Fix the investment climate now
“Investment,” like its daughters “growth” and “sustainable development,” is one of those words that politicians and journalists like to wave around like a magic wand that will solve every problem. Prime Minister George Papandreou and his PASOK party are particularly prone to such wishful thinking: Last year’s election campaign was pregnant with promises that “green development” would save the country. In New York earlier this week, Papandreou kept this up, declaring that the development of sustainable energy sources would create 250,000 jobs in Greece.
We have heard such promises before – but this time things are different. Greece has to change radically in order to increase production and create jobs. Already, the government has introduced reforms and cut spending in ways that would have been inconceivable a year ago. It has also passed a new “fast-track” law aimed at bypassing all the obstacles faced by investments, with a special focus on those that involve in excess of 200 million euros or create more than 200 jobs. Papandreou has also assigned three senior aides to promote investments: Deputy Prime Minister Theodoros Pangalos, State Minister Haris Paboukis and Regional Development Minister Michalis Chrysochoidis (although it is not clear whether putting all three on this beat will assist investments or whether it will confound them through incessant clashes of ego).
The success of the above measures will be seen soon enough. However, what is already evident is that the country is showing itself barely capable of holding on to the investments that have been made so far. A toxic combination of red tape, corruption and arbitrary policies is the reason Greece is ranked a lowly 83rd out of 139 countries on the World Economic Forum’s Global Competitiveness Index 2010-2011, down from an equally pathetic 71st place a year earlier. Businesspeople who responded to the survey saw inefficient bureaucracy as the most problematic factor for doing business in Greece (27.2 percent), followed by corruption (14 percent), restrictive labor regulations (12 percent), policy instability (11.5 percent) and tax regulations (11.1 percent).
In practical terms, these problems result in the government frequently changing tax policy – including the ostensible one-off taxes that are in danger of becoming an annual feature as well as the arbitrary withholding of value-added tax returns to businesses. Both measures are provoking unease and anger among companies and creating a terrible investment climate. China’s COSCO shipping and terminal handling company is reported to be angry at the delay in VAT returns valued at 21 million euros – on the eve of a visit by the country’s prime minister. A strike by dockworkers in late 2009 and early 2010 had already shaken Chinese officials’ faith in their Greek partners. Improper behavior by the government would be devastating to plans for further investments. Listed companies are also hampered by the fact that one-off taxes on profits hit their dividends, making them liable to their investors.
Perhaps the most serious problem for prospective investors is that they cannot predict when their project will get off the ground, at what cost and when the tax regime will change. In short, they cannot make a safe guess as to what they will put into their project and what they will get out of it. The case of the Costa Navarino tourist resort in Messinia is one for international textbooks about the sheer absurdity of trying to do business in Greece: It took 3,000 signatures and 23 years for the 1.2-billion-euro project to get off the ground. The National Tourism Organization issued a tender for the resort in 1993 and it finally opened earlier this year. It is usual for a factory, in a specially designated industrial area, to take two years to start operating. (A call for readers to share their experience of bureaucratic obstructions to investments on Kathimerini’s Greek language website,
kathimerini.gr, unleashed a torrent of horror stories, though none as bad as the Costa Navarino case.)
Compared to what we are used to, any improvement in the investment climate would be welcome. But it will take many successful investments to change the image that Greece has created for itself. That is why, apart from waving magic words around, the government would do well to ensure that companies that have already invested in this country are happy. They are the only credible salesmen of Greece.
(Kathimerini - Athens Plus)
***
Commento politico.
