Trapped by limited economic horizons

Trapped by limited economic horizons

There was a famous advert for British Telecom in the UK in the late 1980s featuring comedian Maureen Lipman as a grandmother speaking to her grandson, Anthony, about his exam results. After calling to pass on her congratulations, the depressed teenager informs her that he failed his exams. “You didn’t pass anything?” she asks forlornly. “Pottery,” he responds. “Pottery? Very useful,” replies the supportive grandmother. “Anthony, people will always need plates.”

If we were to invoke the indefatigable spirit of Anthony’s grandmother when looking at the survey published last week by Endeavor Greece, which shows that a large number of the new Greek businesses being created are in the food service sector, we might respond: “Very useful; people will always need to eat.”

A more dispassionate look, though, provides little encouragement regarding the levels of creativity and outward-looking nature of the Greek economy at the moment.

According to the study, which is based on figures provided by the General Electronic Commercial Registry (GEMI), 28,615 new firms were created last year and 35,159 closed down. This produced a negative balance of 6,544. In previous years, despite the crisis, there had always been a greater number of companies created than those closing down.

There has also been a significant fall in the number of new companies being created over the last few years. The 2016 figure is down 33 percent compared to 2012 and 50 percent in comparison to 2008.

In terms of the types of companies being set up, food service (restaurants, bars, catering and food retail) leads the way with 5,613 new companies last year. The activity’s dominance is not new (in fact, last year’s figure was 41 percent down on 2012) as the lack of liquidity and ample supply of uncertainty in Greece has pushed entrepreneurs to low-risk, cash-based businesses that require little capital to get up and running.

Of course, given that disposable income has dropped by a third during the crisis, many of these establishments last only a matter of months before going out of businesses. In these difficult times, one man’s ticket to economic survival is another’s luxury. A recent survey on behalf of the Consumer Protection Center (KEPKA) indicated that 39.7 percent of Greeks do not eat outside their homes, compared to 25.3 percent in 2011. In addition, the percentage of respondents who eat out once a week fell from 37.6 percent in 2011 to 31 percent in 2016.

The fact that the food service sector is seen as fertile ground by so many entrepreneurs is symptomatic of a wider lack of confidence in the economy and themselves. According to Endeavor Greece’s study, 84 percent of the companies created had a domestic orientation. This includes services such as accounting and consulting as well as the old staples of food and retail. Again, this is not a new trend as these domestic-focused sectors accounted for 88 percent of enterprises launched in 2012.

Over the last four years, the number of companies being created in outward-looking sectors such as food processing and information and communications technology (ICT) has fallen by 38 and 27 percent respectively.

This introversion was also emphasized by recent data from the Hellenic Statistics Authority (ELSTAT), which surveyed 21,600 Greek businesses and found that only 2,488 (11.5 percent) had conducted any sales online. While 87.8 percent of businesses said they had internet access and three-quarters of those had a company website, just 27.5 percent had an online ordering or reservation option and just half used social media.

Undoubtedly, the paucity of Greek businesses looking beyond the country’s borders for custom is heavily linked to the terrible economic conditions for almost a decade. It is these same limited prospects that have prompted more than 400,000 Greeks under the age of 65 to leave the country since 2008, according to a Bank of Greece study. A large proportion of these emigrants were aged between 25 and 39, with good levels of education and professional experience. In other words, exactly the type of people that would be capable of setting up new and innovative businesses in their homeland if the conditions were favorable.

If, like Anthony’s grandmother, we really want to look for sources of encouragement, then the best approach is to accept that bars and restaurants are largely fads and economic stop-gaps and that inspiration has to come from elsewhere.

One example is Portugal. Like Greece, Portugal has also been through a crisis (albeit a less damaging one) and has experienced equally high levels of migration. Portugal was also under a bailout program, which it exited in 2014 and is now reaping the rewards.

Recently, Lisbon has become an international hub for start-ups. The economic stability that Portugal is finding after a difficult few years, matched with the good weather, affordable rents and an attractive lifestyle have convinced many talented young Portuguese to try their luck in their own country, while also attracting entrepreneurs from elsewhere. The tech scene is still relatively small but is growing at a rapid pace. Last year there was a sixfold increase in the amount invested by venture capitalists in Portuguese start-ups.

Just as importantly, the Portuguese government seems to have understood that it has a valuable hatchling in its care. At the Web Summit held in Lisbon in November, a gathering of some 50,000 people from the tech sector, Portugal’s Secretary of State for Industry Joao Vasconcelos announced the creation of a 200-million-euro fund to match the investments made by venture capitalists in local start-ups and foreign companies relocating to the country.

In some ways, this outward-looking approach involves the Portuguese tapping into their past. “We have a 500-year history of dealing with different cultures and different people,” Vasconcelos told The Guardian last year. “It’s something we’ve been doing – and doing well – since the 16th century. And we’re doing it again with start-ups and entrepreneurship.”

However, this fledgling industry is also about reacting to the challenges thrown in Portugal’s path by the economic crisis. “The genesis of this whole scene was the financial crisis and the lack of jobs,” Stephan Morais, an executive board member at Caixa Capital, a Lisbon-based venture capital and private equity firm, told Bloomberg.

This Portuguese story is still in its early stages but it is already instructive for Greece in terms of the elements that need to come together for a more outward-looking approach to entrepreneurship. Greece also has its success stories, such as Taxibeat (the cab-hailing application that is the subject of a 40-million-euro interest from Daimler-Benz), but the data in Endeavor Greece’s report show that the overall picture is not encouraging. Making plates or filling them with food is not enough to survive in the global economy.

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