In our age of globalization and economic interdependence, attracting foreign direct investment is vital for a country’s economy. FDI helps create jobs, stimulate growth, boost competitiveness and revenues, facilitate the transfer of technology and know-how, and enhance innovation.
As Greece strengthens its external business links FDI becomes ever more important for the country.
Investor confidence in Greece has improved in recent years. The latest FDI data show that there was a marked increase in FDI in Greece between 2015 and 2018, from just 1.2 billion euros in 2015 to 3.3 billion euros in the first 11 months of 2018. However, the ratio of FDI to GDP remains at relatively low levels compared to other eurozone countries.
What can Greece do to attract more investment? It must become an easier place to do business. The country should exploit its strengths and comparative advantages. Correcting its current weaknesses and creating a friendlier and more attractive business environment will be important for further recovery and growth.
We are encouraged by the authorities’ growing awareness of the challenge, their preparedness to listen to investors and their readiness to act.
Significant progress has already been made to make Greece a more attractive investor destination. The authorities have lowered FDI restrictions and, according to the Organization for Economic Cooperation and Development, overall FDI regulatory restrictions in Greece are now low compared to other OECD countries.
But the list of investor concerns remains significant: A cumbersome bureaucracy, high tax rates, an impression of corruption, and a slow pace of justice – all these weigh heavily on the minds of potential investors when they come to assess Greece as a place to do business. The country must therefore address these issues.
It can start by reducing the administrative burden and broadening the personal income tax regime to allow cuts in taxes on wages and profits while still meeting fiscal targets. Smoother and more efficient firm licensing and procedures for property registration would cut red tape and make it easier for companies to do business. And above all, a stable and more predictable institutional framework will reduce uncertainty, which is crucial, especially for sizable long-term investments.
With regard to infrastructure, while overall standards are generally satisfactory, Greece could make further improvements to attract quality investors. That includes, but is not limited to, better transport facilities (roads, ports etc) and reliable energy supply. Much of this is being addressed through privatizations or the award of concessions.
The current privatization program constitutes an opportunity to attract FDI in key sectors such as transport and energy. Some positive results have already been achieved, such as the privatization of the Piraeus and Thessaloniki ports and the 14 regional airports (which the European Bank for Reconstruction and Development also supported), as well as the National Natural Gas System Operator (DESFA).
Attracting FDI is a challenging task, not least because there is extremely strong competition for it. Multilateral financial institutions like the EBRD can play a key role both as an investor and through policy engagement. To date, the EBRD has invested over 2.3 billion euros in more than 40 projects and through our Trade Facilitation Program in Greece, supporting the banking sector, large companies, but also small and medium-sized enterprises.
But it is not only the amount that matters: Our engagement in Greece also sends a strong signal to the market and encourages other investors to take a close look at the opportunities Greece offers. Like every good Greek wedding, the rule is: the more the merrier.
Charlotte Ruhe is the European Bank for Reconstruction and Development’s managing director for Central and Southeastern Europe, responsible for 18 countries from Poland and the Baltic States to Greece and Cyprus. She will be chairing the discussion “Challenges for Attracting Foreign Capital Inflows in Greece” at this year’s Delphi Economic Forum.