How red tape and corruption drive potential investors away from Greece
Red tape, complex laws and corruption are the main reasons foreign investors stay away from Greece, depriving the economy of billions of euros in investment and many new job opportunities. Foreign direct investment (FDI) in Greece has dramatically declined in recent years, with capital influxes at just $8.9 billion (7.5 billion euros) from 1995 to 2004, according to the Organization for Economic Cooperation and Development (OECD). A case in point is shown by a recent Deloitte survey that revealed that net FDI by US entrepreneurs in the manufacturing industry in Greece dropped by 35 percent year-on-year in 2003, falling to 30 million euros from 46 million euros in 2002. In contrast to Greece, the situation in Europe was positive, with a 30 percent annual rise in US manufacturing investments in 2003. As if that was not enough, Greek funds are leaving Greece. OECD data shows that within 10 years (1995-2004) capital flight from direct investments in Greece reached $4.3 billion (3.6 billion euros), most of which was due to Greek entrepreneurs leaving the country. In 2005, in just the first three months, more than 240 million euros have followed local businessmen crossing the borders, according to the Bank of Greece. Obstacles The Federation of Greek Industries (SEV) processed data by the World Economic Forum (WEF) and found that the main factors hampering entrepreneurship in Greece are bureaucracy (26 percent), tax legislation (15 percent), restrictive labor regulations (12.5 percent), tax rates (11 percent) and corruption (7.5 percent). To a lesser extent, investors are turned away by political instability (6 percent), the inadequacy of infrastructures (5.5 percent), insufficient staff training (4 percent), access to funding (4 percent), poor labor ethics (3 percent), inflation (2 percent) and government instability (1 percent). The WEF’s Global Competitiveness Report concluded that industrial relations in Greece are more troubled than in the rest of the EU. Furthermore, the determination of salaries is more centralized in Greece than in the EU. The flexibility in the hiring and firing of staff in Europe seems unheard of in Greece. This report had Greece losing two places in the global competitiveness chart last year, falling to 37th from 35th in 2003, behind such countries as Lithuania and Jordan. Greek bureaucracy is much more complicated than in other EU countries. A survey by the Athens Chamber of Commerce and Industry (EBEA) has found it takes 6.5 procedures and 60 days to set up a company in this country, when in Ireland one needs three procedures and 15 days. In Great Britain, the numbers drop to just two procedures within seven days. The World Bank confirms that the cost of bureaucracy as a percentage of the gross domestic product per capita in Greece is as much as 35.2 percent, against 10.3 percent in Ireland, 13.5 percent in Portugal and just 8 percent in OECD countries on average. Red tape not only affects the founding processes, it stretches to procedures for recording a company’s property and the application of contracts. Even filing for bankruptcy takes longer, as much as two years in Greece against less than six months in Ireland. Where bureaucracy reigns, corruption blossoms. The Global Competitiveness Report rates the cost of corruption in Greece as 3.5 on a 1-to-7 scale, with 1 being the maximum cost. The EU average stands at 5.4. Likewise, it rates the judicial power in Greece with 4.7 against 5.5 in the EU, meaning justice in this country is not as independent. A similar corruption index by PricewaterhouseCoopers ranks Greece 29th among 47 countries, highlighting the fact that among EU countries only Italy stands lower than Greece. The Corruption Perception Index, also measuring the lack of transparency, ranks Greece 49th among 146 countries, the same rank as countries that just entered the EU last year. All this explains why the Greek economy can hardly be described as competitive and attractive to investors. Greece finds itself close to the bottom on many international organizations’ charts: It lies 26th among 29 OECD member-states, 127th among 140 countries surveyed by the UN Conference on Trade and Development (UNCTAD), 14th among 17 periphery states surveyed by the Economist Intelligence Unit and 44th among 60 countries according to the International Institute for Management Development in Lausanne. Among European states alone, Greece stands 44th in managerial practices, 46th in institutional framework and 53rd in labor market conditions. Tales of bureaucratic woes Connections matter: A Greek-American biochemistry professor – after dozens of presentations, conferences and US patents – has discovered an individualized cancer treatment with considerable success. Last fall, he submitted to the Greek state an application to create an institute in Greece which, in cooperation with hospitals, would become an International Anti-Cancer Center with huge foreign currency influx and priceless significance for human life. Almost a year on he had received no answer. He then contacted a member of the government, who advised him to write a letter to the prime minister. After this intervention the professor was immediately contacted by phone and had an appointment arranged for Friday, July 15. Waiting for the committee: The US company Austin Powder International decided to create a unit producing commercial explosives in Kilkis, northern Greece, in 1997, investing to date some $5 million. Among the products is one to be made in Greece for the first time. The company applied for permission for the new product last December and is still waiting. After personal contacts with political and departmental officials, the company learned from Development Ministry employees that a special committee (which has not yet been set up) must meet for the permission to be issued.
