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ISSUE 15 JUNE 2012 PRICE €6.95

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POWERED BY:

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold

At Barclays, we offer unrivalled local expertise with international reach. As the dedicated wealth and investment management division of Barclays Bank PLC in Cyprus, we are part of an A+ rated* financial organisation with over 335 years of history and more than £164 billion** in assets under management. Our highly experienced professionals use their collective wisdom to deliver seamless wealth management and corporate solutions to local and international clients. Our team in Cyprus is also your gateway to the wider range of support and expertise available from Barclays globally, including our colleagues in Investment Management and Investment Banking. Barclays has been a leading name in the finance industry for Cyprus for over 70 years. Our services include: • Deposits • Corporate loans • Trade finance • Internet banking • Cash management solutions

• Treasury FX • Investments • Asset management • Personal banking

ISSUE 15 MAY 2012

BARCLAYS IN CYPRUS. BANKING WITH STRONG FOUNDATIONS.

companies

that have chosen to invest in Cyprus ALPARI FINANCIAL SERVICES LTD AMDOCS DEVELOPMENT CENTRE ASBIS ENTERPRISES PLC BANCA TRANSILVANIA BOUYGUES BATIMENT INTERNATIONAL CARREFOUR COLUMBIA SHIP MANAGEMENT LTD FBME BANK LTD IKEA (CYPRUS) KARDEX SYSTEMS LTD LIDL (CYPRUS) LUKOIL NCR NEST INVESTMENTS HOLDINGS CYPRUS LTD RUSSIAN COMMERCIAL BANK UNITEAM MARINE VTTI WEATHERFORD INTERNATIONAL ...and many more

To find out more about how Barclays can help, go to barclays.com/wealth or call us on +357 22 654477*** for the Nicosia office or +357 25 208000*** for the Limassol office.

+ EUGEN ADAMI, STEEN JAKOBSEN, ANNI PODIMATA SPECIAL REPORT: CYPRUS & NATURAL GAS. PRESENTED BY ERNST & YOUNG International Banking

*Standard and Poors rating. **Barclays PLC – 31 December 2011. ***Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients 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.

gold cover me diafimiseis.indd 1

‘GREXIT’

Will Greece stay in the eurozone?

STONES & BONES Investing in Fossils and Minerals

LIFESTYLE

Does Wealthy mean Healthy?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

30/05/2012 15:32


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

gold cover me diafimiseis.indd 2

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

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

30/05/2012 15:32


www.pwc.com.cy

Risk Assurance Consulting Can you manage what you can’t see?

Please scan with your smartphone to find more information about our services on our website.

www.pwc.com/cy/risk-assurance-consulting

Š 2012 PricewaterhouseCoopers Ltd. All rights reserved


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issue 15 june 2012

08 EDITORIAL 10 UP FRONT 18 FIVE MINUTES WITH

22 companies

INTERVIEWS WITH THE REPRESENTATIVES OF NINE MAJOR FIRMS THAT HAVE SET UP OPERATIONS AND OFFICES ON THE ISLAND

that have chosen to invest in Cyprus

48 44

40

+ OPINION CONTAGION IN THE EUROZONE? by Adam Emilianou

20

WORKING TOGETHER FOR GROWTH by Anni Podimata, MEP 32 A LOGO IS NOT A BRAND by Peter Economides 98

51 SPECIAL SUPPLEMENT 51 | Cyprus and Natural Gas 52 | Energizing Cyprus: What Happens Next? The Ernst & Young Energy Panel 54 | Brave New World By Demosthenes Mavrellis 55 | Cyprus and the Paradox of Plenty, By Panos Ioannides

FEATURE 34 | IT’S ‘HEAD IN THE FIRE’ TIME FOR CYPRUS Interview with Steen Jakobsen, Chief Economist of Saxo Bank

40 | STONES & BONES Investing in Minerals and Fossils

44 | THREE WISHES The Cyprus Shipping Chamber requests action on three key matters

48 | AON HEWITT Global Human Resource and related Financial Solutions

34

72 76 86 94

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

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

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EDITORIAL

Bad Timing

ISSUE 15 JUNE 2012 PRICE €6.95

5 291295 000577

00001 >

POWERED BY:

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

companies

that have chosen to invest in Cyprus

I

n my editorial of November 2011 I wrote: “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”. Some hope! The whole of the Economy section in this issue (pp. 76-85) deals with the various scenarios that could arise following the second elections in Greece in six weeks. It didn’t matter that EU leaders finally took ‘decisive action’ seven months ago because Greek voters showed that they wanted to kick out the parties that had agreed – however unwillingly – to the austerity measures being demanded in return for billions of euros that would prevent the country from going bankrupt. It is no surprise that the vast majority of Greeks want to retain the euro as their currency but it is similarly no surprise that they feel that they have suffered enough and that they are being tempted by the easy promises of the parties that are telling them that they can have their cake and eat it too. If the pro-austerity parties succeed in getting their message across to the electorate, Greece may be able to remain within the eurozone. In Cyprus we should be hoping and praying for this because any other outcome will be disastrous for the island. It is ironic that this crisis should have developed at a time when, under different circumstances, the Cypriots would have been euphoric about the economic prospects that the discovery of natural gas in the country’s Exclusive Economic Zone means. If only we could have discovered the gas 10 years ago, or the eurozone crisis could have been postponed for a decade. Bad luck? Bad timing? Whatever it is, the reality is that in 2020 we may have begun to feel the effects of being a gas-producing/exporting nation but right now we are on the verge of financial meltdown and are desperately short of cash. In our special report on energy in this issue (pp. 51-69), we look at both sides of the ‘gas is good’ argument and wonder whether the same people who have got us into the current mess have any hope of managing the enormous wealth that we are expecting to gain. Bad timing again. We really need a new generation of politicians who will understand the country’s economic problems and put their resolution at the top of the agenda, not at the bottom. Next month Cyprus takes over the Presidency of the European Council for six months in what is seen in Nicosia as a chance to prove its true worth to the rest of the world by hosting more than 100 meetings with the participation of more than 20,000 officials from all over Europe. The rotating presidency gives countries, especially smaller member states, the opportunity to network, to get to know the EU’s institutions better, and to feel invested in the union. It was introduced to give every country – big and small – the chance to share both the glory and the administrative burden of running the European Union. This huge challenge comes at a time when Cyprus has what would, in other countries, be referred to as a ‘lame duck’ president: Demetris Christofias has already stated that he will not run for re-election in February. It comes at a time that sees the longstanding Cyprus issue still unresolved while the political parties scramble around for anyone willing to stand as a candidate, though the financial crisis has overshadowed any idea of reunification. And it comes at a time when the cash-strapped government has already taken over one of the big three banks and the new Governor of the Central Bank is talking about a possible EU bailout. Bad timing, extremely bad timing.

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

ALPARI FINANCIAL SERVICES LTD. AMDOCS DEVELOPMENT CENTRE ASBIS ENTERPRISES PLC BANCA TRANSILVANIA BOUYGUES BATIMENT INTERNATIONAL CARREFOUR COLUMBIA SHIP MANAGEMENT LTD FBME BANK LTD. IKEA (CYPRUS) KARDEX SYSTEMS LTD LIDL (CYPRUS) LUKOIL NCR NEST INVESTMENTS HOLDINGS CYPRUS LTD RUSSIAN COMMERCIAL BANK UNITEAM MARINE VTTI WEATHERFORD INTERNATIONAL ...and many more

+ EUGEN ADAMI, STEEN JAKOBSEN, ANNI PODIMATA SPECIAL REPORT: ENERGIZING CYPRUS, PRESENTED BY ERNST & YOUNG ‘GREXIT’

Will Greece stay in the eurozone?

STONES & BONES Investing in Fossils and Minerals

LIFESTYLE

Does Wealthy mean Healthy?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

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PUBLISHED BY IMH ISSN 1986 - 3543

MANAGING DIRECTOR:

George Michail

GENERAL MANAGER:

Daphne Roditou Tang

MEDIA MANAGER: Elena Leontiou EDITOR-IN-CHIEF:

John Vickers

SENIOR EDITOR:

Costa Ioannides

CONTRIBUTING EDITORS:

Antonis Antoniou, Stella Mourettou, Maria Pilidou CONTRIBUTORS TO THIS ISSUE:

Julian Callow, Peter Economides, Fabio Fois, Lauren Fransolet, Adam Emilianou, Panos Ioannides, Nathalie Kyrou, Demosthenes Mavrellis, Fiona Mullen, Georgia Papa, Anni Podimata, Dr. Savvas Savouri. ART DIRECTION:

Anna Theodosiou SENIOR DESIGNER: Maria Kyriakou PHOTOGRAPHY:

Olesia Constantinou, Jo Michaelides MARKETING EXECUTIVE:

Kevi Chishios

SALES & BUSINESS DEVELOPMENT EXECUTIVE:

Christos Kyriakides

ADVERTISING EXECUTIVES:

Irene Georgiou, Christopher Constantinou OPERATIONS MANAGER:

Voulla Nicolaou

SUBSCRIPTIONS:

Kevi Chishios PRINTERS:

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

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

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UP FRONT

Audi acquires Ducati

A

udi AG recently acquired the Italian sports motorcycle manufacturer Ducati from Investindustrial Group. Ducati is known worldwide as a leading brand in motorcycle manufacture, with outstanding expertise in engine development and lightweight construction. Audi Chairman Rupert Stadler said that as one of the world’s most profitable motorcycle manufacturers, Ducati is “an excellent fit for Audi.” In 2011 Ducati, which employs around 1,100 people, sold around 42,000 motorcycles and generated revenue of €480 million.

$120M SCREAM THE

N

orwegian expressionist Edvard Munch’s The Scream is now the most expensive artwork ever sold at auction, after it fetched $119.9m (€91.19) last month. The 1895 pastel was bought by an anonymous buyer at Sotheby’s in New York. The work is one of four in a series by the Norwegian expressionist artist and was the only one still privately owned. Seven bidders were competing for the work, which had a starting price of $40m. The crowd broke into applause, following the sale on 2 May. The previous record for an artwork sold at auction was for Picasso’s Nude, Green Leaves, and Bust, which sold for $106.5m in 2010. The demand for Grade A art far outstrips supply and top-end artworks have become a reliable and highly desirable investment. The five factors that affect an artwork’s value are rarity, reputation of the artist, confidence in the market, condition of the artwork, and competition for the piece. It is this last factor that has powered the continued rise in prices. A few years ago Sotheby’s would have had bidders from 3-4 countries whereas now it’s 20 or 30.

BUSINESS CONCEPT AWARD FOR WOMEN

A

Business Concept Award that celebrates women’s spirit of innovation and entrepreneurship has been launched by the Cyprus Network of Female Entrepreneurship Ambassadors in collaboration with the Centre of Entrepreneurship of the Cyprus International Institute of Management (CIIM). The competition will give women, teams of women or teams led by a woman an opportunity to be mentored by the Network’s Ambassadors in developing an innovative business idea. Contestants can submit their business concept proposals online in Greek or English by 9 July, 2012. The Cyprus Network of Female Entrepreneurship Ambassadors was established in the

framework of the European Network of Female Entrepreneurship Ambassadors, which is co-funded by DG Enterprise and Industry of the European Commission. The Network, which is coordinated by First Elements Euroconsultants Ltd in partnership with the Mediterranean Institute of Gender Studies, aims at emphasizing the importance of the engagement of women in Cyprus in roles that are traditionally reserved by men. Its members are highly successful women entrepreneurs. For more information regarding the Competition’s Entry Guidelines and the Cyprus Network of Female Entrepreneurship Ambassadors visit: www. femaleambassadors.org.cy or contact the project Coordinator (First Elements Euroconsultants Ltd) on 22875710 or by e-mail: esophocleous@firstelements.com.cy

PwC Cyprus and Abacus Ltd at NEW YORK CONFERENCE Last month, PwC Cyprus participated in the CyprusUS Chamber of Commerce conference in New York, which focused on geopolitical and economic developments in Cyprus and on how US multinational companies (MNCs) can benefit from these. Also participating for the first time and representing Cyprus was Abacus Ltd. Presentations focused on Cyprus’ attractiveness as a reputable financial centre and on investment opportunities created by the discovery of natural gas. Nicos Chimarides of PwC Cyprus noted that the required infrastructure is being created for the exploitation of natural gas that will be exported to various markets, providing substantial investment opportunities in the energy sector. “The revenues from this process will contribute significantly to the economic development of Cyprus and, together with services, the two sectors are expected to drive the local economy for many years,” he said. Constantinos Chiotis of Abacus Ltd explained that the services sector accounts for almost 80% of the country’s GDP. “Ranging from classic front-end or specialised banking services, to professional services, shipmanagement, back-office and fiduciary services, Cyprus has concentrated heavily in the last few years on highvalue added services that cater to foreign clients,” he said. “Given its proximity to the Middle East and North African (MENA) countries, its EU status, its highly skilled labour force and its security, Cyprus has also become a headquarter centre for firms doing business in MENA. This is where US firms can concentrate, whether they are rebuilding, selling or drilling in the region”.

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

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Left to right: (l-r) Jacqui McArthur, Emirates’ Cargo Controller; Ram Menen, Emirates’ Divisional Senior Vice President Cargo; Bill McPherson, Emirates’ Airport Services Manager London Heathrow; and Phil Rawlings, Emirates’ Cargo Manager UK.

The Marshall Islands The Marshall Islands TheCorporate Marshall Islands Registry Registry The Marshall Islands TheCorporate Marshall Islands Corporate Registry Corporate Corporate Registry Registry

E

mirates SkyCargo has been voted Cargo Airline of the Year and, for the 24th consecutive year, Best Middle East Cargo Airline. The carrier, which was also named Best African Cargo Airline, received the accolades at the prestigious Cargo Airline of the Year 2012 awards held at London’s Lancaster Hotel. The awards are organised

CyLaw Launch

Acting on the principle “if you want a good job doing, do it yourself”, the Cyprus Bar Association has launched CyLaw (www. cylaw.org), its own online source of legal information comprising a complete inventory of the island’s legislation and legal documents, Supreme Court decisions (from 1883), executive decisions, rulings by the Court of Justice of the European Union and more. Over 10 years in the making, the project was originated by Cypriot lawyer Laris Vrahimis and is now run by the Cyprus Legal Information Institute (CyLii) for the Cyprus Bar Association. Already a vast database, CyLii aims to add court decisions and legal documents on the day they are issued. Most of the information is in Greek but older Supreme Court decisions and EU court verdicts are also available in English.

news_briefing.indd 11

©Corbis ©Corbis ©Corbis ©Corbis ©Corbis

EMIRATES VOTED CARGO AIRLINE OF THE YEAR by trade magazine Air Cargo News and attract votes from freight forwarders around the world. “These awards are voted for by our industry and their recognition of the continued success of Emirates SkyCargo is a great honour,” said Ram Menen, Emirates’ Divisional Senior Vice President Cargo. Emirates SkyCargo currently serves over 120 destinations spanning six continents from its Dubai hub.

Stelios Awards Ceremony on 18 June

Five winning teams of Greek and Turkish Cypriot entrepreneurs will each be awarded €50,000 by Sir Stelios Haji-Ioannou at a ceremony on 18 June. The 2012 Stelios Award for Business Cooperation in Cyprus, now in its fourth year, is handed out by the Stelios Philanthropic Foundation. Since its inception in 2009, prizes have been received by a wide variety of teams from several

business sectors. In the first three years of the Award, Haji-Ioannou gave €750,000 annually in sponsorship, whilst this year the amount has been raised to €1 million and continues his promotion of business cooperation between Turkish and Greek Cypriot entrepreneurs.

The The leading leading jurisdiction jurisdiction for for The leading jurisdiction for leading jurisdiction •The Management, The leading jurisdiction for for • Asset Asset Management, • Asset Management, Asset ••• Vessel Ownership Asset Management, VesselManagement, Ownership • Vessel Ownership Vessel Ownership ••• Real/Intellectual Vessel Ownership Real/Intellectual • Property Real/Intellectual Holdings Property Holdings •• Property Real/Intellectual Real/Intellectual Holdings Property Holdings •• Initial Public Offerings/ Property Holdings Initial Public Offerings/ • Publicly Initial Public Offerings/ Traded Companies Publicly Traded Companies •• Initial Public Offerings/ Initial Public Offerings/ Publicly Traded Companies Publicly Traded Publicly Traded Companies Companies

IRI Hellas Ltd. IRI Hellas Ltd. IRI Hellas Ltd. inIRI affiliation with the Marshall Hellas in affiliation with theLtd. Marshall Islands Islands IRI Hellas in affiliation theLtd. Marshall Islands Maritime & with Corporate Administrators Maritime & with Corporate Administrators in affiliation the Marshall Islands

Maritime & Corporate Administrators affiliation the Marshall Islands tel: 4294 404 piraeus@register-iri.com tel: +30 +30 210 210in 4294 404&||with piraeus@register-iri.com Maritime Corporate Administrators tel: +30 210 4294 404 | piraeus@register-iri.com Maritime & Corporate Administrators www.register-iri.com www.register-iri.com tel: tel: +30 +30 210 210 4294 4294 404 404 | | piraeus@register-iri.com piraeus@register-iri.com www.register-iri.com www.register-iri.com www.register-iri.com 29/05/2012 12:09


UP FRONT Zoe Kokoni, Director, International Business Division of Eurofast Taxand (centre) at the ITR European Tax Awards with Taxand representatives from other countries.

EUROFAST TAXAND

WINS ‘TAX FIRM

OF THE YEAR’ AWARD

Eurofast Taxand won the “Cyprus Tax Firm of the Year 2012” award at last month’s European Tax Awards organised by International Tax Review (ITR). It is the third time in the last 4 years that Eurofast has received the award. Zoe Kokoni, Director, International Business Division of Eurofast Taxand, received the award at a ceremony at the Dorchester Hotel

in London. In her acceptance speech she congratulated the members of the Eurofast “Dream Team” for their client support, dedication, loyalty and commitment to excellence. The European Tax Awards reward firms in Europe for exceptional tax advice and their capabilities and innovation in the area of international tax planning.

CIPA ranks 5th in new GIPB survey

A

recent University of Oxford study has shown that $1 spent on investment promotion increases Foreign Direct Investment (FDI) inflows by $189 and that $78 spent on investment promotion creates an additional job by a foreign affiliate. It thus makes good business sense for governments to spend money on investment promotion activities, which is the raison d’être of the Cyprus Investment Promotion Agency (CIPA). In a recent World Bank report on Global Investment Promotion Best Practices (GIPB) 2012, CIPA was ranked 5th out of 189 agencies worldwide in Inquiry Handling. This achievement is even more significant given that the report reveals that “80% of national investment promotion intermediaries (IPIs) fail even to respond to investor requests for

information, thereby costing their economies valuable opportunities to win FDI.” The inquiry-handling assessment focused on four categories: availability and contactability, responsiveness and handling, the quality of the inquiry response, and customer care. Using a mystery shopper approach, GIPB 2012 assessed each IPI twice – once with an agribusiness inquiry and once with a tourism inquiry. The surveys assessed each IPI’s ability to respond to requests for information in a thorough and professional manner. The report notes that “Inquiry-handling is at the core of investment promotion. It is one of the most important opportunities for an IPI to influence perceptions about a location and win investment projects. Unfortunately, for the majority of IPIs basic competency at inquiry-handling seems elusive.”

INQUIRY-HANDLING: THE TOP 10 IPIS 1. PRONicaragua (Nicaragua) 2. Hungarian Investment and Trade Development Agency

3. Invest in Greece Agency 4. Invest in Finland 5. Cyprus Investment Promotion Agency (CIPA)

6. InvestHK (Hong Kong, China) 7. ABA–Invest in Austria 8. Invest in Sweden Agency 9. aicep Portugal Global 10. Invest in Denmark

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UP FRONT

WHO OWNS THE MOST GOLD?

U

ncertainty in the equity markets and the global economy meant that the price of gold was hovering around $1,600 per ounce at the end of 2011 and it is still there, possibly disappointing those who predicted that it would reach $2,000 in 2012. The biggest individual holders of gold, thought to account for approximately 16.5% (30,700 tons) of it, are Central Banks, international organisations and governments. According to the World Gold Council, which is the gold industry’s key market development body, the Top 10 holders of gold are as follows:

TOTAL HOLDINGS: 3,101 TONS

➍ ITALY

➑ SWITZERLAND

➊ UNITED STATES OF AMERICA

The Banca D’Italia manages Italy’s foreign reserves, which comprise the fourth largest gold reserve in the world and account for 73.4% of the country’s foreign reserves.

The Swiss National Bank conducts Switzerland’s monetary policy and manages the country’s gold reserves which account for 15.8% of its foreign reserves, though this proportion has dropped in the past year.

VALUE OF RESERVES: $418.39 BILLION TOTAL HOLDINGS: 8,965.6 TONS The United States Bullion Depository in Kentucky (otherwise known as Fort Knox) is the most famous gold stockpile in the world. It holds the majority of the nation’s gold reserves, the remainder of which is held at the Philadelphia Mint, the Denver Mint, the West Point Bullion Depository and the San Francisco Assay Office.

➋ GERMANY

VALUE OF RESERVES: $174.7 BILLION TOTAL HOLDINGS: 3,743.7 TONS According to the World Gold Council, Germany’s gold coffers, owned by Germany’s Central Bank (Deutsche Bundesbank), account for 73.7% of its total foreign reserves.

➌ THE INTERNATIONAL MONETARY FUND

VALUE OF RESERVES: $144.76 BILLION

The International Monetary Fund (IMF) oversees international economic operations of 185 member countries. Its gold policies have changed in the last 25 years, but the reserves remain to stabilise international markets and aid national economies. In December 1999, the IMF sold a portion of its reserves to aid the Heavily Indebted Poor Countries Initiative.

VALUE OF RESERVES: $126.12 BILLION TOTAL HOLDINGS: 2,702.6 TONS

➎ FRANCE

VALUE OF RESERVES: $125.28 BILLION TOTAL HOLDINGS: 2,684.6 TONS The French Central Bank (Banque De France) is home to the country’s gold holdings, which comprise 71.8% of its foreign reserves.

➏ SPDR GOLD TRUST ETF (GLD)

VALUE OF HOLDINGS: $64.53 BILLION TOTAL HOLDINGS: 1,213.9 TONS Unlike other major gold holdings, this is one that investors can actually buy into. As the price of gold fluctuates, so does the value of the SPDR Gold Trust, also known the GLD. The fund held 38,845,889 ounces, or 1,213.9 tons of gold on June 30, 2011. Like many investors, the ETF has indicated that it has increased its holdings of gold since then.

INTERCOLLEGE GLOBALTRAINING

I

ntercollege Globaltraining is the new identity that the Professional Studies Department of Intercollege/University of Nicosia is adopting for its operations in Cyprus and abroad. It marks the culmination of more than twenty years of hard work and the merger in 2012 of the business units in Cyprus (Intercollege), Greece (Globaltraining) and Romania (IntercollegeIBS) into a global professional organisation capable of meeting all its clients’ professional training needs. With continuous growth

➐ CHINA

VALUE OF RESERVES: $54.22 BILLION TOTAL HOLDINGS: 1,161.9 TONS The world’s most populated country has the seventh largest gold reserves but China’s gold accounts for only 1.8% of its foreign reserves. With a population of 1.34 billion, the country holds about $40.46 worth of gold per person.

VALUE OF RESERVES: $53.5 BILLION TOTAL HOLDINGS: 1,146.5 TONS

➒ RUSSIA

VALUE OF RESERVES: $44.8 BILLION TOTAL HOLDINGS: 960.1 TONS The Central Bank of the Russian Federation is in charge of the country’s 960.1 tons of gold, which comprise 9.2% of the country’s foreign reserves. In 2010, the country overtook Japan in total holdings, adding more than 140 tons to its stockpile in that year alone. Russia continued to buy gold in 2011, purchasing 4.9 tons in July, according to the IMF.

➓ JAPAN

VALUE OF RESERVES: $39.36 BILLION TOTAL HOLDINGS: 843.5 TONS Overseen by the Bank of Japan, the country’s gold reserves account for only 3.5% of its total foreign reserves.

and change taking place in the business world, more and more organisations are paying attention to the skills and abilities of their staff. Professionals are constantly faced with increasing expectations regarding quality and standards; employee knowledge and skills are, therefore, considered to be critical aspects for any organisation wishing to gain a competitive advantage. Intercollege Globaltraining is hosting a series of events throughout June to celebrate its new identity and to inform students and corporate clients about the benefits they can expect through their new website (www.globaltraining.org) and new study options (“Live-On-Line”).   

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UP FRONT

NICOSIA ECONOMIC CONGRESS CHALLENGING TIMES AHEAD

Prominent business, community and academic leaders gathered at the Hilton Park Hotel in Nicosia on 23 May to discuss crucial issues affecting the Cypriot economy.

Stavros Pantzaris (Partner Ernst & Young Cyprus Ltd)

Constantinos Yiorkadjis (Mayor of Nicosia)

“THE COSTS OF THE EURO-ZONE’S DISINTEGRATION ARE EXTREME, IT HAS NO CHOICE BUT TO SURVIVE AS IT IS GIVEN THE ALTERNATIVES.” ERIC BRITTON, DIRECTOR, FATHOM CONSULTING

Fani Pedoulou (Head of Sales TFI Markets) and Maria Theodorou (Executive Director TFI Markets)

Dan O’ Brien, John Walker, Theodoros Parperis and Fiona Mullen

“GOVERNMENTS WILL DO WHAT NEEDS TO BE DONE ONCE THE HORROR OF WHAT OTHERWISE AWAITS SINKS IN.” JOHN WALKER, CHAIRMAN, OXFORD ECONOMICS

George Louca (CFO Cyprus Trading Corporation), Constantinos Meivatzis (Director IFG Trust Cyprus Ltd)

Elena Mouzouri and Elia Koliandri

(A

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Congress Organisers: Gold & ICPAC. Congress Coordinator: IMH. Main Sponsor: Alpha Bank. Gold Sponsors: Deloitte, Ernst & Young, KPMG. Silver Sponsors: Abacus, InterTaxAudit, Nexia Poyiadjis, TFI Markets. Telecommunication Sponsor: Cablenet.

Marios Loucaides, Michalis H. Hadjikyriacos (Alkis H. Hadjikyriacos Frou Frou Biscuits Public Ltd Managing Director) and Marios Savvides (General Manager of Piraeus Bank Cyprus Ltd)

Michael Pilos (TFI Markets Marketing Communications Manager, Margarita Xenofontos, Georgia Papadopoulos (TFI Markets Sales Manager), Thanos Vasileiades (TFI Markets Chief Operating Officer), Anna Antoniades, Stephanos Panayiotides (TFI Markets Sales Manager)

Christos Mouskos (Alpha Bank Senior Credit Manager), Stelia Chrysostomou, Dinos Demetriou (Alpha Bank Stores Manager) , Marios Economides, Irene Charitou (Alpha Bank Marketing Manager)

“THE CYPRUS GOVERNMENT SHOULD GO TO THE EU NOW TO ARRANGE A STANDBY FINANCING FACILITY JUST IN CASE GREECE DOES EVENTUALLY LEAVE THE EURO. THIS IS MUCH BETTER THAN BEING FORCED TO DO THIS IN A HURRY AND RISK POSSIBLE BANK RUNS THAT MAY ENSUE.” FIONA MULLEN, DIRECTOR, SAPIENTA ECONOMICS

“WHAT WE WILL SEE ACROSS EUROPE IS MASSIVE DE-POPULATION AS JOBS AND OPPORTUNITIES DRY UP... AND LEAVING THE EURO FOR GREECE IS NOT A PANACEA, IT’S A DEATH SENTENCE.” Manthos Delis, Savvas Savouri, Theodoros Parperis, Louis Christofides and Jim Dorgan

Polys Michaelides (General Manager Laiki Cyprialife Ltd) Emilios Trannousis (Asset Fund ManagerLaiki Bank), Petros Petrides (Director IFG Trust Cyprus Ltd)

SAVVAS SAVOURI, CHIEF ECONOMIST, TOSCAFUND ASSET MANAGEMENT

Erik Britton (Director of Fathom Consulting), Christos Rotsas (Managing Director of Rotsas & Co Ltd) and Christos Kyriakides (ICPAC Operations Director)

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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INTERVIEW

five minutes with... STAVROS A. ZENIOS, President of the Rectors of the Universities of the European Capitals and author of Creative Cyprus: Political reforms for Cyprus in the 21st century

Few people would disagree with your call (in your new book Creative Cyprus) for a new economic model based on concepts such as renewable/sustainable resources and innovation but what needs to be done to implement them? The book goes beyond renewable resources. It argues that sustainability should be at the heart of our socioeconomic planning; it is the way to have an economic model that creates jobs for young people and improves the quality of life for all. And there are some concrete proposals: for instance, I argue for the adoption of an Environmental Contract by the political parties with indices that will guide public policy; the adoption of green taxation; the establishment of a Knowledge Region in Nicosia. By simply looking at GDP growth we are “mis-measuring our lives” to quote the Nobel laureates Amartya Sen and Joseph Stieglitz who have influenced my thinking quite a bit. The book stops short of proposing a political programme but the ideas are concrete and can be easily converted into a medium-term policy plan. The book is a compass, not a map. Similarly, few would disagree that something needs to be done about the public service (except, perhaps, those working in it). Do you think that a future government will have the courage to take drastic action or does Cyprus need to be obliged to do so by the terms of an EU bailout? Let me put it bluntly: it will be absolutely inexcusable if reforms are forced upon us instead of us taking the initiative. Look at the trap Greece fell into. We should avoid slipping down the same slope. Reform of the state will be part of the debate for the upcoming presidential elections and my goal with the book is to contribute to this debate. I do believe that the next government will act much more decisively, with more professionalism and a greater sense of responsibility than in the past.

How confident are you that the island’s politicians and authorities are capable of handling the revenues from natural gas in a responsible manner? Frankly, not at all. And I can substantiate this. See, for instance, the lack of adherence to the GRECO report of the Council of Europe on party financing. Don’t they see the temptation for corruption when party people are appointed to the boards of the enterprises managing our natural gas while foreign companies can make donations, even secretly, to their parties? And look at the experience with the appointments of board members without any expertise or experience in the institutions they are managing on our behalf. Not very bright prospects I would say. We need to change the mindset and this is the message repeated over and over again in the book.

A new generation of leaders on both sides of the divide could make a difference You say that “we need a better state”. Is it going to be forced upon us or can Cyprus again re-create itself as it did in 1974? The difference, as I see it, from 1974 is that then we were forced to act. A catastrophic war pushed us into action. Now we must find the strength and the motivation and the vision inside us. Our society is dissatisfied with the current state of affairs. The aim of the book is to turn this into creative dissatisfaction, not let it simmer, confuse us and lead us to a point of no return.

You say that for some, the Cyprus Problem has become a professional career. If these people have an interest in prolonging the division, do you believe that it can be resolved by a new generation of Greek and Turkish Cypriot politicians? We should not underestimate the role of Turkey in this conflict and start self-flagellation. Ahmet Davutoglu has explicitly said that Turkey wants to keep the Cyprus issue open. But yes, I do believe that a new generation of leaders on both sides of the divide could make a difference. The EU provides many means for finding a solution that is workable and fair for both sides, and natural gas can be used to increase our influence in Europe so that, in turn, it puts pressure on Turkey. This could be our stick. At the same time it is a carrot for our Turkish Cypriot compatriots but we should be explicit and precise about this and not simply make vague references. Creative Cyprus: Political reforms for Cyprus in the 21st century is available only in a Greek-language edition at present.

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

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OPINION

Contagion in the Eurozone? A Greek exit would place Cyprus at risk but the danger to the EU is far greater

T

he economic crisis runs deep in Europe and is getting worse. Marked by government deficits, plunging stock markets, unemployment and social unrest, it is threatening the stability of the euro and straining the fabric of the European Union itself. These problems were not wholly unexpected. The Maastricht Treaty, which created the framework for the European Union, was built on weak foundations among a group of strikingly different (in terms of history and culture) and often quarrelsome sovereign states. From the outset there was a one-size-fits-all monetary policy and a lack of coordinated, centralised fiscal policy within the Union. These potential problems were largely ignored by the Maastricht Treaty but it was generally believed that any crisis would actually lead to greater European integration. This has been shown to be right to a certain extent. The recent bailout of countries such Ireland and Greece, the establishment of a financial stability mechanism and the purchase of government bonds by the European Central Bank are all evidence of greater European integration and coordination. Unfortunately, this is set against a backdrop of nationalist politics amongst member states that is preventing further integration. At the centre of all this is Greece, whose odds of exiting the euro are shortening by the day. After five long years of recession, the Greeks are suffering from austerity fatigue. An inconclusive outcome of the first election on 6 May has led to an interim government, and the scheduling of another election on 17 June. An election result signalling a rejection of Greece’s austerity programme will almost certainly result in Greece’s departure from the eurozone and even the EU. But if Greek banks continue to suffer mass runs, as depositors withdraw their euros for fear that they will be forcibly converted into new drachmas, Greece’s fate could be sealed even sooner. As the implausible turns into the inevitable, a growing number of proponents are arguing

As the implausible turns into the inevitable, a growing number of proponents are arguing that a Greek exit might even be desirable

By Adam Emilianou

that a Greek exit might even be desirable. They argue that the only solution for Greece is to exit the eurozone to allow its economy to get a boost from a depreciation of its newly-created currency. However, the moment the depreciation of its new currency occurs, Greece will be poorer as all its imports (such as oil) will be more expensive. How will this impact economic growth? Without a disciplined monetary policy and bold structural reforms to retain the gains from its cheaper currency and to avoid hyperinflation, the situation in Greece will be as bad as or worse than it is today. The direct financial costs of a Greek exit to the country’s creditors are estimated by Daiwa Capital Markets to be in excess of €350 billion. While these losses seem manageable, they are, of course, only the direct costs. A Greek exit is likely to have a material impact on growth and confidence elsewhere, delivering large and potentially damaging losses in terms of lost economic output and lower asset prices in other parts of the eurozone. The country most obviously at risk is Cyprus, whose banking system is closely linked with that of Greece. Ratings agency Moody’s estimates that a Greek euro exit would result in Cypriot banks incurring losses of more than €9 billion, approximately 50% of the country’s GDP. Even without a Greek exit, the Cyprus government’s finances are stretched with fears that the cash-strapped government may need to step in to bail out the large banking sector. The government has already agreed to underwrite the €1.8 billion rights issue of Cyprus Popular Bank required to bolster its regulatory capital after it was unable to raise the funds privately. What’s more, the Cyprus economy is struggling to find its way out of recession, with the IMF projecting that this year the economy will shrink by 1.2% and unemployment will rise to 9.5%. Ultimately, Cyprus is a small economy and could easily be rescued if the need arose. The real danger is if contagion spreads to other bigger countries such as Italy or Spain, which may eventually cause the breakup of the European Union itself.

info: Adam Emilianou is a Partner at Chrysses Demetriades & Co. LLC 20 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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that have chosen to invest in Cyprus ALPARI FINANCIAL SERVICES LTD. AMDOCS DEVELOPMENT CENTRE ASBIS ENTERPRISES PLC BANCA TRANSILVANIA BOUYGUES BATIMENT INTERNATIONAL CARREFOUR COLUMBIA SHIP MANAGEMENT LTD FBME BANK LTD. IKEA (CYPRUS) KARDEX SYSTEMS LTD LIDL (CYPRUS) LUKOIL NCR NEST INVESTMENTS HOLDINGS CYPRUS LTD RUSSIAN COMMERCIAL BANK UNITEAM MARINE VTTI WEATHERFORD INTERNATIONAL ...and many more FOREIGN DIRECT INVESTMENT: “An investment made by a company or entity based in one country, into a company or entity based in another country. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.”

THE DISCOVERY OF GAS RESERVES OFF CYPRUS HAS CREATED A NEW IMPETUS FOR FOREIGN COMPANIES WISHING TO INVEST IN THE NEW INDUSTRIES THAT ARE CERTAIN TO DEVELOP OVER THE NEXT FEW YEARS. HOWEVER, THE ISLAND HAS BEEN ATTRACTING FOREIGN DIRECT INVESTMENT FOR SEVERAL DECADES NOW AND ON THE FOLLOWING PAGES WE PAY TRIBUTE TO SOME OF THE COMPANIES THAT HAVE LED THE WAY IN HELPING TO PUT CYPRUS ON THE FDI MAP AND PLAYED THEIR PART IN BOOSTING THE ISLAND’S ECONOMY AND INTERNATIONAL IMAGE. WE ALSO SPOKE TO KEY REPRESENTATIVES OF NINE FIRMS THAT HAVE CHOSEN TO INVEST IN CYPRUS. By Costa Ioannides

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COVER STORY

W

ith a highly educated workforce, attractive tax rates, a strategic location and – now – offshore hydrocarbon resources, Cyprus is attracting an increasing number of foreign investors. Despite four years of sustained economic turbulence, Foreign Direct Investment (FDI) into Cyprus has remained at enviable levels. Thanks to a great extent to the island’s comprehensive network of double tax treaties and its EU and eurozone membership, FDI reached a peak of €2.5 billion in 2009. Although FDI inflows have fallen since then, Cyprus is now bracing itself for a massive wave of infrastructure development activity as global energy giants such as ENI, Total, and ENEL line up to secure rights to the island’s newly-discovered offshore hydrocarbon resources. Cyprus’ favourable tax regime is, without doubt, a major reason why Cyprus is attractive to foreign investment and to companies seeking to establish an international base for outbound investment into other jurisdictions. Given that Cyprus’ corporate tax rate of 10% is one of the lowest in the European Union (with no withholding tax on dividends for non-resident companies), when combined with attractive labour costs it’s understandable why many foreign investors have found the island to be a winner. More than 50 double tax treaties have also reinforced the country’s position as a commercial bridge between the European Union and the wider MENA (Middle East, North Africa) region. Cyprus currently hosts over a quarter of a million domestic and foreign companies. Global corporate giants with a significant presence on the island include Lukoil and IKEA as well as a range of banks such as Alpha Bank, Piraeus Bank, Société Générale and the Russian Commercial Bank. New overseas companies making major investments in Cyprus over the past year alone include Romania’s Banca Transilvania, Greece’s Fourlis, the Dutch Group Vitol, and Germany’s Schwarz Beteiligungs Group and the low-price grocery retailer Lidl.

Major Projects & Sectors AVIATION

Due to the successful transition of key state-owned assets to private interests through a system of Build-OperateTransfer (BOT) agreements, the island’s two international airports have recently been developed by a consortium of private companies including Bouygues Bâtiment International and Egis of France.

Cyprus attracted

€1.7

billion in FDI inflows during the first three quarters of 2011 TOURISM

Similar agreements have also been instrumental in the construction of the first of four new marinas, with Limassol Marina due for completion by the end of 2012. At an estimated cost of €360 million, the project incorporates luxury residences, boutiques, restaurants and shops within the marina itself, attracting more high-end tourists and capturing a bigger share of the Mediterranean yachting market. Three more marina complexes are also planned for Larnaca, Agia Napa and Paphos. Limassol Marina Using a PPP (Public Private Partnership) arrangement which incorporates a longterm leasing arrangement, the companies participating in the development of the new Limassol Marina are Cybarco Plc, Francoude & Stephanou Ltd, J&P Avax, Joannou and Paraskevaides Ltd, Athena SA, CADS Holdings Ltd and Limassol Marina Development Co Ltd.

ENERGY

The biggest source of inward investment into Cyprus over the coming years is

The Cyprus Investment Promotion Agency

A

s a government-funded organization, the Cyprus Investment Promotion Agency (CIPA) is responsible for attracting FDI to Cyprus, and providing aftercare services to investors. CIPA has direct access to ministries, government departments and stakeholders, with the ability to influence fast-tracking setup requirements if and as needed, and to provide investor aftercare services once the investor has established a presence in Cyprus. A one-stop shop was also recently opened in order to simplify the administration of enquiry procedures for local and international investors. As a result, investors and businesses now need only get in touch with one department to secure nearly all their required permits.

expected to originate from the oil and gas extraction and processing sector. Preliminary results released at the end of 2011 by the US giant Noble Energy indicated the detection of 5-8 trillion cubic feet of gas during its exploratory drilling operations in Cyprus’ offshore Block 12 alone, enough for Cyprus’ domestic consumption and lucrative export possibilities. Further multi-billion euro investments are expected in the coming years as Cyprus prepares to fully exploit and commercialise its offshore hydrocarbon resources through the construction of LNG plants, pipelines, and methanol and oil product storage facilities. Oil & Gas The new private oil storage terminal built by Vitol Tank Terminals Vasiliko (VTTV), a Cyprus subsidiary of the Dutch-based Vitol Tank Terminals International (VTTI), is due for completion by the end of 2013. The €200 million state-of-the-art oil product terminal facility at Vasilikos will create of an estimated 1,000 new jobs during its construction and upon completion. The government has also embarked on the construction of an Energy Centre, planned for completion in 2013, for the storage of various fuels, including oil and natural gas, which, it believes, will assist in transforming Cyprus into a regional energy hub.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Demetris Kouloundis

8

th

Cyprus is in the world for inward FDI performance according to the World Investment Report 2011 of the United Nations Conference on Trade and Development (UNCTAD) Electricity 2010 saw the establishment of the island’s first-ever 82 MW wind park. A second (22 MW) is already in operation and a third (33MW) has been constructed. A number of smaller wind turbines of 0.8MW each are due for commissioning this year. The new wind parks will contribute to Cyprus’ efforts to live up to its EU obligations to have 13% of its energy produced by Renewable Energy Sources by 2020. In another development, Cyprus, Greece and Israel have committed themselves to conducting a feasibility study for a project that will seek to connect Israel to the EU electricity market by submarine cable via Cyprus and Greece. The idea of the EuroAsia Interconnector, initiated by PPC Quantum Energy, is expected to cost about €1.5 billion and will have the capacity to transmit 2,000 MW of electricity along its east-west cable, selling the Israel Energy Corporation’s excess generation to Cyprus and other buyers in the EU.

FINANCIAL SERVICES

As a reputable world-class financial services centre, Cyprus succeeded in attracting just under €1 billion from international financial service companies in 2009-2010. Increasing numbers of international banks such as Barclay’s Wealth, Société Générale and Russian Commercial Bank have established a presence in the Republic in recent years, along with a multitude of investment specialists, fiduciary and foreign currency (Forex) trading companies.

ALPARI FINANCIAL SERVICES LTD.

Alpari Financial Services Ltd (Alpari FS) is part of the Alpari Family of Companies (Alpari) which was founded by three aspiring financially-minded individuals in 1998. Alpari has been offering online trading

RESEARCH, TECHNOLOGY AND COMMUNICATIONS

Investment in research and technology has been encouraged in Cyprus using a grass-roots approach through the establishment of key academic organisations such as the Cyprus Institute (2005) and the Cyprus University of Technology (CUT) in 2007, the former enjoying links to world-class research institutes anddedicated research centres focusing on energy, environment and water, computationbased science and technology, while the CUT focuses on geotechnical sciences and the environment; engineering and technology; health sciences, management and economics and applied arts and communication. Meanwhile, plans for a Technology Park and the promotion of specialized incubators are in the pipeline, designed to offer a range of opportunities for R&D investment.

SHIPPING

With more than 1,000 registered vessels and 130 ship-owning, shipmanagement and shipping-related companies collectively controlling a fleet of 2,300 ships with a 46 million gross tonnage, Cyprus already lays claim to having the third largest shipping fleet in the EU and the tenth largest worldwide. With a recent EU-approved tonnage tax system, the island’s position has been significantly bolstered as the largest shipmanagement hub in the EU and the largest crew management centre in the world. Leading shipping companies with a presence in Cyprus include Columbia Ship Management, Interorient Navigation, Uniteam Marine and Reederei Nord.

services to both retail and corporate clients all over the world for more than 14 years and allows clients to trade financial products, such as Forex, CFDs on commodity futures, ETF CFDs, currency futures and options through multiple state-of-theart trading platforms. Alpari

DIRECTOR OF SALES - MEA, BALKANS & RUSSIA, KARDEX SYSTEMS LTD. Gold: What were the key factors that motivated Kardex Systems Ltd to seek to establish a presence in Cyprus? Demetris Kouloundis: The decision to locate the overseas Kardex division in Cyprus back in 1977 was influenced by the island’s strategic geographical location to serve our overseas markets and the friendly but efficient business environment. Other factors that influenced the Board’s decision were the legal and accounting framework which is based on the English system, the availability of well-trained and versatile manpower as well as the tax-effective regime. Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? D.K.: Setting up an operation in Cyprus is a straightforward process as the different government departments try to provide all possible support, to expedite the process and encourage new international business to the island. Gold: What are the advantages and disadvantages of sourcing employees locally? D.K.: International companies can very easily source employees from the local workforce with the great advantage that they are internationally educated, qualified to high international standards and have no language or cultural barriers. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   D.K.: As an international business and service sector location, we would expect certain improvements such as extended flight coverage by the national carrier, Cyprus Airways, to main Gulf business destinations such as Saudi Arabia. The government needs to reform and further modernize the public sector and it must also take steps to prevent unnecessary industrial disputes which have a negative impact on international business, such as the recent strikes by air traffic controllers.

FS opened its headquarters in Limassol in 2010.

AMDOCS DEVELOPMENT CENTRE Amdocs (AMerican Directories Operations & Computerized Systems), one of the world’s leading high-tech companies,

has been in Cyprus for ten years. The Amdocs Development Centre in Cyprus, which was established in 1997, currently employs approximately 750 people – programmers, finance and operations staff supporting additional Amdocs locations in Central and Eastern Europe.

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

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Setting up an operation in Cyprus is a straightforward process Demetris Kouloundis

The Centre focuses on the development of new industry leading products, as well as enhancements and upgrades to existing offerings.

ASBIS ENTERPRISES PLC

ASBIS is a leading distributor of IT products in the fast-growing markets

of Central and Eastern Europe, the former Soviet Union, the Middle East and North Africa. The company’s revenues reached almost $1.5 billion in 2008 arising from its operations in 26 countries and sales to more than 75 worldwide. In 1995 the company moved its headquarters to Cyprus. The company currently employs

over 1,000 people, of whom about 100 are in Cyprus, mostly in the finance, administration, logistics and sales departments managing global operations.

BANCA TRANSILVANIA

The Romanian banking group Banca Transilvania established

a presence in Cyprus in October 2007. With over 1.35 million corporate and private clients, the bank has over 6,000 employees. Banca Transilvania’s shareholders include the European Bank for Reconstruction and Development, Bank of Cyprus and the International Finance Corporation.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

John Hadjiparaskevas MANAGING DIRECTOR, UNITEAM MARINE

Mehran Eftekhar

FCA, GROUP HEAD OF CORPORATE SERVICES & FINANCE DIRECTOR, NEST INVESTMENTS HOLDINGS (CYPRUS) LTD Gold: What were the key factors that motivated Nest Investments Holdings to seek to establish a presence in Cyprus? Mehran Eftekhar: Location, ease of access, the labour force, communication facilities, the legal structure, the language, cost, taxation and the holding company regime. Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? M.E.: When we set up in Cyprus in 1990 the processes were straightforward. Now, due to EU and other regulations, things are more complicated but still not too cumbersome Gold: What are the advantages and disadvantages of sourcing employees locally? M.E.: Local employees are highly educated and most are very motivated. A range

of HR positions is available but in some special areas, such as doctors and medical support staff, obviously a wider EU speciality is required. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   M.E.: Flights to and from Cyprus by a more dynamic airline are needed. There should be easier access to immigration and visa processes, better control of costs, better quality tourism and a more dynamic promotion of the Island as a business centre.

Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? J.H.: We have always enjoyed excellent local and international support though the network of professionals available in Cyprus. Our lawyers, accountants and bankers contributed to ensuring the smooth setup and running of our operations. The strong support of all Cyprus administrations for the maritime industry has also greatly contributed to tackling legislative, tax and other industry issues to ensure “smooth sailing” for our companies. Gold: What are the advantages and disadvantages of sourcing employees locally? J.H.: The availability of highly-educated staff and professionalism apparent in the local workforce has always been the main advantage of sourcing employees locally. Furthermore, the ease in using English as a business language is a significant advantage. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   J.H.: Cypriot tax legislation must remain competitive and the new tonnage tax regime be safeguarded. Additionally, it will be very beneficial to ensure the continuous upgrading of the technology used in all public sector services. Finally, the successful lifting of the Turkish embargo will contribute greatly as it certainly hinders maritime growth in Cyprus.

Gold: What are your future plans for your operations in Cyprus?   M.E.: Apart from being a major investor in the planned Limassol Oncology Centre, we are planning to expand our insurance and reinsurance operations in the region and to build an iconic World Trade Center Tower.

BOUYGUES BÂTIMENT INTERNATIONAL

Bouygues Bâtiment International is one of the world’s leaders in the building, civil works and electrical contracting and maintenance sectors. Since the successful completion of Cyprus’ two new iInternational airports, Bouygues

Bâtiment International decided to set up a permanent branch in Cyprus in order to play a predominant role in the revitalization of the Cypriot construction industry.

CARREFOUR

Over the past 40 years, the Carrefour Group has grown to

Dirk Fry

CEO, COLUMBIA SHIP MANAGEMENT LTD. Gold: What are the advantages and disadvantages of sourcing employees locally? D.F.: The high level of education and good knowledge of the English language, a willingness to work hard and employee loyalty are some of the characteristics of the local workforce. The initial lack of specialized knowledge in certain technical shipping areas has been bridged to an extent through training and specialised study but a quite substantial number of expatriates still have to be employed to fill the gaps in the technical fields of shipping. This is mainly due to the fact that Cypriots do not chose a seagoing career, even today, when unemployment has risen considerably. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location? D.F.: There is always room for improvement and, through the Cyprus Shipping Chamber (CSC), the shipping community has been active in bringing the relevant issues to the attention of each and every government. Cooperation with all governmental departments and officials has been excellent and a lot has been achieved over the years. It is, therefore, important to keep all what has been achieved and, in particular, the current taxation system. The government should also consider the shipping community’s proposal, officially made by the CSC during its last AGM, to appoint an Under-Secretary for Shipping under the President of the Republic who will be able to look at the increasing issues surrounding shipping not only locally but internationally as well. Gold: What are your future plans for your operations in Cyprus? D.F: We shall continue to be here, offering professional and quality services to our worldwide clients.

become the world’s secondlargest retailer and the largest in Europe as well as one of the world’s leading distribution groups. In Cyprus, the trade name Carrefour made its first appearance in 2005. Today there are 7 hypermarkets in Cyprus, with stores in every town.

COLUMBIA SHIP MANAGEMENT LTD

Columbia Shipmanagement Ltd., established in Limassol in 1978, has become a leading player in the shipping sector, respected for its pioneering efforts in the implementation of safety of life at sea and safe ship and cargo

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

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The government should consider the shipping community’s proposal to appoint an Under-Secretary for Shipping Dirk Fry

operations as well as being a leading proponent in the fight against pollution and other environmental hazards.

FBME BANK LTD.

Originally established in Cyprus in 1982 as a subsidiary of the Federal Bank of Lebanon SAL,

FBME is a commercial bank with a heritage of banking experience in Europe, Africa and the Middle East, specializing in cross-border transactions and commercial trading activities. The bank serves international companies and individuals from over fifty countries.

IKEA (CYPRUS)

To the delight of home DIY enthusiasts on the island, the low-price home furnishings store IKEA opened its first 22,000 square metre outlet in Nicosia in September 2007 within the busiest commercial square mile on the outskirts of Nicosia.

Cyprus was the 37th country in the world to host an IKEA store.

KARDEX SYSTEMS LTD

Kardex Systems is a leading international provider of tailored solutions for automated storage, materials handling and retrieval. Cyprus has been the home of the

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

George Flouros

AREA VICE PRESIDENT, EAST MEDITERRANEAN MIDDLE EAST AFRICA, NCR CORPORATION

in Cyprus was straightforward and no unforeseen difficulties were experienced. The whole process was relatively quick and this was facilitated by the great support extended by the various government offices here.

Gold: What were the key factors that motivated NCR to seek to establish a presence in Cyprus? George Flouros: The favourable business climate, the excellent telecommunications infrastructure, the well-educated and skilled human resources, favourable tax rates and the island’s proximity to the Middle East and Africa markets were among the key factors that motivated NCR Corporation to establish its regional offices to Cyprus. The NCR Middle East region was established in 1986 and in the mid-1990s, the Cyprus office expanded its business to include African and Eastern Mediterranean countries. Although a small part of the NCR world, the NCR Middle East/Africa region constitutes a significant contributor to the NCR Corporation’s financial results. NCR currently employs more than 100 highly skilled professionals in Cyprus. 

Gold: What are the advantages and disadvantages of sourcing employees locally? G.F.: NCR is an equal opportunity employer, so we provide employment opportunities to locals as well as to foreign nationals. Nevertheless, due to the fact that there is a high availability of skills locally, the majority of our employees in Cyprus are locals.   Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   G.F.: In today’s competitive environment, the island needs to continuously reinvent itself so as to become a more favourable destination for foreign companies than other countries in the region. To do so, CIPA (the Cyprus Investment Promotion Agency) must be given executive powers and the authority to devise the strategy for Cyprus as an investment destination and to by-pass the current bureaucratic processes.  Cyprus Gold: Was the process of setting up an also needs to improve substantially as an operation in Cyprus as straightforward as airline hub connecting Cyprus to the rest of originally envisioned? the world. Finally securing visas for CyprusG.F.: The process of setting up NCR’s based employees from some of the countries headquarters for Middle East/Africa area in the region is a time-consuming task because they do not have embassies here. Although some progress has been made, a lot more needs to be done. Gold: What are your future plans for your operations in Cyprus?   G.F.: NCR is a fast-growing company globally and even more so in the markets we cover across the Middle East and Africa. Executives from the NCR office in Cyprus have extended their responsibilities to cover the growing markets of Asia from India to China, Singapore, Australia and New Zealand. Our plan is to continue to invest in the emerging economies while we continue to grow our base across all the countries we cover. NCR is probably one of the best examples of a foreign company investing in Cyprus and it can be used as a reference to attract other multinational companies to follow its example.

company’s Overseas Division since 1980. The Cyprus head office is also responsible for the opening up of new markets and the management of Kardex’s direct operations in Greece, Singapore, Malaysia, India and China.

LIDL (CYPRUS)

Lidl is one of the major grocery

retailers in Europe, having opened its first store in Germany in 1973. In the 1980s, the Lidl discount concept spread across Germany and then, in the 1990s, internationally. Lidl currently operates over 8,200 stores in over 24 countries and, in November 2010, it

George Giannoulakis CEO, ALPARI FINANCIAL SERVICES LTD.

Gold: What were the key factors that motivated Alpari Financial Services Ltd. to seek to establish a presence in Cyprus? George Giannoulakis: Alpari Financial Services Ltd (Alpari FS) was set up in Cyprus because of its friendly business environment, well-developed infrastructure and tax incentives. Cyprus has also become a well-known hub for the Forex industry and it covers our strategic plans for development. Cyprus’ strategic geographic location is ideal for service-type activities such as ours.

aspects. Overall, it has been a positive experience.

Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? G.G.: Like any new endeavour it was challenging. We did not achieve what we have today without overcoming challenges – it’s inbred in Alpari’s nature! We’ve been pleasantly surprised with some aspects, whilst there is certainly room for improving efficiency in other

Gold: What are your future plans for your operations in Cyprus?   G.G.: We wish to grow our operation in a steady, consistent and level-headed manner by cementing Alpari FS’ presence and active participation in Cyprus. We are excited about a number of projects in the pipeline and look forward to announcing them as and when they come to fruition. Keep watching this space… There are exciting times ahead!

opened outlets in 7 locations in major towns across Cyprus, significantly changing the retail sector landscape of the island.

LUKOIL

The Russian oil company Lukoil commenced commercial activities in Cyprus at the beginning of 2002 as

Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   G.G.: Although, at present, various efforts are being made and initiatives taken to market and promote Cyprus, these efforts need to be further enhanced. A clear and focused message of what Cyprus has to offer needs to be better communicated at all levels of the economy, in both the public and private sectors.

Lukoil Cyprus Limited, purchasing 16 existing petrol stations from BP Cyprus and ExxonMobil. Ten years on, and following the renovation of old stations and the construction of new ones, the company operates 31 stations across the island and controls around 12% of the market for petroleum products in Cyprus.

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As a country with a stable economy and a good infrastructure, Cyprus is an attractive market for European companies Christovalantis Karayiannis

Christovalantis Karayiannis

MANAGING DIRECTOR, LIDL (CYPRUS) Gold: What were the key factors that motivated Lidl to seek to establish a presence in Cyprus? Christovalantis Karayiannis: As a country with a stable economy and a good infrastructure, Cyprus is an attractive market for European companies. During the 1990s Lidl started to open stores outside Germany and since then has expanded strongly throughout Europe. Our goal is to provide top quality products at the lowest possible prices in every European country, including Cyprus. This has helped establish us as the grocery store that covers the Cypriot consumer’s everyday needs. Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned?

NCR

NCR is a global technology company which today specialises in self-service solutions for ATM machines and software, POS and Retail systems and airline check-in systems. It was founded in 1884 as the National Cash Register Company, maker

C.K.: Setting up an operation in a new country is never easy but the simplicity that characterizes our operations and work process is a cornerstone of our success. A lot of problems are often revealed during the launch process. It is very important to be wellorganised, flexible and have the right business partners on your side so you can overcome every obstacle that may occur. Gold: What are the advantages and disadvantages of sourcing employees locally? C.K.: In my opinion there are no disadvantages. The knowledge of local culture, history and traditions is very important for setting up an operation in a new country and it can only be obtained through the local workforce. The key to being successful and gaining acceptance in a new market is to combine the company’s principles and philosophy with local working conditions and consumer behaviour.

of the first mechanical cash registers. NCR was established in Cyprus in 1955, as a subsidiary of the NCR Corporation. Ther company’s Middle East/Africa (MEA) regional headquarters in Nicosia are responsible for 20 NCR subsidiary organisations and a total of 49 distributor

Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location? C.K.: As already mentioned, the country has a good infrastructure and cooperation with local authorities is very good. Cyprus is trying to create a favourable environment to attract new investors and meet the standards of international companies which are willing to set up business in the country. In my opinion Cyprus is on the right track to providing high-level services which will make it easy for companies to establish functional operations in the country. Gold: What are your future plans for your operations in Cyprus? C.K.: More ‘quality for less’, of course. Of all the things we offer customers, their satisfaction is our main priority. For this reason, we shall be expanding our stores network and increasing the existing range of products to meet the customer demand.

organisations in an equal number of countries within the region.

NEST INVESTMENTS HOLDINGS CYPRUS LTD

Nest Investments established a presence in Cyprus in 1990 and operates in 22 countries of the Middle East, North Africa, Asia and Europe.

Headquartered in Limassol, Nest Investments (Holdings) Ltd is the ultimate shareholding company of all the business assets of the Group. This includes substantial or majority shareholding interests in excess of $1.2 billion in many direct insurance, re-insurance, licensed operations such as World Trade Center, property

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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A very good step forward would be to make the government sector more flexible when it comes to automating its processes Serhei Kostevitch

development, asset management, and building materials manufacture in 22 countries in North America, Europe, Africa, the Middle East/Gulf Region and the Far East.

RUSSIAN COMMERCIAL BANK

The bank’s history goes back to 1963,

when the Moscow Narodny Bank of the USSR established a branch in Beirut. As the political situation in the Middle East deteriorated, the branch was relocated to Cyprus where ownership was transferred later to Vneshtorgbank. In August 1995, the branch was transformed into Russian Commercial Bank (Cyprus)

as an overseas unit of VTB Bank. Since the accession of Cyprus into the European Union in 2004, Russian Commercial Bank (Cyprus) operates as a fully fledged European bank.

UNITEAM MARINE

Establishing its presence in Cyprus in 1978, the Uniteam Marine

Management Group is actively involved in all aspects of ship management and has expanded into a multinational company with offices in Cyprus, Germany, Lithuania, Ukraine, Singapore and Myanmar. The group is active in full management, operations, crew management, technical management,

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

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COVER STORY

Serhei Kostevitch

CEO AND CHAIRMAN OF THE BOARD, ASBIS GROUP Gold: What were the key factors that motivated ASBIS to seek to establish a presence in Cyprus? Serhei Kostevitch: The key factors back in 1995 were, of course, the tax regime governing international businesses, and the legal framework enabling the company to build a solid and transparent operation close to the territories in which it operates. Moreover, the security and quality of life offered to the families of the founders played a significant role in the decision to choose Cyprus. Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? S.K.: The process was greatly assisted by professionals (lawyers and accountants) and was therefore an easy process. There were some problems during the setup of the company but the Central Bank and all the relevant bodies responsible for international businesses at the time were quite helpful and willing to assist in overcoming any problems. Gold: What are the advantages and disadvantages of sourcing employees locally? S.K.: We have found that there is a very high level of education and professionalism in Cyprus and we have managed to attract high-calibre, experienced employees from the financial environment who assisted the company in its efforts to become “Cypriot” and not be viewed as an “offshore” company. The only disadvantage we have experienced concerns the sourcing of people with a knowledge of IT corresponding to our needs to service our EMEA territories. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location? S.K.: A very good step forward would be to make the government sector more flexible when it comes to automating its processes. More specifically, it would be good to see an interrelationship among ministries and a one-stop shop for all companies, not only for establishing a company but also for administering it as well.

financial administration, consultancy and ISM/ISO 9001:2000 services.

VTTI

VTTI, which operates a network of bulk logistics assets around the world, is owned 50% by the international energy trading group Vitol and 50% by MISC Berhad of Malaysia. VTTI’s

George Papanastasiou, MANAGING DIRECTOR, VTTΙ Gold: What were the key factors that motivated VTTI to seek to establish a presence in Cyprus? George Papanastasiou: VTTI was looking to invest in an oil terminal in the Eastern Mediterranean which is considered an area of high hydrocarbons trading activity but, at the same time, one that lacks oil storage capacity. Cyprus, Lebanon, Egypt and Turkey were evaluated and Cyprus was selected as meeting most of the criteria: a favourable geographical location, an EU member state, (employing the concept of bonded warehousing for hydrocarbons in storage), deep sea water close to shore to accommodate large vessels, a modern economy, good services provision and a highly- educated and English-speaking workforce.

network of terminals, together with an ambitious programme of new construction projects, puts it in the key shipping lanes and anchorages of the world. Construction of VTTI’s new €220 million terminal project in Cyprus, VTT Vasiliko Ltd, which will turn Cyprus into a regional energy hub, is due for completion in 2014.

Gold: Was the process of setting up an operation in Cyprus as straightforward as originally envisioned? G.P.: The process was far more difficult than originally envisioned. Bureaucracy almost killed the project a year ago because applications for permits and licences were left sitting in government offices for months without being processed. The absence of inclusive legislation and the lack of knowledge of this kind of business and such projects were not helpful either.    Gold: What are the advantages and disadvantages of sourcing employees locally? G.P.: The advantages are the discipline that characterises the local workforce, the quality of their work, ease of communication (as

WEATHERFORD INTERNATIONAL

Weatherford International Ltd. is one of the largest global providers of advanced products and services that span the drilling, evaluation, completion, production and intervention cycles of oil and natural gas wells.Today’s

they are also English speakers), and the fact that they are well-educated and, when it comes to white collar workers, highly-educated. The disadvantages are the higher cost compared with the workforce in some Eastern European countries and also they lack experience of working on large-scale and specialized projects. Gold: Is there an area in which you would like Cyprus to improve as a business and services sector location?   G.P.: It needs to speed up the processes for approvals/permits/ licences and create a ‘one stop shop’ for applications. The complexity of existing legislation in certain areas should be removed to expedite decision-making and thus attract foreign investment.

Weatherford is a result of internal growth and innovation as well as the consolidation of more than 250 strategic acquisitions. The Weatherford Cyprus office is both an active operational base with a primary focus on equipment repair and maintenance, as well as project management around the globe.

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OPINION

Working Together For Growth Europe must now focus now on measures to encourage and boost growth

I

believe that we are currently facing a very severe multi-dimensional crisis in Europe and we have a duty to restore the credibility and attractiveness of Europe in the eyes of European citizens. Let me refer to a few examples of what the European Parliament (EP) has done so far as a contribution towards the management of the crisis. First of all, from the very beginning, the EP was critical of the European Commission and, especially, of the European Council for not being able to find and apply a comprehensive solution and approach on the part of the EU to the crisis at an early stage. Due to the insistence of the EP, new rules of regulation and supervision have been adopted for the financial markets in Europe. But although there have been some decisive steps towards an exit from the crisis, according to the latest information, growth is still weak in the eurozone as a whole and unemployment is rising in an alarming way. We are not yet out of the crisis and the situation remains quite fragile. We therefore need to complete the reforms that we have already started to implement in order to restore stability and we need to focus now on measures that will encourage and boost growth. There is a need for a healthy balanced budget throughout the EU and especially in the eurozone but it is clear, I believe, that austerity on its own cannot be the response and cannot guarantee an exit from the crisis. There can be no efficient progress in this direction without concrete policies that are going to push growth and job creation. We have come to realize that, in order to tackle the crisis, it is very important to combine fiscal austerity with policies for growth. Lack of progress in one area can seriously undermine efforts on the other. Until now Europe has made a lot of progress regarding the integration of

Unless we find the balanced approach that includes both strong fiscal discipline and measures for growth, our long-term ambitions are still at risk

By Anni Podimata, MEP

fiscal policies and getting states to commit to fiscal discipline. Growth measures are finally on the agenda and the EP has been at the forefront of this debate from the very beginning of this crisis, pushing for growth and innovative measures such as the Financial Transaction Tax and the significant resources it can produce, Eurobonds and 2020 Project Bonds. Unless we find the balanced approach that includes both strong fiscal discipline and measures for growth I think our long-term ambitions are still at risk. I am glad to refer here to the ambitious 2020 strategy for growth, the five main areas of which are Employment; Research, Development & Innovation; Climate Change & Energy; Education; Social Exclusion & Poverty. Growth is the real long-term challenge in a rapidly-changing world. The EP is delighted and satisfied to see that there are now repeated calls from the European Central Bank, from the IMF and from the European Commission in favour of the adoption of a growth compact to boost economic development in Europe and to complement the fiscal compact which has already been decided. Our goal is to generate resources for investment to restart our economies, to create jobs, especially for the younger generation who are the first to suffer the consequences of the crisis and are paying a disproportionately high price for it. In Spain and Greece, youth unemployment is around 50% nowadays. We cannot accept or afford to sacrifice a generation or run the risk of creating a ‘lost generation’. It is our political choice to build our future within a strong, healthy union based on the values that made us build this union, the values of freedom, responsibility and solidarity. I strongly believe that these are values we should stand up for and defend and it we are to be efficient and effective we have to work together, we have to do it through synergies.

info: Anni Podimata is Vice-President of the European Parliament and a member of the Greek Socialist party PASOK. The above article is adapted from her address to the workshop “ The future of Europe” at the European Parliament in Brussels on 9 May. 32 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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ECONOMICS

IT’S ‘HEAD IN THE FIRE’ TIME FOR CYPRUS Gold speaks to Steen Jakobsen Chief Economist of Saxo Bank

HERE AT GOLD WE ALWAYS ENJOY SPEAKING TO STRAIGHTTALKING ECONOMISTS SO WE WERE MORE THAN HAPPY TO HEAR THAT STEEN JAKOBSEN, THE REVERED CHIEF ECONOMIST OF SAXO BANK WOULD BE IN NICOSIA FOR THE LAUNCH OF SAXO BANK CYPRUS. CELEBRATED FOR HIS FRANK AND OFTEN CONTRARIAN VIEWS ON MACROECONOMIC EVENTS, FOREX, STOCK AND FIXED INCOME, JAKOBSEN IS KEENLY FOLLOWED BY INVESTORS AND TRADERS LOOKING TO GET AN ALTERNATIVE VIEW OF THE MARKETS. By Costa Ioannides

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ECONOMICS Gold: What’s the thinking behind Saxo Bank establishing itself in Cyprus? Steen Jakobsen: We already have a large number of private, corporate and institutional clients here Cyprus and given that it’s an established and internationally recognised financial services centre with strong relationships with the Central and Eastern European countries – especially Russia which is a major market for Saxo Bank – it makes sense to have a presence here. Also, the Cypriot authorities have a good experience of dealing with international companies, English is widely used and the weather is warmer than Denmark! Gold: You recently said that it would be safer to stay out of the equities market over the coming year and that there may be a correction in the 25-30% range on the cards. What do you think will be the defining precursor to a sharp downturn in valuations? S.J.: It will probably be a number of things but the most obvious would be the escalation of the crisis in Spain and its inability to refinance and how Germany responds. Until recently Germany hadn’t been called upon to contribute more than it expected to but things have got out of hand and it’s fallen to Germany to pay for the inefficiencies in the southern periphery if the eurozone is to survive. Germany had agreed to do this on condition that these inefficiencies are rectified but such things can’t be fixed in a few years; it will be a ten-year project to get Europe’s troubled economies to reform enough in order to abide by the EU’s fiscal rules and the financial stability growth pact. I don’t expect miracles – that would be naive – but there’s a small chance that within the next two to three quarters a credible reform programme will be agreed to that is both long-term in nature and embedded with the approval of local populations.

peak. So in terms of growth rates going forward, they’ll stop shrinking and will even increase a little, quarter by quarter and year by year, but they won’t be anywhere near enough to sustain the level of affluence that our societies enjoyed five years ago. Gold: How do you think the Spanish solvency issue will unfold over the coming few months? S.J.: Contrary to the official views of the IMF, I think that before the end of the year Spain will ask the EFSF (European Financial Stability Facility) for funds to recapitalise its banking system and next year it will need additional loans. Spain is in the process of intense deleveraging, it has housing market and government deficit bubbles and severe internal regional imbalances. The country’s reform programme was enacted far too late; it was verbally agreed and put into law but in reality it hasn’t yet started. Everyone in Spain is looking around wondering about the effects of the reform measures but in reality they haven’t even come into effect: the pain is yet to come. I expect Spain and Cyprus to be named as violators of the fiscal compact at the 22 June Eurogroup meeting. Gold: Do you think that Spain will suffer similar social upheavals as Greece? S.J.: Yes I do. It would be very naive to believe that there isn’t a social price to pay for having 50% youth unemployment and a total of 1.8 million people without work. If you go to Madrid you’ll see a beggar on the street every 500 metres. That’s the reality of the situation.

ALL ELECTIONS THESE DAYS END UP BEING A PROTEST VOTE AGAINST THE CURRENT REGIME

Gold: Can the democratic process realistically produce results that will empower politicians to make difficult decisions that cause shortto medium-term pain but be in the long-term interests of the general population? S.J.: It’s very clear to me that all elections these days end up being a protest vote against the current regime. It doesn’t matter who’s in power – whether they are socialist or right wing – because they are invariably replaced by the opposition. No European government has been given a clear mandate for change since Margaret Thatcher was elected British Prime Minister back in 1979. What’s needed is for the political and economic processes to be running in parallel, not in opposition. Until this happens, the only solution available is to continue to pursue an ‘extend and pretend’ policy, to print more money and pretend that the problems are being dealt with when, in fact, they are just being kicked further down the road. Until real reforms and effective decisions are taken, equities will be in ‘survival mode’, providing an investment alternative against risky sovereign bonds.

Gold: In a recent speech you seemed optimistic about the prospect of Europe’s economies growing again. How hopeful are you that this will happen? S.J.: You have to remember where our starting point is. If 100% is the old 2007-2008 peak, i.e. a good place to be, then Europe is currently at just 50%. Over the coming three to five years we’ll be moving from this low point and fluctuating between 50%-60% of the old 100%

Gold: You have said that the research departments in other banks are “nonsense-based”. What are the biggest nonsensical assumptions that they tend to make? S.J.: On the whole they make consensus assumptions. The biggest consensus right now is that quantitative easing works. I’ll address that assumption by quoting Albert Einstein: “Insanity is doing the same thing over and over again and expecting different results.” Neither governments nor Central Banks will put up their hand and admit to being wrong. I think the irony here is that Ben Bernanke – a.k.a. Mr Tool Kit of Unconventional Measures – came into office with an agenda assuming that he understood how to get the US to avoid ‘Japanisation’ [falling into a deflationary environment with low growth and low interest rates by utilising quantitative easing] but instead he led the world into ‘debtinisation’. Gold: Given your position that the current crisis is one of solvency rather than liquidity, in your view how much longer will the printing presses have to be left on and will there be a happy ending if they are switched off? S.J.: It all depends on how long various governments are able to keep up the balancing act of seeming credible. When this comes to an end, the crisis will move into what I call the Financial Crisis 2.0. This will happen when the markets lose faith in governments being able to repay their debts. The balancing act for governments is printing just enough money and maintaining the credibility that they are capable of paying it back. Governments are losing their credibility as more and more countries are effectively shut out of borrowing from the international markets including Cyprus, Greece, Ireland, and soon potentially even France, so the reality is that the public sector is forced

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

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FOSSILS MINERALS JEWELLERY CARVINGS

PREHISTORIC TREASURES

96H, Stavrou Avenue, Strovolos, Nicosia. Tel: 22441250

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ECONOMICS

THERE’S NO ACADEMIC OR SCIENTIFIC PROOF THAT BAD ECONOMICS LEADS TO BAD MARKETS to take more capital and savings and dilute the value of the currency so it becomes a negative vicious circle. No, when the printing presses stop there won’t be a happy ending. Gold: Looking at the current state of the market, how would you protect an investor’s portfolio in terms of structuring? S.J.: First of all, protection is all about managing ‘tail risk’ [i.e. portfolio risk that an investment will move more than three standard deviations from the mean]. It’s important to note that markets and financial risk don’t follow economics; there’s no academic or scientific proof that bad economics leads to bad markets. Secondly, when you ‘weatherproof’ your portfolio, you want to pay equal consideration to carry trade, tail risk as well as access to the micro-economy. In my opinion, right now you should have a large holding in a basket of corporate bonds. In this way you have a better creditor position, exposure to equity as well as to the guys that open doors every day to make money, and yields of between 600 to 1,000 basis points. I would say that overall an investor should be at about 50% in European, US and Asian corporate credit. If you believe that quantitative easing will continue, then you would want up to 25% of you portfolio in gold and mining, etc. For the remaining 25%, depending how positive you feel about the equity market, you should either hold high dividend-yielding, global-name stocks or cash. Again, it’s important to keep in mind that there is no symmetry between bad economics and bad markets; it’s more about whether the interest cycle is up, down or unstable. Gold: Every year you make some outrageous predictions for the next 12 months. Do have any for Cyprus? S.J.: Bear in mind that the outrageous predictions we make are not what we think will happen but independent, out-of-the-box possibilities that people may want to consider. Having said this, one positive development for Cyprus may be that the natural gas adventure could finally motivate the politicians on all sides to solve the Cyprus problem. It makes a lot of sense to be able to pipe gas through to Turkey so who knows what could happen if the economic motivations are strong enough? On the negative side, Cyprus could go through a process of Japanisation, i.e. years of meagre slow growth before real reforms are enacted leading to a decade lost in terms of economic growth. Another would be that events unfold in such a way that Cyprus is forced to harmonise its corporate tax rate with standard European levels as a quid pro quo in return for the help that Cyprus is inevitably going to need from Europe. Gold: So you think that Cyprus will be seeking a bailout? S.J.: To avoid the smoke, Cyprus will have no choice but to put its

head in the fire. Cyprus will most likely have to submit to EU bailout funds within the next 18 months but this is not necessarily a bad thing. If you have a political process that is not capable of doing what needs to be done, then having an external authority dictating corrective measures is good for the country overall. Cyprus has the biggest comparative public sector wage bill in the whole of Europe and the EU will inevitably come to address this. In that way, the politicians here will have someone else to blame for the implementation of corrective but painful reforms. Cyprus has come a very long way since the invasion in 1974, the country has very good GDP per capita and competitiveness, but like many other countries that have experienced good times Cyprus began living beyond its means. So what follows (as with many other European countries) is that there needs to be a number of years when the Cypriots are forced to live below their means. What is especially strange in Cyprus is that wages have been increasing way above inflation. Cyprus has the highest disparity between wages and inflation of any country in Europe. Gold: Do you think it’s possible for Cyprus to achieve its deficit target of 2.5% of GDP this year? S.J.: Let me put it this way – there’s a bigger chance of me being selected to play as a striker for Denmark in the upcoming European football championships! Gold: How would you incentivise private capital investment within our economies in terms of economic policy? S.J.: Currently there are very high rates of private saving, so how about the government providing people with tax deductibility for investing in things like equity in banks? Right now Cyprus needs to recapitalise its banking sector, so why not make investing in these banks tax-deductible over the next 10 years? The alternative is that the state raises the money, so why not let the people let invest where there is a need? This is what happened during the Swedish banking crisis and it allowed capital to be deployed very efficiently. Similarly, why not allow people to invest in each other’s businesses and make any potential loss tax deductible? Governments should be incentivising their populations to get the money that they have stashed under their mattresses back into the economy and to create jobs. Gold: What’s your medium/long-term view of the commodities market and gold in particular? S.J.: Investors definitely need gold in their portfolio. Right now there’s a 50-50 chance that there will be more quantitative easing in the US, with China also slowing down. I would say that there is a 60% chance that commodities will suffer a retrenchment over the next 12 months, based on lower Chinese demand and the inability of interest rates to go any lower. So long as ‘extend and pretend’ policies are in place [printing money], you would want to protect the real value of your holdings by investing in tangible assets. People tend to forget that commodities can pull back up to 50% of their value and I think that we are in a periodic retrenchment phase of a longer-term bull market for commodities generally. Gold: You recently criticised Greek opposition to cutting 13th and 14th salaries because it would further undermine GDP. Will the 35 newly- employed locally at Saxobank Cyprus enjoy 13th salary benefits? S.J.: [laughs] You’ll have to ask Vitali Butbaev [head of Saxo Bank Cyprus] about that! Generally speaking, Saxo Bank’s bonus system is pretty simple. First, the bank has to make money; second, your department has to be making money; third, each individual must be contributing to the success of his/her department and the bank overall. If all three criteria are met, a Saxo bank employee can receive a 13th, 14th 15th and even a 20th salary!

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INVESTING

Stones & Bones INVESTING IN MINERALS AND FOSSILS By John Vickers Photograph by Jo Michaelides

W

hen author Michael Crichton published Jurassic Park in 1990, he introduced an entire new generation to the world of dinosaurs and other prehistoric creatures, later helped by Steven Spielberg’s 1993 blockbuster film version of his novel and the pioneering1999 television series Walking With Dinosaurs. Though dinosaurs still seem to hold a special appeal for children nowadays, their parents and grandparents have also been fascinated by these often enormous creatures that lived millions of years ago, with much of their knowledge coming from fossil discoveries. Angelos Tsirides first heard about fossils as a student in London in the 1960s. He still recalls the shock he felt during a geology class when he was informed about the age of the specimens a lecturer had brought with him.

“He told us that the fossils were 500 million years old while human life had existed on Earth for only 2-3 million years. I couldn’t believe it! Life had existed on the planet for so many millions of years before man? As a teenager I had often wondered who had created the world and the universe and the ‘quick answer’ was God but that didn’t satisfy me. Now I had so many other questions. This introduction to fossils really opened up the door for me and made me want to go back to the very beginning of life on earth in the hope of finding answers to my questions. So I started collecting, trying to go further and further back.” Since then, Tsirides has devoted a great deal of time, energy, effort and money to building up a remarkable collection of fossils and minerals (semi-precious stones) which, he hopes, one day will be on display in the island’s first Museum of Natural History. However, while his own motives are altruistic, he acknowledges that fossils

and semi-precious stones are an extremely good investment, with some items today worth 20 and 30 times their value of just 10 years ago. So why should something as unpleasant-sounding as fossilized dinosaur dung be a good thing to buy if someone wishes to see his wealth grow? “First of all, collectors who are interested in fossils often start because they are fascinated by the knowledge they gain of the planet’s past history. This is intriguing in itself,” he says. “The increase in value is also an incentive to start collecting and, of course, the better the piece you buy, the greater its value will be in the future. The same applies to minerals which, with time, are diminishing or becoming more difficult to extract, so this increases their value. Museums and scientists, especially paleontologists, are interested in them because from their study they can extract a great deal of knowledge regarding life on the planet. Then there are the more commer-

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

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Angelos Tsirides

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INVESTING

cial items, mainly for people who want to buy something as a souvenir or to decorate their homes. When you tell someone that a particular item is 200 million years old, for example, it is bound to impress.” Another factor contributing to the rarity of fossils and semi-precious stones is the fact that in recent years, many countries have imposed stricter regulations about the sale and export of such items. China restricts the export of fossils, which means that the value of dinosaur eggs once found there is soaring. Brazil similarly prevents the export of fossils while Russia and Madagascar are very restrictive regarding both fossils and minerals. They consider them to be part of their heritage and, as such, they need to be protected and preserved. “I can understand this,” says Angelos Tsirides, “even if it means that it is becoming more difficult and/or expensive to obtain certain items. It’s the same in Cyprus regarding antiquities.” In our modern world, it may seem strange that so many people are interested in the planet’s distant past but the truth is that literally millions of people are fascinated by fossils and minerals. “If you go to

any European country and you visit a specialised exhibition, you’ll see thousands and thousands of people there. Moreover, there is a great and growing interest in China and America and, of course, thousands of companies are involved in the trade – the mining companies, the paleontologists who prepare and restore the finds, the sellers, the wholesalers, the retailers, etc. And there are the scientists in universities who are studying them. So it’s a vast sector.” So, if you are attracted by the idea that you can buy a piece of history and watch its value increase rapidly, how do you go about purchasing fossils and minerals? Angelos Tsirides and his wife Emily travel the world 3-4 times a year and they purchase wholesale for their Nicosia store Prehistoric Treasures. “The only way to get the quality you want at the price you want is to buy big quantities,” he explains. “But an individual collector needs to be very careful, which means buying from professionals and specialist shops. And, like anything that you are looking at for investment purposes, you need to have the expertise to know what you are doing.” Tsirides always advises potential collectors and investors to buy something if they

Protoceratops, China

Plesiosaurus (190-65 million years old), Morocco

like it because it may disappear quickly. “Don’t argue about the cost,” he says. “It’s happened to me many times; I have seen something, decided to look around and see what else is in the market and by the time I’ve gone back – even an hour later – it’s gone. These are natural things and no two are the same. In most cases, something is discovered but it is a limited source so it is removed over the course of a few months and then there isn’t any left. Consequently, if you find something, buy it. You will enjoy it because you like it and you will know that it is going to go up in value.” He likens investment in the highest quality fossils and minerals to buying a famous work of art or an antiquity. It is always the case that better quality means a higher purchase price but the subsequent increase in value will be correspondingly higher. However, he notes that you don’t have to be fabulously wealthy to start collecting. “While women tend to go more for semiprecious stones which can impress with their beauty, men tend to prefer fossils because of their age and the fact that there is some history behind them – the creature was once alive and has perhaps evolved over millions of years.”

Aepyornis Egg, Madagascar

s the t c i r t s e China r ossils, which ff export o hat the value means t ur eggs once a of dinos ere is soaring h found t

Feather Dinosaur, China

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

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Fossil Shark, Lebanon

Xiphactinus Audax (82 million years old), USA

The idea tha ty collection ca our appreciated n be by thousands of many pe after you’ve ople g is actually a one ve attractive on ry e

Quartz Cluster, China

Aragonite, China

Ichthyyosaur, Germany

In his personal collection, Angelos Tsirides has an example of the oldest bedrock on the planet which is 4.4 billion years old while more recent items date back to the last ice age (about 10,000 years ago) and these include ivory mammoth tusks and a skeleton of a cave bear. The most popular items with serious collectors tend to be dinosaurs. In 1997, a 90% complete Tyrannosaurus rex skeleton was brought for $8.36 million by Chicago’s Field Museum, with the support of McDonald’s. Tsirides believes that the price was right. “At auction today, the price of such a skeleton would be $8-10 million, especially for a T-rex which is very famous and not many have been found,” he says. “Other dinosaurs are cheaper. The main consideration is the condition of the fossil and the percentage of the animal that is complete.” This explains why Angelos Tsirides has paid around €300,000 for the head of a Trex which is still under preparation in France and will one day be the star exhibit in a museum. Is there anything he is still looking for? Something missing from his collection? “Obviously, since there are billions of fossils and minerals around and I can’t buy

them all!” he says. “Not even the largest museum in the world can afford to do that. My main objective now is for Cyprus to finally have its own Natural History Museum. I have already collected a lot of material over the years for this sole purpose. So when I see and find things that are within my budget – sometimes I have to pay in instalments or borrow money for the purpose – I try to collect the most impressive items, things that people from children to grown-ups and scientists will appreciate and will want to look at, study and learn from. I have learnt from them myself and I would like to pass this on to other people.” Tsirides knows from his own experience that once people come into contact with objects from the Earth’s prehistory, their attitude towards a range of issues changes. “We know through the study of fossils that life on Earth was almost wiped out a few times. I believe that people grow wiser and once they think about such things it makes them respect life more. Knowing that animals existed before we did makes us appreciate and respect them more. I hope that one day other people in Cyprus will be able to appreciate them as much as I do and this is my main objective now.”

Plans are in hand for the Natural History Museum, with ongoing discussions with the Government about a specific piece of land on which it will be built. “Hopefully this will be finalized in the near future,” he says, “and then we need to find the resources to finance the construction. We’re doing a lot of research at the moment into European funds, individuals, companies and countries that may be interested in contributing.” So even though building up his remarkable collection of fossils and minerals has proved to be a sound investment, Angelos Tsirides is actually going to give it all away. He has no regrets whatsoever: “I am sure that what I’m doing is what most real collectors are doing too. In the end, if their collection is worth it, they want to see it in a museum. I have separated the items intended for the museum from what my children will have in their homes and from what we sell at the shop but the idea that your collection – sometimes representing your life’s work – can be appreciated by many thousands of people visiting a museum after you’ve gone is actually a very attractive one.”

Ammonite, Madagascar

Some items today are worth 20 and 30 times their value of just 10 years ago

Crinoids, China

Trilobite, Philonyx Qhadrafus (550 million years old), Morocco

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SHIPPING

THREE

THE CYPRUS SHIPPING CHAMBER REQUESTS ACTION ON THREE KEY MATTERS

WISHES

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

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INTERVIEW

WE ARE CONFIDENT THAT THE CONTRIBUTION OF THE SHIPPING INDUSTRY TO GDP IS AN IMPRESSIVE

7%-8% T he global financial crisis continues to exert a negative influence on the worldwide shipping industry and all shipping indexes are currently at very low levels. An oversupply of ships has plagued the freight markets over the past few months and there is worse to come so any new shipbuilding and ordering needs to be put on hold until market demand picks up again. It was with this pessimistic overview that Captain Eugen Adami, President of the Cyprus Shipping Chamber began his address to the CSI’s Annual General Meeting at the end of April. Other key parts of his speech are reproduced here.

GLOBAL SHIPPING

Deteriorating markets have seriously affected operations and in order to stay alive, shipping companies are trying to reduce their costs in any possible way and with the least collateral damage. Traditional shipping companies are now undergoing a complete facelift as far as their structure is concerned. This alarming situation has been intensified due to the fact that, during these difficult years, the banks have completely stopped or severely cut down the volume of ship finance made available to the Industry. Equally important, if not more serious, is the fact that banks are still unwilling to issue Letters of Credit, thus crippling the ability of shipping companies to cover their daily operational needs. Banks therefore need to understand that they must continue to offer these necessary financial services to their longstanding shipping clients, in order not to force them to go under

and to avoid exposing themselves to further major write-downs. The increasing cost of marine fuels, the lack of demand for products to be transported and the overcapacity of ships are very serious threats to the industry. We understand that the EU is counting greatly on the improvement of European industry to eventually balance its budgets again. However, any improvement to industry is based on the importation of raw materials and the export of the finished goods. Shipping is as much as 90% responsible for these transportation needs. We fail to understand, therefore, why cheap loans from the European Central Bank do not reach shipping companies at all. Does Europe want to depend on mainly Asian ships for its imports and exports? The European Union and national governments need to understand that their lifeline depends on our ships. They need to exert maximum pressure on the commercial banks to provide the necessary financial support for the basic daily operational needs of international shipping if this very important industry is to continue being the ‘life blood of world trade’. In this very difficult operational climate, international shipping is being called upon to establish effective and viable strategies, taking into account mobility, world population growth and supply and demand issues, so as to lift itself out of the ‘stormy waters’. This can only be achieved through the international and uniform operational standards set by the International Maritime Organisation (IMO). Shipping is a global industry so regional or national rules at variance with international regulations naturally tend to make the industry less efficient and must therefore be avoided. To this end, we believe that Cyprus, having

one of the largest fleets globally, should further strengthen its role in the IMO. The Government ought to undertake more action and initiatives at IMO level, in order to further enhance the shipping industry’s role in the global transport chain and to convince decision-makers that shipping must be supported.

CYPRUS SHIPPING

There is no doubt that the Cyprus economy has felt the negative effects of the global financial downturn and the Cyprus shipping industry could not have escaped this troublesome time without suffering any losses. Nevertheless, despite the serious commercial difficulties we have faced during the past year, the latest statistics published by the Central Bank indicate that the contribution of the shipping industry to the Cyprus economy has slightly risen once again. We are therefore confident that the contribution of the shipping industry to GDP is an impressive 7%-8%. The fact that Cyprus has the 10th largest fleet in the world and the 3rd in the European Union, and that it is the largest shipmanagement centre in Europe, while the broader shipping sector employs around 4,500 people on land and 55,000 seafarers, clearly indicates the serious political and social importance of the industry to Cyprus. Shipping has experienced and continues to experience difficulties. However, we should be optimistic that the high value and the substantial contribution of the Cyprus shipping industry in the form of foreign and local direct investment into the island’s economy can be maintained and strengthened even more. In order to achieve this, however, we strongly believe that action needs to be taken in three

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SHIPPING

THE

TIME

HAS COME FOR A RESTRUCTURING OF THE CYPRUS MARITIME ADMINISTRATION specific areas and, given that presidential elections are less than a year away, we request that all candidates integrate them into their election manifestos and commit to implementing them if they are elected. They are the following:

1.

Lifting of the Turkish Ban on CyprusFlagged Ships.

The smooth operation and further development of the Cyprus Registry is still hampered by this illegal trade restriction, unilaterally imposed by Turkey since 1987, in violation of basic EU and WTO rules. We therefore strongly urge that coordinated action by the Government and the Chamber be continued and intensified, mainly under the supportive umbrella of the European Union, separately but in parallel with ongoing efforts to resolve the Cyprus Problem. We wish President Christofias and the country’s political leadership every success and we pledge our full support and readiness to cooperate in every way.

2.

Promotion and Expansion of the Tonnage Tax System

The Cyprus Shipping Taxation System is the most competitive in the European Union today and thus represents a great tool for expansion and further stability. As such, it should be maintained, fully exploited and I dare say, extended to even more shipping activities. To this end, the efforts made over the last two years by the Maritime Administration and the Cyprus Investment Promotion Agency (CIPA), in close cooperation with the Shipping Chamber, to publicize the advantages and benefits of this new taxation system in Europe, must be intensified and further expanded. It is imperative therefore that, in the unfortunate event of a further deterioration of the

economy, the Government – with the support of all the political parties – must do its utmost to ensure that our vital Tonnage Tax is maintained and remains applicable as approved by the European Union in 2010.

3.

Appointment of an Under-Secretary for Shipping

Cyprus is considered a ‘shipping superpower’ with a high quality flag, a fully-fledged, worldrenowned resident shipping industry that constitutes one of the most important financial contributors to the economy, coupled with the most competitive and legally approved shipping taxation system in Europe. On the other hand though, due to constitutional restrictions, shipping is administered by a Government Department in Limassol, which is one of nine diversified Departments, and another five semi-government authorities and bodies in Nicosia, all supervised and controlled by the Ministry of Communications & Works. With full credit and all due respect to all the Ministers and Permanent Secretaries who have worked hard at the Ministry of Communications & Works all these years, we are of the firm opinion that the time has come for a restructuring of the Cyprus Maritime Administration. This will have a positive impact on the development and enforcement of more effective official shipping policies. It is our firm belief that this is now necessary – more than ever before – in order to further enhance and substantially improve the decision-making mechanism within the Maritime Administration and thus enable it to ‘keep up’ with a truly globalized and fastchanging Industry such as shipping. The recent discovery of natural gas in the Exclusive Economic Zone of Cyprus creates even greater prospects for Cyprus shipping

and, of course, for the country as a whole. In addition to being an important maritime ‘Metropolis’, it can also develop into an important Mediterranean energy centre. In turn, this will create new and vibrant shipping and energy projects with great financial benefits for the island’s economy. At the same time, this important joint business development will offer Cyprus and, by extension, Europe even greater political influence at a regional and global level on matters concerning energy and shipping. For all these reasons, Cyprus will require a modern, efficient and specialized Maritime Administration to deal with both shipping and the offshore sector that will be developed. This will also fit in well with the EU’s Integrated Maritime Policy, which is one of the priorities of Cyprus’ EU Presidency and we express our thanks to the President for including a shipping-related matter on the EU Presidency list. Taking into account the State’s present difficult financial situation and dismissing other more expensive and unfeasible solutions, we respectfully request the creation of a position of Under-Secretary to the President for Shipping. Our proposal is based on the successful model used in other developed maritime nations. The combination of a restructured Maritime Administration, the promotion and expansion of our competitive Tonnage Taxation system, the potential lifting of the Turkish embargo on Cyprus ships and well-prepared, joint shipping and energy developments plans, offers Cyprus shipping quite a promising future. As the voice of the island’s shipping Industry, the Cyprus Shipping Chamber is passionately committed to working creatively on new shipping modalities for public and private partnerships and exploiting innovative new ways to maintain Cyprus’ leading edge as one of the largest, all-embracing shipping centres both within the European Union and globally.

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

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Painless Benefits Administration Achieving high quality member service within a pressurised cost environment is making pensions and provident fund administration a more painful challenge for trustees and sponsoring companies. As an award-winning provider of pensions administration, Aon Hewitt can supply the painless solution you and your members desire. Advancements in technology, streamlined processing and increasing levels of automation have pushed our service standards even higher while ensuring our costs stay competitive. Whether you are already outsourcing or about to do so, our deep understanding of pensions, provident funds and outsourcing allows us to meet the needs of members, trustees and sponsors alike. So let us take the pain out of your benefits administration and ensure nobody gets stung. For more information, call +357 22 458011 or email info@aonhewitt.com.cy www.aonhewitt.com Aon Hewitt S.A. is registered in Cyprus. Registered No: AE2188. Registered Office: 1 Eras Street, Nicosia 1060

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HR & FINANCIAL SOLUTIONS

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on Hewitt is the global human resource solutions business of Aon plc. The company partners with organisations to solve their most complex benefits, talent and related financial challenges and to improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. It has the strongest team of professionals in the industry (more than 29,000 employees) with the widest breadth and depth of expertise and services in more locations and for more industry segments than any other human resources firm. Its singular focus is on its clients: Aon Hewitt delivers distinctive value, top-rated customer service and measurable business impact.

AWARDS AND RECOGNITION

For the past four years, Aon Hewitt has had the largest number of named top consultants on the annual Top Employee Benefits Consultants Awards list published by Human Resource Executive and Risk & Insurance Magazine In three of the past four years, Aon Hewitt has had consultants named by Consulting Magazine in its selection of the Top 25 Consultants. Aon Hewitt was named 2011 Actuary of the Year by Global Pensions. Aon Hewitt was voted No. 1 Investment Consulting Provider Globally by Pensions & Investments (AUA). Aon Hewitt’s Research, Personalization, & Insights practice earned 28 awards in 2010 for excellence in providing personalised employee communication services.

GLOBAL HUMAN RESOURCE AND RELATED FINANCIAL SOLUTIONS

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

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Left to right: Pantelis Argyrou, Stelios Petrou, Anastasia Anastassiades, Loukia Ioannou, Lara Ouzounian, Philippos Mannaris.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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HR & FINANCIAL SOLUTIONS

FOCUS ON CORE BENEFIT ADMINISTRATION

“We will look after your employees for you, leaving you free to focus on more strategic concerns and adding value to the bottom line of your business.” Aon Hewitt is the largest provider of defined benefit plan administration services in the world. In addition, it is the leading independent provider of defined contribution administration services and the only major provider of such services not affiliated with a financial services company. The self-administering of pension, provident and medical plans is an overwhelming challenge for many companies and the advances that they see from selfadministration are usually slow to develop. What are the consequences and their impact on the company? Higher plan costs? Dissatisfied plan members? Employees who never enrol? Today, more and more companies rely on our expertise to deliver solutions from a wide range of services. Aon Hewitt’s Core Benefit Administration services enable companies to eliminate the administrative burdens associated with managing pension, provident and medical plans in order to: •Reduce plan costs •Improve the enrolment process and takeup rate •Improve member communication and satisfaction •Ensure accuracy and compliance via proven, efficient and best-practice processes •Enable HR to focus on strategy and not administration A Unique Total Retirement Offering: Integrated Consulting and Outsourcing Solutions As Philippos Mannaris, CEO of Aon Hewitt in Cyprus, says: “Aon Hewitt’s comprehensive suite of consulting and benefits outsourcing solutions encompasses a full range of offerings, from strategy and design through financial management and, ultimately, to the delivery of retirement and healthcare programs to employees. Our clients recognize the benefit of relying on Aon Hewitt for tightly integrated services that deliver increased efficiency and cost sav-

ings, and provide them and their employees with more control of their retirement plans and a better return on their investment. Each of our services is among the ‘best in class’ and our integrated service solutions are unmatched.”

FOCUS ON RETIREMENT AND FINANCIAL MANAGEMENT

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ment management organisations; it does not receive remuneration funding from investment managers, for research studies or conferences. All of its research is paid for by the fees it earns from clients. The opinions of the firm’s investment managers are completely free of bias or conflict of interest.

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GLOBAL CAPABILITY DELIVERED LOCALLY Aon Hewitt was formed through the merger of Hewitt, EnnisKnupp and Aon. The resulting firm has significant experience of working across offices and borders and is now bigger than ever with

staff based in 40 offices across the world dedicated to providing clients with the best investment and customer service. The Cyprus-based Investment consulting team has $2bn of assets under advisement and Aon Hewitt is the only global firm of actuaries and investment consultants with a presence in Cyprus and the South-East Mediterranean region, providing services to some of the largest companies, organisations, pension funds, provident funds and insurance companies in Cyprus and the region. With more than 300 offices around the world, Aon Hewitt is the world’s premier destination for the broadest range of human resources consulting and outsourcing services. For more information on Aon Hewitt, visit www.aonhewitt.com

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

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CYPRUS AND NATURAL GAS A SPECIAL SUPPLEMENT PRESENTED BY

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SPECIAL REPORT

CAREFULLY MANAGING THE SOURCE OF WEALTH TO BUILD THE APPROPRIATE INFRASTRUCTURES AND ENSURE EDUCATION IS ESSENTIAL

ENERGIZING CYPRUS WHAT HAPPENS NEXT? By Costa Ioannides

I

t has been widely claimed by Cypriot political leaders and – perhaps more significantly – reported by international media sources and foreign observers that Cyprus is destined to become the centre of the Mediterranean oil and gas industry. Simply stating that Cyprus will become a regional energy powerhouse, based on one positive exploratory well by Noble Energy, is one thing; actually making it a reality will require investment and infrastructure on a scale that the island has never experienced. As companies vie for positioning to capture the business opportunities that are evolving as Cyprus prepares to become a global player in

the field of energy, Gold spoke to key experts at Ernst & Young on what lies ahead and, on the following pages, presents selected profiles of the organisations that will be facilitating the country’s progress in developing its oil and gas industry infrastructure.

Gold: How do you evaluate the procedure followed so far by the Cyprus Government in attracting investors/operators to participate in the second round of licensing for its gas fields? Maarten Koper: The 2nd round of the licensing application procedure for hydrocarbon prospecting, exploration and exploitation in

the Exclusive Economic Zone of Cyprus has been undertaken in accordance with the EU Directive on the conditions for granting and using authorisations. The Cyprus Government is seen to have taken all the necessary steps to ensure non-discriminatory access to and pursuit of activities relating to upstream hydrocarbon activities under conditions which encourage greater competition in this industry sector. Therefore the best possible prospecting, exploration and production of hydrocarbon resources and integration of Cyprus in the internal energy market of the EU is ensured. This is evidenced by the 15 bids from five companies and 10 consortia that have been submitted which has surpassed the expectations of the Government. During discussions with some of our clients who were considering a submission or have submitted their tender offer, it was sometimes commented on that prospective investors/operators had been given little time to prepare and submit their bids within the three-month period from the publication in the Official Journal of the European Communities (in accordance with the minimum period set forth by the EU Directive).

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Gold: The companies and consortia that have submitted a tender for the gas fields have been announced. What should the Government do next? Stavros Pantzaris: Given the expressed interest in 9 of the 12 remaining blocks as part of the second licensing round, the Government will need to assess and evaluate each application and reach a conclusion as to (a) the selected blocks for which a Hydrocarbon Exploration Licence will be granted and (b) the successful applicant for each selected block. Considering the bids already submitted, the Government has a “good mix” of upstream and downstream companies to choose from. Negotiations with the successful applicants will need to commence by November 2012 with the aim of proceeding with the allocation of the licences soon after. Given the knowledge and experience already gained by the Government during the first licensing round, it is expected that the negotiation process with the successful applicants will be completed much sooner than in the case of Noble Energy, where the whole procedure was concluded 18 months after the application date. Gold: The tender documents indicate that any taxes to be paid on profits out of the successful operation of the fields will be borne by the Cypriot Government. Will this solve the taxation concerns of the energy industry? Maarten Koper: Not necessarily, although the fact that effectively no taxes will be payable in Cyprus by the operators/investors on their profit from exploitation of the hydrocarbon reserves is very attractive from a tax perspective. What should be kept in mind first of all is that investors/operators rate the petroleum tax system of a country by taking into consideration many factors, including the way the country allows such operators/investors to operate and how they are taxed on the profit from their operations. In relation to the hydrocarbon reserves of Cyprus, the Government has decided to allow exploitation activities through a Production Sharing Contract (PSC), under which the Republic of Cyprus will be entitled to a certain percentage of the hydrocarbon profit resulting from the hydrocarbon operations undertaken by the Operators/Investors in Cyprus at their sole risk, cost and expense. The actual rating of the tax attractiveness would thus depend largely on the percentage of the hydrocarbon profit the Republic of Cyprus would be entitled under the PSCs it will enter into with the various Operators/Investors. In addition, there still remains a large number of tax issues of concern to Operators/

THE GOVERNMENT HAS A “GOOD MIX” OF UPSTREAM AND DOWNSTREAM COMPANIES TO CHOOSE FROM Investors, such as the tax treatment of joint operations, the timing of revenue recognition, the treatment of buy–in payments, asset recognition and VAT treatment of flows between consortium partners, to name just a few. Gold: The issues surrounding the transport and processing of natural gas are currently being studied. What are the central issues that should be considered before reaching a final decision? Stavros Pantzaris: The recent successful exploration by Noble Energy in Block 12 has opened up new opportunities and indicated the way for Cyprus to be added to the map of energy producing countries in Europe. The estimated gas finds in Block 12 (with a gross mean of 7tcf) make a liquefied natural gas (LNG) terminal on the island a viable project. However, the profitability of the project will also depend on the gas finds in the remaining blocks. Further studies may need to be performed before deciding on the location for such a plant. Is the chosen area of Vasilikos large enough to host such a plant? In case of additional gas finds in future, will there be space for further expansion of the plant? The Government will also need to carefully select its strategic partners/ investors, both for the construction of pipelines from the various gas fields and the construction of a LNG plant on the island.

Gold: How should the Government plan for the future utilisation of the wealth expected to be generated from natural gas industry? Neophytos Neophytou: The Government should first of all consider planning for social and political investment in the economic and associated infrastructure and create a hydrocarbon ecosystem with the momentum to sustain its own growth and foster the development of adjacent industries. To achieve this, Cyprus must invest in people and education, to develop and expand its intellectual and creative capacity. The Government should, therefore, first use revenues derived from natural gas resources to fund development of the technological infrastructure, to encourage research and development, to facilitate linkages among intersecting value chains and to drive other initiatives such as ensuring that there is a joint effort between industry and government to create a culture that fosters innovation and collaboration. A portion of the wealth to be – hopefully – generated from the natural gas exploration, production and distribution industry should preferably be spent on infrastructure projects, education and social benefits, but also on building a state-of-the-art information and communication technology infrastructure. The building and further development of such infrastructures would facilitate sustainable growth. Carefully managing the source of wealth to build the appropriate infrastructures and ensure education is essential. These are the engines that drive further growth, stability and economic diversity and foster the creativity and innovation that will benefit future generations.

THE ERNST & YOUNG ENERGY PANEL

Maarten Koper, Member of the Board - International Tax Services

Stavros Pantzaris, Member of the Board - Assurance

Neophytos Neophytou, Member of the Board & Head of Cyprus Tax Practice

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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SPECIAL REPORT

BRAVE NEW WORLD THE DISCOVERY OF NATURAL GAS OFF CYPRUS WILL LEAD TO THE ECONOMY REGAINING THE DYNAMISM IT HAS LOST DURING THE RECENT RECESSION AND TO A MUCH FASTER RECOVERY THAN COULD BE EXPECTED WITHOUT THE HYDROCARBON FACTOR.

Demosthenes Mavrellis

By Demosthenes Mavrellis

T

he discovery of 5-8 trillion cubic feet of natural gas in the area off Cyprus known as block 12 or Aphrodite has led to unprecedented international interest in Cyprus’ potential for exporting natural resources, manifested by 15 consortia applying for licenses during the recent second round of licensing. The applications relate to nine of the 12 available blocks. Cyprus and Israel are both located in the Levantine Basin of the Mediterranean Sea where the US Geological Survey has concluded that there are 122 trillion cubic feet (TCF) of undiscovered recoverable natural gas. In addition to that, the basin holds an estimated 1.7 billion barrels of undiscovered, recoverable oil. In addition to the Aphrodite discovery, major gas finds have also been discovered off Israel such as Leviathan (21 TCF) and Tamar (9.4 TCF) as well as other minor discoveries in the Israeli zone. Moreover, beneath the Leviathan field, following recent drilling, a “likelihood of finding oil” has been noted. Israel and Cyprus have already signed a treaty delimiting their Exclusive Economic Zones (EEZ) and are in the final stages of signing a treaty relating to apportionment of funds arising from the exploration of adjoining areas. The reason that analysis of the Israeli finds is important is that the Israeli and the Cypriot EEZ are inexorably linked by geology and it is more likely than not that our own part of the basin is as promising as that of our neighbour.

Although much publicity has been given in the press in relation to the discoveries and the licensing procedure, I believe that most people have not yet come to grasp what the potential size of Tamar and Leviathan means for a country such as Cyprus with a population of approximately 1 million. Although the impact of the net profit to be received by the Government from the export and sale of hydrocarbons remains way in the future, the collateral profits to the economy should not be underestimated. The discoveries will lead to the economy regaining the dynamism it has lost during the recent recession and to a much faster recovery than could be expected without the hydrocarbon factor. This can already be seen in the establishment of logistics operations in Cyprus by companies offering services to those actively involved in exploration and in the creation of representative offices by players in this field. We expect that what is now a quiet stream will soon develop into a torrent with

WE SHOULD ASPIRE TO FOLLOW THE EXAMPLE OF NORWAY WHICH HAS NOW BECOME A WORLD LEADER IN UNDERSEA OIL EXPLORATION

the creation of a new industry. It is not often that a country sees an opportunity to diversify its economy through the genesis of a new sector. The bet for us is to educate our population in such manner as to share a great portion of the spoils, as we have done in the legal and financial sector. Tertiary education should rise to the challenge and provide courses in geology, petrochemical engineering and other relevant sectors so as to create the engineers and managers of tomorrow. We should aspire to follow the example of Norway which, starting from its own discoveries, has now become a world leader in undersea oil exploration. Obviously, the government should expedite the delivery of the natural gas onshore to Cyprus so as to meet domestic demand prior to exporting. The Tzemach committee in Israel has recommended that half of the reserves of Leviathan and Tamar be earmarked for domestic use. As Cyprus is not yet aware of the extent of its own reserves, it must make provisions to secure its domestic needs for the future. That will significantly reduce the cost of energy, now a major problem on the island, and create new industries in sectors that are non-labour intensive but energy-consuming to an extent that has been prohibitive until now. Further industrial applications could involve the processing of hydrocarbon residue to form plastic and/or fertilizer. Last but not least, the impact of the new industry will be felt in the legal and financial sectors of the economy, which are already advanced. The high income that the state will receive from hydrocarbons will cement the role of Cyprus as a low tax jurisdiction while the presence of profitable businesses with activities on the island will lead to a strengthening of the Cyprus Stock Exchange. Meanwhile our legal and accounting firms will gain competence in a wholly new sector. It is hoped – and we can say this with great optimism – that following the granting of the new licences, the proven reserves of Cyprus will increase. It is further expected that the Government will reach an agreement with other interested parties on the construction of an LNG facility on Cyprus as soon as possible, leading to the revival of the longsuffer-

info: Demosthenes Mavrellis is a Partner at Chrysses Demetriades & Co. LLC

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IN THE FUTURE, OTHERS MAY TALK ABOUT THE CYPRIOT MODEL OF SUSTAINABLE DEVELOPMENT AND CYPRIOT EXPLORATION COMPANIES ing construction industry. Once the licences have been granted, we expect to see a great amount of corporate activity, due to the difficulty of a single corporation or consortium being able to fund the extremely high costs of drilling by itself. As in Israel, there will be a lot of joint ventures and alignment of interests which will create a new dynamic. Lawyers and accountants will be at the forefront of this, together with those fortunate enough to have experience in the oil industry. As the generation which has been blessed with this once-in-many-generations opportunity, we must take on the chances that come our way with a sense of responsibility and forward thinking. Under no circumstances should we follow the example of under-developed nations that discover natural bounty and subsequently breed generations of slothful citizens living off the government’s share while foreigners work the industry and extract their own great share. As a Cypriot, I do not believe that we will allow this to happen. I expect that we shall take what has been given to us and use it with care and attention, in a transparent and equitable way. We must take decisions, following open public discourse, balancing the interests of present and future generations, development and ecology (let us not forget that we do not want to live in a fully industrialized environment), and focus our attention not on squandering the spoils of the sea but on the creation of new business opportunities. If we can achieve all this, in the future, others may talk about the Cypriot model of sustainable development and Cypriot exploration companies, or then again we may become another Nigeria. For that we will have only ourselves to blame.

CYPRUS AND THE PARADOX OF PLENTY Panos Ioannides

COUNTRIES WITH AN ABUNDANCE OF NATURAL RESOURCES TEND TO HAVE LESS ECONOMIC GROWTH AND WORSE DEVELOPMENT OUTCOMES THAN THOSE WITH FEWER NATURAL RESOURCES. CYPRUS CAN AND MUST AVOID FALLING INTO THIS TRAP. By Panos Ioannides

T

he Great Depression of the late ‘20s and ‘30s was a tough period for Cyprus, then a British colony relying on its primary agricultural sectors. A credit crunch, in combination with a lack of protective tariff barriers and a recurring incidence of serious drought, decimated ten years of growth. With the sub-prime crisis and, more profoundly, the euro crisis, the Cyprus economy finds itself again in very testing waters. Its banking sector’s Greek debt position and significant direct exposure to the Greek economy have made it vulnerable. In a fragmented eurozone scenario, this vulnerability worsens significantly. Coupled with the rapid deterioration of public finances in recent years, Cyprus has lost access to international capital markets. Concurrently, however, there is some good news. After conducting exploratory drilling in one of Cyprus’ thirteen offshore blocks, US company Noble Energy reported that Cyprus’ Aphrodite gas field has a gross mean average of 7 trillion cubic feet of natural gas. Despite falling global gas prices and a very high commercial breakeven relative to other international gas assets, the former Minister of Commerce of Cyprus has indicated that the field could be worth up to $100bn. Cy-

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SPECIAL REPORT

prus’s second round of licensing for its other offshore blocks produced fifteen bids, mainly vying for two blocks. Amongst the bidders are Malaysia’s state-owned Petronas, Russia’s Gazprombank, the French giant Total, Korean LNG importer Kogas, Italy’s ENI and the US company Marathon Oil. Cyprus’ drilling efforts have the support of the US, the EU and the UN. Turkish intervention, despite constant threats, is considered unlikely. The recovery from the Great Depression was gradual and only possible due to the emergence of the mining sector. Indeed, the Cyprus Mines Corporation provided copper to Nazi Germany right up until the start of the World War II. With its converted servicebased economy of today, Cyprus will tap into its new deck of resources to help it weather its current deficit and credit perils. Although a deck with too many wild cards produces a game so random that all skill is lost, a managed use of wild cards is a dexterous way to diversify your game. Cyprus must utilize its newfound energy stockpiles within defined institutional and fiscal parameters in order to avoid the inevitable traps of new natural resource wealth. With the right planning and enforcement, Cyprus can immunize itself from the Resource Curse, the paradox that countries with an abundance of natural resources tend to have less economic growth and worse development outcomes than countries with fewer natural resources. The main dangers for Cyprus from enjoying energy windfall revenues have been well documented in other countries: inflationary pressures on prices and wages which will render our other productive economic sectors uncompetitive; the temptation to live beyond our means by using commodities as collateral to take on excessive debt when energy prices are high; political and revenue corruption; and the sub-optimal use of revenues which creates booms and busts in expenditure

CYPRUS MUST UTILIZE ITS NEWFOUND ENERGY STOCKPILES WITHIN DEFINED INSTITUTIONAL AND FISCAL PARAMETERS IN ORDER TO AVOID THE INEVITABLE TRAPS OF NEW NATURAL RESOURCE WEALTH

dictated by energy prices. Although windfalls will take some years to realize, Cyprus’s initial revenues should be used to deleverage the state following recurring budget deficits and significant bailouts of Cypriot banks which will by then have suffered large impairments on their Greek assets. Thereafter, upon budget surpluses, revenues should be saved and invested in good times on assets promising fixed income returns while spending can take place in bad times to sustain consumption and opportunistic investment. Binding fiscal rules and government expenditure caps should be used to insulate the state budget from fluctuations in gas prices. Capital expenditure should focus on promoting education and health and building a strategic infrastructure to support and regulate non-energy sectors such as our strong professional services, tourism, construction and property. If designed according to the Norwegian and Alaskan precedents, national revenue funds can be good vehicles for smoothing expenditure and safeguarding savings for future generations who may live in times when natural resources specific to Cyprus have been depleted or perhaps even become obsolete. Norway has adopted fiscal guidelines since 2001, fixing the government’s structural deficit within the 4% expected real return of its national revenue fund invested in global securities. Similarly, the bylaws of the Alaskan revenue fund allow only the fund’s earnings to be spent and any expenditure from the principal component of the fund requires a referendum. Approximately half of the earnings of the Alaskan fund are distributed to Alaska’s residents as dividends favouring lower income families who have a lower tax base. Lastly, it is paramount to select the right development partners with whom Cyprus can negotiate fair terms in production and profit sharing (indeed it is a point of contention right now whether decisions will be administered by the Council of Ministers or a permanent technocratic council) to place controls on rig and terminal operations and to appoint qualified fund managers contractually committed to transparency and risk spread. The prominent Venezuelan politician, Juan Pablo Pérez Alfonzo, who was instrumental in the creation of OPEC, once warned that “oil is the devil’s excrement”. For certain countries, easy wealth indeed appears to be the sure path to failure. For Cyprus, with the right framework in place, Natural Gas can be its salvation.

info: Panos Ioannides is a Director at Meritservus: www.meritservus.com 56 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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LIFE’S A GAS T CYPRUS AT THE CENTRE OF GLOBAL INTEREST

he extent of international interest in Cyprus became clear last month when it was revealed that no fewer than fifteen companies/consortia had made a total of 33 bids for exploration contracts in nine offshore blocks belonging to Cyprus’ Exclusive Economic Zone in the sea off the island’s southern coast. And while govern-

ment expectations had been high, following last year’s announcement by US giant Noble Energy that it had discovered what it called “significant natural gas resources” in offshore Block 12, the results of the second licensing round exceeded them. The authorities are now studying the bids and will make their recommendations to the Council of Ministers within six months.

SECOND ROUND BIDDING COMPANIES/CONSORTIA 01 02

Petra Petroleum Inc (Canada)

Energy Holdings PTY Ltd (Australia)

 onsortium: ATP East Med Number C 2 BV (US), Naphtha Israel Petroleum Corp Ltd (Israel), DOR Chemicals Ltd (Israel) and Modi’in Energy Limited Partnership (Israel)

08 09

 onsortium: ENI (Italy) and C KOGAS (Korea)  onsortium: CO Cyprus C Opportunity Energy Public Company Ltd (Norway) and AGR Energy AS [Operator] (Israel)

03 04

10 11

05 06

12 13 14

Total E&P Activities Petrolieres (France)  onsortium: Total E&P Activities C Petrolieres [operator] (France) , NOVATEC Overseas Exploration & Production GMbH (Russia) and GPB Global Resources BV (Russia)  onsortium: Premier Oil [Operator] C (UK) and VITOL (UK)  onsortium: Premier Oil [Operator] C (UK), VITOL (UK) and Petronas (Malaysia)

07

 onsortium: Edison International C SpA [operator] (Italy), Delek Drilling Ltd Partnership (Israel) and Avner Oil Exploration Ltd Partnership (Israel), Enel Trade SpA (Italy) and Woodside

Consortium: Oak Delta NG Exploration Joint Venture (US/Israel)

 onsortium: Capricorn Oil (UK), C Marathon Oil (US), Orange NASSAU Energie (Netherlands) and CC Energie SAL (Lebanon) Winevia Holdings Ltd (Cyprus)

RX-Drill Energy Cyprus Ltd (Cyprus)

 onsortium: PT Energi Mega C Persada Tdk & Frastico Holdings Ltd (Canada/Indonesia/Cyprus)

15

Emannuelle Geoglobal Rosario (Israel)

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DELOITTE – OIL & GAS INDUSTRY LEADERS FOCUSED ON CLIENT SERVICE EXCELLENCE

A

fter five years of accelerating oil and gas demand and rapidly increasing investment to find, develop and refine new oil and gas reserves, the industry is adjusting to the largest and steepest decline in prices in its history. In the face of a global recession, sharply reduced demand and the continuing uncertainties about the timing and pace of regulation towards the eventual decarbonization of the global energy supply, the collective challenges facing management are intense. At Deloitte, we always think ahead to assist our clients in meeting the challenges of our times. We help our clients address many of these challenges by providing a range of services to companies in all segments of the oil and gas industry, from super majors and national oil companies through to independents and oilfield services and energy trading businesses. We serve most of the world’s larger oil and gas companies and contribute to research and analysis of industry issues and trends discussed at various events and conferences where industry leaders share their insights. Deloitte’s Oil & Gas practice has an expert presence on every continent and in each major oil and gas centre around the globe. Our scope of services spans the entire spectrum of corporate functions as well as analytical price forecasting, geological analysis and reservoir audits, wellhead planning and operations and deep sea platform and equipment decommissioning, to name a few. In Cyprus, we were involved in the Oil & Gas industry from the very beginning. For the past four years we have been serving the major industry players with the provision of CRS certifications, audit, tax advisory, VAT advisory, financial advisory and human capital services. Furthermore, with the support of the Petroleum Service Group of Deloitte International, which employs 2,500 staff in specialist areas across

Oil & Gas Analysis, Economic Modelling, Information Solutions and Geographic Information Systems, we can offer the comprehensive support needed to succeed. Those who have shown their trust in us include the super majors, independents, national oil companies, oil field services, logistics and marine transport and shipping etc. In short, we serve every segment of the Oil & Gas industry and we serve them where they operate. It is no coincidence that Deloitte member firms serve 63% of the world’ s top 60 oil & gas companies and 43% of national oil companies. Through a dedicated group of experts with the relevant expertise and experience, we weave a global Oil & Gas practice which is complemented by experts on specialist issues in various critical components of the Oil & Gas Value Chain. Our people provide support in tax, audit, consulting and financial advisory services/corporate finance as well as on industry-specific technical issues, which equip our clients with the prerequisites to succeed. Our internal resources ensure that our teams have access to up-to-theminute market intelligence, can respond promptly to industry developments and are able to provide informed comment and background information to clients. For more information about our services to the Oil & Gas Industry, contact Nicos Papakyriacou, Head of Deloitte’s Cyprus Oil & Gas Services (Tel: 22360300, e-mail npapakyriacou@deloitte.com) and/ or visit www.deloitte.com/cy

CONTACT DETAILS

Head Office: 24, Spyrou Kyprianou Avenue, CY1075 Nicosia, Cyprus Tel: (+ 357) 22360300 Fax: (+ 357) 22360400 Website: www.deloitte.com/cy e-mail: infonicosia@deloitte.com

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Serving the Oil & Gas Industry Naturally resourceful

With more than 2,500 oil and gas professionals worldwide,our Oil & Gas practice is focused on providing audit and enterprise risk services, tax services, consulting services and financial advisory services to companies in all segments of the oil and gas industry. Our oil and gas industry specialists help our clients develop solutions for capitalizing on the opportunities and managing the challenges. Our internal resources ensure that our teams have access to up to the minute market intelligence, can respond promptly to industry developments and are able to provide informed comment and background information to clients. Deloitte member firms serve: · 63% of the world’s top 60 oil & gas companies · 43% of national oil companies

www.deloitte.com/cy

©2012 Deloitte Limited

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O The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. Ernst & Young's Global Oil & Gas Center supports a global practice of over 9,000 oil and gas professionals with technical experience in providing professional services across the upstream, midstream, downstream and oilfield service sub-sectors. The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key Global Capital Con dence Capitalfocus, Confidence Global E&P benchmark study sector issues. With ourGlobal deep sector we help our clients achieve their goals and potential. Barometer Barometer — Oil & Gas The Global E&P benchmark study is 6th issue Outlook April 2012 – October 2012

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snapshot of our ndings gauges corporate con dence in the economic outlook, and it identi es boardroom trends and practices in the way companies manage their capital agenda.

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Global oil and gas tax guide 2011 The Global oil and gas tax guide summarizes the oil and gas corporate tax regimesand in 61 countries and also Global Global oil oil and gas gas tax tax guide guide 2011 2011 provides a directory of tax Ernst & Young The Global oil and gas guide The Global oil and gas tax guide oil and gas tax contacts. summarizes summarizes the the oil oil and and gas gas corporate corporate tax regimes in Available now tax regimes in 61 61 countries countries and and also also provides a directory of Ernst (2012 edition coming provides a directory of soon) Ernst & & Young Young oil oil and and gas gas tax tax contacts. contacts.

Navigating joint ventures in the oil and gas industry

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In our quarterly reports we offer insight into the changing economic and political landscape around the world, National National Oil Oil Company Company Monitor Monitor examining activity in partnerships, M&A, In our quarterly reports we offer In our quarterly reports we offerpolicy consolidations and government insight changing economic and insight into into the thebetween changingIOCs economic and developments and NOCs. political political landscape landscape around around the the world, world, examining activity Coming soon examining activity in in partnerships, partnerships, M&A, M&A, consolidations consolidations and and government government policy policy developments between between IOCs IOCs and and NOCs. NOCs. developments Coming Coming soon soon

The Asian oil and gas market continues to grow. By 2035, China and India Oil Oil and and gas gas investment investment together are expected to account for perspectives for Asia Asia perspectives for more than 75% of the world’s net oil The oil gas market continues The Asian Asian oil and andThis gas piece market continues demand growth. covers the to grow. By 2035, China and India to grow. Asian By 2035, China andoilIndia broader transactions and together are to for together are expected expected to account account for gas landscape, transaction activity, more than 75% of the world’s net oil more than 75% of the world’s net oil prospects and challenges, as well as a demand growth. This This piece piece covers covers the the growth. demand focus onAsian Chinese company activity. broader transactions oil and broader Asian transactions oil and gas landscape, transaction activity, activity, Available now transaction gas landscape, prospects and and challenges, challenges, as as well well as a prospects as a focus on on Chinese Chinese company company activity. activity. focus

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Our Services

Assurance Services • Audit Services • Fraud Investigation & Dispute Services • Financial Accounting Advisory Services • Audits of Mergers and Legal Restructuring Processes

• Special Audits Advisory Services • Business Risk Services, including Internal Audit Services

• Financial Services Risk Management • Information Technology Risk and Assurance Services • Performance Improvement Services

Accounting Compliance and Reporting Services • Statutory Reporting Services • Accounting Services • Payroll Services

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Transaction Advisory Services • Company Admission to Stock Markets • Mergers and Acquisitions Advisory • Restructuring Services • Valuation Services • Feasibility Studies • Business Modelling Services (model build and model review)

Tax Advisory and Compliance Services • Strategic Tax Planning • Tax Compliance Services for Direct and Indirect Taxes

• Transaction Tax Services • Human Capital Services • Tax Advisory Services

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SPECIAL REPORT

GPB GLOBAL RESOURCES B.V. TOP MANAGEMENT

Boris Ivanov, Managing Director, GPB Global Resources

Christophe Gerard, Managing Director, GPB Global Resources

COMPANY HISTORY

GPB Global Resources is an international group of companies, engaged in petroleum and mineral resource projects across the globe, including Africa, South America, and the Middle East, acting as the technical and consulting arm of OJSC Gazprombank. The Group was created on the basis of GPB Nefegaz Services B.V., (a 100% affiliate of OJSC Gazprombank), expanding its highly professional team of specialists in M&A, geology, development and finance. The Group’s team played a key role in a significant expansion of Gazprom’s global upstream portfolio in 2007-2010. It successfully facilitated Gazprom’s oil and gas projects in Libya (4 projects with total production exceeding 100 kbopd), Algeria, Venezuela, and Bolivia. In Algeria, GPB Neftegaz Services B.V. (member of GPB Global Resources Group) contributed to the first gas discovery in Africa for Gazprom in the El Assel onshore project. The company also took part in Ipati Aquio and Acero projects in Bolivia with total reserves exceeding 100 bcm of natural gas. Today, the Group is focused on building its own balanced asset portfolio with the strategic aim to create a valuable energy holding.

AREAS OF EXPERTISE AND SERVICES OFFERED

The Group’s companies specialize in the following core activities: • A cquisition and management of oil and gas projects at the exploration and development stages • A cquisition and management of mineral resource projects, including gold, diamonds and other precious gems • F inancial services for governments and state-owned companies engaged in developing natural resources • Project financing for infrastructure projects in emerging markets • Consulting services to Oil & Gas and Mining industry GPB Global Resources is a reliable partner in overseas E&P projects thanks to its balanced risk-return model and the following competitive advantages: • Profound experience in petroleum and mining industries • U nparalleled deal flow • L arge geological data-base • U nique expertise and proven track record • G reat experience in M&A activity • H ighly qualified staff • Clear exit strategy • Excellent political and economic relations

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COUNTRIES WHERE THE FIRM IS ACTIVE AND PROJECTS UNDERTAKEN

The Group’s portfolio comprises overseas oil & gas and mining projects on behalf of Gazprom, Gazprombank, and other energy majors. Bolivarian Republic of Venezuela. Corporacion Venezolana de Petroleo S. A. (member of PDVSA Group) and Gazprombank Latin America Ventures B.V. (member of GPB Global Resouces Group) are jointly developing an oil project at Lagunillas Tierra and Bachaquero Tierra fields in the state of Zulia. The partners are implementing sophisticated modern technology to boost oil production. In February, 2012, the National Assembly of Venezuela approved the establishment of a Joint Venture with the stakes of 60% (Corporacion Venezolana de Petroleo S. A.) and 40% (Gazprombank Latin America Ventures B.V.) under the production contract of 25 years. Republic of Niger. In February, 2011,

GPB Neftegaz Services B.V. (member of GPB Global Resouces Group) won the government tender to explore uranium in the areas of Toulouk-2 and Toulouk-4 in the Agadez Region in the northern part of Niger. In March, 2011, the Company was awarded licenses and commenced preparatory works. In June, 2011, a branch office of GPB Neftegaz Services B.V. was registered and opened. At present, the exploration program is underway; several wells have been drilled by the end of March, 2012. Republic of Mali. In December, 2011, GPB Global Resources and Marco Mining SARL signed a Memorandum of Understanding to jointly develop the Barila project. The Barila concession covers an area of 143 km2, it is located in the southern part of Mali in the region of Sikasso. In March, 2012, GPB Global Resources engaged in the project as the principal shareholder of Marco Mining SARL. At present, Marco Mining SARL is providing preparatory works on the project site. Republic of Chad. In December, 2011, GPB Global Resources established

GPB Chad Minerals SARL to represent the Group’s interests in the Republic of Chad and submitted a draft of the License Agreement to the Ministry of Geology and Mines of Chad. The license area is located in the south-western part of the country near the locality of Ganboke in the region of Mayo-Kebbi Ouest. In January, 2012, the Ministry of Geology and Mines of Chad and GPB Chad Minerals SARL signed a 5-year License Agreement. In February, 2012, the President of Chad General Idriss Déby Itno, signed a decree enacting the License Agreement. GPB Chad Minerals SARL is in pre-launch stage of field works.

CONTACT DETAILS

GPB Global Resources B.V. Headquarters: Dijsselhofplantsoen 14-I 1077 BL Amsterdam, the Netherlands Tel: (+31) 205703200 Fax: (+31) 205703201 e-mail: info@gpb-gr.com GPB Neftegaz Services B.V. (affiliate) Moscow Address: Serebryanicheskaya Naberezhnaya 29, 109028, Moscow, Russia Tel: (+7) 4957257727 Fax: (+7) 4957257747 e-mail: info@gpb-ngs.com

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SPECIAL REPORT

HYPERION SYSTEMS ENGINEERING GROUP TOP MANAGEMENT

Symeon Kassianides Chief Executive Officer David Mushin Deputy Chief Executive Officer Maria Sivakka-Petrides Chief Financial Officer Stavros Spanos Executive Vice President, Marketing & Partnerships Dean Jones Executive Vice President, Global Sales Andreas Koulinos Executive Vice President, Strategic Planning Ad Vos Executive Vice President, Operations Maria Sergiou Vice President, Human Resources

COMPANY HISTORY

Hyperion Systems Engineering was originally established in Cyprus in 1993 as a software development company to productize research work executed by its founder, Dr. Symeon Kassianides at MIT and Imperial College. From the very beginning, the company employed top-class chemical engineers from leading academic institutions, many with a PhD in process optimisation. Through the ‘90s the company grew in turnover and in size, evolving at the same time from a pure software house to a provider of professional engineering services and specialized solutions to process manufacturers in the area of modelling, simulation and advanced process control, originally as a subcontractor to larger Western companies and later as an independent vendor. In recognition of its innovative and unprecedented for Cyprus business model, Hyperion has twice been a recipient of the Services Award from the Cyprus Employers and Industrialists Federation for outstanding business performance and creativity as well as the Cyprus

Export Award of the Cyprus Chamber of Commerce and Industry. The first decade of the 21st century saw Hyperion expanding in all ways: in size, in its range of offerings as well as its geographical reach, with the establishment of subsidiary companies in Athens (2001), Bahrain (2002), London (2002), Moscow (2003), Pune, India (2004), Singapore (2007) and Al-Khobar, Saudi Arabia (2008). Today the Hyperion Systems Engineering Group employs nearly 200 professionals and is recognised as one of the most competitively-positioned independent process systems engineering companies, servicing the global Hydrocarbons & Chemicals, Steel & Aluminum and Power industries with solutions and services that help manufacturers drive down costs, increase operational efficiency and improve bottom line profitability.

EXPERTISE AND OFFERINGS

Hyperion provides independent and unbiased consulting & advisory services, systems engineering solutions and professional implementation services and support to process manufacturers through a workforce of highly-qualified professionals deployed across the company’s locations around the world. The areas covered are Process Simulation & Optimisation, Basic and Advanced Process Control, Manufacturing Execution Systems, Supply Chain Management, and Project Management Consulting, with specialized expertise in Operator Training Simulators, Predictive Emissions Monitoring Systems, Environmental Compliance and Reporting, Laboratory Information Management Systems and Advanced Planning and Scheduling. Specifically in the upstream Oil & Gas and LNG industry, Hyperion plays a strategic role in supporting Engineering & Construction Companies as well as Operating Companies throughout the asset lifecycle, incorporating initial field develop-

ment studies, detailed design and validation, real-time collaborative solutions that help enhance production and reduce costs, and decision support systems that optimise the supply chain from production to distribution. Hyperion’s expertise includes: • Front End Engineering Design and pre-FID (Final Investment Decision) consulting • Dynamic Simulation for Equipment Design Validation • Real-time Asset Surveillance and Integrated Asset Models • Data Validation and Reconciliation • LNG Supply Chain Planning & Scheduling Optimisation • Operator Training Simulators for production facilities and pipelines

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Hyperion Systems Engineering operates around the world, from North/Latin America to Western/Central Europe, the Middle East, Russia/CIS, South Africa, India, China and South East Asia. In Hydrocarbons & Chemicals manufacturing, Hyperion has worked with some of the world’s largest national and international Oil Companies, Engineering & Construction powerhouses, and many regional manufacturers, including Shell, ExxonMobil, BP, Saudi Aramco, KNPC, Qatar Petroleum, Rosneft, Gazprom, LUKOIL, TNK-BP, Preem, Dow Chemicals, Borouge, Linde, Lafarge Cement, as well as Hellenic Petroleum, Motor Oil Hellas, Vasiliko Cement Works and Medochemie in Greece and Cyprus. In Steel & Aluminium, Hyperion has worked with ArcelorMittal, ThyssenKrupp, Corus/TATA Steel, Calfornia Steel, Acominas, BaoSteel and others.

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CONTACT DETAILS

Hyperion Systems Engineering Public Ltd Address: 38, Strovolos Avenue CY 2018, Nicosia, Cyprus Tel: (+357) 22840700 Fax: (+357) 22590009 Website: www.hyperionsystems.net e-mail: info@hyperionsystems.net, sales@hyperionsystems.net

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SPECIAL REPORT

PAMBORIDIS LLC CEO AND MANAGING DIRECTOR

Dr. George Pamboridis studied law in Athens before obtaining a Master’s Degree (LL.M.) in Shipping Law from the University of Southampton. He subsequently received an M.Sc from the International Relations Department of the London School of Economics and a Ph.D in Public International and Shipping Law from the University of Southampton. He is the author of the books International Shipping Law: Legislation and Enforcement published by Kluwer Law International and Hydrocarbons of the Republic of Cyprus due to be published shortly, and of numerous legal articles. Pamboridis is qualified in Cyprus (Member of the Cyprus Bar Association), Greece (Member of the Athens Bar Association) and England & Wales (Roll of Solicitors). He worked for the City law firm of Holman, Fenwick & Willan before joining L. Papaphilippou & Co in Nicosia as a Partner for five years. In 2003 he founded Pamboridis LLC with offices in Nicosia, Limassol, Athens and London. Pamboridis is a corporate lawyer dealing mostly with matters related to M&As, corporate law and international tax planning but also

Energy Law. His extensive shipping background ranks him as one of the leading lawyers in matters of International Shipping regulation. He currently lectures on International Shipping Law at the University of Cyprus.

TOP MANAGEMENT

Yiota Kythreotou Theodorou, Partner (Nicosia) Ms. Theodorou studied law at Oxford University (BA (Hons). She went on to obtain an LL.M. in Private International Law and has completed the Legal Practice Course. She has worked for the City law firm of Watson, Farley & Williams specializing on asset and project finance. She now heads the firm’s noncontentions department. She was voted as partner in 2008. Ms. Theodorou is a member of the Cyprus Bar Association and the Law Society of England & Wales. Electra Papadopoulou Makedona, Partner (Limassol) Ms Makedona studied law in Athens before acquiring a Master’s Degree (LL.M) in Company, Insurance and Shipping Law from King’s College, London. She was a partner at the Law firm of George L. Savvides & Co for 12 years. There-

after she joined the law firm of Andreas Neocleous & Co before opening her own practice. She now heads the firm’s Limassol office. She is member of the Cyprus Bar Association. Riani Roussaki, Αthens Partner Ms. Roussaki studied law in Athens and, after completing a training course in France, she completed her pupilage in Athens. She joined Pamboridis LLC in 2003 and became a partner in 2008. She currently heads our Athens office. Ms Roussaki is member of the Athens Bar Association Myria Agathocleous, Head of Litigation Mrs. Agathocleous is a graduate of the University of Northumbria at Newcastle (LL.B). She joined the firm in 2008 and is Head of the Commercial Litigation Department. She has been a member of the Cyprus Bar Association since 1998.

COMPANY HISTORY

Pamboridis LLC is a General Commercial and Corporate law firm with offices in Cyprus (Nicosia and Limassol), Greece (Athens) and the UK (London). The firm

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was founded in 2003 and is headed by Dr. George Pamboridis, assisted by three Partners and a number of senior and junior Associates in each jurisdiction. The firm’s clientele comprises mostly corporate clients and the firm prides itself on its association with Barclays Plc., Citigroup, the Bank of Scotland, Standard Bank, Morgan Stanley, Swissport International, WJ Group of Companies, Singer International, SFS Group Plc, Sea Star Capital, LUKOIL, the Jumeirha Group, Verizon, Kraft Foods and easyJet. Pamboridis LLC is particularly honoured that distinguished International law firms like DLA Piper, Clifford Chance, Simmons & Simmons, Chadbourne & Parke, Holman, Fenwick & Willan choose to work with it when dealing with matters of Cyprus or Greek law.

AREAS OF EXPERTISE AND SERVICES OFFERED

The firm caters for all types of contentious and non-contentious matters and through its experience and expertise can add value to the businesses of its clientele. It prides itself on offering practical, no-nonsense advice and on trying to understand and, thus, enhance the commercial objectives of its clients

in every transaction. Pamboridis LLC places a great deal of emphasis on being responsive and in establishing and nurturing interpersonal relationships with its clients as their business evolves. The firm ensures that there is highlevel partner involvement in each transaction in order to obtain the best possible outcome for the client and optimum efficiency. The firm particularly prides itself on its expertise in the following areas: •S  tructured finance, capital markets, securitisations The firm is instructed on a day-to-day basis by major banks and financing institutions to advise on a broad range of structured finance and capital market transactions. •M  &A, Joint Ventures and commercial contracts The firm ensures that its lawyers have a thorough knowledge of its clients’ industry sectors and are therefore able to evaluate each client’s needs and objectives, understand and address all regulatory, competition, tax and other parameters of each transaction and achieve the best possible results. •P  rivate equity / venture capital The firm regularly represents both sponsors and investors in connection with the establishment of private equity investment vehicles, capital raising

and investment activities through to establishing and implementing exit strategies whether by private sale, IPOs, mergers or acquisitions. •T  ax Planning The firm regularly advises clients on a range of tax planning matters and ensures that its advice is tailored to the needs of each client and their business. •E  nergy (Oil and Gas) Recent developments in the Exclusive Economic Zones of Cyprus and Israel have created a demand for high-level legal support in all aspects of exploration and exploitation of natural gas and oil reserves. The firm acted in a timely manner and joined forces with one of the biggest global law firms in order to expose its lawyers to this new field and also to secure for clients the vast expertise of its global partners.

CONTACT DETAILS

Pamboridis LLC Address: 45, Digeni Akrita Avenue Pamboridis House 1070 Nicosia, Cyprus Postal Address: P. O. Box 27354, 1644 Nicosia, Cyprus Tel: (+357) 22752525 Fax: (+357) 22752800 Website: www.pamboridis.com e-mail: info@pamboridis.com

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SPECIAL REPORT

TASSOS PAPADOPOULOS & ASSOCIATES LLC

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assos Papadopoulos & Associates LLC is one of the leading law firms in Cyprus providing a full range of legal services. Tassos Papadopoulos & Associates was established by the majority of partners and associates of the former Tassos Papadopoulos law firm (one of the oldest and largest law firms in Cyprus, founded in 1971 by a former President of Cyprus, Tassos Papadopoulos). The firm’s objective and commitment is to provide A high quality, speedy response and cost-effective legal services and to meet the demands of the modern specialized legal practice with special emphasis on confidentiality. The firm maintains its principal practice base in Nicosia and is associated with local firms in all towns of Cyprus. It is also a member of major international networks of independent law firms such as Taglaw and the Association of European Lawyers with several thousand well-connected lawyers in over 90 countries, providing the firm with access to almost any jurisdiction worldwide and international expertise in all areas of legal practice. In transactional and non-contentious business, the focus of the firm’s work is in banking and finance, corporate law, financial services, property, public tenders, M & A and joint ventures, the financing of major capital projects, IPOs and public listings. In the area of litigation, the firm has a very strong team of highly experienced litigation lawyers in every major field of civil litigation and arbitration including banking and finance, competition, corporate and commercial, construction, insurance, and contracts. The firm also has a substantial practice in the field of company formation, administration and tax planning (not

only in respect to companies registered in Cyprus but also in foreign jurisdictions), as well as in international transactions involving Cyprus entities. The clientele of the firm includes local and international banking institutions, semi-governmental organisations including the Cyprus Ports Authority and the Cyprus Stock Exchange, municipalities and other local authorities, individuals, local and international building and engineering contractors, pharmaceutical companies, medical equipment companies, shipping enterprises, local and international information technology companies, publicly listed companies, investment firms, insurance companies, professional firms, large business concerns in commerce, tourism, hotels, general trade, oil and other fields. In addition to its advisory role to the Cyprus Stock Exchange the firm has traditionally been involved in M & A activity in Cyprus (acting recently in the merger of two of the largest food and drinks’ distributors in Cyprus). The firm has also advised on mergers of insurance companies in Cyprus and acted in takeover work by venture capital firms. Tassos Papadopoulos & Associates LLC has been chosen as the winner of the Corporate Intl Magazine 2010 Legal Award for: “Mergers & Acquisitions Law Firm of the Year in Cyprus”. The firm has regularly represented local and international companies before the Cyprus Competition Commission on competition law issues arising out of takeover, joint venture and merger agreements as well as in alleged cartel cases. In addition, the firm also has extensive experience in public procurement law and has recently been awarded the Corporate INTL Magazine global legal award in this field, thus being recognized as the leading law firm in public procure-

Nicos Papaefstathiou, Managing Partner

ment law in Cyprus. The firm has acted in the past for economic operators in the biggest BOT projects on the island and has recently been acting on behalf of economic operators or financing agents in the three biggest projects ever undertaken on the island: the construction of the Paphos-Polis Highway, the Larnaca Desalination Plant and the Episkopi Desalination Plant. In the field of energy, the firm has been advising and acting for major oil and gas companies which are active internationally since the early 1990s and has also advised oil and gas retailers. Thus, the firm has been acquiring valuable experience and knowledge in the field for the past two decades. The firm’s lawyers regularly contribute articles to international legal publications and have, on various occasions, been involved in drafting laws and regulations.

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THE FIRM’S SENIOR TEAM:

Nicos Papaefstathiou, Managing Partner • Education: University of Salonica, Law Faculty; Queen Mary College, University of London (LL.M in Commercial and Corporate Law) • Member: Cyprus Bar Association (1980). President of Cyprus Bar Association (2000-2006). President of the Committee established by State Officers of the Republic (Property Statement and Control) Law of 2004 (2004-2010).  Member of Legal Council (1994-2006). Member of Lawyers Disciplinary Board (2000-2006). Member of Lawyers Pension Fund (1994-1997, 2000-2006). Member of National Organisation for the Protection of Human Rights (2000-2006). Member of the Co-ordinating Body Against Corruption. Head of the Cypriot Delegation to the C.C.B.E. (2000-2006). President of the Union of Balkan Bar Associations (2004-2006). Member of Accountants’ Disciplinary Board (since 2003) • Languages: Greek and English.  • Practice: International Transactions, Joint Ventures and Corporate Entities, Mergers and Acquisitions, Transactional documentation, Building and Engineering law, Public Procurement law, Employment law, Competition law, Commercial law, Aviation, Insurance, Marine Insurance law, Administrative law, Constitutional law, Public Law, Litigation in major disputes, Legislation drafting, Arbitrations, Arbitrator • e-mail: npapaefstathiou@tplaw.com.cy Marios Eliades, Senior Partner • Education: University of Kent (B.A. Hons Law); Kings College, University of London, (LL.M); Member: Cyprus Bar Association (1990); Legal Publications

• Languages: Greek and English  • Practice: Banking and Finance, Energy, Mergers and Acquisitions, Competition law, Trusts, Corporate and Commercial law and litigation, Employment law • e-mail: meliades@tplaw.com.cy Loucia Astreou, Partner •E  ducation: University of Keele (B.A. Hons, Law and Psychology); The College of Law, Guildford, Legal Practice Course (LPC),  Solicitor of the Supreme Court, London •M  ember: Cyprus Bar Association (1993).  •L  anguages: Greek and English   • P  ractice: Insurance law, Building and Engineering law, Marine Insurance law, Commercial Transactions, Tort law, Litigation, Arbitration law  • e -mail: lastreou@tplaw.com.cy Alexia Kountouri, Partner •E  ducation: Rheinische Friedrich-Wilhelms University, Bonn, Germany; •M  ember: Cyprus Bar Association (1999), PLA (UK Procurement Lawyers Association) •L  anguages: Greek, English and German •P  ractice: Administrative law, Constitutional law, Public law, Public Procurement law, Legislation drafting.   • e -mail: akountouri@tplaw.com.cy Anastasia Papadopoulos, Partner •E  ducation: University of Edinburgh, M.A (Arts) History (Hons); University of Cambridge MA (Arts) Law (Hons); The College of Law, London, Legal Practice Course (LPC) •M  ember: Cyprus Bar Association (2002) •L  anguages: Greek and English •  Practice: Competition law, Mergers and Acquisitions, Corporate law,

Banking and Finance, Commercial law, Intellectual Property, Trademarks and Patents, Litigation • e -mail: apapadopoulos@tplaw.com.cy Loukia Shiakalli, Partner •E  ducation: University of Sheffield (LL.B Hons) (MA in Biotechnological Law and Ethics , Manchester Metropolitan University; Barrister-at-Law •M  ember: Cyprus Bar Association (2001) •L  anguages: Greek, English. •P  ractice: Tort law, Banking and Finance, Banking litigation, Insurance law, Commercial law, Litigation, Contract law, Administration of Estates, Employment law, Land law, Family law • e -mail: lshiakalli@tplaw.com.cy Amalia Erotokritos, Partner •E  ducation: University of Oxford, BA (Hons) Jurisprudence  MA (Oxon); Kings College London, LL.M in Banking and Finance Law • Member: Cyprus Bar Association (2008) •L  anguages: English, Greek  • P  ractice: Corporate law, Banking and Finance, Energy, Securities law, Contract law, Trusts law, Commercial law, International Transactions, Corporate Entity Structuring, Mergers and Acquisitions, Joint Ventures and Corporate Entities, Partnerships , Trademarks and Patents, Sports law  • e -mail: aerotokritos@tplaw.com.cy

CONTACT DETAILS

Tassos Papadopoulos & Associates Address: 2, Sofouli Street, Chanteclair Building, 2nd Floor 1096 Nicosia, Cyprus Tel: (+357) 22889999 Fax: (+357) 22889988 Website: www.tplaw.com.cy e-mail: tpapadopoulos@tplaw.com.cy

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{june 2012}

ISSUE

15

76

72

{money}

72 Pathfinder PwC’s special service helps you find your way when setting up in Cyprus.

86

+ BOOK REVIEW

{tax&legal}

MONEY: What Money Can’t Buy: The Moral Limits of Markets By Michael Sandel 74

86 Transparency and Exchange of Information for Tax Purposes OECD Peer Review Report on Cyprus is completed. 87 Laws Amended to Promote Foreign Investment Amending laws in relation to the intellectual property regime, interest deductibility, group relief and the deemed distribution of dividends.

76

TAX & LEGAL: Sleeping with your Smartphone: How to Break the 24/7 Habit and Change the Way You Work By Leslie A. Perlow 91 LIFESTYLE: The Marriage Plot By Jeffrey Eugenides

97

88 Resolving Disputes through Mediation Mediation is fast becoming the most popular method of resolving cross-border disputes.

{economy}

76 Eurozone Crisis: Likelihood of a Pro-Europe Greek Coalition Government Increases The overwhelming majority of Greeks want to keep the euro but they oppose austerity measures. 78 Eurozone Crisis: Cyprus in a Greek Tragedy By Dr Savvas Savouri 82 Eurozone Crisis: Will the ‘Grexit’ really happen? By Fiona Mullen 85 Eurozone Crisis: Potential scenarios for the eurozone in 2012 PwC’s take on how the crisis could play out.

92 Cyprus Law Forum The first Cyprus Law Forum takes place on Friday 22 June, 2012 at the Hilton Cyprus in Nicosia.

94

{lifestyle}

94 Does Wealthy Mean Healthy? It takes more than sleeping well and waking early in order to achieve the ultimate healthy lifestyle.

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professional services

{MONEY}

Standing: Philippos Soseilos, Partner Maria Petridou Matsis, Assistant Manager Tony Hadjiloucas, Partner Seated: Bella Somviz, Manager, Cleo Papadopoulou, Partner Phryni Yiakoumetti, Senior Manager

By Costa Ioannides. Photograph by Jo Michaelides

PATHFINDER PWC’S SPECIAL SERVICE HELPS YOU FIND YOUR WAY WHEN SETTING UP IN CYPRUS 72 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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SETTING UP IN A NEW COUNTRY CAN BE A COMPLICATED AND STRENUOUS PROCESS. PwC’S PATHFINDER SERVICE PROVIDES A ONE-STOP-SHOP THAT AIMS TO FULFIL THE NEEDS OF FIRMS AND INDIVIDUALS DURING THEIR FIRST MONTHS IN CYPRUS AND THEREAFTER. PwC FIRMS ALL OVER THE WORLD PROVIDE PATHFINDER, A SERVICE WHICH SERVES AS A VALUABLE ROADMAP FOR THOSE ENTERING A NEW MARKET, OFFERING BOTH GLOBAL AND LOCAL EXPERTISE. FROM THE FIRM’S VAST BODY OF INTERNATIONAL KNOWLEDGE, PATHFINDER EXPERTS UTILISE THE MOST SUITABLE PARTS AS THEY HELP COMPANIES ACHIEVE THEIR GOALS.

A

s a member of the European Union, Cyprus has adopted a free market economy system, affording great opportunities to the international business community. It has established itself as an important international business centre, mainly due to its excellent infrastructure, macroeconomic stability, geographical location, qualified and multilingual labour force and – last but not least – its advantageous tax system. These profound benefits have encouraged many international businesses to set up their offices on the island. Setting up in a new country is no easy task. International companies often face a number of key challenges which could potentially turn into pitfalls. They include: •A lack of knowledge of the country’s legislative framework and requirements with regard to setting up and operating a business in Cyprus. • A shortage of information regarding other legislative/compliance requirements (local/ EU). • Limited information on the country’s economic, business and social environment. This includes information on the property market with respect to setting up an office or buying/renting a residence, and on the job market (availability of staff, remuneration levels, benefits, etc.). • Taking the right decisions on all core aspects of the setup to fit the company’s specific needs and plans, i.e. setting up the most efficient tax and legal structure, choosing the right vehicle, the right city, etc. • A lack of information regarding the local

authorities, how to liaise with them and the time needed to complete the various setup processes.  imited information regarding the time•L frames of other core parts of the setup process, e.g. how long it takes to recruit staff.  he need to find the right contact persons in •T the country to act as a source of information and support.  he challenges of dealing with many parties/ •T service providers in the process of setting up and the inefficiencies this produces (e.g. the time and/or money spent on multiple explanations clients’ requirements and the

CYPRUS HAS A WEALTH OF HIGH-CALIBRE PROFESSIONALS THAT CAN BE CONSIDERED FOR ALL POSITIONS need to tailor these explanations to the various target audiences). Gold spoke to Tony Hadjiloucas, Partner and Phryni Yiakoumetti, Senior Manager from PwC Cyprus Pathfinder Services Team. Gold: How long does it typical take to establish a company? Tony Hadjiloucas: It depends largely on the particular setup envisaged by the client and the complexity of the task at hand. For instance, the procedures for registering a company with the relevant authorities in Cyprus can be completed in as little as approximately one working week, for a fairly standard operating model, e.g. a simple financing and/or holding vehicle. In

the case of using an already existing (i.e. ‘shelf’) company, this timeframe can be reduced even further. The company then needs a few more days to register with the various authorities (i.e. tax, VAT, etc.), to open bank accounts and arrange banking formalities. Gold: There are obviously a lot more practical issues that have to be worked out. Phryni Yiakoumetti.: Yes. An important factor concerns the city in which the offices will be based and there are some basic considerations such as whether to rent or purchase offices. Clients then need to view suitable properties, negotiate and finalise contracts, etc. I would estimate a minimum of 2-4 weeks, depending on whether it is necessary to identify properties with unique parameters and so on. In addition, sourcing staff from the local market is an exercise that can take up to 2-3 months, given that it includes placing advertisements, interviewing candidates, making employment offers and considering the notice period that the chosen candidates must give to their existing employer. In the meantime, the firm is happy to tap into our own highly qualified resources by providing PwC employees on secondment to the client premises, as an interim staffing solution. Cyprus has a wealth of high-calibre professionals that can be considered for all positions but time is needed to find the right people Gold: What about members of staff who are relocated from abroad? P.Y.: Some clients also choose to relocate a number of senior management and specialised employees from their offices abroad, to lead or work in the Cyprus establishment. The fact that Cyprus is an EU member offers benefits such as freedom of employment for EU

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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professional services

nationals. In the case of relocating expatriate staff from non-EU states, the company needs to obtain work and residence permits for them. It can take 4-6 weeks to collect all the required documents, prepare and file the applications, plus review time by the Authorities. In many cases, expatriate personnel (especially those in senior posts) also relocate their families, in which case support is needed in the search for residences, schooling options, etc. Gold: How do you source individuals to fill director roles in newly-created companies and what are the responsibilities of these directors? T.H.: This will vary according to the client’s requirements and the legal requirements for the particular type of company and the specific circumstances. For example, The Companies Law of Cyprus requires any private company to have one director and a minimum of two directors for other types of companies. The law does not specify any requirements concerning the nationality and background of the directors whose responsibility, in a nutshell, is to manage the business of the company. Ultimately, the directors are responsible for all decisions made by the company and for all its records, and they are entrusted with the management of all company assets. In practice, companies setting up in Cyprus usually use one, or a combination, of the following options: •Local directors, provided by a reputable corporate service provider •Local ‘directors of substance’, who are highly esteemed individuals with a proven track record and solid resumés to support this experience (often in the client’s own industry), sourced either in Cyprus or from abroad •People already within the client’s organisation, who operate from abroad or relocate to Cyprus to add their physical presence to the offices in the country. Gold: Is Cyprus attracting attention from new markets? P.Y.: Russian companies, as well as those from Ukraine, Poland, the Czech Republic and Slovakia, continue to show great interest in setting up in Cyprus while British, Israeli, US and Scandinavian firms are still of major importance. We are also seeing increased interest from countries such as India and China, which represent a promising future. Given the latest developments in Cyprus concerning the discovery of natural gas reserves, we have seen considerable interest from the traditional big players in the energy field who wish – and in

INTERNATIONAL COMPANIES OFTEN FACE A NUMBER OF KEY CHALLENGES WHICH COULD POTENTIALLY TURN INTO PITFALLS many cases have already proceeded – to set up big operations in Cyprus to serve the surrounding region. Gold: What are the Unique Selling Propositions of PwC’s Pathfinder service that motivate clients to utilise it rather than something similar from one of your competitors? T.H.: We are the market leader in offering professional services in Cyprus. Our professional team of 1,000 is unrivalled on the island and offers enormous combined expertise in providing tailored solutions to our clients. One of our biggest advantages is that we provide a total ‘turn-key’ solution covering all aspects of setting up and running an office in Cyprus. A client will, in effect, have a single point of contact who will manage all aspects of the project, liaising and coordinating with other experts in our team. We have dedicated teams assigned to specific industries (energy, shipping, financial services, etc.) and we can thus provide speedy solutions and responses to all industry-specific issues by leveraging on our expertise. Thanks to our significant experience in helping international companies set up in and operate from Cyprus for more than 30 years, we have the capacity to easily identify issues upfront to help clients avoid costly breaches of compliance requirements and provide complete support during the transaction cycle. In fact, the firm can continue providing support and assistance long after the initial setup, by taking on such tasks as organising board meetings, providing corporate secretarial services and ensuring full compliance of the company with respect to administration, VAT, tax and payroll aspects. This ensures that the clients can save time and effort in dealing with these issues and concentrate on their core businesses, whereas our experts promptly and efficiently take care of the various tasks and complications of setting up in Cyprus. Furthermore, with our firm comes the assurance that all matters are taken care of with the utmost professionalism. We engage only the top service providers for specialist input (e.g. real estate agents, telecommunication service

providers and other third parties) to projects and they are selected purely on their proven track record. PwC does not accept commissions for referrals and so does not stand to gain commercially from selecting its sources. This allows us to remain objective at all times, keeping nothing but the client’s requirements in mind throughout the process. Companies come to us to gain peace of mind and security regarding all local business matters. In short, we provide support from A-Z.

BOOK REVIEW WHAT MONEY CAN’T BUY: THE MORAL LIMITS OF MARKETS BY MICHAEL SANDEL (ALLEN LANE, 2012) R.R.P. £20 (£13 FROM AMAZON.CO.UK)

C

hosen by The Guardian as a literary highlight for 2012, this book by America’s mostrespected and best-known contemporary political philosopher examines the proper role of markets in a democratic society and asks how we can protect the moral and civic goods that money can’t buy. Should we pay children to read books or to get good grades? Is it ethical to pay people to test risky new drugs or to donate their organs? What about hiring mercenaries to fight our wars, outsourcing inmates to private prisons or selling citizenship to foreigners willing and able to pay? Isn’t there something wrong with a world in which everything is for sale? In recent decades, market values have crowded out non-market norms in almost every aspect of life-medicine, education, government, law, art, sports, even family life and personal relations. Michael Sandel argues that we have drifted from having a market economy to being a market society. He shows both sides of the morals v markets issue whilst gently persuading us it’s not a good thing.

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

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eurosone crisis

{ECONOMY}

A A PRO-EUROPE Likelihood of

Greek Coalition Government

Increases

THE OVERWHELMING MAJORITY OF GREEKS WANT TO KEEP THE EURO BUT THEY OPPOSE AUSTERITY MEASURES.

By Laurent Fransolet, Fabio Fois and Julian Callow

ccording to the latest two Greek election polls, it is unclear whether SYRIZA (the radical left) or New Democracy (ND) will be the largest party, and therefore the one to acquire the additional fifty seats accorded to the largest party after the general election (due on 17 June). A Public Issue poll at the end of May gave SYRIZA 30% of the vote, four points ahead of New Democracy (which supports the ‘Troika’ programme). This gap is therefore the same as the previous Public Issue poll, though both parties received an additional two percentage points in the latest poll. However, a poll by DRC (a less well known pollster) gave New Democracy 29.4% support, slightly ahead of 28.8% for SYRIZA. Meanwhile, the overwhelming majority of Greeks, 85% according to Public Issue, want to keep the euro but, at the same time, they oppose the austerity conditions agreed with the EU and IMF. Moreover, about 56% of respondents in the Data RC poll said a return to the drachma would be “catastrophic”. Overall, the outcome is finely balanced, with New Democracy appearing to ‘trend’ higher, based on polls conducted since the

Parliament composition: Predictions of seats based on various opinion polls 300 250

Parliamentary majority threshold = 150 seats

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info: Laurent Fransolet, Fabio Fois and Julian Callow are researchers for Barclays Research 76 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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election (when it received 18.9% of the vote, compared with 16.8% for SYRIZA). As a result of the high uncertainty, a coalition government is the most likely outcome, in our view. It seems that none of the large parties will be able to reach a threshold of 36-40% necessary to obtain an outright majority of 151 seats in Parliament. It is also notable that the vast majority of Greeks still want the country to stay in the euro area, a preference which seems somehow in contrast with the increasing popularity of SYRIZA, which has openly declared its intentions to renegotiate details of the bailout programme agreed before May’s elections in exchange for additional financial support for the country. Moreover, in a Sky News TV interview, a SYRIZA representative indicated that, if it won the election, the party would offer the Greek people a referendum on membership of the euro. Meanwhile, ND leader Antonis Samaras and the head of the liberal Democratic Alliance, Dora Bakoyannis, a former conservative minister and political rival, announced in May that they were joining forces in “a patriotic, pro-European front” aimed at “battling the forces of populism” and ensuring that the country remains in the euro area. At a joint press conference, the two leaders declared that they would run in the 17 June general elections on a common platform with the chief aim of keeping Greece in the euro area but also “resisting and changing the course of things,” an apparent reference to the rising popularity of SYRIZA, which has called for the rejection of Greece’s debt deal with foreign creditors. “Our aim is to extract the country from crisis but keep it in the euro area,” Samaras said, adding, “SYRIZA is heading in the opposite direction.”  Bakoyannis, who unsuccessfully challenged Samaras for the leadership of ND in 2009 and was ejected from the party in 2010 when she voted for the country’s first debt deal, said it was time to break with the past. “Let us focus on what unites us,” the former Athens mayor said. She added that she would suspend the operation of Democratic Alliance to avoid endangering the chances of ND securing the 50-seat bonus in Parliament given to

Lucas Papademos

Giorgos Karatzaferis

THE RISK OF GREECE LEAVING THE EURO IS REAL AND IT DEPENDS EFFECTIVELY ON WHETHER THE GREEK PEOPLE WILL SUPPORT THE CONTINUED IMPLEMENTATION OF THE ECONOMIC PROGRAMME

Dora Bakoyannis

the party that comes first in the polls. The constitution dictates that a coalition is not eligible for the bonus. Under the agreement, members of DA will run on ND’s ticket. Bakoyannis herself is to head ND’s list of candidates. The announcement prompted an angry response from the leader of the right-wing Popular Orthodox Rally (LAOS), Giorgos Karatzaferis, who called Samaras “a traitor” after two of his ex-MPs, Thanos Plevris and Giorgos Anatolakis, moved to ND’s camp. Three more ex-LAOS deputies were expected to jump ship. Adding to the debate in rather strong comments (within a Dow Jones interview), former Greek PM Lucas Papademos has warned that departure from the euro would have “catastrophic” economic consequences for Greece and far-reaching implications for the euro area. He added, “Although such a scenario is unlikely to materialise and it is not desirable either for Greece or for other countries, it cannot be excluded that preparations are being made to contain the potential consequences of a Greek euro exit”. In remarks to CNBC, Papademos clarified these comments to say that in his view a Greek euro exit was “unlikely to materialise”, and that he was unaware of any specific preparations in European institutions or other countries for a possible Greek euro exit, though he could not exclude the possibility of such preparations. However,

Antonis Samaras

Alexis Tsipras

he added that there were no preparations underway in Greece for a possible exit. Papademos also commented, “European political leaders have sent a clear message comprising two parts: Greece should remain in the eurozone and the country should respect its commitments. Hence, the risk of Greece leaving the euro is real and it depends effectively on whether the Greek people will support the continued implementation of the economic programme”. He estimated that the overall cost for Europe of a Greek exit from the euro could range from €0.5 to €1.0 trillion. An exit would cause Greek inflation to accelerate (potentially, according to estimates cited by Papademos, by 30%-50%), real incomes to shrink and the banking sector experience extreme stress. Papademos also argued that the perception that Greece could renegotiate the terms of the official programme was misguided: the lending countries “already faced great difficulties in persuading their parliaments to approve the second bailout programme, while other member states like Spain and Italy, with serious fiscal challenges, would be asked to contribute further to the financing of Greece – adjustment fatigue in countries under programmes has been accompanied by bailout fatigue in credit countries”. The report also observed that while finance ministry estimates suggested that the Greek state had sufficient resources to cover expenditure until 20 June, since then tax collection had “slackened”, with revenue collection below targets.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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{ECONOMY}

CYPRUS IN A GREEK TRAGEDY 78 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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THAT THE FINANCIAL AND ECONOMIC FORTUNES OF CYPRUS ARE INEXTRICABLY LINKED TO THOSE OF GREECE SHOULD BE OBVIOUS. SO TOO MUST THE REALITY THAT RECENT POLITICAL SHIFTS IN GREECE HAVE ADDED CONSIDERABLE UNCERTAINTY TO THE OUTLOOKS FOR EACH COUNTRY. NOT THAT THERE IS ANY UNCERTAINTY THAT BOTH FACE DIFFICULT TIMES AHEAD, GREECE PARTICULARLY SO. THE ADDED UNCERTAINTY IS THE LENGTH OF TIME BOTH WILL HAVE TO SUFFER CONTRACTION PAINS. AFTER ALL, THE MORE THE GREEKS DELAY ADDRESSING THEIR DEFICIT AND DEBT PROBLEMS, THE LONGER THE ECONOMIC AND FINANCIAL MAELSTROM THEY ARE IN WILL CONTINUE. By Dr. Savvas Savouri

I

n the recent elections In Greece, the governing coalition of New Democracy and PASOK lost its majority as the Greek people, whose ancestors created the blueprint for democracy, voted against the politicians who had traded austerity for bailout cash. Ominously, the largest gains were made by the Coalition of the Radical Left (SYRIZA) whose young leader, Alexis Tsipras, has stated that any coalition government in which his party is involved should declare the bailout deal “null and void”. The simple truth is that such an announcement would indeed send Greece into a void. The deterioration of Greek political sanity does not end here however. Two SYRIZA Members of Parliament later declared publicly that if their party had its way in a coalition, the government should access private bank deposits and appropriate anything exceeding €20,000. It is no surprise that, following their statement, shares in Greek banks fell a further 20%, hastening the move towards the zero mark that they will inevitably reach. The surprise thus far is that the Greek bank run hasn’t been more of a stampede. An interim government has now been appointed until fresh elections can be held but unless a Greek government is formed and firmly committed to budget discipline and the euro, unhelpful talk of a Greek euro-exit will continue. In the elections on 17 June, Greek voters will be deciding whether to back the pro-euro parties, something which comes with austerity measures, or those who want to defy the EU. Let us now turn to the consequences of the result of this “in or out referendum” on

THE SURPRISE THUS FAR IS THAT THE GREEK BANK RUN HASN’T BEEN MORE OF A STAMPEDE eurozone membership and, in effect, a place in the EU. Those within Greece who are encouraging a return to a national currency – a minority it has to be noted – draw upon a range of motivations. They point to it delivering the freedom to decide on national spending. They boast that it would bring about a competitive boost. They highlight the economic strength of others who have ‘depegged’ over recent decades, from Brazil and Argentina across to Russia and widely around Asia including Indonesia and Malaysia. They argue that the case for currency unilateralism is as compelling for Greece as is the impossibility of fulfilling the obligations demanded of it to remain in the eurozone. If only things were so straightforward. The argument for a euro exit ignores the likelihood of retaliatory devaluations in neighbouring economies. The argument fails to grasp the near-certain suspension/expulsion of Greece from the EU. It ignores the resulting hyper-inflation and impoverishment of the elderly and infirm. It ignores the certainty that Greece would be abandoned by all but the most usurious of investors. It ignores that emigration by prime-age Greeks would go from a stream to a torrent. It ignores the certain collapse in Greek asset prices. It ignores the end of a functioning Greek banking system. It ignores these and so many other far from transient challenges. It ignores

the sinister appearance of ever more powerful black-marketeers and the sharp rise in crime. In fact, it ignores the inevitability of a breakdown in Greek civil order. Of all the prices Greece would pay for a return to currency unilateralism, the biggest would be the loss of effective democracy. The closest parallel to a post-euro Greece might be Zimbabwe.

DEVALUATION

As tough as surviving in the eurozone may be, life for the Greeks would be a great deal more unpleasant outside the currency bloc: unpleasant for all Greeks, rich and poor, the former’s wealth evaporating as the latter’s poverty deepens. Those who can will emigrate. If Greece leaves the eurozone, pressures will build on others seen as next in line to devalue. It is certain that a non-euro Bulgaria would aggressively devalue as would a non-EU Serbia and others bordering Greece. Croatia’s kuna, too, would most likely capitulate. There would also be concerns of other eurozone departures. Although it has not been viewed as one thus far, there is every chance that Cyprus would be drawn onto this short-list, its banking links with Greece cited as the reason. A Greek euro exit would effectively destroy its banking system and seriously undermine that of Cyprus. This is not to say that the Greek banks would have much of a future were Greece to remain within the eurozone: under the current momentum we have no doubt that the Greek banks will have to be nationalised. London will be one of the primary destinations to which Greek capital will continue to escape.

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AS TOUGH AS SURVIVING IN THE EUROZONE MAY BE, LIFE FOR THE GREEKS WOULD BE A GREAT DEAL MORE UNPLEASANT OUTSIDE THE CURRENCY BLOC Of course, staying with the euro will not be pleasant. Crucially, however, if Greece shows that it is at least trying to comply with the bailout promises of the old coalition, it will continue to be assisted. For instance, we are convinced that the Greek state will be assisted by the EU’s European Stability Mechanism and by the IMF with a capital injection to ease the burden of taking the banks into public ownership (whenever that day comes, although no later than Spring 2014 is our guess). One only needs to consider the recent bailout of Bankia, Spain’s third largest bank and biggest real estate lender, to recognise that more European lenders with sizeable property exposure will fail and the Greek and Cypriot banks will be amongst these. For the Greeks, the question is this: Do they wish to see their banking system destroyed by leaving the euro – and very possibly the EU – and their economy becoming pastoral, going back to how it looked in the 1950s? Or do they want to continue accessing rescue capital so that the Greek banks can be nationalised and saved within a still-functioning developed economy? Until now Germany has been seen as the villain. This will change if the Greeks give it time. There is no doubt that Germany has been fiscally dogmatic towards Greece. The problem is that it could not have played things differently. Had it shown any sign of leniency, neither Greece nor the other bailout recipients would have taken their responsibilities seriously. Germany had quite simply to play with a poker face towards Greece et al, although some Germans seemed to take far too much pleasure in the power they wielded. The German attitude to those in need of financial help will have to soften and recent political shifts in France have hastened matters. Before too long, Germany will accept that bailed-out nations can negotiate more lenient terms. Rather than show impatience towards austerity and struggle hard against it, the Greeks should play along and wait patiently for this moment of leniency to come.

Returning to Cyprus we make this point: the best outcome for Greece would still leave Cyprus in a quite daunting economic and financial position. The worst-case outcome for Greece would be so much worse however. A Greek euro exit would lead to financial, social and political chaos. It would result in Cyprus being overwhelmed by the arrival of Greek economic ‘refugees’. Most would little realise that the banks of the Greek-speaking nation in which they were seeking refuge had been infected by a disabling virus transmitted from the Greekspeaking nation they had abandoned.

RECOVERY

Predicting how far Cypriot GDP will fall is made all the more difficult because events elsewhere will have a significant bearing on this small open economy. Suppose, as we do, that Britain and Russia enjoy better economic fortunes than the consensus suggests. This would clearly help Cyprus. However, assume, as we do, that the EU economy in aggregate – and Greece in particular – fares worse than many think. This would work against Cyprus. On balance, the consensus for how hard Cyprus will land is wrong. It fails to recognise the extent to which it is challenged internally. It also understates problems facing nations elsewhere whose fortunes have a direct bearing on its own. Even if our fears are proven all too sadly true, Cypriot GDP will reach a point where its slide must end. From that point onwards, growth will return. The question is: at what speed? To answer this, we need to identify the sectors that can drive economic recovery. Cyprus could focus on attracting feepaying foreign students from outside the EU. After all, its English-speaking higher education institutions boast a comparative advantage over countries against which its tourism offering is less distinguishable. Over the coming years, emerging economies will provide plentiful demand for reputable overseas English-based higher education. Cyprus should make every effort to capture some of the rewards. Let us consider another potential source of growth reflecting rising regional tensions. Suppose events in Libya, Egypt, Syria et al were to raise concerns over business risk in Israel and Lebanon. In this case, Cyprus could exploit matters by capturing businesses seeking a regional centre but looking for stability. There are other sectors that Cyprus can develop, e.g. the provision of services for ‘health tourists’.

What the Cypriots must not do is assume that there are easy solutions. Our concern is that by focusing on energy and relying on a “Russian rescue”, they will be distracted from engaging in more credible recovery strategies. There is no quick or easy escape. The Cypriots have, however, dealt with greater crises in their recent history and have done so commendably. They can do so again.

BLAME

We will not dwell too much on where responsibility lies for placing Cyprus in its current uncomfortable economic and financial position. The fact is that the blame game produces no winners. Moreover, by looking over one’s shoulder to find the source of a crisis, one is necessarily distracted from searching for an escape route. Anyway, apportioning justifiable blame is often lost in the search for scapegoats. Having said all this, one has to question why the island’s banking authorities allowed their banks to over-engage in overseas lending activities, notably in Greece, and Greek banks to reciprocate in Cyprus. Whilst they might have seen this as one large single currency region, the idiosyncratic nature of national economies within the eurozone made it a dangerous adventure. In their defence, this rather cavalier cross-border activity was also going on elsewhere; Austrian banks into Hungary, Italian and Greek into the Balkans and Swedish ones into the Baltic states. Just as throwing around accusations of responsibility for the mess Cyprus, Greece et al are in, is churlish, so too is blaming Germany for demanding bailouts that come with strings attached. Many see an insistence on austerity in return for rescue capital as little more than German malice. In reality, however, it is nothing so sadistic. Germany is simply insisting that those receiving rescue capital should purposefully engage in efforts to reduce their bloated and over-generous public sectors, and more generally implement supply-side reforms to make their labour markets more flexible and competitive. And why shouldn’t it ask for these things? The Cypriots, like so many other Europeans, have to be awake to global realities; some economies cannot – and others will not – support generous state pensions being paid far too early, or large public sectors offering lucrative pay and perks.

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. 80 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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{ECONOMY}

Will the ‘GREXIT’ really happen? IF WE CAN PRE-EMPTIVELY SUPPORT THE BANKS, A GREEK EXIT FROM THE EUROZONE WILL NOT BE AS DISASTROUS FOR CYPRUS AS WE THINK.

O By Fiona Mullen

n June 17 Greece will hold parliamentary elections for the second time in six weeks and although the Greeks themselves clearly do not view polls that way, the rest of the world is seeing their vote as a referendum on the euro. The EU has no legislative framework for a country wishing to leave the eurozone, only a clause for leaving the EU itself (Article 50). The Greeks are determined that they want to keep the euro, even if they do not want the austerity measures that everyone is telling them are an integral part of remaining within the single currency. At the same time, EU leaders are taking fright about what a Greek exit (already dubbed a ‘Grexit’ by the press) might cost them. Some estimates put it as high as €1.5 trillion while others suggest that it would bring down the European Central Bank (ECB) itself.

THE BIGGEST RISK IS THE DAMAGE THAT CAN BE DONE BEFORE ANY GREEK EURO EXIT, SIMPLY THROUGH GENERAL PANIC It looks unlikely, therefore, that the EU will voluntarily kick Greece out of the eurozone. Given these facts, could Greece still end up exiting the euro? If so, how would it happen? And last but not least, what would be the impact on Cyprus? Since the Greeks will not ask to leave the euro and the EU leaders will not force it voluntarily upon a fellow member state, my first assumption is that if it does happen, it will be a messy affair, triggered by voters, parliamentarians or Supreme Court judges.

THE SCENARIO COULD LOOK LIKE THIS:

Greek government is dependent on •The the next huge tranche of funding from

the so-called Troika (the EU, IMF and European Central Bank) to avoid a default and the Greek banks are dependent on continued support from the ECB to stay solvent.

Greek government has implemented •The some of the measures required but not all of them. EU leader has had to promise •Athatweakened the tranche must be authorised by

parliament (perhaps Finland) or popular referendum (perhaps Ireland) or the Supreme Court (perhaps Germany). The vote or judgment is negative. On balance, I think the EU leaders at this stage would rather break the law than break up the EU. They decide to stick by the law, so Greece is not given its next tranche. The government is still running a primary deficit (not enough revenue to pay ordinary expenses) so it runs out of cash. The government cannot pay salaries, pensions or unemployment benefits. It cannot buy medicines for the hospitals or pay for public transport. Companies cannot get credit to import food. Violence erupts on the streets and there is a run on the banks. The Bank of Greece (Central Bank) imposes limits on withdrawals. (When Argentina broke its 1:1 currency board with the US in early 2002, the limit was 250 pesos per week.) The government brings in the army to maintain control. But the army has not been paid either, so its continued support is not guaranteed. By this stage, barter trade is flourishing and people flock to the villages or islands where there is still food. Athens is left with only the poor, the sick, and the very violent. The government has

• • • • • •

info: Fiona Mullen is Director of Sapienta Economics Ltd, an independent consultancy that analyses and explains economic trends to local and international clients. 82 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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to act. It dusts off the old drachma printing machines it never destroyed and prints vast quantities of old drachmas. Taking Argentina as a guide (not as bad as Bulgaria in 1996 but worse than Russia in 1998), the drachma devalues four times over, so circulates at 1,360 drachmas to the euro, compared with the old “irrevocable” exchange rate of 340.75:€1. Devaluation leads at least to high inflation (consumer price inflation hit 41% in Argentina in 2002) or perhaps hyperinflation.

•

CYPRUS

The Cypriot banks have lent €23 billion to the Greek private sector but this is partly offset by the €15 billion on deposit. I estimate that a fourfold devaluation will burn a €5 billion hole in the capital of Cypriot banks, which would send at least two banks into insolvency if they were not supported. But €5 billion is small beer for the EU, therefore it is highly unlikely that Cyprus will be refused support. Nevertheless, the conditions that come with bank support will no doubt mean less lending as they clean up the Greek part of their balance sheets. This will draw out the recession we are already feeling. Greece is both our biggest export partner and our biggest import partner for trade in goods. However, we import four times more from Greece than we export. Assuming that the Greeks have the capacity to keep exporting, the “terms of trade” (relative

€5 BILLION IS SMALL BEER FOR THE EU, THEREFORE IT IS HIGHLY UNLIKELY THAT CYPRUS WILL BE REFUSED SUPPORT prices) will actually improve for Cyprus, which will have a positive impact on inflation. There will, of course, be a negative impact on exports but exports of goods to Greece account for only 1.8% of GDP, therefore the impact will be localised. The sector that will feel the biggest impact is tourism. Although it now trails business services, it is still accounts for just under 10% of GDP and employs an even higher proportion of the labour force. We will inevitably lose tourists to a cheaper rival, while the general downturn in the eurozone will affect arrivals from other countries. This might lead people to call for Cyprus to leave the euro. That would be an unnecessary and mad move. Before adopting the euro, Cyprus had pegged itself to hard currencies for decades, surviving multiple devaluations by other Mediterranean countries without a single recession apart from after the 1974 invasion. Moreover, the diversion of tourists to Greece will partly be offset by three factors. First, under the scenario I have painted, Greece will still be considered a scary place for a lot of tourists, and this will limit the number of visitors.

Second, a Greek euro exit and the impact on European demand will keep the euro weak relative to the rouble, which will have a positive impact on the still-growing Russian market. Third, under this scenario, we can expect an acceleration of Greeks coming to Cyprus in search of safety and jobs. This will have a positive impact on demand for housing and eventually on property prices. It should also improve our competitiveness by putting downward pressure on wages. While the specific impact of a Greek euro exit will not be as bad as we expect, there will be the wider impact of a general EU slowdown. We can therefore expect a sharp downturn for perhaps two years. But the biggest risk is the damage that can be done before any Greek euro exit, simply through general panic. This is why it is so important that Cyprus takes proactive action now to reassure everyone that our banks will be protected in the event of a Greek exit and that the government says loudly and clearly that we have no need, let alone intention, to leave the euro. It is better that we negotiate the terms of that provisional bailout today, rather than wait until we have to compete with the rest of the eurozone for funds. It will also give us more time to argue that we should keep our corporate tax rate at 10%, in order to protect a business services sector that now brings more money into Cyprus than tourism. But most importantly of all, it will tackle the damaging decline in confidence that is already affecting our businesses.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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eurozone crisis

{ECONOMY}

A

Potential scenarios for the eurozone in 2012

THERE ARE A NUMBER OF WAYS IN WHICH THE EUROZONE CRISIS COULD PLAY OUT DEPENDING ON THE MIX OF POLICY RESPONSES OVER THE NEXT YEAR OR TWO.

new PwC publication entitled Breaking Up is Hard to Do: The Eurozone Crisis – Possible Implications and Contingency Planning for US Companies looks at four possible scenarios that represent a range of potential resolutions to the crisis in 2012. Scenario 1: Successive phases of monetary and fiscal action hold the eurozone together at the cost of inflation. Scenario 2: Voluntary defaults for highlyindebted sovereigns. Scenario 3: Greece exits the eurozone and a firewall is built around other economies. Scenario 4: A new currency union is formed by the stronger economies. Each scenario varies in its likelihood and impact. The eurozone that emerges from the crisis is likely to be very different to the one we know today, with 2012 being dominated by uncertainty and high volatility. There is a wide range of potential outcomes.

SCENARIO 1

Successive phases of monetary and fiscal action hold the eurozone together at the cost of inflation. Policy action Crisis is initially contained by ECB bank financing and agreement onGreek debt haircut. Greece fails to meet the conditions of the deal, triggering another round of ECBfinancing coupled with fiscal transfers to peripheral economies in exchange for austerity measures. A looser monetary policy is adopted at the end of 2012 to help restore the competitiveness of the peripheral economies.

• • •

Short-term outcomes No or low growth will put downward pressure on inflation, signalling a looser monetary policy in 2013. “Internal appreciation” of Germany in relation to the periphery helps alleviate recessionary pressure in peripheral economies by improving their trade balances. Improved credit conditions and confidence could support GDP growth of 2% in 2014, as the survival of the euro looks increasingly certain.

• •

•

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Medium-term outcomes Higher inflation should ease debt restructuring, and improve competitiveness of peripheral European economies. ECB raises interest rates to bring down inflation in the medium-term and restore credibility. Most eurozone countries will be running primary surpluses for many years, putting a drag on growth.

Policy action Greece exits the eurozone by imposing temporary capital controls and redenominating all new and existing contracts in new drachma. The eurozone commits to saving the euro and uses the ECB and EFSF to build a firewall around other vulnerable economies.

SCENARIO 2

•

• • •

Voluntary defaults for highly-indebted sovereigns Policy action Following the Greek precedent, other highly-indebted economies seek to restructure their debts. We assume a 50% default on Portuguese and Irish sovereign debt and a 25% default on Italian debt. In parallel, we assume leaders agree to measures aimed at insulating the rest of the eurozone from a collapse in confidence.

• • •

Short-term outcomes We estimate that the restructuring will cause a private sector wealth loss of up to €800bn, including €100bn to banks. Bank losses would be partially recapitalized by governments, the European Financial Stability Facility (EFSF), and the European Stability Mechanism (ESM), but lending would also need to be reduced. We expect that this would precipitate a contractionary debt spiral dragging the eurozone into a deep and protracted recession.

• • •

Medium-term outcomes We expect that restructuring governments will be locked out of credit markets and require long-term support from the rest of the eurozone and other bilateral institutions. Over time, these countries would have to reestablish credibility with investors.

•

•

SCENARIO 3

Greece exits the eurozone and a firewall is built around other economies

• •

Greece outcomes We expect that the new drachma could depreciate by as much as 50%, constituting an implicit default on debt. Inflation would soar, potentially averaging 10% in 2012. The Greek economy would enter a severe recession as credit conditions and confidence deteriorate and further fiscal austerity is mandated in return for IMF funding. In the medium term, the economy could recover—driven by exports spurred by a weaker currency and improved competitiveness.

• • •

Rest of eurozone outcomes We expect this would cause an 18-month recession in the eurozone as investors’ losses and shaken confidence lead to capital flight and deteriorating credit conditions. But the Greek exit also would provide an impetus for other vulnerable countries to bring forward fiscal and structural reforms to “avoid the Greek fate,” improving longer-term growth prospects.

• •

SCENARIO 4

A new currency union is formed by the stronger economies Policy action A Franco-German acknowledgement that the existing eurozone is unsustainable paves the way for a new, smaller, and more tightly regulated currency bloc. The new bloc includes: Germany, France, the Netherlands, Finland, and some of the stronger new member states. More stringent rules are set out for members on fiscal union and structural positions.

• • •

“New euro” bloc outcomes New bloc benefits from an inflow of capital in the first year. However, transition costs and a loss of competitiveness as a result of the stronger currency would drag on growth in 2012. The new euro exchange rate could be permanently higher by up to 15% compared to the exchange rate for major trading partners.

• • •

Periphery outcomes Economies that break away from the euro face challenges of depreciating exchange rates, soaring inflation, and falling output. Future success will depend on their ability to rebuild credible fiscal and monetary institutions.

• •

Exit of a country from the eurozone will have broad and far-reaching impacts. A country leaving the eurozone may need to do the following: Announce and immediately impose capital controls. Impose immediate trade controls to limit capital outflows. Impose immediate border controls to prevent a flight of cash. Implement a bank holiday to prevent a “run on the bank.” Announce a new exchange rate (presumably not floating at the beginning, given capital and exchange controls) so that trade could continue. Convert all euro-denominated notes and coin to a new currency. Decide how to deal with existing outstanding euro-denominated debt, which would probably entail a major government and private-sector debt restructuring (i.e.,default). Recapitalize the insolvent banks to make up for losses from defaults. Determine what to do with the nonbank financial sector and the stock and bond markets. Determine how to handle commercial contracts that are written and denominated in euros and now may be in the new currency.

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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taxation

{TAX&LEGAL}

TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES OECD PEER REVIEW REPORT ON CYPRUS COMPLETED

By Georgia Papa

C

yprus was among 22 countries to be examined in the latest peer review report undertaken by the OEDC’s Global Forum on Transparency and Exchange of Information for Tax Purposes. The relevant report was published on April 5, 2012. The review procedure will be completed in two stages: Phase 1 evaluates the compliance with international standards of Cyprus’ legal framework for the exchange of information, while Phase 2 will assess the implementation of that framework. The report on Cyprus reveals the results of the evaluation of Phase 1. While recognising that Cyprus includes provisions for the exchange of information in the double tax treaties (DTTs) concluded with other jurisdictions, it proposes amendments to the legal framework with reference to documented inadequacies concerning the accessibility of ownership and accounting information. The efficient exchange of information demands the accessibility to reliable information, especially when it comes to the identity of shareholders and transactions by corporate entities. In Cyprus it is required that a register of members be kept up to date. However, public companies may issue share warrants to bearer with no obligation to name the owner. The report recommends that the government address this issue as, at present, there are inadequate mechanisms for identifying owners. Moreover, trustees operating a Cyprus trust are obliged to

CYPRUS IS EXPECTED TO REACT POSITIVELY TO THE OECD RECOMMENDATIONS identify all beneficiaries once registered. This requirement does not exist in all cases, however, and the report recommends that the necessary amendments be made to guarantee the availability of information regarding ownership. Furthermore, although there is an obligation to keep reliable accounting records for a period of at least five years, this requirement does not exist for all situations. The report does not clarify what accounting records should be kept by trusts only receiving income from dividends or interest. The report also suggests that further guidance is needed as regards supporting documentation that should be kept. To render the various tax laws of different jurisdictions effective, the ability to access information is extremely important. At present Cyprus restricts the availability of information to requests made under DTTs whereas it should guarantee that the competent authority is authorised to access information under all exchange of information agreements, whatever their form. Furthermore, search and seizure powers in Cyprus can be used when a person does not deliver the requested information but this power can only be exercised after the person is notified which foreign

tax authority has requested the information. The report suggests that exceptions to this prerequisite be introduced, e.g. in situations where notifying the relevant person would seriously undermine the successful completion of the investigation performed by the requesting authority. Cyprus has signed exchange of information agreements with a number of other jurisdictions as the international benchmark requires the exchange of information network to be as wide as possible. However, the report notes that Cyprus has been contacted by another two jurisdictions in order to enter into negotiations for concluding exchange of information agreements but has not yet responded positively to the invitations. The Review Committee suggests that Cyprus should conclude agreements with all interested parties and that the agreements could take any form (not only under DTTs). Whether Cyprus has responded to the recommendations made by the Review Committee will be evaluated in Phase 2 of the review which is planned for the second half of 2012. Phase 2 will also examine if Cyprus has amended its legal framework to comply with international standards while, in the interim, a follow-up report on the measures to be implemented by the government will be prepared. Cyprus, which is always eager to comply with proposals for improvement and transparency, is expected to react positively to the OECD recommendations and eventually fully conform to international standards and practice.

info: Georgia Papa is a Tax & Legal Associate at Eurofast Taxand, Cyprus Georgia.papa@eurofast.eu Tel: (+357) 22699222 www.eurofast.eu 86 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Laws Amended to Promote Foreign Investment ON 24 MAY 2012, THE HOUSE OF REPRESENTATIVES OF CYPRUS APPROVED A NUMBER OF AMENDING LAWS IN RELATION TO THE INTELLECTUAL PROPERTY REGIME, INTEREST DEDUCTIBILITY, GROUP RELIEF AND THE DEEMED DISTRIBUTION OF DIVIDENDS. THESE CHANGES ARE EFFECTIVE FROM 1 JANUARY 2012.

INTELLECTUAL PROPERTY RIGHTS

meaning of patent rights and intellec•The tual property (IP) rights has been amended

to coincide with the definition in the Patent Rights Law of 1998, the Intellectual Property Law of 1976 and the Law regarding Trademarks. This ensures that all types of IPs will be covered by this new regime avoiding any uncertainty. The new law provides for an 80% exemption on the net profit from the exploitation of such intangibles. The net profit is calculated after deducting from the licensing of the intangibles all direct expenses associated with the production of this income The rate of capital allowances on such intangibles has been set at 20% of the cost of acquisition. Any profit arising from the disposal of such intangibles will also benefit from the 80% exemption. Deloitte view:The introduction of a favourable IP regime in Cyprus has been long awaited. With the new law, it is expected that Cyprus will now compete favourably in the area of Intellectual Property.

• • • •

INTEREST DEDUCTIBILITY •

No interest expense restriction will apply in cases where shares are acquired directly or indirectly in a wholly owned subsidiary provided that this subsidiary does not own any assets which are not used in the business. If this subsidiary does own assets that are not used in the business, the restriction of interest will only correspond to the percent-

•

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age of assets not used in the business. Deloitte view: This change is expected to make the Cyprus Holding Company much more attractive than before as interest will now be an allowable expense for tax purposes. Such interest expense can be used in group structures for group relief purposes.

GROUP RELIEF PROVISIONS

eliminate the tax avoidance of companies will be avoided.

CAPITAL ALLOWANCES

rate of capital allowances for any plant •The and machinery purchased in the tax years

2012, 2013 and 2014 has been set at 20%, unless the rate of capital allowances on such assets is higher. For industrial and hotel buildings purchased in the tax years 2012, 2013 and 2014, the capital allowances rate will be increased from 4% to 7%. Deloitte view: This change in the Income Tax Law, along with the change in the Special Contribution for Defence law (see below) should encourage corporate investment in plant and machinery, industrial and hotel buildings.

the current provisions of group • •Under relief a company is considered to belong to the same group for group relief purposes if it is part of that group for a whole tax year. With the amended legislation, in cases where a company has been incorporated by its parent company during the tax year, this company will be deemed to be a member of this group for group relief purposes for that tax year.

•

RELATED PARTY TRANSACTIONS

SPECIAL CONTRIBUTION FOR DEFENCE LAW

In calculating the profits subject to deemed transfer pricing provisions of sec- • •The distribution under this law a deduction will tion 33 will not apply for transactions between parent and wholly owned subsidiary companies for which the group relief provisions of section 13 apply. Deloitte view: This change in the law will impact on the provisions of section 33 in cases where there may be an intercompany balance between two companies that are part of the same group for group relief purposes (as long as there is a 100% direct ownership). In this way, routine tax adjustments previously imposed under section 33 which did not necessarily

be given for the acquisition of any plant and machinery purchased in tax years 2012, 2013 and 2014. The definition of plant and machinery is the same as that in the Income Tax Law and it excludes any saloon cars purchased for private use. This provision will apply for the profits earned in the tax years 2012, 2013 and 2014.

• •

Information provided by Deloitte Cyprus Tax Services www.deloitte.com/cy

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mediation

{TAX&LEGAL}

RESOLVING DISPUTES THROUGH MEDIATION MEDIATION IS A PART OF WHAT IS KNOWN AS ALTERNATIVE DISPUTE RESOLUTION (ADR). WHERE LITIGATION IS FREQUENTLY TIME-CONSUMING AND COSTLY, MEDIATION CAN SAVE MANY HOURS OF WORK AND CONSIDERABLE SUMS OF MONEY. IT IS FAST BECOMING THE MOST POPULAR METHOD OF RESOLVING CROSS-BORDER DISPUTES AND, ONCE IT HAS BEEN ENACTED INTO LAW IN CYPRUS, LOOKS LIKELY TO BE USED IN AN INCREASING NUMBER OF CASES. GOLD SOUGHT THE VIEWS OF SEVERAL LEADING LAWYERS, TOGETHER WITH THOSE OF THE VICE-CHAIRMAN OF THE CYPRUS MEDIATION ASSOCIATION, ON A NUMBER OF KEY ISSUES SURROUNDING MEDIATION.

T

he stated objective of Directive 52/2008 EC of the European Parliament and of the Council of 21 May 2008 on mediation in civil and commercial matters is “to facilitate access to alternative dispute resolution and to promote the amicable settlement of disputes by encouraging the use of mediation and by ensuring a balanced relationship between mediation and judicial proceedings.” Article 5.1 of the Directive provides that a court, before which an action is brought, may, when appropriate and having regard to all circumstances of the case, invite the parties to use mediation to settle the dispute. Cyprus has not yet passed the necessary legislation but it has prepared a Bill for compliance with the Directive which has still to be reviewed and approved by the House of Representatives. The Bill provides for mediation to be introduced in relation to specific aspects of civil and commercial cases in cross-border disputes only. A cross-border dispute is one in which one of the parties permanently resides or usually resides in an EU member state different from that where the opposing party resides. The

MEDIATION IS A VOLUNTARY, FAST AND INEXPENSIVE METHOD FOR ACHIEVING A RESOLUTION OF A DISPUTE mediation process may be chosen at the parties’ own initiative or by the court. A Registry of Mediators is being introduced with the requirement that mediators have to be Members of the Cyprus Bar Association or the Cyprus Chamber of Commerce and Industry (CCCI). Those belonging to the CCCI will be required to attend specific courses and to apply for registration. Mediators are independent, impartial and not subject to any controls, instructions or rules issued by authorities or individuals. A judge before whom a cross-border civil or commercial case is presented may suggest the use of mediation to the parties as a means of resolving their dispute. The mediation process may take place either before or during a court hearing. The parties may appear before the me-

diator by themselves or with any other person, including a lawyer. A successful mediation process leads to the drafting and signing a settlement agreement with the consent of all the parties. Gold: In what instances can mediation serve opposing parties better than the current, more common forms of legal redress? Melina Karaolia: Mediation can serve opposing parties in many ways: It is fairly easy and quick to set up and the duration of the process is usually measured in days, rather than weeks, months or even years as is often the case with judicial disputes. If the dispute is successfully resolved, the parties are then free to get on with their business without distraction and further costs. Given the nature of the process, the costs are therefore substantially less than any other common form of legal redress (e.g. going to trial). The parties have the flexibility to agree on the structure and, in this regard a high degree of control over the conduct of their case. Since they seek a solution that will be acceptable to both parties, this often reduces problems of implementation and enforcement of their settlement agreement. Another great advantage is that the parties can choose to keep the whole

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mediation

WHO’S WHO

Andros Karayiannis, Managing Director of IT Consultants Ltd, Vice Chairman of the Cyrpus Mediation Association

Phivi Tramountanelli, Advocate, Christos Patsalides L.L.C.

Melina Karaolia, Partner, Advocate - Barrister at Law, MCIArb, M. Eliades & Partners LLC

Stavros Pavlou, Senior & Managing Partner, Patrikios Pavlou & Associates LLC

process privileged and confidential. Most importantly, through mediation the parties may obtain any remedy they wish, limited only by what they can agree to. This differs from the position in litigation and arbitration where the court or tribunal is limited to the remedies available at law. In many cases, however, the parties may combine the benefits of mediation and arbitration by agreeing that if mediation does not result in a negotiated settlement, the dispute can then be resolved by arbitration and the mediator is converted into arbitrator. Andros Karayiannis: I would say that in all civil cases, and a great number of criminal cases, mediation serves the opposing parties better as it gives them the opportunity to arrive at a mutually acceptable resolution of the dispute quickly and inexpensively. Other forms of legal redress are always an option if there is no mutually acceptable resolution of the dispute. Stavros Pavlou: Since it is a brief and lowcost procedure, parties seeking an immediate solution to their dispute may resort to mediation. Moreover, because of its private and confidential nature it can be utilised in cases of a more sensitive nature, such as family law disputes. In addition, the non-binding nature of mediation allows the parties to evaluate their respective positions with a view to a possible

settlement and gives them a better understanding of their case without prejudice to their rights in a future dispute resolution process. Phivi Tramountanelli: The proposed law for Cyprus means that mediation will be used in cross-border disputes but internal disputes in Cyprus may also be suggested and, if accepted, will be added when it is discussed in Parliament. Mediation is the quickest way to achieve a compromise solution when there is a relative balance of power between the parties and/or when many people are affected by the dispute. A compromise solution achieved via mediation has greater possibilities of being implemented when the difference between the parties is not legally clear, when a lot of money is involved and a quick solution is needed, but most importantly, when absolute confidentiality is necessary. Additionally, it takes place in a friendly environment in conditions of safety and confidentiality. Gold: Wouldn’t the opposing parties feel more secure if their dispute was being handled by a judge? Andros Karayiannis: No, I do not think so. A judge will declare a winner and a loser whereas in mediation, the goal is to assist the parties to come to an agreement that will be a “win” for both sides. Mediation is a voluntary, fast and inexpensive method for achieving a resolution of a dispute or a wrongdoing. If either of the parties is not satisfied with the mediation process he/she can always resort to proceedings where the arguments are presented by lawyers and the process is managed by a judge. Melina Karaolia: What the mediator does is very different from what a lawyer or a judge does. The mediator will work with the parties to effect a compromise, either by suggesting common ground or compelling them to recognise weaknesses in their cases. Often a mediator will challenge the strengths and flaws of the respective cases which can lead to a more realistic approach in negotiation. The mediator’s role is in essence ‘facilitative’ and, depending on the parties, it may also

BECAUSE OF ITS PRIVATE AND CONFIDENTIAL NATURE MEDIATION CAN BE UTILISED IN CASES OF A MORE SENSITIVE NATURE, SUCH AS FAMILY LAW DISPUTES

be ‘evaluative’ in that a recommendation or settlement proposal is made to the parties. In mediation, the parties themselves are responsible for reaching an agreement. No decision is imposed on them and there is no judge or arbitrator to decide the issues for them. In mediation, the conclusion of a dispute is reached by consensus. It is true that the parties will not obtain a binding legal resolution on which they can rely in future disputes, nor do they have the protective or injunctive relief that only the court can grant, but as long as the two sides approach the process with a genuine interest in resolving it, it can work. Stavros Pavlou: In court litigation or arbitration, the outcome of a case is determined by the relevant facts and the applicable law, whereas in the mediation process the parties are guided by their personal or business interests. The strict rules of evidence and civil procedure do not apply and mediation proceedings are not subject to the binding nature of the rules of precedent. Consequently, the skills required of a mediator are not necessarily the same as those required of a judge. The mediator only needs to have the confidence of the parties, not a judicial qualification, as the process is used to reach a possible settlement and is not an adjudication of the merits of the parties’ respective cases. Phivi Tramountanelli: It depends on the mediator. Having a judge in charge offers safety and security to the procedure but, according to the new Bill, a mediator – chosen amongst many – will be a member of either the Cyprus Bar Association or the Cyprus Chamber of Commerce and Industry (having taken 40 hours of training). The parties’ lawyers may accompany them or even appear on their behalf. Gold: Some lawyers claim that mediators need to have a legal background. What are your views? Phivi Tramountanelli: Once mediation is allowed in Cyprus, mediators will have to be either lawyers or members of the Cyprus Chamber of Commerce and Industry. However, it is my judgment that mediators should be people with the necessary legal background and knowledge to be able to offer the parties the best possible solution to their dispute but mediation skills can be certainly be gained through the necessary training. If the mediator is a lawyer with a full knowledge of the law and of case law in Cyprus, this will surely provide the safety and security that both parties require. Melina Karaolia: Mediators are usually lawyers, psychologists or social workers who

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may have a formal training in mediation. However, there is no need for mediators to have a legal background especially given the general scope and purpose of the mediation process. Nevertheless, depending on the nature and complexity of the dispute, the parties may choose a mediator with a legal or other professional background which they think might prove more accommodating in helping them to resolve their dispute. Stavros Pavlou: The possession of specialized knowledge and experience by the mediator can assist in reaching a solution appropriate to the case. A legal background can also be beneficial to the settlement of a case under mediation because a mediator possessing legal knowledge will be more familiar not only with dispute settlement in general but also with the applicable laws and regulations relevant to the case. Andros Karayiannis: Lawyers attempt to master mediation skills which require them to change the approach of partiality for which they have been trained for the defence of cases, as well as the approach to their submissions for the judge’s reflection and decision. “The partiality of the mediator is the mediation”. Gold: Can mediation be used in every dispute? Stavros Pavlou: Recourse can be taken to mediation in order to resolve any dispute, provided that the parties involved agree. Mediation is normally utilised in relation to family and employment disputes, commercial differences and small disputes. Andros Karayiannis: Cases involving criminal issues must, of course, be dealt with by the appropriate court where the guilty party will receive the penalty provided by the law. However, even in such cases mediation can help both the guilty and the injured party come to terms with what has happened, to overcome their negative feelings to some extent

THE COURTS SHOULD ENCOURAGE PARTIES TO USE MEDIATION OR OTHER ADR PROCESSES WHEN APPROPRIATE and get on with their lives. Phivi Tramountanelli: In Cyprus, mediation will be used in civil and commercial cases relating to crossborder disputes only. The pending Bill does not cover civil cases (including family cases) or trade and civil cases relating to disputes that take place in Cyprus. It remains to be seen if amendments are made to the proposed legislation. Melina Karaolia: Mediation is usually used in addressing commercial disputes. In the UK and other countries it is also used to resolve family issues or disputes involving issues of employment. Gold: Can mediation produce mutually beneficial results in commercial and business disputes? Andros Karayiannis: Yes. However, there are different types of mediation, such as problem solving, humanistic, transformative and narrative which can be more appropriate for different types of issues. Stavros Pavlou: Irrespective of whether the issue mediated is in relation to a commercial, business or family dispute, the financial cost is minimal and the whole process results in various benefits for the parties. In mediation, the parties can be guided by their business interests, so they may opt for an outcome that is oriented as much to the future of their business relationship as to their past conduct. Mediation produces an open dialogue between the parties and hence results in a settlement that creates more value to the commercial relations of the

T

INTERNATIONAL MEDIATION INSTITUTE

parties. Commercial and business disputes can be resolved without affecting the business cooperation of the parties

he International Mediation Institute (IMI) is a non-profit foundation established in 2007 as a global public service initiative to drive transparency and high competency standards into mediation practice across all fields. The IMI

Gold: Despite European Union Directives, mediated solutions are not adequately supported by the current legal framework Cyprus. Why is this? Stavros Pavlou: According to the provisions of Directive 2008/52/EC, member states should have brought in the necessary laws, regulations and administrative provisions to comply with the said Directive by the 21 May 2011. Cyprus has failed to do so. A bill on the specific question of mediation in family cases has been submitted before the House of Representatives but it hasn’t been adopted yet. The reasons for this may vary but it is a fact that ADR is not generally encouraged in Cyprus. Andros Karayiannis: I think that the decision-makers have not spent the time required to understand what mediation is and how it can be a helpful alternative to legal proceedings and how it can add value to society in general. Many times lawyers in particular confuse mediation with arbitration and therefore do not understand the specific characteristics and scope of mediation and its value as an alternative dispute resolution approach. Melina Karaolia: The nature of the process itself is such that no law or regulation should impose a requirement to engage in mediation. The essence of mediation is that it should be voluntary: parties engage in it on their own initiative, they control the process and try to reach consensus. The more regulation, the less flexibility or confidentiality you have in the process. Nevertheless, parties should be encouraged to use this process to deal with their cases expeditiously and fairly before resorting to court proceedings. In my view, active case management means that the courts should encourage parties to use mediation or other ADR processes when appropriate.

operates worldwide but has its main office in The Hague. Its mission is to develop mediation into a free-standing profession over all fields worldwide based on high competency and ethical standards and to ensure transparency via profiles including mandatory

information and a summary of feedback by prior users. Its mission includes promoting and explaining mediation, providing objective materials for users and encouraging high standards of training. For more information, visit www.imimediation.org

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law firms

{TAX&LEGAL}

Cyprus Law Forum THE FIRST CYPRUS LAW FORUM TAKES PLACE ON FRIDAY 22 JUNE, 2012 AT THE HILTON CYPRUS IN NICOSIA.

L

aw firms represent an exceptional and diverse segment within the economy. Indeed, they comprise one of the most important industries in the services sector, which is the main driver of the Cyprus economy. Law firms are mainly people-based businesses and their needs are consequently often more complex and demanding than those of other industries. As the economic crisis is constantly changing the overall business sector, it is forcing law firm management to adapt rapidly and to reexamine their standard business practices. Adopting new techniques and tools in order to remain up-to-date with the latest needs and demands of the business environment becomes essential, especially since competition in the field is so vigorous. The first Cyprus Law Forum, organised by IMH and Gold, will take an in-depth insider’s look at the law firm model and discuss trends and predictions for the future, providing an opportunity for lawyers to take a fresh look at how to run their firms and change or adjust their strategic

planning and structure in order to be more successful with clients, associates, partners and employees. Participants will learn about the latest developments and trends in the industry, identify business opportunities, and find out how to adjust their firm’s management so as to ensure success in every market situation and to grow. Furthermore, they will greatly benefit from leadership skills and tools that can have an important and critical impact on their practice. The Forum aims to expose the current status of the business and to examine what the future holds for law firms in Cyprus. The intention is to provide law firms with opportunities and new ways to operate efficiently in turbulent times while acting to improve their services and expand into new markets. Participants will have a chance to take a close look at issues such as employee motivation, financial management, and tying compensation to performance. Also, it will propose a strategy to help identify new client perspectives and lay the foundations for future in-house/private practice relationships. The Forum will also focus on

LEFT TO RIGHT: TOP LINE: Andrew Hedley, Hedley

Consulting, UK, David Laud,Chief Executive, Samuel Philips Law Firm, UK, Duncan Ogilvy,Partner Mills and Reeve LLP, UK, Husan Hourani, Managing Partner, Al Tamimi & Company, Dubai SECOND LINE: Simon Howell, Finance Integration Director, Dac Beachcroft, UK, Marina Palomba, General Legal Councel, McCann, Worldgroup /EMEA, UK, Petr Mestanek, Knowledge lawyer, Kinstellar, Czech Republic

THE ECONOMIC CRISIS IS FORCING LAW FIRM MANAGEMENT TO ADAPT RAPIDLY AND TO REEXAMINE ITS STANDARD BUSINESS PRACTICES identifying and developing the leaders of tomorrow. During the first session of the Forum on Maximizing Strategy Skills and Improving Your Law Firm’s Business Development, David Laud, Chief Executive, Samuel Phillips Law Firm, UK will speak on Invention, Innovation, Attitude and Motivation – Preparing Your Firm for the Future. He will be followed by Fit for an Uncertain Future? Strategy in a Fast-Changing World, a presentation by Andrew Hedley of Hedley Consulting, UK which will explore the use of scenario planning to model strategic options, particularly the use of resource-led thinking to create strategies which are adaptive and which build on a firm’s core strengths and competencies. Husan Hourani, Managing Partner, Al Tamimi & Company, Dubai will speak on How to Manage a Law Firm Successfully – The Move from Profession to Business, followed by Professor Emilios Avgouleas, Chair in International Banking Law and Finance, School of Law, University of Edinburgh whose lecture entitled Development of Law Firm Business in the Changing Economic Climate: Lessons from Recent Corporate and Sovereign Debt Restructur-

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

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LAW FIRMS ARE MAINLY PEOPLE-BASED BUSINESSES AND THEIR NEEDS ARE CONSEQUENTLY OFTEN MORE COMPLEX AND DEMANDING THAN THOSE OF OTHER INDUSTRIES

BOOK REVIEW SLEEPING WITH YOUR SMARTPHONE: HOW TO BREAK THE 24/7 HABIT AND CHANGE THE WAY YOU WORK BY LESLIE A. PERLOW (HARVARD BUSINESS

ings will highlight the business opportunities created by the changing economic climate, especially in the field of debt and business restructurings; how law firms can take advantage of such opportunities to recalibrate and expand their business; the key planning and staffing decisions that have to be taken in advance; how building new capacity and reskilling existing capacity can help you withstand the pressures on fee revenue. The first session will conclude with a presentation entitled I May Not Be a Genie but I Can Make Your Dreams Come True. How to Make Your Law Firm More Attractive to Clients in which Marina Palomba, General Legal Counsel, McCann Worldgroup/EMEA, UK, will consider different ways in which firms can promote themselves in a competitive and complex communication environment. It will look at issues from profile raising and new social media techniques to target marketing, ensuring that the right people do the marketing, and much more. The second session of the Forum is devoted to Best Practice Law Firm Management Techniques and it begins with a presentation on “Killer” Business Intelligence by Tony Bash, Partner EDGE Internation-

al, UK, followed by Working with Clients to Re-engineer Law Firm Processes by Duncan Ogilvy, Partner Mills and Reeve LLP, UK who will deal with delivering value for money profitably. Simon Howell, Finance Integration Director, Dac Beachcroft, UK will discuss Merging different remuneration and equity structures whilst retaining key people. The session will end with a case study entitled How We Got from 100 to 0 and Back to 100 in Knowledge Management in 18 Months on the unique challenges in the area of knowledge management faced by Kinstellar during its spinoff from Linklaters. It will be given by Petr Mestanek, knowledge lawyer with Kinstellar, Czech Republic. The Forum will close with a Panel Discussion on the topic Justice Delayed is Justice Denied. The panel comprises Petros Artemis, President of the Supreme Court, Cyprus, Doros Ioannides, President of the Cyprus Bar Association and Petros Clerides, Attorney-General of Cyprus. The moderator is Chrysanthos Tsouroulis, journalist. The first Cyprus Law Forum is organised by IMH and Gold with the support of the Cyprus Bar Association, sponsored by IN Business and InBusinessNews.

REVIEW PRESS,2012) R.R.P. £17.99 (£15.29 FROM AMAZON.CO.UK)

A

re you one of the millions of people who can’t resist checking your smartphone or mobile device every few minutes? If you and your colleagues are grappling with the “always on” problem, it’s time to disconnect. In her latest book, Harvard Business School professor Leslie Perlow reveals how you can disconnect and become more productive in the process. In fact, she says that by doing so you can devote more time to your personal life and accomplish more at work. What started as an experiment with a six-person team at The Boston Consulting Group – one of the world’s elite management consulting firms – triggered a global initiative that eventually spanned more than nine hundred BCG teams in 30 countries across the world. These teams decided to confront their nonstop workweeks and change the way they worked, becoming more efficient and effective in the process. Perlow takes the reader inside BCG to witness the challenges and benefits of disconnecting. This is required reading if you are a consultant, manager, HR professional, and/or a working parent.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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fitness

{LIFESTYLE}

Does Wealthy Mean Healthy?

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IT WAS BENJAMIN FRANKLIN WHO SAID “EARLY TO BED, EARLY TO RISE, MAKES A MAN HEALTHY, WEALTHY AND WISE”. MANY WOULD AGREE THAT HEALTH, WEALTH AND WISDOM GO HAND IN HAND BUT IT TAKES MORE THAN SLEEPING WELL AND WAKING EARLY IN ORDER TO ACHIEVE THE ULTIMATE HEALTHY LIFESTYLE. IN FACT, BEING WEALTHY AND WISE MAY ACTUALLY BE A PREREQUISITE FOR BEING HEALTHY. By Nathalie Kyrou

I

WHETHER YOU CAN AFFORD TO EAT HEALTHILY DEPENDS TO A GREAT EXTENT ON YOUR FINANCIAL STATUS

t seems counter-intuitive that so many poor people in America are overweight but it’s actually quite simple: The unhealthiest food contains the most calories, so lower-income shoppers and others who live on junk food take in more calories than those who eat more healthily and so they grow fatter. It is expensive to eat well, even if you are only buying raw vegetables. In fact, new research shows that eating right is becoming so expensive that millions of Westerners can’t afford it. Researchers at the University of Washington focused on the cost of eating foods that are rich in nutrients and low in calories, (fresh vegetables, whole grains, fish and lean meats). When they checked store prices in a particular area, they found that those of good, healthy foods had soared by nearly 20% in two years compared to a 5% increase in food overall. During the same period, the prices of high-calorie foods had remained about the same and, in some cases, had actually fallen. The survey found that higher-calorie, energydense foods cost on average $1.76 per 1,000 calories, compared with $18.16 per 1,000 calories for low-energy, nutritious foods. For organic foods the price rises even further. But why are healthy foods more expensive in the first place? The reason is simple economics. Even though recent trends have pointed to an increased demand for natural, organic food, the supply is still very low and production costs are very high. Another reason why healthy food is expensive is the freshness

WHAT IS HEALTH? According to the World Health Organisation (WHO), “Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.” So basically, we need to be of sound mind and physically well in order to consider ourselves healthy. It follows that health is affected by a wide range of contributory factors which involve our environment and situation. Drastic contrasts in income distribution have, for those on the lower end, a negative impact on stress, self-esteem and social relations which, in turn, impacts on their overall well-being, including their state of mind. Inequality – and the way people perceive and experience it – has a negative effect on health. Where we live, the state of our environment, genetics, our incomes, our education levels, and our relationships with friends and family are all factors which contribute to how healthy we are. The WHO states that the main determinants to health are our social, economic and physical environment, as well as our individual characteristics and behaviour. Even though it is becoming increasingly costly to maintain good health because there are so many factors involved, it could be argued that health – something hard to maintain and irreplaceably precious – is itself wealth.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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fitness

KEEPING FIT

E

veryone knows that maintaining a healthy weight and lifestyle comes down to more than eating properly. Exercise is important and while we can’t all be like Madonna, it is possible to obtain the advice and help of a personal trainer in Cyprus. Panayiotis Georgiades, 27, is a Cypriot personal trainer and fitness professional, one of the few on the island to be a member of the National Strength and Conditioning Association (NSCA). Dynamic and dedicated, he trains people of all ages and backgrounds and he finds it extremely fulfilling: “Being a trainer is something I love. When I meet my client’s objectives, their personal success and fulfilment becomes mine,” he says. So, what’s the secret? “For me,” says Georgiades, “a healthy, fit person requires proficiency in all the following physical skills: strength, power, speed, endurance, cardiovascular, balance, agility, flexibility, mobility and coordination. A perfect way to achieve this is with cross training.” Although this costs money, the amount depends on the frequency of training, the location desired by the client, and whether he/ she wants private or group trainPanayiotis Georgiades

ing. “There is no fixed price in the market; you can find both cheap and expensive fees,” he says. “For private sessions, fees start from €20 and can be as much as €80. The price also depends on the specific service provided by each trainer.” Although there are many personal trainers in Cyprus, Panayiotis Georgiades says that most of them are unqualified or do not have an up-todate knowledge of their chosen field. “In the last few years it has become an increasingly popular career,” he notes, “because Cypriots have become more sensitive about their bodies and health and they seek the services of professionals to guide them.” According to Georgiades, being healthy does not have to be an expensive. “Although personal training is the best way to exercise because it is more effective, fast and safe, there are cheaper ways for someone who cannot afford it,” he says, noting that Cyprus is an ideal place in which to live healthily, no matter what your financial status. “Here you can enjoy all kinds of sports, in summer and winter, and practice outdoor exercise for free. Also, as the summer in Cyprus is long, people want to be healthy and fit and to look good, especially on the beach. In other countries, it’s more difficult to enjoy a healthy and fit lifestyle due to bad or temperamental weather and difficult financial conditions.” On the topic of whether health requires wealth, he says, “The truth is that almost all wealthy people who exercise choose personal training since they can afford it, but some of them have difficulties in following a strict nutrition programme due to their affluent lifestyle. So being wealthy can help someone to be healthy but, in reality, the most significant factor is not money, but willingness to make the effort.”

LOWER YOUR WEIGHT, YOUR CHOLESTEROL AND STRESS LEVELS…AND THE BALANCE OF YOUR BANK ACCOUNT

factor: fruit and vegetables can only grow in specific climates of the world and only at certain times of the year yet they are in demand all the time. Storing food in giant airconditioned warehouses and shipping it across the world to meet demand is an extremely expensive process and costs are passed on to the consumer through high pricing. Ultimately, whether you can afford to eat healthily depends to a great extent on your financial status: the more you make, the easier it is to be part of the “culinary elite”. Even special diet plans for losing weight or maintaining a healthy weight are costly. Of the 10 most popular diets on the US market at present (Atkins, Jenny Craig, Ornish, NutriSystem, Slim Fast, South Beach, Subway, Sugar Busters!, Weight Watchers and Zone), the average works out at $85.79 a week – that’s 58% more than the $54.44 that the average single American spends on food. In an article in Health Affairs published in 2011, researchers reported that eating more potassium (which new US dietary guidelines recommend), can add $380 to the average person’s yearly food costs. While it certainly doesn’t hurt to be prosperous, not all the lifestyles of the wealthy are ideal. Take Coca-Cola’s heavy-smoking CEO Roberto Goizueta, for example, who died of cancer in October 1997 at the age of 65, or McDonald’s CEO James Cantalupo who suffered a serious heart attack at 60 last April (was he living on his chain’s food?) But can a busy businessman – who can certainly afford to take proper care of himself – or a wealthy celebrity afford the time to do so? Slim, fit and energetic Madonna is dedicated to keeping up a healthy lifestyle, no matter the cost, and has a personal trainer who has drawn up her daily fitness routine. She also follows a specific diet regime and has her own nutritionist who creates meals according to the macrobiotic, low-fat, vegetarian principles

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

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THE HEALTHIEST PLACES TO LIVE There are many reasons to envy the residents of Northern Europe, one of which is that the region is home to some of the world’s healthiest countries, including top-ranking Iceland, Sweden and Finland. Others that fare well include Germany, Switzerland, Australia,

that the singer believes in. She even has a personal chef to accompany her on her travels and make her sushi wherever she goes (and it goes without saying that if you can afford your own professional cook you are more likely to commit to a healthy diet). Madonna also practices yoga, as well as other exercise and dance programmes and she believes in Biological Terrain Analysis – a medical analysis which pinpoints problem areas in diet and lifestyle. All of this costs a bomb but she can afford it, as can David Beckham, who has a gruelling ‘conditioning plan’, which is no surprise since football is one of the world’s most physically demanding sports. Then there is Gwyneth Paltrow, who has tried everything from cupping to macrobiotic cuisine, successfully rebranding herself as a devoted health, lifestyle, and parenting guru. When she’s not proclaiming the benefits of Dr. Alejandro Junger’s three-day cleanse and 21-day elimination

Denmark, Canada, Austria and the Netherlands. Beyond having the best quality drinking water, sanitation and nourishment, Iceland and Sweden have some of the lowest levels of air pollution, infant mortality and rates of tuberculosis prevalence. According to Forbes.com, they also share the

diet, she’s drinking Organic Avenue juices, practicing yoga or lifting tiny weights with Tracy Anderson, whom she partnered with on the trainer’s flagship Tribeca gym. She’s also a huge supporter of Bent on Learning, a charity that brings yoga into New York City schools. Of course not all affluent celebrities like Madonna, Beckham and Paltrow are wise enough to be healthy. It’s not hard to draw up a long list of famous stars who have spent their fortune on drink, drugs and other self-destructive, hedonist vices. The recent deaths of Amy Winehouse and Whitney Houston have only served to emphasize that wealth is no guarantee of health (and certainly not of wisdom). Nevertheless, if you are prosperous and desire longevity, while reaping the benefits of a super-healthy lifestyle, you do have plenty of options which will lower your weight, your cholesterol and stress levels… and the balance of your bank account.

Gwyneth Paltrow

Madonna

David Beckham

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highest healthy life expectancy for men: 72 years. Historically, these countries have had a national health care system and have retained the mentality that healthcare is a basic right for all citizens. Interestingly, many of these countries are also ranked among the most expensive to live in.

BOOK REVIEW THE MARRIAGE PLOT BY JEFFREY EUGENIDES (FOURTH ESTATE, 2012) RRP: £8.99 (£3.86 FROM AMAZON.CO.UK)

T

o say that Jeffrey Eugenides is not a prolific author is an understatement – this is only his third novel in 18 years – but following The Virgin Suicides (1993) and the Pulitzer Prize-winning Middlesex (2002), his latest book cannot be ignored (this is the paperback edition). It is a witty, postmodern love story about students of literature and philosophy set in the ‘80s and featuring three students: Madeleine, Leonard and Mitchell. The novel is a modern take on the “marriage plot”, seen by one of Madeleine’s English professors as the dominant theme of many of her favourite 19th century classics, i.e. a young woman pursued by two very different suitors and having to choose between them. The author’s vivid and imaginative descriptions, his sharp ear for dialogue, and his accurate recreation of the events and attitudes of the ‘80s recall Jonathan Franzen and while it is certainly not as remarkable as Middlesex, The Marriage Plot certainly underlines Eugenides’ place in contemporary literature. Book lovers and students of English literature will find it even more enjoyable than most.

29/05/2012 13:48


A Logo is not a Brand

THE LAST WORD

It may represent a brand but it isn’t the same thing By Peter Economides

I am an avowed carnivore. There’s nothing like a superbly grilled, medium rare ribeye steak accompanied by a full bodied red. I am salivating whilst writing ... But I must admit that I cringe when I see photographs of cattle being marked by the branding iron. Did you know that that’s where the word “brand” originates? It was one farmer’s way of distinguishing his cattle from the others. Brand - German in origin I believe. In Afrikaans it means “to burn.” A tattoo is a bit like a cattle brand. An indelible mark on the skin, not so much to be distinguished itself, but to distinguish yourself from the herd. A bit like a logo.  The American Marketing Association officially defines the word “brand” as “a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers.” Hmmm... in my humble opinion, I have a problem with that. Angelina Jolie has at least a dozen tattoos. These are not her brands. Quite frankly, I don’t care if Angelina has a tattoo of a dragon or a dog or a pussy cat. These are logos. Angelina Jolie is the brand. Because of everything she says, everything she does, everything she does not say, everything she does not do. Everything communicates, absolutely everything. And boy, does she know how to communicate...

A logo is not a brand. If a logo is used consistently, over time it comes to represent the brand and everything it stands for. But it is not the brand. Think of it as the brand’s signature. Like the Nike swoosh. Chances are that it gets you thinking of “Just do it” and Michael Jordan and Tiger Woods and celebrity football players and everything else that Nike stands for. But it is not the brand. A brand is a lot more than that. And

We don’t buy what Apple does, we buy why they do it

frankly, I don’t care what the brand is called or what its logo looks like. It’s the meaning that it assumes that matters. Jim Pethokoukis recently tweeted that “branding recognizes that economics happens between your ears, not on factory floors or the NYSE.” Yes Jim. Brand creates value. And brand is nothing more than the set of impressions that exists in people’s heads and, I would add, the feelings that live in their hearts. Look at Apple. From the brink of bankruptcy in 1997 to the world’s most valuable company in 2012. Selling computers, music players, music, telephones and, most recently, tablet computers. Apple has moved way beyond its core competence in computers and millions are ready to snap up the company’s newest offering. Dell is equally capable of making high performance products which go beyond their core competence. But I can’t see myself buying a Dell phone. You? As Simon Sinek simply says, “We don’t buy what Apple does, we buy why they do it.” We buy Apple values. “Think different .... here’s to the crazy ones.” We buy Apple because what Apple stands for resonates with us. We want some of that for ourselves. And we get it. In a phone. Apple would be Apple even if it was called Banana. Or Pineapple. Now that would make a cool logo...

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

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

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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

gold cover me diafimiseis.indd 2

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

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

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ISSUE 15 JUNE 2012 PRICE €6.95

5 291295 000577

00001 >

POWERED BY:

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold

At Barclays, we offer unrivalled local expertise with international reach. As the dedicated wealth and investment management division of Barclays Bank PLC in Cyprus, we are part of an A+ rated* financial organisation with over 335 years of history and more than £164 billion** in assets under management. Our highly experienced professionals use their collective wisdom to deliver seamless wealth management and corporate solutions to local and international clients. Our team in Cyprus is also your gateway to the wider range of support and expertise available from Barclays globally, including our colleagues in Investment Management and Investment Banking. Barclays has been a leading name in the finance industry for Cyprus for over 70 years. Our services include: • Deposits • Corporate loans • Trade finance • Internet banking • Cash management solutions

• Treasury FX • Investments • Asset management • Personal banking

ISSUE 15 MAY 2012

BARCLAYS IN CYPRUS. BANKING WITH STRONG FOUNDATIONS.

companies

that have chosen to invest in Cyprus ALPARI FINANCIAL SERVICES LTD AMDOCS DEVELOPMENT CENTRE ASBIS ENTERPRISES PLC BANCA TRANSILVANIA BOUYGUES BATIMENT INTERNATIONAL CARREFOUR COLUMBIA SHIP MANAGEMENT LTD FBME BANK LTD IKEA (CYPRUS) KARDEX SYSTEMS LTD LIDL (CYPRUS) LUKOIL NCR NEST INVESTMENTS HOLDINGS CYPRUS LTD RUSSIAN COMMERCIAL BANK UNITEAM MARINE VTTI WEATHERFORD INTERNATIONAL ...and many more

To find out more about how Barclays can help, go to barclays.com/wealth or call us on +357 22 654477*** for the Nicosia office or +357 25 208000*** for the Limassol office.

+ EUGEN ADAMI, STEEN JAKOBSEN, ANNI PODIMATA SPECIAL REPORT: CYPRUS & NATURAL GAS. PRESENTED BY ERNST & YOUNG International Banking

*Standard and Poors rating. **Barclays PLC – 31 December 2011. ***Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients 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.

gold cover me diafimiseis.indd 1

‘GREXIT’

Will Greece stay in the eurozone?

STONES & BONES Investing in Fossils and Minerals

LIFESTYLE

Does Wealthy mean Healthy?

PLUS:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

30/05/2012 15:32

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