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Wednesday, October 31, 2012

My few cents' worth on "The List"

I don't want to be the only blogger in the world who has not posted his opinion on the recent publication of "the list", so I do it herewith.

Earlier this month, I posted an article expressing my opinion how the list should be dealt with. I argued that yes, it should be used by the authorities even though it was originally acquired illegally but also that "it should be used responsibly and discreetly. Absolute confidentiality must be maintained until such a point where legal action against an individual can be supported".

The argument is being made that since the authorities had ignored their responsibilities for dealing with this information responsibly for two years, this was enough reason to have no confidence that they would deal with it responsibly this time around. Thus, the publication of the list was more or less a public service to make up for the public disservice of the authorities. That argument holds water.

I then asked myself what I might have done had I been a Greek journalist in possession of the list. First of all, I would probably have wished not to be in the possession of the list because it now forced me to take a terribly difficult decision (to publish or not to publish it). I would have searched my soul as to what overall principle should guide my actions and I hope that, as a guiding principle, I would have written down for myself: "Whatever I do, it must have nothing to do with any interest of my part to make news or to become famous! The only guiding principle must be the question of what is the best service to society!" I don't know whether the journalist asked himself that question.

I guess that, before publishing the list, I would have given the authorities a chance to finally live up to their responsibilities. I would have told them that I would irrevocably publish the list in a week's time unless they did the following: (1) appoint a non-political task force reporting directly to the Prime Minister; (2) have the task force announce an action plan as to what they will do, by when they will have done it and how they will report to the public. 

For example, the task force could eventually have come up with the following report to the public: "We have examined 2.000 cases, 500 of which were clearly of a correct nature. We have written to the other 1.500 that they have to 'come clear' within a month's time. 'Coming clear' means that they provide unequivocal evidence about the source of their funds and how they have been taxed in the past. If they cannot 'come clear', they can voluntarily pay all due taxes and penalties and come clear that way. Otherwise, law suits will be filed against them and the public will learn against whom law suits have been filed".

Having said that, I would like to point out that "the list" represents chickenfeed. The authorities have blown it with chickenfeed but they could take this as their cue to act appropriately when it comes to the big stuff.

Why chickenfeed? Well, 2 BEUR isn't exactly a large amount when considering the entire 'black money' which Greeks are estimated to hold offshore. Also, if you were a rich Greek, would you really put all your 'black money' into the Swiss branch/subsidiary of an international bank like HSBC? A bank where you always have to suspect that their international Head Office might know what you are doing with their branch/subsidiary in Switzerland? Or would you perhaps go to a 'real' Swiss asset manager who guarantees complete confidentiality?

Big stuff is around the corner. The authorities know that 25-30 BEUR have been officially transferred by Greeks to offshore accounts in the last two years and they also have the names of those Greeks, allegedly about 50.000 names. Allegedly, 35.000 of those names are not suspect whereas 15.000 are. In light of recent events, the authorities may wish to review whether it is really 35.000 which are not suspect. It sounds like an awfully large number. One could/should follow the same procedure as suggested above: form a task force, announce an action plan and a time frame by which one will render an account to the public.

The authorities blew it when the HSBC list was originally obtained two years ago and, two years later, they did not act consequently enough to convince a journalist that he should not publish the list.

The authorities now have the chance to demonstrate with the 'big stuff' that they can live up to their responsibilities and, in the process, they can restore at least part of their reputation.

Saturday, October 27, 2012

A Growth Model for Greece - Post Scriptum

I have made a total of 13 posts in this series of "A Growth Model for Greece" (see links below). The posts summarize the Greece Ten Years Ahead Report published by the Athens office of McKinsey in mid-2011. Why did I do that?

Least of all, to advertise McKinsey & Company. I have had many dealings with international consultants in my business career and I know that some of the criticism about 'consultants' speak' is valid. However, consultants are generally very intelligent people and they can have very intelligent ideas (albeit some of them useless in practice). Particularly in times of crises, one cannot have too many intelligent ideas for solving the crisis in order to pick and chose from them those which work in practice.

Furthermore, the impression should not come across that McKinsey are the only ones who have come up with intelligent proposals to solve the problems of the Greek economy. There are undoubtedly many others, including from Greek authors. They just haven't come to the forefront like those of McKinsey (at least not to me).

J'accuse!
I accuse that, irresponsibly, virtually no attention is given to the practical issue of how to get the real Greek economy into shape! No question about it: the EU would be challenged to come up with proposals but, above all, it is Greek brainpower and Greek leadership that should focus on this issue!

I follow Greek blogs, twitters, media reports, politicians' statements, etc. There is an obsession with debt negotiations, Troika-measures and the likes of that. I have seen next to nothing as regards practical proposals for the real economy. It is not understood that the debt is the 'derivative' while the economy is the 'underlying'. One can't solve the underlying by only playing around with the derivative!

It is not sufficient to implement new measures allegedly increasing competitiveness and hoping that the individual economic agents will act accordingly! Despite all my nearly unlimited belief in the powers and creativity of the individual, the Greek individual is overcharged when he is only told to 'help himself'. That doesn't help a million unemployed who see no way how they can help themselves and who are totally disillusioned about the future.

It is a question of leadership and, I hasten to add, by far not only political leadership. Perhaps, in the case of Greece, political leadership is the least capable of all to bring about change. Instead, it is a question of leadership on the part of all those who are capable and in a position to demonstrate leadership. That would be Greek brainpower from all walks of life; from the academia, from the media, from the business world, etc. Even from the Church.

Who has given Greeks a vision of a better future? Alexis Tsipras might be a notable exception but his proposals would, in my view, not achieve the desirable objectives. Who has told Greeks something very simple like the following:

We make only few products which the rest of the world needs but we want a lot of those products which the rest of the world makes. We have the benfit of tourism which brings us some money to buy the products which the rest of the world makes but tourism is not enough. So, if we don't do anything else, we will have to adjust our living standard downwards to the level which corresponds to the level of our productive capacity. We will, therefore, have to make more products ourselves instead of importing them; we will have to make more products for export; we will have to attract foreign investment because we don't have enough resources by ourselves (and for that we need to become a good place to do business); and we have to shape up our public adminstration (possibly with the help of foreign experts) so that we can run our country efficiently.

GTYA proposes the introduction of an Economic Development & Reform Unit as an institution under the Prime Minister to support the government in coordinating, facilitating and monitoring the implementation of growth reforms. The activities and the progress of that unit should cover the front pages of newspapers, the contents of blogs and twitters every day. A case in point: about a year ago, there was much talk about 10-20 BEUR being available from EU Structural Funds for new projects in Geece, and about 180 projects in process. Has anyone heard about progress with those projects?

Such an Economic Development & Reform Unit would appear to be a most sensible idea.  The million unemployed should not be left alone to come up with their own 'potato movements', their own decisions to return to the countryside to support themselves as farmers, etc. Instead, they should be shown how they can contribute to the rebuilding of their country and be given realistic opportunities to contribute.

Just like the individual Greeks should not be left alone, Greece as a country should not be left alone by the EU. As a believer in a Europe of shared values, I also believe that the EU would not leave Greece alone if it only had the sense that it is contributing to a better future for Greece.

I spent most of the 1980s living first in Chile and then in Argentina. I could witness how two economies responded to the challenge of having failed. The Chileans made it because the country could get its act together and marshal resources for a better future. The Argentines could not get their act together and their mess is getting bigger with every passing year (except that they are very rich in terms of natural resources). Greeks have the choice of acting like the Chileans did then or like the Argentines.

I return to my point: it is a question of leadership on the part of all those in society who either by position, by capability or by charisma can contribute to getting the country's act together and to marshall the resources of its people for a better future. Sitting on the sidelines and watching how things play out (and criticizing everything that happens) is no responsible behavior for any country's elite!

Happy National Day!


Introduction
Measures to unleash growth

Production Sectors Rising Stars
Tourism Generic pharmaceuticals
Energy Aquaculture
Manufacturing Medical tourism
Agriculture Elderly care
Retail and wholesale Regional cargo hubs

Waste management

A Growth Model for Greece - Retail & Wholesale

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'production sector' of retail & wholesale (page 55 in the executive summary).

Production Sector - Retail & Wholesale
This is the last post in this series and good things come last. GTYA states that the Greek retail & wholesale sector is the largest sector in the Greek economy accounting for 19% of gross vallue added (GVA) and 18% of employment. Moreover, it is one of the most dynamic sectors, having grown more than double the rate of the economy as a whole. There is significant room for improvement as evidenced by the fact that productivity lags by 30-40% behind EU-averages (GVA per hour and square meter). GTYA makes the following observations in this regard:

- poor format mix (almost double the number of stores compared to EU-averages)
- limited usage of innovative IT and supply chain management solutions
- lower scale, driven by heavy category specialization and lower levels of sophistication in terms of inventory management, customer service level and warehouse management
- high suppliers' concentration; lower penetration of private label products; lower penetration of discounters --- all leading to lower competition

GTYA proposes 10 measures to improve the situation, grouped into two categories:

* further reinforcing competition, investments and compliance with regulatory requirements: define 'commercial zones' in urban and suburban areas to facilitate and accelerate growth in retail and wholesale investments; lift constraints on the currently restricted product categories; increase price transparency; extend informality controls; improve Competition Committee's ability to secure fair competition
* boosting retailers' and wholesalers' productivity: expand scale of current retailers' operations; pursue targeted investments in IT, logistics and e-commerce; eliminate remaining retail-related labor rigidities; accelerate full liberalization of the public transport market; simplify unnecessary retailer-specific reporting and regulatory compliance requirements

For details, please refer to the GTYA-report.



Previous posts in this series: P1, P2, P3, P4, P5, P6, P7, P8, P9, P10, P11, P12.

Friday, October 26, 2012

A Growth Model for Greece - Waste Management

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'rising star' of waste management (page 68 in the executive summary).

Production Sector - Waste Management
GTYA is very brief on this issue. Essentially, they are saying the following:

* Greece relies primarily on landfill to manage its municipal waste (80% in Greece; 40% average in EU; 10% in some EU-coutries)
* moving away from landfilling and introducing higher value-adding waste management methods (e. g. incineration, recycling, composting) would have significant environmental and financial benefits for the country
* Greece should introduce incineration, increase the rate of recycling/composting and recover more energy from waste


Previous posts in this series: P1, P2, P3, P4, P5, P6, P7, P8, P9, P10, P11.

Thursday, October 25, 2012

A Growth Model for Greece - Regional Cargo Hubs

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'rising star' of regional cargo hubs (page 67 in the executive summary).

Rising Star - Regional cargo hubs
The are three major container trade routes globally (Transpacific, Transatlantic and Europe-Asia). Greece is geographically well-positioned on the Europe-Asia route. There are two types of trade: transshipment is where there is an intermediate stop before the final destination and gateway is where goods are directed to local and other hinterland markets. Piraeus and Thessaloniki are well-positioned for gateway trade; Piraeus is well-positioned for transshipment trade.

Greece today faces stiff competition for neighboring ports like Varna (Bulgaria), Ambarli (Turkey) and Constanza (Rumania). These offer better infrastracture, higher operational stability (i. e. fewer non-operating days to strikes) and improved services with up to 50% lower time spent in unloading and customs clearance.

Even a layman can understand that there is a problem when names of ports like Varna, Ambarli and Constanza (which only insiders know) clearly outperform a port like Piraeus (which every European knows and associates with shipping). GTYA recommends:

* reducing administrative requirements
* optimizing loading/unloading as well as custom processes
* reviewing and enforcing legislation to ensure smooth and continous operation of ports
* improving infrastructure to develop better connectivity with the main ports

A few days ago, I wrote about the operational success of the Chinese Cosco which operates half of the Piraeus port since two years ago.


Previous posts in this series: P1, P2, P3, P4, P5, P6, P7, P8, P9, P10.

Wednesday, October 24, 2012

European Court of Justice reviews ESM!

It seems to have been forgotten that, when the German Constitutional Court (GCC) ruled on the ESM on September 8, the ruling was a preliminary one with the final ruling to come 'within 1-2 months'. Well, those '1-2 months' are coming to a close soon! It is expected that the major conclusions of the preliminary ruling will be confirmed.

It also seems to have been forgotten that the GCC ruled, among others, on something which is none of their business. They ruled that the buying of sovereign bonds in secondary markets on the part of the ECB was not compatible with EU-laws. That would be an issue for the European Court of Justice (ECJ) and I have written about that here. The GCC would have to transfer the issue to the ECJ and ask for a ruling.

It seems that the Irish member of parliament Thomas Pringle has jumped the gun on the GCC. Mr. Pringle has challenged the constitutionality of the ESM before the ECJ and a ruling is expected by the end of the year.

Tuesday, October 23, 2012

A Growth Model for Greece - Elderly Care

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'rising star' of elderly care (page 66 in the executive summary).

Rising Star -Elderly Care
International examples indicate that out-of-hospital programs for the elderly population and patients with long term conditions can yield major savings. In view of the tight fiscal situation in Greece, such programs appear imperative. There is a nascent domestic industry that would need to scale up and cover the portfolio of relevant services. In order to facilitate such developments, the Greek state would need to create a patients' registry, instal quality accrediation and performance management systems for care programs and medical professionals, and launch pilot programs at the community level which would then be rolled out across the country.

There are few specifics on this in the executive summary.


Previous posts in this series: P1, P2, P3, P4, P5, P6, P7, P8, P9.

Monday, October 22, 2012

Greece's current account balance per August 2012

The current account deficit from January-August 2012 was 4,6 BEUR. To really appreciate this figure, I put it below in comparison to the same period of 2008. Why 2008? Because 2008 was about the worst year from the standpoint of a current account that one could imagine a country to have (annual deficit of 35 BEUR!). In short, compared to 2008, the current account deficit so far this year has declined by 79%! And the month of August was the second consecutive month with a surplus, even a surplus as high as 1,6 BEUR for the month. Below are the details.

in BEUR
 


January - August
August









2008 2012
2011 2012
Revenue from abroad





Exports 13,2 14,2
1,8 1,9

Services (e. g. tourism) 23,9 19,0
4,0 4,0

Other income 3,7 2,2
0,3 0,3

Current transfers 5,1 4,0
0,1 0,5


---- ----
---- ----

Total revenue from abroad 45,9 39,4
6,2 6,7







Expenses abroad





Imports 43,3 28,5
4,0 3,4

Services (e. g. tourism) 11,2 8,5
1,2 1,0

Other expense (e. g. interest) 10,7 4,3
0,9 0,4

Current transfers 2,5 2,7
0,2 0,3


---- ----
---- ----

Total expenses abroad 67,7 44,0
6,3 5,1














Net foreign deficit (current account) -21,8 -4,6
-0,1 1,6


On the revenue side, the most important observation is that revenues from services were almost 5 BEUR lower in 2012 than in 2008. That category is largely comprised of revenues from tourism. That is something which would need to be researched in detail because, with its importance for Greece, if tourism ever got into trouble, that would really spell trouble for Greece (please note that if Greece had had the same revenues from services in 2012 as in 2008, the current account 2012 would have been in surplus for year-to-date).

On the expense side, service expenses are also significantly lower which could indicate that Greece might have foreigners spending less money in Greece but, at least, Greeks are also spending less money on tourism abroad.

Very significiant is the 10,4 BEUR decline in other expenses. Presumably, much of that is due to lower interest expense reflecting the lower interest rates after the rescheduling of earlier this year as well as the impact of the PSI.

On the trade balance, exports were 7% higher in 2012 than in 2008. That is not really cause for jubilation. Considering that the Euro traded much lower against third currencies than in 2008 and considering that, after 2 years of cost-cutting, Greece has already become quite a bit more competitive, one could have expected exports to rise significantly more.

The real bombshell is imports which were 34% lower in 2012 than in 2008. That translated into approximately 15 BEUR of less spending abroad. Congratulations! At the same time, it is clear that with contracting demand, spending on products not only delinces domestically but also internationally. This is why Greece should use the time of depression to increase domestic production capabilities so that future demand can be more sourced domestically.

The figures for August 2012 are commented by the Bank of Greece in this press release. In essence, there has been improvement in most categories relative to the previous year. Again, one soft point is revenues from tourism. This only underlines the need to look into this issue in further detail.

Begin the week with a smile!

A Greek walks into a bank in New York City and asks for the loan officer. He tells the loan officer that he is going to Greece on business for two weeks and needs to borrow $5,000.

The bank officer tells him that the bank will need some form of security for the loan, so the Greek hands over the keys to a new Ferrari. The car is parked on the street in front of the bank. The Greek produces the title and everything checks out.

The loan officer agrees to accept the car as collateral for the loan. The bank's president and its officers all enjoy a good laugh at the Greek for using a $250,000 Ferrari as collateral against a $5,000 loan. An employee of the bank then drives the Ferrari into the bank's underground garage and parks it there.

Two weeks later, the Greek returns, repays the $5,000 and the interest, which comes to $15.41. The loan officer says, "Sir, we are very happy to have had your business, and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multimillionaire. What puzzles us is, why would you bother to borrow $5,000?"

The Greek replies: "Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there when I return?"

Sunday, October 21, 2012

A Growth Model for Greece - Agriculture

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'production sector' of agriculture (page 51 in the executive summary).

Production Sector - Agriculture
GTYA describes the current state of Greek agriculture as dismal. This is particularly critical because agriculture is such an important sector for the Greek economy (contribution to total GVA almost triple the level of the EU-15; about 13% of total employment). The key weaknesses are:

- low productivity (GVA per person 44% below EU-15)
- labor costs doubled from 2000-08
- penetration of EU-markets very low (<2% for Greece; 10% for Italy; 13% for Spain)

To address this situation, GTYA recommends to focus on four major areas:

* differentiating and focusing Greece's product and marketing strategy - prioritize target export markets; pursue differentiated product strategies based on product clusters;
* improving competitiveness through scale, productivity and quality - revisit land allocation; explore the utilization of publicly-owned land; scale-up production units in suitable geographies; performance incentives to stimulate production scale and consolidation; incentives for modern land and production management methods; new certification and standardization mechanisms
* ensuring market access and local presence - launch Greek Agricultural Products campaign in key export markets; establish Greek Food Company (private or PPP); pool small and medium size primary production units; plan, establish and operate a suitable commercial and market presence model; manage logistics within and outside Greece; develop wholesaler and retailer networks in export markets
* developing capabilities and supporting mechanisms - build a dedicated Agricultural (and Aquaculture) University Degree; establish Agricultural Development Institute; incentives for farmers to rejuvenate workforce and increase labor input productivity

GTYA projects that, within 10 years, the annual incremental gross added value (GVA) could be 4,5 BEUR, employment could increase by about 140.000 and the trade balance could improve by 2,7 BEUR. For details, please refer to the GTYA-report.


Previous posts in this series: P1, P2, P3, P4, P5, P6, P7, P8.

Friday, October 19, 2012

Doubling business volume in a depression?

This NYT article describes the development of that half of the Port of Piraeus which was taken over by a Chinese company, Cosco, about 2 years ago. Since I am not familiar with this situation, I have to take the article at face value. What lends credibility to it is that it was written by a Greek journalist who is residing in Greece. Key points:

* the cargo volume is now three times the level of two years ago
* the Greek state collected 500 BEUR as a sales price (*)
* the Greek state collects more income taxes as a result of the business pick-up
* Cosco now spends 388 BEUR to modernize the dock (*)
* Cosco allegedly receives 'thousands of applications' from Greeks interested to work for them

(*) I have gotten so used to talking in terms of billions that I overlooked the fact that sometimes there are still only millions. As readers have pointed out below, the numbers should obviously read 500 MEUR as a sales price and 388 MEUR to modernize the dock

The unions of the other half of the port which is still being owned by the state accuse Cosco of using employment subcontractors that hire temporary, unskilled, nonunion workers desperate for jobs and exploit them by paying low wages. Also, they accuse Cosco of saving money by cutting corners on worker safety. "They are bringing third-world labor standards to Europe", one comment says. “If you are a worker for Cosco, then you know suddenly how it is to work in the Chinese Republic", says another one. I cannot judge this.

This story reinforces two of the major points of my blog: Greece needs foreign investment and Special Economic Zones.

The primary aspect about foreign investment should not be the one-time financial gain on the sale. Instead, it should be about chosing the right foreign investor and getting know-how transfer in all areas, not only in technology (e. g. know-how transfer in management and corporate governance), as well as new investments.

Special Economic Zones serve to allow foreign investors to run their operations at internationally competitive terms. That may be a designated geographic zone where foreigners are invited to make new investments but it can also be, as Cosco shows, the case of an already existing individual company where the foreign investor is given the freedom to run the operation as he knows a successful operation must be run.

How the cargo volume at Cosco could be tripled in 2 years while the rest of the country was in depression is a mystery to me. However, it goes to show that the Greek economy does have potential if only it were tapped in appropriate fashion. Just imagine the result if there had been a few hundred foreign investments in the last 2 years! And one other thing: success stories rub off on others! It would be interesting to know if some of the 'thousands of applications' which Cosco gets come from the other half of the port which is still owned by the state, controlled by unions and where employees are paid more.

Last point: it would be good for national morale if one didn't have to go all the way to the NYT to read about such Greek success stories...

Wednesday, October 17, 2012

A Growth Model for Greece - Manufacturing & Food Processing

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'production sector' of manufacturing & food processing (page 46 in the GTYA-report).

Production Sector - Manufacturing & Food Processing
This is one of the sectors where the action is because it is so large (second largest contributor to gross value added, or GVA; third largest employer among Greece's 'production sectors'; largest contributor to tax revenues and social security contributions). At the same time, it has fallen behind in the last decade (GVA from 15% to 8%) and needs to be re-charged. The development of a business-friendly environment will be critical for the sector's effort to further enhance local and international competitiveness. GTYA suggests four major focuses:

* Targeting high potential export markets - cluster export markets based on common retailers present and prioritize based on size and growth
* Improving product strategy and value proposition of Greek products - convert from bulk to branded products and substitute imports of other oils; add value to fruits & vegetables while reinforcing presence in priority markets; expand the dairy products portfolio and emphasize origin; reposition bakery through greater geographic coverage and product innovation; instal an internationally visible certification mechanism for Greek product origin
* Increasing processing capacity and scale - develop 4-6 large scale processing and packaging units; develop a dedicated proposition and increase production and processing scale in fragmented niche categories; consolidate larger local milk farms and investigate viability for processing capacity for concentrated and powder milk to reduce imports
* Securing strong access in key export markets - launch major 'Greek food products' campaign; establish 'the Greek Food Company'; differentiate commercial strategy and country coverage model

For details, please refer to the GTYA-report.


Previous posts in this series: P1, P2, P3, P4, P5, P6, P7.

Tuesday, October 16, 2012

Niki Kitsantonis' tweets on the PM's speech

I have not heard/seen this speech; I can only comment on it based on the tweets of the NYT correspondent Niki Kitsantonis. The tweets are in bold.

Our 1st challenge is to realize untapped wealth/competitive advantage. Greece is a rich country in every way. Wherever Greeks go, they stand out. It's only in their country that they wither. And this has to change! - Damn right! Greece has never made any serious effort to identify and take advantage of its competitive resources. Instead, I hear all the time that Greece doesn't have any resources. That is, with due respect, a lot of baloney (a bunch of malakery, in Joe Biden's words). What natural resources did/does Japan have? Or Switzerland? As this tweed correctly states, wherever Greeks went in the world, they started with nothing and, invariably, made a lot out of it. The NYT commentator Thomas Friedman, in a most interesting commentary of July 19, 2011, quoted the Athens University professor Dimitris Bourantas as follows: "Greece is the only country in the world where Greeks don’t behave like Greeks". That certainly sounds like part of the answer.

Our 2nd challenge is to regain our credibility on the world stage. We must change the sense of Greece as a lost cause! - Damn right! There is such a thing as a self-fulfilling prophecy. It is bad enough when foreigners have lost faith in Greece. If Greeks themselves lose faith in themselves, the game is over. At Christmas 1945, when Austria was an economic basket case and when Austrians were hoping to receive help from their government, the Austrian chancellor said in his Christmas address over radio: "There is nothing that I can give you. I can only ask you to believe in your own abilities"! J. F. Kennedy pronounced in his inauguration speech: "Ask not what your country can do for you. Ask what you can do for your country!" Someone in Greece will have to start talking along those lines!

Our 3rd challenge is to set free our dynamism and competitiveness. Competitiveness is the marriage of liberation and freedom! - Damn right! Alfred P. Sloan, the legendary turn-around manager of General Motors in the early 20th century, once said: "Take all my assets -- but leave me my organization and in five years I'll have it all back.” Perhaps Greeks should say to creditors: "Take what you want and what you can get but leave us our DNA - and in a couple of decades we'll be back!"

Our 4th challenge is to protect social cohesion. People are not numbers or spare parts of a machine!
- Damn right! Involve the country's artists; musicians, writers, etc. Give them the mandate to bring Greek spirits back to life!

Our 5th challange is to encourage hope and quash extremism! - Damn right! Go back to your ancestors and study what they had to say about hope and extremism!

Finally, with banks recapitalized, debts to private sector paid and fears of Grexit gone, psychology will change! - Damn right! This aspect is only too easily overlooked. Think of a soccer game where your team is behind 1:3 with only a few minutes left in the game and you feel like going home early. Suddenly, your team scores a second goal and you become curious again. And then they score a third goal. Your depressions are gone and you are enthusiastically screaming for the victory which now seems in sight.

Well, all I can say is that all of this sounds very good. Why not just go ahead and do it?

Monday, October 15, 2012

A Growth Model for Greece - Medical Tourism

"Greece 10 years ahead" (GTYA) is the title of a study published by the Athens Office of McKinsey in mid-2011. It outlines a National Growth Model which, the study predicts, would create over 500.000 new jobs and add roughly 50 BEUR to Greece's GDP within a decade. The executive summary of the study consists of 72 pages. I have already explained in a previous post that I will make short posts about each major point of the summary for those who prefer not to read 72 pages.

The study focuses on growth opportunities in 5 major 'production sectors' which are already of prime importance to the Greek economy and on 8 'rising stars', i. e. new sectors where present activity is still small but where significant potential can be expected. In this post, I will focus on the 'rising star' of medical tourism (page 64 in the GTYA-report).

Rising Star ---Medical Tourism
Medical tourism has been a fast growing industry internationally in the last 15 years, seperated into the outpatient segment (e. g. dental care, cosmetic procedures, etc.) and the inpatient segment (e. g. cardiovascular interventions, orthopedic procedures, etc.).

Potential is seen for Greece in the rapidly growing 'middle-market'. Greece presently does not have much to offer because only one inpatient facility is accredited by the Joint Committee International compared with 43 in Turkey and 21 in Italy. At the same time, Greek hospitals lack collaborative agreements with leading international medical institutions.

GTYA identifies 5 levers which would enable the local industry to participate in this growth opportunity. It should be noted that there would be cross-benefits with the tourism strategy.

* develop a national strategy to position Greece in the 'middle-market' with a specific product/market focus
* establish modern quality, assurance, licencing and control frameworks
* pursue and maintain offer specialization to reduce costs through scale
* leverage networks to attract inbound volumes
* compliment the offer with necessary auxiliary services

For details, please refer to the GTYA-report.


Previous posts in this series: P1, P2, P3, P4, P5, P6.

Saturday, October 13, 2012

A debate about Alexis Tispras

Today I counted that I had already written 10 articles about Alexis Tsipras. The man obviously has a way of catching my attention!

Via the Greek Default Watch blog I have had an exchange with another reader who criticized me for not understanding that Alexis Tsipas is the answer to all of Greece's problems. I replied to him at length and my reply is below. 


Thank you for your thoughtful reply. I respect that you expressed your views so emotionally. I obviously have hurt deep feelings on your part and that was not my intention. Sorry. However, allow me to say that much of what you are criticizing about my views is what you read into them and not what my views are. That seems to be a bit of a Greek trait. I have been married to a Greek for almost 40 years and every time we got into an “argument” (fight is such a bad word…) and she would blame me for this, that and the other, I asked her when I really said this, that or the other. And the typical reaction to that would be: “You may not have said it but I know you meant it that way!” When one side is determined to be in the victim’s role, it becomes a no-win-situation for the other side.

For example, if you follow the backlinks in my above-mentioned blogpost, you will find that I have so far written 10 articles about Mr. Tsipras. The first one was titled “Cheers for Alexis Tispras! And more…” and to make sure that you can read it, I link it again here. 

http://klauskastner.blogspot.gr/2012/05/cheers-for-alexis-tsipras-and-more.html 

Perhaps it would be an idea for you to argue with me based on what I said instead of what you think I am saying. For sure, you will see that I don’t stop discussion and demonize the opponent but the opposite.

I agree with you entirely that Greeks have been ripped off. One part of Greek society (I would like to think it’s still a minority) has taken the other part of Greek society for an unbelievable ride. My sense of modern Greek history is that, ever since independence, the country’s elite has pursued its own interests and not so much the interests of the country, perhaps even at the expense of the country. However, when there is not so much money to rip off, the ripping-off remains limited to a small number of oligarchs. With Greece’s joining the EU, the money started flowing and with Greece’s joining the Eurozone, the money really started flowing. Todate, Greece has received about 130 BEUR in grants from EU structural funds and another 70 BEUR from the agricultural fund. Mind you, those are non-repayable grants (instead of repayable loans!). And from 2001-10, a net amount of 300 BEUR was dumped upon the country as cheap loans. When you dump that kind of money into the middle of the desert, you will see some fantastic growth in living standards even there.

Now, such amounts of money open all doors for ripping off and the rippers were no longer a handful of oligarchs but, instead, they became quite a large segment of society. Money entered the country as debt of all and became private equity of some (and much of it left the country as private equity). And I agree with you that now you have a situation where many of those who had the least benefit from that party are asked to pay the entire bill. I would agree with you that such a rotten system should be starved to death.

You suggest that the answer is not to pay taxes to such a rotten system. Fine. Many tax payers in the Eurozone totally agree with you except that they are not as harsh as you. They are not saying “let’s not give them our tax money”. Instead, they are saying “we’ll give you our tax money but the condition is that you must change your ways”.  Is it not understandable that taxes which you as a Greek wouldn’t even give your state, foreigners want to give your state only under conditions?

Many now seem to be saying that only Mr. Tsipras can change that rotten system because he has not been part of it and he is “fresh”. I agree with you (and you can read this in my blog) that I consider Mr. Tsipras as the only Greek politician today who has the leadership traits to really motivate masses. But in order for the right change to come about, the medicine must make economic sense.

Contrary to what you read into my lines, I have no big faith in economic science because a science which has so often been so wrong can’t be much of a science. I have big faith in common sense and common sense dictates that there is no such thing as a free lunch. Common sense suggests that Greece, as an economy, needs foreign funding like a human needs oxygen.

Since the beginning of the crisis, Greece has impressively cut down imports and increased exports. This July was a new record in that trend. And yet, in the month of July, Greece still imported almost 1.900 Euros for every 1.000 Euros which it exported! To put numbers to that: from Jan-Jul 2012, Greece imported almost 12 BEUR more that it exported! Now, income from services like tourism makes up part of that hole but still: for 2012, I would project that Greece will have spent at least 11 BEUR more abroad than it earned abroad (back in 2008, that was 35 BEUR!). You can take out interest from that, arguing that Greece shouldn’t pay any interest to foreign usurers but you still end with a hole of 6-7 BEUR.

My point is that not only does the Greek state need foreign funding to pay salaries/pensions etc. but the Greek economy needs foreign funding to remain functioning. When you need foreign funding, it’s not smart to alienate foreign funders the way Mr. Tsipras does it. What if foreign funding stopped overnight? Well, my understanding is that, apart from energy, etc., Greece imports 40% of its foodstuffs. So, Greece could end up where Cuba ended after the Soviets stopped their funding. I fear Mr. Tsipras is not at all aware of the fact to what extent today’s Greek living standard depends on foreign funding.

Personally, I am convinced that the only longer-term solution for Greece is foreign investment. Greece needs foreign funding but it already has more than enough of it in the form of repayable debt. It needs the funding as non-repayable foreign investment. And foreign investment would bring the know-how transfer in all areas of economic life which Greece so desperately needs. Do you think Mr. Tsipras’ actions todate have made potential foreign investors more or less interested in investing in Greece? My sense is that even Greek investors are not impressed: almost 4.000 Greek businesses have emigrated to FYROM and Bulgaria since the crisis.

I agree that the austerity as applied in Greece is not working. But why did Greek leadership opt for the easy route (take the money from the usual suspects, i. e. those who are taxed at the source; those who have always paid taxes) instead of going for the tough route (structural reforms; making sure that money is not taken from the living and paid as pensions to the dead, etc.)?

I am not arguing that Greeks should go through hell. I consider a million unemployed as a discussion stopper because it is an intolerable situation. But the only way to reduce unemployment is through the creation of new jobs. For new jobs to come into existence, you need investment. And for investment to come, you need favorable business conditions and a welcoming attitude for investment. Greece presently ranks, by far, the lowest in the EU for the ease of doing business and the highest for the level of corruption. Turn these 2 rankings around and Greece would have a good future.

How to do that when you have a rotten establishment? Well, the book “Why Nations Fail” argues that when the entire political and economic establishment of a country is rotten, it is next to impossible to change it. My Greek friends are pessimistic and tell me that Greece will never change. I think that if Mr. Tsipras had a twin brother who has as much talent for economic common sense as Mr. Tsipras has for motivating the masses, and if both of them teamed up, that might work. Absent that twin brother, Mr. Tsipras needs to acquire economic common sense in a hurry if he is not to turn Greece into Europe’s equivalent of a Cuba.

You criticize my criticism of Prof. Varoufakis. Well, I have had my private email exchanges with him where I congratulated him for all his very good suggestions about solutions to the Euro crisis but criticized him for never making any suggestions what Greece could/should do on its own to solve its problems. His well-known position is, of course, that there is nothing that Greece can do on its own because it is caught up in a much larger crisis (title of one of his upcoming seminars: “Why there is no such thing as a Greek crisis”). To me, that’s a classic example of using all one’s energies to solve someone else’s problems and no energy whatsoever to solve one’s own. Suggesting that there is no Greek crisis which Greeks could/should tackle on their own when, quite obviously, the State of Law and the enforcement of laws are not working; when the economy is controlled by monopolies, cartels, cronies, etc.; when laws passed by parliament are not always implemented; etc., etc. – well, and then suggesting to gullible followers that there is no Greek crisis is quite irresponsible, in my opinion.

Let me close with a link to an article where I once suggested what the Greek brainpower should use its brains for. 

http://klauskastner.blogspot.gr/2011/11/appeal-to-greek-brainpower.html

Friday, October 12, 2012

Wolfgang Münchau and austerity

Wolfgang Münchau seems to have the right answer for every question. At least that is the impression I get when reading his articles. His latest article on austerity in the Financial Times sounds convincing. Or is it?

I have read very interesting articles by Münchau about the Eurozone's finances, the debt, the debt problem, solutions to the debt problem, the Troika-measures, etc. etc. I do not recall a single article where he talks about the Eurozone's real economies in detail. So he is focusing all his attention on the 'derivative' while disregarding the 'underlying'.

If the Eurozone were identical to the USA (i. e. a United States of the Eurozone), we would today be witnessing a migration period. People would massively desert those regions where unemployment reigns and move to those regions where jobs are available. We might soon see some cities in the South reminding us of ghost cities in the American West. Fortunately, personal mobility in the Eurozone is far from the level in the US so that we do not have to see that drama.

And all of this because of austerity? Come on, Mr. Münchau!

The opposite of austerity is spending. My ears ring with Prof. Krugman's mantra of "spend, baby, spend, spend, spend..." Wolfgang Münchau insinuates the same. And every well-meaning person joins the chorus.

Would it perhaps be an idea to talk about spending a bit more in detail? When money is spent on consumption, the money is gone after it has been spent. When money is spent on investment, money will come back once the investment is in operation.

Austerity should mean that one sacrifices consumption in favor of investment. Is that happening? Well, not really. The Greek state has impressively reduced spending in the last 3 years but almost half of the reduction came from cutting investments. Sounds more like cutting investment in favor of consumption (or other things).

Ludwig Poullain, the legendary former German banker, wrote a very interesting article a few days ago at age 93. One of the issues he focuses on is industrialization. He argues that much of Europe, mostly the South, has been de-industrialized in the last decades. More of a minor issue in Greece because Greece never was highly industrialized but a much more important issue in Spain and, certainly, Italy. But - the real time bomb, according to Poullain, is France. He argues that France, as opposed to Germany, did not use the pre-Euro decades to shape up its industrial competitiveness. On the contrary, it covered-up this weakness through continuous devaluations. On average, Poullain states, France devalued 30% every decade!

Poullain's conclusion on this issue: "No fiscal stimulus can ever solve the problem when the economy has become de-industrialized".

Helmut Schmidt, the former German chancellor who can definitely not be suspected of ever having been a Nazi sympathizer, once said in a TV-interview: "If Hitler had been shot in 1936 (i. e. before the Nazi-machine really got into destructive operation), Hjalmar Schacht (Hitler's Minister of Economics who parted with Hitler in 1937 and who was acquitted at the Nueremberg Trials) would have been awarded the Nobel Prize for Economics". Why? Because he succeeded in turning record unemployment into full employment within a few years.

How did that happen? According to Schmidt, exclusively deficit spending BUT spending on investment and not on consumption (Autobahn's & Co.). I can already hear the objection that this was only possible because of a huge war machine being built up. Probably, but so what? What if all those arms, by 1939, had been destroyed instead of being used for war? They were destroyed during the war, anyway. Had they been destroyed in 1939, those arms could at least not have destroyed so many other things. Even if those arms had been destroyed by 1939, they would still have played a major role in converting record unemployment into full employment (not to even think about the benefit for the German economy if Hitler had, by 1939, exported all those arms to the rest of the world instead of using them against the rest of the world...).

My point is this: notwithstanding the brilliance of all the comments made by Münchau & Co. about the 'derivative', that discussion will not accomplish a thing if one continues to ignore the 'underlying'. The 'underlying' of France, Italy, Spain, Portugal and Greece is in big trouble. To improve the 'underlying', investment is required so that jobs come into existence. Investment flows to places where opportunities are. And opportunities are in those places where one can operate productively and competitively.

Yes, the kind of austerity we have seen in Greece (cutting investments) makes things worse. Trying to get out of this de-industrialization cycle by more spending on consumption makes matters worst.

I would find it very interesting to see a comparison between Greece's commercial and industrial output today compared to, say, 20 years ago or so. My guess is that today's output is less than then. In actual fact, today's output should be lot more than then.

It is an illusion to think that Greece can make it as an exclusive service economy. To achieve that, Greeks would have to start-up at least one Microsoft.