Financial Mirror 2015 12 16

FinancialMirror OREN LAURENT

KENNETH ROGOFF

Rate hike: Emerging markets feel the pinch PAGE 14

Oil prices and global growth

Issue No. 1164 â‚Ź1.00 December 16 - 22, 2015

PAGE 17

Cyta bleeds market share PRIVATISATION PLANS ARE ON HOLD... FOR NOW - SEE PAGES 10-11

The Great Greek Bank Robbery

By Yanis Varoufakis - SEE PAGE 17

December 16 - 22, 2015

2 | OPINION | financialmirror.com

FinancialMirror CyTA privatisation bill too late Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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The government purposefully dragged its feet on the privatisation of the state-owned telco Cyta, probably assuming that delaying any decision closer to the May parliamentary elections would secure votes in that it would appear to be the ‘saviour’ of the national entity and safeguard the 2,000 jobs.

As a result, it has shot itself in the foot with any privatisation deal now permanently pushed back till after the elections and jeopardising bringing the national finances into a healthier growth path.

With the Cabinet approving on Monday the relevant bill that secures salaries, job security, promotions and the collective labour agreement (as if these were never secured in the past), the allegedly pro-business government, driven by the political ambitions of a handful within the ruling DISY party, has now completed its trio of failures, as it has backed down on the privatisation of Cyta, the power utility EAC and the ports authority, where workers and contractors have been more than generously compensated. In other words, this administration is telling new local and foreign investors that “we don’t need your money” and that the economy can continue to cope with a pathetic growth rate of less than 1% of GDP over the next few years.

Investors in the three state-owned and profitable assets, that were supposed to be part of the bailout deal with the Troika of international investors, were not only going to pour in 1.8 bln euros over the next

four (now almost two years), but would also introduce know-how and competitiveness that would propel the economy into a new era where the state would focus only social priorities, such as health, education, quality of life and security.

Instead, the government has made the tragic mistake of remaining owner/operator of the three national assets and will continue to intervene in the running of these companies by appointing partyaffiliated persons, instead of qualified managers.

It has also sent out an ill-boding message to any potential casino investor that despite being an openeconomy, it may consider nationalisation of whatever contracts it farms out to third parties, almost like Venezuela did – and see where that brought them, despite the riches of oil revenues.

Finally, if safeguarding the workers’ rights was the main intention of the privatisation bill, why did it take the government three whole years to discover the ‘golden share’ principle, allowing it to intervene for national security reasons?

In other words, the soon-to-be established privatisation company, that will hold assets with the aim of finding new investors, should better rename itself National Leasing Company, as it seems to agree with the previous communist administration of not letting go of costly assets, while taxpayers continue to pay for this mess, hopefully until revenues from the natural gas exports start pouring in. Even then, we might be stupid enough to cancel contracts thinking that we would be better off drilling, pumping and selling the fuel ourselves. After all, this is Cyprus where everything is possible.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Invasion of the Greeks, GDP growth at 4% Cyprus companies were being snapped up by Greek investors with acquisitions in the past four years reaching CYP 170 mln, while the latest quarterly projections see real GDP growth nearing 4%, according to the Financial Mirror issue 649, on December 14, 2005.

Greek investors: Greece has become the biggest single foreign investor market with companies buying up Cypriot firms, with CarrefourMarinopoulos taking over Chris Cash and Carry for CYP 21.6 mln and Leventis-controlled Hellenic

20 YEARS AGO

Tariff wars continue, AArating from Economist The tariff wars continued unabated with the EU rejecting new levies on dairy exports to the island, while the Economist gave a ‘AA-‘ rating to the island’s econmy in its emerging market rankings, according to the Cyprus Financial Mirror issue 140, on December 13, 1995.

No tax on EU: The EU has rejected Cyprus’ proposals for new levies on dairy products in addition to the 8% already agreed, as the government has to implement the EU Customs agreement by

Bottling Co. buying out the Lanitis family from Coke-bottlers Lanitis Bros for CYP 50 mln.

This brings the total Greek investments in four years to CYP 170 mln (EUR 290.5 mln).

Zenon SA is set to take over Megabet for CYP 2 mln, while Aspis Pronoia is expected to bid CYP 16.5 mln for a 61% stake in Universal Life, currently held by Laiki and Bank of Cyprus. Earlier deals included OPAP SA taking a 90% stake in Glory Leisure for CYP 9.3 mln in 2003 and Hellenic Petroleum buying 70 petrol stations from BP for CYP 55 mln in 2002.

GDP growth: Real GDP growth was 3.8% in the third quarter, below the Financial Mirror’s forecast of 3.9% in September and is set to hit 4% by the end of the year, boosted by the finance and real estate sectors.

Home prices drop: Home selling prices dropped by 0.8% in November according to the BuySell Index, bringing the average home price down by CYP 800 to CYP 85,998, but the year-to-date gain is still at 3.3%.

EAC fined: The Competition Protection Commission has slapped a CYP 693,000 fine on the EAC, instead of CYP 22 mln based on annual revenues of CYP 220 mln, for unfair prices on consumers and cross-subsidisation.

The Fed raised US interest rates by a quarter point to 4.25%, crude oil futures held at just above $61 a barrel and Gold hit its highest level since 1981 at $540.

January 1, as well as the GATT accord that abolishes tariffs and lifts import restrictions. This refers to some 700 tonnes of dairy imports and 1,000 tonnes of meat.

Economist rating: A year after Standard & Poors gave Cyprus an AA rating, the Economist Emerging Market Rankings awarded an ‘AA-’ rating, pushing it to third place in the table after Singapore’s AAA and Taiwan’s AA+, making it just under top investor grade. Cyprus shared the position with Portugal and

South Korea and was ahead of Malaysia, Hong Kong, Thailand and the Czech Republic.

1996 Budget: The three budgets for 1996 provide for revenue of CYP 1.0 bln and expenditure of 1.35 bln, with Finance Minister Christodoulos Christodoulou saying growth is expected at 4.5% of GDP and unemployment at 2.5%. The fiscal deficit is expected at CYP 168 mln or 4.1% of GDP. UL seeks bankers: Universal Life plans to team up with a foreign bank and plans to enter the banking sector with a 35% stake in the new venture, said CEO Andreas Georghiou. The insurer’s market cap is at CYP 30 mln with CYP 8 mln of reserves, and a 3.5% stake each in Bank of Cyprus and Laiki Popular.

And the Cyprus Hilton’s GM Ashley Spencer and Executive Chef Andreas Georghiou said the new Fontana restaurant was expected to open just before Christmas.

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December 16 - 22, 2015

December 16 - 22, 2015

4 | CYPRUS | financialmirror.com

Anastasiades hopes for 2016 solution Guarantees will be the subject of a multilateral conference President Nicos Anastasiades said he is hopeful of substantial progress in the talks to reach a settlement to the island’s division within 2016, telling the association of the mayors that “there is understanding on a significant number of issues” during the talks with Turkish Cypriot leader Mustafa Akinci and that “there has been progress in a number of issues”.

He said that he hoped that in 2016 “we will be in a position to tell the people of Cyprus that we are ridding ourselves of the Turkish occupation, we are reunifying our homeland, we are creating conditions of a modern, European, functional state, but especially securing the prospects and future of the whole of our people, whether Turkish Cypriots or Greek Cypriots”.

Addressing the 32nd annual general assembly of the Union of Cyprus Municipalities, President Anastasiades said that, “we are still facing problems. But it was and remains obvious that 41 years after the Turkish invasion, some realities are creating the problems. And they must be addressed in an effective manner.”

He said that “no one is aiming to abolish the Republic of Cyprus” and that “what we are pursuing is the evolution of the Republic of Cyprus” into a “bizonal bicommunal federation”, adding that “the acquis communautaire, human rights, the four fundamental freedoms will necessarily be guaranteed”.

“I would like to believe that at the end we will arrive at an agreement which will not allow further existence of anachronistic institutions or agreements”, he said, adding that “Cyprus is and will remain an EU member”.

Earlier in the day and prior to his departure to meet Akinci at the UN compound at the Old Nicosia Airport, Anastasiades said that guarantor powers in Cyprus will have to consult with each other, when the issue of guarantees comes up.

He added that “this is not a matter of a five-party conference or not, it is a matter of a multilateral conference” with regards to an international treaty, in which other countries, apart form Cyprus, are also involved.

The President’s statement was made at the Presidential Palace, in Nicosia, prior to his departure for a meeting with the Turkish Cypriot leader, in the framework of ongoing settlement talks. He was responding to a question, in relation to a statement made earlier today by Espen Barth Eide, the UN Secretary-General’s Special Adviser on Cyprus.

According to the 1960 Treaty of Guarantee, Greece, Turkey and the UK are guarantor powers of the Republic of Cyprus. Greece has repeatedly stated that it does not wish to continue with the privilege, echoing the opinion of the Greek Cypriot side that the system of guarantees is anachronistic and not in line with a modern, European state.

President Anastasiades reiterated that the ongoing dialogue is Cypriot-led and made particular reference in upholding the legitimacy of the Republic of Cyprus.

“When the time comes to discuss guarantees, undoubtedly the guarantor powers will have to consult,” he noted.

The President added that guarantees concern an international treaty, which will have no bearing on the

MEPs want interconnection of national electricity grids Fully integrating the EU electricity market could save users up to EUR 40 bln a year by 2030, the MEPs said in a non-legislative resolution. They also noted that to achieve this, countries need to invest EUR 150 bln to interconnect their national grids. Fully integrating the EU market could cut bills by at least 2 euros per MWh, they noted.

The MEPs also voted on a resolution for the Energy Union, which they said in their resolution, must provide EU citizens with secure, sustainable and affordable energy.

The non-legislative resolution voted on Tuesday says that building it will demand concerted efforts by EU countries to reduce their dependence on energy imports, by integrating their energy markets, improving security of supply.

agreement between the two sides in Cyprus.

Asked finally about the format of such a meeting, he said that this will be the last thing on his mind, in case a solution is found for the rest.

Meanwhile, Special Adviser of the UN Secretary General Espen Barth Eid said that at some stage a meeting with the participation of the guarantor countries will take place.

Speaking after a meeting with President Anastasiades, Eide said that the most issues of the Cyprus problem are for the Cypriots to decide but there are some issues with international nature that requires the involvement of the three guarantors.

“Tonight we have a leaders’ meeting between Anastasiades and Akinci and another on Sunday, which will be the last one this year. We are moving forward on many issues and it is very convenient and practical for me to have these meetings with the leaders just before the leaders’ meeting”, he said.

Eide stated that he informed President Anastasiades about his meetings in Ankara, which as he noted, were very constructive. He said that he had deep and good conversations and that it is part of our preparation for the very final phase, “which we don’t know when will happen but will happen someday and where the guarantor countries also need to be involved. So, there is serious engagement also from Turkey as well as from the other guarantor countries”, he added.

Eide clarified that the issue of guarantees is not on today’s agenda and expressed hope that there will soon be a final agreement on the property issue. However, he said, nothing

will be final before we are at the end.

Asked if there will be a five part meeting at the final phase, Eide said that at some stage that will part of the process, because it is clear that we need the guarantors to deal with specific issues that pertain to them. “Most issues that we are discussing are for the Cypriots to decide, the Greek Cypriots and the Turkish Cypriots through their leaders, but there are some issues with international nature and of course we cannot have a final settlement before they are involved in some form”, he added.

Eide stated however that when this will happen depends on the progress on other fronts and stressed that it is genuinely true that we do not have a time-line. “But there is also an understanding that we have to use our time properly and as the leaders said some meetings ago, they are increasingly confident and hopeful that a solution can be found in the near future and I agree with that”, he said.

Asked if he has any indications that Ankara is planning to change its position on the issue of guarantees, Eide said that he had good conversations with the Prime Minister and other officials in Ankara about this and other issues. “I feel that all guarantors, including Turkey, is looking forward to being able to see that this conflict is finally solved and they all know that they have to do their part for getting there”, he said.

Replying to a question about the forthcoming meetings of the two leaders he said that this is actually a topic of the discussions for today and Sunday. “So, when it comes to schedule that will be announced by the leaders, probably on Sunday or immediately after Sunday. What is clear is that we will use January actively”, he concluded.

Dijsselbloem: We have to complete banking union We have to complete the Banking Union, protect bank deposits, and strengthen investments, Eurogroup President Jeroen Dijsselbloem told the plenary of the European Parliament, according to a Cyprus News Agency report from Strasbourg.

The Eurogroup President, who took part for the first time since he assumed office, in a plenary debate at the European Parliament in Strasbourg, said that there is no need for cynicism as regards the euro, replying to critical comments he heard from many deputies.

The MEPs discussed the EU`s economic and social priorities for 2016, as set out by the Commission in the Annual Growth Survey, and specific recommendations for the euro area as a whole, all presented by the Commission on

26 November.

Dijsselbloem also warned against too much optimism, because, he said, our society’s indebtedness is still holding back growth and fiscal policies should therefore be pursued.

The Eurozone President referred to the speed with which the banking union was set up to support his positive take on the euro project.

“But”, he said, “if there is one lesson we have learned, it is that we have to finish what we have begun. So let`s complete the Banking Union. Let`s protect bank deposits, let`s strengthen investments by getting the European Fund for Strategic Investments up and running or even expand it, let`s create a capital markets union so that startups can get credit too”, he added.

Dijsselbloem also warned that fiscal policies should be pursued as the “indebtedness of our society holds back recovery. There is no quick fix for this - it will take time”.

He also said that at the beginning of the economic crisis there have been some mistakes, but noted that the path now is the correct one.

Meanwhile, in his intervention, Commission President Jean-Claude Juncker reiterated that the European Parliament is the parliament of the euro.

He explained that “the euro is a political project and we are a political Commission.

This project requires democratic supervision and democratic accountability and Parliament should play a central role in this”.

December 16 - 22, 2015

financialmirror.com | NEWS | 5

Natgas finds create ‘a whole new industry’ There is growing interest on the part of investors for the Limassol port tenders, due to the new challenges of hydrocarbons, Transport Minister Marios Demetriades said in his address to the the third annual general meeting of the Cyprus Oil and Gas Association (COGA) in Nicosia “A whole new industry will be established in Cyprus to meet the needs of offshore activities,” Demetriades said, adding that foreign shipping companies are expected to relocate their offices and operations on the island, in order to explore the benefits of the

emerging East Mediterranean offshore market. He also said that Cyprus can develop into an important energy centre in the Mediterranean. Government policy, he added, will include Cyprus’ future maritime transport needs for hydrocarbons.

The goal is to consolidate and further develop the country’s role in world shipping and to provide adequate conditions for the sector’s sustainable growth, he concluded.

The geostrategic and economic prospects of hydrocarbon discoveries for the Cypriot economy were discussed during the meeting

where Defence Minister Christoforos Fokaides highlighted the security issues at stake.

Natural gas reserves in the eastern Mediterranean have a greater impact on the wider region, he said, noting the potential for investments and shared benefits among the countries interested in securing a stable environment for the exploitation of their natural wealth.

This is an open prospect for Turkey as well, in case of a Cyprus settlement, Fokaides noted.

Marios Tsiakkis, the Secretary General of the Cyprus Chamber of Commerce and Industry (KEVE) noted the Chamber’s efforts in highlighting Cyprus’ energy profile, in order to promote the country into an energy hub of the southeastern Mediterranean.

He welcomed the initiatives of President Anastasiades for regional alliances with Greece, Egypt, Israel, Jordan and others, aiming to ensure a smooth exploitation of the natural wealth and upgrade Cyprus, both politically and geostrategically, as well as economically.

Business services sector down 2.2% soon after crisis in 2013

BOCY cuts ELA to €3.8 bln, as gov’t repays €340 mln bond The Bank of Cyprus announced that it has been notified by the Ministry of Finance that on December 16 the government will fully repay a EUR 340 mln bond held by the bank.

The bond to be repaid was issued on July 1, 2015 to replace the outstanding amount of the recapitalisation bond of Laiki Bank that was absorbed by the Bank of Cyprus in March 2013, following the acquisition of certain assets and liabilities of Laiki Bank.

The bond is pledged as collateral with the European Central Bank (ECB). The proceeds will be used to repay EUR 140 mln of ECB funding and EUR 200 mln of emergency liquidity assistance (ELA). As the recapitalisation bond of Laiki Bank was transferred to the bank at fair value at the acquisition date, there will be an accounting profit of EUR 13 mln resulting from this transaction.

According to the bank, the above repayment of the bond by the Republic of Cyprus, coupled with customer inflows experienced during the fourth quarter of 2015 and proceeds from ECB funding relating to the covered bond becoming ECB eligible, will result in total ELA repayments of EUR 1.1 bln post September 30, reducing ELA to EUR 3.8 bln.

Number of civil servants down 6,900 since 2012 The number of workers in the general civil service has decreased by 9.9% (6,913) since the end of 2012, according to figures released by the Statistical Service Cystat.

The total number of workers in the civil service is down to 63,041 in the last quarter of 2015, compared to 65,346 in the last quarter of 2014 and 64,292 since the previous quarter.

The number of workers in the civil service before Cyprus entered the Economic Adjustment Programme was 69,954.

The largest decrease was registered in semi-government organisations and state companies where the number of workers in the last quarter of 2015 reached 5,513 compared to the corresponding quarter of 2014 which was 7,131.

The number of civil servants in the last quarter of 2015 was 53,226, compared to 53,851 in the corresponding period last year.

The business services sector saw a negative growth rate of 2.2% in 2013, the year of the financial crisis when the Troika of international lenders bailed out the island economy.

The Statistical Service Cystat said that during the same year, employment in the sector decreased by 6.7% “The value added of the sector at current market prices decreased by 4% to EUR 3.8 bln in 2013, compared to 3.96 bln in 2012. The sector’s contribution to gross value added was 24.5% in 2013, compared to 24.1% in 2012, the Service said.

Of the total value added, 51.9% was generated by the real estate activities, 24.2% by professional, scientific and

technical activities, 18.1% by information and communication activities and 5.8% by administrative and support service activities.

According to the report, employment in the business services sector decreased by 6.7% in 2013 compared to the previous year to 39,287 persons, accounting for 9.5% of the total gainfully employed population.

The report said that the gross fixed capital formation in 2013 decreased by 31.6% compared to 2012 and reached EUR 524.8 mln. Investment in new buildings accounted for 453.1 mln, machinery and equipment for 59.7 mln, furniture for 8.4 mln and transport equipment for 3.6 mln.

December 16 - 22, 2015

6 | COMMENT | financialmirror.com

Deoffshorisation will boost Cyprus employment sector The new legislation has created more jobs, attracted more talent, increased employment The new foreign company legislation for the ‘deoffshorisation’ that was approved in November 2014 and came into effect from January 1, 2015, has already had a positive impact on the business services sector, as well as the employment sector in general.

According to a leading expert in the recruitment industry, the new legislation affected countless offshore company structures established in Cyprus, forcing them to make adjustments to their offshore entities in order to fully comply with the new law.

“The new legislation affirms that any individual or company with a 25% or more ownership in a foreign company or organisation must now be categorised as a ‘controlling entity,’ meaning that changes to their legal form will need to be made,” said Donna Stephenson, co-founder of GRS Recruitment that maintains offices in Limassol, Nicosia and Malta.

“These changes primarily focus on the greater need for substance within an offshore organisation, meaning a Cyprus offshore structure now needs to directly appoint physical persons to their structure – rather than outsourcing the role to an accounting service provider, for example,” she said.

“Today, substance has become an extremely important issue. A growing number of countries are looking deeper into the ‘substance over form’ doctrine as international developments and legislative changes are also pushing in that direction,” Stephenson added.

Establishing substance in Cyprus As an established international business and financial centre there are countless advantages to creating substance in Cyprus, including a business-friendly and stable tax environment, low operational costs, an excellent infrastructure, access to EU directives and modern legislation.

Since the legislation came into effect, countless offshore structures have made changes to their operations and GRS Recruitment has seen a notable increase in activity from these clients, especially from Russian clients and intermediaries. As a result, these clients and intermediaries

confidential manner.

The new legislation has thus far proven highly advantageous to Cyprus, enabling the island to create more jobs, attract more talent, increase employment and boost the economy.

Offshore company structures are now renting office space, purchasing and renting properties for their employees and directors, using GRS’ professional services to source and hire new employees to ultimately enhance their presence in Cyprus.

Further regulations improve investments and employment

are building up substance in their structures by having an operational office in Cyprus – rather than a brass plate company with no substance.

Testament to this is one of many examples where GRS recently assisted a Russian-owned company with hiring a team of 15 accounting employees. This followed a decision by the Russian owners to establish substance in Cyprus and relocate operations and personnel to the island. The recruitment firm has helped countless other businesses to hire the right candidates and ensure their structures are fully operational in line with applicable law.

GRS ideally placed to locate top talent and fill vacancies GRS, co-founded by Donna Stephenson and Steve Slocombe in 2005, is Cyprus’ leading recruitment agency.

The company possesses more than a decade of experience as well as highly specific, in-depth industry knowledge.

Furthermore, the agency has built up a large database of skilled individuals from Cyprus and overseas and as such, is able to fill available positions in a timely, professional and

Cyprus is a highly attractive jurisdiction for creating substance due to the many advantages offered by the country that are encouraging businesses to transfer their activities to Cyprus and create substance.

“It’s not just the new law that has positively impacted investments and employment in Cyprus. The government’s Cyprus citizenship schemes have also resulted in investment in Cyprus of more than 2 billion euros over the past two years, which has also led to employment opportunities with these investors establishing businesses in Cyprus,” Donna Stephenson said.

Various regulations enforced across the fiduciary, funds, banking, legal and finance sectors have also created employment opportunities such as for hires in compliance, regulation and anti-money laundering (AML). As a result, the sector associations are continually improving access to learning and developing methods to upskill the talent available in Cyprus, as was seen recently at the Cyprus Investment Funds Association (CIFA) Summit.

Running a one-day seminar, the summit was aimed at the investment fund industry in Cyprus which included asset management companies, fund managers, investment managers and consultants, legal advisors specialised in the funds industry, accounting, audit and tax firms, banks, investment banks, private banks and other financial institutions, custodians and family offices.

NPL issue must be resolved, say int’l bankers “In order to further increase the investment attractiveness of Cyprus, the issue of NPLs must be resolved,” Dr. Kirill Zimarin, CEO of RCB Bank and President of the Association of International Banks in Cyprus told the bankers’ annual meeting.

“This will enable for the development of new perspectives for the Cypriot banking sector,” Zimarin added, explaining that the association, that groups together 24 banks aims to represent and protect the interests of international banks in Cyprus.

In his speech, Zimarin underlined the multifaceted work conducted by the AIB over the past year and noted that “the Association has established itself as a credible and constructive professional body not only in Cyprus but also abroad. It is active in promoting the interests of its members and the Cypriot banking sector at European and International level”.

Present at the 13th annual general meeting of the AIB that took place in Limassol on Friday, was Finance Minister Harris Georgiades who applauded the association for its constructive role in the Cyprus economy and thanked its members for the trust they have placed in Cyprus.

Also present at the AGM were the Governor of the Central Bank of Cyprus, Chrystalla Georghadji, representatives of the diplomatic corps, Members of Parliament and the Financial Ombudsman.

December 16 - 22, 2015

COMMENT | 7

Terrorism: A different reaction from Iran

By Dr Andrestinos Papadopoulos Ambassador a.h.

The recent tragic events in Paris, a result of blind terrorism, raised reactions all over the world, as leaders condemned the abhorrent acts of violence perpetrated by the Islamic State (IS) and decided to intensify their struggle against it.

The reaction of the Supreme Leader of Iran, Sayyid Ali Khamenei, was quite different. In fact, it was totally different even from the very beginning, based on Iranian knowledge of what is happening in the region and the direct and indirect threat which IS represents to the security and strategic interests of Iran. In an open letter to the youth in western countries, dated November 29, the Supreme Leader shared his views on terrorism in the belief that it is only young people “who, by learning the lessons of today’s hardship, have the power to discover new means for building the future.”

Criticising the West for creating, nurturing and arming terrorist organisations, he confirmed that “today, terrorism is our common worry”, making, however, a reference to the pain experienced for many years by the peoples of the region. Stating with full regret that vile groups such as Daesh (the Arabic acronym for IS) are the spawn of imported cultures, he considers that the matter is not simply theological. In Khamanei’s view, “how is it possible that such garbage as Daesh comes out of one of the most ethical and humane religious schools, who as part of its inner core includes the notion that taking the life of one human being is equivalent to killing the whole humanity?”

To strengthen his argument, he stated: “One has to ask why people who are born in Europe and who have been intellectually and mentally nurtured in that environment are attracted to such groups? Can we really believe that people with only one or two trips to war zones, suddenly become so extreme that they can riddle the bodies of their compatriots with bullets?”

Under the influence of public opinion and the anti-muslim sentiments prevailing in some western countries, their governments feel obliged to take appropriate measures. In view of these developments, the Supreme Leader advises moderation. He stated in the open letter: “Hasty reaction is a major mistake when fighting terrorism which only widens the chasm. Any rushed and emotional reaction which would isolate, intimidate and create more anxiety for the Muslim communities living in Europe and America – which are comprised of millions of active and responsible human beings – and which would deprive them of their basic rights more than has already happened and which would drive them away from society, not only will not solve the problem but will increase the chasm and resentment.”

Concluding, we can observe that since the Supreme Leader is a religious personality and not a politician, in the common understanding of the world, the open letter to the young people could be considered as a message to western governments, offering at the same time an additional weapon to all those who fight terrorism.

Two weeks ago RAF warplanes launched their first bombing raids on Syria, targeting the Omar oilfield in the east of the country. The extensive oil infrastructure across Syria and Iraq has made the so-called Islamic State one of the richest terrorist organisations in history, providing the group with an estimated $500 mln every year, according to Bloomberg. Kidnap and ransom bring in an estimated $45 mln each year. Fertile agricultural territory controlled by the group could potentially generate $200 mln a year, according to Thomson Reuters. (Source: Statista)

December 16 - 22, 2015

8 | COMMENT | financialmirror.com

The Pre-Christmas Skinner Dinner This meal is as pretty as a picture…. or three pictures. It’s easy to prepare and nearly everything can be done in advance… the only time you need to leave your table companions is to put the shish kebabs under a very hot grill for a few minutes.

STARTER: “Tricolore” – the three colours of the Italian flag Ingredients for each portion: Half an avocado, peeled and sliced; two slices of Mozzarella cheese (many of us like to use Halloumi, either as it is or toasted); 1 small-medium tomato, skin removed and sliced.

Plus oil, vinegar (or lemon), salt and pepper for a dressing.

Method: Arrange the slices on a plate, sprinkle with the oil and lemon or vinegar, salt and pepper. Serve with brown bread and butter.

MAIN COURSE: Shish Kebab. Simplicity itself!

Method: 1. Heat your grill to High.

2. Take one wooden kebab stick for each person, wet it well and then thread alternate pieces of the following, until it’s almost full: tomato, onion, a hard cheese (I like to use Halloumi); mushroom and sweet red pepper. Then brush with a barbecue sauce (home-made,

FOOD, DRINK and OTHER MATTERS with Patrick Skinner or a good ready-made one such as “Tiptree”, or an Indian chutney).

3. Put the filled sticks on to a wire rack and grill for a couple of minutes, then turn two or three times until done (about 6-8 minutes).

4. Serve with rice and salad.

Note: The recipe in the photo, of course, is for a vegetarian shish kebab, which is shown at the bottom of the picture. The other two have added chunks of Lounza, which works beautifully!

DESSERT - a lovely Walnut Cake Ingredients: 180 gr butter, at room temperature, plus more for pan 180 gr granulated brown sugar 3 large eggs 250 gr self raising flour 1 teaspoon salt 2 large very ripe bananas, mashed 2 tbsp instant coffee diluted with1 tbsp water 140 gr yogurt 1 tsp cinnamon 100gt chopped walnuts For the glaze: Half a cup of icing sugar and 1 tbsp water Above: Walnut cake as served as La Maison Fleurie, Lemesos.

Method: l. Preheat oven to 190C. 2. Butter a rectangular loaf tin.

3. In a good sized bowl, beat butter and sugar until light and fluffy.

4. Add eggs, and beat well.

5. Gradually add the bananas, coffee, yogurt and cinnamon.

6. In another bowl, mix together flour and salt.

7. Add to the butter mixture, and whisk everything together well.

8. Stir in nuts, and pour the mixture into your baking tin. It should make a 23 by 12 cm tin-full plus a few “spare” buns. Never full your cake or bread tins all the way up, so that there is room for the mixture to rise.

9. Bake for about 45 minutes, or until a thin knife or toothpick inserted comes out clean.

10. Let rest in tin for 10 minutes then turn out onto a rack to cool.

11. Make the glaze, by whisking the water and icing sugar to make a spreadable paste. Use coffee instead of water if you wish. When the cake is cool, spoon and spread the icing over.

Serve with whipped cream. Deeee-licious!

Go to www.eastward-ho for recipes, food and wine news and notes.

Wish... for health and pleasure The Greek healthy food products Wish, developed by a scientific team of nutritionists using natural ingredients of high nutritional value and no added sugar, recently hit the Cyprus market with a range of healthy snacks. Ingredients used include honey, dried fruits, nuts, tahini, cocoa and whole grains producing product line full of taste and pleasure and rich in nutritional value, minerals, trace elements, vitamins and antioxidants.

The Wish series includes energy bars in seven flavours: fig, plum, chocolate, apricot, orange, tahini, cranberry; chocolate bars in ten flavours: dark, dark with omega 3, dark with orange, dark with almond, dark with hazelnut and raisin, dark and milk, milk, milk with almond, dark with stevia, milk with stevia; hazelnut praline spread; the ‘Wish Bite’ milk chocolate covered wafer; and two biscuits: digestive with whole meal flour, and cookies with chocolate chip.

The Wish range is available in pharmacies and selected food stores and is distributed by Theros Pharmaceutical Ltd, www.theros.co

December 16 - 22, 2015

financialmirror.com | COMMENT | 9

First ‘Jamie’s Italian’ to open in Nicosia in 2016 Jamie Oliver and the island’s premier food franchise company, PHC Group, will be opening the first Jamie’s Italian restaurant in Nicosia in spring.

The signature restaurant, developed by the celebrity chef and entrepreneur who has had his share of controversies, is expected to open adjacent to the Caffe Nero in Engomi, inspired by a passion for the Italian way of life and the menu is all about creating rustic dishes using tried and tested recipes and fresh ingredients. Friend and mentor Gennaro Contaldo has added authenticity to the essence of Jamie’s Italian – tradition combined with current, innovative ideas and a Jamie ‘twist’. The restaurants offer a casual dining experience that’s designed to be affordable and accessible.

Already popular with 35 restaurant in the UK and in Sydney, Moscow, Singapore, Sao Paulo and Dubai, plans for the continued international expansion of Jamie’s Italian are in full swing.

“I’m super-excited to be bringing Jamie’s Italian to Cyprus and I just know that Nicosia is going to be a brilliant addition

Festive treat from Costa Coffee The Costa Coffee has introduced Christmas treats at all its coffee houses, with a facebook competition underway to win an iPad mini. To enter, you simply take a selfie holding a Take Out Cup and post it using the hashtag #festivecostacy.

New treats include Gingerbread Man Latte, White Hot Chocolate, Caramel Fudge Hot Chocolate, Salted Caramel Cappuccino, Mulled Winter Fruits and Black forest Hot Chocolate, while on the snack side there are the Salted Caramel Muffin, Billionaire Tart, Black Forest Profiterol Cake, Orange and Cranberry Muffin, Honeycomb Crunch and Mini Festive Muffins. A cause worth drinking coffee for…

Burger King opens in Nicosia After its successful re-launch in Cyprus, with fastservice restaurants in Larnaca (Phinikoudes) and Paphos (Kings Mall), Burger King has finally returned to Nicosia with its flagship store on the corner of the busy Acropoleos and Athalassas avenues.

The franchise is operated by Wow Burgers Ltd., affiliated to the PHC Franchised Restaurants that operates most of the franchise food outlets in Cyprus (Pizza Hut, KFC, Taco Bell, Wagamama, Caffe Nero, Hobno’s Cafe and Derlicious).

Remaining true to its two pillars ever since Burger King was introduced in 1954, burgers are 100% beef and flame grilled.

The Nicosia property has also been designed in accordance with Burger King’s international look, while the most popular menu items are the trademark Whopper, the Steakhouse and Big King, Angus XT, and chicken burgers such as the Tendercrisp chicken and the grilled chicken Steakhouse.

to the Jamie’s Italian family. We’ll be sourcing lots of beautiful, top-quality local produce, and cooking up some incredibly tasty food, and all at a reasonable price,” said Oliver.

“We’re currently on the lookout for amazing local people with a real passion for food to come and join our team as chefs and front of house staff. I can’t wait for it to open!”

Jamie’s Italian Cyprus will be operated by Avantage B&R Italian Restaurants Ltd, part of the Lysandros Ioannou / PHC Franchised Restaurants Group.

Jamie Oliver, now 40, is best known as a restaurateur and media personality with his food-focused television shows (“The Naked Chef”), cookbooks and more recently his global campaign for better food education. The “Jamie’s Kitchen” project evolved from a vocational enterprise to provide training in the food and leisure industry for underprivileged young people, to an empire, Jamie Oliver Holdings Ltd., that is now worth GBP 240 mln.

Jamie remains true to his roots, having started as a pastry chef at Antonio Carluccio’s Neal Street restaurant, where he developed a relationship with his mentor Gennaro Contaldo.

Some schools in Cyprus have also followed Jamie’s campaign to promote eating healthy foods and cutting out junk food in schools, that gained popularity in most of Britain and helped launch a public awareness campaign to improve school dinners.

December 16 - 22, 2015

10 | COMMENT | financialmirror.com

Cyta continues to bleed Rivals MTN and PrimeTel fail to capitalise on 4G - Contract wins vs pre-paid State-owned Cyta, the telco that should have headed for privatisation within the next three years, has been steadily losing market share to its rival mobile phone operators, who, nevertheless, failed to capitalise on the launch of high-speed 4G telephony earlier this year.

The total number of mobile phone subscribers continued to decline in the first half of 2015, to its lowest level since the second half of 2011, down 14,385 to 1,096,417 from June last year. The fall is mainly attributed to the economic crisis with subscribers cancelling more pre-paid lines than monthly contracts.

Interestingly, the pre-paid market is at its lowest level of the past six years, while contract subscriber levels are at their highest of the past six years. The turning point was the end of December 2013, when both services were tied, with pre-paid mobile telephony being the dominant before that.

With Cyta’s market share at 63.85%, the once former state monopoly had a total of 700,062 subscribers at the end of June, losing 32,778 subscribers in a year. This suggests that its gamble to delay its nationwide transmission of the 4G platform to the end of the year may pay off as the threshold 700,000 subscriber mark must be maintained if it wants to retain value and be attractive to new investors.

Already, since October, Cyta had been selectively upgrading subscribers and geographical areas to test its national reception, with the telco announcing that it was offering nationwide reception as of November.

In an effort to boost revenues, Cyta has been prioritising corporate customers at the expense of ordinary users, but

Market share of Cyprus mobile telephony sector

this will never bring down the huge payroll, as analysts suggest that the state-owned telco’s 2,000 staff makes it “hugely oversubscribed” with lower output than its rivals.

MTN, whose CEO had publicly challenged Cyta some two

years back, claiming the South African network would reach a 50% market share, too, has missed its mark.

In April, it launched a major campaign employing Formula racing driver Tio Ellinas, saying in its adverts at the

Cyta privatisation on hold, for now After nearly two years of negotiations with the Troika of international lenders, the government has finally formulated its privatisation framework for state-owned telco Cyta, reassuring its 2,000 workers that their jobs and salaries were secured.

The plan is to eventually privatise the semi-government organisation into a company with the government as its sole shareholder, which will later offer its stake to local or international investors. Athe same tiome, the company will rpobaly be split into two – the commercial operator of telephony and the owner-operator of the infrastructure, that will probably remain in government hands, but will sell services to the new Cyta, as it would to all other telcos on the island.

The government has had an obligation to at least launch the privatisatioon process for Cyta, as well as power company EAC and the port authority by the end of 2015, as part of the EUR 10 bln bailout plan from the EU, the ECB and the IMF. But after protests staged by the Cyta workers’ unions in front of parliament and at the Presidential Palace as the Cabinet was meeting on Monday, the government seems to have backed down from immediate privatisation, preferring to leave the decision till after the parliamentary elections in May. The only support that the ruling DISY party would have had was expected from the centre-right DIKO, that has a significant membership among the trade unions, as it

appointed many staff during the hey-day of party favouritism in the 1980s and late 1990s. DIKO’s main opposition to privatisation was the clause for national security, which seems to have been appeased with a separate bill tabled on Tuesday that allows for state intervention in the case of a national emergency.

Opposition parties also said that the

privatisation process could open the doors to Turkish entities buying up the Cyprus telco.

However, back in September, communit AKEL’s mouthpiece Haravghi reported on leaked first half results for Cyta, suggesting that profits were higher, in an attempt to fend off reasons to sell of the telco. It said that the early retirement and voluntary

redundancy schemes helped reduce operating costs from EUR 156.5 mln in the first half of 2014 to EUR 138.8 mln this year.

Profits, the newspaper reports, reached EUR 40.1 mln, up from 25.1 mln from the year earlier, not realising that such an argument would make it even more attractive to potential buyers.

Finance Minister Harris Georghiades reassured workers on Monday that their salaries and jobs were secure, with four alternatives expected to be discussed which will determine the employment status and benefits of the workers who will move on to the privatised company.

Warning that Cyta should not have the same fate as former national carrier Cyprus Airways, Georghiades said that the final EUR 400 mln tranche from the Troika would be jeopardised if the privatisation bill is not passed any time soon.

He said that the telco has improved its image by becoming more efficient and profitable, wit the iam of making it attractive to strategic investors, unlike Cyprus Airways that had become a black hole with rigid unions failing to foresee its demise due to unsustainably high operating costs and payroll.

He said that the final EUR 400 mln was aimed for the Co-operative sector, as Cyprus is expected to exit from the three-year moratorium some time in March 2016 and will not have fully utilised the 10 bln initially planned.

December 16 - 22, 2015

financialmirror.com | COMMENT | 11

market share time that it had full coverage in urban areas.

Since then, the rhetoric seems to have died down as MTN is more keen to build up its presence in the technology sector in general, creating the MTN Business unit to look after the telecom needs of higher-worth corporate clients. As part of this, MTN bought out ICT provider IBS earlier this year.

However, MTN’s mobile sector market share is at its highest, with 343,398 subscribers in June for a market share of 31.32%, up from 333,754 subscribers and 30.09% market share in June 2014 Primetel, the only alternative rival to both Cyta and MTN which appeared in the second half of 2011, has been unable to grow its numbers to healthy levels.

Subscribers reached 41,444 in June this year for a 3.78% market share, up from 30,058 subscribers and 2.71% in June

2014.

Cablenet, the broadband provider, is not expected to be expanding to conventional copper telephony or mobile telephony any time soon, leaving only MTN and Primetel as Cyta’s main competitors. However, both companies have been making mistakes and are slow to clinch disgruntled customers from Cyta.

In the pre-paid sector, LemonTel has lost subscribers, dropping from 8,207 in June 2014 to 6,578 in June this year and a market share of 0.60%, while CallSat has picked up customers, increasing from 4,215 to 4,824 for a share of 0.44%.

Where Cyta is losing in retail market share, it may be gaining from its investment in Greece, CytaHellas, as well as the infrastructure owner/operator CytaGlobal through its

recent investments in international subsea cables.

CytaHellas recently appointed a new CEO, moving 26-year veteran Nicos Charalambous from Cyprus in an effort to boost the business there and rebuilt its reputation, due to failing after-sales service and support.

CytaHellas, that will probably be spun off separately if the telco’s privatisation goes ahead, owns a fibre optic subsea cable of 5,500 km, has 300,000 subscribers, 26 shops and 600 associates, with a footprint that reaches 70% of population coverage in Greece, resulting in a market share of 17% among alternative providers and 10% of th broadband market.

It employs 750 staff and had a turnover of EUR 90.49 mln in 2014 with net profits of EUR 2.07 mln, up from a nearbreakeven point in 2013.

December 16 - 22, 2015

12 | PROPERTY | financialmirror.com

Louis Hotels clinches awards for Cyprus and Greece Louis Hotels continue to win awards from major travel companies for the level of hospitality and customer satisfaction provided at the properties in Greece and Cyprus.

For a second year in a row, awarded The King Jason in Paphos as the leading hotel in the Best 4T Accommodation category, while the Louis Althea µeach in Protaras was hailed as one of the four best “TUI NORDIC Blue Village – Hotel Overall” in the world. Also, the 4-star Louis Kerkyra Golf (right) in Corfu won the “Best Thomson Family Resorts Accommodation” award, while the “Gold Medal Award worldwide” went to Louis Phaethon Beach in Paphos in the Best 4T Accommodation category.

TripAdvisor included the Louis Ledra Beach in Paphos among the 25 top All-Inclusive holiday resorts in Europe.

Meanwhile, the Mykonos Theoxenia recently won two awards – for the “Luxury Wedding Destination” and the “Luxury Island Resort” at the World Luxury Awards in Hong Kong based on visitors’ votes.

And the 21 properties comprising the Louis Hotels Group won the Business Tourism Sustainability Award from the CSTI sustainable tourism organisation.

Nevada, Florida, Arizona claim the most ‘underwater mortgages’ in the U.S.

By Paul Ausick Of nearly 46.3 mln mortgaged residential properties in the United States at the end of the third quarter of 2015, approximately 4.1 mln (10.4%) had a mortgage amount greater than the value of the property. The percentage of underwater or negative equity properties at the end of the third quarter was lower than the total at the end of the second quarter (5.4 mln and 10.9%).

Some 17.6% (or 8.9 mln) of all mortgaged properties have positive equity of less than 20%, and 2.2% had less than 5% positive equity at the end of the third quarter. These levels are slightly lower than at the end of the second quarter of 2015, when 17.8% of all properties had positive equity below 20% and 2.3% had less than 5% positive equity.

The aggregate value of negative

equity fell by $8.1 bln in the third quarter to a nationwide total of $301 bln. At the end of the second quarter, the aggregate value of underwater property totaled $309.1 bln. The data were released by research firm CoreLogic.

CoreLogic’s chief economist noted that “home price growth continued to lift borrower equity positions and increase the number of borrowers with sufficient equity to participate in the mortgage market. In Q3 2015 there were 37.5 mln borrowers with a least 20% equity, up 7% from 35 mln in Q3 2014. In the last three years, borrowers with at least 20% equity have increased by 11 mln, a substantial uptick that is driving rapid growth in home equity originations.”

The five states with the highest percentage of homes with negative equity were Nevada (19.0%), Florida (17.8%), Arizona (14.6%), Rhode Island (12.3%) and Maryland (12.1%). These five accounted for 29.3% of all U.S.

underwater mortgages in the third quarter of 2015.

The five states with the highest percentages of homes with positive equity were Texas (97.9%), Alaska (97.7%), Hawaii (97.6%), Colorado (97.2%) and Montana (97.1%).

The five metropolitan areas with the highest percentage of properties with negative equity were Tampa-St. Petersburg-Clearwater, Fla. (19.6%), Phoenix-Mesa-Scottsdale, Ariz. (14.2%), Chicago-Naperville-Arlington Heights, Ill. (13.8%), Riverside-San BernardinoOntario, Calif. (11.3%) and Washington, DC-Arlington-Alexandria, Va. (10.8%).

The five metro areas with the highest percentage in positive equity were Houston-The Woodlands-Sugar Land, Texas (98.2%), PortlandVancouver-Hillsboro, Ore. (98.1%), Denver-Aurora-Lakewood, Colo.

(98.0%), Dallas-Plano-Irving, Texas (97.9%) and Seattle-Bellevue-Everett, Wash. (97.7%). (Source: 24/7 Wall St.com)

Adverse policy changes will weigh on English housing associations after 2016 English Housing Associations’ (HAs) financial performance will likely peak next year before adverse policy changes introduced in 2015 begin to bite from 2017 onwards, Moody’s Public Sector Europe said in a report, noting that its 2016 outlook for the sector is negative.

The policy environment remains challenging for HAs, which among other factors will result in a decline in social rental income for four years from April 2016.

“Adverse policy changes will result in eroding margins and interest coverage ratios for English Housing Associations from 2017 onwards,” said Amir Girgis, an associate analyst at Moody’s.

“HAs will look to offset income lost as a result of the rent cut by cutting costs and slowing their capital expenditure programs. They will likely also accelerate market sales exposure for new builds under a housing policy that is more supportive of home ownership. The impact of these changes on their balance sheets will depend on their strategy to mitigate the impact of adverse policy changes. For those unable or unwilling to adjust, credit quality could start to diverge.”

The rating agency expects the sector’s median operating margin to fall by 2-3 percentage points to below 30% by 2017, and to remain at that level thereafter.

Reduced profitability will erode interest cover ratios from 2017, Moody’s said, while market sales replace lower risk social housing rentals and are expected to make up approximately 25% of turnover by 2019.

As such, the sector will become more reliant on the housing market remaining buoyant. Any moderation or reversal in house prices would exert pressure on cash flow from operations.

Portuguese RMBS performance relatively stable

Amathus wins “Green Hotel of the Year” at European Hospitality awards Amathus Beach Hotel Cyprus has been awarded the “Green Hotel of the Year 2015” at the European Hospitality Awards 2015 that took place at the Royal Garden Hotel in London last month.

The hotel’s management introduced a mission to fully integrate a sustainability programme that must do more than just improve hotel performance and launched numerous green initiatives to become an ecologically conscious resort and the leader among European hotels in sustainability projects.

The green initiatives include an advanced central geoexchange and heat recovery system that exploits the sea water for heating/cooling purposes of the hotel,

significantly reducing environmental pollution.

Additionally, a desalination plant is used for the hotel water supply, as well as for irrigation purposes. This system has contributed to the protection of the environment, giving to the Amathus family the incentive to upgrade all other procedures, such us recycling of plastic, paper, glass, oil, batteries, printers’ inks etc.

Ranked among the top hotels on the island since 1973, the Amathus Beach Hotel, a 5-star beachfront resort on the outskirts of Limassol and a member of ‘The Leading Hotels of the World’ regularly receives international industry awards for maintaining high quality of facilities and services.

The performance of the Portuguese residential mortgage-backed securities (RMBS) market remained relatively stable in the three-month period ended in September, according to the latest indices published by Moody’s Investors Service.

In September, 60+ day delinquencies decreased to 1.15% of the current portfolio balance from 1.20% in June, representing a 4.60% drop. Meanwhile, 90+ day delinquencies remained stable during the three-month period at 0.86%. Outstanding defaults (360+ days overdue, up to write-off) increased to 3.28% of the current balance in September from 3.17% in June, a 3.55% increase.

The prepayment rate of Portuguese RMBS slightly increased to 2.08% in September from 1.81% in June.

As of September, Moody’s rated 32 transactions in the Portuguese RMBS market, with a total outstanding pool balance of EUR 14.51 bln compared with EUR 14.79 bln in June.

December 16 - 22, 2015

financialmirror.com | PROPERTY | 13

You missed a point, Mr Minister µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

There are many who praise the Interior Minister Socrates Hasikos for his work in the reform and revive the property sector, both on the issue of visas and citizenship provided to investors from third countries, a package of measures that have benefited not only the major developers, but also the general public through the supply of properties in the market. To some extent, even the lenders would have to thank him, many of whom benefited from the purchases by foreign investors that helped to break the stagnant situation of the non-performing loans, in addition to the inflow of EUR 2.5 billion of fresh funds into the market, and not just the recycling of loans.

The last measure for the relief on mortgages and other tax burdens, including property tax, is the best, as is the buyers now taking full responsibility for the property tax.

Throughout this whole process of an abundance of measures he introduced and of course attracted foreign investors due to the changes in the tax regime, you might have missed a problem that seems to linger.

While properties were freed from mortgages and other burdens, there remain the charges set by the municipalities for local taxes and fees for the sewerage. As a result, the transfer of properties has once again stalled because of the tax burdens that need to be cleared in order for a new title deed to be issued.

So, once again new buyers are stuck over taxes whose main beneficiaries are the owners of the units.

As an example let’s see the case of a residential project with 84 apartments and titles ready to be transferred from the year 2013, but due to the lack of interest or a difficulty to pay for the transfer fees, the developer is debited with the 39 for which there is no interest to transfer their units.

Even though there is the possibility of some authorities to

allow transfers per unit, they set conditions of when and how the developer should pay for the rest. So, while the tennants of these units ‘enjoy’ the free services of the local municipality, the fees are charged to the registered owner or developer. It was wrong not to exclude transfers from the charges of the municipal taxes. The system adopted for the Income Tax, whereby the owners or buyers bear responsibility for their payment, so should a measure be adopted in this case for the buyers to take the responsibility.

The non-payment of these local taxes unfairly burdens the registered owners and certainly prevents to some extent the developers/owners to proceed with the issue of title deeds due to financial difficulty (apart from the various consultants who will need to be paid, there is the cost of the local authorities for the issue of such deeds). This problem can be solved with a swift Cabinet decision which will greatly help the situation.

While discussing the omissions of the system, there are some other issues that need be addressed as well.

Incentives – Those that have been granted for projects that see the start of building work by 2017, is also a plus for the construction sector. However, the incentives note that such licenses should be issued within three months. But in practice this is not done and we have cases of six months having passed and the developer is still awaiting permits.

So, how will the developer meet the 2017 deadline when the planning permission alone needs six months or more to obtain, in addition to al the other permits. The system whereby such applications are reviewed by committees and various government departments is the worst that can be.

Therefore, if the Minister was review the various dates for the applications and the as-yet non-issuance of permits, he will see for himself that there is a time gap which needs to be resolved immediately.

At the same time, the new incentives include town planning and zoning issues regarding the percentage of common ownership that the Land Survey Dept. itself had a problem as it did not know how to deal with it. Despite all the good intentions of the Director of the Lands Surveys Dept. and his associates, there is a difference in opinion between the Town Planning Office and the Land Surveys Dept. So, here too this commendable effort of the incentives has once again stalled.

The most notable effort is the reduction by 50% of the transfer fees provided that the title deeds exist by the end of 2016. On the one hand this is good, but if the procedures are being delayed further by the authorities, it is reasonable to extend the rebate, depending on what extent the owner / developer is at fault. While there is a political will and a somewhat increase in the rate of issue of title deeds, the outdated procedures seem to remain, as a result of which this measure is also delayed. Therefore, I believe it would be very

How will the developer meet the 2017 deadline when the planning permission alone needs six months or more to obtain, in addition to al the other permits? logical for the proposal to extend the timeframe for the discount if this is not due to indifference or the developer’s fault but that of the authorities.

Without this being the Minister’s problem to deal with directly, there is also the problem of the release of mortgages, but for the lenders to release the property for transfer now request additional information. Not only that the buyer has met all the obligations, but the lenders seek to establish whether the payments were deposited with the financing bank. Where in the law is this mentioned? This is an illegal demand while in the case of some projects, instead of any request for release of the mortgage be reviewed separately of the lenders, they insist to review the totality of the units which in the case of a project of 80 apartments the lenders want all 80 properties to be reviewed one by one. As a result, the transfer is delayed to beyond the year 2016, when the 50% discount on transfer fees expires. So, in such cases I suggest that any difference in the transfer cost be burdened by the lender.

A note from the Minister will help the buyers and compromise the lenders. There is also the possibility of an application for the transfer through the Land Surveys Dept., but with 5,000 applications already piled up and currently waiting period, which according to the Dept. is 6-8 months, how will the Land Registry be ready to transfer these deeds by the end of 2016 in order to benefit from the 50% transfer fee discount. Perhaps here, the period for the 50% discount be extended, as long as the request is submitted before 31.12.2016 and provided that the other terms remain in force as at the date of the request the latest 31.12.2016.

I therefore submit to the Minister of Interior our industry’s concerns that require immediate resolution and which thoughts are based on real cases for which there are concrete examples.

I congratulate you, Mr Minister, for your tireless efforts, but this is a matter that will become worse if the imaginative steps introduced by this government cannot be implemented because of certain omissions and because of the attitudes some who believe that they are in control of the situation www.aloizou.com.cy - ala-HQ@aloizou.com.cy

December 16 - 22, 2015

14 | MARKETS | financialmirror.com

Time is nigh, as emerging markets feeling the pinch

By Oren Laurent President, Banc De Binary

We are mere days away from the Federal Reserve’s very first interest-rate hike in over nine years. Such is the significance of this historic monetary policy decision that equities markets, currency markets, indices and commodities are nervously jockeying for position.

Whenever central banks like the Bank of England, the European Central Bank, or the Fed make a decision to raise or lower interest rates, the impact of such a decision is profound. Since we are talking about the world’s #1 economy, the Federal Reserve Bank is the gold standard. It is a foregone conclusion that we can expect a 25-basis point rate hike this coming week, bringing the interest rate from 0.25% to 0.5%.

The implications of a rate hike are going to be felt by emerging market currencies, risky assets and global equities.

The rationale behind these assumptions is clear: when the Fed moves to raise interest rates, the USD appreciates relative to a basket of currencies. This is true of major and minor currencies. Since the yield on dollar-denominated assets, investments and fixed interest-bearing assets will be increasing, there is a move towards these particular assets. In other words, central banks around the world will be buying dollars, speculators will be buying dollars, currency traders will be buying dollars and as the dollar is the world’s reserve currency, the overall demand for the USD will increase. This naturally leads to an appreciation of the greenback and a concomitant depreciation of other currencies.

However, the impact is not sudden. Much of the strength we are currently seeing in the USD has already been factored in to the imminent rate hike. This is also true of equities markets. However, we are going to see an acceleration of capital flight from risky financial assets such as developing countries (emerging market economies) and their currencies. These include particularly vulnerable currencies like the South African Rand which is now trading at over 15:1. Other currencies likely to take a hit in the coming week are the Turkish lira, the Brazilian real, the Russian rouble, the Chinese yuan, the Indian rupee and other EM currencies.

There are also indirect consequences for a Fed rate hike on emerging market economies, and these will be felt in the areas of the MSCI emerging markets index, emerging market economy funds and global equities. It has already been established that developing economies have endured the longest decline since June on the back of US Fed rate hikes.

There are real fears that capital outflows will accelerate midway through December.

MARKET TRENDS THIS DECEMBER Owing to the strategic plans of mining companies to reduce production moving forward, industrial metals prices have risen. However, the persistently low price of Brent crude

oil, which has now faced increasing downward pressure as a result of OPEC’s recent decision is now pushing the $36 support level. We are seeing a shift in investment income from equities markets and funds to fixed interest-bearing accounts such as Treasuries, bonds and savings accounts.

This is being done in an effort to combat inflationary pressures which are likely coming as a result of the Fed rate hike.

Global financial markets are now facing increasing volatility especially in the days leading up to the Fed’s decision. There is tremendous activity in terms of selloffs with equities, and this is bound to continue throughout December.

THE VIX INDEX SURGES AS CONFIDENCE PLUNGES Already, commodity prices are at 16-year lows, fuelled by persistent weakness in the Chinese economy. Just last week, the S&P 500 index capped a 3% decline, and there are concerns that China weakness will pervade global markets.

One of the most important measures of market volatility is the Chicago Board Options Volatility Index (VIX). It recorded a 45% increase in volatility to 21.55 – the highest figure in almost four months. This is one of the most important gauges of overall market sentiment, and the higher it is the more bearish the outlook for stocks. Some of the weakest sectors in the market are commodities such as copper and iron ore, as well as crude oil.

Emerging market currencies are particularly vulnerable,

notably the 20 developing nation currencies which plunged 1.9% for the week – the worst performance in three months.

However, as one might expect, the losses felt by emerging market currencies translated into gains felt by the USD in the US dollar index.

One of the biggest losers in the run-up to the Fed rate hike is the MSCI Emerging Markets index. A 4.4% decline for the week ending Friday, December 11, marked one of the worst performances since September. Other equity benchmarks that declined substantially include South Africa, Hong Kong and Indonesia.

Of course, the biggest faller of the week was oil. It is now generally accepted that the oil price will remain vulnerable, weak and depressed throughout 2016. WTI crude dropped as low as $36.43 per barrel as persistently bearish investor sentiment dominates the crude oil market. All in all, the Fed rate hike is going to have a mixed reaction on global markets, but the good news is we can expect a subtle and gradual increase in rates as opposed to a sharp and sudden rate hike.

Please note that this column does not constitute financial advice.

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.34 0.50 -0.20 0.03 -0.80

0.43 0.54 -0.15 0.06 -0.79

0.52 0.58 -0.12 0.08 -0.77

0.75 0.74 -0.03 0.12 -0.72

1.06 1.06 0.06 0.22 -0.63

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

1.01 0.99 -0.06 0.10 -0.75

1.25 1.16 0.01 0.10 -0.70

1.44 1.31 0.12 0.12 -0.59

1.59 1.44 0.26 0.15 -0.46

1.85 1.67 0.54 0.25 -0.18

2.11 1.90 0.92 0.42 0.12

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1035 0.9062

100 JPY

1.5147

1.0186

0.8277

1.3726

0.9231

0.7500

0.6725

0.5464

0.6602

0.7285

0.9817

1.0833

1.4870

120.82

133.32

183.01

0.8125 123.07

Weekly movement of USD

CCY\Date

17.11

24.11

01.12

08.12

15.12

CCY

Today

USD GBP JPY CHF

1.0604

1.0572

1.0532

1.0801

1.0971

0.6990

0.6986

0.6976

0.7179

0.7232

130.74

129.63

129.30

132.85

132.43

GBP EUR JPY

1.0712

1.0757

1.0795

1.0786

1.0768

CHF

1.5147 1.1035 120.82 0.9817

Last Week %Change 1.5045 1.0801 123.00 0.9986

-0.68 -2.17 -1.77 -1.69

December 16 - 22, 2015

financialmirror.com | MARKETS | 15

The shudder in US credit Marcuard’s Market update

by GaveKal Dragonomics As oil prices tumble and the first US interest rate hike for eight years comes into view, bond investors in the high-yield segment are taking flight. The market was given a foretaste of what a disorderly unwinding of an over-bought US corporate bond market may look like late last week, when two high-yield bond funds suspended redemptions.

The worry is that these tremors become an earthquake, making it more costly for all companies to refinance themselves. Such a cycle of contagion could tip both the US economy and equity market into a proper downturn. To our mind, this risk is probably overblown.

First, it should be recognised that there has been no “meltdown” in the credit space. To be sure, spreads and yields have generally risen since April, but outside of the high-yield commodity sector, the moves have so far conformed to “normal” patterns given the point in the economic cycle.

While yields on sub-investment grade energy bonds have risen by another 700bp since May (when the current move in bond markets really got started), the rest of the high-yield bond index has seen yields rise a significantly lower 200bp, and the overall cost of borrowing for US companies of all shades is up by 75-100bp. The market is still distinguishing between varying risks and not yet in a generalised panic.

A strong argument can also be made that contagion risk has lessened compared to past panics. Banking sector reforms that followed the 2008-09 crises mean that banks are less involved in market-making activity (the share of corporate bonds held by banks has halved since 2008; this means less leverage). And with bank balance sheets not so exposed, bond market tremors are less likely to spark riskaverse responses by those institutions and with it a contraction of the US money supply.

This does not mean contagion risk has gone to zero. A new risk has emerged with a possible wave of redemptions from bond funds resulting in price gapping.

Open-ended mutual funds lack the leverage of banks, but they share some similarities in that they have an inherent maturity mismatch — such funds typically promise daily liquidity, while owning less-liquid long-term assets. A run on these funds would create a wave of forced selling, especially as the holding of liquid assets (cash, US treasuries…)

amounts to just 5% of assets.

And since investment banks play a greatly diminished market-making role, these sellers may struggle to find buyers in any orderly fashion. In such a scenario, fund managers will offload what they can, not what they “should”—the result would be an indiscriminate rise in credit spreads and interest rates.

This risk is real, and worth monitoring. In fact, if the US is to face a recession in 2016, this is the most likely transmission mechanism. Yet in our view it remains a tail risk. We estimate that corporate borrowing costs would need to rise by about 200bp from here to usher in recession (twice the increase seen since May, see chart). This would eliminate the positive spread between the cost of capital and its current rate of return.

With less leverage in the system, and with yields on longterm corporate bonds so far above the return offered on money market funds, we think such big moves in yields are unlikely.

To be sure, it would not surprise us to see bond yields rise by a further 100bp in the next few weeks or months (whether on the back of rising government yields or wider credit spreads). But we would expect this to attract domestic and international buyers, capping the rise before it triggered a recession. Tail risks notwithstanding, the US is most likely

marching toward a recession sometime in 2017 or thereafter, not jumping into one after the Federal Reserve’s first rate hike.

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

18280 1.5147 1.7721 24.484 6.7612 14.1804 1.1035 2.388 287.34 0.63694 3.1291 0.3891 19.65 8.6748 3.9513 4.0779 70.832 8.4691 0.9817 23.4889

AUD CAD HKD INR JPY KRW NZD SGD

0.7244 1.371 7.7501 67.02 120.82 1183.23 1.4685 1.4076

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

0.3772 7.8052 29980.00 3.8612 0.7080 0.3031 1513.50 0.3850 3.6412 3.7513 15.0330 3.6729

AZN KZT TRY

1.0435 331.99 2.9809

AMERICAS & PACIFIC

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

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

www.marcuardheritage.com

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.

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

Note:

* USD per National Currency

December 16 - 22, 2015

16 | WORLD | financialmirror.com

Joseph Stiglitz’s sticky prices

By Kaushik Basu For a long time, the assumption underlying much of mainstream economics was that the invisible hand worked its magic seamlessly.

Prices moved smoothly up as demand outpaced supply and rushed back down when the tables were turned, keeping markets in equilibrium.

To be sure, many observers realised the truth was actually quite different – that prices, and wages and interest rates in particular, were often sticky, and that this sometimes prevented markets from clearing. In labour markets, this meant unemployed workers facing prolonged job searches.

But the response by others in the field was that what their colleagues described as “unemployment” did not truly exist; it was voluntary, the result of stubborn workers refusing to accept the going wage.

Among those who recognised the reality of involuntary unemployment were John Maynard Keynes and Arthur Lewis, who incorporated it into his model of dual economies, in which urban wages do not respond to labor-supply gluts and remain above what rural workers earn. Both Keynes and Lewis used the stickiness of prices extensively in their work.

But even for them, the concept was only an assumption; they never managed to explain why wages and interest rates so often resisted the pressures of supply and demand.

Columbia University’s Joseph Stiglitz, who celebrates 50 years of teaching this year, solved the puzzle. In a series of innovative papers, Stiglitz picked up some elementary facts about the economy that lay strewn about like jigsaw pieces, put them together, and proved why some prices were naturally sticky, thereby creating market inefficiencies and thwarting the functioning of the invisible hand. In Stiglitz’s words, the invisible hand “is invisible at least in part because it is not there.”

Stiglitz set out his argument over a remarkable ten-year period. In 1974, he published a paper on labour turnover that explained why wages are rigid. His analysis has important implications for development economics, and I have used it often. This was followed by other important work, including a paper on credit rationing and interest-rate rigidity (cowritten with Andrew Weiss) and another paper on efficiency wages. And then, in 1984, with Carl Shapiro he published the definitive work on endogenous unemployment.

Other economists’ work – for example, George Akerlof’s seminal paper on the market for lemons – had laid the foundations for this research on price rigidities. But Stiglitz’s papers, published in the 1970s and early 1980s, shifted the mainstream paradigm of the microeconomic theory of markets.

The intuition behind some of Stiglitz’s arguments about rigid prices is simple. We know that people often shirk if there is no penalty for doing so, and that the common penalty in the workplace is the risk of losing one’s job. But if one assumes a full-employment equilibrium, as described in textbooks, with the market working without friction, this penalty is ineffective. Threatening workers with the loss of their job will have no effect if they can immediately find another.

The way to create incentives not to shirk is to pay workers above the market wage, making the loss of a job more costly.

Of course, if this works for one firm, it will work for others, and so wages will rise, and eventually the supply of labor will exceed demand. In other words, there will be unemployment.

And then, even if all firms are paying the same wage, the threat to fire a worker will be effective, because a worker who loses a job will face the risk of remaining unemployed. As a result, the market will reach an equilibrium where unemployment exists, but wages do not drop. This is, in short, the Shapiro-Stiglitz equilibrium.

An excellent survey of this literature can be found in the 1984 paper “Efficiency Wage Models of Unemployment,” by Janet Yellen, now Chair of the US Federal Reserve. (Perhaps some readers can even pick up clues on when the Fed will raise rates!)

As influential as Stiglitz’s research has been, this remains an area where much more work can be done. One of my frustrations has been to watch how monetary policy is made in some developing economies, where the authorities all too often copy the rules that industrialised countries follow,

“The intuition behind some of Stiglitz’s arguments about rigid prices is simple.

Threatening workers with the loss of their job will have no effect if they can immediately find another” without regard to the fact that their efficacy may depend on context.

Stiglitz’s work reminds us of the risk of basing polices on the assumption that interest rates rise and fall smoothly.

Instead of relying on rules of thumb about when to raise or lower rates, we need to do some creative, analytical thinking.

In emerging economies in particular, there is a strong need for experimental interventions to collect data so that we can move to more scientifically based policymaking.

In the late 1990s, I worked with Stiglitz at the World Bank, where he served as Chief Economist. At the time, he was engaged in heated debates about International Monetary Fund interventions in East Asia. In that role, I can honestly say that he changed the IMF. One hopes that his insights continue to have such an impact, as they encourage more analytical policymaking at all levels.

This commentary is based on an address delivered on October 17, at a conference at Columbia University honoring Joseph Stiglitz for a half-century of teaching.

Kaushik Basu, Chief Economist and Senior Vice President of the World Bank, is Professor of Economics at Cornell University. © Project Syndicate, 2015 - www.project-syndicate.org

America’s fastest growing occupations According to the Bureau of Labour Statistics (BLS), the civilian labour force in the United States numbered 155.9 mln in 2014, and that’s expected to grow to 163.8 mln by 2024. What are America’s fastest growing occupations going to be during that time frame?

The BLS projects that wind turbine service technicians are going to be the country’s fastest growing occupation between 2014 and 2024, with 108% growth. Their services are certainly going to be in demand with U.S. wind energy capacity predicted to increase 15% this year and 14% in 2016, according to the U.S. Energy Information Administration.

However, the vast majority of fast job growth over the coming decade or so will be in the healthcare sector. Occupational therapy assistants and physical therapist assistants can expect job growth of 42.7% and 40.6%, respectively, by 2024. (Source: Statista)

December 16 - 22, 2015

financialmirror.com | WORLD | 17

The Great Greek Bank Robbery

By Yanis Varoufakis

Since 2008, bank bailouts have entailed a significant transfer of private losses to taxpayers in Europe and the United States. The latest Greek bank bailout constitutes a cautionary tale about how politics – in this case, Europe’s – is geared toward maximising public losses for questionable private benefits.

In 2012, the insolvent Greek state borrowed EUR 41 bln ($45 bln, or 22% of Greece’s shrinking national income) from European taxpayers to recapitalise the country’s insolvent commercial banks. For an economy in the clutches of unsustainable debt, and the associated debt-deflation spiral, the new loan and the stringent austerity on which it was conditioned were a ball and chain. At least, Greeks were promised, this bailout would secure the country’s banks once and for all.

In 2013, once that tranche of funds had been transferred by the European Financial Stability Facility (EFSF), the eurozone’s bailout fund, to its Greek franchise, the Hellenic Financial Stability Facility, the HFSF pumped approximately EUR 40 bln into the four “systemic” banks in exchange for non-voting shares.

A few months later, in the autumn of 2013, a second recapitalisation was orchestrated, with a new share issue. To make the new shares attractive to private investors, Greece’s “troika” of official creditors (the International Monetary Fund, European Central Bank, and the European Commission) approved offering them at a remarkable 80% discount on the prices that the HFSF, on behalf of European

taxpayers, had paid a few months earlier. Crucially, the HFSF was prevented from participating, imposing upon taxpayers a massive dilution of their equity stake.

Sensing potential gains at taxpayers’ expense, foreign hedge funds rushed in to take advantage. As if to prove that it understood the impropriety involved, the Troika compelled Greece’s government to immunise the HFSF board members from criminal prosecution for not participating in the new share offer and for the resulting disappearance of half of the taxpayers’ EUR 41 bln capital injection.

The Troika celebrated the hedge funds’ interest as evidence that its bank bailout had inspired private-sector confidence. But the absence of long-term investors revealed that the capital inflow was purely speculative. Serious investors understood that the banks remained in serious trouble, despite the large injection of public funds. After all, Greece’s Great Depression had caused the share of nonperforming loans (NPLs) to rise to 40%.

In February 2014, months after the second recapitalisation, the asset management company Blackrock reported that the burgeoning volume of NPLs necessitated a substantial third recapitalisation. By June 2014, the IMF was leaking reports that more than EUR 15 bln was needed to restore the banks’ capital – a great deal more money than was left in Greece’s second bailout package.

By the end of 2014, with Greece’s second bailout running out of time and cash, and the government nursing another EUR 22 bln of unfunded debt repayments for 2015, Troika officials were in no doubt. To maintain the pretense that the Greek “programme” was on track, a third bailout was required.

The problem with pushing through a third bailout was twofold. First, the Troika-friendly Greek government had staked its political survival on the pledge that the country’s second bailout would be completed by December 2014 and would be its last.

Several eurozone governments had secured their parliaments’ agreement by making the same pledge. The fallout was that the government collapsed and, in January 2015, our Syriza government was elected with a mandate to

challenge the very logic of these “bailouts.”

As the new government’s finance minister, I was determined that any new bank recapitalisation should avoid the pitfalls of the first two. New loans should be secured only after Greece’s debt had been rendered viable, and no new public funds should be injected into the commercial banks unless and until a special-purpose institution – a “bad bank” – was established to deal with their NPLs. Unfortunately, the Troika was not interested in a rational solution. Its aim was to crush a government that dared challenge it. And crush us it did by engineering a six-monthlong bank run, shutting down the Greek banks in June, and causing Prime Minister Alexis Tsipras’s capitulation to the Troika’s third bailout loan in July.

The first significant move was a third recapitalisation of the banks in November. Taxpayers contributed another EUR 6 bln, through the HFSF, but were again prevented from purchasing the shares offered to private investors.

As a result, despite capital injections of approximately EUR 47 bln (41 bln in 2013 and another 6 bln in 2015), the taxpayer’s equity share dropped from more than 65% to less than 26%, while hedge funds and foreign investors (for example, John Paulson, Brookfield, Fairfax, Wellington, and Highfields) grabbed 74% of the banks’ equity for a mere EUR 5.1 bln investment. Although hedge funds had lost money since 2013, the opportunity to taking over Greece’s entire banking system for such a paltry sum proved irresistibly tempting.

The result is a banking system still awash in NPLs and buffeted by continuing recession. And with the latest round of recapitalisation, the cost of the Troika’s determination to stick to the practice of extend-and-pretend bailout loans just got higher.

Never before have taxpayers contributed so much to so few for so little.

Yanis Varoufakis, a former finance minister of Greece, is Professor of Economics at the University of Athens. © Project Syndicate, 2015 - www.project-syndicate.org

Oil prices and global growth

By Kenneth Rogoff One of the biggest economic surprises of 2015 is that the stunning drop in global oil prices did not deliver a bigger boost to global growth. Despite the collapse in prices, from over $115 per barrel in June 2014 to $45 at the end of November 2015, most macroeconomic models suggest that the impact on global growth has been less than expected – perhaps 0.5% of global GDP. The good news is that this welcome but modest effect on growth probably will not die out in 2016. The bad news is that low prices will place even greater strains on the main oil-exporting countries.

The recent decline in oil prices is on par with the supply-driven drop in 1985-1986, when OPEC members (read: Saudi Arabia) decided to reverse supply cuts to regain market share. It is also comparable to the demand-driven collapse in 2008-2009, following the global financial crisis. To the extent that demand factors drive an oil-price drop, one would not expect a major positive impact; the oil price is more of an automatic stabiliser than an exogenous force driving the global economy. Supply shocks, on the

other hand, ought to have a significant positive impact.

Although parsing the 2014-2015 oil-price shock is not as straightforward as in the two previous episodes, the driving forces seem to be roughly evenly split between demand and supply factors. Certainly, a slowing China that is rebalancing toward domestic consumption has put a damper on all global commodity prices, with metal indices also falling sharply in 2015. (Gold prices, for example, at $1,050 per ounce at the end of November, are far off their peak of nearly $1,890 in September 2011, and copper prices have fallen almost as much since 2011.)

New sources of oil supply, however, have been at least as important. Thanks to the shale-energy revolution, American oil production has risen from 5 mln barrels per day in 2008 to 9.3 mln barrels in 2015, a supply boom that has so far persisted, despite the price collapse. Anticipation of postsanctions Iranian oil production has also affected markets.

A decline in oil prices is to some extent a zero-sum game, with producers losing and consumers gaining. The usual thinking is that lower prices stimulate global demand, because consumers are likely to spend most of the windfall, whereas producers typically adjust by cutting back savings.

In 2015, though, this behavioral difference has been less pronounced than usual. One reason is that emerging-market energy importers have a much larger global economic footprint than they did in the 1980s, and their approach to oil markets is

much more interventionist than in the advanced countries.

Countries such as India and China stabilise retail energy markets through government-financed subsidies to keep price down for consumers. The costs of these subsidies had become quite massive as oil prices peaked, and many countries were already looking hard for ways to cut back.

Thus, as oil prices have fallen, emergingmarket governments have taken advantage of the opportunity to reduce the fiscal subsidies. At the same time, many oil exporters are being forced to scale back expenditure plans in the face of sharply falling revenues. Even Saudi Arabia, despite its vast oil and financial reserves, has come under strain, owing to a rapidly rising population and higher military spending associated with conflicts in the Middle East.

The muted effect of oil prices on global growth should not have come as a complete surprise. Academic research has been pointing in this direction for a long time. Oil is now thought to be less of an independent driver of business cycles than was previously believed. Also restraining growth is a sharp decline in energy-related investment. After years of rapid growth, global investment in oil production and exploration has fallen by $150 bln in 2015. Eventually, this will feed back into prices, but only slowly and gradually: Futures markets have oil prices rising to $60 per barrel only by 2020.

The good news for 2016 is that most macroeconomic models suggest that the impact of lower oil prices on growth tends to

stretch out for a couple years. Thus, low prices should continue to support growth, even if emerging-market importers continue to use the savings to cut subsidies.

For oil producers, though, the risks are rising. Only a couple – notably governancechallenged Venezuela – are in outright collapse; but many are teetering on the brink of recession. Countries with floating exchange rates, including Colombia, Mexico, and Russia, have managed to adjust so far, despite facing significantly tighter fiscal constraints (though Russia’s situation remains especially vulnerable if low oil prices endure). By contrast, countries with rigid exchange-rate regimes are being tested more severely. Saudi Arabia’s long-standing peg to the dollar, once apparently invulnerable, has come under enormous pressure in recent weeks.

In short, oil prices were not quite as consequential for global growth in 2015 as seemed likely at the beginning of the year.

And strong reserve positions and relatively conservative macroeconomic policies have enabled most major producers to weather enormous fiscal stress so far, without falling into crisis. But next year could be different, and not in a good way – especially for producers.

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

December 16 - 22, 2015

18 | WORLD | financialmirror.com

Why economists put health first

By Kenneth Arrow and Apurva Sanghi In an ideal world, everyone, everywhere, would access the health services they need without having to pay more than they could afford. But is “health for all” – also known as universal health coverage – really possible, not just in rich countries, but in the poorest countries, too?

In short, yes. That’s why we joined hundreds of fellow economists in almost 50 countries to urge leaders to prioritise investments in universal health coverage. And the broader impetus behind this Economists’ Declaration, convened by The Rockefeller Foundation and now with more than 300 signatures, has placed global health and development at a historic crossroads.

In September, the United Nations General Assembly adopted a new set of 15-year global goals to guide the world’s efforts to end poverty, foster inclusive prosperity, and secure a healthy planet by 2030. As world leaders prepare to enact the most ambitious global to-do list yet – the Sustainable Development Goals will be launched on January 1 – deciding where to begin may seem a daunting task.

For economists, however, the answer is clear: The next chapter of development strategy should assign a high priority to better health – and must leave no one behind.

Reaching everyone with high-quality, essential health services without the threat of financial ruin is, first and foremost, the right thing to do.

Health and survival are basic values to virtually every individual. Furthermore, unlike other valuable goods, such as food, they cannot be supplied without deliberate social policy.

The fact that “preventable deaths” remain common in low- and middle-income countries is a symptom of broken or under-resourced health-care delivery systems, not a lack of medical know-how. If we increase investments in health now, by 2030 we can be that much closer to a world in which no parent loses a child – and no child loses a parent – to preventable causes.

Universal health coverage is also smart. When people are healthy and financially stable, their economies are stronger and more prosperous. And, with benefits ten times greater than initial costs, investing in health first may ultimately pay for the rest of the new global development agenda.

So, the question is not whether universal health coverage is valuable, but how to make it a reality. More than a hundred countries have taken steps down this path; in the process, they have revealed important opportunities and strategies to accelerate progress toward the goal of health for all. In particular, we believe that three areas – technology, incentives, and seemingly “non-health” investments – have the potential to advance universal health coverage dramatically.

First, technology is fast becoming a game changer, especially in developing countries, where the gap in access to health care is the widest. In Kenya, which already leads the world in mobile money through “m-PESA,” an upsurge in telemedicine is enabling rural patients and health practitioners to interact, through video conferencing, with staff in Kenya’s main hospitals – thereby increasing quality of care at very little cost.

The m-PESA Foundation, in partnership with the African Medical Research Foundation, has also begun implementing online training of community health volunteers and complementing these trainings with bulk SMS/WhatsApp group messages to keep the group connected and share important updates. Investments in high-value, low-cost technologies will help us achieve more with every dollar.

Harnessing the power of incentives is another way to accelerate health reforms. This can and should be done without forcing the poor to pay for health-care services at the point of delivery.

For example, when the state pays the private sector based

on outcomes (for example, the number or share of vaccinated children), both accountability and results have been known to improve. Voucher programs for reproductive health care in Uganda and Kenya are now providing access to quality services from the private sector.

Finally, building resilient health-care systems – flexible enough to bend, but not break, in the face of shocks – means improving other public goods that are closely linked to human health.

These include clean water and sanitation, and roads and infrastructure that enable emergency care and delivery of services. Health systems do not exist in a vacuum, and if we are serious about sustainable development, it is time to understand that investments in complementary systems are “trade-ons” not trade-offs. We should be wary of viewing medicine as the only path to better health.

The success of the world’s development goals hinges on our ability to reach the poorest and most marginalized populations, who continue to bear the brunt of death and disability worldwide. A natural progression of the status quo will not be enough to reach them. Instead, we must push public health systems beyond their usual boundaries by investing in and promoting new technologies, sharpening incentives, and recognising that health systems do not exist in a vacuum.

Universal health coverage is right, smart, and overdue. To achieve a world where everyone’s health needs are met and nobody is trapped in poverty, our leaders must heed this message and act on it.

Kenneth Arrow, a Nobel laureate in economics, is Emeritus Professor of Economics and Professor of Operations Research at Stanford University. Apurva Sanghi is the World Bank’s lead economist for Kenya. © Project Syndicate, 2015. www.project-syndicate.org

Public underestimates the extent of obesity Out of every 100 people in your country, how many do you think are overweight or obese? It’s probably far more than you think.

Ipsos MORI posed this question to respondents in a recent report, finding that the public underestimates the extent of obesity in most countries around the world. There were some exceptions, however, with several nations overestimating obesity. In India, respondents guessed that 41 out of every 100 people were overweight. The actual number is just 20.

In the United States, participants guessed that exactly half of all Americans are overweight. The real number is higher; 66% of American adults are classified as being overweight.

The most notable underestimations occurred in Turkey and Saudi Arabia. In the latter, the average guess was quite low, only 28%. In reality, however, the Saudi obesity rate is shocking: 70 out of every 100 Saudis suffer from obesity and it has become one of the country’s leading causes of preventable death.

(Source: Statista)

December 16 - 22, 2015

financialmirror.com | WORLD | 19

Megafunding drug research As price-gouging practices by a handful of drug companies attract headlines, one troubling aspect of the story remains underplayed. Exorbitant increases in the prices of existing drugs, including generics, are motivated not just by crass profiteering but by a deep skepticism about the economic feasibility of developing new drugs. That skepticism is justified.

Traditional models for funding drug development are faltering. In the US and many other developed countries, the average cost of bringing a new drug to market has skyrocketed, even as patents on some of the industry’s most profitable drugs have expired. Venture capital has pulled back from early-stage life-sciences companies, and big pharmaceutical companies have seen fewer drugs reach the market per dollar spent on research and development.

Indeed, on average, only one of every 10,000 compounds identified as potentially useful in early-stage research will ultimately win approval from regulators. The approval process can take as long as 15 years and errs on the side of caution. Even among drugs that make it to human clinical trials, only one in five will clear that final hurdle.

The price tag for these “slow fails” can be enormous.

Pfizer, for example, spent a reported $800 mln on its cholesterol-lowering drug, torcetrapib, before pulling it from phase III clinical trials in 2006. That’s an unappealing prospect for most investors. Because the risk of backing any one compound, or even a particular company, is so high, vast pools of investment capital lie out of reach for drug developers.

Spurred by these pressures, finance experts have proposed several funding alternatives that reduce the risk of biopharma investments while improving the efficiency and productivity of the R&D pipeline. Although industry incumbents may be slow to shift gears, developing countries creating nextgeneration biopharma hubs have a unique opportunity to adopt and benefit from alternative models.

Many of those models build upon a common strategy for de-risking investments: assembling a diversified portfolio.

Two decades ago, a company called Royalty Pharma launched a diversified model, building a fund of ownership interests in multiple drug royalty streams. Royalty Pharma focused on approved drugs with blockbuster potential, creating stable revenue streams and impressive equity returns – even during periods of extreme stock-market volatility. But Royalty Pharma’s model will not bridge the funding gap between the basic research supported by

By Edward Jung and Andrew W. Lo government grants and the late-stage development of drugs that are in clinical trials. Because the candidate drugs in this R&D “valley of death” are riskier than anything in which Royalty Pharma invests, an even larger portfolio of compounds would be needed to yield levels of risk and rates of return that are acceptable to typical investors.

How large would that portfolio have to be? One of us (Lo) has carried out simulations of diversified funds for early- and mid-stage cancer drugs, which show that a so-called megafund of $5-30 bln, comprising 100-200 compounds, could sufficiently de-risk the investment while generating returns of between 9-11%.

That’s not exciting territory for venture capitalists and private-equity investors, but it is in keeping with the expectations of institutional investors, such as pension funds, endowments, and sovereign wealth funds. Moreover, the risk reduction from diversification would allow the megafund to issue large amounts of debt as well as equity, further broadening the pool of potential investors.

To put these numbers in context, consider that the US National Institutes of Health funds just over $30 bln annually in basic medical research, and members of the Pharmaceutical Research and Manufacturers of America spent about $51 bln last year on R&D. A megafund approach would help to make both investments more productive by filling the funding gap between them.

Moreover, this model may work on a smaller scale.

Further simulations suggest that funds specialising in some drug classes, such as therapies for orphan diseases, could achieve double-digit rates of return with just $250-500 mln dollars and fewer compounds in the portfolio.

Of course, this approach faces challenges. It won’t be easy to manage a large pool of candidate compounds and dozens of simultaneous drug trials. Simulations show that megafunds will not work for all classes of drugs in all therapeutic areas. Development of Alzheimers’ therapies, for example, is unlikely to benefit from the megafund model.

But where they do work, megafunds could make drug development vastly more efficient, and therefore less costly. No single company possesses the scale or finances to deploy all the advances in science and technology since the genomics revolution, but a megafund-backed effort could.

Researchers employed by the fund could share knowledge, facilities, and state-of-the-art equipment, data, and computing resources, spread over a wide array of projects. Failures would be faster – and much cheaper – because stakeholders would be less dependent on any one project. Emerging-market countries should take note. Most are chasing the pharmaceutical and biotechnology industries. China has established hundreds of life-sciences research parks and committed billions of dollars in national funds for drug development; comparable programmes are under way in India, Singapore, and South Korea.

For these countries, forming a megafund to test a few hundred compounds could be a much better bet than seeding biotech startups or offering incentives to big pharmaceutical firms. A biopharma megafund would offer a competitive edge in the industry, with lower development costs, a higher success rate, and faster time to market.

Regional economies would benefit from the same networks of high-paying research jobs, entrepreneurs, investors, and service providers that traditional life-sciences innovation hubs create.

London’s mayor recently embraced this approach, proposing a $15 bln megafund to help the United Kingdom maintain a leadership role in drug development. In addition to direct investment, governments can also create incentives for the formation of these kinds of funds – for example, by guaranteeing bonds issued for biopharma research.

Ushering a drug from lab bench to bedside requires investing vast sums of money over long horizons. That funding must pay off for both society and investors.

Emerging countries can lead the world to better health and greater wealth by pioneering new ways to finance drug development.

Edward Jung is Founder and Chief Technology Officer at Intellectual Ventures. Andrew W Lo is Professor of Finance and Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management. © Project Syndicate, 2015 - www.project-syndicate.org

Have iPhone sales peaked in 2015?

Ever since Apple introduced the iPhone in 2007, the company’s smartphone business has only known one way: up. In less than ten years, the iPhone has grown from zero to $150+ bln in annual sales, an achievement that is probably unprecedented in corporate history.

But every fairy tale growth story must come to an end eventually and, according to a research note published

by Morgan Stanley analysts, 2016 may be the year for the iPhone. The bank expects Apple to sell 218 mln iPhones in fiscal 2016, which would be equivalent to a 5.7% drop compared to the fiscal year that ended in September.

The analysts quote maturing smartphone penetration and higher prices in international markets as possible reasons for the anticipated first-ever decline in iPhone sales but there is one more reason that may be just as important: Apple’s fiscal year 2015 with the long-awaited launch of the large-screen iPhone 6 and 6 Plus was simply too good to be repeated.

Should Apple sell 218 mln iPhones this year, it would still be a very successful year but it probably wouldn’t be enough to satisfy the company’s shareholders who have come to expect another record year after year. (Source: Statista)

December 16 - 22, 2015

20 | BACK PAGE | financialmirror.com

Climate conference: The net-zero imperative

By Eric Beinhocker and Myles Allen The world has reached an historic agreement on climate change. The deal concluded at the United Nations Climate Change Conference in Paris commits countries to take steps to limit warming to “well below” 2 degrees Celsius relative to preindustrial levels and to pursue “efforts” to limit warming to 1.5C. It also obliges developed countries to provide $100 bln per year in assistance to developing countries. But, unfortunately, the final negotiations dropped the one number that truly matters for the future of our planet: zero.

That is the net amount of carbon dioxide we can emit if we are ever to stabilise the planet’s temperature at any level.

Zero, none, nada. The Earth’s atmosphere-ocean system is like a bathtub filling up with CO2 and other greenhouse gases: The higher the level, the warmer the planet will be.

The emissions tap must be turned off once the bathtub reaches a level associated with a certain level of warming – say, 2C, above which, scientists nearly unanimously agree, the risks become severe, tipping points become possible, and civilisation’s ability to adapt is not guaranteed. Otherwise, the atmospheric bathtub will keep being filled, warming the planet 3, 4, 5 degrees, and so on, until emissions eventually stop – or we go extinct. The sooner we turn off the tap, the

lower the temperature at which the climate stabilises, the less risk we will face, and the lower the cost we will incur in adapting to a warmer planet.

Only about half the CO2 we dump into the atmosphere stays there – the rest is quickly redistributed into the oceans and biosphere. But, as the oceans become increasingly saturated and able to absorb less, the amount that is redistributed is declining.

Likewise, warming temperatures cause soils to release more CO2, causing yet more warming.

The only way to get CO2 out of the bathtub once it’s there is, almost literally, to bail it out. There are natural processes that “re-fossilise” CO2, but they are far too slow to matter.

Carbon capture and storage (CCS) technology takes CO2 out of emissions from coal- and gas-powered generating plants and sequesters it underground. While this does not do anything about the existing CO2 in the bathtub, CCS is technically capable of reducing emissions from coal and gas close to zero.

But it remains very expensive, and efforts to develop the technology at scale have moved slowly.

From large-scale CCS, it is only a small step to take existing CO2 from the air and sequester it. But “CO2 disposal” technologies are still at a relatively early stage of development. If we continue on our current path, the scale on which they would have to operate would be formidable.

So we are in a race. Can we turn the tap to zero net emissions before the tub hits a level that takes us above the 2C threshold set in Paris? In fact, even that level may not be low enough.

As the Paris agreement recognises, many scientists believe that warming above 1.5C is risky and that adaptation to it will be extremely expensive, particularly for developing countries and island states.

The good news is that if we somehow stopped all emissions today, temperatures would continue to rise only

for a decade or so, before stabilising. But with the emissions tap still on high, we are rapidly running out of room in the tub. We can emit less than half of our historical CO2 emissions to date before we probably exceed the 2C threshold. On our current course, we will reach that point by 2040-2050.

This is why most scientists and a growing number of business leaders and investors are calling for a clear goal that emissions must go to net-zero before warming reaches 2C. In May 2015, the International Chamber of Commerce and CEOs from around the world called for a zero emissions goal.

In Paris, leading investors and Bank of England Governor Mark Carney, along with Bloomberg CEO Michael Bloomberg, also endorsed net-zero emissions, citing systemic risks to the financial system from climate change. It is a goal that sends an unambiguous signal that CO2emitting industries will either have to change or die, and that the future lies with zero-emissions technologies and businesses.

While the net-zero objective was dropped by the negotiators in Paris, it should be endorsed by individual countries in their plans, reinforced by the G-20, and eventually enshrined in the UN agreement. For the planet, it is zero or bust.

Eric Beinhocker is Executive Director of the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford. Myles Allen is Professor of Geosystem Science and Leader of the Climate Research Program at the School of Geography and Environment, University of Oxford. © Project Syndicate, 2015. www.project-syndicate.org