Gold Magazine February - March 2013, Issue 23 | Page 80

financial services

A

major reform plan focused on
economic growth is essential if
Cyprus is to respond to market
needs and compete successfully against other jurisdictions.
Angelos Gregoriades, the new
Chairman of KPMG, speaks
candidly to Gold about Cyprus’
strengths and weaknesses as a
financial centre.
Gold: 2012 was a tempestuous
year for the economy in general and for the banking sector in particular. Once a final agreement has been reached on the Memorandum and it has received
the necessary approval by all the euro area countries, do you
expect that economic stability will prevail in the coming years?
Angelos Gregoriades: The Cyprus economy is in an extremely
difficult position both because of the fiscal deterioration and the extraordinary losses reported by the banks in Cyprus, especially after the
decision to carry out a haircut of Greek Government Bonds. I believe
that uncertainty and the unreliability of the Cyprus economy are
obstacles to entrepreneurial initiatives.
Businessmen in Cyprus and abroad
are reluctant to make any new invest ments in the island, thereby reducing
opportunities for economic growth
and the creation of new jobs. We
should not forget that an attractive
financial centre needs to have a strong
banking sector and this can only be
achieved through the recapitalization
of the Cypriot banks. We should
take this as a lesson to be learnt and
something that must not be repeated
in the future and we need to find ways
to get through the economic storm we
are currently experiencing.
The Memorandum of Understanding with the Troika includes numerous measures that undermine people’s
way of living, such as increases in
direct and indirect taxes and reductions in salaries. However, I believe
that a final agreement on the terms of
the Memorandum will bring back stability. Further, the Memorandum includes structural measures that will enhance the efficiency and
effectiveness of the public sector, which will create a business-friendly
environment and help generate growth.

growth, which should include, among others, tax incentives for new
start-up businesses, a reduction in the government administration
burden, new double tax treaties and the provision of new financial
products. I am confident that Cyprus can follow the example of
Ireland which has recently returned to the markets.
Additionally, the discovery of gas reserves in Cyprus creates
good prospects for the economy and will help the country to
attract foreign investment. To this end we need to speed up the
procedures for constructing the necessary infrastructure, especially after the second confirmatory drilling that will be undertaken
by Noble Energy in the coming months.
But most importantly we should strategically refocus our services
and develop new capabilities to ensure that we adjust to market needs.
Gold: Is the financial services sector capable of further growth in
these turbulent times?
A.G.: Yes. I believe that the financial services sector can drive the Cyprus economy back to growth. First of all, however, we need to have
fully capitalized financial institutions that can support the sector.
Because of competition, we need to respond quickly to changes in
the global economy – especially in those countries with a close connection to Cyprus, such as Russia, Ukraine
and China – and to the needs of investors and businessmen while constantly
providing a high level of services.
We need to modernize our tax
system and increase the range of
financial products that we are offering. In recent years there has been
increased interest on the part of foreign investors in establishing funds
in Cyprus. Recently-enacted legislation which allows the establishment
of UCITs in Cyprus gives us an additional marketing and promotional
tool. However, there are still things
that need to be done. Legislation
regarding leasing, cell and captive
insurance companies is still pending, while the team responsible for
negotiating the double tax treaties
– the Inland Revenue Department
and the Cyprus Securities Commission – is understaffed.

AN ATTRACTIVE

FINANCIAL
CENTRE
NEEDS TO HAVE
A STRONG
BANKING SECTOR

Gold: What do you foresee for Cyprus, in particular as a regional
financial and business centre? The current situation may not have
pushed investors out of Cyprus but has it made them reluctant to
make new investments?
A.G.: As I mentioned before, our first concern should be to stabilize
the economic situation in Cyprus and regain reliability. The Government needs to adhere to the terms agreed in the Memorandum
and avoid the example of Greece, where several Memoranda were required. I have to say that we are currently seeing some positive signs
in the Greek economy, something that will also help Cyprus, bearing
in mind the strong economic relations between the two countries.
The Government should draw up a strategic plan for economic

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

Gold: Have competing jurisdictions overtaken Cyprus in the race
to attract investors?
A.G.: Competing jurisdictions are trying to take advantage of
the current economic situation in Cyprus to persuade foreign
investors to redirect their investments and funds outside Cyprus.
That may explain the reason behind some of the articles in the
international press stating that Cyprus is a tax haven with weak
anti-money laundering regulations.
However, it is my opinion that even before the Government
submitted its request for financial assistance, we failed to respond
quickly enough to the new needs of investors, something which
was noted by other competing jurisdictions. Furthermore, although
Luxembourg has a well-established funds industry, it is only very
recently that we have started promoting this in Cyprus. From my
positions in KPMG and CIPA, one of my primary goals has been to
promote Cyprus as an attractive jurisdiction for funds and, to that