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Gold ISSUE 30 SEPTEMBER 14 - OCTOBER 13, 2013

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

l a i c e Sp

2

DIETER ROHDENBURG CEO, Intership Navigation Co. Ltd. CHRISTODOULOS ANGASTINIOTIS Chairman, CIPA (Co-organiser) POLIS ECONOMIDES Chief Financial Director, Jumbo Trading Ltd.

HANS WOLFF Director and Country Manager, Barclays (Gold Sponsor)

SERGEY POPRAVKO Managing Director, Unicom Management Services (Cyprus)

ELENA LEONTIOU Head of Media, IMH (Co-organiser)

PHILIP VAN DALSEN CEO, MTN Cyprus

MEHRAN EFTEKHAR Group Head of Corporate Services & Finance Director, Nest Investments Holdings (Cyprus) Ltd. VARNAVAS THEODOSIOU President and Managing Director, ExxonMobil Cyprus Ltd.

EVGENIOS EVGENIOU CEO, PwC Cyprus (Platinum Sponsor)

VIKTOR KISLYI President & CEO, Wargaming Public Company Ltd.

LOUCAS MARANGOS CEO, TFI Markets Ltd. (Silver Sponsor)

nd

YIANNIS TINIS Managing Director, Amdocs Development Ltd.

CIPA INTERNATIONAL

Wealth and Investment Management 00001 >

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Montarismeno gold cover me diafimiseis.indd 1

5 291295 000577

INVESTMENT AWARDS

16/09/2013 11:13

BROUGHT TO YOU BY

DIETER ROHDENBURG CEO, Intership Navigation Co. Ltd.

SERGEY POPRAVKO Managing Director, Unicom Management Services (Cyprus)

ELENA LEONTIOU Head of Media, IMH (Co-organiser)

PHILIP VAN DALSEN CEO, MTN Cyprus

VIKTOR KISLYI President & CEO, Wargaming Public Company Ltd.

BROUGHT TO YOU BY

presents

CIPA International Investment

Awards hosted by

MAGAZINE

THIS PRESTIGIOUS EVENT WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE VALUABLE CONTRIBUTION OF OUR SPONSORS.

C

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PLATINUM SPONSOR

GOLD SPONSOR

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MANY THANKS TO EVERYONE WHO PARTICIPATED IN THE ORGANISATION OF THE 2nd CIPA INTERNATIONAL INVESTMENT AWARDS. ORGANISERS

presents

CIPA International Investment

Awards hosted by

MAGAZINE

THIS PRESTIGIOUS EVENT WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE VALUABLE CONTRIBUTION OF OUR SPONSORS.

C

M

Y

CM

MY

CY

CMY

K

PLATINUM SPONSOR

GOLD SPONSOR

SILVER SPONSOR

MANY THANKS TO EVERYONE WHO PARTICIPATED IN THE ORGANISATION OF THE 2nd CIPA INTERNATIONAL INVESTMENT AWARDS. ORGANISERS

presents

CIPA International Investment

Awards hosted by

MAGAZINE

THIS PRESTIGIOUS EVENT WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE VALUABLE CONTRIBUTION OF OUR SPONSORS.

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M

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CM

MY

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PLATINUM SPONSOR

GOLD SPONSOR

SILVER SPONSOR

MANY THANKS TO EVERYONE WHO PARTICIPATED IN THE ORGANISATION OF THE 2nd CIPA INTERNATIONAL INVESTMENT AWARDS. ORGANISERS

presents

CIPA International Investment

Awards hosted by

MAGAZINE

IMH & CIPA WOULD LIKE TO CONGRATULATE THE WINNERS OF THE 2 nd CIPA INTERNATIONAL INVESTMENT AWARDS AT THE CEREMONY HELD AT THE PRESIDENTIAL PALACE ON 10 SEPTEMBER 2013.

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Internal Capital Adequacy Assessment Process (ICAAP) Date: 10/10/13 Current Economic Environment –IFRS Application Issues* Date: 14/10/13 Επιχειρηματικές Στρατηγικές Επιβίωσης Ημερομηνία: 17-18/10/13 New Developments in the Banking Sector* Date: 05/11/13 Δηλώσεις ΦΠΑ, Πίνακες VIES & Δηλώσεις INTRASTAT: Τεχνικά Ζητήματα κατά τη Συμπλήρωσή τους* Ημερομηνία: 12/11/13 CRR/CRD IV: Changes in the Basel II, Pillar 1 Framework Date: 18/11/13 Πρακτικά Παραδείγματα για την Εξασφάλιση και Αποπληρωμή Χρεών: Διορισμός Παραλήπτη/ Διαχειριστή* Ημερομηνία: 22/11/13 Tax and VAT Regulatory Amendments and Implications for Cyprus Investment Firms Date: 25/11/13 Valuations* Date: 02-03/12/13 Πρόσφατες Τροποποιήσεις στην περί Φ.Π.Α. Νομοθεσία* Ημερομηνία: 09/12/13 Anti – Money Laundering and Counter Terrorism Financing Requirements Date: 12/12/13 Safeguarding Clients’ Assets Date: Not yet set * The programmes have been approved by the HRDA. Enterprises participating with their employees who satisfy HRDA’s criteria, are entitled to subsidy.

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Issue 30 September 14 - October 13, 2013

8 EDITORIAL 10 UP FRONT 16 FIVE MINUTES WITH…

17

+ OPINION NO SUCCESS LIKE FAILURE

By Savvas Savouri

42

15,000 WORDS LATER

By Peter Economides

82

MAGAZINE

THE CEREMONY FOR THE 2ND CIPA INTERNATIONAL INVESTMENT AWARDS, HOSTED BY GOLD, TOOK PLACE AT THE PRESIDENTIAL PALACE IN NICOSIA ON 10 SEPTEMBER. WITH PHOTOS FROM THE GALA DINNER, THE SPEECHES AND PRESENTATIONS, WE BRING YOU ALL THE DETAILS OF THE AWARDS CEREMONY, TOGETHER WITH PROFILES OF THE 10 AWARD WINNERS, COMMENTS FROM THE EVENT’S SPONSORS AND MORE.

44 68 70 74 76 78

78 FEATURE

60 48

56

44 | CAPITAL VALUE

52 | TIME FOR ΝEW DOUBLE TAX AGREEMENTS

A Limassol-based credit rating agency is going from strength to strength.

Cyprus should expand its network of bilateral agreements for the avoidance of double taxation to cover more countries, especially those in Africa.

48 | RENEWING EGYPT’S DEMOCRATIC ASPIRATIONS The country’s Ambassador to Cyprus remains optimistic about her country’s future.

56 | RESTORING INVESTOR CONFIDENCE Investment firms have been hit by the

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

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

agreement with the Troika but Cyprus’ reputation has been hit harder, says Dr. Stelios Platis.

60 | ALL THE RIGHT MOVES Interview with management guru Costas Markides.

64 | EASTERN MEDITERRANEAN NATURAL GAS FORUM The Eastern Mediterranean: A New Energy Frontier is the title of a major conference being organised by IMH in London.

EDITORIAL

Time to Say ‘Thank You’

T

he ceremony for the 2nd CIPA International Investment Awards, which took place on Tuesday 10 September in the gardens of the Presidential Palace, was not only an enjoyable evening for the 450 invited guests but an impressive gathering of company executives and senior officials, politicians and professionals involved in the services sector. The venue of the event and the presence of President Anastasiades underlined not only its status and prestige but also the importance that the new government places on the contribution of foreign investment to the economy. And while intense efforts are being made to attract new investors, funds and firms to the island, the CIPA International Investment Awards are one way in which the country can say ‘thank you’ to those companies that have already shown and maintained their trust in Cyprus.

The keynote speaker of the evening, easyJet founder Sir Stelios Haji-Ioannou, urged the Government to pay particular attention to start-ups, a theme that was echoed by former President George Vassiliou. But the most impressive words of the evening turned out to be the unscripted comments by the representatives of the award-winning firms. Without exception, their message (enthusiastically applauded by the President) was “We are here and we are staying here”. Reference was, of course, made to the new circumstances in which we have all been living since March and to the decisions of the Eurogroup which have impacted the economy, the banking sector and our daily lives. But the overwhelming implication was that, despite the drawbacks, the negative publicity and, in particular, the inconvenience of banking restrictions, the foreign companies that have chosen Cyprus as their base of operations are not about to desert the island for another jurisdiction. Viktor Kislyi, President & CEO of Wargaming Public Company Ltd., made the point in a more personal manner, telling the audience that he had just enrolled his son at school in Nicosia, while Dieter Rohdenburg, CEO of Intership Navigation Co. Ltd, noted that the company had recently completed work on its brand new offices in Limassol.

The aim of the CIPA International Investment Awards, which Gold inaugurated in 2012, is to express gratitude and to honour foreign investors – companies and individuals – that have contributed to the growth of the island as an International Business Centre. These organisations have established local operations and created jobs; they pay taxes and have added overall value to the economy; they have actively shown trust in the island and in our local professionals. As George Michail, Managing Director of IMH and publisher of Gold, told the gathering at the Presidential Palace, Cyprus’ present economic predicament makes awards such as these more important than ever.

In this month’s issue, you will see and read all about the event and the firms that were honoured at this year’s ceremony, including views and opinions from the award-winning companies’ and event sponsors’ representatives, but there is much more in the pages of this issue: We have interviews with management guru Costas Markides (page 58), the Egyptian Ambassador to Cyprus, Dr. Heba Elmarassi (page 46), the Managing Director of the Capital Intelligence rating agency, Zafer Diab (page 42) and the Chairman of the Association of Cyprus International Investment Firms (ACIIF), Dr Stelios Platis (page 54), as well as articles on topics as varied as Double Tax Agreements, Hedge Funds, Business Valuation and Investing in Photographs.

Finally, in an issue dominated by the awards that say ‘thank you’ to investors in Cyprus, I would like to express my thanks to the only person who has featured in all 30 issues of Gold, our columnist and brand strategist extraordinaire, Peter Economides. Magazines, like economies, need change and renewal every so often and, from our next issue, Peter’s “Last Word” will disappear. We wish him all the best in his many other successful activities.

Some things don’t change, however, and I’ll see you next month!

John Vickers, Chief Editor

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

Kyproula Papachristodoulou CONTRIBUTORS TO THIS ISSUE

Rakis Christoforou, Peter Economides, Chloe Panayides, Savvas Savouri ART DIRECTION

Anna Theodosiou SENIOR DESIGNER

Alexia Petrou PHOTOGRAPHY

Jo Michaelides MARKETING EXECUTIVE

Kevi Chishios SALES & BUSINESS DEVELOPMENT EXECUTIVE

Phivos Karayiannis ADVERTISING EXECUTIVES

Irene Georgiou, Christopher Constantinou OPERATIONS MANAGER

Voulla Nicolaou SUBSCRIPTIONS

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up front

Vodafone in €99 billion

MEDOCHEMIE TO REPRESENT CYPRUS AT THE EUROPEAN BUSINESS AWARDS

corporate

M

deal

V

odafone has sold its 45% stake in Verizon Wireless to US telecoms group Verizon Communications in one of the biggest deals in corporate history. Vodafone will receive €99 billion, of which €63 billion will be returned to its shareholders. The company will also invest money in its business, with funds earmarked for high speed mobile

phone networks. The company is launching a £6bn investment plan called Project Spring, which will accelerate the introduction of 4G networks and increase investment in laying fibre optic cables, among other things. By 2017 its main five European markets will have almost complete 4G coverage thanks to this investment.

This is the third biggest corporate transaction, behind Vodafone’s 1999 deal to buy Germany’s Mannesmann and AOL’s purchase of Time Warner in 2000.

FOREXTIME

launches

Chinese website

F

orexTime Ltd has launched a new Mandarin Chinese language website to support traders with content in the world’s most spoken language. With more than one billion speakers, Mandarin Chinese is second only to English as the leading

language for business.

Olga Rybalkina, CEO of ForexTime, says, “We are seeing huge interest in our Forex services from the Asian region, with people looking for new and interesting ways to invest their money and trade the market. It’s no secret that we all prefer to speak in our native language and even more so when we are doing business.” Rybalkina adds, “With more than one billion people speaking Mandarin Chinese, 40 million of whom live abroad, the language is used widely across the world and we expect our new Chinese language website to resonate extremely well with traders looking for a more personal trading experience.”

The launch of the Chinese-language website (www.forextime.com/zh) is just the latest step in ForexTime’s expansion plans which include introducing new products tailored to the individual needs of each trader.

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

edochemie Ltd is to represent Cyprus in the prestigious 2013-14 European Business Awards in the Imports/Exports Award category, after beating off stiff competition to become National Champion. The firm will now compete against National Champions from 31 European countries for Ruban d’Honneur status in the next round. Final category Award winners will be unveiled in April 2014.

Yiannakis Mouzouris, Area Manager for Europe and the CIS said, “Medochemie has won several prestigious awards in its 37-year history. Today, we are excited to have been selected to represent Cyprus in the European Business Awards competition, which is widely recognised as a showcase for Europe’s most dynamic companies. It’s on honour to be recognised again as one of the leading organisations in our country and worldwide.

We’re looking forward to the next round of the competition.”

Adrian Tripp, CEO of the European Business Awards noted that, “Very few organisations get the chance to fly the flag for their country and compete across Europe to be recognised as one of Europe’s finest. It really is on exceptional accolade to be picked as a National Champion and together with our sponsors and supporters we’re looking forward to seeing Medochemie Ltd in the next round.”

To advance in the competition, all National Champions have to submit a video entry for viewing and assessment by a judging panel.

In addition, the public will also be able to vote online for their favourite National Champion from each country, these companies become ‘National Public Champions’ and one will go on to be ‘European Public Champion’. Voting begins in November 2013.

www.pwc.com.cy

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up front

CCCI Business

Forums

in Ukraine, India & Kuwait

T

he Cyprus Chamber of Commerce & Industry (CCCI) is holding three Business Forums in SeptemberOctober, all in conjunction with the Ministry of Energy, Commerce, Industry & Tourism, in Ukraine, India and Kuwait. The third one coincides with an official visit to the country by President Anastasiades.

Two meetings will take place in Ukraine: on 24 September in Donetsk and on 25 September in Lugansk. Organised in collaboration with the Cyprus-Ukraine Business Association, they aim to promote Cyprus as a business and investment service centre and to promote closer economic ties and cooperation between the two countries.

A similar objective is behind the two business forums in New Delhi and Mumbai on 1 & 3 October respectively, organised with the Cyprus-India Business Association.

Finally, President Anastasiades will make an official visit to Kuwait from 7-9 October and on the last day (9 October) he will address a Business Forum organised by the CCCCI, the Ministry of Energy, Commerce, Industry & Tourism and the Cyprus-Gulf Cooperation Countries Business Association.

Microsoft to buy Nokia’s mobile phone business for

I

€5.4 billion

n a major deal, Microsoft has agreed to buy Nokia’s mobile phone business for €5.4 billion. The purchase is set to be completed in early 2014. While Nokia has struggled against competition from Samsung and Apple, Microsoft has been criticised for being slow in getting into the mobile market. It launched its Surface tablet PCs last year, but sales of the devices have been relatively slow. Nokia was once a leader in mobile phones, but the firm’s sales of 53.7 million mobile phones during the quarter were down 27% on last year. Nokia intends concentrate on three key businesses: network equip-

ment manufacturing, mapping and location services, and the development and licensing of technology. Earlier this year, it agreed to buy Siemens’ 50% stake in their joint venture, Nokia Siemens Networks (NSN), which makes telecoms network equipment, for €1.7 billion.

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

PREMIER LEAGUE CLUBS SPEND £630M IN THE SUMMER TRANSFER WINDOW

D

eloitte’s Sports Business Group reported at the beginning of this month that clubs in England’s Barclays Premier League spent a record £630 million on players during the so-called summer transfer window which closed on 2 September. The previous record of £500m was set in 2008.

Among the big signings on the last day was Mesut Ozil who left Real Madrid for Arsenal for £42.4m and Marouane Fellaini who was signed for £27.5m by new Manchester United boss David Moyes from his old club Everton.

“The story of this summer transfer window is of new records: a new record for Premier League spending as well as a new world transfer record fee,” said Dan Jones of Deloitte. The record transfer fee was for Gareth Bale, who was sold to Real Madrid by Tottenham Hotspur for £85m.

Premier League clubs are flush with cash from their latest domestic three-year TV deal. BT has spent £738 million over three years for the rights to 38 live matches a season, while Sky paid £2.3 billion for 116 matches a season.

“Testament to the impact this is having is in the scale of Premier League gross spending, as well as the gulf in net spending between the Premier League and other European leagues,” said Alex Thorpe oft Deloitte.

“Whereas many clubs around Europe have been reliant on selling players in order to spend, the financial advantages Premier League clubs enjoy has enabled net spending of £400m across the league.”

Spending in other major European leagues has also been up. La Liga and Serie A each had gross spending of £335m, followed by Ligue 1 in France with £315m and Germany’s Bundesliga with £230m.

FXPRO PREPARES TO ENTER WORLD OF SOCIAL TRADING

T

he Financial Times reported last month that currency broker FxPro is planning to enter the world of “social trading” in the next couple of months, with the launch of a “Super Trader” platform featuring about 200 Forex traders, whose positions can be copied by other FxPro traders.

“The whole concept is to give clients access to different [trading] strategies in order to diver-

sify their risk,” said Charalambos Psimolophitis, Chief Executive of the Cyprus-based platform.

He said traders would be picked and vetted

by FxPro, based on factors such as their trading techniques, how profitable they have been, and how risky their trades were.

Fellow traders will be able to sort through the so-called strategy providers, according to their risk levels and how many followers they accrue.

“The client will be able to see the risk parameters of the strategy,” said Psimolophitis.

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Alisher UsmAnov (60)

up front

RUSSIA’S RICHEST

Co-Owner of USM Holdings Net WOrtH: $19.9 billiON

BILLIONAIRES

After the collapse of the soviet Union, Usmanov identified a niche for plastic bags when such items were scarce. investing in machinery to produce them, he quickly cornered the market. later he moved into the commodities sector, buying stakes in metals, mining and gas companies. he is now co-owner of metalloinvest, the world’s fifth largest commercial iron ore producer. he recently bought a $100 million stake in Apple and is the second-biggest shareholder in Arsenal football club.

1 4

Following the collapse of the Soviet Union in 1991, Russia was ripe for entrepreneurs snapping up formerly state-owned assets in metals, mining and the financial sector. The ten billionaires on this list, compiled for CNBC by research firm Wealth-X, started their rise to wealth during the 1990s. Now, many are famiiar names in the world of international business, owning diverse interests from global mining companies and banks to basketball and football clubs. At least one of them has the headquarters of his business in Cyprus. Which one? Read on…

2

mikhAil FridmAn (49)

3

Co-founder of Alfa Group Net WOrtH: $16 billiON Fridman, co-owner of the Alfa Group Consortium, was one of four oligarchs who jointly owned a 50% stake in oil exploration firm Tnk-BP, the failed joint venture between BP and Alfa Access renova. BP and Fridman and his partners sold their stakes in Tnk-BP to oil giant rosneft in 2013. in June it was reported that the Alfa Group would invest more than $20 billion in global oil and gas projects.

=5

leonid mikhelson (58)

Andrey meln

Chairman of euroCh iChenko (41) Net WOrtH: $13.6 em billiON

Chairman of Sibur Net WOrtH: $15.2 billiON

The chairman of petrochemicals company sibur and Ceo of russia’s largest gas producer, novatek, began his career as foreman of a construction company. in 1987, mikhelson inherited the management of novatek, which built pipelines, roads and industrial facilities at the time. Between 2010 and 2011, he bought a 57.5% stake in sibur, which operates in 60 countries and employs 30,000 people. Bloomberg estimates the firm is worth over $12 billion.

=5

melnichenko made his fortune in coal an d fertilizer, although in 1993 he co-founded mdm ba nk which went on to become one of russia’s largest ba nks. he later sold his sta ke in mdm and acqu ired a holding in eurochem, the large st producer of mine ral russia. he also run s sUek, one of russi fertilizers in a’s producers, with bu siness partner serge biggest coal i Popov. melnichenko owns the world’s 16th lar gest which is thought to have cost around $3 superyacht, 00 million.

6

mikhAil Prokhorov (48) Owner: brooklyn Nets basketball team Net WOrtH: $12.3 billiON

vlAdimir lisin (57)

Co-Owner: Fletcher Group Holdings Net WOrtH: $12.4 billiON steel baron vladimir lisin, who started his career as a mechanic in a soviet coal mine, was seen as russia’s richest man in 2010 but a decline in steel prices has chipped away at his fortunes. he is the majority shareholder in novolipetsk, one of russia’s largest steel producers but his company, Fletcher Group holdings, also invests in energy, oil and gas exploration, banking and real estate. The Group’s administrative office is in nicosia.

Prokhorov has had a varied career as a banker, athlete, metals mogul, playboy, investor, media player and politician, according to Forbes. he owns the new rork-based Brooklyn nets Basketball team. he resigned as chairman of Polyus Gold, russia’s largest gold producer, to enter politics, founding the Civic Platform party in 2012 and winning 8% of the national vote when he ran against vladimir Putin in the presidential race.

vlAdimir PoTAnin (52) Chairman of interros Net WOrtH: $12.4 billiON

Following the break-up of the soviet Union, Potanin served as first deputy prime minister between 1996 and 1997. he later founded interros, an investment company worth approximately $15 billion with assets in metals and mining, real estate, tourism and the media. he is also Ceo of norilsk nickel, the world’s largest producer of nickel and palladium. The vladimir Potanin Foundation supports higher education and arts and cultural projects in russia.

vAGiT AlekPerov (63)

GermAn khAn (51)

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President of lukoil Net WOrtH: $12.1 billiON

7

The former soviet deputy minister of oil and Gas, Alekperov heads lukoil, russia’s largest independent energy company. According to Forbes, Alekperov willed his near-21% stake in lukoil to his only son yusuf in 2013, with the caveat that his son cannot sell it. When exxonmobil sold its investment in lukoil in 2010, Alekperov bought some shares, which he sold for a 3% in 2011, earning him $350 million.

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Co-founder of Alfa Group Net WOrtH: $11.1 billiON

khan is co-owner of the Alfa Group Consortium, founded with mikhail Fridman (no.2) and Alexei kuzmichev. The three started Alfa-eco in 1989, before launching russia’s largest private bank Alfa Bank. The Alfa Group has interests in commercial and investment banking, asset management, insurance, telecommunications and water utilities. it bought Tyumen oil in the 1990s and merged it with BP’s russian assets, later selling it share for $28 billion.

Alexey mordAshov (48)

Chief executive of Severstal Net WOrtH: $10.1 billiON

9

nicknamed “the tank”, mordashov started his career at the Cherepovets steel mill in north-western russia in 1988. he made his fortune after the privatization of Cherepovets, in which he was a major shareholder, following the fall of the soviet Union.

Cherepovets was renamed severstal and is now one of the largest steelmakers in russia. mordashov, who owns 82% of the company, is also Chairman of the World steel Association.

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interview

five minutes with...

Tony Barber

Europe Editor, Financial Times Panelist at the 4th Limassol Economic Forum

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ith fiscal adjustment programmes, rising unemployment and social outrage aimed politicians and the EU institutions, is Europe going in the wrong direction?

For sure, these are the most difficult times facing Europe in economic terms since the aftermath of World War II. The failure of EU institutions and national politicians to find satisfactory answers as fast as the public wants is dividing some countries from others and is straining faith in the ideal of European unity.

To that extent, Europe is going in the wrong direction. However, it is mistaken to think there is a “right” direction on which everyone can agree. The crisis of low long-term economic growth, high public and private sector debt, fragile banking systems and weak job creation is one that predates the financial turmoil that erupted in 2008. There was no agreement on common solutions before 2008 and I see no reason to believe there will be such agreement in the future – though that does not preclude more short-term fixes and medium-term good intentions of the kind we have become familiar with.

Five months after the events of March 2013, which ended with the painful bail-in of the two major banks in Cyprus, how would you rate the EU’s decision-making procedures?

For many years the EU has made a habit of taking its most important decisions

at meetings that drag on throughout the evening and night, making the participants tired, irritable and better at haggling than arriving at optimal solutions. The first March summit on Cyprus was a classic of this kind. But, in their defence, the reason why EU policymakers go about their business in this way is that they regard the Union as a family or club in which decisions should be reached by compromise and consensus wherever possible. This explains why the initial decision on Cyprus incorporated the wish of President Nicos Anastasiades to make ordinary bank deposit holders share some of the cost of the financial rescue. But one has to ask if eurozone finance ministers would have made this unfathomably inept choice if they had been discussing Cyprus with clear heads at a normal time of day.

How much is the result of the German elections likely to alter the economic debate in Europe?

I doubt that the German election result will produce a significant change in Berlin’s policies on the euro crisis. There is a broad consensus among Chancellor Angela Merkel’s Christian Democrats, the opposition Social Democrats and the smaller parties with which each is allied, that the way forward lies in permanent fiscal discipline on the part of governments, economic reforms to promote long-term growth and careful measures aimed at strengthening the eurozone’s defences against future upheavals. These include progress on European banking union, but

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

not so fast as to include a comprehensive and common deposit guarantee scheme.

A US-style fiscal union is absolutely ruled out. The next German government might conceivably feel able to press ahead with European integration more swiftly, if it were convinced that France had truly committed itself to a course of ambitious domestic economic reform. But that remains open to question and Franco-German relations are consequently marked by coolness and mistrust at present.

How would you describe European reporters’ views on Cyprus’ ability to overcome its current economic and financial predicament?

I know few – if any – European reporters who think the road ahead for Cyprus will be anything but arduous in the coming years. However, it is not so common these days to hear, as one did in the early months of this year, dire predictions that Cyprus will drop out of the eurozone and even detach itself from its EU moorings, thereby making itself vulnerable to pressure from Turkey and drawing other powers into an East Mediterranean power struggle. There is a reluctance to line up with Cyprus because it is seen to a great extent as the author of its own woes. In Germany and other creditor countries, there is a tendency to regard Cyprus as too small a problem to have much systemic impact on the eurozone as a whole – though this is a lesson drawn from experiences since March, rather than in the runup to the dramatic events of that month.

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Varnavas Theodosiou, ExxonMobil Cyprus Ltd & Evgenios Evgeniou, PwC

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Hans Wolff Director and Country Manager, Barclays (Gold Sponsor)

Viktor Kislyi, Wargaming Public Company Limited

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Philip van Dalsen , MTN Cyprus Michael Zampelas, George Vassiliou & Sir Stelios Hajdiioannou

Christodoulos Angastiniotis, Chairman, CIPA

Demetra Kalogirou, CySEC & Loucas Marangos, TFI Markets

Nicos Shacolas, NKS Group

Thomas Kazakos, Cyprus Shipping Chamber, Christos Christodoulou, Trust Insurance Company & Frixos Savvides, Hive Management Services Ltd

Christophoros Pissarides, University of Cyprus & Theo Parperis, PwC

George Michail, Managing Director, IMH

Michael Zampelas

Sir Stelios Hajdiioannou

Harris Georgiades, Minister of Finance

Andreas Tsokkos, Tsokkos Hotels & Michalis Chimonas, OPAP

Evgenios Evgeniou, CEO, PwC Cyprus

Philip van Dalsen, MTN Cyprus & Evgenios Evgeniou, PwC

Stelios Hajdiioannou & Alexia Vassiliou

Melanie Steliou Sir Stelios Hajdiioannou & Nicos Anastasiades

Stavros Evagorou, Committee on Financial & Budgetary Affairs, Phidias Pilides, CCCI, Filios Zachariades, Cyprus Employers & Industialists Federation, Averof Neophytou Democratic Rally of Cyprus

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Hans Wolff & Deborah Page, Barclays

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Liu Xinsheng, Ambassador of the People’s Republic of China

Maria Theodorou, TFI Markets

Nicos Himarides, PwC

George Leptos, Paphos Chamber of Commerce & Industry

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Nicolas Theocharides, CIPA

Chris Koufaris, Euromanagement, Maria Iacovidou, Barclays, Philippos Antoniades, Chemikalien Seetransport Cyprus Ltd. & George Flouros, NCR

Zeta Emilianidou, Minister of Labour & Social Insurance

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Neil Doll, Emma Rowley, Courtney Fingar & Chris Night

Miroslav Horsky, PPF Group & Anatoly Pilipenko, Beacon Group

Stephen Michaelides, Grant Thornton

Andreas Athinodorou & Marina Zevedeou, Aspen Trust

John Abuaitah, Windsor Brokers Ltd.

George Stylianou, Moore Stephens Stylianou

Artemis Pantelidou, Eurolife

Matthew Kidd, British High Commissioner

Yiannis Michaelides, Forex Time, Savvas Constantinou & Alexis Couvas, Barclays

Nicos Shacolas, NKS Group

Kyriakos Kokkinos, CIPA

Demetra Kalogirou, CySEC

Antonis Kassapis, UHY Antonis Kassapis Ltd.

Nikos Nikolaides & Elia Nicolaou, Amicorp Consulting Ltd. & Vasilis Hadjivassiliou, PwC

Nicos Kyriakides, Deloitte

Viktor Kislyi, President and CEO

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

Varnavas Theodosiou, President and Managing Director

Sergey Popravko, Managing Director

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

THE 4TH LIMASSOL

FORUM Tuesday | 26 November | 2013 | Four Seasons Hotel | Limassol European Economy: The Debate on Austerity, Structural Reforms and Return to Growth The 4th Limassol Economic Forum is organized by IN Business magazine in association with London School of Economics and Political Science and LSE Cyprus Alumni. The Forum will bring together some of the most influential politicians, economists, business leaders and experts to discuss the top priority concerns of the local, regional and international economic and business affairs. This high-level business Forum is addressed to senior executives genuinely interested in influencing Europe’s economic and business development.

The protagonists of the 4th Limassol Economic Forum

Dr. Nasser H. Saidi Former: Minister of Economy and Trade, Minister of Industry, Vice-Governor of the Central Bank, Chief Economist of Dubai International Financial Centre, Current Member of IMF’s Regional Advisory Group for MENA, named as one of the 50 most influential Arabsk in the World, Lebanon

Tony Barber Europe Editor, the Financial Times, UK

Guillermo Nielsen Former Secretary of Finance Argentina, President of Strategic Investments, an Argentine company dedicated to providing financial engineering schemes, primarily in the energy sector, Argentina

Ηelena Smith Award-winning journalist.

Correspondent in Greece, Turkey and Cyprus for The Guardian, Greece

Alan Ahearne Member of the Commission (Board) of the Central Bank of Ireland, Former: Special Advisor to former Minister for Finance Mr. Brian Lenihan, Senior Economist at the Federal Reserve Board in Washington, DC, Ireland

Edward Hadas Economics Editor at Reuters Breakingviews, Columnist at Reuters.com, Thomsons Reuters, Former Financial Analyst at Morgan Stanley, UK

For further information: IMH, Aigaleo 5, 2057, Strovolos, P.O. Box 21185, 1503, Nicosia. Tel: +357 22 505555, Fax: +357 22 679820, e-mail: events@imhbusiness.com website: www.imhbusiness.com

Guntram B. Wolff Director at Bruegel, Member of the French prime minister’s Conseil d’analyse économique, Belgium

Jose Suarez-Lledo Director at Moody’s Analytics, UK

Harris Georgiades Minister of Finance,

Rebublic of Cyprus

Georgios Chatzimarkakis Politician, Member of the European Parliament with the Free Democratic Party, Germany

Stay updated with the forum’s agenda on www.imhbusiness.com

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opinion

No Success Like Failure

Economic forecasters seem to feel no pain when they get it wrong

W

atching the way he beats himself up when losing a point, you know Andy Murray is in the true sense of the word a winner. The same weekend he came through with his historic win at Wimbledon, I watched the Australians in defeat.

As the Lions quite rightly celebrated their rugby victory, I could see these words being seared in the minds of each of the Wallabies: I don’t like losing, it hurts.

Without entering into motivational psychobabble, you have to recognise that errors and defeat mean failure. In two fields, however, there seems to be a total lack of hurt when losing. On the one hand we have England’s international footballers and on the other financial and economic forecasters.

HSBC research analysts have been unable to contain themselves about how impressive the future is for the UK’s residential market and how attractive its listed homebuilders are. Why do I make particular reference to HSBC? Because this is the firm which, until quite recently, was telling us that UK homebuilders were long-term rubbish.

I do not want to simply pick on investment bank research where analysts are never “wrong” but “surprised”. Such euphemisms are everywhere, in research consultancies, accountancy firms and essentially all self-selected soothsayers.

Consider the all-too-familiar, “I am adjusting my forecasts” where in reality the wording should read “I am correcting my forecasts”.

For their part, the IMF, OECD and CBI have recently raised their GDP forecast for the UK. What makes these revisions (read “corrections”) particularly interesting is that they come from organisations which, only recently, were lambasting the Chancellor for driving the UK into the ground. Let me return to the UK residential sector, and consider another self-congratulatory team of forecasters. Capital Economics has built a lucrative predictive franchise as indeed has the Centre for Economic & Business Research. Rather than take out costly adverts to raise the profile

There seems to be no reputational cost to morally hazardous behaviour

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

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By Savvas Savouri

of their business, however, Capital Economics regularly produces shock-forecasts: “London’s house prices to halve”; “Base rates to hit 8%”; “Unemployment to reach 4 million”; “China to hard land”; “Greece to leave the euro”… you get the idea. Such predictions cannot fail to find themselves emblazoned on the front pages or aired with top billing on business broadcasting channels. And yet London’s property market has continued to flourish, base rates still wallow, unemployment is falling, China is growing and Greece is holding on in there. Remarkably, there seems to be no reputational cost to morally hazardous behaviour.

Of course people in glass houses…

I will not deny presenting forecasts that fail.

Believe me, it hurts when matters do not unfold as I expected. However, I do not merely brush aside each failure, but strive to understand what contributed to the error. I will sometimes insist the error is in timing. Yes, I know, timing matters and an error of timing costs. But if first principals and fundamentals continue to point to a particular outcome I will continue to make the case it will happen.

It amused many when, back in 2011, I forecast that the Australian dollar would reach US$1.7 by the end of 2014. What a blunder this now seems with the currency lurching ever lower below parity. Well, I stand by my positive view on the Australian economy and its currency; I trust fundamentals, having as much disdain for technicals as I have for a drunk disrupting a play; at some point he will be thrown out and order restored.

If by December 31, 2014 the Australian dollar hasn’t recovered all and more of the ground it has lost, then that will go in my hurt locker.

I would, however, make the point that the gap between my enthusiasm towards Australia today, and the less than favourable consensual mood towards it, is much the same size as that which existed barely twelve months ago between what I expected for Britain and what the consensus was suggesting. I have every confidence the same revisions to consensus thinking towards Australia will occur as has already been seen for the UK.

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credit rating

Capital

Value 44 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

A LIMASSOL-BASED CREDIT RATING AGENCY IS GOING FROM STRENGTH TO STRENGTH. By John Vickers

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e’ve all heard of Moody’s, Standard & Poor’s and Fitch Ratings but the so-called “Big Three” rating agencies are by no means the only ones. Capital Intelligence (CI) has been providing credit analysis and ratings since 1985, and now rates over 400 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 37 countries. A specialist in emerging markets, CI’s geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South-East Asia, the Far East, and North and South Africa. What few people know is that CI is based in Limassol.

The company’s Managing Director, Zafer Diab, spoke to Gold about how CI has expanded over the past three decades and described the company’s plans for future growth, as well as recalling that it issued its own warnings about Cyprus over two years ago.

Gold: Many people will be surprised to know that there is a credit rating agency in Cyprus. Have you purposely kept a low profile?

Zafer Diab: Certainly not! The media spotlight tends to focus on the big two or three global rating agencies, particularly when they get things wrong. Capital Intelligence has a solid reputation among financial professionals, especially in the banking industry, but it would be fair to say that our rating actions are not always monitored closely by the mainstream media. There is another dimension to this with regard to Cyprus. The island has historically served as a regional location for the ratings industry. However, the Cypriot economy is quite small in comparative terms and only a few institutions have been rated by Capital Intelligence or another international rating agency. So the ratings industry does not receive a great deal of attention locally.

Gold: How did Capital Intelligence come to start operations in Limassol almost 30 years ago?

Z.D.: We launched our credit rating service in the mid-1980s in response to market demand for analysis of the counterparty risk of banks in the Middle East and North Africa region.

This was a region largely eschewed by other rating agencies at the time and I believe we still rate more banks in the region than any other rating agency. Cyprus was chosen for a variety of reasons, including the quality of life, relative stability and proximity to our core markets.

Gold: How has the company’s business expanded over the years?

Z.D.: The first thing we did was to extend our geographical coverage beyond the Middle East and North Africa by rating banks in more countries. So today we rate banks in Asia, including China and India, as well as South Africa and Central and Eastern Europe.

We have expanded our sectoral coverage to non-bank financial institutions, corporates and governments. We also rate specific financial instruments, such as bonds and Islamic financial instruments.

Gold: Why do financial institutions or governments need rating agencies?

Z.D.: A credit rating may improve access to capital markets and counterparty credit lines, as well as help broaden an institution’s

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GOVERNMENTS ARE NOW ACTIVELY SEEKING TO

DISCOURAGE

THIS MECHANISTIC RELIANCE ON

RATINGS

investor base. Ratings can also be useful for benchmarking creditworthiness against peers and for promotional or marketing purposes, including strengthening investor relations.

For investors and other users of credit ratings, ratings and the accompanying analysis can be used to supplement internal assessments of credit risk and for setting exposure limits to rated entities.

Gold: Given the global recognition of the “Big Three” rating agencies, how difficult is it for a relatively small player to gain a foothold in the market?

Z.D.: It would certainly be challenging for a new entrant but Capital Intelligence has been in the business for some time and we have built up a strong reputation in our core markets as a provider of insightful and independent credit rating opinions. The concentration risk posed by the “Big Three” is clearly a concern for policymakers and it is good to see that the European Union is trying to do more to open up the market to other agencies within Europe.

Gold: Rating agencies are frequently criticized – usually when they are issuing downgrades of course – for ratings that may become self-fulfilling prophecies. In other words, when a downgrade is announced, the economy or the financial state of an institution will automatically decline. How do you respond to such views?

Z.D.: Certainly rating downgrades some-

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 45

credit rating

times have a much bigger impact than they ought. Part of the problem is that ratings have been “hardwired” into the financial regulations of many countries and into the investment mandates of major institutional investors. As a result, we have seen instability in markets where a ratings downgrade by one of the ‘Big Three’ – whether justified or not – triggers a massive sell-off of the downgraded stock, worsening an already bad situation for the rated institution. But we have also seen complacency, where longterm investors hold a financial instrument because a couple of agencies have given it an ‘AAA’ rating, without undertaking any credit analysis of their own.

Rating agencies are not really to blame for the hardwiring and many governments are now actively seeking to discourage this mechanistic reliance on ratings.

Gold: The “Big Three” were roundly criticized for their flawed assessments prior to the US sub-prime crash which led to the global financial crisis. Since then, do you think they have changed anything about the way they work?

Z.D.: I suspect quite a lot has changed, due in no small part to the growth in regulation and increased scrutiny of rating agencies in many countries. For example, in the EU, rating agencies were not regulated prior to September 2009. Now any rating agency that wants to operate in the EU must be registered with the European Securities and Markets Authority (ESMA) in Paris. The requirements for registration are quite stringent and agencies are subject to ongoing monitoring of their activities. We have all had to strengthen our internal controls and compliance functions, in addition to being more transparent about how we assign ratings. Regulation has been generally good for the industry and for Capital Intelligence specifically, as we believe it will increase market confidence in the ratings we issue.

Gold: How complex are the issues that you have to take into account before issuing or changing a rating?

Z.D.: In general we look at a number of quantitative and qualitative factors that may affect the ability and willingness of a rated entity to meet its financial obligations in full and on time. In the case of a bank, for example, we examine asset quality, capital

CAPITAL CONTROLS AND RESTRICTIONS ON DEPOSIT WITHDRAWALS IN CYPRUS ARE UNLIKELY TO BE PHASED OUT QUICKLY adequacy, liquidity and profitability. But we also look at factors that may be important for longer-term creditworthiness, such as the bank’s market position, business strategy and management capabilities. We would also analyze the bank’s operating environment, including the degree of economic and political risk in the bank’s principal markets and the quality of the regulatory and supervisory regime in which it operates.

Gold: How much of the banking sector collapse in Cyprus did you “predict”?

Z.D.: I seem to recall that by the middle of 2011 we were warning about weakening asset quality and worsening operating conditions in both Greece and Cyprus for the major Cypriot banks and also that the Greek sovereign debt crisis presented significant downside risks to their financial strength. A year later, we warned that the government was in urgent need of official financial assistance from external creditors to service its debts and meet the capital needs of banks. We did not expect the government to take as long as it did to negotiate a bailout and it is fair to say that, although we foresaw going concern risks at Cyprus Popular Bank and very significant risks to banking system liquidity, we did not foresee the deposit for equity exchange that was applied to Bank of Cyprus.

Gold: Based on your knowledge and experience, and the hundreds of ratings you issue each year, what can you say about the Cyprus banking sector in the light of what happened in March?

Z.D.: Clearly, the standalone financial strength of the local banks is generally low and it will take some time to resolve the sector’s problems. Bank of Cyprus has recently been recapitalized and there are plans to restructure and recapitalize other banks, particularly the cooperatives. Nevertheless, with the economy mired in recession, there

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

is a risk that asset quality will continue to deteriorate for some time and the capital needs of some institutions may be higher than currently envisaged. There are also significant near-term threats to funding and liquidity, as confidence in the sector has been damaged to such an extent that maintaining the current deposit base, let alone growing it, will be very difficult. As a consequence, capital controls and restrictions on deposit withdrawals are unlikely to be phased out quickly. Moreover, in the absence of deposit growth, the banks will not be able to provide the necessary funding for economic growth to take place. The crisis has also exposed significant weaknesses in banks’ risk management and internal governance arrangements, and also in the supervisory and enforcement capacity of the Central Bank. These issues will also have to be effectively remedied in order to restore confidence and return the sector to a more sustainable footing.

Gold: What are your ambitions for Capital Intelligence after its 30th anniversary?

Z.D.: The barriers to entry in the rating industry are quite high and the fact that Capital Intelligence is still going from strength to strength after almost 30 years is testament to the integrity and credibility of the company’s ratings and associated research. Our main ambition is to build on our sound reputation and become one of the leading rating agencies of choice in the markets we cover.

We also aim to extend our ratings coverage to developing markets that are not currently covered to any great extent by the major rating agencies, but where demand for ratings and related services is likely to increase as their financial sectors grow. Further investment in analytical capabilities and product development will be vital to ensuring that our ratings service remains relevant to investors, robust to growing competition and compliant with rising regulatory standards.

interview

RENEWING

EGYPT’S DEMOCRATIC ASPIRATIONS

THE COUNTRY’S AMBASSADOR TO CYPRUS REMAINS OPTIMISTIC ABOUT HER COUNTRY’S FUTURE.

By John Vickers. Photograph by Jo Michaelides

A

lmost one year to the day after the world hailed another ‘Arab Spring’ as Egypt held its first-ever democratic elections, the elected president Mohammed Morsi was removed by the military after giving himself wide-ranging powers that were beyond any kind of review.

The situation in the country remains tense but Egypt’s Ambassador to Cyprus, Dr. Heba Elmarassi tells Gold that she is confident that the situation will soon have returned to normal. Not only that, she unhesitatingly gives readers the all-clear to visit the country’s Red Sea resorts at anytime.

Gold: I think we have to start by asking you about the current situation in your country. After the removal of President Morsi and the subsequent chaos and bloodshed, how confident are you that things can soon return to peace and normality in Egypt?

Heba Elmarassi: I am quite confident that order and calm will soon be restored in Egypt.

Egypt has demonstrated its commitment to implementing democratic principles and the restoration of democratic governance in the earliest time possible, by announcing a clear road map stipulated in the constitutional declaration of July 3, 2013. On August 21, 2013, H.E. the Prime Minister of Egypt announced some important developments in the Government’s Programme for a Sustainable Path to Democracy. I can assure you that Egyptians are resolved to create an environment that embodies a modern, civil and democratic society, one that respects the rule of law, and one that certainly does not discriminate on the basis of gender, race or belief.

I AM QUITE CONFIDENT THAT ORDER AND CALM WILL SOON BE RESTORED IN EGYPT Gold: Do you believe that Egypt is capable of ever becoming a Western-style democracy or is that something that the country does not actually aspire to?

H.E.: I believe that Egypt will and should become a democracy, with all the consequences that this term entails. Having said that, I can be more specific and say that Egypt will be aspiring to restore law and order all over the country, to maintain the security of its citizens, irrespective of religious denomination or political affiliation, places of worship and other governmental, private and public properties, as well as the protection of the rights and liberties of its citizens according to international standards. We shall also be endeavouring to implement an all-inclusive, transparent roadmap based on equal opportunities and aimed at restoring democratically elected institutions,

an elected parliament and electing a new president. The constitution will be amended in such a way as to reflect the identity, desires and hopes of the Egyptian people and we shall hold a referendum to approve the amended constitution. This is recognized as an important milestone in the transformation process.

Gold: How will you go about achieving some kind of reconciliation?

H.E.: We shall launch a dialogue with all peaceful political forces, parties and civil society in order to complete the legal and administrative framework relative to the democratic process. We intend to build democratic institutions including the National Council of Human Rights, the National Council of Women and the National Council for Justice and Equality. And we are going to implement

THESE TWO GREAT NATIONS WILL MANAGE TO COME OUT OF THESE CHALLENGING SITUATIONS STRONGER AND WISER

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

Dr. Heba Elmarassi

interview

a national programme through independent national committees with the aim of achieving long-lasting national reconciliation, as well as establishing an independent blue ribbon commission to look into the events following June 30, 2013.

to this matter with Cyprus at a technical level. I strongly believe that the discovery of natural gas in the Eastern Mediterranean should be used positively towards reaching peace and prosperity in the region rather than towards causing conflict.

Gold: Cyprus and Egypt have had good relations for many years. What kind of mutual trade goes on between the two countries? Is there room for improvement?

H.E.: Egypt and Cyprus have enjoyed excellent bilateral relations in all fields for many decades. Needless to say, outstanding political relations between the two countries should be reflected in the level of their economic and trade cooperation. Unfortunately, this is not the case with Egypt and Cyprus, and that’s why both sides should exert tireless efforts to increase their mutual trade which, in 2012, stood at some €50 million only. With this in mind, the prospects for cooperation and areas in which it is possible should be explored and widened, through the holding of joint seminars, workshops, exchange visits and greater engagement on the part of the business communities in both Egypt and Cyprus.

Gold: Another common factor between the two countries is tourism, which brings considerable income to them. How badly has the recent situation affected tourism to the country? Obviously Cairo is out of bounds for now but Sharm el Sheikh, for instance, appears unaffected. Is this the case?

H.E.: Undoubtedly the recent situation has affected the Egyptian tourism industry with arrivals and occupancy rates slowing down.

Nevertheless, Egypt is working diligently in all spheres to restore order all over the country, with a view to stabilizing the situation and helping attract and increase the number of foreign tourists visiting Egypt. I can assure you that the tourist resorts on the Red Sea have not been affected at all by what is going on in Egypt, and I invite all Cypriots to continue visiting such areas to discover the beauty of Egypt’s beaches.

Gold: Cyprus and Egypt now have perhaps more in common than before, following the discovery of natural gas deposits in Cyprus’ Exclusive Economic Zone. There have been various reports suggesting that Egypt wishes to cancel the agreement on the maritime borders of the countries. Can you shed some official light on this matter?

H.E.: Egypt remains committed to the agreement on the maritime borders with Cyprus.

The discovery of the hydrocarbon reserves in Cyprus’ Exclusive Economic Zone makes it even more important to consolidate cooperation between the two countries in the field of energy, and especially regarding the exploration and exploitation of natural gas. We are currently discussing some agreements pertaining

Gold: Assuming that peace returns to Egypt and Cyprus manages to overcome its economic problems, what would be your wishes for the two countries, separately and together?

H.E.: I am not only confident that peace and economic prosperity will return to Egypt and Cyprus but also that these two great nations will manage to come out of these challenging situations stronger and wiser. I am looking forward to maintaining excellent relations between the governments and the peoples of Egypt and Cyprus, taking into account that our relations date back to ancient times through the great Mediterranean. I sincerely hope that our people-to-people exchanges and our intercultural communication will increase to the benefit of the two countries.

THE DISCOVERY OF NATURAL GAS IN THE EASTERN MEDITERRANEAN SHOULD BE USED POSITIVELY TOWARDS REACHING PEACE AND PROSPERITY IN THE REGION 50 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

30 MONTHS OF TURMOIL &

UPHEAVAL IN EGYPT 2011 February11: President Hosni Mubarak steps down in response to massive demonstrations and the military takes over.

It dissolves parliament and suspends the constitution, meeting two key demands of protesters.

November 28: Egypt starts multi-stage, weeks-long parliamentary elections. The Muslim Brotherhood wins nearly half the seats in the lower house.

2012 May 23-24: The first round of voting in presidential elections has a field of 13 candidates. The Muslim Brotherhood’s Mohammed Morsi and Ahmed Shafiq, the last prime minister under Mubarak, emerge as the top two and will face each other in a runoff.

June 16-17: Morsi wins with 51.7% of the vote.

June 30: Morsi takes the oath of office.

November 22: Morsi unilaterally decrees greater powers for himself, giving his decisions immunity from judicial review and barring the courts from dissolving the constituent assembly and the upper house of parliament. The move sparks days of protests.

November 30: Morsi sets a December 15 date for a referendum.

December 4: More than 100,000 protesters march on the presidential palace, demanding the cancellation of the referendum and the writing of a new constitution.

December 15 & 22: In the two-round referendum, Egyptians approve the constitution, with 63.8%percent voting in favour but turnout is only 32.86%.

2013 January 25: Hundreds of thousands hold protests against Morsi on the 2nd anniversary of the start of the revolt against Mubarak.

June 30: Millions of Egyptians demonstrate on Morsi’s first anniversary in office, calling on him to step down.

July 1: Egypt’s military gives the president and the opposition 48 hours to resolve their disputes, or it will impose its own solution.

July 2: Morsi pledges to defend his legitimacy and vows not to step down.

July 3: Egypt’s military chief announces that Morsi has been deposed, to be replaced by the Chief Justice of the Supreme Constitutional Court until new presidential elections.

No time frame is given.

July 26: Prosecutors announce that Morsi is under investigation for a host of allegations including murder and conspiracy.

July 30: The EU’s top diplomat Catherine Ashton holds a two-hour meeting with Morsi at an undisclosed location.

August 7: Egypt’s presidency says that diplomatic efforts to resolve the standoff between the country’s military-backed interim leadership and the Muslim Brotherhood have failed.

Contact Powersoft www.powersoft.com.cy Ι sales@powersoft.com.cy Ι Tel: 22.410.000

taxation

C

(FDI) flows to African countries increased by 5% to US$50 billion in 2012 even as global FDI fell by 18%. In East Africa, energy resources such as recently-discovered gas reserves in Tanzania and oilfields in Uganda have drawn increased FDI to the region with inflows increasing from $4.5 billion in 2011 to $6.3 billion in 2012.

Kenya was among the five top destinations for FDI projects in Africa with 50 recorded for last year. Britain’s Financial Times reports that the surge in foreign investment in Africa “has triggered a race among offshore financial centres to sign deals to reduce the tax bills of overseas companies and protect their investment on the continent, with Mauritius, Singapore and Luxembourg rushing to secure agreements. Offshore centres that typically channel FDI flows are seeking negotiations with host African nations to sign investor protection and promotion agreements, which can minimise the risk of nationalisation by forcing fair compensation and arbitration, as well as double taxation avoidance agreements, which reduce the tax bill that companies face.”

FDI levels in Sub-Saharan Africa are now more than double the levels of ten years ago.

While it is apparent that natural resources are still the mainstay of FDI flows to Africa, the UNCTAD report notes that FDI in consumer-oriented manufacturing and services are beginning to climb, reflecting the growing purchasing power of the continent’s emerging middle class. But the FT says that the rush “could prove controversial as poverty reduction campaigners and others

blame these kinds of deals for a loss of revenues for governments.”

It adds that Mauritius, which boasts one of Africa’s largest offshore financial centres, is leading the way having already signed 19 tax deals with African countries and it is negotiating another three. But some countries, notably

WE SHOULD BE RIGOROUS IN EXPANDING AND CONTINUOUSLY IMPROVING THE DTA NETWORK the Netherlands, are reviewing their DTAs with Uganda, Zambia and Ghana in the light of criticism that such agreements allow companies to pay taxes in the country of legal residence – usually a low-tax jurisdiction such as Luxembourg – rather than in the country where the physical operations are based. But the FT notes that international offshore centres

U B O L D E W S E T N N E M R E O E F GR

EA

X

T TA IM

yprus’ list of Double Taxation Agreements (DTAs) constitutes one of the country’s main competitive advantages as it pursues success as an international financial and business centre. At present the country maintains 45 DTAs while 10 more are under negotiation. The list may appear impressively long but other competitive jurisdictions have many more and, in some cases, are ahead of Cyprus in concluding new treaties. It has been the professionals’ view for some time that Cyprus should strengthen and expand its network of bilateral agreements for the avoidance of double taxation to cover more countries, especially those with emerging economies. Also, specific double tax treaties need to be renegotiated so as to apply to new financial instruments and the trends in international trade.

“We should be rigorous in expanding and continuously improving the DTA network,” says Angelos Gregoriades, Chairman and Head of Tax of KPMG Cyprus and a member of the Board of the Cyprus Investment Promotion Agency (CIPA). “DTAs are an important tool in the carrying out of cross-border investment since double taxation in international investment is neither efficient nor desirable,” he adds. “The longer the list, the better the tax efficiency of Cyprus as an attractive and respectable financial centre.”

Recently the international media has reported on the intense worldwide interest in concluding not only DTAs but also investor promotion and protection agreements (IPPAs) with Sub-Saharan countries. This was triggered by a surge in foreign investment in Africa. According to the 2013 report from the United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment

CYPRUS SHOULD EXPAND ITS NETWORK OF BILATERAL AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION TO COVER MORE COUNTRIES, ESPECIALLY THOSE IN AFRICA

By Kyproula Papachristodoulou

E

“are not alone seeking preferential deals” with African countries to channel FDI, with South Africa and Botswana trying to play a similar role locally.

Angelos Gregoriades told Gold that, given the interest expressed lately in the countries of Sub-Saharan Africa, perhaps a targeted effort to conclude Double Taxation Agreements with those countries may prove to be of benefit to Cyprus. “Especially considering the exploitation of our own natural resources and seeing that energy resources are something we have in common, an IPPA may encourage the development of business relations in that sector. Similar considerations should be made for countries in the Latin America region such as Brazil,” he said.

In the case of Cyprus, there are specific existing tax treaties that need to be renegotiated such as those with the USA and China. It should also be noted that cooperation with the US authorities will also be enhanced through the implementation of FATCA (Foreign Account Tax Compliance Act) regulations.

For this purpose, the Cyprus government is involved in negotiations with the US Tax Authorities for the signing of a bilateral agreement.

Gregoriades points out that with regard to IPPAs, “These need to be concluded so as to enhance the investment environment. However, prior consultation is now required by the European Union in this respect.”

But what is the stance of Cyprus as an attractive jurisdiction in relation to DTAs, compared with other financial centres like Luxembourg, the Netherlands, Mauritius and Singapore? Gregoriades told Gold that a brief look at other competing jurisdictions shows that the Netherlands has over 90 Double Tax Treaties in force, Ireland and Luxembourg have more than 60, and Switzerland has more than 100. Mauritius has concluded 47 DTAs whilst, Singapore has 69. Cyprus has concluded 45 DTAs and efforts are ongoing, with negotiations currently underway with ten countries.

In terms of the target countries, South America and Sub-Saharan Africa may definitely be promising regions, Gregoriades says.

“It is interesting that other financial centres are not yet so active or operative in these areas.

For example, the Double Tax Treaty Network of Sub-Saharan African countries in general

NOTES

* 7 Denmark - The existing Convention ceased to have effect as from 1.1.2012 ** The treaty between Cyprus and the Socialist Federal Republic of Yugoslavia is still in force. *** The treaty between Cyprus and the Czechoslovak Socialist Republic is still in force **** The treaty between Cyprus and the Union of Soviet Socialist Republics

I

DOUBLE TAXATION

nternational juridical double taxation, generally defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods, has a harmful effect on the international exchange of goods and services and cross-border movements of capital, technology and people. In recognition of the need to remove this obstacle to the development of economic relations between countries, as well as of the importance of clarifying and standardising the fiscal situation of taxpayers who are engaged in activities in other countries, the OECD has developed a Model Convention on Income and on Capital which provides a means to settle on a uniform basis the most common problems that arise in the field of international juridical double taxation.

is with high tax jurisdictions such as France which has concluded over 25 DTAs with African countries though this may, of course, be due to historical reasons.”

It is noteworthy that Cyprus has only concluded Double Taxation Agreements with Egypt and South Africa from the whole of the African continent and none is with a SubSaharan African country. In contrast, both the Netherlands and Switzerland have concluded DTAs with Ghana, Malawi and Zambia, whilst Switzerland also maintains an active Double Tax Treaty with Ivory Coast and The

Gambia among others. Singapore has six such deals, while Seychelles, Luxembourg and the Netherlands have started negotiations with governments in Africa. The Cyprus government, Gregoriades says, should consider taking immediate action on this matter.

But what needs to be done for Cyprus to upgrade and update its DTAs? In Angelos Gregoriades’ view, “We should intensify our negotiation processes with other countries and become more proactive in expressing an interest in concluding DTAs. It would also be very useful to put down policy guidelines outlining our goals and our targets and set a clear path of our intentions for formulating DTAs. It is very important to have a Business Plan.”

It is worth noting, however, that the first step in such cases tends to be political, which is why the Ministry of Foreign Affairs, in consultation with the Ministry of Finance, should perhaps be engaged more actively in diplomatic talks initiating the process of concluding such tax agreements.

It should also be noted that a wellestablished, dedicated team, consisting of professionals from the Ministry of Finance and the private sector, has already been established and is currently handling the negotiations and technical issues relating to Double Tax Agreements.

CYPRUS TAX TREATY PARTNERS STATE

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

AJIKISTAN**** ARMENIA AUSTRIA (NEW ΑGREEMENT) AZERBAIJAN**** BULGARIA BELARUS BELGIUM CANADA CHINA CZECH REPUBLIC (NEW AGREEMENT) DENMARK* TREATY NOTES NEW AGREEMENT ESTONIA EGYPT FINLAND FRANCE GERMANY (ΝEW AGREEMENT) GREECE HUNGARY INDIA IRELAND ITALY TREATY PROTOCOL (ADDITIONAL PROTOCOL) KUWAIT (NEW AGREEMENT) KYRGYZSTAN**** LEBANON

DATE OF ENTRY INTO FORCE

1983 2011 1990 (2013) 1983 2001 1999 1999 1985 1991 1980 (2009) 1981 1982 2011 2014 1995 2014 1983 1977 2011 1969 1982 1994 1970

STATE 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

1983

47

1986 1983 2005

48 49 50

MALTA MAURITIUS MOLDOVA MONTENEGRO** NORWAY POLAND (NEW AGREEMENT) PORTUGAL QUATAR ROMANIA RUSSIA (AMENDMENT PROTOCOL) SAN MARINO SERBIA** SEYCHELLES SINGAPORE SLOVAKIA*** SLOVENIA**** (NEW AGREEMENT) SOUTH AFRICA SPAIN SWEDEN SYRIA THAILAND UKRAINE**** (ΝEW AGREEMENT) UNITED ARAB EMIRATES UNITED KINGDOM TREATY PROTOCOL USA UZBEKISTAN****

DATE OF ENTRY INTO FORCE

1994 2000 2008 1986 1955 1993 2013 2014 2009 1982 1999 (2012) 2007 1986 2006 2001 1980 1986 (2011) 1998 2014 1989 1995 2000 1983 (2014) 1974 1985 1983

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The Russian Federation has the largest share of the world’s natural gas reserves

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Natural gas is affordable, reliable, efficient and available

Μι Ψωνι α Μη α φορα να βδοΜ Ή κα το αδα;θε

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$1.6 trillion

Date: 17/06/2013

The KPMG Academy is committed to assist you in overcoming the challenging times we are facing by scheduling new seminars which are relevant to today’s environment. The titles and the dates of these seminars will soon be announced.

Natural gas is primarily used for electricity generation, industrial, residential, and commercial sectors

Natural gas emits up to 60% less CO2 than coal when used for electricity generation

per year on average – will be necessary to meet energy demand until 2035

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DIAMONDS ARE FOR… CYPRUS?

Cyprus’ block 12 first LNG export: Q3/2019

Levant Basin holds close to

3450

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25%

With a Diamond Exchange the island could rival Dubai, say experts

of the natural gas arriving in the EU is in liquid form

* The programmes have been approved by the HRDA. Enterprises participating with their employees who satisfy HRDA’s criteria, are entitled to subsidy.

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investment

Dr. StelioS PlatiS Dr. Stelios Platis is an economist, with a PhD in Finance and Macroeconomics from the Faculty of Economics and Politics of the University of Cambridge. In 2003 he founded the internationallyawarded company MAP S.Platis (www.mapsplatis. com), providing risk management, internal audit and compliance support services to the EU financial services sector. Since 2009 he has been the Chairman of the Association of Cyprus International Investment Firms (ACIIF).

Investment firms have been hit by the agreement with the Troika but Cyprus’ reputation has been hit harder

By John Vickers. Photograph by Jo Michaelides

RESTORING INVEST 56 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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he Association of Cyprus International Investment Firms (ACIIF) was set up in 2009 to represent the interests of investment firms in Cyprus. It is now by far the biggest Association in the sector as well as its strongest voice. The ACIIF has worked – and continues to work – closely with the regulator (the Cyprus Securities and Exchange Commission) with the aim of growing and supporting Cyprus’ investment firms which are a mainstay of the financial services sector today.

Asked how his members have been affected by the events of March 2013, ACIIF Chairman Dr Stelios Platis says that, fortunately, only a small number suffered a haircut of their deposits. However, he considers that the most significant damage has been to the reputation of Cyprus as a financial services centre and to the image that regulated Cyprus Investment Firms have in the eyes of their clients and investors.

“It was a terrible agreement for the financial services sector,” he says.

“There is no doubt about that. It targeted the Cypriot banks and, through them, our entire financial services model. The financial services sector is extremely sensitive to issues relating to investor confidence and investor confidence was significantly hurt by the whole process.

However, what’s done is done and we can’t turn back the clock. We now need to see how to put this behind us and bring the sector back on track towards growth.”

The members of the ACIIF are EU Investment Firms which operate either in or from Cyprus and always maintain a significant physical presence here, including offices and personnel. However, their clientele is primarily located overseas. Platis acknowledges that a number of member firms are seriously thinking about relocating to other jurisdictions but he considers that, under the circumstances, this was to be expected. Fortunately, the majority are staying.

“The decision by international investment firms to base themselves in Cyprus always depends on much more than one or two factors,” he explains, “whilst the relocation of such regulated institutions is not always an easy task. One should not underestimate the fact that Cyprus maintains a well-established and tested regulatory framework in the sector, with one of a handful of regulators in the world who understand the business of Forex and binary options. In my view, the Forex and binary options industry in Cyprus has a very solid foundation and I am confident that it will overcome any reputational and practical issues still pending.”

Stelios Platis has good reason to be particularly satisfied by the fact that nearly a quarter of the world’s 50 largest global Forex brokers have chosen Cyprus as the jurisdiction of choice for their particular sector.

A considerable role in this development has been played by his own firm, MAP S.Platis. Cyprus was one of the first jurisdictions to issue a number of “pure” retail Forex Investment Firm licences under MiFID in early 2008 – all of them represented by MAP S.Platis. Before that, he recalls, “The Cyprus Securities and Exchange Commission did not want to hear about Forex, let alone be responsible for its oversight. They kept throwing reasons back at us why they considered it a ‘grey’ area regulation-wise and not their responsibility, directing us to the Central Bank of Cyprus (CBC). Then the CBC would send the issue back to CySEC and then it went to the CBC and so on. It was make-or-break for the sector and we realised this so we kept trying.

In the end, through logical argument, perseverance and lobbying, we convinced CySEC to take the sector under its prudential supervision.”

Cyprus now tops the list of retail Forex jurisdictions and MAP S.Platis has been responsible for around 70% of all Forex licences issued to date.

If the Forex/Binary Options sectors are thriving, sadly this cannot be said of other key sectors of the economy. Stelios Platis considers that the downsizing of the banking sector, in particular, has harmed the island’s reputation “quite seriously, especially given the overall clumsy way that the issue was handled by the Troika and the EU.” He believes that it gave the (wrong) impression that the Cypriot authorities and the Cypriots were not aware of how the financial services sector works and what investors need. Both regulatory authorities – the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission – as well as the Government now need to prove otherwise, he says.

Platis disagrees strongly with the Troika’s contention that Cyprus’ business model was flawed and the country needs to find a new one.

While recognizing the existence of “a number of inefficiencies and rigidities as well as serious flaws, especially in terms of corporate governance in the banking sector and its prudential supervision,” he believes that as far as the financial services sector is concerned, and investment services in particular, “It has been a very successful model with a great history and an even greater future. Cyprus’s business has been and will be in services and financial services play a very important role in this respect – both as a target as well as a means.”

Asked what can be done to restore confidence, the ACIIF Chairman says that “Cyprus needs to work really hard on ending the uncertainty in the banking sector.” Thereafter, it needs to move towards training and modernising the main supervisory bodies towards efficiency and risk-based supervision, and communicating this effectively to the sector. A good solution, he suggests, would be to have a single regulator with the resources, capacity and strategy to make Cyprus a real hub for financial services.

And while some of his members still need convincing, Dr Stelios Platis remains optimistic that Cyprus will eventually return to economic growth and convinced that Cyprus can fulfil its commitments under the Memorandum of Understanding with the Troika.

“Cyprus is a small, dynamic and quite manageable economy with excess fiscal weight that can still be shed,” he says. “At the same time, the Government needs to make sure that as it fulfils its commitments, a strategic plan based on Cyprus’ competitive advantages is put in place and followed consistently. There are always great opportunities that surface following such a large-scale restructuring of an economy with so many competitive advantages.”

Regarding the short- and long-term future of Cyprus as a regional centre for professional and financial services, Platis notes that, whatever may have happened in the past six months, the advantages of Cyprus are still there. “Let’s not forget why such global brokers choose Cyprus as their base in the first place: low barriers to entry, its geographical location, superb support and ancillary services by professionals, a solid infrastructure, low and efficient taxation, contemporary legislation and reasonable regulators, a dynamic workforce and these are just a few of the reasons for Cyprus’ success in this field. Having said that, of course, the longer this uncertainty in Cyprus’ banking sector carries on, the greater the chances are of reputable and large investment firms relocating and Cyprus missing out on the momentum of recovery. I strongly believe that it is up to the State and the Cypriots themselves to push things in this direction. Nobody can do this for Cyprus and on Cyprus’ behalf.”

ESTOR CONFIDENCE THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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

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ALL THE

RIGHT MOVES Entrepreneurship and innovation can get Cyprus back on course

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management xxxxxxx

Dr

COSTAS MARKIDES, PROFESSOR OF STRATEGY AND ENTREPRENEURSHIP AT THE LONDON BUSINESS SCHOOL, IS THE KEYNOTE SPEAKER AT THIS YEAR’S 12TH HR MANAGEMENT & HUMAN CAPITAL CONFERENCE ORGANISED BY IMH AND PWC CYPRUS AT THE HILTON PARK HOTEL, NICOSIA, ON 13 NOVEMBER 2013. MARKIDES, A BESTSELLING AUTHOR, WAS INCLUDED IN THE 2011 LIST OF THE 50 MOST INFLUENTIAL MANAGEMENT GURUS PUBLISHED EVERY TWO YEARS BY THINKERS50. ON A RECENT VISIT TO CYPRUS HE SPOKE TO GOLD ABOUT WHAT THE ISLAND NEEDS TO DO IF IT IS TO RECOVER FROM ITS CURRENT PREDICAMENT AND HOW EMPLOYERS SHOULD BEHAVE IF THEY ARE TO KEEP THEIR PERSONNEL POSITIVE IN DIFFICULT TIMES LIKE THE PRESENT.

By John Vickers. Photograph by Jo Michaelides

Gold: As a Cypriot, I am sure that you have always kept a watchful eye on what is happening here, so were you surprised by the fact that Cyprus was forced to request a financial assistance package in 2012?

Costas Markides: The need to request financial assistance from our European partners was not a surprise. What was surprising was the magnitude of the assistance needed and the manner in which it was given to us. In particular, what caught most people by surprise (or at least me) was the size of the financial bailout that our banks needed.

Gold: How did you view the resolution of the Cyprus Popular Bank and the ‘bail-in’ method used to recapitalize Bank of Cyprus?

C.M.: The bail-in was definitely a surprise

THE MOST INSPIRING THING FOR PEOPLE IN THE MIDDLE OF A CRISIS IS HOPE for me. The EU had provided much bigger financial packages to countries such as Greece, Ireland and Spain without resort-

ing to the bail-in method, so applying it to Cyprus for the first time was unexpected and surprising. With hindsight, you can see where the Europeans (and the IMF) are coming from. We may look at the bail-in as unfair and harsh but, from an EU perspective, they could make the argument that simply loaning the money to us would have made our debt unsustainable.

Gold: Do you believe that alternative solutions could have been found?

C.M.: It’s hard to see what the alternative would have been. One possibility would have been to find another investor (e.g. another foreign bank) to buy Cyprus Popular Bank or Bank of Cyprus and provide the necessary capital. Another alternative would have been for the Government to provide the necessary injection. I believe both options were pursued and were found

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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management

to be unrealistic. The only other alternative was for the EU to lend us the money (as they did in Greece) but that would have driven our debt to unsustainable levels, something that the IMF was averse to.

Gold: You are a Professor of Strategy and Entrepreneurship, two concepts which, in this post-bailout era situation, Cyprus would appear to need more than ever. So what should the government’s basic strategy be if the economy is to recover?

C.M.: First, can I just say that it always takes two to tango. By this I mean that as Cypriots, whenever we get into a mess, we always think that it’s the Government’s responsibility to do things that get us out of the mess. Even if we accept that the Government can do some things to help the situation, we should not forget that we (as individuals or companies) have an equal responsibility to help out. My advice is to always ask: “Suppose the Government does nothing. What should I be doing to help my company or my family succeed or get out of the crisis?”

Now, in terms of what the Government needs to do, I believe we need to separate the short-term from the long-term. In the short term, the Government is already taking lots of actions to kick-start the economy and there’s little I can add to this list of actions. But more importantly for Cyprus, we need to be setting the platform for the long-term. This implies (a) correcting the existing institutions of our society that have been proven defective in the current crisis (such as our corporate governance system and the checks-and-balances system that needs to exist between the executive arm of government, the press and our judicial system); (b) putting in place new institutions that the crisis has revealed as missing (such as new labour laws and new economic institutions); and (c) developing an industrial strategy for our economy that identifies which industries should be promoted over the next 25 years and what supporting institutions must be put in place to help these industries prosper.

COSTAS MARKIDES Costas Markides is a Professor of Strategy and Entrepreneurship and holds the Robert P. Bauman Chair of Strategic Leadership at the London Business School. A native of Cyprus, he received his BA (Distinction) and MA (1984) in Economics from Boston University, and his MBA (1985) and DBA (1990) from the Harvard Business School.

He serves on the Editorial Boards of several academic journals and on the Board of Directors of the Strategic

Management Society. He participated in the World Economic Forum in Davos from 1999-2003 and again in 2012 and in 2013.

His book: All the Right Moves: A Guide to Crafting Breakthrough Strategy (Harvard Business School Press, 2000) was shortlisted for the Igor Ansoff Strategic Management Award while his book (with Paul Geroski), entitled Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate

Gold: And what should the role of entrepreneurship be in this strategy?

C.M.: The role of Government is to develop the legal and institutional environment that allows individuals and organisations to function in a secure manner, where property rights are respected and the laws of the state are upheld. We know from 50 years

HISTORY SHOWS THAT SOCIETIES PROSPER WHEN THEY INNOVATE of academic research that without having properly-functioning institutions at the society level, everything else collapses.

Once the proper environment is in place, it is then the responsibility of individuals to create wealth within this system.

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New Markets (2005) was shortlisted for the Financial TimesGoldman Sachs Management Book of the Year in 2005. GameChanging Strategies: How to Create new Market Space in Established Industries by Breaking the Rules was published in 2008 and he is currently working on a new book (with Anita McGahan) provisionally entitled: Architects of Change: How ordinary people bring about social change.

Entrepreneurship and innovation should be the foundations of this wealth creation. History shows that societies prosper when they innovate. You can innovate in a myriad of ways (through new technologies or new products or new business models) and Cyprus will be better in some of these things and not so good in others.

For example, our small size suggests to me that we will not be pioneers in technological innovation but nothing should stop us from engaging in business model innovation. All you need to do this is creativity and courage.

Entrepreneurship and Innovation should be the foundation of our future growth as a society. There are certain things the Government can do to promote entrepreneurship in Cyprus – and we can certainly benchmark what they did in Israel or other countries to learn from them. But there are also many things that companies themselves can do to promote innovation, even if the Government does nothing.

Gold: The current crisis in Cyprus is not the world’s first so are there lessons to be learnt from past crises in other countries?

C.M.: There are many lessons to be learnt but let me single out two of them: First,

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what most people seem to forget is that there are negatives associated with a crisis but there are also positives. People always focus on the negatives and forget about the positives. The societies (or companies) that have done well in a crisis are those that were able to put the negatives of the crisis in perspective (i.e. don’t ignore them but do not be overwhelmed by them) but then found ways to exploit the positives of the crisis in a strategic way. For example, we know that resistance to change during a crisis is low so this is the time to implement lots of radical changes. Second, the most inspiring thing for people in the middle of a crisis is hope. They need to see something positive to aim for. Societies (or companies) that were clever enough to develop a positive target for their people to shoot for in the middle of a crisis were the ones that prospered after the crisis.

the importance of the Organisational Environment for success. Could you elaborate on this?

C.M.: In the last 50 years, social psychologists have been asking the question: “What influences how people behave?” After fifty years, we think we know the answer: on average, 30% of the variance in our behaviours is determined by our personality, education and values but almost 70% is determined by the “situation” or the “environment” we find ourselves in. This implies that, much more than we like to believe, the environment determines how we behave. As a result, if we want people in an organisation to behave in ways that promote innovation, we should not just tell them to “be innovative”. Instead, we should put in place an Organisational

I AM VERY OPTIMISTIC ABOUT THE FUTURE OF CYPRUS

Gold: You will be talking in Cyprus about keeping employees motivated and engaged when times are tough. How difficult is this when they are facing job insecurity, salary cuts and more?

C.M.: Needless to say, it is very difficult to keep people motivated in difficult times but it is not impossible. In the middle of the crisis, the employees’ primary concern will be job security and salary. If you can offer these two things to them, they will be happy. But even if you cannot offer them these two specific things, you should still try to use other tactics to motivate people.

What you need to remember is that people get motivated by different things – it could be money, recognition, independence at work, job satisfaction, power, a nice working environment, the feeling that their company is “special”, autonomy and so on.

So it’s not just money. Be creative and keep trying. Make them appreciate that without their energy, your organisation cannot succeed.

Environment that encourages people to behave in ways that promote innovation.

The Organisational Environment is made up of 4 things: (1) the organisation’s culture and values; (2) its measurement and incentive systems; (3) its structures and processes; and (4) its people. These are the four things that every company needs to be thinking about if it wants to create an environment for Innovation. Without a supporting environment, you will never get innovation.

Gold: You are also discussing entrepreneurial thinking and corporate innovation in difficult times. You stress

Gold: How has the world of business in Europe and the US changed since you obtained your first degree and began

your professional career?

C.M.: I think new technologies (such as the Internet and social media) have changed the business landscape completely. Business is now faster, more transparent and more competitive. At the same time, norms and attitudes have changed so employees and customers are now fundamentally different from thirty years ago. Overall, I’d say that we now live in a hyper-competitive world with a free and rapid flow of information, increased labour mobility and technological and cultural convergence. In this kind of business landscape, innovation is the key to success.

Gold: Did the key concepts on which you have lectured and written over the past two decades even exist?

C.M.: Some things have changed and some have stayed the same. For example, the concept of strategy (what it is, how do you develop it and how do you implement it) has not really changed in the last 30 years.

On the other hand, concepts such as “disruptive technologies” or “business model innovation” are new things we teach today.

Gold: How do you see the future of entrepreneurship in broad terms?

C.M.: Human beings are entrepreneurs by nature. Nothing has changed that will stop us from engaging in entrepreneurship in the future. But increasingly, developed societies will be putting more emphasis on how to “scale up” entrepreneurial firms while less-developed economies will be putting their emphasis on starting new entrepreneurial firms. In addition, we will see more emphasis on innovating through new business models rather than through new products or services.

Gold: And finally, how do you see the future of Cyprus?

C.M.: I am very optimistic about the future of Cyprus! Throughout our history, we have faced serious challenges and we have always risen to the occasion. I see no reason why we cannot do the same now.

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EASTERN MEDITERRANEAN NATURAL GAS

FORUM IMH holds London conference

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he Eastern Mediterranean: A New Energy Frontier is the title of a major conference being organised by IMH in London on 6 November. Among the issues to be discussed are LNG, oil and gas developments in Cyprus, Israel, Greece, Lebanon; External energy developments and their impact on Eastern Mediterranean geopolitics; Connecting Eastern Mediterranean LNG with the rest of the world; and Investment considerations and opportunities in the Eastern Mediterranean Lefteris Karydis, Scientific Content Manager of the Eastern Mediterranean Natural Gas Forum, explained the conference title: “The quest for fresh natural gas reserves to meet rising demand is at a high and conventional ‘easy’ reserves elsewhere are declining. Consequently, as competition for its resources becoming fiercer, the Eastern Mediterranean is emerging as the ‘new frontier’.”

It is estimated that the EU’s natural gas requirements for the next 50-60 years could be satisfied by the gas reserves in the Eastern Mediterranean. However, it is one of the most troublesome areas in the world, characterized by political and financial instability and maritime border issues. Furthermore, geological and technological challenges, regulatory complications and uncertain market pricing pose even more obstacles for local and international oil and gas companies to explore and exploit the Eastern Mediterranean resources. The “treasure” buried beneath the Mediterranean Sea can either become the reason for all nations in the area to cooperate and benefit or it can lead to more turbulence and instability.

Describing the London conference as “an exclusive senior-level Forum that will stimulate high-level debate around the exploration and exploitation of hydrocarbons in Cyprus, Greece, Israel and Lebanon to determine the development of further collaboration and progress in the oil and gas industry,” Karydis added that the Forum will also provide the most up-to-date information and developments regarding the state of affairs in each country in the area. “It will bring together key players, top government officials, gas experts, company leaders and senior executives from the gas industry to share their knowledge and experience and discuss projects and investments resulting from the hydrocarbon discoveries in the region,” he said.

The list of speakers is impressive, with several present and former government min-

conference

(Left to right) Dr. Amir Mor Gina Cohen Christina Hioureas Peter Stewart Anthony Livanios Joseph I. Paritzky

isters of taking part: George Lakkotrypis, Minister of Energy, Commerce, Industry & Tourism (Cyprus), Silvan Shalom, Minister of Energy and Water Resources (Israel), Yiannis Maniatis, Minister of Environment, Energy and Climate Change (Greece), Joseph I. Paritzky, Former Minister of Energy & National Infrastructure (Israel).

CONFERENCE CHAIRMAN:

ANTHONY LIVANIOS, CEO, ENERGY STREAM CMG GMBH, GERMANY. With over 20 years of experience in business to government relations, energy issues, international affairs and research in over 50 countries, he was instrumental in negotiating and concluding the agreement for the construction of the Greek-Bulgarian Natural Gas Pipeline (IGB). In 2000 he founded Alpha Metrics, a research and business development company and served as Chief Executive Officer, specializing in business to government relations, public consultations and economic research.

OTHER KEY SPEAKERS:

NAJI ABI-AAD , PH.D., SENIOR ADVISOR, PETROLEB, LEBANON. In September 2012, Naji Abi-Aad was appointed COO of the Beirut-based oil company Petroleb, which is active in offshore petroleum exploration in the Eastern Mediterranean. He also manages the newlyestablished Institute for Energy Economics at the American University of Beirut (AUB) and is an advisor to the Qatar Foundation on oil and gas research. He has authored over 80 reports and studies on Middle East energy issues, as well as a book on the security of petroleum supply from the region.

VICTOR ALESSANDRINI, BUSINESS DEVELOPMENT MANAGER, OFFSHORE BUSINESS UNIT, TECHNIP, FRANCE. He has worked in locations as diverse as Korea, Scotland, West Africa and Azerbaijan. Since 2007 he has been responsible for business development & sales within Technip’s Offshore Business

Unit supporting Special Projects & FLNG activities worldwide.

AS COMPETITION FOR ITS RESOURCES BECOMING FIERCER, THE EASTERN MEDITERRANEAN IS EMERGING AS THE ‘NEW FRONTIER’ GINA COHEN, CONSULTANT TO THE NATURAL GAS INDUSTRY, ISRAEL. Since 1998 she has been involved in projects spanning the full natural gas chain, from exploration & development to involvement in legislation, conducting gas sales and purchase negotiations, assisting the Ministry of Energy in its regulatory work and carrying out feasibility projects relating to the establishment of natural gas operated IPPs. She is the author of the Hebrew-English energy lexicon used by all professionals in the Israeli oil and gas sector.

CHRISTINA HIOUREAS, SENIOR ASSOCIATE, CHADBOURNE & PARKE LLP, USA. She represents States, private entities, and individuals on international dispute resolution and public international law matters.

She has particular experience in international law issues involving the Mediterranean and is the American Society of International Law (ASIL) Delegate to the United Nations Consultative Process on the Law of the Sea. CÉCILE MAISONNEUVE, DIRECTOR, CENTRE FOR ENERGY, INSTITUT FRANÇAIS DES RELATIONS INTERNATIONALES (IFRI), FRANCE. She was appointed Director of the Centre for

Energy at the IFRI six months ago having served as an executive at the international energy group AREVA from 2007 to 2012.

DR. AMIR MOR, ENERGY AND ENVIRONMENT ECONOMIST AND FINANCIAL ANALYST , CEO AND OWNER, ECO ENERGY LTD, STATE OF ISRAEL. For a quarter of a century, he has specialized in energy and environmental finance and economics, serving as a consultant to governments, financial organisations, public and private companies in the fields of natural gas, petroleum, electricity and renewable energy. In the 1990s he worked as a consultant at the World Bank in Washington D.C., specialiing in the finance of natural gas and energy projects, as well as in reform planning of energy and environmental policies of developing countries. Dr. Mor also led the team that prepared the Energy Master Plan for the State of Israel and participated in the World Bank team that prepared the Energy Sector Review for the Palestinian Authority.

PETER STEWART , CHIEF ENERGY ANALYST, INTERFAX GLOBAL ENERGY SERVICES, UK. An author and frequent speaker at oil and energy industry conferences on all aspects of the oil and gas value chain, as well as emerging he Eastmarkets such as bio-fuels, ern Medihe is Chief Energy terranean Natural Analyst at Interfax Gas Global Energy Services Forum The Eastern and Managing Editor Mediterranean: A New of the monthly Global Energy Frontier, will be Gas Analytics, a publicaheld on 6 November tion that provides expert at the Jumeirah Carlton Tower, London. insight into Gas markets For more information, fundamentals and shortcontact Lefteris Karyand medium-term price dis on 22505538 or forecasts. He is also by e-mail at lefteris@ involved in econometric imhbusiness.com. research at the University Website: www.eastmedgasforum.com of Surrey on oil and gas pricing benchmarks.

T

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 65

{September 14 – October 13, 2013}

ISSUE

30

73

68

{money}

68 Second Year Starts FX Careers Training School celebrates first anniversary 69 ForexTime Named Best Newcomer

by World Finance The Limassol-based company wins a major award

70

{business}

70 What’s it Worth?

How exactly does a business valuation work?

73 Innovation a top priority for business Chief executives around the world are ramping up their efforts to innovate and find new ways to do business

74

{economy}

74 Government deficit decreases in EU Cyprus economy contracts by 1.4% in Q2

+ BOOK REVIEWS BUSINESS: The New Rules of Marketing & PR: How to Use Social Media, Online Video, Mobile Applications, Blogs, News Releases, and Viral Marketing to Reach Buyers Directly

By David Meerman Scott 73 TAX & LEGAL: The World’s Best Tax Havens: How to Cut Your Taxes to Zero & Safeguard Your Financial Freedom

By Lee Hadnum 77 LIFESTYLE: The Divine Comedy

By Dante Alighieri (New translation by Clive James 81

76

{tax&legal}

76 Hedge fund rules absent in 16 EU states Cyprus has transposed the AIFMD into national law

78

{lifestyle}

78 Picture Perfect?

Investing in photographs

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS

Gold 67

forex

Second Year Starts {money}

FX CAREERS TRAINING SCHOOL CELEBRATES FIRST ANNIVERSARY

I

n 2012, Donna Stephenson and John Lewis, directors of FX Careers, decided to set up a Katy Parks school in Cyprus where experts would provide students with both practical and theoretical knowledge about the Forex and Binary Options industries. In this way, talent would be developed which would subsequently fulfil the staffing needs of the increasing number of Forex and Binary Options brokers in Cyprus. Katy Parks, Manager of FX Careers, spoke to Gold about how the school has evolved over its first year and how she views its future.

Gold: This month, FX Careers celebrates a year since it ran its first FX course.

What are the highlights and challenges you have faced so far?

Katy Parks: In terms of highlights, everyone has their own story and we are proud of what the school has achieved in a short period of time. One of our students was an unemployed Cypriot who had recently relocated to Cyprus. He came to FX Careers and, after completing the course, he not only joined a Forex company but within a few months won an award for his customer service skills. Another student was employed by a Binary Options firm and, after a few months, was promoted to Sales Manager. Our main challenge is to ensure that the content of the course remains attractive to both the student and the Forex/Binary Options employer. By including modules appropriate to other departments such as Compliance and Back Office, we maintain

its diverse appeal and cover a broad range of skills.

Gold: Why do people take the course?

K.P.: Many of our applicants approach us because they can see that employment opportunities in the FX sector are on the rise and they want to learn more before they take the next step in their career. One in three jobs filled in 2012 by our sister company GRS Recruitment was in the Forex and Binary sectors which have seen 190% growth in the number of people being hired compared to 2011. Most applicants say they just want to learn more about the sector. Many are curious about whether they can start a career, expand their skillset and/or apply this new knowledge to their current employment.

Gold: What does the course material cover and what are your teaching methods?

K.P.: The course covers the foundations of Forex and Binary Options including theoretical and practical training on the

WE ARE SEARCHING FOR MOTIVATED INDIVIDUALS WHO SHARE A DRIVE FOR SUCCESS AND A THIRST FOR KNOWLEDGE most popular trading platforms such as MT4. In addition, modules are provided for Compliance, Marketing and Back Office processes. Due to the rise in sales and customer service vacancies amongst Forex and Binary Options companies, the course also has a practical

Sales module. We use role play as part of the learning process, especially in the Sales training. There is also a written exam. All of our lecturers are industry professionals with established careers in the sector. They provide students with valuable insights into the industry as well as offering first-hand knowledge and experience.

Gold: Do all students go on to work in Forex/Binary Options?

K.P.: No. Not everyone seeks employment in the sector upon completion of the course. If an applicant is not an EU citizen, a work permit needs to be obtained by the employer and this is not always possible.

Regarding those who decide to apply for a job in the industry, employers are searching for candidates with the best communication skills, especially for Sales/Customer Service roles. Employers are also looking for multilingual applicants. The main languages desired at present are Arabic, Spanish, French, Italian, German, Russian, Chinese and Hindi (Indian). The demand for these languages tends to vary, depending on each company and the regions it is targeting.

Gold: What does a potential student need to take the FX course?

K.P.: We are open to candidates from all employment, educational and ethnic backgrounds. Our main requirement is that the applicant be fluent in English. The course is very intense and a strong command of the English language is essential. FX Careers is currently accepting applications for its autumn courses and we welcome applications from anyone who meets this criterion. We are searching for motivated individuals who share a drive for success and a thirst for knowledge. We can teach them the rest.

forex

FOREXTIME

F NAMED BEST NEWCOMER

BY WORLD

FINANCE

{money}

ollowing the launch of ForexTime Ltd earlier this year, the Limassol-based Forex broker has just been named ‘Best Newcomer 2013’ at the annual World Finance Awards.

Forex Time, which was established by Andrey Dashin, co-founder and shareholder of Alpari, launched in February 2013 with the aim of providing investors with a fresh and dynamic approach to Forex trading. Offering world-class service and product developments which constantly put the trader and the trading experience first, this accolade from the World Finance Awards is the culmination of a highly successful global launch for the brand.

The World Finance Awards were inaugurated in 2007 to recognise industry leaders, individuals, teams and organisations that represent the benchmark of achievement and best practice in the business world.

As part of the World Finance Awards presentation ceremony, George Stylianou, Chief Marketing Officer at Forex Time, gave an interview to World Finance TV in which he explained how Forex Time had achieved success in such a short period of time since its launch six months earlier.

FOREX IS AN EXCITING AND EVER-EVOLVING MARKET

George Stylianou

“Forex Time is built on the benchmark of time as a highly valuable commodity, and everything we do is focused on how we can save time for our clients,” he said.

“The senior management team at Forex Time has over 50 years of experience in the Forex industry and this experience and expertise is what has helped us achieve maturity more quickly and challenge more established brands.”

The Forex market is one of the fastest growing financial markets in the world and holds great future potential, with increasing interest from investors in emerging economies. Forex trading volumes have increased by 166% from 2007 to 2013, with $4 trillion dollars traded globally each day.

With the growth of emerging economies comes a rise in disposable income in these regions and greater interest from investors wishing to diversify their portfolios and assets using Forex.

Stylianou said: “Forex is an exciting and everevolving market. As we are a newly-formed and flexible brand, we have the ability to adapt to different situations and deliver to our clients what they want when they want it.”

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 69

valuation

{business}

WHAT’S IT

WORTH?

IF YOU OWN A BUSINESS, IT IS AN IMPORTANT ASSET, AND IT IS VITAL THAT YOU KNOW ITS VALUE. BUT HOW EXACTLY DOES A BUSINESS VALUATION WORK?

By Rakis Christoforou

A

lthough business evaluation is not quite as simple as assessing the value of an asset such as shares, where you can come up with a figure simply by multiplying the number of shares you own by their closing price, a skilled business appraiser can supply you with a sound estimate.

Many people try to create their own business valuation by factoring in the company’s historical financial statements but, to correctly perform a business valuation, many other factors need to be considered. Finan-

cial statements are created using generally accepted accounting principles. This means that amortization, depreciation and other expenses are recorded based on accounting rules and not on economic realities. A financial statement is also unable to apply to the statement any intangible assets that a company might have, and will thus not accurately reflect the true value of the business.

I believe that credible and defensible business valuations can only be provided

by Accredited Business Appraisers who correctly follow all the necessary steps in the process, as described below.

ability and the appraiser must ask lots of questions.

• The value lies in the future earnings of the business, so both internal and external risks and opportunities must be considered.

Financial accounts for most SMEs will require “normalisation” i.e. identification of discretionary expenses and reasonable owner’s remuneration.

• All approaches should be considered and appropriate methods applied.

• A Sanity Test should be applied to all valuation conclusions and a range is generally more accurate than a precise figure.

• Full information (operational, financial, non-financial, economic and industry analysis etc) underpins sound valuations.

• Curiosity is as important as calculating

That said, there are three fundamental ways of measuring what a business is worth: The Asset Approach, The Market Approach and The Income Approach.

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

The Asset Approach

The Asset Approach views the business as a set of assets and liabilities that are used as building blocks to construct the picture of business value. The asset approach is based on the so-called “principle of substitution” which addresses the question: What will it cost to create another business like this one, which will produce the same economic benefits for its owners? Since every operating business has assets and liabilities, a natural way of addressing this question is to determine the value of these assets and liabilities. The difference between them is the business value. This may sound simple enough but the challenge is in the details: figuring out what assets and liabilities to include in the valuation, choosing a standard of measurement and then actually determining what each asset and liability is worth. For example, many business balance sheets may not include their most important assets such as internally developed products and proprietary ways of doing business. If the business owner hasn’t paid for them, they won’t have been recorded on the “cost-basis” balance sheet!

The Market Approach

The Market Approach, as the name implies, relies on signs from the real market place to determine what a business is worth. Here, the so-called “principle of competition” applies and the question is: What are other businesses worth that are similar to my business? No business operates in a vacuum. If what you do is really great, the chances are that are others doing the same or similar things. If you are looking to buy a business, you should decide what type of business you are interested in and then look around to see what the “going rate” is for businesses of this type. If you are planning to sell your business, you will check the market to see what similar businesses are selling for. It is intuitive to think that “the market” will settle on some idea of business price equilibrium – something that a buyer will be willing to pay and a seller willing to accept. That’s what is known as the fair market value. Both parties are assumed to act in full knowledge

of all the relevant facts, with neither being forced to conclude the sale.

The Income Approach

The Income Approach takes a look at the core reason for running a business – making money. Here the so-called “principle of expectation” applies and I need to ask myself: If I invest time, money and effort in business ownership, what economic benefits will it bring me and when? Notice the future expectation of economic benefit.

Since the money is not in the bank yet, there is some measure of risk – of not receiving all or part of it when you expect it.

So, in addition to figuring out what kind of money the business is likely to bring, the income valuation approach also factors in the risk. Since the business value must be established in the present, the expected income and risk must be translated to today.

Due Diligence

Due diligence involves delving into the background of a business, identifying any issues that could affect it in the future, and other related matters. It is more like performing a Forensic Business Valuation.

There are certain tasks which should be included on any due diligence list, before applying any business valuation approach and method, as follows:

review should include, but is not necessarily limited to, a review of the following: • The target company’s income tax returns for at least five years • Balance sheet, income and expense statements, profit and loss statements for at least 5 years • Current operating budgets and any forecasts of future company operations • The most recent Schedule (ageing analysis) of accounts receivable and payable together with comparable data from previous years • A schedule of all contingent liabilities such as guaranties and product or service warranties.

BY IDENTIFYING THE SELLER’S MOTIVES, THE BUYER OBTAINS VALUABLE INFORMATION NECESSARY FOR ASSESSING THE RISKS INVOLVED IN THE TRANSACTION

1. DETERMINE THE SELLER’S MOTIVES.

The business owner’s decision to sell may be motivated by any number of factors including – but not limited to – retirement, illness or death, internal disputes, inadequate capital and poor market prospects.

By identifying the seller’s motives, the buyer obtains valuable information necessary for assessing the risks involved in the transaction, as well as for determining an appropriate valuation for the company.

2. REVIEW ALL FINANCIAL RECORDS. A review of the target com-

pany’s financial records is always a key component of any due diligence investigation because it provides the principle basis for the business valuation. The financial

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 71

valuation

IN MANY COMPANIES, THE REAL VALUE LIES NOT IN THE ASSETS, THE PRODUCT OR THE CUSTOMER LIST BUT IN ITS EMPLOYEES The financial records of many small companies are often extremely limited. In such a situation, the due diligence investigation should be expanded in an effort to obtain the financial information necessary for a reasonable valuation. Limited financial data may also impact the terms of the purchase. For example, in a business that has a large number of accounts receivable, without reliable financial statements, the buyer may want to place a substantial discount on the value of these accounts or even require the seller to guarantee that all or some of the receivables will be collected. At a minimum, the buyer will want to conduct a more thorough investigation regarding the nature of the receivables and the customers owing the debt.

3. REVIEW ALL THIRD PARTY CONTRACTS. The contractual obliga-

tions and rights of the target entity must be identified for a proper valuation. Therefore, the due diligence effort should include –at a minimum – a review of the following: • Franchise and licensing agreements • Sales contracts or other contacts to which the company is a party • Insurance policies • Agency, distributor and advertising contracts • Supply contracts

credit and instalment purchases

• Government contracts • All other material agreements to which the target company is a party

4. REVIEW EMPLOYMENT CONTRACTS. In many companies, the

7. REVIEW ALL LITIGATION FILES.

Information regarding pending or threatened lawsuits involving the target company must be carefully examined. The buyer should also review any administrative proceedings, governmental investigations or inquiries.

Rakis Christoforou

real value lies not in the assets, the product or the customer list but in its employees.

Therefore, the terms of all employment contracts for key employees, company retirement and benefit plans, as well as employee manuals and union contracts are crucial to the success of any business venture and should be reviewed as part of the due diligence effort.

5. INSPECT ALL INVENTORY. An inspection of the company inventory is obviously central to any business valuation.

Such an inspection should also cover all fixed assets, motor vehicles and other assets needing a recorded conveyance or change of registration.

6. REVIEW ALL LEASES, DEEDS, MORTGAGES AND LOAN AGREEMENTS. The buyer should re-

view the following: • Documents and agreements evidencing borrowings by the target company, including loan and credit agreements and other evidences of indebtedness • Documents evidencing mortgages, security interests or loans on assets of the business • Guarantees, agreements to maintain net worth and similar agreements • Agreements confirming lines of credit • Leases of real or personal property to which the company is a party, either as lessor or lessee • Documents and agreements evidencing other material financing arrangements, including letters of

8. REVIEW ALL REQUIRED GOVERNMENT FILINGS. Various government permits and licences are often required before a company may lawfully conduct business, such as a sales or tax permit. The buyer should ensure that all required permits and licences have been appropriately maintained.

9. REVIEW ALL DOCUMENTS ESTABLISHING THE LEGAL ENTITY FOR THE BUSINESS. The buyer

should review any assumed name certificate, partnership agreement, shareholder agreement, bylaws, articles of incorporation and any other document establishing the legal structure for the target entity.

10. EVALUATE ALL INTELLECTUAL PROPERTY. Lastly, the buyer

should never forget to evaluate all intellectual property, including any patents, copyrights, trademarks, trade secrets and goodwill.

As can be seen from the above, the Business Valuation due diligence process can be extremely complex and often requires the involvement of several legal, financial and business professionals. That’s why I prefer the term “Forensic Business Valuation” for such a process. Those interested in purchasing or selling an existing business should take the prudent step of engaging appropriate professionals. There are many risks associated with the purchase/sale of an existing business, both large and small.

However, with proper due diligence and financial forensic examination, these risks can be effectively minimized.

info: Rakis Christoforou is the first Cypriot to hold CFF (Certified in Financial Forensics) and ABV (Accredited in Business Valuation) certifications. He is a member of many professional accounting associations including ICPAC (Institute of Certified Public Accountants of Cyprus) of which he is Vice Chairman of the Economic Crime and Forensic Accounting (ECFA) Committee.

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

survey

INNOVATION A TOP PRIORITY FOR BUSINESS

{business}

CHIEF EXECUTIVES AROUND THE WORLD ARE RAMPING UP THEIR EFFORTS TO INNOVATE AND FIND NEW WAYS TO DO BUSINESS, IN A MOVE TO STIMULATE GROWTH IN A CHALLENGING GLOBAL BUSINESS ENVIRONMENT.

BOOK REVIEW

A

PwC Pulse Survey in North and South America, Europe, Asia Pacific, and the Middle East reveals that 97% of CEOs see innovation as a top priority for their business. The Pulse Survey was conducted as a followup to the recent PwC Survey of 1,330 CEOs around the globe which showed innovation to be a major and lingering CEO concern.

Not every region sees the need for innovation in the same light. The appetite for innovation was strongest in Asia-Pacific and North America, where CEOs unanimously agreed that innovation is a key focus area within their organisation. In contrast, 18% of CEOs in Central and Eastern Europe and 10% of their peers in the Middle East disagreed, reporting that innovation is not a priority in the markets in which they operate.

Perhaps the most interesting news is there has been an important shift in the relative focus on operations and innovation. Globally, almost two in three CEOs see innovation and operational effectiveness as equally important to the success of their company. Business leaders in Latin America agree with this the most (71%), in contrast to their peers in the Middle East who are more divided (50%).

The research also shows that there has been a shift in how CEOs view their role in driving innovation. Today’s CEOs recognise that they need to be directly involved in driving innovation within their business, with 37% reporting their role as ‘leader’ in this area, and 34% as ‘visionary’. This contrasts sharply with the situation three years ago when a

similar survey showed only 12% of CEOs were leading the charge on the innovation strategy.

And their innovation plans are broad. Over the next three years, CEOs are planning to innovate across the board, from customer experience, products and services, through to business models, systems and approaches.

CEOS HAVE OVERWHELMINGLY RECOGNISED THAT TODAY, COMPANIES THAT DON’T INNOVATE WILL FAIL With such widespread innovation planned by so many companies, the question will be around how companies will be able to differentiate themselves for competitive advantage.

David Percival, Global Innovation Product Lead at PwC says: “Put simply, CEOs have overwhelmingly recognised that today, companies that don’t innovate will fail. It’s no longer a choice. The CEOs we surveyed are ready for the challenge and are taking the helm. The key will be for them to deliver value in new forms, in new ways, to existing and new customers. What remains to be seen is whether their organisations are ready to deliver on their aspirations.”

The PwC Pulse Survey results are based on interviews with 246 CEOs in 60 countries in North and South America, Europe, Asia Pacific, and the Middle East.

The full report can be found at http:// www.pwc.com/innovationsurvey

THE NEW RULES OF MARKETING & PR: HOW TO USE SOCIAL MEDIA, ONLINE VIDEO, MOBILE APPLICATIONS, BLOGS, NEWS RELEASES, AND VIRAL MARKETING TO REACH BUYERS DIRECTLY

BY DAVID MEERMAN SCOTT (JOHN WILEY & SONS, 2013)

T

RRP: £15.45 (£9.79 FROM AMAZON.CO.UK) his 4th edition of what has become the benchmark guide to marketing and PR is updated with the latest social media and marketing trends, tools, and real–world examples of success.

An international bestseller with more than 300,000 copies sold in over 25 languages, it offers a step-by-step action plan for harnessing the power of modern marketing and PR to communicate with buyers directly, raise visibility, and increase sales. It shows how large and small companies, nonprofits, and other organisations can leverage web-based content to get the right information to the right people at the right time for a fraction of the cost of big-budget campaigns. Including a wealth of compelling case studies and realworld examples of content marketing and inbound marketing success, this is a practical guide to the new reality of reaching buyers when they’re eager to hear from you. It includes an examination of newly popular tools such as Infographics, photo-sharing using Pinterest and Instagram, as well as expanded information on YouTube, Twitter, Facebook, and LinkedIn.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 73

statistics

{economy}

GOVERNMENT DEFICIT

DECREASES IN EU

W

hile the eurozone is gradually emerging from the longest recession in its history, fiscal deficits both in the euro area and the EU are declining. According to the latest Eurostat update of the not seasonally adjusted general government deficit, in the first quarter of 2013 the total figure as a percentage of GDP was -4.89% in the euro area and -4.26% in the European Union. In the previous quarter it was -4.78% in the eurozone and -4.51% in the EU. At the same time, general government total revenue amounted to 46.5 % and 45.3 % of GDP in the currency bloc and the union respectively, while total expenditure amounted to 50.0 % and 49.1 % of GDP. The latest news on growth issued last month shows that the 17-member area grew by 0.3% during the second quarter on a seasonally-

CYPRUS MUST ACHIEVE A GENERAL GOVERNMENT PRIMARY DEFICIT OF NO MORE THAN €395 MILLION IN 2013 adjusted basis. The figure beat the analysts’ forecasts of 0.2%, and was seen as a herald of a long-awaited return to growth for the first time since the latter part of 2011.

Olli Rehn, the EU’s economic affairs commissioner, said that the figures showed that a sustained recovery was within reach but, like the economists, he also warned that the recovery remained delicate.

The economies of Germany and France grew faster than expected in the second quarter. Germany grew by 0.7%, its largest expansion in more than a year, thanks largely to domestic private and public consumption.

France’s economy expanded by 0.5%, pulling out of a shallow recession to post its strongest quarterly growth since early 2011. Improvement was noticeable elsewhere in the bloc.

CYPRUS ECONOMY CONTRACTS TS BY 1.4% IN Q2 By Kyproula Papachristodoulou Bailed-out Portugal’s GDP leapt by 1.1% in the quarter, its strongest in almost three years, due to higher exports and the easing of a previous investment slump. Austria and Finland also saw improved growth. But recession continued in the Netherlands – an otherwise core euro zone economy – as well in the debt-laden periphery.

Cyprus’s economy contracted by 1.4% in the second quarter, on a quarterly basis. Preliminary data showed Cyprus‘s Q2 quarterly downturn was better than the first, when output contracted by 1.7%. On a yearly basis, the economy declined by 5.4% from 4.8% in the first quarter.

The improvement of growth prospects in Europe is accompanied by a gradual but steady decrease in deficits. In the first quarter of the current year, Latvia reported a government surplus of 3.4% of GDP and the Netherlands 3.1%. Positive figures were also reported by Bulgaria (1.3%) and Cyprus (0.6%) but among the rest of the euro area and EU countries, there was no other country with a surplus.

The highest deficit in the first quarter of 2013 was reported by Greece (-17.6%) and Ireland (-13.6%). The first quarter deficit in Portugal, which is implementing an economic adjustment programme like Greece and Ireland, was -10.6%.

According to CyStat, during JanuaryMarch 2013, total government revenue in Cyprus amounted to €1,606.2 million (a 7.6% decrease compared to the corresponding period of 2012), while total expenditure reached €1,562.0 million, (a 17.2% decrease) resulting in a surplus of €44.2 million as compared to €148.0 million deficit in the corresponding period of the previous year.

According to the provisions of the Memorandum of Understanding with the Troika, Cyprus must achieve a general government primary deficit of no more than €395 million in 2013. The 2013 deficit target can be revised to incorporate compensation for provident and retirement funds in Cyprus popular Bank. Over 2013, the Cypriot authorities are

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

expected to rigorously implement the 2013 Budget Law, including the additional permanent measures already adopted prior to the granting of the first disbursement of financial assistance.

QUARTERLY ACCOUNTS FOR GENERAL GOVERNMENT

NET LENDING (+)/ NET BORROWING (-)

NOT SEASONALLY ADJUSTED DATA % OF GDP EU – 27 EU – 17 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy CYPRUS Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom Iceland Source: Eurostat

2011Q1

-4.91 -5.60 -8.90 -0.81 -4.57 -2.88 -1.73 -1.88 -12.46 -9.13 -6.07 -9.05 -6.98 -7.26 -2.92 -7.95 -3.71 38.52 -2.73 -1.66 -7.05 -2.69 -7.49 -3.50 -9.48 -5.66 -0.80 0.83 -5.59 -3.29

2012Q1

-4.51 -4.78 -7.91 -0.65 -3.92 -2.52 -0.46 -4.19 -12.50 -8.50 -5.73 -7.93 -6.63 -3.45 2.58 -6.09 -4.06 -3.40 -4.96 -1.59 -5.96 -1.20 -7.89 -2.22 -5.32 -5.27 -0.51 -0.18 -5.28 -1.61

2013Q1

-4.26 -4.89 -8.92 1.29 -4.11 -1.59 -3.47 -13.61 -17.57 -4.88 -7.34 0.56 3.37 -6.56 -8.21 -4.23 -6.21 3.11 -2.35 -1.60 -10.60 -1.41 -10.42 -3.21 -2.18 -0.88 -3.06 -1.91

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eu legislation

HEDGE FUND rules absent in 16 EU states

{tax&legal}

CYPRUS HAS TRANSPOSED THE AIFMD INTO NATIONAL LAW

n re r

T

Georges Bock, KPMG Luxembourg

he deadline for European Union (EU) member states to transpose the Alternative Investment Fund Managers Directive (AIFMD) into national law passed on 22 July 2013.

So far, the directive has been transposed by only 12 out of 28 member states, Cyprus being one of them. The others are Austria, Croatia, Denmark, Germany, Ireland, Latvia, Luxembourg, Malta, the Netherlands, Sweden, and the United Kingdom.

States that have transposed the law, either through an active legislative procedure or through negative assurance procedures, have published information on the transitional arrangements and the majority will have transitional relief for domestic AIFMs, other EU AIFMs and non-EU AIFMs. Only the Netherlands and Latvia limit the transitional relief to (domestic) existing managers. Non-EU AIFMs who market to Malta and Ireland will be granted a 2-year relief period.

The failure of 16 of the 28 EU states to meet the July 22 deadline for the alternative investment directive raises the spectre of fund companies in non-compliant states being forced to halt alternative fund sales to certain countries or risk falling foul of their regulators. States that have failed to add the AIFMD to their own laws are now breaking European law and could face sanction by the European Court of Justice as early as the fourth quarter of this year, according to Georges Bock, a partner in KPMG Luxembourg which carried out the latest research and published it in the report AIFMD: Transposition status.

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

The report, which suggests that some states still face a long road to full implementation of the EU’s landmark directive, comes after a survey of 220 hedge fund managers by research group Preqin in July, which revealed that just 22% of managers had reached compliance, with many still waiting for guidance from their local authorities. Unlike the EU member states, the managers have a grace period ending in July 2014 to achieve authorisation.

The AIFMD was first drafted in 2009 and aims to bring numerous multibilliondollar industries under a single regulatory framework. Many hedge funds, private equity, venture capital, real estate and infrastructure vehicles and investment trusts fall into its sights.

STATES THAT HAVE FAILED TO ADD THE AIFMD TO THEIR OWN LAWS COULD FACE SANCTIONS BY THE EUROPEAN COURT OF JUSTICE The main risk posed by failure to implement is actually damage to the states’ own alternative fund industries, he says.

One of the main facets of the AIFMD is a system of fund “passporting”, under which vehicles that comply with the directive can easily be exported to professional investors across the continent.

But alternative fund managers in countries that have not added AIFMD to their rule books will be unable to register themselves under the regime and so could be limited in terms of the states they passport funds into.

The AIFMD is one of the most rigorously debated pieces of financial regulation ever to emerge from the EU “It all depends on the transposition rules in the countries that they are going to market to,” says Georges Bock.

For example, Germany’s interpretation has been strict, he says, with the country having stated that it will in future accept only alternative funds that are AIFMDcompliant.

The KPMG report highlights Belgium, Finland, Spain and France as key states that missed the deadline for AIFMD readiness.

In France, the courts in June passed legislation that handed authority for implementation back to financial watchdog the Autorité des Marchés Financiers, which is now working on a major overhaul of the nation’s fund regime.

In Belgium, Finland and Spain only draft legislation has been published so far, the report shows. Belgium is planning to add laws by January 2014 and Spain by the first quarter of 2014. In Finland, even the draft law “still leaves some important questions” unanswered, the report warns.

Georges Bock also believes that Belgium, Finland and Spain are eyeing Germany’s radical approach to AIFMD implementation, which includes throwing out the old

system of “private placements” through which cross-border sales have previously taken place.

He says they may be considering a similar overhaul for their own rules, or in some cases their failure to comply simply reflects a focus on other “national priorities”.

Until transposition actually takes place in a particular EU member state, non-EU AIFMs should be able to market their non-EU alternative investment funds to investors in that member state by use of the existing private placement regime. It is important to note, however, that some member states are contemplating the elimination of the private placement regimes at such time as the AIFMD is transposed into law. Therefore, it will be incumbent upon non-EU AIFMs to conduct their proper due diligence with respect to their marketing initiatives.After the date of transposition, a non-EU AIFM will need to comply with a number of conditions (including new reporting and disclosure requirements) in order to continue to take advantage of the private placement regime in a given EU member state.

On the bright side both for EU and non-EU fund providers, European watchdog the European Securities and Markets Authority has advised that AIFMD-compliant funds can be marketed in any state regardless of the compliance status of the state itself.

Amy Bensted, Preqin’s head of hedge fund products, says KPMG’s findings are further evidence of AIFMD chaos.

“There’s definitely a lot of confusion around the AIFMD. There’s this sense that there’s a need for some coherent advice to come through,” she says.

The notoriously laborious European legislative process and aggressive lobbying from the various industries affected by the directive have contributed to the EU’s bureaucratic nightmare.

The European Private Equity and Venture Capital Association

describes the AIFMD as “one of the most rigorously debated pieces of financial regulation ever to emerge from the EU”, with a staggering 2,000 amendments tabled since the first draft.

BOOK REVIEW THE WORLD’S BESTT TAX HAVENS: HOW TO CUT YOUR TAXES TO ZERO & SAFEGUARD YOUR FINANCIAL FREEDOM

BY LEE HADNUM (WPR TAX PUBLISHING, 2013)

W

RRP: £19.95 (£18.01 FROM AMAZON.CO.UK)

e can argue as long as we like that Cyprus is not a Tax Haven but noone seems to have told Lee Hadnum about it and the island is included once again in the latest (10th) edition of this popular book for those who are looking to reduce their tax bills. Apart from including Cyprus in a category that we really don’t want to be in, Hadnum’s description of the country’s tax advantages is accurate and non-judgmental. The first half of the book takes 25 of the “world’s best tax havens” and examines the personal and corporate tax planning opportunities available in each. It also contains valuable information on the residency requirements and what it’s actually like to live there. It covers “all of the key tax havens from the exotic Cayman Islands, British Virgin Islands and Monaco, to less well-known but highly attractive tax havens like Cyprus, Malta and the Isle of Man.” In fact Hadnum puts Cyprus into the “low tax haven” category along with the UK, so his definition is clearly a broad one.

{lifestyle}

Picture

Perfect?

TRUTHFUL AND ENIGMATIC, PROFOUND AND WHIMSICAL, PHOTOGRAPHY IS A WELL-LOVED, YOUTHFUL FORM OF ARTISTIC EXPRESSION. YET, LIKE A TRUE DARK HORSE, IT IS GAINING SUCH PROMINENCE IN THE WORLD OF ART THAT SOME ARE BEGINNING TO ASK: IS THIS THE PERFECT INVESTMENT PICTURE?

By Chloe Panayides

Tall pile of books

by Kevin Millar

investing in photographs

Animal Locomotion Studys by Eadweard Muybridge

1853:

The Photographic Society of London (now named the Royal Photographic Society) is established and, at a meeting of its syndicates, one member despondently bemoans the fact that photography is too literal, unable to elevate the imagination, and therefore cannot compete with works of fine art.

An Andreas Gursky photograph of an anaemic river Rhine and colourless sky juxtaposed with sallow green grass is sold at a Christie’s auction in New York for a world record price of $4.3 million.

A discrepancy in perception between fine art works and fine art photography has caged the latter’s evolution over the last century. Art is famously elite, difficult, requiring acute skill and, as a consequence, incredibly valuable. Photography, on the other hand, has been deemed – many experts protest, wrongly – as an easy venture, devoid of skill, amateur even.

Perhaps this explains why, as late as the 1960s and ‘70s, art photography was still being relegated (as photographer Jeff Walls described it) to so-called photo ghettos: niche galleries, aficionados and publications; the fringe of culture.

Now, the tides are changing and photography is ready for its close-up.

The revelation that the production of a photograph may be just as laborious as the creation of a canvas (think of Eadweard Muybridge, a 19th century pioneer in the photographic study of motion, carrying weighty cameras, boxes of glass negatives, as well as tents and chemicals for a makeshift darkroom through forests and mountains to capture images of the

2011:

PHOTOGRAPHY IS A LANGUAGE THAT EVERYONE CAN UNDERSTAND Yosemite wilderness), and the desire for a fidelity of features that is unique to photography, have intensified the appreciation of, and fascination with, this art form.

So much so, in fact, that a number of London’s most prominent art galleries and museums – namely, the Tate, the Victoria & Albert Museum, and the National Media Museum – have invested some £2.1 million in expanding their photography collections over the past three years, paying it due respect as an artistic medium of historical and cultural significance.

Private collectors, meanwhile, are spying an opportunity to enter an otherwise deeply dear art market for a fraction of the price. In a largely uncontested market space, with a new wave of demand, it seems like a sound strategy.

In April 2013, the art market analysis firm ArtTactic produced a survey suggesting that confidence in the modern and contemporary (pre-1960 and post-1960 respectively) photography markets has risen by 10.6% in the twelve months preceding its publication. Moreover, some 92% of experts questioned anticipate that prices for modern photography are likely to rise by the end of the year.

The positive sentiment continued in ArtTactic’s auction analysis report released in June 2013, documenting recent season sales at Sotheby’s, Christie’s and Phillips in

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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investing in photographs

A

FIVE OF THE BEST

spotlight look at key photographers who, through the sale of their works, have helped to elevate the artistic medium of photography and propel it into prosperous times.

2. ALFRED STIEGLITZ (1864-1946):

A true pioneer in the field of photography, Stieglitz was one of the founding members of Photo-Secession in 1902, which advocated an emphasis on the craftsmanship inherent in photography. Noted particularly for Having originally studied his compositional painting in Paris, Girault de choices, his celePrangey quickly developed brated portraits of fellow artist and a fascination with the wife, Georgia O’Keefe, embody Daguerreotype Process, the his modernist ideas of fragmented first practical photographic self, refusing to encapsulate her process. The resulting identity within a single image: over Daguerreotypes from his three hundred images were taken. experiments and travels in the Two belonging to this collection Middle East are the earliest surviv- came up for auction at Sotheby’s ing photographs of Greece, Egypt, New York in February 2006. GeorSyria and Turkey. His 113 Athenes, gia O’Keeffe – Nude sold for $1.36 million, whilst Georgia O’Keeffe Temple de Jupiter from 1842, - Hands surpassed its contempomeasuring a mere 18.9 x 24cm, rary, reaping in $1.47 million. came up for auction at Christie’s London on May 20th 2003. It sold for $922,488. Inspired, Christie’s New York staged an auction entitled ‘A historic photographic In an obituary published to mark grand tour: important daguerreothe passing of Avedon, a promitypes by Joseph Philibert Girault nent newspaper described his fashion and portrait photography de Prangey’, in October 2010. as having helped define America’s The sale total, including buyer’s image of style, beauty and culture premium, reached $2,873,375.

1. JOSEPH-PHILIBERT GIRAULT DE PRANGEY (1804-1892):

3. RICHARD AVEDON (1923-2004):

London and Paris. The first half of 2013 boasted an overall total of $29.96 million, an impressive 66% increase from the second half of 2012.

Ben Burdett, owner of Atlas Gallery, a London-based fine art photography gallery that has helped propel photography collections of the likes of Elton John into the spotlight, explains: “Prices are definitely creeping up, but it’s not a steep curve, more of a gradual slope.”

Furthermore, Burdett believes that the boundaries that once restricted demand to the US and Europe are dissipating, opening up the market on a global scale.

The public is being put in touch with new

for the last half century. Indeed many famous stars served as inspiration for his works, which are still exhibited at museums worldwide.

His image of American supermodel, Dovima, posing poetically with two elephants whilst wearing a wistful black dress, originally featured in Harper’s Bazaar magazine. The negative has since been lost and only one gelatine, silver print – measuring 216.8 x 166.7cm and signed in pencil – was ever made. It came up for auction at Christie’s Paris in November 2010. The winning bid? €841,000, far surpassing its €400,000-€600,000 estimate.

viewer, Sherman’s Untitled #153 (one of six prints) sold in November 2010 in New York for $2.7 million, whilst Untitled #96 (print seven of ten) sold at Christie’s New York in May 2011 for just shy of $3.9 million.

5. ANDREAS GURSKY (B.1955):

German visual artist Andreas Gursky’s name is a mainstay of the auction market, with the monumental sale of his Rhine II photograph in November 2011 succeeding to this day as the most valuable photograph ever sold. Recently, in June 2013, his Chicago Board Trade III picture Revered for her conceptualist – one of a collection of five images portraits, Cindy Sherman is credited depicting a bird’s eye view of the by experts as having sustained ordered chaos that reigns throughout a provocative exploration of the international stock exchanges – beat construction of contemporary its £800,000 high estimate by 169%, identity. Consequently, her series of bringing in a total of £2.2 million. self-portraits – temptingly enigmatic Sotheby’s London’s Oliver Baker – have performed commendably at commented: “Not only are (these auctions over the years. Known to photographs) fresh to the market, substantially limit her prints as well as but they represent the apotheosis of avoiding titling her images to allow for Gursky’s technique and trademark free interpretation on the part of the subject.”

4. CINDY SHERMAN (B. 1954):

photographers, giving rise to new material to be explored and coveted. He concludes: “We’ve seen a huge increase in people that want to become serious collectors of photography and get into this market quite deep. Photography is a language that everyone can understand.”

Whilst the market initially experienced some instability, the practice of creating limited editions focused collecting efforts.

Indeed, the most potent resistance that the market has encountered has been the concern of buyers that works of photography are easily reproducible, are not unique (or, rather, singular), and therefore not a viable investment option. In 1975, prior to limiting his output, photographs by Ansel Adams were selling in the region of

$400. By 1979, when he was making select editions, Adams’ work was commanding between $4,000 and $16,000. In October 2006, a 1948 print of his Moonrise, Hernandex, New Mexico sold at Sotheby’s New York for $609,600.

Success of this magnitude for an investor is dependent upon adhering to numerous criteria. The primary consideration is which artist to invest in. Secondarily, is the image an extant print?

WE’VE SEEN A HUGE INCREASE IN PEOPLE THAT WANT TO BECOME SERIOUS COLLECTORS OF PHOTOGRAPHY

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

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16/09/2013 12:04

CAPTURING CYPRUS

T

he Cyprus Photographic Society (CPS) has been actively operating since 1960 (being invited to join the Federation Internationale de l’Art Photographique in 1964), hoping to capture cCyprus’ attention, educating the

public as to the possibilities inherent in this art form.

Working tirelessly to make this art form accessible to all in Cyprus, branches representing CPS exist in Nicosia, Limassol, Larnaca, and Paphos, welcoming membership from all factions of society.

Yearly, a number of national and international photographic events – spanning exhibitions and

conferences to seminars, lectures, photographic excursions and discussions – are organised.

Most recently, CPS staged an International Digital Photo Competition, the closing date of which was September 10, 2013. Opportunities are plentiful for members to present their photographic work, whilst learning from their peers and exchanging ideas.

frame of having taken What size and medium is the picture. Value is it? Is there a signature or THE IMPORTANCE OF other form of identificaCONDITION IS NOT TO BE placed on these prints due to the idea that tion? What condition UNDERESTIMATED the image faithfully is it in? Thirdly, what embodies the phoposition has this artist vision at the time. and their works occupied within the market tographer’s Photographic circles tend to thus far? tives as being raw Whilst key names from the world of fine perceive film negafiles, with a so-called ‘original’ photograph arts may roll off collectors’ lips – Picasso, being a wet print made by the photograMonet, Dali – endlessly, knowing which photographers to target in the fine art pho- pher themselves; that is, one generation from the raw file. In contrast to editions tography world is a little more difficult. made later from other sources, original A quick search will, of course, unearth prints are unique in that random variations photographers whose works consistently during processing in, for example, timing, perform well at auction: Gursky, Adams, introduce subtle changes.

Cindy Sherman and Edward Weston, to If not an original, prints pursued should name a few. How certain names ascend the at least be numbered limited editions, comvalue-ladder largely depends upon their plete with signature and date, or another contribution to the history of photograform proving authenticity and rarity. phy: how innovative and pioneering they With industry developments, a hierarchy have been in both subject matter and has also emerged regarding the medium of advancements in technique and technolprints. The Platinum process is considered ogy. A prime example is Gustave Le Gray’s consistently stable, producing images with a The Great Wave, Sete (1857). An image measuring a mere 33.7 x 41.4cm, Le Gray’s rich tonal scale, as opposed to earlier printing methods, such as Calotype and Silver, piece is deemed an embodiment of how products of which may have a tendency to photography began exploring its painterly fade or curl. The importance of condipossibilities whilst exemplifying its own unique qualities. Moreover, at a time when tion is not to be underestimated. Industry experts advise that whilst particularly early photographers found it impossible to examples of photography (for example, achieve proper exposure of both landscape dating back to the 19th century), may be and sky in a single picture (due to emulsions not being equally sensitive to all forgiven for being a little marred, the genercolours of the spectrum), Le Gray solved al rule is to uncompromisingly buy pristine: this problem by printing two negatives on the finest example of an image that one can a single sheet: one for the sea, the other for find and afford. the sky. The Great Wave, Sete came up for Having isolated an interest – a photograauction at Sotheby’s London in October pher and series of images that are attractive 1999, and inspired one bidder to part with to each collector’s personal tastes – aspiring over $838,000 to bring it into his possesto trace the market activity of the said phosion. tographer and works thus far will ensure, When approaching prints, so-called ‘vin- experts advise, empowerment: the purchastage’ (or ‘original’) reflects pieces produced ing of both a piece of fine art and a sound by the photographer within a short time investment.

Frequenting galleries, talking to dealers, and visiting auction houses will enable collectors to put themselves in touch with past market activity, exposing, furthermore, future opportunities.

Photography expert, Penelope Dixon, advises that, above all, becoming an informed collector is dependent upon training oneself to be sensitive to the medium at hand. The nurturing of instincts and opinions to be able to discern what you, uniquely, like and dislike, and refraining from being swayed by labels declaring certain examples, ‘masterpieces’ or ‘forgettable’, is paramount. Only then will you really find the perfect picture.

BOOK REVIEW THE DIVINE COMEDY

BY DANTE ALIGHIERI. NEW TRANSLATION BY CLIVE JAMES (PICADOR, 2013)

N

RRP: £25 (£16 FROM AMAZON.CO.UK) o, we’re not joking with this month’s recommendation.

Renowned critic and poet Clive James presents what he considers the crowning achievement of his career: a monumental translation of Dante’s The Divine Comedy. Light reading it isn’t but the general consensus is that James’s new English-language version is the only one that contains Dante’s variety, depth, subtlety, vigour, wit, clarity, mystery, and awe in rhymed English stanzas that convey the music of Dante’s triple rhymes. Dan Brown fans in particular who will come to this for the first time after reading his Dantefilled Inferno (James prefers ‘Hell’) will find it much more accessible than many previous translations. TS Eliot considered The Divine Comedy to be the only book in the western tradition to surpass Shakespeare. As the Guardian reviewer noted, “It is typical of James’s chutzpah that he has not only tackled this Everest of translation, but has scrambled to the summit in triumph.” This translation is an outstanding achievement and will deservedly give Clive James a whole new image to many people.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 81

15,000 Words Later

THE LAST WORD

How things have changed in Gold’s first 2½ years

By Peter Economides

“Please keep it to 500 words.” That was my editor, giving me instructions for the first column I ever wrote for this magazine. Now I’ve reached fifteen thousand words. Thirty columns. Five hundred words per column.

Fifteen thousand words. Fifteen thousand!

If you read this column aloud, it would take you five minutes. Because we speak at 100 words per minute. This is a useless piece of information to most people. But not to me. I have spent a lifetime reading and criticizing and improving (or trying to improve) and presenting and listening to television and radio spots.

“Are you sure this is a thirty second spot?

I’ve counted 85 words...”

“Peter, where is your article?” That was my editor again. Giving me hell for stretching deadlines to the limit. Like this one. Which is why I am sitting on a plane counting words.

John! Can we run a picture of my dog? Probably not a good idea to ask. OK, forget it.

Dear reader, you are reading the last column I’ll be writing for this magazine. At least for now. I am not sure how many of my columns you have read. For all I know, this may be the first. The one and only. I started thirty columns ago. That’s two and a half years ago. I have shared many of my thoughts with you through this column. I have spoken about branding. And Cyprus. And Greece.

And Steve Jobs. And Limassol. And shipping. And food. And restaurants. And my grandmother. And New York. And Easter.

And lions. And I even told you about the

day I found my dog in a storm water drain in Athens.

Everything has changed.

As I write I am sitting in seat 20C. The lady in 19D (that’s on the other side of the aisle) just turned around. “What you are doing on Rebranding Greece is great, Mr

Nothing has changed except the names of those who need to lead the change

Economides. Keep it up.” “Thanks,” I said.

“I am not Mr Economides. That was my father’s name. I am Peter. And I am not doing anything. It just happened.” Smile :) She would never have turned around fifteen thousand words ago. No-one knew who I was. And no-one really cared. I had impacted millions of lives through my work in advertising. They knew what I did. But they did not know who did it.

On November 11, 2011 – that’s 11/11/11 – I was asked to deliver a speech on Rebranding Greece at a conference in Thessaloniki.

George Papandreou was supposed to be there. So was Antonis Samaras. Neither was there. Because that was the week that the Papandreou Government collapsed to be replaced by the caretaker government of Papadimos. Remember? It was also the week that Samaras and Papandreou were bickering like schoolgirls in full sight of the world’s media. And this became one of the central themes of my angry presentation. That there was nothing wrong with Greece. That the Greeks were in crisis. That the Greeks needed to rebrand themselves. To themselves, more than to the world.

That speech went viral. And that’s why the lady in 19D turned around to speak to me.

Everything has changed. But nothing has changed.

Except the names of those who need to lead the change in Greece.

Until the next time, goodbye… Literally, the last word!

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

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

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