More than just a holiday destination with pristine white beaches and 300 days of sunshine, Cyprus can also cater to your business needs ranging from registering and setting up your company’s operations to managing your EU, North African and Middle Eastern clients at a considerably lower cost.
*
As well as being an EU country and a member of the European Monetary Union since 2008, Cyprus enjoys the lowest corporate tax rate in the EU of 10%. Cyprus belongs to those jurisdictions on the OECD White List which have substantially implemented the internationally agreed tax standard. In addition to this, Cyprus provides efficient business services, has a transparent legal and regulatory system and is committed to sustainable growth.
“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime,
communication
system,
banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd
“The
favorable
the
excellent
infrastructure,
business
climate,
telecommunications the
well
educated
and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s.
Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.
Cyprus Investment Promotion Agency Tel + 357 22 441133 Fax + 357 22 441134 www.cipa.org.cy info@cipa.org.cy
gold cover me diafimiseis.indd 2
Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros
The Ministry of Commerce, Industry and Tourism Tel + 357 22 867100 Fax + 357 22 375120 www.mcit.gov.cy/ts perm.sec@mcit.gov.cy
01/08/2012 09:29
KPMG Academy Upcoming Seminars: September - December 2012 The KPMG Academy training activities began in April 2009 and were met with great success. Our experienced training team has delivered 95 open or in-house seminars to approximately 2000 professionals across all industries in Cyprus and has organized 4 international conferences, on leadership, taxation and tourism. You may see below the titles of a few of the Academy’s seminars for the period September – December. AIFMD, ICIS Legislation and UCITS * Πρόσφατες Τροποποιήσεις στην περί Φ.Π.Α. Νομοθεσία Πρόσληψη και Απόλυση Προσωπικού: Μια πρακτική προσέγγιση του Κυπριακού Εργατικού Δικαίου Where we Stand? New Developments in Banking Regulation Σύστημα Παρεμπόδισης Νομιμοποίησης Εσόδων από Παράνομες Δραστηριότητες* Introduction to the Crisis Management Law Latest Trends in Investment Fund Administration, Custody and Pricing*
* The programmes have been approved by the HRDA. Enterprises participating with their employees who satisfy HRDA’s criteria, are entitled to subsidy. These seminars may contribute to Continuing Professional Development requirements.
For more information please contact: Persa Papademetriou T: +357 22209053 F: +357 22513294 E: ppapademetriou@kpmg.com Visit our website at: www.kpmg.com.cy or our web tv at: www.kpmgcy.tv
©2012 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.
Grasp knowledge into your hands
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issue 18 september 2012
10 EDITORIAL 12 UP FRONT
E T O R E H W
INVEST? Wealth Preservation and Investment in Difficult Economic Times INVESTING IN HARD TIMES By Dr. Don Taylor
26
+ OPINION THE TIMES THEY ARE A-CHANGING… by Demosthenes Mavrellis 40 DELUSIONAL HIGHS by Savvas Savouri
42
CHINA TO THE RESCUE! by Chris Hadjikyriacou
64
POINT OF CONTACT by Peter Economides
90
RISKY BUSINESS What investors need to understand before parting with their money 30
18
NOW IS THE TIME Ethical and alternative investments are seeing a surge in popularity 32 It is an important
time for Cyprus
to rise to the
occasion and repeat
the
86
benefits
of
56
its
comparative
trust
advantages
FEATURE
54
36 | CHINESE WHISPERS
56 | A STEP IN THE RIGHT DIRECTION
Profile of Yang Qi
‘What next for Europe?’
Interview with Emily Yiolitis, newly-elected Chairwoman of the Cyprus branch of the Society of Trust and Estate Practitioners (STEP).
54 | THE CHALLENGE OF CONNECTED TV
60 | THE RELUCTANT ACCOUNTANT
A major conference co-organised by the European Commission and the Cyprus RadioTelevision Authority will help determine the future of television.
Interview with Loizos-Andreas Hajiloizos, Group Internal Audit Manager with Nest Investments (Holdings) Ltd
50 | Limassol Economic Forum
68 {money} 72 {business} 78 {economy} 82 {tax&legal} 86 {lifestyle}
8 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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www.pwc.com.cy
Global knowledge Local expertise
We listen. We learn what you want to do and we help you create the value you are looking for. Value that is based on the knowledge that our almost 1.000 local professionals draw from 169.000 experts in 158 countries. We focus on the provision of Assurance, Advisory, Tax and Global Compliance Services.
© 2012 PricewaterhouseCoopers Ltd. All rights reserved
EDITORIAL
Risk Management Published by IMH ISSN 1986 - 3543
T
he very word “risk” has negative connotations for most of us. It is something to be avoided; it suggests a threat that we hope won’t materialize. In the investment world, however, risk is inseparable from performance and, rather than being desirable or undesirable, it is a necessary evil. Understanding risk is one of the most important parts of an investor’s financial education and it is becoming even more essential in today’s uncertain economic climate as more and more people recognize that the coming years are likely to be more about wealth preservation rather than wealth appreciation. Many investors have come to accept that it is more important not to lose money than it is to make it and playing safe has become the name of the game. For this month’s cover story, we asked four Cypriot experts to share the views and advice on a variety of asset classes that they would give an investor wishing to create a balanced (medium-risk) global portfolio today. In addition to these, we reproduce the opinions of several well-known American financial consultants and journalists, together with an article by Dr George Theocharides (page 30) on risk and an interview with Steven Newbery (page 32), a proponent of alternative and ethical investments. Moreover, still on the subject of investment, Gold had an opportunity to talk to Yang Qi (page 36), owner of a number of multimillion euro businesses and real estate assets in China, Macau and elsewhere, who has become known in Cyprus as the “mysterious Chinese investor” with big plans for the old Larnaca Airport complex. And then there are more China connections in this issue, from a piece by Chris Hadjikyriacou (page 64) on how the simple act of translating his company’s property website into Chinese has brought results, to an article by Michalis Zambartas (page 82) on how investors can make the most of business and investment opportunities in China by using Cyprus. Finally, on the topic of investment, you may have seen an announcement in the August issue of Gold about the CIPA International Investment Awards, honouring international investors in Cyprus as well as individuals and companies that have contributed to the development of the island as an International Business Centre. The mission of the Cyprus Investment Promotion Agency (CIPA) is to promote Cyprus as an attractive international investment centre, to advocate reform to improve the regulatory and business environment and infrastructure and to provide investor support with aftercare and further development services. One of the stated objectives of Gold is to promote Cyprus as an international business and investment centre and, by extension, to promote the professionals offering services to this sector. The partnership between CIPA and Gold for the CIPA International Investment Awards is thus a natural one, based on mutually-held objectives. Awards will be given to companies, individuals and funds that have made a direct investment in any sector of the Cyprus economy. The recipients of the first CIPA International Investment Awards have been chosen by an awards committee comprising members of CIPA’s Board of Directors and representatives of Gold. They are a tribute and a ‘thank you’ gesture to all those who have helped Cyprus establish itself as a reputable International Business Centre. The award winners, nominees and all those who have “taken a risk” on Cyprus by investing in the country are all deserving of our admiration and gratitude. This year and in the coming years, Gold and CIPA intend to acknowledge their contribution to the country’s economy and the way in which they have managed all the associated risks in order to succeed.
John Vickers, Chief Editor john@imh.com.cy
10 Gold the international investment, finance & professional services magazine of cyprus
Managing Director:
George Michail
General Manager:
Daphne Roditou Tang
Media Manager: Elena Leontiou
Editor-In-Chief:
John Vickers
Contributing Editors:
Antonis Antoniou, Stella Mourettou, Maria Pilidou
Contributors to this issue:
Contributors to this issue: Dr. Alexander Börsch, Elena Constantinou, Peter Economides, Chris Hadjikyriacou, Nathalie Kyrou, Demosthenes Mavrellis, Demetris Nicolaou, Dr. Savvas Savouri, Yiannos Savoullis, Angela Singleton, Demetris Taxitaris, Dr. George Theocharides
Art DirectION:
Anna Theodosiou Senior designer: Maria Kyriakou Photography:
Olesia Constantinou, Jo Michaelides Marketing Executive:
Kevi Chishios
SALES & BUSINESS DEVELOPMENT EXECUTIVE:
Christos Kyriakides
Advertising Executives:
Irene Georgiou, Christopher Constantinou Operations Manager:
Voulla Nicolaou
Subscriptions:
Kevi Chishios Printers:
Cassoulides Masterprinters contact: 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus Mailing address: P.O.Box 21185, 1503, Nicosia, Cyprus Tel: +357 22505555, Fax: +357 22679820 e-mail: gold@imh.com.cy website: www.goldmagazine.com.cy subscriptions: goldsubscriptions@imh.com.cy
up front
Chinese Website from Kanika Developments
K
anika Developments have launched a new Chineselanguage version of their website www.kanikadevelopments.com which features a new, easy-tonavigate and fully informative platform in the language of one of the company’s key stakeholder groups. The Chinese website supports
Kanika’s continuing expansion into new markets, bringing the company to the attention of Chinese clientele seeking property in Cyprus. The launch of the Chinese website follows the team’s recent activities in Beijing and Shanghai where Chinese-speaking associates of the Kanika Developments team organised a number of presentations and took part in property exhibitions.
Apple “the most valuable company of all time”
A
pple, which is already the world’s most valuable firm, has now become the most valuable company of all time, with a market value of approximately $623 billion (€502 billion). The consumer gadget and computer maker has now surpassed Microsoft’s record of $620.58 billion set
in 1999. The news comes ahead of the anticipated launch of the iPhone 5, and possibly a smaller and cheaper iPad. There is also speculation that Apple plans to make a TV set. However, despite its market valuation, Apple faces a number of challenges. The strength of the US dollar against the euro and other currencies
makes US-made goods more expensive overseas. Moreover, the faltering economic recovery in the United States, combined with recession in major markets such as Europe, is also making it more difficult to sell consumer electronics. Apple also faces stiff competition from Samsung’s Galaxy S3 and HTC’s One X smartphones.
George Soros invests in Manchester United
B
illionaire investor George Soros recently bought 3.1 million Class A shares in Manchester United football club, according to the Securities and Exchange Commission. His shares equate to a 1.9% stake in the club, worth about $40.7m (€32.8m). The 82-year-old investor, who oversees $25bn in assets through his Soros Fund Management LLC, has eyed other football clubs as lucrative investments in the past. He considered a takeover of Italian club AS Roma in 2008 but decided against it due to the club’s
debt problems. Soros is thought to have been attracted to Manchester United because of the team’s profitable media rights deals. Domestic rights are set to increase by 70% in the 2013-2014 season and international media rights, due to be announced in late October or early November, are also expected to rise considerably. When Manchester United floated on the US stock market on 10 August, it was valued at more than $2.3bn (€1.85bn), making it one of the biggest sports clubs in the world. Since then, however, its share price has fallen by about 7%. Manchester United has
12 Gold the international investment, finance & professional services magazine of cyprus
been controlled since 2005 by the Glazer family, the billionaire US sports investors who also own the American football Tampa Bay Buccaneers franchise. About half of the $233m that the club raised from its flotation will go to paying off the club’s debts, with the rest going to the Glazers. Supporters had hoped that all of the money raised would go towards the debt, which the club says currently stands at £423m (€536m). Only 10% of the club was sold in the initial public offering (IPO), raising $233m (€187.7m), a third less than originally hoped. The shares do not
pay a dividend, leading some analysts to warn that they offer little value to investors. Despite the scepticism voiced by some, however, the club maintains that it is strong financially with good growth prospects. Its commercial revenue increased from £66m in 2009 to £103m in 2011, thanks to sponsorship and merchandising deals. It made a profit of £13m on continuing operations in 2011. It estimates that it will have made profits of £23m in 2012, but this includes a tax credit of almost £30m.
Wayne Rooney
T
he Cyprus Shipping Forum 2012 will be held on Tuesday, 9 October 2012 at the Four Seasons Hotel, Limassol, under the auspices of the Cyprus Presidency of the Council of the European Union. The Forum, on the theme “The Business of Shipping Re-examined” is supported by the Ministry of Communication & Works, the Department of Merchant Shipping and the Cyprus Shipping Chamber. This key industry event will provide in-depth analysis and views on the
most important issues affecting global shipping today. The Forum has been designed to bring together all key players involved in shipping and will be attended by ship owners, shipping agents representatives of ship management companies, shipping-related services companies and suppliers, banks and other financial institutions, insurance companies, law firms, accountancy, audit and consulting firms. The Forum will include a panel discussion on EU State Aid Guidelines: A Mean to Support the Shipping
Industry, with the participation of three EU Ministers and three EU Maritime Administration Experts. It will also deal with Conventional Ship Financing and its Future, Raising Public & Private Equity for Shipping, Alternative Ship Financing, Restructuring Shipping Company Debt, Commodities: the Driving Force of Shipping, Oil and Gas Prospects, Bulk Commodities and the Role of Emerging Markets, Container Cargo, Development of the World Fleet, New Fuel-Efficient Vessels, LNG Vessels and the Supply of LNG and more. Among the confirmed speakers at the Forum are Dr. Anil Sharma, Founder, President and Chief Executive Officer of GMS; Bo
Cerup-Simonsen, Vice President, Head of Maersk Maritime Technology and Chairman of the Technical Committee of the Danish Ship Owners Association; Iossif Kiouroukoglou, Vice President Greece & Cyprus Investment Banking, Bank of America Merrill Lynch; Janos Koenig, Managing Director, Eurofin Group; Jean Richards, CEO SecondWind Shipping Ltd and Giulio Tirelli, Director, Business Development & Merchant Team Leader, Gas Development Team, Wärtsilä Switzerland Ltd. The Cyprus Shipping Forum 2012 is organised by IMH and Gold and sponsored by Deloitte, Fileminders, MTN and TFI Markets.
Big Is Beautiful, reckons IBM
I
BM has spent more than $1 billion over four years to develop a new mainframe computer, believing that it can keep up with businesses shifting to cloud-based software and storage. Last month the New York-based company unveiled the zEnterprise EC12 mainframe server, the outcome of more than $1billion in research and development around the world to make the fastest and most secure IBM mainframe yet. Rod Adkins, senior vice president of systems and technology, said that as IBM shifts its focus to more profitable businesses such as software, “the mainframe is central in that strategy…you still have to have the foundation.” The EC12, the first update since 2010, has 50% percent more capacity than its predecessor and runs at 5.5 gigahertz, the fastest in the industry, Adkins said. It’s also designed with built-in security software and support for private cloud environments, meaning that a business can run thousands of systems on one mainframe.
Corporate Corporate Registry Registry
©Corbis ©Corbis ©Corbis ©Corbis ©Corbis
Cyprus Shipping Forum 2012
The Marshall Islands The Marshall Islands TheCorporate Marshall Islands Registry Registry The Marshall Islands TheCorporate Marshall Islands Corporate Registry
The The leading leading jurisdiction jurisdiction for for The leading jurisdiction for leading jurisdiction •The Management, The leading jurisdiction for for • Asset Asset Management, • Asset Management, Asset ••• Vessel Ownership Asset Management, VesselManagement, Ownership • Vessel Ownership Vessel Ownership ••• Real/Intellectual Vessel Ownership Real/Intellectual • Property Real/Intellectual Holdings Property Holdings •• Property Real/Intellectual Real/Intellectual Holdings Property Holdings •• Initial Public Offerings/ Property Holdings Initial Public Offerings/ • Publicly Initial Public Offerings/ Traded Companies Publicly Traded Companies •• Initial Public Offerings/ Initial Public Offerings/ Publicly Traded Companies Publicly Traded Publicly Traded Companies Companies
IRI Hellas Ltd. IRI Hellas Ltd. IRI Hellas Ltd. inIRI affiliation with the Marshall Hellas in affiliation with theLtd. Marshall Islands Islands IRI Hellas in affiliation theLtd. Marshall Islands Maritime & with Corporate Administrators Maritime & with Corporate Administrators in affiliation the Marshall Islands
Maritime & Corporate Administrators affiliation the Marshall Islands tel: 4294 404 piraeus@register-iri.com tel: +30 +30 210 210in 4294 404&||with piraeus@register-iri.com Maritime Corporate Administrators tel: +30 210 4294 404 | piraeus@register-iri.com Maritime & Corporate Administrators www.register-iri.com www.register-iri.com tel: tel: +30 +30 210 210 4294 4294 404 404 | | piraeus@register-iri.com piraeus@register-iri.com www.register-iri.com www.register-iri.com www.register-iri.com
up front
10
Michelle Obama First
Lady, United States, 48, United States, Politics
7
9
Sheryl Sandberg
COO, Facebook, 42, United States, Technology
Janet Napolitano
Secretary, US Department of Homeland Security, 54, United States, Politics
4
8
Christine Lagarde
Melinda Gates Co-Chair,
Managing Director, International Monetary Fund, 56, France, Humanitarian
Bill & Melinda Gates Foundation, 48, United States, Humanitarian
2
3
Dilma Rousseff
President of Brazil, 64, Brazil, Politics
Hillary Clinton
US Secretary of State, 64, United States, Politics
1
Angela Merkel
Chancellor of Germany, 58, Germany, Politics
14 Gold the international investment, finance & professional services magazine of cyprus
5
Jill Abramson
Executive Editor, New York Times Co., 58, United States, Media
6
Sonia Gandhi
President, National Congress Party, India, 65, India, Politics
The World’s 10
Most Powerful
F
Women
Chancellor Angela Merkel or the second consecutive year, German an in the world by Forbes wom has been named the most powerful 100. She was described Top the of g magazine in its annual listin crisis’ and praised for as the ‘lead player in the eurozone economic questions on Youns’ embracing social media by answering citize Hillary Clinton State of tary e US Secre Tube. Merkel was ranked one place abov Bashar Assad to dent Presi n Syria g urgin who was cited, among other things, for Forbes list represents leading figures hand over power and leave his country. The philanthropy and the women on it are in politics, technology, entertainment and of money they control or earn, and ranked according to influence, the amount celebrities from 28 countries is 55. 100 media presence. The average age of the President Dilma Rousseff and Sonia In addition to politicians such as Brazilian Congress, the list also features singGandhi, president of the Indian National Lady Gaga who is the youngest, at ers Jennifer Lopez, Beyonce, Shakira and the list) is one of only two British on st 26. Queen Elizabeth II (at 86, the olde is the other one). women on the list (author J.K. Rowling
Gold Magazine - September 2012 Ad.pdf 1 31-Aug-12 11:14:51 AM
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M
Y
CM
MY
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CMY
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up front
Top 10 banks in the world 2012
T
he UK banking sector has lost its stature in the international arena against strong Chinese competition, according to The Banker magazine’s Top 1000 ranking. The 2012 rankings reveal year-on-year falls in profit (down 8.2%), lending (down 3.12%) and capital (down 1.71%) among UK banks. In just five years, UK banks’ share of global
banking profits have halved to 5%. By comparison, Chinese banks, which accounted for 4% of profits in 2007, now make up nearly one third (29.3%) of total global profits. The situation is worse still for the rest of Europe where profits have slumped dramatically. While eurozone banks still account for a large proportion of global assets – 45% compared to 58% five years ago – only 6% of total banking profits have
been generated in the eurozone, compared to 46% five years ago. In addition, these banks were the biggest losers. On a ranking looking at the largest banking losses, 24 out of the top 25 banks are European. The rankings also unveil a massive dichotomy in the performance of UK banks. HSBC and Barclays’ profits put them among the top 25 banks ranked by profit, but Lloyds and RBS also suffered huge losses
and featured in 9th and 21st position respectively on the Top 25 ranking of losses. Brian Caplen, editor of The Banker, said: “To borrow a phrase from the commentators covering Euro 2012, the rankings this year show a tale of two halves for the UK banking sector. While UK banks as a whole have suffered tremendously in terms of their share of global banking profits, the performance of individual UK banks is extreme-
4
HSBC Holdings, UK
$139,590m
5
1
Citigroup, US
$131,874m
Bank of America, US
$159,232m
2
JP Morgan Chase & Co, US
8
Wells Fargo & Co, US
$113,952m
$150,384m
16 Gold the international investment, finance & professional services magazine of cyprus
3
ICBC, China
$140,027m
9
Bank of China, China
$111,172m
ly varied. Some are making huge profits while others make huge losses. “Chinese banks on the other hand are making the type of profits that European banks can only dream about and this year’s results show Europe’s loss is China’s gain.” The overall rankings, which assess banks based on capital strength, only confirm the shake-up of the global banking environment: China continues to steam ahead of the UK and
Europe, with the four largest Chinese banks taking up positions in the Top 10 – one more than in 2011. Chinese giant ICBC, takes up the third position – the highest spot ever for a Chinese bank in the Top 1000. The inclusion of a fourth Chinese bank comes at the expense of British bank Royal Bank of Scotland which has fallen to 12th place, leaving only one UK bank – HSBC – in the top 10.
7
Mitsubishi UFJ Financial Group, Japan
$117,017m
6
China Construction Bank Corporation, China
$119,135m
10
Agricultural Bank of China, China
$96,413m
COVER STORY
R E E T H O W
S E T V ? N I Wealth Preservation and Investment in Difficult Economic Times By John Vickers, Photography by Jo Michaelides
U
ntil recently, the whole point of investing one’s money had been to see it grow. But in uncertain financial and economic times, wealth preservation is becoming more and more the key concept rather than wealth appreciation. We asked a number of experts for their advice on how to invest wisely and safely. Wealth preservation is based on the philosophy that it is more important not to lose money than it is to make money. The old cliché of not having all your eggs in any one basket is truer today than ever before and the wisdom of having a balanced portfolio has never been clearer. Investors must always be prepared for the proverbial rainy day, which is why one’s portfolio and wealth should always be truly diversified, as well as having a healthy allocation to cash and gold, which, unlike other asset classes, is more about capital protection and wealth preservation. In his book The New Depression: The Breakdown of the Paper Money Economy, Richard Duncan notes: “The hard truth is that it is not easy to preserve wealth. If it were, the families who were wealthy 200 years ago would still be wealthy today – and generally, they are not. In the very harsh economic environment that is likely to prevail over the next ten years, it is likely that a great deal of wealth is
going to be destroyed.” So how does an investor go about preserving his/her wealth in the economic environment in which we find ourselves today? According to Christian Menegatti, Managing Director & Head of Global Economic Research, Roubini Global Economics, in these volatile times, private wealth managers must put wealth preservation at the forefront of portfolio management. They have to make sure that they understand these deleveraging cycles, what will drive growth and asset class performance, and how policy responses can impact them. The key, he says, is to avoid excessive risk-taking and invest in high quality assets. “Cash is not the answer in a low interest rate world. They need to look for assets in strong growth countries, with good fiscal and private sector conditions, good fundamentals and demographics, and minimal political risk.” Gold asked four local investment professionals what advice they you would give an investor wishing to create a balanced (medium-risk) global portfolio today, with reference to eight specific asset classes: Equities (stocks), fixed income investments (e.g. government bonds), commodities, alternative investments, land/property, cash/Forex, gold/precious metals and hedge funds. As you will see from their responses, even the experts do not agree entirely on where you should be thinking of putting your money, though bonds and equities are viewed favourably, albeit at differing levels of importance. All the views stated are personal and non-binding.
18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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W
hen looking at the global economic landscape, we realize that with the exception of some emerging markets, most of the major economies are still facing major headwinds. The debt problems of Southern Europe will continue to pose a threat to the euro and the markets. The US economy is still not out of the woods as unemployment and slow growth will linger well into 2013. Japan is struggling to revive its exports and its large industrial sector as growth remains anemic. The only exceptions are some economies within emerging markets where some countries have managed to maintain low debt and high growth, mainly due to internal growth and to a lower extend due to exports. When the global economy is stagnant, investors should be looking a) for companies that are cash rich and pay high dividends, b) for companies that are leaders in terms of innovation and c) for companies with global brands. A stock portfolio should be composed of sectors such as Energy (20-25%) which is a sector with cash rich companies paying good dividends, Information Technology (18-20%) which is a sector driven by innovation and growing demand, Consumer Discretionary (18-20%) with focus on blue chip companies with global brands. Their growth will come from the rising consumers in China, India, Brazil and other Emerging Markets. Consumer Staples should account for 10-12% of the portfolio and Health Care 8-10%. This sector will benefit from the ageing population in the developed markets as well as ongoing innovation for the cure of serious diseases. Financials should account for only 3-5% of the portfolio. The financial sector’s good years are over. With ongoing sovereign debt problems as well as lower personal incomes in the US and EU, growth in this sector will be limited. Investors should be very selective and hold a handful of banks and financial institutions with solid balance sheets and great management. The remaining 12-15% of the portfolio should be invested in emerging markets and other areas. In countries like Brazil, companies are required to pay out as dividends 25% of their profits so they offer high dividend yields. The stock portfolio could include companies like Exxon Mobil, BP, Halliburton, Slumberger, Occidental Petroleum, and Lukoil in the energy sector; alternatively investors can pick a well diversified Global Energy Fund.
The portfolio of consumer staples should include stocks like Coca-Cola, Unilever, Philip Morris and Nestlé. Alternatively, the Consumer Staples Select SPDR invests in most of these companies. The Emerging Markets Equity Income Fund and the iShares Emerging Markets Dividend offer investors a great selection of emerging markets companies in China, Brazil, India, Russia, Mexico, Singapore, etc., that pay high dividends as these funds are now yielding between 4% and 6%. In the healthcare sector one should look at Novartis, which has a great pipeline of pharmaceutical products that treat chronic and common diseases, and more medicines in the making. With a depressed share price and low valuations this is the time to buy. Investors should also look at CVS Caremark, one of the largest pharmacy chains in the US. Alternatively, some pharmaceutical and biotech funds offer great exposure to this sector. In the financial sector, I like Royal Bank of Canada, which has managed to avoid the problems of the US and European Banks, Guardian Capital, also of Canada which is a well-diversified and well-managed financial services company with a great franchise. Other financial stocks to look at are Morgan Stanley, mainly because its valuations are well below their historical average plus it remains among the four largest investment banks globally. Needless to say, owning commodities such as gold, oil and steel will help, especially if the eurozone breaks up and currencies become extremely volatile. With regard to property investments, I am always in favour of keeping a portion of one’s wealth in properties. Investors should select markets they understand well. Besides the London property market which has, over the years, attracted foreign investors mainly because London is a major financial and business centre, investors should look at opportunities within the markets they are most familiar with. After all, property values will start to rise once interest rates drop and financing becomes available again. Properties are also a good way to obtain yield with less volatility.
TRIS NICOLAOU E M DEsident of the CFA Society of Cypr
(Pre
us)
IN THE INFORMATION TECHNOLOGY SECTOR I PREFER IBM FOR ITS DIVIDENDS, APPLE FOR ITS PIONEERING PRODUCTS, AND INTEL WHICH CONTINUES TO BE THE LEADING MANUFACTURER OF PROCESSORS. ERICSSON AND VODAFONE ARE ALSO INTERESTING, HIGH QUALITY COMPANIES AT ATTRACTIVE VALUATIONS. AMAZON IS ANOTHER STOCK TO WATCH. ALTERNATIVELY, TECHNOLOGY FUNDS CAN OFFER INVESTORS GOOD EXPOSURE TO THE IT SECTOR.
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COVER STORY
U TINO TAN ONS NA C ELE (Head of Asset Management at UPM Ltd)
G
iven the ongoing uncertainty in the markets, stemming from the unsolved EU-debt crisis and weakening macroeconomic data pointing to a slowdown of the global economy, a prudent strategy would be to remain as flexible and as liquid as possible. It would not be advisable to invest in products which are not easy to exit or products that could become illiquid during adverse market conditions. During the highly uncertain times in which we are living, timing is probably the most important determinant of investment returns. Market perceptions change very fast and an investment idea that seemed attractive a month ago could end up as a bad choice very soon. Therefore the allocation among asset classes and investment products should be dynamic and amended quickly if is necessary. Also, investors should always bear in mind that their investment decisions should be primarily based on a risk-reward basis and not only reward! If they think that the reward is not worth the risk, it is better to stay out of the market and wait for better entry points. Currently, our investment strategy is to remain defensive and preserve a cash level close to 30-40% of the total portfolio, to be utilised for purchases at lower levels than today. We think that there is pricing divergence between market levels and the real global economy and we expect that at some point the market will correct to the downside. Of course, we will not ignore any Central Bank interventions (US Fed & ECB) in the form of Quantitative Easing, which could lead to a short-term rally, in which case we will opportunistically participate but be alert to exit just before it ends. So for a Balanced Portfolio, we would invest as follows:
EQUITIES: 10%
Invest in Global mutual funds that use a bottom-up approach in selecting stocks and are very diversified globally
FIXED INCOME: 30%
Invest in corporate direct bonds (not fixed income mutual funds)
The purpose of holding so much cash is to take advantage of primarily lower equity prices over the next few months. Buying at inexpensive levels offers the potential of good profits going forward but at the same time, limiting the downside risk during highly uncertain times. from both Emerging and Developed markets, involved in defensive industries with visible/ stable earnings
COMMODITIES: 5%
Invest in Agriculture mutual funds investing in wheat, corn and soybeans, trying to buy in dips
ALTERNATIVE INVESTMENTS: 0%
These products are highly illiquid and, during adverse market conditions, could result to a “forced sell” at very low prices so for the time being we would not allocate any capital
LAND/PROPERTY: 10%
Invest in centrally located property in Germany and/or France as their prices have not experienced a bubble (unlike other countries such as UK, Spain and Cyprus) and are more fairly valued. Also, such a move could prove a good hedge in case the eurozone breaks up and each country goes back to its national currency. In such a case, the Deutschmark and the French Franc will emerge stronger against other European currencies
GOLD/PRECIOUS METALS: 5%
Currently we don’t think gold is attractive enough on a risk/ reward basis and we think it will take at least 2-3 years before the potential for higher prices looks more promising. Gold will rise dramatically when the global economy recovers and returns to sustainable levels and Central Banks find themselves behind the curve and inflation starts to rise fast. Hence, with a 3-5 year horizon, it would be strategically prudent to start building a position in a physically-backed ETF on gold, buying in dips and not higher than the $1,550 level.
HEDGE FUNDS: 10%
Invest in macro hedge funds with a maximum lock-up period of 3 months. Macro hedge funds invest in all kind of asset classes by taking either long or/and short positions, based on their analysis of macroeconomic data. They can take positions on currencies, bonds, equities, commodities, etc. based on the notion that over time prices converge to fundamentals.
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COVER STORY
T
he main risk globally is the eurozone crisis but risky assets, including equities and corporate bonds, find support from policymakers and Central Banks and benefit from quantitative easing and ample liquidity globally, as well as from strong corporate fundamentals. Government bonds in core countries (US and Germany) do not seem to offer satisfactory returns, as opposed to corporate and emerging market bonds. For bonds in European peripheral countries, visibility is still low. Moreover, corporate dividend yields are often higher than corresponding corporate bond yields favouring equities, but it is crucial to be selective. An active approach regarding currencies is preferable, monitoring and managing currency exposures as part of the various investments in the aforementioned asset classes, aiming at a contribution to performance. As in every portfolio construction, the principle of diversification is extremely important and, owing also to the risk nature of the investor, risk management is key. Based on a medium-risk profile for a euro-based investor with a global longterm perspective, I would suggest the following asset allocation:
Equities: 37%
A ‘buy-on-dips’ approach is recommended, buying equities following price corrections which may be sharp depending on macroeconomic developments. Extra care should be paid since equities exhibit currently seasonally low volumes and volatility is expected to increase in the shorter term. Selection should be focused on companies with a relatively stable income, low gearing and a high dividend yield, operating within market segments that are difficult for competitors to penetrate. These stocks generally tend to overperform relative to the main equity indices. Regionally, the US is preferred where GDP growth rate is still positive, valuations are attractive in relative terms and companies maintain a strong international presence contributing to profit generation. In the eurozone, austerity measures weigh on GDP growth rates, hurting corporate profits. Germany’s economy is much stronger than that of the other eurozone countries, with companies benefiting from historically low borrowing costs and weakness in the euro. Japan’s economic outlook also seems to have improved, benefiting equities. A strategic allocation to emerging markets should also be included
as they are expected to exhibit positive growth rates and perform relatively well on a long-term horizon.Regarding sectors, Information Technology and Healthcare are preferred owing to healthier fundamentals, including cashgenerating ability and lower borrowing.
Cash and cash equivalent: 11% Alternative Investments: 6%
An allocation to carefully selected funds of hedge funds is also included with the objective of gaining an additional contribution to performance, increasing diversification and reducing overall portfolio volatility.
Commodities: 5%
An allocation to commodities through a diversified commodity fund would increase diversification and serve as a long term inflation hedge.
DEMETRIS TAXITARIS (Head of Asset Managem at Bank of Cyprus Group)ent
Bonds: 41%
US and German government yields are currently at extremely low levels making bonds an unattractive long-term investment offering negative real yields. Unless drastic solutions to the Eurozone crisis are found, these yield levels are likely to persist. Investment grade credit remains an attractive asset class in a lower-growth environment with muted inflation. Corporate bonds are expensive but, in today’s environment with government bonds and money-market fund yields at extremely low levels, they offer a good alternative in search for yield. Regarding emerging markets, growth remains structurally higher than in developed economies, though slower than before. Strong fundamentals still favour emerging markets over their developed counterparts. Not least, emerging markets Central Banks’ accommodative policy is supportive for growth which also favours emerging markets bonds.
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COVER STORY
W
hen most of us think about safe money investments or wealth preservation, we often think of Government bonds, Certificates of Deposits, annuities, and low-risk mutual funds. Or maybe in today’s fragile economy our mind wanders to a bank’s current or savings accounts or even burying money in our own back yard!: Let’s be clear about one thing: There is no such thing as a perfectly safe investment. There are, however, a number of good low risk investments available to investors which the investment industry calls “safe investments” but none are completely risk free. So, investors need to bear this in mind. Another complicating factor in any investment decision is that we are facing the most difficult investment environment of the last 40-50 years. An anaemic economy, poor financial industry oversight and a business culture of greed are among today’s big concerns. But what should bother us most is today’s shortened investor time horizons. Our post-World War II habit of long-term investing has given way to a culture of short-term speculation. A recent study shows that there is a steady drop in the average holding period for stocks, from 8.3 years in the 1960s to 1.4 years today. Short-sighted investment strategies generate unsteady portfolio turnover, which leads to increased trading costs and more impulsive investment decisions (even taking into account zero tax on capital gains in Cyprus) which result in decreased portfolio performance. We must also understand that there is no perfect list of the
safest or best investments that works for all of us. Factors such as age, health, income, character, portfolio size and diversification, tax issues, residence and family situations, etc. all must be considered on an individual basis to make the investment work properly. However, for the general Cyprus resident population, my list below contains some of the safest money Investments plus some medium risk, good yield Investments available today. Another word of caution: Though the ideas below are often thought of as some of the safest methods of saving or earning money, they may not yield the returns you’ll need to keep up with inflation. As the economy grows weaker, inflation is still occurring right under our noses – which means you’ll need to invest wisely and effectively using high yield safe investments to keep up. But realizing this need for safe investing is just the beginning. Next you’ll need to know how and where to invest. So what are the safest money investments today?
MONEY MARKET/ HIGH INTEREST SAVINGS ACCOUNTS (CASH)
Money market and savings accounts are a great way to invest money for the short-term. If you need high liquidity, these are stable ways to secure a return on your investment. There are some good average yields from various savings accounts in Cyprus Banks these days, some of the highest in Europe. Besides being liquid, these accounts are CBC insured (up to €100k). The drawbacks are that some savings/money market accounts may require a minimum balance or starting amount. The inflation risk is what made Warren Buffett recently declare cash as “the riskiest investment in the World”, his point being that thanks to even moderate rates of inflation, pure cash is basically guaranteed to lose huge amounts of value over time. If there is a way (!), make sure the rate of interest you’ll earn on your money keeps up with the rate of inflation, though it’s a little better than doing nothing with your money.
TREASURY BILLS
T-bills are issued by governments around the world and are considered very low-risk investments. They are fully backed by each government. You can choose the maturity date when your investment will be fully realized. Short-term US T-bills, for example, are the safest investments with maturity dates of 13 or 26 weeks. Good and safe bets are T-Bills from the USA, Germany, Finland, and Austria but with very low yields and are available through (foreign) brokers.
CERTIFICATES OF DEPOSIT (CDS)
CDs are generally issued by commercial banks (mostly based in the US) but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. They are very safe investments and since they have set maturity dates you’re locked into an interest rate at the time of your investment. If you withdraw your funds early then you incur a penalty that can be costly.
(M ana YIA nk) S a I B ger , Inte NNOS SAVOULL of USB ia rnatio nal Business Unit, Nicos
MUTUAL FUNDS
Many mutual funds are tailored for those who have little appetite for risk. Such funds are monitored by fund managers who invest your money in a number of short-term Government Treasuries or corporate stocks or other mutual funds (according to everyone’s appetite for risk). One drawback is that you need to pay ad-
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ministrative fees for the management of your fund and when you buy and sell the fund securities. These securities can be traded, so they are more liquid than Treasuries purchased directly from, say, the US Government. However, the share price and yield of the fund can fluctuate with interest rates and the timing of the securities bought and sold inside the fund. This mean that there is some uncertainty about how much of your original investment you’ll get back when you cash out. Unfortunately, these are only available abroad for the time being.
GOVERNMENT SAVINGS BONDS
These bonds (issued again by Treasury departments) will offer a low return but they are virtually risk-free, which is a nice thought in this financial climate. Many countries issue different kinds of Savings Bonds which vary in yield and risk according to that country’s rating, with some of the safest being the US, Germany, France, Finland and Austria. Liquidity could be an issue with these, depending on your choice of investment bond. And if you need your money before the security matures, you may not get back all of your original investment. Finally, it’s important to understand that treasury security prices have an inverse relationship with interest rates – when one rises, the other one falls. So, if interest rates have gone up and you need to sell before the treasury maturity date, you’ll get less than the entire principal amount back.
GOLD
Gold is traditionally considered a safe investment. Historically, it increases in value proportionately to the crude oil price and is affected by the ups and downs of the major currencies. Most of the time, gold trades inversely with the US dollar – as the US dollar weakens, gold prices increase – but there are constantly too many fluctuations to the dollar and euro rates for this investment to be considered absolutely safe these days.
potential (compared to other real estate investment alternatives) right now because of the downturn in real estate prices in recent years. The objective is to collect rent on the property but expert and dependable advice is hard to get. So this is a relatively risky investment. As one Australian property investor once said “if you go to an area in Detroit with a 20% return, you’re going to need a handgun to collect the rent!”.
LAND DEVELOPMENT PROJECTS
Others support Land Development projects in the US and Europe as good investments but these are medium- to long-term investments with a fair risk unless you can really depend and trust your broker to find the best investment for you. Investments in Timberland Stocks Investment proponents of timberland-related stocks (wood producing firms) think this is a great investment idea that consistently produces great returns. They argue that first of all, trees grow year in and year out, for an average growth rate of 6% to 8% per year. They grow through recessions and through wars. They grow through stock and real estate crashes and practically through everything. They give you built-in investment growth (arguably moderate) that isn’t guaranteed with a stock. To conclude, I would stress that you must first choose your portfolio investment strategy before starting your investment. And keep in mind that it is also important to conduct periodic portfolio reviews, as the value of the various assets within your portfolio will change, thereby affecting the risk of your investment. For example, you may start with a moderately conservative portfolio and along the way the value of the equity portion investment increases significantly during the year, thus making your portfolio more like that of an investor practicing a moderately aggressive portfolio strategy, which is higher risk.
ALTERNATIVE INVESTMENTS: ART
Investing in fine arts can mean buying a famous piece at auction and selling it once it appreciates, buying art for a personal collection that doubles as a rainy-day fund, or investing in unregulated fine art funds. None of these methods is for the everyday investor since most are considered volatile and high risk, so they are best suited to experienced investors. Fine art funds can require a minimum investment of €200,000, and you need to be worth 10 times that amount to even get a seat at the (auction) table.
REAL ESTATE IN EMERGING ECONOMIES
According to some investment professionals, emerging economies that have seen significant growth due to rising standards of living, powerful demographics, and increasing urbanisation are driving a need for more and higher-quality real estate. For those feeling riskier, investing in a diverse portfolio of listed property companies can enable direct participation in economies across emerging markets in Asia, Latin America, Europe and the Middle East, which offer opportunities not found in emerging equity strategies.
ALTERNATIVE REAL ESTATE INVESTMENTS
Other investment professionals regard Foreclosure Property Investments, especially in the US, as having a good wealth-building
Equities (stocks) are the best long-term investment, according to proponents such as Warren Buffett who believes stocks will perform better than bonds, gold or any other investment option over time. He says stocks still appear relatively cheap even after prices have improved. Stocks, though frustrating the past decade, still offer your best hope for serious growth, assuming that you keep a smart, longterm strategy. Best stock marker? The US, of course.
Based on the above, for a conservative portfolio investment I would recommend that most of the money – in excess of 60%, maybe even 70% – be invested in money market and high interest savings accounts, Treasury bills, Certificates of Deposit (CDs), Mutual Funds and Government Savings bonds. The rest I would recommend investing in equities, preferably in the US, through a fund manager or perhaps a hedge fund.
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COVER STORY
TING S E V IN IN HARD
TIMES By Dr. Don Taylor, Ph.D., CFA
he economy occasionally heads south. When it does, you have to take a close look at your finances and review, regroup and perhaps recoup. Bankrate.com asked a group of investment professionals and investment journalists for their views on how an investor should prepare for or invest in hard times.
1.
PAY DOWN LOAN BALANCES AND EARN A GUARANTEED RETURN Not all financial moves you make when you expect hard times relate to your portfolio. Taking some steps to manage your spending can help you position yourself to survive a financial setback such as getting laid off from your job. William Suplee IV, CFA, CFP, President of Structured Asset Management, suggests that, “In difficult economic times, often simple things can make large improvements to your personal financial situation. One simple way to earn a good return is to start paying down existing credit card balances. The return you will earn will be equivalent to the rate charged on the existing card balances. In many cases, this return will be hard to top in a difficult investment environment. ”
2.
BE PREPARED Just like the Boy Scouts suggest, it can make sense to be ready for the worst while hoping for the best in the economy and your personal finances. Jonathan Clements, senior special writer for The Wall Street Journal, offers the following tip: “Set up a home equity line of credit. Recession means lay-offs, and a lay-off means you will need cash. Sure, it’s best to have a pile of money sitting in a highyield online savings account or a low-cost money market fund. But failing that, a line of credit could come in handy. Sounds attractive? Set up the home equity line of credit now, while you’re still employed and still appear creditworthy.”
3.
LOOK BEYOND TOMORROW’S HEADLINES The stock market is a leading economic indicator. A decline in the stock market may help predict hard times, but it should also be the first indicator that the economy is turning around. The Wall Street Journal’s Clements suggests that you “Ignore the headlines and anticipate the recovery. The worst for the economy may be ahead of us. The worst for the stock market is probably behind us.This is the time to be buying stocks, not selling them. Stock investors have already discounted a slowing economy – and, with the recent rally, investors seem to be looking ahead to better economic times.”
50.2% Pulte Group 51.8% Salesforce. com
52.5%
Apple
52.6%
117.1% Sears Holdings
75.6% Bank of America
Regions Financial
53.6%
Priceline.com
54.6% Federated Investors
71.5% Netflix
60.1% Whirlpool
TOP 10 PERFORMING
STOCKS ON THE S&P500
T
he top 10 performers on the benchmark S&P500 so far this year include some of the worst stocks of 2011. Sears, Bank of America and Netflix are among those with the biggest increases in 2012, in contrast to last year, when they plunged between 55% and 61%. The benchmark is up 12%, driven by an improvement in the US economy and increased efforts to solve Europe’s debt crisis. The 10 best-performing components of the S&P 500 so far this year have gained between 50% and 117%, topped by Sears. 1. SEARS HOLDINGS UP 117.1% Sears Holdings, parent company to Sears, Sears Canada and Kmart stores, is the fourth-largest retailer in the U.S. and the nation’s biggest home-services provider, with more than 11 million service calls received every year. 2. BANK OF AMERICA UP 75.6% Bank of America is one of the largest financial institutions in both the U.S. and overseas, lending to consumers, small businesses and corporations, in addition to its asset management and investment banking divisions. The company operates in 50 states. 3. NETFLIX UP 71.5% Internet subscription service for streaming TV shows and movies 4. WHIRLPOOL UP 60.1%
Whirlpool is a leader in the $120 billion global home appliance industry. Its most famous brands are Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Bauknecht, Brastemp and Consul. 5. FEDERATED INVESTORS UP 54.6% Federated Investors is one of the largest managers of money market products in the US, with a market share of over 9%. 6. PRICELINE.COM UP 53.6% Global online travel company that allows customers to make hotel reservations, rent cars, and purchase airline tickets and vacation packages. 7. REGIONS FINANCIAL UP 52.6% Regional bank operating in the South, Midwest and Texas. 8. APPLE UP 52.5% Maker of the iPhone, iPad and MacBook. 9. SALESFORCE.COM UP 51.8% Salesforce.com is the leading provider of business software applications over the Internet. Salesforce.com has more than 92,300 customers around the world. 10. PULTE GROUP UP 50.2% Homebuilder with a presence in 28 states, mostly in the East, Gulf Coast, Central and West regions of the U.S.
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COVER STORY
THE BEST & WORST PERFOIERSMOFIN2G012
COMMODIT st, soybean meal futures did Thee a touBegh May
SOYBEAN MEAL/SOYBEANS: Sav nearly 40%. of 2012, chalking up gains of nothing but gain for the first half 9%. 25. ping jum l, d quite wel Likewise soybean futures fare the market, on ts trac con wn kno t bes y not the roximately app CANOLA: While they are certainl on ed tack it dy charge upward, as eptional first exc there is no denying canola’s stea an had s oat ion, opt ular r not-so-pop 21.4% this year. OATS: Anothe even more impresto a close, the futures made an half and as June was coming s of 15.5%. gain with r yea the of half sive leap to finish out the first
The Worst
ing were among the best perform ORANGE JUICE: These futures com y juic this but 1 weeks of 201 commodities for the last few ton Cot : TON COT . 28% tely ma modity saw losses of approxi amount of momentum but started off the year with a fair half of the year. COFFEE: t firs lost about 23.6% in the nwards as the year Coffee has slowly trended dow gs around in midthin ed has progressed. It turn ard trajectory upw its ined inta ma has June and r the last ove 5% 22. lost ever since but still six months.
4.
STAY THE COURSE David Landis, CFA, a contributing editor at Kiplinger’s Personal Finance, advises investors to stay the course. “Presuming your readers have diversified portfolios, they were designed for times like these. Portions of the portfolio that are expected to outperform during a slowing economy will presumably do so. And when the recession has run its course, which may be sooner than we think, the parts of the portfolio that traditionally outperform in a recovery are already in place and ready to pop. Yes, you could try to shift your portfolio into a defensive stance, but chances are you would miss the turning point and what could be a substantial run-up in stocks in anticipation of a recovery.”
5.
FIND YOUR ‘SLEEP NUMBER’ Investors often find themselves running with the crowd when markets trend higher, increasing their investment allocations to stocks, bonds or real estate. Sometimes this happens just through the growth in an investment’s value, increasing its weight in the portfolio. Other times it happens because the investor sees the high returns in one market and wants to increase his exposure to that market. David Stevens, CFA, CIMC, a senior investment strategist at Wells Fargo Family Wealth Group, suggests that now is a good time to re-evaluate the amount of risk you are comfortable with in your portfolio and adjust it accordingly. He thinks investors should find the level of risk in their portfolio
where they can get a good night’s sleep whether it’s an up market or a down market. Call it your ‘sleep number’. If there is too much risk in the existing portfolio, Stevens cautions that the investor should avoid getting too defensive in how they invest, running to cash investments only to jump back into other investments later and too late.
6.
START LOOKING FOR VALUE PLAYS Tomas J. O’Loughlin, CFA, of Investment Portfolio Management, suggests that the best investment decisions in hard economic times are counterintuitive. “Sectors or companies that you liked in good times but have been hit in today’s markets may represent buying opportunities.” Buying the best of breed in these sectors can position investors to take advantage of the next bull market. An investor can’t be in a hurry to buy or sell, says O’Laughlin. “Don’t try to catch falling knives,” he adds, and “try to get a measure of the firm’s downside risk.” By looking at the downside risk of firms and by taking an investor’s perspective, looking over a three- to five-year investment horizon, versus a trader’s point of view, the investor can identify firms with value, O’Laughlin says.
7.
KEEP MONEY IN STOCKS It’s important to keep a portfolio allocation in equities, even when you’re nervous about them, says William Trent, CFA, a freelance equity analyst who is also the editor of an investing Web site, Stock Market Beat, and a writer for TheStreet.com. Trent suggests that an investing strategy that will work in down markets is to write put options on stocks to capture the premium income on stocks you would be willing to own if the put was exercised. He offers an example of selling a put option on a stock with a strike price of $20, a current market price of $20, and an option premium of $2. If the price of the stock goes up or remains at $20 per share, then the put isn’t exercised and the option writer keeps the put premium of $2 per share, $200 per contract. (Option contracts on stocks are written on 100 shares of stock.) If the stock price falls below $20 per share, the put is exercised and the put option writer has to buy the stock at $20 per share, $2,000 per contract. The premium income offsets part of the cost so the put writer effectively owns the shares at $18 per share, $1,800 per contract. (This example ignores commissions and taxes.)
8.
DON’T CHASE YIELD Lynn Mander, CFA, CFP, chief investment officer of First National Bank of Chester County, Pa., says that the current investment environment is not a good time to chase yield in the bond market. She points out that onds historically have been seen as a haven in economic downturns as investors flee the stock market and look for the interest income paid by bond investments. But what’s different this time is that the stock market and the economy are feeling repercussions from problems in the bond market. “Unsophisticated investors don’t have the tools to properly evaluate the bond investments,” says Mander. “Quality is the name of the game in bond investing, whether it’s the full faith and credit pledge of an FDIC-insured CD investment or the credit quality of U.S. Treasury or government agency debt, while the municipal market is seeing risk positions shift with the changing status of municipal bond insurers.”
info: Dr. Don Taylor has been an investment professional for nearly 20 years, most recently as the treasurer for a nonprofit organisation, where he managed more than $300 million in assets. He is the co-author of the textbook, “Financial Planning: Process and Environment”. This article was first published by Bankrate.com
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COVER STORY
What investors need to understand before parting with their money. If you are thinking of investing in any type of debt instrument, make sure you understand the types of risk involved. By Dr George Theocharides
U S B I N Y E K S S I S R island’s two main banks. From what we know thus far, it would appear that a number (though not all) of these investors had invested blindly in these securities without properly understanding the risks involved, believing that they were simply participating in another deposit scheme that provided a higher interest rate than the one they had been earning previously. I fully agree with those who are demanding a thorough investigation into this matter in order to understand exactly what went wrong so that such unfortunate situations do not reoccur in the future. If an investor wants to take an extra risk in the hope of gaining an extra return, that’s perfectly fine. But he/she should be properly warned about such risks. On the other hand, investors should be aware of the need to be more careful regarding where they decide to put their money. Don’t invest without fully understanding the instrument and the risks involved.
TYPES OF RISK
IDESnal EOCCyHpruAR EORsorGofEFinTH DR GPro ernatio Int s ance at the fes
(Associate Director of the MSc Institute of Management andPro in Finance & Banking gramme)
R
ecently we have witnessed another unfortunate event in the expanding list of Cyprus’ financial troubles, namely the substantial loss of wealth by a number of Cypriots due to their investment in Contingent Convertible (CoCo) bonds issued by the
A prime source of risk is credit risk, i.e. the risk that the issuer will fail to satisfy the terms of the obligation. That could involve the issuer missing a promised interest payment, or even failing to pay the original amount borrowed (principal). It could also involve a restructuring of the existing debt, if the issuer is unable to meet its obligations, as happened in the case of the Greek government, for example. That is why the rating agencies are important, as their assessment provides us with an indication of whether the issuer has the ability to repay us according to the provisions of the debt contract. It used to be the case that government debt was considered to be free of credit risk while corporate debt (debt issued by corporations) entailed such risk at various levels. Not anymore, as we have painfully found out through the restructuring of the Greek government’s debt (although there were plenty of prior warnings, such as the Russian and Argentine defaults in 1998 and 2002, respectively). However, credit is certainly not the only source of risk, and we should fully understand all the other types of risks involved in such instruments. One of them is interest rate risk, decomposed into price (maturity) and reinvestment risk. Because of the way debt instruments
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are priced, when interest rates go up, their prices fall (and vice versa). The degree of price sensitivity to interest rate fluctuations varies from one instrument to another and is an important measure that investors should seriously take into account (known as duration). Thus, for example, if you invest in a long-term government bond, you are exposed to interest rate fluctuations (maturity risk). On the other hand, if you have a longterm investment horizon but you decide to invest in shortterm debt securities and roll over your position each time they expire, you might end up with a lower reinvestment rate if interest rates drop in the future (reinvestment risk). Another important source of risk, especially in the corporate debt market, is liquidity risk. Liquidity refers to the ability to sell large volumes of the debt instrument quickly, without substantial loss of value and without having to pay high transaction costs. Corporate and emerging debt markets are considered less liquid than government debt markets in developed economies such as the US. Cyprus government and corporate bonds are also illiquid which translates into substantial risk if you need to liquidate them: you might not be able to find a buyer or, if you do, he/she might be only willing to trade at a large discount to the fair price. As with any type of investment, debt instruments are also exposed to inflation risk (or purchasing power risk). For example, ten years from now €1,000 will most certainly not have the same purchasing power as €1,000 today because prices in the meantime will fluctuate (and will most likely go up). Long-term instruments are obviously more exposed to this risk than short-term instruments. Note that in some developed markets such as the US or UK, there are debt securities that directly protect you against inflation by having their interest payment and principal adjusted accordingly during each period. In more special cases, investors can be exposed to call or exchange-rate risk. In some cases, corporations or governments issue what are known as callable bonds, i.e. bonds that the issuer has the right to call back (or
redeem) prior to maturity at a specified (callable) price. This will happen when interest rates go down and the issuer has the ability to refinance its debt at a lower interest rate. Thus, holders of such securities are obviously exposed to call risk. Exchange-rate risk occurs in case of investment in foreign assets, i.e. securities denominated in a foreign currency. Obviously, due to exchangerate fluctuations, such an investment entails risks that investors should take into account. Finally, risks in debt instruments (or any other investment vehicle) can be decomposed into firm-specific and market risk. Firm-specific refers to the risk originating directly from the issuer. For example, investing in oil companies would entail substantial firm-specific risk, as the profitability of the company depends to a large extent on the company’s ability to extract the planned quantities of oil reserves, as well as on the price of oil in the future (which can be very volatile). However, such risk can be eliminated by holding a well-diversified portfolio. What cannot be diversified away, though, is market risk, i.e. the fluctuations of your portfolio within general market movements. In any case, we should always aim to hold well-diversified portfolios so that we completely eliminate firm-specific risk. To my mind, a lack of sufficient diversification is one of the most significant mistakes made by institutions in Cyprus (banks, provident funds, pension funds, etc.). They have placed much of their wealth in local (or regional) securities, ignoring the benefits that could have been achieved by diversification. If they had been more diligent in their risk assessment and in the construction of their portfolios, the losses incurred by their investment in Cypriot or Greek government and corporate bonds could have been offset by gains in other assets (from the international market). It is to be hoped that all of us (individuals and institutions) will be careful with any future investments by seriously taking all of the above sources of risk into account so that past mistakes are not repeated.
DON’T INVEST WITHOUT FULLY UNDERSTANDING THE INSTRUMENT AND THE RISKS INVOLVED
CYPRUS GOVERNMENT AND CORPORATE BONDS ARE ALSO ILLIQUID WHICH TRANSLATES INTO SUBSTANTIAL RISK IF YOU NEED TO LIQUIDATE THEM A LACK OF SUFFICIENT DIVERSIFICATION IS ONE OF THE MOST SIGNIFICANT MISTAKES MADE BY INSTITUTIONS IN CYPRUS
info: Dr George Theocharides is an Associate Professor of Finance at the Cyprus International Institute of Management and Director of the MSc in Finance & Banking Programme .
THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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Gold 31
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investment
Now Is
Ethical and alternative investments are seeing a surge in popularity By JohnVickers, Photography by Jo Michaelides
The Time
L
ast month, Steven Newbery, Director at Alternative Global Solutions (AGS Ethical), wrote about how alternative investments are growing in popularity and becoming more accessible to the retail investor. He spoke to Gold about his passion for ethical living, why he established his own ethical investment company, and why he feels now is one of the best times to consider ethical investments.
Gold: Where did your passion for charity & ethics stem from? Steven Newbery: Having focused on deprived areas throughout my investment career, and having seen the conditions in which some of those less fortunate than ourselves live and the basic needs which they struggle for, I am aware of how much we take for granted and how lucky we are. Now, we are constantly being reminded of the damage we are doing to our environment and I worry about the legacy and challenges we will leave to future generations. Gold: So you established AGS with a view to help? S.N.: Not solely – it’s important to remember that AGS offers clients income & growth on their hard-earned money in an uncertain environment, as well as the ethical aspect. Gold: Given the current climate and prevailing economic problems, do you not find it difficult for clients to justify giving money to charity when things are tight at home? S.N.: That’s a very good question but the simple answer is no. Firstly AGS is not a charity but an investment company. We work as hard for our clients as we do for our ethical and environmental beliefs. Now more than ever, it is important for all of us to be ensuring that our pensions and savings are in the right place to work hard for us. AGS offers this, with the added benefit of doing some good instead of propping up an ailing bank! Gold: Is that why ethical/alternative investments are seeing a surge? S.N.: To a large degree yes. From 2007-2012, only 15.7% of global equity funds outperformed their benchmark and the figure for so-called ‘emerging markets’ was even lower at 10.8%. People are realising that there are other ways of investing and diversifying and they are unhappy with the returns or losses they are seeing from traditional investments.
32 Gold the international investment, finance & professional services magazine of cyprus
Gold: So we should put all our money in alternatives? S.N.: Not at all. Bonds, equities, funds and protected products will always have a role to play in a portfolio but ethical and alternative investments – particularly those backed by a physical asset – should be playing a role too. We should all have exposure to these uncorrelated investments that do not plummet in value the next time there’s a downgrade, a bailout, a reduction in GDP and so on. Gold: So where else should we put our money? S.N.: I’m not the one you should be asking. I prefer to be an expert in one field rather than know a little about all fields. I would say it’s very important chose the right person to look after your portfolio as a whole, be it a stockbroker, an independent financial adviser (IFA), or a discretionary manager. We work with them all so we see the variance in service and returns. We work closely with IFAs, accountants, bankers on a regular basis and often recommend our clients to firms with a proven track record for service and returns. Gold: So our money can earn good returns, whilst also doing some good? S.N.: Exactly! Gold: What kind of good? S.N.: The smallest of things can help. For example, through AGS’s chosen investment projects we have so far employed 350 local people in disadvantaged areas so that they can provide for their families; we have provided 350 mosquito nets in West Africa to prevent the spread of malaria; we have placed 100 children in school to provide the most basic need for education – something we all take for granted here. Food is also a major challenge in some parts of the world so, with our rice farming investment, for example, we set aside 60 metric tonnes of the crop per year to be given free of charge to the local community. This makes such a great difference – in reality the difference between a family eating and going hungry. With our direct gold and diamond projects we only employ local labour. Our carbon investments offer returns, of course, but it also massively offsets the damage we are doing to the planet on a daily basis and this is an area we could all do more on.
Gold: Could we really do more? S.N.: So much more and without making major changes to our lifestyles
If we can’t feed ourselves, we hardly need to worry about Europe’s credit rating
INVESTMENT
especially now that it’s still summer. For instance, we all know that the way electricity is generated using coal or oil creates carbon dioxide which harms the ozone layer. And yet many of us still insist on having the airconditioning on all day, set at 16o. Just by putting it at 22o or so and on a timer so that it automatically switches off after a certain period makes such a difference and these days it can also save you a fortune. Gadgets are available to make your bath taps run slow, encouraging people to have a shower instead and use less water. Recycling is not as ‘fashionable’ here in Cyprus as in other parts of the world, which is disappointing and the government should take action immediately. Whilst it may take a little more effort to find the facility and drive, or preferably walk there, I’m certain that every single person can work it into their routine just as they do in other countries. On the subject of driving, we seem to go everywhere by car here. I recently saw a young man drive 200 metres from his home to the church – Come on! Gold: So Cyprus as a country could be doing much more? S.N.: Yes, so much more but I must admit that I’m not too hopeful. We have something of a ‘head buried in the sand’ attitude here and that will take some time to change. Gold: So as far the environment is concerned, are you saying that we’re too late? S.N.: Not at all. Governments around the world know that there is a major problem. My gut feeling is that over the last few years they have had what they see as ‘bigger fish to fry’ with the financial crisis and so on but I believe that the environment is just as important, if not more so. If we can’t feed ourselves, we hardly need to worry about Europe’s credit rating.
fast, the population is growing at the fastest rate in history, and super-size populations in developing economies are spending their rising incomes on food and energy.
Gold: Are alternative investments safer than the banks? S.N.: Would you rather have your money in a tangible asset that is essential for us to live and to provide for our families or in banks that have been irresponsible with our money for years and yet they continue to award huge salaries and bonuses which are ultimately paid for by us? Gold: So how can we make such investments? S.N.: It is a fact that such investments are not largely available to retail investors and there is often a significant minimum entrance level. Also, the quality and returns vary greatly from project to project. AGS aims to seek out the major players, the safer options and those with a proven track record as well as the innovators. We also offer projects with a lower minimum entrance level to give everyone the opportunity to take advantage of this sector. We act as consultants, offering access to a teven Newbery highly ethical and socially number of different options, by way specialises exclusively responsible, secure, in providing professionally managed, of introduction, assistance in applicaalternative, physical, and offering enhanced tion, and regular updates. We don’t environmental and ethical returns. Steven Newbery hold a client’s money: investor funds investment solutions for his personally approves all go directly to the chosen investment clients. The AGS team assists solutions prior to them project. clients across the globe. being offered by his
STEVEN NEWBERY
S
Prior to establishing AGS, Newbery was a senior broker at one of London’s leading Alternative Investment Providers, consulting both clients and the company on the future and construction of ethical investments. His company, Alternative Global Solutions (www. agsethical.com) acts as a consultant and distributor for investment solutions that he considers to be
Gold: If governments know that there is a problem, what are they doing about it? S.N.: Not enough but things are improving. The Kyoto Protcol on carbon emissions was moderately successful and it is due to be replaced and enhanced with plans for a global treaty to legally bind all countries to slash greenhouse emissions by 2020. The Australian government, in particular, has made huge inroads to addressing the problem by way of its Carbon Farming Initiative (CFI), which I feel will be a great success. Gold: So what is the best ethical or alternative place to put my money? S.N.: As with traditional investments, diversification is the key. A spread across sectors, countries and timescale is always advisable. I would pay particular attention to commodities though: agricultural or ‘soft’ commodities are of particular interest. We have a growing population, new drugs are helping us to live longer and overcome illness, diets are changing, largely as a result of access to money , and all this in a world where 13.1%, or almost 1 in 7 people are malnourished (shockingly, 19million of them live in the so-called developed nations). Add to this the fact that demand for agricultural commodities is rising
company, as a result of his extensive knowledge and experience in the area. AGS is global with representation in Moscow, Poland, India, Kazakhstan, Azerbaijan, Switzerland, and Andorra and Africa. Its partners are worldwide with offices in locations such as the UK, Australia, Africa, South Africa, Brazil and Dubai. Alternative Global Solutions, www.agsethical.com
Gold: You seem very optimistic about Africa, as you indicated in last month’s article in Gold. Why? S.N.: It’s more than optimism. The African continent has the largest reserves of arable land on the planet, 60 % of the world’s uncultivated arable land and low crop yields, Africa is ready for a “green revolution” and it’s happening now, a bit like those that transformed agriculture in Asia and Brazil. The International Monetary Fund predicts that no continent will grow as strong over the coming years as Africa; governments across Africa are improving the business climate and even the most conservative estimates suggest that Africa’s current agricultural output will increase from $300 billion a year to $500 billion by 2020. It could reach $ I trillion by 2050. There is already a middle class there that is almost as big as the populations of Russia and Brazil with 70% of the population under 35, Africa is set to enjoy a great demographic dividend as the continent’s energy and talents drive economic growth and development. This is why we are seeing the likes of China investing $5 billion in agriculture there. Even a country of China’s size does not have the means, land, or conditions to grow enough food to feed its growing population. Gold: Finally, why is now the time? S.N.: Well, if you can find me an expert in ‘traditional’ investments who consistently outperforms the market, after his charges, and who knows where the top is, where the bottom is, and so on, then maybe I’ll reconsider saying that now is a good time. Until that happens, and until we return to normal market conditions – whatever that means – and we can reasonably expect to know where things are going, I would suggest that alternatives should be playing a role in everyone’s portfolio! We all need to eat, don’t we?
34 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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PROFILE
chinese whispers Quietly spoken yet full of humour, Yang Qi is the owner of a number of multimillion euro businesses and real estate assets in China, Macau and elsewhere. He is married with a 17year-old daughter and for the past four years has been Assistant Honorary Consul of Cyprus in Hong Kong and Macau. He clearly lives up to his name which means “positive energy” in Chinese. He has become known recently, however, as the “mysterious Chinese investor” with big plans for the old Larnaca Airport complex who unwittingly found himself on the Corruption Watch List in Macau when a Cypriot newspaper questioned the presence of the island’s former Ambassador to Beijing at the signing ceremony for the preliminary deal. He then officially withdrew interest from the project until a Cypriot investigation clears him of any suspicion of wrongdoing. So who is Yang Qi? By John Vickers, Photograph by Jo Michaelides.
B main_story2_chinese.indd 37
orn in Xi’an, the provincial capital of Shaanxi in northwest China in 1963 (the year of the Rabbit, according to the Chinese Zodiac), Yang Qi was an outstanding student, named a Top 10 Youth out of no fewer than 3 million students, and top of his year when he graduated in 1985 (in chemical engineering). “When you become well-known at a young age, that can open a lot of doors and give you additional opportunities,” he told Gold and, sure enough, within three years he was put in charge of the Technical Department in the world’s biggest munitions company. “I was with people twice my age and that was when I started learning and getting my first business experience, making my first industry contacts, etc.”
As a reward for his excellence at work, he was sent as a visiting scholar to the University of Massachusetts in 1988. It was a memorable introduction to Western culture: “I arrived in San Francisco with only $30 in my pocket due to the currency restrictions. I missed my flight because of spending so long in customs, having arrived from a communist country, and I didn’t know much more English than ‘Hello’! I needed to make a phone call to one of my father’s students who was supposed to pick me up in New York to tell him that my flight had changed. I had never seen or used a payphone so I held up a piece of paper with a phone number in one hand and a $20 bill in the other. Instead of taking me to the phone,
THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
Gold 37
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PROFILE
I ARRIVED IN SAN FRANCISCO WITH ONLY $30 IN MY POCKET the official took me into a corner and put my money in a black box. At that moment my blood ran cold! That was more than half of my assets gone! I thought I had been robbed until I saw all the coins coming out of what was actually a change machine...” Yang spent a year studying English but then came the Tiananmen Square protests in Beijing, which essentially brought everything to a standstill. “I was supposed to be there for a year but nobody wanted me to go back – not that I could have done anyway – so I was given permission to stay for another two years and study international finance.” Before his studies were over, Yang was offered a chance to stay in the US permanently. Was he tempted? “My family said I should stay,” he recalled, “because the situation in China was very bad – just the opposite of how things are today. But a delegation from China asked us to go back and said that there were plenty of opportunities waiting for us. In my case, the Ministry in charge of International Trade told me that I would be promoted if I went back and for someone of my age it was a remarkable position to be in. My three years in the US had been very educational, a real eye-opener for me. But I had to decide what to do and I felt that if I stayed there I would probably end up as a dishwasher or a chef in a Chinese or Japanese restaurant whereas in China I would give myself a better chance. It wasn’t about making a greater contribution to the country – I wasn’t so patriotic! – but about being determined to do something for myself. “ Yang took the decision to go back but, on arrival at a freezing Beijing International Airport at 9pm where almost all the electricity and all the heating had been switched off to save energy, and then unable to get a taxi because
I felt that if I stayed in the US I would probably end up as a dishwasher or a chef in a Chinese or Japanese restaurant
he had no local currency, he couldn’t help wondering if he should have listened to his father. In 1991, the Chinese economy was in ruins, people were uncertain of their future: “The entire country was like a madhouse. The government had essentially lost control,” he recalled. Although he would be again working in a state-owned company (“so basically I was safe”), it was not until the economically thriving neighbouring countries such as Thailand, Japan and Singapore grew interested in China as a new market that business opportunities began to arise in the country. “I had been made Vice President of the state owned company in charge of international trade so it was my job to try and attract foreign investment into the country and to help set up joint ventures to make new products.” He evidently did a good job. The deal he remains proudest of was the one bringing Suzuki, the Japanese car manufacturer to China to produce its Alto compact model. He was later made President of China Eastern’s US-based companies dealing in used machinery. The ministry behind it employed some two million people in 200 companies and, he said, “They all needed something. All that 1950s Russian machinery didn’t work anymore. Eventually, the government would purchase the entire production line of a factory, no matter what the product because China needed it. I was the only person qualified to do the job so, together with the state-owned Everbright Bank, I would find factories abroad, we would see which Chinese company needed what they were manufacturing and the bank would write a cheque. And then we would purchase the entire operation, disassemble it, ship it to China and reassemble it.” When the Chinese economy began to pick up, Yang Qi became aware of the fact that he had gone through what he called “the whole process: living in a very poor country and seeing it develop into what would become the second largest economy in the world. I experienced every step and I felt that I had contributed in some way. But eventually it became clear that working for the government was no longer a good choice.” Yang quit and started his own business with an old contact from the US, providing emergency parts for aircraft. It was very successful, particularly at a time when there were more than 50
airlines in China. But then the government decided that they should merge in order to become more efficient. “Suddenly they didn’t want our inventory anymore but fortunately for me they wanted it back in the US. “ Overnight, $30 million was transferred into his account and he was told to buy back from the airlines whatever he could find. A year later, the US company became a public listed company and Yang made his first ‘real money’ with that. He hasn’t looked back since then. Using the Phoenix Group name, he finds foreign investment projects matching the needs of Chinese companies or government contracts, usually obtaining low-interest financing for up to 70% of the cost and using his own credit for the remaining 30%. He has been involved in projects around the world, especially in Africa and Asia but in Europe (Slovakia and Poland) too. If it finally goes ahead, the Larnaca project is expected to cost around $600 million with $200 million coming from Yang’s own reserves. However, it remains on hold until the government of Cyprus publishes the findings of an independent investigation into the allegations made in the newspaper article. Yang acknowledged that it may sound odd to people in Cyprus but, he said, “We are living in a completely different world. When a newspaper in Cyprus says that a government official resigned after being accused of helping a Chinese businessman to secure a project, this report automatically triggers a system that puts us on a watch list checking for corruption. In my view this has damaged the investment climate here because it appeared to be sending a message that if anyone tries to help Chinese investors in Cyprus, they will be in trouble and may even lose their job. This is the image that has unfortunately been created by the article. However, I wish to make it clear that we are still interested in this project but we can’t do anything until the company I set up specifically for the project (Far Eastern Phoenix) is officially cleared of any suspicion. I strongly believe that Cyprus is the best place for us to invest.” Under the proposed deal, the old Larnaca airport premises will be transformed into a large commercial showroom for Chinese products, attracting wholesale buyers from Europe, Africa and the Middle East.
38 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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Audit • Tax • Advisory
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Reason says:
Look out for growth opportunities.
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opinion
The Times They Are A-Changing… The financial crisis has awoken a new generation which is ready to change the old ways and create a better Cyprus
H
aving recently returned from a relaxing holiday, it is both frustrating and exciting to find oneself in the middle of the current politico-economic upheaval. Frustrating? Yes, because it is obvious to all that the government is incapable and unwilling to take any concrete and targeted measures to address the structural problems of the economy (as it has done in the past) but instead is trying –unsuccessfully – to launch a propaganda attack against the banking system and the economic fabric of the country. Through its actions, the current administration made it certain that we would need a European bailout and that we would have to negotiate its terms from a position of weakness. Its strategy was simple: it wished to divert blame to the banks and the “European system” and emerge from the crisis as a champion of workers’ rights and the welfare state, paradoxically in opposition to itself as it will be obliged to sign the terms of the bailout. Exciting? Yes, and we can also be optimistic. The current precarious situation has revealed the simmering infection that was hidden in the most profound depths of the Cypriot economic edifice. Structural abnormalities cannot be swept under the carpet anymore. The abnormal size of the public sector is there for all to see. It is clear that its existence, coupled with disproportionately high entry level salaries for public servants (and for those in the banking sector which has been run almost like a public enterprise), has been draining the private sector of its potential workforce, thus limiting the creation of wealth. It is expected
There will be suffering in the short term but it is well known that serious diseases require painful treatments
info: Demosthenes Mavrellis is a Partner at Chrysses Demetriades, Advocates and Legal Consultants. 40 Gold the international investment, finance & professional services magazine of cyprus
By Demosthenes Mavrellis
that the measures which will soon have to be promoted based on economic orthodoxy and not short-term political expediency, will undoubtedly lead – in both the medium and long term – to a more sustainable and rational development. Of course, there will be suffering in the short term but it is well known that serious diseases require painful treatments. To create jobs, one should lower the cost of employment and not raise the minimum wage. To create innovation one should gear workers towards the private sector and innovation. To lift the economy, the state should invest in research and development and not in white elephant construction projects. It is our responsibility, as a new generation of managers and decision-makers, to seize the opportunities presented by current events and build on the experience of other countries. It is for us to disentangle ourselves from a culture which sees us remaining attached to the state feeding-tube and to venture out into the world and see what we can make of it. Those of our parents’ generation who have tried it have fared very well. The wind of change is now upon us. It is evident that most people understand that the rules of the game are changing and they need to adapt to the new environment. It is also clear that new political forces are in the ascendancy, which, we hope, will be better able to understand and handle the problems of the economy. As John Kennedy famously said, “Ask not what your country can do for you. Ask what you can do for your country”. Now is the time for all of us in Cyprus to help one another and to unite for the good of the country.
opinion
Delusional Highs
Finland’s considerable exposure is being ignored by Moody’s and by many truly deluded Finns.
W
hen Moody’s recently put all remaining AAA-rated economies on credit watch, it spared just one from this suspended execution: Finland. Those great many Finns sharing considerable self-belief will no doubt applaud Moody’s decision as insightful. Many Finns, after all, are convinced that their economy is immune to the eurozone’s internal economic problems. In believing this they are exhibiting a degree of delusion exceptional even by the standards of a continent containing more than its share of nations with superiority complexes. True, Finland’s five and a half million people are amongst the richest in the world when measured in terms of per capita wealth. True too, Finland gave us Nokia and is home to the seasonable favourite Lapland. True also, it can boast having comfortably straddled the EU and Russia over recent years. No less true are these observations: Nokia is suffering acute problems and tourism across Europe is being badly hit by austerity. The forestry, metal and capital good sectors on which Finland’s external account relies for the vast majority of the country’s export sales compete fiercely for custom with those across many of its neighbours. The Finns might like to consider how economic gravity brought their near-neighbour Iceland crashing down to earth when its state-run near-Ponzi scheme was exposed. Then again, whether because the markets are extremely forgiving or, equally naively, have a shortterm memory, Iceland’s recent antics have not prevented it from remaining a prime candidate for EU membership. Neither have they stopped it borrowing more cheaply than many within the eurozone. The fact that somehow its state debt has kept an investment grade despite having been a state-wide Ponzi scheme recently says much about the woeful rating agencies (regular Gold readers may recall my August 2011 article
Many Finns are convinced that their economy is immune to the eurozone’s internal economic problems
info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. 42 Gold the international investment, finance & professional services magazine of cyprus
By Savvas Savouri
entitled “Duff, Poor and Moody: Sometimes the Clue is in the Name”). The reality is that far from being immune to what is unfolding across Europe, Finland has considerable exposure. After all, three quarters of Finnish exports go no further than to a hardly economically encouraging Europe. And yet this unfavourable exposure to a malfunctioning Europe is being ignored by Moody’s and a great many deluded Finns. The extent of this delusion was seen in the elections of April 2011 when the True Finn Party, with its nationalist agenda, won a fifth of the popular vote to become the third largest party in the Finnish Parliament and, most significantly, the nation’s official opposition. Four months later, Finland was to be involved in a blatant act of extortion when, in August, efforts began to focus on delivering Greece with a second bailout and Finland announced that it would object unless it received a €1 billion “kick-back” from Greece. In any other context this would have been seen as extortion. Not by the Finns, however, many of whom believed that the eurozone would be better off without Greece and others without the impressive fundamental shared by Finland and only a few others. Here, we have the biggest delusion of all. In the event Greece left the euro, a devaluation domino effect would follow. This would not simply involve others within the eurozone being forced to leave it but many of Europe’s free-standing currencies – which have until now proven relatively stable against the euro – falling sharply against the “core euro”. Many within Finland believe they are core. If they are, their competitiveness would be hit as the core euro hit ever loftier heights. From forestry to capital goods, customers would desert Finland. As bad as Nokia’s problems have been up until now, they would become a great deal worse after the core euro, carrying Finland, began its ascent. The simple truth is that at some point Finland would have to jump out and join Greece et al in the gutter. The Finns might like to consider this before they express their superiority.
spotlight on...
Dema Services
D
ema Services was established in 1998 and is one of the foremost providers of International Company Services, Trust and Fund Administration. We specialise in the formation of companies in Cyprus and in other jurisdictions and we provide nominee, trustee and administration services efficiently and at a reasonable cost. We also provide assistance to those Cyprus companies, and branches of foreign companies, that need an
operational office in Cyprus. Furthermore, Dema Services provides escrow agent services, advice and supervision of mergers and acquisition transactions, EU cross-border mergers and redomiciliation of companies. The company headquarters are located in Nicosia and there are subsidiaries in Switzerland and Seychelles. The Seychelles subsidiary, Rosebery Ventures Ltd, and the Swiss subsidiary, Dema Consultants SA, specialise in the formation and administration of companies in Seychelles, BVI, St. Kitts and Nevis. Dema Consultants also forms and administers Swiss companies. In addition, the strong ties we have created and maintained with foreign associates enable us to serve our clients on an international level. Dema Services currently employs more than 25 people with extensive experience in our industry. Our people are both highly talented and deeply committed to what they do. Each member is able to handle a large number of companies while at the same time ensuring
44 Gold the international investment, finance & professional services magazine of cyprus
the stability and confidentiality which is required throughout the entire “life” of each company. The management of Dema Services considers its human capital as the driving force of the company, therefore training costs are not perceived as an expense but as an investment. Members of staff regularly take part in seminars and training programmes with the purpose of constantly improving the quality of services offered. The global financial crisis has affected a significant number of companies. Although we have not lost any clients, some have reduced their activities and they are quite cautious about which companies they deal with. The current situation has resulted in a change in client demands; today, more than ever, clients are looking for the most efficient and reliable service. For this reason, we place great emphasis on the quality and calibre of our human capital. The expertise of our team ensures that we do not only meet clients’ expectations but we actually exceed them.
Left to right: Stalo Antoniou, Georgia Georgiou, Charis Raftopoulos, Andreas Constantinides
CIPA INTERNATIONAL INVESTMENT AWARDS
T
he ceremony for the first CIPA International Investment Awards, presented by Gold and honouring international investors in Cyprus as well as individuals and companies that have contributed to the development of the island as an International Business Centre, will be held at the Presidential Palace in Nicosia. The awards ceremony will include a Grand Gala Dinner for some 500 invited guests from the government and political leadership, business leaders, foreign investors, professional service providers (lawyers, accountants, fiduciary service providers, bankers, etc.) and others. The event, which will be addressed by an international guest speaker, will be streamed live online and part of it will be televised. Cyprus is now a reputable international business centre, attracting companies and High Net Worth Individuals to invest in
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the island. Tens of thousands of corporations and individuals use Cyprus companies for tax planning purposes. The provision of professional services to this community of international investors has become on of the most important sectors of the Cyprus’ economy. The threefold mandate of the Cyprus Investment Promotion Agency (CIPA) is to promote Cyprus as an attractive international investment centre in key priority growth sectors, to advocate reform to improve the regulatory and business environment and infrastructure and to provide investor support with aftercare and further development services. Gold is the International Investment, Business and Finance Magazine of Cyprus. One of its stated objectives is to promote Cyprus as an international business and investment centre and, by extension, to promote the professionals offering services to this sector. The partnership between CIPA and Gold for the CIPA International Investment Awards is thus a natural one, based on mutually-held objectives.
Awards will be given to companies, individuals and funds that have made a direct investment in any sector of the Cyprus economy, including banking and financial services, information and communication technologies, shipping, energy, health, education and tourism. They will have established their headquarters in Cyprus or invested in a Cyprus Company. Also eligible for an award are individuals and companies that have contributed to the development of Cyprus as an International Business Centre, by offering services in the legal, accounting, audit, tax, corporate, fiduciary, management, trust, arbitration, shipping and ship management, private banking, wealth management, investment and fund management sectors. The recipients of the first CIPA International Investment Awards have been chosen by an awards committee comprising members of CIPA’s Board of Directors and representatives of Gold. Decisions were taken by consensus. There will be full coverage of the event and the award-winning companies and individuals in the October issue of Gold.
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presents the
CIPA INTERNATIONAL INVESTMENT AWARDS The annual awards
ceremony to honour international
investors in Cyprus as well as individuals
and companies whose
contribution to the country’s transformation into an International
Business Centre deserves recognition. Presidential Palace, Nicosia, 2012 Cyprus is now a reputable international business centre, attracting companies and High Net Worth individuals to invest in the island. Tens of thousands of corporations and individuals use Cyprus companies for tax planning purposes. The provision of professional services to this community of international investors has become one of the most important sectors of the Cyprus’ economy. Gold, the international investment, finance & professional services magazine of Cyprus, and the Cyprus Investment Promotion Agency (CIPA), are jointly organising the CIPA International Investment Awards. The awards, which will honour individuals, organisations and companies that have invested directly in Cyprus or contributed to the country’s economic and business development, are a tribute and a ‘thank you’ gesture to all those who have helped Cyprus establish itself as a reputable International Business Centre.
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CONFERENCE
LIMASSOL ECONOMIC
FORUM DEBATES
‘WHATDANUTANEXT FOR EUROPE?’ HÜBNER HEADS IMPRESSIVE LIST OF SPEAKERS
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s the discussion now in Europe moves from “What caused the crisis?” to “What do we do next?”, the 3rd Limassol Economic Forum, held under the auspices of the Cyprus Presidency of the Council of the EU, is a platform for highlevel debate on a multitude of issues affecting the everyday lives of ordinary citizens in Europe. The 3rd Limassol Economic Forum is organised by IN Business magazine in association with the London School of Economics and Political Science and LSE Cyprus Alumni. It brings together some of the world’s most influential politicians, economists, business leaders and experts to discuss the top priority concerns of the local, regional and international economic and business affairs. Among the issues to be discussed: The State of the European Economy: The austerity vs growth dilemma and what needs to be done. The eurozone’s austerity-first approach to the crisis is now being seen as somewhere between inadequate and counterproductive as leaders increasingly acknowledge the need for a growth agenda. Former Ministers of Finance and European Commissioners will discuss the state of the European economy and contribute to the debate on how to fight the fiscal debt mountain, how economies can achieve sustainable employment growth in an era of consumer deleveraging and fiscal austerity, whether the European bailout strategy is working and the future of the eurozone.
Luis Campos E Cunha, Former Minister of Finance, Portugal, Danuta Hübner, Former EU Commissioner, Poland, Henning Christophersen, Former Deputy Prime Minister, Denmark.
failure was the least of the field’s problems. More significant was its blindness to the very possibility of catastrophic failures in a market economy. The European economic predicament World-class economic media correspondents express their views on major economic and financial issues including the role of political leaders, the European Central Bank, the commercial banks and the credit rating agencies during the crisis; the effectiveness of policy responses to the crisis; the role of the credit rating agencies; assessing the pros and cons of financial integration in Europe, and more. The list of speakers includes: Henning Christophersen, Former Deputy Prime Minister, Denmark Danuta Hübner, Former EU Commissioner, Poland Luis Campos E Cunha, Former Minister of Finance, Portugal Henk Potts, Director of Global Research & Investments for Wealth and Investment Management, Barclays Wealth, UK Andreas Favaloro, Global Head of External Distribution Sales, BNP Paribas Investment Partners, France Giles Merritt, Journalist author broadcaster on EU matters, UK
Investing in a “brave new world” In the post-crisis world, trillions of euros in cash and funds are waiting to be invested over the next decade. It is obvious that the traditional mix of stocks and bonds may no longer provide the return investors need. World-class investment and asset managers and investment advisers talk about future trends in the investment world, market sectors, geographical locations, investment classes and vehicles and opportunities.
The 3rd Limassol Economic Forum takes place on 17 October 2012 at the Four Seasons Hotel, Limassol. It is organised under the auspices of the Cyprus Presidency of the Council of the European Union by IN Business in association with the London School of Economics and Political Science and LSE Cyprus Alumni and coordinated by ΙΜΗ. The Forum is supported by the Cyprus Shipping Chamber, the Limassol Chamber of Commerce and Industry and Limassol Municipality. It is sponsored by Andreas Neocleous & Co LLC, Deloitte, Laiki Bank, and the Phil Andreou Group.
The future of economics Few economists saw the current crisis coming, but this predictive
For further information, call IMH (Ourania Pavlou) on 22505531 or e-mail: ourania@imh.com.cy ,Website: www.limassoleconomicforum.com
50 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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broadcasting
The Challenge of
Connected TV A major conference co-organised by the European Commission and the Cyprus RadioTelevision Authority will help determine the future of television By John Vickers, Photograph by Jo Michaelides
Delegates from around the world will gather at Le Meridien in Limassol in October for a two-day conference entitled “Looking Beyond the AVMS Directive: The Challenge of Connected TV” and while the title may sound dauntingly specialist, it will be dealing with a topic that affects us all. Connected (or Smart) TV essentially refers to the integration of the Internet and TV sets or Set Top Boxes while the AVMS Directive refers to EU legislation on AudioVisual Media Services adopted in 2007. Given the rapid pace of technological developments, new legislation is already required for the new situation, which is what the Cyprus conference is intended to partially prepare. As Executive Chairman of the Cyprus RadioTelevision Authority (CRTA), Andreas Petrides is deeply involved in the organisation of the conference which he describes as “extremely significant” and one which has
52 Gold the international investment, finance & professional services magazine of cyprus
developed into something far bigger than originally intended: “It is part of the European Commission process to create new European legislation on the Connected TV environment and while it began as an EU conference, it has now turned into a global one with participants from Korea, the US and Israel, and big multinationals expressing great interest in participating: Google, Disney, Samsung, Phillips, Panasonic…the list goes on.” Everyone has been taken by surprise by the incredible speed at which the phenomenon of Connected TV has developed, explains Petrides, and obviously the appropriate legal framework needs to be put in place and adopted by all EU member states. “We are getting into uncharted territory with this,” he adds. “Connected TV is a marriage between traditional TV and the Internet so by legislating for TV you are also legislating for the
Andreas Petrides
broadcasting
We have no idea right now how the TV environment will look in five or 10 years’ time Internet which is very complicated. We have no idea right now how the TV environment will look in five or ten years’ time. All we can be sure of is that what we know today will be irrelevant within a decade and that viewers are going to be transformed from passive spectators into more active participants. It’s a totally new universe.” For Brussels, there was a need to organise the conference in order to bring all the key players together, exchange views and eventually present the findings, including proposals for new legislation, to a meeting of EU Ministers of Culture. For Petrides and his team at the CRTA, it is much more than organising a conference. “It is a challenge for us, and one of the things we want to do is elevate the image of Cyprus. We firmly believe that where television is concerned, technology and culture go together and we are working hard to lend a cultural aspect to a highly technological series of discussions. For the conference, we are publishing a booklet containing work by 27 Cypriot poets translated into English and paintings/drawings by 27 local artists on the theme of Cyprus, the Island of Aphrodite. Nothing to do with technology, nothing to do with politics.” Petrides already knows in advance what some of the views expressed during the conference are likely to be. For Cyprus and Malta, for example, the main priority will be to include adequate protection of minors in the new legislation. Germany and France, on the other hand, are concerned that Connected TV could destroy the financing system that has been in place for many years to support French and German productions. They fear that if there is no protection of the sector, it may be taken over by large American companies so they will be looking to protect their interests.
The UK and the Nordic countries see Connected TV more in terms of business opportunities and so they want to ensure that the legislation allows them to take advantage of such opportunities. Given that one of the CRTA’s main duties is to monitor the content of radio and television programmes, the new trend seems certain to complicate its work but Petrides is upbeat on this: “I’m not worried about this in the sense that Cyprus is not a country that can substantially influence this issue. We want to be part of this process, we try to lobby and influence whenever we think we ought to be doing something but at the end of the day there will be new European legislation on the matter and we are going to apply it. Whatever is good for the rest of Europe is good for us too.” Asked whether he has enough staff and the proper budget to carry out what will surely be an increased workload, he bristles at the question: “I avoid the traditional government mentality which is always ‘give us more money, more staff’. Any department you ask will claim to be understaffed. We take a different approach. We collaborate with other authorities, we exchange information and even personnel if needed and I’m proud to say that we have already signed a cooperation agreement with our counterparts in Israel and I’m about to sign a similar agreement with the Maltese authority. I am very lucky to be surrounded by capable and dedicated people and I’m proud of them as it is thanks to them that we have managed to achieve what we have done so far. So we are feeling quite comfortable and ready to meet the challenge with the help of our partners.” Things are changing so fast in the TV/Internet world that in his two years as Executive Chairman of the CRTA, Andreas Petrides has already overseen the drafting of three pieces of legislation. “We’re trying to keep up,” he says. “We insist on being up to date. By next spring, the new legislation should be passed by the House of Representatives and it will put Cyprus ahead of everyone else, especially regarding the protection of minorities and other social groups.” Cyprus has always appeared to have far more TV and radio stations than its size would warrant but until the global financial
54 Gold the international investment, finance & professional services magazine of cyprus
crisis hit, they had succeeded in surviving. However, falling advertising revenue is now causing problems for many of them. The problem was partly resolved in the radio sector where the CRTA and the Department of Electronic Communications changed the license provisions of a number of local stations, giving them national status and coverage which enabled them to obtain advertising from a greater number of sources. Things are more difficult in the TV sector, not least due to the financial problems affecting Velister, the company that won the tender to manage the electronic communication platform via which the private stations broadcast. “While the digital switchover was one of the most successful in the European Union, the price of €10 million was totally unrealistic and way too high. It should have been somewhere between €2 and €4 million. The reason for the huge discrepancy is that some preliminary studies were expecting 40 channels and the proposed fee was based on that figure. In fact there are only 15 channels. The CRTA is responsible for media pluralism which, I believe, is now under threat and we will do whatever we can to prevent this happening.” Whatever happens in the local TV environment, one thing is certain: nothing remains the same. And thanks to the fact that Cyprus holds the rotating presidency of the Council of the European Union, it will play a role next month in preparing the ground for the future of television. The Conference “Looking Beyond the AVMS Directive: The Challenge of Connected TV” takes place on 25-26 October at Le Meridien Limassol Spa and Resort. It is organised by the European Commission and the Cyprus RadioTelevision Authority under the auspices of the Cyprus Presidency of the Council of the European Union and coordinated by IMH. For more information: www.connectedtveuconference.com
We firmly believe that where television is concerned, technology and culture go together
It is an important
time
for
Cyprus
to rise to the
occasion and repeat
the benefits
its
of
comparative
trust advantages
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TRUSTS
A STEP IN
THE RIGHT DIRECTION HOW TO SAFEGUARD YOUR ORGANISATION’S ASSETS By John Vickers, Photography by Jo Michaelides
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n June, Emily Yiolitis, Managing Partner of Harneys Aristodemou Loizides Yiolitis LLC, was elected Chairwoman of the Cyprus branch of the Society of Trust and Estate Practitioners (STEP). Prior to her election as Chairwoman, Yiolitis had served as branch Secretary and is also a founder member of STEP Cyprus. An experienced corporate lawyer, concentrating on international tax planning and structuring, she spoke to Gold about her vision for STEP Cyprus, the island’s future as a regional services and financial centre, and why she enjoys being a corporate lawyer. Gold: You have been elected Chairwoman of STEP Cyprus at a very auspicious time, given that a new law on trusts has finally been enacted. How important is this for Cyprus?
Emily Yiolitis: I feel both the excitement and the responsibility of the timing of my election. The expertise of STEP Cyprus as the leading organisation in the trust industry has been instrumental in the passage of the new legislation and it is an important time for Cyprus to rise to the occasion and reap the benefits of its comparative trust advantages. As far as the trust itself is concerned, at a time of global recession, individuals are often concerned about the preservation and protection of their assets as well as about generational succession, so I would say that the confluence of circumstances is working in favour of an increased use of trusts worldwide. Gold: Having a favourable legal framework in place is clearly a positive step but what needs to be done if Cyprus is to fulfil its potential regarding trusts? E.Y.: As with any piece of legislation, the trust law provisions cannot exist in a vacuum. Cyprus trusts need an industry-relevant infrastruc-
ture in which to flourish and we are working towards buttressing our trust achievement with lobbying support for amendments in related laws such as tax laws. On the level of our contribution as STEP, the educational programme which we launched last year in collaboration with Central Law Training in the UK and which is delivered through a blend of both distance learning and face-to-face workshops, is a benchmark qualification for trust and estate practitioners, leading to full membership of STEP and equipping our pool of local talent with the tools and professional know-how to better attract and retain trust business. Gold: How has Cyprus compared with other competing jurisdictions until now and how do envisage things changing? E.Y.: There is a lot of competition globally for a piece of the trust pie and it is not only from traditional contenders such as Jersey or Guernsey which have a steady track record and a common law heritage to draw from.
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Take Switzerland, for example, which is a civil law jurisdiction and would normally rank as a trust outsider. With its recent ratification of the Hague Convention, strong asset management skills and a linguistically rich pool of trust-trained professionals, it has become a serious contender as a prime trust jurisdiction. Likewise, Singapore and New Zealand are on a trust momentum. Cyprus may be on a good track with the new amendments but we should not rest on our laurels and wait for work to come our way. We need to commit to creating a comprehensive trust regulatory and legislative infrastructure, invest in education and adapt to changing demand. Trusts are being put to new and exciting uses, notably for pre-IPO structuring (reportedly used by Mark Zuckerberg in the recent Facebook IPO) and we need to keep abreast of innovative ways of extrapolating our trust knowledge to Cyprus’ advantage. Again, the STEP educational programme is pivotal in helping Cyprus students acquire the knowledge and put it to good client use. Gold: How would you describe the work of STEP Cyprus? E.Y.: Simply put, STEP Cyprus is committed to the promotion of the Cyprus trust industry. The Committee comprises eight trust experts and we meet regularly to discuss topical issues affecting trusts, to lobby for industry-specific regulation and legislation and to organise high-level trust seminars, providing a forum for informed discussion. Earlier this year, and for the first time in Cyprus, we hosted the annual flagship STEP International Conference which was met with great success and brought together acclaimed trust experts from all over the globe to exchange views and provide topical updates. Last but not least, the part of STEP that has a particular place in my
heart is the educational programme which we launched last year and I hope to see expand with the enrolment of more students in Cyprus. Gold: How important is the TEP qualification? E.Y.: TEP (Trust and Estate Practitioner) is a designation held by full STEP members (there are also associate and student member categories) which is an internationally recognized hallmark of professional expertise in the area of trusts and estates. Essentially the TEP designation communicates to both clients and employers that you have a specialized skill set in the area of trust and estate planning and can therefore be trusted with their work. Being a TEP gives you access to the latest industry updates, either by way of conferences or through the STEP Journal & Trust Quarterly Review and entitles you to a listing in the Directory & Yearbook which is published and distributed to all members on an annual basis. So I would say that it is important, both in terms of professional acknowledgement and educational furtherment as well as for providing unique networking opportunities with peers from all over the world. Gold: What do you think that you personally can bring to STEP in your capacity as Chairwoman? E.Y.: My primary aim is to be responsive to members: speak to members, potential members and students and gauge their reaction to industry developments, understand their needs and involve them wherever possible
in the work that we are doing. During these times of financial turmoil when many people are facing real hardship, our members should get good value for the annual dues they are paying and to this end we will continue to provide regular seminars and conferences at a reasonable cost and do our utmost to promote the industry to our members’ benefit in Cyprus and abroad. I am also a keen advocate of our educational programme and we plan to introduce a subsidy in Cyprus to help interested professionals pay for their STEP courses. I hope this will provide the impetus for a good number of new registrations. Gold: Do you have a specific vision of the organisation’s short- and long-term future? E.Y.: My vision for STEP is that of a key industry player whose expertise can be drawn upon, to Cyprus’ advantage, in the formulation and implementation of a comprehensive strategy for trusts in Cyprus. The advantage of STEP is that it is multidisciplinary, comprising members from the legal, accounting, audit, tax, banking pension and insurance professions. By cutting across old-established professional boundaries, STEP can truly bring together the best of all worlds in the furtherance of a common aim which is the creation of a prime trust jurisdiction in Cyprus. Whether this is a short- or a long-term goal will depend on our persistence and our government’s responsiveness. Gold: As an experienced corporate lawyer, how do you view Cyprus’ efforts to establish itself as a regional services and financial centre?
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E.Y.: As piecemeal and often lacking in coordinaton. There are some good grassroot initiatives such as the recently-formed Fiduciary Association which is an industry startup of fiduciary service providers wishing to self-regulate in anticipation of the long-awaited Fiduciaries Bill (which has been under discussion for over six years now) but I do not see sufficient governmental initiatives to boost a sector which could provide an important income stream for Cyprus at these difficult times. Jurisdictionally, we are lagging far behind our global competitors as far as the service of our regulator, the Registrar of Cyprus Companies, is concerned. When my colleagues in the BVI can turnaround a company for a client within a matter of hours, it is frustrating that the same client must wait weeks in Cyprus to achieve the same result. Gold: What else needs to be done? E.Y.: The public customer service ethic must be improved and mindless public expenditure must be curtailed. A good place to start is the Internet. Websites of government departments must be welcoming, responsive, multilingual and interactive. Right now they are none of these. We can start with the Registrar of Cyprus Companies which is computerised but unfortunately not in any meaningful way. As the ancient Chinese philosopher Lao Tzu said, ‘The journey of a thousand miles begins with a small step.’ Gold: Why did you choose law as your field of study and profession? E.Y.: I chose to study law because I had good debating and persuasive skills at school and was steered in this direction by my teachers. I have no lawyers in my family which, again, influenced my decision positively as I like to venture out of my comfort zone so I would not have been easily persuaded to join a family practice. Gold: And why taxation? Many people would equate the word with ‘boring’! E.Y.: Tax is the single most important reason why investors choose to consolidate or structure their businesses through Cyprus. Once the investment is secured and Cyprus is chosen, the trickle-down effect ensures that the benefits are reaped not only by the client’s advisors but by other sectors of the Cyprus economy too. This is why it is so important, even in economically trying periods such as these, not only to retain but to introduce further tax incentives enticing investors to choose Cyprus over other competing tax jurisdictions. For me, to travel the world and attract clients to Cyprus by pro-
THE SOCIETY OF TRUST AND ESTATE PRACTITIONERS (STEP)
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he Society of Trust and Estate Practitioners (STEP) was founded in 1991 in the UK and today is the leading worldwide professional body for practitioners in the fields of trusts, estates and related issues. STEP has more than 16,500 members in 66 countries, providing them with
a local, national and international learning and business network focusing on the responsible stewardship of assets today and across the generations. The Cyprus branch of STEP was established in 2003 and local membership numbers now exceed 160 professionals from the island’s legal, accounting,
viding them with reliable and tested ways to increase their net profit after tax by choosing to use Cyprus is both a challenging and a rewarding endeavour. To keep abreast of tax changes, both local and international, so as to emphasise the competitive advantages of Cyprus, keeps me sufficiently busy to keep any possibility of boredom at bay! That said, I also work with corporate restructuring and M&As as well as with trust- related work so I would not say that I am a 24/7 tax lawyer. Gold: You have been highly praised on a number of occasions in publications such as Chambers Europe. What, in your view, makes a good corporate lawyer? E.Y.: A good corporate lawyer should combine sound technical legal ability, commercial astuteness, responsiveness and client service. Everyone likes to have their work acknowledged so it is indeed rewarding to receive praise from directories such as Chambers whose rankings rely on independently audited feedback from clients and peers. Gold: Are you confident that Cyprus can overcome the problems currently affecting its economy and banking system? E.Y.: Cyprus has generally proved to be lucky over the years, whether because of the inflow of investors and investments, strategic alliances with countries like Russia or now with the discovery of hydrocarbon reserves.
banking and trust fields. STEP supports a wide-ranging education and training programme, which was introduced in Cyprus in 2011, and more than 3,500 students worldwide are currently studying for STEP qualifications. STEP Diplomas and Foundation Certificates are widely recognised and the
designation “TEP” (Trust and Estate Practitioner), which STEP members can affix to their name, is highly-valued by employers worldwide. For further information: www. stepcyprus.com Persons interested in applying for membership of STEP Cyprus should contact secretary@ stepcyprus.com
But luck should not outplay strategy. To overcome our current economic woes we need a government that will rise to the occasion and lead Cyprus out of the crisis. Fiscal discipline, growth incentive policies for the private sector, the efficient use of public resources and a downsizing of the public sector will all help in this direction. As we do not exist in a vacuum, all national measures must be supplemented by a Europe-wide plan to stimulate the economy and break the vicious circle of high public debt, crushing austerity measures and sharp declines in growth. I am optimistic in the medium term. Gold: Do you think you would make a good politician? Why? E.Y.: I am a firm believer that you should be the change you wish to see in the world so I am politically interested and motivated to participate in public life. I think the underrepresentation of women in government in Cyprus has more to do with women not running for office rather than not being elected so the perceived gap is in political ambition rather than gender. I hope we can change that. Gold: How do you relax outside the office? E.Y.: I am an avid reader and I love to ski. I also like to clear my mind with yoga and this summer I have taken up SUP (Stand Up Pedal Board) which is great way to exercise and decompress.
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the reluctant
accountant LOIZOS-ANDREAS HAJILOIZOS STUDIED ECONOMICS AND ACCOUNTANCY BEFORE QUALIFYING AS A CERTIFIED ACCOUNTANT BUT IT WAS NOT HIS FIRST CHOICE OF PROFESSION. INDEED, IF HE HAD HIS WAY HE WOULD PROBABLY BE WORKING AS A SCUBA DIVING INSTRUCTOR. IN FACT HE IS GROUP INTERNAL AUDIT MANAGER WITH NEST INVESTMENTS (HOLDINGS) LTD., A CERTIFIED FRAUD EXAMINER AND A SUCCESSFUL LECTURER. SO WHAT WENT WRONG?By John Vickers, Photograph by Jo Michaelides
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hings rarely go the way they are expected. As a schoolboy, LoizosAndreas Hajiloizos dreamed of becoming a mathematician, which was why he chose to study pure and applied maths with physics at ‘A’ Level. However, when it was brought to his attention that many Cypriots graduating
with a university degree in mathematics were unable to find a job with direct relevance to their academic qualifications, he decided that it would be wiser “to do something more professional, something that would give me a job”. He therefore chose to apply for a university course combining economics and accountancy, despite having no previous background in either subject. “It was a bit difficult at first but I persisted and, of course, when you do economics and accountancy you inevitably become an accountant, fortunately or unfortunately!”
After the requisite three years of practical experience to qualify as a Certified Accountant, Hajiloizos feared that he had made a mistake: “I hated it! It wasn’t me. I wanted something different, though I didn’t know exactly what,” he recalls. In the event, he was helped by what at first looked like a huge hindrance: “After qualifying, I came back to Cyprus to do my army service but I was told that I would have to give up 26 months and at the age of 23 I was not willing to spend more than two years with 17-year-old school-leavers. Although I had started working with Deloitte and
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Touche, I told them that I was going back to the UK because of the army problem. They said they had opened a branch in Athens with three Cypriot partners and asked if I was interested in go there. I was!” Hajiloizos stayed there for 10 years and it was when a client called him to say that he was thinking of creating an internal audit department and asked if he was interested that he decided to study internal auditing. He gained practical experience and eventually studied for the examination. Becoming an internal auditor finally gave
him a chance to cast off the ‘accountant’ description. “Don’t get me wrong,” he says. “The schooling for becoming an accountant is the best there is. If you go through that, you will be a lot more structured, and the knowledge and experience is invaluable to you as a person. I always tell people that they should obtain the professional qualification in accountancy and then decide which direction they want to take. It gives you a great deal of flexibility“. To those who assume that an internal auditor is simply an accountant under another
name, he says: “With all due respect to the profession, an external audit involves taking a trial balance and checking the figures. With an internal audit you go inside the company and you see where these figures have come from. Checking the internal controls of the company to see if they are adequate or not is, to me at least, much more interesting”. Not content with this, however, Hajiloizos wanted to expand his knowledge even further and so he decided to become a Certified Fraud Examiner (CFE) or, in his words,
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“the person whose work starts where that of the internal auditor stops”. “The internal auditor carries out certain investigations but if you want to dig deeper, you need extra skills. The internal auditor carries out his audit and he may ‘see smoke’, suggesting that something untoward is going on. The CFE can dig deeper, do his research and find out if there is fraud or not.” Is working as an internal auditor/CFE a bit like being a detective? “We used to be called the policemen of the company,” he says, “but today we are its consultants, we are there to help, not to accuse anyone. If a company decides to introduce a new product, for example, the internal auditor should be in there from the beginning, looking at the processes and
to Cyprus he was the only CFE in the country. Today there are 15 qualified CFEs and he is in the process of gathering signatures to be able to set up a chapter of the Association of Certified Fraud Examiners in Cyprus. “In the future, once it’s up and running, those wishing to obtain the qualification will be able to do it through us,” he explains. “We will teach them the various subjects and they can sit for the exams here in Cyprus.” He is also a successful, popular and highly sought-after lecturer on a variety of topics related to his work. What are the qualities that, in his view, make a good speaker? He answers without hesitation: “First of all you need to be a master of what you’re teaching. You’re always going to come across someone who will ask you
“I always knew that I was going to end up here,” he says. “I have spent 20 years of my life abroad but for me Cyprus was always going to be the best place to settle down and have a family. Fortunately, by the time I came back for good the law had changed and I was able to do 3 months’ military service at the age of 35. So not a single regret. I’m very happy here.” Even the current financial/economic situation has not given him cause to have second thoughts. “I’m always an optimist. I look at things in a positive light and for me the glass is always half full. So hopefully the Troika will shake things up, we will comply with what they say and 2-3 years down the line we’ll all be better off. We need to go through a difficult period in order for things
We used to be called the policemen of the company but today we are its consultants procedures and closing any loopholes that might exist to safeguard the new product and, ultimately, the company. My work is to review the company’s processes and systems. I am not there to say that someone is not doing his job properly. Of course, if during the course of my work I discover that fraud has been committed, then the whole thing changes. Then I become a fraud examiner and I become the ‘policeman’”. As Group Internal Audit Manager of Nest Investments (Holdings) Ltd., Hajiloizos has 15 internal auditors around the world who effectively report directly to him. How precisely does he perceive as his job? “It entails a great deal of travel – one or two trips a month. We are multinational group with seven insurance companies, 18 licenses for World Trade Centres, real estate and more. There is a lot of diversification. If an Internal Auditor in one of the companies spots something unusual, he will let me know about it and I will go there. If they need my assistance as a CFE to take it to the next level, I will. But basically our job is to help the company by ensuring that everybody complies with the correct processes and procedures. We have an A-rated reinsurance company in Bahrain, for example, which has top-notch corporate governance, so we are using it as a model that we shall gradually copy elsewhere.” When Loizos-Andreas Hajiloizos came back
a difficult question and if you don’t know how to respond you’re going to lose your credibility. Secondly, you need to be enthusiastic about your subject. You’re trying to ‘sell’ it in a way and if you can’t show people that you like it, they’re not going to buy. And, of course, you need to be a good communicator and probably a bit of an extrovert. I like talking to people – you can put me in a place full of unknowns and in an hour I’ll know everyone’s first name – so it comes naturally to me.” When he is not working, Hajiloizos can be found doing “too many things to count”. First of all, he is a scuba diving instructor (“That’s my hobby and if I could earn a living as a PADI instructor I would put my qualifications in the cupboard and spend all my time in the sea. I love it!”); he also enjoys snowboarding in winter (“It’s not so easy here but in Athens I was on Mount Parnassus every weekend”) and mountain biking. He used to ride 120km a week and if he has slowed down recently, the auditing profession is not to blame: “As soon as you get married and you have a child, everything changes, though my hobbies and interests don’t stop altogether. But I have a 5-year-old daughter and we’re expecting our second child in September so life takes on other priorities”. This is one of the reasons he has never regretted returning to Cyprus.
to get better. I hope we have learned from Greece’s experience.” He also agrees with something that Frixos Savvides was quoted in Gold as saying a few months ago: ‘God has a soft spot for Cyprus’. “I believe this too,” he says. “In the ‘80s, the war in Lebanon led many Lebanese to come to Cyprus and they helped our economy. In the ‘90s it was people from the former Yugoslavia who came here in large numbers. Since the start of the new century the Russians have fulfilled this role. And now we have discovered natural gas which will help us out of the recession. Greece has deposits too so I am hoping that the EU will not allow Greece or Cyprus to go under if only because they want the gas.” Where does Loizos-Andreas Hajiloizos see himself in 10 years’ time? His first response is “as a proud father of two daughters” but when pressed to take a professional view he admits that he thinks he could be “a very useful member of an Audit Committee of one of the big companies in Cyprus such as a bank or as a member of the Board of Directors. I love my profession and I want to continue it. I don’t have ambitions to set up my own business. I’m happy where I am. The Nest Group is very diverse so my professional life is never boring, in fact, it is very exciting. In addition to this, I give my seminars and lecture which I enjoy very much. And at least I’m not an accountant…”
62 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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31/08/2012 15:48
opinion
China to the Rescue! How a Chinese-language website and local agents have helped one real estate company to attract sales
S
ince the start of the world economic downturn in 2008, the Cyprus real estate market has seen a sharp yearly drop in property sales, both in the offplan and resale segments. I have always believed that one of the main problems in both the real estate and tourism industries was our dependence on the British market. We should have had other strong markets in place as a contingency in case of a decline in the UK economy. Needless to say, the UK economy slowed down dramatically and here in Cyprus we were all basically caught ‘with our pants down’, totally unprepared! This has led to large layoffs in the property industry – including construction and administration – and numerous property developers and estate agents across the island have been forced to close their doors. If it were not for the Russian market, things could have been a lot worse. However, the Russian market alone has not been able to sustain and bring the property industry back to a respectable state. Fortunately, light has begun to shine in the real estate tunnel thanks to a bold government move in announcing that 5,000 permanent resident visas would be offered to Chinese nationals, provided that they purchase property worth at least approximately €300,000 (based on the evaluation of the Land Registry) and their income is substantial (€100,000 minimum per household annually). This allows Chinese nationals entry into Europe, gives them educational benefits for their children and travel benefits within China and Hong Kong. Over the past few months, I have had extensive discussions about the strong demand on the part of Chinese investors looking for Cyprus properties. Until recently, my company was selling to Chinese buyers but the numbers were never huge. However, in July, all that changed when we took a couple of steps and we are now kicking ourselves for not taking them earlier. The results have been amazing. In July 2012 we sold 42 properties to Chinese buyers. How did we achieve this? We translated our website to Chinese. We hired 11 Chinese translation specialists who translated over 400,000 words. As a consequence of this investment, every visitor to BuySellCyprus.com in China is automatically redirected to the Chinese version of the site.
Cyprus has now become number one on the list of countries where Chinese are looking to purchase a foreign property
info: Chris Hadjikyriacou is Sales Manager of BuySell Cyprus Real Estate. 64 Gold the international investment, finance & professional services magazine of cyprus
By Chris Hadjikyriacou
Following extensive travel and research throughout China, we then selected 30 Chinese BuySell representative agents with offices in Beijing, Shanghai, Guangzhou and Shenzhen. They all have real-time access to all our properties for sale, they can easily view details of each property (resale or off-plan) and they can print window cards in Chinese for their offices and brochures in Chinese. Every property we list for sale is automatically available to our network of Chinese agents throughout China the same minute. They can select and reserve properties for their clients before travelling to Cyprus. We also contacted Chinese immigration consultants and lawyers, who direct clients to us from all areas of the country. Tips about dealing with Chinese clients: • They tend to travel together and buy together in groups. Our agents organise large groups of purchasers together, thus in most instances, we hire mini-buses to visit all sites as a group. • Be prepared. They ask a lot of questions about anything and everything. Be knowledgeable and know your product well. • Be sure you select a local specialist lawyer to represent the Chinese buyers, who is up to date with the Cyprus immigration laws and Chinese permanent residency visas. Bear in mind that this is the main reason for their purchase. The emergence of the Chinese market has brought some excitement and hope to the Cyprus real estate industry. It will surely kickstart increased housing developments in certain local markets. At BuySell, we are very optimistic. Our Chinese agents tell us that Cyprus has now become number one on their list of countries where people are looking to purchase a foreign property. Chinese investors are very affluent and not afraid to spend money. Local restaurateurs have commented that their best customers are Chinese, since they like to order the most expensive dishes and premium wines. Boutique owners have also seen an increased demand for high-end items such as designer bags and clothes which they attribute to – yes, you’ve guessed right – Chinese customers. I believe that all Cypriots will benefit from this growing new market of home buyers which is about to give a great and much-needed boost to the local economy.
{september 2012}
ISSUE
18
86
+ BOOK REVIEW MONEY: The Trouble with Markets: Saving Capitalism From Itself By Roger Bootle
70
ECONOMY: Grand Pursuit: The Story of the People Who Made Modern Economics: A Story of Economic Genius By Sylvia Nasar 81
68
{money}
68 Eurozone: Back to Black The combination of public debt, a banking crisis, and an economic crisis impedes quick solutions.
72
78
72 Lufthansa Group reports upward trend in earnings Losses reduced to €20 million. 75 Pearly Queen of the City’s season of celebrity bloggers Vanessa Vallely is one of the most wellconnected women in the City of London.
78 Challenging Times for Business Interview with Joseph F.X. Zahra.
82
82 China and the Cyprus Connection Foreign and Chinese investors alike can make the most of business opportunities by using Cyprus. 84 Top Rates of Income Tax How much you pay from Aruba to the UAR.
86
{lifestyle}
86 Death by Smartphone Despite the demise of the camera, we are all photographers in the digital age. 88 Island Life for Billionaires Eight business tycoons who own private islands around the world.
THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS
gold_plus.indd 67
89
{economy}
{tax&legal}
{business}
LIFESTYLE: Skios By Michael Frayn
Gold 67
31/08/2012 12:36
eurozone
{money}
Eurozone: Back to Black The euro crisis is now in its third year. The combination of a public debt, a banking crisis, and an economic crisis impedes quick solutions and brings politicians and economists into unchartered territory. By Dr. Alexander Börsch
T
he glimmer of hope that the eurozone’s crisis had reached a positive turning point in the first quarter turned out to be alltoo-faint as the region’s economic woes returned with full force in Q2. In fact, the crisis is probably more severe and deeper than ever, and it is threatening the viability of the Eurozone in its current form. The reasons are political as well as economic. The rise of the radical left in Greece aroused new fears about a Greek exit from the eurozone. The so-called “Grexit,” once
considered unthinkable, has become a distinct possibility. However, the second round of Greek elections in June resulted in a pro-euro coalition. Meanwhile, the French presidential and parliamentary elections resulted in a socialist victory that is straining the Franco-German consensus on the handling of the euro crisis. The situation in the financial markets worsened in the second quarter. Risk premiums for Italian and Spanish bonds increased, and concerns about the future of the eurozone led to capital drains from periphery countries and greater insecurity about the eurozone’s future. The Spanish banking sector will receive up to €100 billion to offset non-performing loans from the real estate bubble, making Spain the first big eurozone country to apply for a European bailout. Whether or not the decisions taken at the European summit in late June will bring back the glimmer of hope in Q3 remains to be seen. Eurozone GDP stagnated in the first quarter of 2012 and was marginally (0.1%) below the level it achieved in the first quar-
68 Gold the international investment, finance & professional services magazine of cyprus
ter of 2011. The unemployment rate lingers at 11.2%, the highest unemployment rate in the history of the eurozone. Looking behind the curtain of averages reveals a persistently wide variation between the northern and southern eurozone members. Austria’s 3.9% unemployment rate is the lowest in the eurozone, and Spain’s is the highest. In fact, the Spanish unemployment rate is only very slightly below the US unemployment rate at the height of the Great Depression in 1933 (24.9%). The Economic Sentiment Indicator (ESI) for the eurozone, which includes confidence indicators from industry, services, and consumers, fell to 89.9 in June. The long-term average – and the threshold between a negative and a positive outlook – is 100. Confidence in industry and services fell in May and June. However, as a ray of hope, the retail trade indicator rebounded in June after a sharp fall in May. Consumer confidence fell slightly after an increase the month before. Interestingly, consumer expectations about their own financial situation improved in the eurozone.
Unemployment rate in percentage
3.9
24.3
5.2
5.4
10.2
11 21.7 ■ Spain ■ Greece ■ eurozone ■ Italy ■ Germany ■ Netherlands ■ Austria
Source: Eurofast
The economic climate in Germany is still slightly positive, according to the ESI, but it is declining. This is confirmed by the Germany-specific ZEW index. From May to June, it experienced the sharpest fall on a monthly basis in 14 years. While the index is a snapshot, its fall could signal that the euro crisis is starting to hit Germany. The renewed crisis has generated many ideas about how to solve it. The proposed solutions on a European level include fiscal union, the introduction of euro bonds, European deposit insurance, and a banking union. Yet, these proposals would require a much higher degree of integration than currently exists in Europe. What they have in common is that they imply substantial redistributions in terms of money and risk between northern and southern eurozone countries to recreate the periphery’s access to funding. The economic rationale is that, as a whole, the eurozone’s debt-to-GDP ratio is comparatively favourable. In fact, the eurozone ran a budget deficit of 4.1% of GDP in 2011, which is less than half the size of the
deficits in the UK and the United States. Therefore, the fragmented nature of European debt is one of the key problems. While the economic logic is intuitive, any solution needs to consider the character of the European Union and its decision-making process. The European Union basically remains an association of nation-states with supra national characteristics and many veto points and actors. Realizing a true fiscal union on a European level, for instance, would require completely overhauling the EU’s character. It would require a harmonisation of fiscal policies, and by implication, such harmonisation would need to span very idiosyncratic European welfare states and tax systems. The associated loss of national sovereignty would be unprecedented in EU history. To be of any relevance for the current crisis, this quantum leap would need to be undertaken quickly. Looking back at the development of the European Union reveals two lessons. First, comprehensive moves toward integration take time. Consider the most recent step toward integration, the Lisbon Treaty. The drafting of the EU’s constitutional treaty started in 2001, and it took three years to finish and sign it. It
Realizing a true fiscal union on a European level would require completely overhauling the EU’s character was then rejected in several national referenda, and a new treaty had to be developed. The Lisbon Treaty finally came into force at the end of 2009. Second, there are different sorts of integration, and the European Union tends to favour one over the other. European integration theorists argue that European integration is biased toward negative integration. Negative integration is about market creation and removing barriers to free trade and competition. The single market was the major milestone in this regard. Positive integration – the harmonisation and centralisation of policies and regulations – has always been much harder. It often failed
due to the very different public policies and governance structures of the member states as well as their diverging interests. A substantial jump in integration and the corresponding transfer of sovereignty to the European level would require consent on both an intergovernmental and a national level. It is quite likely that these decisions would need to be confirmed through referenda in some countries, while in others, it would become an electoral focal point. Whether or not the electorates in the creditor and debtor nations are in favour of a deeper political union or of higher inter-European redistribution is an open question. This uncertainty would be drag on the financial markets and the credibility of plans about deeper integration. Far-reaching plans for deeper integration and big-bang solutions will therefore face very substantial hurdles. It cannot be excluded that the depth of the current crisis could generate completely new patterns of integration. However, if history is any guide, the way out of the current crisis will likely be a step-by- step process. It will likely favour solutions that solve pressing problems over ones that require comprehensive institutional or systemic reforms. There are two certainties about the eurozone’s future. First, eurozone countries need to deleverage and bring their fiscal houses in order because public debt has reached clearly unsustainable levels. Second, the eurozone needs growth. While these two certainties may go hand in hand in the medium and long term, they tend to be contradictory in the short term. Reducing state expenditure and, therefore, aggregate demand during a period of high unemployment and spare capacity does not help growth. Worse, traditional economic stimulus is not viable. While the interest rate, which is currently at 0.75%, could be lowered, it is unlikely to have a significant effect. Liquidity is not the problem. Investors’ unwillingness to finance troubled eurozone countries is at the heart of the crisis, so comprehensive deficit spending is also not a realistic option. Moreover, postponing fiscal consolidation is difficult because it would shatter the alreadyfragile confidence of the eurozone’s investors. Given that there is no alternative to fiscal consolidation, two components are crucial: timing and design. In terms of timing, a grad-
the international investment, finance & professional services magazine of cyprus
Gold 69
eurozone
Public spending on pensions and education, R&D expenditure 2010
18 16
investment-oriented spending lags behind the European average. The euro crisis is now in its third year. The combination of a public debt, a banking crisis, and an economic crisis impedes quick solutions and brings politicians and economists into unchartered territory. The institutional set-up of the European Union will favour small steps or “can-kicking” solutions. This is not necessarily a bad thing – if the can is kicked in the right direction.
(or latest year available)
15.3
14
13.6 12.5
12
11.3 10.1
10 8 6 4 2 0
5.79
5.01
4.7
1.3
1.4
Italy
Spain
5.41
4.09 1.6
0.6
Greece
portugal
2
eu 27
BOOK REVIEW The Trouble with Markets: Saving Capitalism From Itself
■ Public pension spending % GDP 2010 ■ R&D spending % GDP 2010 (or latest year available) ■ Public spending on education % GDP 2009
By Roger Bootle (Nicholas Brealey
Source: Eurofast
T
ual approach to fiscal consolidation would benefit growth in crisis countries. However, it can only work with credible plans for medium- and long-term consolidation. A more gradual approach requires a clear roadmap for deficit reduction. After all, investors want to be sure that they will be repaid at some point in the future. Thus, the prospects for the medium- and long-term fiscal sustainability and economic growth are crucial signals to investors and financial markets. Growth has a dual meaning. It refers to short-term growth in the business cycle as well as to the economy’s long-term growth potential. Bringing these two together to the largest degree possible should guide the design of fiscal consolidation. Three factors are critical in this regard: Multiplier effect: In the short-term, the multiplier effect of government spending is an important way to preserve growth. For example, money flowing to low-income households is likely to have a high multiplier effect as a large percentage of this money will be spent. Composition of consolidation: The nature of fiscal adjustments –whether they focus on cutting public spending or
Publishing, 2012) RRP: £12.99 (£9.09 from amazon.co.uk)
increasing taxes – makes a difference for growth. Empirically, spending cuts are less damaging to economic growth than tax increases.
The institutional setup of the European Union will favour small steps or ‘cankicking’ solutions Investment versus consumption orientation: When it comes to public spending, structure is just as important as size. Public expenditure supports the economy’s growth potential most effectively with investments in education, infrastructure, and technology. Thus, a focus on these areas as opposed to purely consumptive spending raises growth prospects and productivity. Currently, the budget priorities in the crisis countries are geared toward consumption, for example, in the form of pensions, while
his second, fully updated edition of Bootle’s widely acclaimed book has been expanded to include a major new chapter on The Trouble with the Euro based on the author’s Wolfson Economics Prize-winning essay. Bootle extends his analysis to include the continuing sovereign debt crisis, the plight of the euro, the intensity of the squeeze on public spending and consumer incomes, and the boom in commodity prices and gold. It provides an excellent explanation of the current crisis (what he calls the ‘Great Implosion’) as well as an analysis of the bigger, deeper questions about the future of capitalism, the role of markets and government. In his last book, Money for Nothing, Roger Bootle predicted the property crash and subsequent financial crisis with great accuracy. Here he offers a way out of the almighty mess that excessive debt has created, one that could tame the markets and make them work for the benefit of all. Capitalism, he thinks, can be saved from itself but only if policymakers respond to the challenge. Essential reading.
info: Dr. Alexander Börsch is Head of Research, Deloitte Germany. This article is taken from Deloitte Research’s Global Economic Outlook, 3rd quarter 2012: The Summer Lull. 70 Gold the international investment, finance & professional services magazine of cyprus
Outsourcing Guide - myCVpro Ad.pdf 1 24-Jul-12 5:30:56 PM
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aviation
{business}
Lufthansa Group reports upward trend in earnings and reduces losses to €20 million No Frankfurt-Larnaca flights this winter
D
eutsche Lufthansa AG has reported an upward trend in earnings performance in the second quarter of this year. In April-June, the Group earned an operating profit of €361m, nearly making up the loss sustained in the first quarter. Positive factors included consistent capacity and yield management in passenger and cargo traffic, clear restructuring successes at Austrian Airlines and good earnings contributions from the service companies. In the first
six months of the year, the latter all increased their operating profit in comparison with the same period last year. High fuel costs, persistent price pressure, the air traffic tax payable in Germany and Austria and fees for emissions trading certificates all diminished the Group’s profit, however. At the end of the first half-year 2012, the Company recognised an operating loss of €20m, which is nonetheless €134m
Developments in fuel prices and the influence of macroeconomic factors remain hard to predict
72 Gold the international investment, finance & professional services magazine of cyprus
less than in the same period last year. The Lufthansa Group increased its revenue by 6% to €14.5bn. After six months, the net loss for the period came to €168m, which represents an improvement of €38m on last year. This includes a result from discontinued operations of €36m, reflecting the closing of the sale of British Midland Ltd. Presenting the half-year figures, Simone Menne, Chief Financial Officer and responsible for Aviation Services of Deutsche Lufthansa AG as of 1 July 2012, said: “By acting systematically, we want to ensure that we can continue to invest for our customers, secure and create jobs for our staff and maintain our
Lufthansa Group
January-June 2012 2011
Change
Revenue
€14.509m
€13.685m
€824m
of which traffic revenue
€11.851m
€11.243m
€608m
Profit from operating activities
-€49m
€272m
-€321m
Operating result
-€20m
€114m
-€134m
Adjusted operating margin*
0.2%
1.2%
-10%
Net profit
-€168m
-€206m
€38m
Capital expenditure
€1.385m
€1.437m
-€68m
Cash flow from operating activities
€1.662m
€1.692m
-€30m
Employees as of 30.06
117,416
118,766
-1.350
Earnings per share
-€0,37
-€0,45
€0,08
revenue, did have a positive effect profitable growth. We cannot avoid on the company’s earnings, but taking some unpleasant steps, but were not able to make up for they will not compromise quality. higher fuel expenses and costly The positive earnings performance increases of fees and charges. and the lower unit costs in the Lufthansa German Airlines second quarter give us confidence reported an operating loss of that it is worth the effort.” As Simone Menne €300m (previous year: €146m) part of its SCORE programme, the for the first six months. SWISS reGroup wants to improve its operating mained profitable, earning an operating profit result compared with the year 2011 by at least of €48m. High fuel costs and the strong €1.5bn by the end of 2014. The airlines in the Passenger Airline Group Swiss franc nevertheless meant that this was business segment pursued their strict capacity well below last year’s good result of €104m. Austrian Airlines successfully completed and yield management in the second quarter and all successfully increased their load factors important restructuring measures by transferand traffic revenue. It was the rise in fuel costs ring its operations to Tyrolean Airways, thus taking another step towards becoming compared with last year which essentially competitive. This resulted in positive noncaused the segment to record an operating recurring effects, enabling the company to loss of €179m (previous year: €100m). generate an operating profit of €26m (previThe operating segment is again adjusting its ous year: -€64m) in the first half-year. Withcapacity growth with the aim of continuing out this effect the operating result would have with the positive sales and earnings perforcome to -€55m. In the Logistics segment mance. In its winter flight plan for 2012the high price of oil and lower demand for 2013, the Passenger Airline Group plans to logistics services adversely affected the course cut available seat-kilometres year on year by 2.5%. This means growth will be cut to 0.5% of business, as did the strict night-flight ban at the hub in Frankfurt. The half-year operating for the full 2012 year result of €47m (previous year: €133m) is Lufthansa German Airlines is using the positive, although well below last year. capacity reduction to phase out older aircraft In a challenging first half of 2012, the ahead of schedule and for seasonal adjustments to the flight timetable. The company is remov- Lufthansa Group profited in particular from its business model: all the service segments ing European connections from Frankfurt to Casablanca, London-Gatwick, Larnaca, Palma increased their operating profit compared with last year. For Lufthansa Technik the figure for de Mallorca and Naples from the winter flight the first six months of the year was €144m plan, in addition to the alterations previously (previous year: €106m), an increase of 35.8%. adopted. The capacity measures implemented The Catering segment improved its operating in the first half-year, along with higher traffic
result to €23m (previous year: €21m) and the IT Services segment reported an operating profit of €8m (previous year: €6m). For the full year the Group is still expecting demand to be positive and is planning to continue its restrictive capacity management. At the same time, developments in fuel prices and the influence of macroeconomic factors remain hard to predict. The Group is still forecasting increased revenue and an operating profit in the mid three-figure million euro range for the full year. This forecast does not include restructuring costs in connection with the SCORE programme and the planned reduction of jobs included in it. On present estimates these will come to between €100m and €200m for the current year. The first half-year of 2012 in figures In the first half-year of 2012, the Lufthansa Group’s revenue totalled €14.5bn – an increase of 6.0% on the same period last year. Traffic revenue improved by 5.4% to €11.9bn. Overall, the Group’s operating income went up to €15.6bn in the reporting period, an increase of 3.5%.
The Group is still forecasting increased revenue and an operating profit in the mid three-figure million euro range for the full year Operating expenses rose by 5.7% in the first half-year to €15.6bn. One of the main reasons was the €642m rise in fuel costs, which came to €3.6bn in total. This represents an increase of 22%. Included in this amount is a positive contribution of €154m from price hedging. Fees and charges were up 4.5% on the previous year. The Lufthansa Group reported an operating result of -€20m in the first half-year, down by €134m in comparison with the previous year. The net result for the period was -€168m. Last year the corresponding figure was -€206m. Earnings per share improved to -€0.37 (previous year: -€0.45). Lufthansa invested €1.4bn in the reporting period. Of this sum, €1.2bn went on expanding and modernising the fleet. Cash flow from operating activities comes to €1.7bn and free cash flow (cash flow from operating activities less net capital expenditure) to €584m. At the end of the first six months of the year the Group has net debt of €2.3bn. Its equity ratio is 26.8%.
the international investment, finance & professional services magazine of cyprus
Gold 73
education
{BUSINESS}
CIPR Diploma Courses from Intercollege Globaltraining
ntercollege Globaltraining has been approved by the CIPR UK, (Chartered Institute of Public Relations) as an official provider of the CIPR Diploma Qualifications in Cyprus, Greece and Romania. The CIPR courses start in Cyprus in October 2012 and Intercollege Globaltraining provides training and development opportunities for practitioners at all levels. Both Professional Courses, CIPR Diploma in Public Relations and CIPR Diploma in Internal Communication, are suitable for those
working in PR, Marketing, Advertising and Human Resources, for graduate students and also for people who already have a few years’ or more PR experience and wish to underpin and develop their existing knowledge and skills in the area of PR and Internal Communication. Marcos Komodromos, the CIPR course leader for Cyprus, Greece and Romania, is a Chartered Trainer and CIPR Accredited Practitioner. He gave Gold more details about the two CIPR Diploma courses. “The CIPR Diploma in Public Relations is a part-time postgraduate course of 68 teaching hours that develops a candidate’s strategic PR planning and communications management skills. The CIPR Diploma in PR will equip participants with the knowledge, tools and techniques that they need to progress to a senior management position. On successful completion of the Diploma, students can fasttrack to become CIPR Accredited Practitioners – a hallmark of their commitment to professional development. The Diploma takes an in-depth look at PR as an integral part of successful business practice. Participants have the opportunity to examine case studies and practical PR examples and analyze strategic communications in action. CIPR Diploma in PR topics include PR as a management function, theoretical approaches, reputation management, corporate responsibility and stakeholder theory, issues and crisis management and PR planning. Classes run from October 2012-May 2013.
Marcos Komodromos
The CIPR Diploma in Internal Communication, consisting of 24 hours of teaching time, takes an in-depth look at what makes communication effective, how to use research to develop great internal communication strategies, and the nature of change management communication. It will equip participants with the strategic internal communication and management skills that they need to operate at board level. This qualification is aimed at more experienced practitioners who wish to develop their strategic internal communication and management skills or those who have studied for the CIPR Diploma in PR. CIPR Diploma in Internal Communication topics include analyzing organisational culture, audit methodologies and application, change management theory, using research to inform and help develop internal communication strategies, internal communication for employee engagement and the psychology of communication. Classes start in December 2012 and run until April 2013. CIPR qualifications are industryrecognised and are the only professional qualifications awarded by a Chartered body. Whether you are entering the profession or an experienced PR practitioner, Intercollege Globaltraining offers courses at every level. For more information regarding timetables and cost candidates may visit our official website www.globaltraining.org .”
74 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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31/08/2012 09:40
networking Vanessa Vallely
{BUSINESS}
Pearly Queen of
the City’s season of celebrity bloggers AN IMPRESSIVE CAREER IN FINANCE SPANNING 23 YEARS AND THE SUCCESS OF HER NETWORKING WEBSITE MEAN THAT VANESSA VALLELY IS ONE OF THE MOST WELL-CONNECTED WOMEN IN THE CITY OF LONDON. By Angela Singleton, London Press Service
V
anessa Vallely founded her latest venture – We are the city (www. wearethecity.com) – three years ago to help women easily access information, products and services that will help them in their professional and personal lives. The information, events and networking portal that she runs with her IT specialist husband, Stewart, now gets 500,000 hits a month. “I felt there was a gap in the market in terms of providing City women access to information about how they could ‘up-skill’ outside of their corporate environment,” she said. “It was my own frustrations as a working mum of two that every time I needed to find information that related to me, a City female, in relation to my working day I had to go on a lengthy Google search.” She continued, “We are the city is a community of like-minded, career-orientated and entrepreneurial women who will hopefully use our site and our network to make a difference. It’s also a conduit for charities to reach High Net Worth women and it provides advertising space for young entrepreneurs whose products fit my demographic.” The site has already extended its activities beyond the City to other areas of London including Canary Wharf and the West End. Celebrity bloggers are the latest contributors to the site.
Vallely, 39, explained, “This summer we are being treated to a very personal insight into the lives of over a dozen celebrity and guest writers who will be blogging for us. They are all truly inspirational – from the businesses they have founded, to their charity, campaigning and diversity work.” The first blog is written by her; other bloggers include award-winning garden designer Kate Gould; a campaigner against arranged marriages, Jasvinder Sanghera and Kal di Paola, founder of www.buymywardrobe.com Heba Elawadi is another blogger to be featured. A young designer whose work blends her exotic North African roots with a love of London life, she graduated from the American Intercontinental University in London in 2005. Since then she has gone on to found her own label www.hebz.com and also recently launched www.bungalowh.com that showcases fashion and lifestyle works by upcoming designers with the support of international brands. Aside from the website and her career as business manager at Aviva Investors in London, Vanessa Vallely is an accomplished motivational speaker and is booked to address women’s conferences across the globe on subjects including diversity, empowerment, mentoring and female networks. She started her career in the City at the age of 16, working to bring money home to the family household. Her parents had split up when she was a baby and her mother, Pippa, worked long hours as a cleaner that inspired
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her daughter’s strong work ethic. “I went through the first few years of my career jumping from job to job, getting the experience I needed and then moving on. It was only when I started my family that I began to really focus on my career,” said Vallely. “I have chosen to work for employers and bosses who are family friendly and appreciate that giving people balance reaps rewards. I have given the best years of my career to those employers as they have enabled me to grow my career, both inside and outside of work and enabled me to have flexibility to bring up my children.” Another important part of her life is her charity work. Because of her family heritage, she was recently crowned Pearly Queen of the City of London and is often seen wearing the traditional “pearly suit”, covered with hundreds of sparkling mother-of-pearl buttons, at fundraising events. She took over the City title from her father, Victor, who is retiring due to ill health. The family are members of the Hitchen clan of pearly kings and queens, one of the 28 original pearly families “ennobled” by the movement’s founder, Henry Croft, in 1911 to carry on his charitable activities on behalf of the capital’s 28 boroughs, and the City of Westminster and City of London. “Raising money has been the cornerstone of the pearlies since Henry Croft started wearing buttons. It is simply what we do. Every event we attend is about raising money. It is something I, and all pearlies, are proud of.”
THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
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tax, audit, advisory
{BUSINESS}
HTT AUDIT LTD:
A Local Firm with a Global Vision
H
TT Audit Ltd was formed in 2009 by a group of young and dynamic professionals with significant experience in the audit, tax and advisory fields after identifying a need to proactively and continuously surpass clients’ expectations. The company’s mission statement is “to continuously add value to our clients through the provision of the highest quality professional services on a timely and cost effective basis”. HTT Audit Ltd offers a range of services such as statutory audit, accounting, international and local tax planning and compliance, as well as corporate & financial advisory services including internal audit, business valuations and restructurings along with listed companies’ related services. The accounting department offers a number of service packages for local clients ranging from simple VAT preparation and submission services to fully outsourced accounting solutions, which minimize both administration time and payroll costs. In addition, the firm offers a variety of ancillary services to respond to the needs of international businessmen, such as banking, company formation and administration, and assumes responsibility for preparing the applications for permanent residence permits and Cypriot passports, for which its success rate so far is 100%.
HTT has recently invested in its Human Resource department to better accommodate its clients’ needs in relation to payroll processing, to provide options for government and other funding in relation to newly-hired employees and to accommodate training and development of clients’ manpower. In a nutshell, HTT Audit Ltd can offer every client the so-called “One-Stop Shop” service solution through its qualified, high calibre team along with a network of experienced professional associates and guarantees the provision of a comprehensive range of services for both local and international clients. Personal contact, a prompt response to every client’s need (‘same-day response’ policy) and competitive pricing, coupled with the highest possible levels of quality, have been the firm’s core competences, which have enabled it to differentiate from and gain a competitive advantage over its competitors. While it is a local Cyprus firm, its vision is global. In the course of its short history, HTT Audit has successfully performed various international tax structures and managed to establish alliances and associates across the globe, especially in the United Kingdom, India, Greece, South Africa, Russia, Poland, China, Scandinavia and other jurisdictions. The company’s ultimate target is the shared enrichment of knowledge and expertise through a network of associates to satisfy the needs of international clients. Despite the global economic crisis, HTT Audit Limited has invested heavily in international expansion and organised a num-
ber of seminars promoting the use of Cyprus companies by international investors. Among the cities in which it has given presentations lately are Athens, London, Moscow, Warsaw, Krakow, Poznan, New Delhi, Mumbai, Beijing, Johannesburg, Madrid and Lisbon. The firm’s latest achievement in its effort to establish a global presence is its recent appointment as a full member firm of the Reanda International Accounting Network (www. reanda-international.com), a strategically planned move towards expanding its influence and networking in the cash-rich Asian market. HTT Audit Ltd is the first European member of the Network, which is ranked among the top 20 Accounting Networks worldwide. Currently the Network has members in China, Hong Kong, India, Japan, Malaysia, Macau, Cambodia, Vietnam, Singapore and Australia. The experience and professionalism of its three founding partners – all young and highly qualified professionals, Chartered Accountants with a Big Four Audit firm background – have contributed to the firm’s success story. Each partner is a specialist in his own field and jurisdictions, offering a personalised service in the clients’ best interests. Charilaos Hadjiioannou graduated from Boston University’s School of Management in 2003 with a dual concentration in Accounting and Finance and became a member of ICAEW as a Chartered Accountant in 2006, while working with a Big Four audit firm in Cyprus. He progressed to a managerial position, responsible for the audit and taxation
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Adonis Theocharides
engagements of companies within the financial services, manufacturing, retail, food and trading sectors. He remained with his former employer until 2009 and after six consecutive years he established HTT Audit Limited and become a partner in his own firm. Currently, he is involved in the audit and assurance department along with international tax planning and structuring services in jurisdictions including Greece and other EU countries, BRIC countries like India and China, and in South Africa and United Kingdom. Phivos Theocharides graduated from Boston University’s School of Management in 2005 with a dual concentration in Accounting and Finance and became a qualified member of ICAEW as a Chartered Accountant in 2008, while working with a Big Four audit firm inCyprus. He progressed to a managerial position, in charge of the audit and taxation engagements of companies within the construction, real estate, investment holding and financing, and trading sectors. After four successive years with his former employer he decided to join HTT Audit Limited and become a partner in his own firm, as he was
Phivos Theocharides
among the founders of the Company. He is currently involved in audit and assurance services along with international tax planning services in jurisdictions including Poland, Russia and Ukraine, Greece and the Americas. Adonis Theocharides graduated from Boston University’s School of Management in 2004 with a dual concentration in Accounting and Finance and qualified as a member of ICAEW as a Chartered Accountant in 2007, while working with a Big Four audit firm in Cyprus. He progressed to a managerial position, responsible for the audit and taxation engagement of companies within the tourism and hotel industry, media, investment holding and financing, and trading sectors. He remained at the audit firm until the middle of 2008, when he was appointed Chief Financial Officer of a listed company engaged in the food and beverage industry. He then joined HTT Audit Limited, as he was also among the founders of the company, at the beginning of 2011 and he is engaged in audit and assurance services along with business advisory services, with considerable expertise in business valuations, listed companies related services
Charilaos Hadjioannou
and financial due diligence reviews. He is also involved in international tax planning and structuring services in jurisdictions including Scandinavia, Israel, the Balkans and Asia. HTT Audit Ltd was established to bring high-quality services to its clients, which it considers to be business partners, and to assist them in maximising their results. Satisfying its business partners’ needs and guiding them towards achieving their goals is the core objective of the organisation. For information, contact: • Adonis Theocharides, Director atheocharides@httaudit.com.cy • Phivos Theocharides, Director ptheocharides@httaudit.com.cy • Charilaos Hadjioannou, Director chadjioannou@httaudit.com.cy HTT AUDIT LTD 27, Evagorou Avenue, Eirini Tower, 6th floor, Office 61, 1066, Nicosia Tel: (+357) 22670680 Fax: (+357) 22670681 e-mail: info@httaudit.com.cy Website: www.httaudit.com.cy
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31/08/2012 09:39
89,90
100 competitiveness
{economy}
30x5
45,24
9-5+3
%
Challenging Times for
Business 78 Gold the international investment, finance & professional services magazine of cyprus
Planning and strategy are key to maintaining competitiveness
%
conomist Joseph F.X. Zahra, FoundingPartner and Managing Director of MISCO, Malta’s leading recruitment and consultancy firm, gave an address to the Cyprus Branch of the Institute of Directors in July on Challenging Times for Business: Restoring Competitiveness. Gold spoke to him about some of the issues he discussed, as well as the future of the eurozone and what Cyprus can learn from his home country of Malta. Gold: In you recent lecture in Cyprus, you answered the question ‘Why are we in such a mess?’ by suggesting that one of the reasons is that the world is moving too fast for us, even though we are the ones responsible for the pace of development. Isn’t this a paradox? Joseph F.X. Zahra.: In my analysis of what went wrong, I gave a long list of factors which brought us where we are now, including those of social structures that did not respond as fast to changes in the economy such as trade unions and political parties, with their thinking and style of government and management. Your point about technological change and adjustment reflects this ‘stickiness’ with which humans adapt to a changing environment. The implications of Internet and cloud technology, social media and mobile technology are much bigger than we can imagine. The impact on office and home architecture, the consumerisation of technology with products like the tablet and the iPhone, efficiencies at work and changing human relationships through Facebook and Twitter are immeasurable and institutions such as businesses, political parties, public institutions and trade unions generally react to these reluctantly and belatedly. Gold: You also say that today’s world is characterised by disillusionment with politics, a lack of ideology and no sense of vision or mission. Can this be changed? And by whom? J.Z.: Opinion polls in the western world clearly show that people have lost confidence in the traditional political parties. Movements such as the Tea Party in the USA and Cinque Stelle in Italy where a
comedian with political irony and cynicism has won as many votes as the other established political parties in the latest regional elections, clearly indicate that political forms and structures are changing. Civil society is clamouring for more space to make its views heard. We are living in a period of flux which has disoriented whole populations. The simple choreography of Left and Right in politics is now something of the past. We are still in search of a new ideology and language that captures the moment. So far we have not seen clear evidence of this, but we know for sure that this is being shaped somewhere and by someone.
The process is twofold. Look internally and externally. Internally, is my business obsessed with seeking value in whatever it decides and does? Are we eliminating waste in our business? Are our processes antiquated? Are we paying unnecessary overtime, and making unnecessary purchases? Are we maximising value to our shareholders through the value we are giving our customers? Are we listening enough to our customers? Seeking value and eliminating waste will mean lower costs and higher efficiency. When I look externally, however, I need to look at my market and not only at what is already available in the market, and I need to listen to existing and prospective customGold: What effect is the present situaers and to understand what solutions they tion having on business? are seeking to satisfy their needs. It J.Z.: Uncertainty is creating anguish is therefore not a matter of being and anxiety in the busia copy cat, of cutting ness community. This and pasting what others tension can be converted are doing, but in difEffective into a positive output ferentiating what I can and results. Ultimately, management provide in the light of the “bottom line” lies customer needs and depends entirely in human discernment wants. My question is on effective – in decision-making how seriously do we leadership and decision taking. take market research? Business is always confronted by choice Gold: What, in your and opportunity and it view, are the key aspects of effective has to realise that it will fail miserably if it management? tries to resist or ignore this change. It goes J.Z.: Effective management depends even beyond just coping with it. Business entirely on effective leadership. You can has to be an agent of change by particihave the structures, systems and processes pating in its initiation through creativity in an organisation but unless you have and innovation, and then in managing inspirational and visionary leadership, this change effectively. However, busithe structures, systems, etc. will remain ness is not an inanimate mechanism; it is inanimate and dead. Leadership is what populated by human beings. And human animates an organisation, and the vibeings need to be inspired to change, sion, attitude, behaviour, decisions and motivated to work, and developed to actions of leadership are what move the move with the time. Leadership in busicompany. Do not misunderstand me: we ness entities therefore becomes critical. Is need proper planning and preparation, leadership in a business, be it a family or a mechanisms in place, appropriate selection listed company, visionary enough to detect of staff, techniques, performance manageopportunities in this otherwise bleak and ment systems, purchasing policies which dark scenario? are robust and transparent, good financial reporting, etc... But all this cannot be efGold: How can businesses maintain fective without effective leadership. their competitiveness if they are struggling to survive? Gold: How significant is the role J.Z.: Every CEO today has to ask the of technology in business question, “Will my company still exist in a today? year’s time? And should it?” The answer to J.Z.: Technology this question lies in the way that business is very significant. is reacting to this bleak economic climate. Technology is
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competitiveness
Joseph F.X. Zahra
J
oseph F X Zahra holds a Masters Degree in Economics and is a Chartered Marketer, a Fellow of the Chartered Institute of Marketing and a member of the Market Research Society (UK). He is a founding partner and Managing Director of Market Intelligence Services Co Ltd (MISCO), MISCO International Ltd, MISCO Consulting Ltd and HR Outsourcing and Temping Services Ltd. He is also chairman of the Impetus Europe
changing the face and heart of business. The ICT market is estimated at $ 4.7 trillion in 2012 and all innovations are a result of investments in technology. Technology is not only inward businessfacing i.e. with radical changes happening in work patterns, processes, efficiencies, but also customer-facing with the significant force of social media and the radicalisation of distribution channels via the Internet. Sadly, not all business is adapting to this change at the rapid rate with which it is happening.
is in The crris ip in leade icsshhas polit e major been thibutor to contr urozone the e risis c
Consulting Group Ltd. and of Middlesea Insurance plc and a member of the Board of Directors of many other companies. In the past he has held various public positions, including those of Board Member of the Central Bank of Malta (1992-1996), Chairman of Bank of Valletta plc (1998-2004), Chairman of Maltacom plc (2003), Chairman, National Euro Changeover Committee (2005-2008), Chairman of the National Commission
Gold: Should businesses be preparing to face the next crisis or should they be focusing totally on the present? J.Z.: Decisions on the future can only be taken if a business has a clear strategy and plan on how to deal with the present. We cannot be lost in the present and strategise for the future. Businesses are learning organisations that absorb and – hopefully – interpret the signs of the time. How much is this being done by business today? How much are they engaged with consultants in learning from the “big picture”? How much do they read and participate in conferences and seminars to learn by interacting with other executives of other businesses? Business can only be effective if it is challenged by extroversion, openness, and outreach. Gold: What is your “anti-crisis manifesto”? J.Z.: Today, besides seeking clarity in its vision of the future, every business should have an anti-crisis manifesto. Business leaders should have a genuine and serious thirst for change. But this is not only conceptual, it necessitates a practical side – can we reorganise our priorities to face this new reality? Can we discuss our business plan? Change our business
80 Gold the international investment, finance & professional services magazine of cyprus
for Higher Education (2006-2008), and Chairman of the National Council for the Arts and Culture (2002-2003). He addresses seminars on industrial development, managerial economics, financial services and management all over Europe and in North America and has over 25 years experience in training people and consulting companies and organisations, across a diverse range of industries and professions.
model? How am I going to keep my best people in the company? How can I go on investing in what will create value rather than cut my investments indiscriminately? Customers today have changed with the crisis and I therefore need to understand their new problems so that I can give them new solutions. Listen, listen and go on listening to your staff and to your customers... it is most likely that they have the solution to the problems. Can I reorganise my business in any other way? Merge with another business, acquire a new business? The anti-crisis manifesto is based on the value of opportunity and hope in change. Gold: Apart from the most obvious ways, Cyprus and Malta are similar in that they both have a thriving services sector. Are there areas in which each can learn from the other? J.Z.: Cyprus and Malta have more than the obvious similarities of being islands, former British colonies, at the same stage of economic development, enjoying a wide use of the English language, a Mediterranean culture, comparable public services and governance, and being EU and eurozone members. Yes, Malta has also developed a financial services sector which currently contributes 15% to the country’s GDP. There is a lot that we can learn from each other – from our successes and
our mistakes. The bottom line in financial services, however, is reputation and that is acquired by having a robust and serious regulatory regime and regulator. The cost and loss of lenient regulation can have far-reaching effects on how the country is perceived by the outside world. Gold: Given the crisis in the eurozone, are most Maltese happy that they gave up the lira for the euro? J.Z.: Malta has been faring well compared to other countries in Europe and members of the eurozone. A number of factors have contributed to the fact that we have economic growth, albeit of less than 2%, and our fiscal deficit is expected to be at less than 3% by the end of 2012 (it was 2.7% in 2011), and public debt at 68%. Malta’ entry into the eurozone together with Cyprus in 2008 has contributed to increased Foreign Direct Investment and the setting up of a large
The simple choreography of Left and Right in politics is now something of the past number of service as well as software and back office companies. Forming part of an international currency reduces risks to would be investors who do not need to understand and interpret the national currency of a minute country. Our unemployment rate is 6%, with an influx of foreign migrants predominantly from northern and eastern Europe. The discipline on public finances introduced by the Maastricht convergence criteria was of benefit to ensure economic sustainability. I was chairman of the national euro changeover committee between 2005 and 2008, responsible for the smooth changeover from the Maltese Lira. The little scepticism that the Maltese showed towards the euro when we started our work has vanished completely.
Gold: It has been suggested that most economists didn’t see the global financial crisis coming. As an economist, do you think that this a fair comment? J.Z.: Most economists did not see the global financial crisis, nor did they foresee the devastation that the European debt crisis is leaving behind it. As I said during the Institute of Directors’ conference in Cyprus in July, one reason why we are in such a mess is that people thought that the good times would last forever and that human beings are generally shortsighted. The writing was on the wall – we had an Internet bubble in 2001, a serious governance crisis in the beginning of the new millennium with Enron, Arthur Anderson, Worldcom, Parmalat, etc., and yet Ireland and Spain were still blowing their property bubble and Lehman Brothers and other banks seemed not to have learnt anything from experience. I will not expand on economists’ shortsightedness but I will say that the accommodating morality, selfishness and greed, materialism and the maxim that ”the end justifies the means” have brought us to where we stand today. Since my contribution to the conference, we can add more examples: Barclays, HSBC, etc.
on “bread and butter” matters is too big a distraction for them to be inspired by the advantages of a United Europe... and no European leader is so far inspiring us towards it. Gone are the days of politicians with the foresight of Jean Monnet, Konrad Adenauer and Robert Schuman. But this does not mean that it should not be our objective.
Gold: Do you believe that the eurozone can and will survive? J.Z.: The eurozone will survive but not necessarily in the form that it has today, unless politicians take the right decisions quickly. The crisis in leadership in politics has been the major contributor to the eurozone crisis. Decisions needed to be taken faster and more smoothly. Money and financial markets operate on investor and consumer confidence and signals of hesitation and indecision contributed to the plummeting trust in the currency and its institutions. The ECB has only now announced the most credible strategy to defend the eurozone. It has done this with a unique sense of assertiveness and leadership. The ball now is back into the politicians’ court. So far they have not impressed investors.
Sylvia Nasar has produced a fascinating book which blends economic theories with the stories of the lives of those who developed them. She follows a chronological sequence of economists and the historical context in which they developed their ideas, with clear explanations of their theories. It is impossible to avoid reflecting on the policies being pursued today in light of the theories described, particularly in the context of difficult economic times in the past but it is ultimately an optimistic book which shows clearly that difficult times pass and are invariably superseded by greater economic strength. Nasar outlines the huge gains made across the world which have led to a global population which, in the last one hundred years, has become 6 times larger and yet 10 times more affluent, despite the wars, recessions, depressions and famines which have characterised so many of these years. An erudite blend of economic history, literary reference and social analysis, the book brings into focus how economics came to be what it is today.
Gold: Do you foresee a “United States of Europe” being created at any point in the near future? J.Z.: I am not sure whether we are yet prepared for the USE. There is so much to be done which goes beyond economics – the underlying anxiety of European citizens
BOOK REVIEW Grand Pursuit: The Story of the People Who Made Modern Economics: A Story of Economic Genius By Sylvia Nasar (Fourth Estate, 2012) RRP: £10.99 (£6.81 from amazon.co.uk)
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investment
{tax&legal}
China and the Cyprus Connection
investors can make the most of business opportunities by using Cyprus
By Michalis Zambartas
A
s the world’s second largest economy, China is a country which currently offers a tremendous amount of business opportunities in many sectors. In 2011 alone, China absorbed foreign investments amounting to US$116 billion. Foreign investment has played a major role in the development of China since the opening up of its economy in 1978 and over the years there have been various legislative instruments attempting to regulate and even assist foreigners investing into China such as Circular 30. On the other hand, Chinese outbound investment to the USA, Europe, Africa and the Middle East has increased significantly over the last decade. According to a report prepared by the Rhodium Group, it is expected to reach US$2 trillion by the end of 2020. Chinese outbound investments are important as they create employment and are thus extremely beneficial in the current economic climate. Indeed Chinese outbound investments have already created 45,000 work positions in Europe alone. Foreign and Chinese investors can make the most of these opportunities by using Cyprus. Why Cyprus? First of all, because Cyprus offers the most beneficial corporate tax rate in the EU: 10% on the net profits of a company and no or low withholding taxes on interest and dividends. Cyprus has also concluded various treaties for the avoidance of double taxation (DTTs) thus ensuring beneficial taxation with many countries. Secondly but equally importantly, Cyprus and China have long maintained warm relations. China was one of the first countries to recognize the independence of Cyprus and Cyprus in turn supported China’s efforts to gain a permanent seat on the United Nations Security Council. There has been mutual support in international politics that continues
to this day. From an economic perspective, Cyprus and China have concluded 18 bilateral agreements in areas such as taxation (DTT), trade, tourism and technology. In the context of the above, a foreign investor wishing to invest in China might decide to proceed through a Cypriot Company to transfer his investment so as to benefit from the low withholding taxes (WHT) of Cyprus or even the Cyprus- China DTT which maintains a 10% rate for dividends, interest and royalty
Chinese investors will find Cyprus an especially accommodating entry point for EU investments payments. The investment can then be transferred to the relevant Chinese investment entity. The Chinese investment entity usually takes the form of a Joint Sino-Foreign Venture or an exclusively Foreign-Owned Business, the latter being mostly export-related. This, however, does not mean that it is not possible to proceed with smaller scale investments which could have a different form. On June 29, the State Administration of Taxation (SAT) of China issued Circular 30 in an attempt to provide guidance and certainty on how foreign investors can obtain the benefit of the low WHTs on dividends paid out of China in accordance with existing DTTs. Obviously Circular 30 is also applicable to the Cyprus-China DTT. The previous Circular provided that in order for an investor to obtain the DTT benefit for dividends received from China, the recipient of the dividends must actually be the beneficial owner of this income. Circular 30 went further and provided clearcut conditions on how the recipient of the income can qualify as the beneficial owner for the purposes of the Chinese SAT. These
info: Michalis Zambartas is aTax & Legal Associate at Eurofast Taxand. www.eurofast.eu 82 Gold the international investment, finance & professional services magazine of cyprus
are that a company must be a tax resident of the other contracting party (i.e. Cyprus) and also to be listed in that other country (i.e. in Cyprus). The Circular also provides that the listing requirement can be waived if the parent of the company is listed in another jurisdiction. The latter situation can thus provide flexibility for large multinationals, often listed, which prefer to obtain treaty benefits through a flexible Special Purpose Vehicle such as a Cypriot Company. The benefits of Cyprus are not solely designed for foreigners wishing to invest in China. Chinese investors will find Cyprus an especially accommodating entry point for EU investments and beyond. Business in Cyprus is actually on a par with its geographical location, easily connecting Europe with Africa and Asia. The wide range of DTTs which have been concluded in Cyprus, together with its beneficial taxation, makes Cyprus the ideal destination for Chinese investors. Cyprus has a proven track record of accommodating Chinese Investments such as the Chinese governmentowned company CBMI Construction Co. Ltd.’s €83 million contract for construction at the Vasilikos cement factory, and the €20 million agreement between Huawei Technologies and MTN Cyprus for a network upgrade project, to name just two. The current economic climate will reinforce China’s importance. Foreign investors will look into investing in China but Chinese investors will be looking for investment opportunities in the West and mostly in debt-stricken Europe. In the latter case, Chinese Investments are often viewed with suspicion as having political overtones. This is an erroneous approach, since foreign investments create much-needed economic growth and employment opportunities. Cyprus has already been used for tax structuring purposes to funnel investments from China and this is expected to increase greatly in the coming years. Joint advice from both a Cypriot and Chinese Tax advisor is always required as part of your investment plan.
taxation
Top Rates of {tax&legal}
If you don’t want to pay tax, avoid Europe and head for the Gulf
T
he UK has the 4th highest top rate of personal income tax in the EU, according to the latest KPMG International Individual Income Tax and Social Security Rate Survey. With a top rate of 50%, the UK shares its equal 4th position in the EU league table with Belgium and Austria, with only Sweden, Denmark and the Netherlands imposing higher rates. The UK is above the EU average of 37% and the Western European average of 45%. Globally, among the 96 countries surveyed, only five had rates equal to or above the UK’s 50% with the Caribbean island of Aruba topping the table with a top rate of 59% and Japan being the only other country outside Europe with a rate of 50%. Cyprus ranks equal 49th in the world, thanks to its top rate of 30%. As global economic turmoil continues, competition on tax is shifting from a country versus country within region basis to entire regions competing against each other with the Western Europe average of 45% increasingly being compared to Asia’s at 23%, according to the KPMG survey. Marc Burrows, Head of International Executive Services at KPMG commented: “Truly globally mobile international executives move around the world and tend not to stay in one region. They are not weighing up London against Dublin or Geneva but looking at Hong Kong, Singapore, Dubai, all around the globe. And on this scale, nowhere in Western Europe is particularly attractive with an average of 45% comparing with 23% in Asia where Hong Kong is at 15% and Singapore at 20%. As the global economy reshapes itself post-crisis, most expect the balance to shift
towards the East. The tax trends would appear to support this view.” The effective rates in the comparative table are derived by taking total taxes over gross income prior to any deductions (which may include social security) to allow for better comparison as deductions can vary greatly across countries. While Aruba and Sweden are at the higher end of each scenario, they do not actually have the top rate. Using
The country’s reliable tax system plays an important role in the establishment of excellent and sincere business relationships a US$100,000 basis, for example, Belgium, Croatia and Greece all have significantly higher combined effective personal income tax and employee social security rates ranging from over 43% up to almost 48%. The UK in contrast is just over 30%. The primary difference is social security. “Whether social security is a true tax may be debated, but in terms of cost, it can be material,” says Marc Burrows. “Therefore in our survey we include a review of both the employee and employer contributions. Social security components can vary significantly including by country, employer and employee type. In the UK, a KPMG poll of employers suggested that over 90% would welcome a move to align income tax and national insurance contributions (NIC). But simply abolishing NIC and increasing the tax rate, even if it was politically acceptable, would make the UK tax system
84 Gold the international investment, finance & professional services magazine of cyprus
appear uncompetitive. For example, at the current rates the resultant basic rate of tax would be 32% (i.e. 20% plus 12% employee NIC). This is high in comparison with tax rates in other countries i.e. Italy where the current tax rate is 23%. In reality, of course, this is not a fair comparison as social security is also payable in Italy in addition to the 23% tax rate but individuals notice the headline rate.” While restricting the review to recognised core contribution requirements for employees earning gross income of US$100,000 and US$300,000, the results show that France has the highest combined employee and employer social security rate at over 50% under either scenario. Belgium is the next highest at 48%. Marc Burrows notes, “While these rates may seem exceptionally high, over one-third of the countries within our review had combined employer and employee social security-based effective tax rates of above 20% on US$100,000 of gross income. With current and future increased demands on the social security infrastructures of many countries from around the world, we expect further stress on many already fragile systems to continue. Given that many countries have ageing populations and economies that are still dealing with recovery with an uncertain future, the social support schemes are as important now as ever.” The study was commissioned by the global International Executive Services practice, comprising professionals from several KPMG International member firms. A copy of the survey is available at: http:// www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/KPMGsIndividual-Income-Tax-and-Social-SecurityRate-Survey.aspx
Income Tax
Top Rates of Personal Income Tax 1. Aruba
59.0%
=33. Argentina
35.0%
=65. Afghanistan
20.0%
2. Sweden
56.6%
=33. Ecuador
35.0%
=65. Armenia
20.0%
3. Denmark
55.4%
=33. Korea (South)
35.0%
=65. Egypt
20.0%
4. Netherlands
52.0%
=33. Malta
35.0%
=65. Georgia
20.0%
=5. Austria
50.0%
=33. Tunisia
35.0%
=65. Guernsey
20.0%
=5. Belgium
50.0%
=33. Turkey
35.0%
=65. Isle Of Man
20.0%
=5. Japan
50.0%
=33. United States
35.0%
=65. Jersey
20.0%
=5. United Kingdom
50.0%
=33. Vietnam
35.0%
=65. Singapore
20.0%
9. Netherlands Antilles
49.4%
41. Venezuela
34.0%
73. Slovakia
19.0%
10. Finland
49.2%
=42. Colombia
33.0%
=74. Ukraine
17.0%
11. Ireland
48.0%
=42. New Zealand
33.0%
=74. Angola
17.0%
12. Norway
47.8%
=44. Mozambique
32.0%
=76. Hungary
16.0%
13. Portugal
46.5%
=44. Philippines
32.0%
=76. Romania
16.0%
14. Canada
46.4%
=44. Poland
32.0%
=78. Costa Rica
15.0%
15. Iceland
46.2%
=47. Fiji
31.0%
=78. Czech Republic
15.0%
=16. Australia
45.0%
=47. Guatemala
31.0%
=78. Hong Kong
15.0%
=16. China
45.0%
=49. Cyprus
30.0%
=78. Mauritius
15.0%
=16. Germany
45.0%
=49. India
30.0%
=78. Serbia
15.0%
=16. Greece
45.0%
=49. Indonesia
30.0%
=78. Sudan
15.0%
=16. Israel
45.0%
=49. Malawi
30.0%
84. Jordan
14.0%
=16. Spain
45.0%
=49. Mexico
30.0%
85. Russia
13.0%
22. Italy
43.0%
=49. Peru
30.0%
86. Macau
12.0%
=23. Luxembourg
42.0%
=49. Tanzania
30.0%
=87. Kazakhstan
10.0%
=23. Papua New Guinea
42.0%
56. Brazil
27.5%
=87. Bulgaria
10.0%
25. France
41.0%
57. Malaysia
26.0%
=89. Bahamas
0.0%
=26. Croatia
40.0%
=58. Bangladesh
25.0%
=89. Bahrain
0.0%
=26. Gibraltar
40.0%
=58. Botswana
25.0%
=89. Bermuda
0.0%
=26. South Africa
40.0%
=58. Honduras
25.0%
=89. Cayman Islands
0.0%
=26. Switzerland
40.0%
=58. Jamaica
25.0%
=89. Kuwait
0.0%
=26. Taiwan
40.0%
=58. Latvia
25.0%
=89. Oman
0.0%
31. Thailand
37.0%
=58. Panama
25.0%
=89. Qatar
0.0%
32. Zimbabwe
36.1%
=58. Uruguay
25.0%
=89. United Arab Emirates
0.0%
the international investment, finance & professional services magazine of cyprus
Gold 85
photography
Death by Smartphone {lifestyle}
Despite the demise of the camera, we are all photographers in the digital age By Nathalie Kyrou
A
ccording to recent estimates from Samsung, 2.5 billion people – or one third of the world’s population – now have digital cameras and most of them are in mobile phones. Last year more than one out of every four photos taken in the US was with a smartphone. And there is rarely a breaking news story these days that is not captured first on someone’s camera phone. As the world becomes more complex, capturing or creating images has become simpler than at any time in history. Modern cameras provide an easy and accessible means of conveying visual messages and they have revolutionised the way we see and share our world and our surroundings. Digital photography has taken off in such a big way, not only because it is so convenient and cheap but
86 Gold the international investment, finance & professional services magazine of cyprus
because the quality of the results has hardly ever been better. It has completely changed the way in which we share pictures, to the point where anyone owning a mobile phone can snap away and share photos electronically across cultures and continents at the press of a button. Gone are the days of spending a fortune on film processing and printing (not to mention all the waiting for the photos to be ready and the frequent disappointment with the results). Now, even people who might never have bothered to buy a camera are taking photos and uploading them onto their Facebook page and other sites. The technology on which the traditional camera (using film) is based on was created almost two centuries ago. The American Alexander Wolcott patented his design for a portable camera 1840 but it was not until several decades later, when George Eastman invented modern photograph film technology, that cameras took off as mass consumer products. In 1883, Eastman announced the production of film in rolls, with the roll holder adaptable to nearly every plate camera on the market and five years later he laid the foundations for making photography available to everyone with his first camera, which he named the ‘Kodak’. Essentially a box camera with a fixed lens and single shutter speed, the Kodak had enough film for a hundred exposures. It had to be sent back to the factory for processing, after which it would be reloaded with new film and sent back to the owner to take more
pictures. By 1896, the 100,000th Kodak camera had been manufactured and film and photographic paper were being made at the rate of about 400 miles a month. In those days, the pocket Kodak camera sold for $5 but Eastman’s ambition was to produce a simple and efficient camera that would sell for $1. The result of this effort was the introduction, in 1900, of the first in a long line of popular Brownie cameras which were capable of taking snapshots but small enough for owners to carry around. As a result of its popularity, affordability and size, the Brownie quickly became the camera of choice for holidays and special occasions, and its popularity continued well into the 1960s. In 1914, German optical engineer Oskar Barnack was experimenting with 35mm film (at the time it was only used to create movies and films) with the goal using it in cameras to create photographs rather than motion pictures. The onset of World War I brought a halt to his work but a couple of decades later, the Kodak Company made the necessary adjustments to Barnack’s technology and launched the mass-produced Retina I. The next real landmark in photography came in 1948 when Edwin Land introduced the Land Camera for the Polaroid Corporation. The “instant camera” attracted consumers because they could take a picture and see the results in less than two minutes. Though it was more expensive than many other cameras of the time, the novelty of near-instant delivery of the pictures was irresistible.
ally became less expensive the cameras rapidly became more affordable. But what really made a difference was the integration of a Growth is camera into mobile phones. This decade expected to has seen an incredible rise in the number accelerate at of camera phones. By 2003, more were An annual rate being sold worldwide than stand-alone of more than digital cameras. In 2005, Nokia became 3%, bringing the the world’s biggest-selling digital camera brand and, in 2008, it sold more camera market to over phones than Kodak sold film-based cam$65 billion eras, thus becoming the biggest manufacby 2015 turer of any kind of camera. The changing face of photography has not only affected consumers, but also photographic businesses. Photo labs used to have several main business categories – film proWhich brings us on to today where cessing, selling cameras, films and accessories. things are very different and yet, in a sense, Processing typically comprised 40-50% of still the same. Today’s cameras use totally sales, something which has been drastically different technology but they still deliver cut by digital cameras. Reduced income, plus instant pictures, albeit on a screen rather increased competition from large retailers, than as a print. Moreover, the world of continued improving quality and falling photography is still based on many of the prices for cameras and mobile phones pose same principles on which Eastman built major challenges, not just for the labs but his business: mass production and low cost, also for professional photographers who now with a clear focus on the customer. have greater control over their photos and The predecessor of today’s cameras was can do all the editing and retouching that made in 1972 as a Texas Instruments protowas once the domain of the photo lab. And type but the true digital camera was not prothanks to cheap or free software, virtually duced until 1988 in Japan and in 1991 in the anyone can take and edit photos, the quality United States. At the time they cost thousands of which was once impossible to all but the of dollars and, as a result, only professional best-equipped professionals. photographers and the very wealthy had access The international photographic products to quality digital cameras. As pixel technology market generated sales of over $55 billion in and other aspects of the digital camera eventu2010, with cameras leading the market with sales of close to $35 billion (with over 140 million digital cameras sold) or more than 60% of the overall market. Growth is expected to accelerate at an annual rate of more than 3%, bringing the market to over $65 billion by 2015. The most popular standalone digital cameras are the compact versions (some little bigger than a mobile phone) but even these look certain to be rendered redundant eventually by mobile phones with built-in cameras. 2.5 billion people – It used to be said that a picture or one third of the paints a thousand words. Today world’s population anyone can easily take a thousand pictures. Precisely how much they say – now have digital on the moment and who is cameras and most of depends pressing the button but there can be them are in mobile not doubt that the world of photographones phy has changed for ever.
the international investment, finance & professional services magazine of cyprus
Gold 87
property
{lifestyle}
Island Life for
Billionaires
M
ost people dream of owning their own home but for the elite few this may not be enough, however large or impressive their private residence may be. The price of total privacy can be very high and for some it is the price of owning an entire island. In some cases it also represents a lucrative business opportunity. The L’Oreal billionaire heiress Liliane Bettencourt, for example, recently made headlines after selling her private island in Seychelles for $60 million while Oracle co-founder Larry Ellison’s $500 million purchase of Hawaii’s sixth largest island in June is one of the most expensive property deals in history. CNBC recently turned the spotlight on the following eight business tycoons who own private islands around the world.
Allan Island, Washington
Owner: Paul Allen Estimated value: $13.5 million Microsoft co-founder and billionaire investor Paul Allen listed Allan Island, which he bought in 1992, for sale in August last year at $13.5 million. The 292-acre island has been on and off the sale block since 2005, when the initial asking
price was $25 million. The island, named after a Navy hero, is located in the San Juans archipelago in the Pacific Ocean, off the coast of Anacortes, Washington. Allen had reportedly bought the island to build a vacation home, but instead purchased land on nearby Lopez Island in 1996 to build the home. The island is mostly underdeveloped with just a log caretaker’s cabin, a dock and a 2,400 feet grass airstrip. The island has no electricity.
Brecqhou, UK
Owners: David and Frederick Barclay Purchase price: $4.3 million Billionaire twins David and Frederick Barclay bought Brecqhou in the Channel Islands in 1993 for $4.3 million. The brothers whose business empire includes The Daily Telegraph and The Ritz hotel, went on to transform the 80-acre island with gardens, vineyards, a pub, and a village that has a chapel. About 190,000 trees, shrubs and flowers have been planted on the island, which is home to 2,000 species of animals. They also built a castle-like stone mansion with a helipad. Brecqhou, located 80 miles off the UK’s southern coast, is the perfect getaway for the 77-year-old Barclay twins who guard their privacy: the most recent photograph of them in circulation is from 2000, when they were knighted for charitable work.
88 Gold the international investment, finance & professional services magazine of cyprus
James Island, Canada
Owner: Craig McCaw Estimated value: $75.1 million About 18 years after transforming British Columbia’s James Island from an explosives plant into an exclusive island retreat, US telecom billionaire Craig McCaw is looking to sell the property for $75.1 million. McCaw bought the 780-acre island located off the coast of Vancouver Island for $19 million in 1994. He built a 5,000 square-feet main house, six guest cottages, private docks, an airstrip and an 18-hole golf course designed by golf legend Jack Nicklaus. The grounds also house a library, gym and a general store. Power lines are buried underground throughout the island, electric vehicles are used and smoking is banned. Famous guests known to visit the island include music producers Quincy Jones and David Foster and Microsoft founder Bill Gates.
Lanai, Hawaii
Owner: Larry Ellison Purchase price: $500$600 million Tech titan Larry Ellison – the third richest person in the US and the sixth richest in the world according to Forbes – bought 98% of Lanai in
June from David Murdock, the billionaire behind Dole Foods. The 141 square-mile island is known for its pineapple fields and is home to 3,000 people. Tourists visit the island for its two Four Seasons resorts, golf courses and luxury housing. Oracle cofounder Ellison now owns the two luxury resorts as part of his share of the island, while the remaining 2% is owned by private residents and the local government.
Necker Island, British Virgin Islands
Owner: Richard Branson Estimated value: $100 million Virgin Group’s Richard Branson bought Necker Island in the British Virgin Islands in 1978 for about £180,000. The island is now worth an estimated $100 million. The flamboyant British billionaire turned the 74-acre island into a luxury retreat in 1984, with Balinese style houses run by 60 private staff. The resort can provide accommodation for up to 28 people, and individual rooms for a week-long gateway can cost up to $35,000. Renting the entire island reportedly costs over $50,000 a night. Among the famous celebrities who have married on the exclusive island include Branson and his wife Joan, and Google co-founder Larry Page who married Lucy Southworth in 2007. Necker Island made headlines in August last year when British actress Kate Winslet and Branson’s family were among the guests who escaped uninjured from a major house fire caused by a lightning strike during a tropical storm.
Robins Island, New York
Owner: Louis Moore Bacon Purchase price: $11 million In a bankruptcy court auction in 1993, Wall Street financier Louis Moore Bacon paid $11 million for Robins Island, located off the coast of Long Island, New York. Bacon, 55, has reportedly invested millions
in restoring the 445-acre island, including importing oak trees to preserve its natural habitat. When the hedge fund manager bought the island, he gave $1.1 million to the Nature Conservancy to monitor rare and endangered species on the island, which include Eastern mud turtles. The billionaire has also built vacation homes for his family, along with a helipad. Next January is due to be honoured for his conservation work on Robins Island and on his other properties in North Carolina and the Bahamas.
for buying land and restoring it to its natural habitat. The purchase also included a 298-acre landing area on neighbouring St. Helena island, which is inhabited by a group of Gullah descendants. The area was a communal refuge for this group of African Americans, who have maintained vestiges of African speech and customs, where they could hunt, fish and gather without restrictions. Turner donated 68 acres to the group in 2002. St. Phillips island remains private and is under the watch of a caretaker.
Sampson Cay, The Bahamas
Owner: John Malone Estimated value: N/A John Malone overtook Ted Turner as the biggest private land owner in the US when he amassed 2.2 million acres in 2011. He now currently owns Sampson Cay, in the Exuma chain of islands in the Bahamas. The 31-acre island is home to a resort and marina, which was rebuilt in 2002. The cost of staying at the resort can go up to $8,000 per week. Little information exists about when Malone – the Chairman of Liberty Media, which owns stakes in QVC, and Sirius XM Radio – bought the island. The media tycoon is one of several famous names to buy islands in the Exuma Cays, a 365-island archipelago. Other notable island owners include LVMH head Bernard Arnault, magician David Copperfield, and actor Johnny Depp.
St. Phillips Island, South Carolina
Owner: Ted Turner Purchase price: $2 million Media mogul Ted Turner, who is one of the largest private landholders in the US, bought St. Phillips Island, off the South Carolina coast in 1979 – a year before he launched CNN. The 5,512 acre-island of marsh and woodlands was a perfect fit for Turner, who is known
BOOK REVIEW Skios By Michael Frayn (Faber and Faber, 2012)
A
RRP: £15.99 (£10.23 from amazon.co.uk)
story set on a Greek island always resonated with readers in Cyprus and when the author is, among other things, one of the greatest living comic writers (Noises Off and more), it is irresistible. Featured on this year’s Man Booker Prize longlist (a refreshing surprise), this light novel from the master of farce is extremely funny. Nikki is busily organising a big event for a charitable foundation on the fictional island of Skios where Dr Norman Wilfred is to give the keynote speech, whilst handsome young player Oliver Fox is also on his way to the island to take advantage of a sexy woman in a villa he’s borrowed from friends of his wealthy not quite exgirlfriend. When Oliver discovers that his conquest has missed her plane and spots Nikki at the airport waiting for Dr Wilfred, it’s an opportunity he can’t resist. What follows is a delightful concoction of mixed-up luggage, mistaken identity and wrong bedrooms against a backdrop of sunshine, shady politicians and other dark goings-on on the island. Sounds familiar?
the international investment, finance & professional services magazine of cyprus
Gold 89
Point of Contact
THE LAST WORD
The most powerful and lasting impression you have of a company is made by the last person to serve you By Peter Economides
I am one of those who sees food as much more than fuel and more as an art form, entertainment, expression. For me the dinner table is the best place to spend quality time. Great food, great wine, great conversation. I love exploring new tastes. But I am also fiercely loyal. Once I find a restaurant which delivers, I become a top customer. If any of my favorite restaurants awarded “frequent flyer” points I’d be a million miler. I am a restaurateur’s dream. I am also a restaurateur’s nightmare. I have blacklisted more restaurants than I care to mention. For the slightest transgression. You see, I work hard for my money and I expect others to work hard for my money too. Tony Hsieh, the founder of Zappos, the company that took the shoe store online, says that “Every phone call is a chance to build the Zappos brand.” How right. Brand is built at the point of customer contact. There are multiple contact points in service-based businesses. Contact points which go way beyond exposure to advertising and packaging. Think of banking, for example. Your bank probably spends millions on advertising and more millions on retail design. But the most powerful and lasting impression you have of your bank was made by the last teller who served you. Back to restaurants and to one in particular. A famous New York steakhouse, one of the best in the city, located
midtown on Third Avenue. You may know it. You may have been there. As it was just two blocks away from my office at McCann-Erickson Worldwide, I was a lunchtime regular. With or without clients, I was there twice a week.
I work hard for my money and I expect others to work hard for my money too
Until that night ... I arrived late. Around 11pm. The lunchtime shift had long gone home. None of my familiar waiters were there to greet me by name. I was seated at a table. It was not a good one and I asked to move. The restaurant was empty. The waiter refused. I asked to speak to the maitre. He came over. “Your waiter,” I said, “is a jerk.” He told me that he could not allow anyone to speak about his waiters in that way and asked me to leave. I did. And I never set foot there again. Never. Cut. To Greece, several years later. I was enjoying an outside lunch at my favourite Italian restaurant in Vouliagmeni, Athens. I felt like a cigarette but had no matches. “Excuse me,” I said to a waiter, “do you have a light?” The answer came in a backward upward flip of the head accompanied by a clicking sound. Greek for “no”. I said, “Can you find me some matches?” “Where should I find matches?” came the reply. I saw red. I jumped out of my chair and walked straight over to the maitre. “Your waiter,” I said, “is a jerk.” “I know he is,” he laughed. “You’re not telling me anything I don’t know.” I burst out laughing, returned to my seat and asked the next table for a light. I continue to eat there at least once a week. There are some things I love about Greece.
info: Peter Economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens. Follow Peter on facebook at http://www.facebook.com/economidespeter or on Twitter @petereconomides
90 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS
last_word.indd 90
31/08/2012 11:51
More than just a holiday destination with pristine white beaches and 300 days of sunshine, Cyprus can also cater to your business needs ranging from registering and setting up your company’s operations to managing your EU, North African and Middle Eastern clients at a considerably lower cost.
*
As well as being an EU country and a member of the European Monetary Union since 2008, Cyprus enjoys the lowest corporate tax rate in the EU of 10%. Cyprus belongs to those jurisdictions on the OECD White List which have substantially implemented the internationally agreed tax standard. In addition to this, Cyprus provides efficient business services, has a transparent legal and regulatory system and is committed to sustainable growth.
“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime,
communication
system,
banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd
“The
favorable
the
excellent
infrastructure,
business
climate,
telecommunications the
well
educated
and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s.
Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.
Cyprus Investment Promotion Agency Tel + 357 22 441133 Fax + 357 22 441134 www.cipa.org.cy info@cipa.org.cy
gold cover me diafimiseis.indd 2
Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros
The Ministry of Commerce, Industry and Tourism Tel + 357 22 867100 Fax + 357 22 375120 www.mcit.gov.cy/ts perm.sec@mcit.gov.cy
01/08/2012 09:29
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Gold ISSUE 17 AUGUST 2012
A new generation is driving the services sector
Talented Young Professionals
+ TONY CHRISTODOULOU, THEO PARPERIS, CONSTANTINOS ROUSSOS FRAUD
How to safeguard your organisation’s assets
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OPINION
Irakli Bukhiashvili Constantinos Charalambous Theo Panayotou
UNDER ATTACK!
Anti-piracy law comes into force
PLUS:
MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE
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