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14 EDITORIAL 16 NEWS BRIEFING 20 COMMODITIES/FOREX WATCH

issue 07 october 2011

COVER STORY plain sailing?

the shipping industry in cyprus past, present & future

+ opinion Unintended Consequences by Demosthenes Mavrellis

The Debate: “Would Greece be better off leaving the eurozone?” by Dinos Andreou (Yes) and Andrew Perry (No) 24 In Need of a Paradigm Shift by Marina Theodotou

The Salience of the Lambs by Eleni Vickers

brought to you by ship by Peter Economides

FEATURES 50 | Record-breaking Investment in Renewable Energy Investors are putting their money where it is needed

56 | Investing in ETFs Exchange Traded Funds have created a world of opportunity for both retail investors and HNWIs.

56 70 74 80 84 92

{money} {business} {economy} {tax&legal} {lifestyle}

the international investment, business & finance magazine of cyprus

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9/24/11 11:09:43 AM

©2011 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.

9/24/11 11:09:43 AM

gold_10-11_inn.indd 11

{editorial}

Invisible Earnings, Invisible Industry

f you ask the average person outside Cyprus what they know about the island, you will probably be told that it is a sunny and welcoming, though quite expensive, holiday destination. Similarly, if you ask the average Cypriot how the country earns its living, tourism will probably come top of the list. Older respondents may also have an awareness of the island’s exports of potatoes and citrus fruit while younger professionals will certainly know about the growing importance of the services sector. But how many people associate Cyprus with shipping? It is remarkable that an industry which probably contributes more than €1 billion to the economy and employs 2% of the workforce manages to maintain such a low profile. Cyprus is the biggest shipmanagement centre in Europe and the fleet of Cyprus-registered ships is the 3rd largest in Europe and the 10th largest in the world and yet, especially outside Limassol, few people seem to be aware of these extraordinary statistics. Before Cyprus joined the EU, those who questioned the wisdom of membership were only a tiny minority. Virtually everyone on the island believed that a place in the EU was the ultimate deterrent to any possibility of new Turkish aggression, some thought that it would help bring an end to the country’s longstanding division, and no-one had bothered to think much about any negative effects of accession to the greater ‘European Family’ such as higher prices and the fact that any EU citizen would be able to work here. Some of the few dissenting voices came from the shipping sector, and they were suggesting that EU membership would mean stringent regulation which, in turn, would scare away many of the companies and vessels using the Cyprus flag at the time. In the end, they have been proven wrong, thanks to a number of departments within and under the Ministry if Communications & Works which appear to be far more advanced and efficient than most of their counterparts. Perhaps the fact that they have always been involved in a key global sector rather than restricted to dealing with the local environment has played a role. Whatever the reason, the Cyprus shipping industry has made, and continues to make, a huge contribution to the economy. Things are not perfect, of course. Just three years ago, that contribution amounted to 7.8% of GDP. This year it is likely to be below 6%. The ongoing Turkish embargo on Cyprusflagged ships is just one of several factors restricting growth: only last month a Cyprus-flagged tanker, the M/T Mattheos, was seized by pirates in West Africa, in the latest of a long list of incidents in the region. Moreover, primarily because of a continuing oversupply of vessels, the overall outlook for the global industry for the next 12-18 months is negative. Against this background, the biennial Maritime Cyprus conference has been taking place in Limassol and discussing topics including “Countering Piracy”, “Long Term Sustainability” and “Recovery from the Crisis”. The conference, which has gained a reputation over the years as one of the most important of its kind in Europe and the world, has succeeded in becoming more than an industry talking shop by dealing with the essential concerns of the global industry and providing a platform for a broad range of expert views to be heard, thereby contributing significantly to the subsequent formulation of maritime policy. Cypriots have a strange knack of being able to combine two seemingly opposing views of themselves: on the one hand they often give the impression that they truly believe this tiny island to be the centre of the universe, and yet on the other they are constantly playing the “small Cyprus” card, perversely undermining and underestimating their genuine achievements. Shipping is undoubtedly one of these and perhaps a future Maritime Cyprus conference should seriously consider discussing the need to make the local industry more visible to the rest of the country. Just because all those millions of euros are officially referred

John Vickers, Chief Editor john@imh.com.cy 12

Published by IMH ISSN 1986 - 3543

Managing Director:

George Michail

General Manager:

Daphne Roditou Tang

Media Manager: Elena Leontiou Editor-In-Chief:

John Vickers

Senior Editor:

Konstantine Ioannides Contributing Editors:

Antonis Antoniou, Stella Mourettou, Maria Pilidou Contributors to this issue:

Dinos Andreou, Haris Christoforou, Ray Cooling, Peter Economides, Alexis Erotocritou, Isavella Frangou-Pavlou, Persella Ioannides, Nathalie Kyrou, Demosthenes Mavrellis, Fiona Mullen, Andrew Perry, Claus Rosenberg Gotthard, Dr. Savvas Savouri, Marina Theodotou, Eleni Vickers Art Director:

Andreas Koumis

Photography:

Olesia Constantinou, Michael Kyprianou Marketing Executive:

Kevi Chishios

SALES & BUSINESS DEVELOPMENT EXECUTIVE:

Christos Kyriakides

Advertising Executives:

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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

the international investment, business & finance magazine of cyprus

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{news briefing}

deals of the month Alpha Bank and Eurobank merge

Alpha Bank and EFG Eurobank officially announced their plan to merge with the backing of Qatar last month. The two private banks were the second and third largest Greek bank in terms of assets and capitalisation after National Bank of Greece, before the merger. The new lender, named Alpha Eurobank, will be one of the 25 largest banking groups in the eurozone.

Alpha Eurobank, which will emerge after the approval of shareholders of the two entities by mid-December this year, will have combined assets of around €146 billion and market capitalisation of about €2.5 billion. It will also have 1,300 bank branches in eight countries, including Cyprus, with around 30,000 employees and over eight million customers. The merger deal includes a fresh capital boost of around €3.9 billion, of which €2.1 billion in Core Tier 1 funds is expected to result from the sale of assets while a further €1.25 billion will be raised via a share capital increase, and a €500million convertible bond loan will be covered by Qatar’s Paramount Services Holding. Paramount will now be the new bank’s largest single shareholder, with a 17% stake. The Latsis family, currently Eurobank’s biggest shareholders, will control 13% in the new bank, while the Costopoulos family of Alpha Bank will hold a 4% stake.“The consolidation of two highly complementary private sector banks, with substantial synergies and a clear strategic rationale, will play a vital role in the economic recovery of Greece,” they said in a joint statement.

Mercedes to help Nissan make luxury cars

Nissan’s luxury car subsidiary Infiniti is planning to build a new, compact Infiniti model using Mercedes architecture, it was revealed at the Frankfurt Motor Show last month. The Infiniti-Mercedes platform sharing deal is the latest project in an 18-month-old strategic partnership between Daimler and the Renault-Nissan alliance. It includes an agreement to supply Infiniti with Mercedes engines while, in return, Mercedes will use Renault engines in its small A-Class model. Dieter Zetsche, CEO of Mercedes’ parent company Daimler, notes that Infiniti is not a major Mercedes competitor. “The similarities between Mercedes and Infiniti are few,” he says, suggesting that Lexus, Toyota’s luxury marque, is a more similar rival. The carmakers are also producing a small delivery van that will be sold under the Renault and Mercedes badges, and they are working together on battery technology for electric cars. This is just the beginning, according to Carlos Ghosn, Head of Renault and Nissan, who says that the partnership is set to deepen considerably, delivering savings of some €4 billion in the process. Mercedes hopes the partnership will help it supply more small cars in the future, as it tries to regain the position as the world’s best-selling luxury car company, a position lost to BMW a few years ago. “When we go for leadership in the premium segment, we definitely need the volume leadership as well,” Zetsche says, insisting Mercedes will retake the top slot

“at the latest by the end of the decade”. Infiniti is also gunning for dramatic growth on the back of a string of new model launches, with its global sales set to more than treble over the next six years to 500,000 cars per year. Europe plays a central part in the strategy, with plans to sell more than 100,000 cars per year within six years from just 6,500 at present. The Mercedes-based Infiniti will be built outside Japan because, according to Carlos Ghosn, the strong yen makes it difficult to make profits from exports from the country.

Dell and Baidu tie up for smartphones in China

Dell recently confirmed that it is one of a number of companies partnering with Chinese Internet giant Baidu to build smartphones and tablet computers. A Dell spokesperson said the company was developing the devices that will be based on Baidu’s new operating system – Baidu Yi – for the Chinese market. “The partnership is to provide users with an out-of-box experience, so Baidu Yi will be installed,” said Dell spokesperson Adeline Lee. Baidu Yi is Android-based, but Lee did not say which operating systems would be installed on the Dell smartphones. Baidu executives have not ruled out the possibility of releasing their own operating system at a later date. Baidu is working with a number of developers and handset makers to support the Baidu Yi platform. The new smartphones and tablets may be on sale as soon as November. Dell, which launched its first smartphone in China in 2009, has recently seen its sales soar in the country.

the international investment, business & finance magazine of cyprus

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{news briefing}

Europe’s Heaviest Drinkers Greece tops the list, Cyprus second-to-last

rom country to country around the world, people’s relationship with alcohol varies greatly. In some places it serves as a point of national identity, and in others it has become detrimental to a country’s overall health. The most recent report by the World Health Organization (WHO) on the global status of alcohol outlines overall alcohol consumption in the 193 WHO Member States. The data in the Global Status Report on Alcohol and

Health is presented by average annual per capita alcohol consumption (in litres of pure alcohol), drawing from both recorded sales figures and estimates of unrecorded usage, as well as further breaking it down by type of alcohol consumed. One major trend is that males consume more than females. This fact may not surprise most people, but there is one country where the trend is reversed and that is Ecuador. On the other hand, it comes

as no surprise that Cyprus has the secondlowest alcohol consumption in the European Union, some way ahead of Malta but other findings may not seem so obvious: Greece, Italy and Lithuania topping the EU list, though it should be pointed out that if the rankings were based on recorded alcohol consumption, the Czech Republic would come first and the top three countries on the list would be down at the bottom, ahead of only Sweden, Cyprus and Malta.

Unrecorded consumption Recorded consumption Per capita alcohol consumption 1. Greece 19.2 2. Italy 19.2 3. Lithuania 19.2 4. Czech Rep. 16.5 5. Hungary 16.3 6. Estonia 15.6 7. Romania 15.3 8. Slovenia 15.2 9. Portugal 14.6 10. Ireland 14.4 11. France 13.7 12. UK 13.4 13. Denmark 13.4 14. Slovakia 13.3 15. Poland 13.3 16. Austria 13.2 17. Luxembourg 13.0 18. Germany 12.8 19. Finland 12.5 20. Latvia 12.5 21. Bulgaria 12.4 22. Spain 11.6 23. Belgium 10.8 24. Sweden 10.3 25. Netherlands 10.1 26. Cyprus 9.3 27. Malta 4.3

Czech Rep. Estonia Ireland France Austria Portugal Hungary Slovenia Luxembourg Germany UK Denmark Romania Bulgaria Slovakia Spain Belgium Finland Netherlands Poland Latvia Greece Italy Lithuania Cyprus Sweden Malta

15.0 13.8 13.4 13.3 12.6 12.5 12.3 12.2 12.0 11.8 11.7 11.4 11.3 11.2 10.3 10.2 9.8 9.7 9.6 9.6 9.5 9.2 9.2 9.2 8.3 6.7 3.9

Denmark 11.4 Greece 10.0 Italy 10.0 Lithuania 10.0 Hungary 4.0 Romania 4.0 Poland 3.7 Sweden 3.6 Slovakia 3.0 Latvia 3.0 Slovenia 3.0 Finland 2.8 Portugal 2.1 Estonia 1.8 UK 1.7 Czech Rep. 1.5 Spain 1.4 Bulgaria 1.2 Cyprus 1.0 Belgium 1.0 Luxembourg 1.0 Germany 1.0 Ireland 1.0 Austria 0.6 Netherlands 0.5 Malta 0.4 France 0.4

beer Czech Rep. 8.5 Ireland 7.1 Austria 7.0 Germany 6.2 Denmark 6.0 Belgium 5.6 Estonia 5.5 Poland 5.4 UK 5.0 Netherlands 4.8 Slovenia 4.7 Spain 4.6 Finland 4.5 Hungary 4.3 Lithuania 4.1 Romania 4.1 Portugal 3.9 Slovakia 3.6 Bulgaria 3.6 Latvia 3.1 Cyprus 2.9 Sweden 2.6 France 2.3 Greece 2.2 Italy 2.02 Luxembourg 1.7 Malta 1.3

spirits wine Luxembourg 8.4 France 8.2 Portugal 6.9 Italy 6.71 Slovenia 5.8 Hungary 4.9 Greece 4.5 Denmark 4.4 Austria 4.0 Spain 3.7 Belgium 3.6 UK 3.5 Netherlands 3.3 Germany 3.1 Sweden 2.9 Ireland 2.7 Cyprus 2.6 Bulgaria 2.5 Czech Rep. 2.4 Romania 2.3 Finland 2.2 Slovakia 1.5 Lithuania 1.3 Poland 1.2 Malta 1.1 Estonia 1.1 Latvia 0.9

Estonia 9.2 Latvia 5.3 Bulgaria 5.0 Slovakia 5.0 Romania 4.1 Czech Rep. 3.6 Lithuania 3.3 Poland 3.0 Hungary 2.9 France 2.7 Finland 2.7 Cyprus 2.6 Ireland 2.5 Germany 2.4 UK 2.4 Greece 2.4 Luxembourg 1.92 Denmark 1.8 Austria 1.6 Slovenia 1.6 Netherlands 1.5 Malta 1.4 Spain 1.3 Portugal 1.2 Sweden 1.1 Belgium 0.6 Italy 0.46

Per capita consumption by type (recorded) 16

the international investment, business & finance magazine of cyprus

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{INDICATORS, COMMODITIES & FOREX} By Isavella Frangou-Pavlou

USD Gold 1912.05 1874.10 1836.15 1798.20 1772.80 1760.25 1722.30 1684.35 1646.40 1608.45 1570.50

11 Jul 2011

20 Jul 2011

29 Jul 2011

8 Aug 2011

17 Aug 2011 26 Aug 2011 5 Sep 2011

14 Sep 2011

1533.70

Gold struggled to record a new high and failed to maintain the strong up trend, correcting after it reached $1920.80/oz. The precious metal consolidated downwards over the rest of September on eurozone fluctuating sentiment and investor speculation on the Fed’s next steps in monetary policy. The eurozone became more fragile: Greece, France, Spain and Italy appeared on the downgrading radar one by one. There were too many negative reports from the eurozone and the news on the downgrading of Italy made no significant impact on the market. Surprisingly, there was not much gold price reaction to the decision by major central banks to collaborate to inject dollar liquidity into the stressed banking system or to the Finance Ministers’ failure to reach a formal deal on how to bail out Greece when the rest of its reserve funds burn out. The Fed’s decision in late September, dubbed “Operation Twist”, to sell $400 billion worth of short-maturity bonds and reinvest in longer maturity bonds of 6 to 30 years, aims at stimulating the consumer side of the economy by making consumer debt cheaper. This decision gave gold a push downwards, as the dollar is becoming more expensive in the short-term, making all dollar-priced products less attractive, though in the longer term its impact might not be that significant or certain.

Source: KAB-MetaTrader

Eurozone INDICATORS Current

Change (%)

Major Commodities 52 weeks High

Low

Current

Monthly change (%)

High

Low

Gold (USD/t oz.)

1772.8

-3.17%

1922.6

1767.8

Sliver (USD/t oz.)

39.39

-5.35%

43.43

39.01

Crude oil (USD/bbl.)

84.18

-5.21%

90.52

83.2

3.811.

-6.10%

4.122

3.789

GDP

1.6%

-0.8% (QoQ)

2.5%

1.6%

CPI

112.62

+0.19% (MoM)

112.62

110.19

10%

0% (MoM)

10.1%

9.9%

Bond yield (10-year) (Italy)

5.75%

+0.10% (YoY)

6.227%

4.866%

Budget Deficit/GDP (Italy)

-4.6%

-0.8%(MoM)

-5.4%

-4.6%

Natural Gas (USD/ MMBtu)

Interest Rate

1.5%

0% (MoM)

1.5%

1.0%

Corn (USD/bu.)

Unemployment Rate

(Source: Eurostat - http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ )

Wheat (USD/bu.) Sugar (USD/lb.)

In Italy bond prices dropped non-stop, further weighting on its funding costs. Italy is the leader in terms of debt and headwind of the European sovereign debt may change soon.

Soy (USD/bu.)

52 weeks

674

-11.22%

767.4

676.4

657.25

-11.6%

772.75

666.75

25.84

-10.68%

28.96

26.18

1306.25

-9.74%

1447

1325.75

USD OIL 100.05 97.55 95.05 92.55 90.05 87.60 85.10 84.14 82.60 80.10 77.60

11 Jul 2011

20 Jul 2011

Source: KAB-MetaTrader

29 Jul 2011

8 Aug 2011

17 Aug 2011 26 Aug 2011 5 Sep 2011

14 Sep 2011

75.10

Oil prices have been fluctuating for almost two months as eurozone debt woes and uncertainty on global fundamentals limited the up momentum; on the other hand, the easing monetary environment supported the oil price. America’s unemployment rate remained stagnant at 9.1% in August, as employers added no net jobs – the first government report of zero new jobs since 1945. Additional signs of the US economy sliding were the latest data showing that bankruptcy filings are climbing and a mixed picture was painted by economic data in Europe, which also hurt risk appetite, in effect hindering the oil price uptrend. On oil’s supply side, as the new government runs more stably, Libya may reach its pre-unrest production levels in about one year. However, Gulf oil producers are expected to cut output at the same time, especially as they face weakening oil demand next year – both IEA and OPEC trimmed their forecasts for oil demand. Oil prices could be range-bonded by conflicting actions among oil producers.

the international investment, business & finance magazine OF CYPRUS

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US MAJOR INDICATORS Current

Change

U.S. Indices 52 weeks High

Low

GDP

1.0%

+0.6% (QoQ)

3.8%

0.4%

CPI

226.545

+0.4% (MoM)

226.545

216.687

Unemployment Rate

9.1%

0% (MoM)

9.8%

8.8%

Non-Farm Payrolls 0

-85K

235k

-59k

Bond yield (10-year)

1.947%

+11.95% (YoY)

3.74%

1.9%

Budget Deficit/ GDP

98.0%

+4.8% (MoM)

98.0%

93.2%

Interest Rate

0.25%

0% (MoM)

0.25%

(Source: U.S. Bureau of Labor http://www.bls.gov/eag/eag.us.htm U.S. Department of Commerce http://www.bea.gov U.S. Department of the Treasury http://www.treasury.gov/Pages/default.aspx)

52 weeks

Current

Monthly change (%)

High

Low

1163

-4.35%

1370.58

1101.54

NASDAQ

2225.25

-0.85%

2438.44

1963.68

Dow Jones

11124.8

-4.21%

12928.50

10588.50

S&P

European Indices FTSE

5098

-5.15%

6105.80

4791.00

DAX

5256

-8.79%

7600.41

4965.80

CAC

2820.5

-13.25%

4169.87

2769.97

Asian Indices Nikkei

8560

-4.41%

10891.60

8227.63

Hang Seng

18021

-11.99%

24988.60

18627.70

Shanghai

2443

-4.84%

3186.72

2437.17

US bond yields recorded low after low, indicating that the global economy does not look promising. Meanwhile, the US job market seems improved on paper but, after the release of last week’s job claims, the picture is different.

(Source: Bloomberg. As at 22/09/2011)

USD US Stocks 1340.70 1313.50 1287.10 1259.90 1232.70 1205.50 1179.10 1146.78 1124.70 1097.50 1071.10

11 Jul 2011

20 Jul 2011

29 Jul 2011

8 Aug 2011

17 Aug 2011 26 Aug 2011 5 Sep 2011

14 Sep 2011

The S&P500 index fluctuated in September reaching 1229.29. The renewed Greek sovereign debt crisis and late-comer Italy sent another wave of fear to the stock market. Italy’s €1.9 trillion in public debt is greater than the combined debts of the rest of the PIIGS, making it too big to bail out. Adding to the downside, debt problems have tapped into the European banking industry as dollar liquidity is draining off. Meanwhile in the US, Obama and Bernanke are searching for meaningful rescue plans. The Fed’s “Operation Twist” twists the yield curve in the bond market, which will impact the stock market in the long-term, especially investment banks and insurance firms. It is worth mentioning that so far none of the government’s austerity plans have included solid growthboosting reforms. Finding a new source of economic growth will take time and thus the path to global economic recovery might be a long one.

Source: KAB-MetaTrader

1.4525 1.4420 1.4315 1.4210 1.4105 1.4000 1.3895 1.3790 1.3685

13 Jul 2011

22 Jul 2011

1 Aug 2011

10 Aug 2011 19 Aug 2011 29 Aug 2011 7 Sep 2011

16 Sep 2011

1.3475

$1.3563 EURUSD The euro tumbled deep below 1.3493 in September, reflecting that confidence in the 17-nation currency is fading. Countless meetings and talks among the ECB, the IMF, and the eurozone member countries took place and only a handful resulted in any material decisions. Polarized yields in the bond market among member countries indicate that muddling-through is the only option currently with Germany and France providing the temporary lift. Lack of growth is the core issue and, given the current situation, that source of growth will not be found any time soon. Some onlookers feel the “unthinkable”, an exit plan for Greece and other periphery countries, makes more sense than seeking help from other countries.

Source: KAB-MetaTrader

the international investment, business & finance magazine OF CYPRUS

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{INDICATORS, COMMODITIES & FOREX} 1.6600 1.6480 1.6360 1.6245

GBPUSD The sterling’s downtrend in September was more pronounced than that of the euro. Fundamentally, the British economy has not changed much and members within the BoE committee lack of ammunition to adopt a change to the current momentary policy. As the eurozone countries are Britain’s major trading partners, their situation greatly influences the future of the British economy. A bearish pound trend is expected to continue into October. It should be noted that more BoE committee members favour expansion of the asset buying programme. Although this may not come soon, it will support a bearish pound in the short and medium term.

1.6125 1.6005 1.5885 1.5770 1.5650 1.5535 1.5415 13 Jul 2011

22 Jul 2011

1 Aug 2011

10 Aug 2011 19 Aug 2011 29 Aug 2011 7 Sep 2011

16 Sep 2011

Source: KAB-MetaTrader

Major FX Current

$1.5461

52 weeks

Monthly change (%)

High

Low

EURUSD

1.3566

-5.68%

1.4940

1.2874

USDJPY

76.7150

-0.08%

85.7650

75.9650

GBPUSD

1.5474

-4.67%

1.6747

1.5345

AUDUSD

1.0016

-6.41%

1.1080

0.9442

USDCAD

1.0122

+3.47%

1.0380

0.9406

USDCHF

0.9026

11.83%

1.0076

0.707

EURJPY

103.916

-6.01%

123.2800

103.8970

EURGBP

0.8754

-1.02%

0.9084

0.8285

EURCHF

1.2219

+5.75%

1.3835

1.0070

Japanese Prime Minister Yoshihiko Noda 80.35 79.90 79.45 79.00 78.55 78.10 77.65 77.20 76.75 76.33 75.85

13 Jul 2011

22 Jul 2011

1 Aug 2011

10 Aug 2011 19 Aug 2011 29 Aug 2011 7 Sep 2011

USDJPY USDJPY spent most of September building a bottom base at around 76.00. Speculation for a yen intervention has been dominating traders’ mindsets, which is the reason for the base building. The new Japanese Prime Minister Yoshihiko Noda is a past finance minister and a known supporter of a softer yen. The BoJ faces added pressure to keep yen down under his administration. Given the current state of the Japanese economy, the speculated intervention should be coupled with other policy measures in order to form an ongoing defence similar to that recently taken by the Swiss National Bank. Given that the yen is a safe-haven currency, achieving a weakening of the Japanese currency might take time.

16 Sep 2011

Source: KAB-MetaTrader

info: Isavella Frangou-Pavlou is Sales and Marketing Manager at KAB Strategy (Cyprus) Ltd (CySEC-License No. 058/05) E-mail: isavella@kab.com.cy

This research report or summary has been prepared by KAB Strategy (Cyprus) Ltd (CYSEC Licence No. 058/05) and KAB Financial Advisory Ltd from information believed to be reliable. Such information has not been independently verified and no warranty, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. This report is provided for information purposes only. Nothing in this report should be considered to constitute investment advice. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. Leveraged products incur a high level of risk and can result in the loss of all your invested capital. KAB Strategy (Cyprus) Ltd and its affiliates accept no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents.

the international investment, business & finance magazine OF CYPRUS

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{opinion}

By Demosthenes Mavrellis

Unintended Consequences

he usury law was recently enacted unanimously by the House of Representatives with the primary aim of protecting vulnerable individuals from so-called ‘loan sharks’ who lend them money at exorbitant rates of interest and subsequently expropriate their assets when they are unable to make the repayments. Through an amendment to the Criminal Code, MPs have prohibited anyone from lending money at an interest rate higher than a percentage computed by the Central Bank. This rate currently stands at 12.18%. You may think that this can hardly be considered a bad development. How could protecting people from unscrupulous money lenders be a bad thing? I am willing to accept that, prima facie, the introduction of the law is not, per se, a negative development. However, I believe that the House’s rash approach to this matter, for the sake of a politically attractive soundbite, may endanger our financial services industry and the capacity of startup companies, particularly those investing in Research and Development, to obtain funding. The banks, as credit institutions under the Banking Law, are expressly exempt from the law, so they may continue to charge high interest rates on consumer loans, credit cards or risky projects. One can only wonder if such an exemption is constitutional under the equality principle. So where does the problem lie? Finance is based on the principle of risk. The riskier the project, the higher the potential return. Banks, especially in this climate, tend to finance projects which have a degree of risk but they need to reach the stage where they are viable enough to be considered “bankable”. In this sense, the “men with ideas” would have no chance of gaining access to funding through our banking system today. If this had always been the case everywhere, the Internet, the smartphone and other revolutionary projects would never have become reality. Fortunately we have private equity and venture capitalism: people with money invest in an idea which is too risky for a bank to finance, in the expectation of a high return. Sometimes the investment takes the form of equity participation, i.e. buying a “share” in the company. However, if this is not acceptable to the

investor or the project developer, the contribution must be made as a “high yield” (and consequently high interest) loan. The parties are under no illusions about the rate being exorbitant but the risk is great and the rewards are potentially greater. In places like Cyprus which are poor in R&D but rich in people with ideas and expert knowledge, the opportunity to attract investors, even through high yield bonds or loans, is a sorely-needed lifeline. The ill-conceived, all-encompassing prohibition of high interest severs this line, nips the introduction of new industries in the bud and deprives the “men with ideas” of the necessary funds.

The law was rushed through parliament as a populist knee-jerk reaction There is a further dimension to the issue. Cyprus is home to a large number of holding companies with assets and activities in many countries. Such companies, set as finance vehicles within groups, regularly borrow and lend money within and outside the group at rates which are decided by the conditions prevailing in the country where their major activity takes place. Such borrowing may be carried out with counterparties which are not banks as defined by the new law which does nothing but create legal uncertainly and may lead investors to decide to set up their financing vehicles in another jurisdiction and skip Cyprus altogether. As a result, we all lose. I am sure that the House had not thought out all the possible consequences when it debated the law which it rushed through parliament as a populist knee-jerk reaction without any consultation with the business community and the international corporate services industry. Fortunately, legal circles are now taking steps to redress the unintended consequences of the law, working with parliamentarians and the Attorney-General to find a suitable formula that will correct the above problems to allow international commerce and private equity to thrive in Cyprus.

info: Demosthenes Mavrellis is a Partner at Chrysses Demetriades, Advocates and Legal Consultants 22

the international investment, business & finance magazine of cyprus

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9/24/11 11:11:37 AM

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9/24/11 11:11:44 AM

{the debate}

Would Greece be better off leaving the eurozone?

YES! By Dinos Andreou

Stuck in a vicious cycle of insolvency, low competitiveness and deepening depression now exacerbated by severe fiscal austerity, Greece’s public debt is heading towards 200% of GDP. To escape, the country has little choice but to begin an orderly default and voluntarily exit the eurozone. Economic union, without the corresponding political institutions or a pan-European fiscal transfer mechanism, has long been prophesied as one day becoming the fated Achilles heel of the euro. By joining the currency and its one-size-fits-all economic paradigm, Greece surrendered the trusted tools of inflation and devaluation as a means of dealing with unemployment insolvency issues in return for lower interest rates. However, as the current crisis has unfolded, interest rates for Greek debt have been anything but low. The only option available now to Greece in order to survive as a eurozone member is to borrow heavily from external creditors on condition that the government slashes spending and sells off state assets. There is no doubt that the austerity measures being imposed on Greece seek to correct the many serious and endemic financial problems that the country faces. However, the time-frame being imposed to fix half a century of financial mismanagement is hugely problematic because it effectively decimates the incomes of both private and public sector workers. This can only result in the destruction of Greece’s middle classes and, as such, rob the country of its engine for achieving growth and prosperity for the foreseeable future.

A dramatic and painful exit from the eurozone may be preferable to struggling to survive in a subsistence economy Given the magnitude and harshness of the austerity packages currently being imposed on the Greek people, the option of a dramatic and painful exit from the eurozone may be preferable to struggling to survive in a subsistence economy for decades to come. Despite the initial shock of the debt default and devaluation that would be part and parcel of leaving the eurozone, Greece would at the same time become instantly more competitive in the international arena while regaining a national Central Bank that could print money to pay debts, keep public sector workers employed, honour social security payments and stimulate the economy.

NO! By Andrew Perry

Leaving aside the issue of whether the eurozone would be better off without Greek membership (it would), it has been calculated that the price that Greece would pay to give up the euro would amount to 40%-50% of its GDP. A UBS report suggests that for a weak economy such as that of Greece to leave the eurozone, it would cost citizens between €9,500 and €11,000 in the first year alone.

Leaving the eurozone and printing drachmas is not the answer If Greece were to drop the euro and re-adopt its former currency, the value of the drachma would immediately plummet – some experts say by more than 50%. True, that could be helpful in the medium term since a weaker currency stimulates exports, but it would be disastrous in the short term. Greek goods and services might become cheaper abroad but the Greek people would be even worse off when buying foreign goods. Greece’s huge debt is denominated in euros and if a new Greek currency were to lose half of its value, the size of the debt would simply explode. The weaker currency would also cause significant inflation, which would further erode the purchasing power of Greek citizens already suffering from wage and pension cuts. It is true that in order to stay in the eurozone, Greece will have to further adjust its economy by cutting wages and government spending yet again. Such measures are far from politically popular and Greek Prime Minister Andreas Papandreou is having a tough time imposing more austere policies in addition to those already in place (though one truly wonders how New Democracy’s M.P.s have the gall to argue against them). However, the alternative of printing money in order to provide more generous pensions and higher wages is a trap that would leave Greece in an even worse situation than the one in which it finds itself now. Life in the eurozone is not always rosy. Over the past decade, Greece has benefited from increased trade and investment and lower borrowing costs. Now it has to face up to its obligations and adjust its economy accordingly. Leaving the eurozone and printing drachmas is not the answer.

info: Dinos Andreou is a political and economics analyst Andrew Perry is an economist

the international investment, business & finance magazine OF CYPRUS

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the shipping industry in cyprus gold_26-49_inn.indd 26

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past, present & future

yprus is a highly reputable international shipping centre and, with almost 2,000 registered vessels representing gross tonnage of 21 million under its flag, the island is ranked 10th in the world and 3rd in the European Union. More than 130 shipowning, shipmanagement and related companies maintain a presence here, making Cyprus the biggest third party shipmanagement centre in the EU.

The law dealing with the registration of ships, sales and mortgages was first introduced in 1963. During the early years the number of ships registered in the Cyprus Shipping Registry was relatively small but over time, and despite the upheaval caused by the Turkish invasion of Cyprus in 1974, the international shipping community came to realise the opportunities offered by the 1963 legislation. A succession of double tax treaties, numerous bilateral agreements and subsequent tax benefits introduced for both foreign and local shipowners brought about a tremendous expansion of the Cyprus Shipping Registry, both in terms of number of vessels registered as well as the tonnage transported. Cyprus’ accession to the European Union in 2004 created new prospects for the shipping industry. Joining the bloc with a strong fleet, a well-founded and efficient maritime infrastructure and one of the only two ‘Open Registries’ in the EU, Cyprus is now thought to constitute 25% of the EU’s total shipping fleet. The island has its own well-established maritime infrastructure comprising admiralty courts, unions and a Classification Society. The Department of Merchant

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By Dinos Andreou

Shipping operates under the Ministry of Communications & Works and offers dedicated and specialised services to the shipping industry. As an EU member state, with all the safety protocols that this entails, the sector is particularly sensitive about the level of safety of all ships sailing under the Cyprus flag. Government policy on shipping has been progressively upgraded in order to improve safety standards and the living and employment conditions of seamen on board. The Cyprus flag is on the white list of the Paris Memorandum of Understanding which certifies the Cypriot government’s commitment to safety and maintenance of Cyprus as a reputable maritime centre. As a well-established centre with a solid infrastructure, Cyprus also offers advanced services to the sector that enable operators to meet the growing demands of today’s globalised shipping business. The island’s tax legislation is credited as being the main force behind the rapid expansion of the shipping industry over the past 50 years and now almost 2,000 vessels fly the Cyprus flag. A substantial number of them are managed by specialised shipmanagement companies renowned for their expertise in this field.

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cover story

the world’s top ten shipping fleets Registry 1. Panama 2. Liberia 3. Marshall Islands 4. Hong Kong 5. Bahamas 6. Singapore 7. Greece 8. Malta 9. China 10. Cyprus

No. of vessels 7,986 2,726

Tonnage 201,264,453 106,708,344

(ship-owning, charterers or shipmanagement) • Registration of holding and/or finance 1,622 62,011,182 companies • Ship registrations, 1,736 55,543,246 deletions, transfers and 1,384 50,369,836 mortgages • Maintenance and full 2,667 44,869,918 compliance services 1,433 40,795,358 of Cyprus-registered companies 1,724 38,737,657 • Audit and assurance 4,080 34,705,141 related services (IFRS technical advice) 1,014 20,732,488 • Flotation of shipping groups According to leading local tax experts, • Operations and quality management for taking advantage of the opportunities obtaining ISO 9000 certification offered by the island’s shipping legislation • Human resource advisory including full does not necessarily entail complex group repatriation service for expatriates restructurings and transfers of mortgaged • Payroll services and accounting vessels that are difficult to implement. Companies have succeeded in achieving substantial tax savings by changing the Registration of ships flag of vessels, the re-domiciliation/change Permanent & provisional of residence of existing companies, and registration the amendment of existing operations, Cyprus merchant shipping legislation actions that are easier and quicker to allows for the provisional registration of implement. a vessel (in the case that a vessel is not Most of the major global accounting and previously a Cyprus ship) and most owners audit firms such as KPMG, Deloitte, and usually opt to have their ship provisionally Ernst & Young have a presence in Cyprus registered first. The provisional registration and are available to interpret legislation is considered to be a full registration for a affecting shipping operators. period of up to six months and it can be Local expertise offered in this area extended further for three months with an includes: application prior to the expiration of the six• Tax planning, structuring and month period. This allows owners the time restructuring (legal, finance and (up to 9 months, including the 3 month operational structure) extension) to complete the administrative • Registration of shipping companies

outsourcing • Provident fund services • Business advisory services (corporate finance, valuations, mergers & acquisitions)

Benefits offered by Cyprus to the shipping industry • The provision for Tonnage Tax on the net tonnage of the vessels rather than Corporation Tax on the actual profits • Regulation by the Department of Merchant Shipping rather than the Tax Authorities • The total tax exemption of profits tax and distribution tax • The ability to conduct mixed activities within a company/group • The application of only 10% corporation tax • An open registry system • The ability to split ship-management activities (crewing or technical) formalities for permanent registration. Once the necessary documents are submitted and formalities completed the Registrar of Cyprus Ships will issue the Certificate of Cyprus Registry and the vessel will be permanently registered under the Cyprus flag.

Parallel registration Under Cyprus legislation the possibility of parallel (bareboat) registration of vessels exists. The legislation provides for the two forms of internationally accepted bareboat registration: “Parallel-in” registration and “Parallel-out” registration. These two options offer opportunities in leaseback, hire purchase and finance arrangements.

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9/26/11 10:27:17 AM

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cover story Types of shipping activities in Cyprus Ship-owning

Most Cyprus-registered ships are owned by Cypriot companies with a varied and wide range of foreign interests. Due to the fact that every limited liability company is a separate legal entity, it is very common to incorporate a shipowning company for every ship registered.

Shipmanagement

Cyprus constitutes one of the largest shipmanagement centres in the world with most of the largest shipmanagement companies in the world having fully fledged offices on the island. Cyprus also hosts about 50 more shipmanagement companies and marine-related foreign enterprises which conduct their international activities from Cyprus.

Transhipment

For a long time now, Cyprus been utilised as a transhipment centre for Asia Pacific trade with Europe as well as with shipping markets situated along the coasts of the Levant and Black Sea and North Adriatic. Due to the key position of the island, these

markets can be easily accessed from Cyprus with minimum diversion from main arterial routes. Cyprus is also a natural hub for other mainline deep sea trades traversing the Mediterranean, to North Africa and the Middle East. The main products re-exported from Cyprus include tobacco, processed food supplies, beverages, textiles, minerals and chemicals. Given its geo-strategic positioning, the island has been a pioneer in the development of purpose-built container terminals in the Eastern Mediterranean.

Bareboat chartering

A bareboat charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement.Â In general, the charterer is acting as if he were the owner of the vessel, except for the right to sell or mortgage the vessel. Because Cyprus allows for the possibility of parallel registration of a vessel under the Cyprus flag by bareboat chartering, a vessel registered under the Cyprus flag may be bareboat charteredout to a foreign corporation for parallel registration under a foreign flag, provided the law of the other country recognises the concept of bareboat charter registration.

Ship-management headquarters Shipmanagement companies are finding Cyprus increasingly attractive as a base for managing ships under various flags. These companies offer full management services to shipowners worldwide and are engaged in chartering, crewing, ship-broking and similar activities. In order to encourage the establishment of shipmanagement companies and other shipping headquarters in Cyprus, existing legislation grants such companies and their foreign employees various tax advantages and other incentives.

Service companies and facilities

Cyprus is home to numerous shipping agencies, classification societies, marine surveyors, average adjusters, marine insurance and protection and indemnity (P&I) ship-brokers, bunkering facilities, a small ship-repair facility and the possibility of a larger one in the future, as well as an underwater survey service. Moreover, a growing number of international banking units are willing to offer their services for ship financing and there is a large number of lawyers and accountants specialising in shipping.

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cover story

By Haris Christoforou

Cyprus Shipping Problems: The Turkish Embargo and Piracy

ew tax arrangements introduced by Cyprus last year, following European Union approval, open up new vistas for its shipping industry, further elevating the status of the island as one of the world’s largest third party shipmanagement centres and inviting new shipping companies to open up their offices in the country. But, as the Cyprus Shipping Chamber’s Director General, Thomas Kazakos, tells Gold, not all is rosy with the maritime industry. He points to the concerted effort still needed by the international shipping community to address head on such perverse and unlawful situations as the unilaterally imposed Turkish embargo against Cypriot-flagged vessels and the resurgence of piracy on the high seas.

Gold: How does Cyprus rank as a shipping centre in the context of the European Union and the world at large? Thomas Kazakos: Today, the Cyprus Registry is the 10th largest merchant fleet globally and the 3rd largest fleet in the European Union with approximately 1,000 ocean-going vessels of a gross tonnage of around 19 million. Furthermore Cyprus is considered as the biggest 3rd party shipmanagement centre in Europe and one of the top 3rd party shipmanagement centres internationally. These factors combined, namely the strength of the Cyprus flag, together with the large number of ships managed from Cyprus, make the island one of the world’s leading shipping centres.

Gold: How important is the new tax

Thomas Kazakos 32

legislation for the shipping industry and what has been the response of foreign shipping companies since its adoption by the Cypriot authorities? T.K.: The official approval by the European Commission of the new, fully revised and upgraded Cyprus shipping taxation system constitutes perhaps the most important success for the country’s shipping industry since the founding of the Republic of Cyprus some fifty years ago. There is no doubt in my mind that the new tax set-up ensures the viability of both the Cyprus Shipping Register and the Cyprus shipping industry. It further safeguards the unhindered continuation of the important contribution of the shipping industry to the Cypriot

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economy. This contribution, according to the latest available official statistics, currently exceeds 5% of GDP. Under the new Tonnage Tax arrangement now in place, Cyprus is able to extend this form of tax treatment to the three most fundamental shipping activities that are offered today by the shipping industry worldwide, namely shipowning, shipmanagement and the chartering of vessels. In addition, of course, ship operators opting for our much-improved tax system will enjoy the extra benefit of having a quality EU flag on their ships. It is precisely for this reason that a number of new shipping companies, both within and outside the European Union, have expressed interest in learning more and seeing how they can benefit from this new, highly competitive shipping tax arrangement, with the intention of establishing offices on the island.

It is officially recognised that the restrictive Turkish measures adversely affect the overall shipping interests of the EU Gold: To what extent does the Turkish embargo on Cyprus ships and vessels using Cyprus to conduct their business hinder the further development of the island as a maritime centre? T.K.: Although Cyprus-based shipping companies have learnt to cope with the adverse effects of the Turkish embargo on Cypriot ships, these illegal and restrictive measures are still impacting on the further development and growth of the Cyprus Flag and the country’s shipping industry. Despite all the commendable efforts made by the Government at the highest international and EU political level, we have not succeeded in having this unlawful measure repealed by the Turkish authorities. That said, it is not just a Cypriot issue and its implications are not confined to Cypriot shipping. Since Cyprus joined the European Union in 2004, the issue has gained a new

dimension, as it is officially recognised that seafarers. In view of the current escalation the restrictive Turkish measures adversely of the problem, including the recent killing affect the overall shipping interests of the of seafarers by pirates, ship operators are EU. In particular, it was often forced by cargo noted some time ago that The shipping sector owners and charterers to the measures imposed by a represents a yearly retain all possible options country linked to the EU contribution to the available to deter attacks through a Customs Union national economy in and defend their cargoes accord (and which seeks the order of about and crews against piracy. eventual membership to Still, without robust and €850 million the Union) impact gravely effective counter measures, on European Union piracy will continue to interests, both at public and private sector threaten the safe passage of thousands of level. Clearly, in the private sector, those seafarers, thereby placing unacceptably high most seriously impacted by the Turkish risks on the use of important sea-lanes. embargo are EU shipowners, ship managers and ship operators. Gold: Is there anything Cyprus can do? T.K.: Following concerted lobbying by the Gold: Are you optimistic that the ban Cyprus Shipping Chamber and after a will be lifted in the near future? lengthy consultation process during which T.K.: The implementation of the EU – the Chamber has been very influential Turkey Customs Union Agreement and during all the preparatory stages, the the extension of the additional protocol to Cyprus maritime administration has Cyprus will eventually lead to the lifting prepared a legislative framework providing of the Turkish ban against Cyprus and EU for a means to protect our interests as a shipping. The Cyprus Shipping Chamber, maritime nation against piracy. Whilst for its part, will continue its longstanding the consensus industry view, as expressed efforts on this matter of principle until this by the Cyprus Shipping Chamber, still illegal ban is lifted. Such a development remains that under normal circumstances will, clearly, have extremely favourable private armed guards are by no means economic consequences for Cyprus and recommended, Cypriot legislation will the EU but also for Turkey as well. On the provide the necessary prerequisites and basis of the fact that almost all negotiating conditions for the use of private armed chapters (other than those which have guards onboard as a possible option. been “frozen” due to Turkey’s refusal to lift the ban) have been closed, it is Gold: Do you think the world reasonably expected that by autumn this community has adequately responded to year the matter will come up for formal the piracy menace or is there more work consideration by the EU and will act as a to be done by national governments and catalyst for Turkey’s future accession to international bodies? the Union. T.K.: We believe that the international community must intensify its efforts Gold: How big a problem is piracy for further and, in doing so, generate a wider Cypriot shipping and Cyprus-based global response to piracy. The piracy shipmanagement companies? phenomenon is a real global menace T.K.: In the absence of a complete and is currently outpacing all efforts by international legal framework, piracy the international community to deal is not just a threat to Cyprus shipping with it. In the absence of effective law but to international shipping in general. enforcement, piracy flourishes. This Shipowners, operators and managers have situation is completely unacceptable and no further means of safeguarding their our common goal must therefore be the ships, cargoes and, more importantly, their achievement of a sustainable solution. The the international investment, business & finance magazine of cyprus

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cover story

international community must quickly prepare a strategy to restore law and order on the high seas. Individual states, for their part, must amend their national legislation in order to allow for the arrest, prosecution and sentencing of captured pirates. It is imperative that the current “catch-andrelease” practice is discontinued, as pirates must be brought to trial and justice. For these reasons, the Cyprus Shipping Chamber has urged the Government to undertake, in both the medium and long term, more initiatives at all international fora towards the establishment of a complete international legal framework. Such a framework should then provide a guaranteed, uniform confrontation of pirate bands when they are arrested.

As far as Cyprus as a shipping centre is concerned, the conference offers the opportunity to participants to become familiar with the island’s strong maritime tradition, know-how and expertise that has been built up over the last few decades. It is for these reasons that, over the years, this specialized event has grown into one of the world’s most significant shipping conferences. Its status now gives it a prominent position on the calendar of many of those connected with the shipping industry, including the representatives of numerous international maritime organisations, shipowners, shipmanagers, bankers, brokers, lawyers, accountants and delegates from other shipping services organisations.

Maritime Cyprus has grown into one of the world’s most significant shipping conferences Gold: Maritime Cyprus, the international

Gold: How would you describe the

biennial shipping conference, has been going strong for nearly 25 years. But is it really of any practical significance for the industry or is it just a talking shop for academic debates and discourses? T.K.: The main aim of the Maritime Cyprus Conference is to operate as a forum where important and current issues relating to international shipping are presented by distinguished speakers. Subsequently, these issues are further discussed by the international shipping community within numerous international maritime organisations, thereby helping to formulate sound and well-balanced decisions and policies on crucial shipping issues, thus showing the significance of the Conference.

contribution of the shipping industry to the national economy and what are the prospects for the maritime sector’s share of GDP growing further in the years ahead? T.K.: Shipping’s contribution to the economy of Cyprus is too significant to ignore. The Government is well aware that through shipping, the island has distinguished itself by achieving a emarkable international ranking and recognition far beyond the country’s size and boundaries. According to the most recent official statistical data issued by the Central Bank, the contribution to the Cypriot economy of shipmanagement alone stands at 4.8% of GDP. Further,

The international community must quickly prepare a strategy to restore law and order on the high seas once the equivalent statistics for the shipowning sector are also consolidated, the shipping industry’s total contribution to the national economy can easily reach 5.5% of the GDP. I should point out that such a percentage is higher than most of the equivalent contributions made by the shipping industry in other EU countries. In absolute terms, this GDP percentage represents a yearly contribution to the national economy by the shipping sector in the order of about €850 million. Of course, shipping’s contribution to economic activity in Cyprus is diversified and goes beyond this amount. Another important contribution of Cyprus shipping is its potential as a creator of new employment opportunities on the local labour market. It is worth pointing out that the total number of gainfully employed persons in Cyprus shipping ashore (i.e.at office level) is approximately 4,500 or 2% of the country’s total gainfully employed population. In addition, approximately 40,000 seafarers of different nationalities are employed on board vessels controlled or managed by shipping companies located in Cyprus, which are also members of the Cyprus Shipping Chamber. We have no doubt that, following the introduction of the new shipping-tax framework, all these figures and percentages, measuring the industry’s contribution to the national economy, will grow considerably in the years that follow.

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cover story CYPRUS SHIPPING CHAMBER

FULL MEMBERS Acheon Akti Navigation Co. Ltd. Hawaii Royal Gardens Court, 8th Floor, Chr. Sozou & Chr. Hadjipavlou Streets, Limassol 57504, 3316 Limassol 25747015 25342157 acheon@acheonakti.com.cy

Admibros Management Co Ltd. Admibros House, 16, Kyriacos Matsis Avenue, 1082 Nicosia 22512195, 22813030 22816061 administration@admibros.com

Ahrenkiel Shipmanagement (Cyprus) Ltd. O & A Tower, 4th Floor, 25, Olympion Street, 3035 Limassol 53594, 3303 Limassol 25854000 25854001 InfoCY@Ahrenkiel.Net

Ambra Shipmanagement Ltd. 3, Archbishop Makarios III Avenue, Mesa Yitonia, Limassol 56668, 3309 Limassol 25750469 25722937 management@ambrashipmanagement.com

Arash Shipping Enterprises Ltd. Thomas Eliot Street, 3011 Limassol 53546 2011 Limassol 22660766/25662021 22678777 sasanian@nitc-tankers.com

Arrownaut Ship Management Ltd. Office 401, 5, Andrea Kalvou Street, 3085 Limassol 51204, 3502 Limassol 25730967, 25385484 25386773 arrownaut@arrownaut.com

Bernhard Schulte Shipmanagement (Cyprus) Ltd. Hanseatic House, 111, Spyrou Araouzou Street, 3036 Limassol 50127, 3601 Limassol 25846400 25745245 cy-sdc-man@bs-shipmanagement.com www.bs-shipmanagement.com

Blue Ocean Yacht Management 141, Erinis Street, Katholiki, 3022 Limassol 25814516 25372404 info@blueoceanym.com

BW Gas Cyprus Ltd Ariadne House, 1st floor, office 11, 333, 28th October Street, 3106 Limassol 25814038 25814039 tor.torma@bwgas.com

Chemikalien Seetransport Cyprus LTD. Morfo Court, 3rd Floor, Office 31, 2, Christou Samara Street, 4001 M. Geitonia, Limassol 59716, 4012 Limassol 25878252 25763073 office2@cst-shipping.com

Columbia Shipmanagement Ltd. Columbia House, Dodekanison Street, Limassol 51624, 3507 Limassol 25843100 25320325 shipmanagement@csmcy.com www.columbia.com.cy

Cyfadaco Shipmanagement Ltd. Chrisalia Court, 206, Makarios Avenue 5th Floor B, 3030 Limassol 99203212 p.piech@cyfadaco.com

Dalaro Shipping Ltd. 1 Katanis Street, A.T. Stavrinides Tower, 3rd floor, 3011 Limassol 25660810 25660804 dalaro@dalaroshipping.com, www.dalaroshipping.com

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Deep Sea Supply Plc 53340, 3302 Limassol 25431107 25431131 constantinos@dess.no www.deepseasupply.no

Donnelly Tanker Management Ltd.

Global Management Limited

Internaut Shipping Ltd.

Ariel Corner, 196, Makarios III Avenue, Office 401, 3030 Limassol 53691, 3317 Limassol 25898000 25898295 info@globalmanagement.com.cy

Posidonos No. 2, Ayios Tychonas, 4532 P.O.Box 54368, 3723 Limassol 25818755 25818707 internaut@internaut.com.cy

2, Georgiou Neofytou Street, Mesa Yitonia, 4006 Limassol 57215, 3313 Limassol 25585790 25585686 mail@donnellytanker.com.cy

3, Thalia Street, Limassol 51309, 3504 Limassol 25840300 25575895 management@interorient.com.cy, www.interorient.com

EDT Shipmanagement Ltd.

Intership Navigation Co. Ltd.

Intership House, 123, Grivas Dighenis Avenue, 4002 Limassol 54393, 3723 Limassol 25584000 25585756 mail@intership-cyprus.com www.intership-cyprus.com

124, Ayias Paraskevis Street, 4044 Yermasoyia 54548, 3725 Limassol 25899000 25324440 info@edtoffshore.com www.edtoffshore.com

Euroafrica Shipping Lines Cyprus Ltd.

JPC Shipmanagement (Cyprus) Ltd. 35, Riga Fereou Street, Fereos House, Apt. 303, 3609 Limassol 50700, Limassol 25871004 25344428

229, Archbishop Makarios III Avenue, 229, Meliza Court, 4th Floor, 3105 Limassol, Cyprus 25580691 25583822 esl.hass.holdings@cytanet.com.cy www.euroafrica.com.pl

FML ShipManagement Ltd. 601, Ghinis Building, 58-60, Dighenis Akritas Avenue, 1061 Nicosia 27249, 1643 Nicosia 22817177 22769277 fpdfmlsml@fleetship.com, www.fleetship.com

Interorient Navigation Co. Ltd.

claus.Horn@jpc-shipmanagement-cyprus.com

www.jpc-shipmanagement.de

Lefkaritis Bros Marine Ltd. IC Shipmanagement Ltd. Ulysses House, Office 201, 67, Spyrou Araouzou Street, 3036 Limassol 53717, 3017 Limassol 25820033 25820037 icsm@icsm.com.cy

1, Kilkis Street, Larnaca 40162, Larnaca 24652142 24657173 mariosl@lefkaritisgroup.com.cy 119, Spyrou Araouzou Street, Limassol 50042, Limassol 25362670 25369060

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cover story

Ocean Tankers Holdings Public Co. Ltd. Marlow Navigation Co. Ltd.

Lemissoler Navigation Co. Ltd. Eleni Court, 17-21b Agias Zonis Street, Limassol 54970, 3729 Limassol 25818830 25746926 info@lemissoler.com

Louis Cruises 20, Anthipoleos Street, Nicosia 21301, 2025 Strovolos, 1506 Nicosia 25574001 25566809 contact@louiscruises.com, www.louiscruiselines.org

Lowland International Shipping (Cyprus) LTD. 5A, 28th October Street, 7560 Pervolia, Larnaca 24427342 24427343 Cyprus@lowland.com

Marin Shipmanagement Ltd. 139 A, Gladstone Street, 3032 Limassol 56848, 3310 Limassol 25871355 25871357 crewing@marin-shipmanagement.com

Marlow Building, 13, Alexandrias Street, 3013 Limassol 54077, 3720 Limassol 25882588 25882599 marlow@marlow.com.cy, www.marlownavigation.com.cy

Mastermind Shipmanagement Ltd Centro Imperio building, Office no. 3, 11, Grigori Afxentiou Street, 4003 Limassol 25256000 eadami@interhsip-cyprus.com

Medstar Shipmanagement Ltd. 10-12, Emmanuel Rhoides Street, Agia Zoni, 3031 Limassol 25877114, 25877115 25877122, 25877121 admin@medstar.com.cy

Mouragio Shipping Company Limited 10-12, Emmanuel Rhoides Street, Ayia Zoni, 3031 Limassol 25877125 25877130 nicoletta-andreou@cytanet.com.cy,

Naihi Holdings Ltd. SOBOH HOUSE, 337, 28th October Street, 3107 Limassol, Cyprus +441293556386 +441293556304 smadani@slb.com

Blue Anchor House, 4, R. Parou Street, 1082 Nicosia 22813030 management@ocean-tankers.com

Petronav Ship Management Ltd. 145-149, Chr. Hadjipavlou Street, Christiel Building, 4th Floor, 3036 Limassol 50663, 3608 Limassol 25889100 25346289 petronav@petronav.com.cy,

Premicon Cruise LTD. 19, Evangelistrias Street, Ayia Zoni 3031, Limassol 50689, 3608 Limassol 25871877 25371877 Michael.knauer@permicon.de, www.kd-cy.com

Projective Transmarine Finance Co. Ltd. City Chambers, 6, Rigas Fereos Street, Limassol 54535, 3725 Limassol 25820505 25817601 mail@ptfc.com.cy

Reederei Nord Ltd. Libra Tower, 23, Olympion Street, Limassol 56345, 3306 Limassol 25841400 25345077 mail@rnkeo.com.cy, www.rnkeo.com

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Reederei Austria Eberhard Koch (Cyprus) LTD. 57280, 3314 Limassol 25662555 25662666 capt.ekoch@cy.oelsm.com

Salamis Lines Ltd. 50531, 3607 Limassol 25860000 25342600 k.vassiliou@salamis-shipping.com www.salamisorganisation.com

Sea Shipping Holding Ltd. 1, Katanis Street, A.T. Stavrinides Tower, 3rd Floor, Limassol 25660820 25660804 fleet@seashippingholding.com www.seashippingholding.com

Seatankers Management Co. Ltd. Deana Beach Apts., Block 1, Flat 411, Promachon Eleftherias Street, Ayios Athanasios, 4103 Limassol 53562, 3399 Limassol 25326111 25323770 seatank@cytanet.com.cy

SMT Shipmanagement and Transport Ltd.

702, A Nicolaou Pentadromos Centre, Limassol 57114, 3312 Limassol 25820000 25749080 operations@smt.com.cy www.smt.com.cy

SCF Unicom Management Services (Cyprus) Ltd. Unicom Tower, Maximos Plaza, Maximos Michaelides Street, 3106 Neapolis, Limassol 56674, 3309 Limassol 25890000 25890089 Unicom@scf-group.com www.scf-group.com

Stena Holding Cyprus Ltd. Lophitis Business Centre II, 4th floor, Office 401, 28th October Street, 3035 Limassol 25871207 25760220 Ole.Lindoe@stena.com www.stena.com

Terra Navis Shipping Ltd. 258, Leontiou Aâ&#x20AC;&#x2122; Street, Suite B, 4th Floor, 3020 Limassol 25870352 25735243 info@terra-navis.com, www.terra-navis.com

Tsavliris Salvage (International) 1, Kostakis Pantelides Avenue, Nicosia, Akti Poseidonos 10 18531, Piraeus Greece +30 2104221000 +302104221008 salvage@tsavliris.com, www.tsavliris.com

Uniteam Marine Ltd. Fortuna Court, 284-286, Archbishop Makarios III Avenue, Limassol 54086, 3720 Limassol 25846100 25581706 info@uniteammarine.com www.uniteammarine.com

V.Ships Ltd.

V.Ships House, 13, Omonia Avenue, 3052 Limassol 57115, 3312 Limassol 25848400 25560170 vships.cyprus@vships.com www.vships.com

VTN Shipmanagement Co. Ltd. Deana Beach Apartments Block 1, 4th Floor, Promachon Eleftherias Street, Agios Athanasios, 4103 Limassol 25879160 25879172 freight@vtnshipmanagment.com.cy

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cover story

By Haris Christoforou

How EU Membership has Helped Cyprus’ Shipping Industry

he prospects for the island’s shipping industry are extremely favourable and there are grounds for optimism that the maritime sector will continue to grow and prosper, says Serghios Serghiou, Director of the Department of Merchant Shipping. The new tax legislation and impressive improvements to quality standards in recent years have shown that old fears about EU membership negatively affecting the Cypriot shipping sector were misplaced.

Gold: It’s not all that long ago since the Cyprus flag was routinely described as a “flag of convenience”. How has the shipping administration succeeded in eradicating that label? Serghios Serghiou: The fact that we are now permanently on the white list of the Paris Memorandum of Understanding on Port State Control and the Tokyo MOU and that the Cyprus flag has been removed from the “List of Targeted Flag States” of

the US Coast Guard is adequate proof that we work in a most professional manner, in full compliance with international law and acceptable maritime practice. Under no circumstances can we be labeled a flag of convenience. The term “flag of convenience” has two connotations: that of a loosely-controlled flag where anyone can register a ship and be sure that nobody will come and inspect it; and secondly that a ship belongs to someone who is not a citizen of the country whose flag the ship is flying. Neither of these connotations is applicable to Cyprus. On the one hand, under European Law, any citizen or company of any EU member state is entitled to register a ship under the Cyprus flag. The fundamental freedoms enshrined in the EU’s acquis communautaire, concerning freedom of trade, freedom of establishment and so on, also cover ship registration. And as far as Cyprus is concerned, I would say that more than 70% of the fleet under the Cyprus flag belongs to European interests and member states’ interests.

Gold: When Cyprus joined the European Union, some within the shipping community feared that, as an EU member state, the island would not be in a position to maintain its status as a maritime centre. Have those fears proved to be unwarranted? S.S.: I think it is fair to say that, initially, the shipping community was indeed concerned about Cyprus’ accession to the European Union as it was well known that the EU followed a more stringent approach to major issues such as safety, taxation and internal competition than the rest of the international community. At the same time it was no secret that by joining the European Union, Cyprus would have to make a number of “sacrifices” involving its shipping sector. In the wake of our joining the EU, for instance, it was accepted by the Cypriot authorities that there would ensue a loss of flexibility in policymaking and in effecting changes to the taxation regime. However, the approval of the new Tonnage Tax system for Cyprus merchant shipping by the European Commission in March 2010 shows that Cyprus has succeeded in persuading the EU of the overall benefits of maintaining a favourable tax regime for its maritime community, even after the country’s accession to the EU. This tax development has been of critical importance, as it ensures that the competitiveness, advantages and sustainability of Cyprus shipping are safeguarded. To put things in perspective, so far as the loss of sovereign decisionmaking is concerned, one could also point out that any lack of flexibility following the country’s EU membership is

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Turkey’s restrictions violate freedom of navigation, freedom of trade and freedom of access to ports and harbours

counterbalanced by the active participation of the Cyprus maritime administration in the EU decisionmaking process and the influence that we have been able to exercise since 2004. Our aim is to use our European orientation not as a stumbling block but as an additional advantage, by exploiting whatever incentives the EU has made available to shipping and safeguarding, to the extent possible, the interests of the country’s maritime sector. Indeed, the country’s harmonisation with the EU acquis has expedited the modernisation of Cyprus’ maritime legislation in the fields of safety and security. At the same time, Cyprus has been able to maintain, and in some aspects even enhance, its competitiveness as a global shipping centre.

Cyprus has succeeded in persuading the EU of the overall benefits of maintaining a favourable tax regime for its maritime community Gold: Why is the Maritime Cyprus conference important? S.S.: The main aim of the Maritime Cyprus Conference is to operate as a forum where important and current issues relating to international shipping are presented by distinguished speakers such as IMO Secretary-General Efthimios Mitropoulos, EU Transport Commissioner Siim Kallas and others. The issues raised by such eminent speakers are subsequently discussed by the international shipping community, thereby helping to formulate well-balanced decisions and policies on crucial shipping issues. This year’s conference focuses on issues facing the shipping industry such as “Is it safe enough?”, “Is it sustainable?”, “Is there enough confidence?” and deals with the issue of piracy as well as ship-financing,

energy and forecasting. These are problems and concerns which need to be tackled not only by Cyprus’ shipping industry but by the maritime industry as a whole at an international level.

Gold: How is the maritime administration seeking to tackle the problems caused by the Turkish embargo? S.S.: The illegal and discriminatory restrictive measures imposed by the Turkish Government on ships flying the Cyprus flag have been acknowledged as being contrary to the provisions of the Customs Union Agreement between the European Union and Turkey and the Protocol thereto, which extends the Agreement to the States which became members of the European Union in 2004. The Cyprus Government regularly submits reports to the European Commission which document the violation of the provisions of the agreement by Turkey. The issue has also been discussed within the EU at various levels including the European Council, the European Parliament and the European Commission and it has been recognized as a violation of the provisions of the agreement. The reports of the European Commission on the progress of the accession negotiations with Turkey have repeatedly noted that Turkey has to repeal the measures against ships flying the Cyprus flag, as these constitute a flagrant violation of the agreement. The local shipping community has also been working hard through various international and regional industry organisations, such as the ICS, ISF and ECSA, towards an end to the restrictive practices of Turkey and intends to keep up the pressure on Turkey to lift the measures. With our accession to the EU and the commencement of Turkey’s accession negotiations with the Union, the abolition of the restrictive Turkish measures was one of our major expectations. However things have not gone the desired way and, regrettably, the Turkish-imposed

embargo continues to be a drawback for our flag. There is no question that Turkey’s restrictions violate freedom of navigation, freedom of trade and freedom of access to ports and harbours. In essence, the lifting of the Turkish embargo is definitely a prerequisite for further progress of Turkey’s European ambitions. Our efforts will continue and be intensified.

Somali pirates have become an unprecedented menace for world trade Gold: Piracy seems to be the main topic of particular concern to the international shipping community. S.S.: The shipping industry and the seafaring community are increasingly concerned as a result of the continuing activities of pirates in waters off the coast of Somalia, which have gradually spread to the wider north-west Indian Ocean. So far the Somali authorities have not taken – or perhaps they are simply unable to take – any action against the well-organised criminals who use Somalia as their base and a safe haven for their operations. Since the resolution of Somalia’s domestic problems and the establishment of an effective government remain an elusive target, the Department of Merchant Shipping has initiated a comprehensive review of Cypriot policies and laws relating to piracy. This is being pursued in the light of the continuously evolving practices of the pirates who have become an unprecedented menace for world trade. We expect that soon, the legislative bill which has been prepared by the Department, in consultation with the maritime industry, on the protection of Cyprus ships against unlawful acts on the High Seas, will be submitted for enactment by the House of Representatives. I am pleased to note that this piece of legislation contains a number of novel provisions for the protection of both the ships and their crews.

info: Haris Christoforou is a communications consultant and a business writer. the international investment, business & finance magazine of cyprus

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cover story

The Shipping Forecast

he 2011 Maritime Cyprus Conference (2-5 October) has just taken place against a backdrop of a global shipping sector that has been battered by rough winds in the past few years. A collapse in global demand, the return of piracy and a challenging labour market are just some of the issues that the sector has had to deal with. These developments, together with the ongoing Turkish embargo on Cyprus-managed or Cyprus-flagged vessels, have taken their toll on the islandâ&#x20AC;&#x2122;s shipping industry, which boasts the largest ship management sector in the EU, employs 5,000 people and accounts for some 6%-7% of GDP. How soon will things get better for this important sector? By Fiona Mullen

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build a ship, the glut lasts a fairly long time. On top of that, as a by-product of the Lehman Brothers collapse, banks to this day remain risk averse, making it difficult to get letters of credit that allow an exporter to load goods onto a ship. This year also started badly for the Cyprus shipping sector. In the first three months of 2011, income fell again by 15% year on year. If income drops by 15% for the whole of 2011, then shipping’s contribution to GDP is likely to have dropped back below 6% this year. For Cyprus, on the assumption that ‘other’ shipping services refers to shipmanagement, then income from shipmanagement has taken more than a hit than income from freight. This is because when demand for freight is low, business starts to squeeze other areas, like operating costs.

Since shipping is, by definition, a global business, it will always be affected by global demand

A quick look at shipping figures from the Central Bank of Cyprus reveals precisely how bad things have been for the Cypriot shipping sector in the past few years. In what are now seen as the good old days, income from sea transport services climbed by 48% in the space of two years from €917m in 2006 to €1.4bn in 2008, reaching a peak of 7.8% of GDP. But then came the collapse of Lehman Brothers bank on 15 September 2008, which froze credit markets and sent

developed economies into recession in 2009. Since shipping is, by definition, a global business, it will always be affected by global demand. Not surprisingly, therefore, Cyprus’s income from shipping services dropped by nearly 14% in the following two years, to €1.2bn by 2010. Prices were also depressed by an oversupply of ships. In the boom years of 2005-2008, when interest rates were low, more ships were ordered than were subsequently needed. Since it takes around two years to

One small bright spot for the Cypriot sector is the reform of the tonnage tax. While tonnage tax might seem an obscure technicality to outsiders, the Cyprus Shipping Chamber chief, Captain Eugen-Henning Adami, explained that the reform is extremely important for the Cypriot shipping sector because without it, ship management would have shifted to tax-free Singapore once the old pre-EU system expired. Under the old Cypriot tax system, tonnage tax was applied to shipmanagement, crew management and chartering. This system was “grandfathered” for a few years after EU membership but if it had not been changed, crew management – of which Cyprus is the largest centre in the world – would have been excluded from the tonnage tax system. The EU excluded crew management from tonnage tax because it was considered as a simple human resources matter and tonnage tax was therefore seen as unlawful state aid, an issue over which the European Commission has strong opinions and wide-ranging powers. But little Cyprus (helped no doubt by German and Danish ship managers sitting in Limassol) managed to persuade the EU

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cover story to change its state aid rules by boiling it down to an issue of health and safety. When a ship enters a port, it bears all the responsibility for health and safety and the environment which, in a commercial port environment, can be extensive. The individuals responsible are the crew, who are employed by the ship management company. Adami said that if this had not been properly understood, shipmanagement would have ended up in Asia, “and then companies in Asia would be responsible for implementing EU health and safety rules”. Another possible bright spot emerges from the leading indicator known as the Baltic Exchange Dry Index. The index

is “an assessment of the price of moving the major raw materials by sea”. Since the price is affected by global demand (as well as the supply of ships), it is considered to be a good leading indicator of demand. The index was climbing in 2007 and the first half of 2008, hitting a high of 11,793 on 20 May. But by 5 December of the same year, it had tumbled more than 11,000 points to a low of just 663. It hit its most recent nadir of 1,043 on 4 Feb 2011 but while global stock markets were tumbling in August, the Baltic Dry Index was climbing, rising from 1,256 on 1 August to 1,838 on 9 September. This suggests either that global demand is rising or that the oversupply of ships is finally

coming to an end, allowing prices to rise. Another indication of rising demand is global world trade. According to the World Trade Organization (WTO), global trade is estimated to have grown in dollar terms by 22% over the same period of the previous year in the first quarter of this year. This is the same pace of growth as the whole of 2010. While it is unlikely that this pace will be maintained for the rest of 2011, given the impact of the Japanese earthquake and reports of slowing demand in developed economies, the rapid rise in the Baltic Dry Index does at least suggest that the shipping sector might look forward to some light on the horizon.

Baltic Exchange Dry Index (daily index)

Baltic Exchange Dry Index (index at end-period)

Sea transport credit INCOME FROM SEA TRANSPORT

2006

2007

2008

2009

2010

2010 Q1 2011 Q1

€ MILLION SEA TRANSPORT CREDIT PASSENGER FREIGHT OTHER SEA TRANSPORT CREDIT AS % OF GDP

917.1

1023.0 1353.4 1253.6 1166.2

313.6

266.9

65.0 249.2 602.9

63.0 307.0 653.0

30.1 506.1 817.2

13.3 550.5 689.7

6.6 505.4 654.2

-1.9 119.9 192.7

-1.0 117.4 149.0

6.4

7.8

7.4

6.7

n/a

Source: Central Bank of Cyprus

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All products are written by insurance company subsidiaries or affiliates of Chartis Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. the For international additional information, please visit our websitemagazine at www.chartisinsurance.com. investment, business & finance of cyprus 45

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New Shipping Tonnage Tax System Recently enacted legislation affecting Cyprusâ&#x20AC;&#x2122; shipping tonnage tax (TT) scheme has been welcomed as a major success for the local shipping industry and offers an array of new opportunities. It sees the introduction of two new TT schemes which now apply to ship owners of non-Cypriot flag bearing vessels (which also includes charterers). Furthermore, it extends the application of the TT regime (and exemption from profits tax) currently enjoyed by ship owners and shipmanagers and others and grants exemption of interest received relating to the working capital of the company and extends the exemption of the profit on sale of ships. Another important change is the fact that shipping companies whose income is all subject top tonnage tax, will now be completely regulated by the Department of Merchant Shipping and not the Inland Revenue.

Tonnage tax rates The law provides full exemption to ship owners, charterers and ship managers from all profit taxes and imposes tonnage tax on the net tonnage of the vessels at the following rates.

How the new tonnage tax scheme impacts the status of Cyprus as a worldwide shipping centre

Ship Owners, Charterers

The new legislation places Cyprus in a very & Shipmanagers competitive position. Cyprus is now the only EU country with an EU approved TT system Units of net â&#x201A;ŹTT per that provides for TT on the net tonnage of tonnage 100 units the vessels rather than Corporation Tax on the actual profits. The sector is also regulated by 0-1.000 36,50 the DMS rather than the Tax Authorities and 1.000-10.000 31,03 grants total tax exemption of profits tax and distribution tax at all levels and allows mixed 10.001-25.000 20,08 activities within a company/group. Furthermore, it supports an open registry system which allows 25.001-40.000 12,78 split ship management activities (for example >40.000 7,30 between crewing and technical).

info: Fiona Mullen is Director of Sapienta Economics Ltd, an independent consultancy that analyses and explains economic trends to local and international clients. 46

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Contact details HQ address

1, Agriniou Street, 3066, Limassol, Cyprus

Postal address

111 John Street Suite 610, New York, NY 10038

Tel

+35725336520

Fax

+35725384988

Website

www.MultiMarine.com.cy

info@MultiMarine.com.cy

C.E.O & Managing Director Renos Phokas

Top Management

ultiMarine Services Ltd was founded in 2001. MMS is a specialist marine contractor with a strong presence in the Cyprus Marine and Oil

& Gas Industries. The management team and employees offer more than 35 years of experience in the fields of ship repairs, fabrications and marine works. MultiMarine has developed an excellent reputation as a specialist welding services provider which allows the company to be involved in the majority of ship repair projects currently being undertaken in the Cypriot Ports of Limassol and Larnaca. The company’s scope of work includes the provision of all types of afloat ship repairs, mobilizations and demobilizations of offshore supply vessels, general fabrications, steel works and pipe works, new-buildings of floating barges, grit blasting and painting operations, high pressure water jet cleaning, the provision of certified personnel (welders, riggers, electricians, joiners, mechanics, and general assistants), the management of loading and offloading operations, and the hire of machinery and equipment (forklift trucks, generators and compressors). Over the years, MultiMarine Services Ltd has also been engaged in the provision of specialized project management and engineering services to the Oil and Gas Industry. More and more Oil and Gas Multinationals are calling at Cypriot Ports for their projects in Egypt, Cyprus or Israel and MultiMarine has succeeded

Pavlos Phokas (Operations Manager) Angelos Phokas (Engineering Manager) Tomasz Szmydtka (Fabrications Manager) George Fanias (Project Manager) in building an excellent reputation for providing specialized services tailored to the needs of each individual client. Our portfolio of Oil & Gas clients includes ENSCO, WEATHERFORD, SAIPEM, TECHNIP, ACERGY-SUBSEA7, DOF SUBSEA, OCEANEERING, FUGRO, PGS, Integrated Subsea Services (ISS) and many more. Major projects include the Simian, Sienna and Sapphire Project (client: TECHNIP UK) and Burullus WDDM IV, Taurt, Nexen Ettrick, Sequoia & URUGUA Projects (client: SAIPEM UK Sonsub Division). MultiMarine Services Ltd has obtained ISO9001:2008 Quality Management System accreditation and holds Welding Approvals and Certifications from three different Classification Societies, members of the IACS: Det Norske Veritas (DNV), Bureau Veritas (BV) and Germanischer Lloyd (GL). In addition, MultiMarine Services Ltd is the only GL Approved Welding Workshop in Cyprus. 2011 has been a very challenging year for MultiMarine which was the only Cypriot company allowed to carry out works onboard the Drilling Rig Pride North America both at Limassol Anchorage as well as offshore Israel. Examples of projects completed in 2011 include: Jan 2011: MV IMS ONYX & IMS JADE Complete Overhaul of Generators on both vessels Feb 2011: Drilling Rig Pride North America –Cleaning of 4 Tanks, 32m deep each

April 2011: Drilling Rig Pride North America – Explosive Jettison Frames Fabrication March 2011: MV MARY SCHULTE – Forepeak Repairs May 2011: Weatherford – 28 Air Boosters Refurbishment (complete re-piping) July 2011: Drilling Rig JP Bussell – Sea fastening on semi-submersible MV EAGLE August 2011: Semi Sub MV TREASURE – Major Boiler Room Repairs August 2011: MV FIELD EXPRESS – Complete Overhaul of Main Engines & Generators September 2011: Drilling Rig Pride North America – Repair & Maintenance of 86 Riser Spools MultiMarine Services Ltd has now become a diverse organization, an experienced and accredited shipyard with a wholly owned Fabrication Yard and offices inside Limassol Port and established offices in the city of Limassol. MultiMarine’s overall goal is to protect people and the environment. We recognise that attaining the absolute goal of causing no harm to people or the environment is extremely challenging and we will work with clients, suppliers and the workforce towards achieving this objective. In pursuing our goal we implement effective HSE management systems in accordance with OHSAS 18001:2007 and ISO 14001:004, we adopt best available practices and engage with our people and business partners. For more details please visit: www.MultiMarine.com.cy

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VAR

Sh M Ve Ge St Sh An Ne Dr Su Eq No Lo An An Ca Pr Eq H Ta Gr

"A GL APPROVED WELDING WORKSHOP WITH A FABRICATION YARD INSIDE LIMASSOL PORT CYPRUS"

ultimarine

Multimarine Services Ltd

"ONE-STOP SHOP FOR ALL SERVICES REQUIRED IN LIMASSOL PORT" VARIETY OF SERVICES FOR SHIP OWNERS, MANAGERS AND AGENTS

Ship Repairs Mobilizations of Subsea Construction Vessels General Fabrications Steel Repairs & Pipe works Ship Supplies (IMPA & ISSA) Anti-Piracy Vessel Hardening New-buildings of floating barges Dry-docking of small vessels Supply of Personal Protective Equipment (PPE) Non Destructive Testing (NDT) Load Testing Annual Lifeboat Davit Inspections Annual Recertification of Gangways Calibration of Gauges & Instruments Provision of Certified Rigging Equipment High Pressure Water Jet & Coating Tank Cleaning and Coating Grit Blasting and Coating

Full Painting Services Electrical & Electronic Repairs Diesel Engine Overhauls & Repairs Diving & Underwater Inspections & Repairs Motor Repair & Rewinding Propeller Repairs Pump Repairs or Replacement Valve Rebuilding & Repairs Repair of cylinder heads, pistons, cylinder liners, injection pumps Air conditioning, heating and ventilation repair

PIONEERS IN QUALITY ASSURANCE Our Quality Management System is accredited to ISO 9001:2008 The only GL Approved Welding Workshop in Cyprus Approved Welding Procedures and Certified Welders from Germanischer Lloyd, Bureau Veritas & Det Norske Veritas Provision of Certified Welders

Multimarine Contact Details: www.multimarine.com.cy email: info@multimarine.com.cy 1 Agriniou St, 3066, Limassol, Cyprus Tel +357 25336520 Mob. +357 99584020 Contact Person: Renos Phokas - Managing Director

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Record-breaking Investment in Renewable Energy

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Solar, wind and other sources of renewable energy may produce as much as 77% of global consumption by 2050, according to a United Nations report. However, moving beyond fossil fuels such as oil and coal to geothermal, biomass, solar, wind, hydropower and ocean waves and tides to produce electricity will require as much as $5.1 trillion in investment from now until 2020 and an additional $7.2 trillion for the decade ending in 2030, according to the study by the UN’s Intergovernmental Panel on Climate Change. Fortunately, investors are putting their money where it is needed. By Claus Rosenberg Gotthard

ew investment, a measure that covers transactions by third-party investors, was $143 billion in 2010, but just over $70 billion of that was in developed countries while more than $72 billion occurred in the developing countries. For the first time, the developing world has overtaken the richer countries in terms of financial new investment – the comparison was nearly four-to-one in favour of the developed countries in 2004. Nonetheless, renewable energy’s balance of power has been shifting towards developing countries for several years. The biggest reason has been China’s drive to invest: last year, China was responsible for $48.9 billion of financial new investment, up 28% on the 2009 figure, with dominance in the asset finance of large wind farms. In 2010, financial new investment in renewable energy grew by 104% to $5 billion in the Middle East and Africa region, and by 39% to $13.1 billion in South and Central America. The developing world – at least except for its most powerful economies – may not be able to afford the same level of subsidy

support for clean energy technologies as Europe or North America. It does, however, have a pressing need for new power capacity and, in many places, superior natural resources, in the shape of high-capacity factors for wind power and strong solar insulation. A second remarkable detail about 2010 is that it was the first year that overall investment in solar came close to catching up with that in wind power. For the whole of the last decade, as renewable energy investment gathered pace, wind was the most mature technology and enjoyed an apparently unassailable lead over rival renewable energy sources. In 2010, wind continued to dominate in terms of financial new investment, with $94.7 billion compared to $26.1 billion for solar and $11 billion for the third-placed biomass & waste-to-energy. However, these numbers do not include small-scale projects and in that realm, solar, particularly via rooftop photovoltaic installations in Europe, was completely dominant. Indeed, small-scale distributed capacity investment ballooned to $60 billion in 2010, up from $31 billion, fuelled by feed-in tariff subsidies in Germany and other European countries, the report finds. Furthermore, no energy technology has gained more from falling costs than solar over the last three years. The price of

PV modules per MW has fallen by 60% since the summer of 2008, according to Bloomberg New Energy Finance estimates, putting solar power for the first time on a competitive footing with the retail price of electricity in a number of sunny countries. Wind turbine prices have also fallen – by 18% per MW in the last two years – reflecting, as with solar, fierce competition in the supply chain. Further improvements in the levelised cost of energy for solar, wind and other technologies lie ahead, posing a growing threat to the dominance of fossil fuel generation sources in the next few years. Total investment in renewable energy in 2010 was $211 billion, up from $160 billion in 2009 and $159 billion in 2008. Within the overall figure, financial new investment – which consists of money invested in renewable energy companies and utility-scale generation and biofuel projects – rose to $143 billion from $122 billion in 2009 and the previous record of $132 billion in 2008. A sharper increase, however, has been evident in the other components of the total investment figure – namely smallscale distributed capacity, and government and corporate R&D. These investments jumped to $68 billion in 2010, from $37 billion in 2009 and $26 billion in 2008, reflecting mainly the boom in rooftop the international investment, business & finance magazine of cyprus

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PV but also a rise in government-funded R&D, as spending increased from â&#x20AC;&#x2DC;green stimulusâ&#x20AC;&#x2122; measures announced after the financial crisis. The momentum of clean energy investment over recent years has been strong but there have been many jolts and bumps along the way. These have included the biofuel boom of 2006-2007 and the subsequent bust, resulting in a fall in financial new investment in that sector from a peak of $20.4 billion in 2006 to just $5.5 billion last year, and the impact of the financial crisis and recession on

Europe and North America. Financial new investment in renewable energy was significantly lower in 2010 in both Europe and North America, although this setback was more than outweighed by growing investment in China and other emerging economies, and in small-scale PV projects in the developed world. The shift in investment between developed and developing countries over recent years shows that developed countries in 2010 retained a huge advantage in smallscale projects, but not what the authors define as financial new investment. In

2010, developing countries edged narrowly ahead of developed countries in terms of financial new investment for the first time. In 2007, developed economies still had an advantage of more than two-to-one in dollar terms, but the recession in the G-7 countries and the dynamism of China, India, Brazil and other important emerging economies has transformed the balance of power in renewable energy worldwide, leading to big changes in the location of IPOs and manufacturing plant investments by renewable energy companies. Wind was the dominant sector in terms

For the first time, the developing world has overtaken the richer countries in terms of financial new investment

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New Investment in renewable Energy Sources ($BN) 82

67 55

2010 was the first year that overall investment in solar came close to catching up with that in wind power

31 21

15 4 2004

12 2005

2006

2007

Developed countries

of financial new investment (though not of small-scale projects, as noted above) in 2010, with a rise of 30% to $95 billion. On this measure of investment, other sectors lagged far behind. Although the number of GW of wind capacity put into operation last year was lower than in 2009, the amount of money committed was higher. This reflected decisions to invest in large projects from China to the US and South America, a rise in offshore wind infrastructure investment in the North Sea, and the Initial Public Offering (IPO) in November of Italy’s Enel Green Power, the largest specialist renewable energy company to debut on the stock market since 2007. In terms of venture capital and private equity investment, wind came a creditable second, with a figure of $1.5 billion last year, up 17% from 2009. However, solar stayed ahead as the most attractive destination for early-stage investors, its $2.2 billion figure coming after a 30% gain year-on-year. The positions of the two technologies were reversed again in terms of public markets investment, with wind boosted by the Enel Green Power flotation, and also some healthier figures for investment in 2010 in quoted companies specializing in biofuels, biomass and small hydropower. Asset finance of utility-scale projects is the dominant figure within financial new investment. Wind mega-bases in China continued to receive billions of dollars of funding, while large-scale projects in Europe attracted important support from multilateral development banks, notably European Investment Bank (EIB) debt for the Thornton Bank project off the coast of Belgium. US wind farm investment owed much to the treasury grant programme introduced in 2009 but it is due to expire

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2008

2009

2010

Developing countries

at the end of 2011. Given the rush to complete a number of large investment transactions in the closing weeks of 2010, in some cases to “catch” attractive subsidy deals before they expired, it was no surprise that activity in the first quarter of 2011 was relatively subdued, the study finds. Financial new investment totalled $29 billion, down from $44 billion in the fourth quarter of last year and lower than the $32 billion figure for the first quarter of 2010. In asset finance, the biggest reductions in terms of absolute dollar figures came in US wind and European solar. The brightest spots of January-March 2011 were Chinese wind, up 25% on the same quarter of 2010, and Brazilian wind which saw its investment level double from a year earlier. Key projects going ahead included the 211MW IMPSA Ceara wind auction portfolio and the 195-MW Renova Bahia portfolio, both in Brazil, and the 200-MW Hebei Weichang Yudaokou wind farm in China. In Europe, there were several large offshore wind infrastructure commitments, including the Dan Tysk project off Germany, the Skagerrak 4 project off Denmark, and the Randstad project off the Netherlands. In public market investment, transactions included a $1.4 billion share sale by Sinovel Wind in China, and a $220 million offering by solar manufacturer Shandong Jinjing Science & Technology, also in China. In venture capital and private equity investment, the largest transaction of the quarter was a $143 million expansion capital round for US biomass and waste-toenergy specialist Plasma Energy. March 2011 brought a tragic event with potentially far-reaching consequences for energy, including renewables: the Japanese

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earthquake, and the ensuing crisis at the reactors at Fukushima Daiichi, cast into doubt the future of nuclear power in Japan and also in other countries such as Germany. Initially, this led to a sharp rise in the share prices of renewable energy companies but it could be that gas-fired generation will be the prime, short-term beneficiary of nuclear’s problems, rather than the renewable energy sector. Despite record investment figures, 2010 was not a year of uninterrupted joy for renewable energy. New challenges emerged, and some existing challenges became tougher. Firstly, moves by Spain and the Czech Republic to make retroactive cuts in feed-in tariff levels for already-operating PV projects damaged investor confidence. Other governments, such as those of Germany and Italy, announced reductions in tariffs for new projects – logical steps to reflect sharp falls in technology costs. What caused concern was the idea that governments, facing economic hardship, might go back on previously promised deals for existing projects, damaging returns for equity investors and banks. A second challenge came from the natural gas price. The Henry Hub US benchmark stayed in a range of $3-$5 per MMBTu for almost all of 2010, far below the $13 peak of 2008 and also below the levels prevailing in most of the middle years

of the decade. This gave generators in the US, Overall new investment in but also in Europe and renewable energy of $211 billion elsewhere, an incentive was up 32% on 2009 and nearly to build more gas-fired power stations and seven times the figure of 2004 depressed the terms of power purchasing power sources. agreements available to renewable energy The report concludes that renewable projects. A third challenge for renewables energy is still regarded as a modestcame from outside scepticism. This sized niche by some investors, media manifested itself both in the stock market – commentators and politicians. That view where clean energy shares under-performed has it that “serious” investment activity wider indices by more than 20% on still goes on in conventional energy sectors pessimism about future profit growth – and such as oil and gas, coal and – prior to the in international politics, where the mood Fukushima crisis in March 2011 – nuclear, post-Copenhagen and post-Climategate and that renewables are an entertaining, was cooler than in some previous years. albeit expensive, sideshow. In fact, more progress towards emissions This perception has been outdated for reduction targets was achieved than many years, and never more so than in expected at the December 2010 meeting in 2010. Overall new investment in renewable Cancun; and the consensus among climate energy of $211 billion was up 32% on scientists about man-made global warming 2009 and nearly seven times the figure of actually strengthened last year. However, 2004. There is also burgeoning investment neither has yet catapulted clean energy in the parallel area of smart technologies, back to the top of government agendas. including smart grid, electric vehicles and Even so, there was a sense, in both the energy efficiency devices and systems. second half of 2010 and early 2011, that The growing need for Energy worldwide progress in renewable energy was taking and the fast depletion of sources such as fossil fuels makes investments in Renewable place at a pace that public opinion and Energy and Cleantech a future-proof policy makers in many countries were investment objective and something that is simply failing to spot. This progress was set to grow from strength-to-strength over both in investment levels and, even more, the coming decades. in cost-competitiveness with conventional

CYPRUS: AN OPPORTUNITY NOT TO BE MISSED Since 2008 Cyprus has had an Action Plan in place that calls for 13% of consumed electricity to come from Renewable Energy Sources (RES) by 2020. The development of RES has been very slow due to limited funds available to subsidize the Feed-in-Tariff to be paid to producers of electricity from RES but also due to general hesitation by the Electricity Authority of Cyprus (EAC) to liberalise and allow the private sector to enter the industry and start producing electricity. Since the blast of 11 July which took out as much as 50% of the EAC`s generating capacity, things may change radically and faster. At the time of writing, the Government has declared that by the middle of September an updated Energy Policy and Action Plan will be announced which will include a growing percentage of RES and will aim at moving forward the already agreed targets of the previous plan. There have been calls from various organisations, associations and political parties to even increase the amount of RES in the future energy mix which is justifiable due to a significant drop in the cost of generating electricity from RES and especially

Photovoltaic. My company has recognized the desire to invest in renewable energy and we are in the process of establishing a Cleantech Capital Fund in Cyprus under the ICIS scheme and regulated by the Central Bank of Cyprus. The Fund will focus on Cleantech investments – ‘Cleantech’ is a term used to describe products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, waste and/or environmental pollution. Its origin is the increased consumer, regulatory and industry interest in clean forms of energy generation specifically. Cleantech includes recycling, renewable energy (wind power, solar power, biomass, hydropower, biofuels), information technology, green transportation, electric motors, green chemistry, lighting, greywater and recycling appliances that are now more energy efficient. It is a means to create electricity and fuels, with a smaller environmental impact and minimize pollution. The first Investment Portfolio or Sub-Fund will be a European Solar Fund which will invest in PV Power Plants in various European markets mainly Spain, France, Italy, Greece and Bulgaria.

info: Claus Rosenberg Gotthard is a self-employed entrepreneur whose main activities and investments are in and around renewable energy 54

the international investment, business & finance magazine of cyprus

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advertorial

Pamboridis LLC opens new London office

amboridis LLC is a Commercial and Corporate law firm with offices in Cyprus (Nicosia and Limassol), Greece (Athens) and the UK (London). The firm is headed by Dr George Pamboridis assisted by three Partners and a number of senior and junior Associates totalling around 30 fee earners and employees. The firm caters for all types of contentious and non-contentious matters and, through work and expertise, can add value to the businesses of its clientele. It prides itself on offering practical, nononsense advice and on understanding and thus enhancing the commercial objectives of its clients in their every transaction. Pamboridis LLC places a great deal of emphasis on being responsive and on establishing and nurturing interpersonal relationships with its clients as their business evolves. It believes that the main strength of any law firm is the calibre of its lawyers and, for this reason, it adheres

to the highest possible standards in its recruiting efforts and ensures that its lawyers receive ongoing training in order to be in a position to maintain the high level of legal skills and knowledge of which the firm can boast. The team advises on, and has extensive experience in, the full range of corporate and commercial matters and its high level of partner involvement in each transaction handled ensures the best possible outcome for the client and optimum efficiency. The firm particularly prides itself on its expertise in the following areas: • Structured finance, capital markets, securitisations: They are instructed on a day by day basis by major banks and financing institutions to advise on a broad range of structured finance and capital market transactions. • M&A, Joint Ventures and commercial contracts: They ensure that their lawyers have a thorough knowledge of their clients’ industry sectors and are therefore able to evaluate each client’s needs and objectives, to understand and address all regulatory, competition, tax and other parameters of each transaction and achieve the best possible results. • Private equity / venture capital: They regularly represent both sponsors and investors in connection with the establishment of private equity investment vehicles, capital raising and investment activities through to establishing and implementing exit strategies whether by private sale, IPOs, mergers or acquisitions. • Tax planning: They regularly advise clients on a range of tax planning matters and ensure that they tailor their advice to the needs of each client and their business.

• Energy (Oil and Gas): Recent developments in the exclusive economic zones of Cyprus and Israel have created a demand for high-level legal support in all aspects of exploration and exploitation of natural gas and oil reserves. The firm acted timely and joined forces with one of the biggest global law firms in order to expose its lawyers to this new field and also to secure the vast expertise of its global partners, for their clients. The vast majority of transactions that the firm handles are of a cross-border or international nature. The main bulk of the work involves transactions with jurisdictions that have a “traditional” affiliation to Cyprus, such as the former CIS states and the UK, while recently there has been a substantial increase in transactions from jurisdictions such as Singapore and Hong Kong. The nature of the work, aside from that of a general corporate nature, includes mergers and acquisitions, financings, structured products, restructurings and tax planning. The firm is also proud to announce the opening of a new office in London. This is a representative office and its main target is to provide London-based clients as well as professionals (lawyers, accountants and financiers) operating from the West End and the City with support on matters of Cyprus law, especially in transactions involving group structuring and tax planning but also oil and gas projects.

Pamboridis LLC Dr George Pamboridis – Managing Partner Mrs Yiota Kythreotou Theodorou – Partner Mrs Electra Papadopoulou Makedona – Partner Mrs Riani Roussaki – Athens Partner +357 22 752525 e-mail: info@pamboridis.com Website: www.pamboridis.com

Dr. George Pamboridis the international investment, business & finance magazine of cyprus

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Investing in Exchange traded funds

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exchange traded funds (ETF) are firmly established as shrewd investors use them as a way to reduce expenses, achieve more diversified exposure, and enhance the overall tax efficiency of their portfolios. By K.Ioannides

hen the investment wizards in the city create new financial products, the results are usually complex, risky and largely incomprehensible. Apart from the fact that products such as swaps, options and derivatives can be utilised to make big money for hedge funds and trading desks, they are not intended for the average retail investor. However the advent and the evolution of the exchange-traded fund (ETF) has left a major impact on the investor-market and created a world of opportunity for both retail investors and HNWIs.

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ETFs are far from new. The first ETF traded product was the Toronto Index Participation Fund, introduced in Canada in 1989 to track the largest stocks traded in Toronto. This was followed in 1993 by SPDRs (Standard & Poor’s Depositary Receipts) which tracked the S&P 500 index. In terms of size and scope, ETF investing got off to a slow start and expanding Asian markets didn’t begin featuring ETFs until 1999. Europe, however, was even slower: ETFs did not arrive on the scene until 2001 but a year later almost half of only 246 ETFs worldwide were being traded on European exchanges. Ten years on, ETFs are firmly established as shrewd investors use them as a way to reduce expenses, achieve more diversified exposure, and enhance the overall tax efficiency of their portfolios. Recent estimates now value total ETF assets at around $1.5 trillion, with well over a thousand fund choices worldwide for investors to choose from. Exchange-traded funds can be considered similar to mutual funds that trade like stocks. An ETF is bought and sold on an intraday securities exchange and is composed of a basket of securities. Generally speaking, the majority of ETFs are index funds that track global indices and, as such, they tend to trade at (or very close to) the same price of the net value of the underlying assets they hold. Given that its very difficult to ‘beat the market’ by picking individual stocks or investing in an actively-managed

Indices of success

Global exchange-traded funds, total assets, $trn Commodity

Fixed income

Equity 2,147

1,944

1.0

1,170

Number of funds 33

202

1999 2001

0.5

461 282

Source: BlackRock

1.5

11*

0 *May

mutual fund (especially after paying the associated fees), an inexpensive method of capturing the bull market gains made by the major indices holds great appeal. With ETFs, investors look to achieve precisely this by effectively ‘buying the market’ while keeping costs as low as possible. They do this by having appropriately weighted investments that will reflect how the market is doing overall.

Recent estimates value total ETF assets at around $1.5 trillion with well over a thousand fund choices worldwide for investors to choose from ETFs have the same basic diversification advantage as mutual funds, compared to picking individual stocks. Given that diversification is what every investment portfolio requires, ETFs are credited with reducing investment risk without impacting returns. For example, if you believe that a particular sector is going to do well in the future and you want to invest accordingly, one option is to try picking out stocks of a few companies within that sector and hope they are representative of the sector’s success overall. However, ETFs provide the alternative of investing in a fund that tracks the sector’s index. In this way, you are protected against any potential downside volatility that may affect the specific companies that you might otherwise have invested in. Furthermore, with an ETF you are only making one transaction, instead of many individual ones, thus saving on brokerage fees. As historical performance has shown, the average mutual fund manager does not actually create returns that are significantly better than that of an average investor and as such, most don’t beat the market. ETFs, however, are indexed and, on average, perform better than actively-managed mutual funds. Additionally, there are distinct advantages that ETFs have over mutual funds. Traditionally, investors who do not want to pick stocks but want to capture the gains made by the equity markets, have tended to select a mutual fund whereby the fund manager picks what to invest in on the investors’ behalf. However, actively managed mutual funds also carry hefty fees that erode the actual returns that the fund manager may generate for his investors. In this respect, ETFs which track a major index (Index ETFs) clearly have the upper hand over actively-managed mutual funds, especially in terms of cost and, in many instances, of performance also.

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ETF Index Funds vs. Mutual Funds ETF Index Funds

Mutual Funds

Definition

ETF index funds are baskets of stocks that track a specific index, such as the Dow Jones, the FTSE or Eurofirst. Since ETFs track existing indexes, fund managers have a limited or ‘passive’ advisory role.

Most mutual funds are actively managed by investment advisors who seek to achieve a specific objective (e.g. longterm growth) as stated in the prospectus. The managers are responsible for selecting the individual stocks for the fund’s portfolio. There are also a number of index mutual funds that track indices like ETFs, and are not actively managed.

Trading

ETF index funds are bought and sold like stocks throughout the market day.

Shares of a mutual fund are usually traded with the fund company by way of a brokerage account. Brokerages generally allow users to choose between making standalone investments or recurring purchases on a subscription basis. Many funds also allow direct investments.

Pricing

ETF index funds are priced like stocks throughout the trading day, based on market supply and demand.

Most mutual funds are priced at the end of the market day based on Net Asset Value (NAV). After the stock market closes, the issuing company calculates a mutual fund’s NAV by dividing the value of all underlying securities by the number of outstanding shares.

Objectives

ETF index funds seek to mirror the performance of particular stock indices such as the FTSE 100, S&P 500 or Nikkei 225.

Every mutual fund has a specific objective. Examples include targeting large, mid, small, defensive caps and growth stocks. They can also focus on alternative assets such as real estate.

Are they diversified?

Yes. ETF index funds track entire stock indices. You can choose two or three ETFs and gain exposure in different markets and economic sectors.

Yes. Mutual funds can contain dozens (if not hundreds) of stocks, which can result in exposure across different markets and sectors.

Performance

ETF index funds specifically track the performance of an index such as the S&P 500, the NASDAQ100 or the Russell 2000.

A mutual fund’s performance ultimately depends on the securities that are in its portfolio. For an actively managed fund, the performance of a fund is dependent on the selections of the fund’s advisor.

Fees

Since ETF index funds do not have active fund managers, they tend to have low expense ratios overall. 92% of ETFs have an expense ratio between 0.1% and 0.65%.

Since most mutual funds are actively managed, they generally have higher expense ratios than ETFs. 93% have an expense ratio between 0.5% and 2.5%, with an average ratio of 1.39%*. Expense ratios of index mutual funds more closely resemble those of ETFs.

Transparency

When you invest in ETF index funds, you know what you’re investing in. Many ETFs mirror their underlying indices, the components of which are disclosed every trading day. Additionally, many of the ETF providers list the holdings of each fund along with a prospectus on their website.

Mutual funds are required to disclose portfolio holdings to the corresponding regulatory authorities on a quarterly basis and provide reports to shareholders on an annual and semi-annual basis. Such reports can (but are not required to) disclose a fund’s complete holdings.

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ETFs vs. ‘Passive’ Mutual Funds In an attempt to stem the money flowing out of mutual funds and into ETFs, many mutual fund companies have introduced ‘passive’ funds that are not actively managed by a fund manager (who sells failing stocks and buys bullish ones) and instead look to represent a basket of securities in an index or a industry sector. As such these passive mutual funds look to emulate ETFs in the sense that they do not carry a substantial management fee because they are not actively managed. Many investors, however, still prefer to capture index gains by going the ETF route rather than through index mutual funds, given that ETFs have no investment minimums, may be traded intra-day and are generally considered more convenient.

Examples of European Index-Based ETFs

ETF vs. Mutual Fund Cost Comparison

ishares FTSE 100 Fund

ETFS

AVERAGE EXPENSE RATIO

Major-market ETFs

0.18%

Alternatively weighted/Style ETFs

0.23%

Sector ETFs

0.47%

International ETFs

0.79%

All ETFs

0.42%

TRADITIONAL MUTUAL FUNDS

AVERAGE EXPENSE RATIO

Active Domestic

1.40%

Active International

1.94%

Passive Domestic

0.75%

Passive International

0.95%

Source: Schaeffer's Research - Business Insider

The impressive rise of the ETF industry has transformed indexes from hypothetical performance benchmarks into bankable assets

Listing: The London Stock Exchange Ticker symbol: ISF It offers exposure to the 100 largest UK companies. The fund provides a diversified base of core UK equities. Many investors use this as the core around which a larger portfolio can then be constructed.

iShares FTSE UK All Stocks Gilt Fund Listing: The London Stock Exchange Ticker symbol: IGLT It is a fixed income fund that offers investors exposure to a diversified basket of UK government bonds, across all maturities. The iShares FTSE UK All Stocks Gilt provides access to liquid, sterling-denominated investment grade government bonds. The fund can enhance diversification away from equities and provide steady income at regular time periods.

iShares MSCI Germany Index Fund Listing: U.S. NYSE Ticker symbol: EWG It looks to provide investment results generally equivalent to publicly traded securities in the German market, as measured by the MSCI Germany Index.

iShares MSCI France Index Fund Listing: U.S. NYSE Ticker symbol: EWQ Similar to the others above, it seeks to provide investment results generally equivalent to publicly traded securities in the French market, as measured by the MSCI France Index.

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Getting to Grips with Alternative ETF Weighting Methodology The impressive rise of the ETF industry in recent years has transformed indexes from hypothetical performance benchmarks into bankable assets. Not surprisingly, this transformation has brought increased scrutiny to the methodologies used to construct and maintain indexes. Some investors have come to the conclusion that market cap weighting that gives the largest allocation within an index to the company with the largest market capitalisation has some potential drawbacks, including the tendency to overweight overvalued stocks and underweight undervalued securities. A number of ETFs have attempted to come up with better solutions.

Equally Weighted Several ETF issuers offer funds linked to equal-weighted indexes, including Rydex and State Street. As the name suggests, equal-weighted indexes afford an equivalent allocation to every component, generally resulting in a lower concentration of assets compared to cap-weighted benchmarks. For example, the Rydex Equal Weighted ETF (RSP) gives Exxon Mobil and Apple the same weighting (0.20%) as it does to the other 498 components of the S&P 500.

Dividend Weighted Not to be confused with indexes comprised of dividend-paying companies, this methodology uses cash dividends paid to determine the weighting afforded within an index. Dividend weighting breaks the link between stock price and weight and can potentially avoid companies that have been â&#x20AC;&#x2DC;cooking the booksâ&#x20AC;&#x2122; because itâ&#x20AC;&#x2122;s tough to manipulate dividend payments. This strategy tends to result in a tilt towards value stocks, since those are more likely to pay a cash dividend.

Earnings Weighted This strategy is similar to dividend weighting, but ranks each potential index component by earnings. Relative to a capweighted benchmark, the earnings-weighted methodology will tend to overweight companies with low price-to-earnings ratios while underweighting those with higher ratios. WisdomTree is the ETF industry pioneer in both dividend-weighted and earningsweighted ETFs.

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Revenue Weighted This methodology focuses not on a bottom line measure of profitability but on top line sales. Revenue-weighted ETFs seek to capitalise on short-term imbalances when price/revenue ratios exceed a fair level, essentially overweighting stocks with low priceto-sales ratios.

RAFI Weighted This concept has been made popular by Rob Arnott, founder of Research Affiliates. The idea behind RAFI weighting is to break the link between a security’s weight in an index and its price. Arnott devised a methodology that focuses on four fundamental factors believed to be more accurate measurements of a company’s true size: book value, income, dividends, and sales.

Equal-Weighted Index Think of an equal-weighted index as if it holds an equal dollar amount (say $1,000) in each of the component companies on the S&P. The S&P 500 Equal Weight Index (EWI) holds the same stocks as the traditional S&P 500, but assigns a weight of 0.20% to each. An issue with equal-weighted indices is the frequency of rebalancing. As stock prices change, the weightings will move away from an equivalent level, but if the index rebalances too frequently, it becomes impractical for funds to track the index in a cost-efficient manner. So the rebalancing frequency must strike a balance between representation and investability. The S&P 500 EWI for example rebalances its constituents to 0.20% on a quarterly basis.

Fundamentally Based Index

Enhancing Portfolio Diversification Using Commodity ETFs Because commodities are a separate asset class from stocks and bonds, they are often used to provide extra diversification or counterbalances in an investment portfolio. Commodity ETFs attempt to track the price of a single commodity, such as gold or oil, or a basket of commodities by holding the actual commodity in storage or by purchasing futures contracts. Because futures provide leverage (more exposure than the actual cash invested), ETFs that use futures contracts have uninvested cash, which they usually invest in interest-bearing government bonds. The interest on the bonds is used to cover the expenses of the ETF and to pay dividends to the holders.

Index ETFs clearly have the upper hand over actively-managed mutual funds Such types of ETF generally track the producers of commodities, such as mining companies. While the financial performance of those companies and their stocks, may be highly leveraged to the underlying commodity. For this reason commodity ETFs may not necessarily reflect the performance of the underlying commodity. For example, gold mining stocks are highly leveraged to the discovery of gold deposits, exchange rates and their relationships with the countries where gold deposits are found. Commodities ETFs that use futures have diverged significantly from the price of the hard commodities themselves. ETNs (Exchange Traded Notes), by contrast, track the price of the commodity closely. There are dramatic differences in the structure of these ETFs and ETNs, even for the same commodities, leading to potential differences in performance.

Here’s where things get a little more complex. In fundamentally based indices, stocks are weighted based on one or many fundamental factors, such as book value, revenue, earning per share, or number of employees, etc. This sounds a bit bizarre, but the logic behind it argues that traditional market capitalisationTicker Name weighted indices by nature will overweight overvalued SPDR Gold Shares GLD stocks and underweight iShares Silver Trust SLV undervalued stocks. EqualMarket Vectors - Gold Miners ETF GDX weighted indices avoid iShares Gold Trust IAU these problems, but are susceptible to high turnover PowerShares DB Commodity Index DBC Tracking Fund and volatility (as discussed above). Fundamentally iPath Dow Jones-UBS Commodity DJP Index Total Return ETN/United States based indices remove the systematic inefficiencies of United States Natural Gas Fund LP UNG a capitalization-weighted PowerShares DB Agriculture Fund DBA system while avoiding Market Vectors - Agribusiness ETF MOO drawbacks of simple Oil Services Holders Trust OIH equal-weighted indices. 62

The 10 Largest Commodity ETFs Market Cap ($)

Price ($) Fees 1Y Return

Dividend Yield

58,498,220,000.00 138.72

0.4

28.149

10,822,550,000.00 30.18

0.5

80.036

7,613,213,000.00

61.47

0.53

33.612

0.65

5,378,605,000.00

13.90

0.25

28.2

5,102,261,000.00

27.55

0.85

9.518

2,853,541,000.00

49.12

0.75

14.06

2,759,685,000.00

5.99

0.6

-43.092

2,710,931,000.00

32.35

0.85

20.965

2,604,721,000.00

53.54

0.56

21.905

0.61

2,221,372,000.00

140.53

19.223

1.65

Source: seekingalpha.com 2010 end of year performance results

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Top 10 Performing Commodity ETFs (2010) Ticker Name AGQ

ProShares Ultra Silver

SLV

iShares Silver Trust

SIVR

ETFS Silver Trust

DBS

PowerShares DB Silver Fund

USV

E-TRACS UBS Bloomberg CMCI Silver ETN

GDXJ

Market Vectors Junior Gold Miners ETF

iPath Dow Jones-UBS Coffee Subindex Total Return ETN

DGP

PowerShares DB Gold Double Long ETN

UYM

ProShares Ultra Basic Materials

JJT

iPath Dow Jones-UBS Tin Subindex Total Return ETN

where mortgage-backed securities were warehoused in off-balance-sheet ventures. 555,067,200 158.59 0.95 175.63 0 Although some analysts and economists have pointed out some stark similarities 10,822,550,000 30.18 0.5 80.036 0 between ETPs and mortgage-backed 513,191,000 30.73 0.3 80.036 0 securities, they have not yet reached the 207,140,200 54.51 0.75 79.254 0 same magnitude as to pose a systemic risk 7,047,984 440.499 0.4 79.896 0 on the same scale as the 2008 crisis. Though ETPs have been growing rapidly, their total 2,114,170,000 39.89 0.59 65.63 7.34 value is still less than $200 billion, and so 34,210,890 64.032 0.75 63.488 0 just a fraction of the $1.5 trillion that the ETF market as a whole represents. It seems 536,625,000 42.93 0.75 59.581 0 unlikely that banks currently have the same 368,478,800 50.65 0.95 53.008 0.09 kind of exposure to collapsing ETFs as they did to the sub-prime market. 33,478,320 633.699 0.75 58.94 0 These dangers, however, are not Source: seekingalpha.com 2010 end of year performance results imminent threats to the average ETF investor who tries to avoid complex ETPs and sticks to investing in mainstream, non-synthetic ETFs. Market Cap ($)

Price ($) Fees (%) 1Y Return

Dividend Yield

Potential problems with ETFs If everyone heads for the exit

One problem is the tendency for ETFs to be the main way in which investors seek exposure to some asset classes, most notably gold. Before ETFs, gold investors had to pay a hefty markup to buy coins or had to purchase shares in gold-mining companies and hope that the management was competent. In the past few years however, gold ETFs have been enjoying massive popularity, with inflows of $12 billion in 2009 and $9 billion in 2010 culminating in the possession of more bullion than many of the world’s central banks. The surge of interest in gold ETFs has been encouraged by (and may have in turn contributed to) the meteoric rise in the bullion price. However, if the bubble bursts the market may become disorderly as multitudes of investors scramble to take their profits.

ETP and systemic risk As with many a good thing, financial wizards have already found ways to take the concept of the ETF and turn it into a derivativetype product. Perhaps the biggest concern, and the one with the clearest echoes of the sub-prime crisis, surrounds ‘synthetic’ ETFs and linked products known as exchange-traded notes (ETNs) and exchange-traded vehicles. Collectively these offshoots of ETFs are known as exchange-traded products (ETPs). In Europe, synthetic funds now make up for about half of total the ETF sector but the European Fund and Asset Management Association points out that the vast majority of them trade under UCITS (Undertakings for Collective Investments in Transferable Securities) rules. The Bank for International Settlements (BIS), however, has commented that there is a danger that an ETP could act as a dumping ground for the unwanted securities on an investment bank’s books. As such, the BIS considers that the synthetic ETF creation process may be driven by the possibility for the bank to raise funding against an illiquid portfolio that cannot otherwise be financed. There are parallels here with the sub-prime crisis,

If the bubble bursts the market may become disorderly as multitudes of investors scramble to take their profits A portfolio made up entirely of ETFs? Warren Buffet famously said that “Wide diversification is only required when investors do not understand what they are doing” and the truth is, that not many investors (or indeed economists) can predict how the market is going to behave from day to day, let alone from one year to the next. Now that there are ETFs covering every imaginable major index, asset class, commodity and niche, an entire portfolio of effectively diversified investments can be created quickly and simply by using ETFs alone. Given that the alternative route to adequate asset allocation diversification is to either personally pick out securities one by one or to pay a fund manager to do it for you, ETFs certainly provide a very cheap and efficient way of doing the same thing. As such, investors can evolve their portfolio entirely this way by dividing their capital between specific ETFs that cover the desired asset classes (or indexes) and so balance risk against return across a diverse range of securities. Younger investors may tend to take more risks and choose to have a portfolio with 80% of assets devoted to equity ETFs and 20% to fixed-income bonds ETFs. As investors progress, more asset classes may be added to the portfolio such as ETFs which track commodities and/or real estate and so diversify their portfolio even more. The greatest advantage of investing through ETFs is that they give investors the ability to quickly diversify their portfolio across a plethora of asset classes with minimal expense and time.

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{opinion}

By Marina Theodotou

In Need of a Paradigm Shift

s the business world in Cyprus begins to see through the smoke (and perhaps even mirrors) resulting from the explosions this past summer, in both the literal and the figurative sense, a paradigm shift in the island’s geographic and socioeconomic existence is not merely required, it is imperative. The term ‘paradigm shift’ was coined in 1962 by Thomas Kuhn, a US philosopher of science. Essentially, a paradigm shift is a complete change in thinking or belief systems that allow the creation of a new condition previously thought impossible or unacceptable. In the Cyprus business sector, as the local economy shrinks on its rusty 1980s and 1990s approaches, wrought with a lack of empowerment a lack of accountability from the postman to the highest echelons of decision-making, the need for transparency, empowerment and accountability is as imperative as the need for new perspectives: we are badly in need of a paradigm shift. Two months ago, at the Growth Innovation and Leadership 2011 Congress in Cape Town, the South Africa-based market research and consulting firm, Frost & Sullivan presented the key megatrends that are expected to drive the global socioeconomic arena in the decade leading to 2020. Frost & Sullivan executive Phil Howarth analysed 40 such megatrends in depth. Some of these include: • urbanization which will continue faster and, by 2020, 60% of the earth’s population will live in cities and urban areas; • ‘smart’ is the new green and, defined as the nexus of planet, profit and people, will permeate governance, business, buildings, energy, mobility, city planning and information/communication/ technology; • e-mobility, whereby 2 wheelers and 4 wheelers will dominate urban transportation; • move over baby boomers! Gen Y is now king! People aged 1534 will constitute 2.56 billion people, 61% of whom will reside in Asia, mostly India and China. This generation, known as the ‘little emperors’, is known to

seek goods, services, values and beliefs that are personalized, individualistic, and civic and environmentally friendly. Geosocialization is key, the nexus of geo coding and geo tagging. According to Frost & Sullivan, knowledge process outsourcing (high end services such as legal and accounting outsourcing) will shift to China, Poland and the Philippines. Already, in 2011, Ivy league MBA graduates are highly sought after and being employed in India with extremely attractive packages.

By 2020, people aged 15-34 will constitute 2.56 billion people, 61% of whom will reside in Asia

CMY

Technology is, of course, at the forefront and innovating to zero will be key: zero debt, zero defects in production, zero emissions, zero crime rates, and zero breaches in security. Other megatrends are discussed in transportation, where rail becomes king, especially in Russia, and healthcare, where spending by the G8 will almost double to 20-30% by 2050 and the focus will shift to predicting, diagnosing and monitoring disease rather than simply treating it. Women’s empowerment will continue to grow, economies beyond the BRICS will take over and a strong brain drain will be observed from the West to the East. While these may seem very far away from Cyprus in 2011, in the light of other clear and present dangers, they are, as Howarth says, unavoidable: “We see them as global sustained forces that are macro in nature but they have micro implications. They affect business, economy, society, our personal lives, they’re futuristic and they define the very pace of change to our everyday lives. It doesn’t matter what function or career you have within an organisation, megatrends should impact your thinking.” As you navigate your smartphone and rely on your tablet, aren’t you perhaps already practising your own paradigm shift?

info: Marina Theodotou is Founder and Curator of TEDxNicosia (www.TEDxNicosia.com) and Managing Director of Curveball Ltd (www.curveballlimited.com) 64

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CMY

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{opinion}

By Eleni Vickers

The Salience of the Lambs

n Thomas Harris’ novel The Silence of the Lambs, Dr. Hannibal Lecter, an incarcerated cannibalistic serial killer yet brilliant psychiatrist, diagnoses FBI agent Clarice Starling as suffering from a passionate desire to save victims as a way to silence the sound of slaughtered lambs screaming in her mind, a sound that has haunted her from an early childhood. I wonder if the ingenious Dr. Lecter would have correctly diagnosed a restless organisation maniac and fiery multitasking accountant as having a burning desire to silence the sound of the devil inside her head, a sound that has haunted her from the early years of her career – the merciless Satan also known as Open Plan Frustration Syndrome. Noise is the most frequently reported problem in the modern workplace and speech is considered to be the most annoying and distracting type of office noise, both of them babies of the Open Plan seating philosophy. Studies on the ‘Irrelevant Speech Effect’ have shown that the cubicle environment drives the mind into a state of “Hyperacousis”, an extreme sensitivity to sound which is particularly disruptive to any process involving reasoning, problem-solving, arithmetical, analytical and memory related skills. Prolonged exposure to noise has been proven to induce the build-up of stress and aggression and to reduce employee performance by up to two thirds. In some cases it has even driven Chief Accountants to the brink of making an anonymous call about a bomb on the premises or setting-off the ceiling sprinklers just so that the people sitting at the opposite desks would stop talking about what meal they cooked last night, obsessing about their kids and gossiping about their relatives. Perhaps then a golden pocket of opportunity would arise, five magic minutes of peace and quiet, enough time to finish the reconciliation that had been paralysed by involuntary eavesdropping of the worst degree. International workplace studies have been claiming for decades about how work environments that are open create more opportunities for observing and learning from those with more experience and different skills. Eliminating enclosed offices is said to improve organisational communication and enhance knowledge sharing, reduce operational costs and extinguish the feeling of being confined within four walls. Point for thought: How many of you agree that the people conducting these studies were most definitely seated in their own privately enclosed offices and only

managed to complete their research precisely because they did not suffer any loss of concentration due to external mental rape? The Open Plan monster has given birth to three types of employees: • The frustrated and mutilated could-have-been-really-efficient employee who involuntarily has lost his capacity to offer anything above 30% of his capabilities. • The underproductive would-never-be-efficient leech of an employee who only aims to feed off company resources with minimum effort, having no career aspirations. • The power hungry, self promoting show-off of an employee who will take advantage of the fact that everyone can see and hear him in order to intimidate, deceive and defraud his subordinates and seniors into actually believing that he is that busy and that good.

Managers are no longer dealing with work-related issues but rather acting as corporate firemen, extinguishing fires that feed off fuel leaking from the Open Plan theory The state of Salience – the degree of how prominent, noticeable or important each person consciously or unconsciously aims to be within the workplace – is the main driving force behind every human capital problem in a modern company. Managers are no longer dealing with work-related issues but rather acting as corporate firemen, extinguishing fires that feed off fuel leaking from the Open Plan theory. Office gossip, prolonged exposure to other people’s annoying habits, their smells and personal phone calls, the repetitive sound of people’s voices, their inappropriate laughing, irritating ringtones, stapler banging, uncontrollable talking, and noisy keyboard tapping… Eliminate all of these from the equation and what is left is the oldest and only properly functioning Open Plan environment – Jail!

info: Eleni Vickersis a graduate of the University of Warwick with a BSc in Accounting and Finance and a Chartered Accountant with the Institute of Chartered Accountants in England and Wales. She is the Financial Controller of Trident Fiduciaries (Middle East) Ltd. 66

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.BLBSJPT "WFOVF *** $SPOPT $PVSU Ŋ UI 'MPPS /JDPTJB 5FM 'BY &NBJM JOGP!BUIMPJ[PV DPN DZ XXX BUIMPJ[PV DPN DZ $FMFSPO $FMFSPO *OTJEF $PSF *OTJEF *OUFM *OUFM -PHP *OUFM "UPN *OUFM "UPN *OTJEF *OUFM $PSF *OUFM *OTJEF *OUFM *OTJEF -PHP *OUFM W1SP *UBOJVN *UBOJVN *OTJEF 1FOUJVN 1FOUJVN *OTJEF W1SP *OTJEF 9FPO BOE 9FPO *OTJEF BSF USBEFNBSLT PG *OUFM $PSQPSBUJPO JO UIF 6 4 BOE PS PUIFS DPVOUSJFT

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{october 2011}

issue

+ BOok reviews

{money}

70 International Investment Success for Scotland’s Companies Sustained investment in Scotland’s companies has led to new jobs and help for almost 1,000 of the country’s companies 72 The Yield Curve Tells All The Yield Curve is an important tool to forecast economic occurrences. What does it look like right now?

{business}

74 In Search of Excellence George Savvides talks about Fiducernter and problems facing the fiduciary sector in Cyprus 77 Ready to be inspired? TEDx comes to Cyprus 78 Everything for the Home Leroy Merlin opens in Cyprus

{economy}

80 Return to 1930s Europe? The outlook for Europe over the course of the 21st century is far from encouraging

money: Extreme Money: The Masters of the Universe and the Cult of Risk By Satvajit Das 71 BUSINESS: Onward: How Starbucks Fought For Its Life Without Losing Its Soul By Howard Schultz 79 tax & legal: The World’s Best Tax Havens: How to Cut Your Taxes to Zero and Safeguard Your Financial Freedom By Lee Hadnum 86 LIFESTYLE: A Stolen Life By Jaycee Lee Dugard 97

{tax&legal}

84 Cyprus: A Credible Fund Jurisdiction Christos V. Vasiliou of KPMG on the prospects for the fund industry in Cyprus 88 Who is Processing Your Personal Data? Data protection legislation is an important component of EU privacy and human rights law

{lifestyle}

92 First class stamps Philatelic investment is back in vogue

the international investment, business & finance magazine of cyprus

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investment

{money}

International investment success for Scotland’s companies Sustained investment in Scotland’s economy has led to new jobs and help for almost a thousand of the country’s companies Photo: Scottish Enterprise

By Ray Cooling, London Press Service

cottish Development International’s international trade and investment activity has directly helped to generate more than £600 million of planned inward investment for the country, creating and safeguarding 9,300 planned jobs, and has helped 950 Scottish companies to target international markets during the last year. Scottish Development International (SDI) plays a key role in supporting the strategy to increase Scotland’s competitiveness in the global economy. Its chief executive, Anne MacColl, said: “2010 was an excellent year for SDI, both in terms of inward and outward results, and we are immensely proud of these achievements. “They illustrate not only that there is growing international confidence in

Anne MacColl, CEO of Scottish Development International Scotland as a location to invest – last year Scotland was the most successful region in the UK in terms of the overall number of jobs attracted through FDI – but also that our home-grown companies are becoming ever more internationally ambitious. “This is due in no small part to the work of our colleagues at Scottish Enterprise (SE) and Highlands & Islands Enterprise (HIE) for really pushing international trade as a growth opportunity, and with some of these companies now projecting strong international sales as a result of SDI support, we want even more Scottish companies to be inspired to broaden their horizons,” she added. “We also have an exciting year ahead in terms of further developing the international trade and investment agenda for Scotland. We are focusing on the

delivery of our recently published trade and investment strategy, and will be working closely with our SE, HIE and Scottish government colleagues as part of the Team Scotland approach to take this forward,” said Anne MacColl. Enterprise Minister Fergus Ewing said: “From its Scottish headquarters and network of overseas trade and investment offices, SDI works tirelessly to promote Scotland as an attractive, competitive destination for inward investment. “SDI is a modern Scottish success story. Last year, SDI helped secure more than £600 million pounds of planned inward investment to Scotland. SDI played a pivotal role in ensuring leading international companies, such as Amazon, Mitsubishi Power Systems, Barclays, Blackrock and Gamesa chose Scotland to

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BOOK REVIEW

Extreme Money: The Masters of the Universe and the Cult of Risk By Satvajit Das (Financial Times/ Prentice Hall, 2011) RRP: £20 (£10.20 from Amazon.co.uk)

expand their operations. “More than 950 Scottish companies also received support to develop and pursue opportunities internationally – an important part of the government’s strategy for growth.” Last year (2010), an independent evaluation report was published that shows that SDI contributes £325m of gross value added annually to the Scottish economy through its inward investment and internationalisation activities. Findings from the evaluation suggest that for every pound spent by SDI on attracting inward investment to Scotland, a further £11 is generated for the Scottish economy; and internationalisation activity generates an additional £13 for every pound invested by SDI. SDI is a joint venture between

SDI contributes £325m of gross value added annually to the Scottish economy through its inward investment and internationalisation activities Scottish Enterprise, Highlands & Islands Enterprise and the Scottish government and is responsible for attracting foreign investment into Scotland, as well as helping Scottish businesses do business overseas.

he dire consequences of financialisation (“the conversion of everything into monetary form”) are clearly laid out by Das who draws on more than three decades of personal experience at the heart of modern global finance to narrate his story. He reveals the spectacular, dangerous money games that have generated increasingly massive bubbles of fake growth, Ponzi prosperity, sophistication, and wealth – while endangering the jobs, possessions and futures of virtually everyone outside the financial industry. He shows how “extreme money” has become ever more unreal; how “voodoo banking” continues to generate massive phony profits even now; and how a new generation of “Masters of the Universe” has come to dominate the world. What makes the book even more enjoyable is the way Das includes plenty of great quotes such as this from Martin Baker on hedge funds: “Take a speculative cocktail shaker. Add four parts public ignorance, and 33 parts greed. Toss in a little perceived genius...Season generously with mystique. Add apparent publicity shyness to taste. Serve in opaque tumbler of awed, to ill-informed media coverage.” Fantastic!

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FINANCE

{money}

The Yield Curve Tells All The yield curve characterizes the relationship between the interest rate on debt and time to maturity. It is seen by economists as an important tool to forecast economic occurrences. So what does it look like right now? By Persella Ioannides

n a healthy economic environment the yield curve should typically be upward sloping to signify that, as the future economic environment trends favourably, inflation tends to increase. Central Banks can then be expected to increase interest rates on longer-term debt in an attempt to tame inflation. A flat yield curve, where yields on short-term debt are level with thoseof long term debt, insinuates an uncertain outlook as the curve’s slope could revert either positively or negatively. Lastly, an inverted yield curve, where short-term rates are higher than longer-term, signifies a downturn as a deteriorating economy will urge Central Banks to lower shortterm rates to spur growth. Since the 1970s, every recession has been preceded by an inverted yield curve, although not every curve inversion has been followed by a recession. To name two recent examples, there were inversions both in 2006 prior to the sub-prime crisis and in 2000 prior to the burst of the dotcom bubble. So what is the current picture? Positively, the yield curve is upward sloping with the spread between 2 and 10 year debt at around 1.8%, a spread of

Central bankers and politicians need to show investors that they still have the appropriate tools to deal with the issues that are tormenting the financial markets

Current Yield Curve flattens

Current Yield (%) 3.5

January ‘11 Yield (%) 3.5 3

2.5 1.5

2 1.5

1 0.5 0

0.5

2 Year

3 Year

5 Year

10 Year

January ‘11 current

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The Federal Open Market Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.” Ben Bernanke, Chairman

above 2% is typically considered to be steep. The curve has flattened though, as the yield on 10 year treasuries approached the lowest level in six decades as investors became convinced that declining equities and the eurozone debt crisis would prompt the Federal Reserve to enact a new programme of bond purchases (this would have the effect of increasing bond prices, thus lowering yields as yields and bonds prices are negatively correlated). At the time of writing, the expectations are that the Fed will embark on a so-called “Operation Twist” (OT), originally tried during the Kennedy administration in the 1960s, where short-term treasuries are sold and the proceeds used to purchase longer-term debt. Such a policy will not be seen as boosting the size of the Fed’s balance sheet. This operation will be conducted in the hope that the lowering of longerterm rates, which affect US mortgage and corporate borrowing rates, might

stimulate borrowing and thus also economic activity. It would be performed through two auctions, with the first being a sale of short dated securities and the second the purchase of long dated securities and is seen to be as big as QE2. The impact, of the Fed’s forecasted action is quite controversial however. Firstly, the operation was considered to be unsuccessful in the 1960s, although the magnitude of the purchases was not significant enough to enable concrete conclusions. Secondly, it is considered to damage the already struggling banks as a positively sloping yield curve is beneficial for banks’ lending activities by borrowing on the short end of the curve and lending on the longer end. If the operation turns successful, however, and loan volume picks up, the banks will be able to benefit from increased volume and will eventually charge higher fees. Thirdly, we are currently experiencing an unprecedented economic environment

engaged by numerous disparate but correlated factors; it is thus very hard to accurately predict the success of such an action. Fourthly, although the magnitude of OT may be on par with QE2, the cash flows will be sterilized and it will effectively have a more muted bearing on economic activity. Lastly, the Treasury must support the policy of the Fed by concentrating on issuance of shorter maturity debt as opposed to long term bonds. Nonetheless, central bankers and politicians alike need to be inventive, to act fast and to show investors that they still have the appropriate tools to deal with the issues that are tormenting the financial markets. US unemployment still lingers above 9%, the US housing market has yet to pick up, Japan’s economy is struggling and the eurozone is undergoing a critical debt crisis. OT may be one such inventive and proactive move to help revitalize the global economic recovery.

info: PERSELLA IOANNIDES heads Meritkapital Ltd, a CySEC licensed investment firm. She has an MBA from Columbia University and worked at Morgan Stanley’s institutional equity derivative desk, New York. the international investment, business & finance magazine of cyprus

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FiDuCIARY SERVICES

In Search of Excellence

{business}

With its origins in Luxembourg, Fiducenter knows a thing or two about quality of service and the benefits of having a well-regulated fiduciary sector

eorge Savvides is a Chartered Accountant and Managing Director and a shareholder, of the Limassolbased Fiducenter (Cyprus) Ltd. The company was set up at the end of 2004 by the founder of the group, Jean Hoffmann, and commenced operations in January 2005. Fiducenter offers corporate and fiduciary services, as well as tax, legal and financial advice and planning, asset management, accounting, tax and VAT registration and administration, business centre services and more. Gold spoke to George Savvides about the company and about problems facing the fiduciary sector in Cyprus.

Gold: Let’s begin with some basic information about the company. George Savvides: Fiducenter has been an independent provider of corporate, fiduciary and domiciliation services for more than 30 years. Its head office is in Luxembourg, there is this one here in Cyprus as well as a recently-opened office in Singapore. The whole Fiducenter Group currently consists of 60 multilingual, highly qualified and experienced members. Our strength is the complementarity of our accountants, tax advisors, legal experts, asset managers, insurance brokers and other contributors who coordinate their efforts to provide our clients with the best advice and services for the fruitful evolution of their entity’s life, from its initiation to daily running and eventual liquidation. Through a proactive relationship with our customers, we build and ensure the availability of the most suitable solutions. It’s not by chance that our motto is “In search of excellence”.

Gold: Who are your main clients? G.S.: Fiducenter works primarily through other professionals, like lawyers, accountants and fiduciary service providers all over the world. The majority of the final clients are entrepreneurs who have built up their wealth thanks to their clever business ideas and their subsequent successful commercial exploitation, either by themselves or through the licensing of intellectual property (trademarks, patents, copyrights, etc.) related to such ideas. We also provide services to Cypriot vehicles that are part of large multinational groups in what are often demanding and sometimes heavily regulated industries.

Gold: Have you felt the effects of the global financial crisis? G.S.: The downturn has brought some reduction in business from traditional markets, including an increase in the number of mandates going for liquidation, but at the same time new markets have

been exploited. Some of them are already proving to be fruitful thanks to persistent efforts made to promote Cyprus.

Gold: The Cyprus market must be highly competitive. How do you manage to stay ahead of your rivals? G.S.: Having our head office in Luxembourg, which is an international financial centre with a great history as a provider of top class professional services – under the strictest laws and regulations – related to tax, legal, compliance and other areas, helps us to stay ahead of the competition in Cyprus, both in terms of quality standards of services but also regarding policies and procedures. Beyond this, when it comes to providing tax advice we always make sure to provide clients with a clear presentation of the provisions of the law and the resulting consequences of their intended structure, without any beautification or exaggeration of the situation. We also clearly indicate to clients

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george savvides

any solutions that are no longer compliant with international practices or the fact that the benefits stemming from them may be occasional, no matter how attractive they might look at first glance.

it will be applied in practice and whether the regulator – whoever that happens to be at the end of the day! According to the current bill, it is CySEC – will have the resources to enforce it and monitor its application.

the old stain on the island’s reputation which was inherited from a time when Cyprus was viewed as an offshore tax haven with all the implications of suspicious transactions and money laundering.

Gold: You mentioned the matter of

Gold: So how is the absence of regulation

Gold: Presumably, the country is no

regulation in Luxembourg. What is the situation in Cyprus as far as the Fiduciary sector is concerned? G.S.: A bill aimed at regulating the sector has been in parliamentary limbo for quite some time now. It is always being described as due to be discussed and enacted into law by the House of Representatives but so far nothing has been done. Even if it goes before the House eventually, it is not clear how soon the law will be implemented, how

affecting the sector? G.S.: Mainly by opening it up to the so called “cowboys” – firms which lack the knowledge, expertise, resources and everything else needed to provide quality services to clients. Such firms frequently “manage” companies as they wish, can or know with no reference to legal, accounting or tax requirements. This situation obviously causes enormous damage to Cyprus, especially when we are trying hard to remove

longer viewed as such. G.S.: The island’s reputation has improved enormously but we are still asked during meetings with clients or at presentations in other countries whether the sector is directly regulated. No matter how diplomatic our answer is, we are invariably asked the question: How is it possible for a country which considers itself a reputable international financial centre to leave this vital sector of its economy unregulated?

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FiDuCIARY SERVICES

Having our head office in Luxembourg, which is an international financial centre with a great history as a provider of top class professional services helps us to stay ahead of the competition in Cyprus Gold: Apart from how the lack of regulation affects Cyprus’ reputation, it must also cause practical problems. G.S.: Of course. The absence of any regulation leaves those acting as officials of Cyprus companies and other vehicles completely exposed to the provisions of various laws as if they are acting on their own behalf when, in fact, they are acting in a fiduciary capacity. Indeed, the problem of disappearing beneficial owners and the burden that this places on the management company in Cyprus, whose officials cannot resign from their posts (especially the one of Registered Office), is becoming more frequent and serious, as is the issue of the liability of the Directors for VAT purposes. There are other problems stemming from the absence of regulation, such as the fact that the local banks usually accept copies of documents certified as true only by practicing accountants and lawyers and not by members of fiduciary offices, even if those offices are considered

as approved introducers by the same banks and even if the members are qualified accountants or lawyers.

Gold: Given that your company’s head office is in Luxembourg, which knows all about regulation, have you tried to persuade other local fiduciary companies of the benefits of self-regulation, given your pessimism regarding when the relevant legislation will come into force? G.S.: It’s true that we are in a very good position to contribute the wealth of knowledge and experience of our colleagues in Luxembourg regarding such a concept and concerning the detailed provisions that a professional association should incorporate. There have been discussions among several of the major fiduciary service providers on the island though there have been no concrete decisions as yet. I am hopeful, however, that we will be able to find a general consensus on the whole regulation issue because it’s vital for

the sector. Cyprus needs to continue to improve its reputation as an international fiduciary centre, and that means reassuring clients that what we do is fully regulated, as well as ensuring that what we have to offer matches the needs of investors.

Gold: You recently suggested in an article in this magazine that the government could increase revenue while improving professional standards. Did you submit a formal proposal to the government? G.S.: Yes, we sent a letter to the Minister of Finance in which we pointed out that an increase in the levy for submission of the Annual Return and, most importantly, a penalty for late submission, would not only create an immediate and recurring increase in revenue to the state coffers but it would also create additional work for professionals in bringing record-keeping up to date and would enhance the reputation of Cyprus as a disciplined and well-organised international financial centre. In the end, the idea of imposing a fixed charge of €350 per company was preferred, which only compares with our proposal on the aspect of revenue collection and I have my doubts about whether this method will manage to generate a greater return. We’ll see.

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events

{business}

Ready to be inspired? TEDx comes to Cyprus

EDx is a programme of local, self-organized events where TEDTalks video and live speakers combine to spark deep discussion and connection among a small group of people. These local, self-organized events are branded TEDx, where x= an independently organized TED event (TED stands for Technology, Entertainment, Design). The TED Conference provides general guidance for the TEDx programme but individual TEDx events are organized independently and locally. Last month alone 144 TEDx events were held in 40 countries worldwide. The first TEDx event in Cyprus takes place in Nicosia on 30 November from 10.00am to 5.00pm. The theme is “Dream. Risk. Care. Live!” and the purpose of this 120+ person event is to inspire and demonstrate, through twelve carefully selected local voices, that we live among extraordinary people who may lead ordinary lives but can truly inspire us through their professional or personal journeys right here in Nicosia. It is another window into Nicosia and its welleducated, visionary agents of change. TEDxNicosia was founded and is curated by economist Marina Theodotou, Managing Director of Curveball Ltd. a boutique strategic consultancy. “Organizing TEDxNicosia has already been a journey of new growth, new friends, new technologies and new learnings,” says Theodotou. “We feel caught up with the rhythms of globalization through TEDxNicosia with the support of our local sponsors, a sponsored smartphone application and

connections with other TEDx events Starck, Ngozi Okonjo-Iweala, Isabel regionally and worldwide. The event is Allende and Gordon Brown among many a not-for-profit initiative made possible others. The annual TED Conference takes by key private sector sponsors’ in kind place in Long Beach, California, with contributions and it would not be possible a simulcast in Palm Springs while the without the dedicated and pro bono efforts TEDGlobal conference is held every year of the TEDxNicosia organizing team in Oxford, UK. comprising Alana Kakoyiannis, a film In addition to the TED.com website, maker and artist in New York and Cyprus; other initiatives include the Open Antonios Yemenaris, a Warwick graduate Translation Project, which offers and Customer Service Officer at a leading interactive subtitles and transcripts and bank; Rania Traiforos-Makriyianni, the ability to translate any TEDTalk an Oxford graduate and Investment speech in over 80 languages by volunteers Promotion officer, and Loris Stavrinides, translators around the world. TED founder of Oniric Creative Studios.” has also established an annual award TED is a non-profit organization through which extraordinary people who “dedicated to ideas worth spreading”. want to change the world are given the It started out 25 years ago as a four-day opportunity to make their wishes become conference in reality. Moreover, California and it the TED Fellows supports ideas that programme change the world helps all TEDx We live among through various organizers to extraordinary people initiatives. At become members who may lead ordinary the annual TED of the TED lives but can truly Conference, leading community and figures from the to maximize the inspire us through worlds of thought impact of ideas their professional or and action are worth spreading personal journeys invited to speak with projects and for just 18 minutes actions. on any aspect If you are of life, such as interested in science, culture, the attending or economy, geopolitics, the environment, following the first local event for Cyprus, arts and letters and more. All speeches TEDxNicosia, go online at are made available on the TED.com www.TEDxNicosia.com or visit www. website. Past speakers at the conference facebook.com/pages/TEDxNicosia. There have included Bill Gates, Al Gore, Jane are also Twitter and LinkedIn pages. Goodall, Elizabeth Gilbert, Sir Richard Tickets to the actual event will be available Branson, Nandan Nilekani, Philippe online by the middle of October 2011.

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retailing

{business}

Everything for the Home Leroy Merlin opens in Cyprus

n 1923 Frenchman Adolphe Leroy and his wife Rose Merlin opened their first business, selling postwar surplus American stock. They later moved on to furniture and construction materials from disassembled US army barracks before focusing on DIY products. Their friendly, customeroriented approach quickly made them very popular and they were able to expand throughout France. In 1960, Au Stock Américain was renamed Leroy Merlin and it became the first company in France to offer free delivery of its products. Over the decades, Leroy Merlin has expanded into a global homeimprovement and gardening retailer with stores in France, Spain, Belgium, Poland, Italy, Brazil, Portugal, Greece, China, Russia and now Cyprus. Gold spoke to Olivier Arduin, Μanager of Leroy Merlin’s newly-opened Nicosia store, to find out more about the rationale behind setting up shop on the Island

Gold: Although Leroy Merlin is well-established in Europe and elsewhere, it’s a name that has been virtually unknown in Cyprus until now. Tell us something about the company’s business concept. Olivier Arduin: Local adaptation is of great importance for Leroy Merlin. We believe that every local market has its specific needs and it is essential that we take these into consideration. Before we open a new store we search for the characteristics of local customers in order to adapt our products and services to their specific needs.

Gold: Cyprus is a relatively small market with several DIY retailers (e.g. IKEA and Super Home Centre) already wellestablished in the capital. What were the strategic business reasons for opening a Leroy Merlin store here? O.A.: Leroy Merlin is much more than a DIY store. It is a multispecialist store that provides all solutions for home improvement under one roof. Our surveys have told us that there is nowhere in Cyprus providing all these different solutions within one store. At Leroy Merlin we offer solutions in 14 separate departments: Lighting, Decoration, Paints, Carpets, Flooring, Tiles, Sanitary, Kitchen & Storage, Heating & Cooling, Plumbing, Electrical Items, Hardware, Tools, Carpentry and Building Materials and we also have a Garden Centre. Each of our departments is able to provide comprehensive solutions for the home.

Olivier Arduin

Gold: What is it about the Leroy Merlin concept and its products that will differentiate it from other home/garden/ DIY superstores in Cyprus? O.A.: As I have already said, Leroy Merlin is not just a home/ garden/DIY store. Apart from garden furniture we do not sell furniture, home appliances or accessories. We specialize

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BOOK REVIEW

Onward: How Starbucks Fought For Its Life Without Losing Its Soul

Every local market has its specific needs and it is essential that we take these into consideration

By Howard Schultz (John Wiley & Sons, 2011)

in comprehensive home improvement solutions and that includes products for construction, bathrooms, kitchen furnishings and everything else mentioned earlier. We provide our customers with a wide range of well-known brands at extremely competitive prices, extensive after-sales service (including installation and delivery) and we have trained staff to support and advise customers on their every decision. It is also important to note that Leroy Merlin offers services for professionals with specific needs.

Gold: Leroy Merlin has some interesting renewable energy products, such as solar re-chargers. Given Cyprus’ current energy crisis, do you offer solutions that could make a significant contribution to homebased electricity generation? O.A.: Renewable energy is very important to us as a company. At this stage we are offering autonomous photovoltaic systems for homes. In the future, we intend to develop this department so as to offer more inclusive renewable energy solutions.

Gold: Cypriots have not yet got into the habit of visiting garden centres and home improvement stores at the weekend as people do in other countries. How are you hoping to change this and attract them to visit your new Nicosia store? O.A.: Cypriot consumers are constantly

looking for new and different ways to improve their homes. You might be surprised to know that Cypriots visit home-relevant centres more that once a month, which is significantly more than in Greece, for example. They take pride in their homes so they enjoy visiting stores that help them in this regard. Our store will not only offer them the inspiration that they may be looking for, thanks to a customer-friendly layout, supportive leaflets and trained staff, but they will also be able to take a break at our cafeteria offering delicious food at good prices.

Gold: And will you be serving whipped ice cream as the major gardening and DIY centres in the UK do to keep the kids happy too? O.A.: We will have many surprises to keep the kids and their parents happy. My reply to your specific question is that you will have to visit the store to see for yourself !

Where to find it: 16, Kalamon Street, 2032 Strovolos, Nicosia (near the New General Hospital roundabout) Tel: 22473400 Website: www.leroymerlin.com.cy

Opening Hours Monday - Friday: 8:00-19:30/20:00 Wednesday: 8:00-15:00 Saturday: 8:00-19:30/20:00

RRP: £14.99 (£7.79 from Amazon.co.uk)

he book covers the period from 2008, when Starbucks was in crisis, its sales slumping and stock tumbling. Howard Schultz, the president and chairman of Starbucks, made the unprecedented decision to return as the CEO eight years after stepping down. Schultz was determined to help the company return to its core values and restore not only its financial health but, as he says, its soul too. Here he tells how Starbucks, which Schultz first joined in 1982 when it had only four stores, was brought back to sustainable growth and profit. He is a skillful raconteur and the dramatic narrative that he provides is compelling as he introduces various characters, develops a lively plot filled with crises as well as triumphs, and meanwhile examines several themes that invest the story with structure and direction. It also lets readers into Schultz’s psyche as he comes to terms with his own limitations and evolving leadership style. This is a compelling, candid book documenting the maturing of a brand as well as that of a remarkable businessman.

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predictions

{economy}

Return to 1930’s Europe?

By Dr. Savvas Savouri

The outlook for Europe over the course of the 21st century is far from encouraging

ew would take issue with the idea that to look out across Athens from the vantage point of the Acropolis would be to peer down on a city facing challenges as severe as any apart from occupation, siege and civil war. In fact, over recent months there have been times when it looked as if one or all of these events was taking place in Syntagma Square. Similarly, it cannot be denied that the Colosseum and the Arc de Triomphe sit at the centre of the capitals of two sizeable European states set to face their own harshest tests outside wars and their aftermath. For all its rich history, I have to say that Europe’s outlook is alarmingly poor, unless it can respond forthrightly to political and economic tests – one feeding

Ukraine as a member of the elitist club. For their part, nations across the Balkans have been encouraged to believe that their membership will be considered but they have also been told that strict initiation procedures will have to be adhered to. Trying to meet these conditions has invariably created more problems than those they were aimed at solving. More worryingly, ethnic tensions across the southwestern Balkans have been patched over rather than truly remedied, problems as unsettling as the tribalism engulfing Libya, and both possibly leading to fragmentation. Some European nations have, of course, stood aloof from the ‘merger project’. The UK and Norway have resisted efforts by those within and without to draw them ever closer to policy set from within the Brussels-Strasbourg-Frankfurt triangle. For its part, the UK stands outside the euro and has selectively opted in and out the other. At this moment there is no of EU merger policies. As for Norway, evidence that it is capable of doing so. it is not even a member of the EU, from For much of the post-war period, the which Switzerland too has stood aloof. trend has been Aloof they may towards forging be from many EU a centrallypolicies but the Not allowing asylum governed UK, Norway and European entity. Switzerland have seekers to work has Whilst the pace all been part of a bred resentment of this has varied, wider European between them it has been phenomenon: a unrelenting. It movement of people and their hosts has also been unprecedented in rather selective. peacetime. Not only Neither Turkey has humanity shifted nor Russia have been seen as worthy of around Europe to an extent not seen since inclusion in the ‘European Club’. Such the end of World War II, it has entered has been Europe’s strange selectivity it has from elsewhere; from far-flung regions, tussled with Russia for influence in Kiev, sharing little cultural commonality with despite the questionable trophy value of Europe and often triggered by the actions

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of Europeans themselves viz. the invasions of Iraq and Afghanistan and more recently the ‘intervention’ in Libya. It is impossible to consider Europe’s past, present and future without mentioning the events in London (7/7/05), Madrid (11/3/05) and most recently Oslo (22/7/11). Each occurred against the backdrop of a period of broad European economic strength, unlikely to be enjoyed again. Chillingly, these acts of terror were orchestrated by fanatics from polar extremes, constituencies which appear to be growing. Those who consider Oslo’s recent experience as exceptional should not be so complacent. Whilst the vast majority of us reacted to the actions of Behring Breivik with revulsion, there can be no denying that in some, all too many, extreme quarters across Europe his behaviour has been welcomed. We may not want to believe as much, but this is the sad reality. If an affluent Norwegian can hold such views, one fears for a Europe across which unemployment is set to sweep in a way not seen in many decades. As compelling as the argument that inward migration of labour delivers economic benefits may be, this has been confused by ‘asylum seeking’, a largely well- intentioned policy whose implementation was poorly thought out. Not allowing asylum seekers to work has bred resentment between them and their hosts.

What the Future Holds

Here are my ten key and, sadly, somewhat chilling predictions, for the coming years:

Having seemingly cemented their economies and currencies to the pre-2004 EU15, some of the 17 who have joined since then will come to see their fortunes better served by these links being loosened. Indeed, do not be surprised if some sever them entirely. Even within the old EU, one cannot dismiss the possibility that the Nordic states begin to forge their old elite union. Remember, neither Sweden nor Denmark is formally euro-ised, and Norway is not even in the EU. Iceland, too, will see its interests better served, and its economic pains eased by attachment to this group. The Baltic States may also choose to reconsider their economic alignments.

Russia is set to reclaim some of the influence it has lost over parts of Central, Eastern and Southern Europe over the last two decades. For its part, Turkey will realise that it had a narrow escape when its overtures to enter the EU were not welcomed. For Spain and Portugal, ever-closer relations with South America will be used to mitigate for challenges being faced by themselves and their neighbours.

Nationalist parties are set to find an increasingly loud political voice across Europe. Whilst this development could be most worrying across the Balkans, it will not be confined there. Protectionism, against both foreign goods and people, will gain ever greater support as the arrivals of both are targeted as being to blame for Europe’s ills. Ethnic tensions could resurface across the southwestern Balkans. Before too long we will realise that the borders across that region have been sketched in pencil. Military conflict, which Europe has not suffered for over a decade, could return.

Military conflict, which Europe has not suffered for over a decade, could return

The idea that Germany will be immune to Europe’s wider problems is set to be exposed. Not only will the competitive edge of its important export sectors be chipped away by the euro’s strength against the dollar

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MAGAD I

predictions

and yen, it will have to cope with more competitive neighbours. Poland could quite possibly join other economies across the CEE in devaluing. Weakening internal markets across Europe will prove a strain on a German economy which still relies on Europe for over half of its exports. In Germany too, political extremism threatens to resurface.

The United States and Britain have benefited in the past from those with valuable skills abandoning continental Europe – often after being victims of bigotry. So they could again find themselves again benefiting from the return of old Europe’s neurosis to “outsiders”.

Within three years the ECB will be imitating the behaviour of the Bank of Japan in trying to remedy deflationary conditions. It is set to enjoy the same success. As the world is weaned off its appetite to spend and save in dollars and ahead of viable alternatives being available, the euro looks certain to rise against it. As the euro strengthens against the dollar, it is likely to do so relative to the yen. An ever less competitive euro will force Europe’s trade facing sectors to restructure, a process that will add to their deteriorating labour market conditions.

By 2020, Europe’s demographics will have begun to raise alarm, with dependency ratios comparable to those of Japan. Having risen against the dollar for much of the previous decade, the euro will most likely begin to fall against it. Do not, however, imagine that reversals in the euro will deliver much competitive respite to what looks set to be a less and less viable European mercantilist model.

9. 5.

The premium attached to nations that have kept something of an arm’s length away from the “European super-state project” is likely to increase. Do not be surprised if the Swiss franc and Norwegian krone stride ever higher against the euro and sterling joins them. The UK, in particular, will find itself the destination for migrant workers, some leaving their homelands for the first time, others evacuating economies that had been their first migratory foray.

For all the talk suggesting that the eurozone is set to dissolve, it is highly improbable that it will suffer defections or expulsions. That said, a departure is always possible, however improbable. Elements of points 1 (the emergence of an ever more formal Nordic economic union) and 3 above (the rise of the True Finns party) could conceivably see Finland opt out of the euro. There is also a powerful case for Ireland returning to sterling.

By 2050, it will have become very clear that Europe will be ever less fit for purpose in the global economy. This will be manifested by its debt markets being deserted and its currency suffering a disorderly decline.

10.

By 2100, Europe will have been reduced to a minor region, economically and politically, in a world whose power epicentre will have moved many thousands of kilometres to the east. To those who see Europe’s cultural heritage as protection against such an outcome, I would point to how the Pyramids and Sphinx have been no such protection for Egypt.

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. 82

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funds

{tax&legal}

Cyprus: A Credible Fund Jurisdiction

uring periods of cash liquidity by credit institutions, investment funds are considered as an easier way of collecting funds. Investment funds may pursue various investment strategies (real estate, private equity, securities, hedging, commodities, etc.) and offer their units/shares to different categories of investors (retail investors, high net worth investors, investment experienced investors, institutional investors, etc). Gold spoke to Christos V. Vasiliou, board member and Service Line Leader of the Funds Unit at KPMG Ltd about the prospects of the fund industry in Cyprus.

Gold: Having acknowledged the importance of promoting the fund industry, Cyprus now has its investment funds legal framework in place. How has it been set up? Christos V. Vasiliou: The framework is divided into two parts: the International Collective Investment Schemes Law (ICIS) and the legal framework for Undertaking for Collective Investments in Transferable Securities (UCITS).

Gold: Let’s take ICIS first. C.V.V.: The International Collective Investment Schemes Law has actually been in existence in Cyprus since 1999. ICIS are regulated by the Central Bank of Cyprus and their main characteristics are that they cannot have more than 100 investors, they are not subject to borrowing restrictions, there are no limitations on the investment strategy, thus allowing concentration of investments on a single or on a low number of assets – this is one of the main reasons why ICIS are used for project financing abroad and mainly for renewable energy projects, shipping as well as waste recycling and management. Private ICIS do not require the appointment of a professional manager or trustee though the persons

managing the fund should be pre-approved by the Central Bank of Cyprus. There is ongoing supervision by the Central Bank but ICIS can also be managed by Cyprus registered Investment Firms.

Gold: So are they well-suited to both national and international investors? C.V.V.: Yes, ICIS are flexible vehicles which can certainly be used by a group of investors wishing to use Cyprus and its favourable tax regime to carry out their investment strategies. It is worth mentioning that the number of registered ICIS has risen considerably in the last year, partly due to amendments to the Cyprus tax regime which have facilitated the expansion of the funds industry.

Gold: Before we go into the main tax benefits for registering a Cyprus-based fund, tell us about UCITS. C.V.V.: UCITS were introduced by EU Law in July 2009. Here in Cyprus a draft bill is currently before the House of Representatives and is expected to be enacted into Law before the end of October. A key characteristic of UCITS is that once authorized in a Member State, fundraising is possible within the whole of

the EU without having to obtain approval in each targeted Member State. UCITS are primarily addressed to retail investors, though, of course, institutional investors may also subscribe. As retail funds, UCITS are subject to detailed regulation and continuous supervision, which facilitates their marketing outside the EU. UCITS authorized in one Member State can be managed remotely by a management company established in another Member State so cross-border marketing is facilitated. The master-feeder structure allows one UCITS (feeder) to be fully invested in another UCITS (master). Cyprus can easily be used for the registration of feeder funds which can, in turn, invest in other European master funds. Finally, a UCITS can prepare Key Investor Information comprising summarized information instead of a full prospectus.

Gold: How does the tax regime in Cyprus facilitate the registration and operation of funds? C.V.V.: Firstly, corporation tax is at 10%, which is amongst the lowest effective tax rates in Europe. Beyond that, the main sources of income realized by funds – namely dividends irrespective of

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Amendments to the Cyprus tax regime have facilitated the expansion of the funds industry

Christos V. Vasiliou

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funds

{tax&legal}

IKOS, one of the most highly reputed hedge fund managers, has chosen Cyprus to host its operations

Russia, Ukraine, India, Poland, Greece, UK and USA. The existence of such treaties greatly facilitates business relations between Cyprus and the treaty countries which translates into no or limited withholding taxes, exemption from capital gains and efficient repatriation of profits.

Gold: Would you say that the percentage holding, profit on sale of securities as well as capital gains arising from the disposal of property or shares of property companies situated outside Cyprus – are not taxable. Moreover, there is no withholding tax on the redemption proceeds arising from the sale of units or shares in a fund. This applies to both Cypriot residents as well as foreign investors. Similarly, there are no withholding taxes on dividends paid by the fund to its non-resident investors, both corporate and individual. Dividends distributed to individual tax residents of Cyprus are subject to tax at the rate of 17% while Cyprus resident investors are liable to a reduced rate of deemed dividend distribution of 3% instead of the normal 17% paid in the case of limited liability companies. It is worth noting that non-resident investors are not subject to any deemed distribution tax. Finally, Cyprus has signed double tax treaty agreements with 44 countries around the world including

Cyprus is now becoming a credible fund jurisdiction which can compare to the more expensive fund centres such as Ireland, Luxembourg, the UK and France? C.V.V.: Certainly. Fund managers, custodians, administrators and promoters place great importance on both tax and cost considerations when considering their various fund jurisdictions. It is perhaps no surprise that IKOS, one of the most highly reputed hedge fund managers, has chosen Cyprus to host its operations. An added advantage of the island is the existence of a very high standard of accounting, auditing, tax, and custodian and administration services. KPMG has successfully completed the establishment and registration of most of Cyprus’ investment funds and offers a wide range of services comprising of, advisory, accounting, audit and tax. Furthermore KPMG has set up a department which is fully dedicated to investment funds and very well equipped to offer turnkey solutions in the area of fund registration and compliance.

BOOK REVIEW

The World’s Best Tax Havens: How to Cut Your Taxes to Zero and Safeguard Your Financial Freedom By Lee Hadnum (Taxcafe UK, 2010) RRP: £24.95 (£23.20 from Amazon.co.uk)

his book is an upto-date goldmine of information on the increasingly prickly subject of offshore tax planning. Written primarily for the British reader, it lists and describes the pros and cons of what the author considers to be the very best tax havens, as well as explaining the best ways to legally exploit the relevant benefits such countries offer. If you thought that the description ‘tax haven’ was somewhat derogatory these days, Hadnum differentiates between nil-tax havens, foreign source exempt havens and low-tax havens. He includes Cyprus in the third category and has very good things to say about it. Noting that “The beauty of Cyprus is in the exemptions“he sums up by stating that “Cyprus is one of the top tax havens for UK pensioners and anyone wanting to wipe out a big capital gains tax bill. Its popularity has increased due to the lifestyle, low cost of living and booming property prices. Cyprus offshore companies are also popular, particularly for investment in Eastern Europe and holding companies.” Sounds like a good place to live…

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data protection

{tax&legal}

Who is Processing Your Personal Data? Data protection legislation is an important component of EU privacy and human rights law

By Alexis Erotocritou

ata protection legislation, which Cyprus implemented in 2001 in order to meet the requirements of the acquis communautaire at the time, is an important component of EU privacy and human rights law, aiming to protect the individual’s rights and freedoms when his/her personal data is processed and to facilitate the free movement of such data. In the words of the European Parliament and the Council of the European Union, “The establishment and functioning of an internal market in which the free movement of goods, persons, services and capital is ensured requires not only that personal data should be able to flow freely from one Member State to another, but also that the fundamental rights of individuals should be safeguarded.” The Data Protection Directive notes further that “Data-processing systems must, whatever the nationality or residence of natural persons, respect their fundamental rights and freedoms, notably the right to

privacy, and contribute to economic and social progress, trade expansion and the well-being of individuals” So, what do we mean by the term ‘personal data’? It refers to any information of whatsoever nature relating to an identifiable natural person. Examples include a person’s address, credit card number and bank statements and even his/ her criminal record. Data controllers are the people or bodies that determine the purposes and the means of processing personal data. A controller may be an individual or a corporate/unincorporated body of persons. For instance, a medical practitioner would usually be the controller of the data processed on his clients or a football club would control the data processed on its members and the same applies to a telecommunication service provider controlling the data of its clients. Data controllers are usually organisations though they can be individuals. If an individual is given responsibility for data protection in an organisation, he/she will be acting on behalf of the organisation,

which will be the data controller. Processing refers to any operation which is performed upon personal data, whether or not by automated means; this includes the collection, recording, organisation, storage, adaptation or alteration, consultation, use, disclosure, transmission or otherwise making available, blocking, erasure or destruction of personal data. It is worth mentioning that the retention of data (i.e. simply holding it) is also considered as a form of processing. A data processor is an individual or a company, public authority, agency or any other body which is assigned by the controller to process data on its behalf for a particular purpose. One example of a processor would be a marketing company

Stringent rules apply to the processing of what is referred to as ‘sensitive data’

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assigned by a vehicle importing company to carry out a customer satisfaction survey on its behalf. Other processors include accounting firms, call centres and payroll companies.

The purpose of the law The law aims to protect the rights and freedoms of persons with respect to the processing of personal data by laying down the principles determining when this processing is lawful. These rules relate to: • The quality of data, i.e. it must be processed fairly and lawfully, and collected for specified and legitimate purposes and at the same be accurate (and up to date); and • The legitimacy of data processing, i.e. it may be processed only if certain conditions have been met. An obligation is also placed on the data controller to provide the data subject from whom data is collected with certain information (i.e. the identity of the controller, the purposes of collecting such information, the potential recipients of the data etc). In addition, the data subject has a right of access to the data. Significantly, the data subject may obtain from the controller confirmation as to whether or not data relating to him/her is being processed and may also obtain the rectification, erasure or blocking of data if processing does not comply with the provisions of the law. Stringent rules apply to the processing of what is referred to as ‘sensitive data’ which relates to racial or ethnic origin, political opinions, religious or philosophical beliefs, trade union memberships, information on health or sexual preferences, criminal prosecutions and/or convictions. As a general rule, such data cannot be processed except when processing is mandated by the law.

Business and the Data Protection Law All businesses that keep any information on living and identifiable people must comply with the data protection legislation. The following Frequently Asked Questions and their answers highlight the main things that companies need to know.

Q: Do I need the consent of the data subject (e.g. an employee) in order to process data? Are there any exceptions for obtaining consent? A: Data processing is permitted only when a data subject has given his/her consent to such processing. However, processing of data without the subject’s consent is also permitted (a) for the performance of a contract to which the data subject is party, (b) for compliance with a legal obligation to which the controller is subject, (c) to protect the vital interest of the data subject, (d) to perform a task carried out in the public interest or (e) for the purposes of the legitimate interests pursued by the controller or those of a third party to which the data is communicated. In the above example, it is therefore advisable that consent be obtained from the employee

IN THE WORKPLACE

Can an employer access an employee’s e-mails and/or monitor his/her phone calls? While the main e-mail address of a company is not generally considered as personal data (e.g. info@company. com), a personal account which is used solely and exclusively by an employee for his work (e.g. john. smith@company.com) for which the employee uses his own personal username and password to gain access, constitutes personal data. In such a case, an employee is entitled to expect that no-one will use this account, unless otherwise

(It is very unlikely that an employee will refuse to give his/her consent in situations involving the transfer of data to lawyers, accountants, etc.). It is important to note that employers should be very careful when obtaining an employee’s consent because enforced consent does not constitute ‘lawful’ consent. Consent must be freely given as a specific and informed indication of the employee’s wishes. Q: Does the Data Protection Law apply to data transfers on the Internet? A: Yes. A vast amount of information is transmitted via the Internet and such an important means could not be exempt from the provisions of the law. Q: To which countries can data be freely transferred? A: Data may be transferred freely to any country which is a member of the

informed by the employer (in certain cases the employer may have access to the content of an e-mail – e.g. when it is opened at the presence of the employee). An employer may also record the time, date and the recipient of an e-mail sent by an employee. An employer is not allowed to monitor telephone calls made or received by employees; however, he may be entitled to receive detailed statements from the relevant authority provided that employees have been informed and consented to this (and such consent is presented to the relevant authority).

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MAGAD 9

data protection

European Union accordance with and to countries the data exporter’s A village council mailed of the European domestic law. Economic area. The European residents their tax and However, data Commission has water bills and included transferred to adopted three theιr bank account third countries types of standard number on the envelope apart from these contractual requires the clauses to Data Protection facilitate transfers Commissioner’s of data in the prior permission. The Commissioner above situation which are, consequently, will grant permission if the other country recognised by member States to facilitate provides an adequate level of protection adequate safeguards. Although in some (there is a list of the countries which Member States there is no need for are considered adequate) or if data is prior authorisation in order to transferred to a US-based organisation proceed with the transfer, Cyprus which is covered by the Safe Harbour maintains a licensing system. The commitments. In exceptional cases, the Commissioner will examine Commissioner may also grant permission an application for the for a transfer to a third country which does issuance of a licence not provide an adequate level of protection to transfer data to a if certain conditions are fulfilled. third country on a case-by-case basis, Q: Can data be transferred (to a country taking into account that does not provide an adequate level of the level of protection in that country protection) between companies belonging and/or the contractual clauses and/or the to the same multinational group? binding corporate rules. A: As stated above, for all transfers of data to non-EU or EEA countries, Commissioner the permission of the Commissioner is required. If the transfer is between for the Protection companies belonging to the same of Personal Data multinational group, it is common for such corporations to adopt ‘binding In Cyprus, the Commissioner for corporate rules’ which are essentially a the Protection of Personal Data global code of practice based on European investigates complaints submitted standards and, so long as they incorporate to her office and may also launch her the essential principles, it is very likely that own investigations. the Commissioner will grant permission The number of complaints submitted to such a transfer. It should be noted in 2009 was 348, some 26% higher that binding corporate rules are only than the 2008 figure. The majority suitable for the regulation of intra-group of the complaints submitted data transfers. If a company wishes to (73%) referred to unsolicited transfer data to an organisation based in communications (spam), mainly a third country that does not provide an to mobile phones. Most of the adequate level of protection, a condition messages advertised premium rate for obtaining permission for this transfer numbers related to gambling, dating could be the adoption of ‘standard and astrology. contractual clauses’. These clauses are Other complaints submitted basically a contract between the data concerned the unauthorized exporter and the data importer which bind the latter to process the transferred data in

he general impression is that the institution of the Data Protection Commissioner has proved very helpful in Cyprus. The Commissioner’s office is willing to address promptly any questions or issues submitted for clarification or interpretation. Furthermore, guidelines published by the Commissioner provide an excellent overview/background of the complex legislation in a reader-friendly manner. Someone with a business can easily identify whether further legal advice/ measures need to be initiated in order to comply with his/her data protection obligations. What comes as a surprise, however, is that in Cyprus, very few companies/businesses comply with the obligations imposed by the legislation. Given the fact that the Commissioner is entrusted with significant powers and may impose heavy penalties, the relaxed approach taken so far towards individuals/corporations contravening the law may have to change in the coming years.

disclosure of personal data, usually by one organisation or public authority to another. Then there followed the complaints about the processing of excessive data as in the case of a village council that mailed residents their tax and water bills and included theιr bank account number on the envelope. The data controller complied with the Commissioner’s decision to remove the bank account number. The number of complaints about unauthorized access to personal data also rose in 2009 and there were also several complaints about the right of access. Office of the Commissioner for the Protection of Personal Data 1, Iasonos Street, 1082 Nicosia. Website: www.dataprotection.gov.cy

info: ALEXIS EROTOCRITOU is an associate at Chrysses Demertriades & Co. LLC 90

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philately

{lifestyle}

First class stamps Stocks and shares? Land and property? Postage stamps are far more manageable and philatelic investment is back in vogue as some of the most collectable items have doubled in price in the past 5 years By Nathalie Kyrou

here are millions of enthusiastic stamp collectors around the world creating a global marketplace but philatelic investment â&#x20AC;&#x201C; investing in stamps â&#x20AC;&#x201C; differs from collecting in the sense that its purpose is, obviously, to realize a profit. Interest in stamps as an investment has increased recently as traditional investments falter and investors seek alternative means of maintaining and increasing the value of their assets. Stamps are considered to be a fairly safe investment on a par with land and property, though at a much lower cash value. The strongest markets tend to be in developed countries, such as Britain, France, the US and Australia, with British stamps particularly sought after. Some have more than doubled in price in the past five years. Investing in rare stamps requires a high degree of expertise and can be very risky for the novice but they are among the most portable investments, as they take up so little space (although they do require careful storage as their condition is one of the most important factors in determining their value). Those purchased for investment are usually quite old and in fine condition, such as British Victorian stamps which may be considered the philatelic equivalent of buying blue chip

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phi·lat·e·ly |fə'latl-ē|

Philately (the study of stamps, postal history, stamp collecting and more) is the English version of the French word “philatélie”, coined by Georges Herpin in 1864 – he combined the Greek root word phil or philo, meaning an attraction or affinity for something, and ateleia, meaning “exempt from duties and taxes” (because after the introduction of postage stamps the receipt of letters became free of charge, whereas before it was normal for postal charges to be paid by the receiver of the mail).

shares. Although future prices may vary, as stamp market. The number of collectors long as stamp collecting remains popular worldwide was estimated at 30 million in there is likely to be high demand for such 2004 but by 2009, Adrian Roose of Stanley stamps. Those included in an investment Gibbons was quoting a figure of 48 million portfolio are likely to be rare and valued at including 18 million in China. This is thousands of euros while obviously more than the greatest rarities are just a hobby for some. typically sold at public Unlike stocks and auction and may reach shares, the majority About $1 billion prices in excess of €1 of transactions in the of rare stamps million and more. stamp market take trade annually Long considered a place informally, in the $10 billionhobby, and a rather oldby mail order or in a-year stamp fashioned one at that, retail environments, market stamp collecting has and the size of the undergone something of a market is therefore change of image if recent hard to determine. reports on philately are It is certainly much to be believed. For the past decade, the smaller than the financial markets, but it Stanley Gibbons Group, a company quoted is not trivial if the above estimate of $10 on the Alternative Investment Market billion a year is correct. Nonetheless, the (AIM) of the London Stock Exchange philatelic market remains small compared which specializes in retailing collectable to the value of the stock market and it is postage stamps and similar products, also vulnerable to aggressive buying by actively offers stamps as investments. (As speculators which may distort prices. This well as publishing, the company is alonghappened in the 1970s when a speculative established stamp dealer with a retail bubble was followed by a collapse in prices. business which produces its own line of The future market for the sale of other philatelic products, such as albums, philatelic items remains uncertain as stock books, and other the demand for them comes principally related accessories). from collectors – not investors – and the In a 2007 interview, majority of collectors are aged over 50 in Mike Hall of Stanley western countries. There are relatively few Gibbons estimated younger collectors in Europe and North that about $1 billion America who would be expected to be the of rare stamps trade buyers of the future, although that may annually in the not be the case in India, China and other $10 billion-a-year developing countries, where an expanding

middle class may have the time and money to pursue a hobby like stamp collecting while growing domestic demand helps to drive prices up. Investing successfully requires a high degree of specialized knowledge which takes time to acquire, and at the end of the day your return is not guaranteed. Philatelic investment is relatively unregulated compared with, for instance, investments in a mutual fund, and therefore investors may have little protection if things go wrong. Additionally, the cost of buying is high compared to most other forms of investment and the cost of selling is also relatively high. Moreover, purchases may be liable to a sales tax (e.g. VAT in the EU) which the buyer may not be able to reclaim. On top of that, stamps may need to be insured as they are at risk of physical damage or deterioration, and their authenticity may also require to be checked by an expert, for a fee. Another point to remember is that stamps have little

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philately

What you need to know Before investing in stamps, you should have a good knowledge of classification, condition grading, authentication, handling and storage, the stamp market, and philatelic literature. The value of a stamp is determined by a number of factors including the number available on the market, demand from collectors inside and outside the country of origin, the condition of the stamp itself, its thematic appeal, perceptions as to its current or future value, current events (a news event for example may temporarily increase values, e.g. the death of Princess Diana), and finally the place of purchase or sale (values vary according to where the transaction takes place â&#x20AC;&#x201C; prices at auction may be different from those charged by a dealer or in a private sale between collectors).

Where to buy There are a number of places where a prospective investor can buy stamps such as via the Internet from online or real-life auctions, through stamp dealers, from a collector in a private sale, at international stamp shows and fairs (such as the London Festival of Stamps), or through a few specialized stamp investment firms. Some firms even develop collective or mutual funds where money from many investors is pooled and each investor owns shares or units in the fund which then invests the money in stamps.

intrinsic value â&#x20AC;&#x201C; they do not have the raw material value of a gold coin, nor do they represent a share in a business. Stamps do not generate any interest or dividends and may take time to be sold, unlike equities or mutual funds which can usually be turned into cash with minimal delay. In general, a long-term view is necessary. A quick purchase and sale is unlikely to be profitable. In fact, there is very little reliable historical information about the performance of stamps as investments. It is believed that when more traditional investments are doing well, interest in alternative investments like stamps may quickly wane. In the longer term, the very existence of postage stamps

could actually be in doubt as e-mails replace traditional letters sent through the post. If stamps are no longer sold for postage they may cease to be collected and if so, the vital demand that feeds the investment market may disappear. Despite this, there are advantages to stamp investing, the most obvious of which is that they are highly portable stores of wealth and are easily transported over national borders. Since stamps are not a financial asset, they may perform better than cash in times of high inflation, and the fact that there is a finite supply of classic stamps is an asset. The simple fact that a stamp cannot go out of business like a company quoted on the

stock market is also an advantage when it comes to investing. Stamps are also a relatively confidential investment â&#x20AC;&#x201C; unless they are bought at a public auction, their ownership is private and no public register exists as for many investments in equities. Last but not least, you cannot always enjoy or admire most of your investments the way you can stamps which often have interesting historical backgrounds and are tangible things which you can appreciate aesthetically. All things considered, if this is venture that you are willing to take your time to investigate, if you always buy top quality and think long-term, philatelic investment may finally get your stamp of approval.

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The Collector

AKIS CHRISTOU

O Philately is a sort of addiction which is only hazardous to your pocket

ne of small number of serious philatelists on the island, Akis Christou, who first started collecting stamps at the age of 7 (prompted by his mother who would give him the – regrettably – cutoff corners of envelopes from her office with foreign stamps on them, as well as any Cyprus stamps), remembers his first serious fascination being for the series issued throughout the Commonwealth to commemorate the 25th anniversary of accession to the throne of King George V in 1935. “The design was interesting,” he says, “and I think that the colours used for these stamps representing the different colonies were fantastic and have yet to be matched by any others so far.” All these years later, still fascinated by the wealth of knowledge that one can accumulate from philately, Akis describes stamps as “a school for all ages: a medium through which you can discover so much about the world itself, from history to geography, from politics to flora and fauna.” His collection, although not vast, contains a number of items of great rarity and its uniqueness contributes to its overall high value. Built up over a period of 30-40 years with great patience and methodical work, Christou is the proud owner of what is arguably the most comprehensive collection of Cyprus stamps of the Victorian era. When asked if he has made any profit from any of his stamps, He replies, “Profit is a dangerous word! It depends on how one looks at it. Philately is a sort of addiction which is only hazardous to your pocket”. There have been times where trading in stamps has led to a monetary loss for him, but since he collects mainly as a hobby, he feels that “even if you lose financially, as long as you still gain pleasure from the hobby itself, the gain will always outweigh the loss.” He identifies a marked

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difference between hobbyists – or what he calls “pure philatelists” – and those who see stamp collecting as an investment. “The word investment bothers me,” Christou admits, “but, overall, if you know what you are doing you will make a profit. Accumulated, sound knowledge of the subject is essential, though.” So how does he view the future of philately? “Classic stamps bought at auctions have risen – and keep rising – in price over the years,” he says. “The interest is there, and the rarer the item the higher the price will be and I can say with a modest degree of certainty that its price will go up in time. There are always collectors out there looking for the key items to fill the gaps in their collection and this is what prompts the high bidding at auctions.” Christou specializes in stamps from Cyprus and he has seen that, like those of other Commonwealth countries, the island’s older issues have continued to rise in price. “Being part of the Commonwealth is a great advantage as prices for the classic stamps from these countries only seem to go up. In that sense, they are a sound investment provided, of course, that

collectors will still be around when you want to sell! This is a question that has puzzled the philatelic world for a number of decades but so far new collectors have always emerged and I think we can assume that this will continue.” When it comes to rarities and high prices, Cyprus has its share of these. At present, the rarest Cyprus stamp, valued at £40,000 (€46,500) is one of the first Cyprus issues but this 1880 double overprinted Half penny stamp is an error of which only two copies are known to exist. (p.93) One of them is in Akis Christou’s superb collection. If you are a beginner interested in philatelic investment, Akis Christou advises you to either have a lot of patience and be prepared to study, or to seek the advice of an expert. For online resources, he recommends the sites of various auction houses where one can get the real feel for the market and what is going on. “Whatever the case, one must be very careful,” he says. “Over the past few years we have seen new collectors coming into the market. They are obviously investors who have the knowledge and expertise to bid high on items that they will be willing to keep for a few years.”

The five most valuable stamps in the world

❶ Sweden: Three Skilling Banco,

Yellow Error, 1855 This stamp, issued in Sweden in 1855, was mistakenly printed on yellow paper (meant for the eight skilling stamp of the same set) instead of the usual green. This one-of-as-kind rarity (no other copies have been discovered to date) was discovered in 1885 by a young Swedish boy in his grandfather’s collection. In 1996 the stamp was sold to an anonymous collector for $2.3 million (€1.6 at the time) at auction. Last year it was again sold to a group of anonymous buyers at auction in Geneva for $2,550,000. (€1.81 million)

❷ Mauritius: Post Office, 1847

In 1847, the Governor of Mauritius decided to issue the British colony’s first postage stamps. A local watchmaker from the capital city of Port Louis, who was awarded a contract to produce a one penny stamp and a two pence stamp, erroneously engraved

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❹ Hawaii: Hawaiian

Missionaries, 1851 Hawaii issued its first stamps in 1851, now referred to as the “Hawaiian Missionaries” because they were frequently used by American missionaries on the islands to send letters back to the continental United States. The new stamps were printed in Honolulu in three denominations (2, 5 and 13 cents). Because they were crudely engraved and printed on thin, poor quality paper, very few of these stamps have survived and they are extreme rarities. The two cent stamp is the rarest of the set with only about 16 copies known to exist today. An unused 2 cent “Missionary” is valued at about $760,000 (€540,000) and a used one at $225,000 (€160,000).

BOOK REVIEW

A Stolen Life By Jaycee Lee Dugard (Simon & Schuster Ltd, 2011) RRP: £14.99 (£8.49 from Amazon.co.uk)

the words “Post Office” instead of “Post Paid” on the stamps. By the time the error was discovered, over 200 copies of the stamps had already been printed and sold. It is thought that fewer than 30 copies of these stamps have survived and they are valued at more than $600,000 each, depending on their condition. In 1993, an envelope bearing 2 of these stamps sold for $3.8 million (€2.7 million at the time), the highest price ever paid for any philatelic item.

❸ United

States of America: Franklin Z-Grill, 1867 Only 2 copies are known to exist of this, making it the rarest of all US stamps. It depicts a portrait of Benjamin Franklin and is embossed with a “Z-Grill” - a pattern of tiny squares embossed into the paper and visible on the back of the stamps. The purpose of the “Z-Grill” was to permit the cancelling ink to be absorbed into the stamp paper thus preventing those who wanted to cheat the post from washing out cancellation marks. The use of “Z-Grills” was found to be impractical, however, and the practice was soon discontinued. In 1998, one of the two 1 cent “Z-Grill” stamps sold for $930,000 (€661,000 at the time).

❺ British Guiana: One Cent Black on Magenta, 1856 The one-cent “Black on Magenta” was the world’s most expensive stamp for many years. In 1856, the former British colony of British Guiana was in urgent need of an additional supply of stamps, and could not wait for a fresh stock to arrive from England, where they were normally produced. The postmaster of British Guiana asked the publishers of the Official Gazette newspaper in Georgetown to print an emergency issue of stamps for local use. One cent and four cent denominations were printed on poor quality paper in black ink on magenta coloured paper: the one-cent stamps were to be used as postage for newspapers while the four-cent stamps were intended for use on letters. The stamps had the corners snipped off and each one was initialled by a post office employee as a measure against possible forgeries. In 1873, a 12-year local boy discovered an octagon-shaped one cent “Black on Magenta”, postmarked April 4, 1856 in his family’s attic. He later sold it to a local stamp collector, for a small sum. Over the years it became apparent that this stamp was unique, as no other copy has ever been discovered. In 1980 it was sold at auction for $935,000 and is believed to have been locked in a bank vault while its owner was in prison.

n 10 June 1991, elevenyear-old Jaycee Dugard was abducted from a school bus stop near her home in Tahoe, California. It was the last her family and friends saw of her for over eighteen years. During her time in captivity she gave birth to two daughters, both fathered by her kidnapper. In this memoir, written by the now 30-year-old herself, Jaycee opens up about what she experienced, including how she feels now, a year after being found. The first half of the book tells of her early years in captivity, and the horrendous sexual abuse she suffered at the hands of her captor. The second half, focusing on the time after her children were born, is more to do with how she accepted the way things were. Every reader’s obvious question – why didn’t she try to escape? – is answered clearly but a great deal is obviously left unsaid. Trying to collate 18 years of torture into 268 pages was no easy task but Dugard has written a remarkable, horrific, and extremely moving story. Not for the faint-hearted.

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{ the last word }

By Peter Economides

Brought To You By Ship Designed in California. Made in China. Delivered by ship. It’s a big world we live in: 510,072,000 square kilometres. And it’s shrinking every day, through technology and the Internet, global communications, media, travel. All enabling global business models with headquarters in one place, design centres in another, and with logistics and manufacturing in some entirely different place. Look at the back of your iPhone: “Designed by Apple in California. Assembled in China.” Like your fashion brand. Headquarters in Spain, design studios in Milan, manufacturing facilities in Indonesia. Hey, we know where the stuff is designed and we know where it is made. But how often do we think of how it reaches us? According to the WTO, world trade in 2010 amounted to a “dismal” $12.3 trillion after a 23% drop from 2009. Most of this trade is delivered by ship. Shipping, it seems, is like water... Water is basic, essential, fundamental to human life. Without it there is no planet. There is no life. Yet it is something we hardly ever think about, until we don’t have it. Did you know that a human body can survive without food for more than a week but a human body will die within a few days without water? Shipping is basic, essential, fundamental to economic life on this planet. Without it there is no world trade. Yet it is something we hardly ever think about, until we don’t have it. Think of everything that comes to you by ship. Think harder, right down

to your morning coffee. I don’t know about you but for me, a day without coffee would be ... well ... like a day without coffee. Shipping is the lifeblood of the world economy. And a fair amount of it flows right here in Cyprus. It is testimony to the invisibility of shipping that I had absolutely no idea of the role that this remarkable small country plays in the industry. I did not know that Cyprus was the tenth largest shipping flag in the world - ninth until recently, when it was overtaken by China. And the third largest shipping flag in Europe. These are incredible statistics. What else in the world does Cyprus rank tenth in? First in warmth and hospitality? Okay, granted :) The new global business model allows corporations to locate aspects of their operations in countries that make most sense. Well, it’s clear that Cyprus makes a lot of sense to the shipping industry.

Shipping is basic, essential, fundamental to economic life on this planet And Limassol is the city they choose. Limassol aims to build a position as a leading city in the Mediterranean. Not just for tourism, but as a business and financial centre. A place for corporate headquarters. A place from which to run worldwide operations. You can do it, Limassol. I always thought so, but now that I know about shipping, I know so.

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. 98

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