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Friday, May 11, 2018

Piraeus & Cosco: A Pure Success Story!

The Piraeus Port Authority S.A. (PPA) is a publicly traded stock corporation which operates everything that takes place in the Piraeus harbor (the land is leased from the state; not owned by PPA). The largest shareholder is Cosco Shipping of China with 51% outright. Another 16% are held in escrow in favor of Cosco until 2021 by which time they will also pass into outright Cosco ownership provided that Cosco completes the mandatory investments. The Hellenic Fund and Asset Management Association (HRADF), i. e. the Greek state, still owns 7,14% after having sold the above 67% to Cosco in 2016. Domestic and foreign institutional investors own roughly 8-10% each and the rest of the stock is widely distributed.

PPA has made a comprehensive Presentation of Financial Results 2017 to the HRADF. Here are some highlights:

* PPA recorded total revenues of 112 MEUR in 2017, spread over 5 business divisions: 3 container terminals (64 MEUR), 1 car terminal (12 MEUR), cruise operations (11 MEUR), coastal operations (10 MEUR) and ship repair (7 MEUR).
* The 3 container terminals are named Pier I, Pier II and Pier III. Already in 2008, Cosco had signed a lease for Pier II and it subsequently added, in 2013, Pier III. Pier I had operated under Greek management until Cosco's majority acquisition of PPA in 2016.
* PPA recorded earnings before taxes of 21,2 MEUR, which is a return of 19%; an outstanding performance!
* Leaving aside Pier I, the pre-tax earnings were contributed by Pier II and III (33,4 MEUR), car terminal (1,7 MEUR), cruise operations (2,0 MEUR), coastal operations (1,9 MEUR) and ship repair (1,0 MEUR). Since the sum of these individual parts amounts to 40,0 MEUR and since the total pre-tax earnings of PPA were 21,2 MEUR, it is obvious that there is a rotten apple in the group.
* Pier I, the pier which had been operated by Greek management until Cosco's majority acquisition of PPA in 2016, contributed a pre-tax loss of 15,1 MEUR! (this on revenues of 20,0 MEUR!). In previous years this loss had even been substantially higher.

The non-financial part of the presentation includes the following highlights:

* Piraeus is the 7th largest container port in Europe with good chances of moving into the top-5 in the near future.
* Piraeus is the 6th largest cruise port in the Mediterranean.
* Piraeus is the largest passenger port in Europe.
* 150 MEUR will be invested into the expansion of the cruise port.
* 20 MEUR will be invested into the expansion of the car port.
* 55 MEUR will be invested into the expansion of the ship repair operation.
* the cruise passenger terminal will be expanded and 2 warehouses will be converted into 4* and 5* hotels.

Conclusion
It is hard to think of a better foreign investment for Greece. A 'good' foreign investment is an investment which leads to something positive which would not have happened without that foreign investment. It is obviously impossible to say how PPA would have developed if Cosco had not become involved in 2008 but one point of reference is that the pier which had been operated by Greek management until 2016 had essentially been a money-squandering machine until that time (almost 100 MEUR pre-tax losses in 5 years!).

Thursday, May 10, 2018

ESM's Klaus Regling: Germany's 1953 Debt Restructuring A Model For Greece?

Klaus Regling, head of the European Stability Mechanism (ESM), this week drew a parallel between Greece today and postwar Germany in a speech in Aachen, Germany. Germany, he reminded the audience, had repaid the last instalment of the 1953 debt restructuring only in 2010. Successful debt restructuring was all a matter of long tenors, according to Regling.

Regling casually overlooked a few details in his speech. One, a very major debt forgiveness had been part of the 1953 debt restructuring (50% of all debt). And, two, there was the Marshall Plan which provided a key stimulus for the unfolding Wirtschaftswunder in Germany.

But still, the valid question is: Would the Greek economy experience its own Wirtschaftswunder if only a sufficient external stimulus and adequate debt relief were given? That is really the key question haunting Greece observers since 2010. Yanis Varoufakis, for one, had argued tirelessly in his blog, long before he became Finance Minister, that only a major public stimulus could get Greece out of its depression because, he said, when the situation is as depressed as it was/is in Greece, no private initiative could accomplish this goal.

One thing is certain: whenever there is an economic problem and one throws money at it, there will be an improvement. If Greece were given, as a present, say, 10 BEUR, the Greek state would spend most of that money domestically. The expenses of the state are incomes/revenues for privates. The privates, in turn, spend their new incomes/revenues and they become incomes/revenues of others. And so forth.

But here is the great uncertainty: Will that initial improvement trigger a lasting recovery or will it only turn out to have been a flash in the pan?

One can liken the situation to a large campfire. A cup of gasoline will certainly convert a flamelet into a darting flame. The question is whether that darting flame will lead to a lasting fire and lots of glow. If the campfire is built well; if there are small pieces at the bottom and the larger ones at the top; if the wood is dry; etc. --- the darting flame will likely lead to a full-fledged fire. If, on the other hand, the campfire is poorly built; if there are only few small pieces at the bottom; if the wood is wet; etc. - well, then the darting flame will soon extinguish and the situation will be worse afterwards than before because the darting flame will have burnt whatever there was left of small pieces.

There are many economic examples for both scenarios. The postwar German campfire was very well built and the Marshall Plan, actually a relatively small stimulus, provided the darting flame which turned into a lasting fire. Forty years later, the former East Germany was not a well-built campfire. The West did not throw a cup of gasoline on that campfire. Instead, the West threw (and still throws) truckloads of gasoline on that campfire (roughly 100 BEUR annually) and it still hasn't really developed its own strength.

How can one explain the difference between postwar Germany and the East Germany of the 1990s? Well, it certainly can't have been racial and/or cultural reasons: the East and the West were ethnically the same Germans. The answer must be found elsewhere.

Is the Greek economy today more akin to the postwar Germany of the 1950s or East Germany of the 1990's? One thing is certain: post-1953 Germany was a tremendous economy to invest in, both for Germans as well as foreigners (particularly Americans made huge investments in Germany). Greece, in contrast, ranks as one of the least attractive countries of the Eurozone, of the EU and of Europe in total to invest in (Doing Business Report 2018).

Statistics since 1981 show that as money flows into the Greek economy, as growth occurs, as purchasing power increases --- much of that purchasing power goes into consumption instead of investment. Since the Greek economy cannot satisfy, by far, the desires of Greek consumers, the increased purchasing power goes into imported products. All the reforms discussed/implemented since 2010 had as their declared objective to change/improve the structure of the Greek economy: more productive output and less services; more exports and less imports; more private and less public activity; etc. A distant observer cannot see that much has changed in that regard.

On the other hand, there are some positive examples. My favorite one is Cosco which I have described in many articles since 2012 as the prototype of a desirable foreign investor. Cosco proves a couple of important points to me: (a) there are investment opportunities in Greece which are of great interest to major foreign players; (b) there are major foreign players who are willing to invest even during risky times; (c) there are major foreign players who take a long-term view on Greece instead of eyeing only quick profits; and (d) when such major foreign players who take a long-term view on Greece make their investments, the results for the Greek economy can be miraculous.

Cosco had encountered a lot of criticism/objection in its early years. Reactions to my positive articles about Cosco pointed out inhumane working conditions in Chinese sweat shops. The announcement around 2013/14 that Cosco was projected to add about 1-1/2 - 2% to Greece's GDP by 2018 did not catch much attention. Today, it seems that actual results have persuaded the critics.

So is the Greek economy now akin to a well-built campfire waiting for the initial darting flame or not?

My gut feeling is that there is no major change/improvement in Greece's overall attractiveness as an economy to invest in. The truly important changes/improvement in the structure of the Greek economy have not taken place. At the same time, I believe that there could be new 'Cosco's' and the Greek government should make every effort to look for them and find them. If only there were a dozen 'Cosco's' in the Greek economy, their presence would probably do more to change/improve the structure of the Greek economy than all the Troika's, Task Forces, etc. put together.

Tuesday, May 8, 2018

Surprise, Surprise - Germany Not A Model Pupil!

The English edition of the German Handelsblatt published an article showing that Germany was, by the end of 2016, the leading breaker of EU rules:


The German author of the article concludes: "The country, which has lectured debt sinners like Greece, performs worst in complying with European Union legislation. Physician, heal thyself!"

Monday, April 30, 2018

Greece's GDP Per Hour Worked

Below is the link to a chart which observers call the chart which says it all about Greece's problems: GDP per hour worked.

GDP per hour worked

Saturday, April 14, 2018

Personal Economic Indicators

I have commented on several occasions about my personal economic indicators for Greece. Every spring and fall, we spend a couple of months in Thessaloniki and I have developed the habit of looking out for things which - albeit totally non-sophisticated - strike me as being indicative of how the economy is coming along. One of these personal economic indicators is the commercial traffic in the harbor of Thessaloniki.

That commercial traffic had been increasing significantly in the last couple of years. Where I used to count perhaps 3-4 ships in previous years, last year there were always at least 10 freighters, including some very large ones.

We have now been back in Thessaloniki for over one week and --- I see hardly any freighters in the harbor of Thessaloniki! I have certainly not yet seen as many as 4 at one time, not to mention 10 or even more. What is happening here???

Another personal indicator is life in the villages. We spent Easter in my wife's village near Kavala. Off the bat, the village seemed somewhat empty compared to previous visits. The one hotel was closed. Quite a few shops had closed. And, above all, some buildings had obviously been deserted.

On the positive side was the story of my wife's nephew, Giorgos, a graduate of a technical school and now 29-years old. Giorgos had taken over his father's business about a year ago. Essentially, a one-person earth-moving business with some sales of building materials on the side. Where Giorgos' father had considered "working" as sitting on his machines and moving earth, Giorgos considers "working" as doing business, as looking for jobs, as farming out jobs to others when he has no capacity on his own. Of course, Giorgos is - like his father was - an extremely hard worker and he also sits on machines and moves earth. BUT - he spends a good portion of his time knocking on doors to get orders. Most importantly, whereas his father had waited passively for customers to pay their bills, Giorgos spends time collecting them. In the evenings, Giorgos and his fiancée - who is taking care of the sales shop during the day - browse the internet for jobs which are tendered in the area.

When Giorgos' father did not get orders, he had nothing to do and there had been some extremely slow times since the crisis. Giorgos, on the other hand, is extremely busy and when he told me how much money his business made every month, I was stunned. Giorgos says that there is no crisis. Instead, money is lying on the ground and one only has to make the effort to pick it up. There is no unemployment, he says. Those who don't have work don't want to work, is Giorgos' opinion. Those who wanted to work but couldn't find work have left the country, Giorgos says.

Giorgos gives work to several people. They are Greeks and not Albanians, he says. Two of them have university degrees. He employs them officially under short-term contracts; they get between 30-50 Euros/day, depending on the type of work they do, plus insurance. I asked Giorgos if he officially declared all his revenues. He hesitated, thought for a moment and then he said: "If I did that, I would be bankrupt within a year."

Giorgos has the view of a "worker", a small-town operator who can drum up business when he tries hard. He says he doesn't feel too good for anything. When he had a slow period in the winter, he found someone who had a lot of manure to be removed and he found someone else who needed manure. So Giorgos got into the business of transporting manure.

I told Giorgos that, perhaps, the situation if different for a bookkeeper in a large city. If he loses his job and there is no new job as a bookkeeper, he can try as hard as he wants but he will not find work. Giorgos' response: "I would knock on 20 doors every day and ask people if I could do anything for them. I would find some people who needed something."

I discussed this with my neighbor in Thessaloniki. In his view, the overall economic situation is as bad as ever. But, he hastens to add, the situation might be a bit better in the villages. In the villages, he says, there is always something that can be done. If nothing else, one can start cultivating a field. My neighbor is not surprised that Giorgos feels that there is work for everyone but he stresses that this represents the narrow view of a small-town operator and is absolutely not reflective of the country as a whole.

Thursday, April 5, 2018

Greece Is Still The Least Attractive Place To Do Business In Europe

The World Bank's Doing Business Report compares roughly 190 countries in terms of competitiveness. Back in 2011, Greece ranked as Nr 109, the lowest ranked country in the Eurozone, in the EU and in Europe altogether.

There have been up's and down's since then but, overall, Greece improved its position significantly: the 2018 report ranks Greece as Nr 67. So much for the good news.

The not-so-good-news is that Greece is still behind everyone else in the Eurozone, in the EU and in Europe altogether. It pains particularly when seeing that Greece's neighbors outperform Greece: Albania (65), FYROM (11), Bulgaria (50) and Turkey (60).