ECONOMY

Greece is nowhere near the Irish investment ‘miracle’

By Costas Bakouris (1) After the recent announcement of new investment incentives, some said the government was turning toward Ireland’s model of development. Specifically, the measure that guarantees a stable tax regime for firms for 10 years has been interpreted as an adoption of the successful Irish practice. Unfortunately, any similarities ended there. The Irish miracle was not merely based on a stable tax regime but was the result of a holistic strategic development plan for the country, including, among other things, the following: – Stability of the tax regime for 20 years, not just 10. – A drastic cut in the tax rate to 10 percent for the period from 1990 to 2010, compared to Greece’s proposed 35 percent. – Easy installation and availability of excellent infrastructure, such as already-in-place industrial parks and office buildings, state-of-the-art telecommunications and power and water at reasonable rates. Land was also easily available for those that preferred property outside industrial parks. In Greece, by contrast, procedures for acquiring land are time-consuming due to the lack of any land register, and land is usually very expensive. Acquiring land for tourism purposes is even more difficult and time-consuming, requiring a series of licenses from the National Greek Tourism Organization and the Environment Ministry, and possibly from the ministries of Agriculture, Culture and Defense, according to case. – A focus on sectors of the economy in which the country enjoys comparative advantages, the most important of which was the quality of human resources (40 percent of the population is under 24 years, well-trained, flexible and relatively low-cost; such sectors were pharmaceuticals, advanced technology, financial services and electronic service centers. – The establishment of the Irish Development Agency (IDA), a dynamic and independent organization overseen by the country’s Development and Employment Ministry and responsible for attracting and supporting foreign investment. The IDA employs 300 people and has 10 regional offices at home and 14 more abroad. Its annual budget in 2002 was 30.2 million euros, while Greece’s corresponding Hellenic Center for Investment (ELKE) under my stewardship had a staff of 25 people, a budget less than one-tenth of the IDA’s, and naturally no offices abroad. ELKE has now essentially ceased activities for attracting investment. – The creation of a separate organization, Enterprise Ireland, responsible for promoting the exporters of Irish products through 40 offices worldwide. I believe our own respective organization is not as effective. – Continuous monitoring and support for investors, promptly reducing any counterincentives that might make them less competitive. Greece has not yet instituted such a procedure. – Emphasis on studying, researching and monitoring the procedures involved in attracting investment, the changes in world markets, and investment opportunities in new sectors relative to the country’s comparative advantages, so that investors can adjust their strategies in order to maintain the advantage. Greece, by contrast, is seriously inadequate in all such activities. – Priority given to improving the country’s educational system, with a view to ensuring that it continues to produce human resources meeting investors’ requirements. Ireland’s educational institutions are in continuous contact with the business community; such contacts in Greece are very sparse. In all, Ireland’s achievement of a GDP income per capita that is 122 percent of the EU average was not the result of any particular measure but the result of a strategic development plan that was innovative and bold and required a coordinated, consistent and long-term effort. Some claim that Ireland is a special case because of its linguistic proximity and close relations with the US due to the many Americans of Irish descent. I do not agree with this argument, although it is certain that the above two factors did play a role (50 percent of foreign investment in Ireland originates from the US and 65 percent of exports go to the rest of the EU). Ireland, like Greece, is a small and geographically isolated country. The difference is that they focus on targets, strategy and an efficient implementation program. By contrast, we tend to consume more time and energy on development laws that are not part of any national plan and have a limited life. We must put an end to this practice and deal seriously with where we want to be 10 years from now. The pace of changes around us is accelerating all the time, which should make us think seriously and direct us toward equally drastic changes and innovative approaches. Improvements in existing provisions do not solve the problem. If our vision remains real convergence with the rest of the EU, we need a strategic development plan with a holistic approach that will include: – A program for lifting all counterincentives and improving competitiveness. – A study to identify the country’s comparative advantages. – A program for improving education and linking it with the business community. – Focusing on sectors based on the comparative advantages. – Development incentives that are bold, innovative and especially competitive. – Programs that will contribute to the building of a new culture, where private enterprise flourishes and the business climate is considerably upgraded. (1) Costas Bakouris is former president of the Hellenic Center for Investment.