Philip Ammerman started his career as an investment advisor and restructuring consultant in Central & Eastern Europe and the former Soviet Union in 1992. In 1995, he co-founded Navigator Consulting Group, specialising in corporate finance advisory, business restructuring and corporate growth.

The Web 1.0 and 2.0 booms led him into a strong specialisation in tech and ecommerce due diligence, business planning, fundraising and consulting. In parallel, he was contacted by a series of investors to implement real economy investments in industrial sectors in the CEE, FSU and MENA regions.

In 2010, Philip Ammerman co-founded the so-called “business incubator”, and he is actively working as a business angel and accelerator for tech sector entrepreneurs both within Navigator as well as external partners. He advises on digital marketing initiatives, tech start-ups, sectoral and corporate online marketing, and impact of social media.

Mr Ammerman has advised on over EUR 6 billion in completed investments across multiple sectors and countries. Keynote achievements include advising on one of the largest privatisations in Greece as well as over 40 major industrial investments in Ukraine, Russia and the former Soviet Union.

Mr. Ammerman is currently based in Limassol, Cyprus.

I have explored your LinkedIn profile before the interview, so my first question will be about your “angel investments”. What does it mean?

An angel investor is someone making small investments in what we call “early stage start-ups”. An early stage startup is one which typically does not have a prototype. So, the amount of money the angel investment is typically going to invest is quite small, between 30,000-50,000 euro. In the United States where everything is bigger it might be 300-400 000 dollars.

Is it considered a risky investment? 

Yes it is, and because of that risk the equity shares we take in the startup are relatively high. So, for instance, if the Cypriot startup comes to me and says: “Look, I have no money, I have no revenue, I have no product but I have a great idea, and I want a 100,000 euro”.  So if I, Philip, invest € 100,000 then I want probably at least 20% of equity. Most early stage founders, by the way, all start by asking for one million euro but we try to make people logical.

Now, in addition to the cash investment, I also want to help and guide the company with the skills and the connections that I have. So, that means an angel investor is going to invest in sector that he or she knows about and that they can contribute actively to. They can work as mentors, they work as board members, they can make marketing contacts like introducing the startup to companies that might be able to use its services. They can also introduce the start-up to highly skilled advisors (digital marketers, accountants, programmers etc).

If you do that angel investment in Cyprus, which sectors are you involved in? 

I receive pitches from Cypriot companies across all Cyprus – everything from artificial intelligence to new social networks to pornography to money trading payment systems. I’ve also received pitches to invest in hotels, land development or theme parks or medical tourism or food and drink production. It’s better for banks or large financials to get involved with this type of investment. I invest in online service firms that can improve, transform or disrupt a traditional sector that I can understand.

Which startups do you consider to be most profitable? And less risky? Are there any specific kinds?  

There is no measure: it depends on the niche and how heavily occupied the niche already is. It also depends on how fast you can get to sales. A lot of startups are working on specific problems, so they can be sold to another client, or another startup which has more money.

So it’s really impossible to know in general what is more profitable and less risky. Some segments are mature. If you take food delivery, for example, I think there are three companies already making food delivery in Cyprus, so I would never dream to invest in a fourth one. There’s no point.

Yes, the market is too small 

Yes, if you take personal transport you know Bolt is already here. I wouldn’t invest in a second Bolt. You know, Bolt is a global brand: they have global technology, they are doing a great job, there is no need for a 2nd competitor. I do invest in sectors which are online which have an ability to disrupt the business sector which is working in a traditional way, in an inefficient way. It’s important that this be a global sector, not one confined to Cyprus.

So, tourism is one of the most interesting sectors. I would love to invest in a central reservation white label system, software for travel agencies and hotels. I can see huge potential here.

Could you elaborate please? 

Let’s say a hotel has 200 rooms. They allocate some of these rooms to tour operators, some to online travel agents like Booking.com, etc. So the central reservation system (CRS) and yield management system need to manage all of that efficiently. It could be done either online but also on screen so the reservation staff can see what’s going on. I think there is a big global demand for an efficient system.

Similarly: there is a big international demand for online management systems for accountants, lawyers, consultants and anyone in the professional services sector. This includes team management, document management, and client management.

I am looking actively at Fintech. One of our first startups was an online business intelligence network. And growing from that, for about the past 3 years, we want to develop a financing network for those professionals. The problem here is the finance and banking regulations. It is a very complex regulatory environment. We needed something such as a banking license.

I would not invest in Fintech in Cyprus because you need a rapid court system in addition to the financial regulations. In Cyprus, the courts are slow and often yield results which are very questionable in terms of international law.  So I would never invest in Cyprus for anything needing a rapid and fair judicial solution.

How would you comment on Cy Min of Finance forecast about shrinking economy worst-case scenario 13%, basic scenario 7%, best case scenario 5%. Is it realistic? 

Making a forecast now is very difficult for a couple of reasons. First of all, we do not know the true impacts of Covid-19 on a whole year 12 month basis. Second of all, we do not know what will happen to tourism, which is a key driver of Cyprus economy. Third of all, we do not know what will happen with the government subsidies that have been announced, how they will be spent, and what they will be spent on.

Let me give an example. In an average year I have, let’s say 5 employees of my company and I am spending 10 000 on each employee: that’s 50 000 euro per year. Let’s say I fire 3 of those 5 employees. So my expenditure has fallen by 30 000 euro. So on the company side expenditure is falling, but on the individual side, these people claim unemployment insurance, make their personal expenditure and they keep spending (food, rent, and transport). Of course they spend less, but still expenditure is going on in the economy.

So even though the economy is taking a massive hit and it will take 3-4 years to resolve, the purpose of the government spending is to try to rescue the economy.

That’s why it is really difficult right now to tell.  When the crisis broke I was counting on a 10% GDP fall but I also noted that it depends on public spending. And it’s impossible to tell – now it’s the third month of the crisis at least, we have to figure out first these corporate subsidies. The Cypriot government is always too late and always behind the curve. They did these unemployment support applications which spent a lot less money than people were expecting. They have made the application process very complicated and I was absolutely amazed to learn that when people go on a regular unemployment in Cyprus there is a 3 months delay between when they apply for it and when they get the first paycheck.

I think it is an insult to the private sector when we understand that the public sector employees, who are anyway almost non-productive and work very few hours, get full paycheques. They are at home, they are not working, but they have no reduction in pay.

But that is Cypriot system. So I do not know exactly but I assume it will be at least 7% GDP decline or even more. Maximum a 12% decline.

For the whole year or for the 2nd-3rd quarters?

It depends on what they finally do. They make headlines and give lots of interviews but at the end of the day they do nothing. They announced they are cutting € 500 mln in state spending. We need to see that, to believe it. I think the crisis for companies and individuals is massive. We are basically looking at an economic depression. Recession is defined by two consecutive quarters of declining economic activity. I think a lot of companies are going to see more than two quarters of decline.

As we know, unemployment is a serious problem. People claim their unemployment benefit, they don’t pay taxes, stop spending money, unemployment level rises, etc. Maybe it would be better in a long term prospect if the state supported business by providing them with cheap liquidity and subsidizing the employees’ salaries – at least partially for a limited period of time – rather than let them shut down? 

It really depends on a type or sector we are talking about.

Small hotels, restaurants, family business… I read a forecast saying that up to 30-40% will not survive; they will not make it through the crisis. 

Yes, that’s true. They will not survive. These restaurants heavily rely on seasonal labors, on employees who come over with 6-months and 8-months contracts. They have not come over yet, and I do not think it makes sense in that case to try to employ people right now.

My company has been dramatically affected by the breakdown of the consulting business. When I did my forecast in mid-March, I forecast that the prospect for new income this year is going to be so low that there is no point to even think about the temporary subsidies that the government promised. Better for the people to be unemployed: it is one bureaucratic procedure and they will even get a higher amount. And I think that is the best option.

The government cannot plan the economy: it has literally no idea how corporate and individual decisions are going to work. So, in my opinion they should give each category the opportunity to choose. It should be up to you. One thing is clear – the system should be fast, it should be online, it should be immediate. It should not take months.

And sorry but we are paying for all that. The overall expenditure of the state sector is over 40% of Cyprus GDP. That is massive. We are supporting a massive state which is delivering very little in terms of quality services to its citizens. It is delivering great services to public sector and political parties.

I heard an opinion from the respectable well-positioned person who said that the money that the state is willing to give to support businesses will go through the banks to a few selected construction companies who have connections, and that’s it. Just a few companies and individuals will benefit. What do you think about the whole process of distribution of this money?

Your question has two parts. The first is whether construction firms should have access to the loans and my answer is yes. If they operate legally in Cyprus and their employees are on payroll and pay taxes, then absolutely as a corporate citizen they have every right to be supported. Just as citizens have rights, so to companies. Both are resident taxpayers.

The second part of the question is corruption.

What is corruption? Let’s take the construction sector. Let’s say there are 5 construction companies and one of these companies is related to the member of the Government. As a result, this company gets a higher number or an unfair distribution of subsidies and we cannot explain why. By normal understanding, that is corruption.

If you ask me whether this will occur in Cyprus, I would say “probably yes, it will occur”. I think that is the nature of the Cypriot system.  But if you ask me whether the construction firms should have access to the subsidy program, my answer is “yes, absolutely”. The responsibility of the government is to provide an equal treatment to all of its citizens and all of its companies. That is the rule of law, that is the basis of democracy and our society.

If you tell me that we want to develop 2 subsidy programmes—one for large companies, and one for SMEs–I will totally accept that. It might sound weird but the Republic of Cyprus has about 800 000 citizens and approximately 1 million legal residents. I do not remember the company registration numbers exactly, but I believe that in the Company Registry, there were 600 000 companies registered but only 180 000 are active, And of those who are active, how many have operations in Cyprus or how many are trading, rather than being dormant or inactive.

I think the most economically rational and fair thing to do on the individual side is to pitch unemployment relief according to the level of income. You need to work out a living wage and offer people that wage as unemployment relief.  Anyone who needs support should get support provided they are a taxpayer and they can prove they are legally registered in Cyprus. For companies I think it should be roughly the same way. I mean we need to focus on the problem of lower corporate expenditure. Remember that expenditure is a primary measure of GDP measurement and we have to make any support to companies so it is fair and immediate. For example, for the big construction companies with the big capital investment and big capital equipment, you cannot solve that problem through subsidies: you can more easily solve it through loan forgiveness or the debt forgiveness.

It’s similar with the transport firm. Let’s say I have a fleet of taxes or a fleet of tour buses. The crisis hits and I fire all of my drivers. I still have the expenses of the bloody buses (the loans). It is the same with the restaurants, hotels and a lot of different employers and companies. I do not see any understanding of this from the government announcements. And for me it is incredible because capital investment is such a basic aspect of the company’s operations and the profit/loss statement and the Cypriot banking system.

Thank you. My next question will be about tourism. As we know, it counts for 25% of the country’s GDP (last year’s data), it is a sector of great importance to the Cyprus economy. So what should we expect for this season? What do you think will happen this summer? What arrivals can we expect? 

Let’s say there will be arrivals from certain countries with relatively low levels of virus such as Greece, Germany, Scandinavian countries and so on. Will it be satisfactory? 

The situation in the tourist sector is dramatic, no doubt about that, but I want to make something really clear. Tourism in the GDP calculation and especially the methodology which is used by the World Travel & Tourism Council (WTTC) is much more than hotels.

It includes travel agents, small service firms like cleaners, horse riding, scuba diving lessons and so on. It is restaurants, which is a huge segment in terms of employment. It is airlines and other segments of travel. So any plans to save tourism have to be more than just saving hotels. So far I have not seen any plan from the government at all. I think most hotels have one choice to make: to open or to not open.

A few days ago, it was announced that the government will subsidize 2-3 days holidays for the locals in order to support and enhance hotels. What do you think about this plan? 

There is no way that subsidising 2-3 days holidays for the locals market is going to contribute materially to the occupancy of the hotels. It is not going to work. If I have to spend money as a government for the society I would spend that money subsidising the families, workers and the non-capital intensive businesses that are going to be closed (like restaurants). Cyprus is a hedonistic society but it is not right to subsidise holidays.

If Cyprus arranged charter flights this summer for the low-risk countries to bring tourists here, would it be viable and cost-efficient? What do you think? 

The best option and what Cyprus should be doing anyway to call established airlines (RyanAir, EasyJet, WizzAir) and say: “We will subsidize you to continue flights to Cyprus. How much do you need for the subsidy? And how much do you need under different scenarios of the plane capacity, with or without a middle seat and so on. It should be easier and more efficient to support existing carriers rather than hire charters. And again if there is a big travel agency such as Mouzenidis or Biblio Globus, if you can help their charter operations, you definitely should. On that scale it would be good. They are very well integrated.

From what I know, we are not talking at all about Russian market. Things are far from perfect in Russia for the time being [the interview took place in mid-May] in terms of spread of coronavirus so the Russian tourists might be excluded for this season. I am afraid that Russian and British markets are lost for Cyprus for this year at least…

I bet dinner and a bottle of champagne that in 2 months things are back to normal.

I agree that right now Russia is dangerous because they have not been that strict but since they are taking measures, it is definitely not going to last for the very long time. But the real question is if people have money to travel. You know, I have friends in Russia, Ukraine, Greece who did not have money to buy food.

Yes things change, there is a financial crisis. Many professions, like yoga instructors, personal trainers, coaches, became unnecessary. People have no money and they cut these expenses like these.

There was an article in the US Forbes recently about the current state of the US real estate market. An analyst says it will be like a sharp “V”: sudden fall and then very fast recovery. They predict it will not last for long. Bur recovery should be based on something substantial. What do you think about it? 

One of the reasons why the property crisis is rising is not because of real demand, but because of the availability in finance. So all over the world, large capital interests like hedge funds, property equity funds, and banks are pumping money into property.

Everyone is contributing to this. So, in the States there is Colony Capital, one of the largest property funds.  They just announced there is $ 2,9 bln default of their property loans. It’s just one investment group. The property market is worth trillions every year. It is one of the smartest property funds around. If you look at others like The Blackstone Group – they are much bigger, we are talking about hundreds of billions of assets. There are several firms like them. And everybody loves it. The government loves it because tenants and owners pay irrationally higher taxes for property transactions. The banks love it because they give higher loans. And the property funds love it because they can take other people’s money, charge high management fees and invest in an asset which is relatively secure and relatively easy.

By the way, one more further asset class which is investing hundreds of billions in property are the pension funds. So, pension funds are investing hundreds of billions because property is considered safe.

Now let’s see the reality. Let’s take Limassol. In Limassol, property is going up because definitely the university is expanding, the casino is coming, student housing is needed, seasonal workers need accommodation and tourists use AirBnb. I’m assuming the sector has doubled in price in the past 5 years. That’s an assumption. But has demand doubled? No, it hasn’t. We don’t expect that Limassol’s population has increased from 200,000 to 400,000. So on the one hand; we don’t have a linear relationship between price and real demand. And on the other, we have an irrational marketing expectation. It’s the marketing expectation, the value expectation, in which demand is doubled.

When you look at the actual numbers of property transactions in terms of sales in Cyprus, we are looking at ridiculously low amounts. If I am not mistaken, there are 15,000-17,000 transactions a year. This is nothing. So we need to define the fundamental demand, the healthy demand. I don’t believe that the NPL (non-performing loans) volume is what they say in the banking sector. It’s far too good to be true.

So coming back to the recovery: I anticipate a slow rebound. And in general, I believe that the Cyprus economy has to come up with another bubble – to try to make foreign investors to save the situation. That’s the only way we can generate income and tax revenue sufficient to address the real expenses in the Cyprus economy. The rational approach would be to cut these expenses (e.g. high public sector costs, high NPLs, inefficient organisations). But we’ve seen, over 25 years, that this is not going to happen. The expenditure side of the PL statement keeps rising. So we need to generate higher sales to cover it.

My next question will be about Cyprus – Russia relations, and, in particular, about a new tax on interest earned from bank deposits as it was proposed by the Russian president Vladimir Putin on March 25. Amongst other measures he proposed a new tax on interest earned from bank deposits, securities, and funds transferred abroad exceeding 1 million rubles ($12,670). Conservative estimates say this will net the government at least 11 billion rubles ($140.3 million).  What do you think about it? Why Cyprus, why now, what will be the implications? Is there something that the Cypriot government can do now in order to prevent or at least reduce the implications of decision?

There are several issues to take into account. There is definitely a political dimension – why Cyprus was chosen first to implement a new tax? I believe that is because Cyprus has been pulling away from the Russian sphere of influence, especially through its alliance with the United States. Second of all, Cyprus for the number of years is becoming less and less competitive. Taxes are growing while the quality of services is very low. The government sees companies as a cash cow instead of giving them support. Certainly, I am not a Russian company, I am not Russian, but as I evaluate Cypriot situation, I myself wonder what I am doing here and how much longer should I stay here versus investing in other countries.

Russia was by far the leading investor in Cyprus. The number of Russians living here is very large. And they are actually good people. They are law-abiding people. They make a real contribution to society. They bring a lot of things: they bring relatives and friends every year, they bring art and a number of art exhibitions, concerts, they organize cultural events. And this decision of the Cypriot government to make life as difficult as possible for the Russian companies is a bit strange. The question is why. On what basis do you make such a decision? I think it is American pressure which has led to this. The Cypriots were fine with the Russian presence here. But they had to choose. And they are choosing between something which is very tangible now and was tangible for the last 20 years and between something which is totally intangible. There is no American investment in Cyprus. There are no Americans living here. The American political support – I do not see how it can be trusted. So, the question is “why”.

We need a policy of realpolitik, not pretend policy. And in terms of realpolitik Russia is a valued ally in every sense of the world. I think that the 15% dividend tax is a response to that. It is not so much about dividend tax which is understandable under deoffshorization policy, it is the fact that Cyprus was chosen as the first country where it will be implemented. It is a very clear signal.

In order to prevent or at least reduce the implications of the new measures the Cypriot government would have to make politically radical steps as to give basing rights to Russia. Which America would not want. America does not want Russian ships to repair or refuel in Cyprus. So I cannot see Cyprus doing that. Another option might be to license Russian banks. I mean full licenses to Russian banks as long as they are fully based here.

Regarding the EU sanctions, Cyprus should comply with them. The US sanctions are a bilateral issue between America and Russia. But again, the sanctions target very specific people and institutions. If Cyprus wanted to do something to improve the relationship it would have to be something like that. And yes you are right, it is probably a risk because a lot of industries and financial institutions were nationalised in Russia, and they have ties with people under sanctions. But I am sure if one wants to find a solution in this direction, they will find a solution.

I heard many people complaining about non-existent EU support to the member states at any level: from financial to medical. So, the question people asked in 2013 arises again: “Where is the solidarity?” 

First of all, it is a political relationship and the EU is led by the group of institutions such as the European Central Bank, the European Commission, the European Council, the European Court of Justice and the European Parliament. So there are a number of institutions each at its own domain and its jurisdiction. The European Union does not have jurisdiction on what its Member States do with their citizenship processes at all: these are national decisions.

Now the question on “What they have done?” They have made some changes to the amounts of money available for lending. Now the European Investment Bank is required to lend a lot of money. The Commission has opened the calls for proposals for grant funding for Covid-19, research and development in this area. The European Central Bank has really come through: they increased massively the amount of spending on government and corporate bonds on the secondary market. Europe is spending a huge amount of money every year to support the economies of the Member States either through grants or programs or loans. And in fact Cyprus could be doing a lot more with the European funding and it is not – but that is the Cypriot decision. Just an example. EU has unlimited money for sustainable energy programs. If we wanted to refurnish every single building in Cyprus with an energy efficient class, with solar panels on the roof to produce electricity. We could do that. But we do not. Why? Very probably to protect special interest in other sectors of the economy. But there are a lot of decisions that are being made by these Government monopolies which make no sense at all. So yes, Europe does a lot and could be even more. But national governments really do not want it for the really obvious reasons.

Thank you so much for your time and all the valuable information!

*The interview was carried out in mid-May before the government announced measures to support the local businesses.

Angelica Azadyants