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Victoria Mindova

In an ideal world, Greece could have 500,000 new jobs and € 50 billion in additional gross budget revenue in ten years. These are the conclusions of McKinsey & Company’s analysts, who after ten months of work have drawn a detailed business plan what steps Greece should take to become a competitive European economy again with economic growth and demanded goods.

Greece 10 Years Ahead: National Growth Model not only presents old truths in new covers, but gives concrete ideas on what the government should do to open the path for the business in five key sectors of the Greek economy. As a bonus, it presents eight less developed areas of the economy of enormous potential for the future. Unlike other studies on the feasibility of the Greek economy, the analysis of McKinsey & Company studies in detail the market niches and the specific actions to be taken to develop them.

The analysis of the economic experts is an initiative of the Hellenic Federation of Enterprises and the Hellenic Bank Association and all hope that it would be the book of reference for the Greek managers towards economic recovery rather than a coffee pad on the desk of a forgotten bureaucrat.

Like a management manual of a troubled state, the final report contains 500 pages of detailed description of the pathological mistakes made so far and the new measures, which could change the course of the Greek Titanic. It does not exclude the previously established program of fiscal consolidation and structural reforms, but only supplements them so that in ten years Greece could see the light at the exit of the tunnel towards economic growth, rather than the lights of the train of the full financial collapse.

The 10-month work of the Athens office of McKinsey & Company analysts was presented to the Prime Minister George Papandreou in the middle of the summer and the supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission. GRReporter asked the authors of the report, "How did the government and the supervisory Troika take your suggestions?" The head of the Athens office of McKinsey & Company George Tsopelas answered concisely, "All parties responded positively and appreciated the analysis, but the main question whether the proposed measures will be implemented remains."

The sectors that could bring the desired recovery of the Greek economy are typical for the local economy. By facilitating then and making some administrative reforms, sectors such as tourism, energy, industry, food production, agriculture, wholesale and retail could breathe new life into Greece and its role in the European economic development.

Tourism, which is a major sector in Greece due to its geographical location and its historical sites, offers great opportunities for growth, the report says. A new, better strategy is necessary to attract tourists from major international markets like USA, Russia and China with not so burdensome visa procedures for the visitors from these countries. The share of tourists from the continent, including the UK, Scandinavia, the Netherlands, Germany, France could increase too. So far, tourism brings about 15% -17% in GDP. 70% of the revenues are the result of domestic consumption, which declined due to the recession. The real advantages of Greece as a tourist destination, however, should be used to attract foreign tourist flows. Cruise tourists are an important part of it but they do not rank Greece first as a port. McKinsey & Company recommends that the government should build at least 3-4 new key ports with appropriate infrastructure for cruise ships’ landing and fueling. The main source of income for this type of tourism is their fueling and the interest in the Greek Mediterranean see remains a significant and untapped asset.

The services offered in tourism should be expanded. Large urban centres should be adapted to meet the so-called City Break tourists who visit the country throughout the year. This type of tourism has a great future in Athens and Thessaloniki, but also in other beautiful towns in the country. Economic analysts recommend the development of 30-35 new smaller airports for charter flights and cheap airlines to make Greece more accessible and attractive. Furthermore, easier and quicker procedures are necessary for large investment projects related to tourism as well as restructuring of public policy to meet the market needs.

The energy sector has yet to develop and modernize. Some of the advantages of Greece are its key position in the region and the opportunities given by its natural inexhaustible natural resources. The country should improve its power generation mix, giving more incentives for the use of alternative energy sources. Furthermore, energy efficiency is a brand new segment that would not only reduce household costs and improve quality of life, but also would recover some almost 'dead' sectors of the economy such as construction and repair. Experts say that the improved energy efficiency could bring € 1 billion annually in the budget by 2021.

Industry in Greece has weakened seriously in the last 20 years. Today, the country should find again its productive force in order to reach the world markets again. Food industry and related occupations are traditionally strong sectors, giving 20% ​​of the employment in the country. Another known industrial activity is the heavy industry and the mining of ores, metals, minerals, the production and export of cement and the shipping industry. The relevant entrepreneurs often find the right way out themselves, but the state should resolve problems of common concern to facilitate the public administration and the permits issuing procedure and to minimize the obstacles to free competition.

Thanks to the availability of raw materials and products with high quality in the food industry, there should be specialized processing and reasonable prices in Greece. This provides many opportunities for increasing the production and exports while reducing the imports, mainly in four food categories - oils, fruits and vegetables, cereals and dairy products. The Athens Office of McKinsey & Company stresses that not only the feta, but also a wide variety of other dairy products like cheese, yogurt and more should be distinctive for Greece.

As for olive oil, Greece loses high added value, given that the Italian manufacturers buy wholesale the Greek product, process it, bottle it and sell it with a net profit of 50% over what they have paid the Greek producers. The company proposes that a private-public company should be established, a Greek management company for food, bringing together small and medium-sized producers, to create brand names. In addition, this organization should be responsible to support the establishment of processing plants and plants for packaging of food in order to increase the consumption of Greek goods domestically and not to increase the import and export.

The rising stars of the Greek economy, which have great potential for development, but are not very popular yet and do not contribute to the GDP significantly are pharmaceutics, aquaculture development, medical tourism, care for the elderly and chronically ill, establishment of logistics centres and waste management. In addition, two small sub-categories are expected to play a symbolic role in the new growth model of Greece. These include specialized production of rare food categories and development of targeted educational programs in the humanities. This common set of alternative economic sectors in the future, beside the usual ones for Greece, would bring net added value to the GDP of € 7 billion in 10 years and could open up to 70,000 jobs, which seem crucial in today's deepening recession and unemployment.

Changing the old ways of thinking and working

The study shows that two out of three Greeks choose to work, which means that one third of the country's work force remains unused. In the most part, women and young people to thirty years of age remain outside the labour market. Analysts estimate that this is due to the mindset established over the years that has to change drastically today. Specific government policies are necessary to support young people’s earlier entry into the labour market as well as more effective integration of women into the working conditions in different environments.

The unusually high percentage of largely voluntary unemployment is due to the old model of economic development based primarily on public and private consumption - a hyper-consumption, which relied on government spending for years, instead on profitable foreign direct investment, which is one of the main reasons for the loss of competitiveness of Greek products. The experts say that we should not continue to sustain the economy of public and private loans; we have to create an entrepreneurial friendly environment.

Private and public consumption should fall by 15% -20% at least and reach 75% of GDP from today’s 94% of GDP. Productivity per capita should also increase with the growth of employment of workers in active age and with the improving of the quality of the work. Direct private investment should also grow to the average values in southern Europe and reach at least 23% of GDP from the present 14% of GDP. The private sector should change radically its orientation, with particular emphasis on exports. The net exports should rise significantly above the current levels. Today, it has a negative value of 8.5% of GDP and in 2021, it should be positive or should zero the balance of trade (export-import) at least. Undoubtedly, the most serious problem in Greece remains informal economy and the hole it forms in the government revenue. Tax evasion should reduce by half at least to broaden the tax revenue base not to deepen it with higher values and low collection rates.

Currently, the largest industrial enterprises in Greece employing over 250 people are only 27% of the companies in the sector, unlike countries such as the Netherlands and Germany, where the number of large companies is 34% and 54%. The major problem is not so much the size but the competitiveness of manufactured products, which in Greece is still low. The lack of commercial attractiveness more in view of value per unit of production rather than of quality is the reason for the negative trade balance of the country and € 19 billion less for 2010 at that. This makes Greece to continue to import many goods and products, rather than to develop its own production.