Although facing challenging economic times, former CEO of PwC and current president of the Cyprus Chamber of Commerce, Phidias Pilides, is confident Cyprus will recover thanks to its newfound hydrocarbons wealth and strong professional services sector.
Cyprus has now secured a financial rescue package after tough and lengthy negotiations with the Troika, are you satisfied with the outcome? What impact will the terms have on the business community?
Reaching the bailout agreement as soon as possible was crucial for Cyprus and today the banks are back to business with some temporary capital controls. Of course there is general disappointment about the situation, but life is slowly getting back to normal. While most foreign companies might bank somewhere else now, they will continue to conduct their business in Cyprus as all the previous advantages are still in place. Businesses with large deposits in the now-closed Laiki Bank have been hit the hardest, and those with deposits in Bank of Cyprus to a lesser extent. The terms of the bailout are very tough on Cyprus, but we are optimistic that once we see the immediate effect of the shrinking of the banking sector and the possible loss of foreign deposits, we can start to enhance the role of Cyprus as an international business centre. We are confident that Cyprus will not be unduly affected.
Has the need for a support mechanism affected investor confidence or the reputation of Cyprus as an international business centre?
Requesting a bailout in itself has not affected the confidence of business people who understand what the situation means in real terms, but perhaps the general public and the public opinion in Europe has been affected. It is well known that the key reason for the present situation, especially in the case of the banks, is an external one – the exposure of Cypriot banks to the Greek market and government bonds. The negative commentary in foreign press and particularly in the German press has definitely damaged the reputation of Cyprus. This has to be reversed. If there is to be discussion about Cyprus, it must be based on facts.
Cyprus is on the OECD Whitelist, which is a vote of confidence for a transparent tax system. Why do you think there continues to be misconceptions about the integrity of Cyprus as an EU-compliant and regulated business centre?
We have been assessed many times and rate stronger and better than many advanced economies in Europe. As for misconceptions, the majority stem from politics. With tough economic times in Europe and elections in various countries, it is a sensitive issue to ask taxpayers to contribute to the bailout of another country and this is often used in party politics. Greece and Portugal experienced similar debate when they requested bailouts. There is also a general misconception about Russian business in Cyprus. When the Soviet Union fell, a lot of ‘black money’ left Russia and ended up in countries all over the world. Since then Russia has strengthened its own anti money laundering measures and there are state level agreements between Cyprus and Russia, regulating how business transactions and investments are conducted between the countries. These measures prevent to a large extent the ability to launder money in Cyprus.
How would you respond to accusations about a lack of transparency in Cyprus in terms of business?
These accusations are completely unjustified and we have adopted all European directives to achieve transparency. There are also misconceptions about what money laundering consists of. If you consider money laundering as saving on taxes by applying double tax treaties between two countries, then yes, Cyprus is guilty. Of course this is nonsense, as these are formal and legitimate treaties between countries, helping businesses to become more competitive globally. We have been subjected to three checks by the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) in the last decade and both the previous and current government have stated we are open to any check by any official European or international organisation.
What have been the reactions to the raising of corporate tax in Cyprus following the financial bailout agreement?
There has been a small increase in corporate tax from 10% to 12.5%, but it is manageable and we still have one of the lowest tax rates in Europe, on par with Ireland. Reactions to this tax hike have been calm and positive. Businesses using Cyprus as a base for their regional and international operations have not been severely affected and I do not expect many businesses to leave Cyprus, as all the comparative advantages for business have been safeguarded. The current tax framework is the result of a complete tax reform in 2003, before Cyprus joined the EU and was achieved in total agreement with the taxation chapter of the EU.
What important reforms has Cyprus already implemented and what proactive steps are businesses taking to strengthen the economic environment?
Many companies are doing face-to-face meetings with their existing clients to reassure them and update them on the situation. We are also proposing more incentives to support the existing business community and to attract newcomers. However, overall the situation is relatively calm and secure. Cyprus has also been proactive and taken the initiative to pass several new laws since the negotiations with the Troika started, with the aim of reducing public expenditure and improving the efficiency and productivity of the government.
Throughout its history Cyprus has proven resilient in the face of challenges, what growth and investment prospects do you see in Cyprus at the moment?
Tourism and international business are the two strong growth sectors of the economy and thankfully they have been showing an increase even throughout the crisis. In addition, exports and re-exports through Cyprus have been showing a healthy increase in the last few years. Another significant sector to take into account is energy. Some estimate the potential hydrocarbon reserves discovered in Cyprus’ Exclusive Economic Zone could be compared to those of Azerbaijan. Our hydrocarbon reserves could also contribute to the energy needs of the EU. Investment in Cyprus’ energy sector has already started with the licensing of blocks for hydrocarbons exploration to major energy companies, which will also boost other sectors in Cyprus.
How do you see Cyprus developing over the next five years?
Cyprus’ economy has been severely affected. I expect unemployment to rise and businesses are sure to face many challenges, but it is crucial we start rebuilding the economy immediately. Cyprus started off as a business centre, but developed also into a finance centre over the years. We are no longer a strong financial centre – however we remain a reliable business hub with an attractive operating environment and modern infrastructure. We have several strong sectors that will help us recover and grow and we must now be more innovative to develop and diversify our economy. Tourism will continue to go from strength to strength and we will have a new sector in the mix soon, energy. There is a silver lining to this disaster as the reforms being implemented will allow Cyprus to come out of this crisis more productive, efficient and stronger than ever.
Phidias Pilides became the President of the Cyprus Chamber of Commerce and Industry in January 2012. A Chartered Accountant, Mr Pilides has had a long career in the accounting profession, culminating in a 10 year tenure as the CEO and Chairman of PwC Cyprus. Public positions held by Phidias in the past include President of the Institute of Certified Public Accountants of Cyprus, Chairman of the Board of the University of Cyprus and Chairman of the Board of the Cyprus Investment Promotion Agency. He has been a speaker at many economic, financial and business fora and has written many articles and contributed to financial and business journals.