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A Walk Along the Seafront in Larnaca

Kitty Miv, Editor
09 January, 2014

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Cyprus has put five new double tax agreements into effect, including, importantly, one with the Ukraine, which includes beneficial treatment for real estate owned through a Cyprus holding company. The country's DTA with Russia used to include such treatment, but the Protocol signed a year ago imposed limits on real estate holding companies, albeit only coming into effect in 2017. Although Cyprus has come in for a great deal of negative publicity since the "bail-in" imposed on bank depositors by the Troika earlier in 2013, it maintains an extremely tax-friendly environment for international holding companies, and double tax treaties are a key element of this regime, along with its 12.5 percent corporation tax rate and favorable rules on dividends and royalties. As a tax-friendly hub for investment into the European Union, Cyprus ranks alongside Ireland and Malta. Although the Government is, perhaps understandably, obsessed with its macro-economic problems (like it owes zillions of euros to the ECB and has no obvious means of paying them back) the Finance Ministry persists with its business-friendly policies, and is in no doubt about the importance of Russia and the Ukraine (and other ex-Soviet countries) to its future. China is also a looming presence. You don't hear so much about the UK, however, which as the ex-colonial power would be expected to play a large role in the economy, except that much of Cyprus's "boom" early in the century was fuelled by over-eager Brits who parlayed the gains they made on owning UK houses into desirable 2-bedroom apartments in Larnaca and Paphos. The UK property bust and changes in exchange rates have sent many of those newcomers scuttling back to the UK, leaving the Cyprus banks with bad housing loans and not much else. Russian and Ukrainian money (and Czech, Polish and Slovakian, etc etc) seems much more secure, by comparison. Slavic tourism and investment is increasing by leaps and bounds; nowadays a walk along the seafront in Larnaca will yield you more Russian-speakers than English-speakers, something unthinkable ten years ago. Russian language colleges are packed with would-be Cypriot waiters, competing against their Romanian and Bulgarian rivals! Well, I exaggerate; but not by much.

It's nice to be able to welcome France's support for apprenticeship as a means for assisting youngsters into the workforce, even if the Constitutional Court had to stop the Government from doing a bit of gerrymandering by distributing its largesse mostly to friendly regions. The failure of other nations to copy Germany in its devotion to the concept of apprenticeship is nearly inexplicable. Actually, I can see where it's coming from: if you are a fan of equality, opportunity for all and the rest, then you want to give less bright children and those from poorer backgrounds the opportunity to shine at senior school, and go to University (to get a useless degree in media studies). Unfortunately, the result is to deprive the "old" industries of skilled workers, and to inflate the pool of unemployed and unemployable youth. This effect has been particularly marked in the UK, where "trade" was always frowned on, and class has been a barrier to advancement. Parents, rightly wanting their children to be better educated than they were themselves, fell hook, line and sinker for the egalitarian heresy, and subscribed to the Government's "comprehensive education" propaganda, resulting in a generation of young people who can neither spell nor add up, let alone use a wrench. It's hardly surprising that no-one wants to employ them.

Well now, this is rich: Russia is accusing the EU of unfairly penalizing imports which have benefited from low energy costs. I don't know where to start, I really don't! That the EU is protectionist hardly needs to be said, and Russia's behaviour over its automotive import levies has been egregious to a fault. I have just one word for both of them: C-O-M-P-E-T-I-T-I-O-N. Eat it for breakfast, guys, please, and stop yammering on about fairness. Russia has oil and gas, near the surface, and it costs hardly anything to extract. Obviously then it can produce energy-intensive goods more cheaply than say France which has to import its gas from Russia and anyway has higher wage levels (and they retire when they are 62 and live for another fifty years on the State, whereas Russians die from alcoholism at 58 and cost the State nothing). But vines only grow in limited parts of Russia, and as far as I know there are no truffles on the steppes. Comparative advantage is the economists' phrase to describe it. Russia should produce steel pipes, top models and violinists, and France should stick to Chateau Rothschild and expensive lingerie. It's so obvious, it's hardly worth saying, yet in Brussels it sounds like a foreign language. I ask you, how many Russian couturiers and first growth clarets do you know? Actually I do know one Russian couturier, but only because I met him at a party. A bottle of champanska for anyone who can tell me his name, but you have to come to our office to collect it.

It's also nice that French President For All Seasons Francois Hollande wants a "responsibility" pact with business to save the nation. He'll offer an undefined reduction in social security contributions (which have just gone up) to businesses which take on more workers and "engage in more dialogue with trade unions." When was the last time you engaged in a dialogue with a French trade union and survived? I suppose it's a step forward that Hollande has come to understand that businesses have a role to play in the nation's economy; or perhaps more likely he has been made aware by some of his less doctrinaire advisers that pretend friendship is sometimes more effective than outright enmity. At all events, I would like to be there when the first businessperson asks Force Ouvrière what they have to offer in exchange for another 1,000 jobs in a decaying automobile plant which even Fiat won't buy.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 86th) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is on + 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Cyprus still a hold

France wants to learn

And Kitty's Execrations:

France irresponsibly yours

Russia the pot or the kettle?




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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