Gold, February 2013 by INBusiness

ISSUE 23 FEBRUARY 2013 PRICE €6.95

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Maria Iacovidou

Vice President, Barclays Bank Plc- Cyprus Intermediaries & International Banking

Maria A. Papacosta

Board Member, KPMG Ltd

Irene Psalti

Member of the Board of Directors, Ernst & Young Cyprus Ltd

Androulla Pittas

Partner, Head of Financial Assurance Services, Nicosia office, PricewaterhouseCoopers Ltd

Maria Kyriacou

Advocate/Partner, Andreas Neocleous & Co LLC

Demetra Kalogerou

Chair, Cyprus Securities & Exchange Commission

Maria LambrouPaschalis

Partner, Deloitte Ltd

It’s a WOman’s World 50 Leading Financial Services Professionals

+ NICOS ANASTASIADES, GEORGE LILLIKAS, STAVROS MALAS GEORGE VASSILIOU

“Money laundering? Don’t be ridiculous!”

INTERVIEWS

LATVIA

Constantinos Chiotis Angelos Gregoriades Yiannis Retsos

Proof that austerity works?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

Helen Hadjichristoudia

Director, Abacus Ltd

Yiota KythreotouTheodorou

Anastasia Anastassiades

Managing Partner, Pamboridis LLC

Head of Investment Consulting in Cyprus, Aon Hewitt

Eleni Ellina

Maria Kaffa

Chief Compliance Officer, FxPro Financial Services Ltd

Partner & Member of the Board, Baker Tilly Klitou

Maria Dionyssiades

General Manager/ Executive Director, Emporiki Bank Cyprus Ltd, Credit Agricole Group

KPMG Academy Upcoming Seminars: February - June 2013 The Memorandum of Understanding and its Consequences Date: 07/02/2013 Administrators, Receivers and Liquidators Date: 11/02/2013 Profitable Market Analysis Dates: 18-19/02/2013 A Global Perspective on Today’s Insurance Challenges: Solvency, Capitalization and Available Restructuring Tools Date: 27/02/2013 Cash Management in Stressed Scenarios Date: 11/03/2013 Business Process Reengineering Date: 08/04/2013 Accounting and Finance for Non Accountants Date: 15/04/2013 Tax updates 2012* Date: 20/05/2013 International Tax Principles Date: 03/06/2013 Cyprus as a Jurisdiction For Alternative Investment Funds and Asset Management: ICIS Funds, Cyprus Alternative Fund Managers and MIFID Investment Firms* Dates: 10-11/06/2013 IFRS Updates and Advanced Applications* Date: 17/06/2013

* The programmes have been approved by the HRDA. Enterprises participating with their employees who satisfy HRDA’s criteria, are entitled to subsidy. These seminars may contribute to Continuing Professional Development requirements.

For more information please contact: Persa Papademetriou T: +357 22209053 F: +357 22513294 E: ppapademetriou@kpmg.com Visit our website at: www.kpmg.com.cy

©2013 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.

Grasp knowledge into your hands

Issue 23 February 2013

08 EDITORIAL 10 up front 20 FIVE MINUTES WITH…

It’s a WOman’s World

Leading Financial Services Professionals

Gender equality is no longer the exception in the professional service sector, say 50 SUCCESSFUL WOMEN

FEATURES 34 | ” money laundering? don’t be ridiculous!“

76 | Back on Track

Interview with former President George Vassiliou

Angelos Gregoriades, the new Chairman of KPMG, on Cyprus’ strengths and weaknesses as a financial centre.

38 | If I Become President…

80 | Feel The Pain

How the three main presidential candidates plan to revive the financial services sector

60 | How to Solve the competitiveness Problem Comparing Cyprus, Malta and Luxembourg

64 | Bouncing Back Greek tourism is ready to grow again

Latvia’s turnaround since the 2008 financial crisis could be a model for the faltering countries of southern Europe. But they may not like it...

82 | CEO confidence in growth down The majority of CEOs expect the global economy to remain stalled

6 Gold the international investment, finance & professional services magazine of cyprus

Femenomics By Persella Ioannides

Change is no longer an option By Mike McCormac

SEEING STARS AND HEARING SILENCE 98 by Peter Economides

82 69 | Investment Firms

President...

Making the Most of the Unavoidable By Viktoria Soltesz

SPECIAL SUPPLEMENTS 43 | Corporate Social Responsibility

i Become What do the three presidential candidates plan to do to revive the island’s financial services sector?

+ opinion

86 {money} 88 {business} 90 {economy} 92 {tax&legal} 94 {lifestyle}

EDITORIAL

Sisters Are Doin’ It For Themselves

t used to be called the “glass ceiling”, the invisible yet unbreachable barrier that kept women from rising to the upper rungs of the corporate ladder, regardless of their qualifications or achievements. It still exists to a greater or lesser degree all over the world but while one might expect that, in a patriarchal society such as Cyprus, women would not have equal opportunities in many sectors of the economy, things are nowhere near as bad as they once were. It is a fact that women are under-represented in Cypriot politics and, as the majority of the 50 female professionals featured in this month’s cover story told us, the proportion of women CEOs, Chairpersons and Senior Partners continues to be unfairly low. The glass ceiling may have been cracked but it still remains to be completely shattered. That said, the role of women in the business community of Cyprus has been growing steadily and they have especially proved themselves in the services sector, nowhere more impressively than in the legal profession where the numbers of lawyers and judges are almost equal. While many of the practising lawyers who spoke to Gold were happy to admit that a good blend of men and women in a firm tends to make for the best outcome in negotiations, they were also keen to point out that in this so-called “man’s world”, women possess unique qualities that make them if not superior then certainly equal to their male counterparts. The descriptions of women’s particular traits that you will find in our cover story include “proficient at multi-tasking, possessing intuition, great emotional intelligence, excellent communication and managerial skills, being less aggressive, less competitive, better organised, more pragmatic, thorough, persuasive, honest and hardworking than men, having a calm and consistent approach and displaying greater perseverance…” The list, if not endless, is extremely long and one cannot help but wonder why it has taken women so long to get where they are today (and, of course, we all know the three-letter answer: men). Our feature on women in the professional services sector focuses on just 50 individuals. Were it not for space and time constrictions, we could easily have found 500 successful women entrepreneurs, company owners, high-ranking lawyers, accountants and financial consultants. The professional services sector is not only the one that is currently driving growth in the economy; it is also the one in which women are best represented in comparison with their male counterparts. Whether this is merely a coincidence or something more significant is a question for the sociologists. What it certainly does show is that more and more young women in Cyprus are studying subjects at university that were once considered an exclusively male domain and they are subsequently using their academic qualifications to carve out a successful career. There is probably more than meets the eye to Christine Lagarde’s amusing remark of three years ago that “Ιf Lehman Brothers had been Lehman Sisters, today’s economic crisis clearly would look quite different”. German Chancellor Angela Merkel may not be everyone’s favourite, even in her own country, but the mere fact that she is the leader of the most powerful country in the European Union says a great deal for Germany’s electorate. We look forward to the day when Cyprus, too, will have high-profile women politicians. For now, we are pleased and proud to pay tribute to at least some of the women who, thanks to their professional abilities and skills, are making a major contribution to the country’s prospects and prosperity.

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

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MANAGING DIRECTOR:

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GENERAL MANAGER:

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MEDIA MANAGER: Elena Leontiou EDITOR-IN-CHIEF:

John Vickers

SENIOR EDITOR:

Kyproula Papachristodoulou CONTRIBUTORS TO THIS ISSUE:

Irene Demetriou, Peter Economides, Persella Ioannides, Mike McCormac, Chloe Panayides, Glen Richards, Viktoria Soltesz. ART DIRECTION:

Anna Theodosiou SENIOR DESIGNER: Maria Kyriakou PHOTOGRAPHY:

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8 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold Magazine - September 2012 Ad.pdf 1 18-Sep-12 5:21:35 PM

CMY

Greek Government

Bonds Buyback

Axia Ventures Group acts as financial advisor to institutional investors

xia Ventures Group (AVG) has been acting as financial advisor to a number of institutional investors and holders of Greek government bonds in relation to their participation in the tender offer process announced by the Hellenic Republic for the buyback of certain designated securities. These investors, including funds managed by Falcon Edge Capital, GSO Capital Partners LP, Monarch Alternative Capital LP, Perry Capital, Third Point LLC, York Capital Management, represent a substantial portion of the total €61.5 billion of outstanding designated securities. Axia Ventures Group is a privatelyowned investment banking boutique providing financial advisory and capital marketrelated services to corporate and institutional clients, headquartered in Nicosia.

total of €1.6 trillion (13% of the EU’s GDP) was granted by national governments to EU banks between October 2008 and 31 December 2011, according to the European Commission’s 2012 State Aid Scoreboard. The bulk (67%) came in the form of

Top 10 Investment

Firms Cyprus in According to the Cyprus

Securities & Exchange Commission (CySEC), the Top 10 investment firms in Cyprus, ranked by the size of their Eligible Own Funds as at 30/09/2012, are the following: 1. Reserve Invest (Cyprus) Ltd 2. SIB (Cyprus) Limited 3. Alfa Capital Holdings (Cyprus) Ltd 4. Renaissance Securities (Cyprus) Ltd 5. BrokerCreditService (Cyprus) Ltd 6. NKB Investments Limited 7. Windsor Brokers Ltd 8. TDAM (Cyprus) Ltd 9. Otkritie Finance (Cyprus) Limited 10. FxPro Financial Services Ltd

state guarantees on banks’ wholesale funding. Support to the real economy on the basis of temporary crisis rules dropped to €4.8 billion in 2011, a fall of more than 50% compared with 2010, reflecting both a low uptake by companies and the budgetary constraints of most EU member

ΙΜΗ to

organize

3rd Annual

Green Dot Awards

ΜΗ and the IN Business team will be organising the 3rd annual Green Dot Awards, honouring companies, individuals and organisations promoting improvements to the environment in Cyprus. The ultimate objective of the event is to recognize their activities and to promote the importance of environmental protection. The Awards Committee has already held its first official meeting at which the rules and processes for this year’s event were agreed upon. The Awards Ceremony will take place in the summer.

states. Between 2008 and 31 December 2011, €1.616 billion was actually used to support financial institutions. This was composed of: • Liquidity support: €1,174 billion (9.3% of EU GDP) average outstanding state guarantees on banks’ funding and other (short-term)

liquidity support measures. • Measures to support bank solvency: €442 billion (3.5% of EU GDP) in recapitalisation measures and treatment of impaired assets. Three Member States accounted for nearly 60% of the total aid used: United Kingdom (19%), Ireland (16%) and Germany (16%).

New Offices in Limassol

residential candidate Nicos Anastasiades officially opened the new offices of IronFX in Limassol on 10 January. IronFX is a global leader in online trading, specializing in Forex, CFDs on US and UK stocks, commodities, spot metals and binary options. The company, which is part of an international financial services group founded in 1972, claims to offers best service, cutting edge in-house technology, unmatched execution, best-ofmarket product range and the lowest spreads in the market.

IFG Trust and

Corporate Group acquires the Moore Group

he IFG Trust and Corporate Group recently concluded the acquisition of Moore Group following receipt of regulatory approval from the Jersey Financial Services Commission (JFSC).The acquisition marks a significant development in the group’s growth strategy within the international fund sector and adds the Far East to its geographic locations/presence. This is the first acquisition since IFG Trust and Corporate Group’s MBO in July 2012 when it separated from IFG Group plc. The group is currently undergoing a rebrand and is due to unveil its new corporate identity in February 2013. Declan Kenny, Chief Executive IFG Trust and Corporate Group said, “We are delighted that our acquisition of Moore has been approved by the JFSC. We have an ambitious expansion strategy and Moore is the ideal primary purchase. It has a fantastic geographical reach and it is a well established, well respected and successful business”. The Moore Group was established in 1996 by Ian Moore who will assume the role of Executive Chairman. Moore provides Fund Administration, Fund Management and Corporate Services. The company manages and administers assets in excess of US$17bn and also has a presence in Tokyo and Bermuda. IFG Trust and Corporate Group provides Trust & Corporate services, Fund Administration and services to the leisure industry in multiple jurisdictions including Jersey, Isle of Man, Cyprus, Switzerland and ROI. Established in 1975, the Group was acquired by Management, backed by AnaCap Financial Partners in July 2012. Ian Moore

Declan Kenny

America’s Highest-Paid Women CEOs

ow many women would you expect to feature in a list of the 500 highestpaid Chief Executives in the USA? You are almost certain to be disappointed by the true number: just 18 and only two of them are in the top 100. Of course, that is not to say that they working for peanuts. Below are 10 highest-earning women CEOs in the US in 2012. Their total compensation was calculated by counting salary and cash bonuses, vested stock grants and stock gains – the value realised by exercised stock options.

Irene B Rosenfeld, age 58 Total Compensation: $25.37

million Rosenfeld

has been CEO of Kraft Foods for 6 years and with the company for 6 years. She is ranked 40th on the Forbes list.

Carol M Meyrowitz, age 58 Total Compensation: $16.54 million

Meyrowitz has been CEO of TJX Cos for 5 years and with the company for 29 years. She is ranked 88th on the Forbes list.

Indra K Nooyi, age 56

Andrea Jung, age 53

Total Compensation: $13.12 million

Nooyi has been CEO of PepsiCo for 6 years and with the company for 18 years. She is ranked 131st on the Forbes list.

Total Compensation: $12.01 million

Jung has been CEO of Avon Products for 12 years and with the company for 18 years. She is ranked 141st on the Forbes list.

Patricia A Woertz, age 59

Virginia M Rometty, age 55

Total Compensation: $11.50

million Woertz has been CEO of Archer Daniels for 6 years and with the company for 6 years. She is ranked 146th. Total Compensation: $10.88 million

Rometty has been CEO of IBM for less than six months and with the company for 31 years. She is ranked 158th.

Ellen J Kullman, age 56 Total Compensation: $9.73 million

Kullman has been CEO of EI du Pont de Nemours for 3 years and with the company for 24 years. She is ranked 173rd on the Forbes list.

Angela F Braly, age 50

Debra A Cafaro, age 54

Total Compensation: $9.49 million

Braly has been CEO of WellPoint for 5 years and with the company for 7 years. She is ranked 182nd on the Forbes list.

Total Compensation: $9.49 million

Cafaro has been CEO of Ventas for 13 years and with the company for 13 years. She is ranked 183rd on the Forbes list.

10.

Ilene S Gordon, age 58 Total Compensation: $5.02

million Gordon has been CEO of Corn Products Intl for 3 years and with the company for 3 years. She is ranked 319th.

ΙΝ Βusiness Αwards

2012

he annual IN Business Awards ceremony took place on 17 January at the Hilton Park Hotel in Nicosia. The event, now in its 5th consecutive year, was attended by the elite of the island’s business community as well as senior state officials and numerous heads of government agencies. A total of 12 awards were presented, honouring companies, business practices, products and outstanding individuals from island’s business world. In nine cases, the winners were chosen by a selection committee and a public vote (on a 50-50 basis) while the winners of the remaining three special awards were chosen by the selection committee and the IN Business editorial team. The event was presented for the 5th year by Hellenic Bank and sponsored by MTN, Chivas and TFI Markets. TV news anchor and presenter Chrysanthos Tsouroullis was the Master of Ceremonies while the evening’s entertainment featured the internationally renowned soprano Katerina Mina who travelled from the UK especially for the awards ceremony.

12 Gold the international investment, finance & professional services magazine of cyprus

BEST WORKPLACE The Award for Best Workplace went to Deloitte. It was presented by Demetris Syllouris, Chairman of the European Party (EVROKO), and Vassilis Petrides, CEO Laiko-Cosmos Trading Ltd, to Christis Christoforou, CEO of Deloitte.

BEST SMALL TO MEDIUM SIZE ENTERPRISE The Best SME Award was won by NIPD Genetics. Philokypros Andreou, President of the Limassol Chamber of Commerce and Dinos Lefkaritis, former President of the Larnaca Chamber of Commerce & Industry, presented the award to Philippos Patsalis, CEO of ΝΙPD Genetics.

BEST MANAGER The Best Manager Award was won by Lysandros Ioannou, CEO of PHC Franchised Restaurants Public. It was presented by Haris Georgiades and Photos Photiou, Press Officers of the Democratic Rally (DISY) and the Democratic Party (DIKO) respectively. presented by

sponsors

BEST CORPORATE SOCIAL RESPONSIBILITY The Award for Best Corporate Social Responsibility was won by the Lanitis Group. Sofoclis Aletraris, Minister of Agriculture, Natural Resources and Environment, and Pambos Papageorgiou MP presented the award to Platon Lanitis, Chairman of the Board of Lanitis Ε.C. Holdings Ltd.

YOUNG BUSINESS LEADER The special Young Business Leader Award, in memory of Andy Hadjicostis, was won by Alexis Photiades, Managing Director, Photos Photiades Distributors. It was presented by Constantinos Ioannou, Member of the Board of IMH, and Alexis Nicolaou, General Manager of DIAS Publishing House and Sigma TV.

BEST SERVICES The Best Services Award went to Intercollege Globaltraining. Demetra Kalogerou, Chair of the Cyprus Securities & Exchange Committee and Loucas Marangos, CEO of TFI Markets presented the Award to Odysseas Christodoulou, CEO of Ιntercollege Globaltraining.

LIFETIME ACHIEVEMENT AWARD The Lifetime Achievement Award went to Kikis Lefkaritis, Executive Chairman, Petrolina (Holdings) Public Ltd and Chairman of the Lefkaritis Group. It was presented by Dr. Andreas Panayiotou, Chairman of the Board, Hellenic Bank, and Neoklis Sylikiotis, Minister of Commerce, Industry & Tourism.

MANUFACTURING/PROCESSING The Manufacturing/Processing Award was won by Vitatrace Nutrition. Philios Zachariades, Chairman of the Employers & Industrialists Federation (OEB), and Marios Tsiakkis, SecretaryGeneral of the CCCI presented the Award to Christodoulos Angastiniotis, Managing Director of Vitatrace Nutrition.

BEST FOREIGN-BASED CYPRIOT ENTREPRENEUR The Award for the Best Foreign-based Cypriot Entrepreneur went to Chris Lazari, Chairman of Lazari Investments. It was presented by Andreas Nicolaou, Head of Marketing, Public Relations and Cultural Activities, Hellenic Bank Group, and George Koufaris, Chairman of the Cyprus Stock Exchange.

BEST NEW PRODUCT/SERVICE The Best New Product/Service Award went to Managed Print Services, Demstar Information Group. Marios Mavrides MP, economist and Thanos Chronopoulos, Chief Marketing Officer of MTN presented the Award to Stelios Colocassides, Managing Director of Demstar Information Group.

BEST ENTERPRISE The Best Enterprise Award went to Medochemie. It was accepted by Constantinos Pittas, Director of Medochemie, from Makis Keravnos, CEO of the Hellenic Bank Group, and Vassos Sharly, Minister of Finance.

ΕDITOR’S CHOICE The special Editor’s Choice Award went to FxPro Financial Services. It was presented to Dennis Sukhotin, Executive Chairman of the Board of FxPro, by Daphne Tang, General Manager of IMH and Elena Leontiou, Head of Media, IMH.

the international investment, finance & professional services magazine of cyprus

Gold 13

Andreas Neocleous, Andreas Neocleous & Co LLC

Frixos Savvides & Christos Christodoulou, Trust Insurance

Lakis Tofarides, Tofarco & Charis Papacharalambous, CIPA

Marios Tsiakkis, CCCI & Stelios Stylianou, EAC

Platon Lanitis, Lanitis E.C. Holdings Ltd.

Vassilis Petrides, Laiko-Cosmos Trading & his wife Emily Master of Ceremonies Chrysanthos Tsouroullis & Demetris Fessas, Embassy of Israel

Andreas Georgiou, Universal Life & Polys Michaelides, Cypria Life

Makis Keravnos, Hellenic Bank, & his wife Niki

Platon Lanitis, Lanitis E.C. Holdings Ltd. & George Koufaris, CSE

Andrew Demetriou & Theo Demetriou, Ioannides Demetriou LLC

Photis Photiou, Frixos Savvides, Dinos Lefkaritis

Vassos Shiarly, Minister of Finance

Lefteris Christoforou MP, Alexis Nicolaou, DIAS Publishing House & Sigma TV, Pambos Papageorgiou MP

Antonis Papas, Lanitis Group

Dinos Hadjisavvas, Alfa Capital Holdings (Cyprus) Ltd

Demosthenes Mavrellis, Chrysses Demetriades & Co LLC

Takis Fidia, Laiki Bank

Andreas Christofides, KPMG

Sotos Zackhaios, Russian Commercial Bank Andreas Avraamides, Ernst & Young

Michael Sarris, former Minister of Finance Dinos Lefkaritis

Christos Patsalides, LLC

Dinos Lefkaritis

Daphne Tang & Elena Leontiou, IMH

Andreas Hadjikyriakos, Gnora Communication Consultants Glafkos Mavros

George Stylianou, Moore Stephens

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Pambos Papageorgiou MP

Soprano Katerina Mina Marcos Komodromos, Intercollege Globaltraining

Marlen Michael, MTN

George Michaelides, Famagusta Chamber of Commerce & Industry

Elizabeth Antoniadou, DIAS Publishing House & George Theodotou, Alphamega Demetra Kalogerou & Andreas Andreou, CySEC

Alex Christoforou, Wadja Inc

Dr Andreas Panayiotou, Hellenic Bank

Marios Roussis, VTT Vasiliko Ltd & Michael Pillos, TFI Markets

Soula Xeni, Trust Insurance

Marwan Ragheb & Haris Michael, Hilton Cyprus

Doros Iliodorou, Hellenic Bank

Christodoulos & Angela Angastiniotis, Vitatrace Nutrition

George Papageorgiou, Ministry of Labour & Social Insurance

Kyriakos Iacovides, Cyprus Development Bank

www.inbusinessnews.com

www.pwc.com.cy

Tax Facts & Figures 2013 - Cyprus The tax system in Cyprus

Please scan with your smartphone to find the electronic version of the publication.

All of us in PwC are here to offer you our knowledge and expertise and to support you in achieving your personal and corporate tax goals. The specialised solutions we offer to you are adjusted to your own needs and will support you in structuring your tax operations in an efficient way.

The guide is available free of charge at the reception areas of the PwC offices all over Cyprus. You may also find the guide on our website.

interview

five minutes with...

The professional services industry should be our main focus and number one priority

Constantinos Chiotis Partner, Abacus Ltd.*

hat does it mean for you to be made a partner in a firm like Abacus? I am honoured that my Partners have endowed me with their trust and confidence and invited me to join them in continuing and enhancing Abacus’ reputation as a “Best in Class” international business services firm. During my time at Abacus, I have had the opportunity to participate in the firm’s growth, and, at the same time, to gain a genuine appreciation of its heritage and the importance we place on adding value to our clients globally, while contributing locally to the quality of life of our colleagues and the Cypriots in general. No one can deny that a partnership appointment brings prestige and longterm rewards but it comes with great responsibility to create growth for the firm and for the industry, which will lead to further opportunities for all. This is a challenge which I strongly embrace. You worked in the US for three years. Is there a noticeable difference in the way the professional services sector operates there? Other than the sheer size of the firm and of the clients in general in the US, I wouldn’t say that there is a noticeable

difference. Even though my work in the US was more local in nature (versus heavily international in Cyprus), I strongly believe that reputable firms in Cyprus and their people are the equals of their US equivalents. How confident are you that the professional services sector in Cyprus will continue to thrive and drive the economy in these difficult times? People need to realise that the services sector is a sunrise sector for the country. Before we get carried away with the performance of our Tourism sector and the whole hydrocarbons euphoria (which is a major blessing, of course – if handled properly), it’s the Professional Services sector that has been the driver of the Cyprus economy for the past two decades, showing remarkable growth even through the crisis. Moreover, the sector has also supported and complemented several others (mainly Tourism and Construction) by attracting higher-spending visitors/clients. As a key growth sector, therefore, the professional services industry should be our main focus and number one priority. It needs to be nurtured and further streamlined, modernised and regulated to become more competitive with other traditional financial centres. If we do all the right things (or at least the obvious ones) this is where, in my opinion, future growth will come from.

20 Gold the international investment, finance & professional services magazine of cyprus

What do you hope to achieve in your new capacity as partner? The ownership/management of Abacus has always operated the company so that we keep one foot in today and one foot in tomorrow, regardless of what’s happening around us. In an economy like this one, everyone tends to concentrate on today. In our opinion we can’t do that. We’ve got to be looking forward and doing as many things for tomorrow as we are doing for today, even when we’re at the top of our game. What I hope to achieve therefore, is to contribute as much as I can towards shaping the company’s strategic direction for the future (and that of the industry in general) in a way that maximises growth and creates opportunities for our colleagues and all young professionals in Cyprus. To achieve this, by building on the tradition of leadership that has served the firm and our clients well throughout our history, is the biggest challenge for me. * Constantinos Chiotis holds a BSc (Hons) in Accounting and an MBA. After finishing his studies in the US, he joined the assurance and advisory services department of Deloitte in Phoenix (Arizona), where he also qualified as a CPA. He later joined PwC’s Tax department and also held a top executive role with a prominent private group of companies. He joined Abacus in March 2007. On 1 January 2013 he was made a Partner in the firm.

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It’s a WOman’s World Gender equality is no longer the exception in the professional service sector 1. MARIA KAFFA Partner & Member of the Board, Baker Tilly Klitou 2. ANDROULLA PITTAS Partner, Head of Financial Assurance Services, Nicosia office, PricewaterhouseCoopers Ltd 3. SUSANA POYIADJIS Partner, Nexia Poyiadjis Chartered Accountants 4. MARIA LAMBROU-PASCHALIS Partner, Deloitte Ltd 5. MELPO KONNARI Senior Manager, Advisory Services Department, Grant Thornton (Cyprus) Ltd 6. MARIA A. PAPACOSTA Board Member, KPMG Ltd 7. ELENA DEMETRIOU Director, Kyprianides, Nicolaou & Economides Ltd - Chartered Accountants 8. IRENE PSALTI Member of the Board of Directors, Ernst & Young Cyprus Ltd 9. XENIA GEORGIOU Senior Manager, Horwath DSP Limited

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LEADING FINANCIAL SERVICES PROFESSIONALS. By JohnVickers, Photography by Jo Michaelides

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COVER STORY

n 2010, IMF Head Christine Lagarde, who was France’s Finance Minister at the time, quipped to a journalist that “Ιf Lehman Brothers had been Lehman Sisters, today’s economic crisis clearly would look quite different”. Many people, and not only women, agreed with her view, as stated subsequently in a New York Times article, that “When women are called to action in times of turbulence, it is often on account of their composure, sense of responsibility and great pragmatism in delicate situations”. Lagarde is, of course, something of a highprofile exception and she admits that “It took some luck and a lot of willpower for me to reach the position I hold today” but the fact is that, across the Western world at least, traditionally male-dominated professions have seen a shift in culture and recruitment policies that have enabled talented and qualified women to work side by side with their male counterparts as equals…well, almost. The ideal of equal pay is still some way off in many sectors but there can be no doubt that, in recent decades, more and more women have been given the opportunities they deserve to rise through the ranks to the very top of their profession. Given the entrenched and often chauvinistic views of many men in Cyprus and the country’s small size, one might reasonably expect successful women professionals to be a small minority. The truth is pleasantly different, especially in the thriving professional services sector, as evidenced by the responses of the 50 women featured on the following pages to three questions posed by Gold. While the situation varies within the sub-sectors (women are notably well-represented in law firms), it is clear that in Cyprus in the 21st century, professional services are no longer the closed man’s world they once were. Our featured professional women are more or less unanimous in this view, and they are equally united in the opinion that while more women are entering the accountancy, banking, legal, fiduciary and financial service professions, few of them are given the chance to rise to the very top. This is partly to do with choice – when it comes to the ‘career vs family’ dilemma, many women are understandably unwilling to sacrifice motherhood – but also with the lingering male dominance of senior posts. The legal sector appears to be an exception to the rule: As Maria Kyriacou (Advocate/ Partner, Andreas Neocleous & Co LLC) points out, there are currently 1,220 registered women lawyers and 1,331 men, 55 female and 60 male judges in Cyprus. However, while

the figures don’t lie, Emily Yiolitis (Managing Partner, Harneys Aristodemou Loizides Yiolitis LLC) notes that women are still under-represented in the top echelons of law firms. Elsewhere, women continue to be a minority: Maria Dionyssiades (General Manager/ Executive Director, Emporiki Bank Cyprus Ltd, Credit Agricole Group) points out that “The proportion of female employees in the banking sector in Cyprus is significant but the top management positions are almost exclusively male-dominated” while Olga Rybalkina (Chief Executive Officer, ForexTime Ltd) states clearly that she is “not aware of another woman running a business like this”. Another widely-held view to emerge from the responses to our questions is that while women have their own special qualities and a different approach to business from men, the ideal situation within any organisation or company is for women and men to work together as a team so that, as Nicole Ioannou (Manager Accounting Department, HTT Audit Ltd) says, “the qualities of one gender complement the strengths of the other and together they can achieve better results than alone”

THE QUESTIONS

The 50 women featured here were asked three questions: • Would you describe your profession as “a man’s world”? • Can women make a different contribution from men to the professional services sector? If so, in what way? • What single thing would you change to improve Cyprus’ reputation as an international business centre?

ACCOUNTANCY/ AUDIT MARIA KAFFA

PARTNER & MEMBER OF THE BOARD, BAKER TILLY KLITOU

Accountancy used to be “a man’s world” but this is no longer the case. The number of women entering the profession has increased considerably in the last 10-15 years. Gender does not significantly influence the volume, quality and complexity of the services we provide. It is exclusively a matter of the qualifications and the personality of the individual. CHANGE: One way for Cyprus to regain its good reputation might be the appointment of an independent and reputable professional organisation to review current procedures and recommend improvements.

MARIA LAMBROUPASCHALIS PARTNER, DELOITTE LTD

Deloitte Cyprus’ overall gender balance is 53% female to 47% male, whereas the percentage of women at management level has increased by 20% over the last few years. Women have become increasingly involved in running the business and in forming the Firm’s strategy for the future. If a firm has women clients and addresses its services to the female population, why would it have men deciding for all? CHANGE: The culture of the public sector must change towards facilitating international business through the removal of bureaucratic procedures.

IRENE PSALTI

MEMBER OF THE BOARD OF DIRECTORS, ERNST & YOUNG CYPRUS LTD

The number of women in executive positions is a fraction of that of men but that has more to do with the multiplicity of important roles available to women rather than discrimination on the basis of their gender. I believe men and women complement each other but women are generally less aggressive yet more persistent, more organised and better suited to lead teams in a less confrontational manner. CHANGE: What we need is a well organised, carefully planned and professionally designed marketing/branding campaign for Cyprus.

MELPO KONNARI

SENIOR MANAGER, ADVISORY SERVICES, GRANT THORNTON (CYPRUS) LTD

Whilst men and female graduates are recruited in almost equal numbers in the accounting profession, the proportion of women in higher positions is very low. Research has show that stronger growth is more likely to occur where there is a higher proportion of women on senior management teams. The combination of men’s and women’s different leadership styles and way of thinking can bring about better results. CHANGE: One important step would be to attract international accredited financial and banking institutions to set up operations in Cyprus.

XENIA GEORGIOU

SENIOR MANAGER, HORWATH DSP LTD I would describe my profession as “a man’s world” even though in recent years there has been an attempt to promote gender equality. But one’s contribution to the professional services sector has nothing to do with gender.

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MARIA IACOVIDOU Vice President, Barclays Bank Plc- Cyprus Intermediaries & International Banking

CHRYSI MEMTSA Head of Treasury, Cooperative Central Bank

Good professionals of either sex should be given every opportunity to develop, grow and contribute. CHANGE: It is very important to improve Cyprus’s reputation as an international business centre and first we should reduce bureaucracy and enforce transparency in the public sector.

and mothers too. We are multi-task individuals by nature but I believe that the key is for women and men to work together and thus complement each other. CHANGE: We need to change the international perception that Cyprus is a tax haven through better international communication.

MARIA A. PAPACOSTA

SUSANA POYIADJIS

BOARD MEMBER, KPMG LTD

In the past, men were the majority in our profession but this is changing, as evidenced by the numbers of women in key positions in the sector and new recruits. However, I believe that gender is irrelevant. The important thing is to provide best quality services and solutions to clients. Because women see things from a different perspective they complement men to form very strong teams. CHANGE: We must improve collaboration between the public and private sectors to increase efficiency regarding services provided to the public.

ELENA DEMETRIOU

DIRECTOR, KYPRIANIDES, NICOLAOU & ECONOMIDES LTD - CHARTERED ACCOUNTANTS

More and more women are qualifying as chartered accountants and either stay in the profession or pursue other careers based on their education, knowledge and experience gained through the profession. Women have proved that they can be successful professionals

PARTNER, NEXIA POYIADJIS, CHARTERED ACCOUNTANTS

Despite large numbers of women within the workforce, disproportionately few reach senior levels but there is good reason to be optimistic. EU legislation is currently being discussed that aims to have women representing at least 40% of corporate boards by 2020. Since women and men have different and complementary experiences, knowledge and skills, gender diversity inevitably boosts creativity and innovation. CHANGE: The most important thing at present is to ‘brand’ and market Cyprus internationally as a reputable and respected international business centre, using foreign ‘ambassadors’.

ANDROULLA PITTAS

PARTNER, HEAD OF FINANCIAL ASSURANCE SERVICES, NICOSIA OFFICE, PRICEWATERHOUSECOOPERS LTD The accountancy profession has traditionally been male-dominated at

MARIA DIONYSSIADES General Manager/ Executive Director, Emporiki Bank Cyprus Ltd, Credit Agricole Group

partner level but, as a whole, it is fairly equally balanced between men and women. Research supports the view that the more successful corporations have mixed gender boards and senior management and I believe that we will also see increased participation by women at the more senior levels. CHANGE: We should give incentives to reputable international organisations to move to Cyprus. That would be the best acknowledgement of the benefits and advantages that Cyprus has to offer over other jurisdictions.

BANKING

MARIA IACOVIDOU

VICE PRESIDENT, BARCLAYS BANK PLC-CYPRUS INTERMEDIARIES & INTERNATIONAL BANKING

The banking /financial services sector is dominated by men and very few women hold top management positions or have Executive Director positions. I am happy, however, to see that the situation is changing, albeit more slowly than I would like. Women are more perceptive, they have intuition, they are proficient at multi-tasking and often perform better under pressure. CHANGE: The State and the private sector should jointly create a task force to formulate a strategy to put Cyprus on the global map of international business/financial centres.

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ELIANA PIERIDOU Manager Business Development & International Credit, Eurobank Cyprus Ltd

tive publicity, focusing on the strong regulatory environment and exploiting better the many positive international reports that have been issued about Cyprus.

ELIANA PIERIDOU

MANAGER BUSINESS DEVELOPMENT & INTERNATIONAL CREDIT, EUROBANK CYPRUS LTD

Women have expanded their influence but there is still a long way to go. Top management and corporate bodies are still “a man’s world”. I strongly believe that distinctions should not be based on gender but on each individual’s capabilities, experience and commitment to excellence. That said, a woman who chooses to have a career and a family must be very disciplined, committed and well-organised. CHANGE: We have to do a better job of promoting Cyprus’s strengths and defending its reputation against unfounded allegations.

ELENI ELLINA Chief Compliance Officer, FxPro Financial Services Ltd

FOREX TRADING MARIA KAFFA OLGA RYBALKINA

CHIEFEXECUTIVEOFFICER,FOREXTIMELTD

CHRYSI MEMTSA

HEAD OF TREASURY, COOPERATIVE CENTRAL BANK

The financial services sector is still “a man’s world” but over the past few years the number of women in positions of responsibility has been growing. A woman in a position of power is no longer the rare exception. Women balance risks and returns better in any decisionmaking process and, in combination with their clear vision, management results are long-term effective. CHANGE: The government, the banking and services sectors need to improve their credibility and integrity and work towards crafting a better environment for investments and business development.

MARIA DIONYSSIADES

GENERAL MANAGER/EXECUTIVE DIRECTOR, EMPORIKI BANK CYPRUS LTD, CREDIT AGRICOLE GROUP

The proportion of female employees in the banking sector in Cyprus is significant but the top management positions are almost exclusively male-dominated. I would say that women can bring a different approach through some characteristically female attributes such as intuition, perseverance, teamwork and communication skills. CHANGE: There should definitely be a more proactive, orchestrated and effective communications policy pointing out Cyprus’ strengths and pre-empting nega-

The Forex industry is very much “a man’s world” and I am not aware of another woman running a business like this. I believe that character and professionalism lie at the heart of business success but some feminine traits, such as our greater flexibility, allow us to look differently at circumstances and from many diverse perspectives. This helps in negotiations and is a vital element in achieving goals. CHANGE: The effective promotion of Cyprus as a worldclass international business centre is essential.

ELENI ELLLINA

CHIEF COMPLIANCE OFFICER, FXPRO FINANCIAL SERVICES LTD

MARIA THEODOROU Executive Director, TFI Markets

In the past it was definitely “a man’s world” but today the many successful women in traditionally male-dominated sectors are no longer exceptions to the rule but proof that gender equality has been achieved. We are equal but different due to our natural attributes. Women can clearly define expectations and challenge stereotypes – important success elements for a business providing services. CHANGE: All agencies need to remain dedicated to restoring the confidence of retail and institutional investors in the Cyprus economy by acting promptly and implementing credible measures.

MARIA THEODOROU EXECUTIVE DIRECTOR, TFI MARKETS

Despite increasing numbers of women in top executive jobs, men still dominate such posi-

OLGA RYBALKINA Chief Executive Officer, ForexTime Ltd

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tions. The pool of qualified professional women is growing but old-fashioned sexist attitudes are still common. Firms that encourage both men and women to contribute to the maximum of their abilities will ultimately be the most successful. They need the “best” person for each job and gender is not a factor. CHANGE: Today it’s important to restore investor and depositor confidence in our financial sector and to repair the damage to Cyprus’ reputation.

THIS IS ANOTHER CONFIRMATION OF THE STRENGTH AND CAPACITY OF THE PROFESSIONAL

FINANCIAL SERVICES

HELEN HADJICHRISTOUDIA

ELIA NICOLAOU

MANAGING DIRECTOR, AMICORP (CYPRUS) LTD

In the fiduciary services industry, women are given equal opportunities to prove themselves and their capabilities in managing and growing such companies and stakeholders trust us. Women can be more pragmatic, thorough and diligent in their dealings, better at handling sensitive issues and charming negotiators in client transactions. Nevertheless, women and men can complement each other to offer clients a truly comprehensive proposition. CHANGE: The most significant contribution today would be ensuring the alignment and compliance of all service providers with the EU’s anti-money laundering regulations.

ANASTASIA ANASTASSIADES

HEAD OF INVESTMENT CONSULTING IN CYPRUS, AON HEWITT

When I started my career, I often encountered discriminating behaviour and I left the country. I was glad to see that this had changed on my return. Women demonstrate higher levels of compassion and team-building skills. They’re persuasive, assertive, honest, hardworking and they like a challenge whereas

ASSOCIATE DIRECTOR, D.I. ROSS & CO LTD

The blatant discrimination which plagued the workplace in the past has largely faded, and although women are still underrepresented in managerial positions, the balance appears to be shifting towards a well-diversified team. Studies show that women often surpass men in terms of leadership qualities such as innovative thinking, inspiring motivation in others and initiative. Clients also recognize the more personal and honest approach a women can convey. CHANGE: It is now key to restore confidence in the nation’s banks and bring capital flowing back into the country.

ZOE KOKKONI

DIRECTOR, ABACUS LTD

There is no denying that my profession is still very much ä man’s world” but with plenty of room for those women who believe in themselves and their abilities. The challenge for women is to undertake this role in their own style, not after having adopted the style or accepted norms of their male counterparts or superiors. CHANGE: We need to improve the overall professionalism of all those involved in servicing, from the lawyer, accountant, banker, civil servant, secretary to the receptionist.

JOANNA ELIA

men are better in negotiation and they convey more confidence. A bi-gender team is thus more able to have a holistic view of a situation. CHANGE: I would impose a maximum time for regulators/authorities to process and progress requests/applications.

MARINA ZEVEDEOU

CHIEF OPERATIONS OFFICER, ASPEN TRUST GROUP

Though the majority of employees in our profession are women, this is not reflected in the percentage of women executives or partners. On the other hand, the service industry has the highest number of women entrepreneurs owning their own companies, which suggests that no-one can hold back a determined woman! Women’s special qualities such as teamwork, intuition and creativity are valued highly by clients. CHANGE: We must expand our range of services as a Business Centre and take active steps to create a positive image for Cyprus.

DEMETRA KALOGEROU CHAIR, CYPRUS SECURITIES & EXCHANGE COMMISSION

The sad reality, as reflected in the statistics, is the notable under-representation of women within the corporate and governmental hierarchy of the financial sector. Women’s representation on the boards of private companies and in decision-making positions in the public sector in Cyprus is negligible. In these challenging times, ruling out 50% of suitable candidates because of their gender could be detrimental. CHANGE: I would strengthen the financial sector supervisory authorities as a first step towards cultivating trust in the regulatory and supervisory infrastructures of the Cyprus securities market.

DIRECTOR, INTERNATIONAL BUSINESS SERVICES DIVISION, EUROFAST TAXAND

Workforce demographics have changed dramatically since I began working in this industry. Nowadays, women professionals account for a bigger proportion of the total workforce and I’m pleased to see that many firms are investing in and advancing talented women professionals. Our industry is largely a personal relationship-based one and I believe that women have the edge when it comes to communication, responsiveness and conflict resolution. Clients value women’s ability to view things from their own perspective. CHANGE: We need to differentiate Cyprus from less strict offshore jurisdictions.

ANGELA KATCHIES

MANAGER, LEGAL DEPARTMENT, FIDUCENTER (CYPRUS) LTD

It may have been “a man’s world” some years ago, but the legal profession in Cyprus is one area where women’s presence has been apparent for some time now. Whether you are a woman or man, you need to be confident, believe in your abilities and put yourself out there. CHANGE: There is a lot of work to be done to the Registrar of Companies system. For starters, the normal procedure should be to incorporate companies in 48 hours and print certificates online instantly.

CHRISTINA ROSSI

MANAGER, INTERNAL ADMINISTRATION DEPARTMENT, FIDUCENTER (CYPRUS) LTD

The business world is generally a man’s world and the top positions in many financial organisations are held by men. However, I believe that this is gradually changing and

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1. ANASTASIA ANASTASSIADES Head of Investment Consulting in Cyprus, Aon Hewitt 2. HELEN HADJICHRISTOUDIA Director, Abacus Ltd 3. LOUIZA SAZEIDOU Deputy Managing Director, Sharelink Securities & Financial Services Ltd 4. CHRISTINA ROSSI Manager, Administration Department ANGELA KATCHIES Manager, Legal Department Fiducenter (Cyprus) Ltd 5. PERSELLA IOANNIDES Director, Meritkapital 6. NICOLE IOANNOU Manager Accounting Department, HTT Audit Ltd 7. MARY TRIMITHIOTOU Director, Orangefield – Fidelico 8. JOANNA ELIA Associate Director, D.I. Ross & Co Ltd 9. ZOE KOKKONI Director, International Business Services Division, Eurofast Taxand 10. ELENA CONSTANTINOU Head of Asset Management, U.P.M. Ultimate Performance Management 11. ELIA NICOLAOU Managing Director, Amicorp (Cyprus) Ltd 12. SARA ALEKSANDRA HAMOU-HEMSI, MARINA MICHAEL, EVA SHAMMAS CHELL Senior Relationship Managers, Trident Trust Company (Cyprus) Ltd 13. MARINA ZEVEDEOU Chief Operations Officer, Aspen Trust Group 14. DEMETRA KALOGEROU Chair, Cyprus Securities & Exchange Commission

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ELENA PAPANDREOU Managing Director, E. Papandreou & Co LLC

CHRISTINA SARRIS Senior Partner, Polakis Sarris & Co LLC

ALEXIA ASPRI & CELIA POURGOURA Directors, CA Advocates IRENE CHRISTODOULOU Senior Manager, Head of Corporate Division, Kinanis LLC

ELENA MICHAIL Director, Ioannides Demetriou LLC

ARETI CHARIDEMOU Advocate– Managing Partner, Areti Charidemou & Associates LLC

EMILY YIOLITIS Managing Partner, Harneys Aristodemou Loizides Yiolitis LLC

CHRYSO PITSILLIDEKATRIS Senior Partner, Dr. K. Chrysostomides & Co. LLC, Law Office

ELEANA ECONOMIDES Chairwoman, E. Economides & Partners LLC

KATIA KAKOULLI LawyerLitigator, Chrysses Demetriades & Co LLC

women are being given equal opportunities and are receiving the credit they deserve. Women and men often approach situations in a different light and have different leadership styles but companies benefit and thrive within a gender balanced environment. CHANGE: Improving Cyprus’ economy by rebuilding the reputation of the banks will promote further confidence on the part of foreign investors.

NICOLE IOANNOU

MANAGER ACCOUNTING DEPARTMENT, HTT AUDIT LTD In the past our profession was dominated by male professionals so it was quite challenging for me to enter that “man’s world” but my firm provided me with guidance and support. Women tend to be more thorough and look at the details while men usually see the ‘big picture’ so the qualities of one gender complement the strengths of the other and together they can achieve better results than alone. CHANGE: Improvements to the efficiency

CONSTANTINA ECONOMOU Senior Lawyer, George Z. Georgiou & Associates LLC

and productivity of many government departments are needed.

PERSELLA IOANNIDES DIRECTOR, MERITKAPITAL

Capital markets around the world are generally male-dominated but there is an increasing influx of women and this trend towards gender balancing should continue. There are now more women than men in higher education in the developed world so, equipped with the necessary technical know-how, women in the professional sector can apply their intrinsic attributes to the work formula and positively contribute to the end result. CHANGE: The authorities must maintain and bolster the regulatory framework and new markets should such as India and China should be explored.

MARY TRIMITHIOTOU

DIRECTOR, ORANGEFIELD - FIDELICO

Women can succeed equally within the profes-

sion in terms of competencies and skills but there are occasions when it may seem like “a man’s world” when we are trying to balance work and family commitments. It is no coincidence that women are increasingly taking on leadership roles in businesses but gender diversity is needed especially at the top management level for an organisation to achieve better performance. CHANGE: We must improve the level of professionalism within the services industry that will eventually lead to greater specialisation.

LOUIZA SAZEIDOU

DEPUTY MANAGING DIRECTOR, SHARELINK SECURITIES & FINANCIAL SERVICES LTD

While progress has been made in advancing gender equality in recent decades and the number of women in the professional services sector has increased significantly, men continue to dominate the senior ranks of most big firms. The professional attributes of men and women are not black and white but rather have to do

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with the different strengths that individuals bring with them. CHANGE: Cyprus’ regulatory framework should be constantly reviewed, reformed and simplified to reduce the administrative burden on businesses and provide greater flexibility, efficiency and transparency.

SARA ALEKSANDRA HAMOU-HEMSI

SENIOR RELATIONSHIP MANAGER, TRIDENT TRUST COMPANY (CYPRUS) LTD Gender stereotypes make it harder for women to achieve senior positions and they also face a constant challenge to achieve a work/family balance but conditions and opportunities for women have improved. Business will always be about human relationships and women look at problems differently from men. It’s not just about gender but rather the different qualities women bring to the table. CHANGE: Fiduciary companies and the Registrar of Companies must work hand in hand and focus on providing high quality, quick and efficient service and transparency.

MARINA MICHAEL

SENIOR RELATIONSHIP MANAGER, TRIDENT TRUST COMPANY (CYPRUS) LTD

The corporate services sector was traditionally perceived to be “a man’s world” but this has changed and while business culture frequently associates masculine qualities with success, women have much to contribute: excellent managerial skills, a communicative, calm and consistent approach and great stamina. It is, of course, important for a workplace to balance female and male qualities. CHANGE: There should be better cooperation between the public and private sectors to make the company registration system much more user-friendly, efficient and accessible to the foreign investor.

EVA SHAMMAS CHELL

SENIOR RELATIONSHIP MANAGER, TRIDENT TRUST COMPANY (CYPRUS) LTD The profession is predominantly staffed by women although the so-called “glass ceiling” still exists in many firms and management positions are mainly held by men. I am of the opinion that men and women are able to contribute equally to the sector. CHANGE: Cyprus needs to comprehensively market itself as an international business centre, to dispel current rumours within the EU about money laundering, and to fast-track legal and administrative reforms so as to remove hurdles

and strengthen the investment environment in Cyprus.

ELENA CONSTANTINOU HEAD OF ASSET MANAGEMENT, U.P.M. ULTIMATE PERFORMANCE MANAGEMENT

It is only in the last few years that women have started to be part of the investment/asset management profession but their contribution adds value to the sector because we perceive many things differently from men and can thus provide more socially- and psychologically-oriented feedback as well as valuable insights for shaping future business strategies. CHANGE: An official annual “EXPO Cyprus for Professional Services” should organised, giving foreign professionals an opportunity to experience first-hand the high level of expertise and integrity of the Cyprus business community.

THERE ARE CURRENTLY

quite slow. Women score particularly high in emotional intelligence which is linked to better leadership, relationships, decision-making, health, and wellbeing, attributes which give women a cutting-edge advantage over their male counterparts in today’s professional services sector. CHANGE: I believe that government departments should become more proactive in advancing closer relations with their counterparts in other counties, especially in the emerging markets.

CELIA POURGOURA DIRECTORS, CA ADVOCATES

My focus has always been on trying to do a good job and if a woman makes her top priority being a good professional, she will convince her male counterparts and clients of what she is. The contribution of executives in the professional services sector derives from their knowledge, experience and hard work and not from whether they are male or female. CHANGE: A more dynamic approach to promoting Cyprus and its professional services would definitely improve the island’s reputation and raise awareness.

1,220 REGISTERED ARETI CHARIDEMOU ADVOCATE–MANAGING PARTNER, ARETI CHARIDEMOU & ASSOCIATES LLC WOMEN LAWYERS AND 1,331 MEN, 55 FEMALE JUDGES AND 60 MALES

LEGAL SERVICES MARIA KYRIACOU

ADVOCATE/PARTNER, ANDREAS NECOLEOUS & CO LLC

The legal profession in Cyprus is a world where men and women are accepted as equals. There are currently 1,220 registered women lawyers and 1,331 men, 55 female judges and 60 males. The number of women partners in firms continues to increase. Women, as nurturers by nature, are more aware of danger and risk and constantly looking for ways to eliminate or minimise them which is exactly what clients want. CHANGE: We must welcome foreign investors, cooperate with them and not put unnecessary obstacles in their way.

ALEXIA ASPRI

DIRECTORS, CA ADVOCATES

Women stand a much better chance today of advancing and retaining top level positions in law firms but progress towards equality is still

I would describe it as a professional world, no matter whether you are a woman or a man. The only criteria for success are honesty, integrity, confidence, professionalism, education and development. That said, the nurturing and caring approach women have in business, also means that they usually offer a friendlier and less authoritative approach in law, ideal for negotiating and settling differences between parties. CHANGE: I would improve the quality of services in the Registrar of Companies, lift bureaucracy and promote electronic solutions, investors’ protection systems and efficient administration.

KATIA KAKOULLI

LAWYER-LITIGATOR, CHRYSSES DEMETRIADES & CO LLC

I would not describe litigation as a “man’s world” and I do not recall facing discriminatory, arrogant or chauvinistic behaviour from the bench or from male colleagues. I do not believe that being a woman or a man offers any kind of advantage. However, women tend to be less competitive, calmer and more capable of working as a team and can, I believe, be more constructive in negotiations. CHANGE: The establishment of Commercial Courts that would exclusively hear commercial disputes would be a step forward.

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1. MARIA KYRIACOU Advocate/Partner, Andreas Neocleous & Co LLC 2. MELINA KARAOLIA Partner, M. Eliades & Partners LLC 3. YIOTA KYTHREOTOU-THEODOROU Managing Partner, Pamboridis LLC 4. MELINA PYRGOU Director, Pyrgou Law Firm 5. ELOIZA SAVVIDOU Co-founder & Director, Vryonidou & Savvidou LLC; Chrysalis LEAP Ltd

2 3

CHRYSO PITSILLI-DEKATRIS SENIOR PARTNER, DR. K. CHRYSOSTOMIDES & CO LLC, LAW OFFICE

In numbers, the profession is not dominated by men but they mainly hold the senior ranks in law firms and there are many more male than female single practitioners. This, however, is changing and in other aspects, it is not “a man’s world” as women do not face any additional challenges simply because of their gender. Women can make an equal contribution which does not depend on gender. CHANGE: We need a super-fast, fully computerised, proactive government agency with one vision, efficiently servicing foreign investors.

ELEANA ECONOMIDES

CHAIRWOMAN, E. ECONOMIDES & PARTNERS LLC

It is no longer “a man’s world”. There are many women in senior positions in our sector

It is no longer “a man’s world”.

who have earned the right to stand side by side with their male counterparts thanks to their skills, education, hard work and character. Men and women contribute equally to the sector. Who does it better or differently is not a matter of gender but of the individual’s skill set, educational and vocational background. CHANGE: We need more action and less bureaucracy from the authorities to boost the competitiveness of our jurisdiction.

ELENA PAPANDREOU MANAGING DIRECTOR, E. PAPANDREOU & CO LLC

Men have traditionally held leading positions but in my profession this has changed in recent years and women have proved that they can be equally good leaders, although combining a career and motherhood is very challenging. Men and women contribute to the professional services sector in their own way. Professionalism has nothing to do with gender but everything

to do with each individual’s attitude towards work and life in general. CHANGE: The public sector needs to become more efficient and responsive to change.

CONSTANTINA ECONOMOU

SENIOR LAWYER, GEORGE Z. GEORGIOU & ASSOCIATES LLC While the legal services sector has undergone significant changes regarding gender equality, elements of male dominance are still evident. While women may now be found in senior managerial positions, they rarely become partners in big law firms. Women have a stronger Emotional Intelligence capability, which is extremely valuable, especially in the legal services sector where interaction is the most important element in everyday transactions. CHANGE: We need to ensure the provision of high quality service to international clients and to adopt more simple and transparent procedures.

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COVER STORY

EMILY YIOLITIS

MANAGING PARTNER, HARNEYS ARISTODEMOU LOIZIDES YIOLITIS LLC

Women are making unprecedented strides in the legal world but are still underrepresented in the top echelons of law firms (equity partner level). Significant obstacles remain before we achieve real gender equality in the legal workplace but women’s different perspective can contribute to a more balanced and holistic approach to business. CHANGE: I would facilitate and stimulate foreign direct investments into Cyprus by streamlining application procedures, reviews and approval to a single governmental authority which is efficiently run, expertly staffed, electronically accessible and business-friendly.

ELENA MICHAIL DIRECTOR, IOANNIDES DEMETRIOU LLC

Law is amongst the most common subjects women choose to study and Cypriot law firms usually have a majority of women lawyers but they have to prove their professional abilities to higher standards than their male colleagues to gain the client’s trust. Women directors are still rare here. If you are a professional in your field, being a woman or a man should not make any difference. CHANGE: To improve things I would say that good manners are as important as effectiveness.

IRENE CHRISTODOULOU

SENIOR MANAGER, HEAD OF CORPORATE DIVISION, KINANIS LLC

In the private sector many women now either hold senior management positions or are actually the owners of successful businesses. Gender distinctions have been eroded, particularly in the legal profession. Moreover, most employees in the professional services sector are women and they are contributing at all levels of the hierarchy. Gender is not the deciding factor. It is each individual’s commitment, passion and knowledge. CHANGE: I would change the approach of both the public and private sectors to the industry to make Cyprus the ultimate international business centre.

GENDER

DISTINCTIONS HAVE CHRISTINA SARRIS SENIOR PARTNER, POLAKIS BEEN ERODED, SARRIS & CO LLC is still “a man’s world” but women are PARTICULARLY IN THE Itmaking up ground. As a senior partner of

LEGAL

PROFESSION.

MELINA KARAOLIA PARTNER, M. ELIADES & PARTNERS LLC

In the past two decades, women have redefined what used to be a male-dominated profession. The world has moved away from the stereotypes of the past and women today have greater opportunities to reach the top of their profession. An example of this is the increasing number of women judges in Cyprus. Women naturally have many of the leadership attributes valued most for success in the professional services sector today. CHANGE: It should be easier and faster to start a business in Cyprus.

YIOTA KYTHREOTOUTHEODOROU: MANAGING PARTNER, PAMBORIDIS LLC

Men have traditionally held more senior posts in law firms but the current picture is much more balanced. Female lawyers occasionally come across prejudices but ultimately it is the quality of the lawyer that counts. What differentiates one from another are attributes such as expertise and experience, an ability to think outside the box, professional integrity, etc. These attributes do not depend on gender. CHANGE: We are at a disadvantage against competing jurisdictions due to bureaucracy. The public sector must improve its efficacy, speed and effectiveness.

my firm, I have experienced first-hand what the experts say about gender diversity in the workplace. Some 45% of our firm’s lawyers are men and 55% are women.My conclusion is that a healthy and successful work environment needs a happy marriage of genders. CHANGE: We need to clarify the country’s the political and economic direction and once that is done I believe that we shall see substantial growth in our sector.

MELINA PYRGOU

DIRECTOR, PYRGOU LAW FIRM Our profession is definitely a man’s world. Even though many women qualify as lawyers, few remain in the profession to pursue a career. This requires dedication – many hours at the office, sacrificing family life – which many women are not prepared to accept. Men and women are all bound by the same professional code of conduct and it is up to the individual to decide how he/ she deals with clients. CHANGE: The public sector must upgrade services, modernize legislation, use technology and support government departments serving international businesses.

ELOIZA SAVVIDOU

CO-FOUNDER & DIRECTOR, VRYONIDOU & SAVVIDOU LLLC; CHRYSALIS LEAP LTD Professional women are now competing on an equal basis with men at lower level positions but the boardroom and senior management positions are still -unfortunately - male-dominated. Women have their own unique qualities, talents and strengths which can increase an organisation’s profitability and efficiency. As the number of women seeking financial and legal advice increases, organisations with more women in senior positions will find themselves exposed to a world of opportunities. CHANGE: We should copy best practices from abroad and adjust them to our culture.

32 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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INTERVIEW

cHRISTOS THE FIRST NAME IN ETHIcS

We are a global, independent provider of trust, fund and corporate administration services. We are committed to helping our clients protect, nurture and grow their wealth. Above all, we are a people business. To find out more about our services and to get to know us better, visit www.firstnames.com

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES

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Gold 33

04/02/2013 08:48

George Vassiliou

interview

Money

laundering? Don’t be

ridiculous! Former President George Vassiliou says that accusations against Cyprus are unfounded and unfair. By Kyproula Papachristodoulou

t is always enjoyable to talk with George Vassiliou. He possesses the wisdom of someone who has enjoyed both political and business success throughout his life, his positions are clear and his views are invariably realistic. In this exclusive interview with Gold, Vassiliou says among other things that recent money laundering accusations against Cyprus are not only unjustified but closely related to political developments in Germany. Gold: Cyprus has recently come under attack from the European - and in particular German - media for what are alleged to be extensive money laundering activities. On the other hand, there appears to be no proof and no facts are given to back up the accusations. Why do you think this is happening? George Vassiliou: My personal assessment of the situation is that the whole issue of money laundering accusations against Cyprus is related to pre-election attacks against Mrs Merkel. In my opinion it has nothing to do with Cyprus. And as you say,

they have no proof to present and no facts to justify their claims. It seems that there have been rumours circulating in Europe about money laundering in Cyprus, with some people concentrating on the Russians. This, I think, is partly related to the fact that Cyprus is being used by Russian businessmen as a base for their companies. People have to bear in mind, though, that the Russians transfer their money to Cyprus perfectly legally, they establish companies here and then they transfer money back to Russia and invest it in various legal activities and companies. Cyprus appears to be the biggest investor in Russia but the fact is that investments are channeled into various legal businesses and not into “monkey businesses”. Gold: The fact that Cyprus is the biggest investor in Russia because of Russian reinvestment can hardly justify money laundering accusations or even suspicions. G.V.: The fact we are talking about Russian money and not British, for example, irritates some people. Also some of them do not

like the fact that it is not Luxembourg or Germany or the Netherlands or London, for example, that is handling the Russians but it’s Cyprus. Gold: Has there been any action or lack of action on behalf of Cyprus that might have given rise to the recent allegations? G.V.: I would say that the minor delay in negotiating and finalizing the Memorandum of Understanding with the Troika gave the opportunity to some to raise the issue of money laundering. But they have to understand that Cyprus is not a money laundering centre or a tax haven. It is a low-tax jurisdiction such as Ireland and Luxembourg. Gold: What kind of safeguards do we implement in Cyprus to avoid money laundering? G.V.: Cyprus has implemented a comprehensive framework to combat money laundering and terrorist financing and it has repeatedly been evaluated by the experts of Moneyval, based on the FATF methodology and recommendations. We

the international investment, finance & professional services magazine of cyprus

Gold 35

interview

Cyprus is not a money laundering centre or a tax haven. It is a low-tax jurisdiction have very clear and clean procedures for money transfers. No bank can perform a transfer of money that is a result of illegal activities as there are very strict controls in place, controls that are implemented all over the world. If a bank receives money through one of the international banks, there is no concern about money laundering. In the past there were suspicions that people were physically transferring illegal money in their luggage but this has not been possible in Cyprus for many years because no bank will accept a deposit in cash of more than €10,000 if it does not know the source, the owner, etc. In that sense, money laundering is not possible in Cyprus. Gold: Cyprus has also recently legislated for closer supervision of companies other than banks dealing with the financial sector. G.V.: Indeed, since the House of Representatives passed the Fiduciaries law, the Cypriot Securities and Exchange Commission (CySEC) is, for the first time, authorized to supervise every company that is involved in international business. A fiduciary is a person who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust, confidence and loyalty. The new supervision regime will ensure knowledge of the role, qualifications, etc. of every person who acts as a fiduciary and the real owner of every company, trust etc. This law puts in order the provision of corporate, trust and fiduciary services and it enhances the much-needed confidence of international investors and clients to use Cyprus in their international business planning. The prestige of the CySEC is high although relatively new compared to other authorities abroad. If the full implementation of the new law takes place quickly, I think that the reputation of Cyprus as an international financial centre will be substantially improved. Gold: Isn’t it also unfair to claim that Cyprus is a money laundering centre when such serious cases have been discovered in countries such as Germany, the USA, the UK etc? G.V.: It is indeed very unfair, especially the

assumption that Russian money is connected with money laundering. Money laundering can and indeed does take place, effected by people of all nationalities. In the USA, nobody worries about money laundering from Russia because they worry about money laundering from Latin America. There is drugs trafficking all over Europe and that is how billions are moving around. Why talk only about Cyprus and Russian money? All kinds of illegal activities are going on around the world that are worth many times Cypriot GDP but nobody talks about that. At the moment, only Cyprus is being blamed and the rest are being ignored. We may reject the accusations but, at the same time, we should make sure to strengthen our regulations and implement them in such a way that nobody can accuse us of anything. That is the essence of the matter. Gold: Another recent issue - especially in Germany - is whether Cyprus is of systemic importance for the euro area or the EU and hence worth bailing out. What is your view on that? G.V.: This is not a serious argument. It has indeed been raised but many European officials and analysts have clarified and highlighted the systemic importance of Cyprus. I’m referring to Oli Rehn’s pertinent statement as well as the information leaked in the German Press about the ECB President’s view that Cyprus is indeed of systemic importance for the euro. Gold: Even if Cyprus were not to be considered of importance for the euro, does it really matter? The European vision is supposedly all about solidarity. G.V.: Even if Cyprus is not systemic for the euro, providing financial assistance to the island which has suffered huge losses because

I am prepared to take a bet that, in 2014, Cyprus’ GDP will show positive growth

36 Gold the international investment, finance & professional services magazine of cyprus

of the Greek haircut is a must. In my opinion Cyprus is of systemic importance but this is irrelevant. When Germany and other countries insisted on the Greek PSI, they made it very clear - and repeated again and again - that Greece was an exceptional case. Therefore the fact that Cyprus has suffered as a result of that decision cannot be neglected. The EU leaders cannot say that Cyprus is of no importance. That would destroy the euro area because it would bring its credibility into question again. Gold: The optimism that followed the initial political agreement with the Troika on the MoU might have been justified at that point. What about now? Does the debate about Cyprus’ debt sustainability, its systemic importance, etc., put the bailout in question? G.V.: There should be no worries on that score. As the date of the presidential elections in Cyprus approaches, I believe that the euro area countries have taken the decision to delay the signing of the MoU until a new government takes power. I can understand this, particularly after the various statements made on behalf of the current government which have puzzled Europe. Gold: Shouldn’t all the political parties in Cyprus be committed to the Memorandum? G.V.: The interesting thing is that everybody is committed anyway! All the memorandum legislation was unanimously or almost unanimously approved by Parliament. This is a fact. All that is missing as we speak is the amount of funds needed for the banking sector. Gold: So your view is that there is no reason to worry about the finalization of the MoU? G.V.: No reason at all. On what basis would our European partners refuse to provide financial assistance to Cyprus when, immediately after the in principle agreement of the MoU, Cyprus prepared, approved and implemented all of the proposed MoU legislation? The EU should act on legal grounds and there are no legal grounds to refuse financial assistance to Cyprus. Gold: Financial assistance to Cyprus will undoubtedly be given but the question is ‘how much?’ We now have to face the debt sustainability problem that has been emphasised by the IMF. G.V.: That is another non-serious issue. We and the rest of the international community have the tendency to create problems out of nothing. What is debt sustainability? There are so many ‘ifs’ in this matter that the whole

of Cyprus in the negotiations with the Troika. Gold: Frustrated also by our refusal to privatise semi-government corporations? G.V.: This is another non-serious debate that is being carried out in Cyprus. Whether we privatize or not a state-owned organisation, whether we will convert these companies into equity companies or not, the fact is that organisations like Cyta and the EAC will pretty soon need to find a way to implement their investment programme. How can they do it if not with the assistance of a strategic investor? That may imply the sale of shares. So much the better. My position on this is well known and it has been my position for many years now. If you sell shares in a profitable company you make a hell of a lot of money. If you wait until this company goes bankrupt, you don’t get a penny and you may actually have to pay to get rid of that company. That’s the essence of the issue. To be against selling shares in state companies and involving the international private sector as a matter of principle is, in my opinion, not serious. In my view, decisions about selling shares or developing cooperation with multinational companies should always be based on the national interest. If the national interest justifies doing so, you do it. If not, you do not do it.

thing is a joke! If GDP does not grow fast enough or if it’s negative in the years to come and if the amount of money we owe is €15€16 billion and in the case that state revenues are not enough to pay the interest on the loan, then theoretically our debt will not be sustainable. What kind of proof will there be to show that there will not be enough GDP growth or that Cyprus will not have any other kind of revenue in the coming years? This is particularly significant in the case of Cyprus which is expecting high returns from gas exploitation. It is clear that in the future our huge gas reserves will raise billions. So what is the issue of so-called debt sustainability? I am convinced that after the signing of the

MoU and the implementation of the measures included therein, the climate will change. The measures will certainly provide an extra impetus to growth and I am prepared to take a bet that, in 2014, Cyprus’ GDP will show positive growth. I’m also willing to bet that after the implementation of all the Troika measures Cyprus will have an almost zero fiscal deficit. And we will practically be in a better position than most of EU countries. Gold: Surely the Europeans and the IMF would not raise such issues for no reason? G.V.: In my opinion, this was a result of the fact that the Europeans and others involved were frustrated by the initial delay on behalf

Gold: And in the case of Cyprus, what would the national interest dictate? G.V.: The considerations in the case of Cyprus are exactly the same as in any other country. For example, Austria has the lowest energy cost in Europe and the Austrian state does not generate one single kilowatt of electricity. The production of electricity in Austria is carried out by private companies. It goes without saying that the state controls and supervises the energy market. Operations like telecommunications and electricity cannot take place without state supervision, without the state setting up security and other controls. But this does not mean that ownership should belong partly or totally to the state. The role of the company is to carry out the activities for the benefit of its shareholders and society at large. Greece has privatized the port of Piraeus; it has given it to the Chinese and, since then, Piraeus has become an even more important port for the transport of goods. Did Greece abandon control of its ports? No. On the contrary, it acts as the controller of its ports, not as a businessman, and as a result it has increased its port’s significance.

the international investment, finance & professional services magazine of cyprus

Gold 37

I BECOME PRESIDENT... WHAT DO THE THREE MAIN PRESIDENTIAL CANDIDATES PLAN TO DO TO REVIVE THE ISLAND’S FINANCIAL SERVICES SECTOR?

he professional and financial services sector is currently the fastest-growing and a major source of future growth. International services grew on average by 8.3% per year in 2007-11 when almost every other sector of the economy was contracting. Cyprus remains one of the biggest and most important centres for companies with international activities but it no longer plays a leading role in what is a highly competitive environment. It is widely accepted that the island has – temporarily at least – lost its edge.

Given the importance of the sector and the reforms that need to be implemented in the years to come, Gold asked the three main candidates in the forthcoming presidential elections (17 February) to set out the specific measures they intend to implement to further promote Cyprus as an international business centre if they are elected. The starting point for all three is the restoration of trust and confidence in the severely damaged banking sector and they all acknowledge the need to undertake serious institutional measures. But some are more specific than others…

38 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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01/02/2013 13:40

ELECTIONS XXXXXXX

Nicos Anastasiades

Correcting Imbalances

inancial services have been the most dynamic sector of the Cypriot economy in the last 20 years. It is the sector with the biggest contribution to GDP and offers employment opportunities to thousands of people. The major factors that have enabled Cyprus to become a successful regional financial centre are the highly educated workforce, the stable economic environment and the businessfriendly tax regime. In the past few years, the economic environment has deteriorated and economic confidence has declined considerably. This is the result of the deterioration of macroeconomic indicators which led to several downgrades of our economy by the rating agencies. Restoring confidence is of the utmost importance and to restore confidence we have to start by correcting the macroeconomic imbalances. We should balance our budget as soon as possible by reducing public spending rather that imposing new taxes or changing our tax regime. Public spending has risen from around 35% of GDP 15 years ago to almost 55% of GDP currently. This inevitably undermines confidence and the growth potential of our economy. Restoring and maintaining the liquidity and capital adequacy of the banking sector is also a priority. Measures to strengthen the supervisory framework of the financial services sector will also have a considerable effect on our ability to regain credibility as a financial centre. We also propose further institutional measures such as the establishment of a special tax

advisory group, the “Tax Advisory Board”. It will consist of technocrats from the public and private sectors, with the purpose of proposing institutional changes and to following developments in other competing jurisdictions. Cyprus has to keep up with the times and remain a competitive business centre. In addition, our network of bilateral agreements for the avoidance of double taxation should be strengthened and expanded to cover more countries, especially emerging economies. Furthermore, the Cyprus Investment Promotion Agency (CIPA) needs to be upgraded and its powers extended so that it can operate, not only as an advisory body to the government but as the main vehicle for tracing investors from abroad, both for public sector projects and for the private sector.

CYPRUS

HAS TO KEEP UP WITH THE TIMES AND

REMAIN A COMPETITIVE

BUSINESS CENTRE

budget of the Cyprus Investment Promotion Agency (CIPA) from the current €1.2 million to €10 million. Furthermore, our government will push for parliamentary approval of any pending legislation that will help the services sector expand such as legislation pertaining to Provident Funds, Leasing, Cell Companies, etc. We will consult with financial services sector professionals to determine to what extent these and additional areas of business activities such as the management of Retirement Funds and International Foundations may be attracted by creating the necessary business environment and putting relevant incentives in place. At the same time, we intend to review and revise bankruptcy legislation and update it by introducing legislation that is similar to that in other financially advanced jurisdictions such the Chapter 11 bankruptcy & reorganisation procedures found in the USA. If elected, one area that we intend to zero our attention onto immediately after the election is that of increasing the speed and efficiency of the process of starting up a new business in Cyprus. Our goal is to put procedures and processes in place that will allow the online application and registration of new legal entities within 24 hours. Οne area in which we all know that we are behind other countries is innovation, research and development. We intend to take specific action to transform our economy’s mix of activities so as to take into consideration our newly-discovered hydrocarbon assets and put

George Lillikas Promoting Innovation and Growth

he financial services sector has been and must continue to be one of the main driving forces of our economy. With other services sectors, it contributes up to 80% of our GDP and employs about 9% of the workforce. It is imperative that Cyprus become more competitive compared to its international competitors/peers such as Malta, Luxembourg and Ireland or newer entrants such as Latvia, as well as locations that are not as geographically close to us but are, nonetheless, important competitors such as Singapore. In view of the above, we intend to implement a more than eight-fold increase to the

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Gold 39

01/02/2013 13:41

ELECTIONS

WE INTEND TO

INCREASE THE BUDGET

OF THE CYPRUS INVESTMENT PROMOTION AGENCY (CIPA) FROM

our banking system’s reputation and its ability to continue to offer essential services to both the local economy and to international clients. The recapitalization of the banks is the first step in this direction. The amount of recapitalization, however, appears to be an elusive figure and one that is on the rise as only a few months ago, when I met with the Governor of the Central Bank, I was told that the amount needed for the recapitalization of the two largest banks was about €2 billion. The amount we are now discussing, excluding any amount needed for the Cooperative banks, is about four times as much. This is something we need to investigate and understand.

€1.2 MILLION TO Stavros Malas €10 MILLION Private-Public Sector Cooperation

in place what we have called the “Knowledge Economy”. Furthermore, we will jump-start the Pentakomo Technological Park, an initiative that began when I was Minister of Commerce & Industry but which has not materialized. We will put in place the necessary infrastructure as well as tax and other incentives in order to attract international high-tech companies to Cyprus, based on India’s successful “IT buildings” model. To further promote growth, we will allocate more funds for the speedy approval of strategic investments for amounts as low as €5 million instead of today’s €50 million. Expanding the network of Double Tax Treaties (DTT) that we have with other countries is vital to maintain and enhance the momentum for growth in our services sector. The financial services sector stands to gain significantly from the emerging new area of business activity on the island that will be both a direct and indirect result of the hydrocarbon finds in Cyprus’ Exclusive Economic Zone (EEZ). Finally, we will examine incentives for small and medium size businesses to encourage new investments and job creation by providing tax incentives. Our banking sector faces unprecedented challenges. Banks in general are a vital component of any economy. In our case, however, they play an even more important role as they are a vital link in the chain of services that our professional sector offers to international clients. In view of this, it is imperative to protect

oday our country is in the middle of a recession. It is my strong conviction that we can exit this dire phase by giving emphasis to those sectors of the economy that can achieve fast growth. International financial and professional services represent such a sector. It is an area of economic activity in which the people of Cyprus have been successful. This success has been built on hard and persistent work. It is generally accepted that Cyprus possesses certain competitive advantages: geographical location, pleasant climate, excellent infrastructure, a respected legal framework, well educated people, many double taxation avoidance treaties and a favourable tax regime. Our success in this sector is a practical example of productive cooperation between the private and public sectors. I intend to strengthen this cooperation and make changes to bureaucratic procedures where this is needed. The State must always assist growth. I have suggested the creation of an Investment Chamber as a joint venture between the public and private sectors. The Investment Chamber must have a local and permanent presence in the countries from which our international business clients originate. Such a presence is paramount in terms of direct investment. It will also assist the international financial and professional services sector. I wish to note that, when negotiating with the Troika, our side managed to keep our tax system intact. We should, however, be alert since recently we have seen a number

of articles and statements in the international media which cast a shadow over the transparency of our laws and practices. I will stand firm on this issue. The fact that, in the face of what is predominantly a liquidity crisis, Cyprus has applied for financial assistance to the ESM, may have caused some anxiety among international clients and investors. It is up to us, however, to turn this crisis into an opportunity for change and improvement. Hopefully, we will end up with a more stable and better regulated banking system that will enhance our international business sector. Finally, I wish to stress that, if elected, I will strengthen the cooperation with professionals in the sector so that we sign more double taxation treaties and improve the existing ones. Furthermore, I do recognise that the international financial services sector is in a state of constant change. I will suggest the creation of an Advisory Board made up of sector professionals of all the main specialities. This body will propose to the Government all the necessary moves and measures so that Cyprus may retain and enhance its competitive edge as a strong and reputable international business centre.

IT IS UP TO US TO TURN THIS

CRISIS INTO AN OPPORTUNITY

FOR CHANGE AND IMPROVEMENT

40 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Deloitte named Best Workplace Winning is a state of mind Deloitte has been named the Best Workplace in Cyprus for 2012 by IN Business magazine, the largest business magazine on the island. The IN Business Awards honor the best Cyprus companies in 12 categories, as voted by the readers of the IN Business magazine.

We are delighted to receive this accolade by the IN Business magazine. This award recognizes that Deloitte is the preferred employer for the most talented people and is in line with our global ﬁrm’s vision to be the Standard of Excellence.

Winning the Best Workplace Award is a great achievement which belongs totally to our people, the driving force of our success and the catalyst of our future optimistic plans. Our promise is that we will continue investing in our human capital.

Christis M. Christoforou Chief Executive Ofﬁcer

opinion

Making the Most of the Unavoidable Those annoying yearly audits have hidden benefits

By Viktoria Soltesz

ll Cyprus companies are obliged by law to submit annual audited financial statements. For many of them, the process is viewed as nothing more than a costly obligation and the real benefits (yes, there are some!) of the audits frequently remain untapped. But hefty audit fees can be considered a good investment when they reveal things that can be turned to a company’s advantage. We all know how expensive audits can be, not only in terms of money but also regarding staff time and management attention. The primary goal of an audit is to express an opinion on two aspects of the financial statements: that they are fairly presented and in accordance with International Financial Reporting Standards. But is that all they can do? It would appear that for the majority of Cypriot companies, all the benefits of the annual audit go to the banks, finance partners, government agencies and, of course, the auditors who claim the not inconsiderable fees. If we view the yearly audit routine as a chore that has to be done and forgotten about, we are certainly not getting the most out of our costly investment. The question that any company owner or CEO needs to ask is: “Is anything there for me?” The answer is a definite “Yes”. The auditing process can determine whether there are recurring deficiencies in the way the company operates. Infrastructure or structural problems, an unwillingness to invest in a suitable accounting system or leaving important issues to inadequately trained staff can all lead to the auditors requiring more time and, by extension, higher fees for their work. A lack of preparation or incorrect record keeping will distract the auditors’ attention from other important issues which might actually benefit the company.

The company should take advantage of the auditors’ unique and broad perspective

Once the audit is finished, it is definitely worth exploring what has been discovered on the way to signing off the accounts. When the findings show discrepancies, the thought of taking steps to improve things often causes management to break out in a cold sweat and it is easy to delay or even ‘forget’ to implement what may be a long list of audit recommendations. No-one likes to admit their weaknesses but failing to take action is no solution. However, audits can provide much more than the fulfillment of minimum legal requirements and if managers, owners and/ or CEOs are willing to take note, the benefits can be numerous. An independent, external judgment of a company can help improve its profitability and efficiency by guiding management to understand its financial systems. This will in turn reassure managers, shareholders, suppliers and financers that risks are being monitored and (hopefully) properly handled. A professional evaluation can also reduce costs by addressing known risks. The right questions may also uncover inaccuracies and discrepancies within the organisation’s records. Sometimes an outsider’s overview is the only means of spotting weak points in financial record-keeping or even the existence of internal fraud, although fraud detection is not the primary purpose of the yearly audit. The company should take advantage of the auditors’ unique and broad perspective in order to evaluate and analyze the effectiveness of its various processes. All in all, it is easy to transform the annual audit from enemy to friend. Once we recognize that its primary purpose is to benefit our company or organisation and we implement its recommendations, we shall be making our own positive contribution to our own future prospects. In today’s competitive environment, any advantage that can be gained is to be welcomed.

info: Viktoria Soltesz is Head of the Accounts Department at Wolfgang Hastenrath Havariebureau (Cyprus). 42 Gold the international investment, finance & professional services magazine of cyprus

sponsored by

Today, the key question is not if a company should be active in CSR but how it can be active. Through which processes and methods can businesses identify the activities that are most suitable for them? The aim of this special supplement on CORPORATE SOCIAL RESPONSIBILITY is to promote best practices by Cypriot enterprises so that they may function as a way of exchanging experiences and as inspiration to other companies to become more active in what has become a key area of activity for successful businesses.

A special supplement in

special supplement

he Bank of Cyprus Group is implementing a number of new Corporate Social Responsibility programmes which aim at providing substantial aid to Cypriot society. While it continues its classic Corporate Social Responsibility programmes for Health (Bank of Cyprus Oncology Centre and the Cyprus Anti-Cancer Association), Education (Oikade and Prizes to outstanding students), Sport (Cyprus Olympic Committee), Culture (Bank of Cyprus Cultural Foundation) and the Environment (paper and equipment recycling), the Group is also focusing its activities on supporting vulnerable social groups and collaborating with agencies and organisations that provide financial assistance to those in need. Bank of Cyprus has initiated these programmes while saving funds from other statutory actions which have been temporarily postponed. In the framework of this strategy, the Bank has started offering breakfast to students in need of financial support. To this end, the

Group has made an initial donation of €30,000 to the Ministry of Education and Culture to be used during the winter months when the financial squeeze is even more apparent. Later, the Bank will add a one-cent donation from customers to the total of every transaction they make using Bank of Cyprus Cards. This action will provide the Ministry with an additional amount of approximately €13.000. The total amount of assistance through this programme is expected to reach €80,000. The second programme concerns the allocation for charitable purposes of funds previously required by the major departments of the Bank for the sending of Christmas cards. The International Business Centre and the Group’s Department of Corporate Banking saved €12,500, which was donated to three charities: Alkionides, Young Volunteers and Vagoni Agapis. The third programme arose from the campaign conducted on the Bank’s “Our World” staff intranet to collect food and other supplies for families facing serious financial

problems and unable to buy essential goods. The staff’s emotional response confirmed that the values that characterize the culture of the Group are those of the many anonymous people who are inspired by feelings of solidarity and volunteerism. During the one-week campaign in December 2012, several tons of food and essential products were collected. The campaign took place in all towns and involved everyone in Bank of Cyprus. The supplies were offered to the Vagoni Agapis charity, to the Community Groceries of the Limassol and Larnaca Municipalities, to primary schools in Paphos, to the Famagusta Bishopric and to the Saint Christopher Centre in Paralimni. It should be noted that the a new campaign will begin shortly through the Bank’s “Our World” Intranet for the collection of food and other supplies from members of its personnel.

contact details

Bank of Cyprus Group Communications Department Tel: +357 22 1222626

CSR ENG Double Mag Ad In Business.pdf

CMY

1/25/13

10:23 AM

special supplement

hen the founders of FBME Bank came to Cyprus in 1977, they took note of the fact that, while a small number of offshore companies operated on the island at the time, there was a total absence of Offshore Banks. They therefore approached the authorities and convinced the Central Bank and the Ministry of Finance to accept applications from offshore Banks to establish a presence in Cyprus. FBME is thus the oldest International Bank on the island whose roots go back to being the oldest offshore licensed bank still in existence, and it continues to grow. FBME’s policy has always been “growth by attraction” and, as such, has welcomed other international banks to also set up in Cyprus, the object being to develop the country as an international banking centre in the region. This vision has finally been realized, thanks to the positive work that FBME bank has done throughout the years of its existence in Cyprus. The island has become a financial banking centre in the region as well as a major offshore business centre, and all this prior to Cyprus joining the European Union and adopting the euro. Today Cyprus is facing challenges. The present situation calls for clear minds and positive action. “Business as usual” is not going to bring the desired results. Cyprus should offer such conditions to foreign investors as to attract foreign direct invest-

ment to the island in a process of “growth by attraction” rather than expecting growth and development to happen through “extraction”. This year, FBME Bank is celebrating 30 successful years in Cyprus. Celebrations commence with an event that not many would have the opportunity to attend, but also one whose purpose will mark the launching of our new Corporate Responsibility programme, one of which is centered on our most important asset, our children. At FBME Bank we firmly believe that one should give back to the society in which one operates. And we also believe that the time is always right to do what is right! One of the pillars of our Corporate Social Responsibility programme is improving the lives of our children and helping them to develop into healthy, caring and educated individuals. In pursuing this, we have recently brought to Cyprus the world-famous exhibition of the Da Vinci Machines. Around 60 machines, created by the team of Florentine artisans from the Niccolai-Teknoart group based on the Codices of Leonardo Da Vinci, are currently on display at the Carob Mill in Limassol until the end of February this year. Some of these are lifesize and most of them are interactive, offering the visitor the possibility to gain a first-hand appreciation of how they work. Only 15 paintings directly attributed to Leonardo Da Vinci survive and these have been reproduced for this exhibition, including the most famous and most valued of all, the Mona Lisa.

Why did FBME Bank choose Leonardo da Vinci?

Well, if you venture into FBME’s website – although it is not quite as old as Leonardo da Vinci, it does have some similarities! For example, you will read our Vision, our Mission, our Values and our Strengths. One of FBME’s core values is teamwork – we value people, encourage creativity and cooperation and provide quality solutions. Leonardo da Vinci had the same values. The entire cost of the exhibition (or “the investment” as we like to refer to it) has been undertaken by the Bank and all proceeds from it will be donated to the Makarios III Hospital for Children. This first action constitutes the formal launch of a broader sustainability initiative that we intend to ingrain within the cultural DNA of our Bank and it is an opportunity to showcase what matters to us most. Leonardo Da Vinci once said that “Learning never exhausts the mind.” And it is that very same learning which we at FBME bank are looking to promote. Learning and creativity bring about productivity, an arsenal that our children can use to build the future and make this a better world to live in. And today, there is an even greater need to focus on the future amidst the crisis that the world is going through.

Contact Details:

Gabriella Samara Paphitis Head of Marketing & Public Relations FBME Bank Address: 90, Archibishop Makarios III Ave., 1077 Nicosia

special supplement

hroughout its 38 years of existence, the Zorbas Group of Companies has been and continues to be highly active in the area of Corporate Social Responsibility. Recognizing its role in the community and driven by its strong CSR awareness, the group has given priority to the environment, human resources, customers and society in general as part of its complete CSR strategy.

Environment

Environmental protection is achieved through a series of ecofriendly practices such as using biodegradable and multi-use bags, recyclable packaging, and implementing an optimal power and waste management policy, as well as through the enterprise’s cooperation with Green Dot Cyprus, of which Zorbas is one of the founder members.

Human Resources

The company offers its human resources a specially-formed benefits package. Furthermore, staff members

are encouraged to engage in charitable activities, such as organized blood donations, fundraising and voluntary work.

Customers

With regard to Zorbas’ responsibility towards its customers, the concept of healthy eating is promoted through the offering of healthy products.

Society

The company’s CSR activities continue through its contribution to society in general. Zorbas supports important institutions, foundations and organised groups which aid those in need. Wishing, however, to go one step further, the company has chosen to act more specifically on a sensitive and specialist health issue which is close to the heart of the company. In May 2010, MAZI – The Maria and Andrea Zorbas Foundation for eating disorders and obesity –named after the parents of Costas, Tasos, Demetris and Evanthia Zorbas, was formally established. MAZI is the pinnacle of Zorbas’ social contribution. The institution, which is supported both financially and administratively

by the Group, is managed by a board of eleven personalities. Its primary purpose and objective is to inform and educate the public on issues related to eating disorders and obesity. The alarming upward trend of eating disorders and obesity and the low levels of awareness and treatment were what led the initiators of MAZI to its foundation. Today, the public sector is unable to meet the increased and specific needs of those suffering from eating disorders and the alternative to recovery within Cyprus is the treatment in specialized centres abroad, with the support of the Ministry of Health, a time-consuming and costly process for any family. Research data on the status of eating disorders is worrying. According to the Child Health program (2002), 26% of girls and 13% of boys are at high risk of developing symptoms of anorexia and bulimia. The figures showed that the potential for developing anorexia nervosa was 0.78% in females and 0.15% in males, numbers comparable to the disorders’ levels in neighbouring countries such as Greece and Israel and in other Western countries. These figures and the increasing rate should be of great

concern to our society. Regarding obesity, the statistics are also distressing. Four out of ten children aged 6-8 years old are overweight or obese and one in five children aged 2-6 years old is overweight. The absence of adequate scientific research for identifying and addressing the problem, the lack of infrastructure and sufficient training and the ignorance of the public, together create a dangerous situation. The MAZI Foundation, within just two years of operation, was a pioneer in the field of eating disorders and obesity in Cyprus. It took a series of actions aimed at informing and educating the public on these sensitive issues and supported health-related scientific and research projects. Additionally, it has assisted families with members suffering from eating disorders, providing them with guidance and information. An important part of the Foundation’s education programme is its website, www.mazi.org.cy , which provides a wealth of information and articles about eating disorders and obesity, as well as about MAZI activities. An electronic contributions

platform is also available, by which the visitor can donate the amount of his/her choice to support its work. MAZI’s publication Eating Disorders of Our Time by Eleni Andreou, Clinical Dietitian and Vice President of the Board of the Foundation, is available from all bookstores and lending libraries, and is accessible to teachers, students and the general public. In the coming months a second publication, entitled ANASAMIA and by Soteria Vasileiou, is due to be published. It is a collection of extremely moving short-stories on the theme of eating disorders, from the point of view of the sufferer. The two volumes complement each other perfectly: the first deals with the subject from the scientific aspect and the second from the personal. This combination offers readers a comprehensive understanding of these disorders. An extremely important aspect of the Foundation’s progress is its collaboration with Anna Vissi. It began in September 2011 when the singer undertook to become Foundation’s Goodwill Ambassador and to communicate the messages and goals of MAZI. The MAZI Foundation, with the support of Zorbas, includes among

its objectives the construction of the first comprehensive rehabilitation and recovery centre for people suffering from eating disorders and obesity, with a multidisciplinary team of expert scientists. The vision of the Foundation is to successfully manage the scourge of eating disorders and obesity in our country. The extremely important decision to work towards the operation of the first integrated rehabilitation centre derives from MAZI’s goals for raising awareness and mobilising initiatives for the optimal management of eating disorders and obesity in Cyprus. The MAZI centre will be the equal of similar centres abroad and staffed by an expert team of scientists. The ultimate aspiration of the Foundation is to successfully manage eating disorders and obesity in our country. Together (the Greek word ‘mazi’ means ‘together’), we can influence the future.

Contact Details: A. Zorbas & Sons Ltd Tel. 00357 22 871700 Fax. 00357 22 378127 www.zorbas.com.cy

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OPINION

Femenomics

Inequality between men and women remains where managerial positions are concerned

n the 21st century it is commonly contended that women’s employment rights are equal to those of men but this was not always the case. The improvement in the legal rights acquired by women in the workplace can be attributed to the introduction of employment laws in developed countries. In the UK, for example, the Equal Pay Act of1970 secured a women’s right to be paid on a par with men in similar professions. Additionally, the Sex Discrimination Act of 1975 effected equal treatment for women. Similar laws were also introduced in the US, whilst the Pregnancy Discrimination Act of 1978 made it illegal to discriminate against women’s pregnancy-related factors. Respective female participation rates have persistently risen throughout our century as public perceptions have shifted, labour mobility has improved, education levels have increased, birth rates have declined and office jobs have become more widespread. Women represent 40% of the global workforce and it is estimated that if female vs. male employment rates reach parity, the economic benefits will be substantial. Research suggests that this continuing gender tilt will improve global GDP figures; in the US and Japan, GDP may rise by 5% and 9% respectively by 2020. In the US, women represent 46.6% of the labour force and they outnumber men in middlemanagement level positions. However, inequality in managerial positions remains with women constituting less than 15% of executives in the Fortune 500 global companies as of 2012. Moreover, in the developing world, specifically Asia and Africa, women constitute only 20% of paid nonagricultural workers. Women face additional hurdles to those in the West. There exists a lack of public services to support families, education, and there is not positive perception of “gender diversity” and employment legislation. In the Middle East, laws do not permit women to freely work in business environments. Whilst it is a common stereotype that women exhibit less appetite for risk and are thus perceived to underperform compared with men in leadership skills, recent studies suggest that they often surpass men when it comes to initiative and a drive for delivering results. Moreover, this inclination to risk aversion and the ability to multitask allows female team members to bring an element of level-headedness and

Female team members bring an element of levelheadedness and order to management

By Persella Ioannides

order to management, often boosting performance in turbulent economic times. Additionally, numerous research explanations exist as to why women are often drastically more motivated than their male counterparts. One crucial suggestion is that, due to gender reasons, women often feel that their appointment is not necessarily as secure and safe as that of their male colleagues prompting them to self analyze more frequently and to work harder. Powerful women that immediately come to mind these days are leaders such as German Chancellor Angela Merkel and US Secretary of State Hillary Clinton. The gender minority trait probably aided their careers, backed by the influence of respective accompanying political figures such as former German Chancellor Helmut Kohl, once considered Merkel’s mentor and Hillary’s husband, the former US President Bill Clinton. Moreover, their current strong popularity ratings indicate talent but also prudence and intuition being exercised in a woman’s arsenal. During the euro debt crisis, Merkel remained adamant that the eurozone should adopt strict reforms to achieve targets, simultaneously fighting off ensuing peer pressure. Only when she deemed that the timing was right was the ECB allowed increased flexibility and statements were issued about “preservation of the euro at any cost”. Clinton on the other hand, has been praised for her role as US Secretary of State when a major shift in US economic policy materialized. She utilized diplomacy and charisma to flatter opposing negotiators and was particularly praised for achieving targets via smart foreign economic policies rather than through violent conflict. A balanced gender ratio in the workforce has proven successful as the global talent pool expands. We may especially note exemplary female political figures but women CEOs such as Pepsi Co’s Indra K. Nooyi and Hewlett-Packard’s Margaret Whitman are also worthy examples. However, men continue to significantly outnumber women in the upper corporate echelons. Moreover, in the developing world, statistics concerning women in the workforce are dismal. To manage the improving global economic fundamentals such as improved GDP figures, necessary employment reforms should continue both in region- specific legislation and regarding the discrimination of gender diversity that ensues.

info: Persella Ioannides is a Director of Meritkapital. 58 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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competitiveness

how to Solve

the competitiveness

Problem

Comparing Cyprus, Malta and Luxembourg By Irene Demetriou

he Global Competitiveness Report, 20122013, published by the World Economic Forum is one of the most reliable sources of global competitiveness standards in 144 economies. The authors provide extensive qualitative and quantitative research in relation to each of the world’s economies and they naturally include Cyprus in their study. A comparison of Cyprus, Malta and Luxembourg, as three innovation-driven economies of similar market size, demonstrates serious weaknesses in our national infrastructure and identifies problematic factors for doing business in Cyprus.

The Global Competitiveness Report identifies 12 pillars upon which competitiveness is based, each with its own sub-categories. The main 12 pillars are institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and, finally, innovation. At the top of the competitiveness ladder comes Switzerland, having maintained first place for three consecutive years. Singapore is in second place with Finland Sweden, the Netherlands, Germany, the US, the UK, Hong Kong SAR and Japan completing the ten most competitive economies in the world today. The findings of the Report demonstrate that there is no necessary trade-off between being competitive and being sustainable. In fact, countries such as Switzerland which are top for competitiveness are also the best performers in many areas of sustainability.

Such a conclusion comes to confront the entire austerity vs. growth dilemma in view of the ongoing euro crisis. The Global Competitiveness Report demonstrates that a combination of the two is the only way to increase productivity and combat unemployment. Cyprus has earned a Global Competitive Index score of 4.32, and ranks 58th out of 144 economies. Cyprus’s previous ranking (2011-2012) was 47th out of 142 economies. The euro crisis can explain this drop to a certain extent, since it reflects the lack of confidence on the part of the financial markets in the ability of the Southern European economies to balance their public accounts by curbing public spending and escaping the vicious circle of public debt. The lack of competitiveness in economies of Southern Europe, including Cyprus, coupled with high salaries, has led to unsustainable balances difficult to overturn unless measures are taken both to stimulate growth and to minimise public expenditure.

the international investment, finance & professional services magazine of cyprus

Gold 61

competitiveness

Providing more vigorous cooperation between the public and private sphere with less public spending is an ongoing challenge for Cyprus C yprus, Malta and Luxembourg: A Comparative Analysis

While the 12 pillars of competitiveness affect all economies, they do so in different ways. For example, the best way for Kenya to improve its competitiveness is not the best way for Italy to do so. The reason behind this differentiation is that the two countries are at different stages of development. Spe-

cifically, the Global Competitiveness Index assumes that economies at the first stage are mainly factor-driven (based on natural resources and low skilled labour). The second stage of development is the efficiency-driven stage, when countries begin to develop more efficient production processes and increase product quality. Finally, as countries move into the final development stage, namely the innovation-driven stage, wages will have risen by so much that countries are able to sustain those wages and a high standard of living. Companies must maintain their position at this stage by investing in innovation and promoting sophisticated production processes and business models. Cyprus, Malta and Luxembourg belong to the third and most advanced type of innovationdriven economies. These three economies are ideal for comparison as they are all innovation-driven, with a small market size and a small reliance on heavy industry. Malta and Luxembourg

Most problematic factors for doing business Comparison chart of five problematic areas of doing business Source: Author

Cyprus Luxembourg Malta

0 inefficient gov/t bureaucracy

inefficient capacity to innovate

access to financing

62 Gold the international investment, finance & professional services magazine of cyprus

restrictive labor regulations

inflation

are also competitors with Cyprus in terms of jurisdictional attractiveness and in securing foreign investment. Analysing the findings of the Global Competitiveness Report can, therefore, provide useful insights into those areas which require restructuring and improvement. Overall, the Global Competitiveness Index demonstrates that Luxembourg is well ahead in all categories when compared to Cyprus and Malta. The last two compete equally in most categories, with Malta doing slight better in most. The table (left) depicts five areas which have been identified as problematic for doing business. The importance of this information is that these factors have been outlined by the Index’s Executive Opinion Survey, which is carried out at the local level in the form of questionnaires addressed to the business community. The data gathered provides a unique source of insight into each nation’s economic and business environment. The most significant gap among the three countries is in access to finance, with Cypriot respondents considering difficulties in securing funds as one of the most serious and problematic factors for growth, posing obstacles in the promotion of business. Interestingly, the results of the Executive Opinion Survey show that respondents do not think Cyprus has insufficient capacity to innovate while the findings of the Report demonstrate the opposite.

Lows and Highs

In comparison to its Maltese and Luxembourg counterparts, Cyprus seems be at a stalemate when it comes to development of its financial market. Ranking 38th out of all 144 economies assessed by the index, Cyprus might appear to be doing rather well when it comes to the development of its financial market but not when directly compared to Malta, which achieves an impressive 15th place and Luxembourg (12th). The same can be noted when examining the technological readiness factor, where Cyprus is ranked 37th, left behind by Malta in 21st place and Luxembourg in an impressive 2nd. The lower ranking of Cyprus (58th as opposed to 47th place last year) is the result of a number of factors, one of which is the lack of institutional efficiency. Cyprus ranks very low in the efficacy of corporate boards (a disappointing 139th place). Malta in 84th place and Luxembourg (16th) do much better in this aspect. Institutional delay and the lack of public-private collaboration can also be demonstrated when examining

government services for improved business performance where Cyprus ranks 82nd but Malta is 39th and Luxembourg is well ahead of both, in 16th place. The same pattern is noted when examining favouritism in decisions by governmental officials and wastefulness in government spending. It appears that providing more vigorous cooperation between the public and private sphere with less public spending is an ongoing challenge for Cyprus. It must be said, nevertheless, that direct cross-country comparisons in terms of institutional efficiency and measuring public spending output is a complex procedure. The coverage and scope of public services differ across countries, reflecting societal and financial priorities. These disparities require that public spending effectiveness be assessed by spending area, at least for the key components, including health care, education and social assistance. In other important institutional areas such as the protection of minority shareholders’ interests, Cyprus ranks 21st, depicting its sound services system. Equally important, Cyprus is attributed with a highly efficient legal framework in challenging regulations (18th place). Luxembourg also ranks high in this aspect (8th) while Malta lags behind in a low 68th place. Equally importantly, Cyprus achieves a good place in most higher education and training sub-pillars, namely the quality of its management schools and the quality of its educational system. The same applies for goods market efficiency where Cyprus is in the top fifty countries in most categories. It is ranked 19th in total tax rates, 16th on the extent and effect of taxation and 6th on trade tariffs. The same motif can be seen in the use of the Internet and financial market development, where Cyprus ranks 11th on the legal rights index and 35th on the availability of financial services. Luxembourg performs better throughout, while Malta is on an equal standing.

A Problem of Innovation?

In most categories (institutions, infrastructure, macroeconomic environment higher education and training, etc.) Cyprus has an inconsistent performance of high and low points. The only category in which Cyprus has a consistently low ranking throughout and performs poorly is innovation. Malta does slightly better but still faces considerable problems while Luxembourg is well ahead, with heavy investment in R&D spending and good university-industry collaboration in R&D. The only sector in Richard which Cooper Cyprus does well in terms of innova-

tion is PCT patent applications, a success owed largely to service providers able to efficiently accommodate clients. Notably, Cyprus is ranked 52nd for the availability of scientists and engineers for R&D, which is something of an oxymoron: while the human resource expertise is present, it remains largely unexploited.

Innovation Promotion and Management: The Key to Growth and Development

Cyprus lacks a consistent innovation policy. Its semi-government institutions, limited by resources as most organisations nowadays, are not able to meet the challenge of innovation promotion. It appears that in the majority of cases, we are followers and not leaders in innovation policy. Local R&D is due to the vigorous attempts of universities and private entities to participate in EU funding programmes and to private companies exploring new products and

In the majority of cases, we are followers and not leaders in innovation policy services. Internal innovation is nonetheless very limited. Only a handful of enterprises actually invest in innovation and research, with most considering these as “soft issues”

not to be dealt with in times of hardship. Innovation Union, a new initiative promoted by the EU, particularly stresses the need for a genuine single European market for innovation which would attract innovative companies and businesses. To achieve this, several measures are proposed in the fields of patent protection, standardization, public procurement and smart regulation. Innovation Union also aims to stimulate private sector investment and proposes, among other things, to increase European venture capital investments which are currently a quarter of those in the US. Moreover, throughout the Global Competitiveness Index it is evident that the countries which lag behind in innovation, lag behind generally. While small market size or less advanced institutionalisation may not seriously affect overall performance, a bad performance in innovation is a catalyst for unemployment, lack of private investment and less jurisdictional attractiveness. Investors are no longer interested in simply using a country for tax benefits; they want to fully exploit the potential of a jurisdiction in terms of human resources, production and services. Sustainable innovation cannot be achieved by one-size-fits-all and one-sided approaches. It requires a common understanding of what innovation is, and how it can be customised to suit needs at an entrepreneurial, national and regional level. The Innovation Union Scoreboard 2011, a report measuring innovation among EU states, concludes that the countries at the top of the rankings share a number of strengths in their national research and innovation systems with a key role for business activity and public-private collaboration. While there is not one single way to reach top innovation performance, it is clear that the innovation leaders (Finland, Sweden, Denmark and Germany) perform very well in Business R&D expenditure. This shows that, when discussing innovation and R&D, we do not need to associate them with concepts such as heavy industry or industrial research. Innovation and R&D can take place not only in the production sector but also in the services sector; a law firm or a fiduciary service provider can easily become part of innovation initiatives through concrete planning and the introduction of new products and/or services. Hopefully, Cyprus will not drop further in next year’s index but even if it does, it is worth considering the words of Michelangelo: “The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.”

info: Irene Demetriou is Business Development Manager at Andreas Neocleous & Co LLC the international investment, finance & professional services magazine of cyprus

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64 Gold the international investment, finance & professional services magazine of cyprus

n o B unci g

greece

Back Greece’s tourism sector is ready to start growing again By John Vickers

ourism has always been a major source of income for Greece but over the past few years it has been seriously affected by competition, image problems and the collapse of internal tourism due to austerity measures. Efforts are now being made to regain Greece’s old reputation and lost revenues and they may be about to bear fruit. Gold spoke to Yiannis A. Retsos, President of the Hellenic Hotel Federation and Managing Director, Electra Hotels & Resorts.

Gold: What is your forecast for the Greek tourism sector in 2013? Yiannis A. Restsos: After a very difficult and bumpy 2012, 2013 looks quite promising. Based on the pre-booking data currently available, we expect 17 million tourists this year, which represents an increase of about 6% compared to the 16.1 million arrivals in 2012 and hopefully, close to €11 billion in direct revenues, which represents an increase of 10%, compared to last year’s income of €10 billion. These figures become more significant if we take into consideration the fact that we have just

entered the sixth consecutive year of recession, with the total decrease in GDP since 2008 exceeding 25%. Gold: Has the financial crisis led to an increase in internal tourism or have Greeks had to cut down on holiday expenses? Y.A.R.: Unfortunately, the second scenario is our reality. The numbers I described have to do with the incoming portion of our business, which has proved to be really strong during the last years of the crisis, mainly because our product has proved to be really competitive, offering great value for money. In contrast, internal tourism has collapsed. In 2008, it produced close to €3 billion annually. In 2012, this amount was less than €1.5 billion and it will continue to shrink. It is not expected to stabilize until we see the first signs of recovery, one or two years from now. This huge decline has resulted in reduced activity in small local communities, on the islands and the mainland, boosting the recession, along with unemployment figures, especially in people under 30.

the international investment, finance & professional services magazine of cyprus

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greece

Gold: Did the international image of Greece (due to strikes, demonstrations against the austerity measures, occasional violence) have a visible effect on tourist arrivals in 2012? If so, do you think that this negative image will now change? Y.A.R.: There is no doubt that, during 2010, 2011 and the first half of 2012, our society suffered massive shocks, resulting in constant ‘explosions’. We all know that tourism ultimately comes down to image and psychology. Therefore, the fact that for more than two years we were headlines in most newspapers, magazines and TV networks around the world damaged our image. The biggest problem has been in Athens but since the elections in June 2012, the situation has definitely improved. The country’s credibility on a European level seems to increasing and the fear of the so-called “Grexit” is no longer real. However, it will take years and a great deal of effort to restore our damaged image and, as I have been constantly saying over the last three years, we need to protect the reputation of our capital city, Athens, by all means because anything positive or negative reflects on the whole country and has consequences on it. Gold: Have prices fallen in the Greek tourism sector? Y.A.R.: Prices have been our only marketing tool during these five years of recession and three years of negative image, in order to maintain the number of incoming visitors above 16 million. The Revpar [revenue per available room] of Greek hotels fell by more than 25% in 2012 compared to 2008 and in Athens-Attica alone, revenues dropped by more than 40%. Gold: What can you and your colleagues in the hotel sector do to increase tourist arrivals? Is there a specific plan of action? Y.A.R.: For many years now, we have been criticizing the marketing and promotion strategy of successive governments and the Ministry of Tourism, as expressed by the Greek Tourism Organisation, for its unclear branding strategy. We found the crisis to be a unique opportunity to take the situation into our own hands. The Association of Greek Tourist Enterprises (SETE), announced the formation of “Marketing Greece”, a company 100% owned by the private sector, which will focus on the long-term marketing of our country and its tourist product and have an

on-line presentation of what we are selling. The goal of this effort is to show the rest of the world and potential visitors what this country is all about, its different aspects and a clear brand based on the trends and needs of today’s demanding traveller and not just the traditional “sun and sea” which may have introduced Greece to the world but today seems to be outdated. How is Electra Hotels & Resorts coping with the situation? Y.A.R.: We are a Greek company, doing business in Greece, meaning that it is inevi-

ence have been building up for five decades now. The hotel management and staff of any Electra hotel are constantly striving to enhance and enrich the quality of facilities and services it already provides and to offer traditional Greek hospitality and generosity to its guests, in order to ensure their total satisfaction. The biggest advantage for our business clients is our selected locations, as each of our hotels is located in or close to the business, commercial, cultural and social centres of Athens, Thessaloniki and Rhodes. Gold: How important is business tourism to Greece and to you in particular? Y.A.R.: Business tourism is extremely important to Greece, especially taking the country’s strategic location into consideration. The crisis we are facing has slowed things down but I am positive that the inevitable recovery will empower the business segment of our market. This is why we are also focusing on that segment as a company, by improving our facilities, adjusting our services to modern business needs and trying to discover the best distribution and selling channels.

Yiannis Retsos

table to face all the problems from the current situation. Our diversification though, with two hotels in Athens, one in Thessaloniki, one in Rhodes and one in Crete, allows us to take advantage from the increase of the incoming portion of the business, in order to cover losses from the internal demand and the negative image of Athens. In addition, our conservative strategy, along with a very efficient cost cutting during the last five years, enabled us to have a very healthy debt/revenue ratio, assisting in this way our relation with the banking system, which these days is the biggest challenge businesses face in Greece. Gold: What are the advantages for business travelers to Greece who choose to stay in an Electra hotel? Y.A.R.: Electra Hotels & Resorts was established in 1963, so our reputation and experi-

66 Gold the international investment, finance & professional services magazine of cyprus

Gold: What is your message, both as Chairman of the Hellenic Hotel Federation and CEO of Electra Hotels & Resorts, to the business people reading Gold magazine? Y.A.R.: I understand that business life in Cyprus seems to follow the Greek path with a certain time-lag. I know this sounds scary, especially having seen what Greece has been going through since 2010. On the other hand, it can be a tremendous opportunity for the Cypriot business world to learn from our mistakes, on a political, economical and social level and avoid them. I think that the size of the Cypriot economy will allow a faster exit from the crisis, as long as people realize that the requested reforms are for their own benefit and comply with them fast and with great efficiency. I am also positive that Cyprus, as a tourist destination, will also have the opportunity to prove that, despite the economic crisis, there are sectors of the economy which can outperform, even in situations like the present one.

opinion

Change is no longer an option Growth in Cyprus will only come from new thinking and entrepreneurship

uman nature’s natural response to change is to fight it. This is especially true in Cyprus where great efforts are made to protect the status quo. Pressures from various sources conspire to make change and progress difficult; leading to an acceptance of “it has always been this way, so it will always be this way”. The classic example is Cyprus Airways. During the period 2011-2013, the government will have poured €149.9m in various forms into the airline to preserve it – the equivalent of €179 for every single individual in Cyprus. It is obvious that change has to happen so why is that imperative still being ignored? How much longer will the airline continue be bailed out when the need for a radical overhaul of its business model is blindingly obvious? The problem with protectionism of past processes and institutions is that it is inherently inefficient and damages the economy. Today’s global forces mean that, if any aspect of a business isn’t optimised, sooner or later competition will take it out. This isn’t something to put to one side for tomorrow. The realities of business in Cyprus in 2013 make it an imperative for today. Cyprus needs growth – and that growth will only come from new thinking and entrepreneurship. Protecting the past will only result in decline – and that can no longer be an option. The important point wrapped up in this is that one business doesn’t have to die for another to succeed – businesses can go for growth by being entrepreneurial themselves. Opening minds to new possibilities opens up new opportunities. The changes required may result in a very different business at the end of the process but the business itself will flourish

A business needs to adapt to its customers, not the other way around

By Mike McCormac

and grow instead of contracting and dying. The new thinking that will lead to growth comes about when a business thinks about three important questions. The process of asking and then answering the questions does not have to be time-consuming. With the right focus and will it can be extremely rapid. The three questions are: What do we sell? What problems do our customers have and how can we be better at helping them solve those problems? What extra value can we create for them that in turn will create value for us? Who do we sell to? Are there new customers with new needs we can fulfil? Can we fulfil our existing customers’ needs in ways that are better for them and us? Do our existing customers have other needs that we are not addressing today but we could? How do we work with customers? What else can we do to make it easier and better for our customers to work with us? How can we be in the right place at the right time to serve our customers in the way they want to be served? Answering these three questions from the perspective of customers is a very valuable activity. The challenge is to do it in an openminded way that puts the customer’s needs first and the business’ existing situation second. A business needs to adapt to its customers, not the other way around. An imperative throughout the process is to know one’s customers and their needs intimately. Traditionally, this has not been an activity that businesses in Cyprus are good at. It may need some basic research to obtain the facts that a business can take action on but the resulting information will be invaluable. What are our options? Should we continue to protect what we have while we watch sales and margins spiral downwards, or should we take action to be part of the new economy Cyprus so desperately needs?

info: Mike McCormac is a freelance business consultant working with companies in Cyprus, Europe and the USA to help them grow their businesses.

mike@salessuccesandmore.com 68 Gold the international investment, finance & professional services magazine of cyprus

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SPECIAL SUPPLEMENT

PMG in Cyprus is a member firm of the KPMG global network of professional services firms offering audit, tax and advisory services with an industry focus. KPMG in Cyprus traces its origins back in 1948 and today it is one of the largest Audit, Tax and Advisory service providers in the Cyprus market. KPMG’s strong presence in Cyprus, with 6 offices throughout the island, over 750 professionals – including 37 Board Members – and the provision of a broad range of services place it in a unique position to serve as a one-stop professional service provider that covers all the needs of FX companies. KPMG offers a comprehensive suite of professional services required by an FX company in the following areas: • Audit: KPMG’s skilled and diligent professionals conduct audits of the statutory annual financial statements based on International Financial Reporting Standards and review half yearly reports as required by the Cyprus Securities & Exchange Commission (CySEC). Audit services also include consultations on audit and accounting matters. • Tax: KPMG has a large team of qualified tax professionals who provide tax compliance and tax advisory services. - Tax compliance: KPMG’s tax professionals undertake the preparation and submission of corporate and VAT tax returns. Through due diligence services, we provide reports that address and aim

to detect and correct issues that violate tax laws, while we undertake the support of FX companies throughout the entire tax audit process. - Tax advisory: Our experienced tax advisors can provide advisory services on tax structuring, tax optimisation and international tax. • Advisory: Our advisory team can support FX companies from day one by providing advisory services in relation to their establishment and operation. This includes the completion/review of necessary application forms, the preparation/ review of the necessary documentation and locating qualified executive and non-executive directors. KPMG can act as the advisor and representative of the FX company throughout the application process with the CySEC, and liaise with the CySEC during examination of the application. - Regulatory Services: KPMG Advisory professionals provide advisory services to FX companies in relation to Basel/ CRD requirements and capital adequacy reporting. We provide training in different aspects of the regulation and assist the FX company in designing procedures to safeguard clients assets. - Internal Control System: KPMG can aid the firm in designing a reporting and governance framework. KPMG advisory professionals can act as the Compliance Officer with regard to legislative matters and/or the Internal Auditor of the FX company, and conduct annual Internal Audit Reviews. Furthermore, we can assist FX companies in the im-

plementation of an efficient and flexible organizational structure and governance frameworks, as well as in the design and implementation of an effective risk management framework. - IT services: KPMG provides advisory services to FX companies in the areas of data and systems security and IT infrastructure: IT architecture and automation of business processes; Information Security Policies and an Information Security Program to safeguard information assets and Business Intelligence. For each of the above core services, KPMG in Cyprus has specialized departments which are headed by board members with long experience in that field and are staffed by highly skilled personnel. Our global network of firms allows for efficient coverage and reliable servicing of the client’s cross border needs in the above areas. Our close cooperation with other KPMG member firms, ensures that you get local expertise in all locations your company is active. By offering services to more than 50% of the FX companies that are established in Cyprus, we have a robust knowledge of this fast-growing sector and its specificities and a strong awareness of the emerging issues and key developments. Our personnel have the expertise to offer industry specific services to all existing and new FX companies and assist them in navigating through regulatory, legal and other requirements and industry best practice, cutting through complexity.

CONTACT DETAILS

Angelos M. Gregoriades Chairman and Head of Tax Tell: 22209000 e-mail: agregoriades@kpmg.com Panicos G. Loizou Board Member, Head of Audit Tel: 25869000 e-mail: ploizou@kpmg.com Christos V. Vasiliou Board Member, Head of Advisory Tel: 22209000 e-mail: cvasiliou@kpmg.com

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ADIT - Your

Premier Tax

Qualification

Advanced Diploma in International Taxation

s an established financial centre at the eastern end of the EU, Cyprus has developed a privileged tax regime and excellent financial services provision facilities, which have attracted a vast amount of investment from all over the world. These features, together with Cyprus’s geographical location, its infrastructure and its abundance of highly-skilled professionals providing tax advice, represent a significant competitive advantage by providing international firms with substantial benefits for setting up their companies in Cyprus. The strong international environment that exists in Cyprus and the increasingly complex taxation issues with which professional advisers have to deal constantly require specialized international tax expertise. Obtaining the Advanced Diploma in International Taxation will reward you with a competitive edge and give you the technical expertise to provide your employer and your clients with the added value of being able to demonstrate tax expertise to a global standard.

ABOUT ADIT

The ADIT qualification is considered the global benchmark for international corporate taxation and it is administered and awarded by the Chartered Institute of Taxation (CIOT), the premier professional body in the UK concerned solely with taxation. ADIT is currently pursued by over 1,000 students in over 90 different countries – every continent, major market centre and business sector is represented.

The ADIT qualification consists of three papers, although a thesis may be substituted for either Paper II or Paper III (but not both): • PAPER I – Principles of International Taxation • PAPER II – Advanced International Taxation – Primary jurisdiction • PAPER III – Principles of Corporate and International Taxation – Secondary jurisdiction The modules covered in Paper I include key issues such as the principles of international tax law, residence, double taxation and treaty interpretation, transfer pricing, the work of the OECD and international tax avoidance. Paper III also includes the option to specialize in the area of Transfer Pricing. The thesis option for Paper II or Paper III can be taken where the thesis consists of 15,000 to 20,000 words on any subject of international taxation, subject to approval.Examinations are held once a year in June and have a 3-hour duration plus 15 minutes reading time. Registrations for the course and paper must be completed by the end of February. Upon registration, the Institute allows a time span of five years to complete the qualification. Exams can be taken in Cyprus at the local examination centre, thus eliminating the need for travel expenses. A separate certificate is available to those passing paper I or Paper III, giving candidates the option to only cover the part of the diploma focusing on their area of interest. This may potentially be valuable for anyone wishing to increase their knowledge in a specialized area in a shorter timespan.

WHO CAN ATTEND AND BENEFIT FROM OBTAINING THE ADIT QUALIFICATION?

There are no pre-requirements to register as a student or take exams. This is an open access qualification allowing anyone with a keen interest in taxation to be eligible to apply for registration. It is thus suitable for accountants, management and tax consultants, financial advisors, lawyers and any other professional looking to obtain or specialize in international tax advisory roles. As a graduate of ADIT, you will be entitled to put “ADIT” after your name as a proof of quality and achievement in demonstrating international tax expertise. As a globally recognized professional qualification, ADIT will open up prospects for further advancement opportunities since it will indicate that you have proved your knowledge as a qualified professional who has been benchmarked among the elite international tax practitioners around the globe. Your clients will also benefit from increased specialization in international taxation, allowing you to be able to provide highly valued tax advice which will then be your passport to attracting more clients and thus increasing your revenue streams. Registering for ADIT will give you the further advantage of joining a growing global community and network of international tax professionals around the world. You can take an active part of this network by attending the conferences held by CIOT or by entering the online community and groups set up for ADIT students and members. Furthermore, obtaining the ADIT qualification will also count towards your Continuous Professional Development (CPD) units.

74 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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BENEFITS OF ATTENDING OUR COURSES AT INTERCOLLEGE GLOBALTRAINING

Odysseas Christodoulou

The ADIT qualification will ensure that you enhance your knowledge and skills levels

Having delivered professional qualifications since 1993, the Education and Administrative team at Intercollege Globaltraining is equipped with the knowledge, skills and expertise to ensure that the course is delivered to the highest standards and aiming at ensuring firsttime passes in the examinations. As a leading professional training organisation in Cyprus we have established operations in four centres – Nicosia, Limassol, Bucharest and Athens – and a stateof-the-art infrastructure providing a suitable setting for a high-quality learning environment. ADIT courses will be available in all centres for the June 2013 sitting. Our track record in delivering high-quality courses is evident through our customer loyalty, our consistently high pass rates, the awards delivered by examination boards and the worldwide prizes obtained by our students in prestigious professional qualifications such as the ACCA and the ACA. Our courses are designed in such a way as to minimize disruption at work by being delivered on a block release, using weekends, spread over three months running from February to May. Our lecturing team consists of professionals with hands-on experience of international tax consultancy and attending their courses will give an advantage not only as regards learning how to address and tackle the exams for this qualification but it will also provide invaluable added value from the lecturers’ practical knowledge and experience. Odysseas Christodoulou, CEO of Intercollege Globaltraining, says: “As a financial centre attracting so many investors from across the world that have set-up their companies on the island due to its favourable tax regime, Cyprus has created an additional need for more extensive and in-depth knowledge of international taxation. Taxation issues are constantly on the increase and new tax laws are being introduced on an almost daily basis, on an international level. Clients’ demands and their companies’ group structures have become more complex, and it is thus proving increasingly difficult to maintain competence through on-the-job learning. Through the ADIT qualification, you will ensure that you enhance your knowledge and skills levels, whilst at the same time providing increased confidence to your clients for the tax advice you provide, having successfully completed a rigorous and challenging global qualification such as the ADIT.” Odysseus Tavros, Deputy CEO of Intercollege Globaltraining and a leading tax tutor adds: “The ADIT qualification is a truly international tax qualification. The success of the Chartered Institute of Taxation has been to achieve recognition of the ADIT by all the leading tax authorities around the world. The ADIT qualification, I am confident, will provide the opportunity to prove and improve your tax teams’ credentials as International Tax Professionals. I am positive that the ADIT qualification will be regarded, just like the ACA/ACCA, as the premier tax qualification for tax advisors regardless of their location, industry or profession”. You can find more about the qualification from www. globaltraining.org and www.tax.org.uk/adit

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Angelos Gregoriades

financial services

back

on track REGAINING STABILITY AND IMPROVING EFFICIENCY ARE KEY TO THE RECOVERY By Kyproula Papachristodoulou, Photo by Jo Michaelides

the international investment, finance & professional services magazine of cyprus

Gold 77

financial services

major reform plan focused on economic growth is essential if Cyprus is to respond to market needs and compete successfully against other jurisdictions. Angelos Gregoriades, the new Chairman of KPMG, speaks candidly to Gold about Cyprus’ strengths and weaknesses as a financial centre. Gold: 2012 was a tempestuous year for the economy in general and for the banking sector in particular. Once a final agreement has been reached on the Memorandum and it has received the necessary approval by all the euro area countries, do you expect that economic stability will prevail in the coming years? Angelos Gregoriades: The Cyprus economy is in an extremely difficult position both because of the fiscal deterioration and the extraordinary losses reported by the banks in Cyprus, especially after the decision to carry out a haircut of Greek Government Bonds. I believe that uncertainty and the unreliability of the Cyprus economy are obstacles to entrepreneurial initiatives. Businessmen in Cyprus and abroad are reluctant to make any new investments in the island, thereby reducing opportunities for economic growth and the creation of new jobs. We should not forget that an attractive financial centre needs to have a strong banking sector and this can only be achieved through the recapitalization of the Cypriot banks. We should take this as a lesson to be learnt and something that must not be repeated in the future and we need to find ways to get through the economic storm we are currently experiencing. The Memorandum of Understanding with the Troika includes numerous measures that undermine people’s way of living, such as increases in direct and indirect taxes and reductions in salaries. However, I believe that a final agreement on the terms of the Memorandum will bring back stability. Further, the Memorandum includes structural measures that will enhance the efficiency and effectiveness of the public sector, which will create a business-friendly environment and help generate growth.

growth, which should include, among others, tax incentives for new start-up businesses, a reduction in the government administration burden, new double tax treaties and the provision of new financial products. I am confident that Cyprus can follow the example of Ireland which has recently returned to the markets. Additionally, the discovery of gas reserves in Cyprus creates good prospects for the economy and will help the country to attract foreign investment. To this end we need to speed up the procedures for constructing the necessary infrastructure, especially after the second confirmatory drilling that will be undertaken by Noble Energy in the coming months. But most importantly we should strategically refocus our services and develop new capabilities to ensure that we adjust to market needs. Gold: Is the financial services sector capable of further growth in these turbulent times? A.G.: Yes. I believe that the financial services sector can drive the Cyprus economy back to growth. First of all, however, we need to have fully capitalized financial institutions that can support the sector. Because of competition, we need to respond quickly to changes in the global economy – especially in those countries with a close connection to Cyprus, such as Russia, Ukraine and China – and to the needs of investors and businessmen while constantly providing a high level of services. We need to modernize our tax system and increase the range of financial products that we are offering. In recent years there has been increased interest on the part of foreign investors in establishing funds in Cyprus. Recently-enacted legislation which allows the establishment of UCITs in Cyprus gives us an additional marketing and promotional tool. However, there are still things that need to be done. Legislation regarding leasing, cell and captive insurance companies is still pending, while the team responsible for negotiating the double tax treaties – the Inland Revenue Department and the Cyprus Securities Commission – is understaffed.

An attractive

financial centre needs to have a strong banking sector

Gold: What do you foresee for Cyprus, in particular as a regional financial and business centre? The current situation may not have pushed investors out of Cyprus but has it made them reluctant to make new investments? A.G.: As I mentioned before, our first concern should be to stabilize the economic situation in Cyprus and regain reliability. The Government needs to adhere to the terms agreed in the Memorandum and avoid the example of Greece, where several Memoranda were required. I have to say that we are currently seeing some positive signs in the Greek economy, something that will also help Cyprus, bearing in mind the strong economic relations between the two countries. The Government should draw up a strategic plan for economic

78 Gold the international investment, finance & professional services magazine of cyprus

Gold: Have competing jurisdictions overtaken Cyprus in the race to attract investors? A.G.: Competing jurisdictions are trying to take advantage of the current economic situation in Cyprus to persuade foreign investors to redirect their investments and funds outside Cyprus. That may explain the reason behind some of the articles in the international press stating that Cyprus is a tax haven with weak anti-money laundering regulations. However, it is my opinion that even before the Government submitted its request for financial assistance, we failed to respond quickly enough to the new needs of investors, something which was noted by other competing jurisdictions. Furthermore, although Luxembourg has a well-established funds industry, it is only very recently that we have started promoting this in Cyprus. From my positions in KPMG and CIPA, one of my primary goals has been to promote Cyprus as an attractive jurisdiction for funds and, to that

end, the support of the Government, the House of Representatives and the authorities is expected to continue. I strongly support the creation of a Special Tax Advisory Council, involving technocrats from the Ministry of Finance and the private sector, to provide consulting in relation to reforms in the tax system after analyzing the measures/laws implemented by other competing jurisdictions so that Cyprus remains an attractive business centre. This Council will also have the responsibility of supporting the negotiating team for new double taxation agreements. Gold: What is your reading of the tax measures included in the MoU with the Troika? A.G.: In the original document provided by the Troika in July, there was a clause which prohibited the Cyprus government from changing the tax base, i.e. to allow specific types of expenditure as a deduction for tax purposes. Such a measure would not allow Cyprus to provide tax incentives in response to changes imposed by competitive jurisdictions. This was spotted by our tax team and communicated in a letter to the Ministry of Finance. Fortunately, when we received the redrafted memorandum, this clause had been eliminated. We are very concerned about some of the measures included in the MoU. The imposition of personal responsibility for the payment of company taxes on those who, in the case of non-listed companies, truly and effectively control a company, includes risks. Another measure that may create unnecessary administration is the requirement for the pre-payment of at least 50% of the estimated tax obligations in dispute if a person formally appeals a tax assessment. I expect that the officials of the tax administration will be extremely careful when issuing such assessments so as to avoid cases where unreasonable amounts are required to be paid by foreign investors. The restriction of losses for five years is not expected to undermine Cyprus’ competitiveness, although in competing jurisdictions no limitations are imposed on losses. Finally, I am concerned about the increased workload that will be created by requiring everyone over the age of 18 to file tax returns. This measure, in order to be effective, must be accompanied by the full computerization of the procedures in the tax administration department. Gold: The Cypriot tax authorities are required by the MoU to propose a comprehensive reform plan to improve the effectiveness and efficiency of tax collection and administration. As the KPMG partner in charge of tax matters, what do you think should be the major reforms undertaken? A.G.: I personally agree with the Troika’s proposed measure for optimising the use of IT systems in the tax administration, based on facilitating information exchange between tax administration entities and enhancing the use of e-filing of tax returns and e-payments. This will reduce the time required to examine the completeness of the returns since there will be standardised checks that can be performed by the system. As things stand now, it may take up to six years to examine a tax return and issue an assessment. In the MoU, the Government is also encouraged to increase its efforts to reduce the administrative burden on businesses, with a view to achieving voluntary compliance to the greatest possible extent. Currently, it takes much longer in Cyprus to issue a tax ruling than in other competing jurisdictions. The implementation of a fully computerised system will allow the tax administration to work more efficiently, although it may be claimed that it is still understaffed. I believe that specific deadlines should be set for such a project and a project manager should be appointed so that implementation takes place quickly and efficiently.

Gold: The public sector payroll represents a large share of public expenditure in Cyprus while some government departments are often blamed for delaying or discouraging private investment initiatives due to their procedures. The Troika is pursuing a major reform of the public sector. What, in your experience, needs to be changed? A.G.: I think that it is common knowledge that over the years we have created a hugely inflated public sector with major inefficiencies and inflexible procedures. Business initiatives have been cancelled due to bureaucracy and delays in granting the necessary approvals. I would like to stress that there are very competent people working in the public sector but legislation and procedures are, in numerous cases, out of date, and this creates problems in an era where things are changing rapidly. After analysing several governmental departments, KPMG submitted a report to the Government indicating specific measures to reduce the administrative burden. Unfortunately the Government responded with some delay and so far only a few measures have been implemented recently. In an attempt to encourage investment, I fully support the idea of creating a one-stop procedure for investors, both Cypriot and foreigners, similar to the Citizen Service Centres. This role should be assigned to CIPA which will coordinate a team of professionals to speed up the process and report to the Council of Ministers for implementation. Finally, we need to take advantage of IT and proceed with computerising all government departments and ministries where this is feasible, including the offices of the Registrar of Companies, the Land Registry, the Social Insurance Commissioner and the Ministry of Interior department responsible for granting visas. Gold: The Maltese Prime Minister was quoted recently as saying that “privatisations were one of the key elements that allowed Malta to move forward” and make its economy more competitive. How useful would the privatisation of some of Cyprus’ government or semi-government organisations be to the economy? A.G.: The situation in Cyprus is different. Decisions on privatisation are not driven only by economic factors. First of all we need to state that in the MoU there is a specific clause which indicates that, in the case where the public debt is not sustainable, the Government will consider a programme of privatisations. It should also be noted that only Cyprus and Luxembourg are the only countries in the European Union to have 100% state-owned telecommunications companies. Most of the time, the involvement of the private sector in such companies leads to greater efficiency and improvements in the quality of services and products offered. That is because they can reduce their cost base and utilise their experiences for the benefit of these companies. However, there are several concerns regarding privatisations in Cyprus, especially when we consider that one third of the island is occupied by the Turkish army. Telecommunications, the electricity supply and ports are considered vital for national security. Disposing of such organisations to foreign investors could create increased risks. In such turbulent times, where Cyprus is under pressure to sign a Memorandum with the Troika, the price of such organisations will be undervalued and the Government may thus be obliged to sell the shares it owns at a very low price. Instead of privatisation, we may consider selling a share of the ownership with the Government still owning 51%, or dispose of certain branches and departments of these organisations.

the international investment, finance & professional services magazine of cyprus

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AUSTERITY

FEELTHE PAIN LATVIA’S TURNAROUND SINCE THE 2008 FINANCIAL CRISIS MAY BE A MODEL FOR THE FALTERING COUNTRIES OF SOUTHERN EUROPE. BUT THEY MAY NOT LIKE IT...

By Kyproula Papachristodoulou

or countries with flexibility in the labour market and a willingness to suffer serious pain for some time, the solution to bankruptcy is quite simple and, as shown in the case of Latvia, highly effective: austerity, austerity, austerity. That, and strict implementation of the structural reform programme. Latvia is the case which proves the theory which, of course, is not necessarily good news for all problematic

European countries: austerity works. Latvia was booming during the decade preceding the recent financial crisis. From the start of the new millennium, its annual GDP growth exceeded 5% and in 2006 it reached its peak, above 10%. The then country went through a huge bubble: public wages grew threefold over the three pre-crisis years (2004-2007) and inflation reached double-digit figures in 2008 (reaching an all time high of 17.7% in May 2008) while a huge construction and real estate bubble was evident. This all came to a sudden end in 2008 and, over the next two years, the country lost a cumulative 25% of GDP while unemployment soared from 6.7% in 2006 to over 20% in 2010. All of the above have since been quite effectively dealt with and, as a result, the country is again enjoying growth – as the best performer in the European Union – as well as falling unemployment and international admiration for its accomplishments and most importantly for its ability to adopt and implement the IMF-EU fiscal consolidation programme. The country today provides a boost to champions of the proposition that “pain pays”. “We are here to celebrate your achievements,” IMF Head Christine Lagarde, told a confer-

ence in the Latvian capital Riga, last summer. The Fund was “proud to have been part of Latvia’s success story,” she said.

Pre-crisis problem November 2008 was the starting point of Latvia’s severe economic and financial adventures. The downfall of the country’s second largest bank, Parex Banka, as a result of the Lehman Brothers collapse, was the event that triggered the crisis. Parex Banka had to be nationalized with a total state contribution of €1.4 billion. CDS spreads grew eight times (from over 100 basis points spread to over 1,000 bp spread) while the country lost market access and its credit rating was reduced to junk status. Latvia had to ask for financial assistance from the IMF and its European partners. The total amount received, after agreeing to a tough Memorandum of Understanding which included extensive public sector firings and huge salary cuts, totalled €7.5 billion. The crisis hit hard indeed but, as the IMF and EU appraisal later concluded, the action taken by the government was rapid, deep and extensive. As a result, Latvia is now the fastest-growing EU Member State with an estimated GDP growth in 2012 of 5.5%. It has

set itself the target of adopting the euro on 1 January 2014.

Solving the problem The country’s approach towards solving the crisis puzzle was clear and simple in theory but hard when it came to implementation. The main objective was to stabilize state finances and the financial system as soon as possible, while maintaining the currency’s euro peg by taking the internal devaluation route. At the same time, it set about improving administrative efficiency, pursued a tax system, health and education reform and tried to stimulate the economy with the help of EU funds. The fiscal consolidation undertaken from 2009-2012 amounted to 17% of the country’s GDP. One third of fiscal consolidation came in tax increases, and two thirds came in expenditure cuts. Almost all possible taxes were raised (and tax exemptions minimized for personal income tax). As to the expenditure cuts, the public wage bill was reduced by 40% and the size of the public sector was significantly reduced (about one third of staff was dismissed). More specifically, within four years the budget expenditure for state remuneration had decreased by 46% and the number of persons employed in state budget institutions fallen from 78,900

80 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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in 2008 to an estimated 59,000 in 2012. The number of public administration institutions in 2012 had declined by 53% compared to 2009 and the number of institutions subordinated to the ministries had fallen by 34% compared to 2009. On the other hand, VAT was increased substantially from 18% to 21% and social security contributions went up from 33% to 35%. In the case of personal income tax, personal exemptions were significantly reduced and various categories of excise tax were raised. As part of the fiscal consolidation plan, Latvia introduced capital gains and capital revenue taxes as well as a new tax category for company cars used for private purposes. Structural reforms were undertaken in the fields of education and welfare where the country implemented prolonged unemployment benefit payments, increased the guaranteed minimum income benefits (that come at the end of the unemployment benefit period) and put into force temporary work programmes in public works and other public sectors. With the reforms undertaken in public administration, the government appeared to realize that for the economy to grow, the country had to become more open to business and to simplify the business creation process. Finally, EU funds were the key fiscal stimulus in the crisis years. The Latvian government tried to increase the speed of absorption

of EU Funds and pursue a more focused and targeted use of the structural funds. The result of the extensive fiscal effort undertaken by the small Baltic country was to maintain the currency peg, stabilize the financial markets, have the credit rating agencies return its rating to investment grade and resume pre-crisis industrial production and GDP growth. Unemployment has fallen from more than 20% in early 2010 to 14.2% in the third quarter of 2012, according to Eurostat, and closer to 17% if “discouraged workers” are included. This is far below the more than 25% jobless rate in Greece and Spain but a serious problem nonetheless.

Another point of view In contrast with much of Europe, Latvia today has no tradi-

THE COUNTRY IS AGAIN ENJOYING GROWTH AS THE BEST PERFORMER IN THE

EUROPEAN UNION tion of labour activism. “What can you achieve in the street? It is cold and snowing,” said Peteris Krigers, president of the Free Trade Union Confederation of Latvia as reported by

6,7% FISCAL CONSOLIDATION

1,9%

17%

2,1%

TOTALLED

OF GDP

0,5% 2008

2,8%

The New York Times (1 January 2013).Organizing strikes, he said, is nearly impossible. “It is seen as shameful for people who earn any salary, no matter how small, to go on strike.” Also largely absent are the leftist political forces that have opposed austerity elsewhere in Europe, or the rigid labour laws that protect job security and wage levels. Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Latvia, is skeptical. “The idea of a Latvian ‘success story’ is ridiculous,” he said in an interview with the NYT. “Latvia is not a model for anybody.” A better and more equitable way out of Latvia’s troubles, he believes, would have been a devaluation of the currency, an option closed to Greece and 16 other countries that use the euro. Latvia kept its currency pegged to the euro, putting itself in much the same straitjacket as eurozone nations. But Latvia’s high pain threshold and unusually open economy set it apart, enabling a relentless squeezing of wages, says Morten Hansen, Head of the Economics Department at the Stockholm School of Economics in Riga. “You can only do this in a country that is willing to take serious pain for some time and has a dramatic flexibility in the labour market,” he said. “The lesson of what Latvia has done is that there is no lesson.”

0,7% 0,7%

1,6% 1,6%

2009

2010

2011

2012

revenue expenditure

MONEY LAUNDERING WARNINGS

hile Latvia has pushed forward all the major commitments provided for in the Memorandum of Understanding signed with its lenders and has already repaid the entire IMF loan significantly ahead of schedule, things are not perfect. In the latest EU-IMF evaluation report (15 January 2013), its assessment of Latvian post-programme policies is positive overall. According to the evaluation, the government made significant progress during 2012 on important issues such as implementing state-owned asset management reform, reviewing active labour market and social policies, pursuing the fight against the grey economy and initiating reforms in higher education and science. At the same time, though, last year’s performance raises serious concerns regarding some signs of “complacency, a relaxation of efforts and a lack of steadfastness of the authorities, resulting in several policy steps that go against the Council Country Specific Recommendations and commitments made in the last Supplement Memorandum of Understanding”. The EU and the IMF sounded the alarm over the foreign funds that recently started flowing into the country. In their joint report they warn that “there are risks inherent in a large non-resident banking sector as evidenced by some countries”. And that is why they recommend that “the authorities need to follow closely what kind of financial flows are attracted, where they are invested, what are the activities of non-resident banks in the domestic market, etc.” In particular, they say, it must be kept in mind that the business, legal and regulatory environment in the CIS (former Soviet Republics) countries is often weak and investments/loans in these countries call for caution. It is also suggested that the authorities should “devote more capacities and attention to tackling complex economic, financial, money laundering and tax evasion crimes. This concerns the investigation of such crimes, prosecution and the work of judges: in many cases, the knowledge and skills of relevant authorities might not be adequate to successfully prosecute and punish perpetuators”.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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TAXATION SURVEY

CEO confidence in growth down The majority of CEOs expect the global economy to remain stalled in 2013

nly 36% of CEOs worldwide are ‘very confident’ of their company’s growth prospects in the next 12 months, according to PwC’s 16th Annual Global CEO Survey. That’s down from 40% who were ‘very confident’ of short term growth last year and 48% in 2011, but still above the lows of 31% and 21% in 2010 and 2009. For PwC’s 16th Annual Global CEO Survey, 1,330 interviews were conducted in 68 countries during the last quarter of 2012. By region, 449 interviews were conducted in Asia Pacific, 312 in Western Europe, 227 in North America, 165 in Latin America, 95 in Central & Eastern Europe, 50 in Africa and 32 in the Middle East. Looking at the economy generally, 28% of CEOs say the global economy will decline further in 2013, and only 18% predict economic improvement; 52% say it will stay the same. While the CEOs’ outlook remains gloomy, the forecast is an improvement on last year when 48% of CEOs predicted the global economy would decline in 2012. Longer term, overall CEO confidence remained stable; 46% of CEOs worldwide said they were very confident of growth prospects in the next three years, about the same as last year. CEOs in Africa and the Middle East were most confident of long term growth, at 62% and 56% respectively.

In North America, 51% were ‘very confident’ of long term growth, while 52% in Asia Pacific were very confident. Long term confidence was weakest in Europe at 34%. Releasing the survey results on the first day of the World Economic Forum annual meeting in Davos, Dennis M. Nally, Chairman of PricewaterhouseCoopers International, said: “CEOs remain cautious about their short term prospects and the outlook for the global economy. However, given the high levels of concern among CEOs about issues such as over-regulation, government debt, capital market instability, it is no surprise that CEO confidence has declined in the last 12 months”. As the difficult economic conditions persist, CEOs are generally more worried about a wider range of issues than they were a year ago. Top of the list is a concern among 81% of CEOs about continuing uncertainty over economic growth. Sending a clear message to governments around the world, other key CEO worries are the government response to the fiscal deficit (71%), over-regulation (69%) and the lack of stability in capital markets (61%). CEO concerns about overregulation are at their highest since 2006. When asked directly about the government response to the regulatory burden, CEOs are even more blunt, with just 12% agreeing that their government has reduced the regulatory burden in the last year. When asked about the major threats to their business growth, CEOs also cited the increasing tax burden (62%), availability of key skills (58%) and the cost of energy and raw materials (52%). In order to build organisations that can

28% of CEOs

say the global economy will decline further in 2013 and only 18% predict economic improvement

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Long-term

confidence was weakest in Europe at 34% survive and thrive amid disorder, CEOs are pursuing three specific strategies: targeting pockets of opportunity, concentrating on the customer and improving operational effectiveness. CEOs remain relatively cautious on plans for increasing headcount for this coming year. Some 45% of CEOs plan to recruit in 2013 (down from 51% in 2012) while 23% plan to reduce the size of their workforce. Looking at which industries are recruiting and which are shedding jobs shows an interesting picture. CEOs most likely to be increasing headcount

are in business services (56%), engineering and construction (52%), retail (49%) and healthcare (43%). While the biggest number of CEOs planning headcount reductions are in banking (35%), the metal industries (32%) and forestry and paper (31%). CEOs also recognise the need to build trust with a wider set of stakeholders. 37% worry that lack of trust in their industry

could endanger their company’s growth, and 57% plan to focus more heavily on promoting an ethical culture. In addition, nearly half of CEOs (49%) plan to put more effort into reducing their environmental footprint in the next 12 months. The full survey report with supporting graphics can be downloaded at www.pwc. com/ceosurvey.

To what extent do you anticipate your company’s strategy to change over the next 12 months? 9%

14%

18%

28%

63%

54%

49%

Cyprus No change

32%

Eurozone Somewhat change

Global Change in fundamental ways

CEOS IN CYPRUS MORE CONFIDENT ABOUT LONGER-TERM GROWTH PROSPECTS

n the context of the global CEO survey, PwC Cyprus carried out a separate study for Cyprus which includes the views of 32 Cypriot CEOs. According to the findings of the survey, 59% of CEOs in Cyprus are not confident about their company’s prospects for revenue growth over the next 12 months. Just 6% of the survey participants stated that they felt “very confident” about their revenue prospects at a time where percentages reached 36% globally and 20% in the eurozone. Some 40% of the respondents described themselves as confident about their short-term revenue growth prospects. However, CEOs in Cyprus appear to be more optimistic about their company’s prospects for revenue growth over the next 3 years. The percentage of CEOs who stated that they were “very confident” is 25%, an increase of 22% on last year. It is worth noting that CEOs in Cyprus are more confident (94%) regarding their medium-term revenue growth prospects compared to CEOs in the

eurozone (82%) and globally (90%). According to the findings, CEOs in Cyprus view organic growth in the domestic market and the development of new products or services as the main opportunities for growth over the next 12 months, followed by new operations in foreign markets, organic growth in existing foreign markets and a new M&A, joint venture and strategic alliance. As regards the economic and policy threats facing businesses today, 91% of respondents are worried about uncertain economic growth, while 88% are worried about government’s response to fiscal deficit and debt burden, as well as the lack of stability in capital markets. The vast majority (91%) of CEOs in Cyprus also expressed concern about their inability to finance growth, while 84% are concerned about the shift in consumer spending and behaviours. To counter these threats, 72% of CEOs in Cyprus are planning changes to their strategy over the next 12 months. A massive 94% of Cypriot CEOs are planning to implement cost-reduction initiatives while

their top investment priorities focus on growing their customer base and enhancing customer service. Some 97% of Cypriot CEOs believe that the government has not ensured financial sector stability and access to affordable capital, which is considered a priority by the respondents.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

main_story9_CEO.indd 83

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{February 2013}

ISSUE

{economy}

90 Restructuring Sovereign Debt It has been quite a popular process over the years

+ BOOK REVIEWS TAX&LEGAL: Tap Dancing to Work: Warren Buffett on Practically Everything, 19662012 By Carol Loomis

LIFESTYLE: A Year Of Doing Good By Judith O’Reilly

{tax&legal}

{money}

86 Not Enough Money in the Pot FDI growth is expected to have slowed in 2012

{business}

89 Global Economic Centre of Gravity Shifts China, the US and India are set to be the three major economies by 2050

92 Laws Amended to Comply with Troika Measures New legislation 93 On The Rise Proactive EU tax measures lead to increased revenues

{lifestyle}

94 Scotch is definitely not on the rocks Investing in whisky ultimately requires a sober mind and an intoxicated heart

THE INTERNATIONAL INVESTMENT, BUSINESS & FINANCE MAGAZINE OF CYPRUS

gold_plus.indd 85

01/02/2013 14:16

pensions

Not Enough

{MONEY}

Money in the P

THE FUTURE OF UK PENSIONS By Glen Richards

s has been widely reported, UK borrowing levels, quantitative easing (QE), and ‘money printing’ are at record highs. This means that Gilt Yields (the rate at which the UK government borrows money) are at all-time lows and this is important for pensions because Gilt Yields are the figures used when the UK Government Actuary’s Department (GAD) decides how much it will permit you to take from your hard-earned pension. A pensioner’s individual GAD rate is based on the 15 Year Gilt Yield as published in the Financial Times on the 15th day of the calendar month preceding the month of determination and calculation. Thus, the GAD rate for a 65-year-old man retiring today will be based on a gilt yield of just 2%. When you consider that, as recently as last year, this would have been based on a gilt yield of 4.25%, it’s no wonder every newspaper in

the land continues to stress what a bad time it is for British retirees and how negative QE has been for pensioners. Because of QE, the man in my example is worse off by £1,500 per year for every £100,000 held in his pension fund. With little room for manoeuvre, what’s more worrying is the future of the UK state pension, how the problem can be addressed, and what affect it could have on private pensions. The number of people entering retirement has increased significantly and is expected to be about 600,000 every year until at least 2018. Put simply, the UK’s generosity is simply unaffordable. This is true whether we are talking about job-seekers’ allowance, pensions, the NHS, immigration, or disability benefits – there is simply not enough money in the pot. This is primarily a result of the increase in population, as well as improvements in medicine and healthcare which mean we are all living longer. When state pensions were introduced in 1909, the average male life

GLEN RICHARDS Cert PFS, Cert CII (MP) is Managing Partner at Pembridge International Ltd and has been providing pension analysis & services for over a decade. Pembridge has representation by UK-Qualified financial professionals with pension experience across 9 countries and 3 continents. Pembridge offers world-leading pension products and analysis through many providers, including the Sovereign Group with offices worldwide, including Cyprus (www. sovereigntrust.com) and offers third party, independent pension analysis – in addition to its own – from specialist international pensions technicians and actuaries such as PenTech (www.pentech. im). Glen Richards is a member of the Personal Finance Society, the Chartered Institute of Insurance, and CIFSA in Cyprus. www.pemrbidgeinternational.com.

86 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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expectancy was 48 years, and the Old Age Pension did not present a strain on the national budget at 5 shillings per week (roughly £19 today). UK life expectancy today is 80.4 years and it’s no wonder we are beginning to see strains on the public purse. The UK reportedly has a £7 trillion pension liability – that is five times the value of everything the country produces over the course of a year. Included within this liability is an estimated £55 billion deficit/shortfall within the FTSE 100 Company pension schemes alone. State pension obligations are said to make up 75% of this huge figure, while public pension schemes account for a further £1.2 trillion. That represents a staggering bill of £146,000 for each household in the UK. The £100 billion the government is spending on pensions each year is not even close to what’s needed to ‘plug the hole’. So, in times of austerity and deficit reduction, it’s clear that government has precious little money to support cash-strapped families, let alone continue with the over-generous state pension. As bad as things may be, can we realistically ever expect to see an improvement? The UK government has already increased the state pension age and we should only expect this to continue into the future. Other measures of ‘plugging the hole’ could also include reducing benefits and, of course, subjecting the state pension to a means test. The recent auto-enrolment initiative taken by the government – whereby the current working generation is all but compelled to make an independent pension provision – is an admission of the size of the problem but few believe they will see any real benefit in their lifetime. So what does this all mean for our private pensions? For anyone retiring now, it’s bad news, because they will be looking at an income significantly less than what they may have expected. And with public debt currently at £8.6 billion – over 60% of GDP – only an outright optimist would suggest there may be increases in the near future. Some private pensioners have already been hit by their pension company forcing them

WHEN

to work longer if they want the pension that has been projected to them for the last 50 years, and some company schemes have already increased the minimum retirement age for the ‘promised’ pension in order to reduce the overall scheme deficit. The UK has an aging population to care for that is expected to reach 19 million by 2050. This will mean increased spending on care, medication and the NHS. It could be argued that this will result in continued low pension income, reductions in benefits, and squeezing of pension perks. The onus for pension planning for every single citizen, British or otherwise, is being placed firmly on the individual – thus reducing the reliance upon the state. Given the current and future outlook, can we realistically expect that the state pension will even exist in years to come? It is clear that the state coffers cannot continue to fund the UK’s over-generous benefits system as a whole, and pension benefits appear to have been the first to suffer. “But I’ve got a gold-plated, final-salary company scheme,” you may say. Unfortunately, just because your company promised you a specific income does not mean that it can afford to keep that promise. When final-salary (now ‘salary related’ – I’m sure you can read between the lines) schemes were first introduced, we were not living as long nor were we as healthy, and the markets were on a seemingly-permanent upwards climb. This created the illusion that final-salary schemes were, and would continue to be, affordable. Consider, then, that the problems facing the government could also be facing your old employer – one of the reasons why final-salary schemes are a thing of the past and no longer open to new entrants. Today, 78.7% of total Defined Benefit (‘DB’) salary-related schemes are significantly underfunded; future benefits from a DB scheme are only ‘guaranteed’ as long as the scheme maintains its solvency throughout and for as long as the member and his/her dependents survive. Simply put, a DB pension puts all the money into one ‘pot’ that provides the ben-

STATE PENSIONS

WERE INTRODUCED

IN 1909,

THE AVERAGE MALE LIFE

EXPECTANCY WAS

48 YEARS

efits for all the members. If the total amount in the ‘pot’ is less than the amount the scheme is due to pay now plus the amount it’s committed to pay in the future, then the scheme is in deficit and risks running out of money. In this situation, revaluation (indexation) of benefits in deferment and escalation (increases) of benefits in payment/retirement are certainly not guaranteed. I have seen an increasing number of ‘promised’ DB pensions reduced significantly – recently by as much as £150,000 by a major electronics company. The justification? “How can we pay what we promised? It would mean there’s not enough money to pay the other members”. The scheme has the right to reduce the amount it has ‘promised’ to pay you, and it has an obligation to protect all members of the scheme. Some DB schemes, especially those fully, publicly-funded schemes remain a very good arrangement, but the question is: for how long? So what can we do? There is never a bad time to consider a review, even of a DB scheme. For Gold readers living outside the UK, there is ample opportunity to increase your levels of income (and initial lump sum) by simply considering adhering to the rules of a country other than the UK – you don’t move abroad and live by UK tax rules, so why do so with your pension? You may consider a pension transfer to another scheme, thus protecting your asset from the existing scheme’s deficit, or indeed from any restrictions that may come from the

CAN WE REALISTICALLY EXPECT THAT THE STATE PENSION WILL EVEN EXIST IN YEARS TO COME? UK government. A pension transfer is not suitable in all cases, and each individual has his/her own personal circumstances. Therefore you should always seek professional advice before considering transferring your pension. Beware of unqualified pension ‘experts’ or those purporting to offer benefits that seem too generous. If it seems to good to be true, it normally is. Invest your time in speaking to an experienced advisory company with a large pension client base, one with ties to respectable institutions, and one which will carry out a full pension review prior to giving you any advice.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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advertorial

Ask more from your Business Associates BETTER QUALITY AND LOWER RATES

t a time of drastic economic transformation such as the present, as consumers become more demanding companies will have to either adapt or meet their demise. Inevitably, companies have increasingly higher expectations of their partners. It is, therefore, unavoidable that they need to adapt their strategies and re-evaluate existing practices and traditional operations when these are proven to be ineffective. What was acceptable before, is not now The case of telecommunications is a characteristic one. Rates were a given fact, demands were low and choices were limited. Now everything has changed. Successive technological innovations, optical fibre networks and advanced HSPA+ technology which provides high data transmission with speeds up to 21.6 Mbps, have created a whole new range of options and opportunities for modern enterprises. The range of services offered should not be fixed, either. Every company has its particular, unique needs. Companies should be able to choose the plan and service which suits them best from a range of options, combining ease of use, effectiveness and low rates. At the same time, the concept of customer service has undergone a drastic transformation as well. Companies require a dedicated support team 24/7 which will respond to issues of everyday management, offer guidance and support, and provide effective solutions to any problems that might arise. Finally, the telecommunications partner has to understand its clients’ need to minimise expenses without compromising quality. It is essential to be able to provide lower rates, loyalty schemes and corporate discounts, allow-

ing a reduction of the clients’ operating costs. Seek the best deal on the market, like many others have before you Today’s intelligent company needs to revisit its old partnerships and scan the market again, seeking better deals. ΜΤΝ Business challenges companies to compare what is out there in terms of quality, flexibility, service and cost efficiency. Important multinational and Cypriot companies have done so and they have placed their trust in ΜΤΝ Business. Among them: Bank of Cyprus, Societe Generale, Ernst & Young, PricewaterhouseCoopers, Iacovou Brothers, J&P Avax, Lanitis Bros, Unilever Tseriotis, Petrolina, Aphrodite Hills, DIAS Publishing, JCC Payment Systems, KONE Elevators, MSC Shipmanagement, TNT Express, Lumiere TV, Logicom, Vassos Eliades Ltd, Piperaris Security and many others.

ΜΤΝ Business clients enjoy the best deals on the market. They have the most technologically advanced telecommunications network in Cyprus at their disposal, offering mobile telephony, fixed telephony and Internet with excellent coverage wherever they are, reliability and safety. The new era demands out of the box thinking and customized solutions. Embrace the future. Talk with ΜΤΝ Business and restart your company.

Contact MTN Business by sending an e-mail to corporate@mtn.com.cy or by calling 96969605.

88 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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01/02/2013 12:27

world business

GLOBAL ECONOMIC CENTRE

{BUSINESS}

OF GRAVITY SHIFTS

THE GLOBAL FINANCIAL CRISIS HAS ACCELERATED THE SHIFT OF THE ECONOMIC CENTRE OF GRAVITY, WITH CHINA, THE US AND INDIA SET TO BE THE THREE MAJOR ECONOMIES BY 2050 BUT THE EMERGING ECONOMIES DO FACE MAJOR CHALLENGES IN THEIR BID TO SUSTAIN THEIR RECENT STRONG GROWTH.

hese are just two findings from the latest World in 2050 report published by PwC’s macroeconomics team. The original World in 2050 study in 2006 covered the 17 largest economies: the G7 (France, Germany, Italy, Japan, the UK, the US and Canada) plus Spain, Australia and South Korea; and the E7 (Brazil, Russia, India, China, Indonesia, Mexico and Turkey). The extended 2013 study, entitled World in 2050. The BRICs and Beyond: Prospects, Challenges and Opportunities, also includes Vietnam, Nigeria, South Africa, Malaysia, Poland, Saudi Arabia and Argentina. The report concludes that the emerging economies are set to grow much faster than the G7 over the next four decades. Figures for average growth in GDP in purchasing power parity (PPP) terms show Nigeria leading the way over the period from 2012 to 2050, followed by Vietnam, India, Indonesia, Malaysia, China, Saudi Arabia and South Africa. This means that, in PPP terms, the E7 could overtake the G7 before 2020 and by 2050 China, the US and India could be by far the largest economies, with a big gap to Brazil in fourth place, ahead of Japan. And by the same time, Russia, Mexico and Indonesia could be bigger than Germany or the UK, Turkey could overtake Italy and Nigeria could rise up the league table, as could Vietnam and South Africa in the longer term. Beyond the largest economies, Malaysia has considerable long-term growth potential, while Poland could continue to outpace its Western European neighbours for some decades to come. But what are the risks that could derail emerging market growth? The PwC report cites a

THE EMERGING ECONOMIES ARE SET TO GROW MUCH FASTER THAN THE G7 OVER THE NEXT FOUR DECADES

number of potential sources of macroeconomic and political instability, such as: • High fiscal deficits in India and Brazil • Over-reliance on oil and gas revenues in Russia and Nigeria • Rising income inequality leading to social tensions in China and other fast-growing economies • Macroeconomic and financial instability in Vietnam.

The report also highlights the pressure on natural resources from rapid growth in emerging economies, including the increasing difficulty of keeping global warming to no more than 2°C. While new unconventional energy sources such as shale gas were reducing fears of running out of fossil fuels, the dangers associated with more volatile global climate patterns only seem likely to increase over the next four decades based on the projections in the report.

Actual and projected top 20 economies ranked by GDP in PPP terms 2011

2030

2050

GDP AT PPP PROJECTED PPP (2011 COUNTRY GDP AT PPP RANK COUNTRY US$BN) (2011 US$BN) US 1 China 2 India 3 PPP Japan 4 RANK Germany 5 Russia 6 Brazil 7 France 8 UK 9 Italy 10 Mexico 11 Spain 12

South Korea

14 15 16

Canada Turkey Indonesia

Australia

Poland

Argentina

Saudi Arabia

15094 11347 4531 4381 3221 3031 2305 2303 2287 1979 1761 1512 1504 1398 1243 1131 893

China US India Japan Russia Brazil Germany Mexico UK France Indonesia Turkey

813 720 686

Australia

Italy Korea Spain Canada Saudi Arabia Poland Argentina

30634 23376 13716 5842 5308 4685 4118 3662 3499 3427 2912 2760 2629 2454 2327 2148 1582 1535 1415 1407

COUNTRY China US India Brazil Japan Russia Mexico Indonesia Germany France UK Turkey Nigeria Italy Spain Canada South Korea Saudi Arabia Vietnam Argentina

PROJECTED GDP AT PPP (2011 US$BN)

53856 37998 34704 8825 8065 8013 7409 6346 5822 5714 5598 5032 3964 3867 3612 3549 3545 3090 2715 2620

Source: World Bank estimates for 2011, PwC estimates for 2030 and 2050 The table illustrates the changing league positions in world GDP at PPPs - selected countries are marked in bold to highlight notable changes in rankings over time. A copy of the World in 2050 The BRICs and Beyond: Prospects, challenges and opportunities report can be found at http://www.pwc.com/world2050

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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01/02/2013 12:25

debt

{economy}

Restructuring

Sovereign

Debt Sovereign debt restructuring has been quite a popular process over the years

By Kyproula Papachristodoulou

he largest sovereign debt restructuring deal ever – that of Greece – is the reason why, according to figures revealed by Thomson Reuters, the total value of completed distressed debt and bankruptcy restructuring activity in 2012 was US$422.6 billion, a 102.5% increase over the US$208.6 billion accrued during 2011. Sovereign debt restructuring, understandably condemned in Cyprus these days because of the extremely negative effect it had on the island’s two largest banking groups (representing a loss of around 30% of GDP), has been quite a popular process over the years. An IMF paper (Sovereign Debt Restructurings Between the Years 1950–2010 by Udaibir S. Das, Michael G. Papaioannou, and Christoph Trebesch) illustrates the extent of the practice over the last 60 years. There have been 600 cases of sovereign debt

restructurings in 95 countries, of which 186 debt exchanges were with private creditors (foreign banks and bondholders) while 447 agreements restructured bilateral debt with the Paris Club. It is noteworthy that there has been no distressed sovereign debt restructuring in an advanced economy since 1950, since all restructurings occurred in developing or emerging market economies. Some governments of developing countries have implemented more than a dozen debt restructurings in the last few decades, and these have often been preceded by defaults and debt arrears. By contrast, advanced economies such as the United States, Japan or the countries of the European Monetary Union (with the exception of Greece in 2012), have not undertaken any restructurings since World War II. Most debt restructurings since the 1950s occurred post-default, as they were implemented only after the government went into arrears on all or part of the debt owed

90 Gold the international investment, finance & professional services magazine of cyprus

to private creditors. 109 cases occurred postdefault, while 77 were pre-emptive. Sovereign restructuring can be costly for both the government and its creditors, as well as for the private sector of a debtor country. As noted in the IMF paper, defaults and restructurings may have adverse consequences for the debtor government’s access to capital post-crisis, leading to higher interest premiums and exclusion from capital markets. It has been shown that sovereign debt crises are associated with a notable decline in trade and output while the restructuring of sovereign debt can be costly from an administrative point of view. Finally, there has been considerable debate regarding the degree to which sovereign restructurings affect banks and domestic investors, possibly endangering financial stability. The following experiences of countries that have decided to restructure provide evidence of the complications and predicaments that can arise:

What is debt restructuring?

hile there is no universally accepted definition, a sovereign debt restructuring may be defined as “an exchange of outstanding sovereign debt instruments, such as loans or bonds, for new debt instruments or cash through a legal process”. Sovereign debt, here, refers to debt issued or guaranteed by the government of a sovereign state. One can generally distinguish two main elements in a debt restructuring: •D ebt rescheduling, which can be defined as a lengthening of maturities of the old debt, possibly involving lower interest rates. Debt rescheduling imply debt relief, as it shifts contractual payments into the future; and •D ebt reduction, which can be defined as a reduction in the face (nominal) value of the old instruments (e.g., from US$100 to US$80). Deals with outright face-value reductions are not very common. Since the 1950s, only 57 restructurings with private creditors have implied a face-value reduction, while 129 were pure rescheduling deals and thus limited to an extension of maturities. However, both types of debt operations can involve a “haircut”, i.e. a loss in the present value of creditor claims. A further category of restructurings are debt buybacks, in which outstanding debt instruments are exchanged against cash, often at a discount. Since the 1950s, however, debt reduction via buybacks has remained the exception in the debt crisis context, with a total of only 26 cases recorded. Distressed debt restructurings usually imply some form of debt reduction in present value terms.

Russia 1998–2000

In 1997 and early 1998, oil prices fell and the Russian government faced a substantial decrease in export revenues, resulting in increased domestic borrowing. By mid-July 1998, debt service payments exceeded US$1 billion and interest rates in domestic GKO (Government Short-Term Commitments) bond markets had been steadily increasing. Under mounting financial pressure, the authorities launched a voluntary exchange programme to convert short-term rouble-denominated debt into longer-term foreign currency denominated bonds. The exchange programme, however, was ineffective and achieved only low creditor participation. In addition, the adjustment programme agreed with the IMF went off track. With reserves at precarious levels and a loss of access to IMF funds, the authorities declared a unilateral moratorium on debt service payments on August 17, 1998. Shortly afterwards, the government initiated debt renegotiations

with domestic and private creditors, resulting in a domestic debt restructuring in May 1999 and a foreign debt exchange in August 2000.

Ecuador 1999–2000

In August 1999, Ecuador announced a payment suspension on its Brady bonds, five years after the Brady deal put an end to its debt crisis of the 1980s. The August default occurred after several adverse shocks hit the domestic economy, including flood damage caused by the El Nino weather phenomenon, a drop in capital inflows and a systemic banking crisis, which erupted in 1998 and 1999. Government and Central Bank support to failing banks contributed to a currency crisis and a sharp fall in reserves in early 1999. This, together with a high public debt burden of about 100% of GDP, made it increasingly difficult to service upcoming debt payments. After going into arrears, the government prepared an IMF-supported exchange offer, which was publicly launched in July 2000.

Argentina 2002–2005

The Argentine economy entered recession in 1998 and a declaration of default followed in early 2002. In the late 1990s, the country faced a rigid currency board and several negative external shocks (e.g., the Russian and Asian crises, US dollar appreciation, Brazil’s devaluation, and low export prices). In October 2001, the banking system had lost 9% of its deposits and credit spreads reached 1,600 bps. As capital outflows continued, the authorities froze bank accounts in December 2001 and soon thereafter declared a default on the entire government debt stock. The debt exchange was carried out between January and April 2005.

rebuild the country’s key industries. The offer opened in September 2005 and foresaw an exchange of outstanding commercial debt into new 20-year bonds at par. By November, the offer had achieved a participation rate of 97%.

Dominican Republic 2005

Contingent liabilities played a major role in the debt crisis of the Dominican Republic. In 2002 and 2003, largescale fraud and losses were discovered in several major banks, resulting in bank runs and a systemic financial crisis. The government responded with an extensive support programme, largely financed by foreign bond placements. The rescue efforts contributed to a depreciating currency, rising inflation, and an increase in the debt to GDP ratio from around 26% in 2002 to 54% at the end of 2003. During the same period, reserves fell from over 151% of short-term debt to just 31%. In August 2004, after a new president was sworn in, the government adopted a comprehensive crisis resolution strategy, which also entailed the restructuring of external debt. After a period of close creditor consultations, the government launched a bond exchange offer in April 2005, which involved no principal haircut but an extension of maturities by five years.

Ecuador 2008–2009

Ecuador’s default of November 2008 is often seen as an exceptional case. It occurred at a ratio of public debt to GDP of only 23% and was not triggered by a severe economic crisis. The government decided to suspend payments on two global bonds maturing in 2012 and 2030, after an audit commission declared these debts as “immoral,” “illegal” and “ilGrenada 2004–2005 legitimate”. Between April and November Grenada’s debt restructuring in late-2005 was 2009, the government then launched several implemented about one year after Hurricane Ivan caused severe economic damage, amount- rounds of debt buyback, which repurchased the two bonds against cash at a steep discount ing to more than 200% of the country’s of 65-70% on their nominal GDP. Amongst face value. Despite other serious consequences, The total value of an estimated 90% of homes completed distressed creditor attempts to the offer, the ofon the island were destroyed debt and bankruptcy block fers reached an overall or damaged, badly affecting restructuring rate of livelihoods and the country’s activity in 2012 was participation 95% of outstanding tourism sector. The governbonds, amounting ment announced a debt to about one-third of exchange offer in Decembillion total external debt. ber 2004, with the main intention of buying time to

US$422.6

the international investment, finance & professional services magazine of cyprus

Gold 91

new legislation Troika Measures

{TAX&LEGAL}

n view of the Memorandum of Understanding between the Republic of Cyprus and the Troika (the European Commission, the International Monetary Fund and the European Central Bank) for financial assistance, the House of Representatives was particularly active at the end of 2012, approving no fewer than 25 new or amended laws with the aim of meeting targets agreed with the Troika. There are number of new laws which effect both local and international investors and businesses.

Companies Law Cap 113 – Annual Levy of €350

According to the Companies Law Cap 113, it is compulsory for all companies registered with the Company Registrar to pay the annual fee of €350.The amendment extends the application of the existing annual fee to include dormant companies.

Carrying Forward of Tax Losses Tax losses will no longer be able to be carried forward indefinitely and all legal persons who have the obligation to prepare audited financial statements will now be able to carry forward tax losses only for a period of five years.

Provisional Tax Returns

The dates for filing provisional tax returns have been amended. Returns are now required to be submitted prior to 31 July (instead of 1 August) and provisional tax payments are to be made in two instalments instead of three, the first being on 31 July and the second on 31 December, effective from January 1 2013.

Social Insurance

Various amendments have been made to the Social Insurances Law including an increase in contributions of 1% for both employers and employees resulting to a total contribution of 7.8% each from 2014 and the gradual increase of the retirement age from 63 to 65 (six months per year). In addition, the maximum amount of insured emoluments has been raised to €54,396 (€1,046 for weekly paid employees and €4,533for monthly paid employees). The aforementioned change is to be applied from the first payroll of the year 2013.

and the debate was adjourned. The matter has already been discussed during a number of various parliamentary sessions. Interior Minister Eleni Mavrou said at the end of the year that the bill would not now update property values using the Consumer Price Index (CPI) to 2012. Instead, there will be no change in the way immovable property tax is currently calculated, which is based on the property’s value on January 1, 1980.

VAT

As of January 14 2013, the standard VAT increased from 17% to 18% and will subsequently be raised to 19% as of January 13, 2014. In addition, the reduced VAT rate of 8% will rise to 9% on January 13 2014.

OTHER AMENDMENTS TO LAWS

An immediate increase in purchase tax was introduced on petroleum products, tobacco and alcohol products, excluding wine. A special law on administrative cooperation for the exchange of information between EU member states for the collection of taxes was passed. The special temporary contribution paid by employees, pensioners, self-employed, government and semi-government officials was extended for another three years until 31 December 2016.

Immovable Property Tax

In December the House of Representatives also engaged in discussions on a bill concerning the imposition of tax on immovable property. However, it failed to reach consensus

Laws Amended to Comply with Troika Measures

BOOK REVIEW TAP DANCING TO WORK: WARREN BUFFETT ON PRACTICALLY EVERYTHING, 1966-2012 BY CAROL LOOMIS (PORTFOLIO PENGUIN, 2012) RRP: £20.00 (£12.80 FROM AMAZON.CO.UK)

arol Loomis has written about Warren Buffett since 1966 when she penned the first mention of his name for Fortune magazine where she still works. For the past 35 years she has edited Buffett’s eagerly-awaited annual letter to the shareholders of Berkshire-Hathaway. This book draws from decades of articles, editorials, and interviews to highlight Buffett’s belief that “a good business is run and a good life is led.” The man who was so happy with his lot that he went ‘tap dancing to work’ has consistently advised that it is best to buy “things that make more things” rather than gold or other commodities and he prefers investments that do not involve high technology (admitting that he’s not so knowledgeable in that area), that serve a strong demand, are well-managed, bring in strong financial returns, have minimal capital requirements and low debt, and are protected by a strong ‘moat’ that provides a sustainable competitive advantage. This is essentially a fine biography of one of the world’s richest and most fascinating people.

92 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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01/02/2013 12:42

tax revenues

ON THE RISE

PROACTIVE EU TAX MEASURES LEAD TO INCREASED REVENUES

By Kyproulla Papachristodoulou

ctive revenue-raising measures employed by some EU member states during the financial crisis resulted in an increase in tax revenue to pre-crisis

levels in 2011. According to the latest Eurostat analysis, despite the fact that tax revenue fell in the EU and the euro area (EA) in 20082009 for the first time since 1995, a sharp increase was nevertheless recorded in 2011 bringing total tax revenues to about 90% of total general government revenue. The proportional increase in tax revenues was higher than that in GDP, which has also resulted in an increase in the tax-revenue-to-GDP ratio in both the EU and the euro area. As noted, this recovery can be partly attributed to revenue-raising measures such as increases in the VAT rate and the introduction of new taxes, such as bank levies, air passenger duties and property taxes.

THE PROPORTIONAL INCREASE IN TAX REVENUES WAS HIGHER THAN THAT IN GDP. The effects of the economic and financial crisis on tax revenues from 2007 onwards were very obvious. From its last spike in 2006 in the EU-27 the ratio of tax revenue to GDP decreased by 1.1% to 39.6 % in 2010, while the ratio for the EA-17 also decreased by 0.9% of GDP from its peak of 41.2% in 2007 to 40.3% in 2010. In 2011, tax revenues in terms of GDP increased substantially, due to absolute

tax revenues increasing along the same path as in the previous year, but nominal GDP growth being lower. This also reflects proactive tax measures taken by member states in recent years to correct their deficits. EA-17 tax revenue as a percentage of GDP remains at a slightly higher level than EU tax revenue. As a ratio of GDP, tax revenues (including social contributions) accounted for 40.0% of GDP in the European Union (EU27) and 40.8% of GDP in the euro area (EA-17). This represents an increase of 0.4% of GDP in the EU-27 and 0.5% in the EA-17. Taxes on production and imports accounted for 13.4% of GDP and current taxes on income, wealth, etc. 12.6% of GDP. The share of current taxes on income, wealth, etc. decreased between 2007 and 2010 but a slight increase was seen in 2011. The share of social contributions increased noticeably from 2008 to 2009, decreased further in 2010, but stayed relatively stable between 2010 and 2011 to reach 13.9% of GDP. The crisis – together with fiscal policy measures adopted in the countries – had a strong impact on the level and composition of tax revenue in 2009-2011, and the first effects had already become visible in 2008. Figures show that the ratio of tax revenue to GDP was highest in Denmark, Belgium and France (48.6%, 46.7% and 45.9% respectively in 2011) while the lowest shares were recorded in Lithuania (26.4% of GDP), Bulgaria (27.2%) and Latvia (27.7%). Among the countries which have joined the EU since 2004, Slovenia and Hungary had the highest tax revenue-to-GDP ratios at 37.5% and 37.1% of GDP respectively. Even so, tax revenues in Slovenia

are still 2.5% of GDP lower than in the EU-27. Among the countries which joined the EU before 2004, Ireland (30.4% of GDP), Spain (32.4%) and Greece (34.9%) recorded the lowest revenues from taxes. Cyprus’ tax revenueto-GDP ratio stood at 35.2%. Current taxes on income, wealth, etc. include taxes on income, which cover taxes on individual or household income as well as the income or profits of corporations, and include taxes on holding gains. By far the highest importance of such taxes is noted for Denmark which raised the equivalent of 29.7% of GDP from these taxes in 2011. However, the comparatively high ratio for Denmark is due to the fact that most welfare spending is financed via taxes on income and, consequently, the figures for actual social contributions are very low, relative to other countries. The next-highest figures were recorded by Norway and Sweden, which raised 21.6% and 18.7% of GDP respectively from current taxes on income, wealth, etc. At the other end of the scale, Lithuania (4.4% of GDP in 2011) and Bulgaria (4.9% of GDP in 2011) had relatively small revenues from these taxes.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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{LIFESTYLE}

Scotch

is definitely

not on

the rocks

INVESTING IN WHISKY ULTIMATELY REQUIRES A SOBER MIND AND AN INTOXICATED HEART. By Chloe Panayides

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whisky

What’s in a name? When Romeo’s young love, Juliet, grappled with this question in Shakespeare’s famous play, she concluded resolutely that “that which we call a rose by any other name would smell as sweet”. Whisky venerators are otherwise adamant: everything is in the name. Whilst the difference between whisky and whiskey may be ever so slight in letters, in numbers it seems to constitute a chasm separating priceless from price less; the difference between investing in a bottle for an intoxicatingly pleasing return and investing in a bottle for pure intoxication. The Editor of the Oxford English Dictionary, Jesse Sheidlower, explains the geographical resonance: “As an aficionado of whisky and whiskey, I do have deep feelings on the usage. It is not a case where a small group of fanatics are insisting on some highly personal interpretation of an issue that is not adhered to by anyone outside their cult. It is almost universally the case that the

word is spelled ‘whisky’ in Scotland and come the culmination of its time in the Canada, and ‘whiskey’ elsewhere.” cask; once bottled, changes to chemical Transcending geography, a hierarchy make-up and, thus, taste desist. Therebursts forth: despite others’ best efforts fore, whisky that has been bottled for and worthy production emanating from many years may have a rarity value, but various alternative locations, it is Scotch it is not necessarily ‘older’ or of higher whisky – born and bred in Scotland – quality than a whisky any number of that is enduring as the pulsating epicenyears its junior, should the latter have tre of whisky life in the connoisseurs’ been retained in its cask for longer. estimation. Having phonetically evolved from the Single malts in particular, produced Gaelic uisge beatha meaning ‘water of from malted barley – which have long life’, whisky was traditionally utilised been viewed as the exclusive province for medicinal purposes, being prescribed of Scottish whisky, compared, for for the example, to American whiskeys preservaWHISKY IS CONSIDERED that are traditionally distilled from tion of THE MARK OF A FINE corn and rye – are glowing atop the health LIFE, A LUXURIOUS pedestal of coveted whisky. and the EXPRESSION OF GOOD prolonPoint of reference? Blends of foreign whiskey dating back to the gation TASTE AND STATUS early 1900s are currently circulating of life. in the market for low- to midContemhundreds; examples of single malt porarily, it is considered the mark of a Scotch whisky, bottled in the fine life, a luxurious expression of good same era, are orchestrating the taste and status. giving of thousands for their And, indeed, it is precisely this characquisition: alas, whiskey does acterisation that is innovating whisky not seem to smell as sweet as whisky. into an investment. In essence, whisky is a distillate made Members of the new wealth belongfrom fermented grain mash. Scottish ing to developing BRIC powerhouses whisky law commands that copper pot – Brazil, Russia, India and China – are stills, as opposed to column stills, be nurturing their appetite for the finest used for the distillation process; it is examples of whisky. So much so, that thought that the former retain more Brazil’s whisky market was the fastof the character, texture and flavour of est growing worldwide in 2011, with the original mash. Thereafter, ageing imports from Scotland up by 48% takes place in oak casks. Unlike wine, compared with the figures that the year whisky’s full maturation is reached 2000 accrued. China, likewise, has been creating staggering whisky waves, with Barclays’ 2012 Wealth Insights Report revealing that collectibles (whisky, most notably) make up 16.6% of Chinese high-net worth individuals’ wealth; a considerable amount more than the 10% global whisky lover’s and those who wished average. young enthusiast’s to further refine tasting pleasure. their knowledge. Still, on a worldwide scale, the Scotch Specialists were on Whilst hailed as Whisky Association indicates that hand to guide in this having been a great whisky exports from Scotland were up luxury exploration success, no official 23% in 2011, whilst Whisky Highland and celebration of confirmation has yet conjectures that the value of the auction the amber alcohol, been released as market will soar from the €4.8 million while masterclasses to whether a 2013 were available for show is on the way. it stood at in 2011 to a dizzying €20.2 million in 2020.

Whisky: Alive in Cyprus

n partnership with Scotland’s tourist board, Visit Scotland, the world-class premier whisky tasting show, Whisky Live, visited Cyprus towards the

end of 2012, staging its very first show on the island. Hosted by the Hilton Cyprus between November 14-16, the finest whiskies were brought all together under one roof for the long-time

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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whisky

DISTILLERIES ON DISPLAY

pecialist website, Whisky Highland, provides an index guiding both the curious and the connoisseur in the right direction in search of the top

distilleries which have produced notable collectable bottles. Rather than assessing retail whisky sales, the data was collected from UK auction values. Taking into account four variables – the total

value of collectable bottles sold from that distillery, the highest single bottle price sold, the average price per collectable bottle and the highest percentage gain in value for collectable bottles

– the index displays the distilleries with the most profitable market activity as of the fourth quarter of 2012. With the highest attainable score being 100, the top ten distilleries are as follows:

Ba lve nie

e or lm Da

M ac al la n

Brora

len El rt Po

95.10

90.70

90.55

87.40

Glenfiddich

Bo wm or e

Gle nliv et

eg db Ar

Mortlach

86.00

85.75

83.60

The eye-opening numbers do not stop there. Whisky Highland also reports that the top 250 investment grade whiskies grew in value by 183% between 2008 and 2012, with the top 10 gaining 297% in value over the same period. In need of

82.70

79.00

further consolidation? The March 2012 record sale at an auction in New York of a hand-blown bottle of Glenfiddich Janet Sheed Roberts Reserve – a 55-year-old rarity, being only one of 11 produced for the public – garnered €70,580 which

constituted a 26.6% increase on the previous record set just four months prior in December 2011. So far, so good; the numbers are moving fast, and they’re moving in the right direction. The hearts of collectors and investors may be dizzied with a love of whisky, but their vision is clear: wade into whisky’s waters with knowledge and know-how. The key to successfully navigating the whisky market is, of course, being able to discern which bottles are – or will be – of value. Specialists advise that commemorative, single cask, discontinued lines, limited editions, special releases and small batch bottling are of primary attraction to investors and collectors. A fortune, likewise, need not necessarily be spent on any single bottle to see a significant return. Ardbeg Very Young, for example, cost €30 when released in 2004; it now regularly sells for €200 to €250. A bottle of Glenfiddich Mary 2 – of which only 250 examples were produced in celebration of the Queen Mary 2’s maiden voyage from Southampton to New York in 2004 – is a classic example of a vintage single cask limited release. Its original retail price stood strong at €200; even more stalwart is its current selling price which is in excess of €600. The examples are endless. Moving into more awe-inspiring digits, Dalmore’s ‘Drew Sinclair’ 62-year old whisky is demonstrative of the intensifying thrall that whisky has over its admirers. With only 12 individuallynamed bottles released, Dalmore’s ‘Drew Sinclair’ may boast an economic maturation of over €120,000 in ten years. One bottle was recorded as having sold for €26,000 in 2002, with another being acquired in exchange for €41,700 in 2005. The latter months of 2011 saw another bottle sold in Singapore: this time, an anonymous Chinese businessman invested €149,000 in a Drew Sinclair. The Director of Rare Whisky at Dalmore, David Robertson, is one of the select few to have tasted the whisky, reporting: “Flavours of honey, Seville oranges, coffee, bitter chocolate, cardamom, cloves, ginger and almonds are all prevalent. This is a magnificent malt, and I can’t help but feel that the buyer has got a bargain!” Whether a bargain or not, it was surely an investment of minimised risk, if only because of the name attached to the bottle. There are select distilleries that are unquestionably far more sought after than others; iconic, even.

96 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Names such as Macallan, Dalmore, Ardbeg, Lagavulin, Glenfiddich, and Highland Park should all have tastebuds being tantalised and eyes widening as to the possibilities they present in the collector’s world. Still, despite the evidenced prevailing love of whisky, there are both logistical and economic factors to be brought forth for consideration. From a logistical standpoint, one does not merely invest in the acquisition of a high-grade bottle of whisky; its ongoing care is a lifetime commitment, should an investor want to adequately retain the product’s value. Unlike wine, whisky must be stored in an upright position. Safekeeping one’s bottles horizontally may result in corrosion of the cork stoppers due to the sheer strength of the alcohol, causing ailments spanning evaporation, the build-up of sediment, and even leakage. Sunlight and damp must be avoided at all costs to ensure that labels, presentation boxes, certificates and even neck hangers are preserved; should damage, in any slightness, befall the bottle itself, the overall valuation dramatically decreases. Finally, a constant room temperature should ideally be retained. Variations may cause the fill level of the whisky to fluctuate (lower in the cold and higher in the warmth). This constant changing of pressure inside the bottle may result in evaporation over a significant period of time. From an economic perspective, a great deal of trust – alongside money – is invested in the distilleries that are revered for producing bottled apotheoses of whisky. Should the distillery decide to alter its commercial direction, a risk is run that negative waves may pervade the whisky world resulting in a downturn of value. Distillery Glenmorangie may be used as an example. Performing well up until 2009, the values of its otherwise exceptionally rare bottles have declined. One reason is said to be the distillery’s cessation of outputting any kind of limited or special release: the collector community’s gaze was thus instantly drawn away from Glenmorangie’s activity. Another alteration undertaken by the distillery that impacted its market performance was the closure of its ‘Speakeasy’ tour feature, through which visiting individuals could bottle their own cask strength whisky. Lastly, a move away from

their traditionally shaped bottles was instigated; no doubt intended as an innovation, it seemed to upset, rather, the whisky community’s adoration of the distillery’s products, and therefore the latter’s profitability. At the opposite end of the spectrum, a distillery that is over-zealous in its release of limited editions utterly dilutes the rarity and thus the fecundity of its bottles. In 2009, Bruichladdich released in the region of 48 different so-called limited editions: when everything is limited, nothing truly is. And, indeed, should supply levels fast gain on demand, a retraction of value is the natural demonstrable outcome. Whisky’s market liquidity may also result in binding one’s possible profit. Whilst private sales may surely occur, the only current ready market for whisky is an auction, with the possibility of auctioneers’ commissions – if not properly heeded – denting one’s return. Take, for a created example, a bottle that is bought for €100 under the hammer. Add, thereafter, the 25% auctioneer’s commission and a hypothetical 20% VAT on commission, and a grand total steps forth of €130. Should the bottle rise in value by 20% over a 12-month period, the numbers would look like this: sale value would stand at €120; subtract the auctioneer’s commission and the VAT, and one is left with the net sale total of €98.40. Conclusion? Liquidity may be a real issue to contend with. Ideally, a 0%-10% commission for buyers and 10% for sellers should be sought to ensure worthwhile gains. Recently, a bottle of Balvenie Craftsman’s ‘The Cooper’ sold for €370 at auction. The bottle cost €77 upon its retail release. Deduct the 10% commission and the seller was still

left with a healthy gain of €256, or 229% in a mere six months. Not bad! As with all markets

A HAND-BLOWN BOTTLE OF GLENFIDDICH JANET SHEED ROBERTS RESERVE GARNERED

€70,580 AT AUCTION

whose value is not necessarily intrinsic – based, rather, upon demand – investing in whisky ultimately requires, in would seem, a sober mind and intoxicated heart. All experts agree: it is passion that must lie at the core of one’s whisky ventures, spurring, thereafter, one’s thirst for insider facts and figures; no investment is foolproof. The founder of Whisky Highland, Andy Simpson, describes it thus: “As a very worst case scenario, if a bottle of whisky is left with zero value you can always drink it. That’s where the cardinal rule of whisky investing comes into its own: you have to love whisky.” Cheers to that!

BOOK REVIEW A YEAR OF DOING GOOD BY JUDITH O’REILLY (PENGUIN, 2013) RRP: £7.99 (£5.99 FROM AMAZON.CO.UK)

ubtitled One Woman, One New Year’s Resolution, 365 Good Deeds, this beautifully written book tells how writer and journalist Judith O’Reilly decided to try to do one good deed every day for a year and how she achieved her goal. Her ambitious New Year’s Resolution not only gave her an interesting (albeit exhausting) year but it enabled her to achieve many great things, including raising £20,000 from loose change kept in jam jars, enabling the imagination of a disabled child, and protecting the sanity of some of her dear friends without them even realising. Being good involves both big and not-so-big actions but they all need to have thought behind them, as the desire to be good isn’t always that instinctive. What she proves in the end is that doing good is worthwhile, despite the occasional glitch in making it all happen. O’Reilly’s writing is witty, humorous, thought-provoking and inspirational. Lots of readers will be taking a greater interest in their loose change from now on.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Seeing Stars and Hearing Silence

the last word

Memories of Greece, America and Africa

By Peter Economides

I worked with someone. An Italian. He had a name for me. “The Greek American Zulu”. This was a reference to the most important places and cultures that have influenced me. Greek: My origins, my DNA, the essence of who I am. And Greece. This crazy unpredictable country that I have now chosen as home. Beautiful Greece. American: Because of my years working in the world’s largest American advertising agencies with some of the world’s largest American brands. And my time in that wonderful city called New York. Zulu: South Africa. Where I was born and where I grew up. The place I called home for so many years and the place I still go home to every year. Religiously. Without fail. And not just because my mother, my brother and my sister live there. I go to visit places with names such as Okavango, Mashatu, Phinda, Hluhluwe, Mtunzini. Magical mystical places. Like Magadigadi. Have you ever seen so many stars that the night no longer appears dark? Have you ever heard silence so silent that it is loud and your ears hurt? You will in the Magadigadi Pan. Hundreds of square kilometres of dry lake bed. Flatness. A landscape devoid of any landmarks. Nothing to distinguish left from right or north from south.

A strange eerie wilderness. It’s a long, long story but I once spent a night on a luxurious bed planted in the

My frequent advice to troubled friends is that they should look into the eyes of a lion

middle of this strange landscape. A night with so many stars that the Milky Way looked like a river. A night so silent that I swear my ears hurt. One of the most memorable nights of my life. I love Greece. A country so sweet, so warm, so welcoming. A country that truly feels like the cradle of civilization. Even before you see traces of culture. I love America. So young. So brash. So daring. So loud. So adventurous. So ambitious. So ... American. And I love Africa. So primaeval. So raw. Such a reminder of who we really are. How big and how small we are. And if you’ve ever been on safari you’ll know what I am talking about. Ever walked through the bush? Ever looked into the eyes of a lion, understanding that he’s looking straight back at you? It’s enough to clear you of anything. Nothing is more essential. No problem is serious enough to warrant your attention. Nothing is more sobering. It’s why my frequent advice to troubled friends is that they should look into the eyes of a lion. They get it. I chose to leave Africa for the simple reason that I felt somehow isolated at the bottom end of the world. That I was too far from the centre. But now I realize that maybe this was the centre. Because it is where you see the stars and hear the silence and look into the eyes of the lion.

info: Peter Economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens. Follow Peter on facebook at http://www.facebook.com/economidespeter or on Twitter @petereconomides

98 Gold the international investment, finance & professional services magazine of cyprus

More than just a holiday destination with pristine white beaches and 300 days of sunshine, Cyprus can also cater to your business needs ranging from registering and setting up your company’s operations to managing your EU, North African and Middle Eastern clients at a considerably lower cost. As well as being an EU country and a member of the European Monetary Union since 2008, Cyprus enjoys the lowest corporate tax rate in the EU of 10%. Cyprus belongs to those jurisdictions on the OECD White List which have substantially implemented the internationally agreed tax standard. In addition to this, Cyprus provides efficient business services, has a transparent legal and regulatory system and is committed to sustainable growth. Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.

Cyprus Investment Promotion Agency Tel + 357 22 441133 Fax + 357 22 441134 www.cipa.org.cy info@cipa.org.cy

Ministry of Commerce, Industry & Tourism Trade Service Tel: + 357 22 867100 Fax:+ 357 22 375120 www.mcit.gov.cy/ts ts@mcit.gov.cy

“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime, communication system, banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd

“The favorable business climate, the excellent

telecommunications

infra-

structure, the well educated and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s. Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros

Barclays. A bank with a tradition of strength. It’s a tradition that has lasted in Cyprus for over 70 years, delivering the highest levels of local knowledge combined with unrivalled international reach. As one of our clients you will have access to our team of highly experienced professionals who provide seamless banking and corporate solutions. They are your gateway to the vast range of support and expertise available from Barclays globally. Whether you operate locally or internationally, our tradition of strength will help you create a culture of success. To find out more about how Barclays can help, go to barclays.com/wealth or call us on +357 22 654477* for our Nicosia office or +357 25 208000* for our Limassol office.

*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and is authorised and regulated by the Financial Services Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Central Bank of Cyprus to conduct banking and investment business.