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ISSUE 10 january 2012 PRICE â‚Ź6.95

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GUIDE 2012 Top stocks, key strategies, best opportunities & advice from the experts


One step forward, Two steps back


Breaking up is hard to do?


Andreas Athinodorou Andrey Dashin Ester Levanon



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issue 10 january 2012


22 COVER STORY Investment Guide 2012 Preparing for the worst and hoping for the best

+ opinion .XXX For Danger by Roddy Kyriakides

the debate Will 2012 be a better year for Cyprus than 2011?” by Dinos Milel (Yes) and Jack Gregory (No) 18 Eat, Pay, Love by Eleni Vickers


XXXXX by Peter Economides


The experts’ view 30

68 60 FEATURES 38 | Safeguarding the Cyprus securities market


The Cyprus Securities and Exchange Commission

48 | Living the Big Dream Interview with Alpari CEO Andrey Dashin

52 | Cyprus: A Future Regional Energy Hub? Founding a local exploration & production industry


the international investment, business & finance magazine of cyprus


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Let our experts find the solution



welve months from now, we shall know which of three possible courses 2012 followed: better than last year, worse than last year or the same as last year. But at this moment, even the most seasoned financial commentators and business observers cannot predict the future, despite the signs which suggest that the global, European and Cypriot economies may end up in less than impressive shape by the end of the year. I am not going to pretend that the Gold crystal ball is more accurate than any other but there are certain things that we already know about 2012 which could have an effect on the whole world or, at least, on our small part of it. There will be a US presidential election in November, though the outcome may not affect those outside the United States to any great extent, particularly if, as seems likely at the moment, Barack Obama is re-elected for a second term. If, however, the President decides to sanction military action against Iran, the results of such action could affect US relations with a number of key nations. In Cyprus, by the end of 2012, everyone will be preparing for the February 2013 presidential election and we could be in for a long and bitter campaign. No-one expects the ongoing reunification talks to reach any kind of conclusion and, if the UN Secretary-General finally loses patience with one or both sides, it could lead to the world body giving up its decades-long attempt to mediate a settlement leading to a bizonal federation. Of course, the highly anticipated good news about offshore natural gas deposits could also affect the course of the negotiations. Not only will the Turkish Cypriot community benefit directly from the huge revenues that will eventually start to flow into the country but, perhaps more to the point, Turkey will also benefit from normalised relations with Cyprus which could even reach agreement on distributing gas via Turkish pipelines. However, given that it may take 5-10 years for any income to be generated from natural gas, any softening of Turkish attitudes towards the island in 2012 looks extremely unlikely. Cyprus takes over the rotating Presidency of the Council of the European Union for a sixmonth period on July 1, an event which is being seen as something of a test for the country’s ability to organise major EU gatherings and show that in EU politics, as in many areas, size isn’t everything. It is being given much more importance inside Cyprus than outside, due to the island’s longstanding “we are too small” complex, and the country is expected to do an adequate job. This will doubtless be exploited to the full by President Christofias, especially if he decides to stand for a second term, but in truth it means very little except that Cyprus can hold meetings as well as any other member state. Amid all the speculation over whether the austerity measures will work, whether the banks will manage to recapitalize without the need for partial nationalisation, and whether the Cypriot political parties will spend the whole year accusing one another of incompetence or treason, it is worth remembering that 2012 is also going to be a year of celebration: the London Olympic Games will dominate the global news from 27 July to 12 August, while next month’s Diamond Jubilee of Queen Elizabeth II marks the 60th anniversary of her accession to the throne and becoming Head of the Commonwealth. So it won’t all be doom and gloom, at least that’s how things look from here. And there is something else about which we can also be fairly certain: an unexpected or ‘black swan’ event is going to occur and change our lives for better or worse. It is the phrase used by Nassim Nicholas Taleb in his book The Black Swan to describe an unexpected event which has a major impact on society and should have been foreseen (but was not). It is unlikely to be the collapse of the eurozone since too many people have already predicted that something big will happen. We’ll talk about it in twelve months’ time. Happy New Year!

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ISSUE 10 janUary 2012 PrICE €6.95

the international investment, business & finance magazine of cyprus


GUIDE 2012 Top STockS, kEy STraTEgIES, bEST opporTuNITIES & adVIcE froM ThE ExpErTS

+ dEMETra KaLoGEroU, PETroS LIVanIoS, darIoS MELaS 2012

one step forward, Two steps back


breaking up is hard to do?


andreas athinodorou andrey dashin Ester Levanon


MonEy / bUSInESS EConoMy TaX & LEGaL LIFESTyLE / oPInIon

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

Contributors to this issue: Peter Economides, Isavella Frangou-Pavlou, Jack Gregory, Persella Ioannides, Roddy Kyriakides. Nathalie Kyrou, Darios Melas, Dinos Milel, Fiona Mullen, Eleni Vickers Art Director:

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Margin Trading involves a significant risk of loss. TFI Markets Ltd is regulated by the CySEC, CIF 117/10.

news briefing

deals of the month

LATAM merger approved

Pearson to sell FTSE Stake to London Stock Exchange

Pearson is to sell its 50% stake in the FTSE International group to the London Stock Exchange for £450 million (€535 million) in cash. The company, which owns the Financial Times and book publisher Penguin, says the sale is part of a shift away from financial data and towards news and analysis. “FTSE is a bellwether of global financial markets and a world-class business,” said Marjorie Scardino, chief executive of Pearson. “We have enjoyed supporting the company’s excellent and highly professional team to build the business. Proud as we are of that long association, FTSE’s strategy is different from our own. We wish it every success as we continue to build our digital business information services around the Financial Times.” Pearson said that the deal will enable it to continue to make targeted acquisitions and expand further into non-English language markets. Pearson has made a series of acquisitions in the learning market in recent months,and has gradually withdrawn its stake in financial data firms, most notably its 61% stake in Interactive Data Corporation for $2bn (€1.53bn) in 2010. The transaction is expected to close by the first quarter of 2012. Xavier Rolet, chief executive of the London Stock Exchange, said: “Fully aligning FTSE with one of the world’s most liquid and most international trading groups is an exciting opportunity. “We expect this transaction to create long-term value and growth for our customers and shareholders.”

$450 million

The merger of two major Latin American airlines has been approved, creating the largest carrier in the region. In mid-December, Brazil’s anti-trust authorities approved the merger of the Brazilian airline TAM with Chile’s LAN, a move that was first proposed in 2010. The new airline, LATAM, is valued at about $14.5bn (€11.14bn) and will represent 6% of global air transport. Last year, TAM and LAN flew more than 45 million passengers and 754,777 tonnes of cargo. The combined airline will have a 40,000-strong workforce and will fly to 115 destinations in 23 countries. TAM is a member of the Star Alliance group of airlines, which includes BMI, Lufthansa, SAS and Air China. LAN is a member of the Oneworld airline alliance, which includes Iberia, British Airways, Qantas and JAL. Representatives of the new airline haves not yet said which one it will join.

Heineken buys Galaxy pub group

Royal Bank of Scotland is selling its Galaxy Pub Estate to Heineken for £412m (€490m). The group comprises 918 pubs located across the UK. Heineken subsidiary Scottish & Newcastle (S&N) has managed the tenanted pub group since 1999 for RBS, which will receive an additional £10m (€11.89) from Heineken to wind up the


existing contract. Heineken says that existing S & N tenants will be able to continue with their “business as usual”. “Owning the Galaxy freehold will allow us to continue the successful transformation of our pub business, concentrate on operational excellence and deliver long-term value from a high-quality, well invested pub estate,” said Stefan Orlowski, Managing Director of Heineken UK. Heineken, which is Europe’s top brewer, saw weak growth in profits for the first half of 2011 and last August it warned that demand for its beer in its core Europe and US markets would remain “challenging” in 2012. buys Children’s Book Titles

In a move that would appear to give it a leg up in the digital books segment, has agreed to acquire more than 450 children’s book titles from publisher Marshal Cavendish. Amazon said the acquisition created the foundation for Amazon Publishing to further expand into picture books, chapter books and young adult novels. The head of Amazon’s publishing group said the company believes the children’s book market represents a unique opportunity to innovate in both print and digital formats, noting many of the titles purchased are not currently available as eBooks. The books include a version of The Night Before Christmas, illustrated by Gennady Spirin and National Book Award Finalist My Name is Not Easy by Debby Dahl Edwardson. With its Kindle e-reader, Amazon competes with Barnes & Noble’s Nook, the Sony reader and Apple’s iPad in the digital books segment.

LPD Auction of Russian and Greek ➊ icons ➋


Russian and Greek icons and related works of art, plus number of modern paintings by celebrated Greek and Cypriot artists went under the hammer last month at the third Cyprus auction held by La Parole Divine (LPD) at the Four Seasons Hotel in Limassol. LPD founder Maria Paphiti, formerly International Head of the Icons Department at Christie’s Auctioneers in London, said after the well-attended auction that it had gone very much as expected, with bidders selecting the works they wished to own with great care. “As in other countries, people are buying very selectively these days and paying considerable attention to the likelihood of eventually making a good return on their investment,” she noted. In addition to the religious works, a number of modern paintings were sold including a nude by Miltos Pantelias (Top) which was bought by a prominent businessman from Greece.

➊ Alina Martinidi and Natalia Kardash ➋ Christos Mouskis and Evtichia Avraamidou ➌ Maria Paphiti ➍ Russian Ambassador Vyacheslav Shumskiy ➎ Dr Andreas Pittas ➏ Christos Mouskis ➐ Nicos Anastasiades ➑ Stathis Lemis and Victor Papadopoulos ➒ Czech Ambassador Ladislav Skerik and Natalia Shumskiy ➓ Litsa Lemis and Yiota Zavou

Gold was media sponsor of the event.

➓ the international investment, business & finance magazine of cyprus


news briefing

Could do better Cyprus ranks 30th on the 2011 Corruption Perceptions Index 4. Sweden


=2. Finland 9.4

6. Norway


13. Iceland

10. Canada


19. Ireland

24. United States


=2. Denmark



=16. Barbados


=25. Saint Lucia

21. Bahamas



=25. Uruguay


7. Netherlands


=16. United Kingdom


=25. France


=8. Switzerland

11. Luxembourg


=19. Belgium



16. Austria

14. Germany





30. Cyprus


14. Japan


12. Hong Kong


28. UAR

=22. Qatar




5. Singapore 9.2 =8. Australia


=22. Chile



ublic outcry at corruption, impunity and economic instability sent shockwaves around the world in 2011. Protests in many countries quickly spread to unite people from all parts of society. Their backgrounds may be diverse, but their message is the same: more transparency and accountability is needed from our leaders. For the first time in decades, there were street protests in Cyprus too, as demonstrators demanded the resignation of President Christofias after an official enquiry concluded that he bore political responsibility for the explosion at the Mari Naval Base which killed 13 people and destroyed the island’s main power station. The 2011 Corruption Perceptions Index shows that public frustration is well founded. No region or country in the world is immune to the damages of corruption; the


the international investment, business & finance magazine of cyprus

1. New Zealand


vast majority of the 183 countries and territories assessed score below five on a scale of 0 (highly corrupt) to 10 (very clean.) New Zealand, Denmark and Finland top the list, while North Korea and Somalia are at the bottom. Cyprus comes 30th. The Corruption Perceptions Index ranks countries and territories according to their perceived levels of public sector corruption. It is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries. The 2011 index draws on assessments and opinion surveys carried out by independent and reputable institutions. These surveys and assessments include questions related to the bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and the effectiveness of public sector anti-corruption efforts. Perceptions are used because cor-

ruption is to a great extent a hidden activity that is difficult to measure. Over time, perceptions have proved to be a reliable estimate of corruption. “This year we have seen corruption on protestors’ banners be they rich or poor. Whether in a Europe hit by debt crisis or an Arab world starting a new political era, leaders must heed the demands for better government,” says Huguette Labelle, Chair of Transparency International. The Corruption Perceptions Index ranks countries/territories based on how corrupt their public sector is perceived to be. A country/territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. A country’s rank indicates its position relative to the other countries/territories included in the index.


five minutes with... Petros T. Livanios, Vice-Chairman, Cyprus, Fiduciary Association

Gold: How important is the fiduciary sector to Cyprus? At present, the services sector contributes to more than 70% of the Island’s GDP. There are currently over 40,000 people employed in this industry whether these be lawyers/accountants/bankers or corporate service providers. Maintaining Cyprus as an attractive jurisdiction to do business not only generates revenue for the country but it also attracts foreign investment into other sectors such as real estate and the finance industry.

and to promote Cyprus and the fiduciary industry at the international level. Moreover, any foreign investor/client will be able to see which corporate service providers are members of the CFA via the association’s website. The CFA’s membership requirements will be published, allowing investors/clients to know what to expect when receiving services from a CFA member. The CFA will carry out frequent audits of its members to ensure compliance with its requirements.

What are the main problems facing it? One of the main problems faced by the fiduciary sector is the lack of regulation and the lack of government support in the promotion of Cyprus as an International Business Centre. Lawyers and accountants are regulated by their professional bodies regarding money laundering and terrorist financing, for example, but corporate service providers remain unregulated in this By Trevor Peacock area. Another problem is the fact that the office of the Registrar of Companies is not as developed and as efficient as its counterpart in other jurisdictions. In order to maintain a level of competitiveness, Cyprus has to be in a position to respond to clients’ demands within the required timeframes. What can the newly-formed Cyprus Fiduciary Association (CFA) do? It will provide a level of “self regulation” to corporate service providers as well as provide overall regulation to the industry via its members. The CFA will also be in a position to voice the views of its members to the relevant government departments

growing need that has led to the key players within the industry to come together and form the CFA. This way there is some form of legislation within the industry and a means for the interests of clients to be protected. How will regulation assist the sector? The introduction of internationally endorsed criteria for administering fiduciary services will further boost the island’s competitiveness with other jurisdictions and further increase the influx of related business. The security it offers to clients, and the guarantee that their interests will be protected by law, eliminates even the slightest reservations of doing business in Cyprus. What is required of firms wishing to join the CFA? Among the key provisions are that members should apply due diligence procedures before accepting a new client in accordance with the Central Bank of Cyprus Directive and EU Directives; members should have at least two qualified “Principals” and adequate internal procedures and controls.

Why has it taken so long to form such an association? In the past, the lack of legislation did not have such an impact on doing business in Cyprus. With the growing popularity of using Cyprus at an international level, however, the issue of regulation has become much more important and it is this

Who are the founding members of the association? The first ten firms are Abacus Ltd., Citco (Cyprus) Ltd., Fidelico Ltd.. Fiducenter (Cyprus) Ltd., IFG Trust (Cyprus) Ltd., Oxford Management Ltd., Proteas Management Ltd., Trident Trust Company (Cyprus) Ltd., Totalserve Management Ltd. and Vistra (Cyprus) Ltd. For more information, e-mail: the international investment, business & finance magazine of cyprus


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indicators • commodities • forex By Isavella Frangou-Pavlou KAB Strategy (Cyprus) Limited (CySEC License No. 058/05)

Major FX

Major COMMODITIES 52 weeks


Monthly change (%)








































1.2185 -0.62% EURCHF (Source: Yahoo Finance. As at 6GMT 19/12/2011)

Monthly change (%)



Gold (USD/t oz.)





Sliver (USD/t oz.)





Crude oil (USD/bbl.)





Natural Gas (USD/MMBtu)









Wheat (USD/bu.)






Sugar (USD/lb.)







Soy (USD/bu.)







EuroZone 52 weeks















Unemployment Rate (MoM)





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





Debt/GDP (Italy) (MoM)





Interest Rate (MoM)





The US economy is picking up but that hardly means that it is out of danger. Unemployment (Source: Eurostat - Bloomberg: and debt ratios will remain high for a long period given the slow economic growth. Meanwhile the bond yield says that USDbased assets are still the safest bet in the financial world.

Corn (USD/bu.)

(Source: Yahoo Finance. As at 6GMT 19/12/2011)

No improvement was seen in the eurozone in December, meaning that the debt crisis will extend into this year. The huge difference in bond yields between member countries increases danger of a break-up of the zone and thus it is not surprising to see Germany opposing a common bond.

British Prime Minister David Cameron at the December EU Summit with José Manuel Barroso


US Indices 52 weeks




GDP(Annualized 3Q)










Unemployment Rate (MoM)





Non-farm (MoM)





Bond yield (10-year) (MoM)





Debt/GDP (MoM)





Interest Rate (MoM)





(Source: US Bureau of Labor U.S. Department of Commerce US Department of the Treasury US Bureau of the Public Debt 16

52 weeks


52 weeks


Monthly change (%)












Dow Jones






European Indices FTSE




























Asian Indices Hang Seng Shanghai

(Source: Bloomberg. As at 24/11/2011)

(Source: Bloomberg. As at 7GMT 19/12/2011) the international investment, business & finance magazine OF CYPRUS

$1.767 Gold USD 1800.90 1776.15 1752.15 1727.40 1703.40 1679.40 1654.65 1630.65 1605.90 1581.90 1557.90

6 Oct 2011

16 Oct 2011

25 Oct 2011 3 Nov 2011

13 Nov 2011 22 Nov 2011 1 Dec 2011

11 Dec 2011

Gold plummeted in December, with a monthly high of USD1767/oz and low near USD1560/oz. The dollar reclaimed its appeal as the authentic safe haven, given the ongoing European crisis, and commodity prices are now pressured as Europe is eagerly seeking money to bailout itself and liquidity is lacking. The EU summit on December 9 produced only long-term solutions. Facing the looming catastrophe in Greece, Italy and Spain, the leaders agreed to a new fiscal pact, but it failed to give answers to what these nations should do if their financing costs rise further. Investors gave mixed reviews to the summit with US stocks rebounding sharply and the euro tumbling. In addition, the Fed’s newest report did not mention any further commitment to ease the money supply, except for keeping the extremely low interest rate until the middle of 2013. Commodities lost support as traders were disappointed with the Fed’s decision.

Source: KAB-MetaTrader

USD 1286.20 1269.70 1253.70 1237.70 1221.70 1205.78 1189.20 1173.20 1157.20 1141.20 1125.20

2 Oct 2011

16 Oct 2011 25 Oct 2011 3 Nov 2011 13 Nov 2011 22 Nov 2011 1 Dec 2011

Source: KAB-MetaTrader

11 Dec 2011

1.4245 1.4110 1.3975 1.3845 1.3710 1.3575 1.3445 1.3310 1.3180 1.3050 1.3019

1.2915 6 Oct 2011

16 Oct 2011

25 Oct 2011 3 Nov 2011

Source: KAB-MetaTrader

13 Nov 2011 22 Nov 2011 1 Dec 2011

11 Dec 2011

US Stocks

December was a rollercoaster ride for US indices. The S&P 500 index has been swinging up and down under the European debt crisis influence. The stock market welcomed the result of a deeper integrated union during the European summit and rose to about 1270. However, investors soon realized that the summit outcome had not solved the high funding cost issue for debt-ridden countries like Spain and Italy and the S&P 500 index tumbled. Meanwhile, many financial bodies announced expectations of no or slow growth for the global economy in the first half of 2012 and this put enormous pressure on the stock market. Technically, the index has been bouncing between 1150 and 1270. Both levels show tremendous strength. The resistance is a neckline of a former bearish reversal pattern and its strength seems stronger than the support. While the downtrend is certain one should not underestimate the Christmas sprit bringing in some temporary surprises. 1150 may be reached in early January.


EURUSD fell below 1.315 to touch 1.295 due to the perceived failure of the European summit. There are currently two immediate threats suppressing the currency and they are the high funding costs for PIIGS and the possibility of France’s downgrade. According to a report on December 16 from the Commodity Futures Trading Commission in the US, short positions on EURUSD reached the highest level since 2007 amid increasing worries about the crisis. Thus a weaker euro is expected in January and beyond, given that no meaningful solution is in sight. Technically, the euro’s downtrend is clear, correcting the advance since June 2010. The pair is riding on wave c, a major correction wave, and no certain end is visible. 1.26 is the target in January and a lower low is very likely as expectations of a smaller eurozone continue in the future. the international investment, business & finance magazine OF CYPRUS


indicators • commodities • forex

Egypt riots

USD 103.00 100.55 98.10 95.65 93.23 90.75 88.30 85.85 83.40 80.95 6 Oct 2011

16 Oct 2011

Source: KAB-MetaTrader

25 Oct 2011

3 Nov 2011

13 Nov 2011 22 Nov 2011 1 Dec 2011

11 Dec 2011



Oil prices failed to break the latest six-month high and fluctuated down in December. The escalating European debt crisis, exacerbated by worries of global economic contraction, dragged oil prices down. The European debt crisis is spreading to core eurozone countries and economic growth in Europe has stalled (except for Germany). According to BP Plc’s Statistical Review of World Energy, the 27 EU member states accounted for 16% of global oil consumption last year, the fragile fundamentals led OPEC to cut oil consumption expectations for next year, and the organisation began to control oil output. On the other hand, tensions with Iran and the Arab world are supporting oil prices. Egypt is again plagued by violence while Iran, the world’s fourth largest producer and third largest exporter of oil, is now facing more international sanctions. The downbeat eurozone and the uncertain Middle East will lead to steep fluctuation for oil in the coming months.


1.6160 1.6070 1.5975 1.5885 1.5795 1.5700 1.5610 1.5530 1.5503 1.5425 1.5335

6 Oct 2011 16 Oct 2011 25 Oct 2011 3 Nov 2011 13 Nov 2011 22 Nov 2011 1 Dec 2011 11 Dec 2011


Source: KAB-MetaTrader

79.50 79.10 78.70 78.30 1724.55 77.45 77.05 76.65 76.25 75.85 75.45

6 Oct 2011

16 Oct 2011

25 Oct 2011 3 Nov 2011

13 Nov 2011 22 Nov 2011 1 Dec 2011

11 Dec 2011

The pound is under less influence from the euro as the UK is becomes more isolated from the EU. British Prime Minister David Cameron decided after the European summit not to tie Britain’s future to that of the other EU countries. While the decision is understandable for the moment, Cameron has taken a big risk on his country given that Britain will be a less influential player in the state of Europe. While his decision will help prevent Sterling from sharply falling with the euro, it also caps the currency from any strong rebound since the country lacks growth. The Bank of England, meanwhile, took a “wait-and-see” stance and a bearish fluctuation touching 1.510 is likely for this currency pair. The pound peaked at 1.577 in December and it is expected to be the top for the next month. Support at 1.540 seems firm for now but its strength is being reduced every time the pair tries to dip below. The downtrend is clear on the daily chart and GBPUSD will dip below 1.527 before any short covering.


USDJPY fluctuated around 77.80 in December in a small daily trading range as the Japanese government has been silent about its FX policy. The last intervention in October is working as the pair refuses to sink below 77.00. However, resistance around 78.20-78.30 proves strong, capping all rebounds below for over a month. The fight between the demand for JPY as a safe-haven currency and the fear of another intervention keeps the pair range bouncing and the trend will carry into January. Generally, the pair trends sideways at a higher level with support at 77.00. Although bullish sentiment is becoming more pronounced, overhead pressure is still enormous and no uptrend is expected before a pick-up in the Japanese economy and the European crisis is evident. 77.00 is crucial support and the pair will trade towards 76.50 if there is a break below that level.

Source: KAB-MetaTrader

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


the international investment, business & finance magazine OF CYPRUS


.XXX For Danger

Corporate legal departments have been working hard to prevent cyber-squatters from hijacking their brand names


By Roddy Kyriakides

If a corporate brand is registered as a .xxx domain name, it is almost certain that it will relate to Internet content that may damage that brand

n addition to the economic issues in the news headlines in recent months, companies across the world have had to wrestle with a new challenge. How should their legal departments deal with the introduction of the .xxx domain name? In the context of the recent decision of the Internet Corporation for Assigned Names and Numbers (ICANN) to expand its generic top-level Internet domains (gTLD), one of the first and perhaps most publicized examples of this expansion has been the .xxx domain. This top-level Internet domain is being offered to companies involved in the provision of “adult entertainment” services. Practically, this means that Internet pornographic content will no longer merely coexist with the rest of the content on the World Wide Web but will have its own separate Internet category. The effect that this has had on international companies not involved with pornography has been dramatic. As has happened with the introduction of other categories of gTLDs in the past, corporate legal departments have had to work hard to prevent cyber-squatters from registering their respective corporate brand names as these new gTLDs have become available. Thus, whilst many international companies may have taken prudent legal measures to secure their corporate brands before the introduction of previous gTLDs, for example registering and/or and/or mycorporatebrand. net, companies now also have to consider the availability of the .xxx domain and prevent their brands falling into misuse by third parties in the context of this new domain name. In this respect, it is worth noting that while the use of the .xxx domain is restricted exclusively to the adult entertainment industry (just as the .edu domain is for the exclusive use of educational establishments), if a corporate

brand is registered as a .xxx domain name it is almost certain that it will relate to Internet content that may damage that brand or trademark. ICM Registry LLC, the company in charge of the implementation of the .xxx domain name has incorporated various safeguards in order to assist companies in preventing the potential abuse of their corporate brands. There have been two ‘sunrise’ time periods to phase in the .xxx domain name. Sunrise A allowed applicants adult entertainment entities to apply for prospective .xxx domain names for review by ICM Registry LLC and Sunrise B allowed companies to specifically block their trademarks from becoming damaging pornographic websites. Sunrise B also allowed companies to have their trademarks permanently removed from the rollout of the .xxx domain name system, once they had proved that they were the owners of the relevant trademarks, without the need to pay annual registration fees. There is also a dispute mechanism in place where, once the .xxx domain name system is launched, under certain circumstances a wrongly granted .xxx domain name can be cancelled by ICM within 48 hours. After the conclusion of Sunrise A & B Periods, ICM organised a remaining application procedure in November 2011 for interested parties who had not met the qualification requirements for Sunrise A but wished to obtain a .xxx domain name. This was followed by a general availability phase starting on 6 December 2011 for applicants wishing to secure the remaining .xxx domain names on a ‘first-come, first-served’ basis. Many companies are now taking stock of which of their corporate brands have been hijacked by the .xxx domain name system and are preparing to take appropriate dispute resolution measures and/or litigate these disputes in court.

info: Roddy Kyriakides is an Advocate at Emilianides & Kyriakides Law Office, Nicosia the international investment, business & finance magazine of cyprus


the debate

“Will 2012 be a better year for Cyprus than 2011?” NO!

YES! By Dinos Milel

Despite the economic doom and gloom permeating throughout the media, there are very good reasons why Cypriots should be happier than most regarding the prospects for 2012. Firstly, as of 1 July, Cyprus will hold the EU Presidency with all the advantages that this entails. Never in the history of the Republic has the island assumed such an eminent political position and, given the inevitable increase in travellers (be they politicians, business leaders or lobbyists) into Cyprus, this can only be a good thing for the economy. Secondly, according to official estimates, tourism numbers increased by approximately 15% in 2011 with the trend set to continue into 2012. With the continued turmoil throughout competing destinations in the region such as Egypt, Cyprus is well poised to capitalise on being the best (and safest) alternative. Thirdly, let’s not forget that if the geologists are correct and Cyprus proves to have substantial offshore hydrocarbon reserves, the future economic security of the island may be assured for generations to come. Although the actual commercialisation process will take years, the development of the infrastructure required to extract the oil and/or gas from the depths of the Mediterranean should begin this year. As such, the evolution of this industry will transform our economy significantly, boosting employment and enriching the specialisation needs of our workforce. Given that

The Cypriots should start to feel emboldened to take calculated entrepreneurial risks again expectations are of paramount importance to any economy, the Cypriots should start to feel emboldened to take calculated entrepreneurial risks again. Finally, even in the worst-case scenario that the Cyprus government does require a bailout in 2012, I believe even this will be for the best. This stems from any imposed austerity package inevitably obligating the public sector to downsize and this is something the majority of Cypriots should welcome. It will make the country’s administration leaner, more competitive, less corrupt and ready to better manage any spoils of oil and gas that may be coming our way in the future.

By Jack Gregory

While everyone in Cyprus acknowledges that the country is facing extremely serious challenges, many observers would have us believe that after the annus horribilis of 2011, things can only get better. Unfortunately, in the case of Cyprus and its economy, there is still plenty of room for further difficulties. Few people, including most of the MPs who voted for the government’s package of austerity measures, genuinely believe that they will resolve the country’s problems. Finance Minister Kikis Kaza-

The next twelve months are going to be one long presidential election campaign mias may be committed to reducing the fiscal deficit to below 3% but even he knows that more cost-cutting will be required in the near future if he is to make good his commitment. The island’s two main debt-laden commercial banks have both stated that they will not require assistance from the state in their recapitalisation efforts, which is good news since the government has admitted that its capability to help is severely limited. However, it is too early to state with certainty that they will succeed in raising a massive €3.5 billion over the next six months. The rating agencies have come in for a great deal of criticism in recent months but, contrary to popular belief, their downgrades are not part of some anti-Cyprus conspiracy. They see the numbers and they react accordingly. The fact that the political parties came together and supported the austerity measures is seen in certain quarters as an indication that 2012 is going to be the start of a new era of harmony and cooperation. If only! The next twelve months are going to be one long presidential election campaign and the knives will soon be out. Cyprus may bask in the international spotlight of the EU Presidency for six months but taking care of EU business is not going to improve the economy or resolve the Cyprus Problem either. I predict more austerity measures, higher unemployment, missed financial targets and a great deal of inter-party bickering for 2012. Yes, things can actually get worse.

info: Dinos Milel is a market research analyst with a Master’s degree in European Economics Jack Gregory is a UK-based political analyst and an expert on Mediterranean economies 20

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Gold Jan 2012.pdf











8:58 AM

cover story By Costa Ioannides

Investment Guide

Preparing for the worst and hoping for the best should be the key strategy for investors over the next twelve months


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Writing in Newsweek last month, financial historian Niall Ferguson noted how “People often forget that the Great Depression was like a soccer match – there were two halves. The first half was dominated by the aftermath of the 1929 US stock-market crash. The second half, which made the depression truly “great” in both its depth and its extent, began with the European banking crisis of 1931.”


oes this sound worringly familiar? Is the second dip of the global recession about to wipe out most people’s fortunes? Has the time come for us to stuff all our cash in our pockets and run for the hills? If we had been blessed with the benefit of hindsight when compiling our 2011 Investment Guide last March ahead of the launch issue of Gold, we could have pointed out that the biggest threat to the global economy was… the unexpected. In the following nine months:

• A  n earthquake and a tsunami ripped through Japan and caused the Fukishima nuclear disaster. • Popular revolutions took place throughout North Africa, contributing to sustained high oil prices. • There was violent rioting in London and the Occupy Wall Street movement was copied around the world as a response to perceived unfairness in the current financial system. • The EU sovereign debt crisis worsened • Cyprus’ biggest power station at Vasilikos was destroyed by an explosion at the nearby Mari Naval Base. • 77 people were killed in Norway as a result of a bombing and shooting campaign by Anders Behring Breivik, a far-right extremist. • Greece and Italy were forced to change governments.

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investment guide 2012


iven that 2012 is now shaping up to be a perfect storm of potential woes for investors (let alone the unexpected), the key to minimizing losses remains pretty much the same as it’s always been, i.e. establishing a welldiversified global portfolio that’s split between different asset classes and geographical locations. On the following pages, Gold looks at the basics for achieving a balanced investment strategy to help you make sure that you don’t lose your proverbial shirts to the dreaded double dip this year.

Developing an investment strategy that’s right for you given the current market environment With a looming recession, sluggish growth rates throughout the Western world, and a euro crisis that promises a binary outcome – either being saved by some form of fiscal union or unraveling at the seams – investors are certainly in for a bumpy ride in 2012. As events unfold, the foolish and the brave may lose or make fortunes while the cautious will be confronted with the challenge of staving off the threats posed by inflation, low interest rates, bearish equity markets and panic caused by sovereign defaults Despite the deteriorating economic conditions, however, the fundamental investment basics still remain true. The crucial objective of any financial planning process is to maximize the prospects for future financial growth while limiting the potential for losses over the long term. This means identifying your investment goals, assessing your current financial position and determining your attitude to investment risk. Once these elements have been clarified, an appropriate investment strategy can then be employed as the cornerstone of your financial plan. Another vital element in the financial planning process is to monitor the performance of your investment strategy against pre-determined objectives, and make ongoing modifications which may be required to keep the plan on track. This is necessary because your investment needs are likely to alter over time as you experience any changes to your level of income or wealth, lifestyle and even health. With this in mind, every financial plan should be flexible enough to ensure that alterations can be made as such needs and objectives change over time.

sonal requirements. It establishes the balance between income and growth from your investments, your preferred investment horizon and your attitude towards investment risk. This profile will influence the investment sectors (e.g. equities, fixed interest, real estate, etc.) into which your money is invested and in what proportions. Due to the complex nature of determining the variables, it is the task of the financial planner to recognise and prescribe an investment strategy according to your specific investor profile. These profiles may range from ‘highly conservative’ (implying lower risk, lower return) to an ‘aggressive growth’ investor (taking higher risks and looking to achieve higher returns). There are additional investor classifications that fall between these profiles which generally reflect an individual’s particular approach to investment risk and return. While every financial plan is unique and formulated to meet individual needs, most investors fit into one of the specific investor profiles. For example, a ‘conservative’ investor may require a regular, stable income stream and prefer a relatively low level of fluctuation in his/her investment’s performance. On the other hand, a ‘growth’ investor may not necessarily require an income stream, preferring to concentrate on obtaining capital growth from the investment and being prepared to accept the additional fluctuations in return associated with a ‘growth’ strategy.

The crucial objective of any financial planning process is to maximize the prospects for future financial growth while limiting the potential for losses over the long term

Determining Your Investor Profile Establishing your investor profile is the first important step to formulating the investment strategy that is right for your per24

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Asset Allocation

Once your investor profile is established, the asset allocation process is undoubtedly the most important factor in determining whether or not your investment objectives are actually realised. In basic terms, asset allocation distributes your investment capital among an array of different asset classes whereby the bulk of the money is placed in relatively secure investments such as fixed interest bonds and blue chip [well established] stocks. The remainder may be distributed between higher risk (but potentially higher reward) investments or those that act as a counterweight to adverse movements in the rest of the portfolio (e.g. gold usually increases in value when stock market indices are falling and vice-versa).

Diversifying Your Portfolio The process of diversification spreads your funds across various investment markets and/or fund managers in order to manage investment risk – put simply, it’s a process to ensure that all your eggs [money] are not placed in a single basket but spread out among many. It works on the principle that different investment markets (such as equities, property, bonds and cash) perform well or badly at different times. Because of

this, it’s recommended to construct your portfolio using an appropriate mix of funds with exposure to investments across all or most global markets. This approach helps to manage the highs and lows of economic and investment cycles by balancing the returns of lower-performing markets with the returns of higher-performing ones. You should also ensure that your investment portfolio is diversified within, as well as across, different investment sectors. For example, investing all your money in UK government bonds and shares in Royal Bank of Scotland does not constitute a diversified portfolio. To really achieve this, an investor needs to distribute capital across a number of other securities and companies beyond those of his/her own domestic market in order to truly diversify the portfolio. This is also true for investments in other asset classes, such as property and grouped investment funds such as mutual, hedge or private equity funds.

Ongoing Review of Your Portfolio Given that most people with a significant amount of money to invest do so through a dedicated financial planner, it is the latter’s task to arrange the placement of investments as suggested in your investment strategy. To ensure that your strategy continues to meet your objectives in keeping with your changing personal circumstances, it is the task of the financial planner to regularly review your investment strategy in order to check that everything is going according to plan.

The proportion of funds invested in each asset class depends on key factors such as: • The desired return on the investment • The preferred investment timeframe • Long term income earning ability • Risk tolerance • The need to generate cash flow from your investment portfolio • General market conditions.

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investment guide 2012

The 20 New Rules of Money According to forbes

Having recently released its 20 New Rules of Money, Forbes advises investors to abandon some of the old basic rules of thumb 1. Buy and hold at your own risk 2.  Diversification won’t protect you (but it’s still better than all the alternatives - Gold) 3. Low P/E doesn’t equal value 4. Taxes are a key investing strategy 5. Learn to profit from volatility 6. Watch the politicians 7. Pay attention to fund manager expenses, but don’t obsess over them 8. Income investing isn’t just for old folks 9. Invest to meet goals, not beat indexes 10. Mine your network for investment ideas 11. Manage your financial advisor 12. Know your sell rules before you buy 13. Piggyback smarter investors 14. Be an online research analyst 15. Use ETFs to expand your investing horizons 16. Always keep some powder dry, hold cash 17. It’s OK to chase performance, sometimes 18. Go global for growth 19. Buy on dips 20. Take down your bond ladder

An example of a hypothetical diversified portfolio for a UK Investor Cash


UK Gilts


Corporate Bonds




UK Equity


North American Equity




8% 22% 10%


Global Bonds

European Equity




8% 10%

Far East Equity


Emerging Markets


the international investment, business & finance magazine of cyprus

5% 26%

It’s going to be a scary world for investors in 2012. here’s What the industry insiders are saying “The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they’re on the operating table.” Warren Buffett

“You can’t get the toothpaste back in the tube. The euro will stand. Because the alternative is Holocaust of some kind.” Tad Rivelle,

Chief Investment Officer, Fixed-Income, TCW

“I don’t think the euro can survive in its present form no matter what they do tomorrow.”

“Greece is toast. Let it be toast. But I don’t think trying to turn toast into something else works.”

John Taylor,

Chairman and Chief Investment Officer, FX Concepts

Kenneth Fisher,

“A rally in all asset classes sometime in the first half of 2012 seems quite likely. That might be an opportunity for beleaguered investors to listen to Woody Allen’s advice: take the money and run!”

CEO Fisher Investments

“Real wages in middle America haven’t increased for 25 years. So when you see these ‘Occupy Wall Street’type protests, or the riots here in the UK, I think one would be very unwise to treat those as just being small things that will just go away.” Alan Brown, Chief Investment Officer, Schroders (UK)

Abheek Barua,

Chief Economist, HDFC Bank

“It is credit that matters, not money… the hardest thing to judge is what level of risk is safe.” George Soros

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investment guide 2012

top RECOMMENDED STOCKS • Visa Inc. • Statoil ASA

stock picks

• Lincoln National • Marathon Oil • CenturyLink • Apple • Air Products & Chemical • CBS Corp. • Eli Lilly • Union Pacific • Altria • Xcel Energy

stock picks

• Aeroflex Holding • Apple • EMC • NCR • Oracle • Qualcomm • Synchronoss Technologies • Visa • VMWare

stocks picks for long-term investors • Microsoft • Walt Disney • Philip Morris • JPMorgan Chase • Kimberly-Clark • Dominion Resources • Intel • PulteGroup • Wells Fargo • Cisco Systems


• Patel Engineering • SEL Manufacturing • NDTV • Tourism Finance Corporation • HDIL • Solar Industries India Ltd • Torrent Pharmaceuticals Limited • Reliance Broadcast • Everonn Education limited

Brazilian equity picks • Gafisa SA • CPFL Energia • Petroleo Brasileiro • AMBEV • Ultrapar Holdings • Cosan Ltd • Braskem S.A. • Embraer S.A.

Chinese stock picks

• SORL Auto Parts Inc. • China Life Insurance Company • China National Offshore Oil Company • Huaneng Power International • China Kanghui Holdings

Commodity picks • Gold • Silver • Livestock

European stock picks • SAP AG • Royal Dutch Shell • SKF • William Demant Holdings • Telenor ASA • AMEC • Swatch Group

US stock picks

• Qualcomm Inc. • Waste Management Inc • Alere Inc • News Corp • FMC Corporation


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Citigroup Russian stocks picks • Sberbank • Nomos bank • Synergy • Dixy • Gazprom • CAT Oil • Dragon Oil

HBJ Capital Indian equity picks • Petronet LNG


• SPDR Nuveen Barclays Bld Amr Bd ETF • PIMCO 15 Plus Year US TIPS Index • PowerShares Emrg Mkt Sovereign Debt • iShares JPMorgan USD Emg Mkts Bond • iShares 10+ Year Govt/Credit Bd • United States Brent Oil Fund • SPDR Gold Shares • PowerShares DB Gold Fund • PowerShares DB Precious Metals Fund • SPDR S&P Retail ETF

Private Investor Perspectives Gold asked two wellknown Cypriot businessmen who are private investors – Dinos Lefkaritis and Vasilis Petrides – how they would advise other investors to structure their portfolios over the coming year.

Dinos Lefkaritis

Vasilis Petrides

CFO Petrolina

CEO Cosmos Trading

Do you think that 2012 will be a good year to buy into any specific asset class?

I would be very reluctant to make new investments in any asset class. Overall I think it’s probably better to keep a cash position.

Investments in Energy should perform well but with many unknowns and volatility at play, especially in our part of the world, one could argue for wide deviations in assets and be absolutely right.

Will the coming year be particularly bad for certain asset classes?

Firstly I would avoid equities in corporations without steady recurring profitability and a solid cash flow basis. Secondly, property in non-prime locations may prove to lose value in 2012.

Shipping, due to a reduction in international trade. BRICS stock markets will show a decline from their high valuations as demand from the developed world recedes in 2012.

If you were advising someone to build a portfolio for scratch, how would you advise them to structure their portfolio in terms of holding: Q:

International Equities/Stocks


10% (Dividend- earning stocks in foodstuffs, pharmaceuticals, energy)

Cypriot Equities/Stocks


3% (Bank of Cyprus, Energy companies)


10% (German bonds)

10% (Australian and Canadian bonds)


20% (Land & property in prime locations)

10% (Balkans)



5% (Hedge Funds)


10% (Gold & silver)

5% (Copper)



55% (Australian Dollar & Swiss Franc)

Other asset classes that should be considered


2% (Distressed assets opportunities if presented)

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investment guide 2012

Photos: Jo Michaelides

The experts’ view


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Gold invited six experts to exchange views on their predictions for the coming year and on what investment strategies should be implemented in 2012.

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investment guide 2012


Tasos Anastasi

Senior Financial Officer, EUROBANK EFG

Panayiotis Chrysostomou

Asset Manager, CISCO

Christos Kalogeris Manager - Asset Management, MARFIN CLR (FINANCIAL SERVICES)

Loucas Marangos

Chief Executive Officer, TFIFX


Charis Papanicolaou Head - Business Development, SHARELINK SECURITIES & FINANCIAL SERVICES LTD

Nicholas Tantis


Trade Forex with Success

What are the key events that are likely to shape the global financial markets in 2012?

ing their budgets. I believe this can be achieved if the politicians realise that the single currency has helped many countries and encouraged cheaper borrowing costs.

Charis Papanicolaou: The most obvious one concerns the euro

at the epicentre of what’s happening in the global economy and efforts are being made by the core countries towards closer fiscal union and closer economic cooperation because this is the only way to control the fiscal imbalances that we’ve seen place in peripheral Europe. Another big question is whether the European Central Bank will eventually take on the role that other central banks play around the world – that of being the ‘lender of last resort’ – because some serious funding needs to take place somehow. I agree that the politicians have to put aside their political aspirations but politicians want to be elected as well so I don’t think we can be certain of the outcome. I would also add the US elections as a key event. It’s very important to see whether the United States will take the very serious decisions it needs to on fiscal consolidation.

and how the European debt crisis is going to end. Any long-term solution to the problem will be difficult to achieve since different countries have their own interests and agendas and we also have to bear in mind that a lot of decisions are not taken based on economic facts but on political agendas. By the end of 2012, it definitely looks as if things will be very different from what we have been used to until now, possibly worse.

Tasos Anastasi: I agree. The fact is that the debt-driven growth model that we have had in the eurozone and in more or less all European countries has failed. The markets have run out of patience with it and this will be the big challenge: to see if we will grow out of this model or make more drastic changes. The US, the UK and have the monetary tools to address the issue but the eurozone seems to be trapped so resolving this will be the big challenge going into 2012.

Nicholas Tantis: The introduction of the euro led to low interest rates and aggressive lending by all the peripheral countries. This in turn brought a sharp period of growth but, because it was not controlled, we are now seeing the consequences. We all possibly agree here that the euro has done more good than harm to all the countries that have taken it and so the politicians need to stick with the euro and work on closer integration and restrain32

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Panayiotis Chrysostomou: The eurozone crisis is obviously

Christos Kalogeris: There are three key issues: Europe, the US elections and the possibility of a NATO attack on Iran. These will be the catalysts. Loucas Marangos: I believe that the eurozone as a whole will

solve its problems through tighter fiscal union and that it will be in better shape in late 2012. By the end of the year the European debt crisis will be resolved and attention will shift to the problems of the US economy. I consider the huge US deficit to be a much bigger problem than the European debt crisis. 2012

is going to be a year of low growth and high unemployment, and while the central bank interest rates will be lower consumers can expect to pay more to borrow money. Greater regulation in the financial sector will affect the way than banks operate and how financial instruments are traded.

Gold: Many countries view closer fiscal union as a loss of sovereignty. Is it feasible? Nicholas Tantis: Basically there is no choice. If it’s a question of saving the euro, we have to go for closer fiscal union. Any countries that don’t agree to it will be on their own. Charis Papanicolaou: It’s a give and take situation. If you wish to take advantage of the healthier central European economies that can reduce your costs of borrowing, you have to give something even if it means part of your sovereignty. Nicholas Tantis: What Angela Merkel is trying to do is to create a fairer European system. You can’t have German taxpayers working until 67 while Cypriot municipal workers retire at 60 or teachers at 55, at a time when Cyprus is thriving as an international tax haven with a 10% corporate tax rate in competition with Germany. So you are going to lose some of the aspects that make your economy competitive so as not to face greater risks.

Gold: But does the political will exist to bring about closer fiscal union? Loucas Marangos: When Ireland, Spain, Italy and Greece had a massive problem, there was no political will to take the necessary measures but they were forced to do the unthinkable. In Greece and Italy, governments were replaced within the space of one week so what has to be done will be done. A country like Greece or Cyprus cannot say “I do not accept this tax rate change”. It’s simply not on the cards. People will be pressurized until they ac-

Here’s €1 million… We asked our panel of experts what they would choose for a client who insisted that he wanted to invest €1 million in a single stock. After stating that they would advise against such an investment, they came up with the following in alphabetical order:

• Apple

Volatility was one of the main characteristics of 2011 and it is going to continue into 2012

cept a model that works.

Charis Papanicolaou:

At this stage what we’re talking about is the fact that each country’s budget will have to be approved by the European Commission. There is no proposal for a common corporate tax rate, for example, at this time.

Panayiotis Chrysostomou: This is true. There are several different stages of closer fiscal cooperation and at first it will be a matter of annual budgets being approved by the European Commission. There will probably be limits imposed – debt limits, fiscal deficit or surplus limits. Other stages, such as tax harmonization, will take more time to implement and they will require much tougher decisions. But there is probably no other way to resolve the crisis which arose because the common monetary policy was not accompanied by a common fiscal policy. It’s a problem that took some years to appear but it finally did surface in a big way.

Tasos Anastasi: Right now the policies have been set out but we

have not yet seen the results. What will happen if Greece, Spain and Italy implement all the approved measures but still do not see the results that everyone is hoping for? I think that what we’re seeing right now is a test and that the eurozone may have to resort to other measures such as printing money.

Charis Papanicolaou: Volatility was one of the main characteristics of 2011 and I think it is going to continue into 2012.

Gold: Do you think the markets will give enough time for this closer integration/ fiscal union to happen or will they try to test things to the limit? Panayiotis Chrysostomou: They have been doing that for more than a year now. They’ve been testing the decision-making and the EU leaders’ determination to do things. Just think about how many important EU summits there have been in the last couple of years. This is how it will probably continue. I am afraid that there is a risk that things may become more serious.

• Berkshire Hathaway • Glaxo SmithKline • HSBC • Microsoft • Pfizer

Nicholas Tantis: Germany has been playing political chess. Historically it has always been in favour of closer integration but if it had stepped in from day one it would not have achieved its objective of getting the other countries to accept this. So, in effect, Angela Merkel intentionally let it drag on in order to bring about closer European integration. the international investment, business & finance magazine of cyprus


investment guide 2012

Charis Papanicolaou: I think that the markets generally expect

2012 to be a positive year for equities at least unless there is a major unexpected event such as the collapse of the euro, a hard landing in the Chinese property market or further problems regarding the fiscal situation in the US.

Nicholas Tantis: Developments in Iran and Syria could also postpone a lot of other decision making. Charis Papanicolaou: Wars have always proved to be good for

the markets.

Panayiotis Chrysostomou: Think of Iraq in 2003, the beginning of the greatest bull market.

Gold: How does 2012 look in terms of investment opportunities? Loucas Marangos: In times of liquidity, people can lose for-

tunes and they can make them. We should not be trapped in the model that says you can make money only if you buy something. There are instruments that let you go long or short; there are those that will give you a significant return if the worst happens; you can invest in market-neutral strategies; there is certainly no shortage of ideas. If you have the money and you can buy a bond to maturity there are significantly good credits that are trading at distressed levels. The same goes for property: if you can invest cash to buy property with a long-term outlook it should pay off. We have seen our clients make good returns on currencies and that can certainly continue.

Tasos Anastasi: We have moved away from the traditional ‘buy and hold’ strategy of investment. Today’s markets are newsdriven and event-driven so you can make money by using a good tactical strategy. Christos Kalogeris: Another crucial problem in investing relates to contagion. You can decide, for example, to avoid Europe and focus on the US or on emerging markets but if someone has a problem, wherever you go may still be affected quite considerably. You cannot really isolate countries anymore, even though some may theoretically be better than others Charis Papanicolaou: I think diversification across asset classes is much more important than geographical diversification.

Panayiotis Chrysostomou: I agree that diversification is very important and given the very high levels of uncertainty, you have to be very vigilant and ready to make any move needed for the portfolio. Because there is so much uncertainty, you cannot be completely sure of any investment that you make so you must be ready to react to news as it comes out. This is why investors need a wealth manager who can do this for them. Being active 34

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There are three key issues in 2012: Europe, the US elections and the possibility of a NATO attack on Iran

and vigilant does not mean that you don’t have a long-term strategy. You have a long-term strategy but you should manage your funds accordingly within that strategy.

Loucas Marangos:

If you’re looking to have a long-term view on part of your portfolio, there are good opportunities in the fixed income market and I believe there will be good opportunities in the real estate market as prices become distressed because of the lack of liquidity. Characteristically the real estate market has been funded by the banks. If you’re looking at a long-term horizon you should be looking at things that are currently trading at distressed levels but have real value. If you’re looking for short-term things I would advise people to look at the most liquid markets and avoid those that can have huge volatility. If I was looking at equities I would probably be looking at the US where volatility is lower than in Europe. If I was looking at Europe I would be looking at Germany and France and not the peripheral countries where you can have huge fluctuations on a daily basis, just as in Greece and Cyprus.

Gold: Will it be an especially good or bad year for particular asset classes? Charis Papanicolaou: I think in the distressed universe, fixed income offers a better risk return profile than equities.

Loucas Marangos: And in currencies there are good opportunities for the day traders.

Christos Kalogeris: Because of all the volatility, it’s true that equities overall might not be such a good idea but I would also look at alternative investments and hedge funds as way of looking at the equity part of a portfolio from a different aspect and play things a bit more conservatively through a market strategy approach.

Gold: What would you advise your clients to steer clear of in 2012? Tasos Anastasi: Government bonds, definitely. We don’t like European equities right now either and the banking sector seems to be especially volatile at present due to possible nationalisation and things that are out of our control so that is certainly an area that we would advise against. Nicholas Tantis: I would guess we would keep advising non-

cyclical stocks, pharmaceuticals and utilities, defensive stocks at

this point in time. I would advise clients to keep some liquidity and have some cash aside so as to be able to take advantage of any opportunities.

Here’s another €1 million… We asked Loucas Marangos, CEO of TFIFX, what currency he would advise a client to hold cash in.

Loucas Marangos: On the contrary, I

would touch government bonds. In fact I would say that if you have bank bonds you should switch to government bonds.

Nicholas Tantis: The recent sharp pullback

of Italy’s spreads from 7.5% to 5.75% on the 10-year Italian debt shows that many fund managers decided that at 7.5% Italy was quite attractive and they’ve brought it down to 5.75%. In effect they are taking the view that Italy will not default.

If the client lives in Europe I would have it in euros. If I have to choose a currency that will appreciate against the euro I would go with a currency I consider to be safe and that would be the Swiss Franc. If I have €1 million, over a year I would expect plus or minus 20%. On a daily basis I would expect 1-2% change in the value of my holding. Things change and cur-

Christos Kalogeris: If you get Cyprus government bonds – 2 months, 3 years or 5 years – and compare them to Italy’s, which one is correctly priced and which one is mispriced? I think there is an overall mispricing in bonds and governments, especially Spain and Italy with the debt and the problems they have. It likely that nobody is going to bother about Cyprus but if you look at the bonds they are probably mispriced as well. And they are still expensive. Charis Papanicolaou: If you believe that there will be closer

fiscal union in 2012, you have to see how government bonds of the southern economies of Europe are going to move relative to, say, the banks. I believe that you will see that the spreads are naturally going to narrow between the periphery bonds and German government bonds so in this case, it could be a good trading strategy to be long on periphery.

Nicholas Tantis: Over the past year gold has been a safe trade.

We’ve seen it reach historic highs and as long as there is no clarity regarding a solution gold is going to remain safe. If there is a clear signal from the markets that things are going to gradually fix themselves or there will be closer fiscal integration I think commodities will more or less sleep. I don’t see a return to very low levels. They will slip down maybe but it should be in the 10-15% range.

Gold: What is the key factor in retaining or increasing portfolio value over the next 12 months? Tasos Anastasi: Taking a proactive stance and being very active in managing the portfolio. Panayiotis Chrysostomou: Diversification, with some propor-

tion of your portfolio in alternative investments; being active, vigilant and careful and having someone look after your wealth for you.

rencies are the first things that move. If there is a resolution of the eurozone problem or at least something that suggests that we are not going to enter the worst case scenario, I would expect the euro to pick up against the dollar. The dollar is very weak and once there is stability in the eurozone I expect the long-term downward trend of the dollar to continue.

Gold: What effect could Cyprus’s anticipated natural gas deposits have on the economy in the future? Nicholas Tantis: The figures that have been discussed are so

huge that if any of this materializes – and there are good signs that it will – it will stabilize the Cyprus economy and it will help the banks a lot. In effect Cyprus’s debt is so minimal compared to the prospective revenues from oil and gas so it is a very important aspect to consider. In a couple of years we could see lower taxes and a totally different fiscal strength.

Loucas Marangos: There are many examples of countries that

have found oil or gas and the way they have dealt with it is an indication of the character and culture of the country. The Norwegians, for example, put all the money in a fund and they don’t touch it. Other countries squander it. I would very much like to see Cyprus handle this in a mature and responsible way and not use it to fund past and current government deficits. If they take the latter course, we may lead a good life but our children will be left with the legacy of a country that used to have a lot of gas and now has nothing.

Panayiotis Chrysostomou: I agree that there are good and bad examples and we should urge the decision makers to follow the good examples. But in the short term we should not rely on this future prospect. If there is one good thing about the present crisis, it is that it provides an opportunity to resolve some of the structural problems that have existed for many years. Nicholas Tantis: It’s disappointing that the government hasn’t

acted on this. It’s a golden opportunity to fix the public sector for generations to come and to tackle tax evasion and it has not taken advantage of it. After two years of arguing, what has been done? We’ve frozen the wage increases of the civil servants. There is no solution there. The maths doesn’t add up. the international investment, business & finance magazine of cyprus


investment guide 2012


The Gold 2012 investment panel vote

A good bet over the coming 12 months Unanimous negative vote, proceed only with extreme caution

Panel Vote

European Equities

Barack Obama

S&P 500


Big Pharma


FTSE 100 Cyprus Equities

Renewable Energy Gold breaking through Investments the 2000$ per ounce level in 2012 Private Equity

Barack Obama

Treasury Bonds

Bashar al-Assad


Swiss Franc


The Eurozone

US Dollar

US Credit Rating

UK Sterling

Cyprus as a regional services sector


Vladimir Putin


Mayan Predictions

Public Sector Pay





Global Protests Against Capitalism Cyprus state finances over the next 5 Years


Strike Action in Cyprus in 2012


Inflation (Cyprus)

Public Sector Pay

Apoel FC getting to the final of the Champions League

Cyprus becoming a major energy hub over the next 10 years

EU Bailout Needed for Cyprus by 2013

the international investment, business & finance magazine of cyprus

Panel Vote

Investment Panel Portfolio Structure Scoring / Average Global Bonds Overal


Global Portfolio Structure Scoring/Average USA


Global Equities Overall 23%





Emerging Markets




Australasia & Far East


the international investment, business & finance magazine of cyprus


investment guide 2012


Tasos Anastasi

Senior Financial Officer, EUROBANK EFG

Panayiotis Chrysostomou

Asset Manager, CISCO

Christos Kalogeris Manager - Asset Management, MARFIN CLR (FINANCIAL SERVICES)

Loucas Marangos

Chief Executive Officer, TFIFX


Charis Papanicolaou Head - Business Development, SHARELINK SECURITIES & FINANCIAL SERVICES LTD

Nicholas Tantis


Trade Forex with Success

What are the key events that are likely to shape the global financial markets in 2012?

ing their budgets. I believe this can be achieved if the politicians realise that the single currency has helped many countries and encouraged cheaper borrowing costs.

Charis Papanicolaou: The most obvious one concerns the euro

at the epicentre of what’s happening in the global economy and efforts are being made by the core countries towards closer fiscal union and closer economic cooperation because this is the only way to control the fiscal imbalances that we’ve seen place in peripheral Europe. Another big question is whether the European Central Bank will eventually take on the role that other central banks play around the world – that of being the ‘lender of last resort’ – because some serious funding needs to take place somehow. I agree that the politicians have to put aside their political aspirations but politicians want to be elected as well so I don’t think we can be certain of the outcome. I would also add the US elections as a key event. It’s very important to see whether the United States will take the very serious decisions it needs to on fiscal consolidation.

and how the European debt crisis is going to end. Any long-term solution to the problem will be difficult to achieve since different countries have their own interests and agendas and we also have to bear in mind that a lot of decisions are not taken based on economic facts but on political agendas. By the end of 2012, it definitely looks as if things will be very different from what we have been used to until now, possibly worse.

Tasos Anastasi: I agree. The fact is that the debt-driven growth model that we have had in the eurozone and in more or less all European countries has failed. The markets have run out of patience with it and this will be the big challenge: to see if we will grow out of this model or make more drastic changes. The US, the UK and have the monetary tools to address the issue but the eurozone seems to be trapped so resolving this will be the big challenge going into 2012.

Nicholas Tantis: The introduction of the euro led to low interest rates and aggressive lending by all the peripheral countries. This in turn brought a sharp period of growth but, because it was not controlled, we are now seeing the consequences. We all possibly agree here that the euro has done more good than harm to all the countries that have taken it and so the politicians need to stick with the euro and work on closer integration and restrain32

the international investment, business & finance magazine of cyprus

Panayiotis Chrysostomou: The eurozone crisis is obviously

Christos Kalogeris: There are three key issues: Europe, the US elections and the possibility of a NATO attack on Iran. These will be the catalysts. Loucas Marangos: I believe that the eurozone as a whole will

solve its problems through tighter fiscal union and that it will be in better shape in late 2012. By the end of the year the European debt crisis will be resolved and attention will shift to the problems of the US economy. I consider the huge US deficit to be a much bigger problem than the European debt crisis. 2012

The CySEC ensures that investors in Cyprus enjoy the same high level of protection as those in any other EU member state Demetra Kalogerou


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Safeguarding the Cyprus securities market


he Cyprus Securities and Exchange Commission (CySEC) is the independent, public regulatory and supervisory authority of the securities market of Cyprus. Following the country’s accession to the European Union in 2004, the CySEC proceeded with the harmonisation of the Cyprus legal framework with the EU acquis communautaire, which included the transposition of the European Directive known as MiFID to the Cyprus legal framework, giving investment firms registered in Cyprus and authorised by the CySEC to provide investment services, access to all the other markets of the European Union. As a consequence, companies of foreign ownership have registered in Cyprus to take advantage of this regulatory regime, including a good number specialising in retail foreign exchange transactions. The CySEC ensures that investors in Cyprus enjoy the same high level of protection as those in any other EU member state. It is governed by a five-member board, which comprises the Chairman, the Vice-

The Cyprus Securities and Exchange Commission By Costa Ioannides

Chairman and three other members plus a non-voting representative of the Governor of the Central Bank of Cyprus who attends Board meetings and has the right to place topics on the agenda and to participate in discussions. Gold spoke to the recently-appointed Chair of the CySEC, Demetra Kalogerou, for an insight into how the organisation is seeking to further safeguard the securities market and enhance investor protection. Gold: 2011 was generally a very difficult period for investors. How do you see the CySEC’s role in helping investors and companies listed on the CSE through what could be more difficult times ahead? Demetra Kalogerou: 2011 was indeed a very difficult year, not only for the whole of the Cyprus economy, but also for the other EU member states and the rest of the world. A further slowdown in economic activity is expected in 2012, due to the fiscal tightening which is deemed necessary in both Europe and the US and, inevitably, investors and companies will face significant challenges. Against this backdrop, the CySEC must act rigorously in ensuring the transparent, orderly and fair operation of the securities market in Cyprus, with the overall aim of achieving the maximum possible investor protection. The CySEC aims to operate in an even more transparent and efficient way, by simplifying and streamlining its internal procedures and, at the same time, it will continue to welcome industry input and recommendations in order to address potential difficulties and to enhance the overall efficiency of the securities

market. To this end, supervision and investigation will be intensified to ensure that regulated companies are in full compliance with their obligations according to the regulatory framework and also to discourage potentially deceitful practices that disrupt the smooth functioning of the market. Our responsibility for cooperation with our EU counterparts becomes even more important in the light of the need for increased information exchange and indepth joint analyses of current economic conditions. It is during such challenging times that Cyprus must prove that it can maintain a stable financial environment, which will sustain its orderly operation and that in the coming years it can regain its previous high growth rates. This will help Cyprus continue to be regarded as an attractive financial destination for dynamic and healthy financial firms. Gold: What are your primary objectives for the CySEC over the next 18 months? D.K.: First of all, let me just say that my personal aspiration is to achieve as much as possible in terms of improving the CySEC and the operation of the Cyprus securities market. Our newly adopted vision summarises our main objectives as follows: “Success in securing and maintaining a credible and transparent capital market by implementing fair and effective supervision to ensure investor protection and, at the same time, acquiring a very important institutional and progressive role to establish Cyprus as an international financial centre” To achieve the above vision, the CySEC needs to aim at achieving the following six strategic goals:

the international investment, business & finance magazine of cyprus



Ensuring the appropriate level of investor protection and the proper functioning of the market through continued reform of the regulatory and supervisory framework of the CySEC based on European directives and regulations. Increasing market confidence in the financial system of Cyprus through the effective supervision of existing financial institutions and ensuring full compliance with their obligations in accordance with the relevant regulatory framework. Ensuring the continuous informing and updating of investors by improving investor education. Attracting new, healthy and dynamic financial institutions in order to strengthen the reputation and credibility of Cyprus as an international financial centre. Improving the functioning of the CySEC on transparency and efficiency through the simplification of existing procedures where possible. Ensuring that the CySEC maintains and strengthens its position as an important and contributing player in the European and international forums of securities markets authorities and continues to cooperate closely with its European and international counterparts.

➊ ➋ ➌ ➍ ➎ ➏

Investing in companies listed on the CSE definitely has some significant advantages.

Gold: Do you foresee a role for the Cyprus Stock Exchange as a regional incubation hub for companies before they seek a listing on other exchanges such as the UK or the US? D.K.: I do indeed foresee the CSE acquiring such a role, due to Cyprus’s strategic geographical position and the tax and other advantages the Cyprus economy offers.


the international investment, business & finance magazine of cyprus

The accession of Cyprus to the EU in 2004 opened up new opportunities in the financial services market and led many regional companies from neighbouring countries to seek a listing on the CSE as a gateway to other exchanges in the EU. The harmonisation of European capital markets and the adoption of the Single EU Passport facilitate the governing bodies in taking decisions on tax optimisation and cheaper capital, by considering their options across all the EU member states. Cyprus further offers an excellent infrastructure in terms of efficient legal, accounting and banking services while the financial regulatory framework covering investment and trading in transferrable securities is comparable to that of the other EU member states. Last but certainly not least is the fact that long-term, notwithstanding the current challenges in the financial sector faced on a global basis, Cyprus has long had a prosperous and resilient economy with long-term stability and growth rates and a relatively high per capita income. Gold: What are the key advantages to investing in CSE-listed companies? D.K.: Investing in companies listed on the CSE definitely has some significant advantages. First of all, these companies are well-regulated and they operate under strict supervision, which ensures a high level of investor protection. Furthermore, investors in CSE-listed Cyprus companies stand to benefit from tax rates that are among the lowest in the EU, and from the double taxation treaties that Cyprus has signed with numerous countries. Also, the exemption from capital gains tax from the sale of shares and other securities on the CSE is a key advantage. And for those who are not considered residents of Cyprus for taxpaying purposes, dividends are exempt from income tax and also from defence contributions. All these provide very good incentives for investment in CSE-listed companies. Gold: And why should companies seek a listing on the CSE? D.K.: The Cyprus Stock Exchange offers

various advantages for companies wishing to list their financial instruments, such as the fact that it is a recognized EU exchange, open to any domestic and foreign private or public company that may wish to raise capital and reduce its dependence on the traditional credit institutions in order to develop and expand its activities. Additionally, the existence of the Common Platform between the Athens Stock Exchange (ASE) and the CSE provides greater choice to listed companies while enabling the development of regional partnerships among them. To further facilitate the listing of companies, the CSE has also introduced the Emerging Companies Market (EMC) which allows for companies to list their shares though simplified procedures and at a considerably lower cost.

The Cyprus Securities and Exchange Commission The CySEC has the following primary responsibilities: • To grant operating licences to Cyprus investment firms, regulated markets (such as stock exchanges), credit rating agencies, collective investment schemes and their management companies and to suspend and revoke such licences; • To approve the prospectuses for public offers of transferable securities or their admission to trading on a regulated market; • To supervise and oversee the operation of the Cyprus Stock Exchange (CSE) and of the organised markets in the Republic and the transactions carried out therein; • To supervise and oversee companies listed on a regulated market, CIFs, credit rating ggencies, UCITS and UCITS management companies; • To carry out inspections of companies listed on a regulated market, CIFs, credit rating agencies, UCITS and UCITS management companies; • To carry out investigations necessary for the exercise of its legal competences and on behalf of other competent authorities abroad; • To impose administrative and disciplinary sanctions provided for by the Law. For more information about the Cyprus Stock Exchange, visit

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SPECIAL advertising FEATURE: investments

10 Successful Years as a Cypriot Regulated Investment Firm


Alfa Capital Holdings (Cyprus) Limited was incorporated in Cyprus on 23 April 1996. The Company is part of the Alfa Group Consortium. Alfa Capital Holdings (Cyprus) Limited obtained approval from the Central Bank of Cyprus as a financial services company in April 2002 by which it was licensed to offer financial services to the Company’s shareholders, banking or credit institutions and other experienced professional investors. The change in the regulatory framework was a consequence of the accession of Cyprus in the European Union as of 1st of May 2004. Our company successfully obtained a license from the Cyprus Securities and Exchange Commission to engage principally in brokerage activities and proprietary trading under license number 025/04. In 2005 Alfa Capital Holdings (Cyprus) established a branch in London, United Kingdom, under the trade name ‘Alfa Capital Markets’. The Branch is an extension for cooperate finance, advisory and underwriting services offered by our Company in the international capital markets.   In addition we provide investment services in Ukraine through our fully-owned company Alfa Capital LLC, Ukraine. The Company is member of the London Stock Exchange. In 2012 the Company will celebrate 10 years of being licensed as an investment firm in Cyprus

Our Branch

Alfa Capital Markets is the FSA Registered London branch of Alfa Capital Holdings (Cyprus) Ltd with regulatory approvals to arrange securities transaction for its clients. The London Branch is one of the UK’s leading investment banking businesses, serving the Russian and CIS markets. 42

the international investment, business & finance magazine of cyprus

pliance of all of the Company’s activities to the Cyprus Securities and Exchange Commission requirements. Management: Mr. Andrey Glavatskyy is the Managing Director of the Company. Mr. Glavatskyy was one of the first employees of the Company. He joined Alfa Capital Holdings (Cyprus) Ltd after holding several managerial positions within the Group. Mr. Glavatskyy is a Ukrainian national, living in Cyprus for the last 10 years.

Services Investment Services Equity

Andrey Glavatskyy Alfa Capital Markets is active in the area of equity brokerage and trading, offering its wide international institutional client base access to Russian, Ukrainian and CIS Countries securities. The London Branch offers underwriting services and has participated in several successful Initial Public Offerings (IPOs)

Company Objective

The Company’s investment objective is to deliver superior returns from operations with Russian and Ukrainian equity, debt securities, investments and also to provide financial services to members of the Alfa-Bank Group and other clients of the company. The Company focuses its efforts on achieving its investment objective by offering clients an unrivalled combination of Russian and Western expertise and the highest international standards of service and building a world-class international investment services business. The Board of Directors of the Company concentrates on increasing its control of the Company’s activities, especially the control for com-

Debt Securities Forward Rate Agreements (FRA) Futures including equivalent cash-settled instruments Movable assets and shares in collective investment schemes FX Trading Services Underwriting and Corporate Finance Ancillary Services Custody Services Granting of credit or loans to clients for carrying out transactions Investment Advise

Markets of Focus

• RUSSIA • RTS (Russian Trading System) • MICEX (Moscow Interbank Currency Exchange) • UK • LSE ( London Stock Exchange) • UKRAINE • PFTS (Ukrainian Stock Exchange) • Our Affiliates • Alfa-Bank , Russia

Executive Board of Directors

Founded in 1990, Alfa-Bank in offers a wide range of products and operates in all sectors of the financial market, including corporate and retail lending, deposits, payment and account services, foreign exchange operations, cash handling services, custody services, investment banking and other ancillary services to corporate and retail customers. Alfa-Bank has more than 200 branches in Russia and the CIS, and subsidiaries in Kazakhstan, the Netherlands, and the United States. The Bank’s CIS branch network offers a full range of commercial and investment banking services to corporate and retail clients. Alfa-Bank’s wholly owned subsidiary in the Netherlands, Amsterdam Trade Bank  N. V., has a European banking licence. It primarily serves clients in import/export finance. Alfa-Bank places a great deal of emphasis on expanding its investment services to foreign clients. Alforma Capital Markets, Inc Alforma Capital Markets, Inc. is a US Broker Dealer located in New York City. Alforma Capital Markets is a FINRA

and SIPC member and an affiliate of AlfaBank’s international equities business. Alforma Capital Markets was established in July 2001 to provide brokerage and investment services to US institutional clients investing in Russia and the CIS. The office is staffed by seasoned professionals who have extensive experience in the brokerage industry and detailed knowledge of emerging markets.

The Group

Founded in 1989, Alfa Group Consortium is one of Russia’s largest privately owned financial-industrial conglomerates, with interests in oil and gas, commercial and investment banking, asset management, insurance, retail trade, telecommunications, media, water supply and water disposal, as well as other industrial-trade and specialsituation investments. The Group typically focuses on value-oriented, longer-term opportunities, primarily in Russia and the CIS, but also invests in other markets which form part of the Group’s strategic business objectives.

Pavel Nazarian, Chairman Andrey Glavatskyy, Executive Director Simon Roache, Executive Director Denis Solovyev, Executive Director Dmitriy Serezhin, Executive Director Demetris Pijiolis, Executive Director Dinos Constantinou, Non-Executive Director Yiola Stavraki, Non-Executive Director

Alfa Capital Holdings (Cyprus) Ltd

6, Demosthenis Severis Avenue, 3rd Floor, Nicosia 1080, Cyprus Tel: +35722681988 Fax: +35722681505 Website: Email:

Alfa Capital Markets, London Branch

14th Floor 1, Angel Court London, EC2R 7HJ, United Kingdom Tel: +44 (0) 20 7588 8500 Fax: +44 (0) 20 7382 4170 Email: the international investment, business & finance magazine of cyprus


SPECIAL advertising FEATURE: investments

Alpari Financial Services Ltd (Alpari FS)


he Alpari Family of Companies (Alpari) was founded by three aspiring financially-minded individuals in 1998 amidst a financial and banking crisis in Russia. The founding members saw the opportunity to give people a chance to make money from the foreign exchange (Forex) market. On 24 December 1998, Alpari opened its doors to the public in Kazan, Russia. In 1999, Alpari dynamically attempted to show its clear advantages to the financial sphere of Kazan. The very first seminar about Forex, “Theory and Practice of International Financial Markets”, was organized and the Internal Back Office system and a new call centre were created. By summer 2000, it became evident that convenient and easily accessible online trading was the future for Forex and, consequently, Alpari implemented the MetaQuotes software on its trading servers and launched a new website. In 2001, Alpari’s reputation for highquality services spreads and with the support of its online advertising campaign resulted in the considerable growth of its client base. Alpari enhanced its IT infrastructure to improve connection quality. In April 2001, Alpari’s first official partner opened an office, and more and more Alpari offices continued to open throughout Russia, offering training, account services and consultation. 44

the international investment, business & finance magazine of cyprus

By October 2002 Alpari had moved its headquarters to Moscow, the political and financial capital of Russia. In November 2002, Alpari began using the MetaTrader trading platform in trial version. In 2003, MetaTrader was first offered for live trading and CFDs (Contracts for Difference) on individual stocks were introduced. In addition, equity index, gold, oil, corn, soybean, wheat, and natural gas CFDs were first offered to traders. By the end of 2003, “instant execution” trading technology was implemented.

year, the company had adopted corporate social responsibility and established the Alpari Charitable Fund. In 2006, Alpari’s 25,000th client was registered!

In 2004, Alpari founded the Financial Regulation Agency of Russia (KROUFR), an organization that aims to protect the interests of traders. Alpari focused on making its internal business processes more effective and improving its level of customer service. Alpari went on to provide real-time Dow Jones news free to all its clients, and founded the Alpari Trading School which started offering online and offline seminars.

In December 2008, Alpari celebrated its 10th Anniversary!

In September 2004, Alpari (UK) Limited opened its office in the heart of the City of London. In 2005, MetaTrader 4, the most popular trading platform among traders, was introduced to clients. In the same year, Alpari’s 10,000th client registered and Alpari won the “Financial Elite of Russia” award – the first of many awards to come. In September 2005, MyAlpari (a personal workspace on the website) was introduced to clients. By the end of the

In 2007, Alpari underwent important rebranding. A new Alpari image was introduced to the world that more accurately represented the company. In 2008, Alpari (US), LLC opened its office in New York (USA), and Alpari ME DMCC opened its office in Dubai, UAE.

In 2009, Alpari Financial Services (India) Pvt. Ltd opened its office in Mumbai, India. A few weeks later, in July 2009, Alpari registered its 100,000th live account and announced its strategic partnership with Currenex – one of the world’s leading electronic communication networks (ECNs). In October 2009, two new trading platforms – Alpari Direct and Alpari Direct Pro – powered by Currenex were introduced. These platforms give Alpari’s clients direct access to deep interbank liquidity, STP and NDD technologies, transparent pricing and market depth. In 2011, the newest members of the Alpari Family – Alpari Japan K.K. and Alpari Financial Services Ltd (Alpari FS) – opened offices in Tokyo, Japan and Limassol, Cyprus respectively. Today, Alpari is one of the world’s lead-

ing Forex service providers. Alpari boasts over 440,000 client accounts in over 150 countries, over 650 employees worldwide and monthly trading volumes in excess of $210 billion (as of May 2011).

Areas of Expertise and Services Offered

Alpari FS Platforms • Tablet Platforms – iPad • Web Platforms – Alpari WebTrader, Alpari Direct • PC Platforms – MetaTrader 4, MetaTrader 5 (demo mode) • Mobile Platforms – iPhone, Android, • BlackBerry, Smartphone, Pocket Pc Alpari FS Services • SMS alerts • Fast execution • One-on-one training • Webinars and seminars • World-class multilingual customer support • Deep liquidity with major institutions around the world • Alpari FS Tools

• Web TV daily update • Dow Jones real-time streaming news • Thomson Reuters economic calendar with real-time streaming news • Trading Central combines elements of fundamental and technical analysis • Autochartist identifies technical patterns and plots Fibonacci retracement levels • Daily Analytical Reports from Alpari FS’ team of financial specialists

Countries where the firm is active Alpari has offices spread across the world in 22 countries including some of the world’s major financial centers, such as New York, London, Moscow, Kiev, Frankfurt, Dubai, Shanghai, Mumbai, Tokyo and Limassol. Various members of the Alpari Family are regulated by their respective regulator and/ or are a member of an exchange. Alpari FS is registered as a Cyprus Investment Firm (CIF) and licensed by the Cyprus Securities and Exchange Commission (CySEC) in accordance with the Markets in Financial Instruments Directive (MiFID).

Alpari Financial Services Ltd (Alpari FS)

Office Address 58-60, Ayiou Athanasiou Avenue, Office 202, 4102, Limassol, Cyprus Postal Address P.O. Box 54311, 3101, Limassol, Cyprus Tel: +357 25 257 333, +357 25 028 750 Fax: +357 25 257 344 Email: Website:


Olga Rybalkina Chief Executive Officer Aytugan Khafizov Chief Operating Officer

Top Management

George Stylianou Head of Marketing Peter Leonidou - Head of Sales George Giannoulakis General Counsel Tina Constantinou - Compliance & AML Officer Company History

the international investment, business & finance magazine of cyprus



SPECIAL advertising FEATURE: investments

Trade Forex with Success

2012: A Challenging Year


he consensus forecast for 2012 currently looks to be very challenging. The big picture calls for a recession or a possible collapse in Europe, slow growth in the US and slowing growth in Asia. The undeniable fact is that the eurozone is experiencing the biggest challenge since its inception as we are currently at the worst point of the debt crisis that started 2 years ago. Contagion from sovereign debt has recently spread to the European credit institutions which are getting a big hit on their bond portfolios, thus creating a need for further capital injections from a market that is already short of cash and reluctant to take further risk. Both the economic and political stresses within the EU are close to breaking point and more economists are arguing that the European project is


the international investment, business & finance magazine of cyprus

loucas marangos, ceo, tfifx bound to collapse. So why is EUR/USD still trading at 1.3000 and above this year’s lows of 1.2873 posted last January, when almost everyone agrees that it should be trading much lower? In money flow terms, the fact that Germany has so far remained able to attract most of the outflow from the southern European nations (as is clearly evident from the persistent widening of peripheral against German spreads) has been a dominant factor influencing the euro’s resilience. After the last Bund auction even this safe haven will start being questioned, however, and in our view Bunds are more likely to maintain their safe haven status, thus lending support to the euro. On the other hand the US dollar has remained on a clear downtrend for the last decade (the USD index has lost more than 30% since 2000) and it is surprisingly lower for

the year as well (around 2%). The reasons are obviously not short-term and will not change easily. The Federal Reserve remains ultra- dovish, preparing for a third round of QE and vowing to keep interest rates at 0% until 2013 at least. The AAA rating is no longer the US’s Holy Grail while the huge twin deficits are gradually getting out of control. 2011 might prove to have been the ultimate test for the EUR/USD. Our basic view for 2012 is that at some point Germany will finally realize that it will have to agree to some form of monetary easing. This action will, in the short-term, lend support to the euro, but in the long term have a more dubious effect. Until this happens, and based on the persisting uncertainty and the EU’s inability to provide a backstop to the debt crisis, we cannot exclude any outcome for the year ahead.


Living the Big Dream Andrey Dashin began trading as a hobby. A decade later he headed a global family of Forex brokers

T By John Vickers

he Alpari Family of Companies is among the world’s fastest growing providers of online Forex trading services. Last year, its newest member, the Limassol-based Alpari Financial Services Ltd began providing brokerage services on the international currency market. Gold spoke to Alpari CEO and co-founder Andrey Dashin about the company’s past, present and future, about the Alpari Charitable Fund, and about why his retirement is still a long way off.

Andrey Dashin


the international investment, business & finance magazine of cyprus

Gold: Over the past few years, Alpari has won countless awards in Russia, including Company of the Year and you were named Person of the Year in 2009. What do such awards mean to you? Andrey Dashin: It’s always very flattering to be recognized but these awards don’t just come from nowhere. They are not easily won and I think they are deserved. It has taken us 13 years to build our reputation and to achieve the results that we have in Russia now and it hasn’t been easy. We started in 1998, which was quite a difficult time for the country – the time of the first real financial crisis there – but it was also a really interesting time and we were able to take advantage of new opportunities as they arose. In Russia we have gained a very good reputation and people in many different

spheres know about us. Business awards are a welcome form of recognition so we are always pleased to receive them. Gold: On your website you state that 1998 was also when you realized that your interest in the financial markets was more than just a hobby, so you began trading. How successful were you? A.D.: I was quite successful and I think I spent about one year trading but I quickly understood that I wasn’t a trader. I needed to create my own business and so two friends and I became partners and owners of our new company. We are still the same three owners and this is perhaps our greatest achievement because we have been able to maintain our flexibility and this is very important in today’s fast-changing world. Companies that can maintain their agility are able to survive even in turbulent times. Gold: It says a lot for your stability that the original three owners are still in place. A.D.: We have always tried to stick to a conservative strategy. All the money that we earn is re-invested in the company and we have never expanded the company by inviting new money and new people. Many of our competitors started with a small group of people and after 5-10 years they have large boards of directors, which makes them much more cumbersome. Gold: What was it that piqued your interest in Forex trading in the first place? A.D.: Before I started trading I spent 18 months working in a bank but banks are very bureaucratic organisations and I was young and I wanted something new. And of course the Forex market was not only new, it was mysterious! Nobody knew about it at all back then and when I started to look into it more deeply I found it fascinating, partly, of course, because it was foreign and, for a young Russian,

We had to expand our own mindsets because it’s quite a challenge to start a business in an Asian or an Arab country that was amazing! So it was a very turbulent time but it was also very exciting too. Communism was gone and although nobody knew enough about capitalism, everybody wanted it. Everything from abroad was interesting and Forex was definitely from abroad! There were no Russian Forex companies back then. Gold: To go from trading as a hobby to being CEO of a global family of Forex brokers in just over 10 years is remarkable. How did you do it? A.D.: I think the secret probably lies in the strength of our initial desire. My friends and I really wanted to be part of something incredible and this huge Forex market seemed to be precisely that. In the beginning we didn’t even realize that we could make money! We didn’t have any money and we didn’t care about it. We set up the company out of pure enthusiasm, without any thought for profit. It was only when we realized that a lot of people around us were interested in what we were doing that the idea of turning it into a much bigger enterprise began to form. Gold: But it can’t have been simply a question of luck. Once you saw that this could turn into something bigger than you had first imagined, how did you go about expanding? A.D.: We took very careful steps. We started off in Kazan, the small city where the three of us were born. When we decided to move to a bigger city – Moscow

– that was an obvious step. Soon after that we understood that we had to broaden our horizons even further. Gold: But it was a huge step to think about getting out of your own country. A.D.: That’s true. Our first office abroad was in London and it was probably the most challenging of all the moves we’ve made. Even though America has very tough regulation, I think New York was easier than London but starting our first foreign company there proved to be the right decision. Gold: Have there been any unexpected challenges that you’ve had to face during the expansion process? A.D.: Different places throw up different problems and they are not things that you can find in books. First of all we had to expand our own mindsets because it’s quite a challenge to start a business in an Asian or an Arab country. People there have absolutely different ideas and opinions about running a business. So as owners we had to become much more open-minded and that was probably the most challenging aspect of all. Let me give you an example: We like to hear different opinions and to exchange views in order to come up with a solution or a proposal and, as owners, we like to ask our staff for their opinions. We discuss, we argue, we have conversations and we reach a conclusion. But in India, for example, people are very sensitive to the thin line between boss and employee. So if you say, “My idea is this but what do you think?” the only answer you will get is that your idea is right. It took some time for us to realize that the key was to ask the employees for their opinion first, before telling them what we thought. Expanding to another country brings up so many intangibles that have to be dealt with and if you can’t find a way round them you won’t be successful. I have to say that the whole experience

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has helped me and my partners develop as people. It’s been an educational process. Gold: What do you say to people who believe that Forex trading is another word for speculation and therefore a bad influence on the markets and, by extension, on economies? A.D.: First of all I don’t think we can blame Forex for any of the bad things that we are seeing right now. The Forex business is only a tiny portion of the whole financial sector. The second thing is that all financial products are more or less risky. Forex trading is not easy and while it has potentially great profits, it’s a risky market. I think the image problem may be due to a lack of knowledge. Perhaps we need to have new subjects taught in universities and schools so that people can learn better understand how the financial markets work. There are quite sophisticated products available but the general public knows almost nothing about them so it’s easy for certain areas to get a bad name. Gold: What’s your view of the future of the eurozone? A.D.: This is not a financial issue but a political one. The euro will survive as a currency because, for political reasons, nobody wants the European Union to fall apart. At present certain parts of the union simply don’t have enough money but I think that Germany will do everything necessary to save the single currency. I’ve always thought that the initial structure of the EU was doomed from the very beginning because they didn’t have a common clear idea of how it needed to be managed financially.


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The initial structure of the EU was doomed from the very beginning

businessman I knew how to apply my business and sales knowledge and skills to make this particular orphanage attractive and to create a friendly environment, not only for the children but for potential parents. We spent a lot on refurbishing the buildings and on medical care to ensure that the children are completely healthy and happy. It is a very rewarding project.

Companies that can maintain their agility are able to survive even in turbulent times

Gold: Do you have any unfulfilled ambitions? A.D.: Yes, and I have many plans. My next project in Russia is a farm that I am building. I know nothing about farming but I decided one day that I would like all the products on my table to come from my own garden. In Cyprus I also intend to have my own kitchen garden. The only thing I won’t have soon is wine as I don’t have a winery but that is probably going to be my next step.

Gold: One of your favourite projects is the Alpari Charitable Fund. What made you decide to set it up? A.D.: As we become more mature, we all realise that there are other things than money and so I, too, started thinking about my own legacy – what I could leave and what I could give back to the country. In Russia there are not enough governmentfunded programmes to support people in need, especially in the medical sphere, so charitable organisations are crucial. Some 4-5 years ago I started thinking more seriously about what I could do to help society in some way and I eventually chose to set up the Fund and to support an orphanage. I am especially happy because we have now achieved a 95% rate of adoption for the children under 5 years old there. As a

Gold: How do you see the Alpari family developing over the next few years? A.D.: I think that we now have a good representation around the world and we have covered all the areas that we want to, although we still need to expand in Latin America. Next year we shall focus on improving all our existing branches and making them stronger. Gold: And when you’re eating your own produce and drinking your own wine, will you still be involved in business? A.D.: Definitely! I want to retire one day but not yet. I have dedicated a huge part of my life to this project – Alpari is like my first child – and one day I am going to leave business behind and explore new areas, travel, go hiking, diving. It’s good thing to have a dream, especially a big dream.


Eat, Pay, Love

How to keep corporations alive, healthy and fruitful


By Eleni Vickers

Offering a competitive product or service is no longer enough to keep customers coming back for more

n her bestselling book Eat, Pray, Love, Elizabeth Gilbert suggests that a person can only feel complete once he/she has found the perfect balance between the three elements that together make us whole – food, prayer and love. What about legal persons? Could Gilbert’s theory apply to corporations and our quest to keep them alive, healthy and fruitful? I would translate the “Eat” rule into “Generate turnover” when referring to a corporation. A legal person’s food is cash, and liquidity is justifiably a key factor to corporate viability and fertility. The “Pray” rule is a bit tricky. Do corporations even have a God? What is the single element capable of inspiring and influencing corporate strategies, dictating financing and recruiting structures, affecting relocation and expansion plans? It has to be TAX. This is the God that corporations bow down to and obey. Legal persons do not pray, they pay. Paying their dues satisfies their God, an ancient form of a deity that needs a frequent sacrifice of cash to be content. Definitely a female... Finally, Corporate Love? Sounds like the title of a cheesy chick-flick. This kind of love surfaced in the early ‘70s when large multinational corporations began to form and since then it has evolved into a demonstrative, concrete and commendable type of love. Corporate Social Responsibility or Corporate Citizenship is a kind of self-imposed behaviour and commitment, a deliberate inclusion of the element of public interest into the corporate decisionmaking process, a social conscience that each corporation needs to demonstrate to all affected parties and stakeholders: its employees, suppliers, investors and the general environment. Now more than ever, corporations are involved in philanthropy, promoting the arts, awarding grants and scholarships and giving

back to society. Why? Because offering a competitive product or service is no longer enough to keep customers coming back for more. The modern consumer has to like a corporation as a living organism; he/she must have a good impression of its stance in society and feel an affiliation with what it represents in the industry. In today’s world where no product is unique anymore, corporations are hanging onto their customers and fighting for new ones by showing their human face and characteristics, ultimately urging customers to love them. At the end of the day, if you want to be loved, you’ve got to be lovable. It seems that people and corporations are very similar creatures after all. We eat as much as we can and, at every opportunity, we want to be loved but try to gain this love with the minimum effort and we cheat on our Gods remorselessly and repeatedly: whether it’s called sin or tax evasion is just a detail. But despite the obvious similarities, the Eat-Pray-Love rule has only worked for legal persons so far; there is something that clearly distinguishes the behaviour of people from the behaviour of corporations – free will and choice. We can love hundreds of individuals in many ways, eat a different meal a day and believe in any Holy theory that suits our fancy, or even believe in nothing. We are spoilt for choice and have the ability to decide for ourselves, which is why the Eat-Pray-Love rule will never work for people, it is impossible to live by a formula. In the movie version of Gilbert’s book, Julia Roberts travelled around the world and successfully found culinary gratification in Italy, spiritual balance and happiness through meditation in India and the love she had always hoped for on the island of Bali. I wonder how her journey would have turned out had her first stop been the island of Cyprus…That would doubtless have revolutionized the whole theme to “Pray that you don’t love eating”!

info: Eleni Vickers is a graduate of the University of Warwick with a BSc in Accounting and Finance and a Chartered Accountant with the Institute of Chartered Accountants in England and Wales. She is the Financial Controller of Trident Fiduciaries (Middle East) Ltd. the international investment, business & finance magazine of cyprus



Cyprus: A Future Regional Energy Hub? Founding a local exploration & production industry is an opportunity not to be missed

By Darios Melas, CEO, EDT Offshore

“Can Cyprus become a regional energy hub?”

This should not be a question but a statement. In fact, more than a statement, it is a vision. Yes, Cyprus can become a regional 52

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hub for the evolving exploration & production industry and it is in our hands to make it so. It must be an industry that will lead the region in exploration and production activities; in becoming the common base for exports for Cypriot, Israeli, and possibly Lebanese gas; and in establishing itself as the physical trading point in natural gas for the Eastern Mediterranean region. This is my vision and, I think, the vision of many. I know that some are sceptical, and it is very important that we do not confuse

ourselves; a vision is not a dream. It is an achievable target that we must collectively work towards, in a systematic and focused way. It is something that we all believe in and are committed to materialize. If I had to make a mission statement, it would go something like this: “Cyprus will grow through its leading businesses and entrepreneurs, to establish a healthy and prosperous exploration & production and mid-stream industry that will lead the region’s development, and will

A sound financial base: This is a key factor for success. We are talking about multibillion euro developments. Together with the government, we need to set out clear, long-term rules and guidelines and ensure the stability that will be the cornerstone for attracting investors, financing, and leading global industry players. We must not underestimate this point. We do not have enough money here to do this on our own. We are neither big enough nor rich enough. Government support: This may be the key factor for success at this stage. The government should acknowledge that this support will grow into a whole new industry that will provide sustainable economic growth

A vision is not a dream. It is an achievable target that we must collectively work towards

provide Cyprus with sustainable economic growth and prosperity for decades to come� What do we need in order to accomplish this? A clear vision: This means all of us working together, government, political parties, the local community, local businessmen; we all need to share and agree on a common goal. All sides should pull together to enable the transformation of the country into a regional leader in this industry,

ahead of any other neighbouring country. Good genes: Our ancestors were famous traders and sea explorers. There is no reason we can’t repeat this legacy and evolve from it. We have the talent, we now need to develop our experience, our know-how and ambition wrapped in enthusiasm and will. We need to focus and understand the opportunity that we are facing, and seek in ourselves and abroad, the leadership, capabilities and capacities to deal with this challenge.

for decades to come. We need to work hand in hand with politicians and government officials to make this happen, to allow for this opportunity to become a reality. We need to set out the rules, guidelines and the regulatory framework, as well as the allocation of sites and fast track licensing, for the development of the necessary infrastructure. One of these vital potential infrastructure projects is an LNG Hub. Cyprus is ideally located geographically and politically to create a major gas export facility. As this is a once-in-a-generation opportunity, we need to take immediate action.

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When all parties act in unison, Cyprus can provide a formidable business environment

We need to demonstrate leadership, which means taking responsibility, making calculated decisions, and taking reasonable risks. There is only room for one LNG facility in this region and Cyprus, as the best geographical option but also the only EU member state in the region, should not even blink. We must start now. I am Greek, born in Alexandria, Egypt, but Cyprus is my home. I’ve lived here most of my adult life. Some 25 years ago we had a vision for EDT to become a leading regional player in the upstream service industry and we made it real. A big part of this success story lies with the fact that Cyprus has provided all the necessary ingredients, which allow the private sector to work in harmony with the public sector, to bring about results and development. We do business in many countries and I know that, when all parties act in unison, Cyprus can provide a formidable business environment. I urge everyone to share our vision for the next decade. It is, admittedly, an ambitious vision but one that we must pursue together, all of us - government, leading local businessmen, companies and industry, professionals and men of trade. It must be everyone together in a united effort, bringing all our skills and experience into play, otherwise we will certainly fail. As a first step, I believe that the government should promote collaboration with local partners and, where possible, encourage local participation in exploration opportunities. This is an important starting

point but we need to be smart using it. Participation should be financial, operational and professional. We should aim to develop a new industry that doesn’t just feed the stock markets but builds wealth, knowledge and skills for the country as a whole. The solution to this is simple enough: provide the necessary incentives for local partners to participate in the operation, allowing them to gain the know-how

EDT Offshore

EDT Offshore has been involved in regional oil and gas exploration activities for the past two decades, growing steadily to become a leading regional service provider to the industry. Cyprus-based EDT works for many of the leading companies in the industry, from Egypt to the North Sea and to the Eastern Mediterranean. At the Port of Limassol, the company operates the only Spoolbase in the region, allowing it to fabricate, test and load, offshore pipelines for the oil and gas industry, and to supply piping for the Simian gas field connection in Egypt. EDT owns and operates 15 highly specialized vessels and other related equipment unique to the offshore industry. It lays pipes, installs complicated sub-sea equipment, operates and inspects off-shore piping, repairs sub-sea equipment, and services drilling and production platforms throughout the region.

We do not have enough money here to do this on our own. We are neither big enough nor rich enough and expertise necessary to jumpstart localbased industries. We have a lottery ticket in our hands, and we should take this winning ticket and leverage it to become a vibrant industry, to gain knowledge, to develop and invest in becoming regional leaders. There is no reason why, 5 years from now: • some of the drilling rigs will not be Cypriot-flagged • the leading faculties for geology and geophysics in the region will not be a Cyprus university; • tens of thousands of people will not work and provide upon this industry; • leading banks and international law firms will not have branches servicing the region from here … We only need vision and leadership at all levels in every area of business and government. It remains for you to decide whether it is a dream or a vision.

info: Darios Melas is CEO of EDT Offshore. He was a keynote speaker at the recent Cyprus Energy Forum held at the Hilton Park, Hotel in Nicosia. This article is adapted from his address. 54

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{january 2012}



+ BOok review



56 Teamwork, Innovation, Success The international Business Banking (IBB) division of Marfin Laiki Bank 60 Breaking Up is Hard to Do? The top ten most likely consequences of a eurozone break-up



64 Staying Smart Interview with Dr. Ester Levanon, CEO of the Tel Aviv Stock Exchange

money: MONEY: Exorbitant Privilege: The Rise and Fall of the Dollar By Barry Eichengreen 63



68 One Step Forward, Two Steps Back 2011 may have been bumpy but 2012 could be even worse


BUSINESS: Beauty Pays: Why Attractive People Are More Successful By Daniel S. Hamermesh 66 TAX & LEGAL: The Number That Killed Us: A Story of Modern Banking, Flawed Mathematics, and a Big Financial Crisis By Pablo Triana 77


72 Can Cyprus afford to give up its ‘selling point’ of a 10% corporate tax rate in the context of closer eurozone fiscal integration? The views of leading law firms and corporate service providers



74 Small Country, Huge Potential Interview with Andreas Athinodorou, CEO of the Aspen Trust Group

78 Diamonds Are Forever They sparkle, they are expensive but are they worth investing in?

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Teamwork, Innovation, Success The international Business Banking (IBB) division of Marfin Laiki Bank


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yprus has evolved into an important financial and economic centre over the last 30 years. Many non-residents set up companies in Cyprus as part of their financial and tax planning and open bank accounts for their daily banking needs. This industry, which includes the services offered by accountants and lawyers, is now a major contributor to Cyprus’ GDP and a growth engine with huge economic multiplier effects. The international Business Banking (IBB) division of Marfin Laiki Bank

is a specialized division that has been set up to make sure that the local and international banking experience of these businesses is a unique experience. It provide services to clients through eight units (six International Business Centres and two Lending Units), which comprise 33 teams and 280 staff. Gold spoke to Miltiades Michaelas, Director, International Business Banking about the IBB’s work. Gold: How do you win business in this market? Miltiades Michaelas: Over the 25 years of our involvement in this market we have learned to focus on key result areas through our teams and management. The IBB has an excellent team culture which is continu-

ously being developed through team-building exercises, training, projects and inspirational events. Each member of these teams has been made aware of the IBB values which are also communicated to our customers. Our motto “Thinking. Ahead” triggers thinking for a better, more efficient, tomorrow. IBB teams maintain an excellent working and close personal relationship with the respective teams of our associates and customers to such an extent that together they have achieved a seamless flow of information which, in turn, allows for easy, fast and correct decisions by all. This partnership spirit affects also all our internal and IT systems where we push for full integration with our partners’ systems. This has already been achieved in areas of our work such as payment instructions. It is this

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the team

type of focusing that has earned us a number of international service quality awards and faster growth than the market in the last 4 years.

Miltos Michaelas (Director-International Business Banking)

Gold: You mentioned your associates and partners. Who are they? M.M.: Our valuable associates are the accountants, lawyers and fiduciary services providers, the so called “introducers”. They are part of our team, our partners in establishing Cyprus as an important regional economic and financial centre. The credit for the success of the industry belongs to them as they are on the front line and we thank them for their trust in the local banks.

Panicos Koursaris (Manager IBC1, Limassol)

Christoforos Kittenis (Manager, International Corporate Banking)

Michalis Michael (Manager IBC2, Nicosia)

Lefteris Loizou (Manager IBC, Larnaca)

Elli Charalambous (Manager, International Lending)

Andri Stavrou-Theocharous (Manager IBC1, Nicosia)


A positive announcement regarding gas & oil findings will definitely strengthen the credibility of our economy ing, especially as our Bank is now moving to a new and very modern “housekeeping” system. The IBB has also launched a unique professional intermediary’s portal for accelerating account openings and improving communications among the IBB and its associates, which has uncovered a hidden need for the industry.

Gold: What is your role in this market? M.M.: We are key players, of course! We are helping to develop the market, affecting the external environment by participating and presenting in more than 50 annual conferences and promotional events in more than 20 countries. In this effort, we are not only competing with other local banks but with international Banks that operate in other well known financial centres. Our presence in 12 different countries, the largest by any Cypriot Bank, is a major advantage in this effort. As one of the biggest local banks, it is our obligation and responsibility to “fertilise” the market and to expand it. A recent example is our entry into the Chinese market, designed to support and assist the efforts of the introducers, bank customers and all our associates to break into this market. Our China offices are already fully operational in one of the best-known buildings in the main business district of Beijing. We are very proud to be the first banking institution from Cyprus and Greece to be granted a license for such operations in China.

Gold: This is clearly a sizeable investment. M.M.: There are, of course, costs involved in such investments but the long-term benefits of the growth of International Business Banking for the Group and for Cyprus largely outweigh the costs. Challenging our own structures is also important. Within the IBB, we have created the International Corporate Banking Department in 2007, a specialized team which deals with international crossborder lending needs and structured finance deals, the first such team in Cyprus. We have also recently introduced a shipping branch, again a first for Cyprus, committed to providing constant support to a growing and very specialized clientele in Cyprus. We understand change, and we will review our management structure once we reach 50% growth in our business, which we have impressively done three times in the last 5 years. Success in innovation means focusing hard on our clients’ and associates’ current and future needs and being practical about getting there on time.

Gold: How do you innovate in such a market? M.M.: This is a market with a huge quantity of data, information, transactions and information that needs to be protected and communicated securely across many countries. At the same time, it is a heavily regulated market, with substantial rules on money-laundering and compliance. There is clearly room for innovation in all areas. Teaming up with our technology and e-Banking experts, we have already created a number of solutions to manage this more efficiently: straightthrough processing, continuous revamping of our e-Banking, mass electronic PDF statements, mass payments with joint approvals, FTP payments, new generation authentication and digital signatures mechanisms and payment automation systems for internal escalation processes. The list keeps grow-

Gold: How do you see the future? M.M.: We all acknowledge the serious challenges that the economy of Cyprus is facing and 2012 looks like being a difficult year. We expect, though, that the recent fiscal measures approved by the House of Representatives will help to reverse the trend. We expect Europe to eventually find its way as well. A positive announcement regarding gas & oil findings will definitely strengthen the credibility of our economy and thereby fuel the attractiveness of Cyprus as an important financial centre. 2012 will thus be a very crucial year for International Business Banking. As the negativity of 2011 is gradually replaced by more positive news, this very important market may eventually reach a new level of attractiveness to international businessmen.

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Breaking Up Is Hard To Do?

The top ten most likely consequences of a eurozone break-up

By Fiona Mullen


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vest in, or lend to (say) Greece so there will be no inflows of either investment or loans. Yet the population will still need to eat, so businesses will still have to swap drachmas for euros in order to import oil, gas and food. This will combine with the psychological reason, namely that anything Greek will be seen as worthless, therefore the banks will have to pay a lot more drachmas to buy one euro. So even if you start with a 1:1 exchange rate, it will quickly slip to 1:3 or 1:4. In Argentina, attempts to devalue only to 1.40 pesos to the dollar quickly failed. Within five months, it was 4 pesos to the dollar and today the peso trades at around 4.3. This will of course wipe out the euro value of most people’s savings.

3: Hyper-inflation As the currency drops in value and the prices of imports soar, local traders will respond by jacking up prices. This will create what the economists call “inflation expectations”, whereby everyone keeps pushing up prices in the expectation of prices rising. Before you know it, the price of coffee, as happened in Serbia in the early 1990s, will be going up every few hours.

The exit of a country from the eurozone would probably be preceded by a sovereign default combined with a deep political crisis

support – which might not be forthcoming because the country abandoned the eurozone – the only option will be to impose capital controls: stop people taking money out of the country in order to prevent further devaluation. This would be easier to implement on an island like Cyprus than in a country with a land border like Greece. But I suspect that there will still be an awful lot of cigarette packets stuffed with 500 euro notes making their way across land to safer havens.

5: Private-sector defaults With a free-falling exchange rate, importing companies will start to fold, unable to meet the cost of goods which have suddenly quadrupled in price and for which there is suddenly no market at home.

4: Capital controls By this time we will be in a fully-fledged balance of payments crisis: no money coming in, only money going out, currency in freefall. In the absence of massive foreign


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6: Credit lines dry up This is when it will really start to hurt everyone. With a default rating for the country

as a whole and a default rating for many of the importing companies, those credit lines that allow countries to import goods will dry up. Just as the government will only be able to spend what it can collect in taxes, so will private companies only be able to import what they can pay for, in hard currency, in advance.

7: More social unrest As stocks of basic food items, essential medicines and fuel dry up, and the government has less and less money to pay for salaries and services, people will take to the streets again.

8: Exports/tourism up The only positive outcome from all of this is that, for a short while, exports of goods from the exiting country will look incredibly cheap, assuming that there are any businesses left. Tourism in Greece would enjoy a year or two of strong growth, as everyone flocks to get a cheap suntan.

9: Inflation erodes competitiveness Unforunately gains from devaluation typically get eaten away by inflation and the appreciation of the currency as things stabilise. In the early period, inflation is stoked by the higher price of imports. In the recovery period, when the country is

Fisal and external balances as % of GDP

Greece Italy Portugal Ireland Germany Cyprus Spain

Government debt

Budget balance

Currentaccount balance

144.9 118.4 93.3 91.9 83.2 61.5 61.0

-10.6 -4.6 -9.8 -31.3 -4.3 -5.3 -9.3

-12.3 -3.5 -9.7 0.5 5.8 -9.0 -4.5

Exorbitant Privilege: The Rise and Fall of the Dollar By Barry Eichengreen (Oxford University Press, 2011) RRP: £14.99 (£7.94 from


xorbitant privilege”, a term coined in the 1960s by Valéry Giscard d’Estaing when he was France’s Minister of Finance, refers to the benefit that the United States enjoyed then because the US dollar had become the international reserve currency. Times change and today, holding dollars is viewed by some as a losing proposition given that, with the rise of China, India, Brazil and others, America no longer towers over the global economy. Barry Eichengreen, a leading economist, traces the rise of the dollar to international prominence and argues that while it will no longer be as dominant as in the first half of the 20th century, the dollar is not doomed to lose its international status. The dollar will only lose its international currency status, he says, if the US repeats the mistakes that led to the financial crisis and fails to put its fiscal and financial house in order. The book is as much a challenge to those who warn that the dollar is doomed as to those who regard its continuing dominance as inevitable.

Source: European Commission Autumn Forecast, 2011.

benefiting from a weaker exchange rate, inflation is stoked by a rush to increase wages as everyone wants to make up for lost ground. This can only be avoided if devaluation is accompanied by structural reforms that raise productivity by invest-

The rulers of the day might have to make a choice between mere bankruptcy and civil war

ing in human and technological capital. This investment reduces the unit cost of labour (cost of labour per hour of output) and therefore allows companies to keep prices down. But a country that decides to exit the euro will be one in which there is already a great deal of re form fatigue, therefore structural reforms are unlikely.

10: Back to square one After ten years, therefore, the country that left the euro is likely to find itself with an uncompetitive exchange rate and an unreformed public and private sector, all reflected in rising external deficits. Sounds familiar?

info: Fiona Mullen is Director of Sapienta Economics Ltd, an independent consultancy that analyses and explains economic trends to local and international clients. the international investment, business & finance magazine of cyprus


It is no longer possible to deny that the breakup of the eurozone is a real possibility


apologise to readers for starting the year with a gloomy article. But, as shown by the markets’ we-are-not-impressed reaction to December’s eurozone crisis summit, we have not heard the end of the euro saga just yet. As the crisis continues, governments and banks will have to pay higher and higher interest rates for longer and longer, thereby raising the risk that something big, such as Italy or a very large bank, will simply crack. Voters have to take on more and more austerity in exchange for less and less security, thereby putting a strain on their commitment to a eurozone that promised to make them rich.

It is no longer possible to deny that the break-up of the eurozone is a real possibility and it has spawned a number of publications, most recently After Eurogeddon by the Economist Intelligence Unit and Doomsday for the Euro Area by Ansgar Belke for Bertelsmannstiftung. The exit of a country from the eurozone would probably be preceded by a sovereign default (a government stops servicing its debts), combined with a deep political crisis. This might happen in the longer term if the mainstream parties see their support leaking away to parties on the fringes that trumpet the reintroduction of the former national currency as the panacea. Leaving the euro would then be a matter of political survival. A rather more scary, short-term scenario could see the mainstream parties being unable to form a government, a general strike, mass refusal to pay taxes, increasing violence on the streets, and perhaps a populist party (or populist movement living in tents) demanding an exit from the euro. Under these circumstances, the rulers of the day might have to make a choice between mere bankruptcy and civil war. Here are the top ten most likely consequences of a eurozone break-up, in chronological order

1: A run on the banks, limits on withdrawals As soon as it becomes widely expected that the currency will switch back to (say) the drachma, depositors will queue up at the

banks to get their euros out before they are turned into drachmas that will quickly fall in value. To a certain extent this has already started happening in Greece. According to The Guardian, citing Theodore Pelagidis at the University of Piraeus, on average €4bn-€5bn is disappearing from Greece’s banking system every month. Once this process accelerates, the authorities will be forced to put restrictions on withdrawals. Before Argentina defaulted on its debt in 2002 and abandoned its 1:1 peg to the dollar, the government limited weekly withdrawals to 250 peso (still worth $250 at the time).

2: Mass devaluation The run on the banks will only accelerate the inevitable, namely a mass devaluation. This will happen for “real economy” and psychological reasons. The real economy reason will be that money will stop flowing into the country. No-one will want to in-

Cyprus gross government debt as % of GDP 58.5%



48.9% 2008




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stock markets


Staying Smart

Oil and Gas Euphoria must not derail innovation, says Israel’s Stock Exchange CE0

Interview by Costa Ioannides


r. Ester Levanon, born in Petah Tikva, Israel, had obtained a master’s degree in mathematics by the age of 20 and she then went on to complete an advanced management program at Harvard Business School and to gain her Ph.D from the Technion (Israel Institute of Technology). After joining the Tel Aviv Stock Exchange (TASE) in 1986 as Chief Information Officer, she progressed to Deputy CEO and then CEO in June 2006, since when she has presided over its progress towards becoming a worldclass hub for regional trade execution and investment. Gold caught up with Levanon recently to see what Cyprus can learn from the Israeli experience regarding stock markets and the anticipated revenue from oil and gas deposits. Gold: What do you believe are the major strengths of the companies listed on your exchange? Ester Levanon: The real strength behind the companies listed on our Exchange, and that of the Israeli economy as a whole, is that we know our limitations but we find ways of overcoming them. Companies that have succeeded in breaking out of the domestic market through overseas mergers and acquisitions have thus achieved much more that a company from a small country is typically capable of. The Strauss Group, for example, is an 64

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FMCG company that first listed on our Exchange and is now the No.1 coffee seller in Brazil! If we look at the hi-tech sector for which Israel is well-known, companies do not have to be so closely connected to the country apart from the fact that the initiative and the brains are Israeli – the markets to which they sell can be far removed from our boundaries. Some of the largest companies in Israel are not only focused on the local market. Terra Pharmaceuticals, for example, operates all over the world and is a leading producer of generic drugs. We also have companies such as Israeli Chemicals, one of the most liquid TASE-listed

In some ways our Exchange is more advanced than those of some of our Western peers companies with operations not only on the Dead Sea but also in the US, Europe and the Far East. Gold: Your recent classification as a developed market signals to investors that the TASE has become a solid hub for regional investment. What were the major milestones that the Exchange had to reach before this was possible?

E.L.: This upgrade is not only a major achievement for the Tel Aviv Stock Exchange but for Israel too. In order to gain this classification there have to be solid regulations in place, full transparency is essential, foreign investors must be able to easily access the market and capital must flow freely in and out of the country. In some ways our Exchange is more advanced than those of some of our Western peers in that our rules allow foreign members to trade and operate on all markets. We also have a very highly developed clearing house which was upgraded last year and achieved an A+ rating. Overall it’s safe and easy to invest in Israel due to the high level of regulatory supervision. Gold: From the TASE perspective, which are the key overseas markets that you are looking to attract? E.L.: The high-tech sector is the most important aspect of what we would like to attract but we are not focusing on attracting investment. We want European and Asia Pacific companies to list on the TASE. For the dual listing of US companies, we hope to attract them to the TASE to take advantage of the different timezone and to gain exposure to a different profile of investor. One of the major advantages in being TASE-listed is that companies can rapidly change focus and that’s precisely how many Israeli companies were able to shift their exports towards Asia Pacific when the Western markets started to experience problems.

Ester Levanon

Gold: What has been the effect of last year’s Middle East uprisings on the Israeli economy and the companies listed on your exchange? E.L.: In December 2010 we were at an alltime high, with the valuation of our listed companies peaking. Since then, the TASE25 has fallen by around 20%. However, I don’t think this is due to what going on in

our region but it’s more to do with what’s happening in Europe, the US and the Asia Pacific region. Israel is a democracy and far removed from the problems caused by dictatorships in neighbouring countries. I would say that the performance of the TASE has generally mirrored that of the world’s other major exchanges with the occasional disengagement whereby it out

performs them as it did in 2010. Gold: But like many countries in the region, Israel has also witnessed public discontent and demonstrations against perceived government corruption. Is your government taking the necessary steps to tackle the problem of a lack of opportunities being available to certain sections of the Israeli workforce?

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stock markets

People tend to underestimate the amount of time needed to build the infrastructure required to fully realise the benefits of natural resources

E.L.: The unrest experienced last year was not so much about perceived government corruption as against high living costs for young couples, especially when it comes to buying a house or an apartment. At the moment housing is very expensive and most young people have to be helped by their parents – believe me, I’m a mother and I know! At some point our young people said “enough is enough” and demanded that the government do something to tackle the problem. However, there is no easy or clear-cut solution, especially when opposing demands are being made, such as lower taxes and higher benefits. Nonetheless, the government appointed one of our leading economists, Professor Manuel Trajtenberg, to head the team that formulated the government’s response and the Cabinet approved a plan to increase taxes on companies and the wealthy while easing the burden on the middle class. Gold: Cyprus and Israel are now neighbours and partners in the extraction of offshore oil and gas deposits. How do you see this relationship developing in the future and what kind of opportunities will there be for Israeli and Cypriot companies? E.L.: First, I would say that this is one of the best things to have happened to Israel and probably to Cyprus as well. For the first time in the country’s history, we actually have our own natural resources. Whenever people asked me about the secret behind Israel’s hi-tech industry, I used to say that our lack of natural resources had obliged us to rely on our "brain" resources. It is a very positive development but peo-


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ple tend to underestimate the amount of time needed to build the infrastructure required to fully realise the benefits of natural resources. It will take another ten to fifteen years to really see the full benefits. I hope that we will not then be tempted to neglect the other important aspects of our economies that drive and support innovation. This must not be allowed to happen as, no matter what resources we eventually find, we’ll never be another Saudi Arabia. In the hi-tech sector, however, we are No.2 in the world in actual terms in the number of start-ups and this is something that we must continue to support. We may or may not discover oil and gas but it would be a great shame to lose intellectual capacity because of those resources. Gold: Has the exploitation of Israel’s oil offshore oil and gas reserves substantially altered the economy of Israel? E.L: No. We have not yet seen anything substantial and I believe that it will be at least another ten years or so before we see any results. Sentiment is good and our prospects for the future are looking bright but the real benefits of natural resource exploitation are quite far ahead in the future. They are a bit like money that a relative is planning to leave you in their will but you won’t get it until you are very much older and, even then, you won’t know exactly when you’ll receive your inheritance! Gold: One of the biggest emerging markets in the region is Turkey. However, the once good diplomatic and economic relationship that Turkey enjoyed with Israel has been severely damaged by the Turkish government’s strongly critical stance of Israeli policy vis-à-vis Gaza. Is this a relationship that you are hoping to mend or one that you are cutting ties with? E.L.: In principle I don’t like talking about politics but on a professional level I must say that the TASE has a very good relationship with the Istanbul Stock Exchange and I have a very good personal relationship with their CEO Hüseyin Erkan. I hope that, on the level of the people, nothing will change and that the governments will sort out the situation one way or another.


Beauty Pays: Why Attractive People Are More Successful By Daniel S. Hamermesh (Princeton University Press, 2011) RRP: £16.95 (£12.08 from


xploring whether a universal standard of beauty exists, economist Daniel Hamermesh presents plenty of statistical data to prove his theory that attractive workers make more money and that looks are valued differently based on profession. There is evidence that, in many sectors, attractive workers bring in more business so it often makes sense for firms to hire them. Rewarding them accordingly is one of the issues discussed here. Hamermesh has calculated that, over a lifetime, someone generally viewed as good-looking in America might on average make $230,000 more than his/her very plain counterpart. He considers whether extra pay for good-looking people represents discrimination and whether the economic benefits of beauty will persist into the foreseeable future. While people spend billions on personal grooming, cosmetics, and plastic surgery, will this make them better off? Based on the evidence presented here, the disappointing answer is yes, though surely few would agree with Hamermesh that ugliness is no different from race or a disability and with his suggestion that unattractive people deserve legal protection!



One Step Forward, Two Steps Back

2011 may have been bumpy but 2012 could be even worse

The outlook for 2012 is grim and


By Persella Ioannides


began with an optimistic outlook. Positive GDP growth was expected for the BRICs (7.3%), the US (3.4%) and Europe (1.75%) and generally there was confidence that the global economic recovery would continue. However, fears remained of a worsening euro debt crisis, high US unemployment/deficit, the real estate bubble in China and inflationary pressures in the emerging markets spurred by the quantitative easing (QE) efforts by Western central banks. In the event, unemployment in the US, albeit still high and worrying, dropped below the 9% threshold. The unavoidable raising of the US debt ceiling led to political deadlock and prompted some market volatility. Yet, an agreement was reached prior to the


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The political leaders of the eurozone need to recognise the magnitude of the threat of the current crisis and its high correlation with the global economy deadline and US 10 year debt, although stripped by S&P of its AAA rating, still trades at historically high levels. In China, evidence of slowing growth and fears of a real estate bubble produced mixed market sentiment. Contraction in GDP growth proved that tightening measures are effective. However, significant growth pressures and concrete signs of a real estate bubble burst have thus far been avoided. In March, Japan, the 3rd largest global economy, was hit by a natural disaster which

destroyed its biggest power plant, wiping out about 3% of its annual GDP and causing global production bottlenecks. Nonetheless, the considerable downturn of 2011 was predominantly a result of the worsening European debt crisis, triggered by the realisation that Greece had not been adhering to the measures imposed by the IMF and the EU in the May 2010 bailout. Market doubts over the success of the implementation of these measures and over Greece’s ability to meet future debt obligations, due to higher financing costs, led to further turmoil. The political delay by EU leaders to introduce a sufficient aid package led to a contagion effect on the debt of other countries such as Spain, but, more importantly, Italy whose 10 year debt yields rose above the 7% barrier: a bailout alert, as it is the level reached by Greece, Ireland and Portugal before they were placed on support mechanisms. The ECB began buying Italian debt to

push yields below 7% but stated that it would not do so indefinitely. Market volatility remains as the EU bailout funds via the €440 billion EFSF and, now, the €500 billion ESM, are not sufficient to bail out Italy, the world’s 8th largest economy and 3rd largest debt market; In 2012, Italy alone has debt obligations of €364 billion while one third of the EFSF must refinance most of Greece’s second aid package. The markets had been hoping that the December 10 EU summit, which led to the much-anticipated fiscal pact, by which automatic sanctions will be applied on future budget rule-breakers, would alter the stance of the ECB, especially as the pact was backed by Germany among 26 EU member states. However, the outcome was deemed to have a gradualist as opposed to an immediate, comprehensive solution and that this would continue to add volatility and be costly to the markets. Moreover, the cautious stance of the ECB remained and left the rating agencies dissatisfied, inciting further downgrades and placements of sovereign debt on negative outlooks.


The outlook for 2012 is grim and complicated. The strict austerity measures imposed on high deficit eurozone countries have had a damaging effect on growth which, without caution, could steer the eurozone into deep recession. The markets perceive the bailout schemes that the political leaders have drafted to date, as deeply unsupportive of requirements. The two acceptable solutions for the eurozone are arguably either the introduction of Eurobonds or the ECB acting as a ‘lender of last resort’ to banks which would, in turn, purchase sovereign debt. The former is doubtful as northern countries do not want their financing rates to increase or to carry the debt burden of peripheral countries. The latter, on the other hand, requires that the ECB change its mandate, a move that would require EU

the financial services sector, now the driving force of the Cypriot economy, should continue to prosper consensus. However, it is possible that with any worsening of the situation, German intransigence will be forced to subside and the ECB will be permitted to act as a ‘lender of last resort’, a role akin to that of the Federal Reserve in the US and the Bank of England in the UK. The banking situation remains troublesome as the dollar interbank lending rate has been frozen. Additionally, European banks are undertaking valuable asset sales to strengthen their balance sheets and reach a core tier 1 ratio of 9% amid a capital shortfall of €115 billion. They remain heavily susceptible to the crisis through their sovereign debt and direct market exposure to struggling peripheral economies. Global banks are also exposed through CDS insurance sold to their European counterparts as protection against European sovereign debt defaults. We remain hopeful that although the economic situation may continue to worsen, a long-awaited bold move will emerge to circumvent a critical event such as a major government default or the breakup of the eurozone. It is not in the interest of the eurozone or the rest of the Western world for the situation to deteriorate. The ECB has, for the first time, already made available 3-year loans to banks. Although banks seem reluctant to invest further in sovereign debt and insinuate that they will instead lend to the real economy, it is a step in the right direction.We anticipate a partial nationalisation of some ailing banks, similar to the TARP programme implemented during the subprime crisis. Expectations are for Europe to contract to 0.5% GDP from 1.4% in 2011, the US to exhibit moderate growth of 2.5% from 2.7% in 2011, with the Fed ready to fuel QE3 if threatened by euro debt or other crises. The BRICs, a predominant contributor to global growth, to grow 6% in 2012, roughly at 2011 rates; China’s growth is

expected to fall to 8.5% from 9.3% last year, mainly on lower exports through weakening global demand. Russia, India and Brazil also experienced contracting GDPs in 2011, also due to waning global demand and contracting monetary policies to stave off respective inflationary pressures. In 2012 growth is anticipated to be equivalent to that of 2011 at 5%, 7% and 3.5% respectively. Cyprus is also caught deep in the euro debt crisis. The domestic commercial banks’ assets, at 5 times (€92 billion) the country’s GDP, are heavily exposed to Greece both through their bond portfolios and loan books. The former are at relatively manageable levels but, with an anticipated economic deterioration in Greece, the latter are worrisome. Thus we foresee government intervention of varying degrees in Cyprus’s largest banks. Raising the required estimate of €3.6 billion from the market to increase the core Tier 1 ratio and to provide a buffer versus further losses on Greek and other peripheral sovereign debt will prove difficult in this illiquid credit market. Through a partial nationalisation of the banks, the confidence of Russian and other foreign depositors in our banking system should recover. If the upcoming elections in Russia maintain a stable political climate, the financial services sector, now the driving force of the Cypriot economy, should, if all else remains equal, continue to prosper. Consequently the banks will survive and related industries, such as law firms and professional services organisations, will continue to develop. The political leaders of the eurozone need to recognise the magnitude of the threat of the current crisis and its high correlation with the global economy. Ben Bernanke and co. may be congratulating themselves on how lessons of the 1930s Great Depression enabled an exit from the sub-prime crisis and a prevention of a double dip recession. However, it is widely believed that a key cause to the depression that occurred within the recession of the 1930s was the tight fiscal policy that stemmed all growth. We need to beware because the current situation in the eurozone looks eerily similar.

info: Persella Ioannides is a Director of Meritkapital the international investment, business & finance magazine of cyprus



The (Mostly) Ups and the Downs The latest tax changes in Cyprus By Paul S. Mallis, Tax Partner, Deloitte, Cyprus


n August and December 2011 a number of amendments to the tax laws of Cyprus became law. Most of the changes aim to raise revenue through increases in various tax rates, a new levy on companies and new levies on income.

28% in 2012. The introduction of the special levies on income (described below) further accentuates this arbitrage and it is inevitable that these increases will see more use of this planning technique as well as encourage more self-employed individuals to incorporate new companies to take advantage of this opportunity for tax rate arbitrage.

Personal income tax A new 35% tax band was introduced for individuals with an income above €60,000. Previously the top rate was 30% for income over €36,300. The second package saw further effective taxation through the introduction of the “special levies” described below. In addition to this, from 1 January 2012 certain benefits received by shareholders and directors of companies are no longer taxed in the hands of the company at 10% but rather taxed in the hands of the individuals at the (mostly higher) relevant income tax rates. The introduction of the new 35% rate and the change in the taxation of benefits came as no surprise and still leaves Cyprus as a low tax jurisdiction for personal income tax amongst its EU peers. However what is controversial about the 35% band is its introduction into law on 31 August 2011

It will be interesting to see the true increase in revenue that will be raised from this measure

with retroactive effect from 1 January 2011. Although this retroactive introduction is allowed under Cypriot law, individuals with incomes over €60,000 find them70

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New special levies Paul S. Mallis

selves having to pay additional tax on the income they had earned in the first 8 months of 2011. Employers have been left to withhold additional PAYE from the salaries of their employees in the last 5 months of the year to cover the additional tax, leaving these employees with a much thinner net pay at a time when their wallets are already feeling the pinch of the crisis. Similarly, the self-employed are left to scramble to put aside extra funds to make their provisional tax instalments or make top ups on the first instalment of provisional tax that was due on 1 August 2011 prior to the introduction of the new rate. It will be interesting to see the true increase in revenue that will be raised from this measure. This is because those individuals that are employees of their own companies now have a greater incentive to take advantage of tax rate arbitrage by paying themselves a low salary with the balance paid as a dividend. Rather than pay personal income tax at 35% on the part of their salary that is over €60,000, if this amount is instead paid as a dividend, the same amount will suffer overall combined corporate income tax and special defence contribution of only 25.3% in 2011 and

The first package introduced a special contribution payable by all government and quasi-government employees and retired state employees depending on the level of their salary or pension. The contributions are as follows Monthly gross salary Monthly gross /pension of governemoluments of ment employees hourly paid gov(excluding hourly ernment workers € paid workers) €

Rate %

0 - 1.500

0 - 1.500


1.501 - 2.500

1,501 and over


2.501 - 3.500



3.501 - 4.500



4.501 and over



The second package introduced a special contribution payable by all self-employed individuals as well as employees in the private sector and private sector retirees. The contributions are as follows Monthly gross income / salary / pension €

Rate %

0 - 2.500


2.501 - 3.500


3.500 - 4.500


In the case of employees, half the above contributions are paid by the employee and half by the employer whereas the

self-employed and retirees bear the full cost of the contribution. The special contributions are for a two-year period with the contributions by public servants and public servants pensioners applied from 1 September 2011, expiring on 31 August 2013 and the contributions by others applying from 1 January 2012, expiring on 31 December 2013. In addition to the above contributions, government and quasi-government employees will make new contributions at the rate of 3% of their salaries to the Government Pension Scheme and a contribution of 2% will be made to the Widows’ Fund. The introduction of these contributions is seen as more equitable as previously no contributions were made by public sector employees in comparison to employees in the private sector who contribute 6.8% to the social insurance fund that provides for their future pension benefits.

Special Defence Contribution The main change to special defence contribution relates to the rates that apply. Other than these rate increases, the primary basis of taxation remains unchanged apart from some anti-avoidance measures affecting complex groups of companies. First, there is an increase in the rate of special defence contribution on interest income taxable under this Law to 15% from the prior rate of 10%. This increase applies to all interest arising, accruing or deemed to arise or accrue from 31 Au-

the government has now applied a quick sticking-plaster approACH

age of austerity measures increased the rate to 17% from the prior rate of 15%. This increase effectively applied to all dividends paid from 31 August to 31 December 2011. The second package increased the rate again to 20% but on a “temporary basis only” for two years meaning that the 20% rate is applicable to all dividends payable from 1 January 2012 to 31 December 2013, after which the rate will return to 17%.

Immovable Property Tax Immovable property tax is payable by owners of immovable property situated in Cyprus based on the value of the property as it was at 1 January 1980. The new bands and rates are applicable from 1 January 2012. The existing bands are replaced and the rates increased from a maximum of 0.4% to a maximum 0.8% and are as follows: rates increased are as follows Value of property as at 1 January 1980 €

Rate %

0 - 120.000


120.001 - 170.000


170.001 - 300.000


300.001 - 500.000


500.001 - 800.000


800.001 and over


There has been extensive debate over the last couple of years in respect of this tax and the inequities in its application due to changes in values of property since 1980 from such effects as zoning changes, etc. Unfortunately, rather than taking the time to address these inequities when there was time, the government has now applied a quick sticking-plaster approach and effectively merely doubled the previous rates and lowered the threshold of the tax-free band.

New Companies Levy gust 2011. Secondly, there is an increase in the rate of special defence contribution on dividend income received by Cypriot resident persons. The first pack-

This was a levy designed to apply to just about every company registered in Cyprus – a liability of €350 payable every year. The levy was set so low in the hope that nobody notices it and is imposed

on each company with a cap of €20,000 for all levies payable by companies in the same group, “group” being as defined in the Companies Law. The levy was payable by 31 December 2011 in relation to 2011 and by 30 June in respect of each subsequent year. The levy is payable starting from the year that follows the year of registration.

Benefits for high-income, new resident individuals An exemption of 50% will apply to income of a non-resident person taking up residence in Cyprus to work for an employer in Cyprus and where that person’s income exceeds €100,000 per annum. This exemption will apply for new employment that commences on or after 1 January 2012 and will apply for a period of 5 years from the first year of employment. This measure is the only ray of light in the package in terms of encouraging new growth as it is aimed at attracting new businesses to Cyprus such as high-end software companies and hedge funds that employ high earning professionals. The idea is that this will bring tax receipts to the government that would not otherwise exist while at the same time bringing the employees with their consumer spending power within the Cypriot economy.


Added Tax From 1 October 2011, for purchase or construction of a person’s first residence of up to 275 square metres, VAT on the cost of the first 200 square metres is subject to the reduced VAT rate of 5%. However at the same time the special subsidy payable on such first residence is abolished in respect of contracts concluded from the same date. The second package introduces an increase in the standard rate of VAT to 17% from 1 March 2012 from the current rate of 15%. The reduced rates of 5% applicable to deemed essentials (pharmaceuticals, food, etc.) and 8% remain unchanged.

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Can Cyprus afford to give up its ‘selling point’ of a 10% corporate tax rate in the context of closer eurozone fiscal integration?


iven the recent initiatives spearheaded by German Chancellor Angela Merkel for closer fiscal integration among the eurozone countries, many in Cyprus have been concerned that the eventual tax harmonisation that such


By Marios Eliades, Partner, Tassos Papadopoulos & Associates LLC


lthough Cyprus’ 10% corporate tax rate is only part of a wider matrix of tax advantages that Cyprus offers as a business centre, it is nevertheless, on its own, a very significant factor for any business or professional advisor engaged in tax planning in choosing Cyprus as a base of operations or to register an investment vehicle. Any move towards greater European fiscal integration that would involve harmonisation of corporate tax rates will have a very negative impact on the Cyprus services sector which primarily relies on low taxation to attract foreign investment. Cyprus’ main competitors in the services industry, primarily those who are non-EU countries, will inevitably benefit from any such increase which will extinguish another perceived advantage which Cyprus has, namely that of a stable and predictable tax regime.


integration would imply might oblige Cyprus to lose its distinction as the lowest corporate tax jurisdiction within the EU. Given that the government is now savouring the prospect of hydrocarbon revenues as a possible future epicentre of the Cyprus economy, it is perhaps more likely that concessions will ultimately be made in


order to harmonise the island’s tax regime with that of the rest of the eurozone. Gold asked a number of leading law firms and corporate services providers for their views on whether Cyprus can afford to give up its 10% corporate tax rate in the interests of closer eurozone fiscal integration.

By Michalis Kyriakides, Partner - Corporate Department, Harris Kyriakides LLC

In comparison to other EU countries, Cyprus has traditionally elected to maintain a low corporate taxation system, surrounded by several incentives for local and international entrepreneurs. This is a choice of principle. It stems from the perception that low corporate taxation promotes development, growth and foreign investment. It is also conducive to transparency and compliance. I do not consider this system as being a “selling point” of this jurisdiction; rather, it seems to be a reasonable and well-thought approach to fiscal regulation, which perhaps should be seen as a paradigm that other EU countries should consider. If we all agree, especially in this turbulent economic environment, that development is a key element for fighting unemployment and budgetary shortfalls, then perhaps there is no further argument needed for contesting any attempt to increase taxation rates, indeed on a harmonized basis within the European Union. By Andreas Neocleous, Founder and President of the Board, Andreas Neocleous & Co LLC



f Cyprus were forced to set a corporate tax rate above 10% would it be the end of the island’s ambitions as an international business centre? I hope that it would not. For international companies looking to establish a base in Europe, the tax rate is one, but only one, factor in a package of criteria. The structure of the tax system is at least as important: Cyprus’s simple tax system and its freedom from withholding taxes are a huge factor attracting business here. Even more important are the reliability and integrity of a jurisdiction, the quality of services and the ease of doing business. Transparency, professionalism and the elimination of unnecessary bureaucracy and delay are what matter to international businesses. These factors, and not merely low tax rates, are behind the success of countries such as Singapore. In summary, while a higher rate of tax on corporate profits would not be a welcome development, it need not be fatal if Cyprus can offer investors a modern, businessfriendly environment with up to date legislation and an efficient and a helpful public sector. This requires the commitment of everyone concerned, and particularly the government.

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no By Angelos Paphitis, A.G.Paphitis & Co LLC


n June 2010 the elected Cyprus government proposed to raise corporate tax by 1%, increasing it from 10% to 11% (still one of the lowest income tax rates within the EU). When the bill was presented to Parliament on July 8, 2010, the proposal was defeated by the vast majority of MPs proving fiscal stability to be a security factor necessary within the ingredients of an International Business and Financial Centre. In our opinion, Cyprus cannot afford giving up its “selling point” of a 10% corporate tax rate, bearing in mind that other states like Malta, Luxembourg, The Netherlands, etc, are waiting on the sidelines and looking over Cyprus’ shoulder for a good moment to step in and take its place as the top leading international business and financial centre. By increasing corporate tax, not only will Cyprus lose its title as having the lowest corporate tax in the EU; it also risks losing the stability and security credibility that it currently has all over the globe, and that in turn will cause it to lose its reputation as the ideal business gateway status for investments between the EU and the dynamic economies of Central and Eastern Europe, Russia, India and China. To conclude, an increase in corporate tax will make redundant all the efforts Cyprus has made over the years in attracting foreign companies as a reliable international business centre.


By Dmitry Popov, Director, Korpus Prava (Cyprus)

A pact among 26 European Union countries to enforce stricter budget rules will be finalised by March 2012, according to European Council President Herman Van Rompuy. The EU’s aim is to have the intergovernmental treaty ratified by all countries, apart from Britain, by June 2012. One of the core issues expected to be covered by the treaty is corporate tax rate unification within the EU. Domestic and international investors could lose the current favourable corporate tax rate of 10%, which appears to be the most significant advantage of Cyprus enabling its economy to survive these days. Given that the Cyprus economy is represented to a great extent by international business companies (IBC) generating considerable revenues for the state budget, any potential increase of the corporate tax rate will not simply undermine international business sentiment but could dramatically change the foundation of the whole Cyprus economy. We would expect that a substantial number of IBCs would consider moving to jurisdictions imposing a lower tax burden (including the corporate tax rate) as a result of such a change. The Director of the Department of Inland Revenue has repeated at recent tax conferences that the current tax rate will remain unchanged and this leaves us with some optimism. Thus, given the Cyprus government’s understanding that any increase in the corporate tax rate is the equivalent of hara-kiri for the Cyprus economy, we would like to hope that Cyprus will retain the current tax rate of 10%, comforting local business and attracting Cyprus registered IBCs.


By Socrates Ellinas, Advocate, Head of Corporate/Commercial Law Department, Areti Charidemou & Associates LLC


n Cyprus the services sector contributes more than 60% of GDP and the workforce. Given the lack of heavy industry, the recession in construction and the decline in tourism, the idea of increasing the corporate tax rate – for any reason – does not seem wise. It could be argued that even a small increase would severely damage Cyprus’ reputation, demonstrating instability and causing concern to investors that Cyprus is no longer a reliable jurisdiction offering stable legal and economic framework. The corporate tax rate, in conjunction with the broad network of double tax treaties, is a key explanation of how a small island of 800,000 people has come to host approximately 250,000 companies. Any increase in the corporate tax rate would render the double tax treaties insufficient and Cyprus inadequate to assist clients with their tax effective structures. Furthermore, higher corporate tax leads to lower profit margins and this would undoubtedly affect many other sectors of the economy. Retaining a business would no longer be affordable for local entrepreneurs – especially small to medium size businesses. In acknowledgement of the significance of the current rate and considering the possible domino effect on the economy, Cyprus did not even consider a possible corporate tax increase in the context of the recently imposed austerity measures. A decision to give up its ‘selling point’ of a 10% corporate tax rate would be detrimental to the economy, especially now that a financial recession is approaching. the international investment, business & finance magazine of cyprus



Small Country, Huge Potential Cyprus has the opportunity to become a leader in Europe, says Andreas Athinodorou, founder and CEO of the Aspen Trust Group

By John Vickers


n an ideal world Andreas Athinodorou would be a politician. He is one of those rare businessmen who has a dream that goes way beyond his own life and circumstances and seeks to improve not only his profession but his country. Like many people with a vision, he is too modest and low-profile to become involved in the loud and frequently superficial world of local politics but he is clearly trying to bring about a change in Cyprus, especially now that the island’s economy is facing serious problems. “I am somebody who really wants to see Cyprus grow,” he says. “I want to see this island moving forward in a direction that will support the profession and then the economy at large. The objective in founding the company 14 years ago was to be in a position to speak my truth about the way I saw the profession. At the time my wife and I were both working for one of the Big Four accounting firms, where everything was geared around auditing. We saw a niche in Cyprus for the provision of tax-

I really want to see a minimisation of the gap between the perception of the market and implementation of what the market needs driven or investment-driven solutions that would combine accounting, legal, banking and many other services. I felt that in the traditional set-up of an accounting firm or by working for someone else, even as a 74

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Andreas Athinodorou

partner, I couldn’t voice the way I would like to see my work develop and how I would like to see Cyprus. The entrepreneurial drive came from this urge.” Since then, Cyprus has made considerable progress in this very direction and the fiduciary sector, in particular, is still growing. For Athinodorou, regulation is now a key element if the country is to keep its good reputation intact. Many of those now involved in the sector, he says, are not from the profession (“We have even heard of travel agents offering corporate services!”) and Polish, Russian and even Indian firms are operating from here on the premises of fellow professionals and utilising the regime of Cyprus but with “zero background or ethics. This is a serious concern because, in order to develop as a financial services centre we need to have the right regulatory framework.” Despite such problems, which will hopefully be tackled by a long-pending bill before the House of Representatives later this year, Athinodorou remains extremely positive about Cyprus and what it can offer, beyond the over-hyped attraction of its 10% corporate tax rate. He points out that 10% is actually the headline tax but the effective tax rate is much higher. “Countries like Luxembourg have a headline tax of 28-29% but their effective tax rate is much lower than that of Cyprus. We should be looking to find ways of attracting more business and, to this end, we actually need a much lower tax rate than 10%. However, the way to bring in business is not to change the percentage but the infrastructure and to listen to what businesses need, not what we think they need with our thinking from the 1990s. I feel that Cyprus is not in touch with the requirements of the market. The private sector is closer and I really want to see a minimisation of the gap between the perception of the market and implementation of what the market needs.” Andreas Athinodorou would like to see the profession and the government’s strategy to move away from the concept of appealing to international companies to “come to Cyprus for tax purposes” and promote what he sees as one of the island’s

The Aspen

Trust Group Andreas and Marina Athinodorou founded the Aspen Consultants in 1998. They named the company after the Aspen tree, which is the fastest-growing in the world and one of the moist flexible. According to The Guinness Book of World Records, the aspen grove is the world’s largest living organism. A single grove can grow large enough to cover an entire mountainside while the trees within the grove are interconnected through their shared root system. Each tree stands as an individual and at the same time is connected to the whole. The energy that the Aspen name carries gave the company its business motto “solid advice, flexible solutions”. In 2004 the company and its associated firms were renamed the Aspen Trust Group.

My vision is to move away from merely bringing revenue to Cyprus to effecting a change to the model that we are using

unique advantages. “Because we are so small, we get to see things from A to Z so we can manage the microcosm and project it to manage the macrocosm. Our ability to manage companies that are at the pinnacle of the multinationals can actually add value to those multinationals because we can direct them every step of the way from A to Z. Cyprus is in a unique position to assist clients and add value by applying this holistic approach and providing a holistic solution to what they are facing in their business. Streamlining tax is a very small part – it is the driver that promotes Cyprus as a place for solutions but once clients find us they begin to realize that it goes beyond that. Their corporate strategy, their operational strategy and their investment strategy can all be facilitated from Cyprus. The ‘hook’ is tax but once they are here we can provide a lot more.” Athinodorou believes

that Cyprus will still maintain a tax differential with countries like Germany “but they will put Cyprus under the microscope to see whether a Cypriot-managed company is what we claim it is, as opposed to a German or a Russian one masquerading as a Cypriot one”. So while there may appear to be a threat to the existing system on the horizon, there is also an opportunity to transfer company management to Cyprus. “If we get people to move here, then we can create a Luxembourg, a London, a Switzerland or a Singapore. The model we are aspiring to should certainly have elements from these countries. My vision is to move away from merely bringing revenue to Cyprus to effecting a change to the model that we are using and bring in the drivers that will enhance us as a financial centre and as a society. Do we want to improve our schooling? Let’s have people here who will demand higher levels of education. Do we want to improve our roads and our infrastructure? Let’s attract the companies that will demand it and bring the money to pay for it. Do we want better restaurants? Then we should bring in the people who will demand a Michelin star restaurant in Cyprus.” Athinodorou firmly believes that Cyprus can be a leader in many spheres but he believes that one of the main problems with realizing such a vision is what he calls “the limited thinking that we have caged ourselves in, the belief that we are too small to make a difference”. The island’s much larger competitors clearly do not take the same view: “Our competitors – the Channel Islands, the Netherlands, Luxembourg, recently Singapore and Hong Kong – do not want us to grow because we are taking business away from them. Russia has traditionally been one of our biggest markets, but Luxembourg has recently signed an equally good tax treaty with Russia and Luxembourg has the kind of branding that could threaten Cyprus. We are competing with the Channel Islands where the average level of education is slightly higher than that of a school leaver. Look at the average in Cyprus. I don’t have a single employee who doesn’t have a Master’s degree apart

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from maybe my cleaner – and I say maybe because I know she has a degree from her country – so the potential is huge. At present one of our biggest enemies is Singapore but we don’t even see it. By focusing only on the business that we are losing from our traditional markets we don’t see the new opportunities that we’re losing.” The country’s “limited thinking” is also what led Cyprus to being affected by the global recession, Athinodorou says: “The world economy is moving so there is lots of investment going from one place

to the other. The Chinese are buying into Africa but we’re not in that channel. India is buying into the rest of the world, the Australians are getting there too. And then there are all these currencies that are not caught in the battle between the US dollar and the euro. Why should Cyprus be focused only on Greece? Why should our banks be? If we had been looking at a wider map of the world as opposed to CyprusGreece-Lebanon-Russia, Cyprus would not have been part of this. Even the exposure of the banks following the 50% haircut of

Greece’s debt could have been managed from a communications perspective in such a way that it would not have created the kind of sentiment that it has. We could have avoided this.” Athinodorou believes that the Cyprus

Investment Promotion Agency (CIPA) and the Cyprus Chamber of Commerce & Industry (CCCI) can play a crucial role in looking to new investment markets. One of his key ideas concerns the setting up of Public-Private Partnerships that would bring the know-how of the government system together with the speed, the agility and strength of the private sector. “The banks and the private sector can create a Public-Private Partnership under either CIPA or the CCCI to drive the kind

of measures that are needed to open a gateway for investments through Cyprus. And there are investments going on. Russia, India, China, Africa – we’re not in Africa, the biggest investment pot at the moment and there are ways to tap into this market.” The Public-Private Partnership concept is what is required in many areas. “We need to appoint the right consultants, for example,” he explains. “If we’re stepping into a new way of doing business, somebody must assist us to create a map to help us navigate

our way through. We need to receive the right advice on where our competitors are and where they are aiming to be so that we can better position ourselves.” What he calls the “copy-paste of what competing countries do” no longer works for Cyprus (“We don’t know how to drive a Ferrari so making a model one will not get us to where we want to take the country”). The island needs to decide what is going to lead the economy and build a support system round it. “I studied economics


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I want to see the concept of craftsmanship coming back into everything we do

at one the UK’s best universities. Following what is going on in the world today, I can safely say that what I was taught is rubbish! I had to go back to basics and look at the economy for what it is: a control mechanism that works in a very simple way. What is bringing the real money into Cyprus? There was a time when it was selling shoes. We failed to control quality and to create a light industry strategy and that’s why we don’t make shoes anymore. There was a time when it was tourism but we failed to control what it was that we were giving to visitors over and above our Godgiven sun and sea. You only have to look at the numbers of tourists that go to places like Majorca and Turkey and compare them with the figures for Cyprus to see that we are still not doing things properly.” He accuses Cyprus as still having the mentality of a trader (“You buy a container of something, you sell it and that’s your transaction closed”) instead of thinking like an industrialist (“I am making an investment to protect this and make it last for the next 25 years”). He is also nostalgic for the concept of master craftsmanship which once existed here: “We need to bring it back into business and the economy,” he says. “When I look at a Swiss product and I see ‘Made in Switzerland’ I know that behind it lies craftsmanship. If I receive a Cypriot product, I am likely to say ‘Oh my God, is this going to work?’ I want to see the concept of craftsmanship coming back into everything we do.” For this to work, he says, Public-Private Partnerships are the key. “Most of the work done in the public sector is administration so why not introduce e-government and do it online? Outsource things to the private sector and get the civil servants to monitor the quality that is coming out of the private sector which is much better quality at the moment. By making the public sector monitor quality, you automatically elevate its own quality. And it will be at no cost to the state. There are companies ready to go to the government and say “I will take over all your government functions on the administration side under a 20-year contract where I build the system, operate it and transfer it to you in 20 years’ time. We’ve seen it with the airports.” Athinodorou is involved in a private

The island needs to decide what is going to lead the economy and build a support system round it sector initiative which is promoting this and other ideas to the banks. “The money we’re talking about is miniscule compared to their reserves,” he says, “and they will gain most from it in the initial stages because they’ll be distributing the money that will be coming in. This will shift the false perception abroad about money leaving Cyprus when deposits are actually doubling every month. We can show that in the middle of a crisis, with the banks being downgraded by all these ‘questionable’ international rating agencies, the country is moving to create a new, more efficient infrastructure. We can actually rebrand Cyprus. We are small enough to fly under the radar and any small change that we can make in the right direction will have such a huge benefit that we can be out of this in less than six months. However we need to act now. We need to take focused action in the direction that can bring in quick results.” The government’s austerity measures do not meet with his approval (“You cannot cut costs in a recession and hope that you’ll have growth”) but he is hopeful that the potential revenues from natural gas will be utilised wisely. “We have a choice. If we take the money and throw it in the money pit that we have at the moment, then we will end up becoming another Venezuela, a bankrupt country of civil servants. But if, before we get the money, we take the time to imagine a better world, when it comes in we can take the country in a direction beyond our wildest imagination. Cyprus can become financially important in Europe if we play our cards right as a financial centre. Moreover, at a time when Turkey is changing its policy and turning away from America, Israel and the EU in favour of Islam, Cyprus as the potential to lead the EU initiative for a unified international foreign policy. I strongly believe that despite Cyprus’s small size we can make a difference.”

The Number That Killed Us: A Story of Modern Banking, Flawed Mathematics, and a Big Financial Crisis By Pablo Triana (John Wiley & Sons, 2011) RRP: £26.99 (£17.89 from


he devastating financial crisis that began in the summer of 2007 and led to staggering losses for the banking industry, a global economic recession, and an implosion in government finances was caused by two main factors: toxic assets and leverage. But why did banks and other financial institutions take on this “toxic leverage” in the first place? Because an immensely powerful, but little talked about, mathematical model told them to. Known as Value at Risk (VaR), this model inaccurately projected no risk for some clearly worthless assets, insisting that they could be accumulated worry-free. Intoxicated by the promise of short-term profits, the banks listened, and disaster followed. Explaining the key reasons behind this and previous market crises, Triana provides a comprehensive overview of the development of VaR – a story fraught with mathematical wizardry, intriguing characters, and financial drama. VaR, the mathematical ruler of the past twenty years and one of the most influential forces in finance, is finally seen for what it really was – flawed and impractical. A fascinating study by a fine author.

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Diamonds Are Forever They sparkle, they are expensive but are they worth investing in? That depends on their colour.

The prices of polished stones fluctuate up and down and are highly impacted by factors such as interest rates and inflation


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By Nathalie Kyrou

arilyn Monroe led us to believe that “Diamonds Are Girl’s Best Friend” in the film Gentlemen Prefer Blondes but these beautiful sparkling gems have long been precious is everyone’s eyes, either for their beauty or their financial value. And as the title of Ian Fleming’s fourth James Bond novel memorably states, Diamonds are Forever, unlike other luxury items which can eventually wear out or deteriorate. They are precious and treasured, which theoretically makes them a worthwhile investment option. However, rarity and a limited supply are frequently key factors to making anything collectable and, therefore, a good investment and, at present, there is no shortage of natural diamonds. However, despite this, their popularity has continued to rise since the 19th century, in part due to successful marketing and advertising. Diamonds can also now be synthesized at a much lower cost than the equivalent natural diamond price, and the chemical and structural purity of a synthetic diamond can actually exceed a natural one. However, chemical composition is not the only determinant of value – the shape of a diamond is also important and the quality of the cut of equal, if not greater, importance. Remember the ‘4 Cs’: Colour, Clarity, Carat weight and Cut. And while ‘princess’ cuts, heart shapes and ‘marquise’ cuts may come and go in fashion, round, brilliant cut diamonds are the best choice for reselling in the long-term. In contrast to precious metals, there is no universal world price for diamonds. However, the industry does refer to price guides such as the Rapaport Diamond Report, The Diamond Registry Wholesale Diamond Price List, Ajediam Antwerp Diamonds Monthly, and The Gem Guide. Historically, the rough diamond price has been controlled by the De Beers Group, which has a 40% to 50% market share, and controls the distribution and base pricing of rough (uncut) diamonds. They do not, however, control the price of polished (cut) the international investment, business & finance magazine of cyprus



diamonds. The prices of polished stones fluctuate up and down and are highly impacted by factors such as interest rates and inflation. Botswana is currently the largest producer of diamonds by value but, since the 1980s, other producers have developed new mines in Russia, Canada and Australia, for example, challenging De Beers’ dominance. The US is the biggest consumer of diamonds in the world, accounting for 35% of sales, with Hong Kong claiming 26% and Belgium 15%.

Investment So why buy diamonds as an investment? Not everyone trusts banks, to begin with, and this is a growing trend in the present economic climate. Indeed, in some cultures and countries more than10% of wealth is ‘portable’ – the most common use of diamonds as an investment is as an insurance policy against the unexpected. A diamond’s extremely condensed value and portability makes it a perfect form of emergency funding. Women, especially, often consider their jewels as security or ‘running-away assets’ if a relationship ends. Few diamonds are returned in such circumstances. Highliability professionals may buy diamonds and hide them offshore in case they end up on the wrong end of a civil law suit and need a private source of wealth to help them get back on their feet (if the courts cannot find an asset they cannot confiscate it). If an investment diamond is never used, it can be passed on ‘quietly’ to someone else as part of the estate.

Women often consider their jewels as security or ‘runningaway assets’ if a relationship ends Jewels have always been an important part of inheritance and are therefore significant emotional and family investments: a band of diamonds may mark a child’s birth, jewellery is often given on special birthdays such as 18th and 21st, as well as on wedding anniversaries (another indication of the value of diamonds is that 60 years of marriage is a so-called diamond wedding anniversary). The more love there is in the family, the higher the non-monetary value of the stone will be, as it is less likely to be sold. Diamond investors are not as common as others and dealing in jewellery in general requires a lot of specialized expertise. Today there are a few funds that invest in diamonds, by purchasing unique diamonds (very large in size or of a particular colour) and having each stone checked by professionals before deciding to purchase. If you are investing on your own, you should consider buying something that can be worn most of the time (not left at home for thieves) and you may not need to pay to insure it. Another point to consider: a single diamond does not necessarily go up in value faster than say a pair or a matched set in a 3-stone ring, but a single stone may be more liquid than a collection, as probably costs less to set. In general, it has to be said that as an ordinary consumer, you cannot expect

In the movies


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‘The Heart of the Ocean’ worn by Rose, the character played by Kate Winslet in Titanic


What to look for Buying an important or investment

diamond at the right price is critical. The world’s diamond community essentially uses the Rapaport Diamond Report as a guide for buying and selling diamonds. ● Make sure when buying an important stone that it has a GIA (Gemological Institute of America) or EGL (European Gemological Laboratory) certificate. Most large and rare stones have a certificate that was issued at the time of cutting, which will be recorded and remain with it – this proves the ‘pedigree’ of the stone and is your assurance of what you are buying and a future owner’s assurance of what they are buying from you. ● Don’t just take the jeweller’s or dealer’s word on the quality of a stone - always insist on certification. ● Buying a diamond with a GIA diamond grading report, and at some kind of discount from the Rapaport wholesale price list, will help ensure that if the price of diamonds rises over the years to come, a profit will eventually be made. A reputable dealer should be able to sell you certified diamonds for 5-10% over their cost. Any more than that and you are paying too much. ● Gemologists use strict standards to rank diamonds, using various instruments and descriptions. They look at the 4 Cs: Colour, Clarity, Carat weight and Cut. • The colour of the stone is given an alphabetical rank with D as the best and Z as the worst. Appraisers compare the diamond’s colour to a master set of colour comparison stones under very specific lighting. • A diamond’s clarity is ranked from the best grade (IF) to the lowest (I3). Any inclusions are also noted, as they diminish the stone’s value. An appraiser will also measure the polish, symmetry and fluorescence of a diamond. • The diamond’s measurement and size is determined in hundredths of millimetres and carats. • The shape of the diamond can vary from round to pear, oval to heart and its cut will influence its value. ● When in doubt, find a specialist in the field to help you.

is not by chance that many successful movies have used diamonds as a key driver for their main characters’ actions and the focus of the storyline, from To Catch a Thief (1955) to Blood Diamond (2006). The seventh James Bond movie, Diamonds Are Forever, not only had a Bond Girl called Tiffany but a plot that centred on diamond smuggling. Snatch, the 2000 Guy Ritchie comedy/crime thriller portrayed a group of gangsters and others trying to get their hands on a huge 80-something carat diamond. Moreover, in James Cameron’s Titanic, the blue diamond named ‘The Heart of the Ocean’ plays a key role and even ‘The Pink Panther’ is not, as is often thought, a nickname for Inspector Clouseau in the film of the same name but a large, valuable pink diamond which director Blake Edwards used to spin off a series of successful sequels.

to make a profit on a diamond within a few years if you are buying at typical retail prices in stores. Jewellery and rare stones are not investments like gold. Some quality jewellery pieces and very rare stones may retain their value in the event of a continuing and deep recession. However, the vast majority of jewellery pieces and rare stones will actually fall in value. There are so few truly magnificent diamonds so it should be much easier to sell a $100,000+ stone than a $1,000 one. However, it will still be difficult to find a buyer, even for a stone worth $100,000. White diamonds that cost under $50,000 at a true wholesale price are not rare enough to be considered an investment except in a market that exhibits extreme inflation. Natural fancy, coloured diamonds, on the other hand, have an excellent record. During times of recession, they tend to move laterally, and in healthy economies or times of inflation they gain in price. Blue diamonds have approximately doubled in price every 5 years, pink diamonds have doubled in price about every 6-7 years and yellow diamonds have doubled in price about every 8-10 years since 1970. In fact, most famous diamonds are not white. Pink diamonds may become rare if the Australian Argyle mine output falls (as appears likely), but if you do manage to acquire

Diamonds vs Gold

With the economic slowdown and the consequent fall in jewellery sales, some jewellers have begun touting the merits of jewellery and diamonds as being investments. A diamond-set gold ring may be a good investment but because of the gold, not the diamond. If you want to invest in jewellery, go for gold. Here’s why:

The 110.3-carat Sun-Drop Diamond, the largest yellow pear-shaped diamond known, sold for $12.4 million last year, a record for a yellow diamond and the eighth most expensive diamond ever sold at auction.

one fancy enough, you will probably make headlines, as British billionaire Lawrence Graff did in 2010 when he purchased an exceptionally rare pink diamond for a world record price of $46,158,674, making it the most expensive piece of jewellery ever to be bought at auction. The ‘Graff Pink’, a 24.78-carat diamond, was sold at a Sotheby’s auction in Switzerland. The previous record had been set by rival auctioneers Christie’s, when they sold the blue 35.56-carat ‘Wittelsbach-Graff Diamond’ for $24.3 million in 2008. A collection of jewels owned by the late Dame Elizabeth Taylor also made headlines recently when they fetched $116m (£74.9m) at a New York auction. Within this collection, the actress’ famous 33.19-carat diamond ring, given to her by Richard Burton, sold for $8.8m (£5.7m). Like land, diamonds have an intrinsic value and, as an investment, they can reward you financially if you make the right choices. At the end of the day, however, a diamond can be priceless no matter what its monetary value – not just for its sentimental worth as a symbol of eternal love and commitment or a promise of a future to come, but because it may actually give you a chance to have a future. If you think this sounds far-fetched, you obviously didn’t see a news item last month: Michelina Lewendowska told a British court how she Jewellery and diamonds are subject to VAT. On the other hand, investment grade gold bullion (0.9999 or 24 carat), coins or bars are stamp duty and VAT free due to the EU Gold Directive. Gold bullion, coins and bars can be put in a pension fund, unlike diamonds and jewellery. The jewellery market is known for having huge mark ups over the actual gold content or intrinsic precious metal value of the jewellery itself. A large necklace that contains one ounce of pure gold (0.9999 pure or 24 carat) will normally cost well in excess of 250% of the market price for gold. There is no local or international marketplace where jewellery or rare stones are traded on an exchange as there is with equities, commodities, bonds, currencies and gold. This means that there is no efficient market or price-discovery mechanism, so the price of rare stones is subject to the whims of individual jewellers and valuers. Unlike jewellery and rare stones, investment grade gold bullion (0.9999 pure) has an inverse correlation to the property and equity markets, as was seen in the 1930s, the1970s and in 2011.

had used her diamond engagement ring to cut her hands and legs free then slash her way out of a cardboard box in which her fiancé had buried her alive. If a diamond can save your life, it’s hard to think of a better excuse to go out and buy that sparkling stone you’ve always been dreaming of. And by all means buy a diamond as a beautiful gift for a loved one, too, but unless you are a millionaire, you should not buy it as an investment in the hope that will protect you from the global economic recession. It won’t.


Facts and Figures Diamond is the hardest known natural material in the world.

Diamonds get their name from the ancient Greek word adamas (“unbreakable”).

Most natural diamonds are formed in high-pressure hightemperature conditions existing at depths of 140-190km in the Earth’s mantle. Not all diamonds found on Earth originated here. A type of diamond (“carbonado”) found in South America and Africa may have been deposited there via an asteroid impact about 3 billion years ago.

Approximately 26,000kg of diamonds are mined annually, with a total value of nearly US$9 billion. Roughly 49% of diamonds originate from Central and Southern Africa Approximately 20% of mined diamonds are used in jewellery while the majority 80% are put to industrial use, in lasers, drill parts surgical and other equipment.

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the last word

Rebranding Greece “Never thought a slide

show could make me cry” By Peter Economides


11 November 2011, I delivered the keynote address at the 11th International “Aristoteli” Conference in Thessaloniki, organized by the Greek Institute of Management. Yes, 11/11/11/11 ... George Papandreou and other Greek Government luminaries were supposed to be there. Unfortunately, they were preoccupied with the nuclear fallout from the G20 Summit in Cannes. My subject? Brand Greece, the image that Greece enjoys – or suffers from – around the world. Something I am passionate about, both as a professional and as a Greek. My basic point was that Greece suffers from an image deficit due to years of poor brand management, focused on selling tourism instead of building brand. And my conclusion was that rebranding Greece is a matter of rebranding the Greeks, because how a nation feels determines how it behaves. At the end of the day, how the world sees Greece depends on what Greeks say and do (and don’t say and don’t do.) A further point was that an exit from this crisis may be achieved

through a solution to the image crisis, based on my firm belief that people who feel great do amazing things. And getting out of the Greek crisis will need some pretty amazing things... As usual, I uploaded the slides from my presentation to, an Internet site where professionals share work with their peers. I was expecting the usual response – 2,000, maybe 3,000 views worldwide. Not bad ... but I was way off. In the space of two days it had enjoyed 16,000 views, making it one of the most popular posts on slideshare, worldwide, that weekend. At the time of writing, barely a month later, these slides have had 50,000 views. And the response has been amazing. One was from a young third-generation Greek Australian who told me that she “never thought a slideshow could make me

Rebranding Greece is a matter of rebranding the Greeks cry.” Nathalie, you made me cry too. At the end of November, the organisers uploaded a video of my presentation to YouTube. The three versions of this presentation (one with Greek subtitles) have been viewed more than 50,000 times. As a result of this, I have attracted a following of more than 3,500 on Facebook

and another 1,800 on Twitter. These are not branding experts, just ordinary people drawn into the conversation by the content – not by promotion, but by the content. That’s the power of the Internet. Alone, and by accident, I have managed to spread a message across the world. Cost? Apart from my time... zero, zip, nada, tipota. Marketing is jazz. Impromptu. Improvized. Organic. No score. Just a musician and his instrument. And the ability to play music that people enjoy listening to. I might have achieved the same result with a carefully orchestrated campaign backed by a few million dollars. But just consider what the Internet can do. I recently chaired a major international marketing summit focused on these issues. One of my guests was Gary Vaynerchuk who managed to increase his family wine business from an annual turnover of $5 million to more than $60 million in the space of a few years using social media such as Facebook, Twitter and YouTube. In the process, Gary has emerged as a social media guru. I strongly recommend his bestseller The Thank You Economy to anyone wanting to learn more about social media. Gary’s gift is to simplify. “ Word of mouth,” he says, “has always been the strongest currency. Now it’s word of mouth on steroids.” Believe me, Facebook is not a game. It’s a serious communication platform. Very serious. Are you on Facebook?

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. 82

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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,



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




telecommunications the



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

The Ministry of Commerce, Industry and Tourism Tel + 357 22 867100 Fax + 357 22 375120

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

gold january issue 10  

breaking up is hard to do? InTErVIEwS andreas athinodorou andrey dashin Ester Levanon 2012 Top STockS, kEy STraTEgIES, bEST opporTuNITIES &a...

gold january issue 10  

breaking up is hard to do? InTErVIEwS andreas athinodorou andrey dashin Ester Levanon 2012 Top STockS, kEy STraTEgIES, bEST opporTuNITIES &a...