The creation of an investment-friendly environment that will boost entrepreneurship is the only path that can lead the country to growth, which will in turn create jobs, Fairfax Group head Prem Watsa told Kathimerini last week during a visit to Greece, where he met with Prime Minister Kyriakos Mitsotakis. Having made considerable investments in the local financial sector and beyond, Watsa hinted at the possible acquisition of insurance company Ethniki Asfalistiki, and debunked rumors of a possible merger in the banking sector. Here is the complete interview.
What message do you want to send out during this visit to Greece and what are your first impressions of the new government?
The first impression is very positive. Having gone through a series of obstacles, Greece is now on a different path, that of growth. The direction that the new government is trying to steer things, having announced that its key priority is to be investment-friendly, in combination with its self-sufficient majority in the Greek Parliament, makes me believe that the country now has substantial possibilities to reform.
Now, everything is a matter of implementation. We need to stop talking about it and actually do it. From my experience up to today, I can say that your problem is the high number of regulatory rules. Investment-friendly countries have much less. This is how they get things done faster and reach their needed target – growth – faster, which translates into new jobs for the people.
The impression I got is that the government is focusing on the implementation of what it has promised, and, having the majority of seats in the Parliament, I believe that can bring in results fast.
At this point, I also need to point out that I recognize many of the positive steps made by the previous government. Let’s not forget that the country got into a path of partnership with its European allies. But now you need to go one step further. This means to implement a truly friendly environment for investments, in order for foreign investments to return to their pre-crisis levels.
What is investment friendliness in your view? Is at a matter of reducing tax coefficients, providing financial aid and limiting bureaucracy?
You don’t need to boost business initiatives by giving out money. What you need to do as a state is to give the people their financial freedom. The Greek people are thriving abroad in countries like the US, Canada, in Africa etc, and having worked with Greeks in Greece as well as abroad, I am convinced they are a hardworking people. There are however many obstacles, such as in trying to set up a business, and I think the point is for the country to demonstrate trust in the people who want to open up a business and allow them to start something new with easier procedures.
A safe answer to what it means to be investment-friendly is the relevant ranking published by the World Bank.
What needs to be clear is that you need to realize you are competing with other economies, like Canada knows it's competing with the US. An example that always comes to mind is the case of India and Hong Kong, which after started off with the same living conditions after World War II and evolved completely differently. India suffered from a long socialist government and from the lack of an investment-friendly environment, whilst Hong Kong grew into what we see today.
You have been among the brave investors who did not leave Greece even though your investments fell in value during the initial years. Why?
This happened because our commitment was and is long-term. For example, in Eurobank we got in at 31 euros per share, then at 1 euro and through its assimilation of Grivalia at 0.45. Eurobank will be very profitable in the coming years as the country grows, and we always do things looking at the long term. This is why we supported the management’s efforts and now the bank is in a good position to start funding the economy again. Our position is that when you have a problem, you have to solve it, and this is what we did with Eurobank, which as many admit is in a much better position than other banks, with solid capital and in a phase of completely rebalancing its balance sheets from nonperforming loans (NPLs). After the expected deal with Pimco for the sale of FPS, the bank will be in a position to finance the economy and start providing credit solutions for business, paving the way for the others. At Eurobank we found a particularly skilled man in charge, Fokion Karavias, and he is the main factor in the bank’s success, in combination with a strong management team that is only aiming at one target, the bank’s growth.
After the merger with Grivalia, you have a more active role in the banking sector. What do you think the sector’s prospects are?
The growth of the banking sector is directly linked with the economy’s growth. If the economy grows at a rate of 5 percent or 10 percent, the banking sector will follow at twice the speed. Over the past years the Greek economy shrunk by 25 percent and the growth is limited to 1 or 2 percent. Car sales retreated by 90 percent, construction as well. So there is a lot of room for growth. People will need to replace their new cars and families to accommodate their needs. The paradox in all this, compared to countries with similar crises, is that the crisis remained in Greece for a very long time. Ireland grew by 8 percent, 5 percent and 4 percent after its crisis, during which losses rose to 14 percent. Growth is something like a rule, but it entails backing from an investor-friendly government, and this new government has the chance because of its majority, which will allow it to implement policies that will aim at attracting foreign capital.
The Fairfax Group has a strong presence in the banking sector as well as in the insurance sector, and the Eurolife management has left open the issue of a further expansion in Greece through new acquisitions. How much of an acquisition target is National Bank of Greece’s insurance arm Ethniki – whose sale is being planned for the third quarter – for you?
I’ll start by saying that insurance is our core business. We are very happy with our investment in Eurolife, where we also have a very good team under Alexandros Sarrigeorgiou. I also have to point out that our core business is insurance of assets, what in Greece we call “general insurance,” and as our interest lies there, we could investigate the possibility of acquiring Ethniki Insurance in order to boost our activity in that sector. In any case I have to say that we have not received any information about the sale of Ethniki, and so I am not in a position to say if it's an interesting case for us or not.
Many believe there is a possible interest in merging NBG with Eurobank behind this acquisition. Do you see the need for more consolidations in the banking sector?
If we assume that we would go forward with such an action, this does not mean that the same would apply for the bank. There are many who are speculating such a development, but what I can say is that we are happy with Eurobank, which is a good position and we have no need to look into a rumored merger with NBG.
Insurance and banking are two different things and we are not looking into any partnership between the two banks. The end.
The way that we work is that we run our businesses separately. All our businesses operate that way, like in the US, where we have three different insurance companies, each operates differently. We are focused on strengthening Eurobank, and seeing that only four banks operate in Greece, I believe the country will need all four to support growth.
You invested in the real estate sector at a very hard time. What are your thoughts on the real estate market for the coming years and what is your strategy for the sector once Grivalia is absorbed by Eurobank?
I believe the prospects are really huge, especially in the tourism segment, where we have invested through Grivalia, which is led by the incredibly efficient George Chryssikos. I never tire of saying that the weather conditions, in combination with the fact that the country is close to some of the wealthiest nations in the worlds, creates incredible opportunities to attract these people, not just for holidays, but to buy a house. I believe this is one of the most underdeveloped segments in Greece, which can be considerably boosted.
Fairfax holds Greek state assets. Do you plan to strengthen that position?
The Greek bond yield has retreated significantly below 2 percent. I believe it can drop more – to the level of countries such as Spain or Portugal – if the new government implements a new policy that will boost investors’ trust in long-term positions. We indeed hold an important position in Greek bonds through Eurolife, which we will maintain. What interests us more is to increase our positions in other assets and position ourselves as investors in other sectors such as infrastructure, depending on the investment opportunities that emerge in the future.
Which of the world leaders you have met do you consider to be the most important?
I would say without a doubt India’s PM, Narendra Modi, who in my opinion is a true blessing for the 1.2 billion Indians. He is an incorruptible and extremely hardworking politician who has dedicated his whole life to his people. He took the absolute majority of the electoral body in 2014 – unseen before in India – and did it again in the 2019 elections, where he was voted for by 600 million Indian citizens. In a country like India, he managed to secure electricity for 700,000 villages, he promotes education and has extremely investment-friendly policies. After a long period of socialism, the Modi government has adopted financial liberalism, which I truly believe is the best model to motivate people to create growth and jobs.
What are your forecasts for the world economy?
Economic growth in the US has been in the 1-2 percent vicinity over the past eight years, and at extremely low levels for a long time, and after just coming out of a deep crisis. The economic policy of President Donald Trump is a true phenomenon. He reduced taxes, lifted obstacles, new jobs were created and unemployment in all population segments dropped to extremely low levels – the lowest in recent years. In the United States, if you can breathe you can find a job. The trade war will not last long and a deal will be reached, which in my view will not only cement the rules of free trade, but of sustainable trade as well. I think that in the end a solution will be found with China and international trade will be restored on the basis that the relationship between all players is fair.