Greece Can Grow Again

Red tape, corruption, tax evasion—and a failure of marketing. Despite being the world's third largest olive oil producer, Greece sells 60% of its olive oil in bulk to Italy, where it is packaged and sold at a premium.
The Wall Street Journal

By JOHN SFAKIANAKIS

 

It's easy to overlook a country's growth potential when it's about to enter its sixth straight year of recession. Greece's location gives it corner-shop status in Europe, and many sectors of the Greek economy are capable of unique contributions to Europe and the world.

However, over the years the country's competitiveness, productivity and branding have taken a dive. Greece lost its identity as a service economy and became dependent on imports. Corruption became endemic, and a flourishing crony capitalist system has damaged the flow of foreign investment. Greece has become the epitome of red tape and is now desperately trying to reform.

According to the European Commission, Greece's shadow economy amounted to a quarter of GDP in 2011. A complex administrative and tax system creates legal, bureaucratic and procedural obstacles that result in the government's failure to collect upwards of €20 billion a year in tax revenue. A study at the Booth School of Business at the University of Chicago found that tax evasion cost the Greek state €28 billion in 2009 alone. The political will to address these issues has never existed, but this has to change today if Greece is to save itself.

Greek industry also needs sector-specific treatments. At its core, the country's long-term growth model should be geared toward supporting tourism. Greece should become the Florida of Europe. Tourism accounts for 15% of the Greek economy, but traditionally 70% of its growth has stemmed from domestic demand. Moreover, tourists in Greece spend only €146 per day, compared to €162 in Turkey and €200 in Italy, according to McKinsey.

Much will be gained if Greece extends its tourist season beyond the summer months. However, it also needs to upgrade its infrastructure, revamping existing roads, sea- and airports, and building new ones. Currently, a cumbersome process of licensing, taxation and other red tape discourage such investments. And while Greeks are hospitable by nature, they have yet to acquire a deeper service and value-for-money ethos.

Agriculture investment has also long been neglected. That's thanks in great part to EU subsidies, which have led to low agricultural productivity. Labor costs skyrocketed in the 2000s, making Greek agricultural products uncompetitive and imports more attractive. Today Greece imports roughly €2 billion worth of meat products and another €1 billion of wheat, when it could be nearly self-sufficient in both.

There is also a serious failure of marketing. Despite being the world's third largest olive oil producer, Greece, unlike Italy and Spain, has failed to market and brand its product. Greece sells 60% of its olive oil in bulk to Italy, where it is packaged and sold at a premium. Likewise, Greek producers have only one-third of the global feta cheese market. It could learn much from the Italian and French experience in expanding the world-wide presences of Parmesan and Camembert.

Greece has more than 50 products under the PDO (Protected Designation of Origin) or PGI (Protected Geographical Indication) certification. Among these are Kalamata olives, renowned the world over. The world is much less familiar with the Avgotaraho (grey mullet roe) from the Messolonghi region and Mastika (a tree resin used as a spice) from the island of Chios.

Then there's shipping. Greece has been a seafaring nation since ancient times, and its ships still transport about 15% of global trade and make up 18% of the world's fleet. But much has to change for shipping to overtake tourism in terms of jobs and benefit to the wider economy. Legislation and taxation have to become more favorable to the Greek shipping flag, as many Greek ship owners opt to register their ships under foreign flags.

The ship-repair business, in which Greece had a niche in the 1960s and '70s, has collapsed since the '80s as a result of union interference, government ownership, global competition and higher costs. Greece could take advantage of its location and make itself a regional cargo hub.

Both Piraeus and Thessaloniki could become trade gateways for Eastern Europe. In a 2010 deal worth €500 million, the Chinese government-owned shipping giant Cosco leased half of the port of Piraeus and turned a decaying business into a productive and efficient one. Improved infrastructure, faster customs clearance and efficient loading and unloading could place Greece ahead of regional competitors like Turkey, Bulgaria and Romania. Hewlett-Packard's recent decision to transport goods across Europe, the Middle East and Africa through Piraeus is encouraging.

Greece's crisis could be a blessing in disguise for the country's long-term growth prospects. If the debt burden is alleviated, parasitic practices are curtailed and the investment climate improves, much could be done to realize Greece's economic potential.

Mr. Sfakianakis is a Greek economist.