geared at assisting low-income first time buyers.

Expressing the Hellenic Bank’s determination to enter into a trajectory of steady growth, Georgiadou referred to the Group’s strategic targets for 2015 which include the effective management of NPLs and the growth of market share.

CEO Bert Pijls said parliament’s ratification of the law on foreclosures and the insolvency framework was “a step in the right direction.

However, the legislative framework must be strengthened in such a way so as to allow loan sales where this is deemed unavoidable, a practice which is adhered to by all European countries.”

As regards the management of NPLs, Pijls said that efforts are focusing on realising viable restructurings with viable solutions.

He also referred to four significant figures which indicate the past months’ positive developments and the momentum gained by the Hellenic Bank Group. These include a capital adequacy rate of 17.9%, a net loans to deposits ratio of 49%, some 30,000 new customers and 119 new hirings, with the workforce now at about 1,400.

Pijls also referred to Hellenic Bank’s new housing interest rate – which is the lowest in the market – as well as the debt consolidation scheme for individuals.

June 3 - 9, 2015

8 | COMMENT | financialmirror.com

Bukra Fi Mish Mish Memories flooded back as I turned the pages of the food and family orientated book “Damascus – Taste of a City”. It is many years since I visited Damascus, and indicative of this

Patrick Skinner is that back then, in the 1960s, I, an Englishman, drove by myself to and through the city several times on return trips from Beirut to Amman, in complete safety. I am doubtful about trying this today and although saddened by the fact, I am grateful that I was afforded the opportunity to travel freely around many Middle-Eastern countries then, stopping at rest houses, eating wonderful street food and buying ingredients from markets and stores that seemed like Aladdin’s caves with their wondrous stock of foodstuffs.

So I remember Damascus’ shaded streets, alleyways and markets with fondness. Above all I remember the Ummayad (or Great) Mosque, not only for its size, its beauty, its graceful colonnades and shaded feeling of tranquillity in the middle of the day, but also for the 8mm movie film I took of it.

Accidentally, I inserted a film in my camera which had already been exposed on a previous part of the trip. This, when viewed, Damascus’ Grand Mosque The picture here is of the Shrine to St. John the Baptist was superimposed on the Grand Canal of Venice.

For me as a cook and writer, this book evokes those memories of old and stirs the mind anew, such is its style (remarkable, really, as it is a translation). It took me back to many happy days with families and friends. The food is familiar to me having been married for some years to a Levantine lady, who turned me from an English cook into a Mediterranean one. So, many of these dishes are regularly on my table. As far as I can see, there are two notable omissions.

When in Lebanon or Jordan, I was always told that the best Arabian pastries “Ba’tlawa” (Baklava) came from Damascus and I believe that. Another food product emanates from there, too, the sheets of Apricot paste called “Amardine”, useful in dessert dishes and beloved by children as a nibble.

Cooking-wise, you can’t do a lot with Amardine. You can leave it in water overnight then mash it up till it’s dispersed and then make a

puréée to serve with ice-cream, or thin it out with a little water to make a sauce for a sponge pudding; or mix with more water and add sugar for a fruity drink. If you have small children around, my bet is they will soon learn to raid the fridge and pick off a bit to nibble.

The only amardine recipe I can find, by one of my favourite food writers, Sonia Uvezian, is to dip pieces in batter and deep fry them. She puts amardine into the whole apricot context most beautifully in her superb book “Recipes and Remembrances”, which is still available and if you wanted just one desert island Middle-Eastern food book, this must be the one. One of her favourites – a rice pilaff using vermicelli – is one of mine, too… and below I reprint it, from my cook book (which is now a collectors item(!), which means it’s more expensive than when published in 1996. Moufflon Bookshop have a few copies.)

A paperback “Damascus – Taste of a City” may be, but it’s a little treasure I shall, if I am spared, get down again and again from my bookshelf in years to come. My heading, by the way, is a saying I often heard in Lebanon, Syria and Jordan, which means “Tomorrow there will be no apricots” - or, if you like, “C’est la Vie”.

Pilaff Ingredients for 4 – 6 servings 500 g of pilaff or long grain rice Chicken or turkey stock (1 litre or a little more) 125 g (1 cup) of short fine pasta (Vermicellini - very thin) A knob of butter

Method 1. In a large pan, melt the butter.

2. When sizzling, pour in the little short strands of pasta and stir until it is going brown.

3. Pour in the stock and bring to the boil.

4. Pour in the rice until it makes a mound and touches the surface of the stock, stir.

5. Cover and cook slowly for around 20 minutes or until the rice is tender.

6. If your rice gets too dry, add more stock if necessary to make a nice, rich juicy pilaff, but do not stir during this time.

For the next two weeks I shall be reporting from the West of England and Wales, where, among other things, we shall be riding up and down mountains aboard a vintage steam train.

Take care!

KEO goes ‘light’ with lo-cal beer KEO has introduced a variant to its trademark beer for the first time in the brewery’s 65-year history.

KEO Light claims to be just 29 calories per 100ml, down from the 40 calories in the regular beer, also reducing its alcohol by volume (abv) from 4.5% to 3.5%.

The Limassol-based drinks company that produces water, juices and wines, said in an announcement that it was responding to the needs of consumers who are constantly in search of a healthier way of life and milder alternatives.

It is available in bottles and 330mln tins at select outlets and the company plans to promote it aggressively at bars and clubs, especially with the summer season about to get into full swing.

Rival Carlsberg, that produces a 37 calorie beer, had briefly introduced the ‘Ice’ variant that only remained in the Cyprus market for a few years. The brewer’s other brand, the lesserknown Leon, recently resized its bottle to 250mla and changed to green glass.

KEO and Carlsberg command a joint market share of about 70% of all beers sold in Cyprus.

June 3 - 9, 2015

financialmirror.com | PROPERTY | 9

Property prices continue to tumble, Nicosia hurt most Property prices continued to fall in most towns and asset classes during the first quarter of the year, down 3-8% from the same quarter last year, with significant falls being recorded in Nicosia, according to the 22nd RICS Cyprus Property Price Index.

“Given prevailing economic conditions and the turbulence in Cyprus’ banking system, there were few transactions in the first quarter although volume was higher on a year on year basis,” the RICS report said.

“Local buyers in particular were the most discerning as the increase in unemployment and the prospects of the local economy maintained the lack of interest. Furthermore, those interested are trying to access bank-finance.

The capital is clearly feeling the impact on the government and banking sector (the two sectors that dominate the local employment market), whilst progressively bottoming out, the RICS quarterly report said.

“The downtrend in property prices continues, but there was interest for Paphos and Famagusta in the first quarter of 2015, where the price falls have stabilised, reducing annual losses,” said realtor Charalambos Petrides, MRICS. “What is interesting is that this first quarter, compared to 2014 and 2013, has seen an increase in trade activity by about 20%. It seems that the volume of transactions has recovered and the fall in prices has created interest in the market.”

Across Cyprus, movements in property prices appear mix as residential prices for flats fell by 0.4% while an increase of 0.6% was noted for houses, according to the RICS survey.

The biggest drop was in Limassol (1.0% for flats) and the biggest increase in Larnaca (3% for houses). Values of retail properties fell by an average 1.7%, offices by 0.1%, while warehouses increased by 1.3%.

Compared to Q1 2014, prices dropped by 3.2% for flats, 3.0% for houses, 8.1% for retail, 4.8% for office, and 3.2% for warehouses.

On a quarterly basis, rental values decreased by 0.3% for apartments, 1.9% for offices, 0.4% for retail units and 0.1%

for warehouses; house rents increased marginally by 0.3%.

Compared to Q1 2014, rents dropped by 4.0% for flats, 1.2% for houses, 8.1% for retail, 5.9% for warehouses, and 3.5% for offices.

The majority of asset classes and geographies continue to be affected, with areas that had dropped the most early on in the property cycle now nearing or at the trough. Paphos, Famagusta and Larnaca are showing some signs of price stability.

At the end of Q1 2015 average gross yields stood at 3.8% for apartments, 2.0% for houses, 5.3% for retail, 4.3% for warehouses, and 4.4% for offices. The parallel reduction in capital values and rents is keeping investment yields relatively stable and at low levels (compared to yields overseas). This suggests that there is still room for some repricing of capital values to take place, especially for properties in secondary locations, the RICS Cyprus report suggested.

“Property prices will continue to fall on an annualised rate but with smaller losses this year than in 2014. In anticipation

of developments in the finance sector, particularly as regards the issue of non-performing loans, the stricter lending procedures, the high interest rates and the matter of foreclosures of mortgaged properties, the market will remain in a downfall trend,” Petrides added.

Aphrodite Hills receives TripAdvisor award for 2015 Aphrodite Hills Golf & Spa Resort Residences announced that it has received a TripAdvisor Certificate of Excellence award.

When selecting Certificate of Excellence winners, TripAdvisor said it takes into account the quality, quantity and frequency of reviews and opinions submitted by travellers on TripAdvisor over a 12-month period. To qualify, a business must maintain an overall TripAdvisor rating of at least four out of five, have a minimum number of reviews and must have been listed on TripAdvisor for at least 12 months.

“This is a great vote of confidence to our business, the whole team and our

COMMERCIAL BUILDING PLOT FOR SALE IN NICOSIA Suitable for retail/office construction. Located in a very desirable location, opposite Marks & Spencer and within 50 mtrs of Acropolis Park.

Plot Area: 556 sq.m.

Max. Building Cover: 50% Max. Building Height: 24 meters Max. No. of Floors: 6 Road Frontage: Approx. 24 meters Price: €650,000 For more info please contact us at: 99317468

continued commitment to excellence,” said Telemachos Hassapis – General

the resort.

Manager of the Holiday Residences operation of

June 3 - 9, 2015

10 | LIFESTYLE | financialmirror.com

OECD Better Life Index: The

By Alexander Kent Denmark’s residents are the most satisfied with their lives, according to the Better Life Index released on Monday. According to the study, published annually by the Organisation for Economic Co-operation and Development (OECD), the United States failed to crack the top ten for the fifth consecutive year.

The Better Life Index rates the 34 OECD member nations, as well as Brazil and the Russian Federation, on 22 variables that contribute to overall well-being, including income, education, housing, health, and life satisfaction. 24/7 Wall St. reviewed the ten countries with the highest life satisfaction score.

A healthy job market is one of the most important factors contributing to higher life evaluations. Employment rates — the percentage of the working-age population that is employed — were higher in each of the ten countries with the highest life satisfaction score than the average employment rate for the countries reviewed.

Conversely, countries with relatively unhealthy job markets had lower life satisfaction scores. Unemployment rates were above 8.5% in seven of the ten least happy countries, while they were lower than 7% in all but two of the happiest countries.

Healthy labour markets not only help promote job security, but also they can contribute to workers’ mental health. Romina Boarini, head of well-being and progress measurement in the OECD’s statistics division, noted that, “unemployment and fear of job loss are detrimental to [a worker’s] mental health.”

Feeling connected to one’s community is another factor in a country’s happiness. In all but one of the happiest countries, at least 90% of respondents reported having a quality support network that they could rely on in times of need. “People are social creatures and get pleasure from spending time with others,” Boarini said.

Good personal health, too, can contribute to a person’s happiness. In New Zealand, tied for the seventh happiest country, 90% of people surveyed considered themselves in good health, the highest proportion of all countries reviewed.

Additionally, in all but one of the happiest countries, more

The most valuable brands in the world According to the latest edition of Millward Brown’s annual Brandz report, Apple has surpassed Google to reclaim the throne and become the world’s most valuable brand once again. Driven by the success of the iPhone 6 and 6 Plus, Apple’s brand value soared 67% to $247 bln, eclipsing the value of last year’s leading brand Google by more than $70 bln.

It has been ten years since WPP and Millward Brown launched the BrandZ Top 100 Most Valuable Global Brands survey.

During the intervening decade, 2006 to 2015, brand value increased 126% to $3.3 trln. This year alone, value rose 14%.

(Source: Statista.com)

than 70% of respondents said they were in good health, all higher than the 36 country average of 68% of people in countries reviewed.

In the United States, life satisfaction rebounded after two years of falling in the rankings, largely due to the country’s improving labour market. Despite the recession erasing a majority of wealth in the country, households had an average net worth of $146,000, by far the most among countries reviewed. Boarini warned that U.S. life satisfaction may be misleading, however, as the data are based on a small sample.

In previous years, lower life satisfaction in the U.S. was attributed to income inequality. “We do know the more unequally the income is distributed, the lower the life satisfaction.” In fact, the Gini coefficient, a measure of income inequality, has worsened in the U.S. in recent years.

The U.S. still has one of the worst Gini coefficients in the OECD. To determine the happiest countries in the world, 24/7 Wall St. reviewed the countries that received the highest life satisfaction scores from the OECD Better Life Index. The OECD rated countries on eleven categories: housing, income, jobs, community, education, environment, civic engagement, health, safety, work-life balance, and life satisfaction. We used the life satisfaction index for the ranking. Additionally, we examined unemployment rates for

2013 from the International Monetary Fund.

These are the happiest countries in the world.

1. DENMARK Life satisfaction score: 7.5 (tied-the highest) Self-reported good health: 72.0% (15th highest) Pct. with quality support network: 95.0% (4th highest) Disposable income: $26,491 (15th highest) Life expectancy: 80.1 years (12th lowest) While having a job often helps contribute to happiness by creating a stable financial environment for families and individuals, balancing work with leisure can also be critical to finding happiness. In Denmark, 73% of the workforce was employed, higher than the OECD average employment rate.

Perhaps more important, though, the Danes still found time to devote more than 16 hours each day to leisure and personal care activities, which include sleeping, socialising, and watching television. This was the most time devoted to such activities among countries reviewed. As in other countries reporting high levels of happiness, as many as 95% of Danish respondents had a quality support network, the fourth highest proportion among countries measured by the OECD. Denmark residents are also well educated, having spent an average of 19.4 years in school, the third highest among countries reviewed.

June 3 - 9, 2015

financialmirror.com | LIFESTYLE | 11

happiest countries in the world 2. ICELAND

5. ISRAEL

8. CANADA

Life satisfaction score: 7.5 (tied-the highest) Self-reported good health: 77.0% (9th highest) Pct. with quality support network: 96.0% (tied- highest) Disposable income: $23,965 (18th highest) Life expectancy: 83.0 years (2nd highest) Nearly every country with a high level of life satisfaction reported having a strong sense of community. Icelanders, which reported the highest rate of life satisfaction in the OECD, also were the most likely to have friends or family they could rely on. Low assault rates also make Iceland one of the safest countries, which generally improves trust and social cohesion in an area. It also tied with Japan, Denmark, and the UK for the lowest homicide rate of countries reviewed at just 0.3 per 100,000 residents. Iceland had the highest water quality among the 36 countries measured, with just 3% of the people surveyed reporting poor water quality compared to 19% across the OECD.

Life satisfaction score: 7.4 (tied-4th highest) Self-reported good health: 80.0% (8th highest) Pct. with quality support network: 87.0% (11th lowest) Disposable income: $22,104 (15th lowest) Life expectancy: 81.8 years (8th highest) By many measures, Israel is an outlier as one of the happiest countries in the world. For example, with the exception of Israel, residents in every country with a high level of life satisfaction reported having a strong network of friends or family. In Israel, only 87% of respondents said they had a strong sense of community, 26th in this measure.

Perhaps because of its ongoing conflict with the Palestinians, Israel ranked as one of the least safe countries among countries reviewed, with 6.4% of the population reporting having experienced an assault in the past 12 months.

Nevertheless, 80% of respondents reported being in good health, one of the higher rates among countries measured by the OECD.

Life satisfaction score: 7.3 (tied-7th highest) Self-reported good health: 89.0% (2nd highest) Pct. with quality support network: 92.0% (tied-11th) Disposable income: $29,365 (8th highest) Life expectancy: 81.5 years (tied-10th highest) Nearly 90% of Canadians surveyed self-reported high levels of health in 2013, the second highest share in the OECD. High levels of happiness may also stem from strong community engagement. When asked if they had friends or relatives to turn to when they were in trouble, 92% of Canadians responded positively. Together, happiness and social cohesion may help reduce the number of Canadians who are victims of assault. At just 1.3 assaults per 100,000 residents, Canada’s assault rate was three times lower than the OECD average rate, by far the lowest out of all countries reviewed.

3. SWITZERLAND

9. NETHERLANDS

Life satisfaction score: 7.5 (tied-the highest) Self-reported good health: 81.0% (6th highest) Pct. with quality support network: 96.0% (tied- highest) Disposable income: $33,491 (4th highest) Life expectancy: 82.8 years (3rd highest) The Swiss are one of the wealthiest populations in the OECD, with net household wealth averaging $108,823, nearly $18,000 greater than the 36-country average. The small Central European nation also had one of the healthiest job markets with 80% of the working-age population employed. This was the second highest figure of countries reviewed, which, on average, had 65% of the adult population employed. Switzerland also tied Iceland for having the highest proportion of residents stating they felt a strong sense of community. It also had one of the lowest homicide rates, at just 0.5 per 100,000 residents, which was one-eighth of the OECD figure.

6. NORWAY Life satisfaction score: 7.4 (tied-4th highest) Self-reported good health: 76.0% (10th highest) Pct. with quality support network: 94.0% (tied-7th) Disposable income: $33,492 (3rd highest) Life expectancy: 81.5 years (tied-10th highest) Norway’s unemployment rate was just 3.5% last year, significantly lower than the 36-country average unemployment rate of 8.1%. Working Norwegians were also well paid. Full-time Norwegian workers earned $50,282 annually on average, among the highest levels compared to other surveyed countries. As with many other countries that enjoy high levels of happiness, Norway’s air and water were assessed as some of the best in the world. As many as 94% of respondents said they were satisfied with the quality of their water, nearly the most among countries reviewed.

7. AUSTRALIA 4. FINLAND Life satisfaction score: 7.4 (tied-4th highest) Self-reported good health: 65.0% (12th highest) Pct. with quality support network: 95.0% (4th highest) Disposable income: $27,927 (12th highest) Life expectancy: 80.7 years (17th lowest) A sense of community is important to an overall sense of well-being. Finland ranked fourth overall in the OECD survey both in life satisfaction and the proportion of respondents who said they had a good support network. Among countries reviewed, 88% of respondents said they had friends and family they could rely on compared to 95% of Finns. Strong education systems can also buoy citizen’s happiness. In 2012, an average student in a Finnish school had the third highest PISA score, an international standardised test. The country also ranked well in measures such as long-term unemployment and work-life balance.

Life satisfaction score: 7.3 (tied-7th highest) Self-reported good health: 85.0% (4th highest) Pct. with quality support network: 92.0% (tied-11th highest) Disposable income: $31,588 (5th highest) Life expectancy: 82.1 years (6th highest) Feeling connected to the people around you is one indicator of a happy country. More than 90% of Australians responded they had a strong network of friends and family.

Another measure of social cohesion, civic engagement, was also particularly strong in Australia. In the most recent election, 93% of voter-aged Aussies cast a ballot, by far the highest rate in the OECD. Voting has been compulsory in Australia since 1924, and failing to vote in some cases results in a fine. Australian workers enjoyed both a high degree of job security and high salaries. Annual personal earnings averaged more than $50,000, more than $14,000 above the OECD average.

Life satisfaction score: 7.3 (tied-7th highest) Self-reported good health: 76.0% (10th highest) Pct. with quality support network: 90.0% (16th highest) Disposable income: $27,888 (13th highest) Life expectancy: 81.2 years (15th highest) Economic security is one factor that can contribute to a country’s happiness.

While 65% of the labor force was employed across surveyed countries, 74% of the Netherlands’ workforce was employed, the fourth highest rate. And while strong household finances do not always correlate with high levels of happiness, the net worth of Dutch households was nearly $78,000 as of 2012, the fifth highest level among countries reviewed.

10. NEW ZEALAND Life satisfaction score: 7.3 (tied-7th highest) Self-reported good health: 90.0% (the highest) Pct. with quality support network: 94.0% (tied-7th) Disposable income: $23,815 (17th lowest) Life expectancy: 81.5 years (tied-10th highest) New Zealand tied for the world’s seventh happiest country mostly due to the good health of its residents. Nine out of every 10 New Zealanders surveyed reported being in good health, the highest share of all countries reviewed and well above the 68% of residents who said they were in good health across countries reviewed. Not only are Kiwis healthy, but they are also employed. Approximately 73% of residents were employed as of 2013, higher than the 65% of residents among countries reviewed.

Additionally, less than 1% of the country’s labour force had been unemployed for more than a year as of 2013, more than three times lower than the average jobless rate among countries reviewed.

(Source: 24/7 Wall St.com)

Samsung beats Apple in customer satisfaction survey The carefully followed American Customer Satisfaction Index (ACSI) for cell phones recently reported that Samsung rates higher than Apple Inc. (NASDAQ: AAPL), particularly in the smartphone category.

Samsung cell phones received a score of 80 out of 100, while Apple’s score was 80 as well. Motorola Mobility, a division of Google Inc. (NASDAQ: GOOGL), received a rating of 79.

Among smartphones, however, Samsung bested Apple by a large margin.

The Galaxy Note 4 received a grade of 86, followed by the Galaxy Note 3 at 82. The Apple iPhone 6 Plus received a rating of 82 as well. The Galaxy S5 also received a rating of 82, and so did the iPhone 6.

At the second tier were Motorola’s Moto X and LG’s 3G at 81. The Apple iPhone 5 received a grade of 80, as did the Galaxy S4, Motorola Moto, LG and HTC

smartphones. Overall, the data points at two things. The first is that smartphone companies with only modest sales are well regarded by customers, which begs the issue of why these manufacturers do not

do better in unit sales. HTC, LG and Motorola products have been financial disappointment.

The other fact that stands out is the extent to which Samsung does well,

particularly because its earnings results and recent sales have been beaten handily by the iPhone 6. Samsung was the dominant smartphone company by unit sales in the United States. The iPhone 6 changed that. The ACSI numbers probably mean Samsung’s quality ratings might help the sales of its new flagship Samsung Galaxy S6.

The ACSI data may not, on the other hand, translate into unit sales, as the rating of LG and Motorola show.

Smartphones are not the only industry in which consumer research drives sales.

Another highly regarded research firm, J.D. Power, has rated Chrysler products poorly among auto brands, and the car company’s sales have done unusually well.

Consumer ratings of specific models and overall brands only help sales so much. (Source: 24/7 Wall St.com)

June 3 - 9, 2015

12 | INVESTOR | financialmirror.com

The 6 stocks punishing the Dow in 2015 compared to the consensus price target of $93.61. The company has a market cap of $356 bln, and shares are near the lower end of the 52-week trading range of $82.68 to $104.76. Exxon’s recent dividend hike and a lower share price generate a 3.4% yield for new investors. The Exxon 2015 bull/bear analysis called for a 9% gain this year.

By Jon C. Ogg Stocks decided to take a breather at the end of May, bringing up many questions ahead of summer about just how strong and powerful this bull market can remain after six years. The bad news is that each rally feels like it reaches exhaustion quickly. The good news is that investors have lined up in droves for almost four years now to buy their favorite stocks on every pullback.

24/7 Wall St. has looked closely at which stocks leading the market and which are hurting it. With a 2015 projection of 19,142 for the Dow Jones Industrial Average (DJIA), our initial estimate was that the Dow might gain 7% or so in 2015, with a handy portion of that coming from dividends.

It turns out that six of the 30 Dow stocks are hurting the broader index so far in 2015.

Now that May has come to an end, 12 of the 30 Dow stocks are running in the red with negative performance, if you include their dividend payments.

The other 18 Dow stocks were positive.

The median loss of the 12 losers was 6%, while the median gain among the 18 winners was right at 7%.

According to IndexArb.com, each of the six Dow stocks hurting the market also have average index weightings since the Dow is a price-weighted index rather than a market cap-weighted one. 24/7 Wall ran the year-todate performance of each of the six worst DJIA losers, and we included the loss and the weighting in the Dow (from IndexArb).

The losers in order of worst performance (worst to least-bad) were as follows: - American Express Co. (NYSE: AXP) - Procter & Gamble Co. (NYSE: PG) - Wal-Mart Stores Inc. (NYSE: WMT) - Exxon Mobil Corp. (NYSE: XOM) - Chevron Corp. (NYSE: CVX) - Caterpillar Inc. (NYSE: CAT) When 24/7 Wall St. gave its indication of a 19,142 peak in the Dow in 2015, we also ran a bull and bear analysis for each of these Dow giants. Some have done exactly as expected, but some have offered surprises as well.

AMERICAN EXPRESS 2015 YTD: -13.78% Dow Weighting: 2.95% American Express just cannot catch a break in 2015. Its dividend hike is not enough to entice buyers, but the good news is that its valuation is getting dirt cheap.

Fresh news that President Ed Gilligan died suddenly on a flight at age 55 has not helped

CHEVRON

matters. Neither has the loss of Costco. 24/7 Wall St. even highlighted five reasons AmEx shareholders are suffering.

American Express shares were recently trading at $79.72. The stock has a consensus analyst price target of $86.04 and a 52-week trading range of $76.53 to $96.24. Its market cap is $81 bln, and the yield is still a paltry 1.4%. The AmEx bull/bear analysis called for a 7.2% gain in 2015.

PROCTER & GAMBLE 2015 YTD: -12.63% Dow Weighting: 2.90% This is a great company with great brands, making it the largest consumer products giant in the world. Still, it has become too hard to operate a giant of its size with so many brands. So the company is restructuring. It is selling Duracell to Warren Buffett and Berkshire Hathaway, and it has a lot of room to improve. It also has to learn how to combat currency headwinds. Despite P&G’s problems, it is now equal to KimberlyClark (or better) in the ten stocks to own for the next decade. Its dividend ambitions are also expected to keep growing.

Procter & Gamble shares were at $78.39 to end out on May, below the consensus price target of $87.56. The stock has a market cap of $215 bln and a 52-week trading range of $77.29 to $93.89. P&G yields 3.3% now. The bull/bear analysis here called for a 3.8% gain in 2015.

WAL-MART 2015 YTD: -12.45% Dow Weighting: 2.75% Wal-Mart may be a large holding of

Warren Buffett, but the world’s largest retailer keeps having issues. You would think a strong dollar would help its profits with lower product costs, but that may also be capping its sales growth. Wal-Mart also keeps fighting the endless growth of dollar stores.

What the next driving force will be remains up in the air, and shareholders have decided to step back. If wage pressures keep rising in the United States, it is going to pressure WalMart’s operating costs — and whether more consumer dollars would offset the higher costs remains to be seen.

Shares of Wal-Mart were at $42.27 on Friday’s closing bell, with a market cap of $243 bln. The consensus analyst price target is $80.57, and the 52-week trading range is $72.61 to $90.97. Its yield is roughly 2.6%.

Our Wal-Mart bull/bear analysis called for a loss of 1.9% in 2015.

EXXON MOBIL 2015 YTD: -6.38% Dow Weighting: 3.16% One of the best oil and gas companies in the world, Exxon is also the largest of all.

Still, lower oil prices are hurting the company and the group as a whole. Due to the long-term fundamentals, this was renamed as one of the ten stocks to own for a decade — just don’t expect that share price to launch any time soon. There may still be more risk in the oil patch, and Exxon may decide that it wants to gobble up smaller oil field owners if their stocks stay cheap or get battered further. To prove how strong this is even with lower oil prices: Exxon was able to raise its dividend.

Exxon shares were trading at $85.20,

2015 YTD: -6.36% Dow Weighting: 3.82% Chevron has the same sector woes as Exxon, but Chevron decided that it had better not raise its dividend just yet. Chevron posted lower revenues and earnings, just like Exxon. The valuations in the sector are so varied that looking cheap in share prices might not be cheap based on historical price to earnings (P/E) valuations.

Shares of Chevron were trading hands at $103.00, within a 52-week trading range of $98.88 to $135.10. The consensus price target is $114.09, and the market cap is almost $194 bln. Chevron did not raise its dividend, but due to its lower price it now generates a 4.2% yield. The Chevron bull/bear analysis called for a 13% gain in 2015. Needless to say, oil is going to need to seriously recover for that gain to be seen.

Analysts have since tempered expectations handily.

CATERPILLAR 2015 YTD: -5.24% Dow Weighting: 3.16% Caterpillar faces growth issues in all the so-called growth markets around the world.

Mining and infrastructure are serious issues that helped act as a driver, but now they are a load stone. Currency issues are also present, even though the company overcame much of the concerns. Caterpillar’s Machinery, Energy & Transportation segment had a decline in revenue, and Caterpillar used only $400 mln in cash under the $10 bln buyback plan to buy shares last quarter.

Shares of Caterpillar closed out May at $85.32, within a 52-week trading range of $78.19 to $111.46. The consensus price target is $84.37, and the market cap is almost $51 bln. Caterpillar now has a dividend yield of 3.2%. The bull/bear outlook for 2015 expected a 19% gain in 2015, but that has so far been way out of reach.

The Dow was up 2.1%, if you include the dividends paid in. The SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA) and the raw index performance was up 1.05% as of the end of May. (Source: 24/7 Wall St.com)

Green bonds to blossom as more embrace eco-friendly investments The growth potential for the green bonds market is considerable as budding US and European markets become more sophisticated and developing countries like India (Baa3 positive) and China (Aa3 stable) explore their use for the first time, according to Moody’s Investors Service. However, current standards and levels of accountability still leave a dent on investor confidence.

Green bonds raise capital exclusively for projects or activities with specific climate or environmental sustainability aims (e.g., renewable energy, waste management and energy efficiency).

The volume of green bonds sold in 2014 tripled to almost $37 bln from 2013, according to data from the Climate Bonds Initiative, and markets expect issuance to triple again to $100 bln in 2015. Also, in a shift that bodes well for green bond growth in developing markets, India’s Yes Bank Limited (Baa3 stable), a large commercial bank, sold the country’s first green bond in

March 2015. At the same time, China’s plan to open its debt capital markets could increase access to the country’s large domestic savings’ pool and provide transformational opportunities for green bonds.

“We expect the global green bonds market to continue growing as more issuers with varying credit profiles emerge, especially as countries like China and India move towards more eco-friendly economies,” said Falk Frey, co-author of the report.

“However, while companies and municipalities issued 46% of the total last year, figures have dropped so far this year. This drop is not helped by investors’ concerns about standards and level of accountability in green bonds and corporates not seeing any pricing benefits over standard bonds,” Frey added.

Moody’s noted that investing in green bonds fits well with individual and institutional investors’ growing sustainable, responsible and impact (SRI) investing

mandates, which could underpin demand going forward.

SRI investing, which has grown in recent years as sensitivity to social concerns has risen, may now account for as much as 35% of professionally managed assets worldwide.

In 2014, cumulative corporate and municipal issuance of green bonds overtook development banks (46% vs. 44%), signalling a sea change since the early days of 2007 when they were only sold by development banks. This expansion in the types of issuer has resulted in a wider range of ratings for green bonds. In August 2014, the first high-yield green bonds were issued by US renewable and conventional generator NRG Yield, Inc. (Ba1 stable).

As the market develops, the number of currencies that bonds are issued in has also increased. Until 2009, bonds were denominated in either euros, US dollars or Swedish krona. Last year there were 16 different currencies including the Brazilian Real and Indonesian Rupiah.

June 3 - 9, 2015

financialmirror.com | COMMENT | 13

The FIFA syndrome

By Lucy P. Marcus The arrest of FIFA executives on a raft of fraud and corruption charges has been front-page news in recent days and weeks. But the charges brought by the Swiss and American authorities focus on bribery and embezzlement, and do not address another egregious injustice: the treatment of the migrant workers in Qatar who are building the stadiums for the 2022 FIFA Football World Cup. Amnesty International recently released a report on the abysmal conditions in Qatar. The workers are subject to unsafe construction sites, exploitative recruitment agencies, and little recourse to formal justice. Recently, Nepal’s labour minister publicly spoke out about the government of Qatar not allowing his country’s migrant workers to return home to mourn relatives who died in the April earthquake.

As Amnesty International notes, the responsibility lies primarily with the Qatari authorities. But FIFA had – and still has – a responsibility to act. There have also been calls for sponsors, including McDonalds, Visa, Coca-Cola, Adidas, Budweiser, Gazprom, KIA, and Hyundai, to place pressure on FIFA and Qatar to improve working conditions.

Such issues have arisen in recent years in other sectors as well. In April, Human Rights Watch issued a report on the treatment of garment workers in Bangladesh. The report, prompted by the 2013 Rana Plaza collapse, in which more than 1,100 people died and over 2,000 were injured, highlighted poor working conditions, inadequate building inspections, weak labour laws, and the need for fairer wage practices and legal benefits.

Beyond these examples, there have been many others. In technology, Apple and Foxconn have faced criticism for working conditions at their Chinese production sites. Even educational institutions, such as New York University’s new campus in Abu Dhabi, have been tainted by episodes of workplace exploitation and abuse.

These are not isolated cases. For every disaster and highprofile case that hits the headlines, there are many more that we never hear about.

Nonetheless, one hopes that the treatment of those who make the goods, produce the services, and build the things that make us happy and productive – from clothing and

FIFA’s corruption also has a human cost Following the arrest last week of senior officials accused of “rampant” corruption, some of FIFA’s key sponsors have threatened to reassess their relationship with the organization. Allegations of bribery amounting to over $100 mln have rocked soccer’s world governing body but this story isn’t just about money. It’s also important to mention the deaths that are going to be associated with soccer’s showpiece event in 2022. The decision to award the 2022 World Cup to Qatar didn’t just raise eyebrows. It also created a storm of controversy and disbelief. The World Cup would take place in a tiny nation with a questionable human rights record, barely any soccer culture, and in a climate where playing the sport would be nearly physically impossible.

More importantly, however, migrant workers have been dying in droves since Qatar started work on the infrastructure for the event. Even though it’s difficult to obtain data on the exact number of fatalities, a Guardian investigation revealed migrant workers in Qatar, primarily from Bangladesh, India and Nepal, were dying at the rate of one every two days. The Washington Post compared these figures with other sporting events to gauge the sheer scale of the situation in Qatar. Even though it’s also difficult to divulge which deaths are directly associated with the World Cup, numbers are almost certain to be high. Whether corruption is proven or not, the decision to host the event in such a country is already having far-reaching and fatal consequences. If the current trend continues, 4,000 migrant workers will die in Qatar by the time a ball is kicked in 2022.

(Source: Statista)

technology to sports stadiums and college campuses – continues to come under scrutiny. Globalisation should force managers – and all of us – to do some serious thinking about labour practices around the world.

Here is where it gets complicated. What counts as a company’s workforce? Are “its” workers only those people on its own payroll? Are companies responsible for their products’ entire supply chains? To what extent can – and should – a company be held to account for the choices of those who may be several links removed? When a serious issue has been brought to a company’s attention, are its managers obliged to address it, even if it involves the subcontractor of a subcontractor?

The larger and more complex the company, the harder it is to track all of the firms with which it does business, the firms that they then subcontract to, and so on. Companies, not surprisingly, say that their responsibility extends only so far. But that is not an answer; it is a choice. Organisations can decide to extend their reach. They can even decide that they want to know the full provenance of all materials and components in their products, and that they will hold their extended suppliers to account.

In this sense, the larger the company, the greater its responsibility. But larger companies also have a larger ability to become a force for good, both locally and globally. If a company the size of US retailer Walmart decides that it will not allow wasteful packaging, its purchasing power will lead to changes in packaging for the entire retail sector. The same is true of wages and labour practices.

When the world’s biggest companies and most well recognised brands take seriously their responsibility as buyers, sellers, and manufacturers and make a firm commitment to act on core values, others tend to follow – or risk being left behind. Those that operate in an ethical manner and seek to improve the lives of all who are associated with the manufacture, marketing, and distribution of their products will benefit from kudos, more business, or simply not being singled out as a bad actor.

By contrast, companies whose managers believe that a competitive marketplace is no place for ethical behaviour will suffer if and when consumers take their business elsewhere; government regulation and fines force them to act; or they become unable to attract an educated and ever-more discerning workforce. All of it – the constant scrutiny, the bad press, the tarnished reputation – will hit their long-term stock prices.

Much the same is true for organisations like FIFA. When

sponsors like Coca-Cola or Adidas believe that their reputations will be tarnished by association with an organisation engaged in corrupt practices, they will take their brand-management dollars elsewhere.

Companies are made up of people. Paying fair wages, adopting ethical sourcing practices, and upholding the dignity of workers should be a part of the way they calculate their success. Those who disconnect themselves from the fate of others, who act without conscience or a sense of right and wrong, and who spurn ordinary human decency have no place running organizations or sitting on company boards.

The things that make us happy must not come at an unforgivably high price.

Lucy P. Marcus is CEO of Marcus Venture Consulting. © Project Syndicate, 2015. www.project-syndicate.org

June 3 - 9, 2015

14 | WORLD MARKETS | financialmirror.com

What Salesforce means for the future of business

By Oren Laurent President, Banc De Binary

CNBC’s David Faber reported last week that Salesforce rejected a $55 bln takeover bid from Microsoft. Founded in 1999, Salesforce has built a vast network of clients for its information management software systems. As we enter a new era, where computers handle most of our analytical thinking, it is crucial to take a step back, and consider what the Salesforce phenomenon means to the future of business.

Salesforce CEO, Marc Benioff, has been dubbed “the King of Cloud.” After 13 years of working for Oracle, Benioff began Salesforce at age 34. “My goal is just to focus on my customers, and make them successful,” says Benioff. Today, Salesforce has become a leading digital consulting company for global brands like Coca-Cola, Comcast, L’Oreal, Vodafone, Home Depot, and many more.

The idea behind Salesforce is simple: to revolutionise the way companies handle their enormous quantities of data. It was not long ago that most data was stored away in nondigital files. Today, Salesforce is a world leader in customer relationship management (CRM), even surpassing Microsoft and Oracle. Their secret is utilising technology to help companies be more efficient. The Salesforce software is designed to optimise sales, marketing, and customer service.

In its most recent earnings report, the company reported $1.51 bln in sales. Most analysts are valuing the company at $49 bln, but that number seems to keep growing. Salesforce owns 18% of the market, and has seen revenue rise at a whopping 28.2%.

So, will CEO Marc Benioff ever sell?

The rumours in Silicon Valley are that Benioff gave Microsoft a minimum offer of $70 bln for his company.

When Microsoft CEO Satya Nadella declined, the negotiations broke down. Nadella said that he would need some more time to consider whether such an enormous deal would be worthwhile for Microsoft in the long run.

But, let’s put things in perspective for a moment. People who follow the news might remember how in 2009, the Walt Disney Company acquired Marvel Entertainment Inc. for $4 bln. Within the following six years, Disney used its existing assets to supercharge the Marvel movie productions. Since being acquired by Disney, Marvel has created four out of the world’s top ten highest-grossing films of all time, grossing a

combined $5.12 bln.

Now, let’s take a step back and consider the number Benioff is asking for: $70 bln. In a rapidlychanging world, Salesforce will have to continue to innovate to remain relevant, and despite Salesforce’s great reputation, Nadella would surely be taking a big risk.

According to Gartner, a technology research firm, the CRM market is worth $23 bln annually.

Dan Ives, an analyst for FBR Capital Markets, believes Nadella is still considering the takeover bid.

“Salesforce is the golden jewel in the cloud,” says Ives. “Given its leadership position and stellar brand and distribution, all that would have fit well within the Microsoft ecosystem in our opinion.”

Nadella’s dilemma expresses a new reality in the world of business. Information will continue to be shared in everinnovate ways, and those at the heart of the trend, will make a buck or two.

Bounce in WTI fails to support commodity-linked currencies Markets Report b

By Jameel Ahmad, Chief Market Analyst at FXTM

There’s generally a correlation in the currency markets where any bounce in the price of WTI inspires similar momentum in those currencies linked to commodity prices. However, this hasn’t been the case on this occasion with this probably linked to rising suspicions that the OPEC meeting later this week will leave oil production levels unchanged. Although there are concerns over how economies will be able to cope with the dramatic decline in the price of WTI over the previous year, the recent reports showing that production levels are still rising from OPEC committee members suggests that the lower oil prices are set to stay.

Due to the likelihood that OPEC will leave production levels unchanged and the probability that this will pressure the price of WTI, there is hesitation from buyers to buy currencies linked to commodity prices.

With investment in oil production rising despite the dramatically lower prices, one has to consider that OPEC is deliberately trying to regain market share by keeping the price of WTI low and consequently squeezing out US producers. Bearing in mind that we are now encountering a relationship between the drop in US oil rigs noted at the beginning of the year and the recent reduced trade surpluses coming out of the weekly US inventory reports, there is room to suggest that this method is beginning to work. Investment in oil production is increasing throughout the Middle East, with this suggesting the oversupply concerns are going to remain a dominant threat to investor sentiment. What does this mean to the price of WTI and those currencies linked to commodity prices? Continued pressure, especially with the USD regaining momentum.

The USD has regained its stance as the king of the currency markets, with this being motivated by a combination of Janet Yellen repeating her commitment to raise interest rates at some point this year and recent US economic data supporting the Federal Reserve’s view that any decline in economic momentum was just temporary.

The USD will remain supported as long as optimism remains that the Fed will raise rates in 2015. What has happened recently is that fragilities in the US economy have been exposed, which provides validation for the Fed to maintain a cautious and hesitance stance towards raising interest rates. As I have commented since the end

of September 2014, I still expect the first US interest rate rise to take place in September 2015.

We saw the need for additional improvements in the US economy outlined once again when consumer spending remained unchanged in April despite personal incomes rising above expectations. The repeated signs of continued weakness in consumer spending within the US economy is not going to prevent the Fed from raising interest rates at some point later this year, but it will slow down the pace

of future rate rises. It just reiterates that there are still fragilities in the US economy that have been exposed, with the lack of consumer spending being a major concern. It is a major concern not just because consumer spending represents such a huge proportion of GDP, but also because a lack of spending will also weigh on inflation prospects with this being something the Fed vigorously monitors.

Any hopes of a further bounce in EURUSD ended swiftly following the pair’s failure to close above 1.10 at the end of last week. This was largely seen as a psychological resistance level and the failure to close above 1.10 allowed the bears to take control with the EURUSD dropping by 100 pips to 1.0890. Greece is once again being seen as the reoccurring risk to investor sentiment, with the markets having to hear further contrasting reports over whether an agreement with its creditors is imminent. We are only days away from the next Greece repayment with the major threat remaining that a default by Athens is still a possibility. This hasn’t been factored into the currency and the Euro is still vulnerable to further declines. Even if there isn’t a default, the likelihood of capital controls within Greece is rising.

It was repeatedly pointed out that if the GBPUSD managed to close below 1.55, the bears would see an opportunity to exploit weakness in the pair and we have now dropped to 1.5181. Although economic data showed an improvement in manufacturing activity over the previous month, the PMI missed expectations with this coming on the back of investor sentiment being weakened by the news that the UK’s main GDP contributor, services, expanded at its weakest pace in over two years in the first quarter of 2015. With it being inevitable that the Bank of England will leave interest rates unchanged later this week, it remains possible that the GBPUSD is going to return to the May lows of 1.50.

For information, disclaimer and risk warning, visit: www.ForexTime.com FXTM is an international forex broker. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), and FT Global Limited is regulated by the International Financial Services Commission (IFSC)

June 3 - 9, 2015

financialmirror.com | MARKETS | 15

Not deja vu again for the US Marcuard’s Market update

by GaveKal Dragonomics With the mid-point of 2015 approaching it looks to be a case of “deja vu again” for a US economy suffering early year blues. As with other “soft patch” periods, there are plausible explanations for this stodginess that don’t just involve beating up on statisticians for their seasonal adjustment techniques. The US indeed had a cold winter and the West Coast port strike disrupted trade flows. But the real question for investors is whether the US repeats the pattern of recent years, with pent-up demand causing a surge back in activity in the second quarter and beyond.

Most 1Q economic indicators both this year and last came in weak, so it would be foolish to rule out a rapid bounce back. Last year saw 2Q growth surge to 4.6% after contracting 2.1% in 1Q. Certainly, the resilience of US equities suggests that investors expect the US economy to resume its upward trajectory. However, we would argue that there are two key differences this time around due to the growth-sapping impact of a strong US dollar, and the potentially negative impact that rising wages may have on corporate profitability.

Taken together, we think that investors could face the twin challenge of a maturing economic cycle, and a deepening profits squeeze.

The strong appreciation of the trade-weighted US dollar in the past four years has made domestic US producers less competitive as shown by their profits contribution from overseas having shrunk for two straight quarters— diminished appetite for American wares is reflected in slower export growth and the ISM manufacturing PMI having fallen from a perky 57.6 in November 2014 to 52.8 last month. To be sure, US domestic demand remains decently strong, but this spending is increasingly being fulfilled by cheaper imported goods.

As a result, we do not expect a repeat of last year’s 2Q rebound in both the manufacturing and services sectors. The headache for corporate America is that it faces top-line challenges from a runaway dollar at the point when the

www.marcuardheritage.com

MSCI launches Saudi Indexes

MSCI Inc. (NYSE:MSCI), a leading provider of researchbased indexes and analytics, announced the launch of the MSCI Saudi Arabia Indexes, coinciding with the opening of the Middle East’s biggest economy with an equity market estimated at over $500 bln.

MSCI also launched the MSCI GCC Countries International Indexes, the first indexes of their kind that represent the full investable opportunity set available in the Gulf Cooperation Council (GCC) countries: Saudi Arabia, Qatar, United Arab Emirates, Kuwait, Oman and Bahrain. All indexes incorporate Saudi Arabia’s foreign ownership limit restrictions.

“The opening of the Saudi market represents a major opportunity for international investors in what to date has been one of the largest closed markets in the world,” said Baer Pettit, Managing Director and Global Head of Products at www.msci.com.

recovery is just strong enough to boost wage growth. While headline wage data remains non-threatening, the latest corporate income statement from the national accounts shows that employee compensation, measured in its totality, is eating into profit margins. The net profit margin for US domestic non-financial firms in 1Q15 had reduced to 4.4%, down from a high of about 6% in 2011.

The “goldilocks” type scenario that investors seem to have settled on is that the US labor market still has enough slack to encourage inactive workers back into the workplace so that wage growth can remain muted. Such an outcome should be supportive of steady consumption growth, but would result in the Federal Reserve deferring any tightening action.

We have no magic insight to the US labour market

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

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

dynamics, which is in an especially hard-to-read phase.

However, we are skeptical that the US labour force has large numbers of discouraged workers who can be relied upon to re-enter active employment—that, at least, is the message indicated from the generally steady participation rate. The corollary is that at some point wage growth will pickup in line with other measures of compensation.

Pierre recently made the argument that maintaining a myopic focus on corporate profit margins risked missing the bigger picture of an economic recovery lifting all boats higher. This makes good sense, but our point is that the present value of the dollar effectively rules out the benefits of growth accruing to US firms. Rather, they face the prospect of shrunken margins and the reality that more competitive foreign rivals will eat their lunch.

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.

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

14800 1.5221 1.7856 25.036 6.8103 14.2902 1.0951 2.29 281.8 0.64188 3.1531 0.3921 18.09 7.9206 3.7585 4.055 53.398 8.5618 0.9422 20.65

AUD CAD HKD INR JPY KRW NZD SGD

0.7703 1.2502 7.7555 63.78 124.53 1112.25 1.4023 1.3542

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

0.3770 7.6036 28690.00 3.8703 0.7080 0.3029 1509.00 0.3850 3.6393 3.7502 12.2396 3.6729

AZN KZT TRY

1.0496 185.9 2.6741

AMERICAS & PACIFIC

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

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

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

THE FINANCIAL MARKETS

Note:

* USD per National Currency

Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.18 0.51 -0.07 0.06 -0.83

0.24 0.54 -0.03 0.09 -0.81

0.28 0.57 -0.01 0.10 -0.79

0.42 0.71 0.06 0.14 -0.71

0.75 1.00 0.17 0.25 -0.61

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.89 0.98 0.10 0.14 -0.74

1.22 1.20 0.16 0.16 -0.63

1.49 1.38 0.26 0.20 -0.48

1.70 1.53 0.38 0.24 -0.34

2.00 1.75 0.62 0.40 -0.06

2.28 1.96 0.92 0.59 0.24

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP

1 CHF

100 JPY

1.0976

1.5215

1.0616

0.8031

1.3862

0.9672

0.7317

0.6977

0.5278

0.9111 0.6572

0.7214

0.9420

1.0339

1.4333

124.52

136.67

189.46

0.7565 132.19

Weekly movement of USD

CCY\Date

05.05

12.05

19.05

26.05

02.06

CCY

Today

Last Week

USD GBP JPY CHF

1.1071

1.1115

1.1247

1.0881

1.0883

0.7324

0.7135

0.7185

0.7042

0.7155

132.81

133.44

134.78

132.45

135.47

GBP EUR JPY

1.0349

1.0360

1.0410

1.0300

1.0266

CHF

1.5215 1.0976 124.52 0.9420

1.5452 1.0881 121.7259 0.9466

%Change +1.53 -0.87 +2.30 -0.49

June 3 - 9, 2015

16 | WORLD | financialmirror.com

Austerity is the only deal-breaker

By Yanis Varoufakis MINISTER OF FINANCE

A common fallacy pervades coverage in the world’s media of the negotiations between the Greek government and its creditors. The fallacy, exemplified in a recent commentary by Philip Stephens of the Financial Times, is that, “Athens is unable or unwilling – or both – to implement an economic reform programme.” Once this fallacy is presented as fact, it is only natural that coverage highlights how our government is, in Stephens’s words, “squandering the trust and goodwill of its eurozone partners.”

But the reality of the talks is very different. Our government is keen to implement an agenda that includes all of the economic reforms emphasised by European economic think tanks. Moreover, we are uniquely able to maintain the Greek public’s support for a sound economic programme.

Consider what that means: an independent tax agency; reasonable primary fiscal surpluses forever; a sensible and ambitious privatisation programme, combined with a development agency that harnesses public assets to create investment flows; genuine pension reform that ensures the social-security system’s long-term sustainability; liberalisation of markets for goods and services, etc.

So, if our government is willing to embrace the reforms that our partners expect, why have the negotiations not produced an agreement? Where is the sticking point?

The problem is simple: Greece’s creditors insist on even greater austerity for this year and beyond – an approach that would impede recovery, obstruct growth, worsen the debtdeflationary cycle, and, in the end, erode Greeks’ willingness and ability to see through the reform agenda that the country

so desperately needs. Our government cannot – and will not – accept a cure that has proven itself over five long years to be worse than the disease.

Our creditors’ insistence on greater austerity is subtle yet steadfast. It can be found in their demand that Greece maintain unsustainably high primary surpluses (more than 2% of GDP in 2016 and exceeding 2.5%, or even 3%, for every year thereafter). To achieve this, we are supposed to increase the overall burden of value-added tax on the private sector, cut already diminished pensions across the board; and

compensate for low privatisation proceeds (owing to depressed asset prices) with “equivalent” fiscal consolidation measures.

The view that Greece has not achieved sufficient fiscal consolidation is not just false; it is patently absurd. The accompanying figure not only illustrates this; it also succinctly addresses the question of why Greece has not

done as well as, say, Spain, Portugal, Ireland, or Cyprus in the years since the 2008 financial crisis. Relative to the rest of the countries on the eurozone periphery, Greece was subjected to at least twice the austerity. There is nothing more to it than that.

Following Prime Minister David Cameron’s recent election victory in the United Kingdom, my good friend Lord Norman Lamont, a former chancellor of the exchequer, remarked that the UK economy’s recovery supports our government’s position. Back in 2010, he recalled, Greece and the UK faced fiscal deficits of more or less similar size (relative to GDP). Greece returned to primary surpluses (which exclude interest payments) in 2014, whereas the UK government consolidated much more gradually and has yet to return to surplus.

At the same time, Greece has faced monetary contraction (which has recently become monetary asphyxiation), in contrast to the UK, where the Bank of England has supported the government every step of the way. The result is that Greece is continuing to stagnate, whereas the UK has been growing strongly.

Fair-minded observers of the fourmonth-long negotiations between Greece and its creditors cannot avoid a simple conclusion: The major sticking point, the only deal-breaker, is the creditors’ insistence on even more austerity, even at the expense of the reform agenda that our government is eager to pursue.

Clearly, our creditors’ demand for more austerity has nothing to do with concerns about genuine reform or moving Greece onto a sustainable fiscal path. Their true motivation is a question best left to future historians – who, I have no doubt, will take much of the contemporary media coverage with a grain of salt.

© Project Syndicate, 2015 - www.project-syndicate.org

Greeks inch toward surrender “Grexit would be political suicide for Syriza” ANALYSIS by GaveKal Dragonomics The Greek situation rumbles on without resolution after a weekend that saw more posturing, but no deal between Athens and the Brussels group. The message from European Union leaders is that Greece must bow, and while Prime Minister Alexis Tsipras remains defiant, it was noteworthy that his interior minister indicated a willingness to cede ground on Syriza’s anti-austerity programme. As this messy endgame plays out, the question facing jaded investors is whether a denouement is days away, or can the current farce be extended deep into the summer.

Such a calculation boils down to when the Greek government runs out of money. It has cut spending, built up arrears and even tapped the petty cash of its foreign embassies. Four months ago, Greece ran a primary surplus, but the effect of its latest bailout negotiations with the EU and the International Monetary Fund has caused economic activity to shrivel. Tax revenue has slumped and initial data indicates that in 2015 Greece will run a primary deficit of 1.5% of GDP. Such a situation would not matter for a “normal” economy able to access debt markets, but for a pariah such as Greece, it could prove fatal. So long as Greece ran a surplus, Tsipras could plausibly renege on debt repayments yet still meet the government payroll and make pension payments. Without such a surplus, Tsipras cannot satisfy creditors and is set to incur the wrath of the general public.

Greece’s next IMF repayment, EUR 300 mln, is due on June 5 with three others due in June. Whether these are paid on the nail is not really the issue. Missing the due date is a little like being late with a gas bill, resulting in a standard reminder letter being sent. When dealing with the IMF delinquents get a minimum one month grace period. They also have the option to roll up individual payments into one lump sum at the end of the month. An official default does not occur until the IMF managing director notifies the executive board, which could take as long as six weeks after a missed payment.

This matters for Athens as IMF repayments can be deferred until after government workers must next be paid at the end of June. Failure to meet the payroll or settle pension payments risks triggering a revolt that could severely damage Syriza’s political support.

Looking beyond immediate hand-to-mouth survival, one touted option for Athens is to print IOUs which would effectively be a parallel Greek currency. The problem is that this fundamentally breaches the stipulation that the euro must be the only official tender in the single currency area.

As such, any such issuance could not be used as a substitute for euro currency debts, including Greek bank deposits.

Hence, the new “currency” would quickly lose value; inflation would soar and those getting paid in IOUs would be left even worse off.

To be sure, there have been cases of governments, notably California in 2009, using IOUs to manage through a liquidity crisis. The difference between Greece and California was that the latter was issuing notes in dollars, while the former

would be offering up a denomination which had no basis in EU law.

In the event that Greece did miss an IMF repayment, consequences would still follow for both the Greek government and the rest of the eurozone. Athens would need to quickly impose capital controls in order to halt an already rapid deposit flight from Greek banks turning into a torrent.

The rest of the eurozone would see market ructions, with bonds in peripheral economies such as Portugal especially impacted. Still, while the eurozone could live with the volatility, especially with the European Central Bank ready to buy bonds, the Greek government could be broken by the failure to meet its domestic payment obligations.

If such a chain of events did unfold it would mean “the inevitable” was merely being delayed. If Athens pays its civil servants and pensions at the end of June by withholding IMF payments, a EUR 3.2 bln debt repayment to the ECB is due on July 20th. Any default to the ECB would cut off Greek banks from EUR 114 bln in ECB liquidity triggering a banking sector collapse.

Syriza is under siege from all sides. Finance Minister Yanis Varoufakis has failed because by portraying Greece as a country with nothing to lose, economic activity slumped and the primary surplus vanished. Instead of capitalising on last year’s growth momentum at a time when the rest of the eurozone has picked up, Varoufakis has instead remonstrated.

And having blown that lifeline, the government has no credible alternative but to bow to Europe’s demands. Grexit would now be political suicide for the Syriza-led government.

June 3 - 9, 2015

financialmirror.com | WORLD | 17

Small steps to European growth

By Jean Pisani-Ferry The topics chosen by the European Central Bank for its annual forum in Sintra, Portugal, at the end of May were not deflation, quantitative easing, or financial stability. They were unemployment, productivity, and pro-growth reforms. ECB President Mario Draghi explained why in his introductory speech: the eurozone lacks both growth momentum and resilience to adverse shocks.

Draghi is undoubtedly right. The European Commission now expects growth in the eurozone to reach 1.5% in 2015 and 1.9% in 2016. That certainly looks good in comparison to the near-stagnation of recent years. But, given the combination of massive monetary support, a now-neutral fiscal stance, a steep fall in oil prices, and a depreciated euro, it is the least we could expect, and it will bring per capita GDP back only to its 2008 level. The fact that leaders and pundits are hailing this brighter outlook indicates just how diminished our expectations have become.

Until recently, fiscal austerity and the euro crisis could be blamed for poor economic performance. Not anymore.

Although growth may exceed the Commission’s forecast, there are reasons to be concerned about the eurozone’s growth potential.

In order to strengthen that potential, central bankers can only advocate economic reforms; it is governments that are responsible for adopting them. And critics

point out that repeated exhortations could prove counterproductive. After all, central banks are quick to rebut monetary-policy suggestions from governments in the name of independence. Why should governments behave differently?

Draghi has good reason to insist that, in the absence of significant national action, the eurozone might well stumble from crisis to crisis until its very viability is jeopardised.

Participation in a monetary union is a demanding endeavor that requires policy agility among its participating countries, as well as a sense of common purpose. But governments have good reason to argue that, as far as reforms are concerned, policymaking requires precision and political realism, which outside advice often lacks.

The ECB simply cannot whip the European Union into shape.

A natural solution could be for the ECB to rely on the other European institutions.

Since 2010, the EU has been piling up coordination procedures in the hope of pushing governments into enacting politically difficult reforms. Each year, every member country is handed a to-do list of public spending, labour-market, and competition reforms, as well as other recommendations.

The European Commission is also trying to lure reluctant governments into bolder action by offering them more fiscal room.

And, two years ago, German Chancellor Angela Merkel floated the idea of individually tailored “reform contracts” that, again, would create incentives for governments to enact pro-growth reforms.

But the effectiveness of these initiatives has proved to be limited, to say the least.

Schemes aimed at strengthening policy coordination have merely added complexity to an already Byzantine architecture of procedures. Recommendations issued to

individual countries lack both traction in national capitals and coherence at the eurozone level. The EU has a strong hand when a country is in need of financial assistance, but otherwise it can do little more than offer counsel.

The eurozone must overcome this shortcoming, but no simple solution is at hand. Proposals are expected in the coming months. There is broad agreement that streamlining is required; but that will not suffice. Some advocate further centralisation of decisions; but that will not help, either, because reforms are intrinsically national, if not sub-national. Instead, progress can be made in three directions.

First, the ECB’s analysis of the economic challenges facing the eurozone should be very transparent. Governments should know precisely how Draghi and his colleagues assess the potential for growth and employment and how this will affect monetary policy. They should have a clear idea of what they can expect from the ECB and what outcome (rather than precise measures) the ECB expects from them.

Second, the EU should support the creation of national institutions to monitor domestic developments and their compatibility with overall eurozone goals.

These could be modeled on the fiscal councils that were created a few years ago in each member country to assess national governments’ public-finance plans. Because they are part of the national conversation, these councils have proved to be a useful addition.

In the same way, competitiveness councils could monitor the evolution of wages and prices, employment and growth, and the current account, and provide recommendations to national governments and social partners. Such institutions would be much better placed than the EU to

formulate timely and granular reform recommendations. They could operate as a network, rely on similar methodologies, and thus help ensure more consistency among individual policies.

Third, the EU could foster aggregate action in high-priority areas by implementing schemes to support individual citizens, companies or public entities, access to which would be conditional on national policies fulfilling minimal requirements. For example, the EU could create a training support scheme for unemployed young people, but make it contingent on the elimination of national policies that hinder youth employment. Or it could create a scheme to support higher education, but reserve it for universities in countries where educational institutions have been granted a minimum degree of autonomy.

The justification would be that EU money can help only in the context of supportive national policies in the same field.

Conditionality of this sort would be positive, local, and non-punitive; it would serve as a carrot, not a stick.

These are modest proposals, because, when it comes to pro-growth reform in Europe, there is no magic bullet. There can be no centralisation, and coordination always risks becoming murky. But the measures recommended here would serve to build a more decentralised, incentive-based policy regime. This would be a good start.

Jean Pisani-Ferry is a professor at the Hertie School of Governance in Berlin, and currently serves as Commissioner-General for Policy Planning for the French government. © Project Syndicate, 2015. www.project-syndicate.org

Citizens for a clean economy Over the past 20 years, environmental, energy, and climate policies have been decided behind closed doors – with little input from the people who will be most affected by the outcome of the negotiations. Policy design has been driven by technocratic considerations that ignored or was simply uninterested in ordinary people’s priorities. As a result, clean air, renewable energy, and green spaces have all too often been sacrificed to the notion that environmentally friendly legislation increases costs and red tape for businesses and ultimately hurts the economy.

The good news is that a new pattern of citizen participation is emerging, especially in developing

By Monica countries, with new voices and fresh ideas entering the debate. Around the world, citizens are demanding that their governments listen to them about environmental issues and put their needs and priorities first.

For years, the debate around environmental action in the United States and Europe was characterised by a focus on abstract principles and by political infighting. To some extent, this was understandable. Opposition to environmental action – from the fossil-fuel industry, political parties, and portions of the media – has been formidable.

But the result was a discussion that was far removed from the issues that are most important to ordinary people.

Instead of discussing how ineffective public transport and polluted air was making life worse for billions of people, the talk centered on carbon trading, emissions trajectories, and the industrialisation of China.

Fortunately, the discussion is now being brought back down to earth. In less than 35 years, some 66% of the global population will live in cities. Much of this urban growth will occur in developing countries, especially in Africa. In Latin

America, nearly 80% of people already live in urban centres.

When national and municipal governments ask people about their priorities and needs, the answer is clear.

Chile’s government set a precedent in the region by meticulously mapping citizens’ priorities on the environment and climate.

According to the government’s poll, air pollution is Chileans’ top environmental priority (33%), followed by 2030 waste (21%) and noise (11%).

Costa Ricans also see air pollution as an environmental Araya priority (22%), followed by waste (20%) and water (17%), according to a poll conducted by the United Nations Development Programme. In China, environmental protection is increasingly becoming a top public concern, as evidenced by a journalist’s recent selffinanced film about air pollution, which attracted 200 mln viewers in a single week. In today’s world, people expect more from their countries and cities than growth and shopping centers.

An IDB poll of 5,000 citizens in Bogotá, Buenos Aires, Lima, Mexico City, and São Paulo revealed that they want more transparency in city government, more participation in decision-making, and a better quality of life. This poll, along with those from Chile and Costa Rica, shows that citizens understand that climate change will affect them. They want governments to do more, not less, to protect the environment.

As we develop a better understanding of ordinary people’s needs and priorities, those negotiating a global agreement at the United Nations Climate Change Conference in Paris later this year would be wise to take note. Opaque decisions and

unexplained priorities are unlikely to receive public support.

For that reason alone, it is crucial that governments make their citizens’ concerns the top priority.

Chile has set a positive precedent in the developing world by carrying out extensive consultations on its national climate commitment for Paris. Mexico and Brazil have launched formal consultation processes, too. Other countries in the region might follow suit.

National and local politicians are being held to increasingly higher standards of environmental protection. A new era of citizen involvement and public scrutiny has begun, creating opportunities for truly inclusive environmental action that promise to achieve more than elites negotiating behind closed doors ever could.

Monica Araya (@MonicaArayaTica) is founder and Executive Director of Nivela and leads the citizens group Costa Rica Limpia. © Project Syndicate, 2015 - www.project-syndicate.org

June 3 - 9, 2015

18 | WORLD | financialmirror.com

Europe’s refugee problem, then and now

By Zeid Ra’ad Al Hussein

Earlier this spring, I drove to a beautiful spot on the southern bank of Lake Geneva. My destination was the Hotel Royale in Évian-les-Bains. It was there, in July 1938, that 32 nations met for a shameful discussion that has been virtually airbrushed from our memory.

Convened by US President Franklin D. Roosevelt in response to the massive refugee crisis triggered by Hitler’s virulent anti-Semitism, the Évian conference was a catastrophe. And its disastrous outcome needs to be recalled in the light of Europe’s current migration crisis.

The Évian conference was supposed to address the plight of hundreds of thousands of German and Austrian Jews who were desperate for refuge. Roosevelt believed that only a collective solution could meet the challenge. Hitler, too, hoped that other countries would accept them.

In a speech in Königsberg that March, he jeered, “I can only hope and expect that the other world which has felt such deep sympathy for these criminals will be generous enough to transform this pity into practical aid. As far as I am concerned we are ready to place our luxury ships at the disposal of these countries for the transportation of these criminals.” He had already begun to expel Jews, including by placing them forcibly on ships and sending them to various destinations in the Mediterranean and across the Atlantic.

But, throughout Europe, the refugees faced rejection. On June 6, 1938, as preparations for the conference were underway, the US State Department received a letter concerning 51 Austrian Jewish refugees stranded on a small boat in the international waters of the Danube. The writer recalled seeing: “the heartrending fate of 51 human beings driven from one frontier to the other. We have gained personal knowledge of the unspeakable misery that has innocently befallen 100,000 inhabitants of Austria.”

And yet in Évian the following month, although many European delegations voiced eloquent dismay over the torment experienced by the Jews of Germany and Austria, they were unprepared to take concrete action. The outcome of the meeting was clear: Europe, North America, and Australia would not accept significant numbers of these refugees.

In the verbatim record, two words were uttered repeatedly: “density” and “saturation.” The European countries were already beset with population “density” and had reached a point of “saturation” – in other words, there

Europeans divided on helping Mediterranean migrants The stretch of sea between North Africa and Italy is the world’s deadliest migration route.

More than 1,700 people are believed to have died trying to cross the Mediterranean up to May this year, while the European Union is urgently trying to find a solution to the problem. How do the European public feel about the migration crisis in southern Europe?

According to research conducted by YouGov, support for search and rescue operations is strongest in Norway – 60% of Norwegians are in favour of funding rescue efforts in the Mediterranean. By contrast, Finland has the weakest support by far - only 39% of Finnish respondents said they would support funding for search and rescue efforts in southern Europe. (Source: Statista)

was simply no more room at the European inn.

It was an absurd thing to say, of course, in 1938, given the size of Europe’s populations today. And it would be an equally ridiculous thing to say now, too.

To be sure, the participants in Évian could not have foreseen the Holocaust, or that Europe was being drawn into another devastating war; nonetheless, their lack of moral conscience was breathtaking. Many of the countries that refused to take in suffering refugees were themselves, in due course, occupied and brutalised by the Nazis – and desperate for the compassion that they denied the Jews in July 1938.

The Nazis must have reveled in the knowledge that their virulent anti-Semitism found an echo – sometimes not so faint – in the rest of Europe. They also came to realise that if expulsion was not possible, extermination eventually would be.

Today, anti-Semitism, Islamophobia, racism, xenophobia, and anti-migrant sentiment are again rising across Europe, and we must stop now and reassess precisely where we are.

A major British tabloid newspaper recently felt it acceptable to allow one of its columnists to call immigrants “cockroaches.” Rwanda’s Radio Télévision Libre des Mille Collines used the same word to describe Tutsis in the run-up to the 1994 genocide, as did Julius Streicher’s Nazi newspaper Der Stürmer to describe Jews. Political leaders

across Europe regularly – and shamefully – blame migrants for their national woes.

Attacking migrants or minorities – whether crudely, through language, or more subtly, through policy – is unacceptable everywhere, full stop.

When words are formulated with the clear intention of causing harm and violence on national, racial or religious grounds, freedom of expression becomes incitement to hatred, which is prohibited by law. Countries that have ratified the International Covenant on Civil and Political Rights, which includes all European Union members, are bound to uphold it.

And yet Europe’s current proposals on migration leave much to be desired. The continent needs to recall its past more sensitively, and be more generous to the desperate people crossing the Mediterranean. François Crépeau, the United Nations special rapporteur on the human rights of migrants, observed in a recent interview that Europe, Australia, and Canada could easily resettle one million Syrian refugees over the next five years, and they could add Eritreans to that list and extend this policy to seven years. So why is Europe proposing to accept a paltry 20,000-40,000 people annually for resettlement?

To the European politician strongly opposed to migration, I suggest that the next time you need hospital treatment, take a look around you: many of the people caring for you have a migrant’s tale. And should you quench your thirst with the famous water drawn from Évian-les-Bains, you may wish to reflect on the craven failure of a conference that could have saved so many lives – and on what it can still teach us today.

Zeid Ra’ad Al Hussein is UN High Commissioner for Human Rights. © Project Syndicate, 2015 - www.project-syndicate.org

June 3 - 9, 2015

financialmirror.com | WORLD | 19

The business case for sustainability

By Laura D. Tyson Investors worldwide are increasingly seeking investment opportunities that promise to bring environmental and social benefits, in addition to market rates of return. If this trend continues, with the advancement of environmental or social objectives enhancing an investment’s value, it will strengthen the commitment to sustainability that is already gaining momentum among businesses around the world.

Last year, one out of every six dollars of assets under professional management in the United States – a total of $6.6 trln – was allocated toward some form of sustainable investment, especially public equities.

Some 1,260 companies, managing $45 trln worth of assets, are signatories of the United Nations’ “principles for responsible investment,” which recognise environmental, social, and governance (ESG) factors – and thus the longterm health and stability of companies and markets – as critical to investors. One signatory, CalPERS, one of the world’s largest institutional investors, has gone a step further: it will require all of its investment managers to identify and integrate ESG factors into their decisions – a bold move that could transform capital markets.

The number of companies issuing sustainability reports has grown from fewer than 30 in the early 1990s to more than 7,000 in 2014. And, in a recent Morgan Stanley survey, 71% of respondents stated that they are interested in sustainable investing.

To be sure, a major barrier to incorporating ESG criteria into investment decisions remains: many investors – including 54% of the respondents in the Morgan Stanley survey – believe that doing so could lower the financial rate of return. But there is mounting evidence that this is not the case, with several recent studies indicating that sustainable investments do as well as – or even outperform – traditional investments.

A seminal 2012 study that analysed two groups of companies – similar in terms of industry, size, financial performance, and growth prospects – found that those in the “high sustainability group” had superior share-price performance. And a new study by Morgan Stanley’s Institute for Sustainable Investing, which analysed the performance of 10,228 open-ended mutual funds and 2,874 separately

managed accounts in the US, found that sustainable investments usually met – and often exceeded – the median returns of comparable traditional investments for the periods examined.

Many ESG factors come into play when evaluating sustainable investment options. For example, the Generation Foundation – the think tank of Generation Investment Management (on whose advisory board I serve) – identifies 17 environmental factors, 16 social factors, and 12 governance factors relevant to sustainability.

The challenge is to distinguish between the ESG factors that have a material influence on company performance and those that do not. But the data that companies currently report are inadequate to enable investors to make this distinction.

The non-profit Sustainability Accounting Standards Board (SASB) is attempting to change that by developing material sustainability accounting standards for 80 industries, consistent with the US Security and Exchange Commission’s compliance regulations. More than 2,800 participants – including companies with market capitalisation totaling $11 trln and investors with $23.4 trln in assets under management – have been involved in the SASB process.

Using the SASB’s proposed standards for 45 industries, as well as other metrics, a new study – the most definitive so far – has found that companies that perform well on material sustainability factors have better operational performance, are less risky, and earn significantly higher shareholder returns than companies that perform poorly.

Similarly, a new framework recently proposed by Morgan Stanley for valuations of companies in 29 industries includes ESG factors that pose material risks or opportunities.

Whereas a company is traditionally valued based exclusively on how it deploys financial capital to generate returns, the new framework incorporates how it deploys natural, human, and social capital, as well as the transparency of its governance practices.

This new approach to company valuation reflects the view that the most successful companies will be those that deploy all four kinds of capital responsibly.

Consider investments that improve the energy efficiency of data centers, which use 10-20 times more energy than average commercial buildings, and thus are responsible for considerable greenhouse-gas emissions. Decisions about data-center specifications are important for managing costs, obtaining a reliable supply of energy and water, and lowering reputational risks, particularly given the increasing global regulatory focus on climate change. Google’s construction of data centres that use 50% of the energy of an average data centre has brought it considerable savings.

Similar success stories have played out across sectors.

Since 2011, the US chemical company DuPont has invested $879 mln in research and development of products with quantifiable environmental benefits; it has recorded $2 bln in annual revenue from products that reduce greenhouse-gas emissions, and an additional $11.8 bln in revenue from renewable resources like wind and solar power.

Likewise, the multinational consumer goods company Procter and Gamble reported $52 bln in sales of “sustainable innovation products” from 2007 to 2012. That is roughly 11% of the company’s total sales over that period.

There are good reasons to believe that, by investing in improving material sustainability, companies can increase shareholder value. In fact, if a company is to fulfill its fiduciary responsibility to its investors, it has little choice but to go beyond financial returns to incorporate ESG factors that are likely to have a material impact on its performance over time. This is precisely the kind of incentive that could propel the world toward a more sustainable future.

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

Seize the sustainable future For the first time in years, a healthy dose of optimism seems to be in order. The global economy – a few trouble spots aside – is finally moving beyond the financial crisis.

Technological breakthroughs have put renewable energy on a competitive footing with fossil fuels. And the international community seems poised to forge critical agreements on sustainable development and the fight against climate change.

And yet the risk remains that these gains will be frittered away, as policymakers, business leaders, and investors focus on short-term concerns at the expense of looming threats to the global economy. If we are to lock in our progress, we will need to address the failures of our financial system at their roots, putting in place standards, regulations, and practices that make it compatible with the long-term needs of a more inclusive, sustainable economy.

This year, the world has the potential to do just that. The transition to a green economy now seems to be a certainty, rather than a hopeful aspiration, as growing public acceptance and technological advances make investments in clean energy increasingly practical. In 2014, global investment in renewable energy increased by 17%, even as oil prices plummeted, according to a recent report by the United Nations Environment Programme (UNEP). The trend was driven by a boom in solar energy in China and Japan and increasing European investment in off-shore wind power.

Stock exchanges from Shanghai to Sao Paulo have established reporting requirements to inform investors about how companies are weaving sustainability into their strategies. Green bonds have taken off, with upwards of $40 bln issued in 2014, and they are likely to become only more

By Simon Zadek popular as clearer standards and regulations are established.

Even central banks have turned their attention to the environment. The People’s Bank of China has joined with UNEP to identify practical steps to ensure “green” financialmarket reform, and the Bank of England (BoE) has initiated a prudential review of the systemic risks posed by climate change to the United Kingdom’s insurance sector.

September will mark the launch of the UN’s Sustainable Development Goals, the world’s first universally adopted, measurable targets for ending poverty and hunger while protecting the environment and the planet’s naturalresource base. And, later this year, the international community is expected to agree on binding commitments to cut emissions and finance the fight against climate change.

But, although the signs are all pointing in the right direction, success is far from guaranteed. The gains could slip away if the moment is not seized. The real question is one of timing, and the irreversible damage that delays could inflict. More than 80% of the 140 countries surveyed in UNEP’s “Inclusive Wealth” report registered a deterioration in their stock of natural capital. The economic damage resulting from environmental degradation is estimated to be roughly $7 trln a year, much of it irreversible. The longer we

wait, the worse our problems will become.

What is needed is a major international effort to realign financial and capital markets in ways that support sustainable development. Our financial system’s current design all but guarantees what BoE Governor Mark Carney has called the “tragedy of horizons” – a market failure resulting from the inability of investors, companies, and governments to act on problems, such as climate change, with consequences that will be felt only far in the future.

Policymakers and business leaders cite many reasons for focusing on immediate concerns. Indeed, the very policy actions needed to reduce the risks of another financial crisis force banks and asset managers to lend and invest for the short term, passing up often more profitable, but less liquid, longer-term opportunities.

Short-term pressures will always be present, but they can be overcome with the proper tools: improved pricing of environmental risks, climate-sensitive credit ratings, environmental lender liability, and efforts to mitigate the environmental risks to financial stability. A sustainable future is within reach, but only if we put in place the policies that make it possible.

Simon Zadek is Co-Director of the UNEP Inquiry into the Design of a Sustainable Financial System, a visiting scholar at Tsinghua School of Economics and Management, and a senior fellow of the Global Green Growth Institute and the International Institute for Sustainable Development. © Project Syndicate, 2015 - www.project-syndicate.org

June 3 - 9, 2015

20 | BACK PAGE | financialmirror.com

The education myth In an era characterised by political polarisation and policy paralysis, we should celebrate broad agreement on economic strategy wherever we find it. One such area of agreement is the idea that the key to inclusive growth is, as then-British Prime Minister Tony Blair put in his 2001 reelection campaign, “education, education, education.” If we broaden access to schools and improve their quality, economic growth will be both substantial and equitable.

As the Italians would say: magari fosse vero. If only it were true. Enthusiasm for education is perfectly understandable. We want the best education possible for our children, because we want them to have a full range of options in life, to be able to

payoff has been surprisingly disappointing.

In the 50 years from 1960 to 2010, the global labour force’s average time in school essentially tripled, from 2.8 years to 8.3 years. This means that the average worker in a median country went from less than half a primary education to more than half a high school education.

How much richer should these countries have expected to become? In 1965, France had a labour force that averaged less than five years of schooling and a per capita income of $14,000 (at 2005 prices). In 2010, countries with a similar level of education had a per capita income of less than $1,000.

As is often the case, the experience of individual countries is more revealing than the averages. China started with less education than Tunisia, Mexico, Kenya, or Iran in 1960, and had made less progress than them by 2010. And yet, in terms of economic growth, China blew all of them out of the water.

The same can be said of Thailand and Indonesia vis-à-vis the Philippines, Cameroon, Ghana, or Panama.

Again, the fast growers must be doing something in addition to providing education.

The experience within countries is also revealing. In Mexico, the average income of men aged 25-30 with a full primary education differs by more than a factor of three between poorer municipalities and richer ones. The difference cannot possibly be related to educational quality, because those who moved from poor municipalities to richer ones also earned more.

And there is more bad news for the “education, education, education” crowd: most of the skills that a labour force possesses were acquired on the job. What a

By Ricardo Hausmann appreciate its many marvels and participate in its challenges. We also know that better educated people tend to earn more.

Education’s importance is incontrovertible – teaching is my day job, so I certainly hope it is of some value. But whether it constitutes a strategy for economic growth is another matter. What most people mean by better education is more schooling; and, by higherquality education, they mean the effective acquisition of skills (as revealed, say, by the test scores in the OECD’s standardised PISA exam). But does that really drive economic growth?

In fact, the push for better education is an experiment that has already been carried out globally. And, as my Harvard colleague Lant Pritchett has pointed out, the long-term

society knows how to do is known mainly in its firms, not in its schools. At most modern firms, fewer than 15% of the positions are open for entry-level workers, meaning that employers demand something that the education system cannot – and is not expected – to provide. When presented with these facts, education enthusiasts often argue that education is a necessary but not a sufficient condition for growth. But in that case, investment in education is unlikely to deliver much if the other conditions are missing. After all, though the typical country with ten years of schooling had a per capita income of $30,000 in 2010, per capita income in Albania, Armenia, and Sri Lanka, which have achieved that level of schooling, was less than $5,000. Whatever is preventing these countries from becoming richer, it is not lack of education.

A country’s income is the sum of the output produced by each worker. To increase income, we need to increase worker productivity. Evidently, “something in the water,” other than education, makes people much more productive in some places than in others. A successful growth strategy needs to figure out what this is.

Make no mistake: education presumably

does raise productivity. But to say that education is your growth strategy means that you are giving up on everyone that has already gone through the school system – most people over 18, and almost all over 25.

It is a strategy that ignores the potential that is in 100% of today’s labor force, 98% of next year’s, and a huge number of people who will be around for the next half-century. An education-only strategy is bound to make all of them regret having been born too soon.

This generation is too old for education to be its growth strategy. It needs a growth strategy that will make it more productive – and thus able to create the resources to invest more in the education of the next generation. Our generation owes it to theirs to have a growth strategy for ourselves. And that strategy will not be about us going back to school.

Ricardo Hausmann, Director of the Center for International Development and Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University, is a former Venezuelan minister of planning. © Project Syndicate, 2015. www.project-syndicate.org

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