The painful restructuring of Greek industry is not finished

The government last week responded with enthusiasm to the news that Philip Morris is to invest 100 million euros (of which 20 million will be state subsidies) in a new cigarette factory of its Greek subsidiary Papastratos. One of the two senior ministers who attended the company’s press briefing, Development Minister Dimitris Sioufas, said the investment provided a practical affirmation of the government’s drive to attract foreign investment. No one will dispute that the investment is welcome. However, I do not think that the enthusiasm was justified. First, because the new plant will employ 800 workers instead of 1,000 at the present one in Piraeus, and second, because that very same day a big industrial plant, of the Fertilizers and Chemical Products company in Thessaloniki, was shut down. This industry, founded by the National Bank of Greece in partnership with France’s big chemical group Sain Gobain in 1964, had been ailing for the past decade due to strong foreign competition, a shrinking of the domestic market and the EU’s new agricultural policy which disengages income support from production. The two opposite cases reveal the fluid state of Greek industry today, where long-established manufacturing concerns find it increasingly difficult to maintain market shares due to comparatively high costs and, sometimes, low quality. This long restructuring period, which also has a future, will mean the demise of many. The survivors will be those that heed the message of the times and manage to stay competitive through innovation. But how many Greek firms have such a potential and what will be left of this country’s industry, which up to now employed more than 20 percent of the work force? The answers to such questions do not come easy. The specter of deindustrialization is now visible, as suggested by the country’s official industrial production index, which has been flagging for the last five years. With 100 as a base in 2000, the index fell to 97.5 in 2001, 97.4 in 2002 and 97.0 in 2003, but rose slightly to 98.1 in 2004. Data for the January-November 2005 period show a 0.8 percent decline. According to analyses by the Federation of Greek Industries (SEV), more than 30 percent of manufacturing and construction firms recorded losses in 2004, and about 37 percent reported lower sales. The loss-making firms employ more than 53,200 workers and those with declining sales more than 130,000. The branches with the biggest problems are textiles, clothing and leather; their sales are now more than 50 percent lower compared to 2003. This prolonged crisis of a structural nature requires the implementation of a corrective policy by the government to prevent an explosion in unemployment. We must recognize that it has already taken some serious countermeasures, such as generous investment incentives, a phased reduction in corporate taxes and a simplification of licensing procedures. The persistence of problems, however, shows that more is needed, particularly in respect of liberalization of markets and labor market flexibility.

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