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Financial tools for the back bone of the Greek Economy: Small and Medium Enterprises

Publiziert am 20.Mai.2014 von Abraam Kosmidis

Definition of SMEs

SME stands for Small and Medium Enterprises. The European Commission (EC) has provided for the definition of SMEs:
  • A small sized enterprise is the one which employs less than 50 people and its turnover is less than 10 million Euros
  • A medium sized company is the one that employs less than 250 people with a turnover less than 50 million euros and
  • A micro sized company employs less than 10 people and its turnover is less than 2 million Euros.

The importance of the SMEs for the Greek economy

The results of the annual report of the EC on the SMEs (SBA fact sheets – Greece 2010- 2011) showed that by the year 2010, they represented the 99,9% of the total number of companies in Greece. The SME sector employed the 85% of the work force. The Greek economy is still based on the small and medium enterprises, despite the fact that the sector has showed a deep decline and has suffered the effects of the economic crisis. In the 2011, there were 62.287 less SMEs compared to companies existing in 2009, which led to 144.604 job losses.

Support tools for the SMEs

It is evident that the SMEs sector is very crucial for the enhancement of the competiveness of the Greek economy. The government during the last four years has taken several steps to support the SMEs, for example it enacted several laws that simplify the start-up processes of a business, it adopted initiatives that promote the extroversion of the companies, it supported the creation of the electronic platform www.startupgreece.gov.gr which provides the new entrepreneur with all the necessary information to create a new business in Greece. SMEs are dealing with a very serious problem: lack of liquidity. One of the reasons that are responsible for this problem is the difficulty to have access to various financing instruments (loans, grants, etc) because traditional banking loan system requires strong guarantees that the SMEs cannot provide. The Greek government has undertaken some initiatives that will help the small and medium companies to overcome this difficulty:

Agreement with the European Investment Bank

On 12 June 2013, the European Investment Bank (EIB) and the Greek government signed an agreement, according to which the EIB provides 500 million Euros to support the foreign – trade oriented SMEs in Greece. The agreement was also signed by 3 Greek and by 3 foreign banks which provide the loans to the small and medium enterprises.

Hellenic Fund for Entrepreneurship and Development

The Hellenic Fund for Entrepreneurship and Development (HFED) was established in 2011 and is fully owned by the Greek state. Its original mission was to facilitate the access of the SMEs to the available financial instruments delivered by the Greek banks, by providing guarantees on behalf of the companies. Nowadays, the fund has broadened the range of its activities and it had created 4 sub-funds (each one of them with distinctive management) in order to provide financing tools at attractive terms. The HFED and its sub-funds are co-financed by the National Resources and the European Structural Fund. The sub-funds are: Entrepreneurship Fund. The mission of the fund is to help the creation of new SMEs and to support the existing ones by refinancing their working capitals. The current activities of the fund are:
  • Provision of low interest loans (total budget of the project 550million Euros). This activity is suitable for existing SMEs or start-ups. The interested parties may apply for a loan to the banks co-operating with the HFED.
  • Provision of low interest loans (total budget of the project 80 million Euros). The activity aims to support SMEs located at the Greek islands.
  • Provision of guarantees for any SME wishing to get a loan from a bank (total budget of the project 150 million Euros).
  • Provision of loans (total budget of the project 315 million Euros) special for SMEs oriented to the following sectors: foreign trade, youth entrepreneurship, innovation, green entrepreneurship.
  • Fisheries Fund. The mission of the fund is to provide guarantees to any SME with activities such as production, processing and marketing of fishery products. The fund is currently inactive.
  • Fund for Energy Efficiency in Households. This fund helps the owners of households to undertake all the necessary actions to enhance the energy efficiency of buildings and reduce their energy consumption. These actions may include application of heat insulation, maintenance of heating and air cooling systems, replacement of old window technology. The program started on 1 February 2011 and it is valid until the resources are over. The interested party may contact a co-operating bank.
  • Agricultural Entrepreneurship Fund. The fund ensures that any viable small to medium business of the agricultural sector is funded. The current activity regards financing SMEs that process and market agricultural products.

Institution for Growth in Greece

Despite the fact that the 2 previous initiatives helps the SMEs increase their liquidity by getting access to financial instruments, there are recent studies that show there is still a funding gap in the Greek market (around 15-18 billion euros). In order to overcome this gap the government decided to establish another fund which will provide loans to SMEs: Institution for Growth (IfG). The preliminary negotiations started two years ago, followed by the voting of the law by the Greek parliament that described the formation process of the IfG (Christmas 2013). By the end of April 2014, the Greek government signed two important agreements: one with the German investment bank KfW and another agreement with EIB. It is ready to start its operations within the next 3 weeks. The Hellenic Republic will participate no more than 50% in the capital share of the fund it will be financed by 3 main sources:
  • Greek financial resources (eg. National Strategic Reference Framework). The Greek state has already pledged 350 million Euros
  • Investments Banks (e.g KfW) or International Investment Organisations (e.g EIB). The French government has expressed the willingness to invest in the fund through its Bank for Public Investments and the “Caisse des Depots”. The China Development Bank has also showed interest in investing in the IfG.
  • Private investors (e.g. Onassis Foundation has promised to offer 30 million Euros).
IfG is addressing to foreign private investors, therefore it was decided to locate this institution to the Duchy of Luxembourg (as international practice proposes). Even though, it will be located in Luxembourg and will be ruled by the laws of this country, the IfG invest in companies active in Greece. Its aim is not to substitute the existing financial institutions (such as HFED) but to overcome funding gaps. In order to achieve this goal, the IfG will operate as an “umbrella fund” which will embrace three sub funds that will provide:
  • Debt financing for SMEs. 200 million will be given equally by the Hellenic Republic and the KfW. 50 million Euros will be given by EIB. It will be the first of the three funds what will start operating.
  • Equity capital to SMEs having significant growth potential.
  • Debt or equity financing for infrastructure projects which are not funded by the EIB’s programmes.
The interested parties may contact the banks for more information and apply for loans. After 4 years of deep recession, the Greek economy is gaining again its competitive advantage. Financial institutions from abroad show their trust to the economy of the country and they appreciate the progress achieved regarding the creation of a friendly investment environment. The initiatives described above aim to enhance entrepreneurship and liquidity for the SMEs, as well as to reduce the unacceptably high levels of unemployment.

Greece’s Budget Surplus Sparks More Controversy

Publiziert am 13.Mai.2014 von Abraam Kosmidis
With the May 2014 European and local elections looming, the conservative-led coalition government has already embarked on the process of making political capital out of the first primary budget surplus recorded in a generation. Predicting a figure of around €2.5 billion, more than three times the government’s original estimate of €800 million, Prime Minister Antonis Samaras has stated: ‘We must help those most affected by the crisis, in order to give them a second chance. Our goal is to exit the crisis without leaving anyone behind.’ To this end, he has vowed to return 70% of the surplus to the people hit hardest by the austerity measures. This will go some way to addressing the problems of low-earners, and includes a €500 bonus to pensioners and members of the police and security services, who along with the majority of public sector employees have borne the brunt of drastic cuts over the past four years. By the end of April, more than a quarter of a million people had already applied for these ‘social dividends’. The opposition, led by the radical-left Syriza party, immediately went on the attack, arguing that the idea of a primary surplus was the invention of a government that had not only drastically cut spending but failed to include in their calculations factors such as debts to state suppliers, which it had neglected in favour of a transparent attempt to buy votes from the casualties of austerity. Syriza argued that any budget surplus had been achieved only with the creation of a surplus of the unemployed and poverty-stricken. Meanwhile, the German Chancellor Angela Merkel still insists that in return for Germany’s backing, Greek austerity measures should continue. Syriza issued a statement declaring that Greece clearly still had a long way to go before coming out of austerity, and that a new Memorandum of Understanding between Greece and the Troika would only lead to further cuts and job losses in the public sector, despite the country preparing a bond issue to raise money on the markets for the first time since the international bailout began. The statement concluded: ‘The celebrations about the primary, pre-election surplus… cannot hide the future that Mr Samaras and Mrs Merkel have in store for the Greek people.’

Public sector protests

The Troika’s austerity measures had included a demand for 25,000 public sector workers to go through the government’s ‘mobility scheme’, whereby workers are suspended on 75% wages while waiting to be transferred to another job. The scheme has been called a ‘precursor to layoffs’ because unless another job was found within a year the worker would be dismissed. The agreement caused a rash of protests and demonstrations by workers and unions, the preferred method being the occupation of local government offices rather than strikes, which would have only resulted in more lost wages. The European Commission stated that the suspensions were a necessary part of the government’s restructuring programme, aimed at bringing the high public sector wages bill in line with the euro-zone average. For decades, Greece’s main political parties have traditionally rewarded loyal supporters with public sector positions, causing it to grow rapidly and become ever more expensive to maintain, although only 22.6% of Greeks work in the public sector compared to the EU average of 25%. The problem is commonly seen as more a matter of productivity than size. According to the opinion polls, Greece, out of all the EU countries, is the least satisfied with its public administration service. In a country where the security of public sector jobs has traditionally been inviolable, this was a recipe for conflict, which brought more workers onto the streets in protest in March 2014 ahead of resumed talks between the government and the Troika. The coalition government has not held back from hailing an end in sight for the economic crisis, although austerity will have to continue as part of the loan agreement. It is committed by the end of 2014 to cutting 11,000 civil servants, reducing supplementary pensions and eventually to reducing the main pension. The Memorandum of Understanding puts a freeze on wages until 2018.

Run-up to the election

Despite the huge numbers of applicants for the social dividend, Prime Minister Samaras had to wait until the EU Statistics agency Eurostat had certified the actual amount of the budget surplus before proceeding with any payouts. The figure of €1.5 billion or 0.8% of annual GDP was confirmed in a press conference on 23 April by European Commission spokesman Simon O’Connor, who said it was ‘well ahead of the 2013 target, which was for a balanced budget.’ Meanwhile, the bond issue of €3 billion, which took place on 10 April, attracted orders for nearly seven times this amount. Greece has the highest unemployment figure in Europe and is still blighted by deflation, but this sign of growing confidence among its EU partners in its prospects for recovery has sent one positive message to voters who may doubt that the recovery is real, and has helped to counteract the stigma attached to a country that is blamed for starting the financial crisis in Europe. On 28 April, in a meeting chaired by Alternate Finance Minister Christos Staikouras, representatives of the two coalition parties agreed on how the €525 million social dividend would be distributed, the main aim being to provide healthcare coverage to a large sector of the population who are uninsured. A bill will be tabled in parliament this week, with measures agreed between the Greek government and its creditors. The bill will be hastened through the parliamentary process in the hope of beginning distribution of the dividend by 9 May. Means testing will be based mainly on 2012 incomes, although the government is anxious not to leave out people who became unemployed in 2013. €430 million will go to vulnerable groups such as pensioners and people on low salaries. The starting income level to qualify for the one-off benefit will be €4,000 per annum, rising to between €10,000 and €11,000, depending on the number of children in the family. A base figure for the award will be €500, with an added €150 per child, so that a family with two children should receive €800. A further €20 million will go to people who became unemployed in 2013, and between 68,000 and 70,000 in the police force or the military will be awarded a total of €35 million. In addition, services for feeding and housing the homeless will receive €20 million. The largest single group to receive the dividend will be the 350,000 to 4000,000 people without social security, who will receive a total of €20 million worth of healthcare coverage. This group includes the long-term unemployed, people who are retired and uninsured, and unemployed professionals who have not kept up with insurance payments or suffer chronic health problems. It remains to be seen how these measures will affect the election results.
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Another opportunity to invest in Greece

Publiziert am 5.Mai.2014 von Abraam Kosmidis

Exploitation of the Greek state-owned assets: Another opportunity to invest in Greece.

Since 2010, Greece is making a continuous effort to recover from the severe effects of the economic crisis and to boost its economy. Because of the fact that the Hellenic Republic is the biggest owner of properties in the country, the policy makers decided to exploit these properties by selling or leasing land, real estate buildings, and shares of public corporations. However, it was not easy to handle such huge welfare, because different public companies used to handle (monitor, valuate and exploit) the public properties. The fiscal strategy that Greece is following defines that the public sector must be reformed and some of the public companies must close. So now, there are 2 main institutions, which exploit the state-owned properties.

Hellenic Republic Asset Development Fund

One of the two companies is the “Hellenic Republic Asset Development Fund (HRADF)”. It was established on 1st July 2011 under the medium term fiscal programme. Its legal form is “Societe Anonyme” of which the Hellenic Republic is the only share holder. Its duration is expected to be 6 years, but it may exceed this timeline once the Ministry of Finance decides that would be necessary. Among the members of the Board there are two observers who have been appointed by the European Commission and the Eurozone respectively.

Mission of the Fund

The medium term fiscal programme of 2011 defined that the Greek government had the commitment to develop a Privatisation Programme for the state-owned assets. The Fund was established in order to support and promote this privatization programme in a transparent, rapid, and efficient manner. Then the Greek government enacted an “Interministerial Committee for Restructing and Privatisation”. This committee (which consist of the ministers of: Finance, Development and Competiveness, Infrastructure, Environment, and Tourism) decides which one of the public properties are ready to be privatized and then it transferred to the HRADF. The fund has the jurisdiction to sell, to develop and to liquidate the 900 assets that have already been transferred to it from the state. These assets are divided into 3 categories:
  • Real estate and land development (e.g. 35 real estate buildings, Helliniko S.A.)
  • Infrastructure (e.g. Athens International Airports, Regional Airports)
  • Corporate (e.g. Hellenic Football Prognostic Organisation, Hellenic Petroleum, Hellenic Post).

Completed Projects

These are some of the completed projects of the fund:
  1. Helliniko SA. It was the company which was responsible to manage and exploit the land as well as the establishments situated in the area of the former Athens International Airport. On 31 March 2014, it was announced that 100% shares of the company was sold to a private investor. The purchase price was 915 million Euros.
  2. Hellenic Football Prognostics Organisation S.A. On 11 October 2013 33% of the company shares were sold to a private company. The purchase price was 652 million Euros.
  3. State Lottery Tickets. On 30 July 2013, the rights to operate circulate and manage the Lottery Tickets were transferred to a private company for 12 years. The purchase price was 770 million Euros.
  4. Real Estate Buildings. So far, 28 real estate properties have been sold or leased with total revenue 261,3 million Euros.
Since 2011, the Fund has received 2,6 billion Euros through the implementation of the privatization programme.

In –progress Projects

These are some of the on-going projects of the HRADF:
  1. Piraeus Port Authority S.A.(OLP) / Thessaloniki Port Authority S.A(OLTH). The HRADF wishes to sell the 67% of the shares of both these companies. There are already 6 different available proposals for the OLP.
  2. 12 more port authorities. The Fund wishes to sell shares of twelve more port authorities.
  3. 37 Regional airports. The HRADF wishes to privatise the airport authorities of 37 greek airports.
  4. Thessaloniki Water Supply and Sewerage Company S.A. The fund invited the investors to purchase the 51% of the shares of the company.

Future Projects

The HRADF is about to proceed to the following actions within the next 12 months
  • Privatisation of the Hellenic Post: the Hellenic Republic is holding 90% of the shares. It wishes to sell this percentage.
  • Selling of the 17% of the shares of the Public Power Corporation S.A.
  • Selling of shares of Athens Water Supply and Sewerage Company S.A
  • Acquisition of the ownership right on the “Aghia Triada” land. It is a seafront property of 132,483 m2 located 27 km from the center of Thessaloniki city.

Public Property Company

There is a second company which is entitled to exploit the state-owned properties. It was first established in 1998 (with a different name) and its main objective was to exploit the tourist properties of the country. In 2011, it merged two other state-owned companies with similar activities and it got its final name – Public Properties Company SA (PPC). Nowadays, the PPC is handling more than 70.000 state –owned properties mostly of tourism interest (marinas, ski resorts, camping, spa resorts). The PPC exploits all these properties which have not been transferred to HRADF. It may lease some of them (the leaser in most cases has the obligation to invest money to renovate the place) but it may manage them as “branch offices”. Examples of these branch offices are the “Parnassos Ski resort” and the Vouliagmeni Seashore SA (a land situated in south Athens area and offers leisure and sea-related services).

Projects of PPC

  • Nafplia Palace Hotel: it is a group of 3 hotels situated in Nafplio – Peloponnese. The PPC has signed a leasing contract with an investor who is obligated to invest 6,3 million euros to renovate the whole group.
  • The PPC will run the renovation works of the lifts at Parnassos Ski Centre from July to November 2014. The cost of this project is estimated around the 29,5 million and it will be delivered through the National Reference Framework.

The first e-auction for properties

The most innovative project that PPC is running is the website: www.e-publicrealestate.gr. It is an electronic – Ebay style – platform where the smaller public properties are auctioned. It runs since July 2013 and it aims to make these properties accessible to as many investors as possible. The types of properties that can be auctioned are residential, commercial, sports and tourist facilities and / or urban and rural land. In the near future, 16 are scheduled but no specific dates are given yet.

The co-ordination of the HRADF and the PPC

So far, the two companies used to cooperate for a small amount of properties. The PPC used to promote “mature” projects which were ready to be privatized such as the case of Helliniko S.A. The updated memorandum defines that the two companies will cooperate more in the future. More specifically, PPC will make sure that the properties are not mortgaged and they can be transferred to the HRADF. It is expected that by the end of 2015, 3000 properties will be transferred to the HRADF.

Exploitation of the church properties

A third company entitled to exploit properties is the newly established (January 2014) company responsible for the exploitation of church properties. It is half-owned by the Holy Archbishopry of Athens and half-owned bt the Hellenic Republic. The properties which the company will manage can only be leased. They cannot be sold. The state will receive the 50% of the incomes and the other 50% will be used for the church charities. The first property to be leased is a land of 83.000 m2 located to Vouliagmeni, south of Athens.

The advantages of the privatization programme for the economy of the country

The Greek government is making every effort to boost the economy. This aim can be achieved by attracting new investors. The privatization programme was one step towards this objective. Privatisations will not only help to reduce the public debt, but they will also bring some indirect benefits. The privatised properties will be developed by the investors and thus new jobs will be created. The underutilized assets will be used in a more effective way (as it will happen in the case of Helliniko or even Aghia Triada). The local communities and economies will be boosted. In the end, privatizations is a tool that enhances the good business climate that the new investors want to see in Greece.
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