Gold 17 by INBusiness

ISSUE 16 JULY 2012 PRICE €6.95

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold ISSUE 16 JULY 2012

CYPRUS BUSINESS LEADERS SURVEY

As the economic and banking crises tighten their grip on Cyprus, the overwhelming majority of the country’s business leaders remain optimistic about the future of the services sector.

+ THEO PANAYOTOU, FRIXOS SAVVIDES, MARIOS XENOPHONTOS CYPRUS

Presides over the Council of the EU

gold cover me diafimiseis.indd 1

INTERVIEWS

Kirsten Geelan Angela Knight Henk Potts

LIFESTYLE

London 2012 Going for Gold?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

02/07/2012 09:04

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

“Columbia’s growth and expansion over the years is attributed to the uniqueness of Cyprus; being the island’s strategic position at the crossroads of three continents, its comprehensive legal framework, double tax treaties regime,

communication

system,

banking system, infrastructure in general and last but not least its highly educated labor force.” Captain Dirk Fry, Managing Director Columbia Ship Management Ltd

“The the

favorable excellent

infrastructure,

business

climate,

telecommunications the

well

educated

and skilled human resources, the favorable tax rates and the proximity to the Middle East and Africa markets, were some of the key factors that enabled NCR to decide to move its regional offices to Cyprus in the 80’s.

Cyprus welcomes both visitors and investors to work here, so, if you are searching for a new business base, consider Cyprus. It’s more than just beaches and sun.

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

gold cover me diafimiseis.indd 2

Gradually, NCR managed to expand the office in Cyprus to cover also all the African Countries.” Managing Director of NCR Cyprus, Mr. George Flouros

The Ministry of Commerce, Industry and Tourism Tel + 357 22 867100 Fax + 357 22 375120 www.mcit.gov.cy/ts perm.sec@mcit.gov.cy

02/07/2012 09:04

www.pwc.com.cy

We wish Andreas the best of success

We support the efforts of our sailing athlete Andreas Cariolou at the “London 2012” Olympics and we wish him every success. PwC is the proud sponsor of Andreas Cariolou since 2008.

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08 EDITORIAL 10 UP FRONT 16 FIVE MINUTES WITH

issue 16 july 2012

CYPRUS BUSINESS LEADERS SURVEY

+ OPINION THE WELCOME LESSONS OF THE CYPRUS PRESIDENCY by Miltiades Miltiadou

SEEING THE BIGGER PICTURE by Stelios Violaris 64 IMMIGRATION IS GOOD FOR THE ECONOMY by Dr. Savvas Savouris 79 HEROES AND VILLAINS by Peter Economides

AS THE ECONOMIC AND BANKING CRISES TIGHTEN THEIR GRIP ON CYPRUS, THE OVERWHELMING MAJORITY OF THE COUNTRY’S BUSINESS LEADERS REMAIN OPTIMISTIC ABOUT THE FUTURE OF THE PROFESSIONAL SERVICES SECTOR.

62 52

40 FEATURE 40 | A KNIGHT IN BANKER’S ARMOUR

48 | THE WORLD’S HIGHEST JOBLESS RATES

Interview with Angela Knight, CEO of the British Bankers Association

The 10 countries with the highest unemployment rates among the world’s 50 largest economies

44 | DISPUTE RESOLUTION Chambers Europe identifies the leading Cypriot law firms and individuals

46 | NON-BELIEVER IN THE ASIAN GROWTH MIRACLE Steen Jakobsen is not convinced by the rhetoric

52 | PRESIDENTIAL SUCCESSION Kirsten Geelan, Amabassador of Denmark to Cyprus, talks about the Danish Presidency of the Council of the European Union… and much more

58 | YESTERDAY’S PAPERS Minding other people’s business has turned Fileminders into a major success story

62 | A MATCH MADE IN HEAVEN An indecisive Cyprus presides over an indecisive European Union, says Theo Panayotou

66 70 76 80 86

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

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

contents.indd 6

29/06/2012 09:05

EDITORIAL

Reality Check

ISSUE 16 JULY 2012 PRICE €6.95

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

CYPRUS BUSINESS

New York Times article published at the end of June notes that “When the Republic of Cyprus takes over the European Union’s rotating presidency on 1 July, it will have one qualification that could help endear it to the crisis-weary bloc and its 495 million citizens: it, too, is nearly broke. What was supposed to be a proud moment for this tiny island of nearly 800,000 people is turning out to be an awkward embarrassment. The country, whose banks are heavily exposed to Greece’s problems, was forced to request a bailout for its ailing banking sector from the very group of nations it is supposed to lead.” Well, let’s not exaggerate the bit about ‘leading’ Europe. Yes, the island has now assumed the Presidency of the Council of the European Union and the government and civil service will undoubtedly be under pressure to reach levels of administrative efficiency such as they have never known, but the responsibility for coordinating meetings on issues that have been handed on by the Danish Presidency does not mean that Demetris Christofias is miraculously going to turn into Angela Merkel for six months (though many people would probably happily accept the transformation). So despite a few lone voices suggesting that the island’s financial situation should rule it out of holding the rotating presidency, the idea is totally unfounded. Critics should remember that exactly two years ago, Belgium took over the Presidency and it did not even have a government. Cyprus at least has that, even though, as the results of the 2012 Cyprus Business Leaders Survey suggest (see this month’s cover story), most businesspeople on the island support a change of government, not least because they believe that the present administration could have acted earlier and more decisively to prevent the situation in which it now finds itself: asking the European Financial Stability Facility to bail out both the economy and the banking system. It is true that certain aspects of the global financial crisis were out of Cyprus’s control and no government would have done any better had it been in power. It is also true, however, that a lack of leadership and an unwillingness to take actions that everyone in Cyprus and outside knows to be necessary (starting with reducing the size of the civil service, modernizing and making it more productive) have meant that others will now impose these and other measures on the country. There is some credence in the argument that the government has let things come to this in order to avoid being seen taking unpopular measures and to have someone else to blame for the hardship that may follow (those nasty foreigners, who else?) However many billions of euros Cyprus needs to overcome its present difficulties and to kickstart growth, the amount is small in the context of the eurozone’s faltering economies. As CIBA President Frixos Savvides told his association’s AGM last month (see page 74), Cyprus needs to fight to retain its key tax advantages for locally-based international companies if the professional services sector is to continue to thrive. An important finding of our 2012 Cyprus Business Leaders Survey is that most businesspeople remain optimistic about the prospects for their own organisations and sectors. And while their views were expressed a few days before Cyprus officially applied to the EFSF, they were expressed firmly enough to suggest that the government’s move was not entirely unexpected and that they still believe in Cyprus’ ability to recover from a crisis not entirely of its own making. We agree with the optimists and take the view that the glasses of water on the EU ministerial tables over the next six months will definitely be half-full rather than halfempty. Nonetheless, the application for EU assistance should serve as a reality check for those who have obstinately refused to accept the obvious, to shoulder their responsibilities and to take difficult but necessary decisions. Anyone who thought that 2012 was going to be an improvement on 2011 for Cyprus should think again. But at least we are ‘leading Europe’. The New York Times says so.

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

LEADERS SURVEY

As the economic and banking crises tighten their grip on Cyprus, the overwhelming majority of the country’s business leaders remain optimistic about the future of the services sector.

+ THEO PANAYOTOU, FRIXOS SAVVIDES, MARIOS XENOPHONTOS CYPRUS

Presides over the Council of the EU

INTERVIEWS

Kirsten Geelan Angela Knight Henk Potts

LIFESTYLE

London 2012 Going for Gold?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

cover_final.indd 15

29/06/2012 08:09

PUBLISHED BY IMH ISSN 1986 - 3543

MANAGING DIRECTOR:

George Michail

GENERAL MANAGER:

Daphne Roditou Tang

MEDIA MANAGER: Elena Leontiou EDITOR-IN-CHIEF:

John Vickers

SENIOR EDITOR:

Costa Ioannides

CONTRIBUTING EDITORS:

Antonis Antoniou, Stella Mourettou, Maria Pilidou CONTRIBUTORS TO THIS ISSUE:

Peter Economides, Steen Jakobsen, Boris Lazic, Nathalie Kyrou, Miltiades Miltiadou, Dr. Theodore Panayotou, Dr. Savvas Savouri, Stelios Violaris ART DIRECTION:

Anna Theodosiou SENIOR DESIGNER: Maria Kyriakou PHOTOGRAPHY:

Olesia Constantinou, Jo Michaelides MARKETING EXECUTIVE:

Kevi Chishios

SALES & BUSINESS DEVELOPMENT EXECUTIVE:

Christos Kyriakides

ADVERTISING EXECUTIVES:

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SUBSCRIPTIONS:

Kevi Chishios PRINTERS:

Cassoulides Masterprinters CONTACT: 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus Mailing address: P.O.Box 21185, 1503, Nicosia, Cyprus Tel: +357 22505555, Fax: +357 22679820 e-mail: gold@imh.com.cy website: www.goldmagazine.com.cy subscriptions: goldsubscriptions@imh.com.cy

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

editorial.indd 8

29/06/2012 08:54

up front

Complex Pay Plans are a PwC and LSE study finds that executives ‘Motivation Killer’ don’t value their pay plans

ncentives have become so complex and volatile that they no longer motivate the executives they are aimed at, according to new PwC research carried out in conjunction with the London School of Economics and Political Science. The study found that that the value executives place on many features of current pay packages is materially lower than the cost to companies of providing them. In many cases, executives would be happier being paid a smaller salary in a less complex and less volatile form. The Psychology of Incentives study of over 1,100 participants reveals that executives are risk-averse, don’t like complexity and discount deferred pay. According to the research, deferred bonuses hold little incentive, with the majority of executives valuing a £100 bonus in a typical deferral plan at only half its value (£50). This discount is massively in excess of economic discount rates and the perceived value drops to as low as £33 for younger employees (those under the age of 39). Discounts also vary significantly in different regions of the world, showing that “one-size fits all” pay packages may be ineffective. Tom Gosling, head of PwC’s reward practice, says that the findings place a major question mark over the effectiveness of deferred bonuses, which have been championed by shareholders, regulators and corporate governance bodies as a powerful way of influencing behav-

Audi to sponsor Chelsea FC

longstanding sponsorship portfolio that also includes the clubs FC Barcelona, Real Madrid, AC Milan and Bayern Munich. Chelsea are ranked as the fifth largest team in udi is to become the world in terms of fan the official car base. Their stadium at partner of Chel- Stamford Bridge will feasea Football Club for the ture Audi branding for next three years. home matches, including The German car the distinctive team seats maker has added the in the dugout. successful London club Commenting on the to its impressive and development, Audi

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

If we had simpler, less volatile pay plans, most executives would be happy to be paid less

theory that loading executives up with large amounts of incentive pay with complex performance conditions means that they’ll perform better for shareholders. Unfortunately this isn’t supported by our study, which shows that complex pay plans are a motivation killer. The more complex the pay, the lower the value in executives’ eyes. We’re paying company managers as though they are risk-seeking entrepreneurs. Our research shows that corporate executives are generally risk-averse, and don’t value long-term incentive plans and deferred bonuses. We need to simplify pay significantly. We’ve iour while at the same time encouraging tried to put too much of the package into prudent risk-taking. “It is difficult to see complex incentives that executives don’t how a form of pay that has such low per- value, and this is leading to volatility of ceived value can have a significant influ- pay-outs and unintended consequences. ence on behaviour,” he notes. “A very real If we had simpler, less volatile pay plans, consequence is that as deferral increases, most executives would be happy to be we would expect there to be pressure to paid less.” increase pay levels.” The research also highlights that Complex and uncertain incentives are executives are very concerned about the also revealed as a massive turn-off for perceived fairness of pay. For the majormost people. The research reveals that ity (51%) of respondents, getting paid two thirds more respondents (51% versus more than their peers was more impor27%) favoured a cash plan based on profit tant than getting paid more in absolute targets that they understand over a more terms (27%). In many countries there is ambiguous share plan based on their a drive for greater disclosure of pay on share price relative to other companies. the basis that this will lead companies The more complicated the reward, the to exercise restraint. But PwC’s research more likely participants were to choose suggests the opposite: that disclosure the smaller but more certain reward. will simply provide more opportunities for According to Tom Gosling, “UK excross-comparisons and consequent pay ecutive pay is based on the motivational ratcheting.

UK Director Martin Sander said, “Chelsea offers us the broadest scope for future opportunities and our brands are very closely aligned in terms of innovation and progressiveness or ‘Vorsprung durch Technik’ as we call it. Their focus on high performance and sports science demonstrates how perfectly Chelsea’s forwardlooking philosophy matches ours.”

Chelsea Chief Executive Ron Gourlay added, “It is wonderful for Chelsea to sign this deal with a premium company renowned for its excellent track record in elite performance and manufacturing. Audi is a phenomenal global partner for us as one of the world’s most successful car brands, and we look forward to working closely with them.”

GREEKS SAY THEY ARE EU’S HARDEST WORKERS

pinion polls frequently state the obvious but occasionally they throw up some very revealing insights. One such poll is the recent Pew Global Survey of European countries in which, in addition to the usual questions about

attitudes to the euro and the European Union, people in eight nations (Britain, France, Germany, the Czech Republic, Greece, Italy, Poland and Spain) were asked which country in the European Union is the hardest-working. Those from seven of the eight countries

gave the obvious answer (Germany) but the Greeks nominated themselves. This may seem laughable, especially given that respondents in five of the eight countries surveyed named Greece as the least hardworking country, but the Greeks’ perception of reality

WHO WORKS HARDEST, WHO’S CORRUPT ? EU COUNTRY MOST CHOSEN AS TOP CHOICE AS… Views in

Most Least Hardworking Hardworking

Most Corrupt

Least Corrupt

Britain

Germany

Greece

Italy

Germany

France

Germany

Italy

Germany

Greece

Italy

Germany

Spain

Germany

Greece

Spain/Italy

Germany

Italy

Germany

Romania

Italy

Germany

Greece

Italy

Greece

Germany

Poland

Germany

Greece

Poland

Germany

Czech Rep.

Germany

Greece

Czech Rep.

Germany

Jimmy Carr’s “terrible error of judgment”

ritish comedian Jimmy Carr admitted last month to committing what he called “a terrible error of judgement” over using a tax avoidance scheme after being descirbed by Prime Minister David Cameron as “morally wrong” for using the K2 tax shelter scheme. Carr said, “I appreciate as a comedian, people will expect me to make light of this situation, but I’m not going to in this statement as this is obviously a serious matter.

news_briefing.indd 11

I met with a financial advisor and he said to me, ‘Do you want to pay less tax? It’s totally legal’. I said ‘Yes’. I now realise I’ve made a terrible error of judgement. Although I’ve been advised the K2 Tax scheme is entirely legal, and has been fully disclosed to HM Revenue & Customs, I’m no longer involved in it and will in future conduct my financial affairs much more responsibly. Apologies to everyone.” More than 1,000 people are thought to be using the Jersey-based K2 scheme, where an individual resigns from their company and any salary they subsequently receive is paid to an offshore trust. Carr is reported to have protected £3.3m a year from

is perhaps not quite as misaligned as it seems. According to an OECD report, Greece does actually work the longest hours in Europe – 2,017 per year compared with the OECD average of 1,718 and much more than Germany (1,408). However, working longer does not equate with higher productivity and Greece’s productivity is low compared to Germany’s. The Greeks also believe that their country is the most corrupt of all but respondents from Italy, Poland and the Czech Republic similarly nominated their own country as the most corrupt with everyone else believing that Italy is the worst for corruption.

tax by channelling cash through the K2 scheme. Perhaps he should come and live in Cyprus where he would be positively encouraged to use all kinds of ways to pay as little tax as possible…

29/06/2012 10:23

up front

3.LeBron James,

27, basketball. Earnings:

2.Tiger Woods,

$53million

36, golf. Earnings:

$58million

Manny Pacquaio,

33, boxing. Earnings:

$67million

4.Roger Federer,

The World’s Top-Earning Sportsmen (+1 Woman)

30, tennis. Earnings:

$52million

Filipino boxer Manny es the Forbld’s Pacquaio topsturi ng the wor

15.

Maria Sharapova,

25, tennis. Earnings:

$25million

14.Tom Brady,

34,American Football. Earnings:

$33million

012 Celeb 100 fea ing highest-paid sportspeople, hav May n wee bet ion mill $67 earned ine cal2011 and May 2012. The magaz salaries, culated the earnings totals from ance fees, bonuses, prize money, appear me. It did inco ent em ors end licensing and s. By sport, not deduct taxes or agents’ fee , tennis the Top 15 features football (3) ball (2), (3), boxing (2), golf (2), basket eball (1). American football (2) and basthe list, tenin s ture fea Only one woman . nis champion Maria Sharapova

5.Kobe Bryant,

33, basketball. Earnings:

$50million

Manning, =8.Peyton

36, american football. Earnings:

13.Rafael Nadal, 12.Alex Rodrigue, 26,tennis. Earnings:

$33million

36,baseball. Earnings:

$34million

$42million

6.Phil Mickelson, 41, golf. Earnings:

$48million

7.David Beckham, 37, football. Earnings:

$46million

11.

Ronaldo, =8.Cristiano

Lionel Messi,

24,football. Earnings:

$34million

10.

Floyd Mayweather,

35,boxing. Earnings:

$40million

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

27, football. Earnings:

$42million

Gold May 2012.pdf

CMY

4/26/12

8:39 AM

up front

Cyprus 16th on the Global Pay Scale If you want to live a good life, Luxembourg is the place to work.

he one place you do not want to live is Tajikistan. Why? Because, according to the International Labour Organization, employees in Luxembourg earn the equivalent of $4.089 per month while the

figure in Tajikistan is just $227. Meanwhile, the world’s average wage has been calculated as $1,480 per month, though the dollars are not “normal” US dollars. The ILO economists use specially adjusted exchange rates and the average salary is given in Purchas-

ing Power Parity (PPP) dollars. One PPP dollar is equal to $1 spent in the US and it takes into account the fact that it is cheaper to live in some countries than others. The important thing is not how many actual dollars somebody is paid in his/her country but

what those dollars can buy. If $1,480 a month seems quite high, given that more than a third of the world’s population lives on less than $2 a day, it is worth noting that data is missing for some countries and also that the economists at the ILO are

only counting wage earners; huge numbers of people who appear in poverty statistics – pensioners, children and the self-employed – are not included in the calculations for the average wage. For all the flaws in the statistics, they have plenty to prove.

One interesting fact to come out of the latest survey is that Cyprus is 15th on the list, with an average monthly salary of $2,605 (these are PPP dollars, don’t forget!) Greece is, perhaps surprisingly, ranked 21st ($2,300) and Turkey 28th ($1,731)

The Top 20 Countries 1

Luxembourg $4,089

Norway $3,678

Austria $3,437

USA $3,363

UK $3,065

Belgium $3,035

Sweden $3,023

Ireland $2,997

Finland $2,925

South Korea $2,903

France $2,886

Canada $2,724

Germany $2,720

Singapore $2,616

Australia $2,610

Cyprus $2,605

Japan $2,522

Italy $2,445

Iceland $2,431

Spain $2,352

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

interview

five minutes with... Michael R. Virardi

Inspiration Coach & Author of Positive Impact

What exactly is an inspiration coach? It’s me! An inspiration coach is someone who inspires you with his thoughts, ideas and examples in order for you to perspire and reach for your goals and dreams. How can you help businesspeople? First and foremost by listening and then talking. Once I have understood what they need/want/desire, I get to work to make that a reality. Through my seminars I share ideas and concepts that are easily applicable and help companies and individuals differentiate and create a unique culture (which is the remedy not only to the current economic crisis but also to a successful future) by providing extraordinary customer service which, in turn, leads to increased sales and profitability. Through one-on-one coaching, I help people reach their full potential by recognizing and admitting to themselves that there are areas in which improvements can be made and together we create an action plan with the sole aim of helping them help their organisation so that their organisation will help them in return. Last but not least, most of the time I help businesspeople and their teams by sharing my ideas and concepts through the pages of my last book Positive Impact and a new one that is coming out in two months. Is business success something that can be learned? Successful businesspeople, no matter what their industry, have been found to share similar traits. I recently completed a twoyear research study into 101 successful people (or people that I consider successful, including the late Andy Hadjicostis) and these traits keep on coming up. The most important of these, with the highest percentage (98%), is that successful people show up at events, seminars and gatherings because they recognize the truth behind the idea that ‘your network will determine your net worth’ and because they are eager to discover that one extra idea that can revolutionize their professional and personal lives. In my opinion,

Successful people are eager to discover that one extra idea that can revolutionize their professional and personal lives business success is something that can be learned simply by ‘showing up’. Who are your clients? Among them are Interlaw (one of the biggest law firms in the world), Aker, Hellenic Bank (IBCs), University of Cyprus, Unicars, Medochemie, Ethniki Insurance, Aristo Developers, Datatech, Marks & Spencer, Lemissoler, AlphaMega, etc What do they need from you? They usually need one of the following four things:

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

(a) A motivational talk such as the one I recently gave to the Cyprus Shipping Chamber titled The ‘shore’ thing to success. (b) A seminar such as the one I held for Hellenic Bank’s International Business Centres on Customer Care, Building a Unique Culture & Sales. (c) One-on-one coaching with their customer service and/or sales team such as I have done for Unicars. (d) A copy of my book to give to their team and/or customers such as we have done with the Four Seasons and Le Meridien hotels amongst many others. Why did you write the book Positive Impact? I wanted to share my experience and knowledge with people who were searching for solutions and ideas to improve their companies and themselves. I also wrote it because, during my coaching sessions with various interesting people, I found out that my stories helped them focus better on their goals (or helped them set goals) and aided them in achieving their full potential. In Positive Impact I share the majority of stories I use during my seminars and coaching sessions. What kind of readership is it aimed at? It was originally aimed at the business community at large, at businesspeople who wanted to take their customer care to a new level and differentiate not only from their competitors but also from all other businesses, which might be in a completely different industry. However, what has happened is that the book has become a success with people wanting to be able to handle their own lives. Thousands of people from all over Cyprus and abroad have bought it as a more general self-development book and turned it into a best-seller. Positive Impact by Michael R. Virardi is available in a Kindle edition from Amazon.com. For more information, visit www.positiveimpactbook.com

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CYPRUS BUSINESS LEADERS SURVEY By Costa Ioannides

AS THE ECONOMIC AND BANKING CRISES TIGHTEN THEIR GRIP ON CYPRUS, THE OVERWHELMING MAJORITY OF THE COUNTRY’S BUSINESS LEADERS REMAIN OPTIMISTIC ABOUT THE FUTURE OF THE

SERVICES SECTOR.

cover_story2.indd 18

29/06/2012 12:34

cover story

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Winston Churchill

ike much of Europe in the past five years, Cyprus has seen growth rates contract and general business activity decline while the political establishment has come under fierce criticism for failing to respond quickly or adequately enough to alleviate major problems in the economy. Speculation is rife that many Cypriot businesses are desperately trying to stay afloat as credit lines are being cut, banks have stopped lending and the number of vacant shop fronts is growing in town centres throughout the island. Official government statistics show that increasing numbers of businesses are folding and, in the commercial sector, everyone is looking to see which major company will be the next to fall. As budgets within even the largest organisations are slashed and ambitious projects are cancelled or postponed, everyone is wondering the same thing: What is everyone else thinking and how are their organisations coping with the crisis? The health of the professional services sector is much harder to gauge. So many business transactions take place electronically or in lofty offices with tinted windows that overlook busy town centres – they can see us but we can’t really see them, let alone be able to tell whether they are succeeding or not. In an attempt to lift the lid on the current psychology of the sector, Gold identified some 800 leading individuals within the Cypriot business

community and asked them in confidence for their views on crucial issues regarding the state of the economy, the challenges facing their organisations, and what they feel should be done to improve the situation. The response was overwhelming. Barely 24 hours after receiving our questionnaire, over 150 well-known industry professionals had responded. Once all the responses had been collated and the statistics compiled, it was clear that while businesses are struggling and being squeezed, the overwhelming majority of respondents are optimistic about the prospects for their businesses.

years

1,82%

23,64%

12.73%

iii 61.82%

viii

“Cyprus provides excellent living conditions for my family and an abundance of skilled and professional people to either support or be employed by the firm.”

vii

Within which time-frame do you believe that the Cyprus economy will begin to thrive/grow at a meaningful level?

The overwhelming sentiment in the business community is that it will take at least 3 years for the Cyprus economy to begin to thrive again. An optimistic 20% feel that it will be sooner while 14% of respondents are of the opinion that it will take longer than 5 years for the economy to recover.

According to the Registrar of Companies 250 individuals and 58 companies were officially declared bankrupt this year (by the end of May 2012). Official personal and company bankruptcies in the Republic of Cyprus 1995-June 2012 1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Until June 2012

Persons

226

286

434

460

462

407

358

359

430

576

640

839

1.083

1.329

941

849

250

Companies

122

121

142

147

139

190

118

149

158

140

141

135

159

171

182

the international investment, finance & professional services magazine of cyprus

Gold 19

cover story

Which sectors do you believe will thrive in Cyprus over the coming 2 years?

economy with the majority of respondents expressing the view that the energy and professional services sectors will thrive over the coming two years. When it comes to energy-related activity with good short term prospects, the votes are in favour of oiland gas- elated activities rather than electricity generation.

here is no doubt that confidence remains in key bright spots of the

Ranking second to energy is the professional services sector with the highest-scoring sub-category being legal and accountancy-related activities. Those surveyed are extremely doubtful about the shorter-term prospects for the construction and real estate sector while only a quarter of respondents express the view that

energy

Professional services

Tourism / Hospitality related activities

Education Services (colleges & universities)

85%

64%

25%

27%

Private Healthcare

Accounting Services

International Banking Services

Asset Management Sservices

40%

33%

16%

11%

Electricity Generation

57%

43%

How do you view the future prospects of your organisation or company (within the context of Cyprus)?

respondents rate their organisation’s future as being between neutral and poor with an impressive 70% expressing the view that their organisation’s prospects are between good and excellent. A key factor affecting this trend may be the fact that many of those polled belong to major espite an evident general un- organisations with greater means to ease about the economy and survive than small firms or retailers insecurities prevalent within (such as better access to credit facilities and a buffer of excess employees general business sentiment, when it to trim in order to become more comes to their own organisations, local business leaders are overwhelm- competitive without endangering the quality of their service or product). ingly upbeat. Less than a third of

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

Construction / Real Estate

23% 23%

Legal Services

Oil & Gas Exploration & Production related

tourism – once Cyprus’ leading economic sector – will perform well over the next few years. When prompted to suggest a sector not included in the categories above, respondents proposed ICT, shipping, R&D and Consulting & Market Research as other areas with good short-term prospects.

“The downgrading of the economy by the rating agencies is making our suppliers uneasy.”

Excellent 13% Good 57% Neutral 20% Fair 7% Poor 3%

25% Geographical

location (having access and proximity to key regional markets)

57% Operating

3% other

within a favourable tax regime

What are the major benefits of being a Cyprus-based company?

47% Disagree

7% Strongly agree

8% neutral

8% Strongly disagree

21%

Having good local market prospects

7% Good

Being in a jurisdiction that attracts a good level of FDI

No benefits to speak of

yprus is frequently dubbed the EU’s most tax-friendly business jurisdiction and it is no secret that the country’s 10% corporate tax rate is a key attraction to those wishing to operate here. New company registrations (especially from abroad) are a staple source of business for the island’s accountancy and legal firms. Coupled with the provision of key auxiliary services, such as corporate tax planning and structuring solutions, the Cyprus tax system has proved to be crucial in attracting foreign companies which then go on to access further auxiliary services from local providers. The survey clearly reflects this sentiment. With a majority of respondents noting that the greatest benefit of having their business based in Cyprus is the tax system.

30% agree

21%

The availability of skilled people to employ

10%

levels of profitability & comparatively low operating costs

10%

The nature of the legal system

The ease of doing business due to good infrastructure & communication networks

11% Having

16%

Accessing key support services (legal, accounting, banking)

11%

Enjoying good weather/ society/ environment/ lifestyle

11%

Being based in the EU/ eurozone

a stable economic/ banking system

Do you believe that Cyprus can avoid requesting EU financial assistance without incurring conditions that will be detrimental to the private sector?

he most divisive issue revealed by the survey is whether an EUsponsored bailout would bring forced changes (most notably to the island’s tax system) that would damage the private sector. Over half of those surveyed believe that such assistance from the EU would carry a cost to the private sector while just over one in three business leaders believed that there would be no adverse effects on locally-based companies.

“Cyprus offers my company a strategic position within a location that attracts considerable foreign investment.”

the international investment, finance & professional services magazine of cyprus

Gold 21

cover story

Do you believe that the fiscal difficulties that Cyprus is currently facing could have been avoided?

47%

40%

Strongly agree

If you agree, what do you believe is the biggest mistake that was made?

agree

38%

neutral

disagree

Strongly disagree

25%

34%

hen it comes to apportioning blame for the biggest errors made in handling the crisis, 57% of industry leaders who believe that the excesses of the crisis could have been avoided place responsibility squarely on the shoulders of the government. Its delayed and bad decision-making and the cost of the public sector are seen to be the most damaging aspects.

What are the biggest challenges that your organisation is currently facing?

Delay in taking corrective action

45%

43%

lack of credit, falling revenues and increasing operating costs seem to have seriously impacted the cash flow of a sizable amount of major businesses in Cyprus. With the government falling short when it comes to providing meaningful supportive measures and the banks unwilling to provide credit to keep businesses afloat, it appears that slashing costs is the only way to stay in the game. Bad debts and delays in collection represent a major challenge, especially in business-to-business transactions within Cyprus. Underlining the longer-term nature of the problems being faced, many respondents expressed a growing unease regarding recent cutbacks or planned lay-offs and the effect it was having on staff morale.

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

23%

Bad decision taken/ government ineptitude

Not taking action to trim the bloated public sector

Pursuing a populist agenda

Expanding to new markets Budget reduction or postponement/cancellation of planned projects Reorganisation/Future planning Issues relating to maintaining confidence in Cyprus Retaining current employees Government bureaucracy/inefficiency Increased competition Inefficient business practices & support Lack of credit/loans from the banks Growing the company and avoiding stagnation High costs/expenses Falling sales/revenue Cash flow/ liquidity problems & bad debts Market insecurity due to the current economic environment Other

19%

17% 13%

11%

10% 6%

P roper enforcement of the law & regulations

Reduce the involvement of the government in the private sector

Enable companies Resolve to enforce banking collection sector of outproblems standing invoices & reduce credit periods

If you could make one single improvement to the way business in Cyprus is conducted what would it be?

hile the question implied a response relating to the private sector, the biggest single issue that is felt to create a drag on the economy is the outdated and inefficient ways in which government departments operate. Responses were awash with examples of where improvements should be made with the words “bureaucracy’ and ‘red-tape’ being mentioned in well over half of them. The message to policy-makers is abundantly clear: the Cyprus business community needs less hassle, more simplicity and greater productivity when it comes to dealing with government departments.

15%

20%

38%

Oblige the government and government departments to modernise

R educe red-tape/ Cut government bureaucracy

Improve corporate governance & transparency within organisations

“We need to avoid heavy taxation, improve the cash flows of SMEs and create a positive psychological environment for clients.”

“Making the civil service more efficient (from simple procedures to the time required to issue property titles) will not only cut government costs but also act as a catalyst for private sector growth and foreign investment.”

Do you anticipate that the Cyprus Presidency of the European Council will be useful in increasing commercial opportunities for your organisation?

n 1 July, Cyprus assumed the 6 month rotating Presidency of the Council of the European Union. Hotels and venues have been nervously anticipating a bookings boom on the back of the international events taking place here. Whether the full extent of the hoteliers’ and caterers’ expectations will be fulfilled remains to be seen, however. The vast majority of major Cyprusbased businesses (69%) don’t expect anything positive from the visits by high-profile European bureaucrats. This underwhelming sentiment may be closely tied to the loss of faith of the private sector in the government’s capability to present Cyprus in a positive light to the outside world.

15%

29%

49% Very useful useful Neutral Useless Very Useless

the international investment, finance & professional services magazine of cyprus

Gold 23

cover story

Who would be your ideal candidate for election as the next President of the Republic of Cyprus?

lthough the question on the ideal presidential candidate was non-compulsory, almost 60% of respondents

obliged with an answer. Some 39% of business leaders that cast their vote of confidence for the leader of the right-wing Democratic Rally (DISY) political party. This trend tallies with the natural right of centre tendencies of big business owners and in tune with the mantra professed by economist Steen Jakobsen that all elections in the EU these days seems to be a protest vote

against the status quo. Certainly, in terms of political ideology, Nicos Anastasiades is certainly the polar opposite of the incumbent communist party (AKEL) President Dimitris Christofias. The lengthy list of ‘others’ mentioned by respondents is surprisingly diverse with some business leaders expressing support for lawyers Kypros Chrysostomides, Christos Mavrellis and Polis Polyviou,

Christis Christoforou (CEO of Deloitte Cyprus, Michalis Sarris (non-executive chairman of Popular Bank), Nicholas Papadopoulos (House Finance Committee Chairman and Democratic Party MP), Athanasios Orphanides (former Governor of the Central Bank of Cyprus) and Stavros Zenios (President of the Rectors of the Universities of the European Capitals).

3% 4% 6% 7% 8% 31% 39%

George Vassiliou ‘A good former technocrat’ President of Cyprus (1988-1993)

Makis Keravnos George Lillikas CEO of Hellenic former Minister Bank Group & of Foreign former Minister Affairs of Labour and Social Insurance

“Low taxation, access to promising markets such as Russia, CEE and China, combined with great living conditions are the biggest benefits that Cyprus offers my organisation.” 24 Gold the international investment, finance & professional services magazine of cyprus

Nobody

Kikis Kazamias former Minister of Finance

Other

Nicos Anastasiades President of the right-wing Democratic Rally (DISY)political party

“There’s a big problem with the incapability of local banks to assist in overcoming the challenges encountered by my business.”

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SPOTLIGHT ON...

Abacus Ltd

Abacus is a leading independent provider of professional services exclusively to International Business Companies (IBCs). Our services cover the whole spectrum of Corporate Structuring, Business Advisory, Accountancy, Fiduciary and Corporate Administration Services. More specifically, the services we provide include the following: ● Company Formation ● Company Administration ● Accounting Services ● Corporate Secretarial ● Establishment and Administration of private Cyprus ICIS ● Trust Services ● Fiduciary Services ● Nominee Shareholder ● Corporate Directors ● Company Secretary ● Registered office ● Bank Signatories ● Banking Services ● Payroll Services ● Escrow Agent Services ● Shipping Services We believe that our firm’s main strength, which perhaps constitutes our competitive advantage, is that we do not

provide audit services and we are totally independent from the audit firms. We therefore concentrate on the provision of the services in which we specialize (as referred to above) in a totally unbiased way without any constraints that may be dictated by other interests. And our only concern is the benefit and welfare of our clients. Something else that characterises Abacus is the personal attention that we give to each and every client, irrespective of size. Our philosophy is that the small client of today is the large client of tomorrow. Operationally, we are structured into small groups and each client is assigned to a partner and a smaller section headed by a Manager. This enables us to acquire a detailed knowledge of our clients’ affairs which helps us to provide a better and more focused service. Like all businesses, our clients have been affected by the world economic crisis. As a consequence, they are all becoming more cost-conscious and improved efficiency is a key factor. Abacus has a major role to play in helping our clients achieve this goal. The most important factor for the success of a professional services firm like Abacus is the quality and calibre of its human capital. Our priority, therefore, is the recruitment and retention of appropriately qualified and experienced people. Abacus employees generally have a very sound academic background. A substantial number of them also have a professional qualification like ACA, ACCA and CPA and we also employ several qualified Chartered Secretaries for the more specialised work

of Corporate Secretarial Support. The continuous development of our people is of paramount importance to the firm so we invest heavily in the areas of training and on the job coaching. In many cases we also provide financial and other support for our staff to obtain additional academic or professional qualifications. Our clients represent a broad range of industries including financial services and banking, energy with emphasis on oil and gas, engineering, construction and real estate development, telecommunications, manufacturing, media and entertainment, marketing and retailing. Our slogan which you will see in some of our advertisements is “World Class Player” by which we mean that we aim to be the standard of excellence in our market, our industry and the work we do. In Abacus we also embrace the Olympic Values of Respect, Excellence and Friendship which we believe are the cornerstones of our firm’s success all these years. Respect for our clients, Excellence in the work we do and a Friendly Environment at the office. For information, contact: Nicos C. Nicolaides, Managing Director Abacus Limited Elenion building 5, Themistocles Dervis Street, CY-1066, P O Box 25549, CY-1310 Nicosia Tel: (+357) 22555800 Fax: (+357) 22555801 e-mail: abacus@abacus.com.cy Website: www.abacus.com.cy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

spotlight_on_account.indd 29

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29/06/2012 11:13

SPOTLIGHT ON...

BDO Ltd

BDO Ltd is a firm of certified public accountants providing audit, tax, consulting, global compliance and company administration services. Our global network allows all our professionals access to knowledge of industry developments and international trends and the collaboration between our member firms results in an effective sharing of knowledge and best practice. This gives us an intrinsic awareness of the global marketplace, as well as of required local standards, and enables us to advise our clients accordingly. We take the time to listen and are structured to give you quicker access to senior professionals who will give you straightforward practical and technical advice.

Our clients are looking to receiving an excellent value for money service that ensures that they meet all their regulatory and reporting requirements with minimum fuss so as to concentrate their efforts on the important issues of increasing market share, reducing inefficiencies, increasing competitiveness, developing new markets and raising new funds in times of tight liquidity. BDO is able to provide technical expertise and support to enable management to properly deal with the financial aspects of their decisions. We recognize at BDO that our people are our main asset, and that the recruitment, development and retention of the right people is fundamental to our success. We train and develop our people in order to help them to meet their full potential and ensure they receive work opportunities through which they can learn and flourish. We aspire to have a reputation for ‘best in the market’ employment of talented, motivated and engaged people in order to meet our ambition to be an ‘Employer of Choice.’ The motivation and engagement of our people and ensuring they have opportunities to develop their skills is our primary objective and we are proud of the

professionalism and commitment of our team to BDO’s core values underpinning our commitment to total client service. We are presently advising on the international tax implications of an international acquisition. The project involves BDO tax experts in VAT, transfer pricing and corporation tax in a number of Central and East European countries. Our motto is ‘What matters to you matters to us.’ This indicates BDO’s commitment to delivering a consistently high quality service in every country in which we have a presence and our commitment to a long term relationship as our clients’ trusted adviser. For information, contact: Karlos Zangoulos, Managing Partner BDO Ltd Antonis Zenios Tower 1, Erehthiou Street, Engomi PO Box 25277, CY2413, Nicosia Tel : (+357) 22495707 Fax : (+357) 22495717 e-mail: kzangoulos@bdo.com.cy Website: www.bdo.com.cy

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

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29/06/2012 11:32

Karlos Zangoulos

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Yiannis Demetriades, Managing Director

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SPOTLIGHT ON...

Horwath DSP Limited

We are a member of Crowe Horwath International, one of the top 10 global accounting networks. The Crowe Horwath network consists of more than 150 independent accounting and advisory services firms in over 100 countries around the world. We offer audit, tax, risk and advisory services to a diverse clientele in the local market and abroad. Our greatest strength is our ability to understand the strategic needs of our clients. This ability, combined with the business experience of our professionals, enables us to create customised solutions to meet those clients’ needs. We specialise in international tax planning and structuring. Cyprus has become a favourable international business centre due to its wide network of double tax treaties coupled with low taxation and membership of the European Union; meaning that many foreign investors choose to use Cyprus companies for

their international business. We provide compliance, advisory and restructuring support to foreign corporations and individuals. Every day, somewhere in the world, tax regulations, rules and treaties change. Strategies that reduced taxes yesterday may not work today. New opportunities to save money could be missed, especially as investors enter new markets. We are here to help clients take advantage of Cyprus and other jurisdiction structures in their international activities. The financial crisis has affected all clients, especially local clients. We provide support in all areas of our expertise. At the moment we employ 80 members of professional staff where approximately 50% of them are ACA or ACCA trainees. Our company employs some of the most highly-trained, educated and experienced individuals in the Cyprus market who are able to provide the highest level of client service. All key members of the team are either qualified ACA or ACCA who fully appreciate the need of adding value to the service offered to the client as well as the importance of delivering on time. We believe that continuous learning plays an important role in the success of our employees and of the company as a whole. We perceive training costs as an investment and not as an expense because

we look to find our future company directors among our employees. Our aim is to provide a timely, competent service of the highest quality. Our service teams are committed to delivering value to multinational clients doing business across borders. We are part of an international network of business experts with whom we share a commitment to delivering technical excellence and the highest standards of client service. For information, contact: ● Yiannis Demetriades FCCA TEP, Managing Director (for tax, structuring advice) YiannisD@crowehorwath.com.cy ● Andreas Pifanis FCCA TEP, Director (for tax, structuring advice) AndreasP@crowehorwath.com.cy ● Marios Agathangelou ACA, Director (for audit and accounting matters) MariosA@crowehorwath.com.cy ● Chrysis Pegasiou ACA, Director (for financial advisory services) ChrysisP@crowehorwath.com.cy Horwath DSP Limited 8, Stassinos Avenue, 1st Floor Photiades Business Centre 1060 Nicosia. P.O.Box 22545, 1522 Nicosia. Tel: (+357) 22755656 Fax: (+357) 22452055 e-mail: mailbox@crowehorwath.com.cy Website: www.crowehorwath.com.cy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

spotlight_on_account.indd 33

Gold 33

29/06/2012 10:46

SPOTLIGHT ON...

HTT Audit Limited

HTT Audit Ltd offers a range of services such as statutory audit, tax and corporate & financial advisory services including internal audit, business valuations and restructurings along with listed companies’ related services. In an effort to minimize our clients’ administration time, our Firm can also arrange for accounting, trust & company formation, as well as international business company services. In a nutshell, HTT Audit can offer every client the so called “One-Stop Shop” service solution through our qualified, high calibre team, along with a network of experienced professional associates, and guarantee the provision of a comprehensive range of services for both local and international clients. The Firm can also assist foreign investors in their applications for permanent residence permits and naturalisation (obtaining a Cyprus passport). During its short life span, the Firm has assisted its international clients in forming numerous international structures for their business operations, thus helping them achieve significant tax savings. We have accumulated significant experience working in jurisdictions such as China, India, the United Kingdom, Poland, Russia, Ukraine, Spain, Greece, Portugal and others. We promote our firm as “Boutique Auditors”

through personal contact, prompt response to every client’s need and competitive pricing, which enable our Firm to differentiate from the competition. In addition, HTT Audit has recently been appointed as a correspondent firm (and is expected to become a full member soon) of the Reanda International Accounting Network, a strategically-planned move towards expanding our influence and networking in the cash-rich Asian market. HTT Audit Ltd is the first European member of the Network, which is ranked among the top 20 Accounting Networks worldwide. Currently the Network has members in China, Hong Kong, Japan, Malaysia, Macau, Cambodia, Vietnam, Singapore and Australia. During these turbulent times, the biggest challenges facing our local clients are a lack of liquidity and the pressure to meet their obligations to the Income Tax and VAT authorities. Our Firm has successfully represented clients to their banking institutions and managed to reach some very favourable arrangements on their behalf. In addition, HTT Audit has sealed a large number of deals with the local tax authorities in relation to both the liability amount due and the repayment terms. In this way we have made a major contribution to resolving their liquidity problems. Our most valuable asset is our people and we therefore devote all available resources to their training and development to help them excel and achieve their career goals. They play a vital role in contributing to the continued success of the Firm. Our employees come from diverse backgrounds and bring different experiences and knowledge into the HTT team. Their creativity, work contribution and ideas are part of a team effort focused

on exceeding the expectations of our clients. We have achieved much of our recent success by focusing on our people. Our ability to recruit and retain the best talents to service our clients has always been a priority. Our commitment to investing in our staff means that our clients get world-class expertise to solve their complex business problems. Besides the statutory audit (our main line of business) of clients of different sizes and from diverse industries, our Firm has been engaged in some interesting projects such as the business valuation of a company listed on the Athens Stock Exchange, business restructuring plans for local clients, due diligence for mergers and/or acquisitions along with international tax planning and structuring. HTT Audit Ltd was established to bring high-quality services to its clients and assist in maximising their results. Satisfying our clients’ needs is the core objective of our organisation. Our mission is to continuously add value to our clients through the provision of the highest quality professional services on a timely and cost-effective basis. For information, contact: ● Adonis Theocharides, Director atheocharides@httaudit.com.cy ● Phivos Theocharides, Director ptheocharides@httaudit.com.cy ● Charilaos Hadjioannou, Director chadjioannou@httaudit.com.cy HTT Audit Ltd 27, Evagorou Avenue, Eirini Tower, 6th floor, Office 61, 1066, Nicosia Tel: (+357) 22670680 Fax: (+357) 22670681 e-mail: info@httaudit.com.cy Website: www.httaudit.com.cy

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

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29/06/2012 11:37

Adonis Theocharides Phivos Theocharides Charilaos Hadjioannou

spotlight_on_account.indd 35

29/06/2012 11:38

John P Poyiadjis

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SPOTLIGHT ON...

Nexia Poyiadjis

The foundations of the firm were laid in 1969 when the late Joseph Pavlou Poyiadjis, a UK Chartered Accountant, started his own accountancy practice as a sole practitioner, operating from Nicosia under the name of “J. Pavlou”. In 1976 he was joined by his younger brother John Pavlou Poyiadjis, also a UK Chartered Accountant, and the firm was renamed “Pavlou, Poyiadjis & Co”. John Pavlou Poyiadjis, with over thirty years of experience, is an expert on most accounting practice disciplines, and presently heads the firm’s insolvency and financial advisory division. He is an author of a large number of publications both in the local and international press and he has served as a Member of the House of Representatives, as Chairman of the Board of the Tenders Review Authority and as a member of the Board of Directors of a number of semi-government organisations. The firm presently employs over 70 professionals and operates from prestigious offices located in the heart of the business centre of Nicosia, in Limassol and in Kakopetria under the name of Nexia Poyiadjis – a name that denotes the major importance we place on our international affiliations, business and clientele. Since 1980, the firm has been the exclusive member of Nexia International in Cyprus, one of the largest and longest-established international networks of independent high-quality accounting and consulting firms. With over 20,000 professionals and 570 offices in 105

countries, Nexia International gives us strong links in major cities around the world and helps organisations and individuals with an international outlook to maximize and sustain their potential. We are leading providers of audit and assurance, business advisory and consulting, taxation and wealth management services to publicly listed companies, regulated financial entities, small and large owner-managed businesses, professional practices and private individuals. One of the strongest areas of specialist knowledge and expertise where our firm has a clear competitive advantage is our services to the financial services industry. These include audit and assurance, compliance and advisory services to Cyprus regulated investment firms and funds. We currently service some of the best-known and most prestigious clients in the industry. In the light of the current economic climate and austerity measures introduced by the government, some of the major challenges of our clients are being kept updated and implementing all regulatory and compliance obligations, obtaining funding for their working capital and highly geared organisations, evaluating new investment opportunities, assessing the risks and impact of the above on their businesses and personal affairs. We assist our clients in tackling these challenges by keeping them updated via newsletters and various consultations on all tax and legal changes taking place in Cyprus. We provide them with tailor-made, added-value services to address such changes both in terms of compliance and advisory matters on mitigating potential risks, debt financing and restructuring, cost cutting strategies, cash flow forecasts and new investment opportunities. Our people’s excellent academic track record, their specific market expertise and experience, together with their drive for excellence, work ethic, team play and commitment

to the Firm and our clients are the key attributes of what makes our Firm and its people exceptional. We have professionals from various countries (Cyprus, Greece, Russia, UK, France, Bulgaria, Serbia, Georgia), who have diverse educational, academic and professional backgrounds, resulting in a variety of skills and expertise adding value to the services offered to our clients. Our motto is ‘Local Expertise, Global Reach’. Our aim is to add value and benefits to our clients’ businesses. We achieve this through quality service, integrity and commitment. We are also committed to maintaining a stimulating environment where people can achieve career progression and appropriate financial rewards. For information, contact: John P Poyiadjis FCA, ATII, Senior Partner john.poyiadjis@nexia.com.cy Susana J Poyiadjis LLB (Hons), ACA, Partner susana.poyiadjis@nexia.com.cy Raffi Boyadjian FCCA, Partner raffi.boyadjian@nexia.com.cy Nexia Poyiadjis Head Office 2, Sophouli Street, Chanteclair House, 8th Floor 1096, Nicosia Tel: (+357) 22456111 Fax: (+357) 22 \666276 e-mail: np@nexia.com.cy Limassol Office Lophitis Business Center 249, 28th October Ave., Mezzanine floor 3035, Limassol Tel: (+357) 25371414 Fax: (+357) 25371415 e-mail: np@nexia.com.cy Kakopetria Office 14, Photiadou Street Kakopetria, Tel: (+357) 22924024 Fax: (+357) 22922429 e-mail: np@nexia.com.cy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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opinion

The Welcome Lessons of the Cyprus Presidency Why the state needs to believe in and adopt its own stated aspirations

he American Chamber of Commerce in Cyprus (AmCham Cyprus) works to provide effective and practical facilitation in encouraging, promoting and enhancing the economic and trade relations between Cyprus and the United States. Of course, these are turbulent times and our mission is not an easy one. The development of trade relations presupposes a steady political and economic environment, including – but not limited to – a stable banking system. However, the island’s economic situation continues to be dire. Coming out of the recession in the near future is rather remote and Cyprus has now resorted to the EU support mechanism with a possibly onerous memorandum. There have been plenty of warnings from various rating agencies, international and local organisations and institutions and others. We, AmCham Cyprus, have issued position papers on taxation and employment, advocating mainly tax certainty and the elimination of distortions in the labour market. Two of our members have carried out studies on behalf of the government regarding the reduction of administrative burden. Apparently the required measures have not yet been taken and there is little confidence that the necessary will exists to implement them. Cyprus urgently needs strict fiscal discipline, the containment of public expenditure and the proper utilisation of resources arising from taxation. It needs a radical restructuring of the civil service by placing emphasis on the redrafting of each department’s organisational chart and staffing requirements. Another compelling project would be to convert state-owned enterprises from organisations governed by public law into private companies, so as to adequately prepare them for privatisation if it proves necessary. The state should urgently address the ineffi-

If Cyprus wants to attract foreign investors, it has to avoid demonising profit

By Miltiades Miltiadou

ciencies caused in the public sector by unnecessary bureaucratic procedures (red tape), by attachment to form over substance (formalism), and by the extremely restrictive administrative interpretation of the laws and regulations by civil servants (officialism). If Cyprus wants to attract foreign investors, it has to avoid demonising profit, to refrain from declaring war on “profiteering”, and to abandon plans to tax “flamboyant wealth” and large immovable property. It has to become more serious by creating a true business-friendly environment and ensuring a level playing field for both domestic and foreign businesses. The civil service should convince businesses that they are ready and willing to provide an improved service and to offer solutions that meet their needs. It is now commonly accepted that austerity alone is not enough, Cyprus also needs growth and it has to work hard for the revival of private investment in order to promote competitiveness and create new productive jobs. On 1 July, Cyprus will assume the significant role of the Presidency of the Council of the European Union. We couldn’t agree more with the statement appearing on the Cyprus Presidency’s webpage that “Cyprus aspires to a trustworthy, reliable and effective Presidency from which it will gain in experience, knowledge and modernisation of its institutions and infrastructure”. Presumably we will all learn how to operate smoothly and efficiently in the Single Market, perhaps in a stricter regulatory environment, especially for the financial sector, but without de jure or de facto state monopolies, unfair competition, aggressive commercial practices, price control systems, the criminalisation of sales, without the persecution of “unpatriotic” employers who hire EU nationals instead of Cypriots, without blaming the EU for our hardship and, generally speaking, without too much euro-scepticism.

info: Miltiades Miltiadou is President of AmCham Cyprus. The above address was given at the organisation’s annual gala dinner on 6 June 2012. 38 Gold the international investment, finance & professional services magazine of cyprus

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Banker’s

Armour

The British Bankers Association (BBA) is the leading trade association for the UK banking and financial services sector, representing the interests of over 200 member banks from 60 countries as well as 45 Professional Associate (PA) member firms. A BBA delegation was in Cyprus recently and Gold spoke to the CEO of the association, Angela Knight CBE, about the lessons to be learnt from the British banks’ experience, the public image of bankers and…Great-Aunt Mabel. By Costa Ioannides, Photograph by Jo Michaelides

old: Banks across Europe, in particular in countries like Greece, Spain and Cyprus, are perceived to be exposed to considerable risk. In your view, is the flight of capital from such banks and jurisdictions justified? Angela Knight: First of all, there is not necessarily a flight of capital taking place everywhere. You’re absolutely correct that there is a real concern but whilst there may an issue surrounding Greece, the recent figures that we have seen don’t show that for Spain or Cyprus. What is clearly necessary is that there must be some solution to both the banking and the economic problems – it’s not just one issue. The Greek situation has been developing over some time and the fact that we’ve seen some contagion worries us because it affecting not only the eurozone but also Europe as a region. Big, bold actions are now required by the relevant authorities. This will bring early benefits and we look forward to seeing them take place. Gold: But do you believe that the flight of capital is justified in terms of the market perception? A.K.: It is inevitable that where there is a perception that a country or a bank is in difficulty, people will move their money. That is why it is so necessary to deal with problems early, quickly and effectively. One

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

example is that of the US with its TARP (Troubled Asset Relief Program) money. It was eye-wateringly large and it took effect quickly, even though it was a bit complicated and difficult to understand. In the UK, our government stepped in quickly, requiring banks to recapitalize there and then at the end of 2008. Some banks could while others had to take taxpayers’ money at that point, but it brought about stability and it stopped a run taking place. So there are examples which, it they are followed, will be in the best interests of countries and of the EU as a region. Gold: What do you see as the most likely outcome of the current banking crisis in Europe? A.K.: I think the way in which governments are now stepping in is important. If we take Spain as an example, it put together a number of its small banks, its ‘cajas’ as it calls them, where they had a high exposure to a property market and of course the property bust is self-evident. By putting a number of those together it created this new entity which it called Bankia – not the most imaginative of names! – and now it needs to recapitalise it. Clearly banks need either to be put together and recapitalized where necessary and it may be that some banks should be wound down. If that has to take place, it has to take place. Decisions have to be made; whatever takes place has got take place in an orderly manner, and

Angela Knight

After leaving Bristol University with an honours degree in chemistry, she worked as product development manager for the American industrial gas company Air Products Ltd. She went on to set up a specialist contract heat treatment company treating precision engineering components â&#x20AC;&#x201C; Cook & Knight Metallurgical Processors Ltd â&#x20AC;&#x201C; and an associated process plant manufacturing company. From 1987 to 1992 she was Councillor and Chief Whip on Sheffield City Council. She entered Parliament in 1992 as MP for Erewash and was Economic Secretary to the Treasury between 1995 and 1997. She was the Chief Executive of the Association of Private Client Investment Managers and Stockbrokers from September 1997 to December 2006.

banking

(l-r) Sally Scutt, Deputy CEO, Angela Knight, CEO, Arjun Singh Muchelle, Head of EU Affairs, BBA

if the country requires help to do it in an orderly manner, it must ask for that help. There’s no point in just having failures on your own when, if you ask for help, they could be resolved. Gold: How do you predict the banking landscape to look like in five years’ time? A.K.: I think that in the future we’ll be seeing a much more consolidated banking market with fewer and larger banks. If this crisis has taught us anything it is that, actually, you do need to be of a certain size in order to withstand problems, to raise capital and perhaps to engage in more activities than one. If your only activity is lending to the housing market, you are too dependent on that market and housing markets are always going to go up and down. So we will probably be seeing more diverse investment in the future. A greater degree of care needs to be taken in terms of decisions on loans as well and, of course, banks will be holding more capital which, again, means that we’ll have a smaller number of larger banks. Gold: Does Europe have the firepower to save its banking sector? A.K.: Yes, it does because not all banks have got into difficulty by any manner of means and many countries have already taken action. Denmark took action early, around the same time as the UK. Sweden did not have a banking crisis this time around. Germany took action on Commerz-Dresdner and on its big mortgage bank Hypo Real Estate and it took it early. Because Spain had additional capital buffers in place, it probably thought that it would be all right but the crisis has gone on much longer and, as I mentioned, it has a large number of these small savings and loans banks, the ‘cajas’. So, can Europe take the necessary action and the necessary recapitalizations? It can. These steps are difficult and sometimes there are both political and economic issues to deal with but they are not going to go away and decisions have to be taken. Gold: Won’t the moral hazard of doing that create potentially bigger problems for the future? A.K.: Not if it’s done probably. It is only a moral hazard if there is an assumption that in the future someone will step in if you make a mistake. That is not what we are saying and it is not what we believe. The whole thrust is about rules, regulations and requirements that mean, first of all, that banks will be less likely to get into difficulty in the first instance and, if they do, they can be sorted out without the responsibility falling back

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

We recognise that some banks have caused difficulties by their behaviour and we apologise for that

on the taxpayer. So we have short-term action which is about resolving some of the particular high-risk issues in our region, medium-term action that concerns the necessary restructuring and long-term action which means implementing the last of the requirements so that a bank can stand on its own and we support that. Gold: You obviously believe in the strength of the British banking sector. What, in your view, sets it apart from its counterparts elsewhere in Europe? A.K.: The primary difference has nothing to do with problems because banks in most countries have had problems. Some have acknowledged and dealt with them earlier, others later. In the UK, not only did we have to recapitalize early but since then we’ve had to increase our capital substantially so a bank operating in the UK is holding at least 10% core tier one capital – a long way ahead of international standards. Certain people were removed from the banking industry, new risk controls and risk requirements were put in place and the whole degree to which supervision took place happened very quickly. In the UK we always do things very publicly, we acknowledge a problem early, we talk about it and we make the necessary changes. Yes, we’ve still got banks with some taxpayers’ money in them and there are still some loans that need to be resolved and some exposures which are being worked through, but we can afford to do it and that is important. That said, some other countries inside and outside also took action early. Some were luckier than others and some had greater resources because their governments had been running the economy very prudently. After all, one of the largest failures in the world was UBS in Switzerland. The Swiss stepped in very early, buying out loans and making big structural changes, and no-one talks about UBS in those terms now because Switzerland was always run very prudently, its government was in surplus and could afford to act as it did. It’s much harder for countries with large deficits plus a problem within the banking sector because the economy has gone into recession. Gold: Banks around the world have clearly failed to conduct themselves in a manner which their customers would have expected. Is the present negative image of banking justified? A.K.: First of all, some banks have got into difficulty but the majority have not. Many of the largest banks in the world remain well-respected – HSBC, for example. So we do not – and we urge others not to – lump all banks together. Some banks on every continent have had problems

and this has worried people very significantly. We recognise that some banks have caused difficulties by their behaviour and we apologise for that. As far as the image of banking is concerned generally, it is going to take some time to restore it. You can lose a reputation very quickly but it takes a long time to recover it. All banks have to conduct their business well and carefully. That does not mean that they will lend to people who should not borrow or to businesses that are not viable. That is, I’m afraid, a tough story and a tough message and it is not going to help the image of banking but the worst thing is to lend too much to the wrong people or companies at the wrong price. We all have a part to play in this and by ‘we all’ I mean outside the banking industry but, of course, the banking industry has got to do its bit as well. Gold: On a related matter, many people are angry that banks requiring billions of state and emergency aid have been paying multi-million bonuses to senior executives and Board members. What is the right way to change the perception that those at the top are taking money from depositors and then leaving the state and the taxpayer to resolve the shortfall? A.K.: The business of banking is at the same time both international and domestic. In the UK, those in the domestic banking sector are paid on domestic levels, in a very similar way to people in all sorts of other businesses. The international banking sector is paid on international levels and that is usually the one that people are concerned about. In the UK we have given the issue of remuneration to the regulator and, in this way, we have taken much stronger steps than we’ve seen in many other countries. If other countries do likewise, which they should, then we will all keep our business. I know that the view of pay is much harsher in the UK than it is in the US or the Far East, for example. I repeat my view that it was entirely correct that cash was used to stabilize the international financial system and that in most countries it was a relatively temporary measure and the money has been paid back. There is certainly still some taxpayers’ money in some banks but by no means in all of them. The UK view is that, when it comes to pay, everybody has to operate within a code so I’m afraid you need to ask this question outside our region.

bank and they’ve had to create a bad bank too. In the UK we took stakes in the banks but we didn’t take the assets out but, instead, we insured them. So there is no single model to follow: just about every proposition has been tried. But the advice is simple: choose your model and act decisively. Gold: When will the banks in the UK start to support small businesses in a meaningful way again? A.K.: It’s very easy to say ‘the banks aren’t lending’ but actually the numbers show overwhelmingly that this is not the case. At the moment, the amount of gross new lending is steady – and has been for some time – and is above what you would expect at this point of the economic cycle. The paying back of loans and overdrafts is higher than most people have seen for 20 years because businesses are doing what people are doing. They’re watching the TV news, they’re reading the paper and the message they’re getting is one of uncertainty in an uncertain world. So what do we all do under those circumstances? We pay back our debts and we save our money. What are small businesses doing? Paying back their debts and saving their money. New loans are going out but the old ones are coming back in and what’s called the ‘stock of lending’, representing new minus old, is going down.

It’s very easy to say ‘the banks aren’t lending’ but actually the numbers show overwhelmingly that this is not the case

Gold: In terms of how the crisis in the British banking sector was dealt with, what lessons can countries such as Greece and Spain take? A.K.: The first thing countries need to do is act early and act decisively. They also need to be clear about what they are seeking to achieve: do they wish to stabilize a particular bank or wind it down? There are several models: One is that, as a government, you take a taxpayer’s stake in a bank that you wish to continue in business. The alternative is to look at the Swiss or the US proposition which is noticeably different: a ‘bad bank’ is created by buying the impaired assets or taking a significant chunk of the impaired assets out of the bank at a low price so it cleanses the balance sheet for that bank. Switzerland did that with UBS. The US made everybody take some TARP money and then show that they’d met certain requirements in order to pay it back. In Ireland – a far worse case than most if I may say – they’ve had to take stakes in the

Gold: You describe the BBA team as ‘strong and forward-looking’. What has been the most forward-looking initiative that the BBA has launched under your tenure? A.K.: Let me suggest two things that we’ve done. We launched a programme for reuniting people with their lost account and we have had a quarter of a million people contacting us about it in a year. You might be wondering how people can lose their account in the first place. Well, it’s Great-Aunt Mabel who moved from Newcastle to Brighton and had a couple of building society accounts but, of course, the banks have consolidated. When she is no longer capable of looking after her affairs, in comes one of the relations who says, “I’ve looked through Great-Aunt Mabel’s affairs and she had an account with this bank that doesn’t exist anymore”. It may be that, sadly, Great-Aunt Mabel has died. So we run something called ‘My Lost Account’ and we have the banks and the building societies and others in there and it does a really good job of finding where the lost account is. A second initiative comes back to your point about small business lending: we run the Better Business Finance campaign which, among other things, provides free mentors to businesses. Another initiative is the appeal mechanism for people whose request for a loan has been turned down by the bank. The bank may have been right but it may have been wrong so the process is fast and independently adjudicated. Gold: You are about to step down as CEO of the BBA. How are you planning to spend your time? A.K.: I’m moving to become the Chief Executive of Energy UK. I had said in the past that I felt that I had another challenge in me but I didn’t expect it to be this one. I spent 15 years in engineering, five years in politics and the rest in finance and I think energy has all three together. But I shall be maintaining my interest in the financial world as a nonexecutive of Brewin Dolphin, our largest private client firm, and Tullett Prebon, a large IDB. I think I might just be busy!

the international investment, finance & professional services magazine of cyprus

Gold 43

Law firms

Dispute Resolution: Leading Cypriot Law Firms and Individuals Band 1

ince 1999, Chambers & Partners has been researching the legal profession in Europe, identifying the leading lawyers and law firms through interviews with thousands of lawyers and their clients. The legal publisher’s reputation is based on the independence and objectivity of its research. The new Chambers Europe guide provides in-depth analysis of the legal markets in 51 jurisdictions. Among the pages on Cyprus are profiles of a number of leading Cypriot law firms. On the following pages we present extracts from the section on Dispute Resolution.

Andreas Neocleous & Co LLC This distinguished firm has a highly specialised dispute resolution practice spanning four teams, each of which handles a distinct area. It covers commercial and international disputes, trust and equity disputes, admiralty disputes and general criminal matters. Recent developments demonstrate the firm’s position at the forefront of the Cypriot legal market. It is currently leading on developing a Cypro-Mediterranean ADR Centre in Limassol, alongside other prominent market figures.Work highlights include handling various shareholder disputes, as well as achieving an important Supreme Court judgment relating to international trusts. Panayiotis Neocleous, who heads the department, receives glowing praise from clients for his “profound knowledge of local systems and know-how for developing successful strategies.” Costas Stamatiou is regarded as a highly skilled litigator and has recently acted as an expert witness on Cyprus law in an admiralty claim in Canada. Sources appreciate his ability to empathise: “We could see that he was really with us during that process, which was very important.” Christos Melides heads the fourth litigation team, which deals with IP and administrative law matters as well as real estate and competition disputes. Antis Triantafyllides & Sons This mid-sized firm is one of the oldest on the island and has an enviable reputation for undertaking exceptional dispute resolution work. Described by some as “an asset to

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

Cyprus,” it is said to be skilled in undertaking complex appeals as well as international arbitration cases. Real estate and bankingrelated litigation are other areas of strength for the team. The success of the department is reflected in the stellar reputation of its leading litigator, GeorgeTriantafyllides, whom sources note is excellent in court and “one of the sharpest litigators in Cyprus.” Patrikios Pavlou & Associates LLC With extensive experience handling complex litigious matters for its clients, this group has cemented its position as one of the leaders in the field. Arbitration is a cornerstone of its practice, and it has been active in several proceedings before the LCIA. It recently represented a claimant in an arbitration valued at an estimated US$15 million. Practice head Stavros Pavlou is praised for his ability to provide “strategic litigation advice,” and for going the extra mile in assisting clients.

Band 2

Chryssafinis and Polyviou Peers remark that this is a prominent group within banking-related litigation, and has many big-name banks and insurance companies as long-standing clients. Its dispute resolution practice also covers other areas, including contentious property law matters. Polis Polyviou is considered one of the most renowned figures in the Cypriot legal market, and is acknowledged for his accomplishments in both banking and litigation. Chrysses Demetriades & Co This prominent firm has a sizeable litigation team that includes five partners. It specialises in a variety of areas, advising clients on both commercial and criminal matters. The type of work typically handled covers everything from shareholder and contractual disputes to discrimination cases. Two areas of specialisation are corporate fraud disputes and banking litigation, reflecting its strength in the corporate and finance field. Demetris Araouzos is involved in a spectrum of litigation work which includes arbitration. He is described as a “young and hard-working lawyer” by sources. George Christodoulou is another key individual in the department, specialising in employment claims. George Z. Georgiou & Associates LLC This high-quality firm is noted for its “exceptional” litigation practice. Clients appreciate that “the lawyers are very prompt,

proactive and attentive to your needs. The firm’s size means that it can be more efficient and you get more partner contact.” A member of Ius Laboris, it is unique in specialising in employment law matters and has accordingly generated a lot of work in this field. Clients include one of the largest retail groups in Cyprus and a Danish construction company. Other areas of specialisation for the team include complex construction claims as well as land disputes. George Georgiou heads the practice and is a leading figure in the courtroom. He is described as “fast, efficient and successful in representing clients.” Nadia Tryfonidou is praised by clients for her diligence and thorough execution of assignments. Ioannides Demetriou LLC The founding partners of this relatively young firm have helped solidify its leading position. It is particularly noted for its arbitration and dispute resolution work in the area of construction and property. Working on various high-profile assignments, it recently successfully represented Ocean Tankers in a case against the government of Cyprus, regarding a disputed contract valued at €35 million. It also represents international clients, such as a Chinese contractor which it is currently advising on another arbitration proceeding against the government. Pambos Ioannides is a very highly regarded litigator in Cyprus, commended for his “methodical and analytical mind.” Andrew Demetriou is also picked out by sources as a leading figure in this field. He specialises in construction and property- related claims and is a highly experienced arbitrator. Christos Frakalas is an emerging talent at the firm, with experience in handling both civil litigation cases and arbitration proceedings L Papaphilippou & Co The dispute resolution team at this highly regarded firm is successful in representing clients in both civil and commercial matters. It covers various sectors, from debt collection to insurance and trust disputes. Loukis Papaphilippou is regarded by sources as a real heavyweight for litigation work. Tassos Papadopoulos & Associates LLC This firm has a long-standing reputation for undertaking high-profile dispute resolution

Loucia Astreou handles construction-related disputes, covering both insurance and engineering law.

Dispute Resolution Leading Individuals

Band 1 ● Georgiou George Z., George Z. Georgiou & Associates LLC ● Haviaras

Andreas L., Haviaras & Philippou LLC ● Ioannides Pambos, Ioannides Demetriou LLC ● Markides Alekos, Markides, Markides & Co ● Neocleous Panayiotis, Andreas Neocleous & Co LLC ● Polyviou Polis G., Chryssafinis and Polyviou ● Triantafyllides George, Antis Triantafyllides & Sons Band 2 ● Araouzos Demetris, Chrysses Demetriades & Co ● Astreou Loucia, Tassos

Papadopoulos & Associates ● Christodoulou George, Chrysses Demetriades & Co ● Chrysostomides Kypros, Dr. K. Chrysostomides & Co LLC ● Demetriou Andrew, Ioannides Demetriou LLC ● Eliades Marios G., Tassos Papadopoulos & Associates ● Melides Christos, Andreas Neocleous & Co LLC ● Papaefstathiou Nicos G., Tassos Papadopoulos & Associates ● Papaphilippou Loukis, L Papaphilippou & Co ● Pavlou Stavros, Patrikios Pavlou & Associates LLC ● Stamatiou Costas, Andreas Neocleous & Co LLC Band 3 ● Frakalas Christos, Ioannides Demetriou LLC ● Georgiades Yiannos G., Georgiades & Mylonas ● Mountis George,

Dr. K. Chrysostomides & Co LLC

Up-and-coming individuals

Tryfonidou Nadia, George Z. Georgiou & Associates LLC Alphabetical order within each band. Band 1 is the highest.

work. Peers identify its strengths in local litigation work, particularly in relation to real estate matters, as a result of its strong market presence in that area. The managing partner Nicos Papaefstathiou is identified as a reputable litigator and arbitrator. Also praised is Marios Eliades, who is regarded as being able to bring his understanding of corporate and finance matters to the fore when advising clients on contentious issues.

Two areas of specialisation are corporate fraud disputes and banking litigation

Band 3

Dr. K. Chrysostomides & Co LLC This firm has a robust reputation for arbitration and litigation work, most of which it does for international companies. The team has significant experience in handling arbitration proceedings, regularly representing clients in London. Other kinds of contentious claims handled include shareholder disputes and injunction requests. Previously the Minister of Justice, managing partner Kypros Chrysostomides’ immense knowledge and open mind impress clients. He “has the ability to listen to the other side and understand the source of their argument so as to respond successfully to it.” Sources also note that George Mountis is a “seasoned professional who is quick to react and clearly loves what he does.” Georgiades & Mylonas This compact outfit has a steadily growing share of dispute resolution work. A significant draw for the firm’s clients is its work in handling IP claims, representing some very high-profile international entities in disputes against local companies. Yiannos Georgiades heads the department and is acknowledged for his abilities in this field. Harris Kyriakides LLC This local player has a specialised litigation practicewhich is divided into subsections covering banking, insurance and general litigation. Its client base is drawn from a variety of sectors, including energy, construction and financial services companies. Michalis Kyriakides is the first point of contact for the department. Other Notable Practitioners Andreas Haviaras of Haviaras & Philippou LLC is a highly sought-after litigator. He is commended by sources for his knowledge and experience, particularly in international trade law. Alekos Markides of Markides, Markides & Co is another leading figure in the field of dispute resolution. “It is unbelievable working with him – you learn so much as he is able to handle complex and large cases and is not limited by the size of the firm.” Formerly the Attorney General, he is praised as having a “really good applied knowledge of the law.” He handles all kinds of work, ranging from contract disputes to applications to the ECHR.

the international investment, finance & professional services magazine of cyprus

Gold 45

asia

Non-Believer in the Asian Growth Miracle Asia has failed to use the last decade’s growth to transform and reform itself By Steen Jakobsen

aving recently visited Asia, I have become quite the non-believer in the Asian growth miracle. I advise and speak in front of several boards and management groups during a year and they all want to embrace the Asian growth story. Their focus is on ideas like favourable demographics, a growing middle class, increasing consumption patterns and cheap labour. If only it worked that way. Yes, Asia has seen better than average growth, and some of that is due to demographics, but let’s agree that just because your population is growing, it doesn’t necessarily mean that you work and produce smarter. I would argue that the marginal return of a given US dollar invested in Asia is negative. The market is crowded; several economies there are struggling with imbalances. India must have the world record in imbalances. It does not have a single macroeconomic parameter in balance, which is a pretty poor showing for a country which throughout my 30 years in trading has been a key emerging nation. In India the average age is low, but it hides the fact that in southern India the population is skilled, educated and older. In the north, the population is young, uneducated and far poorer. It’s a daunting task to reconcile this discrepancy in a country with no coherent

policy and a political system that still worships the socialistic ideals of Nehru. It is time for India to wake up. Asia has failed to use the last decade’s growth to transform and reform itself. Local capital is fleeing most of the bigger Asian countries – no-one wants to keep their money in China, India, Indonesia, or Vietnam, but European and US bankers continue to tell us that there is gold at the end of the Asian rainbow. How can this be true when we see the determination of so many successful Asian businessmen to leave their own country? Here are my three premises for trading and investment:

1) Everything meanreverts over time

What goes up too much must come down and vice versa. In the case of Asia, over-investment and a lack of socialised healthcare and broader educational systems mean that the former boom is now being shortcircuited by a lack of funding. European banks traditionally fund about a third of the US dollars for lending in Asia, but with enough problems at home in Europe, they are now withdrawing their capital. This means that deficit countries like India, the Philippines and Australia need to reduce their dependency on foreign funding. This can only happen through disinvestment and higher local savings. This will mean lower

info: Steen Jakobsen is Chief Economist at Saxo Bank 46 Gold the international investment, finance & professional services magazine of cyprus

growth, but that’s actually good news for Asia and the world. Why? Because had we continued the vicious circle of globalisation always competing for the lowest unit labour cost, all of the world’s savings would have ended up in Asia, while Europe and the US would be reduced to consumption-only markets that ultimately go bankrupt. Asia needs a decade of slowing down and making reforms to build pension and healthcare systems. They have simply built too large a piggy bank. Now, those savings need to be put to work – not on luxury cars and brand name goodies, but on securing a better future for the rising population of Asia.

European and US bankers continue to tell us that there is gold at the end of the Asian rainbow

2) All macro is bad; All micro is good

Asia is dominated by big governments and very little private ownership. Too much macro string-pulling from the government is inevitably a bad thing. For China and India to grow, they need to realise that a country’s long-term growth potential is only secured through a robust financial system. The less open and deep a country’s financial system, the less likely it will have sufficient capital and investment to feed its population. Set the micro economy free and the Asian countries will soon be back leading world growth. China is now paying for its macro policy mistakes. In 2009, China launched the biggest stimulus in world history. Even liberal politicians watch with envy how China managed to yank itself out of a funk and grow again. The IMF estimates that China by itself represented 32% of all new growth in the world from 2008-2011. The problem is that the stimulus happened in an economy which is essentially a one-trick pony.

Here is China’s economic business model: in one end they put cheap, subsidised capital and cheap labour, and out the other end comes high growth and rising incomes. The money saved and earned by workers can only go into bank deposits with negative real returns, or into a highly speculative property market or finally into a stock market which even on its best days has less accountability and transparency than the International Olympic Committee. The lack of reform and openness has aggravated Asia’s imbalances and now Asia is paying the price for its complacency. But it will be a very positive lesson learned if macro control is increasingly rolled back in the years to come and the micro economy run by individuals and companies acting in their self-interest, is allowed to flourish.

3) Time is not always a continuum – beware the cycle Great investments latch onto exponential growth stories and make money due to

the power of compounding over long periods of time. Economic growth almost always appears to be an exponential process as well. But sometimes, the world and our investments don’t move in an exponentially growing fashion. Sometimes, a company, an industry, and even the world face a regime shift that requires a disruptive break with the past and a change of direction as the old order breaks down. Asia faces just such a regime shift challenge. China started its long march towards reforms in 1979, incidentally the same year that Margaret Thatcher was elected Prime Minister of Great Britain, the so-called Sick Man of Europe at the time. A coincidence? Hardly. We are now one generation further ahead and we need the start of a new cycle. The time is simply right. In China, xenophobic rhetoric is escalating. This only happens when times are tough. The financial crisis and the imbalances in China have ruined the belief in ever higher growth and living standards. China is now revealed as overleveraged, unaccountable and in dire need of reforms.

The Worldâ&#x20AC;&#x2122;s Highest Jobless Rates und o r a t s een lofinancial b e v a jobs hthe global market s f o s n Millioworld sinceand the jobger worker the isis began fer. Youn the worst cr es to suf facing es. The u s im re continarticular as in recent tung worker in p rospect te for yo while in job p oyment ra is over 22% r 50%. e l unemphe eurozonSepain it is ov in t eece and Gr

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

unemployment

he following list includes the 10 countries with the highest unemployment rates among the world’s 50 largest economies. The ranking is based on 2011 annual average unemployment rates from the International Labour Organization (ILO) which took its numbers from national statistics sources. Cyprus is not one of the world’s 50 largest economies and is therefore not included on the list but it is worth recalling that in May 2012 the unemployment rate stood at 10%.

South Africa

Unemployment rate: 24.7% 2011 GDP growth: 3.1% South Africa, Africa’s largest economy, has the highest unemployment rate among the world’s 50 biggest economies. Unlike rising joblessness in Europe though, the situation in South Africa is nothing new; the country’s unemployment rate has been over 20% since 1997. A key factor behind South Africa’s high unemployment rate is the country’s apartheid history, which has created a black market for jobs, according to Theo Sparreboom, senior labour economist at the ILO. The country also has a well-developed social security system. “Some people can afford to look for jobs and do not necessarily take up any sort of work,” Sparreboom adds. In the first quarter of this year, the unemployment rate jumped to 25.2% from 23.9% in the last quarter of 2011. While jobs were created in the manufacturing and retail sectors, construction, mining and quarrying all shed jobs. Only a fraction of the 1 million jobs lost during the recession have been recouped, and economic growth remains well below the 7% expansion the government says is needed to make a substantial dent in unemployment. High unemployment has also led to rising

household debt in the country, which stands at 75% of disposable income according to the central bank. Those with jobs often support their extended families, paying for school fees and medical bills. Experts fear that South Africa’s debt problem will get worse as banks push into unsecured loans.

Spain

Unemployment rate: 24.3% 2011 GDP growth: 0.7% Spain has the highest jobless rate in the eurozone. The country tipped into recession in mid-2008 after a property bubble burst, sending key construction and services sectors tumbling. That prompted mass layoffs and more than doubled the number of unemployed. By May this year, unemployment had grown to 24.3% which is more than double the EU average. A whopping 4.9 million of its 45 million people are out of work as the unemployment rate hit a 14-year high. The growing number of people out of work is having a major impact on domestic consumption, which in turn, is affecting Spain’s GDP. Retail sales posted their sharpest decline in more than two years in March, falling 8.6% year-on-year.

Greece

Unemployment rate: 22.6% 2011 GDP growth: -6.9% Greece’s recession has put more than one in five people out of work, leading to a record high unemployment rate of 22.6% in June after an average of 17.7% through 2011. About 54% of those between the ages of 15 and 24 are without jobs. Overall, 1.1 million are unemployed, 42% higher than in February a year ago. Unemployment is highest in Greece’s biggest urban centres, particularly Athens. Greece’s roughly $300 billion economy has been shrinking for a fifth consecutive year. The sharp deterioration in the labour market, added to cuts in pay and pensions as part of austerity measures fuelled anger against pro-bailout political parties, which suffered major losses in May’s elections. Last month’s second poll saw a pro-bailout coalition form a government but it is expected to request an easing of the measures. Because budget cuts imposed under the terms of the EU/IMF bailout have caused a wave of corporate closures and bankruptcies, life has grown worse for many of those still working. Greece slashed its minimum monthly wage by about a fifth to encourage hiring.

Ireland

Portugal

Poland

Unemployment rate: 14.3% 2011 GDP growth: 0.7% Ireland ended 2011 with a shrinking service industry and an average unemployment rate near a 20-year high, double that of Germany, the eurozone’s leading economy. Ireland’s seasonally adjusted unemployment rate of 14.3% for May is a long way from the 4.5% recorded in 2007 before Ireland’s fiscal and banking crisis took hold. Some notable job losses include Bank of Ireland’s 1,000 job cuts. The bank, the only Irish lender to avoid nationalisation after a group of North American investors came to its rescue last year, had 13,200 employees at the end of 2011, down from a peak of over 16,000 at the height of Ireland’s property boom in 2008. High unemployment rates have prompted a steady stream of workers to return to school or to find work abroad in recent years. Only their exodus has prevented the jobless rate from jumping to the 24.3% recorded in Spain and the 22.6% in Greece. Unemployment rate: 15.2% 2011 GDP growth: -1.5% Although unemployment in Portugal was at 12.7% percent through 2011, the rate jumped to a record high of 15.2% in May this year as the country battles its deepest recession since the 1970s. Youth unemployment also rose to 36.2%. Sectors that have been hit hard by the country’s debt woes include the once booming shipping industry, with Naval Shipyards — the only yard in Portugal still building new vessels — cutting its workforce to 700 people from over several thousand in the past few years. Tough austerity measures implemented by the government in return for a €78 billion EU/IMF bailout package has made it difficult for Portugal to create jobs. In addition, unemployment is already above the 13.7% level forecast for 2012 in the bailout agreement; if it goes higher, the government willl likely have to pay more in unemployment benefits. Unemployment rate: 12.6% 2011 GDP growth: 4.3% Despite Poland experiencing one of the fastest GDP growth rates among debt-riddled eurozone countries, it continues to suffer from high unemployment. Labour reforms such as

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unemployment

Colombia

limiting early retirement along with Poland’s baby boom in the 1980s has increased participation in the workforce and pushed up unemployment, according to OECD Economist Balazs Egert. “If you had new jobs created, these jobs are offset by a large increase in the participation rate,” he said. Poland’s unemployment rate hit 12.6% in May, down 0.3% from April, but much higher than the 9.6% annual average of last year. Young people are bearing the brunt of Poland’s jobs crisis, with more than one in five young people out of work according to a recent study by the OECD. The youth employment rate jumped as high as 26.7% in March from 18.5% in December 2007. There is growing concern that a significant proportion of youth will suffer unemployment or underemployment their entire lives. The lack of jobs and low wages have led to a mass exodus of workers from Poland to Western European countries such as Germany and Austria, which lifted restrictions on Eastern European workers entering their job markets last year. Poland’s average monthly corporate wage of $1,215 in 2011 was about a third of that in Germany.

Unemployment rate: 10.8% 2011 GDP growth: 5.9% Colombia has been growing rapidly since the government brought a brutal civil war and insurgency under greater control, but the country still has the highest unemployment rate in Latin America. Though the unemployment rate dropped last year to 10.8% from 11.8% in 2010, Colombia’s jobless rate is still more than 2 percentage points higher than in neighbouring Venezuela, which has the second-highest rate in the region. In March, Western Colombia’s capital city Quibdo registered an unemployment rate as high as 19.1%. The Colombian government passed legislation in December 2011 setting a target of 8.5% unemployment by 2014, creating a temporary payroll-tax break for small and medium sized businesses to encourage hiring. But the IMF has warned the government that the main hindrance to formal employment in Colombia is a relatively high minimum wage. In 2010, the government raised the minimum wage by 4% to $300 a month after the inflation rate jumped to 3.1%. The IMF says the minimum wage is driving up the cost of labour.

Unemployment rate: 11.5%* 2011 GDP growth: N/A Western sanctions, a lack of foreign direct investments and a drop in oil output have hurt Iran’s economy and had a big impact on the country’s jobs market. About 15% of Iran’s workforce is unemployed, according to authorities but since many formal jobs don’t pay enough for people to support themselves, the true figure of people without work is probably much higher. Similarly, unemployment for people under the age of 25 is 29.1%, according to the Iran Census Centre, but analysts say the real figures could be as much as double that. University graduates were 10 times more likely to be out of work than those with lesser qualifications, according to the Ministry of Labour. High unemployment has led to youth-driven protests in the country. *Most recent statistics available as of 2009.

Unemployment rate: 10% 2011 GDP growth: 1.7% Although unemployment in France stood at 9.3% through 2011, the rate has now hit 10%, marking a 13-year high. The weak labour market in the eurozone’s second-biggest economy was one of the key factors that tipped the political scales in favour of socialist candidate Francois Hollande in May’s presidential election. Hollande repeatedly attacked the incumbent, Nicolas Sarkozy, over the country’s industrial decline, highlighting the loss of 355,000 industrial jobs during Sarkozy’s five years in office. In the months preceding the election, an OpinionWay survey showed that 40% of French workers believed their jobs were at risk. The government has been struggling to avert several high-profile industrial closures that would put even more people out of work. Ferry operator SeaFrance, lingerie

7. Iran

9. France

producer Lejaby and refineries owned by Switzerland’s Petrolplus are all threatened. In addition, French unions pressed President Hollande in May to prevent more than 45 other companies from shutting down production, which could threaten 90,000 jobs. Firms planning to close factories include PSA Peugeot Citroen, General Motors and retailer Conforama, according to the unions.

10.

Turkey

Unemployment rate: 9.8% 2011 GDP growth: 8.5% Turkey’s impressive economic growth in the past decade has not been matched by comparable strength in the country’s job market. While the average annual GDP growth during 2002 to 2006 exceeded 7%, the unemployment rate remained around 10%. A major factor behind this trend is the substantial number of people leaving the agricultural sector and moving to urban areas, according to OECD senior economist Rauf Gonec. There is also growing demand for jobs requiring medium to high level skills in the Turkish economy, while the bulk of the workforce has lower level skills, creating a mismatch between labour demand and supply, Gonec said. “Turkish enterprises do not find sufficient supply of skilled labour in the areas where they’re prepared to hire more people.” There has been an improvement in youth unemployment in recent years. The youth jobless rate has declined in the last five years, falling from a high of 17.1% in December 2007 to 15.4% in March this year, according to the OECD. While youth participation in the workforce has increased in Turkey, the country still has a low representation of women in the labour market. In 2011, women accounted for only 29% of the total workforce at 6.9 million, according to the ILO. Nearly half of all Turkish women enter the workforce at some point in their lives, but most end up quitting because of family obligations or poor working conditions, according to researchers. Only 24% of women with a basic education level have jobs.

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DENMARK-CYPRUS

PRESIDENTIAL

SUCCESSION ON 1 JULY, CYPRUS TOOK OVER THE PRESIDENCY OF THE COUNCIL OF THE EUROPEAN UNION FROM DENMARK. GOLD TOOK THE OPPORTUNITY TO TALK ABOUT THE DANISH EXPERIENCE OF THE PAST SIX MONTHS WITH KIRSTEN GEELAN, AMBASSADOR OF DENMARK TO CYPRUS. By John Vickers. Photograph by Jo Michaelides

old: How successful do you feel the Danish presidency of the Council of the European Union has been? Kirsten Geelan: The work of the Presidency of the European Council is an ongoing process. Almost 6 months ago the Danish Presidency embarked on the road for growth and jobs in Europe and this has been a central priority for us. Our approach has been to achieve a balance between an agenda of consolidation and reforms on the one hand with a positive growth agenda on the other. We have come a long way, but member states’ public finances are still under pressure and budgetary consolidation will remain an important challenge in the years ahead of us. Success is measured by taking bold decisions and providing results. We have worked tirelessly to provide results that would help Europe move forward. The objective of European cooperation remains the same since the inception of the Union: to secure economic prosperity, stability and safety in Europe. Gold: What are the main achievements of Denmark’s 6-month presidency? K.G.: We set out to create a responsible, dynamic, green and safe Europe. These

IT’S A CHANCE TO HIGHLIGHT THE DIFFERENT ASPECTS OF THE EU AGENDA RATHER THAN STRICTLY LOCAL MATTERS were our guiding priorities. With regard to a responsible Europe, we have agreed on a number of safeguards against future financial crises by introducing better financial regulation and paving the way for more stable economies. Together we have agreed to increase transparency and safety for derivatives trading and in mid-May the Presidency gained support for strengthening the regulation of credit rating agencies in the EU. In addition, we reached agreement on a new Capital Requirements Directive. The Presidency has also reached political agreement on the so-called “two-pack” which aims to ensure healthier economic policies and enhance surveillance in those eurozone countries facing financial difficulties. Finally, it is of great importance that 25 of the 27 Heads of States and Governments – including Denmark – have signed the

so-called Fiscal Compact ensuring a proper balance between revenue and expenditure in national budgets. Gold: Regarding the other priorities? K.G.: On a dynamic Europe, we have achieved progress with regard to the Single Market Act and the digital single market. A noteworthy result in this regard is the agreement with the European Parliament on the Roaming III regulation that will ensure lower charges for mobile phone use in other EU countries. But the pilot project on project bonds, the standardisation package, the Internal Market Information system, and orphan works are noteworthy results achieved in cooperation with the Parliament. In the Council we have pushed forward on many dossiers and achieved agreement on issues like Horizon 2020,

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the Connecting Europe facility, ground handling and on online and alternative dispute resolution. We have also put great efforts into the negotiations on the next Multiannual Financial Framework (MFF) 2014-20 in order to fulfil the European Council mandate to develop a basis for the final stage of negotiations. Gold: You also mentioned a green and safe Europe. K.G.: Progress was also achieved with regard to a green Europe. We passed Council conclusions on future environmental policy in Europe, the energy efficiency directive, the environmental action programme, and agreed to limit pollution from ships. With regard to a more secure Europe, the Presidency reached consensus on how to combat insider dealing and market manipulation in the EU, on the exchange of passenger information. In addition, we have managed to strengthen our resolve in the fight against illegal immigration. This is in addition to having decided to welcome Serbia as a candidate country which will contribute to the stability of Europe the coming years. So, all in all a good number of results has been reached so far during our Presidency Gold: You must be especially proud of the ‘sustainable’ presidency. K.G.: The Danish Presidency has become known as “The Tap Water Presidency” because all participants, including ministers, have been served tap water at meetings in Denmark. However, the sustainability efforts cover many other initiatives and sustainability has been an integral part of the logistical planning and execution of the presidency. The challenge has been to implement an effective and efficient presidency in a sustainable manner. One of the priorities of the Danish Presidency has been to promote green growth. We believe that this will lead to the creation of jobs and kickstart European growth. At a green energy conference

held in Nicosia last month, speakers from leading renewable energy companies Vestas and DanSolar highlighted the benefits of investing in renewable energy, pointing out the possibility for Cyprus to become a centre for green energy. We also believe that our long-term high living standards depend on green policies. The objective is to improve European competitiveness and foster economic growth without increasing our consumption of resources and energy. The sustainable management of the Danish Presidency is a benefit both in financial and environmental terms and the project highlights Denmark’s political commitment to green growth and leading position in sustainable solutions. Gold: Given that it is Denmark’s 7th time to hold the Presidency, are the Danish people aware of it or is it essentially just a large administrative task with few effects on ordinary people? K.G.: It is more than an administrative task, though it is that too. One of the things that we have been saying to our Cypriot colleagues here is that a Presidency also enables a civil service to modernise. It’s a great opportunity to go through procedures and ways of doing things and to ask, “Are we doing things the right way?” and “Do we have the right procedures in place?” We have been very focused and aware of the need to delegate responsibility in terms of enabling people to take swift decisions and when we do our stocktaking immediately after we finish our presidency, it will cover everything from policy issues and administrative procedures to logistics. The Presidency also provides the possibility to focus on the EU and on issues on the international agenda. I have this in the Danish press and on the news. Our ministers have been very conscious of the importance of being ‘out there’. The ministers for foreign affairs and European affairs, for example, launched a series of public debates at different universities

MY MOST MEMORABLE EXPERIENCE IS GOING TO THE BUFFER ZONE AND REALISING THAT IT IS AN AREA THAT IS COMPLETELY FROZEN IN TIME

throughout the country, taking advantage of the possibility of having colleagues from abroad to talk about the Arab Spring, the EU, the internal market, etc., so it’s also a chance to highlight the different aspects of the EU agenda rather than strictly local matters which is important. The fact that it is the 7th Presidency for us has made us very aware that no two Presidencies are the same. When we look back to our 2002 Presidency, the international situation was completely different. We had one key issue which was enlargement, including welcoming Cyprus into the family of the European Union and of course now, in 2012, it’s a completely different situation. Gold: How difficult will it be for Cyprus to coordinate the EU for six months? K.G.: Cyprus has been very wise in the sense that people know that the main issue for the Cypriot Presidency and the key issue on the EU agenda in the second half of 2012 is the Multiannual Financial Framework. We have taken the negotiations as far as we possibly could and we will hopefully have set the stage for the continuing negotiations during the Cypriot Presidency. We have seen discussions in the EU develop from primarily focusing on the need for fiscal stability and austerity measures to broadening the scope and talking about growth and fiscal consolidation going hand in hand. I completely agree with the priorities of the Cypriot Presidency and that this two-tier approach is the one that we need to pursue. Gold: How worried are you about the recent financial crisis within the eurozone? K.G.: I think we have to accept that this is a very broad economic crisis that has exposed structural deficiencies in the EU. Politicians and governments are increasingly realising that structures need to be reformed throughout the Union. We’re looking at massive unemployment – 23 million in Europe and in some countries youth unemployment is more than 50%. We can’t focus on fiscal discipline alone and in that respect the Danish government has undertaken a very significant domestic reform programme. We just reached agreement on tax reform. Domestically we have a government with a very ambitious reform agenda and that is what we are increasingly seeing throughout Europe. Gold: How do the Danes view membership of the EU after 37 years? K.G.: We still have two parties in parlia-

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DENMARK-CYPRUS

GOVERNMENTS ARE INCREASINGLY REALISING THAT STRUCTURES NEED TO BE REFORME THROUGHOUT THE UNION to green the economy and two weeks ago we finally reached agreement on the very controversial directive on energy efficiency. To my mind, this is an example where a smaller country can make a difference.

ment that are very anti-EU and are always questioning our membership. Has there been more of this during the recent crisis? Probably yes, though perhaps not as much as one might have expected. The fact is that we are a small country and it doesn’t take long for us to travel outside the country. We are happy travellers in Europe, we’re an open economy so, by and large, people are very aware of the importance of belonging to the EU. Gold: Presumably they are happy to retain the krone as the national currency? K.G.: Well, the Damish krone is pegged to the euro so whatever happens to the euro has huge implications for it. This is the policy we have pursued for years and years so whether we have the euro or not, we are still affected by it. Gold: Given that Denmark is a relatively small country within the EU, do you feel that it is an equal partner in every way with the likes of Germany, France and the UK? K.G.: Yes, I think we have a big role to play and we are playing it, maybe not only as Denmark but as part of the Nordic/ Baltic groups within the EU. Ministers from these countries have a very close collaboration and on issues where we see eye to eye, we try and promote our positions and ideas within the EU. As a smaller European country we are keenly aware of the importance and the possibilities that the European Union gives us because we do actually make a difference. You can see that in policy issues. We’ve been very active throughout the Presidency on the need

Gold: So, is it possible for one of the really small countries – Cyprus – to play a significant role in EU affairs? K.G.: I think that every member country of the European Union makes a difference. We have been negotiating the Multiannual Financial Framework since the Presidency of Poland, we took some very important steps throughout our Presidency and we will now hand over to our Cypriot friends who will carry the responsibility, maybe not for a final agreement in 2012 but they will make a significant contribution. I think that’s how you should view it. Even a small country can make a difference. Gold: Cyprus has been transforming its economy in recent years towards a much greater reliance on the professional services sector. How do you view the country’s ambition to become a regional services and financial centre? K.G.: When you serve in Cyprus you are acutely aware of the geographical ramifications of the island as a stepping stone to the Arab world and North Africa so I would have thought it was quite natural for investments in the services sector to consider Cyprus. I think it’s also important to note that there are other sectors that could be of relevance to Cyprus, for example renewable energy. It’s not just a matter of producing solar energy but setting up a production plant for exporting power to the region. Why not? Gold: When you were appointed Ambassador to Cyprus, what was your first reaction? K.G.: It’s worth recalling that Denmark has been very close to the Cyprus issue since the 1960s. We were among the first countries to send peacekeepers and we

stayed until the mid-Nineties. UNFICYP is the biggest mission that we have ever contributed to and more than 20,000 Danish men have been active in the peacekeeping mission. In that sense, Cyprus is a country that a lot of people are familiar with. For a diplomat, I would go as far as to say that this is a very interesting post with a lot of different aspects. Gold: What has been your most memorable experience as Ambassador to Cyprus? K.G.: My most memorable experience is going to the Buffer Zone and realising that it is an area that is completely frozen in time, the only divided capital in Europe. I’m still surprised by the warmth and the welcome I receive when I meet people on both sides of the Green Line and on a personal level that is probably the most touching experience. It underscores the need to continue striving to find a solution. Gold: Now that the Danish Presidency is over, are you going to relax more? Have you been especially busy over these six months? K.G.: Yes, very busy. We’ve tried to be ‘out there’, with a number of cultural events – we recently had a documentary film festival, for example – and we have tried to be more visible in the press. The message from Copenhagen throughout the Presidency has been continuously that we need to use the platform that the Presidency gives for the purposes of promoting the country. So even though the Presidency is ending, we’ll try to maintain this higher profile that we’ve managed to create and then we will, of course, be focusing increasingly on the Cypriot presidency. The Prime Minister of Denmark will be here for the formal launch, with everything that entails in terms of preparing the visit. She will have bilateral talks with President Christofias so it will be a slightly different workflow for me but will I relax? I don’t think so! Nice try!

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document management services

Yesterday’s

Papers Minding other people’s business has turned Fileminders into a major success story. By John Vickers. Photograph by Jo Michaelides

The way we work will change. We are definitely moving towards the tablet concept and applications

he phrase ‘blink and you’ll miss it’ is entirely appropriate for anyone searching for the Fileminders building on the outskirts of Nicosia, and that is precisely how the company’s director Marios Xenophontos wants it to be. There are no signs or names to let you know what precisely is going on behind the premises’ bland exterior and such anonymity is perfect for a business that stores confidential records and papers. Inside, beyond the busy office area, is a huge warehouse stacked from floor to ceiling with uniform-size boxes containing other companies’ documents. “Millions of company files,” muses Xenophontos, ”and now we’re running out of space…” Fileminders started operations in 2004 with what was, for Cyprus, a totally new idea and, since then, it has expanded in many directions. “When we started,” Xenophontos told Gold, “we were providing a basic records management service: the storing of records and fast retrieval. But Cyprus is a small market, so we decided to add new services: we started scanning documents; then we offered document management systems and later we added shredding to our activities. Now it has all come together as a one-stop shop for information services and our clients are very happy because we can do everything for them. They often don’t know how to scan large volumes of documents or where to store their records. In the past they may have had to rent a small warehouse or underground facility but it was expensive. That is not necessary now and, regarding digital records, they don’t have to go out and buy scanners. The industry has progressed in a short time from dealing with the storing of records to the digital image that a client can see on his PC.” The idea of the ‘paperless office’ has been around since the 1960s but, judging from the millions of paper records that Fileminders has in its care, the reality is still a long way off. Xenophontos believes that it will happen eventually: “I think we’re getting there but it’s taking

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much longer than expected,” he says. “Over the last five years it has become much more possible to go paperless and new technologies like the iPad are the key to this. I don’t expect it to happen in the next five or ten years but we’re adjusting to it and that is certainly the reason why we have gone into the scanning and document management services area. Things are moving in that direction but we’re not there yet. Imagine the huge volumes of paper that businesses are generating. People need to be able to go back to their information so someone needs to scan it for them. This is what we are doing. We are also moving into the Cloud with our document management systems so we’re adjusting our operations to ensure that we are there when the paperless office concept becomes a reality.” It is ironic that we are discussing paper and hard copies of documents when, given the speed at which technology is developing, certain digital storage methods may themselves become obsolete in 5 years’ time. Marios Xenophontos agrees: “The way we work will change. We are definitely moving towards the tablet concept and applications so at Fileminders we are designing a backbone that is based on a document management system but the front end for the user is going to be an application that can be used on an iPad. We will give our clients the capability of retrieving their documents on their iPad which, by the way, is not an easy thing to do! It involves a lot of technology to be able to bring up a document like this.” The firm uses American technology for records management while its digital document management systems are based on German systems which, according to Xenophontos, are “way out there. They’re the best.” Fileminders keeps all kinds of clients’ records from invoices to legal files. Fiduciary and insurance companies make good use of its services but anyone can be a client, from a small company that has a hundred box files to the huge audit firms that keep their documents with us or banks that have so many records coming out of each branch every day. Do companies hand over their papers to Fileminders simply to save space? This is one aspect of it, says Xenophontos, but there are many more factors involved: “In the last couple of years, for example, cost has been the main driver. Firms don’t want to keep their own warehouses. Everything that they do with us is based on per unit pricing and everything is measurable so clients pay exactly for what they get. Let’s say, for example, that you have 100 boxes and you put them in a warehouse and the warehouse is full. If you buy or rent another warehouse and on the first day you have only one additional box, you’ll be paying for all that space for nothing. Here, you’ll pay only for the one extra box and then the second and the third etc. And when you destroy anything, your cost is immediately adjusted. If you have your own warehouse and you destroy some boxes, the warehouse is still there and you’re not saving anything. So this is good management and it’s scalable.” If there is one sector that sounds as if it needs Fileminders’ services, it is the civil service which is renowned for its enormous, sprawling old-fashioned filing system. Not surprisingly, the company does not have a single government document among its millions of papers, at least not yet: “They are looking into outsourcing but there are some basic questions that need to be answered about whether, from a legal standpoint, they are allowed to do it or not,“ says Xenophontos. “The trend for

government departments abroad is that they outsource to private companies, which makes sense because there are huge volumes of documents and somebody needs to manage them but as we all know, in Cyprus the civil service is slow and resistant to anything new. Hopefully, things will change.” And even without the addition of millions of state documents, the business is expanding in other ways. “We’re still going to grow in terms of paper keeping but the Cloud and applications for the new tablets are going to be the biggest drivers in the business,” says Marios Xenophontos. Fileminders has been a member of the trade association for the commercial information management industry, PRISM (Professional Records & Information Services Management) since it began operations but it was recently invited to participate on the association’s European Council, a development that Marios Xenophontos views as both prestigious and useful: “We’ve benefited a lot from participating with huge companies from abroad and this has given us visibility in other countries,” he explains. “We are now receiving requests for our know-how and expertise to help others start their own businesses. This is still a young industry and the way we work in Cyprus is actually a unique model. Elsewhere, what Fileminders offers would be done by two or three different companies but we do it all. In the space of nine years, things have come full circle. The founders of Fileminders are now being asked for assistance in precisely the same way that they did before setting up the company: “My partner in the business and I were looking for new ideas, and this was something that we had used when we were in the States working for big investment companies. We liked the idea and our mindset from the beginning was that if people were going to trust two young guys with their information, we had to be good. So the first thing we did was to go to the States where a consultant explained to us exactly how they did things there. When we came back we basically copied them.” Xenophontos was adamant from the start that they would not create a ‘Cypriot version’ of what the Americans had been doing for 50 years. “We believed that what they were doing was the right thing so we copied it,” he recalls, “and we were very strict about the details. When you come up with something new, people will often tell you, ‘That’s not going to work in Cyprus’, ‘The Cypriots are different’ etc. That’s the typical reaction but Cypriot businesspeople are no different from their counterparts around the world.” Xenophontos still feels very strongly about this: “If you are starting a business and the model already exists abroad, don’t change the way they do it. They know something. When we started scanning we didn’t look at what the local competition was doing; we didn’t care what the competition was doing and we still don’t. We care about what the Germans and the Americans are doing because that’s where we want to be.” Setting up a business based on a tried and tested formula proved to be a wise move, and luckily for Xenophontos, he was not the only one who realized this: “To be fair to Cyprus businesspeople, it may have been difficult in the beginning but they got it. They soon understood the value of something that could save them money and helps them grow. We were lucky, too, in that we were able to convince a couple of the big audit firms right from the start. They were looking ahead and they knew about these services. Once we had won their trust, others soon started coming in. It took some time and some hard work but then nothing comes easy…”

The trend for government departments abroad is that they outsource to private companies

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A Match

Made in

Heaven An indecisive Cyprus presides over an indecisive European Union By Dr. Theodore Panayotou

cyprus

n 1 July, Cyprus assumed the Presidency of the Council of the European Union. While some people are sceptical about the capacity of a small state preoccupied with its own problems to carry out such an undertaking, the experience of the last few years has demonstrated beyond doubt that this is a match made in heaven. An indecisive state that does not anticipate or plan ahead, is always behind the curve, over-run by events and constantly running to catch up, is to preside for six months over the EU (and, within it, the eurozone) which is equally shortsighted and unprepared to meet its own challenges. For over three years now, both Cyprus and the eurozone have been in a state of denial, doing too little too late and, in the process, exacerbating their respective economic crises. After a spate of half-hearted measures that have aggravated the economic crisis, they both arrived at a crossroads where their future steps (and their future) would be determined by the outcome of the national elections of a bankrupt state, for a second time in a month. Never before in economic history has so much depended on so little! This is certainly a textbook case of how not to make policy. In both Cyprus and the eurozone, a decisive move of the right type and scale a year or two ago would have forestalled many of the problems that afflict both today. Yet, denial followed by a delayed response with half-measures has made bad things worse and the manageable unmanageable. From the tragic case of Greece to the massive banking crisis in Spain and the brewing trouble in Italy, there is no end in sight to the eurozone’s problems. What started as an easily manageable (at eurozone level) budget deficit and debt problem of Greece, Ireland and Portugal has become, in the space of a couple of years, the nightmare that it is today with a real danger of the entire eurozone collapsing within months, as financier George Soros, economist Jeffrey Sachs and others have warned. If only the decision makers had acted with decisiveness and boldness when the first cracks in the edifice of the eurozone appeared, by lending their full support to troubled member states and quickly reassuring the markets, they would have bought time to deal with the underlying structural problems that have emerged as a result of the incomplete union: a single currency without a common fiscal policy, no system of inter-country transfers and no lender of last resort. Instead, denial upon denial, delay upon delay and half measures followed by more half measures have turned the “few billion euro problem” that was then into the “more than a trillion euro problem” that it is today while the underlying structural problems have not been decisively and conclusively dealt with. An avalanche of taxes and spending cuts may be the bean-counting accountants’ obvious solution to budget deficits, which are seen as nothing more than a shortfall of revenues to cover spending. But if this approach kills off demand and economic growth, resulting in a drop in tax revenues and an increase in expenditure to deal with unemployment and other social problems, it is akin to “cutting off your nose to spite your face” or, as the Chinese say, “burning the house to roast the pig”. You may have temporarily closed the budget deficit but in doing so you have exacerbated the underlying economic problem of inadequate competitiveness and growth and created the conditions for a larger budget

hole in the near future. Of course, delay and indecisiveness mean that you have lost time in which to deal intelligently and fundamentally with the problem and you are now engaged in successive fire-fighting efforts which end up fanning future fires. The real problems of the eurozone are incomplete monetary and fiscal union and the low competitiveness of the southern European countries that is steadily shifting wealth from the south to the north. If this is optimal for the eurozone as a whole, there should be a system of interstate transfers as in all federal states; if not, then the problems of low and falling competitiveness in some member states must be addressed and remedied. Reducing the budget deficit with spending cuts and the national debt with haircuts may be part of the solution but it should be accompanied by powerful competitiveness-boosting measures; otherwise it creates more problems than it solves. Cyprus is a microcosm of what has happened in the eurozone and the response has been eerily identical. About three years ago, the clouds of the world economic crisis began to gather over Cyprus and the surplus of previous years turned into a deficit which quickly climbed above the Maastricht criteria. We knew then, from the Greek experience, that we would soon be downgraded and lose our access to global capital markets. We should have acted decisively then to cut unnecessary public spending, stop hiring in the public sector, and tighten the supervision of our banks’ activities in Greece. Unfortunately, our first reaction – it is rooted in our culture – was denial of the problem; the second reaction, also culturally bound, was procrastination, and the third was the accommodation of vested interests and organised pressure groups to the point that whatever measures we tried to take became toothless, with their bark a lot worse than their bite, necessitating more measures. And, as if to prove that we are purebred Europeans, we adopted the eurozone delusion of confining the problem to its accounting dimension, as if is solvable either through austerity measures alone or by applying for help to the EFSF. Our own third creative solution has been an interstate loan from a third country. Not a bad idea altogether; it is always good to have options. And we think that if we have done it once, we can keep doing it ad infinitum except that loans need to be serviced and repaid; otherwise they add to our national debt and lock us permanently outside the world’s capital markets. More damagingly, if we use loans (whether from a third country or the EFSF) to avoid taking the structural measures that will increase our competitiveness, we are setting ourselves up for bigger trouble in the future. Despite Cyprus’ indecisiveness and feet-dragging, the EU and especially the decision makers of the eurozone should be the last to criticize us for not taking decisive steps earlier on to deal effectively with our economic problems. They themselves have demonstrated the same indecisiveness and feet-dragging par excellence in dealing with the economic crisis in the eurozone. We and the EU are equally adept at putting off decisions and at locking the stable door after the horse has bolted. Now we are presiding over the EU and helping negotiate its budget up to the year 2020 when we cannot decide about our own budget up to the end of this year. Let’s hope that, in the same way as when you multiply two negatives you get a positive, the interaction of two indecisive partners will produce decisive outcomes. Otherwise, I am very much afraid that it will be deja vu all over again in a few months’ time.

As if to prove that we are purebred Europeans, we adopted the eurozone delusion of confining the problem to its accounting dimension

info: Dr. Theodore Panayotou, is Director of CIIM and Professor of Economics and the Environment at Harvard University. He has served as a consultant to the UN and governments in the US, China, Russia, Brazil, Mexico and Cyprus. the international investment, finance & professional services magazine of cyprus

Gold 63

opinion

Seeing the Bigger Picture Why a new double tax treaty between the US and Cyprus is essential

ere in Cyprus we consider the country to be a wellestablished and successful ‘international financial centre’ within the EU, attracting and retaining investments by providing an environment which has enabled a large number of multinational companies to conduct their business in a tax-efficient manner through Cyprus. The real question, though is this: Is the status of an ‘international financial centre’ – which we believe we have reached – sufficient to take us forward and is this view of ourselves shared by others? My own opinion, formed from personal experience, is that it is not. If we speak to people from Western countries, their perception is that we are good mostly, if not only, when it comes to going into Russia and the former USSR States. In their eyes, we make targeted investments in these countries and maybe a handful of others but that is just about it. Having a good product, which we do, is not enough. Like it or not, we have not capitalized fully on our EU identity and since accession we have not marketed it in the correct, concerted manner needed so as to shake off the labels we were given in a totally different era and tax environment. Our image-building efforts to date leave a lot of room for improvement and they contrast with what we have done particularly in the last year or so in terms of beneficial tax law amendments which by themselves, however, are not enough to keep us competitive in a cut-throat world. In the next few years – or so we say – we are poised to become a successful regional energy centre following the timely discovery of significant quantities of hydrocarbons in Cyprus’ Exclusive Economic Zone, which has attracted worldwide interest in Cyprus by oil & gas ex-

info: Stelios Violaris is a Partner - Tax & Legal Services, PwC Cyprus 64 Gold the international investment, finance & professional services magazine of cyprus

A modern, less restrictive treaty with the US is not only achievable but is urgently needed

By Stelios Violaris

ploration and production companies including, of course, a number of US multinationals. The island’s international business services sector started looking at the US market some years before the latest good news was announced. Many tangible efforts and investments have gone into this huge market, enabling us to widen our client base, spread and grow our business. In fact, we have done reasonably well and managed to attract a few big-name US investors to structure their outbound investments via Cyprus but it has been one-way traffic. We find it very difficult to attract the opposite flows, i.e. investment going into the US. This is mostly down to tax inefficiency. The existing US-Cyprus double tax treaty does not facilitate investments into the United States through Cyprus. Certain clauses of the treaty limit its benefits to such an extent in many cases that, in effect, it is as if no treaty exists where inbound investing through Cyprus into the US is concerned. This is not surprising, given that the treaty was signed 28 years ago, when we had the so-called ‘offshore’ regime which was viewed with suspicion by our US counterparts in 1984. Now that we have a totally different environment and status, and having achieved so much over the last decade or so, a modern, less restrictive treaty with the US is not only achievable but is urgently needed. The US itself would also be more interested now than ever before, given the interest expressed by American multinationals in exploring our oil and gas reserves. The US is the world’s biggest economy. Drawing up and signing a new Cyprus-US treaty is one action that would certainly enhance our image and potentially boost our otherwise flattening-out level of growth.

{july 2012}

issue

+ BOok review MONEY: Attacking Currency Trends: How to Anticipate and Trade Big Moves in the Forex Market By Greg Michalowski 67 BUSINESS: The Chimp Paradox: The Mind Management Programme to Help You Achieve Success, Confidence and Happiness By Dr. Steve Peters 73

{money}

66 Debt-free, Cash-rich Companies The top 15 companies operating with zero debt 68 In Trust We Trust Trust International Insurance Company (Cyprus) Ltd

74 “God gas a soft spot for Cyprus” CIBA President Frixos Savvides’ address to the association’s AGM

70 Intercollege Globaltraining The Cyprus-based organization is now expanding abroad 72 Investor Appetite Growing for Acquiring Non-Core Loan Assets from European Banks Portfolios with a face value of €50 billion are expected to change hands this year

LIFESTYLE: How to Watch the Olympics: The Essential Guide to the Rules, Statistics, Heroes, and Zeroes of Every Sport By David Goldblatt 88

{economy}

76 Home of the Brave Henk Potts on why bargain hunters in the equity market should reap long-term rewards 78 Barclays Investors Garden Party Photos and quotes from the event

{business}

ECONOMY: End This Depression Now! By Paul Krugman

{tax&legal}

80 Cyprus and Austria Sign DTT Protocol New provisions on Information Exchange come into force 82 Doing business in Russia 2012 Extracts from Deloitte’s reference guide to Russia’s tax and legal environment for companies interested in doing business in Russia

{lifestyle}

86 Going for Gold? It seems that some nations are just not prepared enough with host cities routinely underestimating the costs and overstating the benefits of the Games 89 The Economics of Sport A new PwC study seeks to benchmark the Olympic medals tally

the international investment, finance & professional services of cyprus

Gold 65

companies

{money}

Debt-Free, Cash-Rich Companies 66 Gold the international investment, finance & professional services magazine of cyprus

hroughout the continuing financial crisis, large debt loads have weighed on company balance sheets and had serious implications for firms that have let their borrowing get out of control. Some companies, however, have a history of operating with low debt levels and many choose to issue no debt at all. Instead of debt, they hold cash and short-term, highly liquid assets in order to make acquisitions and fund other investments in future growth. According to the latest quarterly filings, only 22 companies in the S&P 500 reported having zero debt on their balance sheets. From these companies, CNBC Analyst Giovanny Moreano selected those with the largest amount of cash and short-term investments as a percentage of total assets. (Total debt includes the sum of short-term borrowings, current portion of long-term debt, current portion of capital leases, long-term debt, capital leases, current finance division debt and non-current finance division debt, but does not include all possible liabilities. Cash holdings do not include long-term investments.)

Apple Total debt: $0 , Cash & ST

investments: $30.2 billion*. Total assets: $116.37 billion.Cash as % of assets: 22.3% . *Apple has an additional $67.5 billion in long-term investments.

Amazon.com Total debt: $0

Cash & ST investments: $6.32 billion Total assets: $19.05 billion Cash as % of assets: 33.2%

3. 4. 5.

Mastercard Total debt: $0 Cash & ST investments: $4.39 billion Total assets: $9.67 billion Cash as % of assets: 45.4% Cognizant Tech Total debt:

6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Intuitive Surgical Total

debt: $0 Cash & ST investments: $2.17 billion Total assets: $3.06 billion Cash as % of assets: 70.9%

Bed Bath and Beyond

Total debt: $0 Cash & ST investments: $1.52 billion Total assets: $5.85 billion Cash as % of assets: 26.1%

Autodesk Total debt: $0

Cash & ST investments: $1.34 billion Total assets: $3.01 billion Cash as % of assets: 44.7%

T Rowe Price Group Total debt: $0 Cash & ST investments: $1.01 billionTotal assets: $3.84 billion Cash as % of assets: 26.2% LSI Corp Total debt: $0

Cash & ST investments: $879 million Total assets: $2.27 billion Cash as % of assets: 38.7%

Red Hat Total debt: $0

Cash & ST investments: $808 million Total assets: $2.38 billion Cash as % of assets: 34%

Citrix Total debt: $0 Cash & ST investments: $775 million Total assets: $3.88 billion Cash as % of assets: 20% F5 Networks Total

debt: $0 Cash & ST investments: $557 million Total assets: $1.69 billion. Cash as % of assets: 32.8%

C.H. Robinson Worldwide Total debt:

$0 Cash & ST investments: $2.29 billion Total assets: $5.1 billion Cash as % of assets: 44.9%

$0 Cash & ST investments: $383 million Total assets: $2.17 billion Cash as % of assets: 17.6%

Forest Labs Total debt: $0 Cash & ST investments: $2.205 billion Total assets: $6.92 billion Cash as % of assets: 31.8%

Fastenal Total debt: $0 Cash & ST investments: $145 million Total assets: $1.68 billion Cash as % of assets: 8.6%

BOOK REVIEW Attacking Currency Trends: How to Anticipate and Trade Big Moves in the Forex Market By Greg Michalowski (John Wiley & Sons, 2011)

RRP: £42.50 (£27.62 from amazon.co.uk) aking money while limiting risk is something every trader strives to do but in order to achieve this goal you need a firm understanding of financial markets and the tools that will allow you to apply sound trading strategies in them. Greg Michalowski, who has spent the last ten years with retail Forex brokerage company FXDD, shares his experience in this field, starting with the importance of drawing up you own mission statement, game plan and rules. He then moves on to the technical tools and strategies used to anticipate and manage Forex trends, define risk and – significantly – control fear, focusing on three main charting tools: moving averages, trend lines and remembered lines, and Fibonacci retracements. He explains why successful currency traders look at short-, intermediate- and longterm time periods equally and trade using all three. Recommended for all traders and especially those who are fairly new to Forex, the book has already earned a reputation as one of the best available and one to ensure that you make fewer costly mistakes.

the international investment, finance & professional services magazine of cyprus

Gold 67

insurance

{money}

In Trust We Trust Trust International Insurance Company (Cyprus) Ltd

Company History

Trust International Insurance Company (Cyprus) Ltd was founded in 1990. With its headquarters in Cyprus, it provided reinsurance and management assistance to the Direct Insurance Companies of the Nest Group. In 2003, it acquired the licence to exercise insurance and reinsurance services on the local market and, in August 2009, the company started its local operations. For the last three years, Trust Insurance Cyprus has been the fastestgrowing insurance company on the island and is currently ranked 13th amongst the 23 General Insurance Companies with many years of presence on the island. Trust Insurance Cyprus is a member of the Nest Group that has been operating for the last 22 years in 23 countries of the Middle East, Africa and Europe, with assets in excess of $1.5 billion. The Group’s insurance know-how and expertise has enabled Trust Insurance Cyprus to expand its customer base and achieve remarkable growth during the past three years.

Financial Highlights of Trust Insurance Cyprus

Trust Insurance Cyprus is a financial company with total assets in excess of US$75 million. The company’s assets consist of investments, property and equipment, bank deposits and other assets in Cyprus and abroad. Despite the finan-

2010 Investments Current Assets Cash at Bank Total Assets Shareholder Equity Net Profit/ (Loss)

US$ 521 million US$743 million US$130 million US$1.588 billion US$728 million US$45 million

cial crisis, Trust Insurance Cyprus has managed to achieve significant profits. The Cyprus Insurance Industry, like the whole economy in general, is going through a difficult financial crisis. Trust Insurance Cyprus, viewing the situation as a challenge, has turned it into an opportunity. The company has established branches in Nicosia, Larnaca, Limassol and Paphos, employing 125 experienced professional insurance brokers. The Trust culture is highly service-oriented and customer satisfaction is the company’s major concern. Trust Insurance Cyprus offers multiple cover to the customer at competitive rates and high quality services such as direct claims settlement, together with a friendly customer approach. The company offers a wide range of general insurance and medical plans, which are designed and adopted

The Trust culture is highly serviceoriented and customer satisfaction is the company’s major concern

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

2009

2008

US$475 million US$499 million US$652 million US$516 million US$96 million US$86 million US$1.378 billion US$1.201 billion US$599 million US$599 million US$31 million US$28 million to cover the needs of either individuals or companies. The company’s stated vision is “To Lead Through Innovation and Service Excellence” and it has already achieved this through products that provide additional cover and services to the customer at the same competitive rates. In other words, it adds value to the premiums that customers are already paying. For example, all insurance companies provide road assistance to their clients but Trust Insurance Cyprus takes things a step further, providing not only road assistance to its clients but a free service to all its motor policy holders whereby if they have had too much to drink or face a medical problem, they can call Trust and be taken home safely. The company is committed to providing excellent customer service and, indeed, to exceed its clients’ expectations. It considers claims payment its reason for being in business, our approach is friendly and all members always take the time to solve queries with a smile. Trust Insurance Cyprus is already a successful insurer and is on its way to becoming a “Leading Insurance Company” on the island by becoming everyone’s “insurer of choice”.

cover2.indd 69

29/06/2012 13:28

professional studies

Intercollege Globaltraining {business}

The Cyprus-based organisation is now expanding abroad, as CEO Odysseas Christodoulou tells Gold.

Gold: When was the Intercollege Professional Studies Department founded? Odysseas Christodoulou: The Intercollege Professional Studies Department has its roots in Accountancy Tutors which began in Cyprus in 1991. This pioneering organisation by Cyprus standards was founded by Christos Vlachos and myself, Odysseas Christodoulou, and we are now the core of the Intercollege Globaltraining management team, together with Avraam Hadjihannas, Odysseus Tavros, Stelios Ntotsias (Greece) and Radu Radut (Romania). In 1993, Accountancy Tutors became an integral part of Intercollege and was named Intercollege Professional Studies. In 1997, we decided to expand our operations in Greece and for the next fourteen years we operated in Athens under the name of Global Training. Romania was our next expansion destination, where we have been operating in Bucharest as the Intercollege Institute of Business Studies (ΙntercollegeIBS) since 2007. An ambitious plan which involved merging our operations in the three countries where we had been operating started to take shape in January 2012. Today we are in a position to unveil our new logo and announce our new name Intercollege Globaltraining. This represents the evolution of the acclaimed Intercollege/University of Nicosia professional courses into a global organisation

Our new vision symbolises our past and our successful course so far but at the same time it points to the new course we have consciously chosen to pursue of professional studies with four operating centres (Nicosia, Limassol, Athens and Bucharest). Gold: What study programmes does it offer? O.C.: Intercollege Globaltraining offers a wide range of programmes aiming to satisfy the training needs of, amongst others, the accountancy/auditing, banking and financial services sectors. Our main programmes of study are the ACCA (Association of Chartered Certified Accountants) and the ACA/ICAEW (Institute of Chartered Accountants in England and Wales), with over 2,800 students at our four study centres (Nicosia, Limassol, Athens and Bucharest). We also offer the following qualifications: ● Certified Internal Auditors (CIA) ● Chartered Financial Analyst (CFA) ● Cost and Management Accountants (CMA) ● Chartered Institute of Public Relations (CIPR)

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

EPEY (Professional Competence CerK tificates for executives and employees of Investment Services firms (KΕΠΕΥ), and ● A large range of Continuing Professional Development courses for professional bankers, accountants, traders and business analysts. ●

Gold: Why were Greece and Romania selected as expansion destinations? How does the cooperation between the institutes abroad and the ones in Cyprus work exactly? O.C.: The rapid growth in the field of Financial Studies in the last fifteen years, in Cyprus and Greece first and later in the Balkans, drove us to focus initially on these markets. Greece was chosen as the first and natural destination for expansion and has been very successful with rapid growth rates. Romania was selected as the next location for expanding our operations due to the large number of Greek and Cypriot companies operating in Bucharest, but also due to the historical and religious ties between Romania, Greece and Cyprus. The study centres in Greece and Romania initially operated under the close monitoring of the Intercollege Professional Studies Department in Cyprus. Our prime concern was to maintain the high standards of teaching and training we had obtained in Cyprus. Naturally, these centres have gradually become

Odysseas Christodoulou

Facts and Figures

ore than 80 teachers are employed by Intercollege Globaltraining. They are members of professional accountancy bodies, such as ICAEW and ACCA, holders of the internationally acclaimed professional title Chartered Financial Analysts (CFA), or members of the Institute of Financial Services (IFS), and graduates of British and American Universities with Masters and Doctorate degrees in the area of Banking/Financial Studies. In 2011, Intercollege Globaltraining offered 308 open seminars for the general public, 52 tailored or in-house seminars and 47,350 teaching hours on our study programmes (ACCA, ACA, CIA, CIPR, CFA, KEPEY) to more than 3,965 students and professionals from accounting and auditing firms, banks, financial and investment firms, and government and semi-government organisations. Our students have obtained excellent results in the international ACCA and ACA exams. in the past three years, Intercollege Globaltrainingâ&#x20AC;&#x2122;s ACA students have won 7 world prizes in the ICAEW exams.

more autonomous while remaining an integral part of the larger Intercollege Globaltraining organisation. Gold: What does the change of name to Intercollege Globaltraining mean for Cyprus and the Intercollege/University of Nicosia? O.C.: The change of name underlines the international nature of the organisation. We already have a presence in three countries with our own study centres and we offer seminars and training in many other countries such as Russia, in the Balkans and the Middle East. Our new vision symbolises our past and our successful course so far, but at the same time it points to the new course we have consciously chosen to pursue: that of global expansion and the delivery of our services, experience and expertise abroad. Gold: Online learning has recently been introduced. Could you tell us

more about this and about its efficiency as a teaching tool? O.C.: As a result of the global expansion of our operations, in the last two years we have adopted Live-On-Line, a new, innovative method of teaching. Students can use Live-On-Line to watch a lecture live from the comfort of their home or office. The lecture is carried out in the same way as if it was taking place at the teaching location and the student can ask and receive answers immediately. With the use of advanced technology the lecture is also video recorded, enabling students to watch the lecture again in their own time. I would point our students, clients and other interested parties to our new website www.globaltraining.org. We have given emphasis to eLearning and LiveOn-Line courses in order to give choice and flexibility to our students and clients with regard to different modes of teaching and offered programmes.

the international investment, finance & professional services magazine of cyprus

Gold 71

{business}

Investor appetite growing for acquiring non-core loan assets from European banks Portfolios with a face value of â&#x201A;Ź50 billion expected to change hands this year

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

investment

nvestors expect the sale of European loan portfolios to peak in 2013, as banks begin to plan their refinancing of the liquidity injections received from the European Central Bank (ECB), according to a new survey from PwC. The majority of investors think the deleveraging process, now underway at European banks, will take at least five years, while the number who believe it will take more than ten years – a view shared by PwC – has doubled since the previous survey was carried out a year ago. Investor appetite to acquire non-core loan assets from European banks continues to grow. PwC surveyed more than 50 major investors active in the European loan portfolio market, ranging from investment banks and hedge funds to private equity groups, to understand the perspectives of those looking to acquire non-core loan portfolios from financial institutions. As well as a rise in the volume of identified non-core loans, the survey results indicate a significant increase in investor appetite. Every respondent plans to make an investment in 2012. Richard Thompson, PwC’s European Portfolio Advisory Group Chairman, said, “In the past year the banking sector has been much more open to deleveraging strategies. We estimate there are €2.5 trillion of noncore loan portfolios in the European banking sector, representing 6% of European banking assets. The run-off or sale of these loan assets will continue for many years and will make up a major proportion of future M&A activity. Based on our discussions with the major banks around Europe, we expect portfolios with a

face value of €50 billion to trade this year and €500 billion to trade in the next five to ten years. An interesting development has been the new categories of investor entering the market, such as insurance companies, pension funds and sovereign wealth funds. These new investors demand more stable returns from longer maturity assets and so are more suited to performing portfolio investments.” Leverage continues to be an important factor in enabling transactions to be completed by increasing prices and liquidity in the market. Over 60% of survey respondents said they plan to use funding for their investments in 2012. Despite the uncertainty in the European financial system, investors remain confident that funding will be available for transactions in 2012 and beyond. Only 18% of respondents thought it would be more difficult to raise debt this year compared to 2011. Richard Thompson commented: “Leverage will play an important role in increasing prices and liquidity in the European loan portfolio market and investors remain optimistic about accessing further funding for transactions this year. However, whether this funding will be available remains to be seen.” The survey results show that while the UK, Germany and Spain continue to dominate

Despite the uncertainty in the European financial system, investors remain confident that funding will be available for transactions the market for loan portfolio sales, investor interest in Ireland and Portugal is also on the rise, driven by the active steps taken by regulators in those countries to restructure their banking system. Investors are showing the most interest in commercial real estate (CRE) portfolios. This assets class is expected to see the highest level of investment activity in 2012. 57% of investors plan to make a nonperforming CRE portfolio investment in 2012, up from 41% last year. The market for unsecured retail portfolios, such as credit card debt, also remains active, where sellers’ provisioning levels are higher and specialist servicing capabilities exist.

Richard Thompson, PwC’s European Portfolio Advisory Group Chairman

BOOK REVIEW The Chimp Paradox: The Mind Management Programme to Help You Achieve Success, Confidence and Happiness By Dr. Steve Peters (Vermillion, 2012)

RRP: £11.99 (£7.43 from amazon.co.uk)

r Steve Peters, best known as the British Cycling team’s resident psychiatrist, explains the struggle that takes place within our minds and then shows how to apply this understanding to every area of our lives in order to recognise how the mind works, to comprehend and manage our emotions and thoughts and to become the person we would like to be. His thesis is that we all have three parts to our brain: a Chimp who works on emotion and sees things in black and white and a Human who is calm, sensible and logical. Both struggle for control and often the Chimp wins and make us do things that we might regret. The Chimp and the Human programme the third part of our brain which is the Computer (the part that allows us, among other things, to drive a car and behave in a reasonable manner towards our fellow humans). While no book will give the answers to life’s problems, this one certainly provides the tools to help deal with them.

the international investment, finance & professional services magazine of cyprus

Gold 73

international business

“God has a soft spot for Cyprus” {business}

CIBA President Frixos Savvides sees Natural Gas as a future saviour but urges the government to maintain the island’s tax regime for international business.

t the 19th Annual General Meeting of the Cyprus International Businesses Association (CIBA) in June, Association President Frixos Savvides urged the government to preserve and protect the country’s tax structure “at any cost”, describing it as “the cornerstone of our economic success”. He also expressed the belief that “God has a soft spot for Cyprus” and has once again come up with a divine gift in the form of natural gas. The following are the main points of Savvides’ address: “In my speech last year I dealt with the events unfolding in Greece, and how these events would possibly affect our economy. I noted that we had to be ready to take appropriate measures to protect ourselves from possible direct or indirect effects. There have been three major developments since last

Frixos Savvides

My message to the government is “Talk to us. We can help.”

year. First, the “possible” became “certain” in a big way; second, last year there was at least a government in Greece. Today (14 June) there isn’t one; and third, everybody was assuring us that we would in no way find ourselves in such a position that the Cypriot banks or the government would need help from the European Stability Mechanism but now it seems that we cannot avoid it. We at CIBA – Executive Committee, members, associates – are all extremely disappointed. We are all extremely sorry that so little has been done to avoid this situation, and we are very sorry that the Cyprus economy – our strength and our pride – is suffering to the extent that we are now experiencing. Given the situation we are now in, I definitely think that this is not the right time to examine whose fault this is and who is to blame. We will have plenty of time for this in the future. Our priority now is to help solve the problem. I am sure of one thing: this is not a “them and us” situation. We are all in this together and together we have to find ways to come out of it with the minimum possible losses because there will be no winners in this game. For this reason, we pledge our support in whatever shape or form to the Government and its ministers, to assist with our experiences, ideas and knowledge, to find a happy medium in which everybody may contribute to save our economy. I believe that we are now at a crossroads that

may lead us into or out of trouble. We must take decisions and steps. They may be unpopular, painful and not to everybody’s liking but we need to take decisions and action now. The economy cannot only be a political issue. There are numerous very important issues that the politicians can and should deal with, which are strictly political. The economy, in my opinion, must be a combination of a political and technocratic issues. If we believe that it is only political, we will probably be following in Greece’s footsteps very soon. Cyprus is different and must be seen to be different. We are a nation that performed economic miracles in 1974, not to mention during the Gulf war and during the war in Iraq. We are hardworking people, we are not corrupt as a rule, we pay our taxes (there are exceptions, of course…) and I must point out that international business contributes a major part of the total collected tax revenues every year. To pay taxes, however, companies must make profits and these are difficult times for all of us. Economics is, to the layman, a very simple matter that applies in the same way to every individual, every household, every company and every nation: we cannot spend more that we earn and, if we do, we cannot borrow forever to cover this shortfall. So, in theory, the solution to the present crisis is simple: increase earnings or reduce spending or implement a combination of the two. There is, of course, a political cost to reducing

If we believe that the economy is a strictly political issue, we will probably be following in Greece’s footsteps very soon public spending. It is a touchy subject and a painful one, and this alone does not solve the problem long-term. It must be accompanied by growth, which can only come from investment. And for the moment, investment can only come from outside, in the form of foreign investment and international business. So I urge the responsible government ministers to do their utmost to preserve international business in Cyprus, to keep what we have as a first step and to create confidence in potential international investors to come to Cyprus and to use the country as their investment base. I urge them to preserve and protect at any cost our tax structure, which is the cornerstone of our economic success and, in the event that we have to apply to the European Stability Mechanism, to fight for it. Otherwise, I dare not think what will happen to our international business and foreign investment structure. We at CIBA know the international businessman very well. He is a member of our

association, we know what he wants, we know how he feels, we know his problems, we know his philosophy and we know his psychology. My message to the government is “Talk to us. We can help by contributing ideas and creating the basis to resolve problems as well as offering solutions to the problems.” The international business sector is one of the main contributors to the island’s economy and an important employer of highly-educated, trained and specialised Cypriot personnel. We do not ask – and we never have asked – for any kind of government support. We only contribute but we do not like surprises. Whatever the government intends to do, we want it to talk to us. Together we will find the way. In other words, what we need is an efficient government which considers and treats us as the good customers that we are. One of the main topics discussed last year during the “Breakfast with the Minister” event was the government’s commitment to take steps to reduce bureaucracy or, as it is otherwise known, the administrative burden by the end of this year by at least 20%, in line with European policy. To this end, I understand that the House of Representatives Commerce Committee has decided to appoint a subcommittee to deal with this issue. I am also pleased to announce that on the initiative of, and with coordination by the former president of Cyprus, George Vassiliou, Cymar Market Research is at present carrying out a study with the objective of proposing ways to reduce government bureaucracy. CIBA has contributed to this survey and to a survey carried out by Noverna Consulting on Cyprus’ prospects as an International Financial Centre, the results of which will be presented in the near future. I want to end on a special positive thought, which I am sure that many of you share with me: I believe that God has a soft spot for Cyprus. It has happened in the past and it is happening now. From ancient times, during the Middle Ages and the time of the crusaders, until our most recent history, with wars and trouble around us, whenever we have had a problem and found ourselves in difficulty, something has happened and we have found a way to get out of trouble. This time, ‘God’s gift to Cyprus’ as President Christofias has quite rightly called it, is Natural Gas. Let’s exploit this gift in the right way, let’s use the benefits positively to solve our problems, and let’s create the circumstances to create a better Cyprus for us and for our children.”

the international investment, finance & professional services magazine of cyprus

Gold 75

markets

{economy} Henk Potts

By Costa Ioannides

Home of the Brave Henk Potts tells Gold why bargain hunters in the equity market should reap long-term rewards

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enk Potts joined Barclays Bank in 1998 as a graduate and worked as a Stock Market Analyst for Barclays Stockbrokers, focusing on UK equities. In 2009 he was appointed Director of Global Research & Investments for Barclays Wealth, where he works as part of a team formulating and communicating investment strategy to internal and external clients. In his current role he analyses a wide variety of asset classes, including equities, currencies and commodities, as well as ascertaining and explaining the effects of macroeconomic changes on financial markets. Based in London, he works in the UK and across a wide range of other jurisdictions including Monaco, Geneva, Cyprus, Bermuda and Africa, where he interacts with private banking and intermediary clients. Very well known thanks to regular TV appearances on Sky News, BBC, Bloomberg, CNBC, Channel 4 and CNN and to his radio commitments as in-house stock market expert, with regular slots on Talksport, LBC, Riviera Radio (Monaco) and World Radio Switzerland, Potts also writes regular columns for UK national newspapers and personal finance magazines. Proof of his dedication to his listening audience in the City of London was his decision to give his usual radio economic broadcast via mobile phone froma shuttle bus while en route to Cyprus. Gold: What, in your view, are the key critical issues affecting investment at this time? Henk Potts: There’s no doubt that the single biggest determining factor affecting financial performance over the course of the year will be the ability of European officials to take steps towards

Risk appetite has been completely blown away by the uncertainty of the big macro issues relating to instability within the eurozone

solving the sovereign debt crisis. There are both short- and long-term issues that need to be dealt with. In the short term, the focus is on Greece but things look somewhat better after the recent election. A Greek exit from the single currency would not only be expensive for Greece but for the entire eurozone. Gold: What should the Greeks be fearful of? H.P.: An exit from the euro would result in a dramatic loss of savings for the Greeks, their banking system would go into meltdown, and there would be a further contraction of the economy that has already contracted over 20% in the last three years. It would also involve the importation of a massive amount of inflation into the economy which would decimate living standards for decades to come. Gold: In terms of the knock-on effects that this would have on other EU economies, what are your biggest concerns? H.P.: I’m not too worried about noneurozone countries such as the UK but the danger is that of contagion for other single currency members. When the weakest link goes, the market then looks for the next one. We’ve seen this in terms of rising yields for Spain and Italy recently. Gold: So you think there will be a greater focus on Spain and Italy as the year wears on? H.P.: We shouldn’t put Spain and Italy in the same category as Greece. Yes, there’s no doubt that they have challenges ahead and they need to go through some structural changes, particularly around labour market, pensions, and public sector reform. But at the same time we should remember that there is a broad industrial base in place in both countries. In this respect they have a competitive export sector and a compliant tax base – i.e. things that you don’t see in Greece. Therefore we can’t compare the situation in Greece with that of Spain or Italy. Gold: When it comes to the global equity market, what should the biggest area of caution be for investors right now? H.P.: Markets have been focused on the big macro issues out there in terms of broad economics rather than the fundamentals and the corporate picture. The picture for corporates is actually looking very bright

indeed; profitability is continuing to rise and, if you look at the global quoted corporate sector, profitability rose by 30% in 2010 and then another 10% or so last year with another 10-15% this year. Balance sheets are very healthy with companies awash with cash at the moment. There is more cash on US balance sheets today than there has ever been in history. Gold: But despite this, stock markets are still wavering H.P.: Given the explosion in profitability and the underperformance of the stock markets, equities valuations are looking incredibly cheap. However, risk appetite has been completely blown away by the uncertainty of the big macro issues relating to instability within the eurozone. Gold: So is now the time for astute investors to sweep into the market and take advantage of the relatively cheap bargains that are out there? H.P.: If you’re taking a long-term view and are brave enough to hold out through short-term volatility, then it may well pay well to get involved now. Gold: Do you see any further moves towards more quantitative easing happening anytime soon? H.P.: Noises in this direction are growing louder, especially from the US. Personally I think that the situation in the US market is better than the media and some economists have been suggesting. The US authorities have been very innovative, aggressive and pro-active in coming up with solutions and the numbers coming out of there have been encouraging; the situation regarding unemployment has been getting better, albeit not as quickly as some would have liked; productivity is better and retail sales figures have been very robust indeed. If we look at US order books for both manufacturing and non-manufacturing, they are looking extremely healthy. Gold: What are your expectations in terms of growth in the US economy over the course of the year? H.P.: I would say the US is looking at around 2.4% growth for this year and another 2.5% for 2013. It’s not fantastic by historical standards – the postwar average is closer to 3.3% – but not bad given the environment we find ourselves in.

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Gold 77

markets

Evan Gavas, CEO Barclays Wealth

British High Commissioner Matthew Kidd

BOOK REVIEW End This Depression Now! By Paul Krugman (W. W. Norton & Co., 2012)

Barclays Investors

Garden Party

old’s senior editor Costa Ioannides joined Cyprusbased investors at the British High Commissioner Matthew Kidd’s residence for an economic update and guidance on how investors should be operating during these turbulent times from Henk Potts, Barclays Wealth Director of Global Research & Investments. Excerpts from Potts’ address to the gathering. “There’s speculation right now about whether China will experience a hard or soft landing – for me this is completely the wrong analogy, China will continue to experience elevated levels of growth for an extended period of time. Yes, there will be some turbulence but we’re still talking about growth rates of over 8% per annum for at least the next 5 years.” “When you look at the equity markets, the picture is much brighter picture than most

people think. Companies have adapted very quickly to a lower demand environment – they’re much leaner and meaner than they were before – so even if we are entering a period of rather anaemic economic growth, it’s very quickly filtering through to corporate bottom lines.” “What we are saying to clients is to hold a little bit more cash than they normally would. We believe that it’s the best safe haven out there at the moment – even better than gold and better value than treasuries. However, we believe that you should still be holding some long-dates quality government bonds within your portfolio to guard against possible eurozone problems. If the worst happens, then these will prove to be the standout performers and the best type of insurance against euro-instigated instability. But exposure to equity markets will still be the driver for growth within your portfolio over the longer term.”

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RRP: £14.99 (£12.74 from amazon.co.uk)

he winner of the 2008 Nobel Prize in Economics looks at the current economic crisis with lucidity, insight and, perhaps surprisingly, a fair amount of humour. Krugman believes that a quick, strong recovery is within reach if only the politicians can find the “intellectual clarity and political will” to act correctly. He is persuasive in his arguments against fiscal austerity and he suggests that everyone’s current favourite idea of austerity together with growth is not feasible: it’s either one or the other. Krugman’s witty and readable style makes understanding the present crisis fairly easy and his proposals to reverse the trend are equally simple to grasp: Speaking of the US, he says that federal aid should be used to reverse budget cuts and create more than a million direct jobs; upgrading the nation’s crumbling infrastructure could similarly create millions of jobs. Other solutions include boosting the renewable energy sector, fully addressing the housing crisis with debt relief for homeowners and taking a tougher stance on China and other currency manipulators. Goo

opinion

Immigration is Good for the Economy

The surge in immigration recorded by Britain has provided significant growth positives

he British Government says that it will reduce annual net immigration from its recent levels of around 250,000 to tens of thousands by 2015. This is a poor economic strategy but, fortunately, it is also a fanciful forecast. From Greece and Spain to Ireland and elsewhere across Europe, there are many millions of prime age adults who, in recent years, have moved around the enlarged EU to wealthier and, at the time, growing economies. Many of these are now suffering deep and painful austerity. Whilst some recent migrants will remain, many will not. Those who leave may well chose to return home. The likelihood, however, is that many will move elsewhere across the EU, and Britain is certain to be targeted by a great number. In Spain alone, for instance, there are over one million Bulgarians and Romanians. Indeed, I anticipate that it will not simply be Romanians and Bulgarians decamping Spain but some Spaniards themselves. Similarly, it will not only be Poles and Lithuanians et al departing Ireland for Britain but the Irish themselves. We also expect Greeks to join emigrants from Greece, to escape from the deep austerity sweeping it. It is no exaggeration to claim that Britain will receive a wave of immigrants leaving elsewhere in the EU, who can arrive practically freely and there is nothing the Government can do to stop it, other than opt out of the Single Labour Market, which is out of the question. There are also many millions across Europe who have moved from non-EU to EU nations and others from outside Europe entirely who now have EU passports. They, too, will provide Britain with new arrivals, to which we must add those entering from beyond Europe. Rather than net immigration falling to the tens of thousands by 2015, I expect the actual figure to have moved above a third of a million and possibly even higher, boosted by rising student arrivals. 500,000 is not an unreasonable estimate if the above concerns for the EU are credible.

Unemployment rates are very often lower even when economies have doubled or trebled in size

By Dr. Savvas Savouri

Some will, of course, claim that higher net immigration to Britain will simply mean higher unemployment. Not so, certainly not structurally. As populations grow, so does employment. Unemployment rates are very often lower even when economies have doubled or trebled in size. Most immigration is economically accretive. Arrivals provide demand for homes, goods and services and are a positive in so many other ways. There is more than a little irony in the complaints about the employment threat posed by immigration made by the jobless who have plainly not wanted to fill the vacancies taken by arrivals. Sure, there will be chaff arriving with the wheat but the balance has invariably been overwhelmingly towards the latter (asylum-seeking is a quite distinct and different issue). It is no exaggeration to claim Britain has never been so porous in terms of population outside of invasions. The experience since the Single European Labour Market was established in 1993, and the EU enlarged in its two subsequent phases of 2003 and 2007, contrasts markedly with the period before. In the years up to 1992 Britain was practically hermetically sealed from inward migration. If one development captures Britain’s transformation in the popular mind, it is the ubiquity of “the foreign builder, plumber and carpenter”. To many, this is modern Britain’s most glaring failure, depriving its nationals of work and overwhelming Britain’s housing, health and education services. Worse still, some will argue (with some cause), are those arrivals who do not work at all. Some may well be work-shy opportunists but others will be seeking legitimate work and, once successful, will make a positive contribution to the wider economy. Focusing strictly on economic immigration, there can be no doubt that the surge recorded by Britain has provided significant growth positives. I am equally confident that inflows from across the EU will continue, and as they do, should be welcomed. Just as ubiquitous as “the foreign builder, plumber and carpenter” has become, so will “the foreign dentist, solicitor and vet”.

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. the international investment, finance & professional services

Gold 79

double taxation

{tax&legal}

Cyprus and Austria sign DTT Protocol New provisions on Information Exchange come into force

By Boris Lazic

ypriot Foreign Minister Erato Kozakouâ&#x2C6;&#x2019;Marcoullis and Austrian Finance Minister Andreas Schieder signed a Protocol on 22 May 2012 amending the current Convention for the Avoidance of Double Taxation (DTT) between the Republic of Austria and the Republic of Cyprus with respect to taxes on income and capital. The Protocol amends Article 26 of the DTT (originally signed in Vienna on 20 March 1990) relating to the exchange of information. In accordance with the Protocol, the contracting states will exchange such information as is forseeably relevant for the purpose of carrying out the provisions of the DTT between Austria and Cyprus. The contracting states are not obliged to exchange information which is not obtainable under the laws of a contracting state. However, a contracting state is expected to provide information to the requesting state even if the supply of such information is not of domestic interest to the contracting state supplying the information, given that such information is permitted to be collected by the laws of the respective contracting state. Such information will be treated with the strictest of confidentiality by the relevant competent authorities. What is more, the competent authorities are Boris Lazic not allowed to supply information which may disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which will be contrary to public policy. In line with the above, it should also be noted that the legislation of Cyprus (Assessment and Collection of Taxes Law) has been revised

accordingly, so as to enable the exchange of information with other jurisdictions, by the incorporation into domestic legislation of the exchange of information provisions of Article 26 of the OECD Model Treaty. This is seen as a measure to tackle tax evasion, which has enabled the removal of Cyprus from various blacklists for non-cooperative jurisdictions. As per the revised legislation of Cyprus, information may only be collected by the Cypriot Tax Authorities if the written consent of the Attorney-General is obtained. When making a request, the competent authority of the state requesting the infor-

The updated treaty brings into line the present agreement with OECD requirements for greater transparency and the prevention of tax avoidance mation must provide the following information in order to demonstrate the foreseeable relevance of the information to the request: (a) The identity of the person under examination or investigation; (b) A statement of the information sought including its nature and the form in which the applicant state wishes to receive the information from the requested state; (c) The tax purpose for which the information is sought; (d) Grounds for believing that the information requested is held in the requested state or is in the possession or control of a person within the jurisdiction of the requested state;

info: Boris.lazic@eurofast.eu Eurofast Taxand, Cyprus. Tel: (+357) 22699222, www.eurofast.eu 80 Gold the international investment, finance & professional services magazine of cyprus

(e) To the extent known, the name and address of any person believed to be in possession of the requested information; (f) A statement that the applicant state has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties; and (g) A statement that the request is in conformity with the law and administrative practices of the applicant state, that if the requested information was within the jurisdiction of the applicant state then the competent authority of the applicant state would be able to obtain the information under the laws of the applicant state or in the normal course of administrative practice and that it is in conformity with this Convention. Once notifications are received by both states that all legal procedures for the entry into force of the Protocol have been completed, the Protocol will enter into force on the first day of the third month next following the date of receipt of the latter of the notifications referred to above. The updated treaty brings into line the present agreement with OECD requirements for greater transparency and the prevention of tax avoidance, making Cyprus a safe destination for investments. The Protocol is intended to enhance legal certainty for businesses as it clarifies the Cyprus position on exchange of information and will act to the advantage of Austrian companies operating in Cyprus. The Protocol to the DTT continues to render Cyprus one of the most advantageous jurisdictions for businessmen and is expected to further enhance financial growth and economic cooperation between the two jurisdictions.

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{tax&legal}

Doing business in Russia 2012 Earlier this year, Deloitte published a basic reference guide to Russia’s tax and legal environment for businesses interested in doing business in Russia. The following extracts are reproduced courtesy of Deloitte.

011 saw a return to investor uncertainty in Russia. Instead of underlining the country’s stability, the Presidential/Prime Ministerial ‘job swap’ and subsequent disputed State Duma elections sparked off the biggest political protests for years. Compounded by continuing troubles in the eurozone, capital flight accelerated sharply, the Russian stock market dropped and some observers were wondering whether a new chapter was about to be written in Russia’s post-Soviet history. In reality, however, probably the biggest investor news of 2011 was more predictable: Russia’s accession to WTO after eighteen years of negotiation. Following final ratification by Russia, the agreement – which aims to eliminate barriers to cross-border trade in goods and services and provide a legal framework under which to resolve disputes – should come into force later this year. There remains some doubt whether it will apply as between Russia and the US whilst the ‘Jackson-Vanik amendment’ extends to Russia, but that aside, most economists agree that entry will stimulate investment and add several percentage points to Russia’s

GDP growth over the next few years. Even without a WTO boost, GDP growth (at 4.2%) stood up well in 2011, as did most of the other major economic indicators — at least when compared to the rest of the eurozone. With a budget surplus for the year, government debt standing at a mere 10% of GDP and inflation at 6%, Russia’s economic performance for the year was quite impressive, even if the resilience of the oil price was a major reason for this. But how much longer Russia can maintain this balance is a moot point. In addition to substantial increases in military and social spending, the government has ambitious plans to invest up to US$1.5 trillion in developing and modernizing Russia’s economy over the next three years. Significant Government borrowing seems inevitable, as does the need for unprecedented amounts of foreign direct investment (FDI). Recently, however, FDI has remained stubbornly low – around US$40 billion for the third year running – involving a narrow range of industries, regions and major multinationals, many of which are already well established in the Russian market. Compared to the

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country’s investment needs, both in terms of FDI volumes and accessing the resources, technology and expertise of a myriad smaller enterprises which could boost Russia’s development, much still needs to be done.

Taxation

The main profit tax rate – at 20% – is one of the lowest amongst the major economies. Tax and other incentives are becoming more common, for example with the establishment of additional special economic zones and the Skolkovo Innovation Centre. Many of the incentives are aimed at promoting innovation and the modernisation of industry. The tax system, however, remains inflexible and poorly administered. The transfer pricing rules have at last been changed to come into line with OECD principles, and a limited form of tax consolidation has been introduced, but a more fundamental overhaul of the tax system is long overdue.

Strategic industries

As expected, the law which limits foreign investment in strategic industries has been relaxed, increasing the investment limit in com-

russia

Over the past two decades, few of the major investors into Russia have had much cause to regret, despite the many challenges

Conclusions

Russia remains a country with huge potential for foreign investors. As indicated above, virtually every sector of the economy, whether state or privately controlled, requires massive investment. Businesses in the technology and innovation sphere are particularly welcome. The challenge for the foreign investor is to determine whether the opportunities are attractive enough to outweigh the well-known market risks and uncertainties beginning to emerge in the political landscape. Looking back over the past two decades, however, few of the major investors into Russia have had much cause to regret, despite the many challenges. Faced with continuing economic stagnation in many of the world’s more developed markets, an increasing number of companies may decide that the growth prospects in Russia are worth pursuing. panies with subsoil activity from 10% to 25%, removing restrictions where the investor is an international financial institution (such as the EBRD) and resolving a number of anomalies. To date, the government commission charged with applying the law has approved around 95% of applications.

Finance & investment

2011 did not see any significant recovery in the number of Initial Public Offerings, while the government’s own plans to raise up to USD 50 billion from the sale of state shareholdings are on hold until market conditions improve. The government did, however, establish the Russian Direct Investment Fund – a US$10 billion sovereign fund that aims to attract new foreign investors into target sectors by co-investing an amount up to that put in by the investor.

Legal framework

The legal framework continues to develop with the growth of legal precedent and thus legal certainty, along with measures to discourage corruption and update company law. However, certain parts of

the judiciary are seen to lack independence and Russia ranks only 111th out of 183 economies monitored by the World Bank in terms of investor protection, well below the other BRIC economies, including China. That said, the vast majority of tax litigation is decided in favour of the taxpayer and in February 2012, Prime Minister Putin announced a package of measures aimed at improving the legal environment for business.

Expatriate staff

The introduction of a simplified process for obtaining work permits for “highly qualified specialists” – tested by reference to remuneration, not skills – has been a great success, with approximately 15,000 permits granted in the first year. The advantages of this route have been strongly underlined by the introduction of pension contributions of up to 32% on foreign employees who do not hold such work permits. Meanwhile, new expatriate staff arrivals continue to be taxed on their household belongings at €4 per kilo, a Customs Union oversight from July 2010 which has still not been fixed.

Types of business presence

Russian legislation provides for different types of business presence of foreign companies in Russia. These are: ● Branches and representative offices ● Legal entities ● Joint Activity Agreements, also known as Simple Partnerships

Branches and representative offices

According to the Russian Civil Code, both branches and representative offices are referred to as subdivisions of an FLE which are located at a place other than the head office of the legal entity. Branches and representative offices may be allocated property by the legal entity that has created them and act on the basis of regulations approved by that legal entity. The difference between a branch and a representative office lies in the nature of the activities they are entitled to perform. A representative office can only represent the interests of the legal entity and thus normally limits its activities to those of a non-commercial nature, such as marketing or information gathering. A branch, in contrast, can perform all or

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russia

part of the legal entity’s functions, including (but not limited to) representation. Nevertheless, some representative offices are known to engage in commercial activity but have never been challenged by the authorities provided they have properly accounted for Russian tax. An important practical difference between a branch and a representative office relates to migration aspects. A representative office is not entitled to hire employees under the simplified migration regime for highly qualified specialists. Because of the wide scope of their powers, branches are considered to engage in commercial activity for taxation purposes and are thus subject to profit tax. The limited scope of activities of representative offices would not normally expose them to profit tax, but some offices do in fact engage in commercial activity, including the negotiation and signing of contracts. In such cases, the office would become liable to profit tax in the same way as a branch.

Legal entities

The two most common types of legal entity under Russian corporate law are joint stock companies, which may be either “open” or “closed”, and limited liability companies. These are regulated by the law on joint stock companies (the JSC Law) and the law on limited liability companies (the LLC Law), respectively. Only JSCs are able to issue shares, which therefore renders them subject to Russian securities law and the regulations imposed by the Federal Service for Financial Markets (FSFM). Neither shareholders of JSCs or participants in LLCs are liable for the obligations of the company, and bear the risk of losses only to the extent of the value of their contributions (i.e. limited liability). However, there are situations in which a parent company may be held liable for the obligations of its subsidiary: a parent company which has the right to give directions binding on its subsidiary is jointly liable with the subsidiary for transactions concluded by the latter in following such directions. This liability exists regardless of whether the form of the commercial legal entity is an LLC or JSC. A similar concept applies in the case of the insolvency of a subsidiary, either an

LLC or a JSC. If the parent company determined the subsidiary’s actions, in the knowledge that this would result in its subsequent insolvency, the parent company bears the liability for the subsidiary’s debts if the subsidiary’s property is insufficient to cover its liabilities. A Russian company cannot be owned 100% by another corporate entity (wherever incorporated) where that owner is itself owned 100% by another shareholder. In other words, a 100% holding company of a Russian company must have more than one shareholder or participant. Open joint stock company — OJSC An OJSC may have an unlimited number of shareholders. Subject to elaborate disclosure requirements, an OJSC is the only

Russia remains a country with huge potential for foreign investors form of legal entity whose shares may be openly traded similar to a western “public” company. The minimum charter capital is set at RUB 100,000 (approximately US$3,300). Additional obligations are imposed on OJSCs having more than a certain number of shareholders. Closed joint stock company — CJSC The most common type of joint stock company, a CJSC, is limited to a maximum of 50 shareholders. There is no obligation for published accounts. A CJSC is often the structure preferred by minority partners in a joint venture, as the JSC Law grants greater rights for minority shareholders than the LLC Law. The main features of a CJSC are: ● Shares are only distributed among its founders or another predetermined group of persons. ● A CJSC may not conduct an open subscription of shares to an unlimited group of persons. ● The number of shareholders cannot exceed 50. If the number of shareholders is more than 50, it should be reorganised as an OJSC within one year ● The minimum charter capital of a CJSC may not be less than RUB 10,000 (approximately US$330)

info: The above text is adapted from the Deloitte publication ‘Doing business in Russia 2012’. 84 Gold the international investment, finance & professional services magazine of cyprus

● Shareholders enjoy pre-emption rights over

any shares offered for sale by an exiting shareholder Limited liability company — LLC An LLC is the most flexible type of company with the least burdensome statutory obligations. It tends to be the entity of choice for whollyownedsubsidiaries, including those owned by foreign investors. The equity participation of the owners is determined by their capital contribution. An LLC’s capital is divided into “units” (technically not shares, thus falling outside the scope of Russian securities law). The main features of an LLC are: ● An LLC does not issue shares ● An LLC’s “participants” contribute to the charter capital, although financing is also possible in the form of contributions to the company’s property ● The minimum charter capital of an LLC may not be less than RUB10,000 (approximately US$330) ● Participants enjoy pre-emption rights over any participation units offered for sale by a withdrawing participant ●T he number of participants may not exceed 50 A comprehensive law aimed at improving the legal status and regulation of LLCs, along with that of their participants, came into effect on 1 July 2009. In particular, the law provides that the sole foundation document of a company is its Charter, thus eliminating ambiguities caused through the use of Foundation Agreements. The law also precludes withdrawal from an LLC unless it is provided for in the Charter; stipulates the basis for transferring shares to the charter capital and establishes the procedure for disposing of such shares; and also requires the notarization of sales of participation and the maintenance of a register of participants and their holdings. LLCs founded before 1 July 2009 must bring their foundation documents into line with the law and register the changes with the State tax authorities. No time limit for this is prescribed by the law, although in practice it must be done no later than the next occasion changes to the foundation documents are registered.

Simple partnership or joint activity agreement (JAA)

Foreign companies are entitled to participate in a JAA with a local partner. A JAA is not itself a legal entity but represents the pooling of assets for the common conduct of business. One of the partners is usually appointed as the party responsible for bookkeeping and statutory reporting.

The The Business of Business of

Shipping Shipping re-examined re-examined

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olympic games

{lifestyle}

Going for Gold? The former Olympic swimming champion Mark Spitz once said: “If you fail to prepare, you’re prepared to fail” – a quotation that describes perfectly the problems concerning the cost of hosting of the Olympics. It seems that some nations are just not prepared enough with host cities routinely underestimating the costs and overstating the benefits of the Games. By Nathalie Kyrou

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

ou might think that, as the first city to host the modern Olympic Games three times (it did so in 1908 and 1948), London, home to the 2012 Summer Olympics (27 July-12 August), has enough experience to ensure that its finances are kept under tight control. In its bid, London had proudly proclaimed that “every sector of the economy will benefit from the staging of the Olympic Games.” Nevertheless, it appears that the final bill for the 2012 Olympics could be as much as ten times higher than its original estimate: in 2005 when London won the bid, the predicted cost of the Games was £2.37 billion. That figure had escalated to £9.3 billion by 2007, representing security and policing costs of £600 million, VAT of £800 million and elite sport and Paralympic funding of nearly £400 million. The government has since allocated an extra £41 million (with a £7 million contingency) from this budget to pay for the Opening Ceremony, which alone is set to cost £81 million. According to a recent Sky Sports investigation, the total cost of the London Games could eventually reach as much as £24 billion. While budgetary considerations for the games have generated criticism from some quarters, they have been welcomed by others for having prompted the redevelopment of many areas of London in which events will be held. The main focus of the Games will be a new 200-hectare Olympic Park but extensive use will also be made of many venues that were already in place before the bid was submitted. The costs of mounting the Games are separate from those for building the venues and infrastructure and redeveloping the land for the Olympic Park. The Games themselves are privately funded, while the venues and Park costs are met largely by public money. The cost of staging the Games is funded by the private sector by a combination of sponsorship, merchandising, ticketing and broadcast rights. The staging of the Games budget is raised and managed by the London 2012 Organising Committee, which has pledged to make a profit this year. To help fund the staging costs, the London Olympic organisers have agreed partnership deals with major companies.

So, will the money be earned back through ticket sales? Some 8 million tickets have been made available for the Olympic Games and 1.5 million tickets for the Paralympic Games. It has been estimated that 82% of all Olympic tickets and 63% of Paralympic tickets will be sold, raising around £375-£400 million (ticket prices range from £20 for many events to £2,012 for the most expensive seats at the opening ceremony). Almost one million more tickets went on sale in May but at the moment there is no guarantee that the promised profit will be made. London not only has its previous experience to draw on but it can also look at other recent cases, for example Athens. While many factors are behind Greece’s crippling debt crisis, the 2004 Summer Olympics in Athens have drawn particular criticism. While they may not be the sole reason for the country’s present financial mess (International Olympic Committee president Jacques Rogge believes that linking the debt crisis to the games is “unfair”), many point to the games as an illustration of what has gone wrong in the country. In 1984, Los Angeles made a US$250 million profit

In 1984, Los Angeles made a US$250 million profit but two decades later, Greece spent US$15 billion, creating a huge net loss by hosting the Olympics but two decades later, Greece not only exceeded its initial US$6 billion budget but actually spent US$15 billion, creating a huge net loss. One of the reasons for this was a lack of preparation or, perhaps, trying to be too prepared at the last minute: when terrorism concerns soared following the 11 September 2001 attacks, Greece decided to increase the budget for security at the Olympics to €970 million (US$1.2 billion). Approximately 70,000 police officers were patrolling Athens and the Olympic venues during the Games and NATO and the European Union also provided minor support, after Athens requested cooperation.

While the Athens Games may have cost more than the city could afford, IOC president Jacques Rogge points out that in the years leading up to the Games, Athens was transformed through the introduction of state-of-the-art technology to the transport system and urban development, and he argues that the city is still reaping the benefits. “These are things that really leave a very good legacy for the city ... There have been expenses, of course. You don’t build an airport for free,” Rogge says, noting that “Had Athens still been outmoded, the economy would have been much worse probably than it is today.” Greek Olympic officials agree that the scale of the country’s dire financial problems and its staggering national debt are simply too big to be blamed on the 2004 Games overspend. Nassos Alevras, the leading government official for Olympic projects, insists that, overall, the games brought a net gain including a tourism boost. However, a major point of criticism for Greece is that today, more than a dozen purpose-built Olympic venues are barely used. Vacant, fenced off and patrolled by private security guards, these once glorious stages for athletic excellence and sports enthusiasts have become as much of a waste of space as one could say they have been a waste of money. Alevras admits that, the issue of venue use is “a sad story… Plans for post-Olympic use were later ignored. But the money spent on the Olympics is equivalent to one quarter of last year’s budget deficit. So how can the amount spent over seven years of preparation for the Olympic Games end up being considered responsible for the crisis? That’s irrational.” Many financial experts agree – to an extent. “It is hard to argue that the Olympic Games were an important factor behind the Greek financial crisis. It

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The economics of sport

PwC study seeks to benchmark Olympic medals tally Economic size matters in the final medal tally but David can still beat Goliath

ome advantage could once again play a part in how the Olympic medals are shared in August but the superpowers of the US, China and Russia are again set to battle it out at the top of the Olympic Games medals table in London in August, according to a new analysis by economists at PwC. This is the fourth time that PwC has published an analysis of how medal performance at the Olympic Games can be linked to such factors as past Olympic performance, economics and state support for sport. This paper updates these estimates to allow for actual results in Beijing 2008. The following economic and political factors were found to be statistically significant in explaining the number of medals won by each country at previous Olympic Games before allowing for past performance: ● Population ● Average income levels (measured by GDP per capita at PPP exchange rates) ● Whether the country was previously part of the former Soviet/communist bloc (including Cuba and China) that tended to give significant state support to Olympic sports; and ● Whether the country was the host nation. “In general, the number of medals won increases with the population and economic wealth of the country, but less than proportionately,” says the report’s author, PwC’s UK Chief Economist, John Hawksworth. “David can sometimes beat Goliath in the Olympic arena, although superpowers like the US, China and Russia continue to dominate the top of the medals table.” Some of the more interesting conclusions to be drawn from the PwC model are:

In the table below, the PwC model estimates the top 10 medal-winning countries in London compared to Beijing 2008. Country 1. US 2. China 3. Russia 4. Great Britain 5. Australia 6. Germany 7. France 8. Japan 9= Italy 9= South Korea

Model estimate of medal total in London 2012 113 87 68 54 42 41 37 28 27 27

● Now that it is no longer the host country, China may find it more difficult to stay ahead of the US (as it did in Beijing on gold medals, although not total medals won). ● The PwC model suggests that the British team could win around 54 medals this time around, beating an already exception-

Now that it is no longer the host country, China may find it more difficult to stay ahead of the US ally good performance of 47 medals in Beijing due to home advantage, which has proved significant in all other recent Olympics except Atlanta in 1996. ● Russia is projected by the model to continue to perform strongly relative to the size of its economy in third place (68 medals), but it does continue to drift down the table relative to the heights of its performance in the old USSR era.

Medal total in Beijing 2008

Difference

110 100 73 47 46 41 41 25 28 31

+3 -13 -5 +7 -4 0 -4 +3 -1 -4

● The model still suggests that India is a significant underperformer relative to its population and GDP, with a model target of around 5-6 medals for London after allowing for past performance. The most plausible explanation is that, with the exception of hockey, Indian sport tends to focus on events that are not included in the Olympics, notably cricket. ● The model estimates suggest that larger Western European countries such as Germany, France, Italy, Spain and the Netherlands might be expected to broadly match their Beijing 2008 performances – though they will no doubt hope to do better. ● Countries where the model targets for London are below those for Beijing include Australia (still in gentle decline from the heights of Sydney in 2000) and some former Soviet bloc countries where the legacy advantages of strong state support from the pre-1991 era may be gradually fading, such as Ukraine and Belarus. ● As well as Great Britain, countries that the model suggests have the potential to do better than in Beijing include: Japan, Brazil (in the run-up to being the host country in 2016), Romania and Turkey.

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olympic games

Cyprus looks forward to London 2012

the budget in check. “The vast amount of resources needed to host a successful Olympic Games will keep adding costs to the budget and increase the total cost that the host city needs to pay,” he said. “Things have changed a great deal over the years. Today there are 204 National Olympic Committees, many of which he President of the didn’t exist 20-30 years Cyprus Olympic ago. Going back even Committee, Ouranios further, when Rome hosted Ioannides, told Gold the Olympics in 1960, that Cyprus has its bestthere were 5,338 athletes ever chance of winning representing just 83 National an Olympic Gold Medal Olympic Committees. The in London which, he demands for facilities, expects, “will host a great infrastructure, technology, Olympics where we will media, transportation, see tremendous athletic accommodation, etc. were performances that will inspire far less than those to which nations and, hopefully, London has to respond. “ promote the Olympic spirit, On the question of how values and beliefs at the Athens organised the same time.” 2004 Games, Ioannides On the question of costs, notes that “for Greece, the Ioannides believes that they Olympics were not just a will continue to rise, even if big sporting event. The the organising committee Games were coming back plans well ahead and is to their birthplace after 108 very strict about keeping years and everything had Ouranios Ioannides with Vladimir Putin

is, however, likely that they contributed modestly to the problem,” says Andrew Zimbalist, a US economist who studies the financial impact of major sporting events. “The empty or underused facilities are a problem and the maintenance and operating costs continue to impose a burden. That said, Athens also benefited from infrastructure development...” Before the Games, Greece’s densely populated capital got a new underground system, a new airport, and a tram and light railway network along with a major highway, while ancient sites in Athens’ city centre were linked up by an attractive paved walkway.

to be spectacular. Having to basically renovate the city and other parts of the country didn’t help, and major infrastructure deficiencies (the airport, the railway system, etc.) caused costs to skyrocket way over budget.” Ioannides agrees with those who believe that Athens 2004 had an effect on the country’s present problems because the organisers failed to take advantage of all the new facilities and infrastructure that were put in place. “The feeling of prosperity that was so obvious during the Olympics carried on for far too long afterwards when it came to wages, the price of goods, real estate prices, etc. When the money stopped coming in from the various funds that had been bankrolling the Olympic extravaganza, senior government officials didn’t seem to notice until it was too late and the country was struggling to pay its debts. The Olympic Games didn’t break Greece, though they played a part.”

These are the advantages that the organisers of London 2012 are quick to point out, as Britain also faces high levels of public debt. “I think the underlying issues in the Greek economy were far greater than a snapshot of the Olympic Games,” says Lord Sebastian Coe, Chairman of London’s Organising Committee. In an attempt not to fall into the same trap as Greece, the budget for the 2012 Games was cut in May 2010 by £27 million by the new Conservative-Liberal coalition government. Last year, Sports & Olympics Minister Hugh Robertson revealed that he expected the project to be delivered on time and under budget. Definitely a reason to celebrate.

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

Sadly, there is no sense of celebration in the abandoned 2004 Olympic sites in Athens. Once filled with hope, they are now as empty as the nation’s coffers. Although Greece won six gold medals in 2004, it did not reap any real rewards. It remains to be seen whether London will learn from Athens’ mistakes. Whatever happens, the debate about whether any city can afford to spend billions of euros/dollars/pounds to host three weeks of sport will continue.

BOOK REVIEW How to Watch the Olympics: The Essential Guide to the Rules, Statistics, Heroes, and Zeroes of Every Sport By David Goldblatt (Penguin Books, 2012)

RRP: £9.59 (£8.72 from amazon.co.uk) ou don’t have to be a great sports fan to be drawn to the Olympic Games so this summer you’ll probably find yourself watching some sporting activity on TV and wishing you could make a bit more sense of it. The central argument of this highly entertaining book is that every Olympic sport is worth watching if you understand it. And if you read the book, you will definitely have a different perspective on London 2012. It not only explains what you should be looking at – with helpful diagrams – but provides some excellent context for each sport, giving the history, notable moments and top winners, all conveyed with an underlying sense of the author’s passions and wry humour. If you want to discover the rules of Greco-Roman wrestling, work out why Judo is taken so seriously or simply understand why anyone can possibly pay to watch handball, this is for you and, quite possibly, for local TV sports commentators whose knowledge of ‘sport’ seems to be restricted to football and basketball.

Heroes and Villains

THE LAST WORD

Break his neck and he might break yours By Peter Economides

YouTube. Good for watching funny homemade videos about other people’s dogs and cats and babies and private obsessions. Video trash. Oh, and music videos. Lady Gaga, Justin Bieber and Dave Carroll… Dave who? Dave Carroll was a lesser-known Canadian Country & Western singer – until he posted a video clip on YouTube that went insanely viral with more than 15 million views. Dave suddenly became a celebrity singer with a Number 1 hit on Apple’s iTunes store and a book which is available on Amazon. The title of his video? “United Breaks Guitars.” Let me explain. Dave Carroll’s checked in his $3,500 Taylor guitar – nice guitar, I have one myself – on a United Airlines flight from Halifax to Omaha, Nebraska. The guitar did not survive the journey well. It arrived in Omaha with a broken neck. Dave put in a claim. After a year of haggling, United came up with a definitive “No, we are not responsible.” So Dave did what he knows best. He wrote a song about his experience, recorded a video and posted it on YouTube. This was picked up by the media and Dave started to make appearances on CNN and all the major networks. Dave became a celebrity and a hero and United Airlines became a villain. A few weeks after Carroll’s YouTube posting, United Airlines’ stock price had stalled in mid-flight, taking a nose dive of 10% which represented a loss of $180 million to the company’s shareholders. According to my calculations, that would have been

enough to have bought Dave more than 51,000 replacement guitars. That’s the power of YouTube, the

Businesses can no longer ignore social media, nor can they treat Facebook, Twitter and YouTube as optional extras on the company’s media schedule

world’s largest on-demand TV channel. On-demand. That means that people watch what they WANT to watch, which is very different from sitting through a commercial break on TV. You think YouTube is rubbish? Think again. Businesses can no longer ignore social media, nor can they treat Facebook, Twitter and YouTube as optional extras on the company’s media schedule. Nor can they afford not to be active participants in these platforms because they think it’s kids’ stuff. It’s not. Think about it. Twitter has more than 500 million registered users posting an average of 140 million tweets per day. If you don’t know what a tweet is, then join Twitter. It’s time you did. With these kinds of numbers, it’s likely that someone somewhere is tweeting about you. And you are faced with a simple choice. You listen – with a chance to react – or you don’t. And you run the risk of some Dave Carroll writing a song about you and posting it on YouTube. The CEO of a company I deal with recently relinquished the vast majority of his operating responsibilities by appointing a COO. Why? To dedicate his time to social media. He’s a smart guy. Gary Vaynerchuk, owner of the Wine Library in New Jersey, grew his business from $3 million annual sales to $45 million by using social media. Yes, nothing but social media. The world has moved on. We’re in the conversation economy. Today’s consumer is highly empowered. Break his neck and he might break yours. Ask United Airlines.

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

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CYPRUS BUSINESS LEADERS SURVEY

As the economic and banking crises tighten their grip on Cyprus, the overwhelming majority of the country’s business leaders remain optimistic about the future of the services sector.

+ THEO PANAYOTOU, FRIXOS SAVVIDES, MARIOS XENOPHONTOS CYPRUS

Presides over the Council of the EU

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INTERVIEWS

Kirsten Geelan Angela Knight Henk Potts

LIFESTYLE

London 2012 Going for Gold?

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MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

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