Structural considerations for a prosperous Greece
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Economic diversification vital to Greece's post-coronavirus future
Greece’s handling of the coronavirus pandemic has been admired internationally for both the control of the spread and the remarkable low number of fatalities. Given the recent history and tough economic austerity endured, Greece has put the USA, France and the UK to shame on both a per capita and cumulative basis.
One area where Greece has not escaped though, is the economic contraction of the economy that Bank of Greece Governor, Yannis Stournaras, fears could be much as 8 per cent in 2020, or €16.8bn based on 2019 figures.
Whether or not the economy recovers in ‘V’ or ‘U’ shape remains to be seen, however it is difficult to envisage a sharp rebalancing of the economy in the immediate future, because the reality is that demand global has fallen off an economic cliff. The effect of which will have significant microeconomic implications on wages, disposable incomes, saving rates, corporate capital expenditure, and consumer discretionary spending globally.
With tourists stuck at home, hotels falling silent, airports all but closed, and international trade set to fall anywhere between 13 per cent and 32 per cent this, according the World Trade Organisation, the immediate economic future looks tough for Greece.
True, the rising cost of food, and the implications on labour shortages in some countries could be advantageous to Greek food producers in terms of trading with new countries, increased prices owing to any shortages or supply disruptions, and positioning itself as a reliable supplier than emerging markets, themselves coping with virus. Elsewhere, the collapse in oil prices has seen tanker rates boom, at least short term, for operators and brokers, bulk shipping rates are also starting to recover – both positives for Greece’s supersized fleet.
Yet looking deeper there are evidently sizable challenges. For starters, even if Greece is able to “reopen” in the coming weeks, the prospect of millions of tourists arriving as if nothing happened is all but a pipedream. Not only are there health risks from tourists arriving, other factors such as the loss of disposable income globally will have an adverse effect on tourists spending power.
That said, it is worth bearing in mind that CBRE the investment firm, foresees UK household disposable income dropping in 20 per cent. At the same time nearly 1-in-5 working Americans is currently unemployed, and these are just two examples. The time it will take for businesses and supply chains to restart is another important consideration.
What the coronavirus has done though is highlight that the Greek economy is arguably reliant on too few sectors, and therefore greater economic diversification is required to boost economic security and prosperity, and in order to overcome the medium-term downturn to key sectors through exports and growth in different areas.
Greece is clearly not alone in this respect but if it can be accepted that greater diversification is required, then possibilities can be actioned now while the rest of the world works out what’s next. Furthermore, as long as diversification can be internationally competitive at sector levels, then any reputational or commercial risks will be limited. That being said, there are arguably three global factors influencing the post-coronavirus world: social distancing and health, technology, and a sense of international fracturing and de-globalisation.
These present options for Greece as Kostas Axarloglou, Dean of the ALBA Graduate Business School explains “Industries that are not disrupted as much from the COVID-19 epidemic (e.g. Business Analytics, Software Development, pharmaceuticals) will continue emerging in Greece, transforming Greece to relevant hubs. Investment, domestic and foreign, is naturally the vehicle through which such hubs will emerge in Greece.”
Social distancing and health gives a platform to further develop the country’s healthcare and pharmaceuticals industries. Pharmaceuticals in particular has proven itself to be a valuable export industry at 4.3 per cent of total exports (EUR 1.4bn) in 2018, yet it should not go unnoticed that Greece remains a net importer in monetary times at a ratio of roughly 2:1 in balance of payments. The industry in Greece contributes 3.4 per cent to Greek GDP although only directly employs 14,000 workers, room for growth one would suspect. Greece geographical position, freight capabilities, and workforce lend themselves for this to grow the coronavirus that when mixed with an aging population, a huge diaspora of Greek health workers working abroad, the capture of health tourism, and quality standards lend themselves to a both capable of being an export-led, just as Cuba has across South America.
In technology, the demonstrable success of Zoom Inc. and Amazon Inc. during the coronavirus has not gone unnoticed. Nor the expectation that more digitisation and technology adoption is going to take place in a social distant, online world. Even when the pandemic is over, digital economic growth is here to stay but making that hastened shift is something for that ”governments will need to be more innovative in the future, invest in technology and support companies that go beyond the local markets” explains Spyros Martsekis, Managing Partner of Ionian Capital, which advises investors such as private equity firms on Southern European transactions.
Fortunately, Athens’ tech ecosystem has hit international headlines in recent years meaning that Athens, if not the entire country, is viewed as a potential tech hub by the world at large. However, with an internet availability rate of 79 per cent, lagging markedly behind other EU nations and neighbouring Turkey, according to OEDC data, providers and the government need to ensure the internet is as accessible and fast on Crete, where tech firm Openichnos calls home, as it is and Athens for promising start-ups like Advantis Medical Imaging and Euditi, amongst others.
Funding for firms is obviously also vital, and the EquiFund fund launched 2017 that now has €300m to invest until 2023 is naturally positive and welcomed, yet more public and private investment is going be needed – greater visibility of incubators and accelerators around the country will also help.
Excitingly from the point of view of driving economic change and new business models, Aristos Doxiadis, Partner in Greek VC firm Big Pi Ventures, speaking to the FT, characterises an important elements of Greek tech firms, nothing how they are ‘Driven by the necessity to grow, compete or die, they hire widely, promote the best performers and share ownership. Meritocracy unlocks potential.’
However, the industry also needs protecting if it is to develop to the point of being a leading economic diversifier. Practically that equates to maximum ownership stakes for foreign investors (avoiding the best firms being acquired, like Beat which was acquired by Daimler, or Nanoradio acquired by Samsung), targeted tax breaks aimed at significant in-country hiring and international expansion, tighter intellectual property rules, and greater volume at the Athens Stock Exchange so that when leading Greek tech firms and unicorns do arise, they can IPO, raise capital, sell debt, or have secondary listings on the ATHEX, and therefore remaining Greek businesses in the process.
Lastly, any shift toward de-globalisation – especially with regards to the EU and U.S. with respect to China, as a consequence of the coronavirus - presents reshoring opportunities for Greece’s manufacturing base to take advantage of. That, accompanied, with a renewed awareness from consumers and firms about the origin and quality of products they buy– a consequence of the coronavirus spread - is something Greece can leverage. Moreover, these factors under certain business operations, would be well suited to new free trade zones facilitating non-EU exports. At a secondary level, international fracturing is being evidenced by geopolitical political rhetoric and, in part, by the increase in global military spending that is now $1.9tn annually (8x Greece’s economy), analysis by the Swedish Peace Research Institute estimates. Greece’s relatively small aerospace industry, led by the Hellenic Aerospace Security & Defence Industries Group (HASDIG), needs to work with government to discuss ways of increasing the industry’s share of revenues, R&D take, manufacturing and, most importantly, employment, sector development, and tax.
Ultimately, the consequences of the coronavirus and its broader economic impact presents a challenge for Greece that is having inevitable implications on growth, employment, savings, national debt, and business. And yet, greater economic diversification does offer both new paths to expedite, and, if you look deeper, sectors that have positive value added credentials. As an economic strategy, Greece can get ahead of the curve by creating space for itself - turning a health crisis and global recession into something more valuable and diversified for itself.