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ISSUE 08 NOVEMBER 2011 PRICE €6.95 powered by:

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the international investment, business & finance magazine of cyprus

+ FILMMAKERS APOSTOLOS KONDEATIS, STAVROS SIDERAS, ATHENA XENIDOU EUROZONE

Four Tales of eurozone dissolution

INVESTMENT

Investing in Innovation & Technology

INTERVIEWS

Nick Arvanitidis George Evripidou Yuri Pianykh

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / opinion


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10 EDITORIAL 12 NEWS BRIEFING 16 TECHNOLOGY 20 FIVE MINUTES WITH... 22 INDICATORS/COMMODITIES/FOREX

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issue 08 november 2011

COVER STORY

CAMERA! LIGHTS! INVESTMENT!

THE RISKY BUSINESS OF MOVIE FINANCING

+ opinion my unfair lady by Eleni Vickers

26

living for the people of Cyprus?” by Onoufrios Hadjinicolaou (Yes) and Jack Gregory (No) 28 The Energy Time Bomb by Philokypros Andreou

40

In Cyprus Trusts we trust by Peter G. Economides

42

Facebook: Waste of time or valuable online marketing tool? by Sarah Fenwick 60 R.I.P. genius by Peter Economides

54

FEATURES 44 | Backing Tomorrow’s Winners Today Investing in innovation and technology

47 | Where Angels Don’t Fear to Tread The Silicon Valley Greek Seed Fund

50 | Tales of Eurozone Dissolution Four stories with a shared moral

54 | the cyprus labour market and businesses Is the island’s labour market really that business-friendly?

62 | Securing the Future Financial Planning is the key 8

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74 78 84 88 92

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

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KPMG Academy Upcoming Seminars: November-December 2011 Reengineering the Custody and Fund Administration Process* 14-15/11/2011 Introduction to Project Management and PMI Methodology – Part A 14-15/11/2011 VAT on Trade Promotion Schemes 25/11/2011 Project Management Professional Preparation Course (PMP Certification Prep.) – Part B 28-29-30/11/2011 Το Εργατικό Δίκαιο στην Κύπρο: Πώς μπορεί ένας Εργοδότης να Αντιμετωπίσει το Κόστος της Κρίσης* 05/12/2011 Asset – Liability Management: Measuring/ Managing Interest Rate and Foreign Exchange Risks * 16/12/2011 * 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

©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.

Grasp knowledge into your hands


{editorial}

Decisive Action

P

roving the pessimists wrong yet again, last month European leaders finally showed the degree of responsibility that the citizens of all 27 member states had been hoping for and agreed on measures that not only prevented Greece from going bankrupt but went a long way towards protecting the eurozone and the single currency from serious danger. The Brussels agreement triggered a rally in shares around the world and, in one of those seemingly perverse market reactions, many banks saw their share prices soar, a genuinely welcome development following their understandably grudging acceptance to write off 50% of what Greece owes them. The two other main provisions of the deal – to create a mechanism to boost the eurozone’s main bailout fund, the European Financial Stability Facility (EFSF), to about €1 trillion and to help banks raise more capital to guard against losses resulting from any future government defaults – have been viewed almost universally as long overdue but effective. In the eight months of Gold’s existence there has not been a single issue of the magazine in which we have not commented on or dealt with the question of Greece’s sovereign debt problem. Hopefully we can now forget about it for a few weeks or months as the markets give EU leaders credit for finally taking decisive action after more than a year of half-measures. It is worth noting, though, that even this massive 50% debt write-off by the banks means that Greece’s debt burden could be 120% of GDP by 2020, so it will still be the worst-performing country in Europe (Cyprus is currently 14th). In a fascinating though unsurprising sign of the times that , just one day after the Brussels agreement was reached, the EFSF’s chief executive Klaus Regling was in Beijing hoping to persuade China to help rescue Europe from its crippling debt crisis through an investment of anything up to €75 billion. The determination of European leaders to take substantial and necessary action, which will undoubtedly be unpopular with their own electorate, contrasts sharply with the attitudes shown by politicians in Cyprus, including President Christofias who approved the Brussels decision. We commented recently on the fact that the island’s political parties had finally seemed to have understood the need to put the country first by approving a series of austerity measures. Regrettably, the show of unity did not last long. Having passed the first package of measures, the government and opposition appear to have decided that they can now sit back and bicker to their hearts’ content. However, no-one is fooled by their indecision. In its recent announcement explaining why it was again lowering its long-term sovereign credit rating on the Republic of Cyprus from ‘BBB+’ to ‘BBB’, Standard & Poor’s noted in relation to the package of austerity measures that “We view the full implementation of these measures as unclear because of opposition from organized labour and other social partners.” The agency also notes that “Weaker economic growth could worsen the Cypriot government’s debt dynamics and reduce the willingness of its political leaders to press forward with fiscal and labour market reforms.” Unless everyone involved on both sides of the House of Representatives recognises the urgency of the situation, rising borrowing costs which have already effectively shut Cyprus out of international capital markets will rise even further. The government has already stated its intention to take “decisive and swift action for fiscal consolidation and administering challenges in its banking sector in cooperation with the Cypriot Central Bank” and an expected €2.5 billion loan from Russia will doubtless help refinance maturing debt next year but, in the current circumstances, action definitely speaks louder than words. At the moment, things are worryingly quiet in Nicosia…

John Vickers, Chief Editor john@imh.com.cy 10

the international investment, business & finance magazine of cyprus

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Contributing Editors:

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

Philokypros Andreou, Nicholas Th. Beis, Peter Economides, Peter G. Economides, Sarah Fenwick, Eleni Vickers, Isavella Frangou-Pavlou, Jack Gregory, Onoufrios Hadjinicolaou, Nathalie Kyrou, Miltiades Miltiadou, Elias Neocleous, Dr. Savvas Savouri, Rumyana Vakarelska, John Webb Art Director:

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{news briefing}

1.

Rhapsody takes over Napster Two of the biggest names in digital music, Rhapsody and Napster, are combining in a bid to increase market share and stay ahead of newer rivals such as Spotify. Rhapsody, which is the largest US digital music service with 800,000 subscribers, will take over Napster, which is currently owned by retailer Best Buy Co Inc. Best Buy will have a minority stake in Rhapsody when the agreement is finalised around the end of November 30. The deal is stock-based, but specific terms have not been disclosed. As music sales have dropped significantly over the last decade – with fans buying fewer CDs and piracy taking hold – many startups and investors have been willing to place a bet on being the music retail or distribution outlet of choice for the 21st Century. But to date, digital music sales have been dominated by Apple’s iTunes Music Store.Napster began as an illegal free music-sharing application founded by college dropout Shawn Fanning in the late 1990s. Roxio Inc bought the Napster name in 2002 after record company lawsuits forced the original Napster to close down. The new, legal service was sold to Best Buy for $121 million in 2008. It is said to be the secondlargest US digital music service but with fewer than 400,000 subscribers. Rhapsody faces fast-growing competition from London-based Spotify which launched in the US in July and has around 2 million paying subscribers mainly in Europe.

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the international investment, business & finance magazine of cyprus

deals of the month

2.

Saab owner to sell Spyker Swedish Automobile, owners of the cash-strapped car maker Saab, is to sell its Spyker luxury sports car business to the private equity firm owned by racing car enthusiast Alex Mascioli for about €32 million. Swedish Automobile has been struggling to stave off bankruptcy, seeking new investors and selling off various assets in order to pay suppliers and employees and resume production at its Saab plant in Sweden. Niche sportscar maker Spyker is one of several assets put up for sale by its Amsterdamlisted parent Swedish Automobile but a deal with Russian businessman Vladimir Antonov announced earlier this year subsequently fell through. Spyker sports cars have appeared in Hollywood films including The Pink Panther and Basic Instinct 2. Only a few dozen are produced each year, with a list price of about €200,000 for the C8 Aileron. Mascioli, 36, who is managing director of North Street Capital, has said he expects the Spyker deal to close within a month after which he will focus on raising awareness of the Spyker brand. Swedish Automobile shares initially jumped 16% on the news of the North Street deal but gains were later trimmed to about 4%.

3.

Sony acquires Micronics Sony Corporation has acquired the US-based venture corporation Micronics, Inc., which is involved in the research and development of near patient Point of Care devices for disease diagnosis, treatment monitoring and blood testing, and provides comprehensive product development for third-party clients. In an official announcement of the deal, Sony said it had acquired Micronics to accelerate its own research and development, particularly for Point of Care diagnostic equipment, as well as to accelerate the commercialization of these products. Keiji Kimura, EVP and Executive Officer of Sony Corporation said, “For some time, Sony has applied its consumer electronics technology to contribute to Research and Development in the medical and healthcare fields. We believe that the combination of Micronics’ development capabilities in the medical diagnosis domain and our consumer electronics and IT technologies, such as in optical discs, will enable us to offer innovative solutions that are responsive to the rapidly escalating needs for Point of Care diagnosis worldwide.” Near patient Point of Care diagnosis refers to the ability to facilitate rapid and accurate results via testing that can be performed in a doctor’s surgery, emergency room, or at a patient’s hospital bedside, rather than having to send specimens to an off-site laboratory.


the international investment, business & finance magazine of cyprus

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{news briefing}

The Best Countries for Business Cyprus

❶ Canada ❷ New Zealand ❸ Hong Kong ❹ Ireland ❺ Denmark ❻ Singapore ❼ Sweden ❽ Norway ➒ United Kingdom ➓ United States

Cyprus Stock Exchange down by 57.4% in 2011

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Factor

Ranking

Personal Freedom Monetary Freedom Red tape Tax Burden Property Rights Corruption Technology Innovation Trade Freedom Investor Protection Market performance

1 2 22 25 25 27 38 46 55 76 83

Stock Exchange Performance (EUR terms, % change) Aug.08 - Oct.11 Jul.11 - Oct.11

20 0

UA

EG

TR

SR

MK

-40 high exposure to the Greek market -60 (estimated at around €29 billion or 160% of -80 GDP, including €6 billion of Greek sovereign bonds and €23 billion of bank loans). As a result, the country and the banks have received a series of downgrades (Cyprus is currently rated Baa1 by Moody’s, BBB+ by S&P and BBB by Fitch) and the banks are unable to access the wholesale funding markets. The situation was further aggravated by persisting delays in the implementation of a new set of fiscal austerity measures to prevent a rapid deterioration of the budget deficit (though the measures were eventually passed), as well as by the huge explosion which destroyed the island’s largest power plant and is expected to cause a recession, with concomitant consequences on the banks’ non-performing loans.

CY

-20

BG

T

he Cyprus Stock Exchange General Index (CSE GI) declined by 42.1% in euro terms between the end of June and the end of September, following losses of 20.6% and 7.4%, respectively in Q2:11 and Q1:11, bringing the year to date fall to 57.4%. Since the beginning of the global credit crunch (August 2008), the CSE GI has recorded a fall of 84.5%. Reflecting the weak outlook, the forward-looking P/E ratio stood at 6.7% in late September against a 5-year average of 10%. The key factors behind the negative stock market performance are the impact on banks of a deteriorating macroeconomic outlook and the spiralling European sovereign debt crisis. The sharpness of the decline of the stock market index reflects the high share of the banking sector in the index, with the largest three banks – Bank of Cyprus, Marfin Popular Bank and Hellenic Bank – together accounting for around 85% of the index at the end of September. Their stock market prices have fallen by 54.4%, 65.7% and 50% year-to-date respectively, and contributing 49% of the year-to-date decline. Indeed, nonfinancial stocks were somewhat more resilient (-45% year-to-date). The banks’ performance reflects persisting medium-term fiscal challenges and risks associated with their

Cyprus’ overall ranking of 28th out of 134 countries was calculated on the basis of its ranking in the following 11 categories:

RO

C

anada is the best country in the world for business according to the annual survey by Forbes, published in October. The country’s $1.6 trillion economy is the ninth biggest in the world and grew by 3.1% last year. It is expected to expand 2.4% in 2011. In drawing up its list, Forbes looked at 11 different factors for 134 countries: property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance. Cyprus dropped from 22nd to 28th place but is ranked 1st in the world for personal freedom and 2nd for monetary freedom.

57.4%

(Source: South Eastern Europe & Mediterranean Emerging Market Economies Weekly Report, National Bank of Greece Strategy & Economic Research Division)


America’s Largest Private Companies

F

orbes recently published its latest list of the largest privately held firms in the US. It contains 223 companies which, in total, employ 4.4 million people and account for $1.3 trillion in revenues. To qualify for the list, companies must have a minimum $2 billion in revenue and either too few shareholders to be required to file financial statements with the Securities and Exchange Commission, Rank 1 2 3 4 5 6 7 8 9 10

Company Cargill Koch Industries Bechtel HCA Mars Chrysler PricewaterhouseCoopers Publix Super Markets Ernst & Young C&S Wholesale Grocers

or shares whose ownership is restricted to some group, such as employees or family members. Excluded from the list are foreign companies, companies that don’t pay income tax, mutually owned companies, cooperatives, companies with fewer than 100 employees, and companies more than 50% owned by another public, private or foreign company. The top 10 private firms are these:

Industry Farm Products Chemicals Heavy Construction Hospitals Confectioners Auto Manufacturers Business Services Grocery Stores Business Services Food Wholesale

Employees REVENUE ($BIL) 130,500 109.84 70,000 100.00 49,000 30.80 190,000 30.05 65,000 28.00 41,200 27.90 161,718 26.57 142,000 24.32 141,000 21.26 16,600 20.40

ANYTHING HOLLY CAN DO... $350k

$1m top

20 $1bn

$1.6m

$7m

Celebrity Body Part Insurance Value 1. Mariah Carey (singer) Legs $1 billion 2. Cristiano Ronaldo (footballer) Legs $144 million 3. David Beckham (footballer) Legs $70 million 4. Michael Flatley (dancer) Feet $40 million 5. America Ferrara (actress) Teeth $10 million 6. Tom Jones (singer) Chest hair $7 million 7. Rod Stewart (singer) Vocal cords $6 million 8. Bruce Springsteen (singer) Vocal cords $5 million 9. Claudia Schiffer (model) Face $5 million 10. Kylie Minogue (singer) Bottom $4.5 million 11. Tina Turner (singer) Legs $3.2 million 12. Heidi Klum (model) Legs $2.2 million 13. Jamie Lee Curtis (actress) Legs $2 million 14. Keith Richards (guitarist) Hands $1.6 million 15. Rihanna (singer) Legs $1 million 16. Troy Polamalu (NFL player) Hair $1 million 17. Brooke Shields (actress) Legs $1 million 18. Gene Simmons (singer) Tongue $1 million 19. Dolly Parton (singer) Breasts $600,000 20. Merv Hughes (cricketer) Moustache $350,000

Holly Madison Insures Her Breasts for $1 Million

H

olly Madison, the former model, Playboy Mansion resident and current reality TV star, recently took out a $1 million insurance policy on her breasts with Lloyd’s of London. Madison, 31, told People magazine that she did it to protect herself and others who appear in her Las Vegas production, Peepshow. “I’ve heard about people getting body parts insured and I thought, why not?, because if anything happened to my boobs, I’d be out for a few months and I’d probably be out a million dollars,” she said. “I thought I’d cover my assets.” Madison appears topless during segments of the Vegas show, which, in her mind, made the insurance policy necessary. “I think it’s kind of funny. I think they’re getting the credit they deserve,” she said of her siliconenhanced breasts. “They’re my primary money makers right now.” Madison did not reveal how much she was paying for the insurance policy.


{technology}

Virtual patients could revolutionise the world’s health

By Richard Maino, London Press Service

A

vast network of computer programmes co-created by scientists in the UK could drastically change healthcare around the globe, saving countless lives and billions of dollars Working with a number of partners, the academic group at the University of Manchester has been awarded funds from a huge European research programme to create “virtual patients”; these are computational models of individual people that could lead to everyone having their very own health system based on their genetic and physiological make-up. This will allow general practitioners (GPs) to diagnose illnesses and conditions correctly and quickly, protecting patients from potentially deadly side-effects of wrongly prescribed medicines and saving vast amounts of money on drugs. The Manchester University researchers are part of a pan-European, 10-year project, called IT Future of Medicine (ITFoM), and which is funded by one billion euros. The ITFoM project has been allocated preliminary funding of 1.5 million euros. Under the ITFoM system, GPs would be able to have an instant, in-depth knowledge of an individual patient’s health needs and medical history at their fingertips. A consortium of more than 25 academic institutions and industrial partners - with expertise in information and communications technology (ICT), the life sciences, public health and medicine has come together to begin the process of bringing the project to life.

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As it progresses, more partners will come on board, ultimately making this one of the largest collaborative endeavours since the Apollo space programme. A vast array of ICT developments must take place in order to make this medicine of the future a reality. This will include new techniques for the rapid acquisition and evaluation of patient data, dynamic storage and processing of real-time patient data into relevant mathematical models, and the development of new systems that can learn, predict and inform.

This is a fantastic opportunity to bring about a paradigm shift in medical practice These are needed to provide healthcare professionals and patients with unprecedented insights into matters of health and treatment. The first goal is to give each GP the power to use a person’s individual genome to inform every stage of disease management – through diagnosis, treatment and followup. This will require a revolution in ICT technologies to allow relevant computing, storage, networking and modelling technologies to be developed. The IT systems will create mathematical models using vast amounts of data our knowledge up to now about how

humans work. IT Future of Medicine will also provide scenarios – such as what would happen if a patient takes a certain medicinal drug; what would happen if they started running three times a week? Through genome sequencing and clinical information gathered, the general model will be able to be adapted to suit the particular health demands of any individual, including such issues as allergies, congenital defects and current treatment. ITFoM was set up because it was felt that, although IT and computing played a large role in many commercial scientific areas, its potential power to revolutionise medicine has not yet been realised. Professor Hans Westerhoff, who is leading the Manchester part of the project, believes computer models will fundamentally change the way healthcare is provided. He said: “ITFoM will make general models of human pathways, tissues, diseases and, ultimately, of the human as a whole. These models will then be used to identify personalised prevention and therapy schedules, and the side-effects of drugs. “The models will be there to help diagnose a particular problem and provide solutions. Obviously, this would need to be done in conjunction with a person’s GP, depending on the gravity of the situation. Making personalised medicine a reality will thus require fundamental advances in the computational sciences,” he added. “It promises to be unique and groundbreaking because people could access their own health model. It is intended to be a large, straightforward system which can also inform treatment regimes. This is the first time


that huge IT systems looking at individual care will be combined with genomics and medical needs,” added Professor Westerhoff. Professor Norman Paton is head of Manchester University’s School of Computer Science. He said: “The IT Future of Medicine project provides an exciting opportunity to bring together and build upon advances in medical, biological and computational sciences. “The greatest opportunities to improve outcomes in medicine seem likely to come from personalised medicine, the biological sciences are providing the insights required to support informed personalisation, and advanced computational techniques are essential for making sense of the data that informs decision making. “This is a fantastic opportunity to bring together advances from these three rapidly developing areas to bring about a paradigm shift in medical practice,” added Professor Paton. ITFoM is one of six pilot projects in the European Future & Emerging Technologies flagship scheme. These projects are vying for funding of one billion euros over 10 years to in order to generate a scientific revolution.

Italian Wikipedia hidden in protest For three days last month, anyone trying to use the Italian version of Wikipedia was diverted to a page explaining that it had been hidden in protest against a proposed new law that could affect the whole concept of the free online encyclopaedia that is edited by users. “Dear reader,” the statement read, ”at this time, the Italian language Wikipedia may be no longer able to continue providing the service that over the years was useful to you, and that you expected to have right now. As things stand, the page you want still exists and is only hidden, but the risk is that soon we

STEVE JOBS (1955-2011)

will be forced by Law to actually delete it.” A paragraph in the proposed law stipulates that, should any blogger publish information about someone that is deemed to be defamatory by the subject of the information, the blogger will be forced to print a correction within 48 hours of publishing the offending post or pay a €12,000 fine. In other words, any individual who feels offended by an item on a blog or online publication can request a correction, regardless of whether or not the item is true and without having to prove that it is offensive.

Steve Jobs, the former chief executive and co-founder of US technology giant Apple, died from pancreatic cancer on 5 October at the age of 56. In a statement, the company said, “Apple has lost a visionary and creative genius, and the world has lost an amazing human being. Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.” New York Mayor Michael Bloomberg described Jobs as “a genius who will be remembered with Edison and Einstein, and whose ideas will shape the world for generations to come”. In Jobs’ case, words like ‘visionary’ and ‘genius’ are accurate. Among his greatest achievements were the introduction of the iMac computer, the iPhone and the iPad to the world, as well as the iPod and the iTunes store which totally revolutionized the music industry. Apple, whose marke value is estimated at $351bn (€263.5 bn), is the world’s most valuable

Wikipedia has been around for a decade now, and the site says its own internal review board has properly handled such issues in the past and asserts that there is no reason for a law to handle them.

technology company. More than almost any other business leader, he was indistinguishable from his company, which he co-founded in the 1970s with a former fellow student named Steve Wozniak. As the face of Apple, Jobs represented its dedication to high-end technology and fashionable design. His great gifts were an ability to second guess the market and an eye for well designed and innovative products that everyone would buy. “You can’t just ask customers what they want and then try to give that to them,” he once said. “By the time you get it built, they’ll want something new.” Microsoft boss Bill Gates spoke of Jobs’ “profound impact” that would be felt “for many generations to come” while US President Barack Obama described him as “among the greatest of American innovators – brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.... The world has lost a visionary.”

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{conference}

Key issues debated at highly successful Limassol Economic Forum

A

n impressive roster of internationally-renowned speakers made last month’s 2nd Limassol Economic Forum a huge success. Held at the Four Seasons Hotel, Limassol and organised by IN Business magazine in association with the London School of Economics and Political Science and the Cyprus LSE Alumni Association, it brought together leading economists, business leaders and experts from Cyprus and abroad to discuss local, regional and international economic and business affairs under the chairmanship of Manthos Mavrommatis, President of the Cyprus Chamber of Commerce & Industry. Dr. Linda Yueh, an economics correspondent for Bloomberg Television and one of the world’s foremost experts on the Chinese economy, spoke eloquently on “The changing role of Europe in the global economy”, while Dr. Steven G. Cochrane, managing director of Moody’s Analytics, addressed the topic “Saving the European Economy: Mission Impossible?” Other keynote speakers included Peter Ayliffe, President and CEO of Visa Europe who gave a lively presentation on “The impact of electronic payments on European economies” which ended with him (symbolically) throwing away his cash, wallet and credit card, all of which may soon be relics of the past, and Brian J. McBride, Former Managing Director and Vice President of Amazon.co.uk, who addressed a closely-related topic, “Mobile – the next big

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thing in e-commerce”. Also taking part in the CEOs debate was Efthimios Bouloutas, Group Chief Executive Officer of Marfin Popular Bank, Cyprus whose address dealt, among other things, with the issue of “Upgrading Cyprus as an energy hub in the Eastern Mediterranean,” a topic that was discussed in detail during the afternoon panel discussion featuring Praxoula Antoniadou Kyriakou, the Cypriot Minister of Commerce, Industry and Tourism, Dr. Amit Mor, CEO of Eco Energy Ltd., Israel, and Hans Jochum Horn, Deputy CEO of the Renaissance Group, Russia. In the morning session, Dr. Stavros A. Zenios, a Professor at the University of Cyprus, presented his analysis of the state of the Cyprus economy, the proposed austerity measures and what needs to be done to get the country out of the current recession while Dr. Vassilis Argyrou Hajivassiliou, Reader in the Department of Economics at the London School of Economics and Political Science looked at the issue of “Quantifying the creditworthiness of countries and the likelihood of debt repayment problems”. Earlier, in the first of the panel discussions, the sovereign debt crisis in Greece and the viability of the eurozone was discussed by Tony Barber, Europe Editor of the Financial Times, Alan Wheatley, Global Economics Correspondent with Thomson Reuters, and Dr. Linda Yueh, Bloomberg TV correspondent.

Efthimios Bouloutas, Group Chief Executive Officer, Marfin Popular Bank

Dr. Linda Yueh, Economist and Bloomberg TV correspondent


GEORGE DEMETRIOU, Positive Consulting Ltd

Heros Miltiadous, Aristo Developers Ltd

Brian J. McBride, Former Managing Director and Vice President of Amazon.co.uk

Ashok Kumar High Commissioner of the Republic of India

Dr. Amit Mor, CEO, Eco Energy Ltd., Israel Elias Neocleous, Andreas Neocleous & Co LLC

Christis Christoforou, Deloitte

Alan Wheatley, Global Economics Correspondent, Thomson Reuters

Costas Archimandrites, Marfin Laiki Bank

Dr. Steven G. Cochrane, Managing Director, Moody’s Analytics

Vladimir Konstantinidi, Embassy of Georgia

Kypros Mouzouros, N.P. Lanitis Ltd and Haris Hambakis, Eurobank EFG Cyprus Ltd the international investment, business & finance magazine of cyprus

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{interview}

five minutes with... Yuri Pianykh, President of the Association of Russian Businessmen in Cyprus. Gold: When you founded the association in 1995, did you imagine that it would still be here and thriving sixteen years later?

Yuri Pianykh: Not really, but life places everything in context.

The activities of the ARBC have truly been demanded by Russian businessmen in Cyprus all these years. An inefficient or rigid organisation would not have lasted for so long so we were both proud and happy to celebrate our 15th anniversary last year. Cyprus and Russia are clearly so different in so many ways. What do you think the two countries have in common? Russia and Cyprus share common views that have made us strategic allies, as evidenced by the two countries’ cooperation in the UN and other international organisations. Our intergovernmental relations are based on mutual respect, trust, support and an understanding of each other’s views. Moreover, both countries have worked hard to diversify their economies so as to become international finance and business centres and they both attract FDI, support innovation and high-tech research. Russian and Cypriot people have many similarities, including a shared Orthodox religion and respect for tradition, as well as their ambitious, positive and hospitable nature. Has the business environment in Cyprus improved for Russian businesses over the past 16 years? It has been improving continuously, though Russian investors have faced (and still do) certain difficulties. In the past, problems related to the image of Cyprus as an offshore zone and the status of Russians here as “third country” nationals were solved with the assistance of the Cypriot authorities. Today Cyprus offers Russian businessmen an optimal package of services thanks to its EU membership, tax advantages, the double tax treaty with Russia, its developed banking system and infrastructure. Things have improved a lot since the early ‘90s, though there is always room for improvement, especially to the judicial system. Litigation is extremely slow and there is a shortage of Cypriot judges who are competent in international law. This is working against the objective of making Cyprus a world business centre. Some judgments have led to Russian businesses leaving Cyprus for other jurisdictions. I hope that these problems can soon be settled.

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the international investment, business & finance magazine of cyprus

The ARBC has done a great deal to promote Russian culture in Cyprus. Have you seen positive results from this? Definitely! We see them in the unity of the Russian community and in the Cypriots’ hospitable attitude towards the Russians working here and visiting the island. The ARBC is doing its best to maintain the Russian language and culture in Cyprus, as well as Russian Orthodox traditions. In this regard it is worth mentioning the monument to Alexander Pushkin erected in Limassol, Russian Language Year in Cyprus, and the “Unity” and Chekhov festivals. The ARBC has also been allocating funds for Russian schools in Cyprus and sponsoring the Russian language media here. Our next big project is the €5 million construction of St. Nicholas church in Limassol – the first Russian Orthodox church in Cyprus. A lot of concern has been expressed about the possibility of Russian companies and High Net Worth Individuals moving away from Cyprus due to the ongoing financial crisis. What is your view on this? I hope that Russian companies and individuals will continue to invest in the Cyprus economy in spite of the downgrading of the island’s national rating and the financial problems in the eurozone, primarily in Greece. I believe that the economy and, in particular, tax rates for international companies incorporated in Cyprus, will remain unchanged. Any changes would certainly cause a negative reaction by the international business community, including its Russian representatives. What do you see as your greatest achievement as President of the ARBC? The ARBC has been developing and changing throughout the years and our members have shown flexibility in reacting to challenges which has enabled them to continuously fulfil their goals. The image and authority of the Association are recognised by Cypriot organisations and the ARBC has supported Cyprus in its efforts to become a leading investor in the Russian economy and to rid itself of its former status as an offshore centre with a dubious reputation. I am proud to have made my own contribution as ARBC President.


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info@prudensgroup.com www.prudensgroup.com the international investment, business & finance magazine

21


{INDICATORS, COMMODITIES & FOREX} By Isavella Frangou-Pavlou

USD 1911.30 1872.90 1834.50 1796.10 1756.50 1724.55 1722.30 1679.70 1640.10 1601.70 1563.30 1524.90

15 Aug 2011 24 Aug 2011 2 Sep 2011

12 Sep 2011 21 Sep 2011 30 Sep 2011 10 Oct 2011

Gold

Gold fluctuated over October as eurozone debt worries nibbled at trader confidence. Gold broke out new highs towards the end of October and may have changed its consolidation range for the intermediate term. Risk aversion dominates the market and gold’s financial attributes and safe haven roles prevail. During the second EU summit there were no firm solutions and details may be released in November. The positive news is that Germany agreed to leverage the eurozone rescue fund, and China agreed to lend money to eurozone via the IMF. As long as European problems do not spread to the real economy, risk aversion will reinforce gold’s bullishness. The US seems a bit optimistic, with monthly payroll data indicating that the economy is adding jobs though unemployment lingers at 9.1%. There is no apparent improvement in the housing industry but retail sales data shows that people’s confidence is recovering. The major central banks will decide interest rates at the beginning of November and we expect no change.

19 Oct 2011

Source: KAB-MetaTrader

eurozone Current

Major Commodities

Change

52 weeks High

Low

52 weeks

Current

Monthly change (%)

High

Low

GDP (QoQ)

1.6%

-0.8%

2.5%

1.6%

Gold (USD/t oz.)

1716.66

+5.89%

1922.6

1767.8

CPI (MoM)

0.8%

0%

0.8%

-0.7%

Sliver (USD/t oz.)

33.52

+11.47%

43.43

39.01

Unemployment Rate (MoM)

10%

0%

10.1%

9.9%

Crude Oil (USD/bbl.)

92.11

+16.30%

90.52

83.2

Bond yield (10-year) (Italy) (MoM)

3.777

+3.45%

4.122

3.445

5.872%

Natural Gas (USD/ MMBtu) Corn (USD/bu.)

649.50

+9.62.%

767.4

592.50

Wheat (USD/bu.)

635.25

+4.22%

772.75

592.00

+6.8%

6.227%

4.866%

Debt/GDP (Italy) (MoM)

119%

3%

119%

113%

Sugar (USD/lb.)

26.79

+5.06%

35.62

21.10

Interest Rate (MoM)

1.5%

0%

1.5%

1.0%

Soy (USD/bu.)

1232.25

+4.80%

1447

1325.75

(Source: Bloomberg. As at 27/10/2011)

(Source: Eurostat - http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ )

Growth is lacking and debt is building up. The eurozone economic outlook seems to be worsening. While liquidity is the immediate concern, the entire economic structure will take a long time to overhaul

USD 94.15 92.03 90.20 88.25 86.30 84.30 82.35 80.40 78.40 76.45

15 Aug 2011 24 Aug 2011 2 Sep 2011

Source: KAB-MetaTrader

22

12 Sep 2011 21 Sep 2011 30 Sep 2011 10 Oct 2011

the international investment, business & finance magazine OF CYPRUS

19 Oct 2011

74.50

OIL Oil bounced to above $90/barrel at the end of October after touching new lows around $75/ barrel in September. Oil prices corrected on the outcome of the second EU summit, as eurozone leaders’ rescue plan concluded that the EFSF will be €1 trillion and eurozone debt holders agreed to write down 50% of Greece’s debt. US fundamentals supported the oil price this month. As the stock market picked up, many investors and analysts were upbeat about the future and worries of a double-dip recession faded away. China’s economic data remained stable in September and in the 3rd quarter, suggesting that the huge emerging economy is still keeping its vibrant oil demand. The death of Gaddafi did not stimulate the oil market but Libyan oil output is likely to recover soon, with the price difference between WTI and Brent oil narrowing.


US MAJOR INDICATORS Current

Change

US Indices 52 weeks High

Low

52 weeks

Current

Monthly change (%)

High

Low

1240.07

9.73%

1370.58

1101.54 1963.68

GDP (QoQ)

1.0%

+0.6%

3.8%

0.4%

S&P

CPI (MoM)

0.3%

-0.1%

0.5%

-0.2%

NASDAQ

2650.67

9.74%

2438.44

Dow Jones

11869.04

8.76%

12928.50 10588.50

FTSE

5648.48

12.46%

6105.80

DAX

6205.16

14.8%

7600.41

4965.80

CAC

3274.84

11.38%

4169.87

2,693.21

Nikkei

8927.0

2.61%

10891.60

8227.63

Hang Seng

19541.0

11.08%

24988.60 18627.70

Shanghai

2435.61

3.24%

3186.72

Unemployment Rate (MoM)

9.1%

0%

9.8%

8.8%

Non-farm (MoM)

103K

+46K

235k

-59k

Bond yield (10-year) (MoM)

2.235%

+25.1%

3.74%

1.787%

Debt/GDP (MoM)

98.0%

4.8%

98.0%

93.2%

Interest Rate (MoM)

0.25%

0%

0.25%

0.25%

European Indices 4791.00

Asian Indices

(Source: US Bureau of Labor http://www.bls.gov/eag/eag.us.htm US Department of Commerce http://www.bea.gov US Department of the Treasury http://www.treasury.gov/Pages/ default.aspx)

2437.17

(Source: Bloomberg. As at 27/10/2011)

The US economic outlook remained unchanged this month with debt, budget cuts and employment being the key threats to the country

USD

Angela Merkel

1256.78 1249.05 1230.90 1212.20 1193.50 1174.80 1156.10 1137.95 1119.25 1100.55 1081.85 1063.70 15 Aug 2011 24 Aug 2011 2 Sep 2011

12 Sep 2011 21 Sep 2011 30 Sep 2011 10 Oct 2011

19 Oct 2011

US Stocks US stocks surged in October amid optimism on the European leaders’ summit and strong earnings from blue chip stocks. The S&P 500 index dove into bear territory in early October on renewed fear that the US economy was heading toward a double-dip recession. However, a rally kicked in afterwards and lasted over three weeks. It is likely that the deal between European leaders cannot put a full stop to the expansion of the debt crisis, as spokesman Steffen Seibert for German Chancellor Angela Merkel warned of a long path before eventual end. That means more summits will be scheduled.

Source: KAB-MetaTrader

1.4520 1.4380 1.4240 1.4100 1.3955 1.3815 1.3675 1.3535

$1.4010 EURUSD The euro tumbled to 1.3165 in early October as we saw more eurozone member countries being downgraded by heavy debt. Urgent meetings were then called up and market participants put high hopes on the summits pushing the euro into the 1.40 level over three weeks. However, as the outlook of the eurozone economy is not improving, traders still will behave rather cautiously before any confirmed signal of a stop to the crisis expansion.

1.3395 1.3250 1.3105 15 Aug 2011 24 Aug 2011 2 Sep 2011

12 Sep 2011 21 Sep 2011 30 Sep 2011 10 Oct 2011

19 Oct 2011

Source: KAB-MetaTrader

the international investment, business & finance magazine OF CYPRUS

23


{INDICATORS, COMMODITIES & FOREX} 1.6610 1.6470 1.6335 1.6195

GBPUSD

1.6060

The pound’s trend was similar to that of the euro and it recorded a new 12-month low at 1.527 in early October. Risk appetite was then lifted up by investors’ hopes on the European summits and the pound was pushed into the 1.60 region over three weeks. Meanwhile, the Bank of England doubled its efforts on the asset purchase programme and we shall see long-term topside pressure.

1.5920 1.5785 1.5645 1.5510 1.5370 1.5235 15 Aug 2011 24 Aug 2011 2 Sep 2011 Source: KAB-MetaTrader

12 Sep 2011 21 Sep 2011 30 Sep 2011 10 Oct 2011

19 Oct 2011

Major FX Current

52 weeks

Monthly change (%)

High

Low

EURUSD

1.4012

4.66%

1.4940

1.2874

USDJPY

75.89

-1.43%

85.765

75.710

GBPUSD

1.6003

2.66%

1.6747

1.5315

AUDUSD

1.0562

9.32%

1.1080

0.9442

USDCAD

0.9971

-5.03%

1.0380

0.9406

USDCHF

0.8744

-3.73%

1.0076

0.707

EURJPY

106.409

3.2%

123.280

103.897

EURGBP

0.87619

2.03%

0.9084

0.8285

EURCHF

1.22496

0.77%

1.3835

1.0070

$1.6012 Japanese Finance Minister Yoshihiko Noda

(Source: Yahoo Finance. As at 27/10/2011)

78.05 77.93 77.75 77.45 77.15 76.85 76.55 76.25 75.95 77.65 73.35 18 Aug 2011

28 Aug 2011 6 Sept 2011

15 Sept 2011 25 Sept 2011 4 Oct 2011

13 Oct 2011

23 Oct 2011

USDJPY USDJPY recorded new lows of 75.73 in October mostly trending at the bottom. The conflict between investor fears and the Japanese government’s pledge to intervene if necessary kept yen trading in a tight range for most of the month. The balance was broken in late October as the EU leaders’ summit fell short in terms of its achievements. Simultaneously, Japan’s finance minister reinforced his determination to soften the yen and deemed USDJPY below 76 as a hindrance for economic growth. The minister’s warnings came to fruition on the last day of the month, with Japan intervening in the forex markets and pushing the yen to 79.50. However, this one-time action may not be capable of overturning the downtrend.

Source: KAB-MetaTrader

info: Isavella Frangou-Pavlou is Sales and Marketing Manager at KAB Strategy (Cyprus) Ltd (CySEC-License No. 058/05) E-mail: isavella@kab.com.cy

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.  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.

24

the international investment, business & finance magazine OF CYPRUS


{opinion}

By Eleni Vickers

My Unfair Lady The rain in Spain stays mainly in the plain – By George she’s got it! Now once again, where does it rain? – On the plain, on the plain! – And where’s that soggy plain? – In Spain! In Spain!” We all remember this Ode to Joy by Henry Higgins and Eliza Doolittle, a triumphant tune that broke out the moment they both realised that they had made their first breakthrough as a team. Professor Higgins aspired to achieve greatness as a phonetician by transforming Eliza from a Cockney flower girl into a proper Lady. For her part, she wanted to be transformed into the graceful, eloquent and poised version of herself in order to upgrade her life. They are the perfect example of how the existence of mutual benefits and the ability and willingness to transmit and receive knowledge are the absolute prerequisites for every successful trainer-trainee relationship. On my first day as a trainee Chartered Accountant I was assigned a member of the professionally qualified staff as my trainer. Two hours into the day, I found myself sitting on a dusty chair in a depressing factory, gazing at my laptop screen and trying to figure out what I was supposed to be doing on my first audit engagement. My trainer merely croaked, “Test the fixed assets and prepare the lead schedules���. I looked at her in desperation, trying not to seem incompetent and clueless already. How was I supposed to know what to do? The last time a number of students had an epiphany and instinctively knew how to do a job had been 1,967 years ago and there was a slim chance of the Holy Spirit manifesting again for my sake. By the time I asked my third question, her patience had expired. She flipped and blurted out, “Use your brain and figure it out yourself”. I still remember the cataclysmic feeling of embarrassment that hit me when tears ran down my cheeks and the client said, “Come on, give her a break! It’s the poor girl’s first day!” All I could think was…Just you wait Henry Higgins, just you wait! In the years that followed it became evident that the profession is dominated by individuals who are not the least bit interested in passing on the torch, transmitting knowledge or offering advice and guidance to juniors. From an individualistic perspective, it defies logic that professionals under pressure would devote valuable time to educate inexperienced co-workers out of the kindness of

their hearts and without any direct gain. Corporate psychology attributes the reluctance of experienced professionals to offer solid training to their subordinates to the fear of being judged and having their jobs hijacked. Corporate survival tactics dictate that everyone should keep powerful knowledge to themselves. I spent my training years working on a trial and error basis. If I was wrong I was told off, otherwise I knew I was right. If only things could be different…Ahh wouldn’t it be lovely!

Corporate survival tactics dictate that everyone should keep powerful knowledge to themselves It was lovely six years later when I took up a Senior Accountant position and walked into an office with helpful managers and willing subordinates, everyone was more than happy to guide me through what I needed to know, constantly volunteering information and explanations. No questions were ever left unanswered. Three months passed and I had learnt more than I had ever managed to learn on my own in the first six years of my career. I would go home and think about what I had been taught each day and what I had managed to teach my juniors. It wasn’t just work, it was the best education I had ever received or given. Six months later I realised why this environment existed and flourished. The secret lay in the company’s “Upward Appraisal Schemes”. Employees would be periodically evaluated by their managers on the basis of their performance. In turn, managers would be evaluated anonymously by their subordinates on the basis of their training skills and their ability to respond to questions and offer guidance to their team members. It was pure genius. All the ingredients for a fruitful master-apprentice relationship existed. Mutual benefits, the ability and willingness of all parties involved. I was happy, my managers were happy, the clients were happy, the Company was happy. I could have worked all night, I could have worked all night, and still have begged for more…I could have spread my wings and done a thousand things I’ve never done before!

info: Eleni Vickersis 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. 26

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27


{the debate}

Will the discovery of Cypriot-owned natural gas deposits lead to a better standard of living for the people of Cyprus?

YES!

NO!

By Onoufrios Hadjinicolaou

By Jack Gregory

Much attention has been paid recently to Cyprus’ potential for falling into the ‘resource curse trap’ whereby countries with an abundance of natural resources tend to enjoy lower economic growth and worse development outcomes than those with fewer natural resources. Whether Cyprus utilises its hypothetical extra income from (yet unproven) gas revenues to foolishly fund an unsustainable public sector or to invest for the future benefit of generations to come, the standard of living for Cypriots will rise either way. The question really is: how long will the rise last?

The big question is whether this increase will be distributed equitably within society and shared with future generations If the revenues generated are used by a kleptocratic government to fuel a consumption boom through unsustainable trickle-down spending, it will inevitably cause inflation to skyrocket while steadily leading the country toward a worsening fiscal crisis (especially once the resources dry up). However, if the income is used to save for future generations, while improving public welfare through transparent distributional mechanisms (as is the case in Norway), the increased standard of living for Cypriots will last much longer. In this respect, perhaps the recent crises on the island, such as the explosion at the Mari Naval Base and the destruction of the country’s biggest power station, and the public deficit issue are blessings in disguise. Despite the tragic loss of life and hardship that have followed these events, they have nonetheless mobilised the people to become much less accepting of the cronyism that has plagued the country for decades and to seek a more transparent, responsible, and intelligent government. I am confident that the electorate will begin to empower more forward-looking, dynamic and capable leaders with the ability and foresight to ensure that revenues from Cyprus’ natural resources are used for the benefit of everyone and not just the chosen few. In my view there can be little doubt that the discovery of Cypriot-owned natural gas deposits will lead to a better standard of living for the people of Cyprus. The big question is whether this increase will be distributed equitably within society and shared with future generations. I remain optimistic that this will happen.

It seems perfectly reasonable to assume that the discovery of natural gas deposits automatically brings wealth and, by extension, a higher standard of living for the lucky citizens of the country claiming ownership. Take the Gulf States or Norway: all saw their economies transformed by the discovery of oil and then natural gas deposits. So the same thing should happen in Cyprus, correct? Not necessarily. Natural resources do not of themselves bring prosperity to anyone – good governments do that and it is interesting that ten of the world’s 20 biggest gas fields are in Iran, Azerbaijan, Kazakhstan, Turkmenistan and Algeria, none of which is known for the high standard of living of its citizens. How the people of Cyprus will benefit from what may be sizeable deposits of natural gas in the island’s Exclusive Economic Zone depends entirely on the island’s politicians and state mechanisms – never the most reliable of managers.

Wisdom and statesmanship are needed in abundance if the new-found resource is to be exploited for the good of all In 2008, when the global financial crisis was beginning to make itself felt in Europe, local pro-government and opposition parties alike were cheerfully stating that it would not be felt in Cyprus. In 2009, the European Commission reported that the Cypriot government had taken no steps whatsoever to boost financial institutions since the crisis hit. Only now have government and parliament belatedly realised that they need to take urgent steps to ensure that the people’s present standard of living is not further eroded. Revenues from sales of gas could be used to set up the urgentlyneeded National Health Scheme, to improve transport and schools, and, above all, be invested wisely for future generations but will they be? The civil service almost doubled in size from 1990-2010 – the wage bill grew six times – but what will votehungry MPs be promising once natural gas revenues begin to flow: infrastructure measures or government jobs for their friends and families? Cyprus may soon have natural gas but it won’t last forever, which is why wisdom and statesmanship are needed in abundance if the new-found resource is to be exploited for the good of all. Unfortunately, unlike the gas, both qualities are in short supply.

info: Onoufrios Hadjinicolaou is Vice President and Chief Economist at Grey Rock Private Equity Jack Gregory is a UK-based political analyst and an expert on Mediterranean economies. 28

the international investment, business & finance magazine OF CYPRUS


A R E M A C LIGHTS ! T N E M INVEST o put m

t Why and how

30

the international investment, business & finance magazine of cyprus

iness

vie bus o m e h t o t in oney


Most investors are comfortable enough owning stocks and bonds, with perhaps a selection of options or commodities for the more adventurous. But now, thanks in part to disillusionment with traditional investments, some are looking to the movie industry as an investment that might be more fulfilling and productive and is certainly much more exiting – and risky – than the stock markets

I

f you dream of rubbing shoulders with the likes of Johnny Depp, Scarlett Johansson, Al Pacino or Angelina Jolie, one way of ensuring that you receive a constant stream of invitations to attend starstudded parties is to make direct investments into the films that are starring vehicles for the big names in the movie business. This is just one of the more glamorous perks that come with being known as a “movie investor” or – even more impressive – an “executive producer”. And if the social side of filmmaking doesn’t attract you, the returns might: they can be considerable. Successful movie investments can generate returns of 50%-100% within three years of their original cinema release, which is when the bulk of the

profits are realised. And then there are the extraordinary exceptions: the most profitable film of all time is Paranormal Activity (2009), which was reportedly made for just $15,000 and has earned over $200 million worldwide. Another low-budget, high-grossing movie is The Blair Witch Project (1999) which has grossed over $250 million worldwide compared to its production budget of $60,000. The first of the Saw movies (2004) cost about $1.2 million to make and brought its makers $103 million. In addition to the income generated in cinemas, they then can go on producing residual income for decades to come. Investors lucky enough to get involved in successful films will enjoy recurring revenue from royalties and income from DVD and soundtrack sales, television, payper-view, cable and streaming video. Over the last few decades, big box-office high-budget blockbusters such as Avatar (2009), Titanic (1997) and the movies in two Batman franchises have made massive profits, raking in vast riches for their investors. Revenue for Avatar is now approaching the $1 billion mark. It is not surprising that, prior to the global financial crisis at least, the idea of making money by investing in films had become an increasingly attractive and viable

the five most profitable films of all time Movie Paranormal Activity The Blair Witch Project Road to Ruin Birth of a Nation ET: The Extraterrestrial

Year

Production Budget

Global B.O

Return On Investment

2009

$15,000

$200m

1,330,000%

1999 1928 1915 1982

$60,000 $248.6m $2,500 $2.5m $110,000 $9.3m $10.5m $792.9

414,233% 99,900% 8,354% 7,451%

option. Recently, even Hollywood has been affected (see interview with Athena Xenidou) but no-one doubts that the movie business will bounce back and there will be no shortage of investors to help it recover. It is crucial to note that given the film industry’s hit-or-miss nature, many films will inevitably lose money. For every hit movie, there are thousands of flops but despite the high failure rate, the allure of the business continues to prove too tempting to resist. There are two main methods by which investors get involved in films: investing in film studio stocks and investing directly in specific movies.

Paranormal Activity

(2009), which was reportedly made for just $15,000, has earned over $200 million worldwide Investing in Studio Stocks The parent companies of major film studios are publicly traded stocks and include the likes of Sony, Time Warner, Disney and Paramount. These studios dominate not only the US but the international film industry and have the influence to get past the vital distribution hurdle that is key to enabling a film to reach its audience and actually make money. Apart from cinema box-office takings however, movies can bring in more money from deals with pay-TV channels such as HBO, Starz, and The Movie Channel. The major studios have access to this critical pathway and so their productions stand a bigger chance of leveraging multiple streams of revenue long after a film stops

the international investment, business & finance magazine of cyprus

31


Studio Market Share January 1 – October 16, 2011

THE CYPRUS CONNECTION: THE DIRECTOR

A

thena Xenidou won a Special Jury Award at the 2001 WordFest-Houston Film Festival for the documentary Unwitnessed Memories, her first feature film as a director, which went on to win other awards at festivals throughout Europe. The total budget of Unwitnessed Memories was a mere CY£110,000 in 2000 and since no payments were made for locations or actors, that amount represented the production costs.

Investing in a movie, even if it’s a Hollywood production with big stars, is generally considered to be a risky venture Xenidou’s latest venture is a much more ambitious and costly project, Socrates & Soc, an animated feature film for children. “Our total budget is €18 million, which may sound like a lot of money but by today’s standards it is considered very low and we reached it by cutting costs. For example, the animation studio we chose (Ministry of Illusion) is located in South Africa and costs a quarter of the price we would pay for the same work in Los 32

Market Share

Total Gross (Million $)

Movies Tracked

2011 Movies**

Rank

Studio

1

Warner Bros.

18.4%

1,499.5

28

2

Paramount

17.8%

1,444.8

15

9

3

Buena Vista

13.3%

1,080.7

15

12

16

4

Sony / Columbia

12.9%

1,049.7

24

19

5

Universal

11.6%

944.1

15

13

6

20th Century Fox

9.6%

783.8

15

11

7

Weinstein Company

3.5%

281.1

14

12

8

Lionsgate

2.2%

181.4

14

11

9

Relativity

1.8%

145.2

7

6

10

Focus Features

1.5%

123.0

7

6

11

FilmDistrict

1.4%

110.0

3

3

12

Fox Searchlight

1.3%

109.3

10

8

** No. of total movies tracked that were released in 2011. Source: IMDb (Box Office Mojo)

being screened in the cinema. Investing in these four movie studios’ stocks, however, isn’t what most investors have in mind when it comes to playing the game of movie financing. This is because these companies are media giants with stakes in everything from high-tech to books and newspapers. As such, their movie units constitute only a fraction of their total revenue.

Investing Directly in Movies Someone who knows of a movie director with a good idea or who has film skills him/herself can finance a movie directly. This usually applies to smaller projects but it is neither unknown nor entirely unusual for small-budget independent movies to do well. Sylvester Stallone’s Rocky was shot on a budget of $1 million but eventually grossed $225 million worldwide. A similar but more structured approach to investing directly in films is for movie-

the international investment, business & finance magazine of cyprus

minded investors to sign up with firms such as IndieVest. Such firms allow financiers to put money into movie projects that have already started the production process and have strong and established connections with cinemas to ensure that the movies they make are screened. Credible and transparent movie investment companies of this kind also provide quarterly financial reports so that as an investor you know where your money is going. Minimum investment requirements of this kind are at the €50,000 range and open only to “accredited investors”, which means that you need to have a proven net worth of at least €1 million to participate.

Producer… or Director? The producer and the director are the two most important people involved in the process of making a film. Both are supported by a multitude of supervisors and assistants responsible for completing


THE CYPRUS CONNECTION: THE PRODUCER

E

the key tasks associated with each position. Outsiders frequently confuse the terms “production” and “direction” but in the film industry the two roles are clearly defined. The producer needs to be a highly capable, financially-minded person who knows how to employ the right people to get the job done. He/she must possess the ability to multi-task during the entire course of the project from beginning to end, juggling issues relating to financing and equipment, as well as managing the entire film crew. The production team oversees all the other departments (art, editing, sound, photography, talent sourcing etc.) and manages a staff of accountants to keep the financial aspects of the project in check. As the ultimate head of the project, the

The entertainment industry is governed by an informal “code of silence” whereby noone ever tarnishes the reputation of a producer producer is by far the busiest person on a film set. He/she is often responsible for sourcing funding, securing and finalising scripts, employing (and firing) members of the crew, and ensuring the distribution of the finished movie. As such, the producer is involved in the project long before filming begins and long after it finishes. Once the cameras are rolling, the producer is usually the first to arrive on-set and the last to leave. It is often assumed that the director is the

highest power on a film set but he/she is actually second in line to the producer. The producer hires the director to bring creative vision to a film. As a visual artist, the role the director plays in a film is paramount to its ultimate success or failure. A wellknown adage in the industry notes that a bad director can turn a stellar script into a disaster and a great director can make even the worst script work on the screen. Without the producer – the person who is ultimately in charge of the budget – there can be no movie, no matter who the director is. And when the Academy Award for Best Picture is announced, it is the producer who collects it.

Wannabe an executive movie producer? Being a movie investor and, as such, the project’s ‘executive producer’, is definitely not for the faint-hearted. Beyond the issue of believing in the screenplay and the vision of the writer/producer, there are countless issues to consider: the calibre of the producer, the way contracts are agreed and enforced, how the movie’s funds are managed and income potential is maximised can all prevent an film investor making a return.

Distribution of profits The standard model for a film investor who has no involvement in the actual making of the movie is for the investor to earn 100% of “first monies” and then 50% to 70% of “second monies”. First monies are all profits earned up until the total investment amount is paid off. Second monies are all profits earned thereafter.

arlier this year, Until the River Runs Red, produced by Apostolos (Poss) Kondeatis, won the BAFTA Award for Best Short Film. Suddenly, Kondeatis, the son of Greek Cypriot migrants to the UK, found himself catapulted into the spotlight and being heralded as one of the UK’s brightest rising stars in the realm of film production. His route was far from straightforward. A producer is the one who has to understand the whole process, but he started by getting involved in graphic design and teaching himself to use computers before taking a degree in design which led to animation work “At the time, special effects were becoming digital and looking amazing and I became involved in postproduction (editing and special effects),” he told Gold. “What it was becoming possible to say and see in the moving image got me very excited.”

Winning the award has made me giddy for more and bigger projects He then started making his own films, each time using what he had learned on his ventures into the film internship world. “I went into script reading, worked in film marketing and distribution, learning from each how larger and more complex stories are developed and made. I then decided that I needed to go to film school and I began to recognize that my path was taking me towards producing. When it was all over, I had nothing else on my mind but the desire to make films.” One of those films, Until the River Runs Red, earned him the 2011 Best Film Award from the British Academy of Film & Television Arts (BAFTA) and since then, feature film possibilities have opened up from all sorts of avenues. “Even in the world of TV commercials, where I am now, I’m getting to meet and work with some of the best British directors and cinematographers. Winning the award has made me giddy for more and bigger projects. I feel that it’s a good achievement which I can now try and top. I’m also hoping to bring a film project to Cyprus in the near future. Fingers crossed for that!” the international investment, business & finance magazine of cyprus

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A Different Story Angeles. This decision alone allowed us to cut €40-60 million from the budget. Then the studio became a co-producer, so money came in as part of their own input.” More cost-cutting was possible thanks to the personal relationships between the producer and the actors doing the voiceovers: Ed Harris, Amy Madigan, Elizabeth Perkins and Melanie Griffith were all attached to the project. “Ed Harris, for example, would normally be paid between $5 and $10 million to do a film,” says Xenidou, “but he agreed to a fee in the hundreds of thousands instead.” Three years ago, she had about €4.5 million in place, plus the cost of the work that would have been done by the studio/ “We were in a very good place,” Xenidou recalls, “and then came the global financial crisis.” When stocks began to fall and two of the private investors lost a lot of money, they pulled out and this basically froze the project. “It happened with many Hollywood films as well,” says Xenidou. “This was a global crisis and good as our project might be we couldn’t be the exception to the rule. So now everyone is waiting until we can find more money. Financing films is difficult enough when times are good so in this climate it’s extremely difficult. Investing in a movie, even if it’s a Hollywood production with big stars, is generally considered to be a risky venture. It’s a little bit like gambling because you can never know in advance if a film is going to be a huge hit or an equally huge flop. Look at Waterworld which almost bankrupted the studio. So although I have a problem with moving this particular project forward, even the Big Five studios are paralysed from fear of taking risks in terms of creativity and doing something different.” 34

Investing in a movie project quite different from putting money into more conventional securities for at least four main reasons: 1. There are fewer investment opportunities in the movie industry. Each year the major US studios release just over one hundred movies that might be candidates for investment, compared to several thousand common stocks listed on the world’s exchanges. 2. Movie projects are far less transparent than listed equities. No regulatory organisation mandates financial disclosure at the project level, so the nature of the investment opportunities may be unclear even in retrospect. 3. There is a very large body of research and a sound theoretical basis underlying the analysis of public securities. Despite a great deal of academic work, there is no generally accepted model relating movie revenue to any particular set of factors. 4. Each movie is an individual project which offers the investor a single decision: whether or not to commit at the project’s inception. After this decision is made, the investment is illiquid and there is little opportunity to revise the holding. Stock markets offer nearly continuous pricing and liquidity, providing the equity investor with a range of entry and exit points and the ability to mark portfolios to market.

The key balance to be struck is to ensure that the second monies are fair to the investor while, at the same time, enough to incentivise the producer to do a good job of commercialising the project to the maximum extent.

Successful movie investments can generate returns of 50%-100% within three years of their original cinema release Due diligence When investing in a movie it is critical to know exactly who the producer of the project is and then how many films this person has previously produced. However, a producer with a long list of credits could

the international investment, business & finance magazine of cyprus

still mean precious little and so speaking to previous investors (i.e. executive producers) for whom the producer has worked is a very good idea. It should be noted that requesting a producer to provide references is more or less pointless because they will only refer you to the people who have good things to say about them. Moreover, the entertainment industry is governed by an informal “code of silence” whereby no-one ever tarnishes the reputation of a producer so as not to be dubbed a “traitor”.

Cast-iron contract A solid contract, drafted by a lawyer experienced film, is critical no matter who the producer is. Roles and responsibilities need to be clearly defined and specified. There must be clear and concise remedies that protect you (the investor) from any breaches that may occur at every step of the production and the subsequent commercialisation process. For example, timeframes in which specific jobs must be completed before the producer is in breach should be set. If the producer fails


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to complete milestone tasks, the investor needs to be contractually empowered to fire him/her without any further compensation. It may also be a good idea to restrict the producer from working on other projects until their work is finished on the movie.

All-Time Biggest US Box Office Hits

Controlling the money As long as investors control the money in the project’s account and are responsible for signing all the cheques, there is no danger of fraud by the producer. If a producer insists on being allowed to dispense funds, they should, at the very least, be invested in increments as the work is completed, with full accounting being kept every step of the way. If the producer is putting up some of his own money, it should be held in a special ‘escrow’ account from which it is only released under preagreed conditions relating to the project. Hiring an independent accountant to work on set during filming is a good, though unpopular idea. Investors should be wary of any producer who insists that the industry “doesn’t work that way” and although things may differ for really big-budget movies, a producer should be limited in the decisions he can take with investors’ money. This is especially true for lower budget movies (less than $1 million) where the production process is not overly complicated.

Rank Title

USA Box Office

1.

Avatar (2009)

$760,505,847

2.

Titanic (1997)

$600,779,824

3.

The Dark Knight (2008)

$533,316,061

4.

Star Wars: Episode IV - A New Hope (1977)

$460,935,665

5.

Shrek 2 (2004)

$436,471,036

6.

E.T.: The Extra-Terrestrial (1982)

$434,949,459

7.

Star Wars: Episode I - The Phantom Menace (1999)

$431,065,444

8.

Pirates of the Caribbean: Dead Man’s Chest (2006)

$423,032,628

9.

Toy Story 3 (2010)

$414,984,497

10.

Spider-Man (2002)

$403,706,375

11.

Transformers: Revenge of the Fallen (2009)

$402,076,689

12.

Star Wars: Episode III - Revenge of the Sith (2005)

$380,262,555

13.

Harry Potter and the Deathly Hallows: Part 2 (2011)

$378,180,621

14.

The Lord of the Rings: The Return of the King (2003)

$377,019,252

15.

Spider-Man 2 (2004)

$373,377,893

16.

The Passion of the Christ (2004)

$370,270,943

17.

Jurassic Park (1993)

$356,784,000

Shooting on film or going digital?

18.

Transformers: Dark of the Moon (2011)

$351,331,987

19.

The Lord of the Rings: The Two Towers (2002)

$340,478,898

Low budget independent movies should, on the whole, not be shot on film butt on high definition video which is much cheaper while still retaining the film ‘look’. Shooting on film can add hundreds of thousands of dollars/euro to the cost. Admittedly, the use of digital can hamper the likelihood of achieving cinema distribution but most independent movies never make it to cinemas and go straight to video. As an investor playing the odds, you should be aware that the cost of shooting an independent movie using film is one that is unlikely to be recovered.

20.

Finding Nemo (2003)

$339,714,367

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the international investment, business & finance magazine of cyprus

Selling the movie It is vital for investors to recognise that successfully completing a movie constitutes only phase of the commercial process. Selling it to a distributor is in itself a challenge and one that takes time. It should not be made easy for producers to arbitrarily pay themselves expenses for trekking around movie festivals and partying in Cannes!

Extracting income from distributors Once distribution is achieved, the process of being paid for it is the final hurdle. Media distributors are notoriously ruthless when it comes to paying for films sold. and the big studios often employ accounting methods that confuse investors who don’t know what to look out for.


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THE CYPRUS CONNECTION: THE SCREENWRITER With a Hollywood-backed screenplay and offers of an all-star cast, Stavros Sideras offers a golden opportunity to investors interested in moviemaking

By Costa Ioannides Photo by Olesia Constantinou

I

f you’re looking for someone who has done it all in the entertainment business, Stavros Sideras certainly ticks most, if not all, the boxes. Starting out in the ‘70s as a singersongwriter, he went on to represent Cyprus twice at the Eurovision Song Contest as singer, lyricist and composer. He later worked as a radio and TV presenter before focusing on engaging the talents of world-class performers to stage several highly-acclaimed musicals in Los Angeles, New York, Las Vegas, Johannesburg and Greece. He has also written musicals (including the story/libretto of ‘Demons’ which starred Anna Vissi and ran in Athens for two years) and a number of movie screenplays. Thanks to his talent for writing, in recent years Sideras has attracted the attention of major agencies representing America’s leading A-list actors. Hollywood insiders are convinced that his Cyprus-based screenplay Poets Never Die – the true story of the love affair between the daughter of a high-ranking British officer and young Cypriot freedom fighter in the 1950s – is a winner and the agencies have put forward their best talent for leading roles in the proposed movie version of it, including Vanessa Redgrave, Faye Dunaway, John Rhys-Davies, Omar Sharif and Max Ryan. Initially resistant to the idea of writing a screenplay based on real events that took place during the EOKA uprising, Sideras began to research the story, a process that would eventually consume him both artistically and financially. “Poets Never Die is set in the ‘50s during the Greek Cypriot uprising against British colonial rule and, through the recollections of surviving key characters, tells the story of

how Orestes, a young Greek Cypriot poet and member of EOKA, is betrayed by an informer while he battles with his personal feelings for Beth, the daughter of a British intelligence officer. It is, on the one hand, an extraordinary love story set against a backdrop of carnage, atrocities and bravery but it also shows that even mortal enemies are capable of showing compassion to one another, as well as how money can be used to entice self-serving people to betray their own heroes.” It is easy to see why studios and agencies have been clamouring to get involved and why it has so completely consumed Sideras. “On the whole, there are two types of films that Hollywood A-listers make: projects that come with blockbuster-sized budgets that may turn out to be flops but the actors are still handsomely paid, and more ‘artistic’ films where the script and roles are so powerful that industry insiders can tell that they are potential Academy Award winners. Fortunately I’m not the only one believe that Poets Never Die is one of those…” Had it not been for a series of cruel twists of fate, the film would already have been made. Poets Never Die was originally backed by Paramount Pictures with a budget set at $28 million and a crew boasting no fewer than 8 Oscars among them. That was Sideras’s high point but then the financial crisis hit and Paramount was forced to slash its budgets, abandon smaller projects and limit itself to backing sure-fire action flicks. Shortly afterwards, the project suffered another major setback when Sideras’s executive production partner was killed in 2010. Sideras was forced to rethink the scale of the budget and his manager Kim Matuka started working on getting grassroots support from leading

acting agencies like CAA and William Morris Endeavor Entertainment. “The problem with securing financing for a movie,” he told Gold, “is that you have to have an A-list cast already assigned to the project. However, in order to secure the actors you have to have commit to ‘pay or play’ agreements whereby you obtain commitment for the dates when the project is due to begin production. The better the script, the more willing the agencies and actors are to demand less for these ‘holding commissions’ because they recognize the career benefits of becoming aligned with powerful, potentially awardwinning scripts.” So where is the project right now? “After experiencing the most precarious, costly and exciting time of my life, the pieces are finally falling into place!” he says. “The screenplay succeeded in opening the doors to all the A-list acting talent that the film deserves. Now, under the auspices of KPMG, we’re in the process of building up the fund to commit the required A-list actors to the project. The target is $6 million dollars and we are on the way to achieving this.“ That said, there is still scope for investors to become involved in Poets Never Die through private placements and thereby back Stavros’s vision of using a poignant love story to bring a crucial period in Cyprus’s troubled history to the attention of the world. More to the point, from the investment standpoint, there is also a chance to be part of a project that has already been predicted to bring good returns for its backers. For more information, visit www. poetsneverdie.com or e-mail info@poetsneverdie.com the international investment, business & finance magazine of cyprus

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{opinion}

By Philokypros Andreou

The Energy Time Bomb

T

he present situation in the Eastern Mediterranean, with new, possibly significant energy resources at the stage of investigation or development, is a cause for some concern. Indeed, it might be described without exaggeration as a ticking time bomb. Is the potential for the discovery of significant energy resources in Cyprus a boon or a curse? In my opinion, we are a good five to ten years away from seeing real economic benefits flowing from this prospective and obviously welcome development. In this sense it is clearly a boon. But over the next five to ten years we need to ensure that it does not become a curse. The potential prosperity that this energy resource can bring may easily become an object of political manipulation. Politicians, by their very nature, are averse to taking difficult or unpopular decisions and all too willing to promise or imply the coming of heavenly goods soon. I hope that our politicians here in Cyprus will have the courage to leave the issue of natural gas outside the discussions when tackling the structural problems of the economy. I also hope to see our current and future governments developing an appropriate energy strategy. The absence of a clear energy strategy has been affecting energy-related decisions for at least 10 years and time is running out. In this context, I would like to see a public debate on how prospective hydrocarbon reserves will be exploited for the benefit of future generations and the further development of the country’s energy and other infrastructure. Not surprisingly, Cyprus once again finds itself in conflict with Turkey, this time regarding the drilling for natural gas deposits by the US company Noble Energy in the island’s Exclusive Economic Zone. No-one disputes the fact that Turkey is an important country in the region but each time a problem arises, Turkey proves that

it cannot play by the rules. At the same time it wants – somewhat ironically – to join the European Union family which has even more rules. Of course, anyone listening to the Turkish Prime Minister may actually believe that here in Cyprus we are all illegal immigrants who should be denied any political rights and yet we have the cheek to coordinate Paris, London and Berlin in the second half of 2012. However, that is another issue. Turkey is clearly attempting to establish itself as the leader of the Islamic nations of the region. Moreover, energy is the single most frequent reason behind major conflicts and Turkey is currently threatening both Israel and Cyprus on a daily basis in order to gain political or economic benefit. Initiatives are under way at present to ‘save’ Turkey’s progress towards eventual EU membership. But does Turkey really want to take the European route? And does Europe really want to adopt a bad-mannered child?

Turkey is currently threatening both Israel and Cyprus on a daily basis in order to gain political or economic benefit I hope that political and other pressure will be brought to bear on Turkey which flashes its guns much too easily at Cyprus or natural gas exploration or whatever else it perceives as a national security threat. I also hope that an accidental shootout will not give Europe more headaches than its painkillers can currently tackle. Time bombs can always be dismantled and rendered harmless through careful expert handling. It is in no-one’s interest to allow this one to explode.

info: Philokypros Andreou is Executive Chairman of the Phil. Andreou Group and President of the Limassol Chamber of Commerce & Industry 40

the international investment, business & finance magazine of cyprus


{opinion}

By Peter G. Economides, FCCA, TEP

In Cyprus Trusts we trust

C

yprus is gearing up to amend its antiquated International Trusts Law in an effort to further boost its competitiveness and remain on the same playing field with global and regional competitive jurisdictions. The relevant amendment to the law is already in the hands of the Parliamentary Committee on Financial and Budgetary Affairs, the members of which recently pledged to pass it unanimously – pending an Attorney-General ruling over its EU compliance – and hopefully before the end of the year. Trusts on the island are governed by the Cyprus International Trusts Law (CIT), which was enacted in 1992 and has remained unaltered ever since. The International Trusts Law of 1992 complements the Trustee Law CAP193 which is based on the English Trustee Act 1925. Until 1992, trusts on the island were virtually non-existent, while Cyprus International Trusts became popular after the enactment of the CIT Law. The shortcomings of the existing regulatory framework have been further underpinned by the modernisation and successful emergence of other competitive trust jurisdictions, such as Malta, which has adopted an attractive trust law framework, opening the way for substantial foreign investment to be channelled into or through the country. Several foreign investors with substantial investments being held under Cyprus international trusts have expressed serious and justifiable concerns regarding the outdated nature of the existing framework. Their concerns include the lack of adequate jurisdictional protection especially when compared to jurisdictions such as England, Malta, Ireland and, of course, the traditional tax havens, all of which are proving to be very capable at coping and keeping up with global trends. If the trustees of such Cyprus trusts eventually opt to transfer the seat as well as the funds held by such trusts to other more attractive and secure jurisdictions, then the adverse economic effects on Cyprus could potentially be detrimental and irreversible, particularly amidst the global financial crisis and given that the

funds held by such trusts amount to billions of euro. The proposed changes to the Trust law include, inter alia, the introduction of efficient “firewall” provisions and modern jurisdictional protection clauses that address the security concerns expressed by existing and new non-resident settlors, who are the persons setting up the trust. The amendment also clarifies that residents of Cyprus are not allowed to set up an international trust, while such trusts may from now even hold immovable property on the island. The amendment also addresses issues of confidentiality, trust duration, the application of foreign jurisdictional laws and more. The proposals are in compliance with EU law and directives

The trust business is a multibillion dollar industry in which Cyprus can become a major player and take into account the realities of the Cyprus economy today. The lifting of the prohibition on a Cyprus International Trust from holding immovable property on the island is particularly important since it is expected to contribute to the revival of the Cyprus real estate market. The abolition of the outmoded statutory prohibition of investments into the Cyprus property market is finally being proposed. The importance of this abolition is self-evident, given that these trusts hold massive assets, which are immediately available for investment but are statutorily blocked from being channelled into the Cyprus property market. The existing prohibition on investments in real estate in Cyprus deprives the country of substantial foreign investments that could prove vital for the economy. The trust business is a multi-billion dollar industry in which Cyprus can become a major player and obtain a huge piece of the action. The proposed bill is perfectly aligned with the best interests of Cyprus and our economy and will help fortify and further develop the island’s reputation as an international business centre.

info: Peter G. Economides is the Chairman of Totalserve Management Ltd and is a Fellow Chartered Certified Accountant with 40 years of experience in international tax planning and trusts. (peter.economides@totalserve.eu) 42

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43


innovation

Investing in innovation and technology By Costa Ioannides

W

hy is innovation important? To put it simply, innovation and the successful commercialisation of new technology creates wealth and jobs and so keeps economies healthy and vibrant. Innovations such as radar, the internal combustion engine, the light bulb, the microchip or, more recently, Facebook, have changed the lives of billions of people all over the world and created vast amounts

44

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of wealth for those who invested in the early stages of their development. Whilst investing in established companies through the stock markets can provide modest returns (and, of course, losses), backing new technological innovations can generate truly spectacular returns. However, as in most other sectors, picking and backing winners is both an art and a science. So-called ‘angel investors’ are well-known for using their own money to back ideas that they like but investors do not necessarily have to take the risk of putting all their eggs in a single basket. They also have the option to invest through specialist funds whereby the experts in the field will diversify the fund’s money across many potential ‘winners’. Investing in innovation and technology is not just

about spotting a winning idea. It’s also about understanding the particular market and working with the company to help it get ahead of the competition. As such, specialist angel or venture funds can be vital in enabling a new venture to market its product, drive the company forward, and supply the necessary skills where needed to keep it on track. Investing in this sector is, of course, very high-risk with a potential for a total loss of capital if things go wrong. However, if the necessary due diligence is carried out to minimise the downside risk, it is capable of yielding returns that no other investment can match. It’s certainly not for the faint-hearted but investing in the right technology funds can produce truly astounding results.


Top 5 Technology Funds by percentage of 1-5 year past performance returns

How to Invest in New Technology & Innovation

1

As an angel/seed investor

An angel or seed investor is one who provides capital to business startups in exchange for debt, equity in the business or both. This type of investment can be very lucrative but it is also very risky since a lot of money can be placed in a single venture that may fail. Such investors usually have a background in the sector in which they invest and they can therefore make a better-informed evaluation of an investment’s prospects and risk profile. In the field of new technology, which is extremely fast-paced and complex, the role of an angel investor should only be assumed by someone with a thorough knowledge of the sector.

2

Through specialist technology funds

Through mutual or specialist private equity funds, investors can gain exposure

Hot Technologies Affecting Computing

• Cloud computing • Mobile apps and media tablets • Next-generation analytics • Social analytics • Social communication and collaboration • Video-linking e-learning, merchandising, marketing, webinars and tele-presence • Ubiquitous computing • Fabric-based infrastructure and computers • Context-aware computing

to upcoming new technology ventures by leaving it to the experts to develop ‘hot’ companies for them. While this method of investing can carry substantial fees and high minimum investment requirements, the advantage of leaving it to a proven guru to pick winners can produce some of the most exceptional returns possible.

3

COMPANY

1-YEAR

3-YEAR

5-YEAR

BERKSHIRE FOCUS

29.42

12.62

11.93

JACOB INTERNET

23.45

10.82

3.67

HENDERSON GLOBAL TECHNOLOGY A

16.65

8.89

8.73

ICON INFORMATION TECHNOLOGY S

14.62

-3.19

0.30

PUTNAM GLOBAL TECHNOLOGY Y

11.15

NA

NA

Through Exchange Traded Funds (ETFs)

Examples include Technology Select Sector SPDR, PowerShares QQQ and iShares Dow Jones U.S. Technology.

Exchange Traded Funds (ETFs) replicate the performance of a chosen Through commodity investments benchmark, effectively allowing investors to Most cutting-edge technology track the market and easily gain exposure uses commodities that are becoming to a wide range of assets. While they can increasingly scarce. This is true not only be bought and sold like shares, they differ of precious metals but of even seemingly in that they carry an annual management mundane materials like iron and copper. charge. However, these charges are less All alternative energy sources, for example, than those typically found in actively require large amounts of these substances. managed unit trusts. Technology ETFs For this reason some people argue that differ widely in their constitution but investing in commodities is one of the the two most common types investing in best ways of indirectly investing in the technology are the so-called ‘subsector’ next wave of technology. For instance, if and ‘broad’ funds. Sub-sector funds can track a basket of semiconductor Backing new technological innovations makers or networking can generate truly spectacular returns software companies. you want to invest in energy research, you Examples include PowerShares Dynamic could actually make investments in copper Semiconductors, Vanguard Information or copper-producing companies. Silver Technology and First Trust Dow Jones is another metal that is crucial to solar Internet Index. Broad funds, on the energy components and other high-tech other hand, buy into the largest and applications. most influential companies in the sector.

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innovation

Where Angels Don’t Fear to Tread

T

he Silicon Valley Greek Seed Fund has already helped launch projects ranging from energy conservation to debugging software and online publishing. According to the Fund’s founder, Nick Arvanitidis, there is no shortage of good ideas. He tells Gold about what it takes to access funding from a high-tech angel investor and explains why ‘mentorability’ is a key concept for those providing the money.

Since formally retiring in 1995 as Founder and CEO of Sequus Pharmaceuticals, Nick Arvanitidis has been an active investor in startups, the financial markets and real estate. Having gained his Ph.D. in Management Science and Engineering from Stanford where he served as adjunct professor in the university’s prestigious engineering department, Arvanitidis is now considered to be one of the old-timers in the USA’s world-leading high-tech development hub, Silicon Valley. Wishing to assist in developing the hightech industry in his homeland Greece, Arvanitidis recently led the formation of the Silicon Valley Greek Seed Fund (SVGSF). He succeeded in bringing together a strategic alliance of Greek entrepreneurs and technologists whose primary mission is to create opportunities for seed funding and to bridge entrepreneurial activities between Greece and Silicon Valley. Speaking to Gold from his residence in Greece, Arvanitidis explains that since its formation, the SVGSF has really “caught fire” due to a huge need for funding for startups in Greece. “It’s been an exceptional year,” he remarks. “After formally retiring, I used to spend three to four months a year just relaxing in Greece but since we began our SVGSF activities, we’ve been overwhelmed by the reaction. I’ve been spending all my time evaluating the people who have come forward with ideas.” The SVGSF idea started about three years ago after the Greek newspaper Kathimerini ran a story on the Greeks of Silicon Valley. 46

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“It really demystified what the Valley was all about and we saw a marked increase in the influx of mainland Greeks coming to us looking for help to commercialise their ideas. The problem for us at that point was that we were not really organised in any way to cope with the demand.” After a while, Arvanitidis recognised that to service the demand in a coherent way, the Greek seed investors being approached ought to form a committee to evaluate proposals in advance before people spent time and money on going to California to pitch an idea. “I started building the fund and its members in November 2010 and I received tremendous support from other like-minded Greeks in the Valley. It was no problem to get the most distinguished Greeks there to be part of the fund.” Arvanitidis concedes that getting a group of successful Greeks to work together is, in itself, a challenge. “I told the other members: we have to be less Greek and minimize our disagreements and learn to be more Jewish in this respect!” With the fund members in place by early 2011, the next step was to build a website to formalise the method of application and make sure that candidates are guided through the proper stages of qualifying an idea with a view of gaining funding from the SVGSF. One of the things that Arvantidis and his colleagues have discovered in the past year is that there is no shortage of technological talent in Greece. The country’s developers, computer scientists and engineers are, by global standards, very competitive. However, he has also found that there is a massive local knowledge gap regarding how to employ technological and scientific skills to create a business: “Funding and mentorship are in drastic short supply in Greece with precious

few success stories with which to inspire local entrepreneurs to follow suit,” he says. So what are the most common mistakes that Greek tech-entrepreneurs make? “The first thing they don’t do is to check out who else is doing something similar and who the established players already are in the market. In other words, the due diligence that they carry out is pretty close to zero!” Has the fund has already invested in any exiting ideas? “Without mentioning names, yes absolutely! We have a couple of situations where we’re in the process of building businesses out of sound original ideas. However, apart from the financing side, we spend a lot of time making the project leader understand who and what it takes to take the idea forward. This requires that the evolutionary steps be planned for and that the crucial task of building a team with the right complimentary set of skills should take centre stage.” Arvanitidis believes that Greeks are generally rather inept at recognising the importance of team-building when it comes to achieving success. “The average company size in Greece is 1.5 people! They don’t know how to work as a team. I have yet to come across a single company here that fully appreciates the role of the CEO or the fact that a Board of Directors should exercise proper fiduciary diligence. At the moment, entrepreneurship in Greece is considered a solo game when really it needs to become a team sport whereby, for example, a great engineer looks to team up with a great marketer and a good business developer to really move things forward”. A major role of the SVGSF is to provide such connections. “Entrepreneurial people with sound ideas should be looking to work together and accept a smaller stake in something that has much greater value. The value of the venture becomes much bigger when drawing on the complementary skill sets of all the partners involved”. Arvanitidis has coined the term ‘mentorable’ to describe whether someone pitching for funding is capable of learning how to hone their entrepreneurial skills. “I’ve been operating at the CEO level for 30 years and I strongly believe that you are buying yourself a big problem if you provide finance

to someone who doesn’t listen and thinks that he knows it all. I can tell quite early on if someone will be worth my time.” So what happens if a good idea is being presented by someone who is clearly not cut out to be a CEO? In this case, he may seek to match up such a person and his idea with someone deemed to be CEO material. This is not always easy: “The problem is that people from Greece won’t accept this. They are still stuck in the mode of thinking that their idea has to be wholly owned and led by them and their family. It’s all they know and all they are willing to accept. In such cases I wouldn’t put a penny into their ideas because they’re just not mentorable.” Given that seed funding may involve investing many millions in an individual and an idea, how does Arvanitidis cut to the core of a person’s personality to expose their true nature and mentorability? “The slow way involves spending a lot of time with a person and drawing them out; a quick way could involve telling a candidate that the proposed idea requires five skill sets to become a success of which they only have one – the idea. A mentorable person will be open to examining the issue in the interest of working towards

You are buying yourself a big problem if you provide finance to someone who doesn’t listen and thinks that he knows it all the best outcome for the business. For those who react negatively the minute you tell them they’re just not cut out to be a CEO, it’s all over. Most people actually fall into this category.” While many people don’t realize that they are not CEO material, even more mistakenly describe themselves as entrepreneurs, Arvantidis says. “The word entrepreneur is much overused and misapplied. Trying to start something doesn’t automatically make you an entrepreneur. An entrepreneur is someone the international investment, business & finance magazine of cyprus

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innovation who can successfully navigate a venture that isn’t a family business and create something that didn’t exist before. In my view, an entrepreneur starts from nothing and builds something that grows, has real value and provides jobs.” In this respect, he says, Greece comes up very short. “There must be a concerted effort to build an entrepreneurial ecosystem that will promote ideas along with the managerial expertise and access to finance to build new businesses. At the moment 90% of the people behind startups in Greece are developers or engineers, not business people. Nine out of ten of them lack the right skills and talents to enable an enterprise to become successful.” When it comes to marketing, Arvanitidis is even more critical. “The importance of building a marketing and business development team is something that’s almost alien to most business people here. There is such a shortfall in the appreciation that a success story is built around a lot of smart people with complementary skills working together. We Greeks tend to think we know everything and this really works against us. Would any smart person like to work with someone who thinks they know how to do your job better than you?” A key component of what the SVGSF offers is not only funding but the necessary guidance and mentorship to build a team with the potential to create a success story. So, at which point should someone look for seed capital? Arvanitidis is adamant that 99.9% of people get this wrong: “You should look for seed money only when you have a very clear vision of what you are trying to do and a plan how to get there. You’ll have done your due diligence and quantified the

understand why but, Arvanitidis insists, this is the last thing people should worry about. “Seed capital providers like the SVGSF are not interested in control for the sake of it. We are interested in helping entrepreneurs build successful businesses out of commercially sound ideas. People worry far too much about the control issue when, in my view, they should be worrying about the far more crucially important preceding steps.” He adds that while in Greece there is a tremendous fear of losing control of an enterprise or idea, “Things don’t work like this in Silicon Valley. The Facebook story is the exception and, to take things further, especially in the technology space you need patent programmers and engineers to bring the idea to fruition. Without talking about it to potential investors you are unlikely to get funding for an idea at the speed necessary in order to stay ahead of the game.” He does advise, however, that in order to stop ideas from being lifted, applicants for funding should be careful and only approach credible and established seed investors once they have done all their homework. “In the Valley people know who is who and you can’t afford to get a reputation for stealing people’s ideas. You won’t last long doing that.” How much should the person with an idea expect to cede to an angel investor? Typically, it will be in the 10-20% range, Arvanitidis says. “So, if the venture is valued at $900,000 and the seed fund provides a $100,000 investment, the total value of the company will be $1 million with the seed fund owning 10% of the share capital.” It is important to get the balance right from the beginning in order to set

Many ideas fail to be commercialised because the people who come up with them fear sacrificing control to outside investors competition and checked that every Tom Dick and Harry isn’t doing the same thing. Then you ask yourself, ‘How much money do I need in order to show that my idea has got legs?’ Only once all this is done should you seek to engage seed investors.” Many ideas fail to be commercialised because the people who come up with them fear sacrificing control to outside investors. One only has to look at the example of the birth of Facebook to 48

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up the next stage of funding when the company becomes ready for venture capital financing. Arvanitidis says that the investor also has to be careful: gaining too big a stake may choke off the incentive for the entrepreneur to work hard to keep things moving forward. Furthermore, a significant amount of the share capital has to be kept available for the second round of funding. When it comes to actually proposing an idea to the SVGSF, the fund asks

applicants to pick a first, second and third choice sponsor from its members based on their respective backgrounds. This is to ensure that the idea initially goes to the people with expertise in the particular sector who can assist in completing the due diligence process and sharpening the idea’s final presentation to the review committee. “We have a system whereby we have a five-member committee reviewing the proposals. If more than one committee member says no to taking things further, the deal is dead. We need to achieve a strong consensus to put money into something.”

In one or two years’ time, applications like Facebook, Twitter and Linkedin are not going to be worth what they are today The fund’s capital comes from the members themselves, each of whom has committed a specific amount of money to back good proposals. However, demand has become so overwhelming that Arvanitidis is now thinking about whether to open the fund up to more participants. “At the moment, the fund is looked upon as a selective club so it may be a good idea to start involving a broader base of interested investors.” Is there a standout sector that is begging for new ideas? Green energy, says Arvanitidis. “Our planet really can’t go on for another two to three decades with the kind of abuse that we’ve been giving it. Unfortunately, green energy is very capital-intensive. You need a lot of money to get started.” Unsurprisingly, therefore, many entrepreneurs elect to focus on the less capital-intensive mobile/web driven applications sector. “You don’t need a lot of money, just your computer and time to research what’s missing. However, this sector is really becoming over-saturated. I think we’ll find that in one or two years’ time, applications like Facebook, Twitter and Linkedin are not going to be worth what they are today”. For more information on the SVGSF’s activities, visit www. www.svgsfund.com


The Men with the Midas Touch

The world’s top 5 technology investors (ranked by Forbes 2011 ‘Midas’ list) 1. James Breyer of Accel Partners Investment sector: Technology Education: MBA, Harvard University; BA/BS, Stanford University Company Website: www.accel.com Key companies invested in: • Facebook • Marvel Entertainment • BBN Technologies • Etsy • Legendary Pictures Profile Forbes magazine recently noted that everything that Breyer touches becomes a goldmine, whether it be a Harvard drop-out (Mark Zuckerberg) or a comic book company (Marvel Entertainment). His firm’s early $12.7 million bet on Facebook is now worth $5 billion (and growing). Accel’s 10% stake makes it Facebook’s second largest shareholder after Zuckerberg (Breyer personally owns 1%). Breyer also serves on the boards of Dell and Wal-Mart. It’s been reported that in a single day, Breyer negotiated the sale of Marvel Entertainment to Disney for $4.3 billion and BBN Technologies to Raytheon for $350 million. He has also recently closed two new funds in China and is raising two new funds in the US that will amount to over $2 billion in fresh capital.

2. Michael Moritz of Sequoia Capital Investment sector: Technology Education: MBA, University of Pennsylvania Wharton School; BA/BS, Christ Church, Oxford University Company website: www.sequoiacap.com Key companies invested in: • A123Systems Inc. • Atom Entertainment • Green Dot Corp. • Pure Digital Technologies • Zappos.com Inc. • KAYAK Software Corp. • LinkedIn Corp. Profile It is said that this Welsh venture capitalist equally inspires fear and respect. His keen eye for a good bet saw him become an early investor in winners such as Google, Yahoo, and PayPal. Among his many

triumphs he also led Sequoia’s investment in video camera maker Pure Digital which he then sold to Cisco for $590 million. A former journalist, he recently re-issued an update of his 1983 book Return to the Little Kingdom: How Apple and Steve Jobs Changed the World.

3. Reid Hoffman of Greylock Partners Investment sector: Technology Education: MS, Oxford University; BA/ BS, Stanford University Company website: www.greylock.com Key Companies invested in: • LinkedIn Corp. • Groupon Inc. • Last.fm • Zynga Game Network Inc. • Facebook • Ning Profile One of Silicon Valley’s most seasoned investors, Hoffman has had a hand in creating nearly every lucrative social media startup in Silicon Valley. After leaving PayPal in 2002, Hoffman founded LinkedIn while moonlighting as an angel investor in over 70 start-ups. These included Facebook, Zynga, Digg, One Kings Lane, Ning, Nanosolar, Flickr (sold to Yahoo), Last.fm (sold to CBS), Six Apart (sold to Say Media), Vendio (sold to Alibaba) and MixerLabs (sold to Twitter). Since joining Greylock in 2009 Hoffman continues to oversee Greylock’s Discovery Fund, which has already dished out 20 seed investments (between $25,000 and $500,000) since it launched last September. His stated personal quest is to “change the lives of millions”.

4. Peter Fenton of Benchmark Capital Investment sector: Technology Education: MBA, Stanford Business School: BA, Stanford University Company Website: www.benchmark.com Key Companies invested in: • Twitter Inc. • SpringSource • Wily Technology • XenSource • Zimbra • JBoss Group • Yelp! Inc.

Profile It has been noted that, in a single day, Fenton was the lead partner behind SpringSource’s $420 million sale to VMWare and FriendFeed’s sale to Facebook. He also led investments in Wily Technology (acquired by CA), Coremetrics (acquired by IBM), JBoss (acquired by RedHat), Reactivity (acquired by Cisco), Xensource (acquired by Citrix) and Zimbra (acquired by Yahoo!). He also had the foresight to back Twitter when it was just a 25person company and now serves on its board. Fenton gained his experience as a consultant for Bain & Company before working at Accel Partners, for seven years before joining Benchmark.

5. Scott Sandell of New Enterprise Associates Investment sector: Technology Education: MBA, Stanford University; AB, Dartmouth College Company Website: www.nea.com Key Companies invested in: • Data Domain • Playdom Inc. • Bloom Energy • Workday Inc. • Fusion-io Inc. Profile As a former Microsoft product manager, Sandel is the largest shareholder in Fusionio, which is currently going public and, in the process, revealing NEA’s 39% stake. He was an active lead investor in Playdom, which sold to Disney last summer for $563 million (plus a $200 million earn-out), and Data Domain, which went public before it was acquired by EMC for $2.4 billion in 2009 (NEA maintained a 14% stake). Sandell also led early-stage investments in fuel cell maker Bloom Energy and Workday, the software company co-founded by Greylock’s Aneel Bhusri. Now he is becoming increasingly interested in looking to Asia for upcoming companies to back. As such he was responsible for bringing the Chinese chipmaker Spreadtrum Communications to the Nasdaq in 2007 (with a market cap of $1.1 billion).


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By Dr Savvas Savouri

A Bavarian Tale As their Government showed no sign of imposing the discipline needed on spendthrift Europeans, it was left to ordinary Germans to demonstrate. Our story focuses on Heinz and Helga, a hard working Bavarian couple of modest means.

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ach morning at half past six, Heinz would set off from his small town to the factory in Munich where he had worked without taking a day off sick for 25 years. All that time, Helga had always woken at dawn to prepare Heinz his hearty Teutonic breakfast and lunch box, both of which would feature Schweinshaxe and Sauerkraut. Just before seven each evening Heinz would return home and, after a filling home-cooked meal and a glass of his favourite beer, he would sit and watch the news. Each evening Heinz had to endure report after report exposing the economic mess spilling out across what he called the “siestalands”, the description used by the men at the beer cellar Heinz visited on Saturdays and where he and his friends would share stories of their last Mediterranean holiday. Descriptions of lazy waiters would be mixed with complaints over the late opening and early closing times of banks. No evening would pass without a chorus of laughter as someone enquired what exactly the “siestalanders” did when they disappeared for three hours during the middle of the day! Their good humour was, of course, only a veil. It hid the despair felt by all the drinkers over how hardworking and thrifty Germans were having to bailout those work-shy Mediterranean types. Although Heinz did not complain at home, so as not upset Helga, she shared his despair. Each morning, the moment Heinz’s large frame had disappeared into the distance, Helga would surge into action, or as quickly as her buxom Bavarian frame

would allow. She would clean the house, prepare the evening meal and only then would she set upon what she considered her real work. Helga would head to the town hall where she joined the wives of all the other workers in the area and set about contacting members of Bavaria’s Landtag and Bundestag. The thrust of their demand was simple: Germany should return to the trusted Deutschmark, which they knew the Bundesbank still held in its vaults. Week after week, month after month, the campaign grew larger. Meanwhile, the hardworking men of Germany remained oblivious to the tireless efforts being carried out on their behalf by their womenfolk. Then, one lunchtime, all this changed. As was their lunchtime routine, the men at Heinz’s machine tool making factory were listening to the radio. Rather than the alpine tunes that normally filled the air as they munched on their Schweinshaxe and Sauerkraut, the men heard this amazing news: Germany had finally lost patience with the “siestalands” and thrown them out of the eurozone. The newsreader also revealed how this act was down largely to the efforts made by the women of Germany and other hardworking, proud northern European nations. As the men listened to the wonderful news in their factories, their wives heard the same announcement in their town halls. How they celebrated! As they drank the sparking wine for which the area was famed, they imagined the prosperous new dawn for a Germany free from those idle southern Europeans. On returning home late that night, Helga called out the name of her beloved Heinz. No reply. She called out again and again. Alarmed she finally reached the bedroom, where she saw an envelope perched on the bedside cabinet. Written on the single page were these words: “I have left you, you ignorant, stupid woman. Before we could finish that bloody Schweinshaxe and Sauerkraut you always make me, we were called together by the bosses and told that a strong euro meant the factory was no longer competitive

and was closing. Rather than pester the politicians with e-mails and texts every day, maybe you should all have gone to the gym, you bunch of fat cows. I have gone to the airport to stay with my brother Hans in England. He tells me the factories there are getting busier. I spit on you”. The moral of the story is that if the Germans think they have it bad being stuck with the euro, they should be careful what they wish for.

A Finnish Tale

As their Government was being pressured to toe the line and vote through bailouts to spendthrift states, it was left to ordinary Finns to show their support. Our story focuses on Mika and Aila, a hard working Finnish couple of modest means.

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ach morning at half past six, Mika would set off from his small town near Rovaniemi to the taiga forest where he had worked for ten years. As the fifth generation of lumberjacks in the Pattineiken family, he could nimbly bring down pines, spruces and birches and in a decade he had only missed work when the temperature fell below minus thirty or the snow was over three feet thick. All that time, Aila had always woken at dawn to prepare Mika his hearty Lapland breakfast and lunch box, both of which would feature Poronkaristys, the sautéed reindeer meat he so loved. Just before seven each evening Mika would return and, after a filling home-cooked meal of Lihapullat followed by Pulla sweetbread washed down with coffee, he would sit and watch the evening news. Each evening Mika listen to the reports about the financial crisis engulfing what he called the “greaseball-lands”, the description used by the men at the sauna Mika visited on Saturdays and where he and his friends would relax after a hard week’s work and drink Lakkalijoori liqueur. Although Mika did not complain at home, so as not upset Aila, she shared his despair. As was their lunchtime routine, the

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eurozone They would once again have the drachma! How they celebrated!

foresters were listening to the radio. Rather than the Karelian folk music tunes that normally filled the air as the men drank Lakka, they heard this amazing news: Greece, Spain, Portugal, Italy and Ireland had all been forced to leave the eurozone. The newsreader also revealed how the Finnish, German and Slovak vetos of fresh funds had been crucial; Slovak, Teutonic and Nordic brothers in arms! As Mika listened to the wonderful news, Aila heard the same announcement. They were both proud of their contribution to these events since they had voted for the True Finn Party in the election of April 2011. She immediately picked up her iPhone (she and Mika had long abandoned Nokia) and tweeted her friends, inviting them to her home. How they celebrated! As they drank the white spirit for which the area was famed, they imagined the prosperous new dawn for a eurozone free of those idle Europeans. When Mika returned home he joined the ladies in their celebrations, continuing the drinking he had begun on hearing the news himself. The following morning, as Mika drove his huskies to the forest, he thought about how good life would now be without the euro being “polluted”. On arriving at the manager’s hut to receive instructions, he was met not only by the manager but by all his fellow foresters, each wearing the same glum expression. The departure of the “Greaseball-lands” from the eurozone and the currency’s extraordinary strength in their wake had, they were told, made Finnish forestry products horribly uncompetitive. Orders from local paper and pulp mills had suddenly been cancelled. Russia, Belarus and Ukraine were all now far more attractive places from which to source. On returning home, Mika could not help saying to his wife: “You ignorant woman. It was your idea to back those fools in the True Finn Party.” Within a week Mika had been kicked out by Aila. Theirs was, however, not the only separation. Within a year Finland had departed the eurozone. With 52

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its current account and public finances in deep deficit, the Government in Helsinki was forced into the indignity of having to request a bailout. However, because of the Finns’ earlier stubbornness, the European Financial Stability Facility did not have the necessary funding. This left what remained of the euro nations with little option but to force Finland to follow the “Greaseballlanders” into a world where wages were paid in the new Markka but butchers, bakers and other traders demanded payment in euros. Inflation was rife and the black market dominant. The moral of the story is that if the Finns think they have it bad being stuck with the euro with the “Greaseball-landers”, they should be careful what they wish for.

A Greek Tale

As their Government bowed shamelessly to pressure from a power-obsessed Germany, it was left to ordinary Greeks to demonstrate against the evils of being stuck with the euro. Our story focuses on Costas and Maria, a proud family of modest means. ach morning at half past six, Costas would set off on the long journey to Athens. There he would join many hundreds of his countrymen demonstrating daily in front of the Parliament building on the north side of Syntagma Square. Costas would always carry a lunch box filled to bursting with delicacies lovingly prepared by his wife Maria. Proud of her husband’s determination to protest at the injustices imposed by the Germans, Maria would wake before dawn so as to be first at the baker’s to buy the pitta bread Costas so loved. From the baker she would go the butcher where she would buy Costas his favourite meatballs. Then Maria would unfailingly walk the two miles to the local dairy farmer where she would buy the fresh feta cheese Costas so enjoyed. The farmer would smile as Maria approached and would welcome her with a tender kiss on both cheeks. Maria

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would then walk into town and go to Costas’s favourite coffee shop, where she would buy coffee beans. On arriving home she would grind these so Costas could have a flask of hot coffee from which to take sips during breaks from hurling abuse at the shameless police protecting Greece’s unpatriotic politicians. Week after week, month after month, Maria and Costas followed their respective rituals, each appreciating the sacrifices of the other. Then one fateful day Costas returned home victorious and announced they had achieved justice: the Greek Parliament had not bowed to the demands of those Germans and Finns, who had thrown Greece out of the eurozone. Who cared! They would once again have the drachma! How they celebrated! When they finally fell asleep that night, they felt so proud of their joint achievements. Long before daybreak on the morning of Greece’s “new dawn”, Maria quietly slipped out of bed, determined to make Costas the finest breakfast he had ever enjoyed. Exhausted from weeks of demonstrating as well as from the frenzied celebrations of the night before, Costas did not wake until well after ten. As he wandered into the kitchen, he thought it strange that he could not smell the usual mixture of fresh bread, cheese, salami and coffee. Also missing was the soft sound of Maria singing, something she did every morning when ironing one of his freshly-laundered shirts. As Costas began to worry that something had happened to his beloved Maria, he noticed an envelope perched at an angle by the fruit bowl on the kitchen table. Surprisingly, the bowl, normally filled to bursting, was empty. Now extremely alarmed, Costas tremblingly took the envelope and removed the single page it contained. In letters clearly written with rage, Costas read the following: “I have left you, you ignorant, stupid fool. I was early and went to the ATM to withdraw our “wonderful” new currency. Well let me tell you, the crisp new


those who see eurozone dissolution as a panacea are deluded

drachmas that came out were less useful than toilet paper! When I offered them to the baker he demanded twice the normal price for his bread. and that mean butcher wanted three times yesterday’s price for your meatballs. As for the farmer, he laughed when I offered him drachmas, demanding that I pay in euros or “in kind”. Instead of demonstrating with your friends every day for three months, maybe you should all have gone looking for work, you lazy sods! Also, remember that cheap euro overdraft the bank offered and you said was too good to ignore? Well, when I put my card in the ATM, the first message to come up announced that it has to be repaid or the interest rate will be something stupid. I have gone to the airport so I can fly to England and stay with my sister Eleni. I spit on you.” The moral of the story is that if the Greeks think they have it bad being stuck with the euro, they should be careful what they wish for.

A Slovak Tale

As their coalition Government was being pressured to toe the line and vote through bailouts to spendthrift states, it was left to ordinary Slovaks to show their support. Our story focuses on Ludomir and Bronislava, a hardworking Slovak couple of modest means.

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ach morning at half past six, Ludomir would set off from his small town near Jablonové to the Volkswagen car factory where he had worked for twenty years. He would work on the assembly line, adding the same part to the skeletal car shells which came past him every twenty minutes and in two decades he had only missed work a handful of times. All that time, Bronislava had always woken at dawn to prepare Ludomir his hearty potato pancakes breakfast and lunch box. Just before seven each evening Ludomir would return and after a filling home-cooked meal of Segedin goulash followed by Laskonky washed down with

strong Pilsner, he would sit and watch the evening news. Night after night Ludomir would watch reports detailing the economic problems of what he called the “Eurόpska kokso”, the description used by the men at the bar Ludomir visited on Saturdays and where he and his friends would relax after a hard week’s work. Although Ludomir did not complain at home, so as not upset Bronislava, she shared his despair. As was their lunchtime routine, the workers were listening to the radio. Rather than the Soňa Horňáková tunes that normally filled the air, they heard this amazing news: Greece, Spain, Portugal, Italy and Ireland had all been forced to leave the eurozone. The newsreader also revealed how this was down to the efforts of the Slovak veto of fresh rescue funding. As Ludomir listened to the wonderful news, Bronislava heard the same announcement. She rushed to her computer and tweeted her friends, inviting them to her home. How they celebrated! As they drank Borovička, they imagined the prosperous new dawn for a eurozone now free of those idle Europeans. When Ludomir returned home, he joined the ladies in their celebrations, continuing the drinking he had begun on hearing the news himself. The following morning, as Ludomir drove the 20 kilometres to the car plant, he thought about how good life would now be without the euro being “polluted”. On arriving at the factory gate he was met by his fellow workers, each wearing the same glum expression. The departure of the “Eurόpska kokso” from the eurozone and the currency’s extraordinarily strong upwards response to the news had, it seemed, made Slovak-made cars uncompetitive. Their production was being shifted to the Czech Republic and Hungary, whose currencies had fallen on the announcement that the “Eurόpska kokso” had been forced to abandon the euro.

On returning home, Ludomir could not help saying to his wife: “You ignorant woman. It was you who made me vote for the Freedom and Solidarity party whose presence in the coalition stopped the bailouts”. Within a week Ludomir had been kicked out by Bronislava. Theirs was, however, not the only separation. Within a year Slovakia had departed the eurozone. With its current account and public finances in deep deficit, the Government in Slovakia was forced into the indignity of having to request a bailout. However, because of the Slovaks’ earlier stubbornness, the European Financial Stability Facility did not have the necessary funding. The only option for the Slovakians was to follow the “Európska kokso” out of the eurozone into a rapidly declining new koruna and a huge euro-based black market. The moral of the story is that if the Slovaks think they have it bad being stuck with the euro with the “Európska kokso”, they should be careful what they wish for.

And the moral of the stories is…

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he moral of the four tales is that, however different they may be in their diets, loves and pastimes, our imaginary eurozone couples are bound into a union from which divorce serves none well. We could have picked a couple in Slovenia or one in Ireland or, indeed, one from anywhere across the embattled eurozone, and drawn the same conclusion. As poorly as it has been put together, unstitching the eurozone would leave all its members as losers. Leaving the eurozone would not stop the euro from remaining the preferred currency for transactions, with any new national currency suffering an unrelenting slide against it. There should be no doubt about this and those who see eurozone dissolution as a panacea are deluded.

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employment

The Cyprus Labour Market & Businesses Its well-educated and English-speaking human resources are amongst the advantages of Cyprus as an international business centre. But is the island’s labour market really that businessfriendly in general and that attractive to businesses of foreign interests in particular? By Miltiades Miltiadou

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mployee rights were significantly strengthened following Cyprus’ accession to the European Union, which brought about profound changes to labour law. In the pre-accession period, existing laws were amended and new laws were introduced. As a result, sufficient protection is currently provided to employees in respect of employment termination, protection of motherhood, annual leave, transfer of business, parental leave, organisation of working time, equal treatment, safety and health at work, etc. Labour rights are safeguarded in European and international law and continue to be further strengthened. In the competitive environment of the free market, client preferences force

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businesses to constantly innovate and offer solutions. In the modern society of information and knowledge, human resources are a business’ most precious strategic capital. Today’s businesses rely on the professional qualifications of their employees and their knowledge of market conditions to develop new goods and services and create added value for their clients. The Cypriot labour market is characterised by low productivity, as indicated by the fact that the per capita income of Cyprus is 98% of the EU average, whilst productivity is only 80% of that same average. This is because in Cyprus revenues grow at a higher rate than productivity. In 2010, for example, productivity grew by 0.4% whilst salaries rose by 2.6%. Low productivity undermines the competitiveness of Cyprus as a country where foreign companies would be

the international investment, business & finance magazine of cyprus

interested to establish their domicile. The financial crisis has primarily hit private businesses, many of which are currently experiencing serious difficulties such as turnover reduction, losses, lack of liquidity, failure to repay their debts, a higher cost of financing, etc. The crisis has also hit their staff. Those companies that do not terminate their operations are forced to take survival measures including salary cuts and/or layoffs. The State has also suffered the consequences of the financial crisis, mainly through the erosion of public revenues and the continuously increasing trend in public expenditure. Those who have not felt strongly the impact of the crisis are employees in the public and broader public sector, who have managed to maintain the same standard of living, having only recently made some minimum sacrifices. At times of prolonged financial


When only 1% of Cypriots are interested in being employed in the private sector, what are the chances for businesses to employ competent staff but, most importantly, to retain it?

crisis and slow recovery, combating unemployment cannot be achieved with struggles to safeguard the vested rights of the labour force or improve the standard of living or by resisting the so-called neoliberal attack against labour rights. Demonising profit and pleas to combat “profiteering” are not going to improve employment conditions. “Profiteering” is defined as selling at prices higher than allowed, but the term has no meaning in the free market, where prices are fixed by the law of supply and demand and not by ministerial decrees.

projects, fostering cooperation between the public and the private sector. Above all, it is necessary to create a favourable climate for investors, which means providing opportunities for profitmaking. Central planning in the economy or even State interventionism not only do not contribute to solving the problems but, on the contrary, cause distortions in the labour market, unfair competition and limit opportunities to create new jobs. Increasing employment through the strengthening of entrepreneurship requires the liberalisation of the labour market,

Low productivity undermines the competitiveness of Cyprus as a country where foreign companies would be interested to establish their domicile In a free economy, the creation of new job positions and the welfare of employees go hand in hand with the expansion of operations, profitability and liquidity on the part of employers. It is self-evident that in our free market economy, increasing jobs will be achieved through the development of business initiatives in the private sector. This is why it is necessary to speed up the process of granting the required permits for projects envisaged by private companies, both domestic and foreign. We also need an investment policy for development

flexible working hours, remuneration based on the productivity of each business and not national inflation, the abolition of minimum wages, the liberalisation of shop hours, the deregulation of sales periods, the abolition of the fixing of maximum selling prices, restriction of rent control, the opening up of “closed” professions, acceptance of subcontracting and outsourcing, acceptance of individual employment contracts and, in the case of collective agreements, submission of reasonable demands bearing in mind

productivity and the employer’s situation. State initiatives such as incentive schemes for the recruitment of unemployed individuals and training and re-training programmes are helpful but of less significance if not accompanied by the liberalisation of the labour market. These positions do not endorse in any way illegal actions such as undeclared work, contribution evasion and the extension of working hours beyond what is permitted by law. As a business association, AmCham Cyprus believes that employers must comply with labour laws and we are in favour of the strict enforcement of laws and the imposition of sanctions, including exclusion from public works contracts, in cases of illegal employment.

Access to Cypriot employees

The small size of the Cypriot workforce restricts business options. According to the data provided by the Statistical Service, in October 2010 there were 267,000 Cypriot employees. The public sector employs 70,400 individuals as follows: 55,400 public servants in the central government (including teachers), 4,700 municipal employees in local authorities and 10,300 employees in state businesses (including semi-government organisations). In addition to employing an excessively large number of university graduates, the hydrocephalous broader public sector offers unrivalled advantages in terms of salaries and otherwise. As far as salaries are

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concerned, the sector’s supremacy lies in the fact that it offers high pay scales, fixed annual increments for each scale, halfyearly automatic wage indexation plus additional annual general increases (the latter are obtained following negotiations with the trade unions). Non-salary benefits include permanence and the impossibility of dismissal on grounds of unsuitability, guaranteed promotions and protection from external candidates, pyramids with huge numbers of senior and middle management positions, pension schemes without the participation of employees, pre-retirement promotions with the sole purpose of increasing pension rights, reduced contributions of employees to the Social Insurance Fund, only one working afternoon per week, a large number of annual or sick leave days and various other “vested rights”. According to the latest statistical data of Eurostat, the public payroll of Cyprus in 2009 was the highest in Europe. It rose to 15.6% of GDP compared to the eurozone average of 10.8% and the EU average of 11.2%. The public service in Cyprus is, on average, the most costly amongst the public services of Europe and absorbs 34% of the budget compared to 21% in the eurozone. Considering the above, the results of the market research conducted by Cypronetwork in 2010 and commissioned by the Insurance Institute of Cyprus, come as no surprise. Here is what participants replied to the question “Which is the ideal sector of employment?”: the public sector (47%), self-employment (21%), the banking sector (20%), the semigovernment sector (11%), the private sector (1%) and 1% did not know/did not answer. So here is the picture of the labour market situation: one in four Cypriots is employed in the public sector and the dream of every Cypriot youth is to become a public servant (or at least a bank employee). When only 1% of Cypriots are interested in being employed in the private sector, what are the chances for businesses to employ competent staff but, most importantly, to retain them? Although there is no statistical evidence to prove it, it is well

known to everyone that in Cyprus employee mobility is limited to a flow from the private to the public and the banking sectors. This is extremely costly for the private sector as it has already spent considerable amounts to train and offer experiences to these employees and, moreover, it is only possible to replace them with young and inexperienced staff at a much higher cost.

The need to reform the public sector For Cyprus to be able to claim a place in the international arena of business centres, we must stop dealing with the problems on an accounting basis. Efforts must be aimed at the structural adaptation of public finances. Politicians must commit to the reform of the public sector, including not only the central government but also bodies governed by public law. The time has now come for the various measures which have been proposed and are enumerated below to become more specialised and specific. Salary-related benefits: Salary-related benefits in the broader public sector must be reduced, taking into consideration the financial means of the State as an employer. Extraordinary contributions by public servants have three disadvantages: first, they are temporary; second, they do not constitute a decrease in expenditure but an increase in revenues and third, they may be attacked as being unconstitutional since they violate the principle of equality vis-à-vis private employees. Reducing the pay scales of new entrants alone may again be attacked as being unconstitutional as it also violates the principle of equality. Salary reductions must be permanent and universal, e.g. by reducing pay scales and increments by 10% or abolishing the 13th salary in the broader public sector.

with life expectancy. Public servants must join Professional Pension Funds with fixed contributions and contribute in the same way as private employees. Moreover, the “right to promotion” in the three-year period before retirement must be abolished and measures should be taken to deter early retirement. Social Insurance: The contributions of public servants – the insured – and the contribution of the State as an Employer must be in line with those of the private sector. Allowances: Τhe primary austerity measure should be to abolish allowances. The entertainment allowance is, amongst other things, provocative and should be abolished entirely. Hotel and subsistence allowances (per diem) must be replaced with the reimbursement of out-of-pocket expenses based on the supplier’s invoice.

Automatic Wage Indexation: Automatic Wage Indexation is no longer considered a blessing in industrial relations and has become an unbearable burden for the Government and the semi-government organisations which are forced to pay it at considerable cost. The time has come for it to be abolished. Remuneration must depend on performance and the achievement of targets and not on inflation increases. Interchangeability: A relevant bill must be drawn up and published for discussion. If interchangeability across the entire public service is thought to be a difficult venture, it may be limited to the transfer of public servants within the same Ministry. Normal working hours: Normal working hours should be adopted, depending on the needs of those who receive the services and should cover the greatest part of the day which is considered as working time. This is also a way to combat the phenomenon of second

Pension-related benefits: The age of 65 should be established as the limit of compulsory retirement, with the prospect of being increased to 68 after a certain period of time (this is already the case for some officials) so as to be in line

One in four Cypriots is employed in the public sector and the dream of every Cypriot youth is to become a public servant (or at least a bank employee)


undeclared jobs in the broader public sector. Reducing overtime: The cost for public funds is huge. Reducing overtime cannot be achieved by fixing a percentage rate as against the previous year, e.g. 5% less overtime. It is necessary to identify which departments necessarily work beyond normal working hours and introduce a shift system (without, of course, employing additional staff in order to cover so-called “new needs”).

Moratorium on recruitment and abolition of vacant positions:

Current proposals will only lead to the malfunction of the public service. It is necessary to redesign the organisational chart of every government department and every body governed by public law with the aim of maintaining a reasonable, necessary and perhaps more level pyramid. As a result of trade union demands in respect of the “right to promotion”, there are currently excessive numbers of senior and middle management positions

everywhere. A rational study will indicate which of these managerial or other positions are unnecessary and they should either be abolished or reduced in number. Reducing bureaucracy: Reducing bureaucracy can be achieved with the abolition of unnecessary procedures and by investing in automated systems. This will lessen the workload of staff in the public and the private sector, reduce administrative costs in both sectors and lead to a speedier service for recipients. English language: English should be established as an additional working language in government departments and bodies of public law which have dealings with foreigners. Laws, regulations, manuals, applications, circulars and other useful documents should be translated into English and correspondence with foreign companies must also be in English.

Bodies governed by public law carrying out business operations:

Semi-government organisations which carry out business operations must take off the veil of the The aims of reforming ‘body governed by public the public sector law’ and become companies The proposed measures for reforming the public of private law. Once they sector must serve three important aims: do so, socioeconomic (a) To abolish the distortions caused by the public sector on criteria will determine the labour market. Eliminating the privileges of public whether they remain under servants will make the general system of pay fairer and the ownership of the State therefore the public sector will no longer be a more or whether the State will competitive employer compared to private enterprise. grant a share to private (b) To restore public finances. 60% of taxes collected by investors or entirely dispose the State are channelled to the public payroll compared of them. The conversion to only 44% in the rest of Europe. Fiscal problems will will free them from the be further aggravated if the State resorts to additional problems of the public taxes and increased borrowing so as to be able to sector, they will become continue to maintain an extremely costly public service. more efficient and be able Public finances can only be restored through a fixed to compete with private reduction in the public payroll and in the number of businesses on an equal public servants. The public service must become less footing. It is well known costly, smaller and more flexible and offer more to the that a number of semicountry with fewer management executives. government organisations no (c) To establish Cyprus as an international business centre. longer serve any purpose and Cyprus’ competitors are being modernized and are their operations should be adapting to changing circumstances. It is time the public terminated immediately. service of Cyprus actively promoted entrepreneurship Business-friendly and sought to attract interested investors. It must environment: The creation convince businesses and investors that it will provide an of an environment which is improved service and offer solutions to their problems.

friendly towards both domestic and foreign businesses should be a primary strategic objective for the administration. In the context of this strategy, which should be publicly announced, goals must be set for every management executive in the public service in respect of the service provided to businesses and at the end of the year, the achievement of these goals must be assessed.

Access to European employees Lately, we have seen employers who employ citizens from other EU Member States being fiercely attacked by politicians and the trade unions. But the principle of free movement of employees is enshrined in European law and has evolved through the case law of the Court of the European Union. EU citizens have the right to seek employment in other EU countries, to work there without a work permit, to be treated the same as citizens of the host country in terms of their access to employment, working conditions and all social and tax advantages. On 13 July, 2010 the European Commission issued an Announcement (COM(2010)373 final) which aims at enhancing general understanding and promoting the rights of migrant workers who are in a more vulnerable situation compared to locals (e.g. in terms of housing, language, employment of their spouses and companions, etc). European policy regarding the free movement of employees not only contributes to the integration of the single market but also has a significant social dimension as it promotes the social, economic and cultural integration of migrant EU workers in the host Member States. As a Cyprus-American business association, we join our voice with that of the American Chamber of Commerce to the EU (AmCham EU) whose press release of 13 April, 2011 welcomes the efforts of the European Union to deepen and improve the functioning of the EU’s single market. AmCham EU believes that the completion of the single market will help boost GDP by about 4% over the next ten years and will enhance productivity, investment, trade and jobs.


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“average” by 25%, “poor” by 17% and “very poor” by 11% of respondents. It is worth noting that only 17% consider that it is very easy or easy to obtain a work permit for third country citizens whilst 36% state that it is difficult or very difficult to obtain such permits. As early as 2004, the European Union recognized that legal immigration will play a significant role in strengthening the knowledge-based economy in Europe and promoting economic growth. In 2009, it further acknowledged that the immigration of workforce can contribute to greater competitiveness and economic revival and that, in the context of the considerable demographic challenges that the EU will face in conjunction with an increased demand for labour, the implementation of flexible immigration policies will significantly contribute to economic growth in the EU and long-term performance. In the framework of its efforts for a comprehensive immigration policy, the The entertainment allowance is, European Commission amongst other things, provocative has proposed a series of legislative initiatives. It and should be abolished entirely recommends the drafting of a framework directive Access to third to safeguard the rights of all third country country employees nationals in respect of lawful employment. According to the Council of Ministers’ It has also designed four complementary directives to cover the entry and residence of “Strategy for the Employment of Foreign certain categories of third country nationals Workforce”, a basic criterion for granting employers permission to employ foreigners and specifically highly qualified employees, is the impossibility to satisfy their specific seasonal workers, in-service transfers and needs with workforce either from the local remunerated trainees. We already have in place Directive labour market or EU Member States. The question is whether the competent State 2009/50/ΕC of 25 May, 2009 which services show understanding and have promotes a high-speed “blue card” programme for highly qualified employees a positive approach or are overly strict, making things difficult for third country from developing countries, in an attempt nationals to obtain a work permit. to compete with the respective US “green An April 2011 survey by Noverna card”. According to available data, the European labour market is in need of an commissioned by an audit firm with a increasing number of qualified employees view to evaluating Cyprus as a business in high technology, as well as nursing staff, centre has established that the services of which is currently channelled mostly to the Immigration Department are viewed as “very good” by 3%, “good” by 23%, developed countries outside the EU. e call upon the State to change its stance and accept the fact that any discrimination between Cypriot and EU employees is illegal. Employers have the right to recruit any EU citizen without obstacles, irrespective of his/her country of origin, and have no obligation to prefer Cypriot employees. The fact that competent authorities invoke the law on Equal Treatment in Employment irrespective of racial or ethnic origin with the aim of excluding EU employees and preferring Cypriots is a conscious distortion of European and Cypriot law. The correct interpretation of the law is that if an employer is misled by the public pleas and the complaints of trade unions and prefers Cypriots at the expense of other EU citizens, he is committing an offence and should be prosecuted and punished accordingly.

info: Miltiades Miltiadou is Chairman of AmCham Cyprus 58

the international investment, business & finance magazine of cyprus

A Proposal for a Directive is currently being discussed regarding the terms of entry and residence of third country nationals in the framework of transfers within the same business. The European Commission has noted that multinationals who wish to transfer their staff are often faced with a lack of flexibility and restrictions, as well as a lack of clear and special programmes in most Member States, complex requirements, cost, delays in the granting of visas or work permits and uncertainty as regards rules and procedures. The purpose of the Proposal for a Directive is to respond efficiently and swiftly to the demand for administrative executives and specialized employees for branches and subsidiaries of multinational companies, by fixing transparent and harmonized conditions of entry for this category of employees, thereby creating more attractive conditions for temporary residence for those under in-service transfers and their families. Again, as a Cyprus-American business association, we join other European business associations in calling on the European Parliament to seize the opportunity presented with this Proposal for a Directive and adopt pan-European policies that will bring into the EU the necessary skills and talent on a temporary basis, will address the problem of lack of skills in crucial sectors, will develop economic activity and promote local employment through increased corporate investments in the EU economy whilst strengthening the “fifth freedom”, that of the free movement of knowledge within the EU. International business centres base their success largely on expatriates and this is why Cyprus needs a new, flexible and favourable policy, swift response and restrictions on bureaucratic procedures in relation to the employment of third country nationals. The competent State services must show more trust in the judgment of employers concerning the suitability of a specific employee for a position requiring professional knowledge and skills.


{advertorial}

Our Energy Team: Local Knowledge, Global Expertise By Yiota Kythreotou

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ntil recently, natural gas had been less popular than other hydrocarbons in the oil and gas business. Over the last few years, though, its popularity has been rising sharply, so much so that there is even talk in the international energy community of a “natural gas age”. The main “disadvantage” of natural gas has always been the difficulty of containing and transporting it. Because of this, natural gas markets have tended to be limited to those that were closest to the points of production. This geographical barrier has now been removed. The construction and development of ever-longer pipelines and the growth of liquefied natural gas (LNG) have opened the doors to the global market and, more importantly, the major consumer markers of the US and Europe and the vast emerging markets of China and India. The possible discovery of natural gas reserves in the Exclusive Economic Zone of Cyprus will have immense energy, economic and political implications for the future of our country. Aside from all the optimism about the benefits awaiting Cyprus if our natural gas reserves are,

indeed, as rich as predicted, we will soon be facing significant legal, regulatory as well as operational and technical challenges. The sheer scope of construction projects, the danger of any pollution incidents, arrangements for transporting and exploiting any gas reserves and many other issues will require specialist legal advice. As lawyers, we must be in a position to assist clients with negotiating the terms under which deep sea drilling should take place and drilling licenses are granted, with the raising of capital and finance on an unprecedented scale (by Cyprus standards) but also ensuring that they have a firm grasp of modern developments on a wide range of issues, from operational matters to the terms of any insurance cover. At Pamboridis LLC we have been quick to identify the need for high quality, reliable and commercially-oriented legal knowledge and expertise. Our energy team of lawyers is able to represent clients throughout the energy sector, from national and international oil companies through to funders, investors and the government. In addition, we have established a firm relationship with one of the largest global law firms boasting a global energy footprint unmatched by any other in the sector.

Together, we are able to provide a comprehensive range of services and consider that we have considerable unrivalled expertise in the following fields: • Upstream: comprising the licensing, exploration and production stage, farm ins/ outs and joint operating agreements and joint venturing. • Midstream infrastructure: consisting of the construction, financing and operation infrastructure and transportation (e.g. pipelines). • Downstream dissemination of products: including marketing and refining. • Regulatory/health and safety and compliance • Acquisition and disposal of energyrelated interests/assets and conducting preacquisition legal due diligence. • Financing: including funding acquisitions, project financing for developments, funding cash calls, securitisations and Islamic financing. • Shipping and trading of natural gas, including liquefied natural gas. • Dispute resolution including international arbitration relating to energy disputes.


{opinion}

By Sarah Fenwick

Facebook: Waste of time or valuable online marketing tool?

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very day, thousands of employees in Cyprus go online and open their Facebook.com profiles... even at the office. Yes, it’s true, let’s admit it – we might be at work, but we’re also on Facebook – or FB as it’s better known. Any boss who walks through the office is bound to catch the guilty looks as his employees hurriedly minimise their FB page so that he or she doesn’t catch them wasting valuable company time. That same boss may also enter his private office, only to open FB to check out what his own friends are doing today. But is it really a complete waste of time? At the last count, FB had 800 million active users and more than 50% of those users are on FB on any given day. Let’s think about those stats for a minute. Every single day, there are 400 million active users online in FB. The average user has 130 friends, who in turn, have an average of 130 friends each. There are 70 languages used on FB, and 75% of the users are outside the US. Quite frankly, this is a marketer’s dream vehicle and an entrepreneur’s medium. Let’s go back to our average employee who guiltily logs onto FB from the office. That employee has the option to add his/her company name in their profile, so that friends can see where they work. This means automatic exposure for the company’s products and services. If one of my friends works at say, Widgets Ltd, and I need a widget, I’m likely to send an inquiry their way. This means that more business is generated by employees through their network of acquaintances and friends. If that company is really switched on, it will have its own FB Group and use it to better inform the public about its news, events and updates. Any company with a marketing department must have a strategy for its online marketing, even if it is a company that does absolutely no business online. Let’s take the example of a restaurant in Anglisides village, Larnaca. You can’t eat on FB, obviously but a restaurant can info: Sarah Fenwick is an Editor at CyprusNewsReport.com

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build its image and exposure by starting its own Group and/or advertising to its target market. If the restaurant’s owners choose to advertise, they can segment their ads into Larnaca residents who live in Anglisides and even drill down further. A target market can be segmented into Anglisides residents who ‘Like’ meze and red wine and ‘Like’ visiting new restaurants. The marketing possibilities are limited only by the imagination of the marketer. If you look at it this way, the employee who is looking guiltily at the boss could actually be turned into a huge asset and be actively marketing for his or her company, just by adding their employer into their FB Profile. Needless to say, this is a double-edged sword. Companies need to make sure they respect their employees and brief them on the importance of always showing the company in a good light as far as possible.

Any company with a marketing department must have a strategy for its online marketing A great example of a company using FB in a positive way is National Geographic magazine, which has a Group with 7,571,460 people who ‘Like’ it and get updates from its page https://www.facebook.com/natgeo. This is an audience of 7.5 million people who can actively participate in National Geographic by commenting on articles and photos and posting new ideas on the company’s ‘Wall’. In my opinion, FB is a valuable marketing tool, but keep one thing in mind. Nobody likes being manipulated so keep your communications warm, friendly, informative and as socially responsible as possible. That, in the words of Dale Carnegie, is the way to make friends and influence people.


special feature

Securing the Future

Financial Planning is the key

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or decades now, so-called experts have been saying that, thanks to technology, we will all soon be working less and playing more. One favourite prediction has been that our biggest problem will be that we shall have so much leisure time that we won’t know what to do with it. In reality, most people are working harder today than ever before and leisure time is becoming more and more precious. Obviously there are more enjoyable ways of spending it than looking after your finances, particularly when they are becoming more and more complicated, requiring more than a little expertise and specialized knowledge in order to take the right decisions. This is where financial planning and professional help comes in. Creating an effective financial plan requires knowledge and experience across four key disciplines – retirement planning, estate planning, investment planning and insurance planning – and almost every decision in each of these areas will impact an individual’s net worth, cash flow and taxes. As a result, people are turning more and more to financial planning professionals for assistance.

Retirement Planning Retirement planning is all about ensuring that your future is secure and comfortable. Even if you are years away from retiring, it’s wise to think about retirement planning as early as possible. A big question concerns how much money it will it take to be financially independent. The experts are divided on this but one thing is certain: you will need to have an income even when you are not working, whether in the form

of a pension, a large sum earning interest in the bank or a diverse investment portfolio. A common concern is that people might outlive their money and with modern medicine enabling us to stay healthy and live so much longer, the chances of that happening are increasing. Unless you’re quite wealthy and have all the money you’ll ever need, you really should start planning and a professional adviser will help you make sure you don’t outlive your wealth.

Estate Planning There is a common misconception that estate planning is only for the superrich, probably because the word ‘estate’ somehow implies great wealth. But an estate can consist of one house and a few thousand euros, just as easily as a mansion and several million. Estate planning is all about wealth preservation for you and your heirs, allowing you to leave a legacy to the ones you love that reflects your wishes and gives purpose to what you have accomplished in your life. Without estate planning, this may not happen. Human nature tends to prevent us from talking or even thinking about our own mortality but for the sake of our families and children, we have to deal with this, regardless of age and the size of our estate. A proper estate plan will ensure that it is passed along as you desire, with minimum taxes and with no complications or delays for your heirs.

Investment Planning Twenty years ago, it wasn’t too difficult to invest safely and accumulate wealth. Today, by contrast, most experts agree that that volatile markets may be with us for some time to come and that the good old days are over. However, this does not

mean that you should stay out of the stock market and stick to the safety of bonds and low bank interest, satisfied to know that you’re preserving your wealth even if it is not growing. There are plenty of investment portfolios earning solid returns, some even in double digits. It’s just not as easy as it was in the high-flying 90s and professional help is essential. You need discipline to create a long-term investment plan and stick with it – which means not panicking or selling when you see your investments going down. You need knowledge because there’s just so much information you have to keep up with and so many changing variables can affect your investments. Making use of the services of a professional investment adviser is essential.

Insurance Planning As part of your strategic financial plan, an insurance policy will help you deal with the unexpected events that affect your health, wealth, and financial well-being. Knowing that you are insured to handle the impact of property or personal loss gives you the confidence to prepare for your future. Achieving financial stability is important and insurance can help you balance various risks and keep you financially secure. How can you rebuild your home if it burns down? What happens if you have an accident and will require long-term nursing care? What would happen to your family if you died? Would your children be able to attend college? These are common questions that are addressed by insurance planning which will help minimize the impact of loss. You can reduce your risk by being prepared, which means purchasing the appropriate type of insurance policy that can help minimize any loss. the international investment, business & finance magazine of cyprus

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special feature

Invested in investing? Cyprus is an attractive location for bank deposits and investments, due in part to the strength of the island’s financial services sector, but also the high number of experienced professionals located here. However, Cyprus is certainly not immune to the current volatility being seen across the globe. Given the ongoing uncertainty, many people are asking the questions: “Where should I invest my money?” and “Where are the so-called safe havens?” Joel Graves, International Investment Advisor at Barclays Wealth Intermediaries and International in Cyprus, considers the options.

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ith the almost daily release of weak economic data, there is a fear amongst many investors that the economy will experience the dreaded “double-dip” scenario. Gold hit a record high and dropped back dramatically, sovereign risk concerns loom over Europe with a full resolution appearing difficult to achieve whilst inflation in the UK could hit 5% by the end of the year. Meanwhile, interest rates in the UK or US do not appear poised to increase any time soon and there is a real chance that interest rates will drop in Europe in the near future. The further we look into the future, the murkier the outlook becomes. This is an incontrovertible truth. In investing, however, we can frequently have greater confidence about long-term outcomes than about short-term performance. That’s because the further ahead we look, the less individual events matter (their idiosyncratic effects average out over time) and the more we can rely on universal

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Joel Graves Dip PFs – International Investment Advisor, Barclays Wealth Cyprus


features of risk and return. The core principle of investing is that, in the long run, investors have on average been rewarded for taking risk. The reason is: investors are reluctant to buy risky assets unless they are sufficiently cheap to compensate for the potential losses. If assets are too expensive relative to the risks, then investors will sell, depressing prices and thus reinstating the long-term reward for taking risk. Sometimes markets and prices are too high relative to the risk; sometimes new risks materialize and the investment sours. However, on average and over time, inves¬tors have earned a premium for taking risk. Despite the current volatile environment, Barclays Wealth believes in a 3-6 month view; we think that Europe will ‘muddle-through’, combined with a similar outcome unfolding in the US. As a result, we favour developed equities as an asset class and, in our view, core government bonds are the least attractive asset class. Continental Europe – especially Italy, Spain and Germany – and the US are our preferred regions (ahead of Japan and the UK). Consumer cyclicals, energy and technology stocks are our favoured sectors. However, the challenge lies in answering the question of how to decide where to invest. I do not believe there is one simple answer to this question for everyone. Firstly, you need to understand your own financial situation and investment goals. Only then are you in a position to choose investments that will help you to reach these goals. Importantly, the old cliché that you should not have “all your eggs in one basket” has never been so relevant. As

such, the most pressing need is to hold a diversified portfolio that is suitable for your personal circumstances. As financial goals change over time, so should the mix of assets within a portfolio, and financial needs from an investment perspective will differ depending on your stage of life.

the most pressing need is to hold a diversified portfolio that is suitable for your personal circumstances A single professional might be more likely to want to set up an investment with long-term returns, and typically have a greater capacity for financial risk; a young family might need to look at life and income protection along with trust options for their children; a retired couple, on the other hand, might want an ongoing income from their investments and may need help with estate planning. Understanding your financial needs, your attitude to risk and your investment time frame will help dictate the asset classes you should invest in and will shape the proportions of each asset class that should be held. Making sense of the investment choices available to you can be difficult. Questions like; “Are investments in commodities suitable for me?” “Should I look at short or long dated bonds given the current interest rate curve?” “Am I a cautious

or balanced investor and what is the definition of these risk ratings?” “Do I require capital protection or capital growth?” are not easily answered on your own. If you are thinking of investing, my advice would be to sit down with a qualified investment advisor to review your financial circumstances. An advisor should help you clarify what you are trying to achieve and identify the investment opportunities that are suitable for you. The advisor is there to help you make informed decisions on investments and guide you through the sometimes complex world of achieving a diversified portfolio, maintaining it and growing it. In my opinion, understanding your own goals and ambitions and getting the right advice on how to invest is the key. The current economic conditions do present real investment opportunities in many asset classes, but they also represent risk with the high volatility also offering a chance of capital loss. I strongly urge you to speak to a professional you feel comfortable with and to begin the journey together.

Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and is authorised and regulated by the Financial Services Authority. Registered No: 1026167. Registered Office: 1 Churchill Place, London E14 5HP Barclays Bank PLC is authorised by the Central Bank of Cyprus to conduct banking and investment business. the international investment, business & finance magazine of cyprus

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INDEPENDENT, BOUTIQUE, TAILOR-MADE SOLUTIONS!

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onalbo, a seasoned corporate service provider working through key jurisdictions, provides its clients with the opportunity to tailor their everyday investment planning needs.

The oldest fiduciary company in Cyprus, registered in 1994, Bonalbo provides its clients with a wealth of experience and worldwide contacts so as to facilitate solutions for their corporate structuring requirements. In the current financial environment, we feel the need to stress the importance of our independence. Being independent gives us the opportunity to select the most appropriately skilled professionals to assist us in tackling our assignments. This also provides a key ingredient to substance, increasingly sought today, as this is what separates the calm from the storm. The world today is truly global. Crossborder transactions have become more common than ever. We see investments from the East targeted at the West and

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vice-versa. Tax matters being of prime concern – with a fine line drawn between tax avoidance and tax evasion – there is a need for careful consideration and prudent planning. Treaties are there to protect and to be used effectively so that the taxpayer may meet his obligations in the most efficient manner without incurring excessive or duplicate taxes on the same income. Making the right choice of partners in planning is just as important as choosing the correct jurisdiction for whatever may be the entrepreneur’s ultimate goal, be it investment in financial instruments, structuring a merger, a new deal, a property purchase, setting up a private equity fund, creating a retirement plan or simply keeping his/her wealth and assets discrete.

Our commitment to our clients is one of a family office-style business, where we deal with all the time-consuming and cumbersome administration aspects of maintaining financial matters in good order: accounting, administering bank accounts and business relationships, meeting statutory compliance deadlines, discrete project management, providing timely reporting to managers and executing documents in a timely and orderly manner. Our team comprises a group of seasoned professionals, each recruited for their industry experience. We are proud to have with us the leading top performers, each an expert in their particular field. We pride ourselves on our culture of excellence, performance and customer primacy in all matters.


special feature

WHAT IS FINANCIAL PLANNING? WHY IS IT NECESSARY? Financial planning is a process that lies at the heart of any business. Proper financial planning will help a business thrive in prosperous times and survive during a downturn of the economy

What makes financial planning So what is financial planning so important in business? about? Have you ever thought of heading for an excursion in an unknown land without a map? For many people the answer is a definite ‘yes’; actually this sounds like the inevitable challenge that such an adventure entails. Risk takers will often manage their business ventures in a similar adventurous manner. However, there comes a time when they all wish they had used a map and planned their course of action after hitting a dead end or a congested road.

The financial plan is effectively the budget of the organisation, with the distinct characteristic that it also addresses the available funding sources and their uses at any point in time. In this respect, it allows the organisation to understand the available ‘headroom’, that is, the non-utilised available funding facilities. The actual process of preparing the financial plan will enable the management and the owners to understand the cost and resource constraints as well as the capabilities of the organisation, and the end result is a blueprint of the future of the business. Most importantly, the financial plan needs to be aligned with and in support of the business’s vision and targets.

Step-by-step financial planning The approach and complexity of a financial plan will vary, depending on the type of business, the life cycle stage in which the business is in and the resource constraints that it faces. The alternative approaches are relatively simple in principle: the plan can either start with a ‘vision’ quantifying the financing and other resource needs to get there (top-down approach) or, alternatively, identify the available resources and plan their best use to maximise returns (bottom-up approach). The complexity of a plan will usually depend on the complexity of the underlying business. Over-complicated financial plans 68

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will tend to waste resources of the finance function with no visible return, while oversimplified plans may easily neglect important issues in forecasting resource needs and expected performance. The resource constraints that a business will likely face can vary regarding limitations in human resources, the possession of skills or other key attributes such as a strategic business location. Most importantly, though, businesses need to address their funding boundaries and, if they can be overcome, then most of the above constraints may be overridden.

Forecasting resources and expected performance The financial plan is effectively a forecast which is as reliable as the information and assumptions on which it is built. The financial plan will address the relevant areas, in the manner and detail suited for the specific business: • Income streams: assess expected size of inflows, timing and frequency. Take into account credit period allowed to customers • Purchases and operating expenses: assess all outlays based on resources needed (or already deployed in the business) and their frequency: monthly, quarterly etc. Consider payment terms of suppliers • Taxes and statutory payments: take into account timing, but may also need to reconsider optimisation by revisiting the tax structure • Capital expenditure: may have to evaluate whether any of these investments may be discretionary, and/or assess the impact if they are deferred, postponed or cancelled.


Take into account payment terms received All the above are detailed in a plan which also takes into account the financing facilities available, repayment terms and ongoing cost. The organisation should make sure that there is adequate headroom at any time. Usually the financial plan will come down to a monthly analysis, while some may choose to prepare their plans on a quarterly or even on an annual basis. The risk in preparing the plan in any period longer than a month, is that substantial intraperiod fluctuations may be overlooked. This is more evident in seasonal businesses where, for example, a month with low turnover may not be able to cover the operating expenses for that month. Similarly, however, a quarterly financial plan may also fail to notice the inadequacy of the available funds to pay one-off liabilities (e.g. tax payments or bullet loan repayments) if these outflows are grossed up with the expected receipts of the next month within that same quarter. Financial plans are habitually prepared on a calendar or financial year basis. This is a well-justified approach as the quantification of required resources and expected performance can then be easily mapped on the actual financial results of the organisation, enhancing performance measurement. However, a ‘static’ financial plan/budget often creates a conceptual ‘veil’ from one reporting period to another. In practice, there is no real change in a business, for example, between 31 December and 1 January. In fact the days leading up to and following this date, may even be for some businesses

the busiest days of the year. In that respect, the business cannot afford a ‘disruption’ to its financial planning between one calendar (or financial) year to the next, but it is important that there is a continuous process in place. For this reason, but also in order to be able to re-align the organisation’s position at any time, many businesses may choose to adopt a ‘rolling budget’ approach whereby – at all times – there exists a financial plan for a period of at least 12 months ahead.

The benefits of proper financial planning • Alignment with and support for overall business strategy • Optimal balance of investment and return • Rational allocation of resources given funding constraints • Objective understanding and measurement of current and targeted performance

Scenario analysis in financial planning It is inevitable that a forward-looking exercise will entail uncertainty. In order to mitigate the risks, different approaches may be applied so that the organisation can assess the effect of alternative outcomes. These usually relate to constructing different scenarios or carrying out ‘sensitivity analysis’, a process of altering the values of key assumptions/parameters to assess the impact, if the plan does not

materialise as predicted. Such scenarios or sensitivities may be applied on parameters such as prices of both inputs and outputs, changes in credit terms from suppliers or delays in receipts from customers, changes in the timetable of deploying resources etc. This procedure will enable the organisation to assess the most efficient use of its resources and understand the financing constraints that it may face in the downturn scenario.

Importance of financial planning in an economic downturn As the availability of funds tightens in turbulent times, the need for financial planning becomes more evident. Organisations tend to focus more on budgeting to make sure they eliminate waste and overspending. Spontaneous reactions, however, to re-establish a liquidity position can have detrimental effects; delaying suppliers’ payments may lead to a loss of invaluable business alliances; cuts to the capital expenditure programme may easily deter the quality of the offered products or services and severely damage the longer-term prospects of the organisation. Correct planning will help the organisation achieve an efficient equilibrium between the available financing and the expected returns. For more information please contact Christophoros Anayiotos, Board Member, KPMG Limited, tel. 22 209292, fax. 22 513294, email: canayiotos@kpmg.com the international investment, business & finance magazine of cyprus

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special feature

Financial planning just for you

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inancial planning just for you. A personal financial plan sounds much more complicated than it really is. Simply put, it is an effective roadmap to manage the financial part of your life. A personal financial plan will guide you on how to spend, save and invest in order to reach your economic ambitions. A smart financial plan should help you with existing financial needs while following a strategy for tomorrow. In any case, keep in mind that investors who use financial advisors tend to experience slightly better returns than those who do not rely on professional advice. Let’s view the basics that can help you build a financial plan that takes you where you need to go.

By Thanos Vassiliades

A Custom-made plan

What’s important to you?

A personal financial plan must be designed just for you. Your financial advisor must clearly understand your current needs and your future goals. Planning must take into consideration your income, expenses, investments and debt.

There are many tools to help you protect your family and future from unexpected events; life insurance, disability income insurance, personal auto and home insurance are just a few. Which ones are best for you and what’s the value in each? Financial planning will help you decide.

What’s your present financial situation? In order to prosper you’ll need to provide a transparent picture of your current finances. Your advisor will have to ask you some key questions to figure out a custom strategy. Examples: • What are your goals and aspirations? • Current/future sources of income • Current income vs. Expenses • Debt to income ratio 70

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• How do you buffer unexpected events & the impact on your family? • What can you afford to lose and what not? • How can you prepare?

Accumulating Wealth No matter what your goals, you have to prioritize. Are you saving money for retirement, a home, your children’s education? Your portfolio should consider the following: • Can your current investments support your financial goals?

• How much money do you need today and how much tomorrow? • What is your Risk tolerance?

Taxes are important Tax dividends and deductions can help you understand the general tax treatment of your financial products. Keep in mind: • The tax implications of the financial products you own or plan to own • Which products have tax-friendly benefits

What you leave behind It’s important to talk about where your money will go when you’re gone. Financial planning will help you take control of your financial legacy. • Do you have a plan for your assets when you are gone? • Will your plan let you achieve all your goals? • How will your plan be realized?


Speculation Real Estate Tax Shelters Currency Hedging

Growth Stocks • Bonds • Equity Securities

Savings Home Ownership • Segregated Funds

Protection Life Insurance • Disability Insurance • Emergency Funds • Regular Savings

Whether you’re financial planning involves a professional or not, the Financial Planning Pyramid is a widely accepted tool for building a plan. The pyramid illustrates the financial planning steps to be addressed first. Insurance needs a properly drawn-up will, debt elimination and an emergency fund. As your financial status moves to higher levels, income protection needs should be replaced by wealth accumulation, with each level having more risk, but with the potential for higher returns and so on. Most investors listen to their heart and not their head. They tend to make decisions based on emotions and then rationalize

them. This is where a good financial advisor can become handy. Understanding your financial needs and accepting your limitations is an important step to setting your future goals. Research suggests that people who plan ahead have much more chances in achieving their goals. A trustworthy financial advisor can help you build and follow through your plan. A few Questions to ask when choosing a Financial Advisor: • WHAT IS YOUR EXPERIENCE AS AN ADVISOR? • WHAT ARE YOUR LEGAL QUALIFICATIONS?

• WILL YOU BE THE ONLY ONE WORKING WITH ME? • WHAT IS YOUR APPROACH TO FINANCIAL PLANNING? • HOW WILL I PAY FOR YOUR SERVICES? • DO YOU HAVE A CONFLICT OF INTEREST? • HAVE YOU BEEN DISCIPLINED FOR UNLAWFUL OR UNETHICAL ACTIONS? • CAN I HAVE IT IN WRITING?

Thanos Vassiliades is the Chief Operating Officer for www.TFIFX.com (TFI Markets) the international investment, business & finance magazine of cyprus

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{november 2011}

issue

08

+ BOok review

74

LIFESTYLE:Private Eye the First 50 Years: An A-Z By Adam Macqueen 97

{money}

74 Wealth Management Par Excellence Sharelink Wealth Management Unit 77 London Stock Exchange Top choice for emerging economies

78

84

{economy}

84 Crossing the Line Towards a Common Future Economic Interdependence in Cyprus

{business}

78 Meeting the Needs of Cypriot Businesses Interview with George Evripidou, General Manager of Hellenic Bank’s Business Division (Cyprus) 80 Getting ready for the cloud era Adobe and PwC US collaborate to design CS5 84 London’s “green” red buses complete one million miles test Hybrid electric buses prove their worth

87 Looking to the Next 100 Years National Bank of Greece (Cyprus) celebrates its centenary

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{tax&legal}

88 Success Story Baker Tilly Klitou is now the 5th largest audit firm in Cyprus 91 Austerity Arrives Recent tax changes aim to reduce budget deficit

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{lifestyle}

92 Precious Time Watch collecting is one of the most rewarding and most expensive hobbies 95 Classic cuisine with an extravagant touch New menus on Lufthansa’s European flights 96 Strengthening Cypriot-Russian ties through art 120 Russian and Greek icons up for auction

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wealth management

{money}

Wealth Management Par Excellence

Sharelink Wealth Management Unit By Charis Papanicolaou, Head Business Development

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he wealth management industry has grown considerably during the last 20 years and has continually been adapting to market trends. But while its evolution has been impressive, no-one can honestly claim that the industry has succeeded in coping effectively with the problems caused by the global credit crisis or the recent debt crisis. At Sharelink, having taken on board the lessons learned through previous periods of financial crisis, we aim to offer our clients services and solutions that successfully address their current and future needs. Being truly independent, we have the freedom to choose what we believe is best product or service for each client. Clients and their needs are the focus of wealth management and our clients’ requirements and constraints form the basis of any investment strategy. We are able to offer them individual, tailor-made, transparent services and we regard each customer as an individual. We will discuss and analyze their personal financial situation and, based on this information, their individual investment strategy is drawn up and implemented independently according to their interests. The Sharelink team acts independently and has no commitments to or interdependence with any other financial or banking institution. Wealth preservation is the main goal.

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CHARIS PAPANICOLAOU


GEORGE IOANNIDES

CHARALAMBOS CHRISTODOULIDES

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wealth management Not being part of a banking institution or a financial conglomerate guarantees our independence and enables us to take decisions based solely on our clients’ interests. At times like the present, when a

to effectively meet our clients’ specific needs, which may include increased income, capital protection, capital growth, exposure to more than one currency, diversification across asset classes and regions and more.

The use of trusts or other legal entities such as investment companies can be useful for asset protection, tax and succession planning

great deal is being discussed in the market regarding the health of the banking system, it is of paramount importance that clients have a choice of custodian banks. We live and work in a highly complex financial environment. Each class of financial asset and each country’s fiscal situation are interconnected like the pieces of the puzzle. We view ourselves, as our logo suggests, as the puzzle fixers, the ones who can best fit all the pieces together in their correct place. Above all, we are here to listen and to know what action is the most appropriate in the prevailing financial environment and be able to provide our clients with the best possible service. Most importantly, we strongly believe that the foundations of a long-term relationship must be built on trust which is maintained with customers through regular interactions and mutual understanding.

Services By George Ioannides, Wealth Management Executive Our services focus on the following three main areas:

❶ Investment Advisory Taking each client’s requirements and limitations into consideration, we suggest portfolios/investments that are customized to their needs and we assist them on decision-making and on the subsequent implementation of their decision. We review the portfolio and its allocation between various asset classes, so as to be able to evaluate the appropriateness of the portfolio based on the client’s risk profile and objectives. We monitor and analyze the performance of the portfolio as well as the performance of the underlying managers, if any. Our many years’ experience in the creation of tailor-made portfolios enables us

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❷ Asset Allocation Advisory We prepare strategic asset allocation of portfolios that include various asset classes according to the profile and needs of the client. Our primary objective is the portfolio’s diversification and dispersion so that the optimum combination of capital protection, income generation and capital growth is achieved. We rebalance the portfolio’s asset allocation according to current and expected economic and market conditions, the expected risk and return of each asset class as well as the risk/return ratio of the various asset class mixes. Asset Allocation accounts for more than 80% of the return of an investment portfolio. Our clients’ assets can be held in separate accounts, in custodians of their choice. They may have access to their investments at any time and can withdraw money at will. Statements are sent out to clients on a regular basis. However, the client can receive portfolio statements at any time upon request.

❸ Wealth Planning The use of trusts or other legal entities such as investment companies can be useful for asset protection, tax and succession planning. Through in-house expertise or external associates we can advise and assist clients in creating suitable financial structures in various jurisdictions according to their individual needs. We aim to offer clients financial structures that are tax efficient, flexible and secure. This aspect of wealth management is of growing importance as the world is becoming more transparent and complex and clients own assets in several jurisdictions across the globe. Succession planning is becoming important for families wishing to transfer family wealth to the next generation and it is even more inportant for families which

own family businesses so as to be able to access the various options regarding transfer of ownership and management and to guarantee the family business’s continuity.

Why Sharelink? By Charalambos Christodoulides, Wealth Management Executive In addition to our aim of always keeping an open mind and being flexible, we believe that, as a company, we have several unique characteristics that make us attractive: • Personalized service. Every client is unique and we aim to take care of his/her unique financial needs. • Competitive and transparent fee structure. We have adopted a flat fee structure and, at the same time, we negotiate fees with other custodians, banks and/or brokers on behalf of our clients. • Transparency. Clients may have access to their account data at any time. • Professionals from diverse backgrounds. Our team has a great deal of experience in areas such as investment consulting, asset management, corporate finance, securities trading and Foreign Exchange trading. Our professionals have an in-depth knowledge and understanding of the services and products offered and they understand the markets and the prevailing economic conditions, in order to effectively match products and services to our clients’ needs. • Flexibility. Due to our small size we react promptly to market changes, we are able to take quick but responsible decisions and create structures or investment strategies based on our clients’ requests. • Extensive network of professionals. Over the years we have built up a diverse network of professionals, including tax and trust experts, lawyers and financial professionals such as advisors and asset managers. • Risk Management processes in place. Asset Management accounts are screened by the Risk Management function and monthly reports related to their performance are sent to the company’s Investment Committee. • A variety of asset classes & strategies. Apart from traditional asset classes such as equities and bonds we suggest alternative assets so as to reduce volatility and increase diversification. • Discretion & Confidentiality. Our corporate culture is based upon being discreet and keeping our client’s business and personal affairs totally confidential.


investment

London Stock Exchange Top choice for emerging economies By Rumyana Vakarelska, London Press Service

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any of the emerging global markets, including Latin America, in addition to Russia, are looking to the London Stock Exchange to raise business capital. During the widespread financial crisis, companies all over the globe have struggled to regain momentum and innovate, but the London Stock Exchange Group has grown as one of the most robust platforms in the world to raise funds and gain global exposure. The London Stock Exchange Group (LSEG) sits at the heart of the world’s financial community, offering international businesses its unrivalled access to Europe’s capital markets. In August 2011 almost 43 million trades were carried out across the group’s electronic equity order books with a combined value of £259 billion, up 73% cent on August 2010 (£150bn). The LSEG has strategically developed new platforms and products rather than merging with other major stock exchanges, offering flexibility, depth and spread of capital investment choice. It operates in a broad range of international equity, bond and derivatives markets, including the London Stock Exchange, the Borsa Italiana, MTS – Europe’s leading fixedincome market – and Turquoise, offering pan-European and United States equity trading to 2,620 companies. What attracts investors from countries such as Russia to London is the group’s ability to develop high performance trading platforms and capital markets software,

including a range of real-time and reference data products and market-leading post-trade services. These services have been particularly useful to the 47 Russian companies, currently listed on the London Stock Exchange (LSE), as well as Russia’s own and upcoming stock exchange, MICEX – Moscow Interbank Currency Exchange – that is yet to develop the technology to support its secondary and primary trading. The parallel emergence of seven new Amundi emerging market exchange-traded funds (ETFs) will provide investors worldwide with specific exposure to India, China, eastern Europe, Brazil, Asia and Latin America, as well as to a broad index ETF, tracking the performance of all emerging markets, including this time exposure to the European real estate sector. Ekaterina Novokreshchenykh, MICEX’s vice-president, considers the LSEG an important asset for existing and future clients from the region. “I think a breakthrough is coming up,” she said, “although the technology is slow to offer a proper product for primary markets, the situation serving secondary markets is better.” She expects further growth to come from depository integration in the Commonwealth of Independent States

What attracts investors from countries such as Russia to London is the group’s ability to develop high performance trading platforms and capital markets software

(CIS - former Soviet Union republics) where they have good business networks leading to more settlements and derivatives growth at a lower cost. Russian companies can benefit from primary equity raising in London and secondary equity raising which can be done in London and in Moscow. In addition, Novokreshchenykh expects a robust growth of derivatives through acquisitions, because the company is exploring the potential merger with the Russian Trading System (RTS) stock exchange, thus giving a better choice for capital raising by Russian and foreign issuers. LSEG traditional exposure to sectors such as energy and natural resources stocks, as well as a range of technologies, including green technologies is another reason emerging countries such as Russia are attracted to London, with five new initial public offerings (IPOs) at the LSEG in 2011 alone. As a result, Novokreshchenykh is encouraging Russian companies to deal in London, while MICEX is building its own secondary, and primary, equity raising portfolio. MICEX can be a valuable partner to the LSEG because it may eventually bring more CIS countries to London, while potentially using the LSEG’s cross-platform products. Novokreshchenykh added that important legislative changes are taking part in Russia that will further encourage capital raising by Russian companies at home and internationally.

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business services

{business}

Meeting the needs of Cypriot businesses George Evripidou, General Manager of Hellenic Bank’s Business Division (Cyprus), analyzes the current business environment and explains how the bank can assist enterprises with its custom-made products and services

Gold: How would you describe the present environment in which Cypriot enterprises are operating? George Evripidou: Cypriot businesses are currently having to operate in an extremely difficult environment. On the one hand they have to face the ongoing eurozone debt crisis and the repeated downgrading of the Cypriot economy and, on the other, constant calls for corrective economic measures to curb the soaring deficit. This wave of problems has been further amplified by the effect on the economy of the tragic explosion at Mari, which will undoubtedly hinder the recovery effort and lead to stagnation. In spite of the fact that the annual growth rate reached 1.4% in the second quarter of 2011, prospects for the third and fourth quarters are not positive

and may ultimately lead to stagnation (0% growth rate) and even to a mild shrinkage (-1%) of the economy in 2011. However, it must be said that sectors that rely on demand from abroad – the export of goods, tourism, professional and financial economic services to international companies and individuals –continue to present an encouraging picture.

Gold: How has the global financial crisis affected businesses in Cyprus? G.E.: Businesses are – and will always be – the driving force and the key to progress and economic development in Cyprus. At present and, more generally, during times of economic crisis, they are called upon to bear the burden of the economy and to support efforts aimed at securing

a successful exit from the crisis. Their role is, therefore, highly significant since financially sound and viable businesses not only ensure the development of the economy but also provide jobs to thousands of individuals and prosperity to Cypriot households. We all recognise that, without successful businesses during a deep downturn, the economy cannot go forward and, consequently, prosperity cannot be ensured either. The current economic environment has caused severe problems to Cypriot businesses, including sharp drops in sales, extreme difficulty in the collection of receivables, increases in the prices of raw materials and, in general, a lack of liquidity. As a result, the future of many enterprises looks extremely dim, and some may be no longer viable. Furthermore, the increased “cost” of money creates problems regarding their ability to borrow and to repay their loans.

Gold: What are the reasons for this increased “cost”?

G.E.: There is growing pressure for a further

George Evripidou

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rise in interest rates due to the situation in Greece and to the continuous downgrading of the Cyprus economy and the country’s financial institutions. Additionally, the increased credit risk faced by financial institutions as well as poor economic prospects only serve to increase the pressure and may push interest rates even higher. There are, however, other reasons for high interest rates, such as the close connection and high exposure of Cyprus’ banking system to Greece where high interest rates reign, and also the Cypriot Government’s financing needs which are draining liquidity out of the domestic market. Despite this, interest rates do not necessarily


constitute a hindrance to credit expansion: total advances extended by the banks within the financial credit system increased by 11.7% in August 2011 (to €66.3 billion), a level deemed satisfactory given the discouraging prospects for the economy. August deposits showed an annual upswing of 3.2% and amounted to €69.8 billion. I believe that the possibility of Cyprus

two in Limassol, one in Larnaca, one in the Famagusta district and one in Paphos – staffed by qualified, experienced and specially trained personnel. The Business Centres offer our clients comprehensive solutions to their banking requirements via a wide variety of products designed by the Group. The main objective of the Business Services

Without successful businesses during a deep downturn, the economy cannot go forward and, consequently, prosperity cannot be ensured obtaining a loan from Russia and the improvement of the situation in Greece (through the final implementation of the July 21 EU-approved package) will help the de-escalation of the interest rates.

Gold: Can anything be done to improve local enterprises’ chances of survival during the present downturn? G.E.: Economic and social development requires a propitious environment, free from current structural difficulties, which will contribute to the resolution of problems and the development of enterprises. For example, we could further simplify the legal, institutional, and administrative framework to enable businesses to function better, and provide incentives for the improvement of the economic environment as well as support for businesses in their efforts to upgrade their technology and to give their operations an international perspective. It is important to study both the general and the sector-specific problems of the economy and to apply an integrated policy which aims at rational growth. Gold: In what way does Hellenic Bank and, in particular, its Business Services Division, support Cypriot enterprises? G.E.: Hellenic Bank’s Business Services Division offers modern and constantly upgraded services and specialised products, which, we believe, satisfy and fully cover the banking needs of businesses operating in all sectors of the economy as well as the needs of their directors and shareholders. The Business Services Division operates seven Business Centres – two in Nicosia,

Division is to maintain a long-term professional relationship with its clients, through high-quality, friendly service. It is precisely for this reason that our personnel’s main task is to propose direct and appropriate solutions for our clients according to their needs with the support of the Bank’s technologically advanced systems.

Gold: What distinguishes Hellenic Bank’s Business Services Division from its competitors? G.E.: Our significant main advantage is that we succeed in creating a proper professional and personal rapport with businesses and their people in a relationship based on trust, privacy, high quality, friendly service and ease of contact. We believe that we are in a position to provide advice that is always in our clients’ best interests, to respond promptly and to resolve any problems that may arise. In the present financially difficult circumstances in particular, we support businesses by offering flexible schemes and privileged solutions, adjusted to their needs with responsibility and professionalism. Each client is treated as a special case with its own specific characteristics and requirements and our staff create comprehensive solutions to meet a company’s banking needs using the Group’s wide range of services and products and its technologically developed systems. Hellenic Bank’s Business Services Division has responded successfully to the challenge of difficult economic conditions during the past few years and I am sure that

it will stay on course in the future. Furthermore, it offers Private Banking services, which provide investment services to clients of Hellenic Bank who seek alternative placements with higher yields. Through this Service, investments can be made in mutual funds, stocks and bonds in international markets as well as in precious metals. The Service, which also offers the possibility of lending against asset portfolios, was honoured by Euromoney magazine in 2009 as the Best Private Banking Unit in Cyprus. Additionally, Hellenic Net Banking offers easy, fast, credible services with maximum security and minimum costs. The Net Banking Service offers information and execution of bank transactions, payroll services, statements, transfers within and outside the Bank and a lot more. This service won a 2010 award from Global Finance Magazine as the Best Integrated Consumer Bank Site in Europe.

Hellenic Bank’s Business Services Division services and products to business include: • Schemes for the building or for the purchase of business premises • Facilities for liquidity support • Schemes for the purchase of machinery, equipment and professional vehicles • Personal facilities to company directors and shareholders • Savings schemes with very advantageous interest rates

In addition, in cooperation with other departments and subsidiary companies of the Group, it offers Small and Medium Size Enterprises: • Life insurance/Permanent total disability insurance plans • Investment plans and protection plans via Hellenic Alico Life, which is associated with Metlife Alico international • Fire insurance via Pancyprian Insurance • Corporate and personal credit cards • Leasing contracts • Factoring Services • Trade Finance Services

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technology

{business}

Adobe Systems: Getting ready for the cloud era Adobe and PwC US collaborate to design CS5

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ounded nearly 30 years ago, Adobe Systems is a world leader in developing and offering software solutions that help business and creative professionals produce compelling content and applications. Put simply, using Adobe products enables a company’s customers to work more effectively and deliver more powerful and meaningful digital experiences. When it comes to the resulting take-up of Adobe’s products, the figures speak for themselves. Adobe Flash Player is installed on 98% of all Internet-enabled desktops while Adobe Photoshop is used by more than 90% of creative professionals. It is no exaggeration to say that Adobe products set the standard for online communication and collaboration, while bringing engaging online experiences to millions of people every day. Adobe has achieved this consistent success against the background of a rapidly changing environment, requiring it to adapt and enhance its business model and products through a culture of continuous innovation. And in the years ahead, Adobe customers’ technology use will be further impacted by the emergence of

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SaaS (Software-as-a-Service) and cloud computing. So, when Adobe was looking to transform its business model to enable an SaaS offering for its next product release, it turned to PwC’s US firm. Together, Adobe and PwC US teams collaborated to design a bundled solution for software product and subscription services – CS5 – that could be marketed as a cloud-based subscription service. PwC US helped Adobe build and operate the IT programme management office for the product launch, and manage the business and technical infrastructure of its new cloud-based business model. The project requirements for the development and launch of CS5 were defined in record time by using ‘allhands’ collaboration, in which PwC US and Adobe people brainstormed ideas and worked out prototype designs.

requirements produced in record time – essentially weeks instead of months – but the event was transformative in the way that it brought together Adobe’s IT function with its sales and marketing side.” As a key component of the broader initiative, the PwC team particularly encouraged Adobe to seize the opportunity to automate the revenue recognition processes associated with its new product offering. PwC US managed both the technical implementation of the new revenue recognition process and the array of backoffice changes which were necessary to achieve it. PwC Global Relationship Partner Mark McCaffrey comments: “Just as Adobe seeks to distinguish its offerings in the market, PwC seeks to differentiate itself as a professional services provider. That

Adobe Flash Player is installed on 98% of all Internet-enabled desktops while Adobe Photoshop is used by more than 90% of creative professionals According to PwC US partner Michael Pearl, this approach delivered value that even exceeded the original expectations. Pearl explains: “Not only were the business

begins by knowing our clients, taking time to understand their growth objectives, and working with them to be sure that what we bring drives value.”


transport

London’s “green” red buses complete one million miles test By John Webb, London Press Service

A

fleet of 27 hybrid electric versions of London’s famous red buses has just completed a total of one million miles of clean, reliable revenue service. London United, as one of the UK capital’s leading bus companies, is operating five single-deck and 22 double-deck vehicles powered by a UK hybrid electric propulsion system, and reports that they are the first of their kind in the city to reach the landmark of a million miles (1,609,340 km). The operator was involved in London’s original hybrid bus trial and was an early adopter of the new technology when it placed an order for an additional 20 vehicles last year (2010). London United’s engineering director Les Birchley said: “Our BAE Systems HybriDrive Series-powered hybrid buses continue to perform well and have proved their worth in terms of achieving both superior fuel savings and optimum reliability. Our passengers and drivers love them.” The London United fleet of hybrids – built by the UK’s largest bus builder, Alexander Dennis and using a combination of a diesel engine and electric motor –

has saved the company well over 44,000 gallons of diesel since late 2008 and prevented the release of more than 450 tonnes of CO2. Their ability to cut emissions from exhausts is a major boost to calls for vehicles to become more “green” on route to the achievement of zero-emissions from renewable energy sources of power. Rob Lindsay, BAE’s director of transport systems, UK and Europe, said: “We firmly believe that hybrid is the right technology for UK transit buses, and with the HybriDrive Series, the world’s most successful hybrid electric propulsion system, we have a proven, robust system that delivers both class-leading fuel economy and reliability.” The UK hybrid electric system cuts pollution and fuel consumption while coping with the durability demands presented by the constant stop-starting of a typical bus operating in an urban environment. The system consists of a generator, an electric traction motor and an energy storage system managed by computerised controls. A diesel engine turns the generator and operates independent of the electric drive motor, allowing it to run at the optimum engine speed for fuel efficiency. The system uses no mechanical

transmission and gives the hybrids a significant maintenance advantage over conventional diesel buses. Bus operators throughout the world are now adopting the HybriDrive system and more than 3,500 hybrids are in service. BAE says a total of more than two billion passengers have been carried worldwide by HybriDrive buses and over four million passengers a day continue to enjoy the smoother and quieter ride they offer.

Bus operators throughout the world are now adopting the HybriDrive system and more than 3,500 hybrids are in service

In addition to London, the UK cities of Edinburgh, Manchester, Oxford, Reading, Newcastle and Hull are also trialling the country’s fleet of 230 such vehicles which is expected to grow to more than 400 by the end of 2012. Up to now, HybriDriveequipped hybrid buses have travelled more than 300 million miles, prevented 280,000 tonnes of CO2 emissions and have saved more than 25 million gallons of diesel fuel. HybriDrive first entered service in Daimler Orion buses on the streets of New York city in 1998. In 2002, the US hybrids were instrumental in New York’s transit authority winning the clean air excellence award from the Environmental Protection Agency. “This proved to be just one of HybriDrive’s subsequent hybrid awards,” said a BAE spokesman. Toronto placed Canada’s first order for HybriDrive-equipped buses in 2005 and now has the country’s largest hybrid fleet. The same year, San Francisco chose the UK system and it now has California’s largest hybrid fleet. Houston, Ottawa, France and Japan also have the buses in service.

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{advertorial}

Porsche Panamera S Hybrid The most economical Porsche of all time

T

he Panamera S Hybrid marks the beginning of a new chapter of Porsche Intelligent Performance, continuing the success story of the four-door Gran Turismo. Not only is the new model the most economical Porsche of all time, it also outperforms by a mile all full hybrid production cars of its class (luxury class) in terms of consumption and CO2 emissions. At the same time, it offers the sporty, exclusive character and custom comfort so typical of this unique Porsche Gran Turismo family. The Porsche Panamera S Hybrid is the first parallel full hybrid car in the luxury class

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with unique features. The range on electricity alone is approximately two kilometres (1.24 miles) and the speed in electric mode is up to 85 km/h (53 mph) depending on the driving situation. Moreover, thanks to the so-called “sailing� mode on motorways and main roads, the Porsche hybrid is the only system in the world able to exploit additional consumption reserves in higher speed ranges. The Panamera S Hybrid is driven by the same engine combination that has already proved itself in the Cayenne S Hybrid and, for the first time in a Panamera, power transmission is handled by the standard eightspeed Tiptronic S with wide ratio spread familiar from the Cayenne models.

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Porsche Panamera S Hybrid Specifications Body: Integral lightweight body construction with a mix of steel, aluminium and magnesium, two-stage driver and passenger airbags; side and knee airbags for driver and front passenger; head airbags (curtain airbags) for all four occupants; active bonnet system for protecting pedestrians; four seats. Engine: Parallel full hybrid; V6 engine; aluminium alloy engine block and cylinder heads; four overhead camshafts; four valves per cylinder; continuously variable timing of inlet camshafts; hydraulic valve clearance compensation; supercharging system; direct petrol injection; forced-feed lubrication with wet sump; 8.1 litres engine oil; three-way catalytic converter with two oxygen sensors for each cylinder bank; highvoltage static distribution with six individual ignition coils; thermal management for engine cooling circuit; variable overrun fuel cut-off; auto start/stop function; hybrid module with synchronous motor and decoupler. Bore: 84.5 mm Stroke: 89.0 mm Displacement: 2,995 cc Compression Ratio: 10.5:1 Engine Power: 245 kW (333 hp) from 5,500 rpm to 6,500 rpm (V6 engine) 34 kW (47 hp) from 1,150 rpm (electric motor) 279 kW (380 hp) at 5,500 rpm (combined) Max. Torque: 440 Nm from 3,300 rpm to 5,250 rpm (V6 engine) 300 Nm up to 1,150 rpm (electric motor) 580 Nm at 1,000 rpm (combined) Power Output per Litre: 81.8 kW/litre (111.3 hp/litre) Maximum Revs: 6,500 rpm Fuel Type: Super 95 Electrical System: 12-volt vehicle electrical system; battery 75 Ah; high-voltage system: 288 volts; nickel-metal hydride battery 6 Ah Power Transmission: Engine and transmission bolted together to form one drive unit; two-piece drive shafts driving rear wheels; Eight-speed Tiptronic S. Gear ratios. Chassis: Aluminium double wishbone front suspension; aluminium multilink rear suspension with chassis subframe; front

and rear air suspension with additional air volume on demand; electronically controlled front and rear twin-tube gas-filled shock absorbers with continuous adjustment of damping forces (Porsche Active Suspension Management, PASM); driver can select one of three modes. Brakes: Dual-circuit braking system with separate circuits for front and rear axles.Front: six-piston aluminium monobloc calipers; vented brake discs with a diameter of 360 mm and a thickness of 36 mm. Rear: four-piston aluminium monobloc calipers, vented brake discs with a diameter of 330 mm and a thickness of 28 mm. Porsche Stability Management (PSM); brake booster; brake assist system, electrical parking brake. Wheels and Tyres: Front 8 J x 18 with 245/50 ZR 18, Rear 9 J x 18 with 275/45 ZR 18 Weights: Unladen weight DIN 1,980 kg Perm. gross weight 2,485 kg Permissble roof load 75 kg Dimensions: Length 4,970 mm Width 1,931 mm Height 1,418 mm Wheelbase 2,920 mm Track widths Front 1,658 mm Rear 1,662 mm Luggage compartment volume according to VDA 335 to 1,153 litres Fuel tank capacity 80 litres Performance: Top speed 270 km/h (167.8 mph) Acceleration: 0 – 100 km/h (62 mph) 6.0 secs 0 – 160 km/h (99 mph) 14.4 secs 0 – 200 km/h (124 mph) 24.3 secs 0 – 1,000 metres (3,2801 ft) 25.9 secs Consumption: (NEDC) Urban 8.3 (8.0) litres/100 km (34.03 (35.31) mpg imp) Extra-urban 6.4 (6.1) litres/100 km (44.14 (46,31) mpg imp) Combined 7.1 (6.8) litres/100 km (39.79 (41.54) mpg imp) CO2 Emissions: Total 167 (159) g/km Emission Category: Euro 5 * Values in brackets refer to vehicles with 19inch all-season tyres (optional) with optimised rolling resistance

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peace economics

{economy}

Crossing the Line Towards a Common Future Erdal Guray

Costas Apostolides

Two years ago, the Peace Economics Consortium was awarded a tender to prepare a study on “Economic Interdependence in Cyprus” in cooperation with the Cyprus Chamber of Commerce & Industry and the Turkish Cypriot Chamber of Commerce. Six volumes and more than 1,000 pages later, the two main partners in the project are still hoping that their recommendations will be adopted. By John Vickers

C

ostas Apostolides and Erdal Guray met for the first time in 2009, just 48 hours before the deadline to submit a tender for a UNDP-funded project to report on “The Present State of Economic Interdependence in Cyprus and Recommendations for the Future”. After an initial meeting they decided to join forces and since then they have maintained a professional and personal friendship, cemented by the fact they won the tender to carry out the study. “We got on very well from the start,” recalls Apostolides “We’ve never had a problem. It’s been a wonderful experience.” The joint project threw up some surprising statistics, such as the fact that economic interaction across the Green Line is more significant than previously thought,

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estimated at about €301 million in 2009 having reached €311 million the year before. The most important factor in economic interdependence is the movement of people across the Green Line, which accounts for 75% of the total intra-island expenditures. In 2008, some 3.7 million people crossed the Green Line, though this fell to 3.2 million in 2009. It is also estimated that about 10% of tourists entering Cyprus via Larnaka International Airport visit the Turkish-occupied area, the vast majority for just one day. In 2007, average spending by tourists there was very high at €162 per visit. More recent figures are not available but it is clear that the effects of the global financial crisis and the recession, have been felt on both sides of the island. “The amount of expenditure, income and transfers has gone down, though not by very much, from around €310 million to €300 million,” admits Erdal Guray, “and with more cooperation, these numbers could become much bigger.” “There are problems in both communities with the whole idea of cooperation,” echoes Costas Apostolides. “We expected a stronger negative reaction by Greek Cypriot businessmen

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to intercommunal trade because of the criticism expressed by some political parties and individuals about the very concept of trade with the north but it was the same on the Turkish Cypriot side too. Which leads us to the conclusion that people on both sides still don’t understand how things could change for the better after a solution.”

When you consider how much the EU has given to bail out Greece, financing the solution to the Cyprus issue is not a big problem The two men are convinced that, through business and by working together, people can develop relationships and mutual interests. Apostolides cites the recent agreement between the two communities on the provision of electricity: “The relationship between


the two authorities is very good, not only because we helped in 2006 when they had a problem and now they are helping us but because for so many years, when electricity was being provided from the south, they were in contact every morning since they had to coordinate. We believe that the feeling that you can work with someone and that it’s in the interest of both parties to work together has a positive effect.” Guray takes the idea of collaboration down to a very basic level: lemonade. “Both sides produce fresh traditional Cypriot lemonade and from time to time companies and individuals from each community have tried – and failed – to sell to the other. But if they are both producing the same kind of product, why are they thinking about selling to each other? Why not join forces and produce together? Trying to sell the same products from one side to the other doesn’t make sense but setting up joint ventures not only makes good business sense, it can also help bring about a solution.” Both men agree that competition is a good thing but they suggest that in terms of helping the two communities in Cyprus to come closer together, collaboration is a more valuable concept. Apostolides notes a Greek Cypriot misconception about Turkish Cypriot entrepreneurship: “The fact is that not everything is better or of a higher standard in the south of

the island. For example, there is a fibre optics company operating in the north and no equivalent on this side of the line. The telecom company in the north was using fibre optics before Cyta, for example. So certain things shouldn’t be underestimated.” Despite dedicating two years to preparing their report, Apostolides and Guray are disappointed by the fact that,

haven’t supported this project. They need to understand what the people themselves are doing and they simply don’t realize what’s going on. We have shown that there is already more cooperation taking place than is generally believed and it’s working advantageously to both sides.” As well as examining the present situation, the Peace Economics Consortium is now in the process of

The leaders should actively support relations between business, civil society, etc. on both sides of the dividing line beyond a limited amount of media coverage, it has not received the attention they had hoped for. Even the two Chambers which commissioned it appear to have left it in a drawer, untouched and unread. “This drives me crazy,” admits Erdal Guray. “We spent more than two years, we wrote more than 1,000 pages and in the end they published a 30-page summary and no-one is using even that.” Costas Apostolides agrees. “What amazes us is that the regimes on both sides

finalising the second part of the project, for which it has constructed an economic model showing how things will be in 20 years’ time. “We have come up with a scenario that provides for a solution being signed by the end of 2011, followed by a 4-year preparatory period which will allow for the Turkish Cypriot adjustment to the euro,” says Apostolides. “We have also come up with a figure of €20 billion as the benefit to the Greek Cypriot community from the territorial adjustment – basically we

Assumed Green Line Movement (2003-2009)

2003

2004

2005

2006

2007

2008

2009

Greek Cypriots

1.123.720

1.173.825

1.319.899

916.500

661.486

779.520

798.800

Turkish Cypriots

1.371.099

2.159.541

2.222.199

1.690.850

2.142.971

2.085.802

1.462.150

256.400

296.400

252.100

200.500

265.340

281.260

441.576

594.025

632.270

3.446.533

3.724.687

3.174.480

Tourists to TCC Others

44.167

69.996

Total

2.538

3.659.762

3.838.498

2.859.450

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peace economics

ECONOMIC INTERDEPENDENCE: ESTIMATED EXPENDITURE ACROSS GREEN LINE BY YEAR (€mln) BENEFITS TO TCC

2003

2004

2005

2006

2007

2008

2009

MOVEMENT GCs

18.9

31.2

47.9

36.3

28.5

37.1

39.4

Tourists

n.a

36.4

44.8

36.0

32.5

43.1

45.6

Others

0.7

1.9

n.a

n.a

19.0

27.6

31.6

Car Insurance

1.0

1.4

1.5

1.1

1.5

1.2

1.4

Sub-Total

20.6

70.9

94.1

73.4

81.5

109.0 118.0

Labour Income

13.2

31.1

39.7

39.7

42.9

45.4

41.3

Green Line Trade

n.a

0.5

1.3

3.2

4.2

7.2

6.0

TC Pensions

16.1

16.5

17.2

17.6

18.1

18.8

19.6

Public Health

2.5

5.1

4.3

4.0

4.8

4.4

7.0

53.2

62.5

64.5

70.0

75.8

73.9

Sub-total 31.8 TOTAL 52.4 BENEFITS TO GCC

2003

124.1 156.6 137.9 151.5 184.8 191.9 2004

2005

2006

2007

2008

2009

MOVEMENT TCs

17.3

36.5

47.1

56.5

97.7

120.6

102.4

Car Insurance

0.5

1.3

1.4

1.5

1.6

1.8

2.1

Sub-Total

17.9

37.8

48.5

58.0

99.3

122.4

104.5

Green Line Trade

0.0

0.0

0.2

1.0

0.7

1.4

0.8

Private Education

n.a

0.8

0.9

1.1

1.3

2.4

3.7

38.6

49.6

60.1

101.3 126.2 109.0

TOTAL 17.9

in 2004, the total amount pledged was just under €1 billion. “The biggest contribution was from the United States – $500 million to finance the solution, whereas the EU’s was €259 million to help reduce the gap between the two communities. But that is not the immediate problem. What will be needed is About 10% of tourists entering Cyprus money to finance via Larnaka International Airport the solution, visit the Turkish-occupied area more like €1.5 billion to help those affected by the territorial enough to finance it, a long-term loan from adjustment and to finance the construction the EU, the US, Turkey, Greece or some sector.” The study has calculated that 80,000 other source would be a logical approach. “The politicians should be very happy Turkish Cypriots will have to move so new towns and villages will need to be with this idea,” he adds. built. However, if the EU is to pay for part Apostolides recalls that when donor countries met before the referendum of this, says Apostolides, it needs to put are referring to Morphou and Famagusta. We know that taxation will have to go up to pay for the solution but the benefits to both sides will be far greater than any cost.” On the subject of the cost of a solution to the Cyprus problem, Guray suggests that since neither side is economically strong

86

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something in the budget now as it will be very difficult to find this amount of money afterwards. “When you consider how much the EU has given to bail out Greece, financing the solution to the Cyprus issue is not a big problem,” says Guray, “and I am suggesting that they provide it in the form as a 20- or 30-year loan, not as money that they will not see again.” So, can economics, business and money overcome longstanding political problems that seem to be blocking a solution? Both men are adamant that the answer is ‘yes’. “I’m optimistic,” says Erdal Guray. “This study has showed us that we are stronger together than apart. Our most important recommendation is that the leaders should actively support relations between business, civil society, etc. on both sides of the dividing line. They need to make a clear statement because this will make a solution much easier. To understand each other we must get together.” Costas Apostolides admits to being optimistic by nature (“I was brought up in east London so I had to be!”) and agrees with his Turkish Cypriot colleague that it is up to the leaders of the two communities to play their role: “They have to make people understand that they are in favour of cooperation and collaboration. If the right guidance is given from the top, people will not be afraid to work together for a common future.”


banking

{business}

Looking to the Next 100 Years

By Nicholas Th. Beis, CEO National Bank of Greece (Cyprus)

N

ational Bank of Greece, which is the oldest and largest of Greece’s banks and heads the strongest financial group in the country, has always had a dynamic international profile, particularly in southeast Europe and the eastern Mediterranean. Its operations in Cyprus began just over 100 years ago and this year we continue to mark the centenary of National Bank of Greece (Cyprus) with new and exciting projects. These include a savings scheme with particularly attractive interest rates and returns and our belated entry into the Cyprus-based International Companies Sector with the objective of gradually increasing the bank’s market share. Our strong capital base enables us to provide more loans to customers and our annual profits are in excess of €50 million. Thanks to our efforts aimed at reducing operating and other expenses, I expect this figure to increase further. The past year has been very significant for National Bank of Greece (Cyprus). When it was first established in 1910, it was the only bank on the island. The first branch opened in Limassol and the network gradually expanded to cover all towns. For decades, National Bank of Greece (Cyprus) and Bank of Cyprus formed the core of the island’s banking system and were involved in the early development of the Cypriot economy. Until 1974, National Bank of Greece (Cyprus) was the second-largest bank in the country. Although our market share and our influence on the Cypriot economy have declined since then, we have always

The first branch of National Bank of Greece (Cyprus) opened in Limassol in 1910.

maintained our traditionally close links with the business community on the island and we believe that these centenary celebrations provide an excellent opportunity to turn things round and to expand our presence. We currently employ 300 people and operate an islandwide network of 21 branches and it is our intention to regain what was once our highly significant role in the island’s economic progress. The current situation in Greece, amid a great deal of talk about the consequences for the banks (including National Bank of Greece obviously) is clearly far from ideal. Where Cyprus is concerned, however, let me state the obvious: National Bank of Greece (Cyprus) is a Cypriot bank, carrying out operations in Cyprus with Cypriot customers – individuals and enterprises in both the private and public sectors. National Bank of Greece is a shareholder and the Cyprus bank shares the name, reputation and knowhow of the Greek one. In the world of multinational companies, such an international dimension is considered an advantage. But that is the extent of the connection. In recent years Cyprus has made great progress towards becoming an international services centre in the Mediterranean region. Cypriot banks have been heavily involved in this and a considerable part of their robust

financial situation is due to companies with international dealings, particularly Russian-owned enterprises. Six months ago National Bank of Greece (Cyprus) finally established a representative office in Moscow and we have started to lay the foundations for our own involvement in these activities. Expectations of an improved economic climate in Greece, combined with the bank’s reputation, prestige and international recognition – National Bank of Greece is one of the Top 100 biggest banks in Europe and one of only seven European banks listed on the New York Stock Exchange (NYSE) – make us confident that the Bank will continue to thrive 100 years after opening its first branch in Cyprus,

It is our intention to regain what was once our highly significant role in the island’s economic progress National Bank of Greece (Cyprus) is now on the verge of an exciting new era and we are proud to be starting our second century of operations on the island in dynamic fashion.

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audit services

{tax&legal}

Success Story Baker Tilly Klitou is now the 5th largest audit firm in Cyprus and, despite the global financial crisis, is still developing fast with strong growth indicators

B

aker Tilly Klitou is a leading firm of auditors, accountants and business advisors in Cyprus, operating through offices in Nicosia, Limassol and Larnaca, Bucharest, Sofia and Chisinau (Moldova). Its 14 partners and more than 200 people offer services of the highest standards to more than 3,000

Andreas Philippou

businesses operating both nationally and internationally. In addition to audit and assurance, the firm provides services in the area of accounting, corporate and personal taxation, internal audit, IFRS, corporate finance and business advisory. When the company was formed in 1996, no-one could have predicted what it would become. Today, it is the 5th largest audit

firm in Cyprus and, despite the global financial crisis, is still developing fast with strong growth indicators. After becoming a member of the Baker Tilly International network in 2005, the client portfolio expanded rapidly and was upgraded to include large organisations, many of which are listed on internationally recognised stock exchanges. The Baker Tilly brand brought increased client trust and faith in its services. The firm is now a durable organisation which has gone from strength to strength, from success to success, the latest of which include the European Conference of Baker Tilly International in Cyprus, the survey on Cyprus’ prospects as a business centre, the conference on London’s Alternative Investment Market (AIM), and three business forums in Russia, Poland and Israel, focusing on the promotion of Cyprus as a favourable location for international trade. Baker Tilly Klitou has received various accreditations and awards, including the ICPAC Quality Checked Award for Cyprus, eligibility to audit World Bank Finance Projects in Romania, Bulgaria and Moldova, and an ISO Certificate for Romania. The firm has also been nominated for a 2011 IN Business Award in the services category.

Panicos Charalambous


Audit and Assurance Services The Audit and Assurance service line in Cyprus comprises about 90 people including seven partners working on assignments of different levels of complexity. Audit teams are able to draw resources and expertise from their offices in Cyprus, Romania, Bulgaria and Moldova, as well as from the international network of Baker Tilly, to help meet clients’ needs and solve complex business problems. Audit partners have a direct involvement in setting up the audit practices and policies and undergo frequent training and updates on current audit and accounting issues. Partners and others from the audit and assurance service line are working closely with Baker Tilly offices in other countries, the Institute of Certified Public Accountants of Cyprus, the Cyprus Chamber of Commerce and Industry and its business associations, as well as other authorities to promote Cyprus as an international financial and business centre.

MARIA KAFFA

Here, four partners from the Audit and Assurance service line, share their experiences in working on various projects and assignments.

Panicos Charalambous Senior Director, Audit & Assurance Services, Nicosia Besides acting as an audit partner with a large portfolio of clients to handle, I’m also the firm’s Technical Partner. I have been involved in the area of IFRS training, delivering courses for professionals across all industry sectors both in Cyprus and abroad, for almost 20 years. Working on the application, interpretation and implementation of IFRS, as well as in IFFS conversion projects, requires a continuous effort to remain alert to changes that are being made to the standards on an ongoing basis. This enables me to deal with the complex and challenging issues that very often arise in today’s rapidly changing business environment.

Our clientele reflects the dynamics of our network and its mission which is the ability to be able “to deliver, with integrity and objectivity, superior services to clients through global resources and relationships” both locally and internationally. A recent study commissioned by a member of our network has shown that one of the more highly regarded attributes valued by clients when choosing their auditors is the ability to deliver high quality technical services. Many of our clients operate across many different service lines and in various jurisdictions. It is therefore inevitable that complicated issues will arise which require careful consideration and the correct application as this can affect a client’s results not only for a particular year but for the years to come as well. This applies not only at company level but at group level with a knock-on effect to other group members. Our knowledge and experience has positioned our firm as one of the key market players in this field.

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89


audit services

Maria Kaffa Director, Audit & Assurance Services, Nicosia Being responsible for the Russian companies of our firm’s portfolio has given me the challenging experience of having to serve a very demanding and competitive market. Our Russian clients’ portfolio includes, among others, private and listed companies, Investment Funds and Groups of Companies established and operating not only in Russia but in several other countries such as the United Kingdom, Ukraine, Latvia, the Netherlands, Luxembourg and elsewhere. For the implementation of these multimarket assignments, our firm usually acts as Group Auditor. This role includes overall responsibility for the planning, coordination, execution, review and expression of the final audit opinion for the Group. Such assignments provide crossborder experience for our people, our firm and the Baker Tilly International network.

Baker Tilly is the preferred network for listings on the AIM of London Considering the extremely competitive environment in which we are operating, these assignments require rendering services of the highest quality together with the greatest efficiency and effectiveness. Baker Tilly Klitou’s success, as evidenced by the firm’s history, current position and size, is clearly the result of the high quality of services that provide to our clients.

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Christodoulos Loulloupis Director, Audit & Assurance Services, Limassol

Andreas Philippou Director, Audit & Assurance Services, Nicosia

The Limassol office of Baker Tilly Klitou has expanded rapidly in recent years. The office, comprising two directors and forty people, offers mainly audit, accounting and tax services to local and international business clients. Our membership of the Baker Tilly network provided us with an opportunity to offer a global service to our clients in cooperation with member firms in other countries.

I have the audit responsibility for almost all the firm’s Ukrainian clients, ranging from small privately-owned companies to listed groups. For this reason I travel frequently to Ukraine in order to be close to our clients, to have a better understanding of the challenges they face and to provide them with prompt, personal and effective quality service. Over the last few years I have been

Despite the worldwide economic crisis, the firm is still developing fast and with strong growth indicators In July 2011, for example, we were involved in the audit of a client listed on the AIM in London. The client had invested in properties in Ukraine and was the subject of a reorganisation that would enable expansion plans to materialize. Despite tight and demanding deadlines, our audit team visited the client’s offices in Kiev and, in cooperation with our colleagues from the Kiev office of Baker Tilly, we succeeded in meeting the targets set and making the deal possible. The feeling of satisfaction in enabling the client to achieve its goals and strengthen its position was immense, despite the long hours and the numerous challenges that arose during the audit. In addition, the feeling of camaraderie that developed between the Cyprus and Ukraine offices was unparalleled and we are looking forward to similar assignments in the future.

extensively involved in Initial Public Offerings by Ukrainian groups on London’s main Market and Alternative Investment Market (AIM) and on the Warsaw Stock Exchange. Our international assignments confirm that Baker Tilly International has rightly established itself as a leading network in this area. This is also evident from the fact that Baker Tilly is the preferred network for listings on the AIM of London. Along with my audit functions, I am also the firm’s Risk Management Partner, which has proved to be quite challenging, especially in the current rapidly changing global environment. I always have to be on my toes to ensure that our people and our firm comply with all relevant professional standards, regulatory and legal requirements. This is essential to protect our clients as well as the reputation of Baker Tilly Klitou.


tax measures

{tax&legal}

Austerity Arrives Recent tax changes aim to reduce budget deficit

T

By Elias Neocleous he House of Representatives recently passed a series of measures to increase various taxes and impose an annual levy on companies incorporated in Cyprus. These measures form part of an austerity package aimed at reducing the budget deficit, which also includes an increase in government employees’ pension contributions and a two-year special levy on salaries and pensions paid to national and local government employees. Further steps are anticipated over the next few months, which are expected to focus on reducing public spending and establishing tax incentives and other initiatives to promote growth. The principal tax changes passed so far are outlined below.

SDC Tax Increase in tax on interest The rate of the special contribution for defence (SDC) tax on interest received has been increased from 10% to 15%. The concessionary rate of 3% payable by provident funds and individuals whose total income for the year does not exceed €12,000 is unchanged. Most companies will be unaffected by the change, since the interest they receive is subject not to SDC tax, but to corporate income tax. Increase in tax on dividends The rate of SDC tax on dividends received by Cyprus-resident individuals has been increased from 15% to 17%. Companies are generally exempt from SDC tax on dividends. The same increase in the rate applies to deemed dividend distributions.

Effective date The increases will apply to all interest and dividends received after the date on which the amending law is published in the Official Gazette.

€300,000 - €500,000 0.6%

€200 €850 €2,050

registrar of companies by all companies incorporated in Cyprus. Dormant companies, companies that do not own any assets and companies that own property in the occupied areas of Cyprus are exempt. For groups of companies there is a ceiling of €20,000. The levy for 2011 is payable by the end of the year while for subsequent years the levy is payable by June 30. No levy is payable for the year in which a company is incorporated. Penalties will be imposed in the event of late payment. If the levy is paid no later than two months after the due date, a penalty of 10% will be charged. If the levy is paid between two and five months after the due date, a penalty of 30% will be charged. Companies that have not paid after five months from the due date may be struck off the register. They can be restored to the register only by paying an increased levy of €500 per year if they are restored within two years or €750 per year if they are restored to the register after more than two years.

€500,000 - €800,000 0.7%

€4,150

Personal Income Tax

Immovable Property Tax Revision of bands and increase in rates The threshold for payment of immovable property tax, which is payable by individuals and companies on the aggregate value of property owned in Cyprus, has been reduced and the rates have been increased. Assessments continue to be based on 1980 values. The increase will be effective from January 1 2012. Value of property as at January 1, 1980

Rate

0 - €120,000 00 €120,000 - €170,000 0.4% €170,000 - €300,000 0.5%

€800,000 and above

0.8%

Cumulative tax at top of band

N/A

Value Added Tax relief for purchase of principal private residence The current relief, which provides a refund of Value Added Tax (VAT) of up to €17,000, will be replaced by the introduction of a reduced VAT rate of 5% on the costs of purchase or construction of the first 200 square metres of a house or flat of up to 300 square metres in total area for use as a principal private residence.

Companies’ Annual Levy For 2011 and subsequent years, an annual levy of €350 will be payable to the

A 35% income tax rate has been introduced for taxable income in excess of €60,000. For the first three calendar years following the start of their employment, individuals taking up residence and employment in Cyprus are entitled to an annual allowance of the lower of €8,543 or 20% of their remuneration. With effect from the 2012 tax year, if income from employment exceeds €100,000 per annum, a 50% deduction is allowed for the first five years of employment. The new tax rates and bands will apply for the 2011 and subsequent tax years and the 50% deduction for individuals taking up residence and employment in Cyprus will take effect from January 1, 2012.

info: Elias A Neocleous is Head of the Corporate and Commercial department at Andreas Neocleous & Co LLC. 91

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the international investment, business & finance magazine of cyprus

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watchmaking

{lifestyle}

Precious Time Watch collecting is one of the most rewarding hobbies in the world. It can also be one of the most expensive.

By Nathalie Kyrou

I

f you want to know the time these days, you will probably glance at your mobile phone. The days when a watch was an absolute necessity are long gone for many people but for those who can afford it, collecting timepieces is all about the pleasure of owning something extraordinary, whether or not they ever actually wear it. Indeed, watches priced above €100,000 are unlikely to be seen on anyone’s wrist. Although many firms don’t make a lot of money off of their highest-end watches because of the cost of research and development, they still produce them to give their brand an ambiance of exclusivity. If you are looking for something exclusive to invest in, a new piece to add to your collection, or perhaps a superfluous (as it will probably end up under lock and key) gift for someone special, read on and you will see why, when it comes to the height of luxury, time is, indeed, money. The creation of very expensive and intricate watches began in the latter half of the 19th century but the tradition has continued ever since. During World War I, wristwatches became popular with military officers and soon watchmakers such as Cartier and Patek Philippe began marketing limited edition and steeply-priced models expressly for the connoisseurs’ market. Great watches are still hand-made by expert craftsmen who are skilled in turning metal into precise and

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complicated machinery. Many antique timepieces are a testament to the brilliance of early and modern innovators. Today, many of the world’s most expensive watches are produced in extremely limited quantities (sometimes editions of just one) at a rate of only a few per year, and buyers are frequently lined up long before they are finished. While many watchmakers make most of their profits from higher-end retail levels (in the $5,000 range) many of the top-end brands also offer ostentatious watches that cost well into six figures. These include mechanical men’s watches loaded with grandes complications or ladies’ watches adorned with jewels. Super luxury watches contain feats of engineering which are extremely popular, such as the tourbillon, invented in 1795, which eliminates

time-keeping errors caused by minute variations that result from shifts in gravity whenever a watch changes position, thus countering the effects of gravity that make a timepiece imprecise (if you find a Rolex tourbillon, however beware: it’s a fake). Fancy tourbillons, chronographs, minute repeaters, moon phase indicators, and perpetual calendars are only a few of the features (complications) watchmakers use to create the world’s rarest and most expensive timepieces. Platinum and diamond-studded designs, such as Piaget’s Emperador Temple ($3.3 million) and


Cartier’s phoenix-shaped wristwatch ($2.7 million) come with hefty price-tags mainly due to the gems alone, while other pieces stand by their technical merits, such as Frank Muller’s Aeternitas Mega 4, with 36 complications ($2.7 million). Let’s face it: a lot of these functions may seem unnecessary for everyday life (Louis Moinet’s Meteoris, a set of four tourbillion watches worth $4.6 million is made using four meteorites from space and comes with a model of the solar system)… but they are totally cool! Lately, however, watchmakers have also begun loading their high-priced products with more useful complications, such as power reserve indicators that alert when your watch needs rewinding, or GMT functions to make it easier for travellers to keep track of multiple time zones.

5

TOP > $1million

$25 million: 201-carat Chopard

Guaranteed to remain the world’s most expensive watch for years to come, the face of this flamboyant watch-bracelet (which seems more jewellery than timepiece) is almost hidden in the middle, surrounded by a trio of heart-shaped diamonds (a 15-carat pink diamond, a 12carat blue diamond and an 11-carat white diamond) and a sprinkle of yellow and colourless diamond to bring the total to an impressive 201 carats.

$11 million: Patek Phillipe Supercomplication

The famed watchmaker Patek Philippe’s most expensive watch is a yellow-gold pocket piece created in 1932 for New York banker Henry Graves, Jr. It was created in a four year-long commission as part of a competition to have a watch with the most

complications in the world. With its 2 faces and 24 complications, this masterpiece was not surpassed until over 50 years later, when Patek Philippe created the 18k gold Caliber 89 which had a total of 33 different functions. Graves’ creation became the most expensive watch in the world when it was sold by Sotheby’s at auction in 1999 for over $11 million (the Caliber 89 went for a mere $6 million), proving that the Supercomplication is super expensive.

million: Patek Philippe ❸$4Platinum World Time

Patek Philippe has produced almost all of the most expensive watches in the world. The company, headquartered in Geneva, made its first wristwatch in 1868, but prior to that, it had made timepieces for Queen Victoria, among its other notable customers. A $4 million auction bid in 2002 made the Platinum World Time the most expensive time-piece of that moment. The self-winding watch displays each of the 24 time zones and is known for its readability, user friendliness and having separate and switchable night and day tones.

million: Hublot ❹$1-3 Big Bang

The renowned Swiss watch maker Hublot, founded in 1980, earned itself a name thanks to its first exclusive Big Bang wrist watch which was valued at $1 million. Their next entry to the million dollar watch club was the Hublot Black Caviar Bang which won the Grand Prix d’Horlogerie de Genève prize for jewellery watch of the year in 2009. With an 18k white gold case and hundreds of precision-cut black diamonds, totaling 34.5 carats, it appears unassuming compared to other more showy creations yet 179 diamonds are crammed onto the bezel and 30 are encrusted on the clasp. Hublot’s latest unique creation, the Euro Big Bang has more than 637 baguette diamonds and a tourbillon movement, which required 45 gem-cutters and 2,000 hours of work. It also costs $3 million.

$1.3-1.5 million: Patek Philippe Sky Moon Tourbillon

The rare timepiece is composed of 686 parts, it has 2 faces, 55 jewel movements,

a 48 hour power reserve, and manual winding. Decorated with sapphire crystal and a black crocodile leather band, there is also a perpetual calendar, with retrograde date. A flip of the watch reveals a celestial view detailing the sidereal time and a sky chart that traces the stars, as well as the phase and orbit of the moon. Only two of this limited edition are created each year, in either rose gold or platinum. Be careful not to get it wet: the case only protects against humidity and dust.

5

TOP < $1million Louis Moinet ❶$860,000: Magistralis

Outside, the 18-carat gold watch has a minute repeater, a perpetual calendar and a push-button chronograph. Inside this creation is a piece of a 2,000-year-old lunar meteorite, something which is so scarce that it makes the watch unique enough to live up to its astounding price-tag.

Blancpain 1735, ❷$800,000: Grande Complication

Between the crocodile leather straps of this classic time piece lie 740 watch parts, a platinum case, a perpetual calendar, a lunar phase and a split-second chronograph. The construction of this watch was so complicated and complex that it took a year in the life of a dedicated watchmaker to complete.

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watchmaking

$734,000: Breguet pocket watch 1907BA/12

Built by the centuries-old watchmaker credited with creating a device to foil gravity, Breguet’s pocket piece is an 18-carat yellow-gold case with a handengraved movement and a two-way rotating crown.

Audemars Piguet ❹$655,000: Royal Oak Complication

Audemars Piguet, like Patek Phillippe, refers to its pieces as complications and no wonder. This self-winding model has a 52 jewel movement, a perpetual calendar indicating the day, week, moon phases, month and leap years, a minute repeater, a split-second chronograph, an 18-carat white gold case and a bracelet with a transparent sapphire case.

$580,000: A. Lange & Söhne Tourbograph

A. Lange & Söhne started making watches in 1845, but their factory was seized by the East German government following WW II. After the fall of the Berlin Wall, the founder’s great-grandson revived the company and started producing hand-

crafted watches. Including the internal chain, this watch has 1,097 moving parts and a 41 jewel movement. Made of either platinum or gold, each watch takes 30-days to put together and is limited in production.

FOR SALE: $250,000-$500,000 Girard Perregaux Opera Three Musical Hours ❶$420,000:

This masterpiece of engineering has components within the case that enable it to act as a miniature jewellery box. It comprises a keyboard, 20 blades and an internal drum, along with 150 hand-mounted pins, and there is even a lever to allow the music to be played on demand and personalized to taste. Made of18k white gold, with an alligator strap, and sapphire crystal, this self-winding wristwatch is water resistant to 50 metres, and will hold 50 hours of power in reserve.

Jaeger-LeCoultre Gyrotourbillon ❷$404,000:

In 1833, Antoine LeCoultre opened up a small watch shop in Le Sentier, Switzerland. In pursuit of his obsession to create the world’s most accurate timepieces, he invented the first micrometer, an instrument capable of measuring to 1000ths of a millimeter. The Jaeger-LeCoultre Gyrotourbillon uses a tourbillion and has a platinum case, a ruthenium rhodium-plated dial, a crocodile band, sapphire crystal and is water resistant to 50 metres.

Vacheron Constantin Les Cabinotiers ❸$387,200:

Vacheron Constantin started making watches in 1755, which makes it the oldest watchmaker in the world with an uninterrupted history. The company is considered one of the three best traditional watchmakers along with Patek Phillippe and Audemars Piguet. Constantin was also the first to develop engine-turned dials in 1799. Previous Vacheron Constantin owners include Napoleon Bonaparte, Pope Pius XI, the Duke of Windsor and Harry Truman. The Vacheron Constantin Les Cabinotiers is surprisingly thin and has a case of 18k rose gold, manual winding, a 34 hour power reserve and a black alligator strap.

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FOR SALE: < $250,000

$240,000: IWC Grande Complication Perpetual The IWC Grande Complication Perpetual was brought into the spotlight by Tom Cruise recently but the watchmaker has been creating exceptional timepieces for over 100 years. This model has 659 mechanical parts, 71 jewels, and 21 functions and displays. It also has a perpetual calendar good for the next 500 years, combined with a perpetual moon phase display made of polished goldstone. The case and band are solid platinum and the piece chimes out the time beautifully. Production is limited to 20 watches per year.

$141,600: Daniel Roth Ellipsocurvex Tourbillon Daniel Roth started his company in Vallée de Joux, Switzerland in 1989 and it was bought by Bulgari in 2000. In its own words, the company makes “exquisite haute horlogerie timepieces” and its new releases are eagerly awaited by collectors. The Ellipsocurvex Tourbillion is a self-winding piece with an 8 day power reserve, a platinum case with an exhibition back, sapphire crystal and an alligator strap and a unique characteristic semi-oval case.

$155,000: Parmigiani Kalpa XL Tourbillon Parmigiani started producing watches in 1976 and each of the firm’s timepieces takes about 400 hours to make. It made the watch insert for the Bugatti Veyron supercar, for which it won the 2006 “Watch of the Year Award” in Japan. The Parmigiani Kalpa XL Tourbillon has 28 jewel movements, is made of platinum, sapphire crystal, with an alligator band, and costs.


cuisine

Classic cuisine with an extravagant touch New menus on Lufthansa’s European flights from award-winning chef Mario Kotaska

L

ast month, Lufthansa started treating Business Class passengers to new and exciting menu variations from Michelin star-awarded Chef Mario Kotaska on flights in Europe. Mario Kotaska is noted for his unusual menu combinations and the way he refines traditional home-style dishes with extravagant ingredients and aromas. In Germany, he is a popular TV chef and, since 2009, he has operated ”Bratwerk by Mario Kotaska“ mobile snack booths under his name across Germany, serving top-quality fast food classics at constantly changing locations. On German domestic and short crossborder flights, for example from Frankfurt to Basel, his imaginative creations will be served in the cabin under the “Streetfood“ banner. Passengers will have a choice of Kotaska classics, such as his own savoury curried hot pork sausage recipe, Stecklfish (fish grilled on a stick) on wax bean salad, refined with sour cream, savory, diced onions and parsley. As a tasty dessert, passengers will be served “mango fries“ with mascarpone crème and strawberry purée. Another of the popular TV chef’s variations are Frankfurters on lentil salad, potatoes with herbal green sauce, egg and parsley and, as dessert, Frankfurter Kranz (buttercream-filled cake). For afternoon coffee, Lufthansa serves a fine assortment of cakes, including slices of Lübeck marzipan, rose-hip sour cream cake, millefeuille pastry and cheese cream cake. Kotaska’s menus on European medium- to long-haul routes, such as Frankfurt-Larnaca and Munich-Larnaca, are modern versions of country-house cooking, which Kotaska

blends with international specialities more concept, launched by Lufthansa in familiar in gourmet cuisine. Typical of December 2010, to bring the enjoyment these dishes as a starter are mango-filled of creations by award-winning chefs to veal rolls, sauerkraut and potato chutney Business Class passengers on German with spicy dip. As a choice of main dish, domestic and European flights. To ensure passengers can take prime boiled beef in To ensure variety, different wasabi sauce menus are served on outbound with bouillon and inbound flights and they potatoes au gratin or change weekly tarragon-crusted kingclip, stewed fenchel and tomatoes with creamy potato mash. As a fine finale, there is Gruyère cheese with celery and nut salad and caramelized walnuts or cinnamon cream tart on plum ragout. Mario Kotaska began his cooking career in the “Imperial“ gourmet restaurant at the Schlosshotel Bühlerhöhe in the Black Forest in 1995. His cooking as deputy chef helped the Berlin “Andermann“ restaurant win a Michelin star in 2001. As chef de cuisine from 2003 to January 2011, he entranced variety, different menus are served on guests with delightful dishes inspired by outbound and inbound flights and they French cuisine at “La Sociéte“ restaurant change weekly. Up to now, varied and in Cologne. For his creative menus at delicious in-flight food in the Business “La Sociéte“, he again landed a coveted Class cabin has come from the innovative Michelin star in 2006. cuisine of Master Chef Heiko Antoniewicz. The cooperation with Mario Kotaska is Mario Kotaska’s creations will continue the part of the “be invited“ in-flight service tradition up to April 2012.

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art

Strengthening Cypriot-Russian ties through art 120 Russian and Greek icons up for auction

L

a Parole Divine (LPD), a consultancy founded in London in 2009 by art historian Maria Paphiti, specializes in the field of Russian, Byzantine and Greek art. In addition to its office in St. James’s Square, LPD has recently acquired a more solid presence in Cyprus by opening a showroom in the Hilton Cyprus Hotel. Last year, it carried out two successful auctions in Cyprus and its next major project is another auction of 120 Russian and Greek icons and selected modern Greek and Cypriot paintings, which takes place on 15 December at the Four Seasons Hotel, Limassol. La Parole Divine focuses on advising collectors worldwide and promoting the work of selected artists. More specifically,

Maria Paphiti 96

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M

The Mother of God of Korsun (Russian, circa 1600, 26.5cm x 19.7cm. Estimate €12,000-€15,000)

the consultancy provides valuations for sale and for insurance purposes and brokering sales via private treaty. LPD conforms with international legislation pertaining to the import and export of cultural property. Furthermore, in order to carry out a thorough search for the provenance of each item, it works closely with the respective authorities of the countries where icons and works of art come from, as well as with other respected bodies, such as the Art Loss Register and the Rosokhrankultura in Russia. One of LPD’s recent major sales was of the Ion Zaydelman Collection of Icons for US$1.3 million. Maria Paphiti, who specializes in Byzantine art as well as in Greek and Russian icons, regularly travels all over the world in order to value important collections. From 20052009 she was International Head of the Icons Department at Christie’s Auctioneers and, in 2007, under her leadership Christie’s icons achieved sales in excess of £7 million, making it the most successful year ever in the international Icons market. Furthermore, an icon discovered by Paphiti, which once belonged to the Tsar Nicholas II, was sold in 2007 for the world-record price of £434,400. The record still stands. Another personal success for Paphiti was

aria Paphiti conceived and supervised the design of the new label for Russia’s famous Stolichnaya vodka. Late in 2009 she met the European Director of Stolichnaya and suggested that they produce a new label for the vodka to reignite consumer interest. She then selected Russian artist Yuri Gorbachev (a nephew of the former Russian president Mikhail Gorbachev) to execute the design that appears on the new label. The new Stolichnaya bottle was originally intended exclusively for the International Duty Free market but following soaring sales, it has now been launched in the mainstream market in selected countries. The new bottle appeared in Cyprus’s two international airports in mid-September.

“Stolichnaya has been one of my most favourite brands,” she says. “It is a product that acts as an ambassador for the country. Working with Stolichnaya has been a fantastic experience. There are two more international brands that I really love and I hope I will have the opportunity to do something creative for them too.”


The military Saint Menas and his decollation (Northern Greece, 18th century, 83cm x 53.5cm. Estimate €13,000-€18,000)

the discovery of a museum-quality 14th century Byzantine icon of the Hospitality of Abraham, in Sao Paulo, Brazil. She has received worldwide media coverage thanks to her activity in the Icons market and to her contribution to the repatriation of looted icons from Cyprus. Last year, Maria Paphiti discovered in Rome a Byzantine icon of the Virgin Mary (Panagia Glykophilousa) dating from 1450 and attributed to the great master Angelos Akotantos. She subsequently sold this icon to the Cleveland Museum of Art for €1,150,000. Paphiti works closely with a number of Museums, including the Museum of Russian icons in Boston, USA, the Museum of Icons in Andorra and several Russian Museums. She is currently working on plans is to organise in Cyprus a joint exhibition of icons with the State Historical Museum of Moscow. On her decision to open an office in Cyprus, Maria Paphiti notes that while Cyprus is an extremely important outpost for Russians whose presence has become extremely significant to the island’s economy and foreign affairs, Russian residents have little contact with the

daily and social lives of the Cypriots. “In my opinion, despite all the facilities that Cyprus offers to the Russians, it does not promote cultural exchanges and stimuli. I am referring particularly to the visual arts which I follow closely. It is my conviction that the arts can bring people together; they a means of introducing the culture and values of each country to the other. Artistic events, moreover, can actually make people understand how close Cypriot and Russian culture is. Through our activities we aim to promote Russian culture in Cyprus and enable the Cypriots to become acquainted with it. More importantly, we hope that our events will bring Cypriots and Russians together so that they can get to know each other and develop stronger social links.”  The icons to be auctioned on December 15 span the period from the 16th century to the early 20th century and are representative of the artistic trends developed in Imperial Russia, Ottoman-occupied Greece and the Western-influenced Ionian islands and Crete. There are icons made on Mount Athos, in the Balkans, Asia Minor and the Orthodox Levant, featuring distinct, local details. They depict the Mother of God and Christ, saints and the most popular ecclesiastical feasts. Beyond the traditional panels, the sale includes wood-carvings, icons painted on glass and in enamel, and others presented in elaborate cases or applied with oklads.  Viewing takes place from 24 October- 9 December 2011 at the Hilton Cyprus Hotel in Nicosia and from 11-15 December 2011 at the Four Seasons Hotel in Limassol. For enquiries, call Maria Paphiti (+357 99380685 / +44 7834898545) or Victor Papadopoulos (+357 99660403) or e-mail maria@laparoledivine.com. To order a catalogue, view online catalogues and obtain bidding information, visit www.russiangreekart.com La Parole Divine: • Shop 5, Hilton Cyprus Hotel, Archbishop. Makarios III Avenue, 1516 Nicosia. • 33, St. James’s Square, London SW1Y 4JS, United Kingdom

BOOK REVIEW

Private Eye the First 50 Years: An A-Z By Adam MacQueen (Private Eye Productions Ltd., 2011) RRP: £25.00 (£14.99 from Amazon.co.uk)

F

ew could have imagined, when the first issue of Private Eye came out in October 1961, that the magazine would one day be celebrating its 50th anniversary and enjoying fortnightly sales of over 200,000 (including a few here in Cyprus). Yet here we are and Adam Macqueen’s A-Z history of the magazine’s first half century is a hugely entertaining and informative read. All of the Eye’s creations are here along with revealing portraits of the main founders and contributors such as Richard Ingrams, Paul Foot, Auberon Waugh, Willie Rushton, Peter Cook, Barry Fantoni and current editor Ian Hislop. Private Eye’s brilliant mix of jokes, satire and investigative reporting is unique and its lucky readers revel in belonging to an in-crowd who rejoice in knowing who Brenda is, what is meant by Ugandan discussions and who, it would seem, go through life with a eye open for any opportunity to refer to a photo of Andrew Neil in a vest with a babe by his side. Put this and a subscription on your Christmas list.

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{ the last word }

R.I.P. genius By Peter Economides

I

n 1996 I left McCann Erickson Worldwide and joined Bill Tragos at TBWA as Head of Global Clients and suddenly there were two Greeks heading up one of the world’s sexiest advertising agencies. But I had no idea that this would open up one of the highlights of my advertising career: Steve Jobs and Apple. Here is how it happened. Steve Jobs, in exile at Next and Pixar, was invited back to Apple to save the company from bankruptcy. Literally. Apple computers were slow, expensive and they had lost their appeal, even to the diehards in the creative community. Apple was about to fall off the tree. One of the first people Jobs turned to was Lee Clow, a close and respected friend and the creative genius behind the famous “1984” TV commercial that aired just once during the 1984 Super Bowl for the launch of the first Macintosh. By then, Lee was the Global Creative Director of TBWA\Worldwide. TBWA\Chiat\Day in Los Angeles was awarded the job of relaunching Apple in the USA. We saw this as a great opportunity to work with Apple worldwide. I jumped on a plane, picked up Lee in LA and flew to Cupertino to meet Steve Jobs. Lunch was incredible. Over sushi, we spoke about being with the pirates and not with the navy, about making a dent on the universe, about good enough not being good enough. But we did not speak about iMacs and iPods and iTunes and iPhones and iPads. There were no new products in the pipeline. None. And if Steve was thinking about these things, he did not let on. The strategy was clear. Step one was all about vision. About reigniting the flame at the temple called Apple. About getting brand champions back to the brand. About aligning the company behind the fundamental Apple DNA. About changing things. About making a dent on the universe. About vision, courage, creativity, perfection. The ‘Think Different’ campaign was the result of this strategy.

“Here’s to the crazy ones. The misfits. The rebels. The trouble makers. The round pegs in the square holes. The ones who see things differently. They are not fond of rules and they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. Whilst some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world ... are the ones who do.” A year later the first iMac was launched. The iPod followed in 2001, the iPhone in 2007. And the rest is history. Steve Jobs was running one of the largest corporations in the world but he was involved in every decision that mattered. No product went out, no store opened, nothing happened unless he had scrutinized and approved it. Dictator? Try “visionary”. Try “conviction”. Try “creator”. Try “perfectionist”....

The ones who are crazy enough to think they can change the world, are the ones who do Before ‘Think Different’ went global, I visited a number of countries to make sure the campaign was okay. The Brits had a problem. Think different is grammatically incorrect. It should be ‘think differently,’ they told me. The Japanese had a problem too. “We all want to be the same.” Steve’s answer? Screw the Brits. Screw the Japanese. That’s the way we speak in California. Vision. Courage. Creativity. Perfection. “The ones who are crazy enough to think they can change the world, are the ones who do” R.I.P. genius. You made a dent on the universe.

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

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

communication

system,

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

“The the

favorable excellent

infrastructure,

business

climate,

telecommunications the

well

educated

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

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

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

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

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


A business partner with solid foundations. When it seems that stability is a thing of the past, you need to be sure that your business partner will be around when you really need them. Barclays was established over 300 years ago, and that experience has seen us safely through the recent financial turmoil to emerge stronger and more vigorous than ever. In Cyprus, Barclays Wealth offers a range of specialist services including corporate banking, personal banking and wealth management. To find out how you could benefit from working with us, call either Nikolas Gerkotis on +357 2265 4454 (nikolas.gerkotis@barclayswealth.com) or Andreas Rouvis on +357 2535 6660 (andreas.rouvis@barclayswealth.com) or visit barclayswealth.com

Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries.Barclays Bank PLC is registered in England and is authorised and regulated by the Financial Services Authority. Registered No: 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Central Bank of Cyprus to conduct banking and investment business. JN5111.indd 1

06/06/2011 09:36


gold 08