ECONOMY

Flight of BP and Shell illustrates problems of local framework

The departure from Greece of two major multinational companies, British Petroleum (BP) – which has already occurred – and soon Shell as well as the very low amount of foreign direct investments should all be a reminder to most that the country remains less than hospitable to multinational firms and foreign companies in general. The financial crisis, the small size of the market and, most of all, the mountain of bureaucracy, unstable tax framework, competition distortions and domestic financial interests are driving droves of multinationals away from Greece. A closer look at almost all sections of the market reveals that it is no coincidence that the Greek economy ranks among the stragglers on the global competitiveness list. Instead of initiating policies that would offset the drawbacks of its small market, Greece not only fails to easily attract foreign capital but is also unable to hold on to it for any length of time. Since the start of the decade, more than 150 multinationals have created subsidiaries in Greece. They have faced a hostile environment and growing corruption, forcing out even companies that had seen the Greek market as a launching pad for expansion into Southeast Europe. The losses for the Greek economy are enormous. The decisions that have been made were driven by the fear of the political cost but these have condemned entire sectors in the country that are crucial for its development. The problem of attraction and permanence for the few foreign companies that have taken a foothold is greater in domains where the competition is virtually nonexistent. This is true across the entire spectrum of the Greek economy, which continues to take on an ever more introverted character, undermining its own growth. «In order for us to remain in Greece, we would have had to make investments. However, the existing environment did not help us expand; it actually forced us to shrink. We therefore opted to make a better deal,» a top official of BP in Europe stated to company officials in Greece last Tuesday, when explaining why the energy giant has decided to sell its chain of 1,200 gasoline stations here to Hellenic Petroleum after 58 years of commercial activity. «The existing environment was such that it would not allow us to expand,» BP Hellas Chairman and CEO Sotiris Christoyannis told local subsidiary officials when the deal was announced on June 26. Shell, in turn, has put off the deadline for the tender regarding the sale of its network until July 10. The market expects Motor Oil to win the tender, given it will want to maintain its competitive position against Hellenic Petroleum. Both energy multinationals had been expected to react for some time now to the fines imposed on them by the Competition Commission, which charged them with harmonized practices and fined BP 30 million euros and Shell 19.5 million euros. They both suggested they had been made scapegoats as «fighting multinationals is popular politics.» It is true that, as the Competition Commission itself acknowledged, the political leadership cannot put an end to «the distortions seen at all stages of fuel traffic.» But none of the measures that are essential for true liberalization of the market has proceeded, even though some of the delays have gotten Greece into trouble with the European Commission in the European Court of Justice. The domestic fuel market is therefore entering a new historic phase of falling into Greek hands, with unknown impact for its transparency and health. The picture is similar in the electricity market, which has shown a model of development that is unique to Greece. There is not a single foreign investor that has managed to enter the Greek market without having to forge an alliance with a local player, not necessarily a producer but someone with a permit for a plant or a plot on which to build it. From inital contacts with the competent authorities, foreign investors realized that they would not be able to deal with the required red tape and various vested interests in order to proceed with investment in a strategically important market. They, therefore, had to use Greek groups as their vehicle. In hindsight, the foreigners wake up to the problems of the domestic industry but are still surprised by decisions made overnight and with no strategic plan in place. One such decision was the ban on coal, which overturned Spanish firm Endesa’s investment plans and played a key role in that company’s decision to depart. It is also no secret how disappointed foreign players are in the domain of renewable energy sources: In a typical case of the Greek model, bureaucracy, the complexity of the licensing framework and various local players keep investments frozen for years, undermining Greece’s hopes for any «green» development.