Country Analysis of Greece: Wealth, Politics and Current Issues

Executive Summary

This report is an analysis to determine whether a Canadian company should consider expanding foreign operations in Greece. The following explains that Greece has experienced economic difficulty, however it is expected to see positive GDP growth in the coming years. Greece also has important economic ties with the European Union which brings stability into the political system. Advanced factors of endowments, such and Information and Communications Technology prove to be a prospect industry and have growing business opportunities within the country. The recommendation is to indeed expand foreign operations in Greece. Despite corruption, when a country expands in a poorer country, jobs are created, and new knowledge is brought to the country.

Country’s Macro Environment

Greece is a country located in Southern Europe and has land borders with Albania, Macedonia, Bulgaria, and Turkey (Globaledge.msu.edu, 2018). Greece has a population of 11,149,558 (Worldometers.info, 2018). In terms of wealth and development in Greece, the Greek society remains very traditional, however Greece has been developing and urbanization has occurred (Greece Poverty and Wealth, 2018). Family operated enterprises are evident in large, dynamic sectors including the shipping industry (Greece Poverty and Wealth, 2018). The Greeks are relatively wealthy in terms of their health care and education. Since the Second World War, many diseases have been eliminated and Greece has the most doctors per person than any other member in the EU. Education is very important in the Greek society. After the Second World War, education was viewed as the key in upgrading to a higher position in society. Between the years of 1960 and 1980, universities were built to meet the growing demand for higher education. The educational standards were raised after Greece’s entry into the European Union. Greece has shown development and wealth through urbanization, health care and the growth of education after the Second World War (Greece Poverty and Wealth, 2018).

Greece is complete with modern infrastructure which includes 80 airports (of which 64 have paved runways), 2,548 kilometers of railways, and 117,000 kilometers of paved highways. The seafaring country of Greece has 12 ports and harbours, as well as a merchant fleet with more than 700 ships. Communications in Greece are also modern. The telephone networks reach all areas for main telephone lines and mobile phones. Telephone calls are carried by microwave radio delay. Also, underwater cables transmit calls to the Greek islands. There were 5.431 million main lines that were used and 328,000 mobile phone users in 1997. As of 1998, there were a total of 26 AM radio stations, 88 FM stations and four shortwave stations. Also, the operation of television stations and computers began increasing in popularity in 1999. There were 23 internet service providers and 64 television stations operating in Greece. (Nationsencyclopedia.com, 2018)

The industry sector in Greece has been revamped due to the shift towards industrialization. Important industries in Greece include; Manufacturing (such as food, beverages and tobacco), Agriculture, petroleum, mining, tourism, textiles and metal products. (Economy Watch, 2018) (See appendix A for FDI inflows from manufacturing industry) The tourism industry is a very important industry in Greece. Tourism has significant contributions to total GDP, employment and investment. The total contribution of travel and tourism to GDP was USD36.6 bn, which is equivalent to 18.6% of GDP in 2016, and was forecasted to rise by 6.9% in 2017. The travel and tourism industry supported 423,000 jobs (11.5% of total employment) in 2016 (Travel and Tourism: Economic Impact 2017 Greece)

Greece has multiple economic ties, including being a participant in the European Union (EU). In 1975, the Greek government integrated into the European Union as a full member. Greece’s participation in the EU could have the potential to bring stability into its democratic political system and institutions. (Mfa.gr, 2018) Intra- EU trade accounts for approximately 56% of Greece exports (Italy 11%, Germany 8% and Cyprus 6%). 55% of imports come from other EU members, including Germany (11%), Italy (9%) and the Netherlands (6%). (European Union, 2018) Greece has strong Economic-Commercial Relations Canada. Canada- Greece bilateral relations are active and both countries share international interests which are expressed through their participation in the United Nations and NATO. (Relation between Greece, the United States, Canada and Latin American countries, 2018)

In 2015, Greece imported approximately $1.1 billion dollars worth of goods from Canada and service exports to Greece totalled $289.0 million. Greece imports vegetables, furs, electronic machinery equipment, pharmaceutical products and machinery from Canada. (GAC, 2018) Corruption severely affects Greece’s business environment and distorts market competitiveness. Common corruption in Greece is in the form of bribery. Companies contend with high corruption risk when dealing with Greece’s judiciary and when interacting with the country’s security forces. Public services, land administration, and the civil society also experience corruption through the form of bribery. (Greece Corruption Report, 2018)

There are a few concerns related to the political system and the government in Greece including education, military spending, and religion. Greece is the fourth largest country for students exported, with 60,000 students attending school elsewhere. Regarding military spending, the Greek government spends approximately 4.3% of its GDP and Greece is the ranked third in the world for spending on Military arms. Lastly, religion is a concern in Greece. Many political protests have occurred due to the removal of the Religious Denomination entry from national ID cards. “The Greek Orthodox Church is protected under the state of the government.” It is against the law to try to convert citizens to new religions. Multiple religions including Muslims and the Roman Catholics believe that they are degrading the Greek culture. (Sites. Google government political stability, 2018)

Greece’s efforts to attract foreign investment capital is continuing by reconstructing its economy and developing the industrial sector. The establishment of investment laws in the 1950’s led to the country’s entry in the European Union and a significant increase in FDI inflows between 1995 and 1980. A shift towards sectors on FDI inflows include consumer electronics, textiles, food and drink. Fiscal and financial incentives were provided through revised and improved investment laws to simplify procedures. During this time, there was a negative impact on Greece’s macroeconomic environment (e.g. prices, wages and income) which had the ability to draw FDI.

The country’s policy was to create an environment that would attract FDI by offering cash, grants, tax allowances and exceptions, and labour cost subsidies. Since 2004, many sectors are open to foreign investors (e.g. telecommunications market) or are in the process of being liberalized (e.g. the energy industry). In addition, capital outflows are allowed freely into the country, however limitations regarding purchase of labour in border regions and certain islands are present. (Zairis) The latest investment law (Law 4146/2013) is intended to increase liquidity, accelerate investment procedures and ensure transparency (Enterprise Greece).

In Greece, the economy experienced a growth of approximately four percent per year between the years 2003 and 2007, however the economy went into recession in 2009(Cia.gov, 2018). Greece was shut down from borrowing in financial markets. Nearing spring of 2010, Greece was leaning towards bankruptcy and therefore the International Monetary Fund, the European Central Bank and the European Commission issued the first of two international bailouts for Greece.

This would total approximately €240 billion. These bailouts came along with conditions such as steep tax increases and budget cuts. The bailout money has gone towards paying off international loans and has not been making its way back into the economy, resulting in continuous economic problems for Greece. The Greek economy has shrunk by a quarter in five years and the unemployment rate is around 25% (see appendix B). (Times, 2018) Despite economic hardship, the Greek economy saw solid growth in the second quarter of 2017. Growth came in at 0.5% ahead of the 0.4% growth in the first quarter (See appendix C and appendix D) (Martin, 2018).

Real private consumption and fixed investment has picked up in 2017, but higher taxes, debt repayments and spending cuts will put continuous pressure on household disposable income and private spending. There is an expected growth for household consumption and investment growth averaging 1.6% and 3.2% per year respectively between the years 2018-2020.Growth is expected to occur in the tourism sector which will support services export growth. The forecast for growth of export goods and services will average approximately 4.4% per year from 2018-2022 (Greece Country Report, 2018) The recovery expected to occur will strengthen investment rebounds as well as the rise of consumption growth. The unemployment rate is expected to decline (European Commission - European Commission, 2018).

In terms of cultural issues present in business, Greeks are very proud of their culture and history, and often enjoy having discussions on issues in which they have strong beliefs. For example, religion and politics. These subjects can often be controversial when in business. Greeks often criticize aspects of their own society and daily life, however they do not accept criticism from outsiders, such as foreigners doing business. (Business culture, 2018) Workforce skills that are present include business services and administration managers, ICT operations and user support technicians, sales, marketing and development managers as well as building frame and related trade workers, mining and construction labourers, wood treaters and painters. (Skillspanorama.cedefop.europa.eu, 2018)

Factor Endowments

Factors of endowment, including basic factors (e.g. natural resources, climate and demographics) and advanced factors (e.g. communication infrastructure, skilled labour and technological know-how) are significant for competitive advantage (Hill, McKaig). Greece’s agricultural potential is low from poor soil and inadequate levels of precipitation. Less than one-third of the land area is cultivable, therefore business growth in this sector would not generate more opportunities within the country. Greece’s climate, extensive coastline and the many islands support fishing activity, but the result in overfishing caused problems in the Mediterranean and ultimately decreased the contribution of fishing to the economy. (Encyclopedia Britannica, 2018) Information and Communications Technology (ICT) is the best prospect industry for the country of Greece. Increasing digital innovations adds value and services for businesses. ICT usage in businesses can contribute to financial savings, increase revenues allow for job creations and have an advancement of competitiveness.

Further entrepreneurial talent can be introduced through the combination of a highly-educated workforce and technical knowledge. (Export.gov, 2018) The shipping and marine services offer great potential business opportunities as well. The long coastline in Greece is in a strategic location that provides great opportunities for trade and shipping. Greece owns the largest merchant marine fleet and shipping contributes seven percent of the country’s GDP. The shipping and merchant services are least affected by the economic situation in Greece, which will be beneficial for new business opportunities and Greece is a great choice for investors and as carriers of goods. (Work and Program, 2018)

Analysis

There are both risks, and benefits associated with doing business in Greece. Some benefits include Greece’s participation in the European Union, the expected increase in GDP, Greece’s strong tourism industry, well developed infrastructure, and up and coming ICT industry. Risks of doing business in Greece include their high levels of corruption and the continuation of debt repayments. Greece’s participation in the EU is likely to continue providing strategic oversight, assistance and access credit in times of economic struggles. As mentioned above, prospects for the tourism industry remain strong allowing for investments in Greece (e.g. infrastructure). (En.portal.santandertrade.com, 2018) Greece’s forecast for GDP growth is significant when looking at the benefits of doing business. The estimated growth in GDP is considered an important indicator for the overall economic well-being.

Businesses can use GDP numbers to determine whether to increase or reduce employment and the GDP numbers can build confidence in a business when deciding to expand operations/ buy new equipment. (Bizfluent, 2018) A risk of doing business in Greece is the corruption level. The bribery that is present in Greece can be dangerous for businesses. Greece has not given priority to fighting foreign bribery. This sends an unfortunate message that foreign bribery is acceptable to win overseas business and improve Greece’s economy. (Oecd.org, 2018) Recommendation and Conclusion:

When a multinational country decides to expand and do business in a poorer country, there can be significant, positive benefits, therefore Canadian companies should consider expanding its foreign operations in Greece. Multinational countries expanding into poorer countries (such as Greece) create jobs, pay taxes, and bring new knowledge to the country. The up and coming industries such as the Information and Communications Technology sector and the already booming shipping and marine sector will bring new opportunities for work and have significant contributions to Greece’s GDP which will ultimately help the economy.

Lastly, Greece’s corruption rank is expected to decrease (See appendix E). Doing business in a corrupt country is doable by imposing strict controls to not pay bribes. The close links between Canada and Greece, the abundance of new tourists that visit Greece, the highly educated and skilled workforce and the low labour costs are all beneficial to a company expecting to do business in Greece.