A future for Greek exports?

Most analysts, top executives and bankers agree the Greek economy will have to become more competitive to be able to grow at a satisfactory rate even after the end of the 2004 Olympic Games and the expected significant slowdown in European Union (EU) structural fund inflows past 2006. Comparatively higher inflation, a slowdown in economic activity in the eurozone and elsewhere and the strong euro have often been cited as the main reasons that brought Greek export growth to a standstill the last couple of years. Although all these factors may have contributed to the stagnation of export growth in the last year or so, there is no doubt that the long-term growth of Greek exports depends on local firms’ ability to offer higher-quality goods and services and the State’s readiness to help them better access existing and new markets. Despite the general impression that the international competitiveness of the Greek economy has been dealt a setback in the last decade or so, a view supported by a high current account deficit in the order of 6.0 percent of GDP in the last few years, National Bank of Greece figures show that Greek exports increased their market share of goods and services to 6.5 percent of its trading partners’ markets in 2001 from 5.8 percent in 1995. These figures contradict the widely held view of the competitiveness of the Greek economy since the increase in market share can only be interpreted as an increase in the competitiveness of Greek exports. Declining exports? Interestingly enough, exports of goods and services as a percentage of GDP has been on the rise for the last 15 years, mainly due to an increase in the share of services, mostly tourism, in total exports from 35 percent in the 1980s to 62 percent in 2001, according to the National Bank. As a result, exports of goods and services accounted for 24 percent of GDP in 2001 versus an average 13 percent in the first half of the 1980s. Still, it remains below Spain’s 31 percent and Portugal’s 35 percent as well as the eurozone average of 38 percent, which is indicative of the great potential. Not surprisingly, imports of goods and services rose to some 30 percent of GDP in 2001-2002 versus an average 18 percent in early 1980s against Spain’s 33 percent, Portugal’s 44 percent and the eurozone average of 35 percent. Undoubtedly, the opening up of new markets, such as those in the Balkans and Central and Eastern Europe, has made a significant positive contribution to Greek exports since the early 1990s. This, in turn, points to the great potential offered by new markets that are closer to Greece, rendering transportation costs less important than in exports directed toward traditional European Union markets. In addition to this, the relatively lower-quality Greek exports can more easily satisfy the domestic consumption in those countries than in more demanding European Union markets. It is also interesting to note that the increase in the share of Greek exports of goods and services has occurred despite the fact that the relative price of Greek exports rose in the 1990s as measured by a consumer price index-based effective exchange rate. Indeed, the nominal devaluation of the drachma in 1991 and 1998 had little effect on the relative price of Greek exports which kept rising in the 1990-2002 period as shown by National Bank estimates. Of course, the appreciation of the euro in 2002-2003 has made things worse for Greek exports as far as relative pricing is concerned and partly reflects the stagnation in export growth in the last year or so. Quality a key factor With Greek inflation projected to remain stubbornly high over the next few years, there is no doubt that Greek exports will feel a greater pinch in the traditional exports of goods and services such as labor intensive manufacturing goods and tourism. This may become more acute due to the EU’s enlargement given the lower unit labor costs enjoyed by the new entrants. Faced with this grim reality, Greek firms have no option but to upgrade their products and services or come up with new ones so as to enhance their quality, making them less resilient to pricing. This is not easy because it requires ongoing investments in equipment, human capital, and marketing to make goods and services more attractive to a more demanding audience. It is, however, necessary for their own survival and the growth of the Greek economy in a period which is marked by the 2004 Olympic Games and the heavy reliance on EU structural funds. The State also should have a more active role in that quest by enabling local firms to reach out to foreign markets and firms eager to do business. This requires that the Greek government understand the important role of its commercial attache desks abroad and provides them with the necessary means to do their job. In so doing, clear communication lines between local firms and foreign firms will be established, providing fertile ground for exports and other business. Unfortunately, Greece has not understood the importance of these positions, lacking the appropriate personnel and funds to do their job. It is difficult to predict where things are going in an ever changing world economy. It is not difficult, though, to predict that countries which export higher quality goods and services will be able to better weather the current economic storm. The Greek government and firms have one more reason to try as inflation is projected to remain comparatively high and the fuel that keeps the Greek engine of growth going will not be available in the same quantities in the next few years. It takes two, however, to tango. Greek corporations and the government must prove they’re able to tango together for their own good and the good of the Greek country in the years to come.