Capital controls impact shipowners' contribution Greek economy

Greek shipping, an extrovert activity by definition, has traditionally been a key driving force of the Greek economy, despite the challenges it has faced at both the international and the national level with shipping receipts essential for covering a large part of the country’s external financing needs, but the imposition of capital controls have had a major impact on shipping' contribution to the country's national coffers.

"Over the 2002-2014 period, inflows from shipping accounted, on average, for roughly 44% of total receipts from services and offset about 43% of Greece’s goods deficit," Bank of Greece governor, Yiannis Stournaras, told a gathering of the Union of Greek Shipowners (UGS) last month.

However, according to Bank of Greece balance-of-payments data on shipping inflows on the basis of bank transactions data, "a considerable drop in inflows has been recorded since the second half of 2015" said Stournaras. "This drop is primarily due to the imposition of the capital controls and may therefore be reversed once the controls are fully removed," said Stournaras.

He said: "In 2016 in particular, as a result of the capital controls and low freight rates, receipts from sea transport services accounted for a mere 23% of total receipts in the services balance and financed 35% of the goods deficit, while net receipts accounted for 29% of the surplus of the services balance. Available data for the January-September period suggest a partial return, during 2017, to the pre-2015 situation. This upturn may improve further in view of the anticipated relaxation of the capital controls, as well as on the back of higher freight rates in international markets, mainly in the dry bulk sector.”

Stournaras said the shipping industry and maritime cluster can "play a pivotal role in the effort of the Greek economy to recover, contributing to GDP growth both directly and indirectly". He noted the direct and indirect contribution of the Greek shipping industry to the Greek economy’s total value added was estimated at more than 6% of GDP in 2009, while its contribution to total employment came to about 200,000 jobs. In 2016 shipping receipts declined to 3.3% of GDP, from 6.4% of GDP in 2014, ie one year prior to the imposition of the capital controls."

In any event, the expected relaxation and the ultimate abolition of the capital controls, coupled with the pick-up in global economy and trade, should increase the shipping industry’s share in GDP and enhance the openness of the Greek economy," said the bank governor.

He said it is "a remarkable achievement" for a small country like Greece to be a leader in global shipping, even though only 22% of the merchant fleet under Greek control is Greek-flagged. Further, he said though the industry faces a number of  new challenges "Greek shipping has good track record in overcoming challenges". He said that over the medium term, the development of infrastructure projects in the context of the Chinese One Belt One Road Initiative should play an important role in strengthening trade demand, mainly for the dry bulk and container sectors.

He also said it's now generally accepted one of the key factors contributing to the success of Greek shipping has invariably been a stable tax regime and revealed after a two year investigation by Brussels, Greece and the European Union are close to an agreement on the country's tonnage tax regime. "After many efforts, a mutually accepted and workable solution has been found for the vast majority of the identified issues, while there is good progress in addressing the remaining ones," he told the shipowners. Regarding capital controls he said two years after their imposition, the Greek banking system is fully recapitalised, and measures for the relaxation of capital controls have been taken, some of which are targeted to the shipping industry, while a roadmap on the full removal of the capital controls has been published.

He acknowledged that in recent years financing of oceangoing shipping by the Greek banking system has dropped sharply, with outstanding loans to shipping now standing at EUR8.2bn, against over EUR18bn in mid-2010. "This trend is not specific to Greece, as sizeable reductions in the portfolios of traditional shipping lenders have also been observed in the rest of Europe as well with part of this gap covered, through various types of financing, by Asian financial institutions," he said.

In addition the industry needs to adapt to the new environmental requirements of the international regulatory framework for shipping.

Posted 12 January 2018

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David Glass

Greece Correspondent, Seatrade Maritime

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