Foreign Direct Investment

Overview
Despite the severe economic crisis Greece has been facing since 2010, the country's performance in attracting foreign investment in 2012 was satisfactory in comparison with the previous year. Total (gross) capital inflows to the country in 2012 amounted to 2 billion Euro, while net inflows reached 1.35 billion Euro.

Inflows of FDI in Greece during the period 2003-2012 (in million Euro)

   
2012: Revised Data
Source: Bank of Greece 2013

Key features
• Total (gross) inflows of foreign investment capital decreased in 2012 by 27.9%. This decrease is mainly due to the losses suffered in 2012 by foreign companies in Greece, which are calculated as negative reinvested earnings and are hence deducted from FDI inflows*.
• Net inflows of foreign investment capital during the same year increased, by 64.7%. Despite the intense economic crisis, this increase in Greece is significant, if one takes into account that global FDI-Inflows fell by 18% in the same year (UNCTAD, World Investment Report 2013). 
• The difference between total and net FDI inflows to Greece in 2012 relates primarily to repayments of loans to parent companies.
• The rapid promotion of reforms and the reduction of costs of production factors, which was the result of the economic crisis in the country, create significant investment opportunities. The anticipated commercial development of public property and natural resources (oil, gas) is expected to reinforce Greece’s investment framework.
• Greece’s comparative advantages (geopolitical, climatological, historical) that enhance investment in many sectors have not been affected by the economic crisis, and are to be positively developed.

* This method, although not generally accepted, is widely adopted by international statistical practices (“Under the current treatment, it is possible for reinvested earnings to be negative in cases where the direct investment enterprise makes an operating loss. Reinvested earnings are then recorded as a negative income payment and disinvestment in the enterprise. There are claims that this makes little sense and creates presentational difficulties. However, the negative income can be seen as offsetting a withdrawal of equity in the enterprise, that is the enterprise takes money from the investors, who in turn take the money out of the enterprise”. Source: IMF committee on balance of payments statistics and OECD workshop on International Investment Statistics, Issue Paper 5A, Reinvested Earnings, May 2004).

Investment capital by country of origin
Countries with a strong investment presence in Greece in recent years include 'traditional' capital exporting countries such as Germany, France, the United Kingdom, Belgium, Luxembourg, the Netherlands, and Italy, while the presence of Cyprus is important as well.

Total FDI inflows by country of origin of capital during the period 2003-2012 (in million Euro)

Period 2003-2007



Total value:  22,328.2 million Euro
Source: Bank of Greece 2013

Period 2008-2012



Total value: 17,386.3 million Euro
Source: Bank of Greece 2013

Key features
• Investment activity in Greece originates primarily from companies from important markets such as the EU.
• There is a clear shift in the main countries investing in Greece over the two periods examined above. Germany remains the largest source of FDI to Greece during both periods, but, while in 2003-2007 the UK and France follow shortly as FDI source countries, between 2008- 2012 France ranks second and the UK third, with Germany now being by far the main FDI source country for Greece. The changes amongst other countries are less important, with Cyprus and the USA improving their position over the second five-year term described above, overtaking other EU countries such as Belgium, Luxemburg and the Netherlands.
• Although significant, the U.S. presence is still relatively low, which is partly due to the fact that investment activity of U.S. companies is realised in Greece “indirectly” through subsidiaries in other countries, usually in European states. Undoubtedly the relatively low level of investment from the U.S. suggests the existence of significant investment potential which can be activated.
• Promising prospects exist in the near future in attracting FDI from Russia and Eastern Europe, the Middle East, other Arab countries and Asia, particularly China, that are mainly interested in the energy, telecommunications, tourism, transport and logistics sectors.

Sectoral breakdown of foreign investment
FDI inflows by sector of economic activity in Greece in recent years (in both the 2003-2007 and the 2008-2012 terms) focused primarily in the tertiary sector, followed, with a significant margin, 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 2003-2012

Period 2003-2007 
                                                                                                                                                              


Total value: 22,238.2 million Euro
Source: Bank of Greece 2013

Period 2008-2012



Total value: 17,386.3 million Euro
Source: Bank of Greece 2013


Key features
• Focus 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 the secondary sector is relatively low compared with the potential of the country, a trend that suggests considerable scope for investment.
• The search for hydrocarbons in Greek territory is expected to play an important role in investment activity.

Specifically:
A. Manufacturing
Manufacturing sectors with significant investor interest over the periods of both 2003-2007 and 2008-2012 include chemicals, food & beverage, machinery and metal products.

Structure of total FDI inflows in manufacturing in the period 2003-2012

Period 2003-2007


Total Value: 6,082.2 million Euro
Source: Bank of Greece 2013

Period 2008-2012



Total Value: 4,146.7 million Euro
Source: Bank of Greece 2013

Key features
Compared with the period 2003-2007, in the period 2008-2012 there was a significant increase in the concentration of investment in the chemicals sector, which accounts for 58% of total investments in the manufacturing sector, compared with 22% during the 2003-2007 period. The refinery sector is examined separately (1% during 2008-2012 compared with 10% between 2003-2007), which means that this increase is primarily due to the development of the pharmaceutical sector in Greece in recent years.
The concentration of investment activity in these areas favours the establishment of new businesses (Greenfield Investments) in Greece, as well as the investment cooperation of foreign companies with Greek companies in order to produce end products that meet the needs of domestic and international markets. Food products and machinery are the sectors that experienced an important increase in 2012 compared with the previous year.

B. Services
Service sectors with significant investor interest over the period 2003-2012 include telecommunications, financial services, trade and tourism.

Structure of total FDI inflows in services during the period 2003-2012

Period 2003-2007



Total value: 14,989.2 million Euro
Source: Bank of Greece 2013

Period 2008-2012



Total value: 11,996.1million Euro
Source: Bank of Greece 2013


Key features
• The telecommunications and financial institutions sectors account for the overwhelming majority of investment funds which was directed to the services sector, both during the period of 2003-2007 and during 2008-2012. During the second period, telecommunications accounted for more than half of the investment funds in the tertiary sector because of the acquisition of OTE by Deutsche Telekom.
• A low percentage (7% during 2008-2012 and 8% during 2003-2007) of foreign investment focused on the least productive category, 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.
• Sectors that showed a significant increase in 2012 compared with the previous year are: financial institutions, trade and tourism.