Financial Mirror 2015 09 30 by Financial Mirror

FinancialMirror JEAN PISANI-FERRY

RICARDO HAUSMANN

Why finance can save the planet PAGE 17

Don’t fear the IMF

Issue No. 1151 €1.00 Sept. 30 - Oct. 6, 2015

PAGE 18

‘Big Bangs’ and lessons not learned VASILIKO/MARI 2011 vs TIANJIN, CHINA 2015 - SEE PAGES 10 - 11

Abdullah Gül’s choice By Nina Khrushcheva - SEE PAGE 19

September 30 - October 6, 2015

2 | OPINION | financialmirror.com

FinancialMirror Time to open schools, not close them Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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Since 1951, the Forestry College has been quietly churning out forestry officers, with agricultural, legal and research know-how, caring for the wellbeing of every plant and tree on the island. It has also been the backbone of the Forestry Dept. that relied on the annual output of graduates to man its operations that range from fire-fighting and prevention, to sustainable growth and planning. Unfortunately, as this has never been a soughtafter job in the civil service, the College has been in decline in recent years, resulting in this year’s graduates being the last, for the time being. Agriculture and Environment Minister Nicos Kouyialis said this week that the school is being “suspended and not closed.” The mistake had been that past and present administrations have never grasped the importance of a forestry college, ill-guided by politicians and trade unions that decided that money “wasted” on this institution could be better used for other resources, such as the self-pampering Civil Service Academy, an oxymoron in its own right. Instead of renaming it the Forestry and Environment College, the government has taken the misguided decision to shut it down. Instead of upgrading it and ensuring its perpetuity by establishing a trust, it has been demoted over the years, just as the fate of the Higher Technical Institute, the only college-level school that provided

vocation-based learning for electricians and engineers and used to provide unique maritime courses that provided the trainees and new breed for the future of shipping. So, where are we to get our future foresters from? Greece, that is struggling with its own economy? The Cyprus state universities, that cultivate anachronistic, nationalistic and civil service attitudes? Or the private universities, that charge an arm and a leg for new courses such as energy and casino studies. It will be most embarrassing for Minister Kouyialis (or President Anastasiades) to be asked at the upcoming Sustainable Future summit in Paris by the likes of Jeffrey Sachs, “and what have YOU done in Cyprus?” The natural answer to be blurted out will be, “we just shut down our Forestry College”. Tim have changed, but some institutions in Cyprus, that continue to be controlled by civil servants and their unions, are destined for demise, because no one has the vision of what lies ahead. There would have been nothing wrong for the Forestry College to continue under the auspices of the University of Cyprus, maintaining its vocational mission but also adopting a research character to look into the wellbeing of our (and our region’s) forests. With the ‘sustainable’ phenomenon now expanded to so many spheres (tourism, etc.), the Forestry and Environment College would have had a clear task ahead, if only a minister had the courage to stand up and campaign for its reopening.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Supermarket price wars, MS in BOC A supermarket price war is imminent, with Carrefour expected on the scene and Lidl and IKEA already recruiting, while Morgan Stanley upped its stake in Bank of Cyprus from 3.74 mln shares to 6 mln shares, according to the Financial Mirror issue 638, on September 28, 2005. Price wars: A supermarket price war is imminent as Carrefour is about to makes its appearance, following the takeover by Carrefour-Marinopoulos of

20 YEARS AGO

Shacolas invests in Christis, Maritime Cyprus Dealmaker Nicos Shacolas was at it again, this time taking a 50% stake in Christis Dairies, while the Cyprus Financial Mirror produced a special supplement on Maritime Cyprus in issue 129, on September 27, 1995. Christis deal: Nicos Shacolas maintained his corporate takeover activity with his flagship NKS Holdings taking a 50% stake in Christis Dairies by beating seven other bidders. With annuals turnover of CYP 10 mln, Christis is expected to increase sales and production after the deal, said Managing Director

the Chris Cash & Carry chain. Heavy discounter Lidl started advertising for job vacancies (Ed’s note: but took them five more years to appear on the market), while Swedish furniture giant IKEA was also recruiting through its Greek operator Fourlis. Morgan in BOC: Morgan Stanley has upped its stake in Bank of Cyprus by a further 2.26 mln shares to a total of 6 mln shares, supporting the 28% rally on the stock to EUR 4.18 (CYP 2.40) in recent weeks. German investors also took 1.2 mln shares, while Deutsche Bank increased to 2 mln shares and propped up a price target of EUT 4.80. Tourism turning: 2006 could be a turning point for tourism with the CT) half-way through its 2003-

2010 strategy, according to Director General Phoebe Katsouis. The aim, she said, is to target 4-5 markets, such as German-speaking countries, Nordics and the UK. Special interest will also be the focus with golf, ecotourism, conferences and culture as tourism now accounts for 15-20% of GDP. Jobless up: Unemployment reached 3.9% in the first half, up from 3.7% a year earlier, said Labour Minister Christos Taliadoros. There was a blanket rise in joblessness in all sectors, with the 15-25 year olds without high-school diplomas the most affected. CAIR trains pilots: Troubled national carrier Cyprus Airways has sought a new source of revenue by training British pilots on Airbus A320s and A319s as part of a deal with the UK pilots organisation IAGO. CAIR, that had one of the first all-Airbus fleets in 1990, has 135 pilots.

Panicos Hadjicostas. Exe-Excellent IPO: Exe-Excellent Managed Fund has strong investir interest for its IPO of 3.2 mln shares at 25c each, according to driving force Nicos Efrem, adding that 1 mln shares have already been underwritten by Ethniki Stockbrokers of Greece. EU-Cyprus dialogue: A joint meeting between Cypriot and EU ministers asserted that legislation is being amended “at a speedy pace” to comply with the ‘acquis communautaire’, in particular with matters relating to justice and internal

issues. BOC in Greece: Finance Minister Christodoulos Christodoulou inaugurated the new Bank of Cyprus branch in Iraklion in Crete, where board Chairman Solon Triantafyllides said that the bank will soon be regarded as “the eight biggest company on the ASE.” Maritime conference: Quality in shipping and the international safety code ISM were the main themes of this year’s 4th Maritime Cyprus Conference, for which the Financial Mirror produced the first-ever dedicated supplement, in cooperation with Cypronetwork. The supplement found that “prospects are excellent”, shipping accounted for 9.5% of current account receipts, the Cyprus flag ranked forth worldwide with 2,600 vessels and output of 25 mln tonnes, tanker owners called for greater safety measures, and “automation is the future”.

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September 30 - October 6, 2015

4 | CYPRUS | financialmirror.com

Turkey’s rhetoric must be put to test An astas ia de s: “We a spire fo r a s ettlement that will leave n eithe r winn ers n or los ers”

Turkey’s rhetoric of its desire to reach a settlement in Cyprus will at last be tested in practice if it adopts concrete steps that will push the negotiating process and contribute to the climate of hope prevailing in the island, President Nicos Anastasiades said in New York. Addressing the 70th session of the UN General Assembly, Anastasiades said that what we aspire is to reach a settlement that will leave neither winners nor losers. He said that reaching a solution on the Cyprus problem can become an example in the region of how diplomacy and reconciliation can help resolve even the most difficult of conflict, prevailing over mistrust. “Cyprus through its own experience of hosting the UN Peacekeeping Force in Cyprus greatly values the UN contribution to maintenance of peace and security,” Anastasiades said while giving an update on the Cyprus negotiations and the new round of talks with Mustafa Akinci which started in May. “Following the non-renewal of [maritime exploration] actions which violated the … sovereign rights within its exclusive economic zone, and the change in the leadership of the Turkish Cypriot community, a window of opportunity opened that revived our hope that the new round of negotiations which resumed in May will lead to the final settlement of the Cyprus problem.” He based his hope in his conviction that both he and the Turkish Cypriot leader “share the same political courage and resolve to decisively move forward in order to materialise the joint vision of our people who desire a solution through a viable, lasting and functional settlement.” Describing the principles that should guide the solution of the Cyprus problem, Anastasiades stressed that the settlement should be in conformity with the values and principles of both the Charter of the United Nations and the EU acquis, the High Level Agreements between the leaders of the two communities of 1977, 1979, as well as the Joint Declaration of February 11, 2014. The settlement, he added, should lead to the evolution of the Republic of Cyprus to a federal state, in a bizonal, bicommunal federation with political equality, a single sovereignty, a single international legal personality and a single citizenship, and a state that is and will continue to be a member of the UN, the EU, and numerous other international organisations and whose sovereignty, territorial integrity and constitutional order will not be constrained by anachronistic systems of guarantees by third countries and the presence of foreign troops in the island. “This settlement will leave neither winners nor losers. It will take into account the sensitivities and concerns of both communities and will respect the

fundamental freedoms and human rights of all Cypriots, whether Greek or Turkish. It will reunite the country, its people, the economy and institutions. It will create a homeland of peaceful co-existence and prosperous collaboration between all of its citizens, for the benefit of the younger generations. It will allow Cyprus to utilise its full potential by removing all the political barriers that prevent the full exploitation of our unique geographical position at the crossroads of Europe, North Africa, the Middle East and Asia. It will transform Cyprus into a shining example of the ethnic, cultural, religious and linguistic cooperation between Christian and Muslim communities. And it will turn Cyprus into a model-country of reliability, stability and security in what is now a very turbulent and volatile region, characterised by protracted conflicts and instability.” Anastasiades told the General Assembly that during this new negotiating round, progress has been achieved in a number of issues and that on other substantive issues there are significant differences that need to be resolved. “Differences that, in order to be resolved, would also require Turkey’s active and determined contribution, considering that its occupation forces still remain in the northern part of our country.” Referring to the discovery of hydrocarbons in the region, he said: “The discovery in Eastern Mediterranean has the potential to create synergies and a grid of alliances for broader cooperation between hydrocarbon-producing and hydrocarbonconsuming countries of that area and beyond to the benefit of their socioeconomic development and the welfare of

our people. Such positive developments can foster the achievement and maintenance of a much needed environment of stability and peace in the region.” He suggested, in order to reverse these worrying developments the need to tackle political instability and economic insecurity, so that all those countries and regions in the conflict zones, and in particular the Middle East and North Africa, are turned into places in which sustainable development is a reality. “We should direct our efforts towards the enablers of terrorism. It is not enough to rescue people from sinking boats. We should direct our efforts against traffickers. It is not enough to financially support the economic immigrants. We should direct our efforts in creating those political and socio-economic conditions that would allow all those people not to migrate from their countries.” Meanwhile, government sources expressed satisfaction over the outcome of a meeting earlier in the day between US Vice President Joe Biden and Anastasiades. The meeting took place in a very friendly atmosphere and focused on recent developments in the Cyprus reunification talks and energy issues, the sources said, according to the Cyprus News Agency. President Anastasiades is said to have asked the United States’ help in matters pertaining to guarantees, the armed forces, the four freedoms and on funding the solution to the Cyprus problem. The importance of Cyprus’ role as a US strategic partner, was acknowledged on the part of Biden, sources pointed out, while Anastasiades also had a meeting in New York with Noble Energy’s CEO.

In a separate meeting, Anastasiades and Greek Prime Minister Alexis Tsipras reconfirmed that cooperation on the Cyprus problem and regional cooperation is central to both of their countries’ foreign policies. Immediately afterwards, Tsipras met Egyptian President Abdel Fattah al-Sisi, with whom Anastasiades had met on Monday. It is expected that the Egyptian President will visit Greece soon, as the next tripartite meeting between Greece, Cyprus and Egypt will take place in Athens, for which the three foreign ministers will meet on October 1. Energy issues, President Anastasiades’ initiatives on the Middle East, as well as the preparation of the forthcoming tripartite meeting in Athens were the subjects discussed between the Presidents of Cyprus and Egypt. Government spokesman Nicos Christodoulides said that the first issue on the agenda were energy developments in the region following the recent gas discoveries within the Exclusive Economic Zone (EEZ) of Egypt. He noted that the two Presidents share the common belief that an even stronger cooperation between Cyprus and Egypt in the field of energy would yield benefits to both the region and the two countries. “An ongoing dialogue is underway and it is expected to be enhanced” he added. Anastasiades also briefed his Egyptian counterpart on the trip he is planning in Jordan and Palestine and possibly in some other countries in the region. As regards the tripartite meeting, the Government Spokesman said that the meeting at the level of the Heads of State of Greece, Cyprus and Egypt is be expected to be held in Athens.

Ban and Davutoglu discussed Cyprus peace UN Secretary General Ban Ki-moon and Turkish Prime Minister Ahmet Davutoglu agreed on Monday on the importance of the negotiations for a comprehensive settlement in Cyprus, as well as Turkey’s role in supporting the process. “The Secretary-General and the Prime Minister discussed at length the situation in Syria and Iraq, including international efforts to combat the threat posed

by ISIL and move towards a political solution to the conflict. The Secretary-General warmly thanked the Prime Minister for his country’s very generous support to the huge influx of refugees from Syria,” an official press release said. “The Secretary-General and the Prime Minister agreed on the importance of the negotiations for a

comprehensive settlement in Cyprus, as well as Turkey’s role in supporting the process,” it said. Ban and Davutoglu also discussed developments related to the Middle East Peace Process, “especially the current need to keep tensions down in Jerusalem” and exchanged views on the alarming situation in Yemen, as well as the preparations for next year’s crucial World Humanitarian Summit to be held in Istanbul.

September 30 - October 6, 2015

financialmirror.com | CYPRUS | 5

New tender for Larnaca marina, jetty for Paphos Transport Minister Marios Demetriades, whose remit includes the privatisation of the port of Limassol, that is expected to be managed by new investors during the first half of 2016, said that the tender for the Larnaca port and marina venture will be reissued within the first quarter of next year. Speaking during a hearing of the House Transport Committee, the Minister said that his department is reviewing the possibility of splitting the tender into two – one for the commercial and cruise port, and another for the marina and onshore resort. He said that bids will be requested by the end of the month for consultants on the matter. Demetriades said that the advisors’ main focus will be the resort and commercial development of the land, totaling about 200,000 sq.m., and will decide whether the port and marina projects will be tendered separately or together. The chosen bidder Zenon Consortium,

One of the many initial designs for Larnaca marina that never reached the bidding stage

comprising the Lefkaritis-Petrolina Group, Iacovou Construction, the Larnaca Chamber of Commerce and other investors,

NEOS GeoSolutions in Cyprus onshore and near-shore surveys The Ministry of Energy, Commerce, Industry and Tourism, licensor for the offshore oil and gas fields within the Cyprus Exclusive Economic Zone, has signed a non-exclusive agreement with Silicon Valley company NEOS GeoSolutions Inc. for the conduct of onshore and near-shore geophysical surveys. The agreement, signed by Energy Minister Yiorgos Lakkotrypis, and NEOS President and CEO of the company, Jim Hollis, follows the go-ahead from the Council of Ministers on September 16. The ministry said that “thse studies are expected to contribute towards the assessment of the hydrocarbons prospectivity onshore and near-shore the Republic of Cyprus.” California-based NEOS is an exploration solutions provider to energy ministries and natural resource firms involved in oil and gas, minerals and groundwater extraction and is considered a leader in the emerging field of multi-measurement subsurface interpretation. NEOS www.neosgeo.com is already conducting a geophysical airborne survey designed to map the regional prospectivity of 6,000 sq.km. of northern onshore Lebanon and the transition zone along the Mediterranean coastline by integrating legacy well and seismic data with newly acquired airborne geophysical datasets.

Energy Minister Yiorgos Lakkotrypis and NEOS President and CEO Jim Hollis

abandoned the project in July, budgeted at EUR 700 mln, due to insufficient funding following the financial crisis of 2013 that put

an end to all major projects on the island. Further renegotiations to improve the conditions for Zenon to maintain the project also proved unsuccessful. Meanwhile, addressing the same parliamentary meeting, Demetriades said that there was interest for the development of a cruise jetty at Paphos harbour, but that the state could not afford to go it alone. He said that there was growing demand from cruise operators and from local hoteliers to offer the shuttle boat facility, but that this was not viable for the cash-strapped government, as the jetty would cost EUR 7 mln and further 10 mln was needed to operate it and to buy the shuttle vessels to carry the passengers to and from the cruise ships. Instead, he suggested, the government is prepared to sub-contract the project to private operators and that “we may also be ready to provide some financial assistance to make it viable.”

September 30 - October 6, 2015

6 | CYPRUS | financialmirror.com

S&P issues upgrade, warns about NPLs and privatisations Standard & Poor’s has upgraded its assessment of Cyprus to BB-, citing removal of capital controls and strong budgetary performance. “While we continue to view the banking sector’s asset quality as a key concern, the country’s economic and budgetary performance exceed our expectations. We are therefore raising our long-term sovereign credit ratings on Cyprus to BB- from B+,” the rating agency said on Friday. S&P said the outlook is positive and “reflects that we could raise the ratings in the next 12 months if we see continued economic growth and further stabilisation of the financial sector through improvements in asset quality and further reduction of government debt”. It noted that it could revise the outlook to ‘stable’ if the banking sector’s stability comes under renewed significant pressure due, for example, to unaddressed deterioration in asset quality or if budgetary performance falls short of reducing government debt in line with their current forecast. S&P estimates that the Cypriot economy, which recently exited a recession, will grow by about 1.5% in 2015 in real terms and about 2% per year thereafter. It also expects that the unemployment rate, currently above 16%, will decline only gradually over the forecast horizon and a general government deficit of about 0.6% of

€130 mln from EU to fund employment programmes Labour Minister Zeta Emilianidou said that EUR 130 mln from the European Social Fund will be used to fund the Ministry?s 2016 programmes for the reduction of unemployment with the aim being to reduce youth and long-term unemployment rates. She said that a further 13,000 new hjobs are expected to be created over the next decade, based on the new needs of the economy, as devised by the Human Resource Development Authority (HRDA). Most of these will be in the energy sector, as well as new services areas, such as the casino resort and premium hospitality. She noted that the Ministry is planning to announce before the end of this year more programmes for unemployed persons who will be trained to become registered carers. HRDA Director General George Panayides said that according to the assessment surveys conducted by the Authority, 50% of the new graduates continue to be employed after the first six months. About 25% of these have remained with the employer who signed up for the six-month subsidy programme, while many have moved elsewhere as they were placed in the public sector, where permanent employment opportunities are frozen in accordance with the memorandum with the troika of international lenders.

Unemployment down in 2Q Unemployment stood at 14.7% of the labour force in the second quarter of 2015, recording a decrease from the previous quarter (17.7%) and the corresponding quarter of 2014 (15.4%). According to the results of the Labour Force Survey for the second quarter of 2015, the number of employed persons amounted to 364,585 and the number of unemployed persons to 62,643. The employment rate for persons aged 20-64 was 68.7% (males 72.7% and females 65.1%), an increase from the previous quarter. The unemployment rate for young persons aged 15-24 amounted to 31.7% of the labour force of the same age group recording a decrease from the previous quarter (37.1%) and from the corresponding quarter of 2014 (37.2%).

Economic climate unchanged The economic climate remained unchanged in September, according to the Economics Research Centre of the University of Cyprus (CypERC), that said that despite the overall improvement in various fields and among the consumers, with the exception of a marginal decline in services, the economic sentiment index remained unchanged due to concurrent positive and negative changes in its components.

GDP in 2015 followed by a surplus for the rest of the forecast period. Standard and Poor’s expects Cyprus will be in a primary surplus position as of this year of at least 2% of GDP and forecasts average net general government debt over 20152017 at about 90% of GDP.

The rating agency noted that the execution of the privatisation plan would generate sale proceeds that could further reduce government debt, adding, however, that “the sale of Cyta or the Electricity Authority of Cyprus may not be completed before the 2016 elections, given the likely opposition by political parties and trade unions as well as the government’s existing favourable funding position”. It added that deterioration in the banking sector’s asset quality hasn’t peaked yet. “Although we think that the new legislation regarding foreclosures and insolvency procedures adopted this year, together with a significant increase in banks’ capacity to manage nonperforming assets, could lead to a reversal in asset quality trends, we think the outcome is still uncertain”. It added that given the high level of NPLs, more resolute measures may be needed to improve the banking system’s asset quality. Deputy Government Spokesman Victoras Papadopoulos said the upgrade “is another important development that confirms the restoration of Cyprus’ credibility, but also the positive prospects of the Cypriot economy.” “At the same time it confirms the fact that the correct path and prudent policy followed during the last two and a half years should continue” he noted.

IMF says challenges will remain beyond bailout programme The Cypriot economy will face important challenges even after the exit from the bailout programme, according to Mark Lewis, the outgoing IMF mission chief for Cyprus. The core challenge, Lewis told a press briefing, is the high level of the non performing loans which has to be addressed in order for the banks to lend to businesses and to households again, as this will lead to growth. “The programme is producing results” Lewis noted, giving credit to the authorities and the Cypriot people for their efforts. Nevertheless he stressed that “looking ahead we are not all the way there” and noted that there are still important challenges that remain and will continue in the coming months in the context of the programme and after the programme as well. He said that the problem of the NPLs in the banking system is an “essential challenge”, linked to growth, jobs and incomes. He noted that the new insolvency and foreclosure frameworks must become fully operational, the authorities must deal with problem of title deeds and another step is to deal with the access in loan sales, “which will enable banks to deal with the NPLs problems and go back in the business of lending to households and to businesses”. Lewis said that the public finances are quite positive, but “public debt levels are still high”. He added that it is important to maintain sound public finances in the period ahead, “while at the same time ensuring sufficient public spending to protect the poor and to support growth oriented

public spending”. This also includes reforms to improve the business and regulatory environment to facilitate economic activity, he noted. A staff report released by the IMF on the eighth review of Cyprus’ bailout programme noted that “some reforms under the programme have encountered delays, and with the May 2016 legislative elections in sight, implementing the ongoing structural reforms will remain a challenge”. The IMF’s Executive Board completed last Wednesday the eighth review of the economic adjustment program and approved the disbursement of about EUR 126 mln, which brings total disbursements to date to EUR 882 mln.

BOCY concludes Uniastrum sale in Russia Bank of Cyprus announced that it has completed the sale of the majority of its Russian operations through the subsidiary BOC Russia (Holdings) Ltd., comprising its holdings of 80% in CB Uniastrum Bank LLC, and 80% in its leasing subsidiary, Leasing Co. Uniastrum Leasing LLC, as well as other Russian loan exposures, to Artem Avetisyan, the majority shareholder in Bank Regional Credit. As already stated in the Group’s announcement in July, the decision to sell the Russian operations is part of the Group’s strategy to focus on core businesses and markets and disposing of operations that are considered as non-core. With the disposal of this major overseas banking subsidiary, the

Group has reached another milestone in its deleveraging and de-risking strategy, and has eliminated future potential risks relating to its Russian banking operations, including any liquidity risks. The Group concluded its negotiations with Avetisyan, as a result of which certain revisions to the agreement reached on July 17 were made. This sale allows the Group to derisk its balance sheet by EUR 600 mln and allows the release of risk weighted assets of EUR 550 mln. The sale improves the Group’s regulatory capital position, with a positive impact of 30 basis points on the Common Equity Tier 1 capital ratio. The transaction results in an accounting loss of EUR 23

mln, comprising a loss of 28 mln caused by the technical unwinding of a foreign currency translation reserve and a profit of 5 mln against the net book value of the assets. The remaining net exposure (on and off balance sheet) of the Group in Russia is EUR 155 mln, comprising 135 mln on-balance sheet and 20 mln offbalance sheet exposures. This compares to EUR 148 mln, comprising 114 mln on-balance sheet and 34 mln offbalance sheet exposures as per the announcement on July 17, and is expected to be reduced over time. As a result the remaining exposure includes 42 mln arising from the deferred component of an asset swap arrangement.

September 30 - October 6, 2015

CYPRUS | 7

Hellenic confirms EBRD takes 5% stake Hellenic Bank, the recently capitalised Cyprus bank that includes New York fund Third Point and online gamer Wargaming.Net as its main shareholders, has confirmed that the European Bank for Reconstruction and Development (EBRD) has agreed to acquire a 5.4% stake. Hellenic Bank’s board announced it has decided to proceed in favour of EBRD’s participation, providing the goahead to sign an agreement with the EU’s development bank for the acquisition of 10.7 mln new ordinary shares for a total amount of EUR 20 mln. Back in February, the board had approved increasing the share capital by EUR 35 mln in order to attract new shareholders. This signifies “solidity and casting a vote of confidence not only to Hellenic Bank, but towards the entire banking system and economy of the country,” the Nicosia-based bank’s board said in a statement.

The additional capital raised will strengthen the bank’s Common Equity Tier 1 Ratio (CET1) by 50 basis points, taking it to 14%. The bank’s board said it “looks forward to expanding the cooperation with EBRD in other areas of mutual interest, as they operate in Cyprus and intend to invest significant capital across various sectors of the economy.” The signing of the agreement is expected to take place on Wednesday, September 30. EBRD opened an office in Cyprus last year and announced plans to pump up to EUR 100 mln a year over a 7-year development, mainly in the financial, services and energy sectors. It already invested some EUR 120 mln in Bank of Cyprus for a 5% stake when the island’s main lender was twice recapitalised and now includes shareholders controlled by funds managed by investor billionaire Wilbur R Ross Jr.

H&M in heart of Nicosia in 2016, replaces Debenhams H & M Hennes & Mauritz AB (H&M), the Swedish multinational retail-clothing company, will be opening its first store in Cyprus next year, replacing the current tenant Debenhams in the landmark Shacolas Tower of the capital Nicosia. The NK Shacolas Group retail and property companies listed on the Cyprus Stock Exchange, Ermes Department Stores Plc and Woolworth (Cyprus) Properties Plc announced an agreement on Friday with H & M, “for the long-term use on rent and under satisfactory terms based on sales, the commercial part of Shacolas Tower on Ledra

Street.” This comprises a total of eight floors - two basements, a ground floor and five floors, currentlu occupied by the Debenhams grocery, clothing and home products, as well as a top-floor café. The ninth floor is the observatory, operated by a Shacolas Group

non-profit. Woolworth agreed with its related company Ermes Department Stores Plc, which now rents the space, to terminate the lease in the first half of 2016. Rumours suggest that the Debenhams grocery may move across the street to a vacant arcade, next to another Woolworth property already leased to Danish retail giants Tiger. “This transaction took place because it was considered to be in the benefit of Woolworth and Ermes. Ermes, which collaborates with several other international chains in the fashion sector, will enhance its

existing activities both in the Nicosia municipality, and in the wider region of the greater Nicosia,” the announcement said. Earlier reports in June about H&M’s arrival, which the Shacolas Group initially denied, also suggest that an annex may be built to the Mall of Cyprus on the southern outskirts of the capital, bought by the South African property investment group Atterbury for about 160 mln euros in cash, equity and debt. The annex will probably house another H&M store, while Atterbury’s other purchases, such as the Mall of Engomi may also include H&M outlets.

September 30 - October 6, 2015

8 | COMMENT | financialmirror.com

HARVEST TIME... As the grapes are brought in, some seasonal reflections The gentle turn in the road from Omodos to Episkopi just south of the winery at Ayios Amvrosios is followed by a long slope up towards Kivides. It holds several memories for me. It was the scene of a shooting a few years ago, when a man jumped out of some bushes with a sub-machine gun and slaughtered another man as he drove round the bend. Fortunately, my travel round that bend had been a few minutes prior. Some years before, I recall seeing for the first time the old Bedford trucks (used just once or twice a year) loaded to the brim with grapes struggling up the hill, with grape juice pouring out of the back and running down the road. No wonder Cyprus wines were somewhat oxidised and lacking finesse in those days. So, in the northern hemisphere, these weeks have been and are the time when the growers know what standards of life their families are going to enjoy for the next 12 months. It is harvest time! The Vendange (or ‘Trigos’). Those bad old days of grapes waiting for collection by the roadside, sometimes for days, before collection by trucks, for transport to the four wineries in Limassol of KEO, SODAP, ETKO and LOEL, have gone. The change was brought about by independent growers and winemakers who set up in the villages to bring in grapes, fresh and press them quickly to make wine of better quality in small and medium quantities. Then, I wrote about wine every week in the Cyprus Mail and caused the enmity of several of the leading lights of the Big Four by castigating them in print for the way they treated grapes and for praising the independents. “They’re nothing”, a wine grandee once told me, “they won’t survive”. Actually, just about all of them did, causing the grandees to change their practices. Of the Big Four, SODAP were the ones who broke the mould, by bringing in Australian winemakers. These young men and women 1970. A peasant family in Madeira presses grapes with caused minor mayhem in the hills. their feet. Children as young as eight take part – indeed They went up there at the crack of during the harvest period there is no school for them; dawn to see the vines. “We pick next Tuesday”, one village told they are needed in the vineyards. them one day. “No, they won’t be ready until Friday at least”, a young Aussie said. The Cypriot shrugged his shoulders and said “OK, I sell to ****”. Eventually, a sum a little above the going rate for a kilo was agreed and for the first time a big winery got grapes that were picked when the winemaker said they were ready. The resulting wine was called “Island

FOOD, DRINK and OTHER MATTERS with Patrick Skinner

1992. Cyprus. Grapes are picked and loaded into baskets which are then transported to the nearest road, and loaded on to an ancient Toyota pick-up truck that awaits. When it is full to overflowing it will take them to Limassol. The truck, unlicensed and uninsured, was used just once a year.

Today’s “Health & Safety” people would have shut down wineries in France, Austria, Lebanon and Spain where I sipped luscious wines in times past. I fear the day will come when most of the wine we drink will taste very much the same. I give the example of Tavel. This is a modest, dusty unremarkable village in the Rhône whose surrounding land grows some well known and some virtually unknown grape varieties, which happen to blend into a unique, cracklingly dry rosé. It is, or was, the finest rosé you could wish for. There were at least seven remarkable producers, all different. Then a big Rhône Valley wine producer bought in, and jettisoned the Tavel methods. The result tasted good, but it was like his Rhône valley, not Tavel. “Ah, but you’re neglecting many new, original, winemakers”, a friend said when I advanced my view above. “My tasting experience is limited these days”, I answered, “but I guess I am not, because nowadays most winemakers use the same equipment, technology and oenology. They aim for ‘Robert Parker Standards’.” All this leads to the message I want to send to Cyprus winemakers. It is “Do your own thing. By all means observe standards and guidelines, but make your own wine, which reflects your terroir, your techniques and your personality”. I wish you Bonne Vendange… Go to www.eastward-ho for more recipes, food and wine news and notes.

A photograph from the 1950s in the hills below Troodos, showing an ancient Bedford bus being loaded with baskets of grapes, for transportation to Limassol.

Vines” and it was a sensation. It was taken up by the CoOp supermarket chain in Britain where you can still buy it today (though it does need a design makeover and some marketing). Grapes are tolerant little items. Today’s modern wineries, the world over, are as sanitised as hospital wards, but it was not always so. Some of the world’s most gorgeous sweet wines are made in Madeira, but until recently the grapes were pressed by young men treading on them with their bare feet, and the pressed juice often waited for some time before reaching the winery. My first encounter with Cyprus wine was in 1990 when one of Chris Lambouris’s first reds astounded me. The grapes had been “pressed” in plastic bins with a long three pronged stick.

Cyprus 1930. A group of visiting Swedish academics buying wine, personally delivered by the producer. Note the funnel aiding the filling of a 5-litre flask, the wine-seller’s cigarette, the Swede’s pipe and his empty bottle for filling. A wonderful picture!

September 30 - October 6, 2015

financialmirror.com | COMMENT | 9

Dodoni to start halloumi, anari production Greek dairy giant Dodoni AE has established a Cyprus subsidiary, Dodoni Dairy Products (Cyprus) Ltd. that will start producing halloumi and anari cheese from spring 2016. The company is setting up a new production plant in Limassol Ypsonas area from where it will try to tap into the EUR 90 mln market by exporting the traditional Cyprus cheeses to its market network of 35 countries, taking advantage of the recent registration of halloumi as a Protected Designation of Origin (PDO). Ultimately, only dairy producers in Cyprus (Greek Cypriots or Turkish Cypriots) will be able to use the halloumi label on their cheeses. The products, as well as Dodoni imports (such as the popular feta) will be distributed by CTCArgosy, together with graviera cheese and yoghurts produced at the central plant in Ioannina. In his speech at a launch event in Nicosia, Agriculture Minister Nico Kouyialis said that the PDO registration of halloumi will bring “prospects for growth, development and employment” in the wider farming sector. He said that Dodonis’ “multi-million investment in Cyprus is most welcome at a time when Cyprus needs foreign direct investments (FDIs) and the creation of new jobs.” He added that the government will inject EUR 35 mln in the animal husbandry sector to allow local farmers to upgrade their level of service to comply with the advancing needs of the industry.

Orexi Catering restarts cookery workshops The following came from Elena at Orexi Catering: “Our autumn programme begins with the monthly Farmer’s market at the Herb Garden in Pano Akhourdhalia on Sunday, October 4. Come early or email your order in so we can reserve it for you. We will begin our Cookery Workshops again in October – these have become a popular event at Orexi HQ in Droushia over the last few years so we will continue to hold them once a month. The first one will be on Tuesday, October 6, and for those of you interested in continuing to cook with Orexi let me know which day of the week you would prefer our regular classes to be. We will begin our 2015/2016 cooking class programme with a repeat of the very popular Lebanese Vegetarian one that we did twice earlier in the year – it’s been requested again as a few of our gourmets missed out! Our day goes something like this... 9.30am – meet at Orexi HQ for breakfast (freshly baked goodies – something sweet and something savoury) and as much filter coffee or fresh herbal/builder’s tea as you need to wake you up. 10-10.30am – once all chefs have assembled and relaxed around the kitchen table we’ll begin to cook. We try to use as much from our organic garden as we possibly can so you will get a chance to pick fresh ingredients for your lunch. 1pm – eat either under the mish-mish tree (weather permitting) or round the kitchen table. Enjoy your home-cooked lunch with a glass of wine from one of our wonderful local wineries.

The Lunch Menu: Fasoulia-bil-Kizbrah – butter beans cooked with fresh coriander, tomato, chilli and lots of garlic! Riz-bil-Snoobar – lightly spiced rice dish with sultanas and freely-foraged pine-nuts. Salata Batinjan – a salad of charred aubergine, tomatoes and cucumber dressed with sumac, fresh mint and organic pomegranate. Jibne-wa-Labne – a spicey cheese and yoghurt dip. Salata Rokkah – a salad of rocket, garden figs and Orexi walnuts in a blue cheese dressing. Cost of the day - 35 euros for breakfast, lunch, hot beverages, wine and your cooking lesson. Limited space available so please let me know via email or telephone if you’d like to book a place.” Email your reservation to bandedoghman@cytanet.com.cy www.orexicyprus.com

or at website

September 30 - October 6, 2015

10 | COMMENT | financialmirror.com

‘Big Bangs’ and lessons THE RISK WATCH COLUMN

By Dr Alan Waring In August this year, two major explosions occurred at different chemical facilities in China. What do these tragic events tell us about how such man-made disasters occur and the state of risk reduction and control in major hazard industries anywhere in the world? Why do well known and documented lessons in prevention from decades of previous disasters around the world continue to fail to be implemented? What defects in major hazard risk control in the China context are also evident in Cyprus? Major Hazards Safety in China At least 170 people were killed and nearly 800 injured by two explosions seconds apart at the Tianjin Dongjiang Port Rui Hai International Logistics Company’s chemicals warehouse in the port city of Tianjin some 150km from Beijing on August 13. Widespread property damage occurred over a 1km radius and thousands of people were evacuated. One thousand firefighters and more than 140 fire tenders were deployed to tackle the subsequent blaze which went on for nearly 24 hours. A team of over 200 chemical hazard specialists was despatched by the government from Beijing to assist in minimizing any consequent safety, health and environmental risks. Another explosion and fire occurred on August 22 at the Runxing chemical factory in Zibo City, Shandong Province, 300km south of Beijing. In this blast, one person was killed and 9 injured. Apparently, the explosion and fire started at a separator unit in the production process. Blast damage and effects were experienced up to 2km away. Regrettably, man-made safety disasters are all too frequent in China. One of the most notable for its scale and ramifications was the explosion and fire at the PetroChina petrochemical plant in Jilin City in 2005. Six people were killed at the site and 70 more were injured. Some 10,000 people in the vicinity were evacuated. The initial disaster then escalated into one of the world’s worst ever

environmental disasters as chemicals from the site poured out into water courses. Large quantities of toxic substances such as benzene and nitrobenzene were washed into the Songhua River and were carried across the whole of Jilin Province and then Heilongjiang Province heading for Harbin and the Amur River. An 80km long pollution slick carried across the border into Russia reaching Khabarovsk and eventually the Pacific Ocean. At the time, I was advising representatives of the State Administration for Work Safety, and academics at Tsinghua University in Beijing, who were also advisers on risk management to the Council of Ministers. It was apparent that China was still stuck in a dysfunctional mode of thinking on safety that had been prevalent in the West before the flurry of major hazard disasters of the 1970s and 1980s and the advent in the EU and generally of a pro-active regulatory and preventative system based on objective risk assessment. Common negative themes in China’s industries included: - Major hazard sites routinely located in urban areas; - Residential impact and public safety routinely side-lined or ignored; - Lack of effective regulatory control mechanisms; - Absence of a ’safety justification’ or ‘safety case’ system; - Over-reliance on routine technical inspection and periodic certification of hardware at the expense of safety Tianjin 2015

management systems, formalized major hazard risk evaluation, safety cases and safety culture; - Repeated failure to learn lessons from previous disasters and to implement lessons that had been learned. These themes were very reminiscent of the ‘old approach’ to major hazards in the West that the ‘new approach’ has largely replaced e.g. the Control of Major Hazards EU Directives (Seveso I, II and III) and the EU Directive on Safety of Offshore Oil and Gas Operations.

Other Factors Nevertheless, whereas the risk-based approach developed in the West since the mid-1980s has introduced a large degree of self-regulated safety discipline and applied knowledge in the major hazard industries, and much of the rather cavalier negative safety attitudes has gone, the fact remains that disasters keep occurring. Repeatedly, lessons from previous disasters are either not learned at all or, if they are, those lessons are not implemented. There is no reason to suppose that the situation in Cyprus is any different. For example, to what extent have the lessons from the 2011 Mari-Vassilikos explosion and the recommendations of the Polyviou Report been implemented? Now that the new Vassilikos Energy Complex is operational, what independent expert assurance do we have that major hazard risk control there is adequate? Has public consultation been real or perfunctory? Are the Cyprus regulators and enforcing authorities up to scratch? As I asked in a recent article in Safety Science 79 (2015), 254-267, why does there remain such a large gap between the ideal and reality when it comes to major hazard accident prevention? Why do boards and individual directors and executives so frequently appear to defy rational commonsense requirements (and indeed statutory requirements and professional good practice, including lessons learned) for safety risk management intended ultimately (as a corporate governance objective) to protect the interests of shareholders and other stakeholders such as employees and the public? Official disaster inquiry and investigation reports continue to flow thick and fast (e.g. Buncefield gasoline storage fire and explosion 2005, BP Texas City refinery fire and explosion 2005, BP Deepwater Horizon offshore installation 2010, Mari-Vassilikos disaster 2011, Fukushima Daiichi nuclear reactor meltdown 2011). Common critical themes that emerge include: - Managerial over-reliance on routine technical inspection and plant certification, - Weak and defective safety management systems, - Weak safety culture,

September 30 - October 6, 2015

financialmirror.com | COMMENT | 11

not learned - Failures of hindsight, foresight and learning, - Ignorance and bounded rationality, - Groupthink, authority and conformity, - Faulty risk cognition and risk attitudes, - Conflicting motivations and expectancy, - Faulty risk decision-making, - Socially constructed emergence.

The Attitude of Bosses However, although all the above factors are well known in safety science, very few facts are known about what determines the risk decisions that directors and senior executives in major hazard organizations actually make about major hazard risks. Most of what is written about this matter is actually based on assumption, rationalisation, guesswork and speculation and not on evidence obtained by any scientific study. Empirical evidence based on primary data obtained directly by in-depth interviews with directors and senior executives is very rare because access to them is denied. Some possible reasons for such access denial and reluctance to be transparent include: - Avoiding scrutiny that may produce negative or embarrassing findings; - Sensitivity about legal liabilities and access to confidential data ; - Being questioned on risk decisions may affront their dignity and self-image; - Lack of empathy for and understanding of academic research value.

Vasiliko 2011

One has only to watch, for example, the video evidence of the US House of Representatives House Committee chairman Henry Waxman’s formal public interrogation of BP America’s CEO Tony Hayward on 17 June 2010, following the Deepwater Horizon disaster. This not only provided a graphic example of the judicial risks that directors may personally encounter but also demonstrated a determination by Mr Hayward not to answer the chairman’s penetrating questions!

Conclusion Currently we are stuck with not knowing with any certainty whether the top bunch in major hazard operators make seemingly bad or crass risk decisions because they have a gambling mentality and a ‘what can we get away with?’ culture; or because they make an intellectual appraisal in which their prioritized perceptions of corporate risks are weighed against a desire to put ‘safety first’ e.g. if safety is perceived (accurately or not) as a drain on profits; or because they are driven by imperceptible social processes towards unwise decisions or actions; or because of some other as yet unidentified reason. PR statements and aspirational safety policy statements by company managements simply cannot be taken at face value, as many disaster inquiry reports make clear e.g. Buncefield, BP Grangemouth. To break out of the current impasse, whereby vast amounts of safety knowledge and lessons from past disasters are not being sufficiently applied and preventable disasters keep occurring, we need to get some answers. Research based at the European University Cyprus

is seeking to address this. Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. He is Visiting Professor at the School of Science, European University Cyprus. His latest book Corporate Risk and Governance is at www.gowerpublishing.com/isbn/9781409448365. Contact waringa@cytanet.com.cy. ©2015 Alan Waring

September 30 - October 6, 2015

12 | PROPERTY | financialmirror.com

Detroit home price average lingers below $40,000 By Douglas McIntyre Among all the evidence that Detroit continues to suffer from both the effects of a smaller car industry and the Great Recession, the median home price in the city is $35,000. On balance, prices have fallen recently, while throughout much of the United States home prices are rising. According to real estate website Trulia: “The median sales price for homes in Detroit for June to September was $35,000. This represents a decline of 7.9%, or $3,000, compared to the prior quarter and a decrease

of 0.7% compared to the prior year. Sales prices have appreciated 9.9% over the last 5 years in Detroit. The average listing price for Detroit homes for sale on Trulia was $33,527 for the week ending September 9, which represents an increase of 0.8%, or $270, compared to the prior week and a decline of 1.3%, or $434, compared to the week ending August 19. Average price per square foot for Detroit MI was $29, a decrease of 9.4% compared to the same period last year.” The primary reason for the lack of improvement is likely both the drop in population and demographics. The city’s population is more than half below its peak of over 1.5 mln in 1960. And most of the

people who could afford to leave Detroit have, leaving a poor population, which keeps tax yields for the city low, which means city services cannot rebound. According to data from The American Community Survey, the median household income in Detroit is about half the national average of just over $50,000. The poverty rate is about three times higher. The city is in the midst of bulldozing thousands of houses. An intended symbol of the progress in rebuilding is that many of the broken or burned out street lights have or are being replaced. However, Detroit is still “underpoliced” and crime remarkably high.

The life blood of the city was slowly sucked out, beginning as the U.S. car business began to lose market share to the Japanese in the 1970s. As that trend accelerated, car companies moved factories outside the city or closed them. Car quality perception and union costs made matters worse. The city does still have a program to sell blighted homes for $1,000 from the Building Detroit website to people who pledge to refurbish them. But only a few such houses are being sold each day, and the program likely does little to help boost the median home price across the city. (Source: 24/7 Wall St.com)

Leptos Estates continues in Beijing, Moscow, Dubai and Cairo Leptos Estates has been riding a wave of successful awareness and promotional efforts at international real estate and investment exhibitions over recent days in China, Russia, United Arab Emirates and Egypt. The company’s presence along with its wide property portfolio in Cyprus and the Greek islands of Crete, Paros and Santorini, has managed to attract the attention from potential buyers. The company’s General Manager, Paris Gabriel, stated that, “our distinct projects on the coastal line ‘Coral Seas Villas’, ‘Latchi Beach Villas’ and ‘Santorini Beach Villas’ made a huge impression. A large number of

buyers, investors, as well as reputable real estate companies have requested to visit our islands so they can view on the spot the large selection and high quality of our projects. The endless blue of Leptos Estates is constantly attracting thousands of visitors at all the display stands of the company from all the exhibitions which we participate in.” Gabriel added that, “We are making a great effort in promoting and highlighting not only the company but both Cyprus and Greece as a destination and will continue this particular effort at all our international exhibitions.”

“Trapped” owners’ law on the right track By George Mouskides

The unanimous adoption by parliament of the ‘trapped’ property buyers’ law was a welcomed surprise. The relevant legislation was necessary to regulate and solve a problem haunting Cypriot buyers for decades now. The interior Minister is to be congratulated for pushing hard for the adoption of the legislation. It also defies logic why this simple solution had not been adopted 10 or 15 years ago. However, the ultimate solution will come about, once titles are automatically issued, at the same time the developer delivers the key to the buyer.

Basic conditions In order for the public not to be in the dark allow me to present the basic provisions of the new law.

The term ‘trapped’ buyer refers to those who have honoured the terms of sale or are willing to do so: a) The legislation applies to buyers whose properties do not have a title deed; b) It also relates to properties for which a title deed has been issued to the name of the developer but cannot be transferred to the buyer for specific reasons.. In the first case, when a deed has not been issued, when the buyer applies to the Land Registry Department, all foreclosure procedures are suspended. The application for title deed transfer remains pending until the deed is issued. If title deeds have been issued the following apply: - The transfer application from the developer to the buyer can be initiated by the seller, the buyer, the mortgage lender or other lenders related to the property; - This is another case when foreclosure proceedings are suspended until the application is examined; - For the application to be considered, either the whole amount of the transaction must have been honoured or the amount due to be deposited toa special Lands and Surveys Dept. bank account.

If all above criteria are met, the Lands Dept. will inform the buyer, the developer, the mortgage lender, or any other party who has placed a ‘memo’ on the property asking them to come forward with objections, if any, within 45 days. If there are no objections the Department will initiate the transfer. Another positive development is the fact that transfer fees have been reduced by 50%, effective until the end of 2016. The buyer can choose to pay these fees at a 10% discount, if paid within 60 days, or in 12 equal monthly installments (interest free), without a discount. People who fail to take either option will pay a 50% penalty. This new legislation highlights the fact that when all parties involved show a spirit of co-operation we can come up with good solutions to long-standing problems that will be beneficial for everybody. Having said this, it was our obligation to fix this problem under the memorandum signed with our lenders (the Troika). George Mouskides is General Manager, FOX Smart Estate Agency

Irish prime RMBS performance continues to improve The Irish prime residential mortgagebacked securities (RMBS) market continued to improve in the three-month period ended July, according to the latest indices published by Moody’s Investors Service. Arrears levels have decreased at both early and late stages on both a quarterly and annual basis. The 90+ delinquencies decreased to 15.77% of the outstanding balance in July, from 16.71% in April. The 360+ delinquencies (used as a proxy for defaults) decreased to 11.42% from 12.06% over the same period. The 30+ day delinquencies decreased to 17.89% in July, from 18.86% in April and 21.87% in July 2014. However, the Irish RMBS market still displays higher delinquency ratios than its European peers. Continued stabilisation of the housing

market, robust employment trends and gradual restoration of consumer confidence will lead to a further measured reduction in arrears. Nonetheless, the significant decrease in arrears displayed in the Irish RMBS market during the last periods might be driven, not exclusively because of the improving economic environment but by the increased use of restructurings. Outstanding repossessions remained stable at 0.38%, and cumulative losses rose to 0.16% in July from 0.14% in April. Over the same period, the constant prepayment rate decreased to 1.38% from 1.48% and total redemption rate decreased to 5.41% from 5.53%. Moody’s said its outlook for Irish RMBS remains stable. As of July, 34 Moody’s-rated Irish Prime

RMBS transactions had an outstanding pool balance of EUR 31.65 bln compared with

EUR 34.29 bln in July 2014, constituting a year-on-year decrease of 7.7%.

September 30 - October 6, 2015

financialmirror.com | PROPERTY | 13

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

The law on estate agents states that where there is an agreement between the seller and the real estate agent, the commission rate is that what is agreed between them. If there is no agreement, then the rate is 3% of the selling price plus VAT. • Only registered estate agents are entitled to ask for the commission and there are various “tricks” used by several illegals in the market, eg. advertising, personal care used for finding customers, etc. • The Income Tax or the Capital Gains does not recognise the term “commission” as a deductible expense from nonreal estate agents, even though as I mentioned before, there are various tricks around this obstacle. • The rate of commission has prevailed to be 5% in all towns, with the sole exception of Nicosia where the prevailing rate is 3% (but, at present the trend is upward). • Sometimes, this rate of commission can even surpass the level of 5% rising to 10%, while in the case of Chinese intermediaries it could even reach beyond 20%. • This percentage is high but local real estate agents often use foreign real estate agents to promote their properties to the outside and they usually ask for 5%, plus the local real estate agent’s 3.5-5% and it is obvious where we can end up. • The agreement for more than 3%, although not mentioned that it should be in writing, however, the income tax required this for purposes of deduction as an expense. This is a little absurd seeing that all are declared - costs / income are referred to all parties involved, thus the issue of commission creates further complications. • It is assumed that real estate agents use third parties as a source for new business, such as a local taxi driver, barmen, doctors and others. Here there is a problem because it is well

known that foreign buyers typically use third party services as part of their work, while in this weak period of demand, more and more frequently someone will come along as having a “friend” or willing to “help”. The real estate agent’s relationship with the seller is even more difficult and outsiders often view estate agents with great suspicion. They may often be justified by the fact that some real estate agents agree with the seller at a price ‘A’ and when the sale goes through, another amount is added “to cover the extra cost of the real estate agent.” Most developers have realised there is a major problem in finding new buyers themselves so they may offer 8-10% — mainly in Paphos – an amount that is certainly to be added to the selling price. The biggest problem that remains is that of the Chinese middlemen who overcharge (± 20%) and the commission cannot be justified legally, as mentioned there are other ways to present these as ‘expenses’. Included in the above problem is the dilemma of what price the owner-seller should advertise the property. Should

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

the price include the 5%-8% commission or set a higher price to cover the various persons and costs involved, as most sellers are already advertising the selling price on websites, etc. In a recent case that has come to our office’s attention, a Chinese buyer may have paid, say, EUR 120,000 for an apartment and the (British) neighbour in the same development or even next door had only paid EUR 105,000. For these and many other reasons it is recommended to use a reputable lawyer who is knowledgeable of property matters so as to avoid future complications and to clarify the issue from the start. It is difficult to limit the commission rate and this may be the only profession which by law determines the commission, while everyone else, such as car dealers, medical professionals, plumbers, electricians, engineers and architects do not have such a restriction. But it is a matter that should be properly reviewed at a later stage. www.aloizou.com.cy ala-HQ@aloizou.com.cy

September 30 - October 6, 2015

14 | MARKETS | financialmirror.com

A worrying set of signals Marcuard’s Market update by GaveKal Dragonomics Regular readers will know that we keep a battery of indicators to gauge, among other things, economic activity, inflationary pressure, risk appetite and asset valuations. Most of the time this dashboard offers mixed messages, which is not hugely helpful to the investment process. Yet from time to time, the data pack points unambiguously in a single direction and experience tells us that such confluences are worth watching. We are today at such a point, and the worry is that each indicator is flashing red. · Growth: The three main indices of global growth have fallen into negative territory: (i) the Q-indicator (a diffusion index of leading indicators), (ii) our diffusion index of OECD leading indicators, and (iii) our index of economically-sensitive market prices. Also the US recession indicator is sitting right on a key threshold. · Inflation: Our main P-indicator is at a maximum negative with the diffusion index of US CPI components seemingly in the process of rolling-over; this puts it in negative territory for the first time this year. · Risk appetite: The Gavekal velocity indicator is negative which is not surprising given weak market sentiment in recent

weeks. What worries us more is the widening of interest rate spreads—at the long-end of the curve, the spread between US corporate bonds rated Baa and treasuries is at its widest since 2009; at the short-end, the TED spread is back at levels seen at the height of the eurozone crisis in 2012, while the Libor-OIS spread is at a post-2008 high. Moreover, all momentum indicators for the main equity markets are at maximum negative, which has not been seen since the 2013 “taper tantrum”. These weak readings are especially concerning, as in recent years, it has been the second half of the year when both the market and growth has picked up. We see three main explanations for these ill tidings: 1) Bottoming out: If our indicators are all near a maximum negative, surely the bottom must be in view? The contrarian in us wants to believe that a sentiment shift is around the corner. After all, most risk-assets are oversold and markets would be cheered by confirmation that the US economy remains on track, China is not hitting the wall and the renminbi devaluation was a one-off move. If this occurs, then a strong counter-

trend rally should ramp up in time for Christmas. 2) Traditional indicators becoming irrelevant: Perhaps we should no longer pay much attention to fundamental indicators. After all, most are geared towards an industrial economy rather than the modern service sector, which has become the main growth driver. In the US, industrial production represents less than 10% of output, while in China, the investment slowdown is structural in nature. The funny thing is that employment numbers everywhere seem to be coming in better than expected. In this view of things, either major economies are experiencing a huge drop in labor productivity, or our indicators need a major refresh. 3) Central banks out of ammunition: The most worrying explanation for the simultaneous decline in our indicators is that air is gushing out of the monetary balloon. After more than six years of near zero interest rates, asset prices have seen huge rises, but investment in productive assets remains scarce. Instead, leverage has run up across the globe. According to the Bank for International Settlements’ recently released quarterly review, developed economies have seen total debt (state and private) rise to 265% of GDP, compared to 229% in 2007. In emerging economies, that

ratio is 167% of GDP, compared to 117% in 2007 (over the period China’s debt has risen from 153 to 235% of GDP). The problem with such big debt piles is that it is hard to raise interest rates without derailing growth. Perhaps it is not surprising that in recent weeks the Federal Reserve has backed away from hiking rates, the European Central Bank has recommitted itself to easing and central banks in both Norway and Taiwan made surprise rate cuts. But if rates cannot be raised after six-years of rising asset prices and normalizing growth, when is a good time? And if central banks are prevented from reloading their ammunition, what will they deploy the next time the world economy hits the skids? Hence we have two benign interpretations and one depressing one. Being optimists at

heart, we want to believe that a combination of the first two options will play out. If so, then investors should be positioned for a counter-trend rally, at least in the shortterm. Yet we are unsettled by the market’s muted response to the Fed’s dovish message.

www.marcuardheritage.com

That would indicate that investors are leaning towards the third option. Hence, we prefer to stay protected and for now are not making a bold grab for falling knifes. At the very least, we seek more confirmation on the direction of travel.

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.

September 30 - October 6, 2015

financialmirror.com | MARKETS | 15

Positioning for a US recession Marcuard’s Market update by GaveKal Dragonomics Since the end of last year we have been worried about an “unexpected” slow-down, or even recession, in the world’s developed economies. In order to monitor the situation on a daily basis, we built a new indicator of US economic activity which contains 17 components ranging from lumber prices and high-yield bond spreads to the inventory-to-sales ratio. It was necessary to construct such an indicator because six years of extreme monetary policy in the US (and other

team with a focus on long-dated US bonds as a hedge. This is certainly not a time to buy equities on dips. Today, the indicator reads -5 which points to a contraction in the US, and more generally the OECD. Such an outcome contrasts sharply with official US GDP data, which remains fairly strong. This discrepancy is best explained by offering specific portfolio construction advice in the event of a developed market contraction. The assumption is simply that the US economy continues to slow. Hence, the aim is to outline an “anti-fragile” portfolio which will resist whatever brickbats are hurled at it. During periods when the US economy has slowed, especially if it was “unexpected” by official economists, then

market investment as a decent bet. Today, the ratio between the S&P 500 and long-dated US zeros stands at 75. This suggests that shares will become a buy in the coming months if they underperform bonds by a chunky 33%. The condition could also be met if US equities remain unchanged, but 30-year treasury yields decline from their current 3% to about 2%. Alternatively, shares could fall sharply, or some combination in between. Notwithstanding the continued relative strength of headline US economic data, note that the OECD leading indicator for the US is negative on a YoY basis, while regional indicators continue to crater. The key investment conclusion from the recession indicator is that equity positions, which face risks from worsening economic fundamentals, should be hedged using bonds or upping the cash component.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

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

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

17670 1.5199 1.7399 24.1969 6.6384 13.9224 1.1238 2.3375 279.94 0.62536 3.0723 0.382 19.97 8.4895 3.7761 3.9314 66.1226 8.4182 0.971 21.45

AUD CAD HKD INR JPY KRW NZD SGD

0.6977 1.3407 7.75 66.005 119.89 1201.6 1.5772 1.4278

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

0.3773 7.8101 29856.00 3.9335 0.7067 0.3021 1509.50 0.3850 3.6415 3.7504 14.0024 3.6729

AZN KZT TRY

1.042 271.02 3.0466

AMERICAS & PACIFIC

developed markets) has stripped “traditional” cyclical economic data of any real meaning. Understanding this diffusion index is straightforward. When the reading is positive, investors have little to worry about and should treat “dips” as a buying opportunity. When the reading is negative a US recession is a possibility. Should the reading fall below -5 then it is time to get worried — on each occasion since 1981 that the indicator recorded such a level a US recession followed in fairly short order. At this point, our advice would generally be to buy the defensive

www.marcuardheritage.com

equities have usually taken a beating while bonds have done well. For this reason, the chart shows the S&P 500 divided by the price of a 30-year zero-coupon treasury. A few results are immediately clear: - Equities should be owned when the indicator is positive. - Bonds should be held when the indicator is negative. - The ratio of equities to bonds (blue line) has since 1981 bottomed at about 50 on at least six occasions. Hence, even in periods when fundamentals were not favourable to equities (2003 and 2012) the indicator identified stock

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

Note:

The Financial Markets

* 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

0.19 0.51 -0.12 0.03 -0.80

0.26 0.54 -0.07 0.06 -0.76

0.33 0.59 -0.04 0.08 -0.73

0.53 0.75 0.02 0.12 -0.67

0.85 1.05 0.13 0.24 -0.56

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.77 0.94 0.05 0.10 -0.68

1.01 1.12 0.12 0.11 -0.61

1.23 1.28 0.23 0.14 -0.51

1.43 1.43 0.36 0.18 -0.38

1.74 1.64 0.62 0.29 -0.10

2.05 1.84 0.96 0.49 0.22

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1238 0.8898

100 JPY

1.5199

1.0299

0.8341

1.3525

0.9164

0.7422

0.6776

0.5488

0.6579

0.7394

0.9710

1.0912

1.4758

119.89

134.73

182.22

0.8099 123.47

Weekly movement of USD

CCY

Today

133.82

GBP EUR JPY

1.0882

CHF

1.5199 1.1238 119.89 0.9710

CCY\Date

01.09

08.09

15.09

22.09

29.09

USD GBP JPY CHF

1.1214

1.1156

1.1259

1.1142

1.1209

0.7284

0.7286

0.7298

0.7180

0.7390

135.29

132.63

135.06

134.07

0.0776

1.0822

1.0889

1.0817

Last Week %Change 1.5509 1.1186 120.50 0.9725

+2.00 -0.46 -0.51 -0.15

September 30 - October 6, 2015

16 | WORLD | financialmirror.com

EM currencies hurt by strong dollar and rate hike calls are being hard hit; - Capital flight from EM countries is accelerating as dollar strength dominates markets; - Structural weakness in the Chinese economy is impacting demand for EM commodities; - EM currency weakness has made these currencies the most bearish financial assets of all.

By Oren Laurent President, Banc De Binary

Emerging market currencies have come under increasing fire in recent days. The Fed decision to maintain short-term interest rates at their current level of 0% - 0.25% relieved market volatility to a degree, but this proved short-lived. All the gains that emerging market currencies racked up were reversed, and now EM currencies are at their weakest levels. EM currencies like the Malaysian ringgit, the Turkish lira, the Indonesian rupiah, the Brazilian real and South African rand have all taken a beating. The reasons for ongoing weakness in EM currencies include a strong USD, weak demand from China and anxiety related to Yellen’s call for a rate hike before the end of 2015.

RATE HIKE BEFORE THE END OF 2015 Janet Yellen refrained from hiking interest rates in September, but she never ruled out a rate hike before the end of 2015, when she spoke at the University of Massachusetts last Thursday, September 24. EM currencies are under pressure as China’s economy slows. But there are plenty of other pressures being brought to bear including the structural weakness in Brazil. The incumbent President is at record low popularity levels and she is presently in the process of coalition building. Dilma Rousseff is battling an ongoing recession with widespread corruption with the stateowned Petrobas oil company. The Brazilian real hit a low of R$4.2479 on Thursday and strengthened to R$3.9507 after intervention by the central bank. The following EM currency declines were recorded in 2015 to date: - The Mexican peso declined by 13.19%; - The Indian rupee declined by 15.29%; - The Malaysian ringgit declined by 20.36%;

OPPORTUNITIES IN EM COUNTRIES

- The Turkish lira declined by 23.38%.

BRAZIL IS FRONT AND CENTRE As one of the most influential countries in the EM world, Brazil must reassure investors that its economy is on track for a recovery. Rousseff is battling impeachment proceedings and her opposition needs just 257 seats to do this. Brazil’s currency has plunged 60% in 2015 and as much as 10% in September alone. The spillover effect of Brazil’s weakness has pervaded other EM markets around the world. But it’s not only Brazil that is battling weakness – it’s Indonesia too. The Indonesian central bank is looking to shore up the value of the currency which has depreciated by as much as 20% in 2015 alone. EM countries are using their central banks as tools to artificially support their currencies. One such measure is hiking interest rates, and the other is selling foreign currency reserves. Pervasive weakness remains because of structural weaknesses in the Chinese economy.

As it stands, there are very few positive factors likely to jumpstart economic growth for EM currencies. The South African rand is a case in point. The currency hit a record low against the USD when it traded at 14.0860 on Thursday, September 24. It has since recovered somewhat to trade at 13.92 to the dollar on Friday. The rand has come under fire against a basket of currencies including the GBP (21.09) and the EUR (15.56). The debt burdens in EM countries are increasing as forex reserves begin to decline. Many years of stockpiling forex from trade surpluses have come to an end and central banks have to sell off dollars, pounds and euros to help the local currency to appreciate. That having been said, the selloff in EM equities, ETFs and capital flight is bringing long-term value back to these sectors. Bargain hunters will be eyeing EM markets for opportunities in commodities and bonds for the inevitable turnaround that is likely to come after this protracted downturn. Please note that this column does not constitute financial advice.

FACTORS AFFECTING EM CURRENCIES - Chinese PMI figures are at multi-year lows; - Brazilian inflation is at 5.3%, up from 4.8%, for 2016; - EM countries with weak currencies and high inflation

Markets, GBP and Gold exposed to further pressures Markets Report b By Lukman Otununga, Research Analyst at FXTM

Anxiety continues to ripple through the financial markets as global developments concerning the lack of clarity on the timing of a US interest rate hike, anxieties over China entering a deep economic downturn, emerging market weakness and continual growth concerns in Europe, Japan and Asia are all weighing on global sentiment. A risk-off trading environment which has been the product of market instability continues to punish the value of Sterling which could still be exposed to further pressures against its trading partners. There has also been negative PMI data from the UK this month, and these factors are pushing back UK interest rate expectations with this also contributing to GBP pressure. The GBPUSD has traded to four and a half month lows and remains technically bearish. With prices currently residing below the daily 200 and 20 daily SMA, a breach below the 1.5150 support may open a path to the next relevant support at 1.5000. In the commodity division, Gold has experienced a sharp change of direction and fallen to the downside as a result of positive comments from Fed members that US interest rates can still be raised in 2015. The precious metal which hit a one-month high last week, has given back those gains and more with prices trading around the 1124.0 level. With market instability and investor anxiety creating erratic moves within Gold, more direction for the metal may be provided once market participants digest the key data releases regarding the developments in Asia, Europe and the America. Some stability can be seen within WTI with support at $44.00 holding since the start of September. A recent drop in US oil inventories inspired some bullish momentum on the benchmark crude, but prices have still declined to the

gravitational $44.00 area. The next major catalyst which may promote a further decline in WTI might be soft economic data from China signaling a decline in demand. Technically, WTI remains bearish with the next relevant support based at $42.00. Equities as a whole have taken a hit as a result of the weakened global sentiment. In Europe, the FTSE100 has really caught my attention. Mining stocks have plummeted following another weak PMI from China last week, which has resulted in the FTSE100 encountering an aggressive sell-off. Prices have breached the psychological 6000 support with this index remaining technically bearish. Any additional pressures received from weak China data this week or even selling in the commodity markets as a whole

may result in a further decline to the next relevant support at 5850 on the FTSE100. EURJPY: The EURJPY remains technical bearish as long as prices can keep below the 135.50 resistance. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. The next relevant support is based at 133.00. GBPCHF: The GBPCHF is technically bearish. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. As long as prices can keep below the 1.5000 resistance, there may be a decline to the next relevant support at 1.4650. CADJPY: The CADJPY experienced a break below the 89.50 support. As long as prices can keep below the 93.00 resistance, there may be a decline to the next relevant support at 88.00. GBPJPY: The GBJPY remains bearish as long as the 184.50 resistance holds. Lagging indicators such as the MACD point to the downside and the candlesticks reside below the daily 20 SMA. The next relevant support is based at 180.50. For information, disclaimer and risk warning note visit: www.forextime.com FXTM is an international forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC), and FT Global Limited is regulated by the International Financial Services Commission (IFSC).

September 30 - October 6, 2015

financialmirror.com | WORLD | 17

Why finance can save the planet By Jean Pisani-Ferry Most people hate finance, viewing it as the epitome of irresponsibility and greed. But, even after causing a once-in-acentury recession and unemployment for millions, finance looks indispensable for preventing an even worse catastrophe: climate change. Action is urgently needed to contain global warming and prevent a disaster for humanity; yet the global community is desperately short of tools. There is not much support for the most desirable solutions advocated by economists, such as a global cap on greenhouse-gas emissions, coupled with a trading system, or the enforcement of a worldwide carbon price through a global tax on CO2 emissions. Instead, negotiations for the United Nations Climate Change Conference in Paris in December are being conducted on the basis of voluntary, unilateral pledges called Intended Nationally Determined Contributions. Although the inclusion of voluntary targets has the merit of creating global momentum, this approach is unlikely to result in commitments that are both binding and commensurate to the challenge. That is why climate advocates are increasingly looking for other means of

triggering action. Finance is at the top of their list. For starters, finance provides an accurate yardstick to gauge if deeds are consistent with words. In 2011, “Unburnable Carbon,” a path-breaking report by the nongovernmental Carbon Tracker Initiative, showed that the proven fossil-fuel reserves owned by governments and private companies exceed by a factor of five the quantity of carbon that can be burned in the next 50 years if global warming is to be kept below two degrees Celsius. Reserves held just by the 200 top publicly listed fuel companies – thus excluding stateowned producers such as Saudi Arabia’s Aramco – exceed this carbon budget by onethird. And that means that these companies’ stock-market valuation is inconsistent with containing global warning. This realisation prompted a campaign to convince investors to divest from carbonrich assets. Individuals and institutions representing a $2.6 trln portfolio have already joined the divestment movement. Furthermore, Bank of England Governor Mark Carney has highlighted the threat represented by potentially stranded carbon assets. Investors are being warned that, from the standpoint of financial stability, “brown” securities bear specific risk. The amount of divestment may look big – and it is, particularly given that the campaign started recently. Yet $2.6 trln amounts to less than 5% of global private non-financial securities. The trend is real, but it is still too little to trigger significant changes in fossil-fuel companies’ valuation and behaviour. A second reason why finance matters is that the transition to a low-carbon economy requires huge investments. According to the International Energy Agency, global investment in energy supply currently

amounts to $1.6 trln annually, and 70% of it is still based on oil, coal, or gas. Green investment amounts to only 15% of the total, and investment in energy efficiency – in buildings, transport, and industry – totals a meager $130 bln. Containing the increase in average surface temperature to two degrees requires developing clean technologies, and even more important, a four-fold increase in investment in energy efficiency over the next ten years. Yet such investment will not be financed easily: its return depends on a still-elusive carbon price and will often materialize only in the long run, while improving energy efficiency implies replacing hundreds of millions of outdated vehicles and refitting hundreds of millions of energy-voracious buildings. Adequate financing instruments are required for the right purpose at the right place and at the right scale. Development banks and green banks have a huge role to play. For example, dedicated long-term loans, coupled with a tax break or a subsidy, would help households decide to modernize their homes. But the real hope among climate specialists is that innovative finance could help provide the planning clarity that is currently missing. To elicit the investments that are necessary to mitigate climate change and green the economy, the elimination of fossil-fuel subsidies and a credible, fast-rising path for the price of carbon are vital. But, because high fuel prices are unpopular with consumers and raise competitiveness concerns among businesses, governments are reluctant to take action today – and may renege on their commitments to act tomorrow. To overcome such trepidation, advocates for climate action are turning to incentives. Some have recommended that governments issue CO2 performance bonds, whose yield

would be reduced if companies exceed their carbon target. Another idea, put forward in a recent paper by Michel Aglietta and his colleagues, is to map out a path for an indicative price of carbon called its “social value” and provide green project developers a government-guaranteed carbon certificate representing the value of the corresponding emissions reduction. Central banks, they suggest, would then refinance loans to such developers, up to the value of the carbon certificate. This would amount to a calculated bet. If the price of carbon in, say, ten years, actually corresponds to the announced social value, the project will be profitable and the developer will repay the loan. But if the government reneges on its commitment, the developer will default, leaving the central bank with a claim on the government. Failure to increase the price of carbon would result either in higher public debt or, in the case of monetisation, inflation. The idea is to force governments to have skin in the game, by balancing the risk of inaction on the carbon tax with the risk of insolvency or inflation. There would be no procrastination. Action against global warming would take place without delay. But a decade or so later, governments – and societies more broadly – would need to choose between taxation, debt, and inflation. Undertaking massive investment now and deciding only later how to finance it looks irresponsible – and so it is. But not acting at all would be even more irresponsible. 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

Building climate trust By Rachel Kyte In less than 80 days, world leaders will have the opportunity to strike a once-in-a-generation agreement in the fight against climate change. The United Nations Climate Change Conference in Paris in December could mark a turning point in world history: unanimous recognition of the need to act to prevent the most harmful consequences of global warming. But if a deal is to be secured, participants in the conference will have to overcome the mistrust that has led to polarisation and inaction during past negotiations. Implementing an agreement with robust limits on greenhouse-gas emissions will first require honoring the commitments that have already been made, including promises by developed countries to spend $100 bln a year by 2020 to help the developing world mitigate its contribution to climate change and adapt to a warming world. Given the scale of the challenge and the costs that inaction imposes on the world’s most vulnerable people, development financial institutions and other interested parties must demonstrate their commitment to preventing the most harmful effects of climate change. Doing so requires a renewed – and transparent – dedication to the effort.

That is why the World Bank Group is examining what more can be done to help put economies on a sustainable path. Keeping a keen eye on the national plans being submitted ahead of the Paris summit, we are surveying the full spectrum of our work in order to find opportunities to help countries in the areas of energy, transport, agriculture, forests, urban management, and much more. Indeed, the fight against climate change must be carried out across a wide variety of fronts. Rising global temperatures and an increasingly unstable climate will influence all aspects of development and jeopardise existing investments unless adequate mitigation and adaptation strategies – which are also central to the new Sustainable Development Goals that the United Nations will adopt later this month – are put in place. Part of this effort to fight climate change must involve addressing sources of economic inefficiency, such as fossilfuel subsidies and inadequate accounting of the cost of pollution. And there is a growing recognition that development funds and climate finance can be used to spur and catalyse investment from public and private sources. But, above all, a successful climate deal will have to include proper measures for the management of the trillions of dollars that will need to be invested in low-carbon infrastructure and increased resilience to the harmful effects of rising global temperatures. This must be carried out in as public and transparent a fashion as possible. It is crucial that we ensure that financial flows being channeled into the fight against climate change can be tracked, so that citizens can hold their governments and institutions to account.

In order to accomplish this, the six large multilateral development banks and the International Development Finance Club – a network of national, regional, and international development institutions – have been painstakingly working on developing common principles for tracking climate finance. These principles should apply to all projects intended to help countries adapt to or mitigate the impact of climate change. In a report released in June, the six banks described how they have provided more than $100 bln in climate finance in the four years since joint reporting began. The World Bank Group finances can also be tracked under its access to information policy. The conference in Paris offers the opportunity to establish a clear path toward averting the most harmful effects of climate change; world leaders attending the meeting must not allow it to slip through their fingers. By credibly and transparently honoring their promises, rich countries can demonstrate their commitment to the effort and increase the likelihood of an effective agreement. The time to invest in the fight against climate change is now. Our emissions are already having devastating effects around the world. As climate-related volatility and uncertainty mounts, the cost of inaction will only continue to rise. Rachel Kyte is the World Bank Group’s Vice President and Special Envoy for Climate Change. © Project Syndicate, 2015 - www.project-syndicate.org

September 30 - October 6, 2015

18 | WORLD | financialmirror.com

Don’t fear the IMF By Ricardo Hausmann The International Monetary Fund is, in many places, the organisation that everybody loves to hate. According to some, the IMF is bad for the poor, women, economic stability, and the environment. Joseph Stiglitz, whose influence is amplified by his Nobel Prize, blames the IMF for causing and then worsening the economic crises it was called on to resolve. The IMF purportedly does so to save capitalists and bankers, not ordinary people. Though untrue, this belief does enormous harm and limits the potential good that the IMF can do. For starters, consider how the world deals with refugee crises, such as Syria’s, and the way it deals with financial crises. As its name indicates, the United Nations High Commissioner for Refugees is a person, not an institution. He or she heads an “office,” not a full-fledged organisation. This weakness is what forced German Chancellor Angela Merkel to bully her European Union partners into a more coherent response to the ongoing influx of asylum-seekers. By contrast, the system to prevent and resolve financial crises is anchored by a full-fledged institution: the IMF. It may not be perfect, but, compared to areas such as refugees, human rights, or the environment, it is light-years ahead. It is easy to misunderstand what the IMF does. The bulk of its efforts are dedicated to crisis prevention. As Franklin D. Roosevelt said at the 1944 Bretton Woods Conference, where the IMF and the World Bank were established, “Economic diseases are highly communicable. It follows, therefore, that the economic health of every country is a proper matter of concern to all its neighbours, near and distant.” That is why the 44 countries in attendance, and the 188 that now belong to the IMF, agreed to “consult and agree on international monetary changes which affect each other… and they should assist each other to overcome short-term exchange difficulties.” Operationally, this is expressed in socalled Article IV consultations. These formal policy discussions between the IMF and member governments, typically carried out annually, are written up, reviewed by the Fund’s Board of Executive Directors (representing all 188 governments), and published for anyone to read online. This is a standard of collective surveillance and transparency to

which organisations addressing other issues should aspire. The IMF has been instrumental in developing the tools with which countries measure, assess, and improve their current macroeconomic position: fiscal and monetary policy, as well as financial, currency, and price stability. It helps countries find better ways to implement measures in all of these fields, and it seeks to identify broad lessons from the experience of many countries that may shed light on the options that any particular country has. Through dialogue, research, advice, technical assistance, and training, the IMF has helped create a global community of practice. Today, it is much easier to be a central bank president or a finance minister than it is to be a minister of health or justice. This is not because the challenges are easier, but because the international community of practice, led by the IMF, provides a level of support that simply does not exist in other areas. The IMF’s most controversial activities come during times of crisis management and resolution. Countries ask for IMF financial assistance when they are in trouble and have lost or fear losing the ability to borrow on international markets. The IMF can mobilise hundreds of billions of dollars of member countries’ money to give borrowers the time to get back on their feet. Its resources dwarf the sums that the international community can mobilise for other issues, because its money is lent and is supposed to be paid back. In exchange for its financial support, the IMF typically requires countries to address the imbalances that caused their problems, not only so that they can repay the money, but also for their own good, so that they can restore their creditworthiness (and hence their access to capital markets). But it is too easy to confuse the pain caused by the crisis itself with that caused by the remedy. To be sure, the IMF inevitably makes mistakes, partly because the questions and issues it must address are constantly changing, so that it never knows whether the current state of thinking is adequate to new challenges. But it is a sufficiently open organisation that it can and must be responsive to its critics. Now consider the alternative. A world without the IMF looks a lot like today’s Venezuela. Hugo Chávez became the darling of IMF bashers, including Stiglitz, when he suspended Article IV consultations in 2004. As a consequence, Venezuelans lost access to the basic economic information that the country is obligated to share, through the IMF, with the world. The break prevented the international community from expressing its voice as the country undertook truly irresponsible policies, spending in

2012 as if the price of oil was $197 a barrel, not $107. With the collapse in the price of oil since then, the economy has gone into a tailspin: GDP is contracting at a record pace, inflation is in excess of 200%, the currency has plunged to less than 10% of its previous value, and massive shortages have emerged. Venezuela has tried to finance itself with the help of the China Development Bank, which does not impose the kind of conditionality that IMF bashers dislike. Instead, the CDB lends on secret terms, for uses that are undisclosed and corrupt, and with built-in privileges for Chinese companies in areas like telecommunications (Huawei), appliances (Haier), cars (Chery), and oil drilling (ICTV). The Chinese have not required that Venezuela do anything to increase the likelihood that it regains creditworthiness. They merely demand more oil as collateral. Whatever the IMF’s faults, the CDB is a disgrace. The tragedy is that most Venezuelans (and many citizens of other countries) believe that the IMF is there to hurt, not help. As a consequence, they eschew the massive resources and wisdom that the international community can offer at a time of economic crisis to lessen the pain and hasten recovery. That has left them far worse off than the IMF bashers can bring themselves to admit. Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Professor of the Practice of Economic Development at Harvard University, where he is also Director of the Center for International Development. Copyright: Project Syndicate, 2015. www.project-syndicate.org

GMOs and junk science By Henry I. Miller and Kavin Senapathy

In today’s media landscape, where unfounded opinions, hype, and rumours are rife, the scientific method – the means by which we determine, based on empirical and measurable evidence, what is true – should serve as a touchstone of reality. Science enables us to gauge what we think we know and to identify what we do not. Most important, it discredits false claims made for personal or political reasons – at least it should. But scientists occasionally “go rogue,” forsaking the scientific method – often for notoriety or economic gain – to produce propaganda and to sow fear in a public that lacks expertise but is hungry for information. This abuse of scientific authority is especially widespread in the “organic” and “natural” food industries, which capitalise on people’s fear of synthetic or “unnatural” products. A recent example is the Indian-American scientist V.A. Shiva Ayyadurai, who, with Prabhakar Deonikar, published the muchridiculed paper “Do GMOs Accumulate Formaldehyde and Disrupt Molecular Systems Equilibria? Systems Biology May Provide Answers.” (“GMOs” are “genetically modified organisms,” itself a misleading and often unfairly stigmatised non-category, circumscribing a universe of organisms

modified with the most modern and precise techniques of genetic engineering.) Although the article supposedly passed the peer-review process, a key component of legitimate science, it appeared in a lowimpact “pay-for-play” journal, Agricultural Sciences, which is produced by a “predatory” publisher. Within days of publication, antibiotechnology organisations like the Organic Consumers Association and GMO Inside were reporting on Ayyadurai’s “findings” with frightening headlines accompanied by scary graphics. But the problems with Ayyadurai’s paper are legion. Its title alone is enough to show that something is amiss. If you think that GMOs might “accumulate formaldehyde” – a chemical that is probably carcinogenic at high levels but is present in most living cells and found widely in our environment – the obvious response would be to measure its levels in the organisms. Ayyadurai, however, chose to make guesses based on modeling via “systems biology.” “Systems biology” enables only a prediction, not an experimental conclusion. Rather than actually testing the levels of any chemicals in plants, Ayyadurai plugged data into a computer algorithm to predict the levels of two chemicals, formaldehyde and glutathione. This is akin to a meteorologist predicting from his models that it will be

sunny all day, instead of looking out the window to see whether rain is falling. To be sure, as Kevin Folta, the head of the horticultural sciences department at the University of Florida, explained, systems biology can be a useful approach if employed properly. As he put it, systems biology “is a way to make predictions based on integrating existing data, and then statistically deriving a likelihood that the predictions may be correct.” But, he emphasises, the predictions are then to be tested, “and the systems approach validated.” Like all predictive studies based on computer modeling, the validity of the results depends on the integrity of the data and the algorithm. If the data are cherrypicked to support the modeler’s desired conclusions, or if the algorithm is flawed, the results will be inaccurate. But it is unclear from Ayyadurai’s article which data were used, and there is no validation of the model. Folta offers a brilliant send-up of Ayyadurai’s work. “If you developed a computer programme that integrated Internet data to predict the location of Munich, and the programme told you it was squarely in the Gulf of Mexico, right off Florida, it does not mean that Munich is in the Gulf of Mexico, right off of Florida.” Instead, it means that you have made a mistake, in your programme, assumptions,

or input data – all of which are testable. To decide not to challenge those data, Folta continues, and instead to “publish a map showing that Munich is squarely in the Gulf of Mexico, opposing all other data and the claims of millions of rather dry Germans, does not mean that you are brilliant. It means you have absolutely no clue, or more likely, have some reason you want a major German metropolis to be a two-hour boat ride from Tampa.” In the spirit of scientific cooperation, Folta offered to collaborate with Ayyadurai on university-based testing of genetically engineered corn and soy samples (along with appropriate controls), with analysis by an independent lab. Ayyadurai declined, so Folta will proceed himself. The experimental data is forthcoming. In the meantime, if you get a hankering for sauerbraten and spaetzle, head for Central Europe, not the Gulf of Mexico. Henry I. Miller, a physician and molecular biologist, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution. He was the founding director of the Office of Biotechnology at the US Food and Drug Administration. Kavin Senapathy is a freelance science writer in Madison, Wisconsin.

September 30 - October 6, 2015

financialmirror.com | WORLD | 19

Abdullah Gül’s choice By Nina L. Khrushcheva Many historians and economists insist that we live in an age shaped by vast and impersonal forces. The actions and decisions of one man or woman, no matter how powerful, cannot determine the destiny of nations. This may be true much or most of the time. But there are moments when an individual leader’s choices can change the course of history. That has certainly been true in Russia, and it may soon turn out to be true in Turkey as well. In Russia, the very existence of the regime constructed by President Vladimir Putin can be traced to a single decision taken by a single man, Boris Yeltsin, for purely personal reasons. As Yeltsin prepared to stand down as Russia’s first democratically elected president, he sought a successor who would protect his personal safety and wealth, and that of his family, in his dotage. Putin, the gray ex-KGB man, seemed much better equipped to fill that role than more democratically inclined figures like, say, Sergei Stepashin, another of Yeltsin’s prime ministers, who had showed little enthusiasm for the First Chechen War in 1994. Yeltsin’s choice may have fit his personal agenda, but it consigned Russia to a return to authoritarianism. In a sense, then, Yeltsin was responsible both for opening Russia to a democratic future and for closing that chapter in the country’s history. Turkey’s future, too, is now seemingly in the hands of one man: former President Abdullah Gül. With Turkish voters headed to the polls on November 1 for the country’s second general election this year, Gül must

decide whether to stand behind President Recep Tayyip Erdogan. His choice may determine whether Turkey remains on a democratic path or veers toward a future shaped by Erdogan’s own brand of Putinism. Gül has been placed in this critical position because, in the last election, held in June, Erdogan’s ruling Justice and Development Party (AKP) failed to win a governing majority, much less the constitutional majority that would enable Erdogan to transform Turkey’s parliamentary system into a presidential one. After the election, the AKP went through the motions of seeking to forge a coalition that could form a government – an effort that many speculate Erdogan sabotaged, so that he could call new elections. Now that new elections have been called, Erdogan is using nationalist appeals, and even the suggestion of actual war against a national minority, the Kurds, to propel his party to victory. This rhetoric is reminiscent of Putin’s bellicose stance during the Second Chechen War in 1999, which boosted his popularity considerably, helping to make him a viable contender to succeed Yeltsin. Erdogan once claimed that democracy is “like a train,” in that “when you reach your destination, you get off” – a simile with which Putin would undoubtedly agree. For both leaders, democratic systems are little more than blunt tools that can be used to advance one’s personal ambitions, and then discarded at will.

But there is one big difference between Putin and Erdogan. Once Yeltsin was out of the way, Putin was dependent on no other figure; he was master of the Kremlin, the ultimate arbiter of disputes among the rival figures and clans of the post-Soviet Russian elite. Erdogan, by contrast, had a partner in forming the AKP: Gül. And Gül, unlike Yeltsin, has retained a powerful and loyal political following since leaving office.

When the AKP – which advocated a moderate form of Islamist politics that challenged the secularism that had prevailed since modern Turkey’s founding – won its first election in 2002, it was Gül who served as Prime Minister, because Erdogan was banned from holding political office at the time. The economic reforms and other liberalising measures undertaken under Gül’s leadership led many people to believe that the AKP was creating a form of Islamist politics akin to that of European Christian Democracy.

But when Erdogan took over as Prime Minister in 2003, Gül was effectively shunted into the shadows (Turkey’s presidency at the time was a largely ceremonial office). And as Erdogan, like Putin, concentrated power in his own hands, Gül’s social and economic achievements began to be dismantled. No one speaks of the AKP anymore as a model for Muslim democrats to follow. And, indeed, many senior AKP members who helped Gül’s government to succeed have left – or been driven from – the party. In his book Profiles in Courage, John F. Kennedy wrote that, in politics, there comes a moment when “a man must do what he must – in spite of personal consequences, in spite of obstacles and dangers, and pressures.” For Gül, that moment is now. Gül can remain silent and watch his former friend and political partner follow in Putin’s authoritarian footsteps, making a mockery of his own efforts to show the world that Islam can coexist with democracy, modernity, and tolerance. Or he can speak out against Erdogan’s plans, thereby helping to preserve his life’s work and, even more important, his country’s democratic system. Such a profile in courage is precisely what Turkey needs today. Nina L. Khrushcheva is a dean at The New School in New York, and a senior fellow at the World Policy Institute, where she directs the Russia Project. © Project Syndicate, 2015. www.project-syndicate.org

Getting universal education right By Steven J. Klees The United Nations is expected to adopt the Sustainable Development Goals, 17 goals and 169 targets that will guide international development efforts over the next 15 years. The objectives are ambitious; they include efforts to end hunger and poverty, reduce economic inequality, achieve gender equity, combat climate change, promote sustainable development, and improve infrastructure, sanitation, health, and education. And yet, if the efforts covered by this last goal – education – are any guide, it will take more than promises to ensure that the SDGs are achieved. Two of the eight Millennium Development Goals (MDGs) – the global framework that preceded the SDGs – targeted education. One was to attain universal primary education (UPE) and the other to reach gender parity in enrollment. Neither was achieved by the target date of 2015. The history of broken promises goes back much further. Attaining UPE has been pledged by participants at international conferences since the 1960s, and both goals were part of the 155-country Education for All (EFA) compact that was signed in 1990 with a target date of 2000. Midway through that decade, however, in a relatively secret process, these and other EFA goals were unceremoniously postponed until 2015. Today, 58 million children do not attend primary school, and even more are out of school at the secondary level. The SDGs will kick the can down the road once again, postponing UPE and other goals to 2030. The most fundamental reason why UPE and other education goals have not been achieved is the unwillingness

of the international community to supply the necessary resources. UPE has been within reach for decades. But studies of domestic financing and international donorcountry contributions (official development assistance) revealed that annual spending toward the 2015 education MDGs and EFA goals fell $22 bln short of what would have been needed. The same studies project a $39 bln annual shortfall in efforts to attain the 2030 education SDGs. At the 2000 follow-up meeting to EFA in Dakar, James Wolfensohn, then-President of the World Bank, pledged that no country committed to attaining the EFA goals would be kept from meeting them by a lack of finance. The World Bank reneged on that promise. After a few years, it set up the Fast Track Initiative in an attempt to respond to the promise made in Dakar, but FTI was plagued by problems and a lack of sufficient resources. FTI was revamped and transformed into the Global Partnership for Education, but, to date, donor financing totals only about $500 mln annually, or 80 times less than what will be needed to achieve the education SDGs. Given current efforts, projections indicate that UPE will not be achieved until 2086, if then. While there is talk of developing innovative financing mechanisms, studies of private-sector contributions have shown these efforts to be small-scale, self-interested, uncoordinated, and misdirected; billionaire philanthropists have put relatively little money into education. It should be noted that no one has renewed Wolfensohn’s EFA pledge with respect to the SDGs. Given this dismal state of affairs, much attention is being focused on private schools, in the hope that they will take up the slack. Until recently, private schooling has been mostly for the relatively rich. But there has been an expansion of what have been called Low Fee Private Schools (LFPS). Multilateral agencies like the World Bank and bilateral agencies like the United Kingdom’s Department for International Development have been promoting and financing these efforts. However, these schools are not cheap

for poor people, who often confront a choice between paying for private education and covering necessary expenses like food and health, especially when they have several children. Furthermore, most of these private schools are of very low quality. The reason many poor parents choose a private school is that more than 30 years of market fundamentalism has decimated public education. Privatising a public good, further stratifying education, and increasing inequalities is no answer; fully funding public schools is. When that happens, most private schools will go out of business – as they should. It may be individually rational to send your child to a private school, but supporting this choice is bad public policy, and makes a mockery of broad international agreement on every child’s right to free, quality education. Once again, the international community is talking a good game, while pushing the goal posts far into the future. It is unwilling to put up the money required to achieve its stated goals, while trying to avoid responsibility for its failures. The Global Partnership for Education has emphasised the need for countries to increase domestic financing, but there is little possibility that this can generate sufficient resources to achieve the SDGs’ education goals. What is needed is for rich countries to live up to their decades-old pledge to devote 0.7% of GNI to development aid and to initiate global tax mechanisms for generating the necessary resources – a call that, unfortunately, went unheeded at the recent Financing for Development conference in Addis Ababa. As the SDGs’ adoption nears, governments must agree to put in place measures to ensure that these new promises are not just another exercise in lip service. Steven J. Klees is Professor of International Education Policy at the University of Maryland. © Project Syndicate, 2015 - www.project-syndicate.org

September 30 - October 6, 2015

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The global economic outlook By George Theocharides Cyprus International Institute of Management

Global markets have endured a tough summer, hit by a financial crisis that had its origins in China, but spread quickly to other parts of the world. Trillions of dollars have been wiped out in equity values and some feared another global recession. Should we really fear for the worst, or is this just a correction of prices and their movement back to their fundamental values?

Developed vs. Emerging and Developing Economies According to the IMF World Economic Outlook in July, global growth is projected at 3.3% and 3.8% for 2015 and 2016, respectively. This week, however, IMF Managing Director Christine Lagarde has indicated that this forecast is too optimistic, yet she expects to remain above the 3% threshold. This growth is characterised by a gradual increase in developed economies and a slowdown in emerging and developing markets. The rate of growth for developed economies is projected at 2.1% and 2.4% for 2015 and 2016, respectively (compare that to a growth rate of 1.8% for 2014).

Some of the main reasons for the favourable prospects relate to: the easy financial conditions (interest rates for many developed nations have been for some time now close to zero), the renewed hope for an exit of the Eurozone from its current crisis after the massive QE programme of the ECB, the low oil prices (consistently below $50 a barrel), as well as improving confidence in the economy and the labour market conditions. The rate of growth in emerging and developing economies is projected at 4.2% and 4.7% for 2015 and 2016, respectively (compared to a growth of 4.6% for 2014). Some of the reasons for this slowdown can be attributed to lower commodity prices (which affects negatively many exporting countries), tighter external financial conditions, inability to implement efficiently much-needed structural reforms, as well as the slowing of the Chinese economy (the growth rate in China for 2014 was at 7.4%, the slowest in the last 24 years, while the expectation is that this year China will not be able to achieve its target of 7%).

Sources of Risk There are various sources of risk that can create deviations from the expected growth projections. First, we are experiencing substantial financial market volatility, not seen since 2011 amidst the Eurozone debt crisis. Also, the fact that interest rates have been so low for such a prolonged period of time and the speculation for interest rate hikes by the US Fed and the Bank of England, creates disruptive shifts (deviations) in asset prices. Furthermore, the potential output growth is lower for both developed and emerging (developing) economies, while

the drop in commodity prices creates an extra source of risk (mainly for emerging/developing economies). Lastly, geopolitical risk has been on the rise lately (e.g. the migrant crisis that Europe is facing now, or the wars that are happening in places like Syria or Iraq and the rise of terrorist groups such as ISIS).

Drivers of Forecasts First, growth for the first quarter of the year has been weaker than previously expected, mainly in the US. Also, despite the drop in commodity prices, to a certain extent, oil prices have started rebounding (due to an increase in demand and lower than expected oil production in the US). Furthermore, inflation is probably at the lowest level in many advanced economies and will have to start going up soon, while the opposite is happening in emerging markets as inflation has been declining. Another important determinant is the fact that financing is favourable for both corporations and households, especially in the developed economies. Lastly, the slowing down of the Chinese economy, the expected monetary tightening of the US economy, and the continued monetary easing of the Euro area and Japan are important factors that drive the above forecasts. George Theocharides is an Associate Professor of Finance at Cyprus International Institute of Management (CIIM) and the Director of the MSc in Financial Services. www.ciim.ac.cy