Wanted: Incentives for foreign investors

Greece has not only failed to attract new foreign investment; it has also found it hard to hold on to its own investments abroad. More and more Greek and foreign investors are choosing to leave the country in search of a more favorable tax regime and a more flexible labor market. Red tape, poor infrastructure and corruption are raising costs for businesses. With over 5 billion euros in total investments over the past five years, Greek companies are currently the biggest investors in the Balkan peninsula. Greek investments in Bulgaria were over 20 million euros in the first quarter. Some 14,000 employees work in Greek banks in the neighboring country. Greek banks’ economic activity in the Balkans yielded some 130 million euros last year. Regrettably, the Greek government has failed to keep pace with these developments. Policymakers have done nothing to make the local economy more attractive to foreign investors. Nor have they managed to capitalize politically on the presence of Greek investments in other Balkan countries – and thereby enhance Athens’s diplomatic leverage in the region. At home, bureaucracy is king, while infrastructure problems increase installation and operation costs – a situation that is made worse by the inflexible labor market. At the same time, frequent changes in the legal framework increase investor risk as businesses are uncertain about the tax system and the labor market. The recent reforms of the law on investment incentives and taxation are cold comfort. The growing strength of Greek investments abroad is a welcome development in itself. But, at the same time, it answers the question of why Greece has failed to attract significant foreign investment. These are the same reasons that drive Greek investors abroad. Businesses look for more competitive conditions and development prospects, unhindered by red tape and corruption. The Greek economy is in danger of proving too expensive for the production of low-cost products and not competitive enough for the production of high added-value products. Increasing competitiveness is the only way to escape this conundrum. Unless drastic measures are taken, Greek investments will stagnate – with all that means for the rate of employment and incomes in the country.