13th time lucky? Gov’t hopes so

The government yesterday unveiled a new legislative proposal on investment incentives, the so-called «Development Law» – and 13th of its kind since 1953 – expressing confidence that it will succeed where most of its predecessors failed, that is, in boosting private-sector investment and encouraging foreign direct investment (FDI), where Greece is lagging way behind its EU partners. Economy and Finance Minister Giorgos Alogoskoufis said yesterday that the draft law is «a great step toward boosting private sector investment and it expresses the thrust of the government’s new economic policy.» The previous development law, submitted by the previous (PASOK) government late last year, fell afoul of the European Commission. Its central provision, that businesses investing in projects worth over 30 million euros would enjoy a lower corporate tax rate – 25 instead of 35 percent – over 10 years, was rejected by the Commission as discriminating against small and medium-sized enterprises. The new law conforms to the Commission’s wishes by providing extra incentives for small and medium-sized enterprises and spreading incentives more widely. The law sets a floor of 100,000 to 500,000 euros, depending on the size of the enterprise, for subsidizing investment efforts. And, like the previous law, it no longer insists on the creation of a certain number of jobs as a condition for subsidizing a project, but on the contrary, it subsidizes part of a company’s extra payroll expenses. Implementing the government’s promises that it would focus on Greece’s particular strengths, it offers extra incentives for tourism-related and transport projects. Companies are no longer required to submit their investment projects for consideration until September 15 each year in order to be considered for state aid, but can do so year-round. The draft law also shortens the span for assessing the investment projects and reporting on their eligibility for aid from three to two months. Another provision reduces an investor’s minimum required participation in a project to 25 percent, from 40 percent previously. On the other hand, the draft law provides for limitations on assisting Greek companies in investing abroad if this affects domestic production. This provision is certain to come under heavy scrutiny by the EU, which will also look for any hidden direct state aid, in contravention of EU competitiveness policies. Greece has had a dismal record in attracting FDI. According to a study by the Foundation for Economic and Industrial Research, FDI in Greece increased by a paltry 166 percent in the period 1980-2002, when, during the same period, it increased by 1,107 percent in the EU overall, 1,100 percent in Portugal and 4,136 percent in Spain. Commenting on the law, Drakoulis Foundoukakos, president of the Athens Chamber of Commerce and Industry (EVEA), said it had some positive features but that its efficiency would be tested on application. «The new development law… is a step in the right direction, but will be judged on its implementation, since previous such laws had to face state bureaucracy, which put barriers to new investments,» Foundoukakos said. He mentioned the emphasis on tourism, transport and innovation, as well as the channeling of extra aid to small and medium-sized enterprises, as some of the law’s positive features. Foundoukakos also commented positively on the facility for year-round submission of investment plans and the shortened deadlines for assessing these plans. «In order for the law to produce results, the assessment deadlines must be strictly adhered to,» he said.