According to Thessaloniki’s mayor, Yiannis Boutaris, “Greece is the last Soviet-type society and economy” with regards economic policy. And although the country has made strident steps towards recovery, serious challenges still exist.
Obvious examples include a high level of unemployment. Though on the decline, it remains above 20%, with youth unemployment at about 42%. Similarly, Greek banks still face hefty non-performing loans – currently €95.7bn, or 43.1% of their loan portfolio. This is why increased FDI is so important, says Panos Papazoglou, managing director of EY in Greece.
In a recent study, Initiative for Foreign Investments in Greece, EY interviewed dozens of the country’s top CEOs. Their main complaints were the lack of policy predictability, especially regarding the country’s fiscal framework; the slow rate of justice for business disputes; the poor state of bureaucracy (despite reforms); and the slow pace of infrastructural improvements since the 2004 Olympics, which were held in Athens.
Disincentives to business
Tax is also an issue. Corporate tax in Greece is 29%, compared with about 10% to 12% in western Europe. “This is not viable for investments in the long run. Taxation needs to be more friendly, less complicated and lower. I don’t think the current government is going to do that,” says Constantina Kottaridi, assistant economics professor at the University of Piraeus.
And although Greece boasts an educated but inexpensive workforce, this is negated by the very high cost of employee social security that employers must pay, according to Mr Papazoglou.
Meanwhile, Greece’s complex legal and regulatory environment is also onerous by EU standards. In 2017, the country dropped to 67th in the World Bank’s Doing Business ranking. When Fraport recently acquired 14 Greek regional airports, the company needed approval involving more than 200 permits, while in western Europe it would only need a handful, according to Andreas Yannopoulos, the founder of political consultancy Public Affairs & Networks.
“We have a public sector that is historically negative [to] investors, both local and international, as there is the feeling that investors are no good, they just try to benefit from the workers and the employees, become rich and accumulate wealth,” says Mr Papazoglou.
In an interview in mid-2017, Mr Boutaris criticised Greece’s hostility towards making profit. “All we change is the prime minister. The municipal system, the tax system, the education system – they need to change,” he told Greek Reporter.
There is hope among investors that 2019’s national elections will see the liberal ‘pro-business’ party New Democracy come to power. It could make more substantial changes but, more importantly, impart business confidence and predictability.
Meanwhile, Greece is entering a prolonged pre-election period, which could disrupt investment decisions, according to Mr Yannopoulos. Alternatively, with so much drama in international politics – such as Brexit in the UK, or US-China trade wars – Greece may appear to be a relatively safe haven.
Behind the field
The past three years have witnessed a positive trend for inbound foreign investment to Greece. In 2016, FDI saw a 78% rise when compared with 2014, while 2017 saw a 28% year-on-year increase, marking a 10-year high.
However, Greece is still under-performing in a regional context. A glance of the region shows that since 2003 there have been 2710 greenfield FDI projects into Romania, 1834 into the Czech Republic, 1270 into Bulgaria and 396 into Greece, according to fDi Markets. In terms of job creation from FDI during the same time, Greece ranks 18th out of 24 countries in south-east, central and eastern Europe.
“While there has been a percentage increase, FDI still lacks substance in terms of value and new positions created. Compared with neighbouring countries, our FDI is [not so impressive],” adds Mr Papazoglou.