What is behind Greece’s foreign investment drive?
Pledges of tough austerity measures – and billions in loans from its European neighbors – helped Greece avoid bankruptcy earlier this year. Now the country has turned its attention to its long-term solvency, something foreign investment can help ensure.
Ministers, bureaucrats and executives have spent the past six months wooing investors from cash-flush countries such as China and Qatar on real estate, energy, transportation, shipping and infrastructure deals. Those negotiations appear to be paying off. China is pouring billions of dollars into ports and logistics, planning investments in areas such as construction, tourism and railways and even promising to buy some 290 tons of olive oil. Qatar late last month signed a memorandum of agreement to invest some $5 billion in Greece in the next few years, though the countries have yet to ink a final deal.
To attract more investors, especially smaller ones, the government hopes to enact legislation that will streamline the byzantine bureaucracy and red tape that has long deterred financial involvement in the country. The goal is to enable financiers to set up businesses in 30 days. Parliament is expected to vote on the proposed law, drafted by Haris Pamboukis, the state minister in charge of investment, in about a month’s time.
“This legislation is crucial, especially since the government as a whole does not seem to have a clear strategy for realizing foreign investments at a time when Greece desperately needs them,” says Yiannis Stournaras, an economist who leads the Foundation for Economic and Industrial Research, a think tank in Athens.
Greece must become more competitive. The World Economic Forum recently ranked it in the bottom half of countries in its global competitiveness index. Because of its lack of productivity, as well as years of shoddy public finances, Greece revealed this spring that it was more than $417 billion in debt and set off a worldwide panic in markets that, at one point, seemed to threaten the viability of the euro, Europe’s common currency. In May, the country avoided bankruptcy by securing $153 billion in loans from the European Union and International Monetary Fund in exchange for deficit-reduction measures that included cuts to public sector wages and pensions and tax hikes.
The austerity measures are supposed to reduce the country’s budget deficit from 13.6% of gross domestic product to 3% by the end of 2012, but they have also slowed growth in the middle of a recession. Net budget revenues have grown by only 3.3%, far less than the 13.7% the government had targeted.
But Greece can jump-start its economy with the help of foreign cash by capitalizing on its coveted real estate and its strategic geographic location, Pamboukis says. “We are empowering the country because [these investments] increase the capacity of the country and its role in the world,” he says. “We are very happy that the Chinese have shown a concrete and pragmatic interest, for instance. But we would be very happy if investment would happen not only with other countries but with other businesses.”
Pamboukis is expected to meet again with the emir of Qatar, Sheikh Hamad ibn Khalifa al-Thani, sometime in the next two months to discuss how to move forward with the $5 billion investment. The non-binding agreement covers six areas: tourism, transportation, real estate, finance, energy and infrastructure. Informally, Greece has talked to Qatar about financing a redevelopment of the old airport in the coastal suburb of Elliniko. The airfield has largely sat idle since it closed in 2001 and was replaced by Eleftherios Venizelos International Airport, also known as Athens International Airport, in Spata. Qatar and Greece signed another memorandum, also non-binding, in May to build a liquified natural gas terminal and power station in the western Greek port city of Astakos.
China, meanwhile, has already made high-profile investments and is planning more. In June, the Chinese shipping giant Cosco assumed full control of the major container port in Piraeus under a 35-year-lease. Cosco is planning to build a new pier and improve docks in the port, which was previously run by the Piraeus Port Authority. Cosco is also pursuing a joint deal with Greece’s state ports to create a distribution hub near Athens to distribute products from China to the Balkans.
In a visit to Athens earlier this month, Chinese Premier Wen Jiabao promised more investment in shipping and said the Chinese would keep buying Greek government bonds, news which helped boost the euro to an eight-month high against the dollar. In June, Greece and China also signed agreements for investments in construction and telecommunications.
Invest In Greece, the state-run agency which promotes investment, has also reached out to several other countries, including Russia, Turkey, Israel, the U.S., Australia and Greece’s European Union partners, says Paraskevi Boufounou, the agency’s president.
Stournaras and other economists applaud these efforts, but they say the government’s work is just beginning and hinges on making business deals easier and more transparent as soon as possible. “It’s not enough to bring in big hitters like the Chinese and the Qataris,” Stournaras says. “We need to bring in as many investors as we can, all kinds of investors, as quickly as we can. And we need to keep them here.”
Stournaras and other economists applaud these efforts, but they say the government’s work is just beginning and hinges on making business deals easier and more transparent as soon as possible. “It’s not enough to bring in big hitters like the Chinese and the Qataris,” Stournaras says. “We need to bring in as many investors as we can, all kinds of investors, as quickly as we can. And we need to keep them here.”
Source: Time