Attracting more FDI
The current Greek government, like its Socialist predecessor, has made FDI (foreign direct investment) a main priority of its economic policy because it realizes that the sustainability of economic growth in the medium to long term and the lifting of Greek living standards to the EU-15 average requires a good deal of investment. But this is easier to say than to do. Nevertheless, Greece can surprise pleasantly if it uses privatizations and large infrastructure projects to lure in foreign investors, including Greeks of the diaspora. There is no question that Greece has done poorly on the FDI front over the years. According to the latest UNCTAD (United Nations Conference on Trade and Development) figures, FDI flows into Greece reached $1.35 billion (1.15 billion euros) in 2004 compared to $661 million in 2003 and just $50 million in 2002. FDI includes equity capital, reinvested earnings and intra-company loans, according to UNCTAD’s definition. The country managed to attract $1.1 billion in FDI in 2000 which is similar to the 1.0-billion-dollar figure of 1990 and the 672-million-dollar figure of 1980 when less FDI money was available worldwide. To highlight Greece’s poor performance, one just has to compare it with Ireland’s and even Austria’s. Ireland managed to draw $9.12 billion in FDI last year, a small amount compared to $26.88 billion in 2003 and $28.98 billion in 2002. Foreign entities invested just $622 million in Ireland in 1990 and 286 million in 1980, both lagging behind that of Greece in the same years. Austria, another small EU country like Greece, attracted $4.8 billion in 2004 and even more, $7.35 billion in 2003, although it also had a bad year in 2002 with FDI inflows of $356 million. Austria saw $5.9 billion invested in 2001 and $8.84 billion in 2000. Like Ireland, it trailed Greece in 1990 and 1980 by attracting just $653 million and $239 million respectively. Undoubtedly Greece has had a number of opportunities to improve its position on the FDI front in the past but squandered them soon thereafter. According to UNCTAD statistics, Greece managed to take temporary advantage of its entry into the European Community in 1981 and again in 2001 when it became a member of the eurozone, since FDI inflows picked up 38 percent and 45 percent respectively from a year earlier. However, unlike Spain and Portugal which managed to maintain the momentum and become destinations for FDI for many years to come, Greece failed. It is noted that the FDI inward stock of Spain increased by more than 4,000 percent during the 1980-2003 period, while Portugal’s by more than 1,000 percent. To make things more difficult, Greece today faces another challenge in becoming an important destination for FDI flows: It is the competition from neighboring countries, such as Romania and Bulgaria, and Turkey down the road, which offer much lower labor costs and corporate taxes, the prospect of high GDP growth rates and the EU anchor for bringing institutional changes in sensitive areas such as property rights. Can Greece cope successfully with the new reality? The answer is a conditional «yes.» Undoubtedly, the country has little to gain from the same arguments aired in different forums by successive Greek administrations over the years. The arguments of political stability, high GDP growth, the pursuit of fiscal consolidation, the provision of tax and other investment law incentives may be noble but are too general to bring about the desired outcome. After all, Greece is a member of the eurozone and some of these are taken for granted. Other specific arguments, such as reducing drastically the time required to set up a firm, cutting the number of licenses to start investment in a project, providing a prompt answer to any request for a direct investment by the relevant local authorities, are definitely more relevant to foreign ears. The same holds true with the determination of the uses of land so that there are no legal impediments to direct investments once they start getting implemented as has happened in the past. But attracting FDI to a small, yet promising country such as Greece really means three specific things in our opinion, in addition to providing a business friendly macroeconomic and political environment. Singling out specific large projects in sectors in which Greece enjoys a comparative advantage, such as tourism, energy is the first step. The second step involves making targeted pitch to specific multinationals as well as rich foreign and Greek individuals who own business concerns. This should preferably involve a concerted effort by the political leadership, the business community and the technocrats. Large infrastructure projects to be implemented under the PPP (Public Private Partnerships) program offer such an opportunity. Large-scale privatizations also do the same. In the recent conference at the Hellenic-American Chamber of Commerce, Chris Megalou of CSFB did mention this kind of strategy, bringing up the example of Turkey, which managed to collect much more than it expected when it sold a majority equity stake in Turk Telecom to a rich Lebanese investor. «Going abroad and speaking in general terms is not as effective as coming up with specific projects,» says Megalou. But Greece has another advantage it can exploit. It can try to become a hub for foreign companies interested in expanding their business into the Balkans and the Middle East. If pundits are right, the terrorist attacks in London, Madrid and New York have convinced a number of Arab states and individuals, flush with «petrodollars,» to look for other destinations closer to home. Greece could play that role if it is serious about it, given its traditional friendly relationship with the Arab world. However, becoming a hub does not come on its own. It requires a lot of effort and marketing as well as the constant improvement in infrastructure, from telecommunications to luxury resorts and modern health facilities. Greece has an uphill battle in its quest for becoming an important FDI destination. The general statements and goodwill proclaimed by successive Greek administrations have failed to bring about the desirable result. By becoming more focused and targeting specific projects and laying the ground for making Athens or Thessaloniki a hub for the greater geographical area may do more than even the most optimists ever imagined on the FDI front. This is not more difficult than meeting the convergence criteria which earned it a place in the rich club of Europe.