Transcript Stage 2

FDI in Greece & Greek FDI
Chair: Professor Kevin Featherstone
Fragkiskos Filippaios, MEF Fellow
Kostas Tzioumis, NBG Fellow
Hellenic Observatory Seminar Series
February 12th, 2008
Outline
•
General (definition, trends, determinants)
•
FDI Inflow in Greece
•
FDI Outflow from Greece
•
Assessment & policy recommendations
Definition
• An investment made to acquire lasting interest in
enterprises operating outside of the economy of the
investor.
• Threshold of 10 per cent of equity ownership to qualify
an investor as a foreign direct investor (OECD)
• Forms of investment classified as FDI are equity
capital, the reinvestment of earnings and the provision
of long-term and short-term intra-company loans
(between parent and affiliate enterprises).
Global trends
• Improvements in crucial determinants of FDI:
Institutions, taxation, liquidity, FX, etc.
Greek FDI inflows (1): A politician’s
view
Inward FDI in Greece, 1980-2006
Flows- Billion USD (current)
6
5
4
3
2
1
0
1980
1985
1990
1995
2000
2005
Greek FDI inflows (2): A clearer view
Inward FDI in Greece, 1980-2006
Inward FDI in Greece, 1980-2006
% of gross capital formation
Flows- Billion USD (constant 1980 prices)
2.5
10%
2
8%
1.5
6%
1
4%
0.5
2%
0
0%
1980
1985
1990
1995
2000
2005
1980
1985
1990
Sources of Inward FDI in Greece (2001):
• European Union: 70% [~50% from Luxembourg and Holland]
• Other European countries: 16%
• United States: 7%
1995
2000
2005
Greek FDI inflows (3): South EU
perspective
Inw ard FDI: Greece, Portugal & Spain, 1980-2006
% of gross capital formation
Inw ard FDI in Greece, 1980-2006
Flows- Billion USD (constant 1980 prices)
30%
6
5
20%
4
Spain
3
Portugal
Spain
10%
2
Portugal
1
0%
0
1
6
•
11
16
21
26
1980
1985
1990
1995
2000
2005
Greece’s performance: Inward FDI
• UNCTAD (2006) ranks Greece 114th in terms of
inward FDI performance (out of 141 countries).
The rest of the EU averages 67.
• At the same, Greece is ranked 36th in terms of
FDI potential, based on its macroeconomic
conditions. The rest of the EU averages 33.
Reasons for underperformance (1)
• Product market structure
– OECD (2007): “Greece has one of the more restrictive
business environments for inward investment”
– US State Dept. (2007): “Competition in many industry
sectors in Greece can be characterized as oligopolistic,
making it difficult for new entrants.”
– World Bank (2007) ranks Greece 100th in the Ease of
Doing Business Index (out of 187 countries). The
average rank for the rest of the EU is 31.
• Labour market
– World Bank (2007) ranks Greece 142nd (out of 178
countries) with regard to labour regulation.
Reasons for underperformance (2)
• Corruption
– Transparency International (2007) ranks Greece 56th in
the Perception of Corruption Index (24th in the EU).
– Poor AML supervision in banking/insurance sector &
equity mkt.
• Taxation
– Tax framework
– Legislative Decree (2687/1953) allows for unilateral
changes in terms of tax regime for the FDI project.
• Investment mismatch
GDP  Services: 71%, Industry: 22%, Agriculture: 7%
FDI  Services: 56%, Industry: 44%, Agriculture: 0%
Reasons for underperformance (3)
• Marketing
– No centralized authority to coordinate policy reform
and assess progress.
• Focus on privatization, without foreign
control
– Rather than greenfield investments or joint-ventures,
Greek governments have focused on equity
investments in privatisation of utility firms & banks.
 2000-2005: $ 1.5 billion (mean)
 2006: $ 3.4 billion
 2007: $ 2.2 billion
Theoretical Framework
The IDP in a Nutshell
• The net outward position of a country (outward investment –inward
investment) follows five stages of development which are closely
related to the economic development of the country.
• Stage 1: Least developed countries attract and undertake negligible
amounts of FDI.
• Stage 2: Developing countries attract increasingly FDI as a result of
cheap inputs; as a result of FDI, domestic investors enhance their
own ownership advantages through spillovers; local advantages are
also upgraded.
• Stage 3: The developing country becomes gradually an outward
exporter itself; expansion is in neighbouring, culturally similar
countries conform with the Uppsala School (Johanson and Vahlne,
1977; 1990). Investment in developed countries occurs as well.
Net Outward
Investment Position
Investment Development Path
(Dunning 1981)
Stage 4
Stage1
Stage 2
Stage3
Stage 5
GDP per
Capita
Theoretical Framework
The IDP in a Nutshell (II)
• Stage 4: The country becomes a net outward investor,
revealing the level of economic development as well as the
dynamism of local firms.
• Stage 5: This stage describes developed economies i.e. the
USA, the UK, Germany with high volumes of inward and
outward FDI.
Greece and Its IDP
• Greece is now a stage 3 country.
• Stage 1: the end of WWII, the opening up of the Greek
economy; foreign investors in chemicals, basic metals
and transportation sector
• Stage 2 (70’s and 80’s): the accession into the EU
ensured the transition from stage 1 to stage 2; foreign
investors in mainly Heckscher-Ohlin type industries i.e.
textiles, food and drink and consumer goods throughout
80’s and 90’s
• Stage 3 (90’s and 00’s): the opening up of Central and
Eastern Europe; government measures to enhance the
competitiveness of Greece and increasing convergence
with the EU core
Net Outward
Investment Position
Investment Development Path
(Dunning 1981)
Stage 4
Today ???
Stage 1
End of WWII
Stage 2
70s and 80s
Stage 3
90s and 00s
Stage 5
GDP per
Capita
Investment Development Path Coefficient
(Net Outward Investment as % of GDP)
2
1
0
-1
-2
-3
-4
-5
Value
-6
-7
-8
-9
-10
-11
-12
-13
-14
-15
-16
Series1
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
-3
-5
-7
-9
-11
-13
-13
-13
-13
-15
-3
-5
Year
-5
-7
-7
-6
-8
-8
-8
-10
-6
-5
-4
Motivation
• Greece is a typical example of how a small country can become a
FDI outward investor and a regional centre as it moves up on its
economic development path.
– Data from the Hellenic Ministry of National Economy (1998)
show that Greek investment in the Balkan region accounts for
almost 12% of the total FDI. It is estimated that more than
2,500 Greek companies have invested in Central, Eastern and
South Eastern European Countries (Hellenic Centre for
Investment, 2005).
• Greece has also increasingly invested in countries such as India,
China, UK or US.
• Some Central and Eastern European countries as well as developing
countries such as India and China have become FDI outward
investors.
The case of Greece as an
outward investor
• Key regional player and one of the largest investors in the Central
and Eastern and South Eastern European Countries (Bastian, 2004;
Demos, Filippaios, & Papanastassiou, 2004; Kekic, 2005)
• Current developments in the region have changed the role of
domestic subsidiaries (Manolopoulos, Papanastassiou, & Pearce,
2005; Stoian & Filippaios, 2008)
• This process was enhanced by Greek policies aiming to transform
the country into a key player for the region.
– The ‘Greek-Balkan Reconstruction Plan’, offering almost 500 million
euros, is an indicative policy fulfilling that aim (Hellenic Centre for
Investment , 2005).
– Furthermore, this expansion has been facilitated by the upgrading of
the Athens Stock Exchange (ASE) from a developing to a developed
financial market, i.e. a reliable source for raising funds.
Greek firms grabbed the opportunities and
expanded rapidly in the newly opened markets:
• Albania - it was the second largest investor after Italy at the end of
2001 (WIIW, 2005)
• Romania - Greece was the second largest investor at the end of
2003 following the Netherlands (WIIW, 2005)
• Bulgaria - Greece on the third position following Germany and
Austria (WIIW, 2005)
• FYROM - it was the second investor following Hungary (WIIW,
2005)
• Moldova - Greece holds the seventh place (WIIW, 2005)
The Greek investment occurred
through two channels:
• First, Greek subsidiaries of multinational enterprises started
internationalising.
– Firms such as 3E, a Coca- Cola soft drinks subsidiary, Delta, partner of
Danone, Intracom, a partner of Siemens working in
telecommunications, Chipita, a PepsiCo food subsidiary and many
others started investing abroad, thus becoming regional headquarters.
– This strategic change appears to be verified by a prior study of
Pantelidis and Kyrkilis (1994) where they argue that ‘it is possible for
foreign subsidiaries to readjust their market strategies along time and in
accordance with changing conditions’.
• Second, purely domestic firms, ranging from small entrepreneurial
to large traditional firms, seized the opportunities and engaged in
foreign production by using their accumulated experience and
expertise.
Explaining Greek FDI abroad
•
Until now only a few attempts were made in the international literature with
a seminal one from Petrochilos (1988). Almost all studies are either purely
descriptive or do not go beyond the analysis of specific case studies.
•
For a long time, the lack and inconsistency of FDI data dissuaded scholars
from examining the Greek case.
– The adoption from Bank of Greece of the New Balance of Payment System since
1996, gives us the opportunity to inspect the locational determinants of inward
FDI in Greece from 1996-2001, for different sectors and a range of investing
countries.
•
Previous studies (Demos, Filippaios & Papanastassiou, 2004; Filippaios &
Stoian, 2006; Stoian & Filippaios, 2008; Filippaios, 2008) showed that
traditional factors (size of the economy, as well as its openness are
significant) attracting FDI seem to dominate the decision process of Greek
firms. Capital productivity and labour costs on the sectoral level are
also influencing the decision of Greek investors.
Why the South East region of
Europe?
• The emerging economies offered:
– A Large and unsaturated potential market in terms of population and
Gross Domestic Product (GDP)
– A cheap and relatively skilled labour force and accessible and low-priced
natural resources.
– Improvements in the institutional framework, political stability and the
prospects for European Union (EU) membership have acted as
important catalysts for foreign direct investment (FDI) in the ‘Agenda
2000’ transition countries.
• Market seeking and rent seeking multinationals have increasingly
expanded into Central, South and Eastern Europe and names such
as General Motors, Nestlé, British Petroleum, Orange and Marks and
Spencer’s are common place in the area.
Literature review
Exploring the Greek case contributes to several
strands of literature:
• Studies on country specific ownership advantages: Grosse and
Tevino (1996) and Deichmann (2001).
• Studies on institutional determinants of FDI: Wheeler and
Mody (1992); Brunetti et al (1997); Brenton et al (1999);
Henisz (2000); Rodrik and Subramanian (2003); Carstensen
and Toubal (2004); Disdier and Meyer (2004); Dunning (2004);
Trevino and Mixon (2004); Bevan et al (2004); Bevan and
Estrin (2004); Pournarakis and Varsakelis (2004).
• Studies on institutional determinants of entry mode choice:
Oxley (1999); Meyer (2001); Meyer and Estrin (2001);
Smarzynska (2002); Tihanyi and Roath (2002);
Institutional and Business
Environment Factors
• We have adapted the data from a World Bank
survey on the investment climate in 58 countries
conducted on 28,000 companies in 2002 so
that figures are comparable. We have then put
these business barriers in the order of their
importance to investors so that 1 represents the
issue considered the most significant obstacle to
the operation and growth of business.
Firms’ perceptions of business barriers in selected transition
countries. In parenthesis the grading of importance (2002)
Albania
Bulgaria
FYRoM
Romania
Serbia &
Montenegro
Economic and regulatory
policy uncertainty
48.5
(4)
48.5
(2)
37.3
(3)
43.3
(4)
59.8
(1)
Macroeconomic stability
58.7
(1)
36.3
(4)
35.2
(4)
53.4
(2)
45.9
(3)
Corruption
47.5
(5)
31.2
(5)
34.9
(5)
35.2
(5)
Skills and education of
available workers
13.2
(7)
16.6
(6)
3.7
(7)
10.8
(7)
19.7
(6)
Business licensing and
operating permits
22.9
(6)
23.1
(5)
17.4
(6)
23.2
(6)
17.7
(7)
Consistency/predictability
of officials’ interpretations
of regulations affecting the
firm
54.5
(2)
61
(1)
42.3
(2)
54.5
(1)
53.5
(2)
Confidence in the judiciary
system
50.6
(3)
46.5
(3)
50.6
(1)
45.8
(3)
39.5
(4)
Source: World Bank (2005)
Data and Sample
• Greek FDI in the South East European
Region (Source: Bank of Greece, 2007)
• Time span 2001-2006
• Sectoral disaggregation
• Data on the external environment from
World Bank, IMF, ICRG, Freedom House,
Economist Intelligence Unit.
• Capturing Economic, Political, Social and
Institutional aspects of the environment
Trade Balance - Albania
Albania
0.00
2001
2002
2003
2004
2005
-500,000,000.00
-1,000,000,000.00
-1,500,000,000.00
-2,000,000,000.00
-2,500,000,000.00
Source: IMF,
[Direction of Trade Statistics] [Annual values] [January 2008] [Units: US Dollars]
2006
Trade Balance - Turkey
Turkey
10,000,000,000.00
0.00
2001
2002
2003
2004
2005
-10,000,000,000.00
-20,000,000,000.00
-30,000,000,000.00
-40,000,000,000.00
-50,000,000,000.00
-60,000,000,000.00
Source: IMF,
[Direction of Trade Statistics] [Annual values] [January 2008] [Units: US Dollars]
2006
Trade Balance - Bulgaria
Bulgaria
1,000,000,000.00
0.00
2001
2002
2003
2004
2005
-1,000,000,000.00
-2,000,000,000.00
-3,000,000,000.00
-4,000,000,000.00
-5,000,000,000.00
-6,000,000,000.00
-7,000,000,000.00
Source: IMF,
[Direction of Trade Statistics] [Annual values] [January 2008] [Units: US Dollars]
2006
Trade Balance – The Rest
Bosnia World
The Rest
Bosnia Greece
5,000,000,000.00
Croatia World
0.00
Croatia Greece
2001
2002
2003
2004
2005
2006
FYROM World
-5,000,000,000.00
FYROM Greece
Romania World
-10,000,000,000.00
Romania Greece
Serbia&Montenegro
World
-15,000,000,000.00
Serbia&Montenegro
Greece
Slovenia World
-20,000,000,000.00
Slovenia Greece
Source: IMF,
[Direction of Trade Statistics] [Annual values] [January 2008] [Units: US Dollars]
Greek FDI Abroad
2001-2006
Country/Year
2001
2002
2003
2004
2005
2006
Albania
7.3%
7.8%
8.4%
6.3%
7.0%
5.0%
6.4%
Bosnia
0.0%
0.0%
0.0%
3.0%
2.0%
0.0%
0.8%
Bulgaria
36.9%
24.4%
19.6%
20.6%
17.7%
12.1%
18.2%
Croatia
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.0%
FYROM
10.7%
11.0%
11.1%
13.2%
6.7%
4.7%
8.0%
Romania
43.9%
41.9%
45.5%
40.7%
49.2%
31.6%
39.9%
Serbia&Montenegro
0.0%
13.9%
13.6%
13.4%
15.9%
17.6%
14.6%
Slovenia
0.0%
0.0%
0.1%
0.1%
0.2%
0.0%
0.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Grand Total
Source: Bank of Greece, 2007
Grand Total
Greek FDI Abroad (II)
2001-2006
Sector/Year
Grand
Total
2001
2002
2003
2004
2005
2006
0.0%
1.0%
0.9%
0.8%
0.5%
0.3%
0.5%
12.6%
15.5%
15.0%
17.3%
14.8%
8.6%
12.7%
4195.-electricity,gas and water
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
4500.-construction
0.3%
2.4%
2.0%
1.7%
1.0%
0.5%
1.1%
5295.-trade and repair
2.9%
3.5%
4.5%
6.3%
5.6%
3.2%
4.3%
5500.-hotel and restaurants
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
6495.-transp,storage,communic.
52.2%
55.2%
55.7%
47.5%
47.3%
30.0%
42.8%
6895.-financial intermediation
31.7%
21.9%
21.4%
26.0%
30.5%
57.1%
38.2%
7395.-real estate, renting
0.3%
0.4%
0.3%
0.2%
0.2%
0.1%
0.2%
9995.-other services
0.0%
0.2%
0.1%
0.1%
0.1%
0.0%
0.1%
9996.-not allocated
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
1495.-mining and quarrying
3995.-manufacturing
Grand Total
Source: Bank of Greece, 2007
Greek FDI - 2001
Level4.shp
0
220 - 272
1464 - 16073
109352 - 160656
553193 - 659206
Source: Bank of Greece, 2007
Greek FDI - 2002
Level4.shp
0
105 - 1496
15481 - 143691
202272 - 256286
449409 - 770824
Source: Bank of Greece, 2007
Greek FDI - 2003
Level4.shp
0
216 - 1496
41915 - 207862
273099 - 335032
484028 - 1121147
Source: Bank of Greece, 2007
Greek FDI - 2004
Level4.shp
0
1318 - 76288
82862 - 176276
370935 - 376155
576623 - 1139662
Source: Bank of Greece, 2007
Greek FDI - 2005
Level4.shp
0
3094 - 54400
83011 - 272077
284520 - 647141
719965 - 2005863
Source: Bank of Greece, 2007
Greek FDI - 2006
Level4.shp
0
0 - 467.751
467.751 - 389590
389590 - 1364470
1364470 - 2457370
Source: Bank of Greece, 2007
2006 - Manufacturing
Level4.shp
0
6200 - 28940
87350 - 131880
158670
232030
Source: Bank of Greece, 2007
2006 – Financial Intermediation
Level4.shp
0
0 - 297 60
2976 0 - 45 170 0
4517 00 - 9 575 70
9575 70 - 2 208 970
Source: Bank of Greece, 2007
Results
• Greece is one of the leading investors in
Central, Eastern and South Eastern
European Countries, thus understanding
the process that determines Greek
investments in the region is of crucial
importance for policy makers
• Interrelation of ownership and locational
advantages that can explain foreign
investment activity
Results
Dependent: FDI Flows Normalised by GDP
GDP Per Capita
-0.102**
-0.101**
-0.127
Unit Labour Cost
-6.808**
-6.261**
-4.590
(11.312)
Trade Balance as % of GDP
Secondary Education
Enrollment
(0.041)
(0.043)
(0.134)
(3.153)
(2.642)
-0.945
-3.291
(5.565)
(20.902)
-12.515**
-11.267
-12.865*
(2.828)
(5.008)
(7.514)
2.425
(7.290)
Tertiary Education
Enrollment
17.213*
(9.679)
(10.306)
(36.257)
Public Debt over GDP
-4.778**
-5.230***
-7.338**
6.844
6.265*
(3.292)
(6.732)
-3.197
-2.578
-1.180
2.566*
1.984
Socioeconomic Conditions
Corruption
Rule of Law
(2.014)
(4.159)
(3.703)
16.948
(1.716)
(4.333)
17.197
(3.357)
6.326
(6.845)
3.927
(1.413)
(2.963)
(4.090)
Democratic Accountability
1.093**
1.039*
1.024***
Ethnic Tensions
-1.08383
-0.898
-1.212
(0.443)
(0.83470)
Distance form Greece
(0.547)
(1.344)
(2.507)
0.118
(0.357)
Marginal Corporate Taxation
Number of Observations
Adjusted R-square
(0.379)
-5.394
(11.093)
648
0.932
648
0.855
648
0.853
Recommendations
• Inward FDI
– Liberalisation of Markets
– Privatisations with transfer
of technology and Knowhow
– Creation of Specialised
Factors of production
– Targeted FDI attraction
policies, corresponding to
Greek comparative and
competitive advantages
– Exploitation of Public
Private Partnerships (PPP)
• Outward FDI
– Understanding of who,
when, why (3W)
– Support of Greek
entrepreneurs – SMEs as
well as larger corporations
– Efficient and effective use
of expansion abroad
through the acquisition of
knowledge
Thank you for your attention
Any Questions?