Synergy & Networking (Clustering) Projects in the New Greek

Investment Law (3908/2011)

Study Visit, Athens, 23 April 2013

name: Konstantinos Bourletidisadress:state:contact:

Greece has significant investment opportunities arising primarily from its geopolitical position, its inclusion in the European Union and the Eurozone, its natural resources, its human resources and its infrastructure.

The economic crisis that emerged in 2010, triggered by the global financial crisis and fiscal imbalances, resulted in the inclusion of Greece in the support mechanism of the IMF and the EU and the implementation of strict economic policy, with negative effects on economic fundamentals.

However, the necessary structural reforms accompanying the efforts for financial rationalisation have resulted in the creation of a favorable investment and business environment and create additional investment opportunities.

Greece has a reform-oriented, outward looking economy that is focused on long-term, sustainable growth. Greece plays as the economic hub of Southeast Europe.

Greece in the Context of Crisis At present Greece is in the middle of a deep financial and developing crisis

that has been expanded to all areas of the country and affects all the parts of business and economic activity. The crisis is absolutely connected with the global economic crisis that started form the United States of America in 2008. The intensity of the crisis led many economists to consider it the most severe recession since the Great Depression of the 1930s (World Bank [1], IMF [2],).

The recent clues show that deficit of Greece is 10, 8% of GNP and the public debt 367, 3 billion. The recession about 2011 had to do with the decrease of investments about 20% and the unemployment the first semester of 2012 has been about 22,6% (Governor`s Annual Report of the Bank of Greece 2011 [3], (Hellenic Statistical Authority –Unemployment Rate Q1 2012) [4]).

The recent studies (ACCI [5], FEIR[6], GCPCM[7]), show that all the sectors of the business activity have been affected by all the effects of economic crisis. To the business repercussions areas the alteration has been affected negatively, especially to the overwhelming majority of businesses to the first steps of function. The rate of businesses that has been affected very much from the economic crisis overcomes the 80%.

Greece in the Context of Crisis The effects to the economic crises are

especially important and apparent. More specifically in 2010 the restriction of business activity had been located to the manufactures and the industry, whereas 2011 has been expanded to the fields of trade as to other services too, that make an important rate of the total added value of economy.

It is mentioned a decrease of the activity especially from young presumptive businessmen

and as a basic reason (46%) of the suspension is preferred, the reduction of turnover is a total problem, because it had been reduced in 2011 in connection with 2010 about 1/3. A problem also appears to the 38% of the total firms with a bigger frequency to smaller businesses.

Πίνακας 3: Αριθμός επιχειρήσεων και απασχόληση στην Ελλάδα και ΕΕ-27 (2010)

Αριθμός επιχειρήσεων Απασχόληση

Ελλάδα ΕΕ-27 Ελλάδα ΕΕ-27

Αριθμός Μερίδιο

(%)

Μερίδιο

(%)

Αριθμός Μερίδιο

(%)

Μερίδιο

(%)

Πολύ μικρές

επιχειρήσεις 719.952 96,5 92,1 1.447.218 57,6 29,7

Μικρές 22.832 31,5 6,6 438.792 17,5 20,4

Μεσαίες 2.893 0,4 1,1 264.427 10,5 16,8

Μικρές και

μεσαίες 745.677 99,9 99,8 2.150.438 85,6 66,9

Μεγάλες 563 0,1 0,2 362.055 14,4 33,1

Σύνολο 746.240 100 100,0 2.512.493 100,0 100,0

Πηγή: Observatory of European SMEs, European Commission.

SMEs in Greek Economy In particular, more attention needs to be placed on small

and medium-sized entrepreneurial (SME) firms and how they perceive and respond to the crisis.

SMEs play an important role not only in Greek and European competitive economic development, but also for the world economy because they account for 97% of businesses worldwide; they employ most of the labour force and are responsible for the majority of the total sales volume (Mulhern [8], Papaoikonomou & all [9].

SMEs firms are vital, since they are an important part of all economies and are essential for economic recovery.

In periods of prolonged economic crisis the companies and especially the SMEs ones are affected negatively. They show signs such as the decrease of sells, the shrink of profits, the indulgence of financing, the difficulty of covering the obligations towards the suppliers.

Greek Investment Law Greece’s Investment Incentives Law governs the

terms and conditions of direct investment in Greece and provides for incentives, available to domestic and foreign investors, dependent on the sector and the location of the investment.

In February, 2011, the Greek Parliament voted on and passed the Investment Law, which establishes new objectives, new procedures, and new financing tools, and creates the necessary conditions for a healthy and outward-looking business environment.

The purposes of the Investment law is to promote economic growth in Greece by introducing investment aid schemes to improve entrepreneurship, technological development, the competitiveness of enterprises and regional cohesion and Promote green economy, the efficient function of existing infrastructures and the deployment of the country’s human resources

The Law

Contains a defined annual budget and an aid ceiling. Addresses all sectors of the economy, except those expressly articulated in

Article 2 of the Law (please follow the ) Is mindful of scarce public funds by providing incentives through tax

exemptions, subsidies, leasing and soft loans. For every one Euro of subsidy provided, three Euros of tax exemptions are provided.

Provides for both the electronic submission of every investment plan and the submission in hard copy to the Investor Service Offices.

Contains specified and fixed application deadlines (April and October) except for Major Investment Plans (>€50 million), which are submitted throughout the year.

Introduces a new evaluation process by establishing the National Register of Evaluators and Auditors.

Focuses on sustainable investment projects that are environmentally friendly, promote innovation, regional cohesion, youth entrepreneurship, and that create jobs.

The new Investment Law provides for aid rates from 15% to 55% dependent on the Region that the investment is realised, and on the size of the company.

Investment Categories1.General Entrepreneurship2. Regional Cohesion3.  Technological

Development 4. Youth Entrepreneurship 5. Large Investment Plans6. Integrated, Multi-Annual

Business Plans7. Partnerships and

Networking (Clustering)

Types of Aid a. Tax relief—Tax relief (lasting from 8 to 10 years) comprising

exemption from payment of income tax on pre-tax profits which result, according to tax law, from any and all of the enterprise’s activities.

b. Subsidy—Gratis payment by the State of a sum of money to cover part of the subsidised expenditure of the investment.

c. Leasing subsidy —Includes payment by the State of a portion of the installments paid under a leasing agreement executed to acquire new machinery and/or other equipment.

d. Soft loans by ETEAN (National Fund for Entrepreneurship and Development). The amount to be covered by a bank loan may be funded by soft loans from credit institutions that cooperate with ETEAN enterprises.

Subsidized expenditureThe investment plans which

come under the provisions of the present law in application of the Block Exemption Regulation shall receive aid for the following expenditure:

(a) Tangible assets (b) Intangible assets (c) Research,

development and innovation projects

Aid Rates The country shall be divided into

three incentive zones (A,B, C), on the basis of the level of growth compared with the national average, Incentive zone A, which shall include the Prefecture of Attica and the Prefecture of Viotia.

Incentive zone B, which shall include the prefectures in which the per capita GDP is greater than 75% of the national average.

Incentive zone C, which shall include the prefectures in which the per capita GDP is less than 75% of the national average, the region of Eastern Macedonia and Thrace, the islands in the regions of the North and South Aegean and the Ionian Islands, the islands belonging administratively to prefectures of the mainland, and the border prefectures of Greece.

Aid Rates (2) Undertakings shall be divided into large, medium-sized, small and

micro enterprises in accordance with the relevant EU classification (Commission Regulation (EC) No 800/2008 of 6 August 2008, Annex I, OJ L 214 of 9 August 2008, p. 38).

The percentage of aid for each investment plan shall depend on the size of the investment body and the prefecture in which it is implemented, but shall not exceed 50% of the subsidised cost of the investment plan.

The aid percentages have been defined, for the initial application of the present law, on the basis of the per capita gross domestic product (GDP) of each prefecture in 2007, compared with the average per capita GDP of Greece in that year.

(a) In zone A: 15% for large enterprises, 20% for medium-sized enterprises and 25% for small and micro enterprises.

(b) In zone B: 30% for large enterprises, 35% for medium-sized enterprises and 40% for small and micro enterprises.

(c) In zone C: 40% for large enterprises, 45% for medium-sized enterprises and 50% for small and micro enterprises

Minimum Value of Investment for large enterprises: EUR one million (1 000 000); for medium-sized enterprises: EUR five hundred

thousand (500 000); for small enterprises: EUR three hundred thousand

(300 000); for micro enterprises: EUR two hundred thousand

(200 000) Especially for the "General Entrepreneurship"

category of investment projects the minimum value of investment shall be half the above amounts in each case.

Partnerships and Networking (Clustering) Target Group:

partnerships and networking configurations or clusters.

• These clusters shall be comprised of at least ten enterprises in the Region of Attica and the Thessaloniki. Prefecture and of at least five enterprises in other prefectures, operating in the form of a consortium.

Provides: for any form of aid.

Partnerships and Networking (Clustering) (2) Universities, research

institutions and legal persons under private law may participate up to a rate of 20%.

The investment plans subsidised include joint operations, such as joint production facilities and equipment, quality control, storage, distribution networks, transport and product and service exhibition and sale facilities and equipment, joint trademarks and e-sales system, joint certification and quality marks, joint staff training etc.

Towards to Smart Specialization Concept

In a first stage a package of financial instruments and incentives designed and promoted , such as to fit properly to the local innovation needs and entrepreneurs profile

This will encourage stakeholders to associate in order to benefit from investment law

These opportunities should be shaped on the local data and facts

Thus, collection , structuring, analysis and understanding of local evidences have to be done

Then the competition between entrepreneurs and their investment plans with potentials should be put into place, in order to show which of them are able to discover the most reliable and profitable opprtunities

Foreign Direct Investment

Despite the severe economic crisis Greece is facing since 2010, the country's performance in attracting foreign investment in 2011 was satisfactory in comparison with the previous year.

The total (gross) capital inflows to the country in 2011 amounted to 3.3 billion Euros, while net inflows exceeded 1.3 billion Euros.

Inflows of FDI in Greece during the period 2003-2011 (in million Euros)

Sectoral Breakdown of Foreign Investment FDI inflows by sector of

economic activity in Greece in recent years focus primarily in the tertiary sector, followed, with a significant gap, by the secondary sector.

The majority of developed countries shows a similar structure of FDI.

Total FDI inflows by sector of economic activity for the period 2003-2011

Total value: 38,231.3 million EuroSource: Bank of Greece 2012

Key Features Concentration of FDI in services. This trend was dictated primarily by the development

of the country's financial system, the liberalisation of telecommunications, and the stimulation of trade

The proportion of secondary sector is relatively low compared with the potential of the country, a trend that suggests considerable scope for investment

Investing in energy (electricity, natural gas) amounted to 6.2% of total investment in the secondary sector and represent typical investor interest growth during this period. The search for hydrocarbons in Greek territory is expected to play an important role in investment activity

Manufacturing The sectors of manufacturing with

significant investor interest over the period 2003-2011 include chemicals, food & beverage, machinery and metal products.

Key featuresThe concentration of business in these areas favours the establishment of new businesses (Greenfield Investments) in Greece, and the investment cooperation of foreign companies with Greek companies to produce end products that meet the needs of domestic and international markets.

The chemical industry and other industrial activities are the sectors that showed important increase in 2011 compared with the previous year. Total Value: 9,766.8 million

EurosSource: Bank of Greece 2012

Structure of total FDI inflows in manufacturing in the period 2003-2011

Services The service sectors with significant

investor interest over the period 2003-2011 include telecommunications, financial services, trade and tourism.

Key features• A low percentage (7%) of foreign investment focused on the least productive class, that of "real estate", whereas the majority of foreign capital went into productive activities with high value added.• There is considerable scope for further development of foreign investment activity in the tourism sector.•There are growing investment trends in education and health sectors.• The sectors that showed a significant increase in 2011 compared with the previous year are: transport and storage of products, telecommunications, financial institutions, real estate, information technology and health-education. Total value: 26,179.3 million

EurosSource: Bank of Greece 2012

Structure of total FDI inflows in services during the period 2003-2011

name:adress:state:contact:

"Invest in Greece, achieve mutual benefits and win –win" Wei Jiafu

President & CEO COSCO

“The country has a strong tourism infrastructure. With the hotel market in Greece dominated by independently run hotels and domestic chains, we believe there are wonderful growth opportunities for all our brands throughout the country.”

January 11, 2010Patrick Fitzgibbon

Hilton Worldwide’s Senior Vice President, Development - Europe & Africa

Hilton Worldwide

name:adress:state:contact:

“I must say, personally, I’m impressed with the improvements that Greece is going through. Being the largest global supplier basis software, we are here to help accelerate the process to increase innovation and growth, because that’s really the agenda of the future in Greece. We see a market with lots of intelligent people, we see a market where software would play a major role, and we are here to make our investments and accelerate the process. We will invest in Greece. We have moved our South Europe Headquarters to Athens to show our focus on this market. We can inspire small startups to leverage our technology and drive innovation in growth in a global basis environment.”

Jim Hagemann Snabeco-CEOSAP AG