As Greece tries to make the best of the holiday season, the country’s battered small-and medium-sized enterprises are pondering their futures.
It has been an eventful year for Greece to say the least, and more so for the country’s business community. After an unexpected year-on-year GDP rise of 0.4 per cent from April to June, thanks in part to the capital controls that sent panicked Greeks out to spend their savings on big-ticket items, the economy shrank by 0.5 per cent in the following quarter.
Greece's national Kathimerini newspaper in May reported that a quarter of Greece's SMEs – about 200,000 businesses – had been wiped out from the start of the crisis in 2008 until last year. The lost business has been reportedly absorbed by larger chains and department stores.
One of the main problems firms in Greece face lately is the imposition of capital controls that came into force on June 28 this year to stem the outflow of savings as a result of the very real fear over Greece leaving the euro zone.
While the scenario failed to materialise, the capital controls have stayed in place.
The National Confederation of Hellenic Commerce (NCHC) recently reported that an estimated 60,000 Greek businesses of every size had submitted requests to relocate their headquarters overseas, especially Albania, Bulgaria and Cyprus, where the business climate is either friendlier or there is less expensive red tape to get through than in Greece.
This trend is significant in a country where between 95 and 98 per cent of all businesses are classified as SMEs, says Vassilis Korkidis, the president of the NCHC.
“The problem for SMEs in Greece is that we have been overtaxed for a long time, but it’s now too much. After the scenario of a bank run, we face the danger of a business run, and there are no capital controls to stop that,” he says.
He adds that 60,000 new tax roll numbers in Balkan countries have been opened by Greek businesses. They are not yet activated but indicate preparations being made by Greek businesses to relocate if the economic climate worsens. Mr Korkidis says that this might particularly happen with SMEs already near Greece’s northern border, and those in the farming sector who recently saw their tax band jump and many subsidies removed as part of the country’s latest deal with its creditors.
“Businesses are facing significant delays in transactions thanks to capital controls,” says Mr Korkidis.
“At this moment about 63,000 Greek SMEs are in danger of not surviving 2016. This is a big problem for the 138,000 people that these businesses employ. We could be looking at about 17 businesses closing daily next year if something is not done.”
The year-end holiday period is when most Greek SMEs make around 25 per cent of their annual income, relying on consumers spending their Christmas bonuses. However, since the advent of the crisis, salaries and pensions have been slashed and the bonus is a thing of the past for many. As a result, consumption has fallen 42 per cent since the start of the crisis, according to Mr Korkidis.
In his view, the way around the problem is to adopt the European model that has recognised the importance of SMEs in GDP contribution and in providing jobs. To do this Mr Korkidis says Greek SMEs need to enter the digital market and take their businesses online which would additionally take them beyond the country’s borders. He also emphasises that the issue of capital controls needs immediate attention.
In August, Endeavor, an international non-profit organisation that supports entrepreneurs, released a survey of 300 Greek companies which showed that the many businesses (49 per cent) cited the lifting of capital controls as their immediate priority. Nearly 60 per cent of the businesses surveyed cited the impact of capital controls on their business as high or very high, with 51 per cent expecting a resulting drop in turnover by up to 50 per cent.
A similar picture is painted in Greece’s second city of Thessaloniki, where the Thessaloniki Chamber of Small and Medium-Sized Industries reported this month that an average of three SMEs are shutting down in the city every day.
“We’re not a country of large companies,” says Panagiotis Papadopoulos, the president of the Thessaloniki chamber.
“So it’s very significant when small, family-run businesses are shutting one after the other, companies that contribute tax revenue and offer jobs.
“Coming up to Christmas, businesses [were] hopeful that they’ll see a small rise in their turnover, but we can’t say that it’ll be like it was, because of the capital controls,” Mr Papadopoulos says.
“People are not consuming because they can’t withdraw their money.”
Nick Malkoutzis, the editor of the economic analysis website MacroPolis, says the current model of local SMEs is unsustainable for a number of factors.
“Greek SMEs have suffered the most during the long recession,” he says.
“Some have been able to survive because their small size or family-based structure has given them a good deal of flexibility but many have been unable to survive in constantly deteriorating conditions.”
He adds that the crisis has made it more difficult for SMEs to continue, while the current economic liberalisation measures being adopted also mean some of them are now not in a position to compete, despite some bureaucratic hurdles being removed in the past few years.
“Greece still remains way behind most European standards for ease of business and there are still many bureaucratic costs that have to be factored in,” says Mr Malkoutzis.
“Also, it has been near-impossible for Greek SMEs to get the funding they need over the last few years. Or if they do, they are paying interest rates that are two, three or even four times higher than their competitors in other parts of Europe.”
He emphasises that the boost in spending over the holiday period will not be enough for the survival of Greek SMEs. “Greece needs to create a better business environment for SMEs,” he says.
“I think the key elements to this are improved access to finance, and on better terms, further reduction of bureaucracy and incentives for innovation.
“The country can no longer rely on SMEs kept afloat by consumption. That model has died and a new, more innovative and outward-looking one needs to replace it,” Mr Malkoutzis says.
“I’m afraid that for Greek SMEs it is going to get worse before it gets better.”
Kostas Kyrou, who owns a shop in Athens dealing in denim clothing for men – he had to cut the female line because of a lack of business – is one of the many SMEs feeling the strain.
“I’ve had this shop for 23 years. Things have gone from bad to worse. We can’t cover our liabilities any more,” he says.
“Business really fell with the introduction of the capital controls. In July, business fell by almost 80 per cent. In general business has dropped 20 to 30 per cent.”
Coming up to Christmas Mr Kyrou says there had been a slight increase in customers but his existing liabilities have wiped out any benefit from that. “You survive, but every day you owe even more,” he says. He insists the country needs a better tax system to allow businesses to develop.
Vangelis Flegas owns a mini-market in a suburb of Athens, which opened in January 2009.
“For the first three years, I thought I was doing well. Now, for about a year, things have been terrible,” he says.
“I hope that things will get better, but I’m realistic, too. People are very pressed and are not buying any more. Their purchase power has dropped and they shop in large chains rather than here. Our sales have dropped.”
A combination of value-added tax increases and a rise in tax for businesses such as his – up from 26 to 28 per cent and payable from the first euro earned – are crippling his business, he says.
“This December has been the worst month ever for me. People are very down. I try to be cheerful for my customers but it’s hard when they are so unhappy.”
He points to the Christmas decorations hanging over his head. “I just put these up,” Mr Flegas says. “And to be honest I really didn’t feel like it because in general no one is in a holiday mood.”
At a store that sells handmade jewellery and trinkets on a commercial street in the city, Hara, who only gives her first name, waits for customers. The store opened in November 2014.
“Before the summer, things were OK for us,” she says. “Normally, December is a good month for stores like this one.
“But this year, there has been no increase in sales whatsoever in December. We’re still waiting to see if that changes.”
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