Overview

Despite the global financial crisis that has had a significantly negative impact on global capital flows during 2009, Foreign Direct Investments (FDI) in Greece were satisfactory. During 2009 total capital inflows into Greece reached 4.5 billion Euro, and net inflows exceeded 2.4 billion Euro. Compared with 2008, net flows of FDI into Greece showed a 21% decrease as a consequence of the international crisis. Nevertheless, the decline is much lower than the decrease of international FDI inflows which, according to the recent UNCTAD Report (2010), reached 37%.

As depicted in Graph I, during 2006-2009 FDI into Greece have steadily sustained higher levels compared with the period 2003 – 2005, despite fluctuations. Even in 2009, when the global crisis gradually affected Greece as well, the volume of net inflows of FDI is higher by far than that the period before 2005. Many factors, such as infrastructure improvement, have played an important role in this significant increase of FDI volume.

A noteworthy characteristic in the trends is that total capital inflows (which better show the country’s FDI performance) have a much lower fluctuation than net inflows and have substantially increased in volume in the last four years.

Graph I. FDI Inflows in Greece 2003-2009 (in million Euro)

Source: Bank of Greece 2010, revised data regarding 2006-2008

Foreign investors have a relatively more stable position regarding capital inflows into the country, whereas, on the contrary, their capital outflows (for instance, the repayment of loans, investment abroad) have a much more diverse character.

It is important to underline that a large share—about 55%—of the FDI total in 2009 was directed toward new business establishment, mergers, and acquisitions, and in increased share capital. In addition,  a notable percentage – about 7% - of the total FDI inflows represents reinvested earnings, a sure sign of confidence among investors and a strong message of their intent to remain in Greece for the long term.

Capital inflows in the form of loans reached 35% of the total inflows of FDI in the same year. This reflects foreign investor confidence in Greece, and their intent to commit capital for future gains and development in the country.

During the period 2003-09, total FDI inflows totaled 32.9 billion Euro, leaving an impressive 14.6 billion Euro net inflow. Outflows of foreign capital from foreign investors established in Greece reached 18.3 billion Euro.  A significant percentage of these outflows was used by parent companies in Greece for capital expansion/movement in Greek subsidiary companies in Southeast Europe, in which case Greece is fulfilling its important objective of a "bridge function" role in the Balkans. The role of Greece as a regional hub, in energy, commerce, and transit, is one of the most positive features that investors recognise today.

Investment capital by country of origin
Investor confidence in Greece is demonstrated – apart from the total volume - from the all-important markets of the EU and the U.S. As shown in Graph II, the distribution of total FDI inflows in Greece by country of origin in the last seven years demonstrates the importance of EU countries (especially ΕU-15) in Greece’s investment environment. In this group is found the “traditional” capital exporting countries such as Germany, France, UK, Belgium, Luxemburg Netherlands and Italy. Cyprus, USA and Switzerland show a notable presence during this period.

Graph II. Total FDI Inflows for 2003-2009 according to country of origin (in million Euro)

Total value: 32,902 million Euro

Source: Bank of Greece 2010

Recent initiatives by Greece in Russia and Eastern Europe, the Middle East, Arab countries, and Asia bode well for FDI in the near future from these regions, which are showing a strong interest in energy, telecommunications, tourism, transportation and manufacturing.

Sectoral distribution of foreign investment
Regarding FDI inflows by sector of economic activity, FDI in Greece during the last seven years has mainly been directed to the services sector. This trend evolved primarily due to the development of the financial system and trade. Graph III shows that the secondary sector has a relatively small share compared with the country’s capabilities. This trend indicates significant investment potential.

Graph III. Total FDI inflows by domestic sector of economic activity 2003-2009
  
 
                                                        

Total value: 32,902 million Euro
                            
Source: Bank of Greece 2010

It is important to note that investment in energy (electricity, natural gas) amounted to 5% of total investment in the secondary sector and exemplifies a growth trend for this period.

The manufacturing sectors in which foreign investors have focused their interest in Greece during the period 2003 – 2009 are chemicals (excluding the petrochemical industry), followed by food and beverage, machinery and metal products, as shown in Graph IV.

Graph IV. Breakdown of Total FDI inflows in manufacturing 2003-2009

Total Value: 7,544.4 million Euro

Source: Bank of Greece 2010

Greece has significant clusters in these sectors, which can substantially support foreign investment interest, in both Greenfield and in the form of cooperation with Greek businesses, and with enterprises for the production of end products directed to the domestic and international markets.

In the services sector foreign investor interest during the last seven years focused on telecoms, credit institutions (investment in the banking sector), trade and tourism, as depicted in Graph V.

Graph V. Structure of Total FDI inflows in services 2003-2009

Total Value: 23,710.2 million Euro

Source: Bank of Greece 2010

There is also a significant interest in education and health. It is noteworthy that only 6% of foreign investment was invested in the least productive sector of real estate, while the majority of foreign capital inflows was directed into productive economic activity of high added value.