Why You'd Be a Fool to Invest in Greece

This letter is a warning to anyone who might even remotely consider the possibility of investing in Greece. Its actual intent is, of course, not to merely lambast to government for the things that are so wrong here, or to let everyone know how bad a country we are, but rather to start a discussion on the priorities the government should set in addressing these problems and on some potential solutions to them. So, here goes:

Dear Investor,

our Prime Minister is declaring that our country is going to enter in a glorious path of growth (sometimes qualified as "green growth") under his administration. So you might be entertaining the idea that you should be a part of this great growth and flourish yourself. Not so fast. As things stand today, you'd really be a fool to invest in Greece. Here are some of the reasons:

Red tape: lots of red tape. Permits, licenses, regulations, the omnipresent Archaeological Service, all these can take up at least 5-8 years of your time before you even started the investment. And, of course, you'll have a multitude of bureaucratic layers facing you (or springing out of nowhere) every step of the way.

Corruption: abiding by the regulations? This will probably be only for the bureaucrat involved to judge. You might have to do him some favors - monetary or others. You might get to see your competition solve their own problems miraculously and be tempted to imitate them.

Litigation: do you think you have been wronged by the government? Any dispute will take at least 8 years to resolve. In the meanwhile, you will be in limbo.

Litigation (2): concerned or "concerned" citizens will probably try to annul some or all of your permits, most likely on environmental grounds. The chances are that, even after you have proceeded with the investment, with the government's blessing, no less, the Council of State (the Supreme Administrative Court) will rule that the laws, in accordance to which your permits were granted, are harmful to the environment - so that everything you have spent so far will have been for nothing.

Taxes: be prepared to be taxed every step of the way. And, in the unlikely event that you turn out a profit, expect the government to impose an extraordinary taxation on profits.

State monopolies: energy, oil refineries, etc. - they are, for the most part, government monopolies. Do not be surprised if, one day, the prices charged for these services suddenly spike.

Labor costs: be prepared to spend for every employee you have at least 60% above their salary for employer's contributions to the Social Security System. Plus, it would be virtually impossible to readjust salaries, in the event of a downturn of your business.

Labor relations: you can hire, but you cannot fire. Union leaders cannot be fired. If you fire someone else, they may claim abuse of right and have the termination voided by a Court (two to three years after the dismissal); you will have to pay back salaries for the meantime.

Protective overregulation of several sectors of the economy: transfers, by ship or by road, for example. Most probably you will not even be able to obtain a permit in the first place.

No public order: it is very possible that a militant union might illegally block your factory or your yard or enter into your stores. Don't count on the Police to help - don't count on the Courts for any compensation.

Still want to invest? If so, I pity the fool.

False Hopes from the New Development Minister

Following the cabinet reshuffle, Michalis Chrysochoidis, hitherto Minister for Citizens' Protection (i.e. Public Order) became the Minister for Regional Development and Competitiveness. He gave a speech [the link is to the speech in Greek] to the representatives of the various local chambers of commerce in Greece, were he claimed that we might yet surprise the international markets and achieve growth faster than anticipated - and I was anxious to see how the administration proposed to achieve that. I was hoping for the Minister to announce measures that would minimize bureaucracy; that would do away with the so-called closed professions, state-imposed oligopolies, that drive prices up; measures that would lead to flexibility in the job market; that would simplify the tax code and lower tax rates. There is a lot of capital in the world searching for investment opportunities - and many Greeks still have a lot of money in the banks. This money could be pumped into the economy and lead to growth and job creation, if only so many barriers were not in place. Another factor that dissuades people from investing is that many businesses are run on borrowed money, they are just a whisker away from bankruptcy; so entrepreneurs cannot trust one another, cannot extend credit, cannot count on being paid on time and having the money at hand to pay their own creditors. Moreover, it is unadvisable to hire, since it is very difficult to lay off employees (and very risky financially, since many of them are reinstated by court orders more than two or three years after their dismissal; and the employer has to pay back salaries) and practically impossible to adjust their working hours to match the company's needs.

What's more, investing in Greece is unrewarding: even if one, under all these circumstances, manages to make a profit (and I am not referring to supposed entrepreneurs who make their money out of government contracts or other shady deals), the state will take close to half (and in some instances more than half) of it away. Moreover, the red tape a potential investor has to go through means that, typically, a major new investment in Greece may take more than three years only to obtain the administrative permits required, at a great cost to the potential investor in planning, counseling, and, often enough, kickbacks.

I was hoping that the new Minister would find away to face these problems. Instead, he began by chiding (unnamed) multi-nationals for breaking the law (he also failed to mention which law) and proceeded to announce how the potential for growth would be realized: in essence, more European Union money, more government-guaranteed loans to small enterprises. Both the previous and the current Minister for Development act as if the only problem our economy faced was cash-flow shortage. Not a word about all these structural problems or on how real investments could be attracted to Greece.

The only way the present government is trying to get foreign capital invested in Greece is by agreements with foreign governments (China, Russia, Qatar, Libya, etc.) for their state-run companies to acquire special privileges when investing in Greece. It is not that Greece could not use large-scale infrastructure works - in fact, there are many possibilities for Greece, which is strategically located as the entrance to Eastern and Central Europe from the Middle East, to become truly a center of commerce and navigation, and there are many infrastructure works to be done (improved airports, ports, roads, large logistics centers, etc.) to that effect. Even better, such works can be self-financed, since they are typically used at a price, which means that their developer can charge for their use (concession contracts). This model has worked very well for the Eleftherios Venizelos Airport, the Attiki Odos motorway, the Rion - Antirrion Bridge. These works attract private investors from all over the world and have, so far, resulted in the works completed ahead of schedule; but, then, this means that the contractors have to do a good job, in order to get their reward, and cannot count on bureaucrats turning the other eye, as happens in the typical public contracts, where it is the state that directly pays the developer. This means that such works cannot be used by any administration as leverage against major contractors, in order to extract either bribes (as has been done on occasion) or other favors, like hiring people close to the ruling party. And, if such works are undertaken under the self-financing system, they will create a lot of healthy new jobs and infuse the market with much-needed capital.

So, I do believe that there exists the opportunity for Greece to make a recovery much faster than anticipated, if only the administration suddenly wakes up and sees the light. But following the Minister's speech, I am left rather pessimistic.