Christos V. Vasiliou: The professional services sector is under transformation once again

The professional services sector is once again in a period of restructuring and transformation as it attempts to penetrate new markets and financial products in an effort to improve the country's image abroad, says the Managing Director of KPMG Cyprus, Christos V. Vasiliou.

Speaking to InBusinessNews as part of its IN Business Forecasting 2024 series, Vasiliou emphasises that the professional services sector has proven to be resilient and flexible over time, as it has adapted when required to the needs of the market, as well as to the various economic models of our country.

Referring in particular to KPMG Cyprus, Vasiliou points out that sanctions may have led to the termination of its services in several cases, but the company is now considering new countries towards attracting investments from Europe, Arab countries, Asia and the USA.

According to Christos V. Vasiliou, the consequences of the imposition of sanctions in Russia are expected to continue to negatively affect the company's revenues in 2024, however, it has developed services in areas such as technology and the technological restructuring of organisations, ESG, services cybersecurity and services to collective investment funds, which are expected to give it a significant boost in 2024.

"Overall, 2024 is expected to be a positive year for KPMG," he points out.

As far as the Cypriot economy is concerned, the Managing Director of KPMG Cyprus underlines that our country must proceed with the necessary structural reforms to strengthen economic competitiveness, to remain an attractive investment centre by providing high-quality services with low administrative costs and to enhance the quality of life of its citizens and those who choose to relocate to Cyprus.

"The Cypriot economy may have shown resilience to various challenges, but maintaining this resilience and the ability to adapt to new conditions remain critical," he declares.

How do you see the economic environment shaping up in 2024, in light of inflationary pressures, high interest rates and unpredictable ever-changing geopolitical developments?

Despite the challenges and volatility presented in the international economic and political environment, and the problems in the domestic market, it is worth noting that in recent years the Cypriot economy has recorded significant positive statistics, whether they concern the fiscal surplus or the public debt.

However, the first half of the new year is important as we expect to see the full impact of the tightening of monetary policy and sanctions imposed due to the Ukrainian as well as the war in Israel.

The strengthening of uncertainty combined with the various military conflicts and their consequences lead to an economic slowdown, which moreover seems to be experienced by the core countries of the Eurozone, the maintenance of inflation and precision at relatively high levels, combined with the high cost borrowing, and the increase in inflexible spending through next year's budget are challenges that the Cypriot economy must face.

A positive element is the relocation of companies or part of them from abroad with a significant number of employees and a positive impact, horizontally, on the economy. Sectors that have historically supported the country's GDP such as tourism and real estate are expected to face significant challenges considering the conflicts in neighboring Israel and the fact that a large number of tourists have come from that country in recent years.

The Recovery and Resilience Fund is an opportunity to promote the necessary reforms, especially those related to the green transition and technological transformation. Considering how it has helped other countries of the European Union, there is significant potential to enhance this country's competitiveness. Correct planning is of essence.

The fact that the domestic economy is expected to recover by 2.6% and 3.1% for the years 2024 and 2025 respectively is encouraging, but these forecasts are combined with a number of concerns as mentioned above.

Therefore, there is uncertainty and a need for careful monitoring of developments and adaptation to the new conditions.

Cypriot economy, difficulties and challenges

What do you consider to be the biggest and most difficult challenges that the Cypriot economy will have to face?

Inflation remains an issue of high importance as it affects the lifestyle of citizens and their purchasing power. Rising prices pose a challenge to the economy as they affect the purchasing power of consumers and the competitiveness of businesses.

High interest rates are an obstacle to economic growth, especially in areas such as real estate and investment, as they increase the cost of borrowing for businesses and consumers. It appears from the statements of the governors of the Central Banks that a partial de-escalation is expected next year.

Geopolitical uncertainties are creating concerns for investors, who are on hold at this stage.

The Cypriot economy must proceed with the necessary structural reforms to strengthen economic competitiveness in order to remain an attractive investment centre by providing high quality services with low administrative costs and to enhance the quality of life of citizens and those who choose to relocate to Cyprus.

Cooperation between the public and private sectors, and constant monitoring of changes at the local and global level is an urgent requirement.

Would you say that taking into account the latest upgrades, the Cypriot economy is now well on its way to growth?

The maintenance of positive growth rates, which is also adopted in the state budget estimates, is recorded in the positive data, but the unpredictable nature of geopolitical events and the possibility of unexpected factors, such as a war, remind us how quickly everything can turn upside down and how important is to create a solid and resilient economy.

The Cypriot economy may have shown resilience to various challenges, but maintaining this resilience and the ability to adapt to new conditions remain critical.

Cyprus' latest upgrades send a positive message to the country and to the investing public. It is a step in the right direction for our economy. The recent passage of the divestment bills is a positive sign for the further upgrading of the economy as the uncertainty in the market as well as in the banking sector is reduced. Their practical application remains a challenge.

Supporting the economy through targeted government measures and focusing on structural reform are important steps to sustain growth, as fiscal discipline and the implementation of structural reforms must continue to be priorities to ensure long-term growth.

The professional services sector

What do you think will be the course of the sector in which you operate in 2024?

The professional services sector could not be an exception in a difficult international economic and political environment. It is noted that the sector has been called upon to restructure itself several times in recent years and has done so successfully.

It is once again in a period of restructuring and trying to penetrate new markets and financial products in an effort to improve the country's image abroad.

The course of professional services in Cyprus is under the influence of various factors that shape the modern business environment. Factors such as the economic situation in Europe, geopolitical instability worldwide, constant regulation and legal changes, as well as the strong promotion of technological innovation with the adoption of artificial intelligence (AI), significantly influence the evolution of the sector.

The Central Bank of Cyprus' forecast for economic activity to grow by 2.6% in 2024 is a positive sign for the professional services sector. This increase is usually associated with increased demand for auditing, consulting and tax services,

The evolution of the legislative framework governing the audit of financial statements makes audit services even more important as the value attached to the sector increases. The evaluation of companies by investors, banks and suppliers goes through quality control.

Also emerging are new services linked to technology, ESG, cybersecurity that we as an organisation have developed and now offer to the market.

A need to provide new services

What are the biggest industry trends and changes you anticipate in 2024?

Like all sectors of the economy, ours evolves and adapts to market demands and the needs of our customers. The needs of the market also determine the services offered.

The changes we have observed in our sector have to do with the way of providing traditional services but also with the new services that are created as a result of the introduction of new legislation and standards as well as additional needs that are created.

The introduction of technology into our field has made it even more efficient. Also, all those tools that were implemented and that allow us to work remotely, allow us to "meet" without special preparations and notifications.

2024 is expected to be a time of technological upheaval. The emergence of artificial intelligence (AI), the increase in fraud and cyber security threats, the demands for ESG, create the need to provide new services, which were not in the foreground in the past.

The challenges and priorities for 2024

What are the most important problems that are currently plaguing your sector and the solution of which you to be a priority in view of the new year?

As mentioned above, our sector is developing rapidly, a development which is consistent with the forces of the market and the transformation of the country's economic model.

The transformation of the country's economic model, which requires the creation of a base in Cyprus with the aim of investing in Cyprus instead of investing through Cyprus, puts more demands on our sector.

The know-how required to serve our customers today is much more than what was required a few years ago. That's why we all need to invest in knowledge and expertise to stay competitive.

Another challenge we face is the increased cost of compliance with anti-money laundering legislation and due diligence procedures for our prospective clients.

A very large part of the compliance costs that have risen rapidly in recent years cannot be passed on to customers, and are thus borne by the sector.

The bureaucracy that prevails in the context of public bodies is a significant obstacle to the smooth functioning of the public mechanism. Lengthy and complex processes slow down the execution of tasks and increase the cost and time required to fulfill obligations.

Resolving these issues will contribute to improving the efficiency, reliability and competitiveness of the audit services sector in Cyprus.

Making the public sector more flexible

If you could ask the government to take specific measures or formulate policies to support/enhance your sector, what would they be?

As mentioned above, our domain has proven to be resilient and flexible over time.

It adjusted, when necessary, to the needs of the market as well as to the economic models of our country from time to time. I believe that the public sector should also follow and become more flexible in order to be able to come closer to the speeds of the private sector. And this can be done by implementing the digital transition.

The public as well as businesses should now be able to conduct their transactions with the government online instead of spending their time in government offices. The simplification of our tax laws through the expected tax reform will facilitate the economic environment and investment in the country.

Digitisation of the judicial system is expected to help and give more confidence to investors.

The above measures will contribute to the strengthening of the professional services sector in Cyprus and will improve the provision of services. However, their successful implementation requires cooperation between various agencies.

A positive year is anticipated for KPMG Cyprus in 2024

What are KPMG Cyprus' plans for 2024?

KPMG Cyprus records a history of more than 75 years and through the time managed to develop, grow and become one of the main contributors in the field of professional services.

We have managed to develop services that have been appreciated by our clients, and which add value both to them and to the economy of our country in general, despite the difficulties the economy faces from external events such as the Russian-Ukrainian war and the imposition of sanctions, the war in Israel and the economic slowdown that monetary tightening and high inflation seem to be causing.

The development of our operations and the expansion of our offered services is always one of our highest priorities. We always try to pioneer what we offer to our customers and listen to their needs, always maintaining the high level of professionalism, performance and consistency that characterises us.

An important success factor in this endeavor is always our staff, who are the driving force in any initiatives we try to develop.

We will continue to look both internally and externally. Throughout our history we have supported Cypriot businesses and grown with them. We will continue with exactly the same philosophy while through our strategic planning we will continue to promote Cyprus abroad as a reliable investment destination.

Sanctions may have led to the termination of our services, but in several cases we are looking at new countries towards attract investment from Europe, Arab countries, Asia and the USA.

The consequences of the imposition of sanctions in Russia are expected to continue to negatively affect our revenues during 2024. However, we have developed services in areas such as technology and technological restructuring of organisations, ESG, cyber security services, services in collective investment funds that are expected to give us a significant boost in 2024.

Overall, 2024 is expected to be a positive year for KPMG.

Finally, very important for us, is to always be able through our actions, under the framework of our Corporate and Social responsibility, to offer to our society, returning back a part of what society offers us.

Artificial intelligence, efficiency, data security

What role does technology, such as artificial intelligence, play and what changes is it expected to bring about in your field?

Technology is the greatest revolution of our time. Through artificial intelligence, companies can improve the efficiency of their operations by saving time and resources.

Process automation reduces repetitive work and allows organisations and employees to focus on more complex and strategic aspects of their work. It enables the analysis of huge volumes of data and increases the accuracy of the information.

However, these technologies also bring data security issues to the fore. The need for careful data management and transparency in the implementation of AI algorithms is crucial to avoid potential risks and problems.

It is in companies' interest to invest in these technologies, but at the same time pay attention to compliance with guidelines and regulations to ensure the ethical and safe use of the technology.

Developing a framework that combines technology with human oversight is key to a balanced and effective implementation of AI in services.

(Source: InBusinessNews)