Irish lessons on investments

When the ruling Panhellenic Socialist Movement (PASOK) came to power in October 1993, the prevalent climate was one of satisfaction that New Democracy, and its leader Constantine Mitsotakis, vilified as the apostle of rampant free markets, had been evicted. However, incoming National Economy and Finance Minister Giorgos Genimatas was facing an entirely different challenge: the total lack of investment. The issue was critical, because Greece urgently needed investments in order to attract jobs and achieve respectable levels of annual economic growth, something which had happened only twice since the second oil crisis in 1979. The solution adopted was a new «development law» which provided generous incentives for investors, including subsidies. Especially favored were those who wanted to invest in border areas, such as eastern Macedonia, Thrace and the eastern Aegean islands. Back then, the government did not have many alternatives and chose to finance private investment through the state budget. Investors did respond, taking advantage of the generous incentives. During that period (1993-94), advisers to Gennimatas came up with the idea of a flexible «one-stop shop» that would deal exclusively with big private investments, help investors deal with the red tape and follow through on the projects’ implementation. This idea was pioneering for its time, when statist ideology was all-pervasive in Greece. These ideas led to the founding, under Gennimatas’s successor, Yiannos Papantoniou, of the Hellenic Center for Investment (ELKE) in 1996. Despite the government’s best intentions, however, ELKE became entangled in the very things it was supposed to overcome: a sluggish bureaucracy; the multiplicity and complexity of laws; and ideological misconceptions. It is these things that still stand in the way of the investments so ardently desired by current Economy and Finance Minister Nikos Christodoulakis. As soon as Christodoulakis replaced Papantoniou, last October 24, he unveiled a program designed to attract investment, based on cutting red tape and making quick decisions. In his previous post as development minister – responsible for industry, trade, research and technology, and tourism – Christodoulakis had unveiled, on February 5, 2001, measures that make it far easier to set up a company. Recently, the National Economy Ministry assigned ELKE the right to reports on improving investment. The first will focus on issues of competitiveness and the second on incentives offered, comparing them with those of other countries. Costas Bakouris, ELKE’s current chairman, considers Ireland as the blueprint for attracting investments. Only slightly better off than Greece in income and development a decade and a half ago, Ireland has now surpassed all European Union countries, except Luxembourg, in per capita gross domestic product. Bakouris notes that the Irish experience is valuable and that Greece could adopt part of its strategy, such as the constant monitoring of investment, even after it is realized, and the opportunities provided to investors to reinvest part of their profits. Bakouris said Ireland attracted investment thanks to an extremely stable – and attractive – taxation system. Any potential investor knows that existing laws will still be in place after, say, 20 years, and can more easily plan for the future. This is not the case in Greece, where tax laws change constantly. The counterincentives to investing in Greece are, according to Bakouris, the small market, combined with its relative geographic isolation from the rest of the EU; Greeks’ small purchasing power; the existing law on development, which is up for revision in the coming months, and which requires complicated procedures; and the slow implementation of reforms, including rolling back the State. If improvements are made, Greece will become more attractive to investors, Bakouris believes. Assuming that headline inflation in other eurozone countries follows the downward path forecast by many international investment houses, the Greek economy may find itself in the unenviable position of experiencing a drop in inflation to 3 percent or a little lower by June, at a time when the average eurozone inflation may stand at 1.5 percent or lower. Merrill Lynch projects average EMU inflation to drop to around 1.0 percent by end-June. In other words, the inflation gap will have widened by then, hurting the country’s international competitiveness.