Feb 1 2018

The Effects of Economic Crisis on Greek Entrepreneurship

By Jessie Voumvaki

Greek SMEs – which generate ¼ of Greek GDP and cover 45 per cent of the country’s employment – have been hit hard during the past decade by a perfect storm (i.e. sharp decrease of domestic demand, high political uncertainty, tight credit conditions and imposition of capital controls).

With the segment’s production having been reduced by more than 30 per cent during the crisis years, the surviving Greek SMEs are currently facing the great challenge of operational transformation to higher competitive standards.

With business confidence reviving to positive levels and employment expectations verifying the positive outlook, the key issue is the sustainability and the dynamism of the recovery, which in turn depends on the operational health of the business sector. With the data availability and reliability for the SMEs segment being low (especially for the micro enterprises), we have undertaken an endeavor to fill this gap by conducting a biannual survey on a sample of 1200 SMEs. The main focus of the National Bank of Greece (NBG) survey for the SMEs is to construct a Business Confidence Indicator as well as delve to special issues (such as innovation, extroversion, strategic orientation).

By combining the findings from our SMEs survey with macroeconomic data, we have identified three structural changes occurring during the crisis years that have strengthened the SMEs segment:

  • The imposition of capital controls in Greece has challenged SMEs enormously but eventually made them stronger, more resilient and flexible enough to have mastered the ability for a quick recovery from external shocks.
  • The imposition of capital controls had another positive side-effect; it has triggered a digital advancement of the business sector. This shift began with higher availability of POS terminals and has advanced to boost the usage of ERP systems and e-commerce tools.
  • Greek SMEs have become more export-oriented during the crisis. Focusing on the manufacturing sector, the share of exporting SMEs has increased by almost 10 percentage points, while the dynamic SMEs exporters increased their exports by €1.5 billion during the crisis (i.e. more than doubling their volumes) and have the potential to boost Greek exports further by €4bn during the next 5 years. Moreover, the external demand for Greek tourism proved resilient, with foreign tourist arrivals increasing by 82 per cent and tourism receipts by €3 billion during the crisis. In the medium term, a strategy specifically attacking the two fundamental problems of the sector (i.e. foreign tourists’ quality and seasonality) could increase tourism receipts by around €6 billion per year.

Looking forward and according to NBG’s forecasts for Greek GDP, domestic demand will increase by 10 per cent during the next three years. Under this scenario, the two main limitations of Greek enterprises – high fixed costs and low capacity utilization – will be lessened. Therefore, this limited revival of domestic demand (covering just 1/5 of the crisis’ loses) will be enough for the ROA of Greek enterprises to converge to the EU average (leveraging on the improvements on gross profit margin and the trade cycle). In particular, sectors like hotels, logistics and food manufacturing will be able to gain shares in the global markets of goods, services and capital.

Turning to the long-run potential of Greek entrepreneurship, institutional reform is the key to unlock its full dynamics. Our research findings from analysis on a wide range of sectors (from IT to hotels, and from higher education to olive oil) reveal three common main areas of focus:

  • Legal and judicial framework (with the time required for enforcing contracts being 4.4 years in Greece versus an EU average of 1.7 years).
  • Academic support to the business sector (with the share of researchers employed in the Greek business sector being just 19 per cent versus an EU average of 49 per cent).
  • Property rights and land issues (with time required for first-court decision being more than 3 years in Greece versus an EU average of less than 1.5 years).

Convergence to the European institutional standards on those three areas could “upgrade” the DNA of Greek entrepreneurship and enable Greece to exploit its natural competitive advantages.

Dr Jessie Voumvaki is a senior economist and the Head of Entrepreneurship and Business Analysis in the Economic Analysis Department of the National Bank of Greece.

A research seminar on this topic will take place on Tuesday 6 February 2018 from 6:00pm to 7:30pm, organised by the Hellenic Observatory. For more details about the event, please visit the event page.

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