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{editorial} ISSUE 06 SEPTEMBER 2011 PRICE €6.95 POWERED BY:

THE INTERNATIONAL INVESTMENT, BUSINESS & FINANCE MAGAZINE OF CYPRUS

TruTh, JusTice & The cyprioT way

T

5O LAW FIRMS IN CYPRUS

+ EXCLUSIVE INTERVIEW ALEXANDER DOWNER ON ‘THE PRICE OF FAILURE’

ruth and Justice: big words which in Cyprus, possibly for the first time since 1974, have acquired a significance that many of us have regrettably come to ignore over the years. It has taken the deaths of thirteen people - which would never have occurred with an even slightly more professional handling of the cargo of explosives that not only ruined countless lives but destroyed the island’s biggest power station and caused incalculable harm to the economy - to turn the words ‘truth’ and justice’ into a powerful slogan that has echoed across the country and across generations. Even in laid-back Cyprus, it seems that there are limits to how much incompetence can be tolerated by the proverbial ‘man in the street’ who has finally taken to the streets to express his indignation with the government, the opposition and politics in general. For more than 70 years, millions of children (and a good number of adults too) all around the world have been entertained by the adventures of the ultimate comic book superhero Superman who fights for ‘truth, justice and the American way.’ It is ironic, though no doubt realistic, that it takes a fictional character to display the kind of behaviour that most reasonable people would hope for and expect from their elected leaders. The explosion at the Mari naval base in July has galavanised popular feeling against the government like no other event in the island’s 51 years of independence. The perceived incompetence on the part of those who should have known better than to stack up almost 100 containers of explosives and munitions and leave them outside in the searing heat of the Cyprus summer coincided with the overdue acknowledgment that drastic measures need to be taken here and now if the country is not to go the way of Greece. People are asking who is to blame with regard to both situations. It is to be hoped that in the case of the explosion at Mari, the independent investigator, constitutional lawyer Polyvios Polyviou, will reach firm answers. As for the state of the economy, everyone knows that every political party that has ever exercised any amount of power in Cyprus has contributed to ensuring that an over-bloated and inefficient civil service has slowly but surely been taking a greater proportion of the state’s revenue. Those of us who are optimists like to think that the gravity of the situation has finally been understood by those who ask for our vote every five years and that they will finally do what US President Barack Obama has been urging the Democrats and Republicans in Congress to do: to put country over party. As we note in the introduction to this month’s cover story presenting the Top 50 Law Firms in Cyprus, many of the island’s leading politicians, including three of its six presidents, many past and present party leaders and a number of sitting MPs are trained lawyers. The Cyprus Bar Association requires its members to demonstrate ‘an obligation of devotion’ to the fundamental principles of the profession, which include ‘the furtherance of truth and justice’. We do not expect our lawyers or politicians to be superheroes but we do have a right to expect that they are all men and women of principle. How they deal with the state of the economy will give everyone an indication of precisely how interested they are in truth and justice or whether, as has happened so many times before, things will simply be dealt with in ‘the Cypriot way’.

John Vickers, Chief Editor john@imh.com.cy 14

THE

TOP

ENERGY

Natural Gas A blessing or a curse?

INVESTMENT

Where is Facebook’s Secret Sauce?

INTERVIEWS

Philip Hourquebie Barclays Wealth

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

PubliSheD by iMh issn 1986 - 3543

Managing Director:

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general Manager: g

Daphne Roditou Tang

MeDia Manager: Elena Leontiou eDitor-in-chief:

John Vickers

Senior eDitor:

Konstantine Ioannides contributing eDitorS tor : torS

Antonis Antoniou, Stella Mourettou, Maria Pilidou Contributors to this issue:

Alexander Apostolides, Haris Christoforou, Peter Economides, Isavella Frangou-Pavlou, Evan Gavas, Matthew Kidd, Nathalie Kyrou, Miltiades Miltiadou, Fiona Mullen, Theodore Panayotou, Dr. Savvas Savouri, Pieter Verkade, Eleni Vickers Art DireCt C or: Ct

Andreas Koumis

PhotogrAP PhotogrA APhy: h

Olesia Constantinou, Michael Kyprianou MAr MA Arketing rketing ex exe xeCutive: u utive:

Kevi Chishios

sALes sAL ALes & business DeveL eveLo eveL LoPMent PM exeCutive:

Christos Kyriakides

ADv AD Dvertising vertising ex exe xeCutives: u utives:

Irene Georgiou, Christopher Constantinou oPer erA er rAt At tions ions M MA AnA An nAg Ager: ger:

Voulla Nicolaou

subs u Cri ubs r Pt ri Ptions: tions:

Themoula Leonidou Printers:

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

the international investment, business & finance magazine of cyprus

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the international investment, business & finance magazine of cyprus

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{news briefing}

the world’s Most expensive cities

City

OSLO, ZuRICH AND GENEVA TOP THE LIST. NICOSIA RANKED 40th

E

very three years, UBS Wealth Management Research publishes an in-depth study on prices and earnings, updating it in intervening years. According to the most recent (2011) issue of the “Prices and Earnings” study of purchasing power around the world, Oslo, Zurich and Geneva are the world’s most expensive cities. Just down the ranks are Copenhagen, Stockholm and Tokyo. By contrast, prices for the selected basket containing 122 goods and services were particularly low in Mumbai, Manila and Delhi. The American cities surveyed now show lower price levels than in previous years. UBS economists attribute this in great part to the depreciation of the US dollar against many of the world’s other currencies. Meanwhile, Venezuela’s capital Caracas suffers from high inflation; this, together with its pegged currency, resulted in higher prices, lifting its position

in the price rankings. Should Venezuela devalue its currency again, it would result in a downward shift. Nicosia ranks 40th in this list, just below Lisbon and above Miami. Employees in Zurich, Sydney and Luxembourg benefit from the highest purchasing power based on their net hourly wages. Among surveyed emerging markets, which hover around a similar level, Doha and Shanghai exhibit high gross domestic product growth and, as a consequence, were able to increase their positions in the rankings. Nicosia came surprisingly high on the list, ranked 10th just below Chicago and above Montreal.

Methodology In 2009, a standardized survey of prices and wages in 73 cities around the world was conducted by a number of independent price surveyors. The questionnaire used for the survey covered 122 different goods and

services, and included 112 questions pertaining to wages, payroll deductions and working hours for 14 different occupations. Over 30,000 data units flowed into the survey evaluation. Since the basket of goods and services contains only a limited selection, the study adjusted the individual components based on their weighting in the European consumer price index. The weightings of the individual items in the basket were designed so that all the prices added up to the approximate monthly consumption of an average European household. In 2011, UBS Wealth Management Research adjusted the most important indices from the 2009 survey for cumulative inflation, GDP growth and changes in foreign exchange rates. The UBS study “Prices and Earnings” 2009 as well as the 2010 and 2011 updates can be found online at: www.ubs.com/ pricesandearnings

Excluding Rent New York = 100

1

Oslo

139.1

2

Zurich

135.0

3

Geneva

133.1

4

Copenhagen

118.4

5

Stockholm

117.5

6

Tokyo

112.6

7

Sydney

107.7

8

Helsinki

103.5

9

Toronto

102.8

10

Singapore

102.4

11

Vienna

102.0

12

Paris

100.9

13

Luxembourg

100.1

14

New York

100.0

15

London

99.8

16

Munich

99.7

17

Montreal

99.4

18

Frankfurt

98.0

19

Sao Paolo

96.5

20

Dublin

95.7

21

Brussels

93.3

22

Rome

92.8

23

Lyon

92.2

24

Auckland

91.7

25

Barcelona

90.9

26

Rio de Janeiro

90.9

27

Dubai

89.7

28

Istanbul

89.5

29

Amsterdam

88.2

30

Madrid

88.1

31

Los Angeles

88.1

32

Tel Aviv

87.6

33

Berlin

87.5

34

Milan

84.5

35

Seoul

84.5

36

Chicago

82.3

37

Hong Kong

82.3

38

Athens

80.1

39

Lisbon

79.9

40

Nicosia

79.7

VIGELAND SCuLPTuRE PARK, OSLO

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8/31/11 12:01:38 PM


14 EDITORIAL 16 EYE WITNESS 18 NEWS BRIEFING 22 COMMODITIES/FOREX WATCH

issue 06 september 2011

COVER STORY The Top 50 Law Firms in Cyprus

32 52

+ opinion INTERESTING TIMES by Matthew Kidd

24

The Debate: “Can Cyprus avoid an EU bail-out of the economy?” by Alexander Apostolides (Yes) and Fiona Mullen (No) 26 Malice in Wonderland by Eleni Vickers

60

connecting worlds by George Mavrocostas

66

the last word by Peter Economides

98

FEATURES 28 | The price of failure Interview with Alexander Downer

52 | natural gas: a blessing or a curse? Cyprus needs to invest wisely

56 | 2020 energy targets could be missed The European Commission is concerned

62 |where is facebook’s secret sauce? The simple recipe for sustained corporate success

12

28 70 76 84 88 92

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

the international investment, business & finance magazine of cyprus

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the international investment, business & finance magazine of cyprus

gold_12-13_inn.indd 13

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{eyewitness}

Out of the Frying Pan and Into the Fire After the Cyprus explosion, Gold bears witness to London’s implosion By K. Ioannides

M

onday, August 8 I am on a tube train bound for Ladbroke Grove in West Central London, going for lunch with my cousin in Portobello Road. For some time I have been relishing the prospect of visiting the UK this summer and leaving behind the sweltering heat, daily power cuts and an atmosphere of political discontent that pervaded almost every conversation in Cyprus. And here I am in the big city at last. When the Circle Line train stops at Edgware Road station, a police officer steps on board and diligently scans the carriage before getting off again at Paddington. Londoners are normally unfazed by such things but today there is a distinct nervous tension in the air. Only two days earlier rioters and looters left Tottenham ablaze following a protest against the police shooting of Mark Duggan and now it seems that Londoners are bracing themselves in the expectation of more trouble to come. Getting off the train at Ladbroke Grove and arriving at Portobello Road, I am dismayed to find that that The Fat Badger, my favourite pub and eatery in the area, has been turned into a Pizzeria (imaginatively re-named Pizza East Portobello). Nonetheless we decide to try it for old times’ sake and the food turns out to be reasonably good. Having chosen to snub the obvious choice of pizza in favour of lasagne, I catch up with my cousin’s news before heading for my beloved Bayswater. This area was my home for over three years while I was studying at the University of London and it’s where I’m scheduled to meet up with three of my old school and college friends for a quick reunion at the Prince Albert pub on Queensway High Street. En route towards W2, I notice that the local residents appear to be increasingly nervous. Shop owners stand outside their businesses, scanning the street as stall traders begin packing up, despite the presence of plenty of tourists. I assume that this has something to do with the recent rioting in Tottenham and because, despite being one of the ‘hippest’ areas of London, Larch Grove, Portobello Road and Notting Hill host their fair share of council estate-type tower blocks together with all the inner-city social issues that come with them. Given recent weekend news reports of social

16

media postings inciting more lawlessness, it is not unimaginable that trouble could kick off here too. At 7:45pm I am on Queensway being greeted by my four old friends who are waiting for me outside Bayswater station. After some manly hugs they mockingly chide me for my lateness and we head towards the Prince Albert pub opposite. I can’t help thinking how untouchable Queensway seems to be from the troubles and nervousness engulfing

the rest of London. With its proud Arab, Asian and Greek residents and business owners, what idiot would dare come through here looking for trouble? As we sit outside the pub, chatting away, drinking our pints of Directors Ale and enjoying the hustle and bustle of Queensway, we notice that the shops around us, which usually stay open until late, have begun one by one to turn off their lights and pull down their shutters. Despite my certainty that this

the international investment, business & finance magazine of cyprus

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area would not be affected, it now seems that the state of nervousness that swept along Portobello Road and Larch Grove an hour earlier has started to infiltrate Bayswater too. Nonetheless my friends and I remain unperturbed and, prompted by those who have joined us directly from work, we decide to split into two groups: the hungry and the still-thirsty. Despite my lunchtime lasagne experience I am eager to investigate what food prices are like in London these days and so I join Team Hungry, temporarily leaving the remaining two drinkers in the pub. I soon wish I hadn’t as I’m outvoted on the choice of dining venue with the others opting to grab a quick McDonald’s twenty or so metres further down the road. But I stick with them and, standing at the fast food counter, I’m struck by how much healthier the UK menu choices seem to be. Not that it makes the slightest difference to me as I opt for a Big Mac Meal as usual. Unaccustomed to fast food actually living up to its name in Cyprus (why does it take so long to be served here?), I am happy to find myself snugly situated in the basement section of the restaurant within a couple of minutes and my friends and I tuck into our burgers with the obvious appetite of those who have consumed a little too much beer a little too quickly. As we are discussing family and work issues in between MSG-laden bites, we suddenly hear a commotion as a wave of panicking shoppers and tourists floods in to take cover from something happening on the street outside. Three or so members of the McDonald’s staff then lock the doors and usher everyone down to the basement section where we are sitting. “Excuse me everyone!” shouts a stout young McDonald’s employee. “In the interests of your own safety, please do not attempt to leave the restaurant or the basement area… there is trouble on the street outside!” I can’t help reflecting on the fact that if a rioter wants to set fire to global capitalism’s most prolific brand, my friends and I don’t stand much of a chance trapped in the basement of a McDonald’s restaurant. After a while I suggest that we leave and, prompted by a lull in the noise outside, we persuade the doorman to unlock the door to let us back onto the street. Once outside we immediately head back towards the pub and, after being petitioned by our friends inside the pub, the landlord unbolts the doors and let us in. A second wave of would-be rioters meanders past the bolted glass door and a ‘hoodie’ in a grey matching tracksuit takes a brick and tries to smash one of the pub’s windows. Thankfully the brick bounces off and, seeing the mass of people inside and a lack of support from his peers, the young man decides against trying again. The tourists in the pub look decidedly panicked and some Scandinavians are worriedly asking other patrons what they should do. However, they soon take heart from the Londoners who seem to be more

I am grateful that, for the time being at least, Nicosia is not going up in flames at the hands of our own children animated by the fact that they are lucky enough to have ringside seats for the action, good company and some stiff drinks, than by any sense of fear. By 10pm the police have effectively cordoned off Queensway to traffic as the troublemakers disperse north towards Westbourne Grove. Most shops and restaurants remain closed, however, to avoid being potential targets should the wouldbe rioters decide to return. The local Arab shop owners have remained notably defiant and stayed open throughout, preferring to make their presence known and to physically protect their businesses in case the rioters decide to ‘break and loot’. As a mark of respect for their courage we stop at the street’s Moroccan nargileh café and contemplate the evening’s events. Three of the five of us are parents and we cannot help reflecting on what differentiates our own parents, ourselves and our children from the rioters with whom we have just come face to face. They seemed to be both young and old, black and white, and predominantly though not exclusively male. What did unite them, however, was a sense of absolute fearlessness; the idea that as a pack they were to be feared, a law unto themselves. After some discussion, the strongest common denominator linking the five of us that we can come up with (and which perhaps the rioters do not share) is that we were all raised in unbroken homes with good role models and with respect for our fathers, teachers and the law firmly

instilled in us. None of these are things for which we were pro-actively responsible; we were just lucky to be born into such an environment. Upon leaving the café after an hour of Moroccan tea and nargileh, we discover that the police have shut down all the surrounding tube stations. This leaves us with no choice but to seek a cab to take us to our final destination of the evening. At this point I check my mobile phone and discover five or so missed calls and fretful text messages from my mother and brother who are appealing to me to leave London as riots, fires and looting have been reported all over the city as well as in Birmingham, Manchester and Liverpool. I text back and assure them that I am fine and in a taxi bound for home. As the night comes to an end and the taxi pulls up outside my friend’s house in South Woodford, I can’t help thinking of how quickly my perception of Cyprus has changed yet again. Yes, we do have serious problems but our recent tragedies would seem to stem from inadequacy and incompetence at the top. In England and elsewhere in Europe, such as Norway following the recent bombing and shootings in Oslo, society seems to be imploding from within. Taking heart in the fact that our problems appear easier to fix, I try to look on the bright side, grateful that, for the time being at least, Nicosia is not going up in flames at the hands of our own children.

the international investment, business & finance magazine of cyprus

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8/31/11 11:58:08 AM


Grasp knowledge into your hands KPMG Academy Upcoming Seminars: October 2011 Investment Funds and Investment Fund Management: The Cyprus Reality* 06-07/10/2011 International Tax Principles* 10/10/2011 IFRS Update Seminar * 13/10/2011 VAT on Trade Promotion Schemes 24/10/2011 * The programmes have been approved by the HRDA. Enterprises participating with their employees who satisfy HRDA’s criteria, are entitled to subsidy These seminars may contribute to Continuing Professional Development requirements.

For more information please contact: Persa Papademetriou T: +357 22209053 F: +357 22513294 E. ppapademetriou@kpmg.com

Visit our website at: www.kpmg.com.cy or our web tv at: www.kpmgcy.tv

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©2011 KPMG Limited, a Cyprus limited liability company and member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. All rights reserved.

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commodities

forex watch {commodities watch} By Isavella Frangou-Pavlou

Gold In August, Standard and Poor’s surprisingly downgraded the US’s credit rating for the first time ever, right after an agreement was reached on raising the US debt ceiling. Investor worries sent gold prices higher, fuelling gold’s previous bullish momentum, which reached a record high of US$1912/oz, from around US$1600/ oz at the beginning of the month. Conditions in Europe were not optimistic either. France narrowly escaped downgrade danger while the European Central Bank has been injecting money into Italian, Spanish and other government bonds to hold down their borrowing costs. Investors are now eagerly expecting the Fed to release its next round of loosening monetary policy (QE3), due on 20 September, and it is likely to take more stimulus to boost the ailing economy. Libya’s unrest eased as rebels seized the capital of Tripoli, while uncertainty arises from Asia as Japan’s rating was downgraded by Moody’s, further supporting gold prices. However, CME increased the margin requirement on gold futures on August 24, causing gold to tumble.

US StockS

Source: kaB-Metatrader

oil Oil prices tumbled in August from around US$98 to US$75/ barrel on global debt issues, and then turned into consolidation around the US$85/barrel level. The US economy stalled in August. Annualized GDP slid to 1.3%, the trade gap widened, consumer sentiment fell, and housing starts and home sales still pointed to a slowdown in the housing market. Traders suspect a double-dip recession and US stock market fell sharply over the month. The eurozone displayed similar economic slowdown signs, with Germany’s GDP only increasing by 0.1%; and France’s GDP gaining very little in the second quarter, a bearish environment that pressured oil prices. OPEC recently announced that its members are not concerned about oil price fluctuations and that it is not going to cut production. The situation in Libya is stabilizing and oil supply in that country may recover slowly.

Source: kaB-Metatrader

Global stock markets experienced sharp falls in August on fears of another recession and the persistent European debt crisis. According to the World Federation of Exchanges, the markets lost about US$3 trillion between 1 and 5 August but the subsequent rebound only brought back a few billion dollars. The S&P 500 has dropped 12.7% so far in August, touching low at 1101. It is not expected that the US government and the Fed will take drastic measures, such as another round of bond buying, since US debt has reached unprecedented levels. Meanwhile, cheap capital will still be available for an extended period as a way to fuel economic growth. More clues will be revealed at the next Fed meeting on 20 September. Source: kaB-Metatrader

info: iSavella FranGoU-PavloU is Sales and Marketing Manager at KAB Strategy (Cyprus) Ltd (CySEC-License No. 058/05)

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the international investment, business & finance magazine of cYPrus

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8/31/11 11:59:37 AM


{forex roundup}

GBPUSD The pound did better than the euro in August, reaching a 1.661 high. The street riots put temporary pressure on the currency but a subsequent surge recovered all the losses. The British economy depends heavily on its European neighbours and hence sterling follows the euro closely. The BoE meanwhile has very limited choices to rescue the sluggish economy as its big brother is also lacking. Nevertheless, Britain is not a member of the eurozone, thus it is partly sheltered from the debt crisis. Technically, the pound is more volatile than the euro which makes it riskier. Bullish fluctuation still dominates the latest trend. 1.661 could be the top for the short term, though is still too early to determine whether a reversal of that trend has begun. The euro will provide a reliable guide but traders should mind the volatility.

EURUSD

Source: KAB-MetaTrader

The euro fluctuated in August on the bullish side, showing support between 1.410 and 1.40. The debt crisis and a weakening German economy continue to weigh on the euro. The only hope for a stronger euro depends on whether the Fed implements another round of bond purchasing, further weakening the dollar, which seems unlikely. Adding to the downside, the European banking industry does not seem to be holding up well against pressure tests, which is a time bomb that may be triggered by any of the PIIGS (Portugal, Italy, Ireland, Greece and Spain). There is not much that the ECB can do to help its economy recover in the short term. The relaunched bond purchasing programme and unchanged interest rates will continue to be implemented to boost growth rates. The key is Germany, and if its economy further deteriorates, the eurozone will lose its backbone.

Source: KAB-MetaTrader

USDJPY On August 24, the Japanese government unveiled a series of unusual steps aimed at curbing the yenâ&#x20AC;&#x2122;s rise without directly intervening in the currency markets. These included a $100 billion fund to encourage more M&A activity abroad by Japanese businesses in order to sell and thus weaken the yen and a rule requiring major financial institutions to report currencytrading positions to better monitor the FX market. However, it is doubtful that such measures will contain the currencyâ&#x20AC;&#x2122;s movement in global markets. Market speculation is that the BoJ will take action again in the short term to stop yen from rising but it is likely to have a temporary effect. Further easing of monetary policy may be a more effective way to deal with the rising yen, but the government is reluctant towards it. And this indecision will support yen in continuing to gain strength.

Source: KAB-MetaTrader

This research report or summary has been prepared by KAB Strategy (Cyprus) Ltd (CYSEC Licence No. 058/05) and KAB Financial Advisory Ltd from information believed to be reliable. Such information has not been independently verified and no warranty, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Â This report is provided for information purposes only. Nothing in this report should be considered to constitute investment advice. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. Leveraged products incur a high level of risk and can result in the loss of all your invested capital. KAB Strategy (Cyprus) Ltd and its affiliates accept no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents. the international investment, business & finance magazine OF CYPRUS

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8/31/11 11:59:39 AM


{the debate}

CAn CYprus Avoid An eu bAil-out oF the eConoMY?

Yes!

no!

by Alexander Apostolides

by Fiona Mullen

The Mari explosion has meant that all government targets are now unreachable. The deficit will be significantly larger that what was expected by the EU, and the downgrading of the government’s credit rating makes borrowing at current interest rates unsustainable. The need to borrow money for current needs is compounded by the fact that approximately €10 billion of government debt will expire between now and August 2013 and needs to be rolled over with significantly higher interest rates than before. With bold leadership, however, there is a way out of the crisis without resorting to an EU bailout which would entail an unprecedented surrender of our fiscal sovereignty. The current debt to GDP ratio of Cyprus is lower than the EU average and Cypriot banks have been successfully drawing liquidity in order to weather these turbulent times without government support. The new Finance Minister has managed in record time to produce an emergency package of measures that tackle some of the government’s structural deficit, with the unions accepting compromises that were previously off the table. These measures are a good start in tackling the government deficit long-term but they do not address the most urgent problem: the government still needs an awful lot of cash in hand between now and 2013. With the exception of additional tax increases placed on already stressed firms and consumers, bold and deep cuts in government wages are needed in order to save money today. It is time for the President to understand that his legacy has to be the elimination of government sector privileges and chronic tax evasion, and for him to take measures that were deemed unthinkable prior to this economic crisis.

the President’s legacY has to be the elimination of government sector Privileges and chronic tax evasion The signs that the political will exists to achieve the above objectives are good. Unlike their counterparts in Greece, the opposition parties here are united in demanding greater and bolder compromises and the unions will support a further reduction of some of their privileges, provided that an initiative is introduced to catch those who are currently not paying their fair share of tax. If the budget for 2013 is agreed on time and contains further measures to cut the civil service wage bill, innovative taxation and ways to reduce tax evasion, then the greatest capitulation of our sovereignty since the adoption of the Euro can be avoided. Cyprus can survive without the EU support mechanism... but only with very painful sacrifices by all.

There are several reasons to doubt that Cyprus can avoid entering an EU support mechanism. The first is the sheer size of the budget deficit. In the past two years, the budget deficits for the full year have been 2.6 times the budgets in the first half of the year. If the same pattern is followed this year, then the budget deficit will reach €1.7 billion or around a Greek-sized 9% of GDP, even without adding extra electricity costs. The second is the financing requirement. As well as a fat second-half deficit, we need to find €1.4 billion between now and the end of February to roll over maturing debt. And that excludes any additional costs relating to rebuilding Vasilikos (which, if we are lucky, will come from the European Investment Bank). Interest rates on Cyprus’s international bonds are prohibitive at the moment, so the government will have to ask local banks to fund the €2 billion or more it will need.

one remarkable characteristic of this financial crisis is the abilitY of the international markets to fulfil their own worst fears simPlY bY thinking about them At the moment, the Cypriot banks appear to have plenty of liquidity. But one remarkable characteristic of this financial crisis is the ability of the international markets to fulfil their own worst fears simply by thinking about them. The vicious cycle for Cyprus has already started. Central Bank Governor Athanasios Orphanides has warned that Cyprus might have to enter a support mechanism. The international media is now talking as though it is a certainty. Now our local banks will have to answer questions from investors, rating agencies and lenders not only about their exposure to Greece but their exposure to the Cyprus government as well. That might make them reluctant to lend to the government (at least at an affordable price) and hey presto!, the government cannot roll over its debt and has to go cap in hand to the EU for support. And that brings me to my final reason, namely the weakness of what is now a minority AKEL government. Even if parliament passes the package that is due to be put to parliament a few days after this piece is being written, it is not certain that opposition DISY and DIKO will support the second package that will probably be necessary to avoid another downgrade. What better way to secure a DISY or DIKO presidency in 2013 than to make sure President Christofias is humiliated into asking the EU for financial support?

info: AlexAnder Apostolides is a Lecturer on Economics and Economic History at the European University of Cyprus. FionA Mullen is Director of Sapienta Economics Ltd, which analyses and explains economic trends to local and international clients. 26

the international investment, business & finance magazine of cYPrus

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8/31/11 12:00:32 PM


{advertorial}

Amid EurozonE FEArs, the euro reMAins strong

T

hE EUrOzONE IS CUrrENTLY rr rrENTLY IN ThE MIDST OF ITS WOrST PErIOD SINCE ITS INCEPTION AND WE ArE r rE NOW AT ThE WOrST POINT OF ThE DEBT CrISIS ThAT STArTED r rTED EIGhTEEN MONThS AGO. Contagion has already spread to Ireland, Portugal, Cyprus, Spain, Italy and even France is starting to feel the pain. The unwinding of fiscal imbalances, asset bubbles and over-leverage is a protracted, painful and disinflationary process. Without control of monetary policy, crisis-hit countries are being forced to adopt large and unprecedented mediumterm austerity measures. There are examples in the past of debt crises that were successfully overcome, mainly with external help, but these episodes involved countries with the power to control their monetary policy and on every occasion a devaluation of their currencies and/or increase of the money supply was a basic step in their struggle to regain competitiveness. however, the countries of the eurozone have delegated their monetary authority to the European

Central Bank, which has sole responsibility for the price stability of the whole euro area. With Germany, the largest partner, growing at the fastest pace since the end of the global recession in 2009 and commodity prices shooting through the roof, the eurozone average for inflation remains above the 2 % ECB target (close to 3% in fact) thus forcing the ECB to paradoxically start hiking rates during a severe debt crisis. This results in placing an extra burden on the highlyindebted countries in the form of increased borrowing costs and a loss of competitiveness due to the higher exchange rate of the euro.

the lACk oF A Credible And liquid AlternAtive to the us dollAr MAkes the euro the onlY ChoiCe For investors Surprisingly, and despite the widespread debt crisis, the euro has been able to appreciate since the start of the year against all but one of its other major counterparts (the Swiss Franc). The euro has appreciated between 2% and 3% against the Japanese yen, Sterling and even the Australian dollar while against the US dollar the gains stand at around 9 % for the

year! We are of the view that the euro’s persistent strength has more to do with the apparent weakness of the US dollar and the divergence between the policies of the ECB and the US Federal reserve. The US authorities r (both the Fed and the Treasury) are “unofficially” but clearly targeting a weaker dollar and all their actions in recent years have been in divergence with the policies adopted in the eurozone. This year the ECB has started hiking interest rates while the Fed has only recently finished its second round of Quantitative Easing (printing US dollars and buying back US Treasuries, thus increasing the money supply) with US interest rates stuck at 0% and the markets already pricing a 30 % chance of another round of bond buying in the US. In this environment, where investors are using cheap dollars to fund their investments, the lack of a credible and liquid alternative to the US dollar makes the euro their only choice, especially for the high growth economies like China, russia and India. Consequently, as long as the US authorities continue their current policy of targeting a weaker dollar and the risk of a eurozone breakup or default do not materialize, the long-term trend of the euro is bound to remain upward. the international investment, business & finance magazine of cYPrus

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8/31/11 12:00:33 PM


use - I’ve been there - so they will have to be rebuilt. If they didn’t have an insurance policy, and it’s hard to get coverage that includes war, they will have written the loss off financially. The point is that if they have to rebuild, then obviously there will be some revenue streams as well. It’s hard to know what the net cost would be. In any case, rebuilding isn’t a must. Famagusta will be rebuilt only to the extent that it’s worth rebuilding. It’s obviously very desirable but it doesn’t have to be done.

Gold: Leaving aside the financial cost of making a federal Cyprus viable, what broad economic advantages do you see from a settlement? A.D.: I see several. Natural Gas is potentially a very big issue for Cyprus. We’ll find out soon enough how much gas there is and how much it is worth. Presumably it will take some years yet to get the revenue flowing but it could be quite a boon to Cyprus and it’s come at not too bad a time. However, if Cyprus is still divided there is always the potential for a dispute which increases the sovereign risk of the project and creates a degree of uncertainty. The two sides make perfectly clear claims and they’re absolutely certain of the rightness of their cause but they both need to be satisfied with each other’s position. Cyprus being reunited is going to make this project much better. So let’s say that the Greek Cypriots are able to establish that they have sovereignty over this gas field. Will the Turkish Cypriots say that they deserve a share of the revenue? What share are they going to get? What sort of an argument is this going to cause? I don’t know the answers to these questions but their existence creates an element of uncertainty. With a settlement you eliminate that and the whole island can share in the bounty of Natural Gas.

Gold: What about trade with Turkey? A.D.: The issue of trade is huge. Turkey is a market of over 70 million people. There are around 800,000 Greek Cypriots in Cyprus and they will suddenly have this huge new market opening up to them, particularly in terms of tourism and financial services. For example, 8-9 million Turks travel abroad every year, which is more than four times the number of visitors to either side of Cyprus. Turkish tourists can go to the north of Cyprus - and they do - but if they could take holidays throughout Cyprus, this would create enormous new opportunities for the tourism industry. There would also be similarly tremendous opportunities for the export of financial services - banking, accountancy services and so on - in which the Greek Cypriots have a certain competitive advantage.

Gold: Until the recent problems caused by the Cypriot banks’ exposure to Greek debt and the damage to Vasilikos power station, many Greek Cypriots would probably have argued that things are fine as they are. A.D.: But they are not, as I’ve explained. People need to recognise the financial costs of failure: Turkey will have to pay compensation to the Greek Cypriots for the loss of their property and the Greek Cypriots will have to pay the Turkish Cypriots for the loss of their property. There are significant financial problems now - it’s not 30

my job to be a commentator on that but it’s perhaps fair enough to say that they obviously exist and the President is wrestling with the budget to deal with them - and if you add to that the failure of the talks and the bills that will come with it, that’s going to be quite a serious problem, to put it mildly. I don’t think people are awake to this and to what I would call ‘the price of failure’.

Gold: How would reunification affect the island’s ambitions to become a regional financial centre? A.D.: Cyprus has a wonderful opportunity here, born out of a comparative advantage in terms of expertise and geography, a good reputation for the rule of law and - something we shouldn’t underestimate - the fact that a lot of professional people here speak English. These things really matter in terms of using a country as a financial centre. The use of English matters given that 90% of all international business is conducted in English. That figure may start to decline a bit because of the growth of China but even if you do business with China you do it in English. So Cyprus has this advantage and many others. But there is one disadvantage: to the outsider, even though the status quo has remained for 37 years, Cyprus looks unstable. It’s split. There are more Turkish troops in Cyprus than there are American troops in South Korea. I’m sorry to say this but it’s all a matter of perception. And to the outside world, the perception is that if Turkey judges that it needs all those troops here, then something must be wrong.

To the outsider, even though the status quo has remained for 37 years, Cyprus looks unstable Gold: Perceptions are not necessarily correct, though, are they? A.D.: I’m not talking about the rights and wrongs of this, I’m talking about the impression that many people have, whether the situation on the ground is different or not. Nicosia is properly described as ‘Europe’s last divided city’ but what kind of a perception does this create? Am I going to use a place with a buffer zone, barbed wire and armed soldiers in observation posts staring at each other across ruined buildings as a major financial centre? Beirut was once the great financial centre of the Middle East until it had its political problems. Dubai has been making a really heavy push to try and replace it but Cyprus has every imaginable advantage - including quality of life advantages - and a fantastic opportunity to become a regional financial centre. But as long as it remains divided, its potential will be limited. Cyprus is very heavily dependent on Russian money and Russian transactions which is fine, of course, but others are not mainly using Cyprus and a successful agreement would certainly encourage them to do so. In life, a lot boils down to economics. There are economic costs of failure and there are economic opportunities flowing from success. We’ll see what happens in Cyprus. We want success.

the international investment, business & finance magazine of cyprus

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8/31/11 12:01:01 PM


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cover story

A.G. PAPhitis & Co. LLC

AndreAs neoCLeous & Co LLC

Antis triAntAfyLLides & sons LLC

Number of Lawyers: 6 Head of the Firm: Angelos Paphitis (Managing Partner) Themis Tower 6th Floor, Corner of Anastasi Sioukri & Olympion, Limassol 3034 Offices: Limassol, Athens, Dubai 25731000 Fax: 25761004 www.agpaphitis.com

Number of Lawyers: 126 Number of Partners: 17 Head of the Firm: Andreas Neocleous (Chairman) Neocleous House, 195, Archbishop Makariou III Avenue, Limassol 3030 Offices: Nicosia, Limassol, Moscow, Prague, Kiev, Sevastopol, Brussels, Budapest 25362818 Fax: 25110001 www.neocleous.com

Number of Lawyers: 28 Number of Partners: 3 Head of the Firm: Antis Triantafyllides (Founder) George Triantafyllides (Managing Partner) Stelios Triantafyllides (Managing Partner) 2-4, Archbishop Makariou III Avenue, Capital Center, 9th floor, Nicosia (P.O. Box 21255, Nicosia 1505) Offices: Nicosia 22360000 Fax: 22670670 www.triantafyllides.com

AndreAs CouCounis & Co. Number of Lawyers: 5 Number of Partners: 3 Head of the Firm: Tasos Coucounis (Managing Director) Suite 101-102, 9, Archbishop Makariou III Avenue, Lazaros Center, Larnaca (P.O. Box 40519, Larnaca 6305) Offices: Nicosia, Larnaca, Paphos 24822460 Fax: 24626106 www.coucounis.com

n

AndreAs sofoCLeous & Co Number of Lawyers: 8 Head of the Firm: Andreas Sofocleous (Founder & Managing Partner) Proteas House, 155, Archbishop Makariou III Avenue, Limassol 3026 Offices: Limassol, Moscow, Kiev, Tbilisi 25849000 Fax: 25849100 www.sofocleous.com.cy

Number of Lawyers: 9 Number of Partners: 3 Head of the Firm: Charalambos Carlos Paschalides (Managing Partner) 29, Stasikratous Street, Suite 201, Nicosia 1065 Offices: Nicosia, London 22661661 Fax: 22672333 www.paschalides.com

notAbLe notA n otAb ot bLL CAses: Antonis PAsChALides & Co

• advised one of the largest european developers on its acquisition of the Cyprus companies holding a Romanian portfolio worth €220 million in a cross-border transaction involving austria, england, Romania, Cyprus and switzerland. Carried out the extensive due diligence on the 3 Cyprus companies involved and handled their transfer to their new shareholders. • was involved in the re-financing of one of the largest Moscow shopping centres advising the client on the collaterals to secure the transaction which was in the amount of $100 million dollars granted as a loan. • Yiannaki BRos Hotels ltd v. HelleniC Bank PuBliC CoMPanY ltd. the issue raised was whether the fact that

gold_32-51_inn.indd 34

Antonis PAsChALides & Co n

the parties had reached agreement on the settlement of the debt created estoppels to bring an action against the bank for alleged economic requirements in the field of conversion of foreign currency. the action was brought for €1.7 million euros, a significant amount at Cyprus banking level, and antonis Paschalides & Co. won the appeal for Hellenic Bank. • Yiannakis kallikas v. HelleniC Bank PuBliC Co ltd was one of a series of cases regarding the 1999 Cyprus stock exchange crash for which antonis Paschalides & Co successfully represented Hellenic Bank. the case involved an investor account with a scale of action at €500,000 to €2 million. the firm won the appeal for Hellenic Bank and the case is now considered a leading case in Cyprus banking law.

8/31/11 12:02:35


{news briefing}

deals of the month 1.

google to buy Motorola Mobility for $12.5bn

Internet giant Google has announced a deal to buy Motorola Mobility for $12.5bn (€8.71bn). The boards of both companies have unanimously approved the deal, which should be completed by the end of this year, or early in 2012. Earlier this year, Motorola split into two separate companies. Mobility develops and manufactures mobile phones, while Motorola Solutions covers wider technologies for corporate customers and governments. The deal would allow Google to “supercharge” its Android operating system, used in many Motorola handsets, a joint statement said, noting that Google would continue to run Mobility as a separate business. Motorola was once one of the world’s most successful mobile phone manufacturers but in recent years it has fallen behind the likes of Apple, Samsung and HTC.

hsBC sells Us credit card division to Capital one HSBC, Europe’s largest bank, has agreed the sale of its US credit card division to Capital One Financial as part of its ongoing restructuring. The sale includes the US division’s MasterCard, Visa, private label, and other credit card operations. Under the deal HSBC will receive cash and Capital One shares. The sale does not include the credit card arm of HSBC Bank USA, which has assets of about $1.1bn. The sale of the unit, which has assets of about $30.4bn (€21.18bn), is part of a $3.5bn global cost-cutting plan under new chief executive Stuart Gulliver. HSBC said it would make a post-tax gain of about $2.4bn on the sale. In August, HSBC announced plans to shed nearly half of its underperforming US branch network, selling 195 outlets to First Niagara Financial Group for $1bn and closing 13 more.

2.

saga group to acquire Allied healthcare International Allied Healthcare International Inc., a leading homecare provider of health and social care in the United Kingdom and Ireland, has entered into a definitive agreement to be acquired by Saga Group Ltd. The aggregate purchase price for all outstanding shares of Allied common stock, including outstanding options, will be approximately €122 million. Completion of the transaction is expected to occur in the fourth calendar quarter of 2011. John Ivers, Chief Executive Officer of Saga Healthcare, said, “Our strategic intent has been to grow our healthcare division organically and through carefully selected acquisitions. I am therefore delighted that Allied is joining the Saga Group. Saga will be the UK’s pre-eminent provider of domiciliary care”. The Saga Group is the UK’s leading provider of products and services specifically designed for people aged 50 and over.

3.

eUroPeAn BAnk ProfIts hIt By greek deBt wrItedown Three of Europe’s biggest banks have seen their second quarter profits slashed as a result of writedowns on Greek debt holdings while a fourth has reported a half-year loss after making a massive provision for Greek debt. The move reflects acceptance among lenders to Greece that they will not receive back the full value of loans. Second-quarter profits at soCIété générAle, France’s second-biggest bank, have fallen as a result of its exposure to Greek sovereign debt. SocGen’s net profit for the quarter fell to €747m, down 31% from a year ago. The bank, which holds about €2.65bn of Greek sovereign bonds, made a €395m writedown on its Greek debt holdings. Société Générale also

20

warned that its 2012 profit target would be “difficult to achieve”. BnP PArIBAs, which has the biggest exposure to Greek debt among France’s banks, has also set aside €534m to cover its expected Greek losses but it managed to post a second quarter net profit of €2.12 billion. French banks are among the biggest holders of Greek debt and could end up taking a loss of 21% on its value as a result of the bailout. Meanwhile, CoMMerzBAnk, Germany’s second largest bank, has seen its second quarter profits all but wiped out by a €760m writedown of its Greek debt. Second-quarter net profit fell by 93% from the same period a year ago to €24m

after the debt revaluation. The bank says that it is still expecting full-year profits to beat last year’s and that it will continue to pursue its goal of reaching a €4bn operating profit by 2012. royAl BAnk of sCotlAnd also lent money to the Greek government which might now not be paid back in full as a result of the country’s debt crisis. As a result of making a £733m (€833) provision for its exposure to Greek government bonds, RBS, which is 84%-owned by UK taxpayers, reported losses after tax of £1.4bn (€1.59bn) for the six months to 30 June. However, the bank reported an improvement in its core operating profit to £1.7bn from £1.1bn in 2010.

the international investment, business & finance magazine of cyprus

8/31/11


4HEรงALL IN ONEรง$OCUMENTรง-ANAGEMENTรง3OLUTION 4HEรงALL IN ONEรง$OCUMENTรง-ANAGEMENTรง3OLUTION NOITULO3รงTNEMEGANA-รงTNEMUCO$รงENO NI LLAรงEH4                                                                                                                   www.๏ฌleminders.com.cy           www.allgeier-dms.net   gold_18-21_inn.indd 21

the international investment, business & finance magazine of cyprus

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8/31/11 11:58:58 AM


{opinion}

By Matthew Kidd

Interesting Times

May you live in interesting times”, the saying (or, some say, curse) goes. For a British High Commissioner in Nicosia, the last few months have certainly been that. Let me give you a flavour of my inbox. For both Cyprus and the UK the year has been dominated by the challenging economic environment. One of the significant changes to the work of the Foreign and Commonwealth Office under the current government is a greater emphasis on our role in support of the UK economy and in reporting on the economic situation in our host nations. Although the UK is outside the eurozone, developments within it are of great importance to us: we want it to flourish. It has been challenging to try to understand how developments elsewhere in it affect Cyprus, and what Cyprus can do to protect itself from threats to its prosperity. As for the UK, we have had to undertake some very tough austerity measures to tackle the economic crisis; part of my job is to reassure people here that the measures are having the right impact, leaving Britain still very much ‘open for business’. The economic health of each of our two countries is strongly affected by developments in the other, in areas ranging from financial services to tourism, education to health. So there is a lot to follow and try to push in the right direction (involving all parts of the High Commission, from the commercial team to the consular, and the British Council too). The energy sector is an area I have had to get to grips with here, more than in any previous posting I have had. British companies have been involved for some years in seeking to help Cyprus make the transition to liquefied natural gas as the prime fuel for its electricity generation. Cyprus’ decision to take this route is in turn a response to the concern we all share to manage our environment in a more sustainable way. And recent months have seen confidence growing here that Cyprus may have its own reserves, which, if confirmed, will create huge new opportunities, and also challenges. But the summer has been overshadowed by the tragedy of the

explosion at the naval base, the loss of life and the impact on the island’s electricity supply. Our response, like those of Cyprus’ other friends, has been to look at how we can help. As a symbol of that, on the day of the explosion a large number of personnel from the Bases took the initiative to go to Limassol hospital to offer blood. I am pleased that in the weeks since, the UK has provided experts in handling explosives and in managing the power supply.

Part of my job is to reassure people here that tough austerity measures are having the right impact, leaving Britain still very much ‘open for business’ That’s not all. This has been an important period for the settlement process too, with negotiations entering an intensive phase. The challenge is huge, particularly against the current economic and political backdrop, but so are the potential gains, for all Cypriots, the region and the wider international community. The UK fully supports the process; we try hard to find productive ways of delivering that support, while not interfering in what must be a Cypriot-led process. Both the UK and Cyprus face interesting times in 2012 as well. For Cyprus there is the six-month EU Presidency; we have been working with the Cyprus Government to see how we can help it to meet the challenge successfully. In the meantime the UK is preparing for the 2012 Olympic Games which will be a celebration of not only sporting prowess but also the important themes of inclusiveness and environmental sustainability. I look forward to a series of events in Cyprus celebrating the Games, and, who knows, even a Cypriot medal.

info: Matthew Kidd is the British High Commissioner to Cyprus 24

the international investment, business & finance magazine of cyprus

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Vision

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As a team, we value connecting highly effective individuals with our clients. We work as a cohesive force - with our clients and with each other - because we are committed in providing quality business solutions.

Offices in Cyprus, Romania, Bulgaria, Moldova.

B A K E R T ILLY KLITOU ©2011 Baker Tilly Klitou and Partners Ltd. All rights reserved. “Baker Tilly Klitou” refers to Baker Tilly Klitou and Partners Ltd, registered in Cyprus, which is an independent member of Baker Tilly International, a worldwide network of accounting firms. “Baker Tilly” is a trademark of the UK firm, Baker Tilly UK Group LLP, used under licence. the international investment, business & finance magazine of cyprus

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The Price of Failure If talks on the reunification of the island do not end in agreement, Cyprus and Turkey will face massive financial and economic costs Interview by John Vickers

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n 18 March this year, Cypriot President Demetris Christofias took part in his 100th meeting since April 2008 with the representative of the Turkish Cypriot community (currently Dervis Eroglu, previously Mehmet Ali Talat) in UN-sponsored talks aimed at reuniting the island. Since reaching that particular milestone the talks have continued and UN Secretary-General Ban Ki-moon is urging the two sides to push for an agreement by the autumn. The European Union would clearly like to see a united Cyprus taking over the EU presidency on 1 July 2012. Gold spoke to Alexander Downer, Special Adviser to the UN Secretary-General on Cyprus, about the economic cost of failure to reach an agreement and the opportunities that will arise in case of a successful conclusion to the negotiations.

Gold: You have said in the past that if the Cyprus talks fail, billions of euros will have to be paid by the Greek Cypriots and Turkey. What did you mean by this? Alexander Downer: The biggest single expense in the end is going to be compensation for the loss of property and Turkey will end up by getting a lot of the bills, though not just Turkey. So unless they can negotiate an agreement here, all of these claims will be litigated - that will itself cost money too - and the payouts could cost Turkey anything up to €25 billion while for the Turkish Cypriot properties in the south it could cost the Greek Cypriots anything up to €15 billion. There is a very real and a very heavy direct financial cost for failing to reach an agreement and I don’t think people always understand this.

Gold: Others say that if agreement is reached, the cost of compensation will be the same. In this sense, it could be argued that there is no financial gain attached to reaching an agreement. A.D.: It is true that reaching an agreement will, inter alia, involve compensation but with an agreement, other things can happen: some cases can be resolved though exchange; in some, compensation will have to be paid; and in others the owners of the properties will be able to have them reinstated. Regarding exchange, conceivably all of the Turkish Cypriot property in the south of the island could be exchanged for Greek Cypriot property in the north. If it were all exchanged - which isn’t necessarily what would happen, of course - the costs in terms of 28

compensation would be near to zero. In some cases, compensation will have to be paid, it’s true. It is also true that there is a cost to reinstatement. Don’t forget that 75% of the land in the north of Cyprus is owned by Greek Cypriots but if there is what we call a ‘current user’ on the property, that person will have to be rehoused so that the owner can have the property reinstated. But while there is no denying that there will be costs to any agreement, they will be a fraction of what will have to be paid without one. It is really important to understand that.

Cyprus has every imaginable advantage and a fantastic opportunity to become a regional financial centre Gold: How accurate are the sums you’re talking about? A.D.: They should be regarded merely as illustrative. The numbers need to be understood for what they are. If you made an estimate of the value of all this ‘disputed property’ and you allocated that estimate between the Greek Cypriots and the Turkish Cypriots, these (€25 billion and €15 billion respectively) are the sort of values you’d be talking about. At present they are all ‘back of the envelope’ numbers and the actual cost of an agreement would depend on the distribution between exchange and compensation. Without an agreement it might not end up costing Turkey as much as the estimated €25 billion because the Immovable Property Commission in the north would decide how much compensation has to be paid. My point is that with an agreement there can be a very big saving and the costs can be massively reduced. Money will still have to be raised. The Greek Cypriots say there should be a donors’ conference, somebody may put some money directly in and also money will have to be borrowed.

Gold: What do you say to those who argue that the cost of the reconstruction of Famagusta, for example, would be prohibitive? A.D.: It’s not a net cost but a gross cost. If you build an apartment block in Famagusta, you’re not going to use every single apartment for yourself. If you are the owner of an apartment block in Famagusta, presumably you will sell some of the apartments. People own all those buildings but they have degraded beyond

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Alexander Downer

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cover story THE

TOP

5O law firms iN CYPrUs

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ypriots have traditionally had a very limited outlook when it comes to possible professions for their children. Top of the list for those with stability as their first priority has always been the civil service, closely followed by a position in a semi-government organisation. Others, whose ambitions include concepts such as prestige and social standing - not to mention a presumption of considerable financial reward - have usually chosen the medical and the legal professions. It should perhaps come as no surprise that many of Cyprus’ leading politicians, including three of its six presidents and many past and present party leaders, have studied law and/or worked in the profession. The Cyprus Bar Association, which has been the professional body for lawyers on the island since 1960, currently has more than 2,200 members. This is quite a staggering number for a country of 870,000 people (Republic of Cyprus), since it means that there is one

lawyer for every 395 people, making it joint 4th with Spain in the world (the US ranks first with 1 for every 265, followed by Brazil with 326 and New Zealand with 391). In recent years, as Cyprus has grown in stature as a regional centre for professional services and thousands of foreign companies have set up offices here, the more successful and specialized Cypriot law firms have found themselves in great demand. Students continue to enter the profession in record numbers, possibly attracted by the perceived prestige and impressive lifestyle and also by the possibility of a chance to change things for the better, even on a local or individual scale. Being a lawyer is not easy, as all four of our interviewees on the following pages suggest. For a start, there are not many professions that require their members to demonstrate “an obligation of devotion” to the fundamental principles of the profession, which include “the furtherance of truth and justice in a spirit of independence, freedom and dignity” (Advocates’ Code of Conduct Regulations of 2002). But we need lawyers and we need good

ones. In attempting to compile a list of the leading law firms on the island, Gold consulted various sources, including the Legal 500, and submitted questionnaires to a large number of firms. The resulting alphabetical list of 50 is, we believe, a fairly accurate selection of those firms with a deserved reputation for excellence. They range from truly huge international operations such as Andreas Neocleous & Co LLC, which employs well over 100 lawyers, to smaller firms with only four. There may be firms omitted from the list that, according to a different, equally objective assessment, ought to have been included. For reasons of their own, not all the companies we approached wanted to be included in the list. No firm has paid to be included in the list, nor has payment of any kind been sought. We hope that the list of the island’s leading law firms will be used as a reliable guide by anyone seeking legal assistance. We also present interesting information about specific cases by seven of the firms on the list and interviews with four lawyers who answered our identical questions with very different answers.

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notAbLe CAses: ChryssAfinis & PoLyViou LLC

• tHe MeRgeRs and aCquisitions teaM, tea headed by Managing Partner P.g. Polyviou, has advised a client on an offshore acquisition of a Russian Bank and a ukrainian Bank by a national banking institution for €700m and €80m respectively, by far the largest acquisitions by a Cypriot institution abroad as well as the biggest onshore deal worth €288m of the leading Construction and development company in Cyprus – by an investment fund listed on aiM. defended a Cypriot Bank on hostile takeover bid by another, the bid being eventually withdrawn. • suCCessfullY oPPosed an inteRiM oRdeR issued by the limassol family Court freezing more than $160 million worth of assets situated in the British virgin islands, Cyprus, the

united kingdom and elsewhere. successfully opposed an interim order issued by the district Court of nicosia freezing more than $6 billion worth of assets situated in Russia, Cyprus and elsewhere. • CHallenged an adMinistRative deCision to fine the four Petroleum Companies operating in Cyprus (€41 million collectively) of the Cyprus Commission for the Protection of Competition by way of Recourse before the full Bench of the Cyprus supreme Court. in May 2011 the said decision has been quashed a decision of the supreme Court of Cyprus. advised a seychelles based Company which is minority shareholder in a Cyprus Company in a dispute of almost $20 million.

APostoLou & Co. LLC

C.d. messios LLC

Number of Lawyers: 5 Number of Partners: 2 Head of the Firm: George & Christos Apostolou (Managing Partners) 10-12, Grigoris Afxentiou Avenue, Ayios Dometios, Nicosia 2360 Offices: Nicosia 22028888 Fax: 22028887 www.apostoloulaw.com

Number of Lawyers: 5 Number of Partners: 1 Head of the Firm: Constantinos Messios (Managing Partner) Office 401, Galaxias Center, 36, Ayias Elenis Street, Nicosia 1061 Offices: Nicosia, Athens 2246 0446 Fax: 22761176 www.messios.com

Areti ChAridemou & AssoCiAtes LLC LAw firm

ChristodouLos G. VAssiLiAdes & Co LLC

Number of Lawyers: 9 Number of Partners: 3 Head of the Firm: Areti Charidemou (Managing Partner) 21, Vasilis Michaelides Street, Limassol 3026 Offices: Limassol 25508000 Fax: 25508032 www.aretilaw.com

C. P. erotoCritou & Co LLC Number of Lawyers: 6 Number of Partners: 3 Head of the Firm: John Erotocritou (Senior Managing Partner) Libra Tower, 4th Floor, 23, Olympion Street, Limassol 3035 (P.O. Box 50437, Limassol 3605) Offices: Limassol & Nicosia 25363665 Fax: 25341500 www.cperotocritou.com

Number of Lawyers: 29 Head of the Firm: Christodoulos G Vassiliades (Managing Director) Ledra House, 15, Ayiou Pavlou Street, Agios Andreas, Nicosia 1105 Offices: Nicosia 22556677 Fax: 22556688 www.vasslaw.com

Christos PAtsALides L.L.C Number of Lawyers: 8 Number of Partners: 3 Head of the Firm: Christos Patsalides (Managing Partner) 31, Evagoras Avenue, Evagoras Building, Suites 41, 42 & 43, Nicosia 1066 Offices: Nicosia 22677677 Fax: 22674422 www.patsalides.com.cy

n ChryssAfinis & PoLyViou LLC Number of Lawyers: 25 Number of Partners: 2 Head of the Firm: Polyvios Polyviou (Senior Partner), Stella Polyviou (Managing Litigation Partner) Anemomylos Building, 8, Michalaki Karaoli Street, Nicosia 1095 Offices: Nicosia 22361000 Fax: 22678011 www.cplaw.com.cy

Chrysses demetriAdes & Co. LAw offiCe Number of Lawyers: 50 Number of Partners: 19 Head of the Firm: Christos Mavrellis (Senior Partner) 13, Karaiskakis Street, Limassol 3032 (P.O.Box: 50132, Limassol 3601) Offices: Limassol & Nicosia 25800000 Fax: 25587191 www.demetriades.com

CLerides, AnAstAsiou, neoPhytou LLC Number of Lawyers: 12 Head of the Firm: Stavros Clerides 6, Kolokotroni Street., Limassol 3032 Offices: Limassol 25274050 Fax: 25370704 www.cyplaw.com

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cover story CostAs indiAnos & Co., – AdVoCAtes & LeGAL ConsuLtAnts

Number of Lawyers: 8 Number of Partners: 2 Head of the Firm: Anthony Indianos (Managing Partner) 4, Diagoras Street, Kermia Building, 6th Floor, Offices 601 & 602, Nicosia 1097 Offices: Nicosia & Larnaca 22675231 Fax: 22669678 www.indianos.com.cy

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frAnGos & AssoCiAtes LLC Number of Lawyers: 6 Number of Partners: 1 Head of the Firm: Iosif Frangos (Founder) 10, Patron Street, Larnaca 6051 Offices: Larnaca 24812581 Fax: 24812583 www.frangoslawoffice.com

GeorGiAdes & myLonAs – AdVoCAtes & LeGAL ConsuLtAnts

Number of Lawyers: 10 Number of Partners: 3 Head of the Firm: Yiannos Georgiades (Managing Partner) 2, Ayios Pavlos & Kadmos Street 3rd Floor Wisdom Tower, Nicosia 1701 Offices: Nicosia, Larnaca, Athens, London 22819292 Fax: 22778444 www.gmadvocates.com

notAbLe notA ot bL CAses: ioAnnides demetriou LLC otA

• legal advisoRs in a MajoR aRBitRation a Case in a dispute between ocean tankers andf the government of Cyprus over sums due for the delivery of 8 million tons of drinking water to Cyprus from greece under a supply contract worth €35 million. the case attracted attention in lloyds list, a major source of news and information for the shipping industry. • legal advisoRs foR tHe fiRst wind faRM to be constructed and operated in Cyprus. legal advice in all stages of the project including international project finance, negotiations with government departments and authorities, drafting completion and execution of documentation and agreements, evaluation and provision of Cyprus

law advice on agreements and legal documents. • legal advisoRs to PetRolina (Holdings) Public ltd in the case initiated by the Commission for the Protection of Competition against the oil companies for alleged price fixing. the Commission had imposed a total fine of €44 million. the judgment of the Commission was reversed. a very high-profile case tried by the full Bench of the supreme Court of Cyprus • legal advisoRs to HeRMes aiRPoRts which is responsible for the design, building, management and operation of the two international airports of Cyprus under a 25-year concession by government; estimated investment in excess of €800m.

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CostAs tsirides & Co. LLC

GeorGe y. yiAnGou & Co

Number of Lawyers: 8 Number of Partners: 2 Head of the Firm: Alexandros Tsirides (Managing Partner) Grivas Digenis Avenue, Panagides Building, 2nd Floor, Limassol (P.O.Box 56250, Limassol 3305) Offices: Limassol 25820810 Fax: 25359772 www.tsirides.com

Number of Lawyers: 25 Number of Partners: 4 Head of the Firm: George Yiangou (Managing Partner) 12-14, Kennedy Avenue, Kennedy Business Centre, 2nd Floor, Office 203, Nicosia (P.O.BOX 24293, Nicosia 1703) Offices: Nicosia 22767630 Fax: 22760918 www.yiangou.com.cy

dr. K. Chrysostomides & Co LLC

GeorGe Z. GeorGiou & AssoCiAtes LLC

Number of Lawyers: 29 Number of Partners: 8 Head of the Firm: Dr. K. Chrysostomides (Founding Partner) 1, Lampousas Street, Nicosia 1095 Offices: Nicosia, Limassol,Brussels 22777000 Fax: 22779939 www.chrysostomides.com 38

Number of Lawyers: 13 Number of Partners: 1 Head of the Firm: George Georgiou (Managing Partner) 1st Floor, 1, Eras Street, Nicosia 1060 Offices: Nicosia 22763340 Fax: 22763343 www.gzg.com.cy

GeorGiAdes & PeLides

Number of Lawyers: 10 Number of Partners: 7 Head of the Firm: Marcos Georgiades (Managing Partner) Eagle House, 10 th Floor, 16, Kyriakos Matsis Avenue, Ayioi Omoloyites, Nicosia 1082 Offices: Nicosia 22315939 Fax: 22315553 www.cypruslaw.com.cy

hArris KyriAKides LLC Number of Lawyers: 7 Number of Partners: 2 Head of the Firm: Harris Kyriakides (Managing Partner) 115, Faneromenis Avenue, Antouanettas Building, Larnaca 6031 (P.O. Box 40089, Larnaca) Offices: Larnaca 24828244 Fax: 24818877 www.kyrlaw.com.cy

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hAViArAs & PhiLiPPou LLC

KinAnis LLC

Number of Lawyers: 6 Number of Partners: 4 Head of the Firm: Andreas Haviaras (Managing Partner) 20, Stasandrou Street, Office 101, Nicosia 1060 Offices: Nicosia 22764001 Fax: 22764 003 www.hphlaw.eu

Number of Lawyers: 15 Head of the Firm: Christos Kinanis 12, Egypt Street, Nicosia 1097 Offices: Nicosia 22558888 Fax: 22662500 www.kinanis.com

ioAnnides demetriou LLC

Number of Lawyers: 5 Number of Partners: 2 Head of the Firm: Artem Paleev (Director) 84, Grivas Dighenis Avenue, Limassol 3101 Offices: Limassol, Moscow, Kiev 25582848 Fax: 25582868 www.korpusprava.com

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Number of Lawyers: 6 Number of Partners: 18 Head of the Firm: Pambos Ioannides (Managing Partner and Director) 2, Diagorou Street, Era House Floors 7-12, Nicosia 1097 Offices: Nicosia, Limassol 22022999 Fax: 22022900 www.idlaw.com.cy

KAKoyiAnnis P.L. & Co Number of Lawyers: 5 Number of Partners: Head of the Firm: Agapios Kakoyiannis (Founder) Centre Point, 2nd Floor, Corner of Kinira & N.Nikolaides St, Paphos Offices: Paphos 26932392 Fax: 26934240 www.kakoyiannislawoffice.com

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KorPus PrAVA CorPorAte serViCes Ltd

KyriACos th. miChAeLides & Co LAw Number of Lawyers: 6 Number of Partners: 3 Head of the Firm: Kyriakos Michaelides (Founder) 66, Ippocratous Street, Nicosia1015 (P.O. Box 21548, Nicosia 1510) Offices: Nicosia 22452400 Fax: 22761878 www.ktmlaw.com

Number of Lawyers: 23 Number of Partners: 15 Head of the Firm: Leandros Papaphilippou (Senior Managing Partner) 1, Costakis Pantelides Street, 3rd Floor, Nicosia 1010 Offices: Nicosia, Athens 22674141 Fax: 22673388 www.papaphilippou.eu

LeLLos P demetriAdes LAw offiCe Number of Lawyers: 7 Number of Partners: 6 Head of the Firm: Lellos Demetriates (Managing Partner) Chanteclair House, 2, Sophoulis Street, Nicosia (P.O.Box 21646, Nicosia 1511) Offices: Nicosia 22676060 Fax: 22676061 www.ldlaw.com.cy

m.eLiAdes & PArtners LLC in niCosiA Number of Lawyers: 7 Number of Partners: 3 Head of the Firm: Marios Eliades (Managing Partner) Corner Evagorou & 1, Menandrou Street, Frosia House, 4th Floor, Nicosia 1066 Offices: Nicosia 22667730 Fax: 22667740 www.eliades.eu

notAbLe notA n otAb ot bLe Le CAses: PAtriKios PAVLou & AssoCiAtes LLC

PRoPosed MeRgeR of two european companies both engaged in the dairy business carried on in numerous countries and in particular on the Cyprus aspects of the transaction involving a Cyprus joint venture with foreign and Cyprus shareholders. advised on corporate and commercial matters, finance issues, international tax planning and issuing legal opinion to the european Bank for Reconstruction & development (value contributed into the jv amounted to $2.5 billion). • advised one of tHe tHRee laRgest Banks in Russia in relation to two term facility agreements in the aggregate amount of $816 million granted to a swiss-registered gas supply group. 42

L. PAPAPhiLiPPou & Co

• PRovided adviCe and assistanCe to Russia’s third-largest copper producer in relation to various financing transactions involving Cyprus companies and loans in the aggregate amount of $300 million obtained from a Russian bank. assisted and acted as an escrow agent in a loan facility granted to an international group of companies by a Russian bank - apparent value of assets secured by the escrow usd $3.2 billion. • advised a CYPRus PuBliC CoMPanY with respect to the listing of its shares on the Hong kong stock exchange (Hkse). the listing was the first ever implemented by any Cyprus company.

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cover story

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notAbLe notA ot bL CAses: miChAeL KyPriAnou & Co. LLC otA

• tHe MosCow offiCe of HeRBeRt sMitH advised ing on the recently completed $400m syndicated loan for tnk, Russia’s third largest oil company. it is the largest syndicated loan in Russia this year. an essential part of the deal included advice on the laws of Cyprus. Michael kyprianou & Co. llC advised with respect to the Cyprus legal issues involved. • tHe fiRM was involved in an inteRnational fRaud Case, which was one of the first cases where a Cyprus Court was persuaded to issue a disclosure order against a local bank, not a party to the pending proceedings. with the disclosure the client was able to trace assets he had been defrauded of. • tHe fiRM undeRtook tHe Case ManageMent in three related lCia arbitrations concerning a dispute arising out

mArKides, mArKides & Co Number of Lawyers: 11 Number of Partners: 4 Head of the Firm: Alecos Markides & Hermione Markides (Managing Partners) Markides House, 1-1A Heroes Street, Nicosia (P.O. Box 24325, Nicosia 1703) Offices: Nicosia 22779900 Fax: 22778787 www.markides.com.cy

mArKos P. sPAnos & Co Number of Lawyers: 4 Number of Partners: 2 Head of the Firm: Paris Spanos and Maria Spanou-Anastasiou (Partners) Corner Evagorou & 1 Menandrou Street, Frosia House, 3rd Floor, Nicosia 1066 Offices: Nicosia 22863000 Fax: 22863001 www.mpspanos.com

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of a share sale agreement concerning the kazakhstan port authorities for a consideration in the region of $ 300 million. in these arbitrations we joined forces with a leading set of chambers in london. • founding PaRtneR MiCHael kYPRianou represented the Republic of Cyprus and the autocephalous greek orthodox Church of Cyprus in the us Courts for the return of the kanakaria Mosaics, stolen from the kanakaria Church and consisting of a handful of the rarest holy Byzantine artefacts to survive into the twentieth century. • tHe fiRM Has defended the New York times and the international herald tribune in a libel case filed against them by a prominent Cypriot politician.

miChAeL KyPriAnou & Co. LLC n

Number of Lawyers: 30 Number of Partners: 7 Head of the Firm: Menelaos Kyprianou (Managing partner) Corner Stasinos Avenue & 2, Ayias Elenis Street, Stasinos Building, 6th & 7th floor, Nicosia 1060 Offices: Nicosia, Limassol, Paphos, Athens 25363685 Fax: 22767880 www.kyprianou.com.cy

miChAeLides & miChAeLides Number of Lawyers: 4 Number of Partners: 2 Head of the Firm: Andreas Michaelides (Managing Partner) Omega Court, 4th Floor, Office 41, 4, Riga Fereos Street, Limassol Offices: Limassol 25352602 Fax: 25 353603 www.michaelideslaw.com.cy

montAnios & montAnios Number of Lawyers: 14 Number of Partners: 5 Head of the Firm: Acis, Eric & Adam Montanios, (Managing Partners) Libra House, 21, P Catelaris Street, Nicosia (P.O. Box 5001, Nicosia) Offices: Nicosia, Limassol 22660766 Fax: 22678777

mouAimis & mouAimis Number of Lawyers: 6 Head of the Firm: Panayotis Mouaimis (Founding Partner) 16-18, Zena Gunther Street, Limassol 3035 Offices: Limassol, Paralimni 25362233 Fax: 25373075 www.mouaimis.com

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PAmboridis LLC

Number of Lawyers: 17 Number of Partners: 4 Head of the Firm: Dr George Pamboridis (Managing Partner) 45, Dighenis Akritas Avenue, Pamboridis House, Nicosia 1070 Offices: Nicosia, Limassol, Athens, London 22752525 Fax: 22752800 www.pamboridis.com

PAPAChArALAmbous & AnGeLides LLC Number of Lawyers: 17 Head of the Firm: Andreas Papacharalambous & Pavlos Angelides (Managing Partners) 10, Themistocles Dervis Street, 1st floor, Nicosia 1066 Offices: Nicosia 22670189 Fax: 22676976 www.palaw.com.cy

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PAPAdoPouLos, LyCourGos & Co LLC

PeLAGhiAs ChristodouLou, VrAChAs & Co

Number of Lawyers: 11 Number of Partners: 2 Head of the Firm: Dimitris Papadopoulos & Doros Lycourgos (Managing Partners) 2-4, Archbishop Makarios III Avenue, Capital Center, 7th Floor, Nicosia 1065 Offices: Nicosia 22676126 Fax: 22674201 www.paplyclaw.com

Number of Lawyers: 4 Number of Partners: 3 Head of the Firm: George & Pelaghias, Alexandra Pelaghias-Christodoulou, & Petros Vrachas (Managing Partners) 41, Themistolcles Dervis Street, Hawaii Nicosia Tower, Suites 806-807, Nicosia 1066 (P.O. Box 21684, Nicosia 1512) Offices: Nicosia 22764216 Fax: 22768277 www.pelaghiaslaw.com

PAtriKios PAVLou & AssoCiAtes LLC n

Number of Lawyers: 19 Number of Partners: 8 Head of the Firm: Stavros Pavlou (Managing Partner) Patrician Chambers, 332, Agiou Andreou Street, Limassol 3035 Offices: Limassol, Nicosia, Athens 25871599 Fax: 25344548 www.pavlaw.com

PhC tsAnGArides LLC Number of Lawyers: 6 Number of Partners: 2 Head of the Firm: Photos & Constantinos Tsangarides (Managing Partners) Corner of Omirou & Arachovas Street, Alasia House, Limassol 3096 Offices: Limassol 25814054 Fax: 25814170 www.tsangarideslaw.com.cy

notAbLe notA ot bL CAses: PAmboridis LLC otA

• advised one of tHe leading Russian Banks on the possible acquisition of a controlling stake in a Cyprus bank listed on the Cyprus stock exchange. the firm acted as lead counsel with a mandate of negotiating the terms of the transaction, drafting all required documentation/ agreements, advising on all regulatory/compliance matters and liaising with the Cyprus Central bank, the Cyprus stock exchange and the Cyprus securities and exchange Commission • aCted as CYPRus Counsel to tHe BoRRoweR, a joint stock company registered in the Russian federation, in the securitization of a $650 million loan facility from a leading Russian bank, through the Cypriot companies of the group. the party advised was jsC “the seventh Continent” and the

deal was valued at $650 million • aCted as CYPRus Counsel in Relation to tHe seCuRitization of a Bond issue and a restructuring of the issuer’s group. the firm’s mandate included reviewing the Bond agreement and ancillary documents from a Cyprus law perspective, drafting of all the Cyprus law governed security documents, advising on all the corporate authorizations required for the securitization purposes, liaising with the local counsel of the bond trustee and attending to all registration formalities. deal value: nok 125 million. • aCted as CYPRus Counsel foR standaRd CHaRteRed Bank in relation to an intercreditor agreement between the Bank as senior creditor, a Cypriot company as subordinated creditor, the subordinated borrower and the original obligors.

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PiriLides & AssoCiAtes LLC

sCordis, PAPAPetrou & Co LLC

tAssos PAPAdoPouLos & AssoCiAtes

Number of Lawyers: 10 Number of Partners: 1 Head of the Firm: Neofytos Pirilides (Chairman) 5, Amathountos St, Pirilides Building, Limassol 3105 Offices: Limassol 25830830 Fax: 25830759 www.pirilides.com

Number of Lawyers: 27 Number of Partners: 13 Head of the Firm: Andis Scordis and Michalis Papapetrou (Managing Partners) The Business Forum, 30, Karpenisi Street, Nicosia (P.O.Box 20533, Nicosia 1660) Offices: Nicosia, Limassol, Athens, Moscow 22843000 Fax: 22843444 www.scordispapapetrou.com

Number of Lawyers: 16 Number of Partners: 6 Head of the Firm: Nicos Papaefstathiou (Managing Partner) 2, Sophoulis Street, Chanteclair Building, 2nd Floor, Nicosia 1096 Offices: Nicosia 22889999 Fax: 22889988 www.tplaw.com.cy

PoLAKis sArris & Co Number of Lawyers: 9 Number of Partners: 1 Head of the Firm: Polakis Sarris (Founding Partner) 8th Floor, Nicosia Tower Centre, 36, Byron Avenue, Nicosia (P.O. Box 21341, Nicosia 1506) Offices: Nicosia 22456000 Fax: 22670040 www.sarris.com.cy

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& Co L.L.C

Number of Lawyers: 7 Number of Partners: 2 Head of the Firm: Soteris Pittas (Managing Director) 223, Archbishop Makarios III Avenue, Avenue Court, 2nd Floor, Limassol 3105 Offices: Limassol 25028460 Fax: 25028461 www.pittaslegal.com

notAbLe notA ot bL CAses: soteris PittAs & Co L.L.C otA

• Handled on BeHalf of foReign defendants the defence of an action brought for a claim of more than $2.5 billion for fraud, coercion relating to the Moskva Hotel in Moscow, and succeeding to discharge a freezing injunction blocking assets of more than $6.5 billion. • Handled a ClaiM filed BY a CYPRus CoMPanY against Cypriot and foreign persons for losses sustained due fraud committed against them in relation to a large group of ukrainian Companies (Claim $150 million). • Handled a PeRsonal and deRivative aCtion filed by a foreign company against a Cyprus Holding Company, its foreign subsidiaries and other Cypriot and foreign persons for claim of more than $50 million. 50

• Handled an lCia aRBitRation conducted in london on behalf of a Cyprus company for a claim of $75 million for breach of a share Purchase agreement relating to a large project in sochi Russia. • Handled a fRaud Case committed against a Cypriot company through the use of a fraudulent arbitration award and successfully achieving the recovery of the value of the assets stolen (Claim $10.5 million). • Handled a ClaiM filed BY a Russian CoMPanY against a Cypriot company for the recovery of a loan and succeeding to freeze the assets of the Cyprus debtor company situated in Cyprus and in france (Claim $35 million).

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cover story

Pambos

Ioannides Ioannides Demetriou LLC Gold: Why did you decide to pursue a career in law?

Pambos Ioannides: When I was very young, during my years at elementary school, I was impressed by the necessity to administer fairness when facing issues which had to be dealt with, such as punishing for improper behavioUr, resolving quarrels etc. At an early stage, I remember saying, “I want to become a judge”. At secondary school, I started reading law books and I liked attending court trials. At some stage I thought that the legal profession would be more fascinating if practised as a lawyer. I have not regretted it.

Gold: Which area of law do you personally find the most interesting and why? P.I.: In the last few years, I have been dealing mainly with matters relating to the capital and finance market and PPP projects, which I find very interesting, particularly in the sense that new concepts in these fields play an important role in developing the economy. However, I consider an attempt to classify a particular area of law as being more interesting than another to be rather futile. It depends on how circumstances may impact the career of a law professional. I think I have dealt with all or most of the main practices in

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law. I would give no priority or preference to a particular area. For example, I still love criminal law, which I practiced extensively when I was a young lawyer but now I very rarely do so. When handling criminal law matters, you feel that a human being, the client, is almost literally tied to you, entrusting you with his entire well-being of a very personal nature, with his personal freedom and integrity.

Gold: What are the advantages and disadvantages of becoming a lawyer? P.I.: The destiny of a lawyer is to be a life student, sentenced to uninterrupted stress and the necessity to be courageous at all times, and ready and willing to work hard work and for long hours. I will avoid measuring advantages against disadvantages. I would only add that the legal profession is demanding and fascinating at the same time. If someone is a clock-watcher in his working hours, he had better choose to do something else.

Gold: Is the profession one that you would recommend to your children and why? P.I.: Children must have options and should be encouraged to choose the career that appeals to them, that speaks to their soul. They need guidance but not mandatory recommendations.

he destiny of a lawyer is to be a life student, sentenced to uninterrupted stress and the necessity to be courageous at all times

When my elder daughter was in her third year at secondary school, I asked her: “How about becoming a lawyer?” and she replied “Don’t say that again!” I never did. She is now an artist and she is happy. My younger daughter, after an academic career in maths and statistics, turned to law of her own choice. She is now a very busy lawyer.

Gold: A surprisingly large number of politicians in Cyprus have a professional background in law. Do you think that the legal profession provides a good grounding for pursuing a parallel career in politics? P.I.: Yes, I think it does and not only in Cyprus. A legal background is not a necessary prerequisite for a career in politics but it is an advantage. Politics is intrinsically linked to legal affairs.

Gold: Do you believe that the public perception of legal professionals is a fair one? P.I.: Why not? Public perception of the legal profession may be tough and not always very flattering; this helps in strengthening the responsibility that legal professionals should demonstrate.

Gold: How in your opinion does the Cyprus legal system compare to that in the other EU member states? P.I.: Cyprus’ legal system is in the upper levels amongst the 27 EU member states. That said, there is a lot of room for improvement in many areas and this must be a constant process.

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Gold: What is the most memorable legal case that that you have been involved in over the course of your career? P.I.: When I was a young lawyer I was asked to defend a student who had a tendency to steal, breaking into shops and the like, to get a little money or minor things like cigarettes, T-shirts etc. I was entrusted with defending him in one case and ended up defending him in no fewer than 60 cases, in a number of district courts, over a period of about a year. I was very stressed by the idea of almost unavoidable imprisonment for my young client, and I was also conscious of my own inexperience at the time. I asked his father to appoint a more experienced lawyer for his son but he insisted that I should defend the young man. I made passionate and well-prepared pleas before the courts. The young man ended up under the supervision of the welfare services. I think this result was partly due to the fact that, as his lawyer, I persuaded the judges that I was very confident that imprisonment would not do justice in this case. This gave me job satisfaction at an early stage of my career.

Gold: What is your vision for your firm over the next ten years? P.I.: Expansion in various fields which are appropriate in the Cyprus environment, constantly aiming at high level of services.

Gold: If there was a single law that you could enact in Cyprus tomorrow, what would it be? P.I.: I would introduce an effective law against corruption and control over politiciansâ&#x20AC;&#x2122; sources of income. In my view, such a control is the premium that each politician must be ready to pay.

Gold: If there was a single law that you could repeal in Cyprus, what would it be? P.I.: I would repeal certain financial privileges to Members of Parliament and others who serve in political posts. I favour a decent remuneration for those servicing in political posts. For example in the case of members of Parliament, who in addition to receiving a fairly good remuneration, are free to carry out any profession in the private sector. I consider special privileges in terms of duty free cars, high pensions, etc., as being a method of hiding their actual remuneration package and I see no justification for this. It should be repealed. This would help in upgrading the image of our politicians which, admittedly, has fallen to a very low level. the international investment, business & finance magazine of cyprus

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cover story

s o r KyP

C

Y R H

LC

oL s&C

e omid

t ysos r h C .

dr. K

T S SO

S E D I M O

Gold: Why did you decide to pursue a career in law?

Kypros Chrysostomides: My father and grandfather were teachers, so no relation to law. My preferences at the time were more for language, literature, history, ancient and modern Greek etc. rather than mathematics, physics or chemistry. Since I had the choice of a scholarship either for law or medicine, I spent a sleepless night weighing the pros and cons of each alternative. It appeared to me then (and I have since realised that it was a correct assessment) that law offered greater prospects of being able to pursue a choice of careers, hence in the morning my decision was taken in favour of law.

Gold: Which area of law do you personally find the most interesting and why? K.C.: There are many areas of law that I find fascinating but in particular Court work. Representing clients during hearings before Judges and advancing arguments in support of their case and, at the same time, examining and cross-examining witnesses, is a very exciting and complex part of a lawyerâ&#x20AC;&#x2122;s activity. Likewise dealing with clientsâ&#x20AC;&#x2122; projects or problems in the office may also be very satisfying, depending on the complexity of the issues involved. It is very challenging to devise appropriate plans for the needs of imaginative and progressive clients in order to accomplish their business vision. Generally, practising law is a gratifying occupation that offers job satisfaction and, of course, financial reward in most cases.

Gold: What are the advantages and disadvantages of becoming a lawyer? K.C.: As I have already said, the main advantage of a career in law is that it offers ample opportunity not only to practise as an attorney but also to pursue a career in the civil service, in the diplomatic service, to become a judge, an internal legal

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counsel in a bank or other enterprise, or even work abroad in an international organisation. One may also choose an academic career teaching in the Law Faculties of Universities. Advocacy in general has in store many moments of professional satisfaction but this profession has its moments of frustration and disappointment too, when losing a case in Court or when dealing with difficult clients. All in all, however, there are more advantages than disadvantages to a legal career.

Gold: Is the profession one that you would recommend to your children and why? K.C.: For all the above reasons, yes, indeed I would recommend the legal profession to my children. Particularly since my wife is also a lawyer and a partner in our firm. Now, of course, I know that not everyone would be happy with this. Of my two daughters who both studied law, only one is practising, though she would prefer an academic career at a university. The other has completely changed vocation. The main thing is for them to see whether a legal career in one or the other form suits them after all.

w

often becoming politicians. What I do not like, however, is a lawyer becoming a politician by profession. Politics must be understood as a ‘mission’, a means for offering services to one’s fellow citizens and to society at large and not as ‘earning a living’ or as an occupation.

Gold: Do you believe that the public perception of legal professionals is a fair one? K.C.: Not always but, as in every profession, there are members that do not do justice to their peers and distort the picture of the profession in general. We should always do our best to project the correct image of a lawyer to society and offer impeccable behaviour and respect for the rules of etiquette of the profession. Only in this way can we gain the appreciation and respect of our fellow citizens. We have a duty to do this.

Gold: How in your opinion does the Cyprus legal system compare to that in the other EU member states? K.C.: I believe very well. Firstly, because of its history and background as part, mainly, of Anglo-Saxon law; this is a very advanced system that was gradually

e shouLd ALwAys do our best to ProjeCt the CorreCt imAGe of A LAwyer to soCiety And offer imPeCCAbLe behAViour

Gold: A surprisingly large number of politicians in Cyprus have a professional background in law. Do you think that the legal profession provides a good grounding for pursuing a parallel career in politics? K.C.: Naturally it does provide a sound ‘springboard’, I would say, for politics. For example, both the Parliament and the Government are dealing on a daily basis with legislation, preparing, enacting and implementing laws. Also, citizens’ rights and the proper evaluation of such rights by politicians are, to a great extent, a legal process, hence a worldwide tendency to see lawyers very

K.C.: It is difficult to say which one, as every case has its particular characteristics. A very interesting case was one involving the arrest of a helicopter in Cyprus and the related proceedings that ended up setting novel points of our case law. I remember an arrest of a ship in admiralty proceedings at the early stages of my career with a very experienced colleague on the other side, which involved long hours of preparation overnight and hearings before the Supreme Court. As for cases of interest not involving court proceedings, we have had a great number at our office. One worth mentioning because of the huge amounts involved concerned the acquisition of a very large foreign company by a group of our clients and the purchase price amounted to US$2.2 billion.

Gold: What is your vision for your firm over the next ten years? K.C.: It always remains the same in principle: rendering quality and timely services to our clients and securely growing for the benefit of future generations of lawyers at our office. We all were particularly happy this year when our firm received the Export of Services Award from the Ministry of Commerce and the Chamber of Commerce, presented by the President of the Republic to my partners Eleni Chrysostomides and Chryso Dekatris. We shall always strive to be better every year and always be a constructive part of our society.

Gold: If there was a single law that you introduced in Cyprus during the British administration. Then, during the preaccession negotiations with the EU many harmonising laws were enacted, probably more than 300. Nowadays, EU regulations are directly applicable in our country and we now have a perfectly European legal system in all respects. We are not always quick in transposing EU Directives into Cyprus law but generally we comply with what is required of us as members of the EU.

Gold: What is the most memorable legal case that that you have been involved in over the course of your career?

could enact in Cyprus tomorrow, what would it be? K.C.: A very strict law banning violence at sports grounds. This is a plague that is contrary to what I perceive as the basis of our culture.

Gold: If there was a single law that you could repeal in Cyprus, what would it be? K.C.: This is a tricky question, because there many laws with which I do not agree. I can answer generally though; I would repeal any law that affects the standard of living of needy people that live below the poverty threshold.

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cover story

CHRISTOS

KINANIS Kinanis LLC

Gold: Why did you decide to pursue a career in law?

Christos Kinanis: I had no knowledge of the legal profession when I had to take the decision about what I was going to study at university. My father was the driving force in my decision to pursue a career in law. He advised me to do it and he said that I would not regret it. I trusted him and I followed his advice. He was right that I did not regret it!

Gold: Which area of law do you personally find the most interesting and why? C. K.: What really impresses me after 28 years of practicing law is corporate taxation. It is a subject which most lawyers do not practise but in fact I enjoy it because it has a mathematical implementation. However, despite the fact that I extensively practice corporate taxation, my ‘secret love’ is litigation.

profession. It is a versatile career that offers a lot of opportunities.

Gold: A surprisingly large number of politicians in Cyprus have a professional background in law. Do you think that the legal profession provides a good grounding for pursuing a parallel career in politics? C. K.: It certainly helps as you would understand legal concepts and legislation more easily but I would not say that it is an absolute requirement.

Gold: Do you believe that the public perception of legal professionals is a fair one? C. K.: No, I don’t think so. Lawyers are not respected to the degree that they should be. Of course, to some extent this may be due to bad personal experiences that people have had as clients of lawyers.

It related to a dispute over the sum of £105 which, even though it was a small dispute between a restaurant owner and a customer, needed a lot of time for preparation. For me it was exciting though very stressful too! I will never forget it.

Gold: What is your vision for your firm over the next ten years? C. K.: To continue to grow as a multidisciplinary firm engaging in a variety of services, to offer legal, tax, accounting, financial and investment services covering a large spectrum of the service sector. For this to be achieved, though, certain structural changes must be made to Cyprus’s legislation and, in particular, to the legislation governing and regulating the legal profession.

Gold: If there was a single law that you

Gold: What are the advantages and

Gold: How in your opinion does the

disadvantages of becoming a lawyer? C. K.: A career in law broadens your way of thinking and horizons. It makes you energetic, independent and active. On the other hand, it is a demanding profession. It needs dedication, continuous studying and a great deal of hard work;

Cyprus legal system compare to that in the other EU member states? C. K.: I believe that there is room for improvement to our legal system. For example, we need to modernize the court structure and court procedures in order to make them easier and faster.

could enact in Cyprus tomorrow, what would it be? C. K.: To bring specific legislation into force liberalizing the entry of non-lawyers as shareholders in law firms. The other areas of law that I am expecting to see a change concern the present international trusts law and tax laws and I also think that the bill relating to fiduciaries needs to to be brought into force.

Gold: Is the profession one that you would

Gold: What is the most memorable legal

recommend to your children and why? C. K.: Definitely! I would recommend it not only to my children but to anyone’s children who have the right characteristics/ abilities to pursue such a demanding

case that that you have been involved in over the course of your career? C. K.: I would say that it was the first ever case I tried before the courts, approximately 28 years ago. I still remember it clearly.

Gold: If there was a single law that you

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could repeal in Cyprus, what would it be? C. K.: I wouldn’t necessarily repeal a specific law but I would amend existing legislation to suit our current, modern era and the ever-changing attitudes of society.

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D

espite the fact that I extensively practice corporate taxation, my â&#x20AC;&#x2DC;secret loveâ&#x20AC;&#x2122; is litigation

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cover story

GEORGE

PAMBORIDIS

Pamboridis LLC

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Gold: Why did you decide to pursue a

Gold: A surprisingly large number of politicians in Cyprus have a professional George Pamboridis: From the time when background in law. Do you think that I was a kid I always enjoyed debating. I the legal profession provides a good loved the process of arguing in support of grounding for pursuing a parallel career one’s beliefs and after a while I suppose it in politics? became a second nature to me. G.P.: Most politicians are Members of   Parliament, which is the legislative body. Gold: Which area of law do you personally It is only natural that lawyers who are find the most interesting and why? familiar with laws and procedures would G.P.: My academic background exposed me turn also to politics. That, of course, does to public international law and, therefore, not mean that lawyers by default make academically I find this field of law very good politicians! interesting. However, the most exciting   field that I enjoy engaging in on a daily Gold: Do you believe that the public basis is corporate law. Adding value to a perception of legal professionals is a fast-moving business client in his effort to fair one? take over another business or to secure his G.P.: No. But the reason for this is not the interests in a deal gives me a kick. public at large but the bad image spread by   a very small number of lawyers who are led Gold: What are the advantages and only by greed and vanity and move away disadvantages of becoming a lawyer? from the principles of justice and fairness. G.P.: The best element in my opinion is   that you never get bored practising law. Gold: How in your opinion does the Every case is totally different from the Cyprus legal system compare to that in other and each time you learn something the other EU member states? new. The worst element is the pressure: G.P.: Unfortunately Cyprus has an archaic you usually need to act fast and the advice judicial system with long delays. “Justice you give sometimes can make or break the delayed is justice denied”. Furthermore, client. This can be quite stressful.  the ability of the state to introduce new legislation and eliminate obsolete laws is extremely he whole system needs to be limited. I feel, uprooted and be replaced by a therefore, that we modern, fast and effective one rank very poorly with our EU partners.       Gold: What is the most memorable legal case that that you have been involved in Gold: Is the profession one that you would over the course of your career? recommend to your children and why? G.P.: I would say the collision and G.P.: I honestly believe that apart from a subsequent sinking of m/v Poseidon good education and practical experience, Express which involved a number of every profession requires a natural talent or jurisdictions with issues ranging from inclination. I would definitely recommend admiralty to marine insurance, third law to my children but that’s only because party claims, salvage, pollution, breach in my eyes law is exciting. If this is not of port regulations, personal injuries, how it appears to them, I would discourage criminal charges and many other them from becoming lawyers. elements. I was a young lawyer working career in law?

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for a London maritime law firm at the time and dealing with this case taught me how a lawyer’s work may affect the daily routine and survival of individuals as well as multinational corporations. It made me realize that a lawyer must at all times have a full understanding of and show respect for the facts of each case. He needs to get away from his desk and obtain a first-hand feeling of each case. Gold: What is your vision for your firm over the next ten years? G.P.:Pamboridis LLC started its operations in 2003 and today in addition to its Head office in Nicosia, maintains an office in Limassol, one in Athens and in a few days we shall have another one in London. We aim to establish a regional law firm, which will stand the test of generations and will truly belong to its people i.e. the lawyers. I guess that if in 10 years we are established in the minds of our clients as the best law firm in the region, we shall be able to consider ourselves successful.   Gold: If there was a single law that you could enact in Cyprus tomorrow, what would it be? G.P.: It would definitely be a law reforming the judicial system. The whole system needs to be uprooted and be replaced by a modern, fast and effective one. The judiciary itself should take the initiative and then work closely with the legislature to resolve this issue which has tremendous impact – social, economic and political – on the country and its future.   Gold: If there was a single law that you could repeal in Cyprus, what would it be? G.P.: The Statutory Tenancy principle, which was introduced as a means of social policy and ended up in the absolute abolition of the right to ownership. Only tenants with real social support should enjoy protection, and always not to the detriment of just one third party who happens to be the owner of the property but through the active support of the government or the local authority.

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A second well known risk goes by the name 'resource curse' which may be defined as the paradox that countries with an abundance of non-renewable natural resources like oil and natural gas tend to have lower levels of development than countries with fewer natural resources due to a variety of reasons: • A decline in the competitiveness of other sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy) • Volatility of revenues from the natural resource sector due to exposure to global commodity market swings • Government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily-diverted actual or anticipated revenue stream from extractive activities).

The flow of easy revenues from resource extraction lessens the pressure to develop a knowledge-based economy From 1965-1998, GDP in the OPEC countries fell on average by 1.3% per annum, while in the rest of the developing world, per capita growth was on average 2.2%. The 'resource curse' goes also by the name of 'Dutch disease', a term coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959. The Dutch experience was repeated time and again by Mexico, Venezuela, Saudi Arabia and most other oil and natural gas exporters. The most pernicious and lasting effect of the ‘resource curse’ is the retardation of the country’s human and institutional development. The flow of easy revenues from resource extraction lessens the pressure to develop a knowledge-based economy, an entrepreneurial and innovation culture and robust institutions of public finance and macroeconomic management. Furthermore, the newly-found wealth creates demands for more jobs and salary increases in the public sector, subsidies to failing enterprises, and to organised interest groups. Only a few resource exporters such as Malaysia, Norway, Kuwait, Canada, Australia and New Zealand have managed to contain the ‘resource curse’ by taking deliberate measures to neutralize the effects of natural resource discoveries on their economic, political

and institutional development. They save part of the revenues in special funds and bring them into the economy slowly to reduce the spending effect and to stabilize the revenue stream which otherwise varies widely as a result of commodity market swings. By saving the boom revenues, these countries are sharing their exhaustible resource with future generations. Invariably, these prudent and provident countries have created sovereign wealth funds such as the Alberta Heritage Savings Trust Fund, the Kuwait’s Future Generations Fund and the Norway Government Pension Fund, which save and invest the resource revenues in education, research and development, and environmental restoration. Thus, instead of allowing the revenues from natural gas and oil discoveries to derail and retard the country’s institutional and economic development, we can sterilize them and use them creatively to accelerate the process of reform to regain international competitiveness. Cyprus could use its Natural Gas revenues to: • reform the public sector to reduce its size and improve its productivity and efficiency • reform and capitalize the pension fund to make it solvent • invest in educational reform and human resource development and knowledge creation • invest in research and development and promote entrepreneurship and innovation • invest in renewable energy technology development to exploit the country's abundant solar energy and to export solar technology • establish an insurance fund for future adversities, natural disasters, and economic crises • establish a Future Generations Fund for long term investments in sustainable development

From 1965-1998, GDP in the OPEC countries fell on average by 1.3% per annum, while in the rest of the developing world, per capita growth was on average 2.2% In this way we would be converting non-renewable fossil fuel resources into renewable knowledge resources, education, research and innovation which will continue to generate wealth when the newly discovered resources are long gone.

Theodore Panayotou is Director of the Cyprus International Institute of Management (CIIM) and Professor of Environmental Economics, Business Ethics and Corporate Social Responsibility. He has an extensive research and publication record in the areas of Environmental Economics, Climate Change and Sustainable Development. He can be contacted at: theodore.panayotou@ciim.ac.cy 54

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those elusive renewables targets cyprus has the second worst oil-reliance in the eu

F

irst the good news. In the ten years between 1999 and 2009 the share of renewable energy sources in total energy consumption within the European Union went up by 67%. At the beginning of that ten-year period, in 1999, the share of various renewable forms of energy in total EU consumption stood at just 5.4%. Ten years later that figured had jumped to 9%. Next the not so good news. While there is no denying the fact that the share of renewables in the EU energy consumption bill has widened, for more than half the Union member states their performance on the energy-conservation front still leaves a lot to be desired. No fewer than 15 member states had a renewables share in their gross inland energy consumption smaller than the EU average. In some cases, such as with Cyprus, the UK, Luxembourg and Malta, the share of renewable forms of energy in total consumption ranked among the lowest in the EU (for Cyprus it stood at 3.5% after rising from just 2% in 1999, while for the other three members of this group of underachievers share levels ranged from zero, in the case of Malta, to 3% for Britain). It is also worth noting this group of poor-renewable performers include’s the EU’s two largest economies, Germany and France. France’s share was just 7.5%, up by just one percentage point from 1999, while Germany’s level of 8.5% not only comes close to the EU average but corresponds to an impressive 6% increase over the 1999 figure. Twelve European states had attained renewable share levels in excess of the EU 9% average by the decade’s end. These levels ranged from 9.3% (in the case of Spain) to 36.2% (Latvia, the Union’s renewables champion). Also exhibiting a strong presence of the renewables sector in their total energy consumption levels are Sweden (34.4% of the total), Austria (27.3%), Finland (23.2%), Portugal (19%) and Denmark (16.7%). In the case of Cyprus, what really stands out, is the extraordinary dependence of the economy on oil and petroleum products. With nearly 96% of its total energy consumption involving the use of oil and petroleum products (the figure eased off slightly between 1999 and 2009, from 97.1% 58

GettinG to 2020 to 95.7%), Cyprus exhibits the second worst oilreliance indicator in the EU. Only Malta, with a figure of 100%, has a greater degree of dependence on oil and petroleum products. It is worth pointing out that the Cyprus figure is some 60% above the EU average, despite that fact that some progress has been recorded towards increasing the share of renewables in the island’s total energy consumption. In the EU, on average, less than 37% of its total energy consumption originates with oil and petroleum products (the figure stood at 39.2% in 1999). Also departing from the trend exhibited by the vast majority of EU members, Cyprus has zero use for gas as a source of energy. Among the 26 of its fellow EU member states, only Malta finds itself in a similar position. If anything, judging by the EU average trend over the 1999-2009 period, Cyprus’ peers have opted to increase their use of gas in generating energy, thereby lifting the Union’s share in gross energy consumption to 24.5%.

departinG froM the trend exhibited by the vast MaJority of eu MeMbers, cyprus has zero use for Gas as a source of enerGy Intertemporal comparisons of the trends in the use of renewables by member states over the 10year period show that some countries have, indeed, made considerable progress. Denmark, whose share of renewables in total energy consumption jumped from 8.1% in 1999 to 16.7%, boasts the largest increase. Sweden, with an increase of nearly 8% to 34.4%, comes in right behind while ranked third in terms of registering the most impressive improvement is Germany, whose renewables share rocketed from 2.4% to 8.5%. Portugal’s increase from 13.4% to 19% and Slovakia’s, from 2.6% to 7.2%, also deserve special commentary as they correspond to some of the most notable examples of member state improvement towards the use of alternative forms of energy.

The table shows each member state’s current figure for the share of renewables in its total energy consumption next to its agreed 2020 target. That target for the EU as a whole stands at 20% while the Union’s renewables share at the end of 2009 amounted to 9%.

EU Average

9%

20%

Austria

27.3% 34%

Belgium

3.8%

13%

Bulgaria

6.2%

16%

Cyprus

3.5%

13%

Czech Rep.

5.7%

13%

Denmark

16.7%

30%

Estonia

13.5%

25%

Finland

23.2% 38%

France

7.5%

23%

Germany

8.5%

18%

Greece

6.1%

18%

Hungary

7.3%

13%

Ireland

4.3%

16%

Italy

9.5%

17%

Latvia

36.2% 40%

Lithuania

10.5%

23%

Luxembourg 2.8%

11%

Malta

0.0%

10%

Netherlands 3.9%

14%

Poland

6.6%

15%

Portugal

19%

31%

Romania

14.9%

24%

Slovakia

7.2%

14%

Slovenia

12.7%

25%

Spain

9.3%

20%

Sweden

34.4% 49%

UK

3.0%

15%

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Where is Facebook’s secret sauce? The simple recipe for susTained corporaTe success should make long-Term invesTors Think Twice before invesTing in newer ‘phenomenon’ sTocks like facebook By Dr. Savvas Savouri

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n a world where product innovation is leaving some of us extremely confused, I cannot help thinking how seemingly changeless some of the world’s most popular products have actually proven. Take Coca-Cola, Heinz, Hershey, Budweiser and KFC. Or Fairy Liquid, Head & Shoulders, Wrigley’s and Levi’s 501’s. What is my point? When they come upon something they like, customers tend to demand consistency. For their part, when corporates hit upon a winning ‘recipe’ they should be grateful for their stroke of luck and avoid tinkering. Urban myth has it that only two men know the formula for Coca-Cola while the recipe for KFC is just as closely guarded a secret.

There is no such Thing as a prime locaTion in e-space Sometimes, of course you need to evolve, particularly in the fast moving world of technology, which brings me to Bloomberg. Whatever evolution is clearly going on within the bowels of the highly innovative Bloomberg system, the front-end today still looks very much today as it did many years ago, and quite frankly that’s how users like it. This contrasts with Reuters who have forced their users to regularly retool and, in so doing, have loosened the brand loyalty which any business should cherish. The same consistency at work with Bloomberg applies to Google. Whatever magical algorithms it has added to accelerate its already impressive search capability, the iconic ‘letter-box’ approach gives a reassuring sense of consistency. Reuters has not been alone in ignoring the ‘If it ain’t broke don’t fix it’ maxim. Let us return to Coke. When Coca-Cola replaced its original formula in 1985 with New Coke, the result was customer disapproval, sales reversal, management upheaval and the eventual reinstatement of an original which should never have been tinkered with in the first place. After all, when Coke first launched back in 1886 it had been up against many dozens of other sodas. Through luck or just good judgement, the original Coke taste gave it that special something, leaving its competitors to flounder and their names to be forgotten. The same thing, one imagines, occurred in most other markets in which mega-brands now dominate. The reality is that many, many competitors lie buried

under the ground over which they tower. In the world of pharmaceuticals, matters are somewhat different from branded staples. Achieving a first-mover advantage with a drug which is then patent- protected - for a finite time, of course - produces an enviable stream of income. Those wise enough then invest these super-normal profits in research and development to search for the next winning drug. Here we have barriers to entry (the patent), product constancy and innovation all working together without being inconsistent. his brings me to what I believe is the survival paradox of e-space in general and social networking sites in particular. If operators in these sectors stand still with product that is essentially unprotected by a patent or ‘secret sauce’, they will be quickly matched by competitors. However, if they innovate too fast, they risk losing their loyalists as well as being overtaken by even faster innovators. Corporate success can be reduced to a few basic principles: You need to be a first-mover or to put yourself in a prime location. You should ideally have barriers to keep out competitors. These may come from the protection afforded by ‘secret sauces’, figuratively in the case of drugs, literally in the case of food and drink. They may be provided by entry costs that are so high they make your market practically impenetrable. High front-end entry costs may be the result of your competitors having to sink considerable spending into infrastructure or brand advertising. The infrastructure spending could be thought of as the cost of laying entirely new railway lines alongside existing ones. In the case of intensive advertising you force competitors to promote their product to the same ubiquitous extent as your own. It is an expense that you hope will deter new entrants.

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Those Two dozen brands of deTergenT are almosT cerTainly produced by no more Than Three corporaTe gianTs When we shop for detergent and we see two dozen brands each using aggressive advertising to win our attention, we assume that choice is there for our benefit. The fact is, it isn’t. Those two dozen brands of detergent are almost certainly produced by no more than three corporate giants. Their aim is to make the entry cost for a fourth participant so high that he chooses not to. Existing participants create artificial barriers by proliferating what

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{opinion}

By Pieter Verkade

Connecting Worlds

W

e are going through another exciting time in the Telecommunications Industry, providing more and more opportunities to business and consumers. For years we have been talking about all the possibilities our technology is offering. It seems like only yesterday that the phone moved from our ear to our face. I am very pleased to have joined MTN Cyprus at this crucial time. At MTN we have been doing a lot of work on data products, starting from the basic infrastructure up to the end user device, with one aim: to unleash the full potential of the available technologies for our customers’ benefit. Today we are selling more and more smartphones while Internet usage is growing by the day. The devices we provide are continuously evolving, allowing access to vital – and less vital – information everywhere you go. We recently launched a series of prepaid data bundles in Cyprus which now allow the user to connect and access information whenever and as long as he/she wants and with absolutely no commitment. This is the first of a series of innovative and empowering services that MTN Cyprus will be launching in the near future, utilizing its new, upgraded network. We continue to roll out fibre, providing high quality data links to business all around Cyprus. For corporations we offer advanced solutions that cover their ever-increasing needs for mobility and flexibility. We provide connectivity solutions for a broad range of applications, ranging from mobile point-of-sale devices for the banking and retail sectors to fleet management and metering services for utility companies. In some of our other

MTN operations, full ATM networks for Banks are run on mobile infrastructure if the fixed infrastructure is insufficient. The gap between fixed and mobile communications is closing more and more and the focus is now fixed firmly on the customer’s need rather than on technology. This is most clearly demonstrated in a product we are piloting in one of our biggest operations, which ensures that a call will always reach you whether that call is on your fixed line, your mobile phone or any other device.

The gap between fixed and mobile communications is closing more and more All these sophisticated services require more and more personal guidance. This is why we feel proud of our direct sales team’s expertise which, on a daily basis, supports our customers by showing them how to improve their margins through the technology provided. We are fortunate to have more than 25 stores in which we not only sell all the relevant handsets, laptops and modems but, more importantly, in which we have people who are bringing all these changes to the forefront and are more than competent enough to pass on their knowledge to our customers. At MTN we intend to launch more and more services and applications, capitalizing on our investment to have the best human available resources in the telecoms sector.

info: Pieter Verkade is the Chief Executive Officer of MTN Cyprus 66

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natural gas: a blessing or a curse? cyprus needs to invest wisely

By Theodore Panayotou

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Cyprus and Israel, two resource-poor countries, have always imported virtually all their energy. Now they have discovered their own fossil fuels offshore and expect soon to become energy exporters. This is a cause for celebration but the experience of veteran resource exporters, such as OPEC and Mexico, suggests that caution and apprehension should be the watchwords. If Cyprus saves the revenues in a sovereign Future Generations Fund (like Norway) and invests it in research and innovation to upgrade human capital and tap “contemporary sunlight streaming in every window”, the new discovery will be a blessing. If, instead, it squanders the resource in inefficient energy use and the revenues in maintaining a profligate public sector and subsidies to special interest groups, Natural Gas will turn out to be a curse.

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or the world, any major oil or natural gas discovery buys time, postponing the date of reckoning when alternative sources of energy have to be found. For a country, the discovery is an injection of funds that may or may not be put to good use. What is certain is that hundreds of millions of tons of carbon emissions will be added to the atmosphere, exacerbating the climate change already underway. Moreover, as an increasing share of new fossil fuel discoveries lies offshore and at greater and greater depths, the risks of BP-type catastrophes and of countless smaller ones which go unnoticed, will multiply, despite new safer development and extraction technologies. More surreptitiously and ominously, new fossil fuel discoveries constitute a “tax” on mankind’s efforts to research and develop alternative sources of energy that are cleaner and renewable. New fossil fuel discoveries (through their effect on energy prices) lessen the pressure and with it the economic incentive and the political will to invest in renewable energy technologies. New fossil fuel discoveries encourage the installation of conventional highcarbon infrastructures such as power stations and transport systems that lock in our dependence on fossil fuels for decades. Of course, lower energy prices are good for the world economy, especially as it tries to recover from the economic crisis. However, the need for a new ‘energy architecture’ to accompany the new ‘financial architecture’ cannot be put off again for a more opportune time. The Japan catastrophe on the heels of the Mexico Gulf disaster has blown open the energy investment debate that seemed, until then, to have been silently won by the nuclear

option as the safe and economically viable form of emissions free energy. But surely, fossil fuel discoveries can not possibly be bad for the country that successfully claims them as its own. Especially when they are located well offshore there is hardly any opportunity cost for the area and any environmental costs are easily externalized and dissipated. Suddenly, out of nowhere, a huge amount of cash is injected into the economy from royalties and revenue sharing arrangements; this would certainly help a country facing a high budget deficit and rising foreign debt like Cyprus.

The Japan catastrophe on the heels of the Mexico Gulf disaster has blown open the energy investment debate Yet, the risks are equally compelling, though conveniently ignored, if perceived at all. First, the funds may be squandered to: • maintain and expand an over-bloated, over-paid and profligate public sector • give out subsidies to interest groups and raise social spending to unsustainable levels, • undertake high-cost, low-return public projects with high environmental impact such as the planned Paphos-Polis four-lane highway • put off the restructuring of the economy and the public sector badly needed to regain international competitiveness.

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2020 Energy Targets Could Be Missed The European Commission is concerned about poor member-state progress towards the attainment of the 2020 energy goals

By Haris Christoforou

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mid growing concern that the 2020 energyconservation target was not likely to be met by EU member states, the European Commission announced in June this year a new package of measures designed to accelerate progress towards its paramount energy-efficiency goal. On the basis of progress registered so far by the 27 member states, the Commission had come to the conclusion that by the time the 2020 deadline was reached only half of its energy-savings target would have been achieved. Such a failure, as the Commission has publicly acknowledged, would not merely put its official commitment of striving to curb its greenhouse gas emissions in jeopardy; it would also undermine the EUâ&#x20AC;&#x2122;s competitiveness and make the security of its energy supply even more precarious. In the light of these risks, the Commission decided it was time to push through a new set of measures designed to bring about greater energy efficiency progress. Brussels is hoping that this latest initiative will help put member states back on track for attaining their renewable-energy targets as initially set for the year 2020. The 2020 renewable energy target essentially centres around the

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EUâ&#x20AC;&#x2122;s collective capacity to use alternative sources of energy for at least 20% of its overall energy mix. The 20% target, therefore, represents primarily an EU average, leaving room for individual member states to attain individual targets in the use of renewable energy in their overall energy consumption. In one particular sector, however, namely transport, all 27 member states have to reach the same target of 10%, which represents the share of renewable energy in that sectorâ&#x20AC;&#x2122;s power consumption.

All member states will be legally obliged to put energy-saving schemes in place The EU directive is designed to push all energy stakeholders, whether governments, household and corporate consumers or producers, to take measures that will generate significant energy savings. In total, five broad areas of action are proposed:

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• All member states will be legally obliged to put energy-saving schemes in place. Energy distributors or retail energy sales companies will be required to conserve 1.5% of their energy sales, in volume terms annually. This quantified target should be attained through the implementation of energy efficiency measures, including efficiency improvements to the heating system, the installation of double-glazed windows or the insulation of roofs among energy customers (households, supermarkets, hospitals etc). The Commission expects that if the proposal is adhered to by all member states, the Union's energy consumption will be cut by 6.4% by 2020.

From the beginning of 2014, at least 3% of public buildings in each member state must be renovated annually • The public sector in member states is expected to lead by example: public entities should contribute to an increased demand for energy efficient products and services through a legal obligation to acquire energy efficient buildings, products and services. In addition they will have to steadily limit energy consumption on their own premises through required annual renovation works which extend to at least 3% of their total floor area. • At consumer level there will be easy and charge-free access to data on real-time and historical energy consumption through more accurate individual metering. This should help empower consumers to better manage their energy consumption. Billing must also be based on actual consumption, in line with metering data. • Industry will also be expected to step in and make its own contribution to the new EU-wide energy-conservation effort. There is a call for incentives to be extended to small- and mediumsize companies, so that they undergo energy audits and disseminate best energy practices. For larger corporate entities there will be an obligation to make an audit of their energy patterns so as to identify the potential for energy conservation. • Producers themselves should also do their bit so that efficiency gains can be made with respect to energy generation. This would require monitoring of efficiency levels of new energy generation capacities, establishing national heating and cooling plans as a basis for a sound planning of efficient heating and cooling infrastructures, and the recovering of wasted heat. Particular emphasis is placed under this directive on public building renovation which make up close to 12% of the EU's

built-up area. From the beginning of 2014, at least 3% of public buildings in each member state must be renovated annually, in an attempt designed to bring energy-saving benefits. Such renovation schemes should normally provide for wall insulation, double glazing windows, roof repairs, the replacement of heating boilers with more efficient ones (especially in places such as schools). The Commission has estimated that cost-optimal renovation schemes can help generate up to 60% energy savings in public buildings across the EU. Also stipulated in the directive is a provision for an interim report, to be released in 2014. In that report the Commission should essentially notify member states about progress made towards the 2020 EU energy efficiency target. If by then doubts still remain about the attainability of the energy target, the Commission is expected to draft a more stringent legislative proposal, setting mandatory national energy efficiency targets. During the course of the period leading up to 2014, therefore, member states will be expected to demonstrate their resolve to carry through long-overdue measures that will help reshape their energy balance. If they fail, the Commission will be left with little choice but to intervene to set iron-clad targets for individual member states, in particular those demonstrably unable (or simply unwilling) to live up to their undertakings.

Four Targets for 2020 As initially set in the European Council energy strategy of March 2007, the European Union should strive to attain by 2020 four separate but interrelated targets: • Reduce greenhouse gas emissions by at least 20% as compared to 1990 levels • Improve energy efficiency across the EU by 20% • Raise the share of renewable energy in total energy use to 20% • Increase the level of biofuels usage in transport fuel to 10%. The term “renewable sources of energy” is employed by Brussels to describe a wide range of alternatives to fossil fuels, namely wind power (both onshore and offshore), solar energy (thermal, photovoltaic and concentrated), hydroelectric power, tidal power, geothermal energy and biomass (including biofuels and bioliquids). Through these alternatives to fossil fuels, the EU is seeking to reduce its pollution levels and greenhouse gas emissions. At the same time there is a calculated attempt to diversify the Union’s energy supply and to significantly limit its dependence of hydrocarbon fuels.

Haris Christoforou is a communications consultant and business writer. the international investment, business & finance magazine of cyprus

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{opinion}

By Eleni Vickers

MalicE in WondErland

I

n what is probably my least favourite childhood story, the main characters of Alice in Wonderland always felt too unrealistic and over the top. Let’s face it, who runs around crying “Off with his head” and behaving like a tyrant besides the Queen of Hearts? Who would be as rude and provocative to a young girl as the Mad Hatter was to Alice? Who would constantly grin, disappear and reappear whenever he liked except the Cheshire Cat? And who would always be nervous and in a hurry, appearing late for his job but confident enough about himself to contradict the Queen of Hearts? Having worked in the business world of Cyprus for more than a decade, I have finally understood what Lewis Carroll was saying: almost everyone in business acts exactly like one of his strange characters. An inappropriate Mad Hatter once asked me during an interview to stand up and turn around so that he could see all of me, something which I pretended not to hear. An invasive one asked me if I had a boyfriend and what I would do if I was engaged to someone who wouldn’t let me go on a business trip. An unrewarding Mad Hatter asked me to work for the whole summer without pay in order for him to even consider me as a candidate and an unprofessional Mad Hatter overlooked my application entirely since he was on holiday for the whole summer and forgot to deal with the subject of recruiting. The unforgettable Mad Hatter summoned me for a five-minute interview after I aced all the necessary exams, only to say that he just wanted to see what I looked like and had nothing further to ask me. He informed me that I would only be offered a post in a different town because he wanted pretty girls to work close to him. Over the years, what seemed to matter most for professional survival was to satisfy the unrealistic demands of the Queens of Hearts who appeared to be obsessed with demonstrating power, humiliating subordinates and squeezing every bit of worth out of their employees. The most unfounded requests were met with no questioning, for fear of being singled out as the non-conforming one. The quality of work, professional integrity and effort put into the job seemed to be irrelevant.

Cheshire Cats were not willing to pass on any kind of professional education to the new generation of accountants and auditors. Senior colleagues felt too insecure to share their knowledge with their eventual successors and frequently took pleasure in grinning and offering double-sided advice before disappearing just like Carroll’s famously enigmatic character. White Rabbits would give unrealistic deadlines simply to encourage work over the weekend and a 60-hour week from the workforce and they would then be too busy to address any queries. The end product would remain on their desk for weeks; deadlines were just a choking game. As for the meaning of this surrealistic mentality and absurd world, I could not figure it out. I longed for simplicity and fairness but I felt like as if I was stepping deeper and deeper into a labyrinth. Lewis Carroll’s story ends with Alice waking up in the park, realizing that her adventure has been nothing more than a bad

i longEd for siMplicity and fairnEss but i fElt likE as if i Was stEpping dEEpEr and dEEpEr into a labyrinth dream and she happily returns home for tea. Her adventure is really the quest to discover her own identity and to gain some understanding of authority, the rules and the games that people play which, ultimately, are all directly linked with how one grows and progresses through life. Carroll later wrote a sequel entitled Through the Looking Glass starring a grown-up Alice. Like her, I have also matured in what felt like a parallel universe and I have often wondered what the business world would have been like if I had looked at it from the other side of the mirror. Just as life imitates art, I too have crossed over…and I have never looked back! Off with his head!

info: ElEni VickErs is a graduate of the University of Warwick with a BSc in Accounting and Finance and a Chartered Accountant with the Institute of Chartered Accountants in England and Wales. She is the Financial Controller of Trident Fiduciaries (Middle East) Ltd. 60

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.BLBSJPT"WFOVF*** $SPOPT$PVSUŊUI'MPPS /JDPTJB 5FM  'BY  &NBJMJOGP!BUIMPJ[PVDPNDZ XXXBUIMPJ[PVDPNDZ $FMFSPO $FMFSPO*OTJEF $PSF*OTJEF *OUFM *OUFM-PHP *OUFM"UPN *OUFM"UPN*OTJEF *OUFM$PSF *OUFM*OTJEF *OUFM*OTJEF-PHP *OUFMW1SP *UBOJVN *UBOJVN *OTJEF 1FOUJVN 1FOUJVN*OTJEF W1SP*OTJEF 9FPO BOE9FPO*OTJEFBSFUSBEFNBSLTPG*OUFM$PSQPSBUJPOJOUIF64BOEPSPUIFSDPVOUSJFT

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is essentially the same product. Think of it this way: Imagine regularly seeing a photograph which contains four faces. If one day that photo is replaced with another with the same faces plus a fifth, the chances are that you will notice the addition. Now suppose the original photo was of twelve people. If this were replaced with one containing an additional face, the chances are that you would miss noticing the new face. This is the principle on which consumer goods makers base their strategy of product proliferation. Any new face will have to be very noticeable, something that will require expensive advertising, something which becomes a barrier to entry into a market for otherwise broadly similar products.

Facebook will be unable to resist the temptation of major innovation In many instances, successful corporates have enjoyed more than one of the advantages outlined above. A first-mover in the world of malls and main streets will have the choice of the prime location. The ‘secret sauce’ in the pharmaceutical world may be the patent for the first drug to treat ulcers, whilst the secret ingredient in the world of Fast Moving Consumer Goods (FMCG’s) is the taste that draws so many of us back for more and more, viz. KFC and Coca-Cola. In fact, the ‘fast’ in FMCG refers to the speed of consumption not innovation. This brings us to the chances of long-term success in e-space.

I

would argue there is no such thing as a prime location in e-space, or certainly nothing like the one we find in the world of physical stores. In the world of malls and high streets, having a central store near the car park gives it an advantage that matters at the till. Furthermore, in the world of e-space names do not matter as they once did. In the old world of alphabetised phone books where your name was positioned mattered a great deal. Most of us can remember Acme Inc. from old cartoons but the reality is that this was not entirely fictional, with a number of companies adopting Acme or names that would appear either very early in, or towards the very end of, directories. In short, there are few barriers to entry in e-space. Google’s search speed is the exception, not the rule, and it is as much based on a ‘secret-sauce’ as Coke. As for Amazon, the remarkable success of the online retailer is not really remarkable at all but based on time-honoured principles. Amazon’s strength is founded on the barriers to entry afforded by the considerable infrastructure that would need to be put down by others to compete with what is now a logistics giant. Let me now turn to what might be described as the paradox of change. Where customers want improvements - they do not in all cases of course, viz. Coke - they demand that it should happen in a near-changeless way. This may sound trite but, as noted earlier, achieving this difficult feat has been at the core of Bloomberg’s success. I am not saying Facebook cannot imitate Bloomberg’s success, but I doubt it. In trying to keep itself ahead of rivals existing and new entrants - Facebook will be unable to resist the

Which important ingredients for corporate success does Facebook have? Prime Location

In regards to the cyber-world, there is no prime location.

Prime Location

Entry costs to competitors

These are not insurmountable.

Patent Protection

First Move Advantage

Facebook was not the first of its kind.

Consistency

Facebook is ever-changing in both appearance and in function.

Evolution

Inconsistency will lead to user frustration and an inevitable loss of popularity.

Some important ingredients for corporate success

High entry costs for competitors First Move Advantage Consistency Evolution

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temptation of major innovation. My belief is that, rather than strengthen its hold over its users, this will actually loosen it. f I had to choose survivors into the second half of this century between Coca- Cola, Heinz and Gillette or Twitter, LinkedIn and Facebook, there is no doubt in my mind which three should be backed. There will always be exceptions, of course. Consider Eastman Kodak. This onetime market titan was brought down by a combination of factors: it was not only up against the growth of digital, but the onslaught from cameras available in mobile phones. Few people would have imagined that the sun would ever set on Kodak and few today see Facebook becoming a corporate relic. But I am one of these few. To my mind, social networking sites do not have any of the ingredients for long-term durability and few, if any, have that special ‘secret sauce’ that leads to addiction.

i

Over the years, many new products have appeared and been described as phenomena. Like fireworks they soared, amazed us all, and then came crashing down to earth. Few of the ‘phenomena’ of the last thirty years survive today and those that do now limp along where they once raced. In which drawer have you thrown your once-indispensable Palm Pilot or Psion? When did you contact a schoolfriend on Friends Reunited? When did you last use Lastminute.com? The challenge to the vast majority of ‘phenomenal’ child actors is the fact that their best years are their early ones. Eventually most of these oncesought- after stars are reduced to playing roles in end-of-pier pantomimes. The same thing almost invariably applies in the world of commerce. With pantomime in mind, one day the only reasonable reply to the question “Where is Facebook’s future?” will be “It’s behind you!”

info: dr. savvas savouri is a Partner and Chief Economist of Toscafund.

my space: a cauTionary Tale In 2005, nEws CoRP. boUGHT My sPACE FoR wHAT wAs THEn A MAssIvE $580 MILLIon FRoM ITs oRIGInAL ownERs. HowEvER, As oTHER sITEs sUCH As FACEbook ERoDED ITs UsER bAsE, TRAFFIC PLUMMETED. My sPACE wAs RECEnTLy soLD To THE ADvERTIsInG nETwoRk sPECIFIC MEDIA FoR $35 MILLIon, REPREsEnTInG A MonUMEnTAL 94% CRAsH In vALUE ovER A 6-yEAR PERIoD.

firsT move advanTage: The production of Citric Acid in the 1880’s ignited its growth. barrier To enTry: Using patent protection and R&D, it has cemented itself as a global drug giant. evoluTion: Although it may seem contrary to consistency, Pfizer was able to fund a stream of new drugs development using earnings provided by the patent-protected super-normal earnings from earlier drugs. consisTency: Even where patents have expired, products continue largely unaltered.

firsT move advanTage: Coke was the first cola beverage of its kind, established in 1886. secreT sauce: Coke has a secret recipe thought to be known by only two people. paTenT proTecTion: The traditional Coke taste is protected by patent, making it impossible to replicate. consisTency: Aside from an attempted formula change in 1985, the traditional Coca-Cola taste has remained constant.

paTenT proTecTion: Google has full legal rights to the PageRank Patent, an algorithm that is the fastest on the web. consisTency: The standard homepage of Google has changed very minimally throughout its existence. All changes are to the back end, focusing on speed and functionality.

firsT move advanTage: The Apple Macintosh, produced in 1984, became the first affordable personal computer. consisTency: Apple is renowned for its dependable and simple manner of function, despite the constant upgrades in technology. evoluTion: The rate of product development in this group is a thing of legend.

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wealth management

{money}

Barclays Wealth A Wealth of Experience, a Wealth of Expertise Maria Iacovidou

Savvas Constantinou

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With a presence in Cyprus for over 70 years, Barclays has a tremendous heritage on the island. Having successfully survived the challenges of the global financial crisis, Barclays Wealth in Cyprus is well-positioned to meet the increasingly sophisticated and demanding needs of its international corporate and high net worth clients. By Evan Gavas, Country Head of Barclays Wealth

Evan Gavas

B

arclays Wealth in Cyprus offers a full range of international corporate banking and wealth management services. With our head office in London and a presence in 25 countries, including a number of well known offshore jurisdictions such as Switzerland, Jersey, Guernsey, the Isle of Man, Gibraltar and Dubai, we have built up considerable experience over many years in tailoring our corporate banking offering to intermediaries (accountancy firms, law firms and fiduciary service providers) in order to support them in servicing the global needs of their clients. In addition, as part of a leading global wealth manager, we have the capability to complement our

corporate banking offering with a suite of wealth management services. We cater to the needs of a wide range of clients, from companies requiring quick and efficient dayto-day banking such as Internet banking, deposits, loans and foreign exchange transactions, to wealthy individuals looking to preserve and grow their wealth, and companies and institutions looking to invest in a wide range of asset classes. In Cyprus we employ around 50 people in various functions ranging from sales to operations and risk management and have offices in Nicosia and Limassol. Over the past 18 months, we have made some strategic appointments and have recruited key individuals to support our growth strategy in Cyprus. In particular I would like to introduce Savvas Constantinou and Maria Iacovidou.

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tHe reAl mAd meN: tHe remArkAble true story ory of mAdisoN AveNue’s GoldeN AGe beyond just gearing the next generation thinks of the next election whereas a to attend UK and Greek universities in statesman thinks of the next generation order to enable Cyprus to understand and orientate itself to the Eastern economic Gold: You have been quoted as saying, powers. There is a traditional level of “You’ll know you’re making progress xenophobia in Cyprus towards the newly when the things that keep you awake emerging at night this powers of the week are world and this different from needs to be the things that tHere re is A trAditioNAl overcome if kept you awake the Cypriots at night last level of xeNoPHobiA are to get week”. What’s iN CyPrus towArds tHe acquainted keeping you Newly emerGiNG Powers with servicing awake at night those markets. these days? of tHe world P.H.: On the Gold: whole this is Given your two-dimensional. experience in working with Firstly I’m concerned about the eurozone. governments, you must have seen How will the sovereign debt crisis many instances of corruption, progress and what’s the threat posed ineffective policies, or officials being by contagion? Ernst & Young needs to out of touch with the realities of the have a response regarding the threats economy, etc. What are the tell-tale and opportunities posed by different signs reveal whether a government is outcomes. Secondly, I think about the capable of addressing and rectifying people within Ernst & Young. People such issues or not? make or break our organisation and P.H.: The obvious signs are whether they what we sell in intellectual property is are meeting the needs of their society. tied to personalities. If we get this right, Inevitably corruption and cronyism result we attract the right clients. The business in people being assigned to roles that environment is very tough these days and they are incapable of fulfilling. Nelson you have to serve the best with the best. I Mandela once said to me that a politician call it the ‘virtuous cycle’.

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byy ANdrew drew CrACkNell (QuerCus publishing, 2011) rrP: £14.99 (£7.94 from amazon.Co.uk)

I

n New York City in the late 50s and the 60s – the era and location of Mad Men, one of the most successful television series in recent years – advertising went through a revolution. In a booming market, a new generation of writers and art directors (“renegades”, as the book calls them) gorged themselves on a vibrant and artistic social scene. They were confident, driven and ambitious but they were clever and creative too, outclassing and out-thinking the old advertising establishment and implementing a new way of thinking and behaving which spread across the newspapers, magazines and TV screens of America and beyond. The story of modern advertising starts here, with the men – and women – of Madison Avenue who created the most radical and influential advertising ever. Their legacy still resounds in the industry today. Andrew Cracknell has accurately captured what many people call the Golden Age of Advertising and he tells the remarkable, inspiring story of creativity, ingenuity and the larger-thanlife personalities who made it. Essential reading for today’s advertisers but highly enjoyable for everyone else.

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CO is o NF n th ID e ag EN end C E a. D&O insurance solutions from Chartis. Todayâ&#x20AC;&#x2122;s directors and officers face more risk than ever, due to a growing breadth of regulations and heightened enforcement. Having the right coverage is critical. At Chartis, we offer cutting-edge insurance solutions built to meet the challenges of D&O risk todayâ&#x20AC;&#x201D;and will keep innovating to meet the challenges of tomorrow. Learn more at www.chartisinsurance.com

All products are written by insurance company subsidiaries investment, or affiliates ofbusiness Chartis Inc. Coverage may not available in all79 jurisdictions the international & finance magazine ofbe cyprus and is subject to actual policy language. For additional information, please visit our website at www.chartisinsurance.com.

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tourism

{business}

Cyprus hotels sweep Condé Nast Traveller Awards

T

he 2010 Condé Nast Traveller, Greece awards were presented at a prestigious ceremony in Athens in July. The CN Traveller Awards were introduced in 1988 by the American CN Traveller and are internationally recognized as an excellence landmark in the travel and tourism industry. This is the second year that Greece has organized its own CN Readers’ Awards, which are on a par with those made in the USA, the UK and Spain. Several Cyprus hotels won multiple awards. The Amathus Beach Hotel in Limassol was voted Most Popular Beach Hotel in Cyprus and Most Popular Family Hotel in Cyprus. Commenting on the two awards, Achilleas Dorotheou, CEO of the Amathus Hotels, said: “We are truly honoured to have been recognized in two categories by the readers of Condé Nast Traveller in Greece. The Amathus Beach Hotel Limassol has often been hailed as the epitome of a luxurious hotel experience and we are proud to see that our on-going effort to provide unparalleled service to our guests continues to be recognized.” Limassol’s Four Seasons Hotel prevailed in no fewer than four categories of the Condé Nast Traveller, Greece awards. It came first in the Cyprus Family Hotels category, first in the Cyprus Hotel Restaurant category for the Vivaldi Restaurant which also won the Most Popular Restaurant award, and was voted Most Popular Destination in the Cyprus Spa Hotels category. A spokesperson for the hotel said that, “Success at the Conde Nast Traveller 2010

82

amathus beach hotel awards confirms the high quality of services provided by the Four Seasons Hotel and acknowledges than the hotel’s services are exceptional. The hotel’s restaurants stand out as its chefs use selected products to create special dishes and provide unique gastronomic journeys. The high standard of services in all sectors, combined with the hotel areas and the unique lifestyle that is enjoyed by all its clients, are the factors that have led to these latest distinctions.” A third Limassol hotel, Le Meridien, won three awards in Athens as Best Spa Hotel in Cyprus, Best Beach Hotel in Cyprus and Most Popular Daily Spa in Cyprus, while the Apokryfo Hotel in the village of Lofou was voted Best Traditional Hotel in Cyprus by the readers of Condé Nast Traveller, Greece. Meanwhile in the Condé Nast Traveller, UK awards, the Thalassa Spa at the Anassa Hotel came second in the 2011 Readers’

Spa Awards 2011 in the Europe, Asia Minor and the Russian Federation section while the only Cyprus hotel to be included on the Condé Nast Traveller Gold List 2011 is the InterContinental Aphrodite Hills Resort Hotel which was also voted Most Popular Resort in Cyprus by the readers of Condé Nast Traveller, Greece.

four seasons hotel

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magad NEW 7/28/11 12:48 PM Page 1 C

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{september 2011}

iSSuE

06

+ BOOk REviEWS

70

{money}

70 A Wealth of Experience, a Wealth of Expertise Barclays Wealth in Cyprus

76

{business}

76 Eastern Promise Philip Hourquebie says that Cyprus needs to reposition itself towards the new global economic powers 80 DMS Myths and Magic What Document Management Software can do for your business 82 Cyprus hotels sweep Condé Nast Traveller Awards Who won what in Athens

84

{economy}

84 Real Estate and Housing Loans Why the mismatch? 87 Cities: Does attractiveness match investment? Investors’ perception of cities and the reality of where they invest

money: Warren buffett invests like a girl: and Why you should, too by louann lofton 73 business: the real mad men: the remarkable true story of madison avenue’s golden age by andrew cracknell 78 economy: Why the West rules - for now: the patterns of history and what they reveal about the future by ian morris 86 lifestyle: the sense of an ending by Julian barnes 97

92

{lifestyle}

92 From Boardroom to Screening Room 10 of the best movies set in the world of business and finance

88

{tax&legal}

88 Taxation and Business Just how favourable is Cyprus’ favourable tax regime?

the international investment, business & finance magazine of cyprus

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Savvas Constantinou is responsible for our Limassol office and plays a crucial role in the development of our wealth management services to corporate and high net worth clients. Savvas, what are your priorities for the business? Our strategy is to develop our business in Cyprus and my particular focus is on the Limassol office which is located in

an important financial centre where the majority of the international business takes place. Our vision is to be the premier international bank and wealth manager in Cyprus, delivering service excellence and expertise through innovation and teamwork. What concerns are your clients talking to you about at present? Clients are understandably concerned about the current market situation in

The wealth management industry in Cyprus is in the early stages of its development

72

both Greece and Cyprus and uncertainties in the global economy mean that they are worried about the security of their deposits and investments. With our local presence, we are able to address these concerns and offer solutions to help both our corporate and private clients to manage their investments in terms of diversifying their risk. As part of the Barclays Group, we have emerged strongly from the financial crisis and are able to offer the safety, stability and reassurance of a much coveted AA- credit rating. How is Barclays Wealth positioned to tackle the challenges facing the wealth management industry in Cyprus? The wealth management industry in Cyprus is in the early stages of its development. It has emerged as a result of tremendous growth in the international business sector in Cyprus in recent years and the consequent wealth creation. A major challenge has arisen for domestic players looking to establish themselves as wealth management providers, primarily due to the sovereign debt crisis in Greece and also to the fact that creating a sophisticated wealth management platform requires a large amount of investment which is difficult at a time of scarce resources. Barclays Wealth has a unique advantage since it is already an established global wealth management provider and one of the few global players that continues to invest significant funds in the business. Another significant challenge concerns how the industry adapts to meet the needs of investors who are becoming increasingly sophisticated and demanding. As the real value of money becomes a greater consideration, many local investors are diversifying their risk away from traditional forms of saving, for example deposits, towards alternative forms of investments.â&#x20AC;?

the international investment, business & finance magazine of cyprus

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maria iacovidou is Head of Business Development for Barclays Wealth in Cyprus and is focused on providing superior service to our clients and bringing the international expertise of Barclays to the local market. Maria was appointed to help grow the Cyprus operation and our growth plans are benefiting from her investment banking and corporate experience as well as her extensive relationships in the financial and business community. Maria, how does Barclays Wealth differ from its competitors? As part of Barclays we can leverage capabilities within the Group in order to provide our clients with a wide range of solutions - investment banking through Barclays Capital and corporate banking through Barclays Corporate. An example of this is when we worked closely with

the Government of Cyprus and our colleagues at Barclays Capital to assist the Government in successfully tapping into the international markets as part of their bond issuance programme. We are well positioned to provide alternative investment and savings propositions to high net worth individuals and institutional investors those who are local as well as international. Such propositions may be derived from the breadth of investment products and services of Barclays as well as from its ability to develop bespoke solutions to suit the individual investor’s risk-return profile. In addition, we’re particularly proud of our position as a leader in the Cyprus market in terms of our economic and product research capability. This globally recognised research is often provided free of charge to our clients, to enable them to make the best investment decisions. What do you see as the main challenges to the wealth management industry in Cyprus? The wealth management industry in Cyprus needs solid foundations and professionals who understand the specific requirements of this market. As part of the Barclays Group, Barclays Wealth offers a long history and proven experience in this segment. Barclays Wealth in Cyprus provides benefits derived from global synergies and its extensive international network as well as from the professionalism and wealth management expertise of its employees to reassure clients during a time of particular uncertainty and economic volatility.

A

s we move forward in these ongoing challenging times, we remain fully committed to and focused on our clients, on providing the innovative solutions, service and security they require and on successfully executing the growth strategy we have developed for our business in Cyprus. As we continue to evolve, expand and improve our operations, our strategic appointments to the business are key to our growth and success.

Book revieW revie

w warren Buffett invests like a girl: and why you should, too By louann lofton (harperBusiness, 2011) rrP: £16.99 (£14.44 from amazon.co.uk)

M

ale readers may not want to believe it but Warren Buffett and all of the women of the world have one thing in common: they are better investors than the average man, a fact proven by psychologists, scientists, and the value of their portfolios. This well-researched, eye-opening and witty book shows that women, with their capability for patience and good decision-making, epitomize the investment practices of Warren Buffett, the most successful investor in history. In the author’s view, an investor’s temperament is probably as important as his/her research skills, area of competence, etc. Ofton’s book is consequently more about the personality/behavioural traits that result in more successful investing. Her central thesis, that Buffet’s success is due to his more feminine temperament, is fascinating and well backed up by her research. She does a good job of synthesizing the data on the advantages that women bring to the trading floor and analyses Buffet’s investing philosophy well. Warren Buffet himself says, “You’ll have to read her book to see the criteria she used, but I’d say I probably plead guilty.”

the international investment, business & finance magazine of cyprus

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COMPANIES

{business}

Eastern Promise Why Cyprus needs to reposition itself towards the new global economic powers Interview by K. Ioannides

Philip Hourquebie is Ernst & Young’s Head of Central and South-East Europe. Previously the Managing Partner for Africa, he has amassed vast experience in working with the world’s largest companies and governments since the 1980s and he has his finger firmly on the pulse of how socio-economic drivers are fundamentally changing the global balance of power. As Europe and America rapidly lose ground to the world’s booming developing markets, Hourquebie tells Gold why Cyprus has a golden opportunity to position itself as the transit hub of choice between the increasingly prosperous East and the declining West.

Gold: What are the overriding trends affecting the global economy that are likely to impact the services sector in our region? Philip Hourquebie: The most important trend is the shifting of economic and subsequently political power, primarily to the East. As that shift takes place and we look at the demographics of the world, we see the empowerment of much younger populations. As this happens it will have major implications for the aging populations the power is shifting from and the younger populations that it heading towards. To highlight this point: there is an increasing shortfall in pension funding in Europe whereas in China and India this is not a problem at all. This movement in the balance of power will soon be reflected in the composition of international bodies like the United Nations and the Security Council. Even though Christine Lagarde was appointed Head of the IMF, there must have been many compromises behind the scenes promising that more attention and resources will be focused on newly emerged markets.

Gold: So China and India are moving to a position of greater power, both economic and political? P.H.: Effectively what we are witnessing is the establishment of China as the production centre and India the service centre of the West. Even though many Chinese products are still associated with being cheap and nasty, we only have to look at the experience of Japan where they went from producing ‘junk’ 30 years ago to being manufacturers of best in class items now. As the Chinese move up the quality chain, it will also impact the cost structures of the world. Just as an increasing middle class has an increasing impact on the cost structures of

76

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COMPANIES

Cyprus is allowing the opportunity presented by those who will be the dominant players in the region to pass it by

commodities and food, this quickly impacts other parts of the supply chain. Given that these fundamental changes are taking place, the task for the services sector is to anticipate the changes and position itself accordingly.

market with over a billion people. The biggest investor in Africa is actually China and this is largely done on a country-to-country basis.

Gold: How can Cyprus take advantage of this? P.H.: Cyprus has an immense opportunity thanks to its

and South East Europe will be facing over the next 5 years? P.H.: The problem with the region here is that there are neither significant natural resources nor populations. As such, there are no obvious drivers for growth and there is a danger that the region will increasingly rely on riding on the back of German productivity.

geographical and geo-political location. As an EU gateway to commerce in the East along with its proximity to North Africa, Cyprus has an opportunity to service these rapidly rising markets. However at the moment Cyprus is only really orientated towards the Russian and CIS markets and is allowing the opportunity presented by those who will be the dominant players in the region to pass it by. This is a shame because the education system here is highly geared to providing a very thorough knowledge of the language of international business [English] and this is key to being able to effectively unlock the potential offered by the emerging economic powerhouses in the region.

Gold: What are your views on the direction of the flow of global investment capital in the future? P.H.: Thereâ&#x20AC;&#x2122;s no question where this is heading. Even major European car manufacturers like Audi have recently set up a key R&D centre in China [Changchun, Jilin province]. In terms of infrastructure, China is urbanising 20-30 million people a year; entire new cities housing millions are in the process of being built so, inevitably, where there is demand, investment will follow. Aside from China, if we look at the other key market for commodities we see that Africa is experiencing phenomenal changes and, to a great extent, the continent is only at the very beginning of exploiting its natural resources.

Gold: But is there enough political stability there to allow Africa to fully achieve its potential? P.H.: If you look at the number of African countries that have stabilised politically over the last 10 years, it is clear that there are massively under- exploited markets with phenomenal potential. Take countries like Nigeria with a population of over 150 million or the Democratic Republic of the Congo where there are 70 million: they may not be the best models of democracy but then again where can you find pure democracies? The important factor which will allow these markets to flourish is political stability and in this sense Africa is on the cusp of becoming a major global

Gold: What are the key challenges that your clients in Central

Nelson Mandela once said to me that a politician thinks of the next election whereas a statesman thinks of the next generation Gold: How do you see the global enforcement landscape changing and how will this affect European service sector centres? P.H.: Currently there is a great shift towards compliance. Technology has allowed countries and jurisdictions worldwide to begin sharing data and intelligence on individuals, and as such there are increasingly fewer places to hide wealth. As such, individuals and companies realise that proper reporting is unavoidable and, of course, with this comes the requirement to source the necessary expertise to carry it out.

Gold: What can Cyprus do to better position itself as a destination of choice for organisations looking for an overseas financial hub for their operations? P.H.: Cyprus needs to be very clear about its Unique Selling Points and its value proposition and it must make sure that its entire education and economic system is aligned towards fulfilling it. In my opinion, it is crucial that Cyprusâ&#x20AC;&#x2122; education system looks

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COMPANIES

{business}

DMS Myths and Magic What Document Management Software can do for your business

A

few years ago, ‘electronic archiving’ was born. Then it evolved into Document Management Software (DMS), and more recently is being referred to as Electronic Content Management (ECM). But what is it exactly and do we really need it? Stéphane Horta, CEO of Allgeier DMS Solutions, explains the what, how and why of data management in today’s business world.

Gold: Is ‘Document Management Software’ (DMS) just an overblown term for scanning paper documents and storing them digitally to get rid of all those box files? Stéphane Horta: Absolutely not! The storage issue is a welcome by-product but not the essence of DMS. To solve that problem, all you need is some software and hardware, a scanner and a computer. You don’t need an external consultant. The question is this: after you’ve scanned and stored your documents digitally, then what? When you need to refer to a document, are you supposed to start searching through your digital files just as you did with your paper files? Unfortunately, that’s what a lot of people do… and they come to the false conclusion that the system is ‘useless’. People often buy software and hardware, and believe that’s the solution. It’s not.

will talk to the actual users - the ‘drivers’ - in the company to find out exactly how they work and what they need to make their work more efficient.

Gold: Can DMS really make a company’s operation more efficient? S.H.: The market is extremely competitive. Customers these days are used to instant information. If they have to wait for anything, they go to the next supplier. Whether you are an accountant, an insurance clerk or a doctor, making your client wait while you find the answer to his question can put you out of the race. Allgeier’s strength lies in tailoring the DMS solution so it can give a company a competitive edge by making information instantly accessible, anytime, anywhere and by any authorized user. People need to be aware of the ‘trap’ of corporate DMS solutions. Even within the same company, different departments have different needs. Corporate solutions could spell disaster - usually a very expensive one. But with our expertise, we can always ‘fix’ the situation. There is no ‘wrong’ system. You just need the right consultant. You don’t have to throw away the car you bought. We can change the seat covers, add a sound system, re-spray it in the right colour and it will be just fine.

Gold: So what is the solution? S.H.: At Allgeier we see the equation as this: Software + Hardware + Consultancy = DMS Solution. Yes, we do provide software and scanners but these are only tools. That’s not our core business. We undertake to deliver the best solution for your company’s needs. Our core business for the past 25 years, and where we excel, is our Consultancy. It’s about how we apply these tools. Look at it this way: Let’s say you want to buy a car, a DMS ‘car’. You go to a car dealer who sells all kinds but you don’t know which car works best for you. How can the dealer offer you the right car if he doesn’t know your needs? This is where Allgeier comes into play. Like a good dealer, we will ask you questions to try to determine not just what you want but what you need. But even that is not enough. Even if I offer you the best car that perfectly matches your needs, it’s still no use if you don’t know how to drive!

Gold: Do you undertake to teach your customers? S.H.: Yes, Allgeier will make sure you know how to drive in a way that will ensure that you enjoy your car - without crashing it. There’s more: If I ask you all the right questions, but the car is actually for your wife, the ‘solution’ I offer will not be satisfactory. In the case of DMS, I will negotiate the contract details with the decision maker - the director or CEO of a company - but then I

80

Different departments have different needs. Corporate solutions could spell disaster, usually a very expensive one

Gold: When is it time for a company to start considering DMS? S.H.: You could say it’s always too late or it’s never too late. But the earlier you start (fewer documents and less of a mess), the more cost-effective it is. Also, it doesn’t have to be an ‘all or nothing’ decision right from the start. I always recommend ‘baby steps’. Start with the department that stands to benefit the most. Test and enjoy - the results. The rest will follow naturally. Allgeier DMS Solutions A member of the Allgeier AG Group (Belgium / Netherlands / Luxembourg / Germany / France / Cyprus) www.allgeier-dms.net

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StĂŠphane Horta

Making your client wait while you find the answer to his question can put you out of the race

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{advertorial}

T

he Karaolis Group is synonymous with high-standard property development in the Limassol district. Powering the town’s continuous growth since 1960, the company has innumerable residential and commercial projects to its name, which have all played a part in Limassol’s development into the international business centre and cosmopolitan resort it is today. Prospective buyers seeking either a home in the sun or a promising investment will find just the right property in the company’s wideranging portfolio of apartment buildings, townhouses, bungalows and luxury villas. Each property is an expression of quality construction and appealing design, the mark of the Karaolis Group since its establishment. As the demand for high-standard homes in Limassol continues to grow,

the Karaolis Group has earned the confidence of some 5,000 Cypriot and foreign buyers who testify not only to the merits of each project, but also to the company’s comprehensive pre-sale and after sales service. This includes the sound guidance provided by experienced staff with a full understanding of the market in combination with buyer expectations and concerns. W We will guide you from initial site viewings to professional financing and legal advice, and you will find yourself in a position to make an informed and confident decision regarding the acquisition of property in Cyprus. Whether you have visions of a comfortable apartment in town, a luxurious beachfront bungalow, a charming village cottage or a magnificent mansion in a prestigious location, you can trust the Karaolis Group to direct you to a property that reflects your personal preferences and lifestyle. the international investment, business & finance magazine of cyprus

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pRopeRty maRket indicatoRs % change over same period of previous year unless otherwise indicated

2006

2007

2008

2009

2010

2011 ytd (a)

latest 2011

Floating interest rate on new housing loans (endperiod; %)

5.84

5.65

6.57

5.01

4.88

5.16

Jul

Property transactions (sales)

2.2

25.3

-31.0

-44.3

5.2

-19.7

Jan-Jul

Gross construction output

4.1

6.8

2.3

-10.6

-8.0

-18.9

Jan-Mar

Local sales of cement

2.4

10.0

8.4

-25.8

-7.2

-5.8

Jan-June

Dwelling units authorised

0.8

8.3

-2.0

-16.9

-14.2

-41.8

Jan-May

Stock of housing loans (end-period)

31.2

27.9

22.6

22.2

14.8

9.0

June

(a) Period pertains to the column on the right. Sources: Central Bank of Cyprus; Lands and Surveys Department; Statistical Service; Sapienta Economics calculations.

book revieW revie

WHy tHe West Rules - FoR noW: tHe patteRns oF HistoRyy and WHat tHey Reveal about tHe FutuRe by ian moRRis (profile books, 2011) RRp: £12.99 (£7.01 from amazon.co.uk)

A fourth reason, which has always been my main assumption, is that it could be a reflection of borrowers getting into trouble. If I owe €100,000 but am €10,000 in arrears, the bank might offer to repackage that loan into a €110,000 loan with an extended maturity. This would help keep a lid on the bank’s non-performing loan (NPL) ratio and as long as the loan to value ratio does not breach 80%, then everyone is happy. This also assumes of course that the banks are regularly reassessing the value of the property for which, they have handed out mortgages, so that loan-to-value ratios reflect real market values.

banks have become much more risk averse this year

Indeed, one remarkable feature of this downturn is that NPLs have not risen faster. According to Marfin Popular Bank’s presentation of first-quarter results, the

NPL for Cyprus loans rose to 5.7% in the first quarter of 2011, from 5.1% in the first quarter of 2010. Anecdotal evidence suggests that Bank of Cyprus figures are not that different. A contrary theory comes from Yiannis Tirkides of Marfin Popular Bank, who says that the fairly steady NPL for Cypriot loans is not a matter of repackaging but of a strong housing loan market. He says that housing is “a segment of the market that is not giving us difficulty”. The vast majority of us, it seems, are paying our mortgages on time. He also points out that if you compare housing loans in June 2011 with housing loans in December 2010, rather than June 2010, when the banks were still chasing new customers, you see that the growth is only 2.4%. This is because banks have become much more risk averse this year in the face of downgrades and unwelcome international attention over their exposure to Greece. Demand for housing loans is also weakening, according to the latest Bank Lending Survey. Perhaps by the end of this year, therefore, we might see housing loans finally catching up with all the other depressing figures for the property market.

info: Fiona mullen is director irector of sapienta economics ltd, which analyses and explains economic trends to local and international clients. 86

I

n the middle of the eighteenth century, the world changed forever when British entrepreneurs unleashed the astounding energies of steam and coal. Factories, railways and gunboats then propelled the West’s rise to power, and computers and nuclear weapons secured its global supremacy in the twentieth century. Today, however, many worry that the emergence of China and India spell the end of the West as a superpower. Historian and archaeologist Ian Morris draws on 15,000 years of history to offer fresh insights into what the future will bring. Well-researched and brilliantly argued, this is a gripping and original history of the world, based on the latest research across disciplines from ancient history to neuroscience. Beginning with a terrific fantasy of how things might have been if the Chinese had triumphed over England in Victorian times rather than the reverse, this book is part history, part archaeology, part geography, part biology and part sociology. The work of a real polymath, it’s incredibly readable, challenging, stimulating and entertaining work that has received universally enthusiastic reviews.

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investment

{economy}

cities: does attRactiveness matcH investment? When investors’ perception of cities is compared to the reality of Where they invest, there are some differences

A

ccording to Ernst & Young’s 2011 European attractiveness survey, one of the ways that Europe will come to terms with the concerns of its formidable investment base is to reconcile its economic weight (one-quarter of the world’s GDP) with the diversity of its location options. Countries excel in different sectors: the UK attracts financial services, Germany draws industrial investment and France does well in energy and utilities. These advantages may stem from historical trading positions, education systems that encourage engineering or government investment in quality infrastructure. The recognition of these strengths has fostered a multi-polar Europe, where investors see the attractions of different countries, regions and cities and can rate them according to where they are most likely to invest. A vivid illustration is provided by the way investors perceive Europe’s cities. According to investors, London is the

most attractive city in Europe to establish operations, standing nine percentage points ahead of its closest continental rival. Despite high costs and a transport system of variable quality compared with some continental competitors, London’s dynamism attracts businesses and talents, especially in services, finance and business support, from diverse origins. Britain’s economic culture also appeals because it is clearly probusiness, global and accessible. Other companies see distinct benefits in Paris (a solid second in the E&Y ranking), and in several cities in Germany, where Berlin leads the three in the Top 10 and ranks third Europe-wide. Historic hubs such as Amsterdam and Brussels, and emerging capitals such as Warsaw (7) and Prague (14) enable Europe to offer a rich choice of high-quality urban environments. All provide access to business partners, skills and technologies and can draw international talent, while providing gateways into global, not just national, markets. Interestingly, when WHat is tHe most attRactive euRopean investors’ perception city to establisH opeRations? of cities is compared to the reality of where they paris invest, there are some london 21% differences. London and 30% Paris continue to lead the pack. Lyon beats the zurich urban German regions 3% for third place, and Berlin 4% hamburg does not even place among geneva 13% the top German urban 5% prague berlin barcelona regions, being ousted by WarsaW Dusseldorf, Darmstadt munich 8% and Munich. The Eastern madrid frankfurt 7% milan European urban regions

amsterdam

brussels

change as well. While investors perceive Warsaw and Prague as the top investment destinations, they put their money in Moscow. This indicates that although investors like the idea of stable, EU member states for their investments, they

WHile investoRs peRceive WaRsaW a and pRague aW as tHe top investment destinations, tHey put tHeiR money in moscoW prefer the high returns that they can earn outside the European Union. The dichotomy between investor perception of cities and the reality of where they place their investments begs the question; can Europe develop a third “global city”? Currently London and Paris lead Europe in both investor perception and in the number of FDI projects. Investors then perceive the German capital Berlin as the third most attractive investment destination. However, Berlin is more an administrative capital than an economic capital and does not rank in the top 15 cities for FDI projects in Europe. To become a global city, do cities need both the perception of power (government) and economic power (investors)? If that is the case, Madrid or Amsterdam appear more likely to accede to this position of leadership than the German capital. For more on Ernst & Young’s 2011 European attractiveness survey, visit: www.ey.com/GL/en/ Issues/Business-environment/2011-Europeanattractiveness-survey

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TAXATION

{tax&legal}

the terms of the existing double tax treaty with the US. The treaty was concluded in 1984 and we believe that it needs to be renegotiated with a view to being updated. A rational review of the treaty will encourage American businesses to establish their European domicile in Cyprus and, more importantly, it will allow American investors to take advantage of the Cypriot network of double tax treaties to invest, via Cyprus, in other contracting countries, such as Russia, Ukraine, India, etc.

Corporate tax domicile For a company to enjoy the advantages of a favourable tax regime, its management and control must be exercised in Cyprus. The company must be actually established in Cyprus, with local permanent infrastructure (buildings, staff and equipment) from where to carry out real and substantial activities. A brass plate or a post office box or a fronting company with a board comprised of nominee directors, are no longer adequate. An office which merely provides corporate services risks being considered a â&#x20AC;&#x153;fictitious establishment not carrying out any

A rational review of the double tax treaty with the US will encourage American businesses to establish their European domicile in Cyprus

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genuine economic activityâ&#x20AC;?, to use the expression of the European Court of Justice. In order for Cyprus not to be viewed simply as a booking centre and become a recognized international financial centre, the policy of attracting companies of foreign interests must be adapted to the needs of those interested in having their genuine permanent establishment in Cyprus, acquiring their own office and equipment, employing their own staff and carrying out real activity that adds value to their business.

consideration by both major shareholders and expatriates (mostly management executives and specialized high-salaried staff) interested in establishing their permanent residence and living in another country.

Cyprus is in urgent need of a strategy to attract investment

Personal income tax A low corporate tax rate alone is not a strong incentive for a company to come to Cyprus and have its genuine and permanent establishment here. There are problems with regard to the progressive rate for personal income tax which applies to income - whether from sources within or outside Cyprus - acquired by employees considered to be Cypriot residents, i.e. who reside in Cyprus for more than 183 days in a tax year. The high rate of 30% (which, in 2011, applies to income exceeding the amount of â&#x201A;Ź36,301) deters companies of foreign interests from employing staff in Cyprus. The international business centres which manage to attract companies of foreign interests offer, amongst other facilities, low personal income tax rate, aimed at promoting the employment of both local staff and expatriates. The amount of personal income tax is an important criterion taken into

Value Added Tax Cyprus has the lowest standard VAT rate in Europe, an advantage enjoyed by all consumers, both residents and visitors. However, the inclusion of VAT in calculating the Cost of Living Allowance (COLA) falsifies the nature of VAT as the par excellence European consumption tax. VAT was designed as a consumption tax, i.e. a tax aiming at taking out purchasing power from consumers and giving it to the State. The inclusion of VAT in the COLA passes the tax burden from the consumer onto his/her employer and consequently converts the tax from a consumption tax to an employment tax. We call upon the competent authorities to disassociate VAT from the COLA the soonest possible, prior to discussing any suggestions for increasing the rate.

Immovable property tax The modernization of the immovable property tax must be based on two axes: the updating of values and the readjustment

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of rates. The determination of immovable property values at current levels and the method of future reviews can be carried out in cooperation with professionals from the private sector, aiming at the fairest possible valuation and the avoidance of objections. As far as the fixing of new tax rates is concerned, this must be based on a balance between the amount of revenue that the State needs to draw from this source and the tax burden which immovable property owners can handle. It goes without saying that excessive tax burdening of immovable property will deter much-desired new investments. Special reference needs to be made to the taxation of inert wealth. This is a nice-sounding slogan but not in line with current economic realities. It has been alleged that inert wealth is an obstacle to growth. In these times of economic crisis characterized by a negative economic climate, a fall in the real estate business, difficulties in raising finance, higher interest rates, etc., it is highly improbable that the taxation of inert urban plots will act as an incentive for their development. On the contrary, it will probably lead to them being sold off at knock-down prices, to the advantage of buyers able to offer cash.

Tax rulings Even though the principle of tax certainty requires that the law defines, in an explicit manner, the main elements of the tax (the subject, the object, the rate, the mode and time of payment), legislators inevitably use general and vague concepts. This is why we expect the tax authorities to publish manuals and interpretation circulars, explaining how they interpret and apply tax laws. And if there are two possible interpretations, the one most favourable to the taxpayer should be adopted (in dubio pro fiscus). We also expect the tax authorities to reply in time to the questions of tax advisors with regard to specific cases in order to provide interested companies with the opportunity to carry out their tax planning without any unpleasant surprises.

Tax officers see taxpayers as thieves and crooks, and taxpayers perceive tax officers as intruders and predators

Moreover, when an administrative interpretation or an established policy concerns other businesses as well, we would suggest that it becomes secondary legislation in the form of a statutory instrument, in order to be binding on everyone, fostering a sense of certainty and, more generally, a climate of trust.

Tax evasion Frequent public references to tax evasion promote an image of lack of control and inefficiency on the part of tax authorities. In fact, the undeclared economy in Cyprus seems to be one of the least significant in Europe and, therefore, tax evasion cannot possibly reflect the tragic levels at which it is portrayed. Moreover, there is confusion in the terminology used and it would be desirable to distinguish between: • tax evasion (i.e. the fact of illegally concealing taxable amounts in order to avoid paying taxes); • the non-payment of assessed taxes (which may be due to a refusal to pay or a delay because of the inability to pay or a dispute of the tax assessment before the Tax Tribunal or the Supreme Court); and • tax avoidance (i.e. tax planning aiming at reducing tax obligations using legitimate ways). As a business association, we are unreservedly in favour of combating tax evasion, as it deprives the State of revenue which rightly belongs to it, violates the principle of tax equality and distorts competition rules at the expense of law abiding companies. Recent amendments to tax laws are strong weapons in the hands of the Inland Revenue Department and we would reasonably expect to see those guilty of the offence of tax evasion being prosecuted and punished, resulting in a corresponding increase in tax revenue, as well as legal action being taken against those who unjustifiably fail or are late in paying assessed taxes.

Fiscal factors The favourable tax regime can be maintained only if the public economy is founded on sound indicators and is positively assessed by international rating agencies. We are also concerned with the continuous downgrading of Cyprus’ credit rating and the monitoring of the Cyprus economy by the European Union. The delay in the adoption of reform measures for public finances increases the financing cost not only for public borrowing but also for businesses and is an obstacle to growth and employment. This is why we call upon the Government to take immediate action in favour of more fiscal discipline, with measures for containing the State payroll, reviewing the pension system and making bodies governed by public law which carry out business activity independent of State aid. At the same time, in the context of managing public debt, the Government must plan the repayment of its debt to the Social Insurance Fund. The measures to be taken must address the structural problems of public finances in an efficient manner rather than offer short-term and easy solutions. In our view, any increase in public revenues must not rely on an increase in tax burdens but on economic growth, as a result of the strengthening of investment in innovative projects through joint ventures, alliances and public - private partnerships, and the improvement of the business climate. Unfortunately, according to the forecasts of the European Commission, overall investments in Cyprus for 2011 will be negative, at -3,9%, whilst for its major competitors, Luxembourg and Malta, they are expected to reach +12% and +11% respectively. These forecasts ring the alarm bells. Cyprus is in urgent need of a strategy to attract investment. If the fiscal deficit continues to expand and the State is, in the end, forced to resort to additional taxes, then companies of foreign interests will flee and the structure of the international financial centre will collapse like a house of cards.

info: Miltiades Miltiadou is Chairman of the American Chamber of Commerce Cyprus (AmCham Cyprus) the international investment, business & finance magazine of cyprus

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film

{lifestyle}

capitaliSm: a love Story (2009) Michael Moore doesn’t make too many movies but he chooses his timing carefully so that, when something monumental takes place, he is there to capture it on film. In his latest documentary, Moore’s signature humour gives good balance to a story filled with shocking data and tear-jerking scenes. Focusing on the recent financial crisis and the recovery stimulus, he explores the current US economic order while criticizing capitalism in general. Topics covered include what Moore calls Wall Street’s “casino mentality”, profit-making prisons, Goldman Sachs’ extraordinary influence on Washington, D.C., the poverty-level wages of blue-collar workers, the large wave of home foreclosures (‘tent cities’ exist in the middle of America), and corporate-owned life insurance (did you know that you may be worth more to your employers dead than alive?). Moore likes to take things to extremes, knowing how to appeal to all types: the film even features a religious component where Moore examines whether or not capitalism is a sin and if Jesus would be a capitalist… The film ends with Moore placing police lines

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around numerous banks and lastly, Wall Street itself, holding out a bag for the big corporations to drop the millions they owe into it. As usual he manages to intrigue and captivate his audience with a tear, a shock, and a laugh.

the corporation (2003) This Canadian documentary, written by Joel Bakan, and directed by Mark Achbar and Jennifer Abbott, is a critique of the modern-day corporation, considering it as a type of person and evaluating its behaviour towards society as a psychiatrist might evaluate an ordinary person. The film shows the development of the contemporary business corporation from a legal entity, that originated as a government-chartered institution meant to effect specific public functions, to the rise of the modern commercial institution entitled to most of the legal rights of a person. The documentary concentrates on North American corporations, especially those in the United States but, through a wide variety of interviews it examines corporate business practices and establishes parallels between the way corporations are systematically compelled to behave and the symptoms of a psychopath, such as

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deceitfulness (continually lying to deceive for profit). Numerous topics are addressed including the 1933 Business Plot, in which General Butler exposed an alleged corporate plot against President Roosevelt, Eisenhower’s warning people to beware of the rising military-industrial complex, the alleged role of IBM in the Nazi holocaust, economic externalities, and themes of corporate social responsibility and the notion of limited liability. Nominated for numerous awards and winner of a couple, The Corporation received mostly good reviews, although The Economist suggested that the concept of an organisation as a psychopathic entity actually originated with the German sociologist Max Weber who used it with regard to government bureaucracy.

Boiler room (2000) From the very start, this movie makes it clear what it is about as the narrator tells us, “I didn’t want to be an innovator. I just wanted to make a quick and easy buck. I just wanted in.” The slogan on the DVD cover says it all too: ‘Welcome to the American Dream. Where would you turn, how far would you go,

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how hard will you fall?’ Giovanni Ribisi plays Seth Davis, a college dropout who gets a job as a broker with a suburban investment firm, which puts him on the fast track to success… although the job is not as legitimate as it sounds. The film gives us an inside look at the world of wannabe brokers, a taste of how out of control things - and people - can get. It’s all about greed, and what these men are willing to do for money. Along the way, we learn some interesting ‘facts’: rumour has it that Microsoft employs more millionaire secretaries than any other company in the world, and that a really good broker makes over 700 calls a day! The film boasts some really good lines too: Ben Affleck, boss at the firm, briefs the newcomers: “Anybody who tells you money is the root of all evil, doesn’t f***ing have it!” and “You want vacation time, go teach 3rd grade public school!” There is even a tribute to Wall Street (see below) in the movie, in the scene when Seth walks into an almost empty mansion to find the guys clustered around the TV watching Wall Street Street, repeating the script aloud, word for word. Another film in this list, Glengarry Glen Ross (see below), is also directly mentioned in Boiler Room, when Seth is told by his senior broker that he should “Always Be Closing”. Although the film may be a work of fiction, there are many lessons to be learnt here about the reality of the trading world portrayed.

rogue trader (1999) Starring Ewan McGregor and Anna Friel as his onscreen wife, this film’s title says it all. Directed by James Dearden, it is all about former derivatives broker Nick Leeson and the 1995 collapse of Barings Bank, and is based on Leeson’s 1996 book Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World. Ambitious young Nick is the rogue World trader, determined to rise in the world of finance, no matter what it takes. So when his employers offer him the opportunity to go to Jakarta, he seizes it. There he meets and marries Lisa, and together they move to Singapore, where the bank offers him the job of setting up their future options trading operation. To save money, the bank allows him to operate both the floor trading and the back

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office facilities and forces him to employ cheap, unskilled staff. Nick’s first year of trading is a big success as he “earns” the bank large profits even though he has illegally broken trading rules and secretly covered up losses (“...with scissors and paste, I created $78 million out of thin air…this was forgery, pure and simple… and there was no going back.”) Indeed, there is no going back when Nick’s illegal actions generate even bigger losses, with the increasing freedom and boom of profits backfiring. What he first explained to his group, “The truth of the matter is, we’re not buying or selling anything real. It’s just numbers,” doesn’t seem to make the damage any less when the losses mount up to well over £800 million. It is only when Nick and Lisa escape to Malaysia that he discovers the severity of his losses and that Barings has gone bankrupt. They decide to return to London, but Nick is arrested along the way and extradited to Singapore where he is sentenced to six and a half years in jail. This is yet another example of a film which compares the trading room to a casino but it stands out, thanks in part to a great - and ironically appropriate soundtrack (“The best things in life are free” goes the first line of Berry Gordy’s classic song “Money”) and because it’s a true story, which serves to heighten the effect of its tragic ending and amplify the real-life consequences of such risky actions.

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{ the last word }

By Peter Economides

A

ny idea what this title means? Do you have a smartphone? An iPhone or an Android? Do you have a QR reader application installed? If you don’t, please download one from the App Store.

It’s free. Is your phone currently connected to the internet? Wifi or 3G ... either will do. Ready? Open up the QR reader application. Now point your phone’s camera at the strange pattern at the top left of this page. Are you ready? That strange pattern is a QR code. The QR (an abbreviation of Quick Response) code has been around since the early Nineties. It’s a bit like a bar code, except that it can be read at higher speeds. This made it useful for tracking parts on car assembly lines which is why it was originally developed. Now QR codes are becoming part of the ever-growing technologydriven marketing tool box. Some examples: I see a BMW ad and point at the QR code which takes me to a 60-second video. Or I see a restaurant ad and the QR code gives me the menu. Or I point at a fashion billboard and get the full designer catalogue. Or I point at a “PROPERTY FOR SALE” sign and get a full video tour of the property. Or I point to a poster for a new movie and get to watch the trailer. Or I point at that tropical beach and book my ticket online. Or I point at the back of your business card and all your contact details are instantly entered onto my phone. The possibilities are endless...

Technology is impacting our lives in more ways than we imagine. The speed at which technology is becoming available is creating new challenges for every marketing professional, every single day. Commercial television was invented back in the Fifties. We have had almost sixty years to perfect our use of this medium. And now it’s all being turned over and tossed out, day by day. And as you get used to one technology, along comes another. The most interesting thing about this particular technology is the way in which it levels the playing field. Smart marketing by even the smallest business can lead to dramatic, almost overnight success. Because theoretically, every web address has access to the same audience as every other web address. My advice is simple. Seek out new technology. Understand it well enough to dive into it. Then take the deep dive. You will be experimenting, I know. But the cost is low and the payoff is huge. I think I’ll print a QR code on my t-shirt ...

smart marketing by even the smallest business can lead to dramatic, almost overnight success P.S. If you don’t have a smartphone or a QR reader, then the title to this article has probably still got you puzzled. It asks if you are ready. Get it? r u (red) E? ... :) We used it at TBWA\Worldwide, my former advertising agency, to launch Sony PlayStation in the United States in the mid-Nineties. Kids understood it. Perfectly.

info: Peter economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens. 98

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property

{economy}

Real Estate and Housing Loans: Why the mismatch? While property sales rose by 25.3% in 2007 and fell by an average 37.6% in 2008-2009, housing loans have continued to soar, even in 2011. What is the reason for this anomaly? By Fiona Mullen

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I

f you are involved in the valuers to value the same property on a property sector in Cyprus, you quarterly basis, recorded a price-drop of do not need me to tell you 12.6% between the first quarter of 2010 how bad business has been and the first quarter of 2011. This is in the past few years. Almost probably more in line with the shift in every indicator you look at actual prices, although the fall has been shows how bad the situation has been and more pronounced in secondary areas and continues to be. where there was a higher concentration of The boom period of late 2006 and overseas buyers. 2007 was followed by a total collapse. And if these figures are not depressing Sales recorded at the Lands and Surveys enough for the industry, the data indicates Department tumbled by 31% in 2008 and that the future is pretty bleak too. by another 44.3% in 2009. The apparent Building permits are a leading indicator of increase of 5.2% in 2010 was from a low construction activity as well as a weatherbase and sales have since fallen again, by vane for developers’ expectations. The 19.7% over the previous year in the first figures suggest that the developers expect seven months of 2011. In volume terms, demand to remain slim for some time, sales are around 7,000 per year, compared especially for housing. with the peak of 21,245 in 2007. Total authorised building permits fell Prices for residential properties have by 13% over the previous year in Januarygone southwards May, having too, by 4.1% in slipped by 2% 2009 and 2.5% in 2010. Permits in 2010 according for dwellings If no-one comes to to the Central in particular Bank of Cyprus. dropped by a check what you have The Central Bank staggering 41.8% done with the money, uses the ‘hedonic’ in the first five you might invest your methodology months of 2011, for measuring having declined housing loan in your property prices, by by 14.2% in business instead assembling data 2010. on all valuations Moreover, undertaken on the decline in behalf of banks and dwelling unit the cooperatives. authorisations This takes into account qualitative aspects is fairly even across all districts. Despite of properties, such as views, the quality reports that the real estate market in of construction and other similar factors. Limassol and Nicosia is faring better than In other words, the prices are ‘quality the rest, dwelling units authorised for constant’. Limassol dropped by 51.8% year on year The RICS property price index, in January-May and those for Nicosia by using a different methodology that asks 35.9%.

Housing loans continue to climb Amid all the gloom, one figure has stood out as going against the grain and it concerns housing loans. While property sales rose by 25.3% in 2007 and fell by an average 37.6% in 2008-2009, housing loans continued to soar, rising by 31.2% in 2006, 22.6% in 2008 and 22.2% in 2009. They have continued to grow since, by 14.8% in 2010 and in double digits in every month so far this year except June. What is the reason for this anomaly? A few possibilities spring to mind. One suggestion is that housing loans have been taken out so that people can refurbish their homes, rather than buy new ones. But if that were the main reason for the trend, one would expect to see less of a decline in cement sales, construction output and perhaps building permits for bigger projects. Another suggestion, put forward among others by Pavlos Loizou of Antonis Loizou and Associates, is that these are really loans for businesses, not loans for housing. He says that strictly speaking this is not allowed under Central Bank rules: if a loan collateralised with property is a business loan, it should be recorded as a business loan. But he points out that if no-one comes to check what you have done with the money, you might invest your housing loan in your business instead, especially since interest rates on housing loans are lower than for business loans. A third reason is that the total stock of housing loans will always grow as long as people are not paying back their loans in full, therefore even in a down market you would expect to see some growth. But the remarkable correlation in the boom years between housing loans and unit sales seems to defy this theory.

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TAXATION

{tax&legal}

Taxation and Business Just how favourable is Cyprus’ favourable tax regime?

By Miltiades Miltiadou

C

yprus is being promoted as an international financial centre, mainly thanks to its favourable tax regime. It is a fact that Cyprus enjoys two comparative advantages, namely the low corporate tax rate and a wide network of double tax treaties. But is this enough for the tax regime to qualify as favourable? In this AmCham position paper, it is suggested that a whole series of measures is needed in order to make the tax system more friendly towards businesses which already operate here or are considering the prospect of establishing operations on the island.

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Promotion of the tax regime to the public First of all we need to improve our communication policy, i.e. how the Cyprus tax regime is presented both to the competent authorities of other countries and interested foreign investors. The exaggerated advertising of the advantages of the tax regime, which gives the impression that everything is possible - even in the absence of real economic activity - runs the risk of being perceived by other countries as a ‘beggar thy neighbour’ policy and/or as harmful tax competition. Critical voices within the EU have already referred to instances of tax dumping being exercised by Member States with low tax rates. What is needed

is a more prudent presentation of the advantages of Cyprus’ tax regime. On the other hand, the one-sided declarations of the intentions of those in power to tax ‘flamboyant wealth’, ‘the haves and the possessors’, ‘large immovable property’ and so on, give rise to justified reactions that are detrimental to the image of the State. This kind of rhetoric fosters a lack of trust between tax authorities and citizens. As a result, tax officers see taxpayers as thieves and crooks, and taxpayers perceive tax officers as intruders and predators. We all understand the principle of tax equality, i.e. that the contribution to public burdens must be proportionate to each individual’s tax-paying ability.

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Political power should aim at the acceptance of taxes by the broader public, reconciliation between taxpayers and tax authorities and an honest cooperation between them. In the context of promoting Cyprus as an international financial centre, it would be desirable to present to foreign investors a friendly tax environment, willing to address their needs and concerns and provide them with facilities. Making threats of an imminent tax raid on their investments and assets does not serve the interests of Cyprus.

Tax exemptions Tax exemptions in favour of certain privileged individuals are unacceptable in a fair tax system. Such tax favouritism, attributed to pressure by groups which are in a position to impose their views, creates feelings of bitterness among taxpayers. Moreover, it violates the constitutionally established principles of tax equality and universality. This arbitrary and unfair tax discrimination, which has been rightly referred to as the ‘tuberculosis’ of public finances, is characteristic of underdeveloped states and has no place in the tax system of a country that wishes to present itself as a well-governed EU member state.

Corporate tax rate Stability is essential for a tax system to be viewed as favourable. Frequent changes to tax rules and modifications of tax rates reveal a lack of serious consideration of the problems and a weakness to identify

the causes of the crisis. Cyprus’ corporate tax rate of 10% is the most important incentive and the key to success in attracting foreign investors. An increase would lead to insecurity among prospective investors, with grave consequences for the development of investment and economic growth. Reassuring investors that corporate tax will continue to be subject to the same fixed rate will create feelings of certainty, as it will allow them to calculate their tax obligations correctly and incorporate them into their budgets and future plans. The corporate tax rate is being advertised as the lowest in Europe, but 10% is only the nominal rate. The effective rate of corporate tax is at times much higher, eroding the competitiveness of the Cypriot tax system on the market of international investment centres. In order to reduce the effective rate and make it at least equal to the nominal one, specific measures are needed such as the improvement of exemptions, deductions and depreciation (capital deductions) as well as the full deduction of expenses incurred for the purposes of the business.

Common Consolidated Corporate Tax Base (CCCTB) Following ten years of deliberations, the European Commission recently proposed the creation of a common base for the taxation of companies operating in more than one country of the European Union. The Commission’s proposal establishes a single set of tax rules without, however, affecting the member states’ sovereign right to determine their own corporate tax rate as deemed appropriate. According to the proposed directive, businesses will be able to choose whether to apply the CCCTB or their national system. The business opting for

the CCCTB will submit a consolidated tax return for all its profits and losses occurred in all EU countries in which it operates. In other words, it will be able to add profits, deduct losses and use the common rules to calculate its reliefs and exemptions, to come up with a single taxable amount. Each one of the countries involved will collect the tax which is proportionate to a part of the taxable amount based on its national rate. This part of the taxable amount will be calculated with the method fixed by the rules. The Commission’s proposals to greatly simplify compliance and tax administration across the EU will ease unnecessary burdens on cross-border business. Of crucial importance is the fact that the proposed rules will be optional for business. Cyprus must carefully examine the advantages offered by the adoption of the proposed directive and consider whether opting out of the CCCTB zone will help it maintain its interests and compete with member states adopting the CCCTB. According to one point of view, consolidation of the tax base will lead to simplification and transparency, which will strengthen tax competition in Europe, making it clearer to understand which member states offer the lowest tax rates.

Double tax treaties Cyprus has a wide network of double tax treaties and pursues its efforts to conclude more new treaties of this kind. The existence of a wide network is a prerequisite for an international financial centre. As a Cyprus American business association we would be interested in the improvement of

The undeclared economy in Cyprus seems to be one of the least significant in Europe

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film

{lifestyle}

from Boardroom to Screening room 10 of the best movies set in the world of business & finance By Nathalie Kyrou

W

hether it is about making money, losing a job or succeeding in the world of finance, movies about business tend to reflect their times. For almost a century, the best of these films have depicted their economic era and their talented directors have succeeded in showing onscreen the struggle and drama lived out by those who are willing to do what it takes to get rich, often gambling away their sanity in return for financial security as they strive to reach the top… or avoid the bottom. In American Madness (1932), Frank Capra tells the story of a New York banker

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embroiled in scandal during the Depression. Thematically, the movie anticipates Capra’s 1946 classic It’s a Wonderful Life Life, in which he repeats the “bank run” scene. How to Succeed in Business Without Really Trying Trying, directed by David Swift in 1967, has Robert Morse recreating his Tony-winning Broadway role in a musical comedy about a window-cleaner who shamelessly grabs every opportunity as he rapidly rises from working in the mailroom to become Vice-President in Charge of Advertising, making sure that each person above him gets either fired, moved or transferred within the company. Little Shop of Horrors (a remake of the original 1960s low-budget film) kicked off the 1980s with what appears at first glance to be nothing more than a fantastically zany

story, but is actually more nostalgic fantasy combined with that decade’s reaction against the cut-throat capitalism of Wall Street - an eerily prophetic indictment of the deprivations and inequities which result from the ruthless pursuit of the American Dream. Wall Street: Money Never Sleeps Sleeps, the 2010 sequel to the original Wall Street of the 1980s (which illustrated the risky world of the stock market exchange and the infamous Wall Street crash of 1987), revolves around the 2008 financial crisis, and, like the rest of the films mentioned, is not only a paradigm of the economic disasters that continue to ambush us, but also a fine opportunity for us to make sense of the realities captured on film and to learn something from past mistakes.

the international investment, business & finance magazine of cyprus

8/31/11 12:18:15 PM


inSide JoB (2010) For real facts and figures rather than fictional entertainment, watch director Charles Ferguson’s excellent documentary about what really happened in the events leading up to the 2008 financial meltdown and its aftermath. This year’s Oscar winner for Best Feature Documentary, Inside Job provides a comprehensive analysis of the global financial crisis, which cost over $20 trillion, (the film’s clever tag line is “ad The film that cost $20,000,000,000,000 to make”), and caused millions of people to lose their jobs and homes in the worst recession since the Great Depression. Made on location in the United States, Iceland, England, France, Singapore, and China, the documentary manages, through exhaustive research and extensive interviews with key financial insiders, politicians, journalists and academics, to illustrate the rise of an industry which has corrupted politics, regulation, and even academia. Simply yet effective, the film also succeeds in offering clear explanations of various financial terms and practices - a real bonus for viewers who are not economists themselves (though not quite as big a bonus as what most of the CEOs of the banks involved received).

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the company men (2011) The film, which arrived in European cinemas this summer and opens in the States in December, introduces us to Bobby Walker (Ben Affleck), who is living the American Dream: a great job, a big house, a loving family and a shiny Porsche. But when the effects of the global financial crisis leave him a victim of corporate downsizing, Bobby finds himself drowning in debt and ultimately forced to accept a very different kind of reality - unemployment and ultimately a job as a construction worker with his brother-in-law (Kevin Costner). Soon enough, his boss Gene (Tommy Lee Jones), and other colleague Phil (Chris Cooper) find themselves in similar situations, each left to deal with their fate in varying ways. This is the story of our times, told through three characters forced to redefine their lives as men, husbands

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and fathers. With humour (Gene confronts his boss after the latter closes down his shipyard saying “Everybody’s stock is in the toilet”, to which his boss replies “Well, stockholders would like to see their share value maximized”, and he retorts, as he points to a painting on the wall, “Well, sell the f***ing Degas!”); with pathos (orientation encourages the unemployed to chant together, “I will win because I have faith, courage and enthusiasm!”); with optimism (when, towards the end of the film, Bobby asks his brother-in-law how he’s doing, he replies that sometimes he’s up, sometimes down, but it all works out in the end); and with some tongue in cheek (in the last scene Bobby finally takes control of a new company with his former co-workers and jokes by telling them “what’s the worst thing they can do? Fire us?”). Writer/director John Wells has succeeded in portraying the new reality of American life: that sometimes you have to lose it all to win back hope.

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{lifestyle}

after which he writes a mission statement about perceived dishonesty in the sports management business entitled “The Things We Think and Do Not Say: The Future of Our Business”. His co-workers are touched by his honesty and greet him with applause but the management sends Bob Sugar, Maguire’s protégé, to fire him. Jerry and Bob call all of Jerry’s clients to try to convince them not to hire the services of the other. The film is ultimately all about transformation and learning how to value something more important that money. Ironically, the film did “show [its makers] the money”: although it cost $50 million to make, it grossed more than $270 million worldwide.

glengarry glen roSS (1992) Jerry maguire (1996) This film is proof that Hollywood can make movies about money while refreshingly avoiding the cliché investment trading story. Told in a tale through the world of sports which is, undeniably, a big money-making machine in itself - this Academy Awardwinning romantic comedy by Cameron Crowe is mostly remembered for one of the most famous phrases in movie history: “Show me the money!” Tom Cruise stars as Jerry Maguire, a 35-year-old sports agent who suffers a nervous breakdown

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Delivering a killer pep talk to a group of real-estate salesmen, this film captures Alec Baldwin superbly acting out David Mamet’s 1984 Pulitzer Prize-winning play about a business that eats its workers alive. The story’s title comes from the names of two of the real estate developments being peddled by the salesmen characters (Glengarry Highlands and Glen Ross Farms). Covering two days in the lives of four real estate salesmen and how they become desperate when the corporate office sends a representative to “motivate” them (by announcing that, in one week, all except the top two salesmen will be fired), James Foley’s film received

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extremely positive reviews though it was not a commercial success. Featuring a cast of screen legends, including Al Pacino, a dynamo as the most aggressive of all salesmen, and Jack Lemmon, who plays an aging loser, as well as Kevin Spacey and Ed Harris. Property salesman might want to take the film’s advice, and remember their ABC (A-Always, B-Be, C-Closing) but it might be a good idea to try and not use as much profanity as this movie contains!

Wall Street (1987) The quintessential financial movie of all time tells the story of Bud Fox (Charlie Sheen), a young stockbroker desperate to succeed, who becomes involved with his hero, Gordon Gekko (Michael Douglas), a wealthy, corrupt, corporate suit. Director Oliver Stone made

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8/31/11 12:19:20 PM


Boo BooK review

the SenSe of an ending By Julian BarneS (Jonathan cape, 2011) rrp: £12.99 (£6.09 from amazon.co.uk)

the film as a tribute to his father, Lou Stone (a stockbroker during the Great Depression) and it was well-received by critics as the archetypal portrayal of 1980s excess, remaining the prototype for all subsequent films of the genre. The movie has even been influential in inspiring people to work on Wall Street. Sheen and Douglas have commented over the years how people still approach them and say that they became stockbrokers because of their respective onscreen characters, which is rather ironic since, as noted by Vanity Fair magazine, the film was “Intended as a cautionary tale on the pitfalls of unchecked ambition and greed [but] instead had the effect of turning Douglas’ hugely charismatic (and Oscarwinning) villain into a household name and boardroom icon - an inspiration to the very power players and Wall Street wannabes for whom he set such a terrible example.” Times may have changed, but even over 20 years later, in the sequel, Douglas’ character still seems to believe that “greed, for lack of a better word, is good.” Defining itself through morality conflicts which put wealth and power against simplicity and honesty, the film is not actually a criticism of capitalism but rather of the cynical, quick-buck culture of our time.

the godfather, partS i and ii (1972, 1974) These classic films are undoubtedly more than just mob movies. The Mafia is presented as a family business in Francis Ford Coppola’s Oscar-winning adaptation of the Mario Puzo bestseller. Don Corleone (Marlon Brando) grooms his son Michael (Al Pacino) to take over once he’s gone, while Michael’s disenchanted wife (Diane Keaton) helplessly witnesses the corrupting influence of “this Sicilian thing”. It may not be about figures and stocks, but it is still all about money - Italian style where cash is not virtual, but real wads of banknotes. Greatly respected among international critics (and apparently by real-life gangsters too), the original film is routinely listed as one of the greatest films ever made and is now ranked as the second greatest film in American cinematic history - behind Citizen Kane - by the American Film Institute. Many would argue that the sequel is even better.

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new book by Julian Barnes, one of the world’s most distinguished writers, is always a cause for celebration, even when it is a relatively short (150-page) novel such as this. The story of a man coming to terms with the mutable past, it tells how Tony Webster and his clique first met Adrian Finn at school. Sex-hungry and book-hungry, they navigated adolescence together, trading in affectations, in-jokes, rumour and wit. Maybe Adrian was a little more serious than the others, certainly more intelligent, but they swore to stay friends forever. Until Adrian’s life took a turn into tragedy, and all of them, especially Tony, moved on and did their best to forget. Years later, the unexpected bequest conveyed by a lawyer’s letter leads Tony on a dogged search through a past that is no longer as clear as it once appeared. The novel is a meditation on the unreliability and falsity of memory, rich in human resonance and with an ending that will probably make you want to go right back to the beginning again.

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GOLD magazine  

GOLD magazine, Issue 06

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