GOLD Magazine - Issue 46 by INBusiness

ISSUE 46 JANUARY 14 - february 13, 2015 PRICE €4.95

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the international investment, finance & professional services magazine of cyprus

Diplomatic Advice 8 Ambassadors to Cyprus respond to...

10 AUSTRIA, FRANCE, ISRAEL, NETHERLANDS, SLOVAKIA, UKRAINE, USA, UK

Questions

on the Island’s Economy and Future MONEY

Economic & Investment Outlook 2015

INTERVIEWS

Howard Finger Alex Hooft van Huysduynen Theo Parperis

DINING

Europe’s Michelin *** Restaurants

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

www.pwc.com.cy

The tax system in Cyprus

Tax Facts & Figures 2015 - Cyprus

We in PwC are here to offer you the best of our knowledge and expertise. Our specialised tax solutions are adjusted to your own specific needs to support you in structuring your operations in an efficient way.

The guide is available on our website www.pwc.com.cy/tax-facts-figures

Issue 46 January 14 - February 13, 2015

6 EDITORIAL 8 UP FRONT

+ OPINION HOW TO DEAL WITH EUROPE’S AILING ECONOMY By George Theocharides 41 THE RISE OF FOREX By Olga Rybalkina

DIPLOMATIC ADVICE

For the first issue of 2015, we asked eight ambassadors – or, more precisely, seven ambassadors and one High Commissioner – to respond to 10 questions relating to the island’s economy, its aspirations for recovery and the possibility of long-hoped-for reunification this year.

47 | BEAUTIFUL VILLAGES OF CYPRUS

56 | BRAND NEW WORLD International Brand Expert Martin Lindstrom, named in 2009 as one of TIME Magazine’s “World’s 100 Most Influential People” will lead the 2nd Brand Congress in Nicosia.

58 | PAFILIA TOWER: BEHIND THE SCENES A look into the making of a worldclass mixed-use development on Limassol’s coveted seafront.

EU project ends

48 | THE ART OF WEALTH PRESERVATION

In today’s financially volatile environment, successful business owners and High Net Worth Individuals are, more than ever, turning to the experts to draw up a strategy that will enable them to protect their personal wealth.

FEATURES 24 | ECONOMIC & INVESTMENT OUTLOOK 2015 Advice from the experts on where to put your money.

38 | VENI, VIDI, VINCI VinciWorks is a leader in facing the challenge posed by regulatory compliance across financial and professional fields.

42 | REALITY CHECK REQUIRED Despite the indisputable problems in the eurozone, the latest edition of the EY Eurozone Forecast does find some reasons to be positive.

44 | NOT ANOTHER 1998 History will not repeat itself for Russia in 2015, says Dr. Savvas Savouri.

52 | LOVING & GIVING

Andrey & Julia Dashin’s Foundation donated €200,000 to charitable causes in the first eight months of its existence last year. The Russian businessman tells Gold about why he decided to set up the Foundation and explains how it works.

54 | IS EUROPE ON THE RIGHT PATH? The new Juncker Commission and its objectives have raised many doubts about the direction in which Europe is going. Some critics are questioning whether they have even got the economics right, especially with regard to the contribution of resource efficiency.

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

52 64 68 72 74 78

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

EDITORIAL

A New Era?

ISSUE 46 JANUARY 14 - FEBRUARY 13, 2015 PRICE €4.95

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Diplomatic Advice

n his televised New Year message, President Anastasiades gave a very upbeat assessment of 2014, noting that, “The economy is now stabilized; Cyprus has returned to the markets; our financial system has been consolidated and made great progress; the international Rating Agencies and our international lenders are, at last, giving Cypriot banks and our economy continuously positive evaluations. As we enter 2015, Cyprus is turning a page. We are entering a new era”. Fine, encouraging words, based on fact. But one does not “enter a new era” simply by saying so and it would appear that, as he approaches the second anniversary of his election as President, Anastasiades has come to realise what all successful politicians discover: it is much easier to be in opposition than in government. His surprising declaration of willingness to form a more broadly-based government – his first announcement on returning to Cyprus following heart surgery in New York – suggests an awareness that, unless he gets the opposition parties involved in the difficult reforms that need to be implemented this year in accordance with the 2013 bailout agreement, the country will not only see its reputation eroded once again but will find itself in need of essential funding. AKEL and the smaller parties, with the support of the media, have been doing their best to prevent the Government from honouring its signature to the agreement by which Cyprus will receive €10 billion and they have made clear their intentions to continue on this course, no matter the cost to the nation. Fortunately, the stance of the Democratic Party (DIKO) has been a more responsible one (its MPs voted for the 2015 budget), despite the sometimes confusing rhetoric of its leader Nicholas Papadopoulos but, without an outright majority to support him, Anastasiades finds himself in a difficult position: the Government is committed to civil service reform, privatisation, and updating legislation on many issues but it is faced by a parliament whose members are happy to criticise without submitting any viable alternative proposals. Will the island’s political party leaders come together in a spirit of unity? It is extremely doubtful, given their record so far, with the 40-year-old situation since 1974 being a perfect example of the extent to which they are willing to put national interests above their own. We are likely to see another 12 months of gamesmanship, during which our international lenders grow increasingly impatient with our inability to keep our word while the parties resort to their populist slogans, as if they will magically get rid of the Troika, pay off all our debts and, of course, get themselves re-elected. If we think our parliamentary representatives are not fit for purpose, however, it is worth taking a look at what is happening in Greece where, later this month, yet another general election is due. The mere possibility of the anti-Troika opposition coming to power has already slashed millions off Greek share prices and once again there is talk of a possible default on the country’s huge debt and its exit from the eurozone. This time, however, even Germany seems willing to let it happen, knowing full well that a return to the drachma will mean even more austerity than Greece is experiencing now. It is to be hoped that the members of the Cyprus House of Representatives do not see their Greek counterparts as representing some kind of heroic defiance in support of the country’s sovereignty and thus decide to follow their example. The whole point of entering a new era is for it to be better than the old one. The uncovering of widespread corruption over the past 12 months suggests that, in many ways, it will be better. But ultimately, it will take a new attitude by those who pass legislation to shoulder their responsibilities.

John Vickers, Chief Editor john@imhbusiness.com

8 AMBASSADORS TO CYPRUS RESPOND TO...

10 AUSTRIA, FRANCE, ISRAEL, NETHERLANDS, SLOVAKIA, UKRAINE, USA, UK

Questions

ON THE ISLAND’S ECONOMY AND FUTURE MONEY

INTERVIEWS

DINING

Economic & Investment Outlook 2015

Howard Finger Alex Hooft van Huysduynen Theo Parperis

Europe’s Michelin *** Restaurants

PLUS: MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

PUBLISHED BY IMH ISSN 1986 - 3543

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Theodore Alepis, Olga Chervinskaya, Andrew Lumley-Holmes, Loucas Marangos, Constantinos Neophytou, Gerasimos Ntouskas, Daniil Ruderman, Olga Rybalkina, Dr. Savvas Savouri, Konstantinos Sofokleous, George Theocharides, Nicolas Theocharides, Alex Tsielepis, Artemis Yiordamli ART DIRECTION

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2014 KPMG Compensation and Benefits Survey Following the successful completion of KPMG’s Compensation and Benefits Survey in 2008, 2009 and 2011, KPMG’s People & Change Practice announces the launch of the 2014 KPMG Compensation and Benefits Survey. The KPMG Compensation and Benefits Survey is the only large scale compensation survey which provides representative data for the Cyprus labor market. The Survey’s participants are companies of all sizes operating within different sectors of the Cyprus market thus allowing our expert Advisors to tailor the positions analyzed and the information presented within the report to the specific needs of the Cyprus labor market. Aiming to provide our clients with valuable and significant information which will enable their companies to build a competitive advantage in the labor market, the main objectives of this year’s Survey are the following: •

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To present the common policies, practices and strategies of compensation and benefits implemented by a representative sample of companies operating within the Cyprus market; To present remuneration and benefits data of 180 generic and industry-specialized positions; and To present the impact of the economic crisis on remuneration and benefits data.

We would be honored to have your company participate in the Survey, by providing us with all the required information. All participants shall benefit by participant specific prices for the purchase of the final report and publicity upon the announcement of the Survey’s results. For more information, please contact us: George Tziortzis Board Member Head of Management Consulting T: 22 209292 E: gtziortzis@kpmg.com Marios Papalazarou Associate People & Change T: 22 209107 E: mpapalazarou@kpmg.com

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Management Consulting People & Change Services

UP FRONT

Alpha Bank Cyprus to Absorb Emporiki Cyprus

ANASTASIADES TO SEEK ‘CONSENSUS GOVERNMENT’

resident Nicos Anastasiades announced just before Christmas that he intends to hold talks with the island’s political leadership in a bid to form a consensus government early in 2015. The announcement

came just hours after he returned to Cyprus from New York where he underwent open heart surgery. “The problems facing the country cannot be left in the hands of one person,” he said, adding that a consensus government or one enjoying broad approval would be the

best way to overcome the country’s political, economic and social problems. Anastasiades also stated his intention to re-model [OL WYLZPKLU[PHS VɉJL VU the pattern of those in other developed countries and to press ahead with civil service reform.

lpha Bank Cyprus’ Board of Directors has approved the acquisition of Emporiki Cyprus, the subsidiary of Greece’s former Emporiki Bank, which has been acquired by the Alpha Bank Group. Alpha Bank Cyprus will acquire 100% of Emporiki Bank’s shares via absorption, a move that constitutes part of the general restructuring plan spearheaded by Alpha Bank Group. The acquisition remains subject to regulatory approval by the Central Bank of Cyprus.

EIB GRANTS €80M LOAN TO UNIVERSITY OF CYPRUS

he European Investment Bank (EIB) will grant a loan of some €80 million to the University of Cyprus following the signing of a relevant funding agreement for the expansion and modernization of the University’s facilities. At a ceremony held last month, the agreement was signed by EIB President Werner Hoyer, Finance Minister Harris Georgiades and University Rector Constantinos Christofides. The project, which is the largest EIB investment in Cyprus to date, includes the construction of new buildings, a photovoltaic park and the upgrading of existing facilities to enhance energy efficiency and earthquake protection. Harris Georgiades told those at the signing ceremony, “Most importantly, we are investing in the economy of knowledge,

giving impetus to research and innovation, investing in the human capital of our country and its new generations; this is the best investment a state could make, as it is directly related to the promotion of a new, more sustainable and competitive economic growth model that Cyprus so desperately needs.” For his part, EIB President Werner Hoyer said that the agreement dispels the myth that the bank is only interested in funding large infrastructure projects: “The truth is rather the opposite,” he said, “as for nearly fifteen years the bank has been focusing a large portion of its activity

on the knowledge economy. Clearly Europe needs to find a way to increase productivity if it is to achieve sustainable growth and one of the solutions is to facilitate investment in areas such as research, innovation and education.”

COOPERATIVE BANK REBRANDING

he Cooperative Central Bank (CCB) launched its new, rebranded corporate identity at an event organised last month at the University of Cyprus. The bank’s new image is described as “the culmination of the efforts of the past 12 months which have “transformed the cooperative sector into a robust organisation that looks to the future with confidence and optimism”. The island’s cooperative sector has taken a momentous leap forward

in the past year, CCB Chairman Nicholas Hadjiyiannis told the gathering. Having emerged from the challenges of the economic downturn in Cyprus, the CCB has now laid solid foundations for the profitable future of the sector, he added. “We are the largest financial institution in the island with regard to the number of customers and extended branch network. We are, and remain, the most reliable organisation that focuses on its people,” Hadjiyiannis concluded.

NEW LARNACA

ROUTES

TO BRISTOL, KATOWICE AND SOFIA

homson and First Choice are to launch a new route between Bristol, UK and Larnaca next winter. The ;OVTZVU (PY^H`Z ÅPNO[Z [V 3HYUHJH ^PSS JHWP[HSPZL VU [OL popularity of Cyprus, while feeding Thomson Cruises’ ‘cruise and stay’ programme in the region, which includes calls at Ashdod in Israel and Athens. Meanwhile, Wizz Air, one of the largest low-cost airlines in Central and Eastern Europe, has announced that from June 24 2015, it will begin operating a new twice-weekly route from Katowice to 3HYUHJH ;OL ÅPNO[Z Z[HY[PUN MYVT Á WLY WLYZVU ^PSS VWLYH[L VU Wednesdays and Sundays. The same airline recently revealed that, as from April, it will operate a UL^ :VÄH 3HYUHJH ÅPNO[

10th ANNIVERSARY CELEBRATIONS FOR GRS lobal Recruitment Solutions (GRS), the largest recruitment consultancy in Cyprus, recently celebrated its 10th anniversary. Co-founders Donna Stephenson and Steve Slocombe, along with the employees of the GRS Group (which includes Global Recruitment Solutions, Fairfax Yeaman and FX Careers), enjoyed a private event held

G GRS co-founders Donna Stephenson and Steve :SVJVTIL WYLWHYL [V J\[ [OLPY ÄYT»Z [O IPY[OKH` JHRL

at Dino Art Cafe in Limassol. It was an evening of awards and congratulations for a decade of hard work and dedication, especially by the company’s top performers: Philippa Stephanou, Top Consultant 2014 and Top Consultant of GRS’s first 10 year; Caroline Rafferty, who took second place for her recruitment performance; Hayley Buckle, third for her recruitment

performance; Top Temporary Worker Consultant Scott Gray for his excellent efforts in supplying personnel to emergency energy projects in Cyprus and overseas as well as to infrastructure projects in Cyprus. A further award was presented to Nicoletta Demetriou FCCA, Director of Fairfax Yeaman, for the company’s outsourced payroll services.

COLUMBIA SHIPMANAGEMENT OPENS

SHANGHAI OFFICE imassol-based Columbia Shipmanagement ended 2014 on a high note, having inaugurated a new office in Shanghai in collaboration with the Shanghai Marine Services. More than 150 guests attended the Columbia Shipmanagement

(Shanghai) Co. Ltd. office opening, including leaders and guests from the Shanghai maritime and shipping industry as well as numerous Chinese and international dignitaries. Through the new partnership, Columbia Shipmanagement will build on its longstanding relationship

with China, which began in 1987 and has continued over the years through 130 new ship building and supervision projects. An official statement confirms Columbia Shipmanagement Shanghai’s intention to operate to the same high standards and quality systems of the Columbia

Group, ensuring that the company’s Chinese clients receive quality and highly competitive services delivered in a professional and transparent manner, adding value to their assets and contributing to the success of their organisations.

UP FRONT

MERITKAPITAL NAMED â&#x20AC;&#x2DC;MOST PROGRESSIVE CYPRUS BROKERâ&#x20AC;&#x2122;

imassol-based investment firm MeritKapital Ltd (MK) has been named Most Progressive Broker of Cyprus for 2014 by Global Financial Market (GFM) Review. The recognition is largely attributed to the versatility of the financial products and regions across which MeritKapital is able to render its brokerage services.â&#x20AC;&#x153;Particularly on the fixed income side, MeritKapital is well-versed in Russian and CEE corporate and sovereign

paper on both the domestic and Eurobond markets. A strong network of trading lines with Western, Russian and CEE major banks and of agreements with renowned international custodians facilitates this continuous growth,â&#x20AC;? a company statement reads. Moreover, on the equity side, it explains, MeritKapital offers global DMA solutions across multiple trading platforms which may include Bloomberg EMSX, Reuters or Quik. The GFM awards are voted for by peer industry firms, invited to identify the best players in the sector.

â&#x20AC;&#x153;INTERNET ILLITERACYâ&#x20AC;?

RIFE IN CYPRUS

espite its strong telecommunications infrastructure, Cyprus has perhaps surprisingly been evaluated as one of the EU countries with the highest proportion of â&#x20AC;&#x153;Internet illiterateâ&#x20AC;? people per capita in its population. According to YLSL]HU[ Ă&#x201E;N\YLZ W\ISPZOLK I` ,\YVZ[H[ [OL VÉ&#x2030;JPHS Z[H[PZ[PJHS VÉ&#x2030;JL VM [OL ,< ZVTL of Cypriots reported that they had no Internet experience at HSS >P[O H [V[HS VM VM [OL

SUSTAINABILITY AND FAMILY FROLICS aphos and Limassol were recently honoured with prestigious tourism awards. Paphos has been included in the Sustainable Destinations Global Top 100 list of tourist destinations recognised globally for their commitment to sustainability.Â The Paphos district was awarded a gold medal for the quality of its coast for 2013-2014 and additionally selected as one of the top 20 â&#x20AC;&#x153;most clean, green and in harmony with natureâ&#x20AC;? sustainable tourist destinations.

Additionally, the luxury fivestar Anassa hotel on the Paphos coast has been included in Tatler magazineâ&#x20AC;&#x2122;s listing of the best 101 hotels in the world and evaluated as the most attractive hospitality establishment for families in 2015. In the special editionÂ Tatler Travel Guide 2015, out now, the editorial team names Anassa the best â&#x20AC;&#x153;Family Frolicsâ&#x20AC;? hotel. â&#x20AC;&#x153;This hotel isnâ&#x20AC;&#x2122;t new, or boutique chic, or even particularly grand. But thatâ&#x20AC;&#x2122;s why we love it. It has staff whoâ&#x20AC;&#x2122;ve worked here forever, guests whoâ&#x20AC;&#x2122;ve been coming for aeons. Its family run, smart as a pin and adored by all,â&#x20AC;? the publication claims.

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

Limassol, meanwhile, has been chosen as one of the 10 Travelersâ&#x20AC;&#x2122; Choice Destinations on the Rise, based on the ratings and feedback received from TripAdvisor members regarding accommodation, gastronomy and activities in the area. â&#x20AC;&#x2DC;This valuable distinction serves as a reward for the ongoing efforts of all parties involved in upgrading the tourist product and repositioning Limassol as a cosmopolitan high quality sea side destinationâ&#x20AC;&#x2122;, said Maria Stylianou Michaelidou, Manager of the Limassol Tourism Board.Â

population having never used the Internet, Romania is the EU state with the highest â&#x20AC;&#x153;Internet illiterateâ&#x20AC;? section of the population. It is followed by )\SNHYPH HUK .YLLJL 0[HS` HUK 7VY[\NHS ([ [OL V[OLY LUK VM [OL ZJHSL PU +LUTHYR VUS` VM people have never used the Internet, followed by LuxemIV\YN [OL 5L[OLYSHUKZ HUK -PUSHUK :^LKLU HUK [OL <UP[LK 2PUNKVT ;OL ,< H]LYHNL PZ

UP FRONT

THE CASHLESS

SOCIETY

s certain start-ups threaten to make ATMs obsolete and Apple Pay is on the way, current

trends are seemingly pointing to a future with increasingly less cash floating around. For certain countries, however, that future is close to becoming a reality, as

UNITED KINGDOM 4 NON-CASH PAYMENTS’ NON-CASH PAYMENTS’ SHARE SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 89% OF TOTAL VALUE OF CONPERCENTAGE OF THE POPUSUMER PAYMENTS: 90% LATION WITH A DEBIT CARD: PERCENTAGE OF THE POPU88% LATION WITH A DEBIT CARD: From July 6, London buses stopped 88% CANADA

accepting cash as a valid payment, In February 2013, Canada requiring “Oyster Card” or a prepaid stopped minting and distributticket. It’s doubtful that too many ing one-cent coins, supposedly Londoners will care, however; only saving the country $11 million a year. The decision to phase out 1% of commuters used cash in 2014, compared to 25% in 2000. the coin was due to its excessive and rising cost of production relative to its face value.

relies on a debit card, here are the 10 countries leading the pack toward a nearly cashless economy, according to the recent MasterCard Cashless Journey report.

a number of them have shifted almost entirely toward non-physical payment. Based on the rate of cash-free transactions and the percent of the population that

SWEDEN NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 89% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 96%

BELGIUM

NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 93% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 86%

Belgium has a law limiting cash payments to €3,000. Belgian law provides for a remarkably hefty ﬁne of up to €225,000 for any violation.

Bank robberies in Sweden plunged from 110 in 2008 to only 16 in 2011, the lowest level since the country started recording its numbers in the early 1970s. The reason? Swedish banks are carrying less cash than ever before and there’s often nothing for would-be thieves to steal.

THE NETHERLANDS NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 85% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 98% 7

In Amsterdam, the city's parking meters no longer accept cash or coins. A number of retailers and restaurants in the city also refuse to take cash but Dutch customers have taken such policies in their stride, with 75% stating that they understand and accept the no-cash rules.

2 8

UNITED STATES NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 80% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 72%

The shift to electronic payments grew during the second half of 2014, with Apple announcing its new Apple Pay service and introducing, along with Microsoft and other tech companies, electronic watches with payment capabilities.

FRANCE

NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 92% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 69% France has a similar law to Belgium, preventing any cash transactions over €3,000 but it is not the most drastic of those in Europe: Spain has banned cash transactions above €2,500 and Italy does not allow cash transactions above €1,000.

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

South Korea would have been higher on the list had it not been for recent governmental initiatives aiming to rein in household debt by reducing the use of credit cards.

GERMANY NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 76% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 88%

Since 2012, visitors to Munich's Oktoberfest have not needed to carry cash for their drinks bill: merchants needed only an iPhone with an EMV chip reader plugged into it to accept credit or debit card payments, using technology from the German company Payworks.

SOUTH KOREA NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 70% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 58%

AUSTRALIA NON-CASH PAYMENTS’ SHARE OF TOTAL VALUE OF CONSUMER PAYMENTS: 86% PERCENTAGE OF THE POPULATION WITH A DEBIT CARD: 79%

Australian GenerationOne CEO Jeremy Donovan committed himself to living a cash-free life during November 2014. Many other organisations and individuals in the country committed to joining him in the challenge.

Diplomatic COVER STORY

ADVICE 8 AMBASSADORS

TO CYPRUS ANSWER

10 QUESTIONS ON THE ISLAND’S ECONOMY AND

FUTURE By John Vickers | Photography by Jo Michaelides

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

It was the English author, politician and diplomat Henry Wotton (1568-1639) whose famous description of an ambassador – “An honest man sent abroad to lie and intrigue for the benefit of his country” – got him into considerable trouble but ensured that he name lived on 400 years later. For obvious – and diplomatic – reasons, we prefer Camille Paglia’s milder view that “Throughout history, ambassadors have always been symbolic incarnations of the sovereignty of their nations and the dignity of their leaders.” Since its launch almost four years ago, Gold has presented the views of a large number of ambassadors to Cyprus on a broad range of issues. For this first issue of 2015, we asked eight ambassadors – or, more precisely, seven ambassadors and one High Commissioner – to respond to 10 questions relating to the island’s economy, its aspirations for recovery and the possibility of long-hopedfor reunification this year. Their responses are presented on the following pages.

John M.Koenig

AMBASSADOR OF THE UNITED STATES OF AMERICA

hat is your opinion of the progress of the Cyprus economy over the past 18 months? Cypriots have shown real resilience to adversity. The government’s success in implementing reforms and, consequently,the economy’s overall performance, has beaten expectations.American companies want to learn more about Cyprus. What positive developments do you expect to see in 2015? Are there any threats and dangers that need to be identified and dealt with? Positive developments include unbundling the energy generation sector and amending the regulatory framework of the electricity market. Targets for increasing energy efficiency and use of renewable energy present excellent opportunities for U.S.-Cyprus ties. Privatization and efforts to diversify the tourism sector are a welcome opportunity for investment.Threats we see are non-performing loans, limiting banks’ ability to finance new businesses, uncertainty about Cyprus’ bankruptcy laws, and corruption discouraging investors. Also, the continued non-resolution of the Cyprus Problem undermines confidence. A solution would ensure Cyprus’ role as a stable partner. What is the current state of the economic relationship between Cyprus and your country? Over the past 18 months, U.S. firms have invested about half a billion dollars in Cyprus. The

Transatlantic Trade and Investment Partnership (TTIP) could do even more to remove trade barriers and cut tariffs in a wide range of sectors.

where there is opportunity. We see interest here from some important Fortune 500 firms, including in sectors that have never attracted U.S. interest before, such as healthcare, banking, tourism, and IT.

Do you think that economic ties can be developed further in Do you believe that Cyprus’ the immediate future? aspirations to become a Yes. We see positive signs of a regional energy hub are regrowing investment relationship. alistic? We have led Cypriot energy This will require working and technology delegations to through sensitrade shows in the USA. tive issues. At the upcoming U.S. comSelectUSA summit THE panies in Washington, REGION’S believe in international Cyprus investors – including ECONOMY IS and recCypriots – will be DISTORTED BY ognize able to develop value contacts with U.S. THE CYPRUS the of hydrobusinesses and carbons policy makers. PROBLEM in the region.We What is the situation know that hydrovis-à-vis a Double Tax Treaty carbons have the between Cyprus and your potential to transcountry? form the Eastern The U.S. and Cyprus have had Mediterraa tax treaty in force since nean. 1984, helping attract U.S. investment. What Companies tell us impact that they focus on on the markets offering a econpositive business omy environment: do you openness to workthink a ing with U.S. firms, settlement an easy-to-understand of the “Cyregulatory environment, prus Proband ease of employing lem” could expert staff. have? The impact The Government has said of a solution that foreign investment is would be key to reviving the Cyprus profound economy. Are there specific and posisectors in which you believe tive, acthat investors from your cording to country may be interested in? studies by American companies will go

independent experts. For example: increasing annual average per capita income by €1,700 in the first five years; creating approximately 33,000 jobs; and opening more options for monetizing hydrocarbons.The region’s economy is distorted by the Cyprus Problem. A solution will rationalize transportation routes, liberate exploitation and monetization of offshore hydrocarbons, and extend economies of scale.The status quo is not good for business. Do you believe that 2015 could be the year in which reunification is finally agreed? Yes, 2015 could be the year for reunification. Greek Cypriot and Turkish Cypriot leaders say they want a solution. All Cypriots must hold their leadership accountable for a solution. UN Special Advisor Eide can help the Cypriots achieve that goal. At a time of security threats such as ISIL and continued economic uncertainty, a reunified Cyprus would enhance stability and prosperity here and in the region. The sides need to get over the current impasse and move ahead. Reaching a solution will take trust and compromise, but the dividends will far outweigh the risks. I hope Cypriots will seize the opportunities in 2015 to reunify Cyprus, allowing it to reach its full potential. How would you describe your personal experience of Cyprus so far? Natalie and I love living in Cyprus. This is the second time we’ve been posted here, and coming back to Nicosia as the U.S. Ambassador was very rewarding. The hospitality of the Turkish Cypriots and Greek Cypriots is truly a joy to experience.

THE INTERNATIONAL NTERNATIONAL INVESTMENT, IN FINANCEE & PROF PROFESSIONAL ROF O E SERVICES MAGAZINE OF CYPRUS

Gold 15

COVER STORY

Michael Harari AMBASSADOR OF ISRAEL

One very positive development is that most people see that there will be growth in 2015. Even though this development might be relatively small, it does have its importance as it sends out the right kind of messages domestically and abroad. Another positive development is, of course, that hat is your opinion of the proa small drop in unemployment gress of the Cyprus economy is also expected. This, from a over the past 18 months? non-issue just a few years ago, The general feeling is that Cyprus is currently one of the biggest has adapted quickly and decichallenges, especially for young sively, following the March 2013 people entering the job market events. The number of problems for the first time. Focusing on the that the economy was facing was necessary reform in the economy revealed and today the Governand restoring the confidence of ment is addressing them in a very the international markets in the professional manner. It has been Cyprus economy a painful process should make a but the conTHE positive contrisensus is that bution, so 2015 this is required RELATIONSHIP could really be so as to get the way out of the economy BETWEEN the crisis. back on track. OUR TWO A new growth What is the strategy and COUNTRIES current state of business modIS AT ITS the economic el for Cyprus relationship is at the top HIGHEST between Cyprus of the agenda and your counas regards LEVEL EVER try? the economy In recent and this is very years, Israel has become promising. It will take time to implement but understanding the one of the major trading partners of Cyprus. The problems and being determined volume of trade beto deal with them is halfway to tween the two countries solving them. Israel has faced a has increased considerserious economic crisis in the ably and there past, so I fully understand how is strong difficult it is for Cyprus now and potenI thoroughly appreciate the way tial for the Cypriot people are handling further it. I do believe that the way forward, however rough it may be, is increase in the achievable. coming years. What positive developments do Total you expect to see in 2015? Are imports there any threats and dangers from that need to be identified and Israel for dealt with?

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2013 were in the region of €650 million, making Israel the 2nd largest exporter to Cyprus. Total exports to Israel were €62 million, which is also an increase and this is definitely a very positive development. Total bilateral trade (for 2013) between Israel & Cyprus reached €712 million which, considering the size of both countries, is a very big number. Do you think that economic ties can be developed further in the immediate future? The relationship between our two countries is at its highest level ever and we wish things to stay this way. Interest in business from both countries is very strong and our close proximity is an added plus for this interest to materialize into practical steps. 2014 also saw a marked increase in tourist arrivals from Israel. From January to October, arrivals reached 62,000 compared to 43,600 for the whole of 2013. This upward trend, I am sure, will continue in the coming years and we would also very much welcome an increase in the number of tourists going to Israel. Tourism is one way in which the peoples of our two countries can learn more about each other and thus come closer. Do you believe that Cyprus’ aspirations to become a regional energy hub are realistic? Clearly, the hydrocarbons issue is of great and promising

potential and I suppose it is fair to estimate that the East Mediterranean does have promising reservoirs. Yet, this is a long-term process with quite a lot of bumps and disappointments, as well as, hopefully, promising results. I repeat what I usually say: it is important to keep investigating this potential separately from the rest of the challenges. In a way, it is essential to deal with the economic crisis as if there were no energy potential and vice versa. In this way, I believe, the proper professional decisions can be taken. Do you believe that 2015 could be the year in which the reunification of Cyprus is finally agreed on? Hopefully, 2015 will be the year in which the Cyprus Problem can finally be resolved. Further delay can only be detrimental and peace and reunification would send such a strong message to the region. I come from a country that has its own problems and I fully understand the difficulties that exist in reaching a settlement. But, the positive impact that a solution could have both here in Cyprus and abroad is an incentive for all those involved with the Cyprus problem. How would you describe your personal experience of Cyprus so far? I have been overwhelmed by the warmth and openness of the Cypriot people, both official and everyday people, which points to a realization that a deep friendship does exist between Israel and Cyprus. Professionally, it has been a rewarding and challenging time. But my work was not only about official matters. Perhaps the most important thing of all was having the opportunity to get to know the Cypriot people, Cypriot society and its rich culture.

Dr. Oksana Tomová

hat is your opinion of the progress of the Cyprus economy over the past 18 months? The positive signs concerning the country’s economic growth are encouraging. It will be important, however, to take steps to ensure sustainable growth in the long term. To achieve this, representatives of both sides of the political spectrum will need to show a sense of responsibility and implement policies that will help the country to get on a positive trajectory. What positive developments do you expect to see in 2015? Are there any threats and dangers that need to be identified and dealt with? Any crisis should be a lesson, particularly for small countries, which reveals the economy’s weak points and kick-starts a process of implementing structural reforms. This involves developing new tailor-made economic strategies, which can satisfy domestic needs but also integrate the country into the region’s wider development. In this regard, Cyprus has potential in which many countries are interested. This should be an encouragement and a driving force for responsible decisions which will bring prosperity to the Cypriots as well as strengthen the island’s significance in the region. What is the current state of the economic relationship between Cyprus and your country? We believe that mutual cooperation and an exchange of experiences can help develop model

AMBASSADOR OF THE SLOVAK REPUBLIC projects which can also potentially involve third parties in the region. That is why we used 2014 to develop an institutional framework for the development of economic and trade relations. We founded the Cyprus-Slovakia Business Association and the Joint Business Council in Bratislava. This has established direct connections between partners at the level of Chambers of Commerce and investment agencies. Do you think that it can be developed further in the immediate future? President Andrej Kiska will pay an official visit to Cyprus this year. The visit will have a significant economic character, a fact that is underscored by the participation of senior ministerial representatives in the delegation visiting with the President. The two Finance Ministers will sign a Memorandum of Understanding on energy cooperation, which is another area of bilateral cooperation which can make a substantive contribution to our mutual efforts to secure gas supplies for all European countries. We expect that, within three to five years, the energy network map of Europe will be very different. What is the situation vis-a-vis a Double Tax Treaty between Cyprus and your country? In 2014, Cyprus and Slovakia started consultations to update the existing Double Tax Treaty dating from the 1980s. This year, we expect to sign an additional protocol to the existing treaty on

the exchange of tax information and the activities of offshore companies. The relevant documents are currently being considered by the Ministries of both countries. Do you believe that Cyprus´ aspirations to become a regional energy hub are realistic? Given its geographical position and the natural gas deposits, it is not possible to exclude Cyprus from any geostrategic development of EU energy policy. The role of Cyprus will be significant and will have its importance in the region. We have to bear in mind that there is sufficient gas on the market but there is a lack of routes by which to deliver gas to all European countries. What impact on the economy do you think a settlement of the “Cyprus problem” could have? The prosperity of the whole region depends on a comprehensive solution of the Cyprus problem. A solution will increase stability and security in the region. Moreover, many existing initiatives between the Greek Cypriot and Turkish Cypriot Chambers of Commerce show a real interest in economic cooperation between the two communities. Therefore, it is evident that a solution of the Cyprus problem will not only create a more at-

tractive environment for foreign investors, but will also create new investment opportunities for domestic investors. I firmly believe that the expected economic benefits and energy prospects will stimulate the process of finding a solution so that all communities can live on the island in harmony once again.

WE SEE BIG OPPORTUNITIES IN THE REAL ESTATE SECTOR Do you believe that 2015 could be the year in which reunification is finally agreed? It is necessary to continue the efforts to solve the Cyprus problem as long as it is the wish of the Cypriot people. An escalation of tensions in light of the recent events should be resisted as it will not bring about anything constructive or positive. I therefore appreciate the activities of NGOs, the academic sphere and religious representatives who significantly contribute to building trust between the two communities. How would you describe your personal experience of Cyprus so far? I started my mandate in Cyprus only a few days after the decision of the Eurogroup to provide financial assistance with unprecedented conditions, including the “bail-in”. It was an obviously difficult time for Cyprus and its people. Today, I feel a light optimism in the Cypriots and see a strong self-confidence and conviction that they are ready to overcome the difficulties that lie ahead. The country has made rapid progress and already regained credibility in the financial sector. This determination must persist.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Borys Humeniuk AMBASSADOR OF UKRAINE

hat is your opinion of the progress of the Cyprus economy over the past 18 months? After the tragedy of 1974, when one third of the country was illegally annexed by Turkey, I think that the last year and a half have been the most difficult in the history of Cyprus since independence. However, the wellprepared and functional policy of the Government of President Anastasiades is beginning to bring positive results. In the face of domestic and external challenges, “The phoenix is spreading its wings”. We all remember the shock of March 2013, which caused economic stagnation. So, when we hear an objective expert forecast that economic growth in 2015-2016 will range from 0.8%-2%, it’s very encouraging. When we hear that Bank of Cyprus shares are back on the Cyprus and Athens Stock Exchanges, this is also an important positive signal. Recently, Bank of Cyprus reported profits of €76 million in the first nine months of 2014 and this made the sale of assets in Ukraine, Serbia and Romania both possible and successful. A major achievement of President Anastasiades’ strategy to overcome the crisis is the improvement to the budget balance. Measures taken by the Government led to a deficit reduction in 2014 to 2.5% of GDP compared to 4.7% in 2013 and to the Troika’s predicted 5.7 % for 2014. Is it not a significant gain? Of course it is! Yes! There is still much to do, in particular reform of the national health system,

civil service reform and the full implementation of the government’s programme to stabilize the economy. All this indicates that Cyprus, as in a Greek tragedy, has now entered the phase of catharsis, after which the phase of restoration and recovery will certainly come.

economic sphere, things could be much better and, due to certain circumstances, our cooperation sometimes loses its impetus. For example, due to the military intervention of Russia in the eastern regions of Ukraine and the creation of an atmosphere of chaos, the Cyprus-Ukraine Business Association was forced to cancel long-planned business forums in Dnipropetrovsk and Zaporizhia. In general, however, the situation has not significantly affected our economic collaboration.

What positive developments do you expect to see in 2015? Are there are any threats and dangers that need to be identified and dealt with? In this New Year, we all are lookDo you think that it can be ing forward – and not unreadeveloped further in the immesonably – to the economic and diate future? political stability that will finally Ukraine-Cyprus relations have come. I am speaking, first of all, deep roots as well as mutual about Ukraine. I believe that the interest and a desire reforms in for development. our counCYPRUS, AS And in a relationtry will IN A GREEK ship between bring posiincluding tive results, TRAGEDY, HAS partners, business partners, while President PoNOW ENTERED this is the most roshenko’s THE PHASE OF important aspect. Peace Plan What is the situbecomes CATHARSIS ation vis-à-vis a an effective Double Tax Treaty mechanism between Cyto preserve and strengthen our prus and sovereignty, as well as will take your counour cooperation with our Eutry? ropean and other partners to a This issue qualitatively new level. has been raised in the What is the current state of Ukrainian the economic relationship between Cyprus and your country? The traditionally excellent economic, political and cultural relations between Ukraine and Cyprus are consistently characterized by a positive dynamic. Of course, in the

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Government and Parliament and it requires careful expert examination. I hope that, through the joint efforts and goodwill of both sides, a mutually acceptable solution of this issue will be found very soon. The Government has said that foreign investment is key to reviving the Cyprus economy. Are there specific sectors in which you believe that investors from your country may be interested in? Of course such sectors exist. First of all, the energy sector and, in particular, gas extraction and transportation. There is a lot to think about in this area and much to work out as well. Do you believe that Cyprus’ aspirations to become a regional energy hub are realistic? I do not only believe it. I am sure that this will come true. What impact on the economy do you think a settlement of the “Cyprus Problem” could have? The impact can, of course, only be positive. A solution of the Cyprus problem will be a great event from every perspective – political, economic, security, etc. Do you believe that 2015 could be the year in which reunification is finally agreed? You know, we have a saying: “If you want to make God laugh, just tell someone about your plans”. Let’s not get hung up on dates, because they go by, but continue to believe that this long-awaited event for Cyprus will come soon. How would you describe your personal experience of Cyprus so far? I love Cyprus!

Dr. Karl Mueller

hat is your opinion of the progress of the Cyprus economy over the past 18 months? Cyprus’ downward trends are now abating or have reversed, and things are mostly looking up. The rebuilding of trust has had early effects, such as the issuing of bonds, the restructuring of the Bank of Cyprus, and legislation concerning the NPLs is on the way to being implemented. Many foundations have been laid in the financial sector to prevent the recurrence of harmful practices and developments. On the other hand, some problems of the economy will take longer to be eliminated: issues with the property market, the lack of liquidity and credit for the private sector (especially SMEs), a lack of diversification of the economy… What positive developments do you expect to see in 2015? Are there any threats and dangers that need to be identified and dealt with? I can imagine minuscule economic growth in 2015 – if the upward trends consolidate, as I expect they will. I think that it is paramount that Non-Performing Loans are dealt with, although they will accompany Cyprus for quite a few years to come. Furthermore, unemployment needs urgently addressing – the main avenue for this being massive foreign investment, including that in bigger industrial or infrastructural projects. Cyprus needs more industry and, especially, more research and innovation.

AMBASSADOR OF AUSTRIA

What is the current state of the economic relationship between Cyprus and your country? The overall trade exchange volume between our two countries has been less than €20 million and diminishing in recent years and it could definitely be increased a lot. Fewer than twenty thousand Austrian tourists visit Cyprus every year – more than ten years ago, they were twice as many.

The construction sector (for instance, the building of (rail)roads and motorways), the tourism sector and health sectors, the energy and environmental sectors are those areas which spring to mind concerning Austrian investment. Do you believe that Cyprus’ aspirations to become a regional energy hub are realistic? These aspirations are extremely realistic. Cyprus is – in spite of its frozen conflict – an island of peace in the midst of a zone of trouble. It is geographically central to an important geopolitical area spanning three continents. More than the Gulf States or Austria in their respective regions, it is truly – historically – multicultural. I think Cyprus must wake up much more to the opportunities afforded to it by its location and its tradition. Like its very open foreign policy which leads the way, it must become more selfassured and proactive.

Vassiliou very convincingly argues. Econometric studies like the recent ones by PRIO show this very clearly. Do you believe that 2015 could be the year in which reunification is finally agreed? I am an inveterate optimist. I would like to believe that decisive steps towards a final settlement will be taken in 2015. Quite a few circumstances point to that possibility, such as the positive interest of a few big players and the gas finds. A new, very capable and engaged senior adviser to the UN Secretary-General has taken over. If courage and good will prevail, I think 2015 can be a very positive year for the peace process.

Do you think that it can be developed further in the immediate future? Trade and investment can be expanded. Austria has strong brands and very highly developed, specialized and innovative industries in the domains of construcHow would you describe your tion, machinery, special purpose personal experience of Cyprus vehicles (fire engines etc.), stateso far? of-the-art environmental and Cyprus is a lovely experience every energy technology, sophisticated day for me, thanks to the warmth pharmaceuticals (biomedicine) and kindness of its people, its and in various highly developed climate, natural beauty, rich technological niche prodhistory and many historical ucts. Furthermore, the CYPRUS IS AN monuments and the interhealth sector (infrastrucesting developments and ture and management of ISLAND OF PEACE situation in the country. hospitals and clinics) is IN THE MIDST OF A the My almost two and a half an Austrian forte. This is ZONE OF TROUBLE years here have been fabuinteresting as the spa and lous and very stimulating. health tourism in Cyprus looks set to increase in the coming decades. What impact on the economy do you think a settlement of the What is the situation vis-à-vis “Cyprus Problem” could have? a Double Tax Treaty between I think that the economic gains of Cyprus and your country? a settlement would be bigger than An amendment to the existing those from future gas producdouble taxation agreement was tion. They would, first, offset the signed in 2012 to bring it up to longer-lasting consequences of the standard. financial crisis, like the drying up of credit or NPLs. Second, they The Government has said that would make the whole island foreign investment is key to independent of foreign assistance reviving the Cyprus economy. much sooner. And third, they Are there specific sectors in would positively affect all sectors which you believe that invesof the economy, not just one or tors from your country may be two, as former president George interested in?

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Brechje Schwachöfer

AMBASSADOR TO THE KINGDOM OF THE NETHERLANDS

hat is your opinion of the progress of the Cyprus economy over the past 18 months? Even though the situation is still difficult, with unemployment one of the biggest problems, positive signs are beginning to emerge. The Government is to be highly commended for taking lots of difficult measures. The improving

macro-economic figures and fiscal consolidation, as well as access to the international capital market, are positive signs, hopefully resulting in economic growth in 2015.

meat products, pharmaceuticals, chemicals as well as crude oil and oil products.The recently established Cyprus-NL Business Association is a concrete sign of these good relations.

What positive developments do you expect to see in 2015? Are there are any threats and dangers that need to be identified and dealt with? It is imperative, not so much for the Troika but for the country

Do you think that it can be developed further in the immediate future? One area that comes to mind is energy. The Netherlands, as one of the oldest and biggest players in the world gas market, has a lot to offer to Cyprus in terms of knowledge and technical expertise in that field.

IT IS VITAL THAT FOREIGN INVESTORS ARE MADE TO FEEL WELCOME itself, to continue on the path of fiscal consolidation and structural reforms. On the latter, there are a few important challenges, such as privatization, the NHS and structural reform of the civil service. Also, the problem of Non-Performing-Loans will need to be addressed. What is the current state of the economic relationship between Cyprus and your country? Relations in general are very good and the same applies to economic ties.With the recently completed VTTV oil terminal at Vasilikos, my country is one of the biggest investors – in terms of FDI – in the island at the moment. Cyprus imports flowers and plants, dairy products, meat and

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What is the situation visà-vis a Double Tax Treaty between Cyprus and your country? Negotiations are ongoing, based on the strong desire of both countries to conclude such an agreement. It is my hope that they will be finalized in the not too distant future. The Government has said that foreign investment is key to reviving the Cyprus economy. Are there specific sectors in which you believe that investors from your country may be interested in? Real interest has been shown in several sectors, such as energy and tourism. To attract foreign investment, however, it is vital that foreign investors are made to feel welcome and that procedures are clear and quick and responsibilities well defined. Do you believe that Cyprus’ aspirations to become a regional

energy hub are realistic? That is surely possible. With the right strategic planning and policies, and given its strategic location, Cyprus can become a vibrant regional energy hub, for example in the field of energy services. What impact on the economy do you think a settlement of the “Cyprus Problem” could have? Several studies have shown that reunification would have a substantial positive impact on the economy of the whole island. In the current difficult economic climate, it should be a driving factor. Do you believe that 2015 could be the year in which reunification is finally agreed? The international community has to remain optimistic. There is only one solution for this country, and that is a bicommunal, bizonal federation, so a return to the negotiating table is the only option. The Netherlands has been supporting the efforts to get there, and will continue to do so. How would you describe your personal experience of Cyprus so far? I am very happy in Cyprus. My work is interesting and enriching, the people are very hospitable, accessible and friendly, and the country is beautiful. Apart from the summer months, which are too hot for a Northern European like myself, the climate is wonderful. Luckily, the end of my posting is not in sight yet.

CYPRUS CAN BECOME A VIBRANT REGIONAL ENERGY HUB

Jean-Luc Florent

hat is your opinion of the progress of the Cyprus economy over the past 18 months? Since March 2013, it is evident that significant progress has been made to restore the Cypriot economy and its banking system. The Cypriot people and authorities must be praised for all the efforts undertaken to this end, as painful as they were. A return to growth is expected in 2015, the fiscal situation has improved greatly, the increase in unemployment has stopped and Cyprus will soon return to the international financial markets. Equally, the restructuring and recapitalization of the banking system, is well underway, as demonstrated by the recent stress tests in the eurozone. Challenges remain, such as dealing with of non-performing loans (NPLs), but I’m confident that appropriate solutions will be implemented progressively in order to strengthen the financial sector. The implementation of necessary structural reforms (national health system, privatization) has already started. What positive developments do you expect to see in 2015? Are there any threats and dangers that need to be identified and dealt with? It is clear that efforts must continue in 2015 in order to strengthen and further diversify the economy and the banking sector.To this end, it is important to increase foreign investment, mainly to foster growth and employment. It is also necessary to maintain fiscal discipline and to proceed with

AMBASSSADOR OF FRANCE

more structural reforms, even fresh money entering a country, beyond those requested by the can play a leading role in the ecoTroika. As far threats or dangers nomic recovery, particularly in the are concerned, the rising level of context of a crisis. NPLs is one of the most serious I am pleased to note that the challenges facing the banking sysCypriot authorities are putting a tem and the smooth functioning strategic plan in place which will of the Cypriot economy. In this identify projects and key sectors regard, the adoption of the laws to boost the economy. European on foreclosures and insolvency structural funds, the EIB or EBRD is of the utmost importance. can also contribute to finance Interest rates, especially to SMEs those projects. Tourism, services, which are key for the economy hydrocarbons, casinos, the Nicosia of Cyprus, must also be reduced tram network project, the developin order to boost the economy. ment of Larnaca Marina and the Youth unemployment is another proposed creation of a technology challenge. Growth and foreign park could attract the interest of investments are foreign invesmajor tools to tors, includTHE face this social ing French scourge. ADOPTION OF companies.

THE LAWS ON

What is Do you FORECLOSURES believe that the current state of the Cyprus’ AND economic aspirations INSOLVENCY IS to become relationship between OF THE UTMOST a regional Cyprus and energy hub IMPORTANCE your country? are realistic? France is one The geostraof the leading EU trading partners tegic location of Cyprus in the of Cyprus and was 6th in 2013. Eastern Mediterranean, the good relationships it enjoys with most Some big French companies are of the states in the region, and its already present in Cyprus (Total, European Union membership, Carrefour, Leroy-Merlin, Société are positive factors. Of course, Générale, etc.), but there is room it is necessary to have a better to develop and reinforce links beestimate of the real hydrocartween Cypriot and French SMEs. I’m happy to see a large number of bons potential in the Exclusive Economic Zone in order to French brands represented in the properly assess the prospect of local market by Cypriot partners Cyprus being a regional energy who show professionalism, drive hub. and dedication despite the difficulties due to the economic recession. What impact on the economy do you think a settlement of The Government has said that the “Cyprus Problem” could foreign investment is key to rehave? viving the Cyprus economy. Are According to various studies, there specific sectors in which it is generally considered that you believe that investors from a settlement of the Cyprus your country may be interested Problem could, inter alia, in? boost the Cyprus economy Foreign investment, as a source of

by enlarging the domestic market, increase confidence and the growth potential of the island and contribute to reducing the unemployment rate. Such a settlement could effectively strengthen the confidence of investors, whether Cypriots or foreigners, and contribute positively to a normalization of the relationship between Cyprus and Turkey. Do you believe that 2015 could be the year in which reunification is finally agreed? I do hope that it will be the case, despite the difficulties to overcome. How would you describe your personal experience of Cyprus so far? I really enjoy my mission in Cyprus. I like the people, I like the country and, professionally, my mission is both challenging and fascinating.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Ric Todd

HIGH COMMISSIONER OF THE UNITED KINGDOM

hat is your opinion of the progress of the Cyprus economy over the past 18 months? The progress which the Cyprus economy has made over the past 18 months and the determination shown by Cypriot society is remarkable. I am glad that the UK has offered assistance from the start of the crisis in a range of areas. We will continue to do so. The key to further success is to continue to work towards the much-needed structural reforms. What positive developments do you expect to see in 2015? Are there are any threats and dangers that need to be identified and dealt with? 2015 will be a tough year but I am optimistic. Settlement talks need to get back on track as soon as possible. Cyprus’ economy will continue to take the positive steps to growth. I am pleased that the UK and Cyprus continue to work together to make 2015 a successful year. What is the current state of the economic relationship between Cyprus and your country? We enjoy very strong links: tourism, Cypriot students in the UK but also the great business, financial and accounting links. The common law system, the British community here and the Cypriots in Britain are further strengths to our relationship. Cyprus is in the top

50 export markets for the UK. We share the same priorities for growth, reform and jobs in the EU. Do you think that it can be developed further in the immediate future? Our two countries and their businesspeople are always keen to work with each other and, believe me, it is a dynamic experience. And the best thing is that it comes effortlessly to both sides. I am confident that it will be developed; the fields of energy, education and R&D are just some examples. What is the situation vis-à-vis a Double Tax Treaty between Cyprus and your country? The UK and Cyprus signed a Double Taxation Treaty in 1974, amended in 1980. A key change was Cyprus’ accession to the EU. Therefore, although the Treaty is used, it could be reviewed to reflect the current environment. The Government has said that foreign investment is key to reviving the Cyprus economy. Are there specific sectors in which you believe that investors from your country may be interested in? The oil and gas sector is obviously an area where the UK has experience and where UK companies might find Cyprus interesting. Cyprus has many well-educated people who can contribute to research and development, innovative products and services, the digital economy and the green economy, sectors of great interest to us. Do you believe that Cyprus’ aspirations to become a

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regional energy hub are realistic? The energy sector is a large and complex industry. So long-term planning is vital. Cyprus has the basic ingredients for establishing itself as an energy services/business hub. It can further develop the education sector and the provision of oil and gas vocational skills. Cypriot institutions are already working with UK partners. Depending on the reserves, Cyprus could also become a hub for gas exports in the region.

How would you describe your personal experience of Cyprus so far? I have been in Cyprus for only 4 months; a short but very positive experience. I have much enjoyed the opportunity to meet many Cypriots and to see some of Cyprus’ remarkable historical heritage. I am struck by the depth and quality of our relationship. In human terms it is, I think, a unique relationship. Our shared history plays a part in this. So does the future; the UK and Cyprus are partners in the 21st century.

What impact on the economy do you think a settlement of the “Cyprus Prob2015 lem” could WILL BE A have? There have been TOUGH YEAR many studies BUT I AM on this matter and it is clear OPTIMISTIC that the benefits would be significant. The two Chambers of Commerce have done excellent work through cross-community business links. Do you believe that 2015 could be the year in which reunification is finally agreed? I sincerely hope so. It is more important than ever to get both sides back to positive negotiations. The Joint Declaration of 2014 set out the blueprint for a settlement that, I believe, is achievable in 2015. Furthermore, what we have seen elsewhere highlights the dangers of assuming that a frozen conflict or status quo will stay the same. If we can achieve a settlement, we also achieve a stepping stone for peace and security in the region.

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OUTLOOK

5 1 0 2 W ?

Advice from the experts on where to put your money

ill the price of oil continue to fall this year? Will gold regain some of its lost allure and do what many expected it to do in 2014? Which stocks can guarantee that you will at least be able to preserve your wealth, if not make a healthy return? Will the eurozone continue to stagnate? Should we take a chance on Cypriot bank shares or real estate? These are just some of the questions that investors of all types have been asking and on the following pages, we have some answers for you. In addition to asking four leading local financial advisors to give us their forecast for the global and local economy, their investment tips and an honest look at how accurate their predictions for 2014 turned out to be, we have also gathered the views of some of the world’s most successful financial services firms about what we can expect this year, tips on what – and what not – to invest in.BlackRock

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Economic growth is expected in most major LJVUVTPLZ HS[OV\NO ]VSH[PSP[` H YPZR VM KLÅH[PVU and a possible downturn in the eurozone are all aspects mentioned by leading global investment management companies in their forecasts for 2015. Below are some key predictions. BLACKROCK

The New Yorknbased multinationn m nt al investment management corporation sees economic growth and monetary policies diverging across the world and it predicts volatility spikes in 2015 but new opportunities too: US growth is on an upswing. We expect the US Federal Reserve (Fed) to start raising rates in 2015 and the yield curve to flatten • The foundation for a strong US dollar is in place, yet the journey to long-term appreciation is tricky. Expect a bumpy ride. • Eurozone growth could surprise on the upside due to rockbottom expectations. The European Central Bank looks set to deliver on market hopes for full quantitative easing (QE). • Japan’s monster bet on monetary stimulus brings both short-term opportunities (equities) and long-term risks (debt blowout). • China is digging deeper in its monetary policy tool box to stave off an even bigger growth downdraft as it attempts reforms – a balancing act. Regarding investment, Black Rock likes Japanese and European equities due to cheap valuations and monetary boosters, and it favours US cyclicals over defensives as the Fed tightens. It prefers credit such as US high yield and European bank debt over sovereign debt and favours US Treasuries over other safehaven bonds, while expressing a liking for hard-currency Emerging Market debt. It also favours income-paying real assets such as property and infrastructure.

V VANGUARD G GROUP

T American investment The m management company forecasts that world economic growth is likely to remain “frustratingly fragile” and sees higher recession and deflation risk for the eurozone. The US economy will likely remain resilient to the global slowdown, yet the nation’s recent cyclical thrust above its 2% trend growth is not immune to the downside (and growing) risks in Europe and China. The economic outlook for the euro area is characterized by elevated recession and deflation risks while China’s economic growth is in a protracted but gradual downward shift. A deflationary threat will likely continue to hover over the world. In Europe, deflation remains a significant risk that will not soon disappear. Across most major economies, real (inflation-adjusted) shortterm interest rates are likely to remain negative through at least 2017. Vanguard Group views the return outlook for fixed income investments as positive but muted. The expected long-run median return of the broad taxable fixed income market is centred in the 2%-3.5% range. The medium-term outlook for global equities has become even more guarded. Centred in the 5%8% return range, the long-term median nominal return is below historical averages. The Group predicts that balanced portfolio returns over the next decade are likely to be below long-run historical averages, with those for a 60%/40% stock/bond portfolio

THE GLOBAL ECONOMIC OUTLOOK

t tending to centre in the 3%–5% r range, adjusted for inflation. E so, Vanguard still firmly Even b believes that the principles of portfolio construction remain unchanged, given the expected risk-return trade-off between stocks and bonds.

PIMCO

The global investmentt management ffirm, which h h has $1.87 trillion in assets under management, expects global growth to accelerate in 2015 to around 2.75% from around 2.4% last year, on expectations that supply-driven declines in oil prices will be fundamentally positive. Economic growth in the United States will grow between 2.75% and 3.25% in 2015, up from an average of 2.4% last year. The Federal Reserve will raise interest rates sometime this year, altering a pledge to keep rates near zero for a “considerable time” in a show of confidence in the US economy. Declining oil prices will have a clear downside impact on global inflation readings. In most developed economies, headline inflation will likely go into negative readings in the early part of 2015. Both the euro and the yen will decline versus the dollar, despite significant weakening already. Pimco remains favourable on eurozone peripheral bonds. Given expected central bank support, combined with improving earnings in Japan and attractive valuations in Europe, it sees room for out-

performance in those equity markets. Pimco continues to focus on the effectiveness of the Bank of Japan’s expansion of its already loose monetary policy and the ability of the European Central Bank to deliver on quantitative easing measures versus what are now high market expectations. The firm also describes Treasury inflation-protected securities as “attractively valued given their recent underperformance”.

AXA GROUP

The Parisbased French multinational, investment banking firm forecasts an upside risk to the 2015 global GDP forecast (3.4 if crude oil prices stabilise at $65 per barrel). A further oil price slump will raise deflation expectations. Energized by lower oil prices, US consumers and companies will be willing to spend. China will shift towards slower but sustainable growth. It will use monetary and FX policy actionable tools to fend off deflation risk. Recovery in the eurozone will be helped by cheap oil but much-needed fiscal stimulus is unlikely so long as France and Italy are reluctant to reform their labour markets. In Japan, ‘Abenomics’ has been re-energised by an election victory but the long term stake is very high: that of avoiding a financial collapse. Regarding investment, the Group views lower energy prices as positive for global GDP growth and thus for eq-

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INVESTMENT

BNP PARIBAS

The French bank ank and finan financial services company believes that there are good reasons to expect an improved economic environment in 2015, with stronger growth providing respite from disinflationary pressures. The main risk to its central scenario of stronger growth is a policy error or a downturn in the eurozone that weighs on the global economy. Â&#x2DC; Valuations in emerging markets are approaching levels at which their numerous strengths (e.g. strong growth, low debt, structural reform, favourable demographics) will become apparent to investors seeking attractive returns over the appropriate investment horizon. Â&#x2DC; Bank of Japan may now have taken up the baton of quantitative easing from the Federal Reserve, but inflation will remain conspicuous through its absence. There is unlikely to be an abrupt end to the bull market in bonds. However, the historically low yields of G7 sovereign debt lead BNP Paribas to recommend prudence with regard to interest-rate risk as the day of reckoning approaches. The fact that valuations of developed stock market indices remain close to their post-crisis highs emphasises the pull that equities exert on investors with the appropriate investment

horizon in a world where real interest rates are exceptionally low. BNP Paribas believes that global equities have the potential to once again generate attractive absolute returns as better economic growth and attractive valuations provide the basis of a virtuous cycle.

PWC ECONOMISTSâ&#x20AC;&#x2122; PREDICTIONS S FOR 2015

As we enter the New Year, PwCâ&#x20AC;&#x2122;s economists have once again peered into the crystal ball to make their top five predictions for 2015.

US economic growth expected to be the fastest for a decade: US unemployment has fallen during 2014 to below 6%, and we expect this, combined with lower oil prices, to contribute to rising household consumption. In our main scenario we are projecting the US economy to grow by more than 3% in 2015, the fastest growth rate since 2005. In line with this, we expect the US to contribute around 3% of global GDP growth in 2015, its largest contribution in a single year since before the financial crisis.

Economic growth in China projected to be the slowest since 1990: We still expect China to make the biggest contribution to global growth in 2015. However, its projected growth rate of 7.2% would be its slowest since 1990 and its high debt levels pose some downside risks to that main scenario. But two of the other BRIC economies are experiencing more severe problems: â&#x20AC;˘ in Russia, we expect GDP to shrink in 2015 on the back of low oil prices and economic sanctions; and â&#x20AC;˘ growth is expected to be sluggish in Brazil where our main scenario projection is for the economy to grow by only around 1%.

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

Taken together, we expect the BRICsâ&#x20AC;&#x2122; contribution to global growth to fall for the second year in a row to around 33% in 2015 (see illustration).

and Ethiopia â&#x20AC;&#x201C; to overtake the economic output of Italy in 2015 when measured in constant 2013 international dollars. For businesses, this is a further sign of the potential of SSA as a region in which to invest. PwC has also identified three factors for business to look out for in 2015: (a) Oil prices have been falling in recent months due to slowing global demand, the US shale oil boom and steady production from OPEC. Says PwC senior economist Richard Boxshall: â&#x20AC;&#x153;Our predictions and projections assume that oil prices will average between $60-70 over the course of 2015 and finish the year at around $80. However, due to the highly unpredictable nature of oil prices, businesses should plan for different scenarios.â&#x20AC;? (b) A hard landing in China. Says PwC senior economist Richard Boxshall: â&#x20AC;&#x153;The Chinese economy clearly has vulnerabilities given its high total debt level â&#x20AC;&#x201C; around 250% of GDP â&#x20AC;&#x201C; and estimates by Chinese academic researchers that around $6.8 trillion of the investments made since 2009 may have been wasted on creating ghost towns, unused office blocks and mothballed factories. So far the Chinese government appears to have this under control, but the downside risks of a hard landing should not be ignored.â&#x20AC;? (c) Escalation of geopolitical risks. â&#x20AC;&#x153;An escalation of the geopolitical tensions in Russia and Ukraine and in the Middle East could have a negative influence on business confidence, with consequent implications for global growth,â&#x20AC;? says Richard Boxshall.

Low inflation leads to Quantitative Easing in the Eurozone: We expect both inflation and growth to remain very low in the eu eurozone in 2015. We therefore expect the ECB to undertake a ex qu quantitative easing programme involving the purchase of govin ernment bonds, in an attempt to boost demand and head off deflation.

India expected to resume growing at above 6%: After growing at below 6% since 2012, we think 2015 could be the year that India turns the corner, posting growth of around 7%. In the short-term, low oil prices are likely to increase GDP growth, ease the pressures of Indiaâ&#x20AC;&#x2122;s high current account deficit and help bring down inflation. Looking towards the mediumterm, we think that the February 2015 budget could see India take a step towards implementing new structural reforms which will boost the economy.

Economic growth in Sub-Saharan Africa (SSA) to outpace global growth for 15th year in a row: We also expect the combined GDP of SSAâ&#x20AC;&#x2122;s four largest economies (in purchasing power parity terms) â&#x20AC;&#x201C; Nigeria, South Africa, Angola

CONTRIBUTION TO GLOBAL GDP GROWTH Contribution to global real GDP growth

uities. Although valuations are slightly expensive, corrections offer opportunities to longterm investors. On the beginning of (â&#x201A;Ź) QE and the risk of â&#x201A;Ź-stagnation, AXA Group advises staying alert regarding sovereign spreads, while its outlook for Emerging Markets suggests that caution is needed over Latin America which remains sensitive to Fed action. Emerging Asia supported by China and the lower oil price but all Emerging Markets may be shocked by any additional turmoil in Russia.

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TOP

The world’s stock markets continued their climb in 2014, with the bull market approaching its sixth anniversary. In the US and elsewhere, interest rates remained low, housing and employment gained in strength, and the economy began to expand at a more meaningful rate as a sharp decline in oil prices helped consumers. The main question for investors is whether the market can sustain its upward trajectory over the next 12 months. Fidelity Investments is an American multinational ÄUHUJPHS ZLY]PJLZ JVYWVYH[PVU HUK VUL VM [OL SHYNLZ[ T\[\HS M\UK HUK ÄUHUJPHS ZLY]PJLZ groups in the world. Here, it recommends ten types of stocks for investment in 2015. TECHNOLOGY STOCKS

People love their gadgets, the Internet, and all things technology, and in 2014 investors showered affection on tech stocks, too. The sector outperformed the market, as businesses and consumers adopted new products and services, while breakthrough ideas and several high-profile IPOs fuelled investor enthusiasm. Technology appears to be well positioned for growth in the near term. Within the tech sector, companies that offer Software as a Service (SaaS), cloud computing, hyperscale data centres for enterprise markets, and social/ local/mobile services for consumer markets should generally be positioned to keep winning in 2015.

HEALTHCARE STOCKS

2014 was another great year for health care stocks. Innovation in the healthcare sector, including biotechnology (specifically, producers of new drugs) and healthcare information technology, should help drive earnings growth and present attractive investment opportunities in 2015 and beyond. The opportunity for healthcare

IT companies that offer mobile tools to help consumers compare prices for procedures, find lower-priced prescription drugs, or locate the highestquality care sites is an investment theme that may be in its infancy but it has the potential for long-term gains, given that healthcare wrapped up yet another year of double-digit gains in 2014.

ENERGY STOCKS

As of mid-December 2014, energy was by far the worst-performing sector of last year and the decline in oil prices was one of the biggest investment stories of the year. Fidelity Investments thinks the drop in oil prices may, ironically, create an investment opportunity. One reason is that valuations for energy stocks have tumbled, along with falling oil prices and consequently, many stocks may be broadly attractive in this sector. Lower prices tend to stimulate demand and curtail supply growth, so the possibility of a further decline in prices may be lessened. Even if oil prices do continue to fall, the risk to energy investors of a steeper drop in prices may be mitigated by owning a handful of US exploration and production companies with strategic advantages.

CONSUMER DISCRETIONARY STOCKS

Will consumers open their wallets more, given lower oil prices at the pump? Consumer discretionary stock investors certainly hope that the drop in petrol prices will lead to an increase in consumer discretionary spending in 2015. Restaurants and convenience store operators could benefit in particular. Also, healthy-living trends (benefiting sports clothing retailers, providers of vitamins and nutritional supplements, and fastcasual restaurant chains offering what are perceived as healthier food options), an improving housing market and the increasing value of highly desired media content (a positive for the producers of media content) may also be attractive investment themes in this sector. The possibility of lower clothing prices is a growing risk for sellers. An uncertain outlook for advertising spending and tight access to credit are other factors to consider.

CONSUMER STAPLES STOCKS

Most defensive sectors, like consumer staples,

GLOBAL EQUITIES

had a strong 2014. Will the trend continue for these stocks in 2015? Fidelity thinks that long-term trends support continued growth in this sector. Even a currently challenging global macroeconomic environment is unlikely to derail the momentum. As in the consumer discretionary sector, lower commodity prices may help improve profit margins for certain consumer staples companies, including those that purchase sugar or grains to make their products. However, the continued appreciation of the US dollar, relative to most foreign currencies, could be a near-term headwind to the earnings of US-based staples companies with significant operations in global markets. A risk to these stocks, however, is greater-than-expected weakness in the global economy and price-cutting wars amongst competitors.

INDUSTRIAL STOCKS

2014 was a relatively up-and-down year for industrials yet the sector managed to finish the year on a strong note. Moreover, there’s reason to be optimistic about industrials’ prospects heading into 2015. In the US, commercial construction activity

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INVESTMENT

accelerated last year and Fidelity Investments thinks that this trend can be expected to support the industrials sector into 2015 and beyond. Indeed, this factor could help every industry in the industrials sector, including building products, machinery, and construction and engineering firms. Transportation stocks (such as trucking companies) might benefit from higher pricing for services that are likely to rise because of tightening labour markets. Aerospace stocks appear well positioned in an aerospace business cycle that remains strong and companies that facilitate energy efficiency remain a compelling investment theme.

FINANCIAL STOCKS

It’s going to be a very interesting year for financials. A major risk in this sector may be the return of market volatility caused by previously coordinated global monetary policy efforts that now appear to be diverging. The US Federal Reserve is winding down its monetary stimulus efforts, for instance,

whereas Japan, China, Russia, and the eurozone are going in a different direction. This could result in an uncertain environment for financial stocks. Yet there’s a lot to be excited about, going forward. A sustained housing recovery could benefit companies in the real estate services and housing finance industries in 2015. Also, bank stocks with healthier balance sheets and the potential to raise dividend payouts could cash in. Demographics may help wealth management services and providers of financial advice.

MATERIALS STOCKS

Although the materials sector hasn’t set the world on fire in terms of performance over the last several years, materials have now posted three straight years of positive gains. Fidelity thinks that steel stocks could be a strong play, as steel prices are potentially in the early stages of recovery. Gravel, aggregate and concrete producers may also benefit from the construction theme, while strengthening consumer confidence could

Some observers believe that the markets are becoming increasingly KPɉJ\S[ [V WYLKPJ[ HUK [OH[ LHJO new high only makes many veteran investors more nervous that disaster is just around the corner. With lofty valuations, slowdowns from Europe [V *OPUH JVUÅPJ[ MYVT <RYHPUL [V Syria, the end of the US Federal Reserve’s QE programme and more, there are many reasons for caution. This year, Fortune magazine has decided not only to recommend investments to make but also those to avoid. “Smart defence is always wise,” say the editors, “and the good news is that even in these precarious times, there are still opportunities to be found.” Here is a summary of their advice. 28 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

bolster demand for products of containerboard and paper packaging firms – an industry that is heavily weighted toward increasingly optimistic US consumers. On the risk front, a further slide in oil prices could be particularly detrimental to the chemicals industry, while a potential global slowdown, especially in China where materials demand has been a consistent driver of growth in recent years, is another important consideration.

TELECOM STOCKS

Although the telecom sector underperformed in 2014, there may be pockets of opportunity this year there due to shifts in the landscape after a few more major merger proposals in what is an already condensed field. There will be ongoing capital spending by wireless carriers as mobile usage continues to surge and carriers race to keep up by building out their network. Meanwhile, the unrelenting battle among wireless carriers to gain customers and wireless spectrum could fuel competition in 2015. Saturation of the smartphone sec-

tor in many countries means that any growth by telecom companies will need to come at the expense of their competitors. Aggressive pricing strategies aimed at luring customers, will continue to be a factor in the future.

UTILITIES STOCKS

10.

Utilities was the breakout star of 2014, surging out of the gate and finishing the year near the top of the leaderboard. Can utilities keep powering up? Yes, says Fidelity Investments, which believes utilities that are able to efficiently build out natural gas pipelines and electricity transmission line infrastructure may be able to sustain the sector’s momentum. Natural gas utilities, in particular, could stand to benefit from the North American energy boom. A prime risk factor for utilities is the rate at which interest rates move. The comparably higher dividend yield that utilities offer (currently, about 4%, compared with 2.1% for the S&P 500) would potentially be made less attractive by a quick, sharp increase in rates.

THE DO’S DON’TS

OF MAKING

YOUR INVESTMENT FORTUNE DON’T BUY SMALL-CAPS

Small-cap stocks trade at a 25% premium to the large-caps of the S&P 500, implying they will underperform the index by that much. Russ Koesterich, global chief investment strategist for BlackRock, says that small companies also fare worse than bigger ones when interest rates rise, as is expected in the near future.

DO BUY LARGE-CAPS

Levkovich, Citigroup’s chief U.S. equity strategist, Tobias when large cially argues that bigger is better right now – espe s or spin share back buy to ure conglomerates are under press Cap Mega uard Vang as such ETFs . units g ormin off underperf US. the in rs provide broad exposure to the majo

Small companies also fare worse than bigger ones when interest rates rise

ES DON’T BUY COMMODITIES CKS STO S IAL AND MATER After peaking about four years ago, the commodity supercycle really is ending, many experts say. Weakening Chinese demand for raw materials has depressed prices on everything from nickel to soybeans to timber. And with the dollar rising, pros think materials stocks will get worse before they get bette bett r.

Chinese Chin deman for demand mat raw materials has depre depressed pric on prices everything from nickel to soybeans to timber

DO BUY LONG-SHORT EQUITY Arnott suggests investing some cash in a long-short fund. Such a fund typically buys an equity portfolio or index it believes will beat the S&P 500 – say, by 3%. The fund then mitigates risk by shorting the S&P 500. The manager is betting on the spread between the portfolio and the S&P. The Gateway A Fund is a great example. It has returned almost 5% in the past year, but its three-year volatility is roughly a third of the S&P’s.

HOLD ASH DON’T U C M TOO leCisHimportant,

Cash is yielding essentially nothing

Being nimb ott, CEO of says Rob Arn iliates, a subff Research A co for $61 billion in im P DO BUY DEBT ISSUED BY to r e is v BANKS ad ets. “Mainstream markeatsluaare“Credit has been improving ass w, v on a year-over-year yields are lo basis while yields remain att stretched, , the risk of correcractive,” says J.P. h Morgan’s Loomis. Mark Kiesel tions are hig arket is significant,” , chi m r a officer of global credit for Pim ef investment e b r tion o ve dry co and Morningstar’s ’s e like to ha 2012 fixed-income manager he says. “W opportunity suddenly of the year has 4% off n his portfolio invested in deb powder if a ly cheap.” But cash t from Bank of Ameriew n ca, 3.4% in J.P. Morgan’s, and s e m o bec y nothing. another 1.5% in Citig essentiall group’s. The iShares U.S. Pre in ld ie y is ferred Stock ETF has more than 60% of its assets s in financial preferred stock. It returned 12% in the e past year.

REFINERS DO BUY GLOBAL DON’T BUYof OoilILplummeted 50% inlds fie ce CONSUMER After the pri s – as American shale s e th ti n ti o n m a t u COMPANIES q recen p out huge Several European consumer-oriented companies are heavily focused on the US and may benefit more from its economic growth than the market has acknowledged. They’re often cheaper too. “Now we’re buying European multinationals mostly for the global recovery, because they have been globalizers forever,” says John Stoltzfus, chief market strategist for Oppenheimer. He sees potential in shares of Nestlé, Unilever, and Banco Santander because of their attractive valuations.

DON’T BUY METALS

pum continue to re shaky for energy a ts c e and fall – prosp efiners rise roducR s. ie n a p com mp nt cycle fro on a differe ted Investors portera ers but Fed r Lawrence Auriana e g a n a m o li , befo em anyway ility. th g in b is avoid ta ic eir unpred cause of th

Prospects are shaky for energy companies

DO BUY RUSSIAN ENERGY COMPANIES Ben Inker, co-head of asset allocation at GMO, which manages $120 billion, sees money to be made in Russian energy stocks, whose valuations have withered in the political frost caused by the conflict over Ukraine. “In our view pricing is everything,” he says. “There aren’t bad assets. There are bad prices of those assets.”

S Y UTILITIE DON’T eBekUing investors have Declining demand in China has also lowered prices for industrial metals

With a bull market in equities heading toward its seventh year, gold is hovering below $1,200 an ounce – down from its 2011 peak of $1,900 – and investors say it’s still searching for a bottom. Declining demand in China has also lowered prices for industrial metals like silver and copper.

DON’T BUY US CONSUMER STAPLES STOCKS

Investors have lately piled into American household names like Coca-C ola, seeking their safety and hefty div idends. But after rising nearly 13% so far last year, the consumer-staples sector is one of the most expensive in the S&P 500, and money managers now say they see little value there – especially because staples tend to The perform poorly when consumerinterest rates rise. staples sector is

one of the most expensive in the S&P 500

DO BUY AIRLINES Marty Sass of M.D. Sass, which oversees $7 billion, sees a play on both rising consumer spending as well as low fuel costs for American Airlines Group. The stock was hurt by concerns over a global economic slowdown and that Ebola would deter air travel. But American actually saw zero falloff in ticket sales. Because the airline’s business is concentrated on the U.S., Sass thinks the stock will take off as the strengthening dollar encourages more jet-setting

DON’T BUY REITS Real Estate Investment Trusts (REITs) have bond-like qualities: they pay out Dividends their profits as dividends, tend to be and the latter tend to predictable be predictable because because they’re they’re based on longbased on longterm lea leases. They often term leases tthrive hrive when w interest rates aare re low bbecause their rates outpace those of bonds. outpace

Dividend-s lity stocks uti surged into Shares of t as p e th in electricity f o couple and gas ir years for the s, providers d n e high divid also tend to ht but they mig : short-circuit d e lt jo e b n o so g All that buyin alu va d e iz rg ene tegory now tions; the ca times trailing earn.2 trades at 17 historical median of its ve o ab s, and gas ing of electricity -circuit s e ar 14.8. Sh o tend to sh rt providers also rates rise. st when intere

DO BUY INFRASTR UCTURE STOCKS

BlackRock’s global chief inv gist Russ Koesterich thi estment stratenks infrastructure, a relatively new asset class through several ETFs an now available d mutual funds is worth an investment. The Pro Shares DJ Brookfield Global Infrastructure ET F yields 3.5% and has more constituents (13 4, among them watermanagement compan ies, and wireless-tower op toll-road developers, erators) than two of the major infrastructure ind exes.

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DO BUY US INDU

Industrial stocks also pa STRIALS y hefty dividends. And their valuations are , at 18.4, barely above their historical 18.0 me dian. industrials are expected More important, to pump their earnings up 10% next year – five times what utilities will deliver. “I like industrials, because if orange is the new bla ck, industrials are the new technology,” says John Stoltzfus, chief market strategist for Op penheimer.

LY COMPANIES DON’T BUY EUROPE-ONrised even conservative investors, Europe’s sluggishness in 2014 surp lown downturn and falland uncertainty continues. Fears of a full-b industrials and other pean Euro ing euro have scared pros away from ess. busin nal regio firms with predominantly

DON’T BUY CHIN

Fears of a falling euro have s scared pros away from European industrials

Between slowing gro ESE STOCKS wth and government anticcorruption crusades The N A (w hich are raising comp E P O R U an lice E co Chinese sts Y ), th e U Ch inese market has be DO B INATIONALS hose stock price come more perilous. “A lot market has of companies that we MULTvestors seek assets wd. Katrina Dudley, re go -to become more bu sin es se s for investors are no n ligne Some in t the go-to businesses anymore nfairly ma klin Mutual Europea u perilous s a w ie v ,” says Lewis Kaufman, they bal e Fran manager of the h has a glo anages th who co-m rs BNP Paribas, whic s at less than oversee Thornburg Developing World Fund, who e s u d $4 o a bil v tr lio fa n. t Kaufman says, “It’s a Fund, g one constra hise bu much more spite bein ined environment in king franc terms of investing.” retail-ban rward earnings “de tly earning a DO BUY INDIAN STOCKS n fo e s rr e 10.5 tim anks in Europe cu “We think India and Mexico are do“W b w fe e of th rn.” tu ing the right thing from a macro re it ig double-d standpoint,” says Marko Dimitrijevic, DO BUY EMERGING founder of Everest Capital, which overMARKETS DEBT DON’T BUY US/ JAPANESE JAPANESE/ SEE/ sees $3 billion in hedge funds. In India, Investors are too concerned that emergEUROPEAN Dimitrijevic praises Tata Motors, which ing markets are overly indebted, argues GOVERNMENT DEBT bought the Jaguar and Land Rover Rob Arnott, CEO of Research Affiliates. “Bonds are expensive,” says Brian brands in 2008 and executed a turnUS The BRIC countries (Brazil, Russia, India, Singer, portfolio manager of the around so successful that Jaguar’s Treasury and China) have about 40% debt to GDP, $900 million William Blair Macro profits last year exceeded its acquisibonds are the vs. 125% for the G-5. Emerging markets Allocation Fund. His fund is betting tion costs. most overpriced d are also growing faster and yielding against Japanese and European asset in the average interest rates four points higher credit and is neutral on US credit. world than the G-5 after inflation. Marathon’s Bruce Richards says DON’T BUY E US Treasury bonds are “the most M ARKETS ASMAERGING overpriced asset in the world.” If rates rise 100 GROU Emerging marke ts used to rise an P basis points, you will lose close to 20 points in your as a group, but that correlation d fall Treasuryy bonds,, he says. y DON’T BUY TRENDY has been diminishi Grouping ng YOUNG TECH STOCKS grouping them since 2008, so them together together makes Newly public tech companies were all the DO BUY FRONTIER MARKETS less sense than it us makes less ed rage in 2014, particularly social media “For now, frontier markets are periphe half of the benc to. Today, nearly ral to the sense than it and those that operate “in the cloud” and hmark MSCI Em global economy, so they’re less risky ergi Markets index is ,” says used to have equally wispy profits. “I’m not saying dominated by Ch ng Laura Geritz, who manages $4.5 billio So ina, ut n, including h Ko rea, and Taiwan the market is where it was in 1999,” says the Wasatch Emerging Markets Sma , whi ll Cap Fund David Rolfe, who manages $10.5 billion for ed to be major growth driv ch are not expectand Wasatch Frontier Emerging Sma ers. ll Countries Wedgewood, “but some of these comFund. She thinks the best opportunitie s now panies aren’t that far away.” He says We ask are in markets such as Nigeria, Zimbab we, Sri he’s “treading very carefully.” As ourselves: Lanka, Vietnam, Bangladesh, and the Philippines, he puts it, “‘Cloud’ is a buzzword. DO BUY ESTABLISHED Are they making where she’s finding companies with skillful, often We ask ourselves: Are they making any money at it? TECH STALWARTS Western-educated management team any money at it? Many aren’t.” s. Rob Taylor, co-manager of the Many $29 billion Oakmark International aren’t. Fund, also eschews cloud softA AB IB AL Y BU Y UY DON’T BU – r ware companies “and some of yea the of IPO t DO tes BUY GOOGLE DON’T BUY TINY It may have been the hot ggest in the history the other pretty highflying stocks big Oak mar the k’s of Tayl or is also not to mention one CKS STO ECH BIOT right now.” He prefers Oracle, clicking past Alibaba in of US stock exchanges but biotech stocks small late, Of which has a database business favo re, ur of a more familiar at around $113 per sha have offered soaring reward and cloud revenue, for just 13 50 Inte rly rnet nea lead at er: “We can own Alibaba trades risk. epic more even and – times next year’s estimated Alibaba times next year’s expect trades at nearly Google for less than half the ors have cashed in on Invest earnings. David Rolfe is bullish ile mul wh tiple n of Alibaba – and ed earnings, eve giant gains in one tiny biotech on old-school American giants 50 times next l it’s stil not base are d ors in Chin est a,” he US inv r one plumanothe see to just such as Qualcomm and Apple, year’s expected says . “It’s a great company learning the ins and met after its only drug failed to whose P/Es are only 14 and 15, earnings e with nes a big Chi moa t and a much outs of the al. Biotech approv FDA win respectively. Margaret Vitrano, cheaper valuation.” company. stock valuations are who manages $7.7 billion for particularly discomfitBiotech ClearBridge and Legg Mason, DO BUY DIVERSIFIED BIOTECH e become They’v ing. stock sees hope for Microsoft because Medicine is still in an exciting age of innovation, and Margaret Vitrano valuations are very expensive and, among big companies, it’s “best employs a barbell approach, with certain biotech companies on one side, historically, when you particularly positioned to still be relevant in and on the other, steady names like CVS, whose pharmacies and drugKPZJVTÄ[PUN get to this kind of level, a world that’s moving to cloud,” distribution businesses should find a tonic in the aging US population. Two it’s poised for underpershe says. of Vitrano’s top-five holdings are diversified biotechs Celgene and Biogen nce. forma development. and research in heavily investing are which Idec,

INVESTMENT

Blue Chip stocks are huge, high quality companies normally with a global reach. They are usually well-established companies HUK OV\ZLOVSK UHTLZ ^P[O Z[YVUN ÄUHUJPHS backing. This often means they are more secure in times of poor economic conditions and hold their value better than smaller stocks and shares as the dividend income becomes more valuable. As blue chips are usually established companies, they will normally THRL JVUZPZ[LU[ WYVÄ[Z HUK VM[LU WH` V\[ H WVY[PVU VM [OLZL WYVÄ[Z [V [OLPY ZOHYLOVSKLYZ and investors. This is known as a dividend. Why? It attracts investors looking for income and they may have fewer opportunities to re-invest earned income therefore reward investors with the dividend income payment.

BLUE CHIP STOCKS

FOR DIVIDEND INCOME IN 2015

By Andrew Lumley-Holmes

WHAT TO LOOK FOR?

When deciding which dividend-paying blue chip stocks to buy, you should take into account a number of factors including if the dividend payout is sustainable in the long term and the effect the dividend payments have on the price of the shares. You should look at a few points in particular when trying to find dividend income:

CHECK TRAILING DIVIDEND YIELDS

Sometimes a stock will pay a one-time dividend higher than normal. It may not repeat this. Look at the previous dividends paid and see if the trend is stable or increasing. If the dividend is a one-off payment or is decreasing, it may be a better idea to look for dividend income elsewhere and a different opportunity.

Below are a list of 20 Blue Chip stocks and shares that you may wish to consider adding to your portfolio for dividend income and long-term capital growth. They are ranked in no particular order: Royal Dutch Shell - Energy

AT & T - Technology Lockheed Martin Group - Industrials Johnson & Johnson - Health Care Microsoft Corp. - Technology Merck & Co. Inc. - Health Care TJX Cos. Inc. - Retail Amlin - Financials Carillion – Construction The above stocks are a mix of currencies, including Euro, GBP and US$ so there should

HSBC - Financials Roche - Health Care Total - Energy Sanofi - Health Care BP - Energy Unilever - Consumer Staples British American Tobacco Consumer Staples AstraZeneca - Health Care Siemens - Technology Woodside Petroleum - Energy BAE Systems - Industrials

be something for everyone. However, these stock ideas are not suitable for all investors and this article should not be construed as a recommendation. You are responsible to ensure that the stock fits with your current portfolio and attitude to risk. As always, if you want specific advice based on your personal situation regarding the suitability of these investments for you, then you should contact an expert.

that the company is dipping into previous undistributed earnings to maintain the dividend levels. This is another warning sign that the income is unsustainable.

SOME STOCK IDEAS:

If a company distributes HSS VM [OL WYVÄ[ as dividend income, it has nothing left to continue building the business

IS THE COMPANY STILL GROWING?

Earnings per share (EPS) over 5/10 years are a good indicator of a company’s growth. If earnings have continued growing, you can be reasonably assured that the dividend income is sustainable. An increase in earnings should be backed by an increase in revenue. In particular, look for consistent growth in the dividend income payouts year by year.

MAKE SURE SOME EARNINGS ARE RETAINED

If a company distributes all of the profit as dividend income, it has nothing left to continue building the business. This results in a lack of potential future growth of the company, thus you may lose out on an increase in the value (capital gain) of the stock/share that you hold. It may also mean

info: Andrew Lumley-Holmes is an independent financial adviser with Finsbury Private Wealth Management. e-mail: andrew.holmes@finsbury-group.com or (+357) 96418652. THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 31

INVESTMENT

WHERE TO INVEST

IN REAL ESTATE

IN 2015

any parts of Europe that had thus far been overlooked because of political or economic uncertainty now look set to benefit from this new approach. A study by global real estate consultancy Knight Frank has found a growing appetite for previously troubled locations such as Dublin and Madrid – where luxury property prices are poised to see strong and moderate growth, respectively – second-tier cities such as Munich, where real estate values are forecast to rise sharply in 2015, and upcoming neighbourhoods in established world hubs, including London and Paris. “Safe-haven investors who

The map of global real estate investment has changed. After years in which they privileged capital preservation over returns, investors have regained their taste for adventure and are branching out into alternative markets in search of good opportunities.

might previously have only considered established market neighbourhoods are now looking for new opportunities,” according to Knight Frank’s Head of Research, Liam Bailey. “The relentless march of gentrification and upscaling of neighbourhoods in inner urban areas in the world’s leading cities offers opportunities to residents, who can access more affordable alternative options close to central business districts, but most obviously for developers and investors betting on the next new Shoreditch or Meat Packing District.” Investors believe prices have now bottomed out in Paris and are keen to take advantage of the favourable market conditions. Knight Frank expects the

French capital to see moderate price growth next year and tips the 16th arrondissement as one of the ten worldwide markets to watch in 2015 because it is “a safe but buzzing area” where developments are small scale and competition is fierce. Luxury real estate here is up to 22% cheaper than elsewhere in the city, according to the Knight Frank study, making it a mouthwatering opportunity. But even London, the city that most profited from the global flight to safety in previous years, stands to reap rewards. Although luxury real estate prices are forecast to remain level in the British capital in 2015, the eastern neighbourhood of Victoria Park, close to London’s technology hub, provides an Sydney – Barangaroo

Tokyo – ToyosuKachidoki bay-area New York – Williamsburg (Brooklyn)

KNIGHT FRANK’S

TOP TEN

Paris – 16th arrondissement

rank

MARKETS TO WATCH IN 2015

4 5

Dubai – Business Bay

London – Victoria Park

Cape Town – Central Business District

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

interesting investment opportunity, according to Knight Frank. Values have risen strongly in this area, but, with prime homes priced at up to 15% less than in other neighbourhoods, there is scope for further growth, according to analysts. And even though some of the features that have made residential real estate investment so appealing, such as ultra-low interest rates, and low returns on alternative investments, are likely to begin being removed next year, future prospects for up-and-coming areas are good, according to Bailey. “Our view is that in most centres the return of sustainable economic growth, especially in Europe, means the outlook for the key world centres for 2015 and beyond remains positive.”

Hong Kong – Kowloon West

Singapore – Tiong Bahru Nairobi – Runda and Gigiri

THE VIEW

THEODORE ALEPIS

MANAGER, INVESTMENT AND ENERGY STRATEGY LOOKING BACK…

2014 was a decent year for major developed markets equities, especially the US, as well as for bonds, European periphery bonds in particular. The year was characterised by major geopolitical events and high volatility in the currency markets with the US dollar growing stronger against all major currencies. In particular, we saw emerging market currencies depreciating vs USD with the worst performer being the rouble which has fallen by as much as 82% against the dollar, driven by EU and US sanctions on Russia and also the fall in the price of oil. The other main mover in the currency market was the Japanese Yen, which fell 12.85% against the dollar, driven by excess liquidity created by the Bank of Japan and President Shinizo Abe’s economic policy (popularly known as “Abenomics”). One of the main targets or “arrows” of “Abenomics” is to double the inflation target to 2%, in an attempt to fight falling prices, a phenomenon that has plagued Japan since the 1990s. The Euro dropped by 9.61% vs the USD mainly on the anticipation of a full blown quantitative easing by the European Central Bank (ECB). In this respect for a euro-based investor, the best performing assets were global bonds with 13.2%, global equities (11.2%) and gold (11.8%) since about 10% return came from the appreciation of the US dollar. However, in absolute terms returns were not as impressive with global bonds being up by 2.4% global equities being up by 0.84% and gold up by 1.5%.

LOOKING AHEAD…

EQUITIES In 2015 we expect good global growth with the main drivers coming from the US, China, India and the UK as well as some African and Asian countries. Strong US macroeconomic fundamentals, coupled with a drop

FROM CYPRUS in the unemployment rate and continuous improvement in the housing market, should help the US equity market keep its strong momentum. The average P/E of the S&P 500 is 17.7 which is very close to its historic average. In this respect, we see further upside but returns will not be as high as they used to be and will be dependent on corporate company fundamentals In Europe, we see that the upcoming quantitative easing by the ECB will help equity prices. The low cost of energy prices will help Europe overall and the strong dollar/weak euro will help boost exports and growth and, thus, we expect positive returns for European equities. In Japan we see equities continuing their rally, driven by the cheapening of the currency coupled with the fact that bond yields in Japan are very low. A further yen depreciation could result in a more competitive economy which will benefit Japanese exporters further. However, given Abe’s recent election victory, there is increased pressure to support the smaller companies in Japan that have benefited less from “Abenomics.” Therefore, we perceive slight growth for the Japanese economy. In emerging markets in general, we expect 2015 to be quite volatile. We see clear signs of recession in Russia and Brazil (the first driven by the price of oil and the second by the huge economic expansion that took place in the pre-world cup years) and of some slowdown in China. However, even in these economies we keep a neutral stance and we wait to buy on the dips. BONDS Bond prices were supported primarily by the expectations of a broad-based QE in Europe and the fact that in the US rate hikes had been postponed for the end of 2015. Nevertheless

we expect that lower oil prices will contribute to higher growth especially in the eurozone . More specifically, for 2015 we expect US growth to remain at average levels and to be the primary driver of global GDP growth. In the eurozone, subdued inflationary pressures will force the ECB to enter into a full-blown QE programme by the end of Q1 2015. This will pressure bond yields to stay at current or even lower levels. In Japan, bond yields will remain low enough helped by the Bank of Japan’s QE programme. However, for a non- Yen based investo,r yields remain unattractive due to the depreciation of the Yen. In the Emerging Markets, primarily in the BRIC countries, we remain sceptical on domestic currency bonds due to increased FX volatility. Thus we are negative on Russian, Brazil and Chinese bonds and slightly positive on Indian ones.

ALTERNATIVE INVESTMENTS Alternative asset classes are expected to be interesting to global investors in 2015, driven mainly by the higher volatility especially in the currency markets. As far as commodities are concerned, we expect the hard commodities (gold, aluminium, copper) to remain on a downward trend with immediate pressure towards the downside driven by lower demand dynamics globally. However, due to the fact that we see the euro further depreciating vs the US dollar, for a euro- based investor we are neutral. Conversely, we expect Crude Oil (WTI) price to reach equilibrium between USD 50-60 per barrel and in H2 to start picking up again. An investor should always target a well-diversified global portfolio across asset classes, geographical regions, sectors, styles, etc., and should always assess the potential return of an investment from a risk-adjusted point of view.

STRATEGIC POSITIONING FOR 2015 Q1 2015 Outlook GLOBAL EQUITIES

EQUALWEIGHT WITH POSITIVE BIAS

USA

EQUALWEIGHT WITH POSITIVE BIAS

EUROPE-EX UK

EQUALWEIGHT WITH POSITIVE BIAS

EQUALWEIGHT

JAPAN

UNDERWEIGHT

EMERGING MARKETS

EQUALWEIGHT WITH NEGATIVE BIAS

GLOBAL BONDS

UNDERWEIGHT

GOVERNMENT

UNDERWEIGHT

CORPORATE-INVESTMENT GRADE

EQUALWEIGHT

HIGH YIELDS EMERGING MARKET DEBT

EQUALWEIGHT EQUALWEIGHT

OIL

NEUTRAL WITH POSITIVE BIAS

GOLD

UNDERWEIGHT

*The tabulated views express the 1st Quarter of 2015 strategic views with a one year horizon and are reviewed at least every quarter with a one-year rolling window, or within a quarter, if there are severe changes in market conditions, unprecedented events, changes in macro and fundamental factors, etc.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 33

INVESTMENT

LOUCAS MARANGOS

CEO

LOOKING BACK…

Most of our predictions for 2014 proved to be accurate. G7 equities and fixed income performed well with US equity markets ending 2014 near all-time highs as the US economy picked up

cies like AUD and CAD have depreciated against the USD and other majors as growth rates of developing countries fell short of estimates and commodity prices have taken a plunge.

LOOKING AHEAD…

that Cyprus still faces significant economic challenges. On the risk side we note the challenges posed to the professional services sector by the Russian de-offshorisation law, the weak rouble and its impact on tourist arrivals, the high unemployment rate and still

CYPRUS The performance of the economy remains better than projected and this has not gone unnoticed in the international capital markets where the yields on Cyprus debt have been falling. We believe that 2015, in economic terms, will be a net positive for Cyprus as the economy will continue picking up pace. There is progress on structural issues as underlined by the recapitalization efforts of the banks, the rationalization of the costs of the private and public sectors and we believe that Cyprus will continue the implementation of its Troika Memorandum of Understanding. We do not, however, underestimate the fact

problematic bank balance sheets. In its current format, the Cyprus economy is – in a bizarre fashion – isolated from the international markets as its financing needs are covered by the Troika and its links with the Greek banking market have been severed. This should provide significant protection to local financial instruments in the event of either renewed Greek turbulence or a selloff in international markets. Although it is still too early to see any meaningful trends, we expect that the newly listed Bank of Cyprus shares will provide value to investors in 2015 but we would advise market participants to wait for some degree of price consolidation prior to investing. We would pay increased attention to the progress of the bank in resolving the NPL issue and the adequacy of the provisioning policy. We expect that the perfor-

mance of the BoC share price will have an impact on the other equities. Despite its strong performance in the past year, Cyprus sovereign debt should also perform well in 2015. We expect that the improving economic backdrop

We expect that the newly listed Bank of Cyprus shares will provide value to investors in 2015 and central banks maintained accommodative monetary policies. Also as predicted, EM equity markets underperformed especially in the later part of the year. In Cyprus it was not difficult to predict a year with very strict credit rationing and ballooning non-performing loans. We had expected Bank of Cyprus shares to be listed by mid-year but the process was delayed as a second round of recapitalization was necessary before hitting the floor. We got oil completely wrong, expecting that the US recovery would drive demand for oil while political instability in the Middle East would be a disruptive factor in supplies but, instead, surging oil supply sent the price of oil to its lowest point in the last 5 years! Despite upward pressure in the first six months of the year, the price of gold has come under renewed selling pressure and ended the year lower as predicted, pressured by investors switching positions to riskier assets. In the foreign exchange market, the focus was on Central Banks with the US Federal Reserve winding down stimulus, whereas the ECB and BoJ have done exactly the opposite. As we projected, the USD and the GBP have outperformed the EUR and JPY and high-yielding curren-

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

will be a determining factor for further credit spread tightening while EU base rates will remain low throughout 2015. EQUITIES In the first half of 2015, international equity markets are likely to benefit from enhanced consumption patterns as low commodity prices leave consumers with more disposable income. Equities are very likely to remain in positive territory in 2015 but we do note that developed world equities have gone from undervalued to fairly-valued after a five year bull run. The US economy is projected to grow by 3% in 2015 and USbased equities should continue to offer positive value to investors. We believe that markets have priced in to a large extent the possible rate hike by the Federal Reserve later in the year and that the growth of the US economy will support corporate earnings. However, investors must be selective and cautious. We prefer Consumer Cyclicals, Financials and Tech to Energy and Utilities. It is interesting to note that European and UK equities could outperform US equities as the delayed economic recovery could translate into improved earnings growth for UK and EU vs US issuers. Emerging Market stocks will

be a volatile pick in 2015. We do expect extensive turbulence especially in the equity markets of commodity driven EM economies. We would avoid placements in Eastern Europe and Latin America at least until commodity prices hit a floor. Investors can look to Emerging Asia for placements given the lower reliance of Emerging Asia on commodity prices, better corporate governance and stronger liquidity. As we said before, any placements in Emerging Asia should be combined with close scrutiny on the economic performance of China. BONDS We expect to see a divergence in the performance of G7 bonds as developed economies have shown persistent trends of economic decoupling. The US economy is on a much more solid footing than the EU and Japan and we expect that this will be mirrored in the monetary policies of the central banks where the Fed is likely to start raising interest rates in the second half of 2015 as the US recovery proves to be much stronger than in the rest of the developed world. It is also expected that the EU and Japanese Central Banks will follow expansionary monetary policies to fight deflation and low growth. As a result, we expect to see yield differentials (especially in shorter dated issues) and that UST will underperform Bonds and most other EU sovereign issuers. On the other hand, emerging markets government bonds can look forward to a volatile 2015 as the slump in the price of oil, international political tension and the prospect of higher USD interest rates feed into the economies of EM nations. This is an area for investors with healthy risk appetite who can follow the markets and can take advantage

of opportunities when uncertainty creates mispricing. There are discrepancies in the EM credit space and we expect that Emerging Asia bonds will perform better than Emerging Europe and Latin America bonds at least for the first quarter of 2015. Investors in regional EM fixed income should reevaluate their allocations depending on how the situation in Russia develops and the performance of the Chinese economy. COMMODITIES The price of gold has already corrected significantly over the last years and under a base case scenario it is likely to remain pressured by rising appetite and the prospect of interest rate increases. The price of oil is probably one of the tougher questions. As 2014 drew to an end, oil had had a rollercoaster of a year with June 2014 highs followed by a collapse

FOREX MARKET The general trend in the currency markets is not expected to change significantly in the New Year. The focus will remain on Central Banks and the policy tools used to help economies reach growth/inflation targets. We will continue to witness a considerable monetary policy divergence between the US and the UK on the one hand and the eurozone and Japan on the other. Although there are clear signs of the decoupling of monetary policy in 2014, we expect that it will become increasingly clear in 2015 especially towards the second half of the year. The US economy is performing much better that its counterparts and at some point in 2015 we believe that the Fed will start raising interest rates. In our opinion, this will not happen in early 2015 but chances are the hikes will

Investors should be cautious on placements in oil or energy-dependent Ă&#x201E;UHUJPHS PUZ[Y\TLU[Z in oil prices that had significant international economic impact. In the end it will boil down to demand and supply and a question as to what kind of oil producer will start cutting production first. Although we expect oil prices to stabilize within the later part of 2015, investors should be cautious on placements in oil or energy-dependent financial instruments at least for the first quarter of 2015.

start in the second semester. The Bank of England is also expected to raise rates but this is expected to happen either in late 2015 or early 2016. The Bank of Japan and the European Central Bank face similar issues: deflation, low growth rates and higher unemployment. The massive monetary expansion that has already begun in both economies is expected to continue into 2015 as both BoJ and ECB introduce new tools in

the fight against deflation and low growth. It is likely that the ECB will move early next year to a phase of quantitative easing as a last resort, given that lowering interest rates did not have the desired effect. As a consequence, it is likely that the USD and GBP will continue to over perform other major currencies and in particular the EUR and the JPY. It is possible that the depreciation trends of both the EUR and JPY witnessed in 2014 are the beginning of a more long term trend but we could see a period of consolidation with EURUSD and USDJPY trading within tight ranges in early 2015 before depreciating further vs. the USD. On the other hand, the CHF is expected to continue to trade close to the 1.20 EUR ceiling for another year as long as the Central Bank of Switzerland stays committed and is able to support this ceiling but we do expect that the market will test the 1.20 level again.Higher yielding currencies such as the AUD and the CAD should remain under pressure with commodity prices at low levels. Another area of focus are Emerging Market currencies, where we have seen significant losses for the RUB, KZT, UAH, CZK, and TRY in 2014. Although difficult to predict, we expect that emerging market currencies are likely to remain under pressure in 2015 as low commodity price and the increasing likelihood of higher US interest rates feed in their current account balances and the stronger USD affects USD denominated debt repayments. We do find that there are opportunities for long-term investors in the currency market that can generate positive returns for the trader that follows Central Banks, fundamental macroeconomic trends and commodity prices.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 35

INVESTMENT

KONSTANTINOS SOFOKLEOUS

CFA MANAGING DIRECTOR LOOKING BACK…

2014 was another stellar year for global equities that returned almost 20% in euro terms. US equities led the pack with almost 30% whereas most European markets returned in the single digits, highlighting yet again regional decoupling. Emerging Market equities performed better than European but nothing

be called to prove that they are willing to “do whatever it takes” to ensure that the Euro project remains intact. Any turbulence in Europe could cause havoc to global markets. Central Bank policy will also continue to diverge, with the Federal Reserve in the US not only terminating QE but probably also raising interest rates. This makes

When it comes to asset allocation we still prefer equities to bonds

close to US equities. The equities/bonds paradox continued and global bonds also produced decent positive returns due to the continued support from Central Banks. The year will undoubtedly be remembered for the plunge in oil prices but also notable was the divergence between the US and Europe both at the macro level and at the markets level.

LOOKING AHEAD…

We believe that 2015 is a year of extreme uncertainties, making predictions in major asset classes almost impossible. For this reason we stress that portfolio diversification is crucial more than ever. For one more year we expect that politics and geopolitics will be the main drivers of market returns and this factor is what adds to the uncertainty. 2015 will also be a critical year for Europe since “austerity fatigue” is kicking in and non- traditional political parties are gaining strength in many countries (Greece, Spain, Italy, France, etc.) We believe that this is the year that European political elites will

Central Bank policy in Europe and Japan more difficult since policymakers will be pulling in different directions. When it comes to asset allocation we still prefer equities to bonds since we do not think the latter sufficiently compensate for the risk undertaken while the former seem to maintain support by strong balance sheets and potential earnings upgrades. Equities also find support from the continued shift to this asset class from other asset classes including bonds. Having said this, given that Global Equities have returned almost 200% since March 2009, we believe that returns in the medium term will be well below the long-term averages. In addition, investors will be extremely happy and ready to sell at the slightest sign of a storm. EQUITIES Despite the rise in recent years, equities have the potential to move even higher but are extremely prone to corrections. We think that risks, such as the degree of divergence between prices and

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

fundamentals, are increasing as we progress further through this cycle and would be vigilant in certain instances to take profits from the peaks, as appropriate, and potentially reposition at lower levels. Investors should be extremely cautious for any flares of geopolitical risk and should monitor the Eurozone situation closely. They should be ready to “risk- off” if certain events take place. 2015 is certainly the year when investors should consider certain equity strategies that protect them on the downside. Regionally, because of company fundamentals and continued QE we do prefer Europe but as we mentioned above investors should be extra cautious since the US- Europe divergence observed in 2014 may be repeated. Emerging equities are also favoured based on fundamentals but investors should never forget that if there is a correction or a risk-off, Emerging Markets will be hit harder. In 2015 more than ever, selection within regions will be very important since acute differences exist among countries. Not all Emerging Markets (or European markets) are created equal.

On the other hand, corporate bonds seem more attractive than government bonds, supported by stronger balance sheets despite the tight credit spreads. We prefer to take some degree of credit risk rather than duration risk in certain markets, on the back of the expectation of higher interest rates at some point. Selection is key for any positioning. Selected highyield issues may be used as sources of outperformance in a portfolio. Fundamentally, emerging market countries with higher growth and lower debt offer attractive fixed income opportunities but we recommend being very cautious and very selective.

BONDS We believe that there is significant mispricing of risk when it comes to certain Government bonds. This is simply the result of the expectation that the ECB is at the verge of buying significant amounts of bonds and this is why 10-Year US Treasuries yield over 2% but 10-Year bonds of several European governments yield under 1%. This fundamentally does not make much sense. Overall, government bonds are overvalued offering record low yields and are vulnerable to rising volatility in a year with expected dependence on policy actions. We would thus be positioned at the shorter end of the yield curve, at low duration.

OIL Following the spectacular fall of oil prices in 2014, we expect oil prices to end the year at a slightly higher level but any prediction here is highly uncertain. It is very likely that during the year we will see lower prices.

GOLD Despite the expected strengthening of the dollar, gold offers the attractiveness of a hedge in case there are major negative geopolitical events. The fact that it has lost about a third of its value from its peak also offers some downside protection. We would include gold in any multi asset portfolio to gain from its diversification benefits.

CURRENCIES We still expect the dollar to strengthen slightly against the euro, the Japanese yen, the British pound and other major currencies on the back of higher growth rates in the US economy. We also expect the British pound to strengthen against the euro on outperformance of the British economy within Europe.

NICOLAS THEOCHARIDES

CEO & MANAGING DIRECTOR LOOKING BACK…

We had a good year in the equity markets but performance was not uniform across geographical regions. The US recovery continued, powered by a historically low interest rate environment and with the Dow Industrials Index reaching the historic high of 18,000. The star performer of our equity investments was Chinese equities with the Shanghai Composite Index rising close to 50%. European equities rose in line with our predictions but they have been quite volatile. Gold kept its value as a “safe haven asset” for 2014, while oil tumbled on a variety of factors, including OPEC’s decision to keep output unchanged in a decreasing demand environment, possibly so as to slow down the expansion of the shale oil industry but also perhaps as an “unwritten” sanction against Russia which needs a price of $100 per barrel in order to have a balanced budget.

LOOKING AHEAD…

We enter 2015 with an overweight allocation to equities versus bonds, along with an allocation for alternative investments and commodities. As the global recovery from the “Great Recession” of 2008-2009 gains traction into 2015, we again expect equities to outperformas an asset class. Asia as a region will remain the front runner in global GDP generation, and is expected to grow by 5.5%, versus 2.5% for North America and a mere 1.1% for Europe as a whole. CYPRUS It is expected that a mild rate of positive growth will return to the Cypriot economy for 2015 but, in the absence of any specific catalyst which will

drive growth to higher levels ,it will be a slow and drawn-out course. Such an external catalyst could come from Cyprus’ hydrocarbon potential which, however, is looking more and more to be not independent of a solution to the Cyprus Problem. EQUITIES Based on a better macroeconomic outlook, no deflation fears and less exposure to geopolitical risks, US equities should remain more robust than European, at least in the first half of the year. Asia is our preferred emerging region for 2015. Asian markets are less vulnerable to US interest rate hikes and they are better positioned when it comes to balance-of-payment and fiscal balances. Also, Asian countries are the beneficiaries of lower oil prices while they stand more attractive in respect to valuations and earnings dynamics. We would not be surprised if Chinese and Japanese equities had another good year but volatility is expected along the way. BONDS The loose liquidity policy of the industrialized nations’ Central Banks has provided cheap funding in an attempt to stimulate growth but, at the same time, it has depressed the yields of government bonds and investment grade corpo-

rate bonds. Investors looking for yield from bonds now have to look at lower rated bonds which can be considered as “speculative grade” but we think that the current generally low interest rate environment levels have pushed the yield on this kind of bonds lower, to levels which we see as insufficient to compensate for the implied credit risk. A correction in this asset class could be around the corner so we would avoid high yield bonds at this time. COMMODITIES When we were writing at this time last year,we did not expect the price of oil to drop as much as it has. At current levels, the low oil price it is acting as a stimulus for global growth. It is very difficult to be accurate in predicting how long the price of oil will continue to be low and if it will move even lower. If, as mentioned earlier, the aim of OPEC is to slow down the expansion of the shale oil industry, then the price of oil should go down to around $40 per barrel as this is,on average, the marginal

cost for extracting shale oil. If the aim is to cause financial difficulties for Russia, then the price of oil may not slide much lower as the recent collapse of the rouble suggest that this aim has already been achieved. We do not expect gold to rise further and, in fact, we would not be surprised to see it trading lower six months into 2015. From the commodities spectrum we would see value in agricultural commodities, the prices of which we expect to consolidate and stabilize at current levels, as well as in cyclical metals. ALTERNATIVE INVESTMENTS Successful Hedge Fund strategies can yield a good return and are an essential part of any well-diversified portfolio. I would avoid those funds which have yielded very high returns for a couple of years. Usually these strategies are successful only for specific stages of the business cycle and they may then perform very badly at other stages of the business cycle. I would therefore go for strategies that have consistently delivered positive results – possibly low double digits – and for which the fund management team remains the same. CASH In the continuing low interest rate environment, cash does not yield any acceptable return unless it is placed with lowrated institutions, something which, hopefully, people have now painfully learned to avoid. I would advise cash to be kept in more than one bank and, if possible, in more than one geographical location, so as to spread the risk. At this point in time I would favour the US dollar against the euro.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 37

COMPLIANCE

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

onquering the challenge posed by regulatory compliance HJYVZZ ÄUHUJPHS HUK WYVMLZZPVUHS ÄLSKZ PZ UV LHZ` MLH[ HUK LUZ\YPUN [OH[ H NVSK Z[HUKHYK PU [OPZ ZWOLYL PZ \UMHPSPUNS` HKhered to demands a call to action. Championing this cause is Howard Finger, CEO of VinciWorks ÔV OHZ ILLU YLZVS\[L PU OPZ TPZZPVU VM JVTPUN [V *`WY\Z ^P[ULZZPUN ÄYZ[ OHUK ÔH[ ULLKZ [V IL KVUL HUK PUZ[PNH[PUN H JVSSHIVYH[P]L TV]LTLU[ [OLYLHM[LY PU H IPK [V LUNLUKLY H MHPYLY ZHMLY HUK TVYL OVULZ[ LU]PYVUTLU[ PU ÔPJO I\ZPULZZLZ TH` M\UJ[PVU (UK P[ ZLLTZ LɈVY[Z HYL WH`PUN VɈ! =PUJP>VYRZ» JVTWSPHUJL ZVS\[PVUZ HYL NHPUPUN PU WVW\SHYP[`! H UL^ `LHY" H UL^ Z[HY[ By Chloe Panayides

Gold: VinciWorks provides online compliance solutions for legal and other regulated professions. What insight can you share as to the changing global shift towards transparency and compliance? Howard Finger: In the 1970s, my father manufactured dresses in the UK for a large European retailer. I remember going with him on one occasion to help drop off a ‘Christmas gift’ to a buyer: it was a colour TV! Today, such so-called ‘gifts’ (we now know them to be bribes!) just don’t happen in first world countries or, at least, they shouldn’t be tolerated. Criminal liability, massive fines and the impact of reputational damage on shareholder value far outweigh the benefits. In addition, society is now generally less tolerant of corruption, unfair advantage, discrimination, and the violation of human rights. As a result, regulatory compliance is more prevalent and more demanding, forcing all businesses to include compliance as an agenda item at every board meeting. Of course, we all complain about the increasing amount of regulatory controls being imposed on businesses and individuals but, in a global market, we all need economic stability.

The world is becoming a fairer, safer and more honest place

The demands imposed by the Troika of international lenders on Cyprus are a perfect example. Adopting and implementing these controls are painful but if Cyprus wants to trade as part of a family of nations, then it has to achieve and show evidence of compliance. The good news is that the world is becoming a fairer, safer and more honest place, and regulatory compliance is helping to make that happen. Gold: How is this shift affecting service providers? H.F.: Because of these global shifts, businesses are taking a more serious look at compliance and risk management tools.

Vinci

The smarter firms have recognised that there is no competitive advantage in compliance. They realise that, in many situations, their advantage is in the way they use certain tools and not in the tools themselves. It’s not Microsoft Word that gives you a competitive advantage: it’s what you write with Word that makes the difference. To succeed today, businesses need to focus on their core competencies and so they are outsourcing back-office and other support services. By outsourcing to third-party expert service providers, they are able to get better service for less. Gold: And how has VinciWorks itself responded to these changes, ensuring that it keeps up with developments so as to be able to offer fully comprehensive compliance solutions and courses? H.F.: VinciWorks has always been at the forefront of this collaborative development model. In 2003, driven by increasing regulatory fines, criminal liability and the cost of reputational risk, VinciWorks formed the Online Compliance Consortium (OCC). Based on the principle that there is no competitive advantage in compliance, VinciWorks brings together sector-specific, competitive companies to collaboratively develop online compliance solutions that establish industry best practices. By col-

COMPLIANCE

laborating, OCC members benefit from sharing resources and expertise across the group, building better solutions that guarantee compliance, deliver assured accuracy and significantly cut costs. It began with a group of 14 of the world’s largest law firms and, today, over 150 leading law firms are together building better compliance solutions and defining professional compliance standards. Now, VinciWorks is engaged in activating banks, accountants and lawyers in Cyprus to work together to collaboratively develop online compliance solutions that establish industry best practices. By collaborating, Cypriot firms will benefit from sharing resources and expertise with their peers. They will be given an opportunity to build better solutions, whilst managing the costs of delivering compliance.

framework which professional services firms in Cyprus must implement imminently. Infocredit is the exclusive reseller of VinciWorks’ courses, Compliance Management System, Policy Tracker and Risk Management System. Gold: Do you hope to strengthen your market share in Cyprus, and how do you envisage achieving this? H.F.: Professional services firms in Cyprus are already facing challenges in implement-

Technology allows us to deliver customised solutions, almost to an individual level

Gold: Which courses/solutions are proving the most popular and why do you think this is? H.F.: At present, our most popular solution is probably the VinciWorks Policy Tracker. It allows a firm to deploy policies and other important documents throughout the business and ensures that staff members receive and acknowledge receipt of policies. But the VinciWorks Policy Tracker goes one step further and is able to show that staff members have not only read the policy but also understood the content. It does this by adding a series of relevant questions that staff must answer correctly. Since firms need an efficient way of training employees online anywhere in the world, 24/7, our courses are extremely popular. Our anti-money laundering (AML) courses are used by over 80,000 users in around 80 countries and are considered the gold standard of AML training. Other popular courses include training on data protection, information security, anti-bribery and corruption (FCPA), risk management and the risks of e-mail.

Gold: Are you collaborating with Cypriot providers and, if so, in what capacity? H.F.: VinciWorks recently partnered with Infocredit Group to provide compliance, online training, and risk management tools to financial, legal and accounting firms and institutions in Cyprus. The partnership came about in response to the Troika’s and Central Bank of Cyprus’ (CBC) AML

ing the compliance and other regulatory requirements imposed by the Troika. Our aim is to alleviate the pain, reduce the costs, and help firms deliver compliance. Our tools automate many administrative tasks, ensure that staff are educated to an acceptable level, and enable firms to show compliance, all at an affordable price point. We have already begun by applying the OCC collaborative development model. We are working with the CBC, which will approve the final training, as well as other Cypriot and foreign banks, the Institute of Certified Public Accountants of Cyprus (ICPAC) and the Online Compliance Consortium’s world-leading law firms. We are building state-of-the art, highly engaging online AML training courses specifically for the Cypriot market. As you may know, the AML regulations and the Troika itself are very focused on having businesses manage risk and make strategic business decisions based on risk appetite. The VinciWorks Risk Management System provides companies with advanced risk analysis and reporting capabilities, empowering employees to

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identify risks and implement controls to achieve strategic and operational objectives. The Risk Management System is another collaboratively developed solution that replaces insecure Excel spreadsheets and cuts the time and costs of showing evidence of risk management compliance. Gold: What distinguishes your solutions/courses from competitors? H.F.: Clearly, it is our collaborative approach, the quality of our solutions and our price point. VinciWorks facilitates the leading firms in each sector to collaboratively design definitive risk and compliance products for that sector. For example, the products that we introduced into the legal sector in the UK were built by AML and risk experts at the largest law firms in the world, including Allen & Overy, DLA Piper, Freshfields, Hogan Lovells and Linklaters. Together with Infocredit, we are already engaging the CBC and the leading Cypriot banks to ensure that the AML training for the Cyprus banking sector absolutely fits their requirements whilst satisfying the Troika’s demands and meeting EU and local laws and regulations. Gold: Considering the acceleration of global developments in terms of regulation and technology, how is the face of lifelong education evolving and what role does VinciWorks imagine playing in this sphere? H.F.: Great question! Technology allows us to deliver customised solutions, almost to an individual level. When it comes to learning, different people learn in different ways based on their own style. Some prefer a visual approach, others prefer auditory learning, etc. The other trend we are seeing is a shift in the ability of people to concentrate for longer periods of time. Technology allows us to deliver shorter learning activities on a regular basis. Some leading businesses are already creating competency frameworks that dynamically dictate individual learning needs in order be better employees whilst also satisfying regulatory compliance. So I foresee a shift towards shorter courses, more learning by doing (i.e. activities as opposed to chalkboard) and more individualised learning frameworks. Our goal is to have more businesses and more people appreciate the value of working collaboratively and, in so doing, deliver better solutions, better training, and ultimately better people.

OPINION

How to deal with Europe’s ailing economy Time for Quantitative Easing?

here has been a lot of discussion lately in Europe, and especially at the headquarters of the European Central Bank (ECB), about whether or not there is a need for non-conventional monetary tools such as Quantitative Easing (QE) to revive Europe’s ailing economy. On the one hand, we have ECB President Mario Draghi feeling that the ECB must act strongly to help the struggling euro economy and, on the other, countries such as Germany opposing these moves, fearing that they could lead to reckless state borrowing and long-term inflation. They also argue that it might mean a halt in the adjustment programmes and structural reforms that many European countries need to implement. Europe has been going through a tough period for some time now, with high levels of unemployment (at 11.5% and 10% for the euro area and the EU-28, respectively for October 2014, according to the latest Eurostat data), especially for young people (those under 25). According to the latest figures (October 2014), the youth unemployment rate stood at 23.5% and 21.6% for the euro area and EU-28, respectively. Furthermore, the continent is suffering from low levels of inflation (even fears of deflation in the near future), budget deficits across many countries, and sluggish growth. According to the latest flash estimate released by Eurostat, the inflation rate is expected to be 0.3% in November 2014, well below the ECB’s target rate of 2% that it wants to maintain in the medium term. Furthermore, seasonally-adjusted Gross Domestic Product (GDP) rose by only 0.2% in the euro area (0.3% in the EU-28) during the third quarter of 2014 compared with the previous quarter. The underlying problems that Europe is facing are many and they include the loss of competitiveness to other regions of the world (especially by

The underlying problems that Europe is facing are many

By Dr. George Theocharides

the Southern European countries), excessive and uncontrolled government spending of the past that had led to continuous budget deficits and increases in public debt at faster rates than GDP growth, as well as low European birth rates, coupled with increased life expectancy that has raised pension and health costs. At the same time, a banking union has only recently been put in place, and there is no fiscal union or monetary union to prevent member states from devaluing their currency to tackle the crisis. The ECB has responded to the crisis by lowering interest rates (base rate) to an extremely low value (0.05%) as well as a series of targeted longer-term refinancing operations (TLTROs) that aim to offer cheap loans to banks in order to pass them on onto the real economy. In the first TLTRO, the ECB allotted €82.6 billion to the banking sector, while the second programme is expected this December with forecasts of an allotment of about €150 billion, well below the total target of €400 billion that the ECB was prepared to offer the banks for this year. If this monetary tool fails to revive the euro economy, the next step is for a broad-based sovereign asset purchase programme, known as QE. This was the programme that other central banks (the US Federal Reserve, the Bank of England, the Bank of Japan) have used since the global financial crisis of 2007-2009. This programme has helped to mitigate the adverse effects of the crisis, with the US economy now on a strong rebound that has lowered the unemployment rate to 5.8% for November 2014. My belief is that this is what exactly the ECB needs to do. Despite the objections of the Germans, Mario Draghi needs to step up and use such a programme to revive Europe’s ailing economy while, at the same time, addressing the problem of low inflation (or even deflation) that can be very damaging for any prospects of growth in the near future.

info: Dr. George Theocharides is Associate Professor of Finance and Director of MSc in Financial Services at the Cyprus International Institute of Management (CIIM).

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES

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EUROZONE

REALITY check required

s the latest growth wth figg ures come in, itt seems clear that the economic conomic pickup across the he eurozone in the firstt half of 2014 was something ething of a false dawn. The tension between Ukraine and Russia has caused a lot of problems. The sanctions that the European Union (EU) and Russia have imposed on each other are making life difficult for businesses. In Germany, the eurozone’s keystone economy, it has been estimated that the cumulative effect of the sanctions might knock up to 1% off the country’s GDP in 2015. Meanwhile, the single currency’s second-largest economy, France, is still dogged by weak growth. Across the region as a whole, the threat of deflation may be abating, but inflation is set to remain very low into the medium term. Despite the indisputable problems in the eurozone, the latest edition of the EY Eurozone Forecast does find some reasons to be positive. And it urges business leaders to think carefully both about how they can make the most of the current situation and also to consider how they can help improve things for the future. So, amid the gloom there are glimmers of hope but EY also warns that the eurozone economy remains vulnerable. And even the news of strong growth in some of the periphery is undercut by very high unemployment – a problem that will not disappear overnight. On these two pages are highlights from the EY Eurozone Forecast Today, many business leaders express disenchantment with Europe. Seven years after the financial crisis broke, they see strong recovery

in the US and UK. But after an uptick during the first half of 2014, growth in the eurozone has again faltered, and some commentators have even suggested the single currency area could be heading for a prolonged period of deflation and economic stagnation. Our forecast, however, suggests that businesses’ worst fears will not be realized. We believe the eurozone’s nascent recovery will gain strength, though long-term growth rates are likely to remain weak by historical standards. So business executives need to doo two things. First, they need to take a long, cool look at what is happening in the eurozone economy, think through the implications for their businesses, and then implement appropriate strategies. And second, they need to engage energetically and effectively with political leaders, explain what policies are needed to rebuild prosperity, and keep on explaining until inertia is supplanted by action to deliver the full potential inherent in the EU project. Disappointment and frustration are understandable among those who have committed time, energy and corporate assets to doing business and creating prosperity in Europe. After an encouraging start to the year, expansion in the eurozone, which last year accounted for more than a fifth of global GDP, has slowed. We now think growth in eurozone GDP this year will be just 0.8%, even lower than the 0.9% we predicted in September. What’s gone wrong? One serious setback has been the situation in Ukraine, which has triggered mutual sanctions by the EU and Russia, and related ongoing military and political tension. The German government thinks that sanctions will trim GDP in its economy by 0.3%. But German businesses reckon that

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with knock-on effects, German GDP could take a 1% hit. Owners of German mid-market companies that do business with Russia are very concerned about the situation and often unsure how best to adapt. Meanwhile, slower growth in China and across the Asia-Pacific region, key destinations for many eurozone investments and exports, remains a concern. Very weak growth in n France, Franc Europe’s second biggest economy and Germany’s trading partner, wormany’s ny s biggest bg ries executives everywhere, ywhere, where as does the slow and uncertain pace of reform m in France F and Italy, which is still contracting. Add tensions over the UK’s continued EU U membership and doubts over the ability and determination of policy-makers to fix the EU’s problems, and the balance sheet looks gloomy.

The 30% fall in the price of oil should add at least 0.3% to eurozone household income and GDP

The risk of stagnation in the eurozone is weighing on growth worldwide But exe executives also need to count the posiRenewed hiring and growth in Ireland, tives. Ren Portugal and Greece (and the UK) Spain, Po show that reform works. The value of the euro is falling aas the ECB hints at further monetary easing — a boost for exporters. And we think the 30% fall in the price of oil should add at least 0.3% to eurozone household income and GDP GDP. So we now forecast eurozone GDP next year of 1.2%, followed by 1.6% growth n in 2016 aand thereafter. That is a substantial improvement on what the euroz eurozone is achieving today, but compares with growth-driven opportunities in poorly wi other de developed economies, as well as China, India and many other emerging markets. So aany international business with a eurozone presence needs to think hard eu about a where it is going to focus future investment. International companies operating within the eurozone must weigh where w they will w get the best returns on investment and d the strongest future growth. Projects put forw forward by managers in the eurozone will compete compet with options in other EU locations, a the UK, and other large, open and such as developed economies, notably the US. d l Comparing trends in the value of retail sales in these three economies is telling. In the US, the value of retail sales surged by 4.2% last year, is on course for 3.9% this year, and will likely hit 4.5% in 2015. UK retail sales growth also offers good opportunities – it approached 3.7% in 2014 and will probably top 3% in 2016. By contrast, eurozone retail sales fell 0.3% last year, may creep up 0.7% in 2014, and inch ahead only 1.4% in 2015. Poorer prospects within the eurozone are being reflected in corporate investment decisions. In 2013, investment growth in real terms in the US was 2.7% and in the UK 3.2%, while in the eurozone it fell 2.4%. In 2014, it looks to have ticked up in the US and stagnated in

the eurozone, while the UK heads for a whopping 8.5% surge. Looking ahead, we expect investment growth of around 6% in the US and UK, and a gradual recovery toward half of that in the eurozone by 2017. Battling for sales, companies in the eurozone are unable to raise prices. Inflation is approaching 2% in the US and likely to reach similar territory in the UK, from a probable 1.6% in 2014. But eurozone inflation will probably reach only 0.5% this year, remain weak in 2015 and only recover to more normal levels in 2016. A healthier business environment in the US and UK should enable business operations there to maintain or enhance their margins. But in the eurozone, companies are battling for market share while prices stagnate. To avoid margin erosion they must reduce costs, either through efficiency gains or consolidating rivals, which may enhance pricing power over both customers and suppliers. Many European companies are flush with cash. Valuations have become more realistic. Business leaders should now weigh strategic acquisitions as well as organic growth opportunities. According to Moody’s Investor Services, acquisitions by European companies reached US$788b in the first 10 months of 2014, the highest since 2008. And acquisitions by German companies in the US exceeded those they made in Europe for the first time in a decade. Today, executives must anticipate the preference of activist shareholders for dividends and share-buybacks, rather than international mergers and acquisitions (M&A). Yet EY’s October Capital Confidence Barometer confirmed that the search for acquisitions to access new markets has intensified. Europe is still a huge market. In the absence of expansion many sectors are becoming increasingly competitive. That opens the door to bolt-on acquisitions. Buying an over-leveraged business in Spain or Portugal may give access to low-cost production and to markets in Latin America or Africa. With downward pressure on prices throughout the eurozone, cutting costs remains a priority. Consolidating a rival may help. Such moves should be examined as part of a root-and-branch review of the value chain. Shifting exchange rates, and declining energy prices and real wages, combined with enhanced labour flexibility in some countries, continue to strengthen the attractions of some eurozone locations for certain activities. The realization that growth in tomorrow’s Europe will be different should be a cue to overhaul business models for many companies.

What does your business really need to do, and where? What services should be shared across borders? How will slower long-term growth gel with megatrends such as increased outsourcing, the digital transformation, and the creation of smart factories where computers orchestrate efficiency out of complexity? Sources of growth are shifting. Here are some of the deep-seated, far-reaching changes that every board and every executive should be building into corporate planning: • Climate change and concerns over the reliability of Russian energy supplies are spurring the eurozone energy transition. The rise in renewables will be followed by smarter, more integrated grids. In addition, technology is enabling a transformation in the delivery of health care. • The pressure on governments to provide more effective services at lower cost, in new ways, is reviving opportunities in public sector markets. And a similar search for better ways of doing things is driving vanguard companies to seek out and collaborate with the pioneering businesses now gaining momentum in a slew of emerging European digital innovation hubs. • Paradoxically, the ways in which Europeans generate wealth are changing, yet prosperity is rising only gradually. Productivity growth disappoints. Both consumption and investment appear to be held back by lack of confidence and opportunity. • As the Organization for Economic Co-operation and Development (OECD) reminded us in early November, the risk of stagnation in the eurozone is weighing on growth worldwide. Cutting deficits, it said, should sometimes take second place to restoring business confidence. • Today, continental Europe is dropping off the investment radar for many international companies. Eurozone policy-makers need to understand that they – not businesses – hold the keys to restoring confidence by creating an environment in which business can thrive anew. • Carrying through structural reforms, cutting levies on labour, ditching unnecessary red tape and inaugurating a transatlantic trade and investment partnership (TTIP), along with completion of the single market, would unleash growth like that enjoyed by the US and UK. Business leaders must act now – calmly, thoughtfully and carefully – in order to tailor their operations to the eurozone outlook. But they should also press policymakers harder to clear away the obstacles to growth.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 43

Not Another ECONOMICS

1998 History will not repeat itself for Russia in 2015

By Dr. Savvas Saavvas Savouri Saavo ouri

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had resolved to write nothing more during what remains of 2014. A total disagreement with the consensus thinking towards the UK, China and – most of all – Russia has, however, forced me to break this resolution, in preparation, no doubt, for all those I will break in 2015. Let me make it clear that I do not share the frenzied concerns that in 2015 Russia is poised to experience “another 1998”. This is not to say that the steep fall in the price of oil is not hurting oil exporters. It is just that I do not see Russia as the most serious casualty. Consider, for instance, the effect on Venezuela. Over recent years, the hard currency that Caracas earns from selling oil has provided a degree of mitigation for its woeful economic management of the country. And whilst voices have been raised suggesting that Venezuela faces an economic crisis, these have been mere whispers in comparison with the screams that Russia will bleed its foreign reserves and then default on its foreign debt, sink into a political crisis and enter a deep recession. As for the “Four Horsemen of the Apocalypse” supposedly heading in Vladimir Putin’s direction, I see none having anything like the probability being so widely and vocally suggested. There will no doubt be those who claim that Venezuela has long been used to currency shocks and, furthermore, doesn’t appear on the global economic radar on the scale of Russia. The point, though, is that Venezuela is one of a number of economies for whom the fall in the price of oil – assuming it continues – is having a materially (sic) unwelcome economic effect. And can anyone claim that a disorderly decline in the Mexican and Nigerian economies would not figure as important regional and indeed global events? For with Mexico and Nigeria, as with Venezuela, I see problems far more worrying than for Russia. Nigeria is, after all, home to a larger population than Russia, with public finances more reliant on oil exports. Nigeria, moreover, is suffering from severe internal ethnic divisions. So why have the media and “the markets” shown such a frenzied interest in Russia? The focus on Russia would, on the face of it, seem perfectly justified. In addition to the challenges of a falling oil price, a depreciating rouble, rising inflation and the consequent significant spike in interest rates, Russia is being forced to “deal” with the discomfort of trade and financial sanctions over its in-

volvement in Ukraine. In short, Russia faces a “perfect storm” of unpleasantness. Well, for my part, I am rather sanguine towards its economic outlook. I will try to explain briefly why, for someone of a normally nervous disposition, I am so relaxed towards Russia and, instead, seriously concerned that 2015 will involve some extremely nasty economic surprises elsewhere. Whilst I accept that there has been a sharp fall in the oil price and a steep decline in the value of the rouble, I see the latter mitigating for the former. After all, the rouble value of oil being sold is actually as high as it has ever been. Contrast this with Venezuela, Mexico and Nigeria where respectively the Bolivar, Peso and Naira equivalent values from oil exports have fallen, because these currencies have yet to adjust downwards to the extent the rouble has. Of course there is no escaping the adverse impact of the sanctions which have hit Russia’s economy. Whilst I fully accept that Russia has hardly come out well from efforts to isolate it economically, I would argue that as harmful as these have been, they have also produced unwelcome and unintended consequences within the EU, consequences which I am sure will show themselves next year in a extremely unpleasant way. I would like to suggest that through 2015, economies from Bulgaria to Poland and from Croatia and Serbia to Hungary and Romania will be chilled bitterly. They will be hit, I believe, by the frosty winds of the “new cold war” which has broken out between Russia and the US/EU. Let me stop for a moment and talk in metaphors. I have always enjoyed watching those huge domino displays, each one larger than the next as a new team of extremely patient participants aims to break the world record for the largest number of dominos in a single display. When watching them, my attention is always drawn to the dominos which are about to fall, not those which have already toppled. The same applies in economics. What should fascinate most about 2015 is not which currencies, assets, other financial instruments and real economic measures have already fallen but which ones will topple next. To my mind, a host of Central and Eastern European nations are in line. I see their currencies toppling and I see a raft of financial and economic measures joining them. And in the wake of these shocks, the eurozone’s

problems will get a great deal worse. Let me return once more to Russia and those economically and financially ‘bruising’ sanctions. True, these have been unwelcome to Moscow but equally true is that they will have been welcomed by Beijing. For having been cold-shouldered by the EU in this new outbreak of the old ‘cold war’, Russia has been forced to engage a great deal more with China. And I simply cannot stress how important this development has been. Indeed, what is playing out with Russia and China follows on closely with what has played out with Turkey and a great many central Asian former Soviet Republics. Both Turkey and Russia are re-orientating away from the EU. Let me reflect a moment on what has been claimed as Russia’s biggest problem – its inability to fund dollars to service its dollar debt. Rather than claim that it will entirely draw-down its dollar reserves to honour its foreign obligations, I would suggest that Russia will turn to China, a nation extremely well saved in dollars having accumulated them in tandem with its considerable trade surplus over the United States. Would Beijing be obliging if Moscow came asking for funding? I have no doubt that it would be, if the “exchange” offered by Russia were the future provision of natural resources, as well as some other side-bar agreements where they agree to deal in consort against Japan over disputed islands. And as for China’s appetite for natural resources, be in no doubt that it will remain voracious, and will no doubt only increase with lower prices. Let me recap on what makes 2014 so different from 1998 and, by implication, why the latter is no template for the former. I can distil the reason into two structural changes. One is that, sixteen years ago, China did not

The rouble value of oil being sold is actually

as high as it has ever

been

ECONOMICS

2015 will not see a repeat of 1998 when Russia defaulted but rather of 1992 when currencies across Europe devalued

figure as the economic powerhouse it is today. The other is that in response to the events of 1998, Russia has since built a war-chest of foreign reserves as a defensive line in case it is ever again hit, as it is now being. Lest we not forget, the Russia of 1998 was a chaotic, crime-ridden, post-Soviet mess run by Boris Yeltsin in an extremely disorderly way. The Russia of recent years is a very different place indeed and one about which I do not hold anything like the serious reservations being expressed by others. For me, 2015 will not see a repeat of 1998 when Russia defaulted but rather of 1992 when currencies across Europe devalued. And whilst twenty two years ago, the devaluations were against the deutschmark, I expect that next year the currency against which others will fall sharply will be the euro. And by ‘others’ I mean the currencies of up to a dozen non-EU nations and even EU members; and by ‘sharply’ I mean by enough to send a new set of deflationary and adverse growth shock waves across the eurozone. So what of the UK in all this? Into the close of 2014, the UK’s key economic performance indicators have been impressive. They have impressed across the labour market and they have impressed across property sectors, doing so both for residential and commercial assets. Construction, retail and manufacturing have, in turn, each fared relatively well and considerably better than their counterparts across mainland Europe. In all cases, improving performances have been far from confined to London and the South East. In relation to Britain’s ‘monetary climate’, consumer price inflation has moderated – and Gilt yields fallen in turn – and real wages are now on the up. Two notable events during 2014 involved China and its engagement with Britain. One was Beijing’s announcement that China Construction Bank has been given the first licence to settle in the RMB in its newly-acquired London offices in the heart of The City at 111, Old Broad Street. The other Anglo-Sino development has been the successful issuance of a tranche of UK sovereign debt denominated in RMB. These and many other advances are cementing the financial and commercial connections between China and Britain. So much for the end of 2014; what of 2015 for Britain if I am to be believed and matters become unpleasant across Mainland Europe? Despite ending 2014 showing a generally im-

pressive economic performance, I accept that 2015 will usher in a period of slower growth for Great Britain; slower yes, but growth all the same. And still being able to record some degree of real expansion in its economy against so many headwinds will mark Britain out favourably from the rest of Europe. I have suggested that the UK’s positive economic outlook is not so much despite events unfolding across mainland Europe as, in part, because of them. My argument has been that the UK is the short-haul destination of choice for evacuating Europeans, most importantly those with considerable human and financial capital keen to escape an increasingly economically distressing continent. As for Britain’s role with the ‘Emerging World’, I remain positive on China and I am convinced Britain will prove to be where Beijing wishes to have its European – indeed its most sizeable Western Hemisphere – hub, regardless of Britain’s perceived ‘political uncertainty’. The simple truth is that across Europe there are no rivals to compete with Britain regarding where the Emerging World wishes to direct its financial and human capital. Countries across the Emerging World will send money to buy assets and occupy them with both local talent and those they will send on secondment from ‘home’. I have no doubt that Britain will also enjoy a continuing increase in the number of young people the Emerging World will pay Britain to educate. Turning to Britain’s monetary backdrop I cannot see any justification in the Monetary Policy Committee voting to raise the base rate of interest at any point through 2015. I make this observation not because the economy needs an “emergency” interest rate but because the inflation data will not justify a rate rise. Indeed, the recent slide in the rate of consumer price inflation will, I believe, continue, against which real wages will move upwards. For its part I am confident that Britain’s sovereign debt market will, despite all the political uncertainty awaiting us in 2015, continue to enjoy yield compression, with Gilt maturities across all tenures hitting new price highs, both conventional and index-linked. The predictions in the paragraph above will no doubt seem reckless, given that Britain faces a General Election this year, one where a possibility exists of some form

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. 46 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

of ‘unstable’ minority Government being formed. Whereas I see such an outcome as unsettling the pound against the dollar, this should not actually provide a net benefit, making the UK even more affordable to those looking to send and spend dollars. Relative to the euro, my forecast is a strengthening in sterling through 2015, a move which would make working in the UK and remitting monies the families left behind all the more favourable. As for what would make me alter my view of China’s economic outlook, it would take something quite extraordinarily nasty, possibly involving North Korea going beyond even its extreme range of behavioural insanity. For me, we are not approaching the point when Pyongyang’s current regime goes utterly mad but, in fact, when it goes in for a regime change. In short I am convinced that, in twelve months’ time, the commentators now claiming so assuredly that Russia, the UK and China face unpleasant economic outlooks will be watching all three doing nothing like as badly as they forecast, and claiming they had told us all along that there was nothing really to be concerned about. Now that I have writing momentum, I need to find something to stop it with. And I can think of nothing more obstinate to bring it to a sudden halt than France. From a distance, France has a great deal going for it. It has generally enjoyed a dynamic unusual for a ‘mature’ economy in its demographics. Geographically, the French landmass provides it with warm and cold coastal waters, mountains for skiing and producing purified water to bottle, and plains for vineyards and grazing. There are its coal mines and nuclear power surplus to requirements. And in Paris, France has a capital city which ranks amongst the world’s most iconic. I could go on listing even more latent positives for France which really does have ‘so much potential’ as an economy. And yet how many school reports contain such words, only to be followed by a scathing ‘but...’? And I will end with this point: until and unless France undergoes root-and-branch supply side restructuring (a process which is hardly painless), its fastest-growing export to an economically far superior Britain will not be wine, cheese or bottled water but young professionals carrying with them valuable financial and human capital. Au revoir.

VILLAGES

RURAL DEVELOPMENT RUR

BEAUTIFUL

OF CYPRUS EU PROJECT ENDS

he Larnaca District Development Agency’s ‘Wanderings in the Less Developed Rural Areas of Cyprus’ event, held last month, marked the completion of the ‘Beautiful Villages of Cyprus’ project. The project, established under the European Commission’s Axis 4 – LEADER 20072013 Rural Development Program, was implemented through the local The rural villages comprising development strategies of the network of Beautiful Vilapproved Local Action lages of Cyprus 0UJS\KL Ä]L from each of the following: Groups (LAGs), including the Larnaca District Development Agency, the Limassol District Development Agency, the Development Agency of LARNACA DISTRICT: Paphos Aphrodite and the Athienou, Lefkara, Tochni, Troodos Development Khirokitia and Kalavasos Organisation. Rural development policy is an increasingly important component of the common agricultural policy (CAP). It promotes 304(::63 +0:;90*;! sustainable development Anogyra, Prastio Avdimou, in Europe’s rural areas Lania, Agios Georgios and addressing economic, Sylikou social and environmental concerns. Over half of the EU’s population lives in rural areas, which cover 90% of the EU’s territory. Leader is an innovative 7(7/6: +0:;90*;! approach within EU rural Amargeti, Choulou, Kallepia, Salamiou and Kelokedara development policy. Leader stands for “Liaison entre actions de développement rural” (Links between actions of rural development) and, as ;966+6: (9,(! its name suggests, it is a Kakopetria, Pedoulas, Agros, method of mobilizing and Agios Therapon and Phini delivering rural develop-

TOP 20

ment in local rural communities, rather than a fixed set of measures to be implemented. Leader was launched in 1991 with the aim of improving the development potential of rural areas by drawing on local initiative and skills, promoting the acquisition of know-how on local integrated development, and disseminating this know-how to other rural areas The main objectives of the project in Cyprus were as follows: The preservation and promotion of the history, heritage and quality of Cyprus’ rural villages and landscapes, as well as the encouragement of economic development and stabilization of the population in these regions. The reinforcement of the reputation and local identity of the villages, resulting in the encouragement of tourism-related economic activity. The creation and supervision of local authorities, responsible for the implementation of good practices. The strengthening of the local identity and national pride of the villages’ inhabitants, through the local population’s active participation in the project. In the context of the project’s main objectives, the ‘Wanderings in the Less Developed Rural Areas of Cyprus’ event discussed how the regional branding of Cyprus’ rural villages may be enhanced, evaluating, concurrently, the role that rural tourism may play in the island’s ongoing recovery. Effective branding, it outlined, is a key prerequisite for the increased tourist appeal of rural areas, indeed contributing to the strengthening of Cyprus’ product offering as a whole. Significant steps in developing such regional branding include assessing current public opinion of the area, designing an appropriate marketing strategy, selecting a specific audience to which to appeal and creating a group of local stakeholders to aid the process. The benefits of a successful national identity include economic, social and environmental advantages, the event participants explained. In particular, increased incoming tourism, the creation of local investment opportunities and augmented biodiversity through increased agricultural activity were identified as the most significant factors capable of contributing to economic recovery. The ‘Beautiful Villages of Cyprus’ project continues to be promoted through the network’s official website (www.beautifulvillages.com.cy), social networking sites, the creation of thematic and scenic routes and integrated proposals for the visitors of the villages. The project has also undertaken the production and publication of relevant tour guides, including information regarding accommodation, heritage centres and more.

1. 2. 3. 4.

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Gold 47

THE ART

OF WEALTH

PRESERVATION IN TODAY’S FINANCIALLY VOLATILE ENVIRONMENT, SUCCESSFUL BUSINESS OWNERS AND HIGH NET WORTH INDIVIDUALS ARE, MORE THAN EVER, TURNING TO THE EXPERTS TO DRAW UP A STRATEGY THAT WILL ENABLE THEM TO PROTECT THEIR PERSONAL WEALTH AND STRUCTURE IT FOR THE FUTURE. MORE AND MORE OF THEM ARE TURNING TO FIRMS SUCH AS PWC FOR WEALTH PRESERVATION SOLUTIONS, AS THEO PARPERIS, PARTNER IN CHARGE OF CORPORATE COMPLIANCE AT PWC CYPRUS TELLS GOLD. By John Vickers, Photograph Jo Michaelides

Gold: As markets become more volatile and unforeseen events can affect investments, no-one doubts that wealthy individuals require professional wealth management services. What is it that makes PwC’s services stand out from those of your many competitors? Theo Parperis: Indeed, we live in volatile times and the main concern of our High Net Worth clients is the need for wealth preservation solutions. What makes us stand out in this respect is that we have the expertise to offer the full range of wealth management services under one roof. We have grouped together the most relevant services for wealthy clients which are (i) Family Office, (ii) Consolidated Wealth reporting & Compliance, (iii) Tax planning, (iv) Family Governance and Succession planning, (v) Estate and legal support, (vi) Citizenship and (vii) Setting up presence and substance. Where necessary, we can draw expertise from our PwC global network and the relevant centres of excellence. It is important to note that, during last year, members of our wealth management team worked in the centres of excellence in London for Investment Strategy/Asset Allocation and in Dubai for Family Governance. Finally, our services are totally independent of any private banking products in

THE CITIZENSHIP INCENTIVE BROUGHT CYPRUS IN EXCESS OF

€250M WORTH

OF DIRECT INVESTMENT IN REAL ESTATE AND

GOVERNMENT BONDS DURING 2014

the market and clients appreciate this. Gold: One of your services concerns family succession and governance of family businesses. Cyprus has many of these and international experience has shown that they are often hostile to the idea of ‘outsiders’ coming in, even if such people are better qualified than family members. How do you deal with such situations? T.P.: Family governance and succession discussions are very sensitive and personal issues that require delicate handling. Over the years we have built strong relationships and have

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

become the trusted business advisors of many of our High Net Worth clients, international and local. This, plus the professionalism and discretion of our people, puts us in an ideal position to engage in delicate discussions and provide value added services. That said, we recognize the sensitivity of the issue and hence, we have adopted a modular approach to succession and governance issues that allows the family to control which parts of the process they wish to undertake themselves privately and where they wish to receive our assistance. In other words, we are very flexible given that family matters are very personal. Gold: You will be aware of the growing trend in many countries towards viewing tax avoidance schemes in a negative light. Do you think that there is ever going to be consensus on the idea that such schemes should be abolished? T.P.: Indeed, recent developments have changed the international tax landscape substantially. Nowadays, the’ letter box’ type of tax structuring is over. It is important that a High Net Worth Individual (HNWI) planning his/her next steps should take into account commercial and economic considerations, not just tax. That is why having significant presence in the country of establishment is of paramount importance. Similarly, for

WEALTH MANAGEMENT

THERE IS

STILL WORK

TO BE DONE IN ORDER TO FULLY RESTORE

INVESTORS’ CONFIDENCE

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 49

WEALTH MANAGEMENT

individuals, citizenship and permanent residence are effective means of changing their lifestyle and not simply tools for tax planning. Our Tax experts are well suited to provide advice which meets the above requirements. Gold: Won’t there be increased pressure on a country like Cyprus which has a corporate tax rate that is only half of that in the UK, for example, to provide fewer ways in which HNWIs can hold on to their wealth? T.P.: When working with High Net Worth Individuals, we are engaged above the corporate level and as result corporate taxes do not come into play so much. At the personal level, tax is not the only driver. Other issues such as asset protection, freedom of movement, security and having trusted quality advisors at reasonable costs are very important and here Cyprus has a competitive advantage. Gold: It has been argued that tax breaks and low rates are not enough to persuade extremely wealthy individuals to reside in Cyprus – HNWIs expect and demand a lifestyle which the island simply cannot provide. Do you agree? T.P.: We focus on what our beautiful country and the friendly people of Cyprus can offer. Cyprus provides a safe and secure base with excellent weather, schooling for their families and a lot of other amenities. It is only a short plane trip from more cosmopolitan spots if that is what you are referring to. With the freedom of movement of being a EU member, one could argue that in Cyprus they get the best of both worlds. That said, it is the people that make a place cosmopolitan so the more such wealthy individuals we can attract to our shores, the faster will be the development of the appropriate infrastructure to cater for their lifestyles. We are witnessing this with the Limassol Marina, the golf courses and the recently announced plans for a Casino Resort. One important aspect that we need to address in Cyprus, however, is the need to improve our flight connection network, especially during the winter months. Gold: You mentioned that you offer a Family Office service but, if I understand correctly, this is a concept that remains fairly unknown in Cyprus. Is this indeed the case or have Family Offices become more accepted now? T.P.: In Cyprus many of our local clients may not have a family office by name but they have always had a trusted family executive or

external advisor (usually their accountant or lawyer) whom they turned to for discreet advice on family matters. Family Office services, however, require expert knowledge these days. To give an example, an international survey carried out by PwC has revealed that only one in six family businesses survives to the third generation. Such results explain the growth in the number of family offices internationally

FOR INDIVIDUALS, CITIZENSHIP AND

PERMANENT RESIDENCE

ARE EFFECTIVE MEANS OF CHANGING THEIR LIFESTYLE AND NOT SIMPLY TOOLS FOR

TAX PLANNING and the need for better professional wealth management services. This demand is what led us to the decision to invest in our own family office service capabilities. Gold: How significant is the recent approval of the AIF law? Can Cyprus attract Funds and Fund Managers? T.P.: The enactment of Alternative Investment Funds (AIF) law is very important as it gives expanded solutions to clients who wish to set up their Funds in Cyprus. Cyprus now offers the full spectrum of legislative framework to all fund products (UCITS and non-UCITS) and helps fund managers to operate as a licensed Alternative Investments Fund Managers with EU passporting capabilities. Cyprus is an attractive jurisdiction for the setting up of AIFs. Attracting fund managers, and funds is one of the areas in which we expect to see growth during the next years. Gold: What is your assessment of the Government’s citizenship scheme for large-scale investors? Is it having the desired effect? Have you arranged citizenship for foreign clients under the scheme? T.P.: The Cyprus citizenship incentive programme for large investors has been in place since 2007 and its reputation has grown over the years, in parallel with the interest from foreign HNWIs. In 2014, we saw a significant increase in the number of applicants, primarily

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

because of the quality and reputation of the Cyprus citizenship incentive programme. As PwC Cyprus, we are market leaders in offering this service. We offer a truly comprehensive service, covering all aspects from the handling of the citizenship process itself to providing related tax, legal and real estate due diligence and advice. Our diligent approach, independence and quality service have secured us 100% success so far. The citizenship incentive brought Cyprus in excess of €250m worth of direct investment in real estate and Government bonds during 2014, so the benefits to the economy are significant, not to mention the side benefits of having such High Net Worth Individuals and their families visiting and residing in Cyprus. It is therefore crucial to protect its credibility by maintaining high quality standards and strict application of investment criteria. Gold: How has PwC’s Wealth Management division fared over the past 12 months? Do you expect modest or considerably greater growth in the amount of work you will be doing in 2015 compared with 2014? T.P.: In the last 12 months we have developed our capabilities and have consolidated our wealth management experiences and expertise under one offering of Wealth Management Services. I expect that, in 2015, we will see a significant increase in our Wealth Management services, both to local and international clients, since we have demonstrated that we can make a tangible contribution to important issues such as wealth preservation, next generation challenges and global mobility. Gold: Do you believe that enough has been done to restore the confidence of foreign investors in Cyprus following the events of 2013? T.P.: We have to recognize the progress Cyprus has made but there is still work to be done in order to fully restore investors’ confidence. We are at a critical point where we need to demonstrate our continuous commitment to reform and to modernize our economy. At the same time, we need to pass new laws, such as the introduction of Non Domiciled status, deemed interest deduction and private foundations, which will help all of us make Cyprus a hub for international wealth services. The political instability in the region highlights once more the island’s potential to become a truly regional business hub.

OPINION

The Rise of Forex The industry is taking the world by storm

hen we talk about the rise of Forex, we’re talking about something that has been ongoing for decades. Forex is not new to the world, but the ways in which it is being presented and offered to investors are constantly changing and improving. That the online Forex industry has been entirely transformed from the bud it was back in the 1990s to a flourishing global happening today, is really quite extraordinary. Thanks to the online revolution, sparked by social media in countless business and financial sectors across the world, the face of the modern industry is changing at a more rapid pace than ever before. Being the world’s largest and most liquid financial market, the Forex industry provides an ideal platform for evolution in all shapes and forms. In truth, it has done nothing but evolve tirelessly and powerfully since its inception many years ago. Developments in the Forex industry revolve for the most part around technological advancements, so there’s really no better place than Cyprus to accommodate Forex companies. I’ve expressed my admiration for the island’s high business standards, strong workforce and modern technological facilities many times before and I can say that, so far, it has offered everything we’ve needed to grow as an international online Forex broker. One of the most important benefits for us – and I’m sure for other big brokers too – is that the country is home to the Cyprus Securities and Exchange Commission (CySEC), an esteemed European financial regulatory authority. I also find it extremely positive for a country in which the economic crisis has reared its ugly head to now be taking centre stage in the advancement of a massive financial industry like Forex. If asked whether I think Cyprus, and particularly Limassol, has the potential to become a Forex hub, I would say it already is. I see the future of the Forex industry as an avalanche gaining momentum – and I mean that in

There’s really no better place than Cyprus to accommodate Forex companies

By Olga Rybalkina

the most exciting possible way! I can say beyond a shadow of a doubt that the future of Forex trading lies in social media and mobile technology, as copy trading systems allow the world’s greatest traders to turn their passion for trading into a lucrative business whilst simultaneously allowing novice traders to mirror their expertise. As far as mobile technology goes, its importance can only swell in size as the modern trader, investor and consumer require and demand faster and more convenient means through which to access the services they use. All existing brokers who want to keep up with the changing Forex times will undoubtedly introduce social platforms and mobile trading applications to their service model. If they do not, their services will become obsolete and they will run the risk of being overshadowed by new online trading companies. The good news is that the industry is also currently awaiting guidelines on social trading systems from regulators; this signifies the support that the Forex industry receives from its most important constituents and is very encouraging to all existing and aspiring traders, who can see evidence of the industry being regulated. The future of the Forex industry will also revolve greatly around education, as access to information nowadays is significantly facilitated by the online world. Gone are the days when education was restricted to the likes of the wealthy and the elite: the Internet has made it possible for traders with every level of experience and from all backgrounds to receive a Forex education for free. As an online Forex broker aiming to be at the forefront of progress, we at ForexTime (FXTM) place a very strong emphasis on education, offering free articles, seminars and webinars across the world. The rise of Forex is definitely something to look out for, not only in Cyprus but everywhere. It is an industry which has provided incredible opportunities to investors of all social and financial classes and a market which has created millions of employment positions on a worldwide scale. Forex trading is about opportunities, and it is with great pride that I can call myself part of such a pioneering, boundless and exciting business.

info: Olga Rybalkina is the CEO of ForexTime. THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES

Gold 51

Loving& ANDREY & JULIA DASHIN’S FOUNDATION DONATED €200,000 TO CHARITABLE CAUSES IN THE FIRST EIGHT MONTHS OF ITS EXISTENCE LAST YEAR. THE RUSSIAN FOUNDER OF ALPARI AND FOREXTIME TELLS GOLD ABOUT WHY HE DECIDED TO SET UP THE FOUNDATION AND EXPLAINS HOW IT WORKS. By Effy Pafitis 52 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold: Andrey & Julia Dashin’s Foundation was officially launched in May 2014. What was the inspiration behind the establishment of the foundation? Andrey Dashin: Having come to Cyprus to start a new life with our family, Julia and I soon felt that we should give something back to this hospitable country. Founding a new charitable organisation, aimed at helping those in need in Cyprus, was our way of expressing our gratitude. We had also noticed that there was ample room for improvement regarding various social issues and one way of having a meaningful impact on their improvement was to contribute with our own charitable input.

&Giving PHILANTHROPY

ONE GOOD DEED MAY CHANGE A PERSON’S LIFE FOR THE BETTER AND, THEREFORE, IT’S ALWAYS WORTH FIGHTING FOR

Gold: How does the Foundation aim to fulfil its primary objective of bettering Cypriot society? A.D.: Admittedly, changing a whole society’s mindset as a Foundation is perhaps a moot point at this time. Nevertheless, all our efforts and charitable activities are aimed at helping people in need in Cyprus, whether it is one person, one family or an entire community. One good deed may change a person’s life for the better and, therefore, it’s always worth fighting for. Eventually, such causes and efforts will become even more mainstream and set a good example for the rest of the public and perhaps serve as a call to action for the betterment of our society as a whole. Gold: How are the charitable causes which receive support from the Foundation selected? A.D.: First of all, the Foundation has its own charity campaigns, conceived by Julia and myself and brought to life after careful consideration and being reviewed by the Foundation’s committee. We set them up to serve the particular needs of society at a time when the help required was most essential.

For example, the “Back to School Essay Competition” was scheduled at the beginning of this academic year to prepare pupils for school via a simple writing contest with meaningful rewards as incentives. Then, “Kindness in a Box”, which was first held in October 2014, aimed at responding to the fundamental individual needs of the applicants, such as providing food boxes or basic electrical appliances such as heaters ahead of the winter season, or even the recent “Letter to Santa Claus”, which was aimed at helping children take initiatives by writing a letter to Santa and asking for a gift for Christmas. Gold: Presumably you also receive requests for assistance too? A.D.: Yes, and we carefully and personally assess the needs of society by referring to the applications for help that the Foundation receives on a daily basis and then examining the broader need in relation to the available budget for a given period. As a Foundation that operates within an appropriate framework, we have to work within strict budget limits and timeframes. Proper management is important for any organisation to survive and thrive. The Foundation often receives requests for funding or support for a variety of causes from other charity organisations in Cyprus. We believe that collective action is always more efficient when we have a common goal to pursue – helping those in need. So we are always open to new suggestions and receptive to proposals and we’re happy to support a case of genuine need. Gold: How much have you donated to such causes thus far? A.D.: Until the end of 2014, the Foundation has donated a total of almost €200,000 towards charitable causes and other events in Cyprus, either its own or those of other local charities.

Gold: You are no stranger to philanthropy, having founded the Alpari Charitable Fund with your wife in Russia in 2005. What was the impetus behind the establishment of this first charity? A.D.: Based in Kazan, the Alpari Charitable Fund aims to help orphaned children and children with special needs. Children in need are a common ongoing issue in Russia and, having realized the extent of the long-term problem, I personally wanted to make a difference. Anyone has the ability to help. All one needs is to extend a helping hand, which we had the courage to do. Charity work requires funding but this is not the most crucial constituent; initiative, love and commitment are what really matter. The rest will follow.

Gold: Other than your own involvement in charitable causes, what more do you believe should be done to offer support to underprivileged and minority groups in Cyprus? In your estimation, do they receive adequate support? A.D.: In general, Cyprus has a well-developed mindset regarding charity and there are a lot of public organisations aimed at helping people in need. Nevertheless, there can never be enough help for minority groups and their individual needs. This is where private charities like Andrey & Julia Dashin’s Foundation come in handy and serve the cause by filling in the gaps. During these uneasy economic times, the government may be struggling to offer adequate support in all basic areas of need and what Cyprus perhaps needs is a more personal initiative from society as a whole in order to provide help that is meaningful and ensure that we take the right steps towards a better future.

CHARITY WORK REQUIRES FUNDING BUT THIS IS NOT THE MOST CRUCIAL CONSTITUENT; INITIATIVE, LOVE AND COMMITMENT ARE WHAT REALLY MATTER THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 53

EUROPE 2020

IS EUROPE

ON THE

RIGHT PATH? The new Juncker Commission and its objectives have raised many doubts about the direction in which Europe is going. With an agenda overwhelmingly focused on the economy and industry, some critics are questioning whether they have even got the economics right, especially with regard to [OL JVU[YPI\[PVU VM YLZV\YJL LÉ&#x2030;JPLUJ`

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

rtemis Yiordamli, Executive Director of the Cyprus Conservation Foundation-Terra Cypria, has examined comments by the European Environmental Bureau with reference to the Europe 2020 Strategy and noted some that could interest Gold readers in Cyprus. Do Europe’s current targets for 2020 respond to the strategy’s objectives of fostering growth and jobs? These targets are: to have at least 75% of people aged 20-64 in employment; to invest 3% of GDP in research and development; to cut greenhouse gas emissions by at least 20%, increase the share of renewable to 20% and improve energy efficiency by 20%; to reduce school drop-out rates to below 10% and increase the share of young people with a third-level degree or diploma to at least 40%; to ensure at least 20 million fewer people are at risk of poverty or social exclusion.) The first question that needs to be answered, according to the European Environmental Bureau, is to what extent growth in GDP and job creation still go hand in hand and deliver the desired outcomes and are, therefore, the right objectives for a revised Europe 2020 Strategy. There is a growing body of evidence that the link between GDP growth and jobs is weaker than generally thought and clarity is therefore needed on what the real objective is. The Bureau considers that job creation, in particular in the green sector which saw positive job creation throughout the recent crisis and despite falls in investment, should be an objective together with targets to improve energy savings (with 40% end-use by 2030. The good news for all of us is that the Commission’s own assessments suggest that renewable energy sectors alone could create three million gross jobs by 2020, while energy efficiency improvements could sustain a further two million gross jobs by 2020 and a further 2.8 million gross jobs could be generated by increasing resource efficiency. The midand long- term objective has to be that the

EU’s economy and lifestyles fit into the fair share of the global ecological limits. The bad news is that we in the Western world must accept a decrease of 80% in our actual material footprint. In other words, the style to which we are accustomed is beyond our means – Haven’t we Cypriots heard this many times recently? Indeed we have. We’ve been told that Cypriots have been living well beyond their financial means. It turns out that Cypriots, like all other Europeans, have also been consuming natural resources (e.g. water, energy, soil) well beyond our share and what the planet can sustain. See below Would it be useful for EU-level targets to be broken down into national targets? Given the fact that Member States are the primary actors for implementing EU policy, it seems appropriate that EU targets should be broken down into binding national targets that clarify the contribution of each Member State to a common EU goal. Only this can ensure accountability. Targets are either broken down to national level and made legally binding or they are meaningless. Cyprus is already required to provide energy savings of up to 13% by 2020. What should really worry us are the waste targets, given that Cypriots have the highest production of waste in Europe. Does the EU need a comprehensive and overarching medium-term strategy for growth and jobs for the coming years? According to the European Environmental Bureau, the last thing Europe needs right now is yet another strategy with a narrow focus on growth and jobs that simply seeks to continue an outdated growth model. What Europe does need, and what would be a real departure from the past, is a genuine and urgent effort to put in place a sustainable development strategy that addresses Europe’s economic, social and ecological problems in a coherent way, and fits into the global challenges. The environmental imperative derives from an overwhelming body of scientific evidence that the world has crossed a number of thresholds that define a safe operating space for humankind (climate change, biodiversity and nitrates) and is well on its way to crossing a number of others (e.g. ocean acidification, phosphorus and freshwater).

Europe needs a genuine and urgent LɈVY[ [V W\[ PU WSHJL a sustainable development strategy The most vulnerable countries and peoples suffer here the most. The social imperative for this comes from the fact that inequality and unemployment have increased over the last 5 years, and chronic diseases such as diabetes, asthma and dementia are increasing continuously. More than half of the European population (52%) is overweight while 17% is obese. There is a correlation with air pollution, unhealthy food and bad lifestyles. On the other hand, the ‘rat race’ at work is the main cause for very high stress and burnout figures in Europe. One third of workers and employees deal with depression and 83% deal with isolation and loneliness in the workplace. The economic imperative comes from the observation that the relatively high GDP growth rates that we have become used to in the second half of the 20th century are the exception rather than the rule, with growth rates having slackened off in most developed countries since the 1970s, as well as biophysics and mathematics that dictate that infinite growth based on increased consumption of a finite set of resources is not an option. Is de-regulation the way to achieve smart, sustainable and inclusive growth? Forty years of EU environmental regulation has led to a significant improvement in the air Europeans breathe, reduced water pollution, created the renewable energy sector, protected citizens from many harmful chemicals and brought endangered species back from the brink of extinction. In addition, it has led to the creation of entire new sectors and industries which, in Germany for example, are expected to provide more employment than the car industry by 2020, and which have continued to expand even during the recent years of economic downturn. It is therefore essential that under a revised Europe 2020 Strategy, the EU will continue to build on this success story.

info: Dr. Artemis Yiordamli is Executive Director of Terra Cypria -The Cyprus Conservation Foundation. www.terracypria.org.cy. This article has been written within

the framework of the BIOforLIFE Project (2012-2015) which aims to make Cypriots aware of the significance of biodiversity in our lives.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 55

BRANDING

“I’ve only read two business books from cover to cover in the last five years: Buyology and Brandwashed. It is no coincidence that Martin Lindstrom is the author of both of those books.” Steven Levitt, Bestselling Author of Freakonomics

BRAND new world

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

BEST SELLING AUTHOR AND INTERNATIONAL BRAND EXPERT MARTIN LINDSTROM, NAMED IN 2009 AS ONE OF TIME MAGAZINE’S “WORLD’S 100 MOST INFLUENTIAL PEOPLE” AND RANKED No. 1 AMONG THE TOP 30 BRAND PROFESSIONALS IN 2014 BY GLOBAL GURUS, WILL LEAD THE 2ND BRAND CONGRESS IN NICOSIA ON 27 MARCH, 2015.

trusted brand-and-innovation advisor to numerous Fortune 100 companies, Martin Lindstrom is an energetic, exciting and provocative speaker who skillfully combines expert knowledge and research with anecdotal and shocking truths. He’s the consummate story-teller, engaging his audience at every level. As he tells it, when he was a kid growing up in Denmark, young Martin had but one thought in his life: LEGO. He hand-built and slept on a LEGO bed. The family garden became his very own LEGOLAND creation, attracting visitors from near and far, including the lawyers from LEGO who, instead of suing him, installed the 12-year-old Lindstrom on the company’s advisory board. And then, of all the children in the world, they gave him the very first green brick in the collection. This is what got Lindstrom started in the world of branding, marketing and advertising. Three decades later, he was one of TIME magazine’s “World’s 100 Most Influential People” and, as an author, speaker, and advisor on brands and brand building, he has carved out a unique niche as a global expert and pioneer in the related fields of consumer psychology, marketing, brands, and neuro-scientific research. Lindstrom offers a uniquely global overview of branding and marketing. He a pathfinder in the world of marketing and is on the road 300 days annually, working with and advising top executives of McDonald’s Corporation, Procter & Gamble, Nestle, Microsoft Corporation, The Walt Disney Company, RedBull, GlaxoSmithKline, PepsiCo, amongst others. His annual personal global audience is estimated at over a million people. He is the anchor and producer behind NBC’s hugely popular ‘Main Street Makeover’ TV show and he is a columnist for Fast Company and TIME. Martin Lindstrom is probably the only brand expert in the world with his very own R&D budget – spending millions of dollars every year on research helping to understand the relationship between consumers and brands. He conducted a $4 million study of Sensory Branding, which focused entirely on our senses. His $7 million pioneering neuromarketing project conducted for Buyology was a world first and, more recently, Lindstrom invested $3 million in a word-of-mouth

Brandwashed:

Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy (2011)

indstrom turns the spotlight on his own industry, exposing the full extent of the psychological tricks and traps that companies devise to win our hard-earned money. Brandwashed is an insider’s look at how today’s global giants conspire to obscure the truth and manipulate

V\Y TPUKZ PU [OLPY LɈVY[Z [V persuade us to buy. He reveals details such as how advertisers and marketers target children at an alarmingly young age, what men really think about when they see sexually provocative advertising, how marketers and retailers stoke [OL ÅHTLZ VM W\ISPJ WHUPJ HUK

capitalize on paranoia over diseases, extreme weather events and food contamination scares, how certain companies, like the maker of one popular lip balm, purposely adjust their formulas in order to make their products chemically addictive, and much, much more.

Buyology:

How Everything We Believe About Why We Buy is Wrong (2008)

onvinced that there is a gulf between what we ILSPL]L PUÅ\LUJLZ \Z HUK what actually does, Lindstrom set up a highly ambitious research project that employed the very latest in brain-scanning technology and called on the services of some 2,000 volunteers.

Buyology shares the fruits of this research, revealing for the ÄYZ[ [PTL ^OH[ HJ[\HSS` NVLZ on inside our heads when we see an advertisement, hear a marketing slogan, taste two rival brands of drink, or watch a programme sponsored by a major company. The conclusions are both startling and

groundbreaking, showing sh howing i th the extent to which we deceive ourselves when we think we are making considered decisions, and revealing factors as varied as childhood memories and religious beliefs that JVTL [VNL[OLY [V PUÅ\LUJL our decisions and shape our tastes.

LINDSTROM OFFERS A UNIQUELY GLOBAL OVERVIEW OF BRANDING AND MARKETING research project in order to understand how social media will develop next. As the author of 6 major bestsellers, Lindstrom has established himself one of the most prolific branding authors of our time. His works have become boardroom and bedside

must-reads. Lindstrom is recognized as one of the world’s primary branding gurus, constantly reinventing – and breaking – the established rules of branding. Over the years, Lindstrom’s pioneering branding work has come to be used by some of the world’s largest corporations:

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 57

BRANDING DING Pepsi asked him to redefine the foundation of the brand in the U.S.; Red Bull asked Lindstrom how to secure a stronger trade presence in Europe; Carrefour asked him to reinvent its shopping experience; Majid Al Futtaim, founder of Ski Dubai and the largest mall operator in the Middle East, asked Lindstrom to recreate its vision and brand identity. And, he says, no matter what the challenge may be, his first step is always the same: To ask the consumer for advice. It is not by chance that he has gained a reputation as the consumer’s champion. Since 2000, Martin Lindstrom and his team have visited more than 1,000 consumers’ homes in 80 different countries, solving challenges for some of the world’s most successful brands. This unusual approach – combining behavioural psychology, collaborative strategic thinking, and ground-breaking creative innovation – has helped grow unknown brands to global dominance and helped well-known brands avoid major crises. He has helped reinvent entire businesses in need of fresh thinking. But there’s much more to this story. Powerful consumer insights, great thinking, and amazing creativity — as vital as they are — can’t do the job alone. More than ever, Lindstrom has come to realise, the challenge is to be found in management’s willingness to think and behave differently. Over the past ten years, his own company has developed an approach which not only outlines a clear roadmap for a brand’s future, but simultaneously helps to secure buy-in from each and every stakeholder within the organisation. Perhaps more than anything, this explains Lindstrom’s stellar track record in turning around retail chains, major FMCG players and B2B and B2C brands.

Brand Sense:

Sensory Secrets Behind the Stuff We Buy (2005) T hat gratifying new car smell is actually a manufactured “new car” aroma. The ZV\UK VM 2LSSVNN»Z JVYUÅHRLZ crunching in our mouths is created in sound labs. Singapore Airlines has patented the smell in its cabins. Branding has reached a new frontier. In the future brands will have

to appeal to the neglected senses: touch, taste, and smell. In Brand Sense, Martin Lindstrom shows a two-sense WYVK\J[ JHU ILJVTL H Ä]L sense phenomenon. This groundbreaking book provides innovative branding tools for evaluating where a brand is on the sensory scale, analyz-

BrandChild:

Remarkable Insights into the Minds of Today’s Global Kids and Their Relationship with Brands (2005)

-to14-year-olds are an increasingly powerful and smart consumer group that spent $300 billion across the globe ten years ago and inÅ\LUJLK HUV[OLY IPSSPVU spend through their parents. Based on the world’s most extensive study of their attitudes and behaviours, BRAND-

JOPSK ^HZ [OL ÄYZ[ IVVR [V SVVR in-depth at the phenomena behind global kids and their relationships with brands. Its conclusions are based on a survey conducted by, the leading global market research agency Millward Brown, involved several thousand kids from more than 70 cities in 14

Clicks, Bricks and Brands: The Marriage of

O Online and Offline Business (2002)

ritten 13 years ago with two of the world’s most respected online and marketing gurus, Don Peppers and Martha Rogers, the IVVR VɈLYLK HU PUZPNO[ PU[V the development of so-called clicks&mortar businesses. With an intriguing mix of theory, case studies and practical advice, Lindstrom

ing its sensory potential oten enti tial tia i l and and d giving it a clear pathway to optimize its sensory appeal. Companies like Cadillac, Apple, Mercedes-Benz, Nokia, Louis Vuitton, Nestle and Disney have all recently adopted a sensory approach, and have seen their brands sizzle under this new direction.

consolidated his online genius and international marketing experience to bring retailers and dot.com companies a clear picture of how to make successful clicks&mortar marriages. His case studies revealed how leading e-tailers, had initiated THYYPHNLZ ^P[O VɊPUL YL[HPSLYZ and weathered the conver-

sion to clicks&mortar business while major retailers had wooed online e-tailers and made the transition from exJS\ZP]LS` VɊPUL VWLYH[PVUZ [V clicks&mortar partnerships. Intended as a bible for every company aiming to gain strong market share in the era of online business, it was groundbreaking at the time.

The 2nd Brand Congress, organized by IMH, takes place on 27 March 2015 in Nicosia. Tel: 22505555 | e-mail: events@imhbusiness.com Website: www.imhbusiness.com

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

countries. Lindstrom shows that, in 2005, kids between the ages of 8 and 14 were in control of $2 trillion a year and [OH[ [OL` OLH]PS` PUÅ\LUJLK their parents’ decision to buy almost 80% of all brands, presenting marketing departments with their greatest challenges yet.

Brand Building on the Internet (2000) W

ritten with Tim Frank Andersen, the book argued that a corporate website was no longer enough to survive in the competitive online environment. Lindstrom analyzed a range of international companies to demonstrate how the Internet demands a strategic way of thinking about marketing interactive brands to consumers. It also gave readers concrete tools to create a brand strategy on the Internet and answered questions such as: What role should the Internet have in a marketing plan? What types of companies are best-suited to market our product on the 0U[LYUL[& /V^ JHU Z[YVUN [YHɉJ VU H ZP[L IL created? How is it possible to measure the real value of branding a site?

A great cup of coffee.

1. Engomi 2. Strovolos (Aretaieio) 3. Strovolos (Athinon) 4. The Mall of Cyprus 5. Pallouriotissa (Kantaras) 6. Larnaca (Finikoudes) 7. Limassol (Makariou Aven.) 8. Ayia Napa (Makariou Aven.)

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ZJLULZ

PROPERTY

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

A look into the making of a world-class mixed-use development on Limassolâ&#x20AC;&#x2122;s coveted seafront. By Chloe Panayides

ffering choices for both living and investing: the defining principles of renowned residential developer, Pafilia â&#x20AC;&#x201C; or the â&#x20AC;&#x2DC;Pafilia promiseâ&#x20AC;&#x2122;, if you will â&#x20AC;&#x201C; has come to characterise the companyâ&#x20AC;&#x2122;s growth trajectory in recent years. Knowing that living and investing in Cyprus are not mutually exclusive concepts â&#x20AC;&#x201C; indeed, they have been gaining momentum over the past few decades â&#x20AC;&#x201C; the Paphos-based developer has allowed this awareness to guide the inception of new projects. Following the completion of Phase 1 of the companyâ&#x20AC;&#x2122;s exclusive golf resort, Minthis Hills, nestled in the foothills of Paphos, which was celebrated in 2014, attention is now turning to plans for the distinguished Pafilia Tower, imagined as taking shape along Limassolâ&#x20AC;&#x2122;s ever-cosmopolitan coastline. A luxury lifestyle brand, the Tower has been designed to appeal to exclusive buyers. Defining the area in which Pafilia works, the company credits the luxury segment (that is, transactions of residential units of over â&#x201A;¬2 million) of Limassolâ&#x20AC;&#x2122;s residential market as having performed consistently well during otherwise troubled years. A prime commercial centre and home to a plethora of companies with overseas interest, Limassol has witnessed 66% of all such transactions taking place since 2009. Joining the ranks of other high-end development projects launched in recent years, spanning the Limassol Marina to the Olympic Residence, the Pafilia Tower is expected to contribute to further driving Limassolâ&#x20AC;&#x2122;s sales record, thereby boosting the townâ&#x20AC;&#x2122;s economy despite the turbulent financial times otherwise presiding

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over the island. Sales evidence suggests that the proximity to the beach, sea views, and the amenities and services attached to a unit (such as security, maintenance, concierge, and more), play an important role in elevating a propertyâ&#x20AC;&#x2122;s status. To this end, Pafilia has converged its forces and partners in a bid to produce a unique highend development that may become a leading sales force in real estate in years to come.

FACTS & FIGURES PLOT SIZE:

5,008m2 SELLABLE COMMERCIAL SPACE:

3,540m2

55 5

RESIDENTIAL UNITS

SELLABLE LIVING SPACE:

14,235m2

6 5

STOREYS

LEVELS OF OFFICE SPACE & SHOPS

LEVELS OF CAR PARKING

STATUS: PLANNING LICENCE ISSUED

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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SAVE THE DATE: MARCH 27

Target audience: The Congress is addressed to anyone looking to redefine and reinvigorate a corporate brand

{January 14 – February 13, 2015}

ISSUE

46 + BOOK REVIEWS MONEY: Life in the Financial Markets: How They Really Work and Why They Matter to You By Daniel Lacalle 67 BUSINESS: Taking Down Goliath: Digital Marketing Strategies for Beating Competitors with 100 Times Your Spending Power By Kevin Ryan & Rob Graham 71

78 64

{money}

64 Taking Charge of Your Retirement Emergo Wealth has created the Life Goals Fund, a horizontal, multi-employer provident fund for employees in the private sector.

ECONOMY: Fusion Economics: How Pragmatism is Changing the World By Laurence J. Brahm 73

70 New Name, Same Great Service In November, Cyproman Services Ltd announced its new brand and corporate identity, becoming the CPM Group.

{economy} 72 Santanomics Who spends the most during the festive season?

66 Principles for Effective Risk Data Aggregation and Risk Reporting It is time for business leaders and regulators to raise the bar around data literacy 67 Central Registers to Combat Money Laundering European Parliament and Council agree on new measures.

{business}

68 Recruitment in 2014 Forex and Professional Services dominate.

73 Global capital standard for insurers Much still remains to be done, warns KPMG.

{tax&legal}

74 Don’t Run Before You Can Walk Russian de-offshorisation uncertainties remain

TAX & LEGAL: Further Weird Cases: Comic and Bizarre Cases from Courtrooms around the World By Gary Slapper 77 LIFESTYLE: The Narrow Road to the Deep North By Richard Flanagan

76 A New Sense of ‘Offshore’ The changing meaning of the word in Cyprus. 77 Overall Tax Cost and Compliance nce Burden Lower for Businesses Conclusions of the Paying Taxes 2015 study by the World Bank Group and PwC wC

{lifestyle}}

78 Food, Glorious Food! The full list of Michelin *** restaurants in Europe: 82 A Day In The Life Despo Lefkariti

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS

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provident fund

{MONEY}

Taking Charge of your

Retirement

IN A MAJOR DEVELOPMENT FOR 2015, EMERGO WEALTH HAS CREATED ITS LIFE GOALS FUND, A HORIZONTAL, MULTI-EMPLOYER PROVIDENT FUND FOR EMPLOYEES IN THE PRIVATE SECTOR. IN THE MOULD OF POPULAR SUCH PLANS IN THE EUROPEAN UNION AND THE UNITED STATES, THE FUND WILL OFFER A CLIENT-FRIENDLY, COST-EFFECTIVE OPTION FOR PEOPLE THAT EITHER HAVE NO PROVIDENT FUND OR PARTICIPATE IN SMALL PROVIDENT FUNDS THAT ARE BURDENSOME AND EXPENSIVE TO RUN. By Constantinos Neophytou

e have all thought about our retirement at one point or another; how we will travel around the world or buy a beach house... Retirement should usher in the ‘golden years’, a time when we are free from the obligations of work and have the time and financial means to do the numerous things we have been planning for decades. However, very few of us actually have a sound plan for achieving a financially secure and sustainable retirement. Ensuring that we save enough to be able to retire comfortably is our top financial goal and planning for our retirement should be a priority. Government-sponsored pensions (“Pillar I”) are patently not enough. Many studies suggest that the replacement rate of these schemes can be below 30% (so they cover less than a third of the final salary be-

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

fore retirement). Occupational retirement funds (“Pillar II”) supplement retirement income and in some cases make up the largest source of income for retirees.

THE CYPRIOT RETIREMENT SAVINGS SYSTEM

PILLAR I: Government Social Insurance Scheme (GSIS) Compulsory, Universal, Earnings-based Social Pension Scheme Means-tested, welfare for people on low pension income PILLAR II: Occupational Retirement Plans (supplementary pension income) Government Employees Pension Scheme Semi-Government Sector Employees Pension Schemes Voluntary Private Sector Provident / Pension funds (More than 3,000 registered - less than half operational) PILLAR III: Private Pension products (offered by Insurance Companies) In Cyprus, occupational retirement funds were dealt a heavy blow by the banking crisis and the deposit haircut of 2013. Most lost a significant percentage of their assets and many were dissolved in a panic-driven response to the aftermath of the depositor bail-in. The crisis delivered important lessons related to the administration and investment management of the employersponsored provident funds. First, the large concentration of the majority of the assets of the provident funds in investments in Cyprus exposed the funds to tremendous country-specific risk and this resulted in large losses during the economic downturn. In many cases, up to 100% of the invested funds were held in Cyprus. Second, there has been inadequate diversification in terms of risky assets. The overwhelmingly dominant strategy has been to hold a massive part of the available funds in bank deposits and in government or Cypriot bank bonds. Even within the equity portfolio, the majority was invested in local bank stocks exposing the funds to unacceptable concentration risk. Third, the investment strategy of many funds followed the “current trends”, unfailingly investing in the next big bubble, based on what was “hot” at any given time. This led to big investments in Cyprus equi-

ENSURING THAT WE SAVE ENOUGH TO BE ABLE TO RETIRE COMFORTABLY IS OUR TOP FINANCIAL GOAL AND PLANNING FOR OUR RETIREMENT SHOULD BE A PRIORITY ties in the period between 1999 and 2001 and in Cyprus property in the period between 2004 and 2007. In both examples, when the big bubbles burst, the funds suffered huge losses. When the Eurogroup took the unprecedented decision to impose a haircut on deposits, the funds took big hits that could have been avoided had basic investment diversification rules and prudent investment management been applied.

A NEW APPROACH A new defined contribution provident fund has been created to address the existing weaknesses and provide an easyto-implement Pillar II solution. The LifeGoals Provident Fund is a horizontal, multi-employer provident fund available to all employers and employees of the private sector. LifeGoals caters to the retirement savings needs of employees, irrespective of their employer’s size or sector of activity. The LifeGoals Fund fills a big gap in the Cypriot retirement funds market. It is estimated that up to 200,000 employees in the private sector are currently without a provident fund, while the majority of the existing provident funds are small and place a big administrative and fiduciary burden on the employers, while not achieving their investment goals. The LifeGoals fund is set up to offer a flexible and hassle-free means of safely safeguarding and growing the retirement savings of employees in a tax- and cost-effective manner. LifeGoals offers a choice of globally diversified portfolios that will cater to the different risk profiles of its members meeting their individual needs now and in the future. The Fund is managed by qualified and experienced investment management professionals with the required expertise and credentials that guarantee its sound and effective administration.

The establishment of the LifeGoals Fund represents a major step in the much needed consolidation in the provident fund sector, as it allows for the integration of several single employer funds (that are burdensome and expensive to run) into a horizontal fund, achieving economies of scale and offering a flexible and cost-effective option for saving for retirement. The use of various investment portfolios allows for risk allocation in different investment categories that correspond to the different risk profiles and preferences of the Fund’s members, offering unprecedented choice and flexibility. The Fund’s assets are responsibly invested and accounted for; the prudent professional management of the investments is underpinned by a continuous, transparent and open communication with both employers and employees. When it comes to our retirement, it is very important that we plan ahead: participating in a registered provident fund with effective and efficient management ensures that we can hope to achieve a comfortable lifestyle after we retire. LifeGoals is an affordable and sustainable solution committed to providing employees with financial security and well being after they exit the workforce and enter their “golden years”.

ABOUT EMERGO WEALTH Emergo Wealth Ltd. is a fully-fledged financial services and investment advisory company, built on world-class professional expertise, integrity and transparency. We provide investment advisory, asset and portfolio management, brokerage and administrative services that enable our clients to rely on turnkey, total solutions to manage their business and grow their wealth. We offer corporate finance advisory and management consulting services, including advice on debt restructuring and on M&A transactions. Our research desk offers a range of proprietary reports on a number of sectors of the Cyprus economy as well as ad hoc analysis reports upon request. Emergo Wealth is registered with the Cyprus Securities & Exchange Commission under the provisions of the applicable legislation (License Number 232/14). More information on the Company and its products and services can be found at www.emergowealth. net.

info: Constantinos Neophytou is Director, Investment Strategy at Emergo Wealth.

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risk

Principles for {MONEY}

EFFECTIVE RISK DATA

Aggregation

and Risk Reporting By Gerasimos Ntouskas

any banking organisations continue to struggle with the challenge of aggregating and managing increasing amounts of data and accurately reporting their financial positions to both regulatory agencies and the general public. The extent of the problem has been longstanding but it was brought starkly to light by the financial crisis as confidence evaporated and markets seized up. It is likely that the underlying cultural issue of who owns and is responsible for data generally is a key root cause for the lack of progress. It is time for both business leaders and regulators to ‘raise the bar’ around data literacy in order to fully address the many challenges that lie ahead. The challenge of getting to grips with data is highlighted by the reaction of major banks to the Basel Committee’s principles to improve the effectiveness of risk data aggregation and risk reporting. Many firms are likely to struggle to meet all of these principles, although the extent of the gap will depend on how stringently the principles are interpreted by national supervisors. The Principles, which cover both qualitative and quantitative measures, address four key areas: The importance of Senior Management and Boards exercising strong governance over a bank’s risk data aggregation capabilities, risk reporting practices and IT capabilities The accuracy, integrity, completeness, timeliness and adaptability of aggregated risk data

BANKS ARE NO LONGER REGARDED AS PRIMARILY BENIGN AND BENEFICIAL

ECONOMIC ACTORS The accuracy, comprehensiveness, clarity, usefulness, frequency and distribution of risk management reports, including to Senior Management and the Board The need for supervisors to review and evaluate a bank’s compliance with the first three sets of principles listed above, to take remedial action as necessary, and to cooperate across home and host supervisors Compliance with the Principles will be compulsory for global systemically-important banks (G-SIBs) from 1 January 2016. National supervisors need to have translated the Principles into detailed regulation by then. The Basel Committee also recommends that banks classified as domestic systemically important banks (D-SIBs) by national regulators should be required to comply within three years of such designation. The biggest issue is likely to be with being able to apply Data Quality, Data Governance and Data Management techniques pragmatically and effectively so that the quality of the data being used for risk reporting can be demonstrated (measured) automatically. A robust approach should start with an impact assessment which considers: The risk data (including associated reference data) needed to meet internal risk Management requirements as well as regulatory reporting needs

info: Gerasimos Ntouskas is a Senior Manager, Management Consulting at KPMG.

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

The scope and quality of the risk data collected Effective aggregation of risk data, including by legal entity The frequency, appropriateness and quality of internal reporting of aggregated risk data, including to Senior Management and the Board, and the use of this information for decision-making, and Governance procedures at Senior Management and Board level for risk data aggregation and reporting, including a firm’s IT capabilities in these areas Banks are no longer regarded as primarily benign and beneficial economic actors: they are increasingly seen as potentially dangerous to financial and economic stability. Hence banking regulation is likely to develop in future in a manner analogous to other ‘dangerous’ industries such as the chemicals industry. The Asset Quality Review, RDA, resolution planning, stress testing and so on are all part of a process which will result in banks no longer being able to do their own data analysis and submit standard periodical reports. Instead, they will by contrast have to deliver all relevant data in real time to regulators who will undertake their own analysis and stress-testing and form their own judgments. BCBS 239 is only one piece of a wider regulatory drive to improve the quality of information which Senior Management and the Board uses to inform itself and its stakeholders on the current and expected state of their business. Supervisors in turn hope that improvements in the quality, timeliness and breadth of risk information will help them to better inform themselves on the current and expected state of the wider market.

europe

{MONEY}

CENTRAL REGISTERS TO COMBAT MONEY

LAUNDERING

EUROPEAN PARLIAMENT AND COUNCIL AGREE ON NEW MEASURES.

he ultimate owners of companies will have to be listed in central registers in EU countries, accessible to those with a “legitimate interest”, such as investigative journalists and other concerned citizens, under a deal struck by Parliament and Council negotiators on a draft EU anti-money laundering directive last month. Money laundered globally each year amounts to 2-5% of global GDP. The rules will also require banks, auditors, lawyers, real estate agents and casinos, among others, to be more vigilant about suspicious transactions made by their clients. “For years, criminals in Europe have used the anonymity of offshore companies and accounts to obscure their financial dealings. Creating registers of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion”, said Economic and Monetary Affairs Committee rapporteur Krišjănis KariƇå. Civil Liberties Committee rapporteur Judith Sargentini added that, “The new rules agreed today will provide much greater transparency of the shadowy business structures that are at the heart of money laundering schemes, as well as schemes used by businesses to avoid their tax responsibility”. The fourth anti-money laundering directive (AMLD) will for the first time oblige EU member states to maintain central registers listing information on the ultimate beneficial owners of corporate and other legal entities, as well as trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs during the negotiations. The aim is to enhance transparency, make ‘dodgy deals’ harder to hide and fight money laundering and tax crime.

MONEY LAUNDERED GLOBALLY EACH YEAR AMOUNTS TO 2-5% OF GLOBAL GDP The central registers would be accessible to the competent authorities and their financial intelligence units (without any restriction), to “obliged entities” (such as banks conducting their “customer due diligence” duties), and also to the public, whose access may be subject to online registration of the person and to the payment of a fee to cover administrative costs. Any person or organisation who can demonstrate a “legitimate interest”, such as investigative journalists and other concerned citizens, would also be able to access beneficial ownership information such as the beneficial owner’s name, month and year of birth, nationality, residency and details on ownership. Any exemption to the access provided by member states would be possible only on a case-by-case basis in exceptional circumstances. MEPs also inserted several provisions in the amended AMLD text to protect personal data. The deal also clarifies the draft rules on “politically-exposed persons”, i.e. people at a higher than usual risk of corruption due to the political positions they hold, such as heads of state, members of government, supreme court judges, and members of parliaments, as well as their family members. Where there are high-risk business relationships with such persons, additional measures should be put in place, e.g. to establish the source of wealth and source of funds involved. The agreement still needs to be endorsed by EU member states’ ambassadors (COREPER) and by the European Parlia-

BBOOK RREVIEW LIFE IN THE FINANCIAL MARKETS: HOW THEY REALLY WORK AND WHY THEY MATTER TO YOU HARDCOVER

BY DANIEL LACALLE (JOHN WILEY & SONS, 2014)

R.R.P. £29.99 (£20.39 FROM AMAZON.CO.UK)

acalle, a noted portfolio manager and well-known media personality, VɈLYZ ZVSPK HK]PJL VU [OL M\[\YL VM [OL NSVIHS ÄUHUJPHS THYRL[Z HUK H YL]PL^ VM LɈLJ[P]L Z[YH[LNPLZ ÔPSL MVYLJHZ[PUN [OL [YLUKZ [OH[ YLWYLZLU[ WV[LU[PHS VWWVY[\UP[PLZ MVY PU]LZ[VYZ ;OL IVVR HSZV YL]PL^Z [OL OPZ[VY` VM [OL YLJLU[ ÄUHUJPHS JYPZPZ HUK PUJS\KLZ PUMVYTH[PVU VU [VWPJZ Z\JO HZ KLYP]H[P]LZ HUK OPNO MYLX\LUJ` [YHKPUN (U PU KLW[O ZLJ[PVU VU PU]LZ[TLU[ IHURPUN WYV]PKLZ JSHYP[` VU ZL]LYHS JVTWSL_ HUK V]LYS` WVSP[PJPaLK LSLTLU[Z VM [OL IHURPUN Z`Z[LT ;OL H\[OVY NP]LZ HU L_WLY[»Z WLYZWLJ[P]L VU [OL KLI[ THYRL[Z TVUL[HY` WVSPJPLZ HUK X\HU[P[H[P]L LHZPUN HUK OLSWZ L_WSHPU [OL ]HYPV\Z PZZ\LZ Z\YYV\UKPUN ZV]LYLPNU KLI[ [OL L\YV JYPZPZ HUK H\Z[LYP[` ]LYZ\Z NYV^[O WVSPJPLZ *VTWYLOLUZP]L PU ZJVWL [OPZ YLZV\YJL HSZV VɈLYZ HU HUHS`ZPZ VM PU]LZ[TLU[ Z[`SLZ MYVT OLKNL M\UKZ [V ¸SVUN VUS`¹ PU]LZ[TLU[Z HZ ^LSS HZ HU PU KLW[O SVVR H[ JVYWVYH[L JVTT\UPJH[PVU HUK P[Z PTWHJ[ VU THYRL[Z HUK PU]LZ[TLU[Z ;OL IVVR ÔPJO PZ HU PTWVY[HU[ YLZV\YJL VM ideas and recommendations for negotiatPUN [OL ÄUHUJPHS ZLJ[VYZ VɈLYZ Z\NNLZ[PVUZ [V PU]LZ[VYZ [V OLSW [OLT THRL [OLPY VÛ PU]LZ[TLU[ KLJPZPVUZ

ment’s Economic and Monetary Affairs and Civil Liberties, Justice and Home Affairs committees, before being put to a vote by the full Parliament later in the year.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 67

jobs

{BUSINESS}

FOREX AND PROFESSIONAL

SERVICES DOMINATE RECRUITMENT IN 2014 THE FINANCIAL CRISIS THAT HIT CYPRUS IN MARCH 2013 HAD A KNOCK-ON EFFECT ON THE EMPLOYMENT SECTOR. ALMOST TWO YEARS SINCE THEN, CYPRUS’ LEADING RECRUITMENT AGENCY, GRS GLOBAL RECRUITMENT SOLUTIONS, PROVIDES INSIGHT INTO THE CURRENT RECRUITMENT SITUATION AND TRENDS THAT ARE BEING EXPERIENCED IN CYPRUS.

FOREX IS CURRENTLY THE LARGEST RECRUITMENT SECTOR OVERALL

eedless to say, 2014 has been a tough year for Cyprus’ economy. After becoming the fifth country in the eurozone to be bailed out in March 2013, it then spiralled into debt, which had a rippling effect on its employment sector. By October 2013, unemployment had reached 16.9% and many businesses were forced to slash employee salaries, downsize or even shut down. Although business services have suffered a blow at the hands of the economic down-

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

turn, however, they have not suffered to the extent that many analysts predicted, due to the unyielding strength and resilience that certain sectors continue to possess within Cyprus. In spite of the current challenging environment, many job vacancies across the island continue to be filled. The foreign exchange sector is particularly flourishing and Forex is currently the largest recruitment sector overall, with 30% of GRS’ job vacancies being filled in the Forex sector during 2014. Second is the accounting, audit and corporate services sector with 25% of GRS’ job vacancies being filled in this sector during 2014. The Forex industry has experienced unprecedented growth in Cyprus over the last decade due to the country’s financial regulation and favourable business conditions. In 2010, 10% of all available vacancies recruited by GRS were in the Forex sector and, as the industry grew, more and more vacancies were filled. Gradually this figure rose to 11.2% in 2011 and 33.45% in 2012, peaking at 49% in 2013 and decreasing to 30% in 2014. Another resilient sector that contributes heavily to Cyprus’ economy is the professional services sector, which is a dominant area of recruiting activity at GRS. In 2014, GRS filled 25% of vacancies in the professional service sector, compared with just

GRS RECRUITMENT SECTOR

PLACEMENT DATA 2014 2.02% 1.61%

3.63%

1.21% 3.23%

1.21%

3.23%

Audit Firms Consulting Corporate Services Cyprus Investment Firms

4.44% 2.82%

1.21%

Engineering 14.52%

0.81%

10.48%

1.21% 11.69%

2.02%

Finance/Banking FMCG Forex Insurance IT

30.65%

Law/Legal 4.03%

16% in 2013 due to the impact of the financial crisis. In previous years this figure remained high (31% in 2010, 34% in 2011 and 27% in 2012). Cyprus remains an attractive location for offshore company formation and company registrations in Cyprus are still on the rise. Cyprus is a highly tax-effective location for establishing business, with one of the lowest corporate tax rates in Europe (12.5%) as well as countless Double Taxation Agreements and tax exemptions. Over the past 10 months, the number of company registrations in Cyprus has increased on a month-by-month basis, with reports showing that 919 applications for company registration were made in September 2014 compared with 798 in September 2013. As more companies continue to become registered in Cyprus, demand rises for administration through auditing, accounting, legal and corporate services. GRS cofounder and director, Donna Stephenson says, “The professional services sector is a key growth area that has played a leading role in shaping Cyprus’ economic growth for the past two decades. This sector continues to drive growth in Cyprus and provide plenty of employment opportunities island-wide”. She continues: “As one of the most stable and robust recruitment agencies in Cyprus, GRS can easily satisfy the employment needs of such firms and locate the most

suitable staff to fill available positions. We have a very strong database of professionally qualified staff and professional support staff that is regularly recruited to these firms, including accountants at every level, lawyers, corporate assistants, administrators and bookkeepers.” Provided that Cyprus remains an attractive location for company formation and companies continue to establish entitles here, professional services requirements will continue to be in high demand, which will in turn create more job opportunities and have a positive impact on hiring trends. Other significant areas in the region that are showing promising signs of growth include the oil and gas sector. Although oil and gas exploration in Cyprus is in its infancy, rapid changes in the market are presenting heightened employment op-

The professional services sector continues to drive growth in Cyprus and provide plenty of employment opportunities island-wide

Media/Marketing Medical

portunities, and a number of major oil and gas companies have already established a base in Cyprus. GRS is already placing individuals within this sector and is a key player in meeting a complete range of Cyprus recruitment needs – including the requirement of temporary workers. Earlier this year the company was issued with Cyprus’ first temporary worker license and is now in a unique position to provide temporary employees to its Cyprus-based clients. Steve Slocombe, GRS co-founder and director adds: “The flexibility now offered, through temporary recruitment options to clients in the oil and gas sector and the economy as a whole, gives employers a wider scope of options when considering hiring personnel, whether for a temporary increase in workload, specific projects, to cover sickness or maternity or simply so that new staff don’t appear on the payroll. Using temporary employees enables employers to essentially ‘try before you buy’, something which, in uncertain economic times, gives absolute flexibility in the planning and costing of hiring new personnel”. Despite the impact of the recent crisis on the country’s economy, there is plenty of optimism and hope for prosperity in years to come. With a healthy business environment, a strong professional services sector and the recent discovery of natural gas, Cyprus’ resilient economy demonstrates the prospect of a positive longterm outlook for the employment sector.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 69

COMPANY PROlLE

{BUSINESS}

NEW NAME, Same Great Service

IN NOVEMBER, CYPROMAN SERVICES LTD ANNOUNCED ITS NEW BRAND AND CORPORATE IDENTITY, BECOMING THE CPM GROUP, WHILE CYPROFUND ADMINISTRATION SERVICES LTD WAS ALSO RENAMED CPF (FUND ADMINISTRATION SERVICES). ANDREAS LOIZOU, SENIOR MANAGER OF CPF EXPLAINS THE RATIONALE BEHIND THE CHANGES. By Effy Pafitis

Gold: The CPM Group offers a plethora of corporate administration services to clients in Cyprus and abroad. How would you describe its core service offering? Andreas Loizou: CPM undertakes the incorporation of companies in Cyprus and other jurisdictions through an extensive network of corporate lawyers and company consultants. It also provides corporate administration and secretarial services in Cyprus and elsewhere, ensuring that clients are compliant with all relevant statutory obligations at all times. CPM also offers Fiduciary and Trust Services, guaranteeing confidentiality, non-disclosure and reliability. In collaboration with specialist lawyers, CPM sets up a wide variety of trusts including discretionary trusts, purpose trusts and those involved in employee bonus schemes, always in accordance with the client’s personal circumstances and requirements. The Group also provides accounting and bookkeeping, payroll, immigration and other business support services, maintaining at all times a professional approach and a

DESPITE THE DIFFICULT ECONOMIC CONDITIONS, CYPRUS WILL CONTINUE TO GROW AS AN INTERNATIONAL BUSINESS CENTRE high-quality customer service. Gold: In November, Cyproman Services Ltd announced its “evolution” into the CPM Group. What was the impetus behind this rebranding? A.L.: After 18 years of professional service and continuous growth, the Group’s management felt that it was time for change in order to best reflect its values, its modus operandi and its size. Furthermore, the Group needed to adopt a fresh look in order to compete more effectively in a turbulent market with ever-increasing regulatory and other requirements and an increasing number of competitors. The rebranding marks the company’s

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

renewed commitment to provide top quality professional services to its valued clients and, in effect, it initiates the Group’s strategic action plan to achieve its vision: to become and be recognized as a Leading Administrative Services Provider, by the year 2020. Gold: How will the rebranding affect the firm’s subsidiary, CyproFund Administration Services Ltd, of which you are Senior Manager? A.L.: Cyprofund is evolving into CPF and adopting a new image so as to be aligned with the rest of the Group. This will reflect CPF’s leading position in offering Fund Administration Services in Cyprus and serving Fund Managers around the world. CPF is a wholly owned subsidiary of the Group, offering a complete Fund Administration Solution that caters to a wide range of investment vehicles and fund structures. This solution can be tailor-made to match individual customer needs and specific fund structures. It also includes

THE BIGGEST CHALLENGES FACED BY THE CYPRIOT FINANCIAL SERVICES SECTOR ARE TO RETAIN THE EXISTING CLIENT BASE AND TO MANAGE THE INCREASINGLY DEMANDING REGULATORY COMPLIANCE ENVIRONMENT customized, full-service back-office support to clients which include a broad range of investment vehicles, mutual funds, private equity investments and partnerships. Gold: You have made a point of reassuring the market that, although the company’s branding strategy is undergoing alterations, its consistently high standard of professional excellence will remain. Of all the qualities that CPM demonstrates in its dealings with clients, which do you believe to have been most central to its success since its establishment in 1996? A.L.: Our success depends on a combination of factors, such as our extensive industry knowledge, our long experience and our flexibility. However, I believe that the most important qualities that create much soughtafter customer loyalty are understanding the client’s needs and consistently delivering top quality service. Gold: Cyprus’ business environment has continued to develop, despite the challenging economic climate which followed the island’s bailout last year. Company registrations rose in 2014 and the island’s fiduciary services sector continues to thrive. With this in mind, what are your projections for the development of Cyprus as an international business centre in the coming year? A.L.: Despite the difficult economic conditions, Cyprus will continue to grow as an international business centre and command its share of business from all over the world. My belief is based on the tangible progress achieved so far. International confidence in the Cyprus economy is gradually being restored, as shown by last year’s positive upgrades by the Credit Rating Agencies, for example, while the general government accounts recorded a surplus of €274.9 million for the period January-October 2014, two years ahead of the Troika’s projections. The European Commission expects Cyprus to exit recession in 2015 and see growth of about 0.4%, increasing significantly to 1.6% in 2016. According to the Autumn Economic forecast of the ECB, Cyprus’ GDP will drop by 2.8% in the current year, which is a downward revision compared to

its spring projection of a 4.8% contraction. According to the same forecast, the public deficit is expected to reach 2.8% of GDP, which is yet another downward revision on the spring forecast of 5.8%. Unemployment is also expected to have fallen to 16.2% in 2014, decreasing further to 15.8% in 2015 and 14.8% in 2016. Finally, there has been significant improvement in the financial sector as reflected in the results of the ECB’s Comprehensive Assessment of the most important financial institutions in Cyprus and the Ministry of Finance continues to ease capital controls. Gold: What are the main challenges that, in your view, may hinder progress in 2015? A.L.: The biggest challenges faced by the Cyprus economy are the stabilization of the banking sector and the complete removal of capital controls as well as the building of renewed trust and confidence in the island’s banks and managing to remain a competitive tourist destination by enhancing our product offering. The biggest challenges faced by the Cypriot financial services sector are to retain the existing client base, in view of new tax and legal regulations recently enacted in other countries, and to manage the increasingly demanding regulatory compliance environment. Gold: What would you propose to further improve the local business environment? A.L.: There is an urgent need to reorganise corporate governance and to provide tax and other incentives to stimulate investments. Furthermore, the efficiency of authorities such as the Registrar of Companies and the Inland Revenue Department needs to be improved through a reduction in bureaucracy and the simplification of time-consuming procedures. The Government should also promote reform of the judicial system to speed up legal procedures and court cases. Additionally, the revival of entrepreneurship is necessary to promote business opportunities for international entrepreneurs active in alternative areas, such as Sharia Funds and Cell companies.

Gold: Finally, what does CPM hope to achieve in 2015? A.L.: We aim to retain our existing client base by staying close to our clients, responding quickly to their needs and exploring new business opportunities.

B BOOK RREVIEW TAKING DOWN GOLIATH: TTAKING GOLIATH DIGITAL MARKETING STRATEGIES FOR BEATING COMPETITORS WITH 100 TIMES YOUR SPENDING POWER BY KEVIN RYAN & ROB GRAHAM (PALGRAVE MACMILLAN, 2014) R.R.P. £19.99 (£17.99 FROM AMAZON.CO.UK)

hanks to the digital revolution, there has been a visible transition towards a marketing world in which you don’t need a huge budget to get a lot done. Success now goes to those advertisers who understand how to best leverage what they have, investing in smarter strategies rather than just bigger or more expensive campaigns. This book, by two industry ]L[LYHUZ WYVÄSLZ [OL [HJ[PJZ ULLKLK [V optimize the potential of digital marketing and realise its promise of a more level WSH`PUN ÄLSK ;OL` L_WSHPU ^OH[ [V KV where to look, how to execute and, most importantly, what to avoid as you set out to make the most of what you’ve got. The book includes case studies of companies that are ‘taking down Goliath’ on a daily basis – brands that have emerged using tactical outlay and overarching strategies that their much bigger competitors couldn’t see coming. While most books focus on one medium (such as social media or search engine optimization), they explain each digital marketing channel and show how to combine them.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 71

christmas spending

{ECONOMY}

IRELAND TOPS THE CHRISTMAS SPENDING LEAGUE WITH EXPENDITURE OF AROUND $1,200 PER PERSON IN 2013

Santanomics:

WHO SPENDS THE MOST

DURING THE FESTIVE SEASON?

ast year, total spending over the Christmas period in the major Western economies (defined as the G7 excluding Japan) amounted to around $445 billion. In most countries, retail sales spike during the last two months of the calendar year. This is because households temporarily increase their discretionary spending for Christmas. Retailers know they have to get it right during the Christmas period, which is a ‘make or break’ event, as poor sales in the last two months of the year can have a disproportionate impact on their profitability. But the Christmas period is not just important for retailers as its effects can be felt throughout the entire supply chain. As a result, affected businesses need to have a good understanding of the seasonal spending habits of their customers. So how do countries rank in their Christmas spending patterns and what messages can businesses draw from this? An analysis by PwC shows that Ireland is the leader in the league table of spenders over the Christmas period. Specifically, Irish consumers spent around $1,200 per person at Christmas in 2013. The analysis also finds that spending increases by around 16% on average during the months of November and December compared to the rest of the year. This emphasises the importance of the festive season for the revenue cycle of affected businesses. However, the analysis for 2013 also points to other important trends within the major Western economies. Specifically: UK households are the most generous spenders in the major Western economies

during the Christmas period in per person terms, comfortably outstripping their US counterparts by around one third. From a European perspective, German households spend around half that of their UK peers. In the eurozone, French Christmas spending per person is the highest, followed by Germany. Italian households spend even less than Germany and this appears to have been accentuated by their stagnating economy. But what about emerging markets? PwC also looked at the two biggest emerging markets that celebrate Christmas, Brazil and Russia, which rank at the bottom in terms of real per person spending over the Christmas period. This is not surprising as there is a strong and positive correlation between GDP per capita and Christmas spending per person. However, this correlation also points out the untapped business potential of emerging markets and it is expected that the gradual catchup of income levels in emerging economies to Western standards will lead to greater Christmas spending in the future. On a more general point, emerging market spending over the Christmas period is expected to continue to grow in the future driven by the following trends: The gradual convergence of income levels in emerging economies towards Western levels (although this will be a very slow process given the large difference in starting points); and An increase in the number of consumers in some younger emerging markets. The key conclusions drawn by PwC are that Brazilian Christmas spending is bigger in aggregate terms than that of Italy,

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

CHRISTMAS SPENDING PER PERSON 1. Ireland

$1,184

2. UK

$1,065

3. USA

$776

4. Canada

$682

5. France

$574

6. Germany

$520

7. Italy

$462

8. Portugal

$357

9. Greece

$188

Spain

$184

Brazil

$166

Russia

$93

despite scoring lower on the per person measure, and reflects the large consumer base present in Brazil. The US remains by far the biggest Christmas spender in the world consuming over $240 billion per annum, which is more than that of the UK, Germany, France and Brazil combined. This is because the US has the ‘golden combination’ of a large and affluent consumer base. Despite this, last year, Christmas spending per person in the US was 10% lower compared to 2007 in real terms despite 1% growth in real income levels. In contrast, the UK and Germany are the only major Western economies where Christmas spending has exceeded pre-crisis levels in real terms.

insurance

GLOBAL CAPITAL

STANDARD FOR INSURERS MOVES A STEP CLOSER

{ECONOMY}

MUCH STILL TO DO, WARNS KPMG

GLOBAL INSURERS NEED TO TAKE NOTE OF THE CHANGES AND RESPOND TO THE CONSULTATION

he release by the International Association of Insurance Supervisors (IAIS) of its consultation paper on a risk-based global insurance capital standard (ICS) is the latest instalment in a multi-year programme towards developing a global insurance capital standard. While this is one step closer to having a clear standard that global insurers can adopt, further regulatory reform may be required to ensure that it is consistent. ICS will apply on a group-wide, consolidated basis to around 50 of the largest international insurance groups (IAIGs) from 2018, with confidential reporting to supervisors starting in 2017. Key areas covered by the consultation paper relate to valuation, qualifying capital resources and potential approaches for determining capital requirements. Gary Reader, Global Head of Insurance, KPMG International, comments: “We have long supported the IAIS endeavours to develop a global capital standard. However, the practical application by supervisors will be equally as important as the requirements themselves. In this regard, the interplay between the ICS and local regulatory requirements will be critical. In addition, as the ICS will not apply at a legal entity level, groups will face additional challenges in managing both solo and group requirements. The minimum standard nature of the proposals will mean that local jurisdic-

tion supervisors must demonstrate that their own regime is at least as strong as the ICS, or groups headquartered there will face an additional layer of reporting requirements, with confusion as to which becomes their binding requirement. This raises the very real prospect of inconsistent application of the ICS and different capital standards applying across geographies, running somewhat counter to the IAIS’s aim of promoting greater global convergence, consistency and avoidance of possible capital arbitrage.” Global insurers need to take note of the changes and respond to the consultation, especially if there are any significant challenges when the ICS is compared with existing, or forthcoming local regimes. Rob Curtis, Global Insurance Regulatory Lead, KPMG International, adds: “Insurance groups will want to ensure that inefficiencies and duplication are not inadvertently built into the new requirements. Further consideration among regulators concerning important issues, such as capital target criteria, time horizon and measurement basis, will be required. Similarly, it will be critically important that the ICS incorporates consistent valuation principles for assets and liabilities and a consistent approach to the definition of qualifying capital resources that are comparable and meaningful across different markets and which do not create undue balance sheet volatility. “If the IAIS is to achieve its goals, further regulatory reform to introduce or refine groupwide supervision may be required in some markets. For example, there are significant differences between the US ‘windows and walls’ approach and the European group supervisory approach under Solvency II. A global ICS will require greater consistency in approaches to group supervision. Within Europe, the ICS developments also present an opportunity for a wider debate on EIOPA’s role in relation to the group-wide supervision of any IAIGs headquartered within Europe. Given these considerations and the experience of Solvency

II development in Europe, the deadline for finalization of the ICS by December 2016 appears overly optimistic - especially if detailed and thorough industry participation and involvement is expected.”

B BOOK RREVIEW FUSIONECONOMICS FUSION SIONECONO ECONOMICS: HOW PRAGMATISM IS CHANGING THE WORLD

BY LAURENCEJ.BRAHM(PALGRAVEMACMILLAN,2014)

R.R.P. £24.99 (£22.49 FROM AMAZON.CO.UK) olistic yet grounded and straightforward, this revolutionary book calls for a turn away from an economic system dangerously steeped in ideology, stymied by politics, and prone to fomenting violence. As he examines where things went wrong, Brahm outlines a new global consensus based on pragmatism, common sense, and grass-roots realities that requires a WYVMV\UK JOHUNL PU ]HS\LZ HUK KPɈLYent measurements of success. Drawing on his experience overseeing China’s transformation from socialism to a market economy and its current Green Growth National Policy, Brahm suggests a synergistic integration of Western and Eastern economic systems. He demonstrates how a clever combination of market planning, SVJHSPaLK KP]LYZPÄJH[PVU NYLLU LULYN` HUK ÄUHUJL MVY ZTHSS HUK TLKP\T ZPaLK community enterprises can restructure our ÄUHUJPHS HYJOP[LJ[\YL PU[V H TVYL Z\Z[HPUable model. Brahm’s book is a must-read for anyone who wants to be at the vanguard of change to build a more adaptive, organic, and inclusive future. At once pragmatic and progressive, it holds the promise of a new economic reality with a heart, a mind and a soul.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 73

de-offshorisation

{TAX&LEGAL}

DON’T RUN BEFORE YOU CAN WALK RUSSIAN DE-OFFSHORISATION UNCERTAINTIES REMAIN

By Alexis Tsielepis and Daniil Ruderman

he new de-offshorisation legislation, passed at lightning speed through the Russian Parliament and then hastily signed by President Putin within a week and a half, came into force on 1 January 2015. It introduces fundamental new rules, concepts and principles to Russian domestic legislation such as controlled foreign company (CFC) rules, tax residency rules for legal entities and the ‘beneficial owner of income’ concept. In layman’s terms, the legislation deals with the taxation of profits received and held by Russian-owned businesses in nonRussian low-tax jurisdictions. Perhaps due to its urgency, however, it is far from being clear. Further clarifications and amendments, possibly taxpayerfriendly ones, may be introduced in the spring, as has been hinted by Russia’s

ANY SOLUTIONS AIMED SOLELY OR PREDOMINANTLY AT MINIMISING TAX ARE OPEN TO CHALLENGE BASED ON RUSSIAN ANTI-AVOIDANCE DOCTRINE Deputy Minister of Finance, Sergei Shatalov, although nothing specific has been officially confirmed. On CFC rules, there is a general question of whether they contradict Double Tax Treaty provisions. Although most countries and the Organisation for Economic Co-operation and Development believe that no conflict exists, it remains an area of dispute among professional tax advisors. More specifically, the law states that a non-Russian company or structure such as a fund or a trust may be treated as a CFC if it is controlled by a Russian tax resident. A Russian tax resident shall be deemed to be a controlling person of the company or structure if he/she owns more than 50% of that company or structure. The 50% threshold applies in 2015 only. From 2016, the threshold becomes 25%, or 10% if Russian tax resident shareholders jointly own more than 50% of the company. It is not entirely clear how these

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

thresholds apply to structures such as trusts. Presumably, in the case of trusts, taxpayers would be required to apply the general definition of «control» provided in the law, which translates as the possibility to affect decisions on the distribution of profits. However, in the case of a Russian tax resident transferring shares of a nonRussian company into an irrevocable discretionary trust with his/her child (a Russian tax resident as well) being a beneficiary, neither the founder nor the beneficiary has the legal possibility to affect the distribution of profits. This is a decision that rests solely with the trustees. In practice, however, it would be difficult to convince the Russian tax authorities that CFC rules do not apply here. Furthermore, under the law, a participation held by spouses is included in that of the individuals. Thus, where a non-Russian tax resident spouse owns 100% of the shares in a non-Russian company, her Russian tax resident husband may be deemed to exercise control and subject the company to Russian CFC rules where, in fact, he has no control at all. The law provides for the profits of a CFC being calculated based on its financial statements, where the CFC is registered in a treaty partner jurisdiction of Russia, and the financial statements are

Alexis Tsielepis

Daniil Ruderman

subject to an obligatory audit, as in the case of Cyprus. In all other cases, the CFC’s profit for Russian tax purposes is calculated based on domestic tax rules (Chapter 25 of the Russian Tax Code). The new legislation provides for losses incurred by a CFC in 2012-2014 to be carried forward for tax purposes. Should, however, retained earnings be treated any differently? In other words, should retained earnings be subject to Russian tax? The law provides no guidance. This issue contrasts sharply where the companies are not subject to mandatory audit, and the provisions of Chapter 25 of the Russian Tax Code kick-in. These do not take retained earnings into account. Profit of the CFC which is subject to Russian taxation shall be reduced by the amount of dividends paid by this CFC. But should a dividend that is distributed from retained earnings received before the law comes into effect reduce the amount of the CFC’s profit? The law again provides no guidance. The law states the profit of a CFC shall be exempt from Russian taxation if the CFC is: a non-commercial organisation which does not distribute profits; established in a country which is a member of the Eurasian Economic Union (i.e. Belarus, Kazakhstan or Armenia); tax resident in a tax treaty partner jurisdiction, which provides for the exchange of tax-related information and the effective tax rate for the profit of this CFC is not less than 75% of the average weighted Russian domestic tax rate; tax resident in a tax treaty partner jurisdiction, which provides for the exchange of tax-related information and the share of passive income received by this CFC does not exceed 20%; a structure (such as a trust or a fund) and all the following conditions are met: (i) the founder is not able to take back the assets transferred to this structure, (ii) the founder’s rights cannot be transferred to a third party except in cases of inheritance or legal succession, (iii) the

1) 2) 3)

PERHAPS DUE TO ITS URGENCY, THE NEW LEGISLATION IS FAR FROM BEING CLEAR founder is unable to receive any profit from this CFC and (iv) the structure is unable to distribute profits among its participants; a bank or an insurance company, tax resident in a treaty partner jurisdiction which provides for the exchange of tax related information; the issuer of traded bonds; a participant in a production sharing agreement, or a concession agreement and other similar types of agreement with the State; treated as the operator of new hydrocarbon sea block or if CFC is the shareholder of such operator. There are exemptions from paying tax in Russia but even in the above cases, a CFC would still be subject to various reporting requirements. Further, these exemptions are far from being ‘one-size-fits-all’ solutions. Solutions must be tailor-made to the client’s specific and unique circumstances. Plus, it should be noted that any solutions aimed solely or predominantly at minimising tax are open to challenge based on Russian anti-avoidance doctrine. There are further considerations on items 3 and 4 which may, to some extent, provide certain solutions. With item 3, the law stipulates the formula calculating the effective tax rate for CFC’s profit. If the effective tax rate applicable to the CFC’s profit is high enough, the profit would be exempt from Russian domestic tax. However, would this still be the case if the CFC subsequently received a tax refund in its jurisdiction of residency? The law is silent on this matter. In terms of item 4, besides ‘standard’ and ‘non-standard’ types of passive income, including consulting, legal, audit and marketing services, there is also a category listed as ‘other similar income’. This may be used subjectively by the Russian tax authorities to include types of income which are not directly listed in the law. If a taxpayer disagrees, he may have to prove his position in a court, which is

7)8) 9)

not in itself an attractive course of action. New Russian tax residency rules for legal entities provide that non-Russian companies managed from Russia could be treated, under certain conditions, as Russian tax residents. This would require them to calculate and pay Russian profit-tax. However, the law is silent with regard to other Russian taxes which are ordinarily paid by Russian companies. In addition, could non-Russian companies, which acknowledge that their management is undertaken from Russia, be assessed as a Russian permanent establishment (PE) for the period before 2015? Although there is currently no established practice on assessing a Russian PE as a non-Russian company based on the place of effective management test, this cannot be excluded. In terms of the beneficial owner of income concept, the law clarifies that Double Tax Treaty benefits shall not apply where the company recipient of income has limited authority with respect to this income, does not take any business risks in relation to it and actually transfers this income to another company. The issue here is that, unlike many other jurisdictions, Russia has no clear criteria which are applied when examining beneficial ownership. Another aspect of the new rules applies to the taxation of a non-Russian company’s income, which is derived from the sale of shares of Russian or non-Russian companies, whose assets, directly or indirectly, consist of more than 50% of immovable property located in Russia. There question remains how this tax could practically be assessed and collected in a situation where the seller and the purchaser are both non-Russian companies, without any representation in Russia. Another real concern is whether, after nonRussian companies as well as their financials are disclosed to the Russian authorities, there is a likelihood that the owners will be questioned on whether they have paid all taxes relating to the company’s historic capital. Given the uncertainties, it is preferable not to act hastily but form a strategy based on facts and not assumptions, implementing only when ready. Hand in hand, let’s learn to walk before we run.

info: Alexis Tsielepis is Director & Head of Taxation and Daniil Ruderman is a Tax Consultant and Representative, Moscow of Costas Tsielepis & Co Ltd

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 75

DElNITIONS

{TAX&LEGAL}

By Olga Chervinskaya

A NEW SENSE OF ‘OFFSHORE’

rior to joining the European Union, Cyprus was referred to as an “offshore” jurisdiction, meaning a country that had a zero or low tax rate or provided special tax regimes for international business companies.While Cyprus still offers beneficial tax environment for international investors based on internationally accepted tax practices, the word “offshore” has now gained a new meaning with reference to Cyprus – in the area of oil and gas operations. “Cyprus offshore” in this sense commonly refers to an oil and/or natural gas underwater area situated beyond Cyprus’s shores as well as to hydrocarbon activities carried out in this area. In connection with this, terms such as ‘territorial sea/waters’, ‘continental shelf’ and ‘Exclusive Economic Zone (EEZ)’ are frequently used. These areas are defined by the UN Convention on the Law of the Sea ratified by Cyprus in 1988. Territorial sea is an adjacent belt of sea, the breadth of which can be established by a state up to a limit not exceeding 12 nautical miles, measured from its state baseline. Territorial sea is a sovereign territory of the relevant state and this sovereignty extends to the airspace over the territorial sea and, importantly in the context of oil and gas, to its bed and subsoil. The continental shelf is an underwater landmass which extends from a continent, resulting in an area of quite shallow water. It can be determined in two ways: The seabed and subsoil of the submarine areas that extend beyond its territorial sea throughout the natural prolongation of its land territory to the outer edge of the continental margin, or A distance of 200 nautical miles from

the baselines from which the breadth of the territorial sea is measured (in case the outer edge of the continental margin does not extend up to that distance). The coastal state exercises sovereign rights over the continental shelf for the purpose of exploring it and exploiting its natural resources. The EEZ is an area beyond and adjacent to the territorial sea, subject to the specific legal regime.A state has sovereign rights in its EEZ for the purpose of, amongst others, exploring and exploiting, conserving and managing the natural resources, ether livingor non-living, of the waters superjacent to the seabed and of the seabed and its subsoil. The Exclusive Economic Zone shall not extend beyond 200 nautical miles from the baselines from which the breadth of the territorial sea is measured. Since the determination of the above areas is not always straightforward and may be challenged by neighbouring countries, this often becomes the subject of bilateral international agreements. So far, Cyprus has signed a Delimitation of the EEZ Agreement with Egypt. Similar agreements have been signed on a Ministerial level with Lebanon and Israel. In addition, Cyprus and Egypt have signed a Framework Agreement concerning the development of crossmedian line hydrocarbon resources and a more detailed Unitisation Agreement. Cypriot domestic tax legislation does not include the definition of the above explained areas, even though there is such a definition in other domestic laws. The current version of the Cyprus Income Tax Law (‘ITL’) defines ‘Cyprus’ as ‘the Republic of Cyprus’ whereas some conventions for the avoidance of double taxation newly concluded by Cyprus include a more sophisti-

THE RECENTLY CONCLUDED DOUBLE TAX TREATY WITH NORWAY SPECIFICALLY INCLUDES REFERENCES TO CYPRUS’ TERRITORIAL SEA, CONTINENTAL SHELF AND EEZ cated definition of the Republic’s territory. For example, the recently concluded Double Tax Treaty with Norway (which entered into force on 1 January 2015) also defines Cyprus in a geographical sense and specifically includes references to its territorial sea, continental shelf and EEZ. It is important to broaden the definition of the Republic for tax purposes to specifically contain the offshore areas in order to extend the tax jurisdiction of Cyprus over the hydrocarbon activities taking place offshore Cyprus and such a tax bill is currently pending before the House of Representatives. Under current tax practice, the Cypriot authorities interpret the definition of ‘Cyprus’ to include territorial sea, EEZ and continental shelf and, thus, treat the hydrocarbon activities that may be undertaken by a non-resident company in these areas as taxable in Cyprus following Article 5(2)(a) of the ITL which allows Cyprus to tax income from a permanent establishment situated in the Republic. It should be noted that international treaties (e.g. the Convention, the delimitation agreements) do not on their own give taxation rights to Cyprus. Let’s hope that the oil and gas ‘offshore’ era will establish Cyprus as an international energy centre which will bring more benefits to the country economy in addition to the benefits of being an international business centre.

info: Olga Chervinskaya is a Senior Manager, Tax Services, EY Cyprus. The views and opinions expressed in this article are those of the author and under no

circumstances is Ernst & Young Cyprus Ltd responsible for the content or such views.

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

PAYING TAXES

OVERALL TAX COST

AND COMPLIANCE

{TAX&LEGAL}

BURDEN LOWER

FOR BUSINESSES PAYING TAXES 2015 STUDY BY THE WORLD BANK GROUP AND PWC

aying taxes has become easier over the past year for mediumsized companies around the world, the latest report from the World Bank Group and PwC finds. The time it takes an average company to meet its tax obligations dropped by four hours last year, according to the Paying Taxes 2015 study. The report also revealed that the total amount the average company paid in taxes and the number of payments it made also declined in the past year. This is a trend seen every year over the ten-year period covered by the publication. The report finds that on average, the standard company studied has a total tax rate (as defined under the Doing Business methodology) of 40.9% of commercial profits. It makes 25.9 tax payments per year and takes 264 hours to comply with its tax requirements. Over the ten years of the study, 78% of the 189 economies covered in the report have made significant changes to their tax regimes at least once. The time and the number of payments required to comply with tax obligations have fallen over the tenyear period, as has the average total tax rate. The fastest rate of decline for the total tax rate occurred during the financial crisis from 20082010 with an average decline of 1.8 percentage points per year during that period. The rate of decline then started slowing in 2011. The average time it takes a medium-size company to deal with its tax submissions has fallen by a total of nearly a week and a half over the ten years of the study; reflecting the increased use of electronic filing and payment systems around the world. Of the 379 tax reforms recorded in Paying Taxes reports since 2004, 105 relate to electronic filing. “Taxes provide the sustainable funding needed for social programmes and to promote economic growth. Policymakers need to find the right balance between raising revenue and

TAX REFORM IS SET TO REMAIN AN IMPORTANT TOPIC FOR GOVERNMENTS AROUND THE WORLD FOR SOME YEARS TO COME ensuring that tax rates and the burden of compliance do not deter participation or discourage business activity,” said Augusto Lopez-Claros, Director, Global Indicators Group, Development Economics, World Bank Group. “During economic downturns, this balancing act is intensified; some public spending may increase, putting pressure on deficits, and governments may need to use tax policy as an economic stimulus.” “The latest results from the Paying Taxes study show many economies are continuing to make progress in tax reform, but there is still a lot of scope to streamline and simplify tax systems,” said Andrew Packman, leader for Tax Transparency and Total Tax Contribution at PwC. “Tax reform is set to remain an important topic for governments around the world for some years to come, and this will include the need to take on board the proposals from the OECD to modernise the international tax system to cater for today’s globalised business”. Paying Taxes 2015 measures all mandatory taxes and contributions that a medium-size company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax,

BOOK REVIEW FURTHER URTHER WEIR WEIRD CASES: CASES COMIC AND BIZARRE CASES FROM COURTROOMS AROUND THE WORLD BY GARY SLAPPER (WILDY, SIMMONDS & HILL PUBLISHING, 2014)

R.R.P. £11.95 (£11.95 FROM AMAZON.CO.UK) ased on the author’s popular Times Online column, this book – the third in a series – provides another batch of extraordinary court cases from around the world. It draws on stories from many countries, and contains a great variety of shockingly strange, funny and entertaining courtroom dramas. The truly odd cases featured include that of a man MYVT -SVYPKH ^OV OHK OPZ OHUK IP[[LU VɈ by an alligator and was then convicted of “illegally feeding an alligator” and one of a man imprisoned for 50 years for stealing a packet of pork ribs. Hardly just, one would think! The author also gives details of a case in Brazil in which an election candidate had tried to gain votes by including a free sample of cocaine with LHJO LSLJ[PVU SLHÅL[ HUK [OL KPZJ\ZZPVU about whether it is theft for a shopper to go to the ‘free sample’ counter of meat PU H Z\WLYTHYRL[ ÄSS [^V IHNZ ^P[O [OL samples, and exit. Highly entertaining and it will make you glad you live in Cyprus.

waste collection taxes, vehicle and road taxes, and other small taxes or fees. For more information about the Paying Taxes study, visit www.pwc.com/payingtaxes.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 77

lNE DINING

{LIFESTYLE}

SETTING TASTE BUDS AFLAME, IMAGINATIONS ON FIRE, AND KINDLING DESIRES, FOOD IS BECOMING FAR MORE THAN THE SUSTENANCE OF LIFE: FOR SELECT PEOPLE THE WORLD OVER – FOODIES, IF YOU WILL – THE ART OF CULINARY ENDEAVOURS IS COMMENSURATE TO THE ART DE VIVRE. By Chloe Panayides

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

ne need only look at the evolution of blockbuster hits being spurned by Hollywood to discern a rising trend: from the mystical Chocolat, to the fun-loving Ratatouille, the sentimental The Hundred-Foot Journey, and the simply honest Chef, food is being utilised as a focal point through which to tell stories of people’s intricate lives, to better understand their motivations, idiosyncrasies, decisions, and, ultimately, desires. What was once a hobby is now a way of life, and the foodies’ quest to discover previously unknown flavours, fine-tune their palates, learn new cooking techniques, and immerse themselves in all things culinaryrelated has engendered a revolution of sorts, as business entities respond to this intensified demand.

Movies are one such example; enhanced eateries and culinary adventures are another. Combining this love of food with the joys of travelling, Relais & Châteaux is one such organisation to capitalise on the momentum of the gourmet train that is rattling its way around the world. A global fellowship of individually owned and operated luxury hotels and restaurants, the group currently comprises some 500 members in 60 countries across five continents. Established in France in 1954, Relais & Châteaux’s mission has long been to spread its unique art de vivre across the globe by selecting outstanding properties with truly unique characters to represent the association, combining distinguished hospitality and idyllic settings with exquisite and world-class cuisine. More famous still, perhaps, is the renowned Michelin Guide. Long has the term ‘Michelin-starred’ engendered reverence in the restaurant sphere, with enjoying the fine dining of such an establishment serving as an elusive pleasure to the very many. And, yet, its dynamic history is known to few; its evolution a serendipitous occurrence. In 1900, at a time when fewer than

3,000 cars traversed the streets of France, tyre manufacturers Andre Michelin and his brother Edouard, published the first edition of a guide for French motorists in a bid to boost the demand for cars and, by extension, car tyres. With less exclusive beginnings, the guide originally contained content spanning maps, instructions for the repair and changing of tyres, a list of mechanics, hotels and restaurants, and petrol stations. In time, recognising the growing popularity of the restaurant section of the guide, the brothers recruited a team of inspectors to visit and review restaurants, adhering strictly to the policy of maintaining anonymity to ensure that opinions were never biased. Some 26 years after the publication of its first annual guide, Michelin began honouring select fine dining establishments with stars in recognition of their supremacy. Initially, only one star could be bestowed. It wasn’t until 1931 that the hierarchy burst forth in full life, with associated criteria being published alongside the one- two-, and three-star rankings. One star = “A very good restaurant in its category” Two stars = “Excellent cooking; worth a detour” Three stars = “Exceptional cuisine; worth a special journey” Whilst European eateries have traditionally earned the most stars, the inception of the American guide in 2005 concentrating on New York, and the Tokyo Michelin Guide in 2007, outlets worldwide are now being offered the opportunity to earn their stars. As of 2013, 14 editions of the guide were in production, encompassing 23 countries. Whilst Cyprus has yet to produce a property to be welcomed into the Relais & Châteaux catalogue, or indeed be honoured with a Michelin star, select five-star and luxury properties across the island are, more and more, placing great emphasis on delivering the art of fine dining, fusing traditional Cypriot flavours with nuances reaped the world over. In early 2014, Le Meridien Resort & Spa in Limassol welcomed twice-Michelin starred chef — and owner of Benares in Mayfair, London — Atul Kochhar as a guest chef, whilst the newly branded Sensatori Resort Aphrodite Hills has managed to entice London-based chef, Sherin Alexander-Mody, Executive Director of La

Porte Des Indes, to guide the team behind the opening of the Resort’s new restaurant, Gate to India. Furthermore, Minthis Hills’ culinary team that tends to the Clubhouse dining is described as having been trained by the Alain Ducasse Training Centre (of several multi-starred Michelin restaurants’ fame), resulting in an array of à la carte options featuring contemporary Mediterranean cuisine complemented by French accents. Meanwhile, the Four Seasons Limassol’s in-house restaurants, namely Mavrommatis, Vivaldi, and Seasons Oriental, have earned high praise from restaurant-goers, with some using social media sites in a bid to encourage Michelin to consider the eateries as worthy of a coveted star. Sound efforts, no doubt. In the meantime, should budding foodies and avid travellers wish to avail themselves of verified fine dining, a plethora of European options are on offer. Unsurprisingly, Paris alone is home to nine three-Michelin starred restaurants, whilst perhaps more surprisingly, Dublin is home to five. London, Rome, and Bruges are tied with two. On the following pages we present the full list of Michelin *** restaurants in Europe: perhaps a New Year’s resolution is in the offing for foodies wishing to undertake the challenge of visiting as many eateries as possible. Follow the stars!

LUXURY PROPERTIES ACROSS THE ISLAND ARE, MORE AND MORE, PLACING GREAT EMPHASIS ON DELIVERING THE ART OF FINE DINING

Atul Kochhar Alain Ducasse

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 79

lNE DINING DINING

R RESTAURANTS IN EUROPE HONOURED WITH THREE MICHELIN STARS (AS OF 2014) W Location

Restaurant

Chef

Germany

Belgium

Wolfsburg

Aqua

Sven Elverfeld

Baiersbronn

Restaurant BareissBareiss

Gert De Mangeleer

Baiersbronn

Schwarzwaldstube

Harald Wohlfahrt

Bruges

De Karmeliet

Geert Van Hecke

Bergisch Gladbach

Vendome

Joachim Wissler

Bruges

Hertog Jan

Gert De Mangeleer

Mannheim

Amador

Juan Amador

Kruishoutem

Hof van Cleve

Peter Goossens

Osnabrück

La Vie

Thomas Bühner

Perl

Scholass Berg

Christian Bau

Rottach-Egern

Restaurant Überfahrt Gästehaus Klaus Erfort La Belle Epoque Waldhotel Sonnora

Saarbrücken

France Baerenthal

L’Arnsbourg

Jean-Georges Klein

Travemünde

Chagny

Lameloise

Eric Pras

Wittlich

Eugenie-lesBains

Les Prés d’Eugénie l’Auberge du Vieux Puits

Fontjoncouse

Michel Guérard

Rottach-Egern

Gourmetrestaurant Überfahrt

Christian Jürgens Klaus Erfort Kevin Fehling Helmut Thieltges Christian Jürgens

Gilles Goujon

Illhaeusern

Auberge de l’Ill

Paul Haeberlin

Joigny

La Côte Saint-Jacques

Jean-Michel Lorain

Laguiole

Bras

Michel Bras

Dublin

Patrick Guilbaud

Lyon

Paul Bocuse

Dublin

L’Ecrivain

Derry Clarke

Marseille

Le Petit Nice

Gérald Passédat

Dublin

Thornton’s Restaurant

Kevin Thonrton

Megève

Flocons de Sel

Emmanuel Renaut

Dublin

Chapter One

Ross Lewis

Paris

L’Arpège

Alain Passard

Dublin

Bon Appetit

Oliver Dunne

Paris

L’Astrance Epicure (Le Bristol)

Pascal Barbot

Kilkenny

Campagne

Gareth Byrne

Thomastown

Guy Savoy

Lady Helen Restaurant

Cormac Rowe

Paris

Galway

Aniar

Ultan Cooke

Paris

L’Ambroisie

Bernard Pacaud

Paris

Martijn Kajuiter

Ledoyen

Ardmore

The House

Yannick Alléno

Paris

Meurice

Alain Ducasse

Paris

Pierre Gagnaire

Paris

Le Pré Catelan

Frédéric Anton

Roanne

Troisgros Relais Bernard Loiseau Clos des Cimes

Michel Troisgros

Alba, Piedmont

Piazza Duomo

Enrico Crippa

Patrick Bertron

Bergamo Canneto Sull’Oglio

Da Vittorio

Vittorio Cerea

Dal Pescatore

Nadia Santini

Maison Pic Restaurant Jean Sulpice

Anne-Sophie Pic

Capri

L’Olivo

Jean Sulpice

Florence

Enoteca Pinchiorri

Georges Blanc

Massa Lubrense

Quattro Passi

Paris

Saulieu Saint-Bonnetle-Froid Valence Val Thorens Vonnas

Éric Fréchon

Régis Marcon

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

Ireland Restaurant

Italy

Annie Féolde, Italo Bassi and Riccardo Monco

Modena

Osteria Francescana

Massimo Bottura

Padua

Le Calandre

Massimiliano Alajmo

Crissier

HĂ´tel de Ville

BenoĂŽt Violier

Rome

La Pergola

Heinz Beck

FĂźrstenau

Schauenstein

Andreas Caminada

Rome

Oliver Glowig

Taormina

Principe Cerami

Vaassen

De Leest

Jacob Jan Boerma

Zwolle

De Librije

Jonnie Boer

Bray

The Fat Duck

Heston Blumenthal

Bray

The Waterside Inn

Alain Roux & Fabrice Uhryn

Alain Ducasse at the Dorchester Restaurant Gordon Ramsay

Jocelyn Herland

Switzerland

The Netherlands Monaco Monte Carlo

Louis XV

Franck Cerutti and Alain Ducasse

United Kingdom

Spain Girona

El Celler de Can Roca

Joan Roca

Igeldo

Akelare

Pedro Subijana

San Sebastian

Arzak

Juan Mari Arzak

London

Lasarte-Oria

Martin Berasategui

London

Sant Pol de Mar

Sant Pau

Carme Ruscalleda

Larrabetzu

Azurmendi

Eneko Atxa

Denia

Quique Dacosta Restaurante

Quinque Dacosta

Madrid

DiverXO

David Munoz

Clare Smyth

A mic rocos m

vie

of t food w indushe try

2015: â&#x20AC;&#x2122;Nduja, j , Kalette and Insects?

BOOK REVIEW THE NARROW O ROAD TO THE DEEP NORTH

BY RICHARD FLANAGAN (CHATTO & WINDUS, 2014) R.R.P. ÂŁ16.99 (ÂŁ7.95 FROM AMAZON.CO.UK)

nternational restaurant and food consultants, Baum+Whitemanâ&#x20AC;&#x2122;s recently released 2015 Food & Beverage Forecast is constructed around three threads: 1) How technology is profoundly changing the way restaurants, in all price ranges, will work in [OL ULHY M\[\YL" /V^ IHZPJ Ă&#x2026;H]V\YZ VM food and drink are being manipulated by chefsâ&#x20AC;&#x2122; and manufacturersâ&#x20AC;&#x2122; mash-ups; and 3) Because of this, why despite what other pundits claim, â&#x20AC;&#x2DC;authenticityâ&#x20AC;&#x2122; is no longer relevant. A microcosmic view of the food industry in 2015 has been encapsulated by Baum+Whiteman in its list of top buzzwords which, the consultants believe, will become ubiquitous to diners in the New Year: 1. Pistachios (â&#x20AC;&#x153;Nuts of the Year) 2. Iced lattes, with and without alcohol 3. Shaved ice desserts 4. â&#x20AC;&#x2DC;Nduja 5. Flavoured salts 6. Fermented (not quick-pickled) food 7. Savoury ice creams and yogurts 8. Bitter everything: bitter greens, bitter JOVJVSH[L IP[[LY JVÉ&#x2C6;LL PU KPZOLZ" 9. *SHZOPUN Ă&#x2026;H]V\Y JVTIPUH[PVUZ [OPUR sweet-salty-bitter-spicy marriages); 10. Fewer over-oaked chardonnays 11. The onset of nighttime food markets 12. More multi-ethnic festivals

13. Insects inside protein bars 14. :H]VY` ^HÉ&#x160;LZ HUK ^HÉ&#x160;L sandwiches 15. Spicy Ramen noodles Make of the buzzwords what you will (though surely â&#x20AC;&#x2122;Nduja â&#x20AC;&#x201C; or, rather, spicy spreadable pork sausage from Italy as itâ&#x20AC;&#x2122;s known in laymanâ&#x20AC;&#x2122;s terms â&#x20AC;&#x201C; will puzzle the majority), industry insiders are also excited about a new hybrid vegetable. Following kaleâ&#x20AC;&#x2122;s tryst with Brussels sprouts, kalette has been born, depicted as little clumps of kale on a Brussels ZWYV\[ SPRL Z[HSR ;OL Ă&#x2026;H]V\Y PZ KLZJYPILK HZ peppery and texture as crisp, and chefs are using the kalette interchangeably with kale in salads. As for insects protein bars, industry insiders are almost unanimous in their belief that whilst un-traditional, insects provide a quality source of protein at a fraction of the price of meat and dairy produce. Most famously, the company Exo sells its JYPJRL[ Ă&#x2026;V\Y WYV[LPU IHYZ ^VYSK^PKL [V Ă&#x201E;[ULZZ HĂ&#x201E;JPVUHKVZ LHNLY [V H]HPS [OLTZLS]LZ VM [OL ILULĂ&#x201E;[Z For all those unenthused, thereâ&#x20AC;&#x2122;s always that savoury ice cream to look forward to...

haring the title of famous book of haiku by the Japanese poet Basho, the winner of this yearâ&#x20AC;&#x2122;s Man Booker Prize is a novel about savagery and survival on the Burma â&#x20AC;&#x2DC;death railwayâ&#x20AC;&#x2122; constructed by prisoners-of-war and Asian slave labour in 1943. Beaten and starving, riddled with cholera, ulcers and beriberi, Allied POWs and local workers alike perished in the dense jungle between Thailand and Burma. Australian military surgeon, Dorrigo Evans, is the senior VÉ&#x2030;JLY ^OVZL KP]PZPVU PZ LUK\YPUN [OPZ hell on Earth. He will later be fĂŞted for his heroism in saving lives but his post-war existence is haunted by the PU[LUZL HÉ&#x2C6;HPY OL JVUK\J[LK ^P[O (T` his uncleâ&#x20AC;&#x2122;s second wife, and the later horrendous killing of the brightest soldier of his platoon. He slips numbly into marriage with Ella, but soon ILNPUZ [OL Ă&#x201E;YZ[ VM THU` PUĂ&#x201E;KLSP[PLZ ;OL hallucinations caused by privation, be it physical hunger or erotic yearning, HYL IYPSSPHU[S` L]VRLK PU [OPZ THNUPĂ&#x201E;JLU[ novel of passion, horror and tragic irony. Not an easy read but one that is not forgotten.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 81

A Day in the Life

Despo Lefkariti

The CEO of DeLeMa/McCannErickson on her love of movies, WKH UROH RI WKH ,QWHUQHW LQ WRGD\·V communication business, her passion for work and why she never became a fashion designer.

“I live on my own with

2 dogs and 2 cats and one of the cats that sleeps on my bed usually wakes me up before the alarm goes off. For most of my life I have got by on a maximum of 5 hours’ sleep so at 6.15am I will make my coffee and have a cigarette. Once I’m at work I go through my e-mails, check the news online and then I go to see what the agency’s various teams are working on. I am more involved in strategy development than in the creative part these days but if I can help I will. Although I studied marketing, it wasn’t my original choice. As a child I was good at drawing – I even took correspondence courses – and when I was only 15 Hammersmith School of Art offered me a place for the following September. I excitedly informed my parents that I was going to live in London and become a fashion designer! Of course, they said that I should finish High School first, which I did and, in 1974, I went to London to study fashion. That Christmas, when I came home, my father sat me down and said, “Look, fashion is all very well but there’s been a war in Cyprus and you need to get a degree that’s going to help you find some kind of work.” After a lot of discussion – and objections

A favourite recent soundtrack

before. I no longer read the papers for news. I need more in-depth analysis and background and I will read the ones that can give me on my part! – I was convinced this. Those that don’t understand to change so I went for market- that things have changed are going to die. ing. I don’t regret it; in fact, By 5 or 6pm, I start to feel I think I was born with an hungry – I only eat once a day and understanding of the subject. that’s dinner and, yes, I know it’s After graduating, I worked in not good for me – and I realise Petrolina in Greece for more that most people have gone home. than eight years. I returned Before my grandson was born I to Cyprus in 1985, by which time I had decided that I didn’t would leave work around 7.30pm but now I try to leave by 6.30pm want to work in the family to visit him before going home to business anymore. I felt the cook dinner, which is something need to start something of my own and I so founded DeLeMa I enjoy. At home I watch a lot of films to offer the services that I had and TV series. I’m enjoying Suits been looking for and couldn’t find. It is primarily about com- right now. I love the big screen munication and advertising but we are also closely involved in the marketing of our clients’ products and services. The big change to our business came with the Internet and the fact that we suddenly had so many sources of information. The issue now is to be able to filter that information properly. In terms of the media, online and digital is an area that is growing very fast and I’m glad to say that we were in it quite early and we are doing some very effective work. Since the advent of the Internet, the print media have come to serve a completely different purpose from

My favourite actor in his best role

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

After watching the TV series, I am reading the books

and I still go to the cinema. Just recently I went to see The Hobbit. My favourite actor is Harrison Ford in the Indiana Jones movies. I like films that are intelligent or have a touch of clever humour. I like a great production too, such as the special effects in a movie like The Matrix or a series like Game of Thrones. I also read a lot and I am now reading the A Song of Ice & Fire books, of which A Game of Thrones is the first. Usually I prefer to read a book before seeing the TV adaptation but this time it has been the opposite and it’s very interesting. I love listening to music and I especially like movie soundtracks. The last one I bought was the music for Spirit: Stallion of the Cimarron by Hans Zimmer, which, to my ears, contains some very distinctive Greek sounds. Saturdays are spent on practical matters like supermarket shopping and housework and I spend my Sundays with my mother. We have a nice lunch and then watch CSI Miami! I still have lots of ambitions and goals and I had been hoping to retire before the age of 60 but I don’t see it happening now. That said, I am very happy to be continuing. People often ask me if I’m a workaholic and I don’t know the answer to this question. What I do know is that my work is such a key part of who I am that there are no hours in the day that are ‘work only’. I can safely say that the passion is still there.”

A more direct approach to optimal cash management If the pinnacle is optimum efficiency, we recommend taking the direct route. Equipped with a range of leading integrated cash management solutions fitted to your unique specifications, we can facilitate the control of money throughout your organisation. To keep on top, simply call +44 (0)207 574 3246 or speak to your Relationship Manager. Wealth and Investment Management Cash Management Barclays offers banking wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiary companies. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is regulated by the Central Bank of Cyprus in the conduct of its banking and investment business in Cyprus. Barclays Bank PLC is authorised by the Gibraltar Financial Services Commission to conduct banking and investment business in Gibraltar.