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Sunday, December 8, 2019

Financial Investors And Others

"London road shows prove investor interest", titles the Ekathimerini. "Foreign portfolios view Greek assets as serious investments", the article continues. This is certainly good news for the Greek stock market. To what extent it is also good news for the real Greek economy remains to be seen.

I have argued for a long time that financial investors should not be the primary target as Greece strives to attract foreign capital. Financial investors have only one interest: risk-adjusted yield. A relatively small economy with free international capital flows can very quickly become victim of financial investors. Their money is 'hot money'. It comes quickly but it can also leave very quickly. And when it leaves quickly, it typically leaves chaos behind.

The primary target of Greece's attempt to attract foreign capital should be investors who can transfer technology and know-how; investors who are builders and not speculators; investors who have a long-term strategic vision and not a cash-out mentality. Cosco would be a prototype of such an investor.

I am not sure that road shows in London or elsewhere are the best strategy for the Greek government when it comes to attracting the right kind of foreign investment. Instead, the Greek government should analyze which sectors of the economy hold the best potential for development. Then it should analyze which foreign companies are not only leaders in that sector but also are prepared to take a long-term strategic vision. Again, Cosco would be a good example.

And then the Greek government, instead of arranging road shows in London or elsewhere, should call on the headquarters of the Cosco's of the world, present to their CEOs and take it from there.

Investments in the stock market do not necessarily create jobs. A new plant for, say, pharmaceutical products certainly would.

6 comments:

  1. I don't disagree but since you keep mentioning Cosco, what type of know-how does Cosco bring that Greece didn't already have when the port was under public administration? Nothing really, it's just that under public administration the port became synonymous with mismanagement, the typical mismanagement which characterizes all things public-sector in Greece.

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    1. Good management and good corporate governance is, in my view, one of the most important know-how transfers which Greece can get.

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    2. Let me make myself clear. Cosco doesn't transfer any know-how. It's not a factory. It doesn't design, produce or operate machinery. The only reason that the Piraeus port wasn't as successful when it was under public management, is because of the rampant corruption of the Greek public-sector.

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  2. Klaus, although I agree that COSCO is in a way a dream come true investor for Greece that can bring a lot to the table I do not think that the Greek government should try to pick winners but instead they should try to make Greece a better place for investments that bring knowledge transfer and jobs with them. Property rights (and a judiciary that protects them) a well educated and disciplined workforce, political stability, an administration that is business friendly, able and effective even without being bribed and a society that values competition more than nepotism would do the trick.
    COSCO is (as you of course know) a Chinese state owned company with deep pockets and strategic and political interests. With this in mind I am not sure if there are many "COSCOs of this world" outside the PRC that would be in line for similar invstments in Greece.

    Best regards
    Urs

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    1. There is nothing in what you say that I would disagree with. Of course, Greece has to do its homework to attract foreign investment. It still ranks as that last EU country (not only Eurozone!) on the World Bank's Doing Business Report and has been there ever since I looked at this report (since about 2010). Early during the crisis, I argued that Greece should establish "special economic zones" where optimal conditions for foreign investors would be offered (optimal conditions being defined as something that would make Greece number one on the World Bank's Doing Business Report). My reasoning was that one cannot change an entire country/economy in a reasonably short time frame. Thus, one should make "special economic zones" where one could establish such conditions overnight. Over time, and if those spezial economic zones are successful, those conditions would rub off on the rest of the economy.

      I am reminded of the time when BMW was planning a major new plant for the production of engines. A place in Austria was on the short list. The Austrian Chancellor at the time (Bruno Kreisky, a socialist!) travelled to Munich and told the CEO that he could practically have everything he wanted. And BMW Austria today makes about 2/3 of all BMW engines today (I believe), is a huge employer and is (or at least was a few years ago when I last looked at it) Austria's largest tax payer.

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    2. The story around the BMW plant in Austria is very interesting. I didn’t even know that BMW has any production facilities in Austria let alone one of that size. Kreisky’s efforts were definitely worthwile.

      Urs

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