FinancialMirror.com
August 22 - 28, 2012
6 | COMMENT
We’re Poles apart when it comes to Entrepreneurship EDITORIAL In the current economic turmoil where a mood of doom and gloom seems to prevail, the only uplifting signs of achievement and success ought to come from the private sector, primarily from self-funded projects or cash-rich enterprises, often referred to as the “backbone of the Cyprus economy”. But in order to succeed or at least enjoy a brief moment of a commercial fame, all that our SMEs need is the occasional pat on the back, recognition or an award. It is unfortunate that Cyprus is limited to the oftrecycled ‘export’ or ‘services’ awards ceremony that has
become an excuse for employer organisations and government officials to get together for cocktails and have their photos taken with budding entrepreneurs who are more in need of moral and financial support in order to keep on working, or at least to stay afloat. Perhaps Poland is an example to follow. For five consecutive years, a total of 117 projects have taken part in the national edition of the European Enterprise Awards, of which ten were submitted to the European Commission for international awards – these ranged from rural development to academic business incubators. The Commission’s aim to support the EEA was to inspire potential entrepreneurs and promote the best examples of policies and practices, hopefully as examples
for other projects in EU member states to follow. In Cyprus, we have a president who spares no occasion to demonise the banks (that in turn close the tap on SME funding), an administration that blasts small businesses (in the name of “workers’ rights”) and a rigid civil service that couldn’t care less if a small exporter of frozen foods or a mega manufacturer of solar panels has the necessary tools to promote Cyprus goods and services that will, eventually, generate revenue and taxes to pay for the public sector salaries. Instead of wasting millions to promote Cyprus as a benchmark business centre with no result to show for, why not hire the Polish Ministry of Economy to the work for us. It would cost us less and would achieve better results.
PhoenixGate: Symptoms of an ailing value system? “We have not heard neither about the details nor about the process of evaluating a business and investment deal of national proportions” As smoke and mirrors continue to distort the truth around the most recent scandal, our judgment is impaired. Or is it? We are referring to the imbroglio involving Chinese investor Yang Qi, a Cyprus domiciled company named Far East Phoenix, the former Ambassador of Cyprus to China and until recently head of the Diplomatic Office at the Presidential Palace in Cyprus, Mr. Ieronymides, his wife, the Cyprus Investment Promotion Agency (CIPA), tight friendships and last, but certainly not least, the Cypriot taxpayer. Our eyes may be stinging from smoke and our judgment distorted, but looking at the Cyprus political and business world, we see the symptoms of an ailing value system: lack of transparency, muddling of personal friendships and national interest business deals and conflict of interest. Transparency International (www.transparency.org) defines corruption as the abuse of entrusted power for private gain. In 2012, Cyprus is ranked 30th out of 183 countries for transparency with a score of 6.3 out of 10 (being the best). Cyprus also has a Very High Human Development Index, ranked 31 out of 187 countries. Countries with VHHDI typically have low corruption rankings. As of today, citizens have not heard neither about the details nor about the process of evaluating a business and investment deal of national proportions. Cyprus is the only country in the
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Publisher/Managing Editor Masis der Parthogh masis@financialmirror.com Greek Section Editor Angela Komodromou angelak@financialmirror.com Editorial submissions: info@financialmirror.com Advertising inquiries: marketing@financialmirror.com Subscriptions: http://www.financialmirror.com/signup/index.html
By MARINA A. THEODOTOU and STAVROS A. ZENIOS
European Union without an Access to Information Law. CIPA, the country’s agency for the promotion of Cyprus as an investment destination, operates since 2008 without a single success story of a greenfield investment. Apart from a few promotional events lacking strategic follow up in various countries, and a couple of legal and regulatory reforms, CIPA has yet to show any greenfield investment. Touting sales of villas to foreigners simply does not count. Not by international standards anyway. According to Investopedia.com, a greenfield investment is a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up and creating new jobs in that country. The Organisation for Economic Cooperation and Development (OECD) defines Foreign Direct Investment (FDI) as “an incorporated or unincorporated enterprise in which a single foreign investor either owns 10% or more of the ordinary shares or voting power of an enterprise or owns less than 10%, yet still maintains an effective voice in management”. In addition, the United Nations Conference for Trade and Development definition of FDI does not include sales of villas either. CIPA is funded by the Cyprus taxpayer who is now also largely unemployed. It is not uncommon for investment promotion agencies to hire local expertise to further business development in that country. CIPA hired Mr. Qi to represent the investment interests of Cyprus in China for 1,000 euros per month. It appears that Mr. Qi may have also used this relationship to further his own business interests in Cyprus. He is a Director of the Phoenix Far East company, where the Cyprus Ambassador’s spouse, a business executive, was also a director until her recent resignation. Incidentally, the registered capital of Phoenix Far East was also 1,000 euros. Now, let’s take a different angle. Let’s give ample benefit of doubt to all the protagonists and situations described above, and let’s look at investing in Cyprus from the outside. Foreign companies scouting for greenfield investment locations look at key factors, both qualitative and quantitative. The first level of due diligence includes desk reviews of key reports from the World Bank, The World Economic Forum, Transparency International, UNCTAD, etc. In addition,
investors look not just at the country itself but also at peer countries that share similarities such as geographical location, tax regime and education levels. A peer country to Cyprus is Malta. Also a small, island country economy in the Mediterranean, Malta entered the EU and the Eurozone the same dates as Cyprus. In 2010 the Malta Financial Services Authority (MFSA), signed Memoranda of Understanding with the China Banking Regulatory Commission (CBRC) and the China Securities Regulatory Commission (CSRC), the two main financial services regulators in China to allow Chinese banks and financial services firms to invest into regulated funds based in Malta. In 2011, Malta attracted 86 msn euros in FDIs from China. Cyprus shows 11 mln euros. Could it be that CIPA has evolved into one more bureaucratic government outfit, which requires strategic vision, leadership and results? Of course, foreign direct investment is welcome to Cyprus. At the writing of this article, Ambassador Ieronymides has resigned and returned to his post at the Ministry of Foreign Affairs. Has that resolved the quagmire? Probably not. So, where do we go from here? Back to basics: Strengthen transparency with an access to information law; eliminate conflict of interest by reinforcing firewalls and good governance; refresh leadership at key decision and policy making posts with the new generation of young and business savvy technocrats. Several citizen initiatives has been formed in Cyprus recently, actively conducting whistleblowing and proposing new paths for change. This comes as proof that a new breed of empowered citizens exists in Cyprus and seeks a way through smoke and mirrors. Marina A.Theodotou is an economist and entrepreneur, founder and curator of TEDxNicosia (www.TEDxNicosia.com). She owns of Curveball Ltd (www.curveballlimited.com) an economic intelligence services provider. Previous roles include Director of Business Development and Operations at CIPA. Stavros A. Zenios is a professor of finance and management science at University of Cyprus, a Senior Fellow at the Wharton School of the University of Pennsylvania, and the President of UNICA-Universities of the European Capitals. Most recently he was the Rector of the University of Cyprus. You can reach him at about.me/Zenios. Dr. Zenios and M.Theodotou are founding board members of the Citizens Political Action Group : Eleftheria http://www.politicalportal.org/ProfileDetails.aspx?id=3
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