Investment as a driver of sustainable development. How ready is Greece?

As the coronavirus pandemic threatens to drag both the global and Greek economy to a new, deeper recession, the need for boosting Foreign Direct Investment is as imperative as ever. 

On the other hand, COVID-19 seems to have halted some planned investments in the short-term, while, at the same time, bringing about changes in the global investment map and supply chains, which give rise to new challenges, but also new opportunities for Greece – now, next and beyond.

Foreign Direct Investment (FDI) will be crucial for economic recovery in the post-COVID-19 era. However, in terms of attracting investment, Greece’s performance in the past decades has been disappointing. Based on figures provided by the EY European Investment monitor (EIM), an extensive database compiled by EY, which monitors greenfield investment projects (i.e. those that create new infrastructure and jobs), Greece accounted for only 0.34% of European FDI in 2019, a disproportionately small share, considering its population and GDP.

However, EY Attractiveness Survey Greece 2020, shows that the country has improved its performance, ranking 29th in 2019, up from 35th in 2018, also improving on the 32nd position it held on average in the past decade. Greece has also improved in some qualitative indices, like the participation of the critical sector of digital technology in total FDI, which reached 15% for the last three years, not far from the European average of 19% for the same period. 

Looking forward, investors’ attitude towards Greece remains positive, as reported in last year’s survey, in spite of the country’s poor performance over the years. Moreover, even though the pandemic outbreak forced investors to adopt a “wait and see” approach, several significant indices are improving, especially among those who have already invested in Greece. On the other hand, investors who have not as of yet invested in Greece remain cautious, with an increased percentage of them not providing an answer on the issue.

38% of investors report that their perception of Greece as a country where their company might establish or develop activities has improved over the last year, an encouraging figure, even though it has declined compared to last year’s 47%. 62% of investors, compared to 50% last year, believe Greece is currently following an attractive investment policy, indicating that investors believe the continued improvement of the country’s image to be a result of a clear attractiveness policy, rather than being attributed to changed circumstances and the termination of a period of political and economic turbulence. Moreover, 69% of investors believe that Greece’s image will continue to improve over the next three years, while 28% are planning to invest in the country in the coming year. These percentages are, by far, the highest recorded among European countries where similar surveys have been conducted in 2020.

The rise of manufacturing diversifies the investment mix

With regard to the type of planned investments, the increased participation of manufacturing projects (26% from 9% last year) is a positive development. At the same time, the percentage of investors that name tourism as the main driver of growth in the coming years, has shrunk from 69% to 52%, possibly signaling toward a more balanced growth for the Greek economy.

Several assets differentiate Greece from global competition 

Quality of life, telecommunications infrastructure and the level of local labor skills, are seen as the main elements of the country’s attractiveness, while for a growing number of companies, Greece's performance in sustainable development and the country's policy approach to climate change, as well as a steady socio-political environment are also positive considerations.

At the same time, investors argue that Greece must focus on supporting high-tech industries and innovation (first most popular choice this year, accounting for 38% of respondents, up from 25% last year), reducing taxation (second most popular choice, accounting for 36% - down from 49% last year), improving the legal system (33%) and developing education and skills (31%).

Two out of three investors (67%) say they would be more willing to invest in the country if Greece overcomes the issues that currently act as disincentives for investment. The positive answers reach 83% among investors that have already invested in Greece.

The country’s effective management of the COVID-19 crisis seems to have improved its image, while investment plans have not been drastically altered 

The investment community credits Greece for the level of success in addressing the public healthcare crisis (77%), the speed of digitalization of the Greek State in response to the crisis (73%), and the weight and impact of the Greek stimulus package (72%). 41% state that this has positively impacted their view of Greece as an investment destination.

In conclusion, the pandemic seems to have had an impact on foreign investors’ plans about Greece, yet not to a dramatic extent, as 50% will not be altering their investment plans, 28% state that they have paused their plans temporarily, 4% report a decrease in planned investment, 3% an increase, and 6% say they have cancelled their plans altogether.

EY’s recommendations: Towards a new growth model 

Based on the survey’s findings, but also on our daily interaction with foreign investors, our recommendations put forward the creation of a new growth model, that will be based on reinvigorating industrial production, boosting the country’s extroversion, incorporating digital technology and innovation, pursuing a more active role in the developing supply chains of tomorrow, transitioning to a circular economy and focusing on sustainability, as well as enhancing and effectively utilizing the country’s most valuable asset; its human capital. This new growth model will give Greece the opportunity to capitalize on the opportunities arising today, in order to find its rightful place on the global investment map.

To make that happen, however, we should keep on moving further down the path of bold reforms in critical sectors of the economy. Simply put, we need imagination in our strategic planning and determination in implementing it.

Click here to read the EY Attractiveness Survey Greece 2020 key points and highlights.

Click here to read the complete survey, in Greek.