Foreign Direct Investment (FDI) in Greece

invest_in_greeceOur most ancient civilization occupies a strategic geographical position; Greece between the seas, borders Turkey, which represents the link to Asia, and several Balkan countries in the South-East. Greece is known for a skilled workforce especially when it comes to the shipping and tourism industries, which comprise a large percentage of economic activity. In addition, Greece is an EU member state which accepted the Euro as early as it was put in circulation. Still, even if the country has good odds at FDI, one or the other thing comes in the way.

The Economy

Greece, after its economic collapse in the wake of the 2008 economic crisis, recovered in the past years, and it tries to attract foreign investments by presenting and promoting its potentials. The tourism and transport sector (as a strategic point from where Africa and Asia can be easily reached) have the biggest prospects as foreign investment magnets. The Greek Ministry of Economy has also several financial programs running which are aimed at strengthening the Greek economy and attracting investments from the side. Some of the best known are the Hellenic Center for Investments (ELKE), the National Tourist Organization (EOT), the Hellenic Organisation of Small and Medium-sized Enterprises and Handcrafters (EOMMEX), etc.

The Change of Economic Focus and Foreign Direct Investment (FDI)

Greek economy mostly relies on state-owned businesses which usually own the majority or all of the shares of services and industries such as the post, railway, airline, ammunition factories, energy sector, and others. We could say that private businesses in Greece are largely small-sized companies with up to 50 employees. In the last decade, the Greek government tried to avoid high unemployment rates by expanding the public sector to take control over major businesses, but this policy started to drain the state budget and hinder economic growth and development.

In order to make budget cuts and rationalize their debt, Greece shifted its focus more towards reducing its control of the public sector by privatizing it, as well as funding private investment plans which should spur the economy. This does not jeopardize the government’s goal to keep unemployment and inflation low. Since Greece is free-trade oriented, it also embraces foreign investments enabling investors from other countries the same treatment as domestic companies. Still, the country seems to lack proper implementation tactics to keep the FDI high.

FDI represents an investment by an individual or company from one country into another to start a business. How an investment performs is determined by following its net increase or decrease. FDI flows give reliable data on the investment development.

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What the Country Offers

All sectors are open to private investments even state-owned businesses, but still, the arms manufacturing sector is not open to investment since the government keeps it under its control. The government has also determined the minimum capital requirement and investors are mostly interested in the limited liability company and corporation formats. Also, different incentives ranging from tax benefits to support in special industries are provided. Again, domestic and foreign investors are equally treated, and both can apply for the incentives and benefits. Investors have two possibilities; they can either start a company anew or acquire an existing one, whereby the valuation of the acquisition has not to be approved by the government.

FDI by Area and Country

Greece’s FDI in the 2005-2010 mostly came from the EU which is only logical. But in the 2012-2014 period, it has been recorded that most investments come from Canada and the USA which started invest in Greece significantly. In 2008, Germany was the biggest investor in Greece and since then on, a decline in German investments has been noticed. Luxembourg was a surprise in 2014 ranking as the second highest FDI investor in Greece. Netherlands and the UK DFIs can be compared to that of Germany since it also declined over the years reaching a negative point.

FDI by Sector of the Economy

The FDIs were especially active in the real estate business which climbed to almost 790 million euro in 2014. Financial intermediary activities accounted also for over 500 million euro in investment. The tourism industry disappointed a little bit in the last years since the Greek backbone industry should have attracted more FDI. As for the future, the gas, energy, and electricity sector is expected to be top priority in the upcoming years.

How and Where to Invest?

Infrastructure and the industrial sector are very attractive to foreign investors since these businesses are usually located near well-developed major cities with a lot of facilities. On the other hand, less developed locations can also be promising, since the government offers special incentives for remote areas. Greece has also established special credit and loan institutions for continuous funding of the startups and acquired companies which are at the disposal of international and domestic investors alike. If investors favor a bank loan, Greece provides also a number of Greek and international banks and branches. Investors should know that a profit tax will be imposed, but all dividends are tax-exempted.

When it comes to the market, investors should know that Greece, as a part of the EU, is a market that is constantly growing with almost 400 million consumers. Greece also welcomes imports, so investors can freely experiment with importing goods from other countries. Foreign investors will not be discriminated in any way. so, what is it then that holds Greece back?

What Challenges Has Greece to Overcome?

The negative FDI from some countries and the failure of some sectors to reach their full potential represents a major challenge for Greece. What keeps investors away is, even if the tax system is equal for foreigners and natives, it is still a very complicated system that cannot be approached without a tax expert. Also, a comprehensive legal framework is needed to deal with legal matters in case a dispute breaks out regarding the investment. The Greek government should also facilitate administrative investment procedures which are tiresome and time-consuming at this point, so a regulatory and efficient framework which would cut the administrative costs and accelerate the process would probably also attract more investors.

All in all, even if Greece has shown progress, in comparison to its fellow EU member states, it is still at the bottom rank when it comes to FDI. Besides the said challenges, lack of transparency and corruption are also a hindrance to FDI. Still, Greece is, at least for now, going upwards, with a rise in the FDI since 2013.