News aboout Greece 16/5/95

From: Thanos Tsekouras <thanost@MIT.EDU>

Copyright 1995 Reuters, Limited

May 16, 1995, Tuesday, BC cycle

SECTION: Money Report. Bonds Capital Market.

LENGTH: 555 words

HEADLINE: IMF WANTS GREECE TO PUSH PRIVATISATION PLANS

DATELINE: ATHENS, MAY 16

BODY:

An IMF delegation said Greece's socialist government should push ahead quickly with its troubled privatisation programme, starting with the delayed flotation of the OTE telecoms monopoly and the state petroleum company DEP.

The IMF delegation also called on Greece to pass appropriate legislation to create a truly independent central bank.

In a written statement after an extended visit in Greece, the IMF backed the central bank's policy of a careful reduction in interest rates.

"We would especially recommend an ambitious privatisation programme starting with the delayed flotation of OTE (the state Hellenic Telecommunication Organisation) and proceeding with DEP (Public Petroleum Corporation) and other state enterprises..and in (state) commercial banks," it said.

The national economy ministry reversed plans to float 25 percent of OTE in November last year, just before it was to go through, saying market conditions were not ripe for the price they were asking.

The IMF called for a link between wages and productivity noting that unit labour costs increased in 1994.

"It is the responsibility of social partners to reach an agreement that is consistent with this goal (competitiveness) contributing to the nominal convergence of Greece with its European Union partners," the IMF said.

It added that real pay rises for public sector employees should be related to a drop in public sector employment.

It noted progress made in reducing inflation, lending rates and improving the balance of payments but warned the government against complacency.

"These are indeed positive developments but it is still too early for celebrations," it said. "The recent economic history of the country is characterised by cases where adjustment measures were adopted under the pressure of a crisis but after some initial successes policies loosened up."

It added that past mistakes must not be repeated and urged the government to continue its current economic policies.

"We welcome the confirmations that you are fully committed to the inflation strategy in accord with the (EU) convergence programme," it said.

Year-on-year inflation dropped into single figures in April for the first time since 1973, marking a major victory for the socialist government. But it remains three times the EU average.

Greek interest rates have been falling since September, when the key 12-month T-bill rate was 20 percent.It is now 16.25 pct.

But the central bank has taken a more cautious view towards lower rates than the finance ministry, which wants to lower rates faster to cut interest payments on Greece's national debt.

The IMF delegation stressed that market doubts over Greece's ability to meet its EU convergence targets could create problems for its balance of payments.

It added that larger primary budget surpluses were needed to contain Greece's big public debt, now estimated at 112 percent of GDP.

The IMF delegation said Greece must stick to its EU economic convergence programme, calling it the last chance to join EU economic and monetary union (EMU) in 1999.

"This convergence programme is Greece's last opportunity to participate in economic and monetary union in 1999. Your ability to attain these targets will be closely watched by the markets," it said. --Steve Weeks, Athens Newsroom +301 3311812-4

Copyright 1995 The Financial Times Limited;

Financial Times

May 16, 1995, Tuesday

SECTION: Survey of Greek Food and Drink (1); Pg. I

LENGTH: 1360 words

HEADLINE: Spectacular growth since the 1980s - Food processing is now the largest and most profitable sector of Greek manufacturing. Margins which shrunk in the early 1990s, have now stabilised, reports Kerin Hope, who wrote this survey

BYLINE: By KERIN HOPE

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At the weekly street markets in Athens, Greeks fill their shopping carts to overflowing with fresh fruit and vegetables. In suburban supermarkets, trolleys are piled high with packaged food products, including many foreign brands.

The Greeks still spend more than 40 per cent of their income on food, more than the inhabitants of any other European Union member-state, although their standard of living is comparable with Spain and parts of Italy thanks to a flourishing black economy.

Mr Aristides Simeonoglou, president of the Federation of Hellenic Food Industries, says: 'The image of Greece as a poor country where a high percentage of family income goes on food is misleading. In fact, Greek social life revolves around food: the favourite form of entertainment is going out to a taverna.'

Traditional products are still much in demand, partly because they are easily available. Ties between Greeks in cities and their relatives in the countryside, where 40 per cent of Greece's 10m population still lives, may be weakening, but family connections ensure steady supplies of high-quality olive oil and seasonal products.

Greece's food processing industry has seen spectacular growth since the early 1980s, in marked contrast with the rest of the economy. While overall industrial output declined, the food and beverage sector expanded as more than Dr250bn (Dollars 1.1bn) of investment flowed in. Several Greek food and drink producers have grown to international size.

Food processing was transformed after Greek accession to the European Union eliminated high tariffs on imported food products, exposing local manufacturers to international competition. Imports soared as Greeks acquired a taste for French cheeses, British biscuits and Irish butter - all available at affordable prices for the first time.

Mr Simeonoglou says: 'Food manufacturers had no choice. Either you modernised quickly or your market would be swallowed up by the multinationals' products. We had to come up with new brands, improve quality and expand distribution, all at once.'

Many small processors shut down as the industry consolidated: the number of flour mills in Greece, for example, has shrunk from 150 to 60 over the past decade. At the same time a group of large Greek food manufacturers emerged; manufacturers that can hold their own with international companies in the local market.

But competition has intensified: international food and drink companies bought more than 30 Greek producers in a wave of acquisitions shortly before the arrival of the single European market.

Despite the small size of the Greek market, northern European food processors were keen to boost their market share by setting up a local presence, while non-EU companies wanted to secure their position in Greece after the launch of the single market. A number of big international concerns, including Philip Morris, PepsiCo, Nestle, Unilever and BSN, are all firmly established in Greece.

Food processing is now the largest and most profitable sector of Greek manufacturing. The food and drink industry has increased its share of Greece's gross domestic product from 16.6 per cent in 1980 to 27 per cent in 1994. Profit margins in food processing, which had shrunk in the early 1990s at the height of the recession, have now stabilised. The food companies are forecasting an average 10 per cent increase in pre-tax profits for 1995, after a similar increase in 1994.

Costs for food processors are high, especially for raw materials, and modernisation has burdened companies with debt. Introducing new products requires a heavy outlay on advertising, while fierce competition for space on supermarket shelves means that manufacturers are asked for substantial discounts.

Distribution also presents problems, mainly because of Greece's complicated geography, with more than 150 inhabited islands scattered across the Aegean. Consumer purchasing habits on the islands vary according to the season: some resort islands see their populations increase tenfold during the summer, with soaring demand from tourists for beer, biscuits and dairy products.

A fragmented retailing sector with a wide variety of outlets adds to distributors' difficulties. Although more than 70 per cent of food and drink sales are now made through supermarkets, newsagents, corner shops and kiosks are still important retail outlets for products with a longer shelf life.

Large companies such as the dairy producers have invested substantial amounts in distribution, sometimes setting up regional networks based on larger islands, but smaller companies have to rely on wholesalers.

Greek food companies will consolidate further in the next few years. Larger concerns are diversifying into new products or acquiring smaller companies.

Mr Kyriakos Philippou, chairman of the Fage group which includes dairy products, rusks and biscuits, says: 'Only the big companies are going to survive.'

Exports are increasing in response to demand in neighbouring Balkan countries. Several Greek food processors are now manufacturing in eastern Europe, but only a handful of companies have managed to penetrate markets in northern Europe.

However, prospects are brighter for carving out niche markets for high-quality traditional Greek foods, aimed at health-conscious consumers.

Few Greeks now follow the old-fashioned village diet, with its emphasis on extra virgin olive oil, wild greens known as 'horta', pulses, and dairy products made from sheep and goats' milk, but Greek producers believe these items have strong export potential, especially to the US health food market.

According to the Greek Export Promotion Organisation, food and drink exports are projected to earn more than Dr650bn in foreign exchange this year, equivalent to almost 30 per cent of total Greek exports.

Food exports are still led by fresh fruit and vegetables, traditionally Greece's largest export earners. Exports of seasonal produce, from early cucumbers and tomatoes, grown under plastic in southern Crete, to cherries and peaches from Greek Macedonia, brings in more than Dr 350bn yearly.

However, transport costs have risen sharply since war in the former Yugoslavia closed

the main route to Germany - the biggest market forGreek produce. Refrigerated trucks now compete with tourists for space on ferries across the Adriatic, a longer and more expensive route.

Greek exporters say the strength of the drachma, which has gained ground steadily against the peseta and lira since 1993, makes fresh produce less competitive in EU markets.

Demand is also shrinking because Greek farmers have failed to keep up by growing new varieties, improving packaging or participating in more sophisticated marketing arrangements.

While markets for fresh Greek produce have expanded in eastern Europe, traders say that prices are volatile, transport is unpredictable with long delays at harbours and rail stations, and most transactions have to be made in cash.

Surpluses of fruit cannot be absorbed on the local market because of limited facilities for canning and making concentrates.

More than 15 per cent of the orange crop, which amounts to about 900,000 tonnes yearly, has to be dumped. This summer, almost 50 per cent of the peach crop, estimated at more than 800,000 tonnes, will probably be buried.

Such large-scale dumping of fresh produce underlines the failure of successive governments to promote farm exports. Farmers complain that little technical assistance is available from the agriculture ministry for crop selection and that debt-burdened farm co-operatives are unable to pack or market products effectively.

Nowhere is the policy gap more obvious than in the olive oil industry. Although Greece is the world's third-largest producer of olive oil, the agriculture ministry has failed to persuade growers and processors to add value by improving techniques for olive-pressing and standardising the oil.

Most olive oil exports are still made in bulk to Italy and Spain, where they are mixed with other olive oils and sold as local products.

Financial Times

May 16, 1995, Tuesday

SECTION: Survey of Greek Food and Drink (12); Pg. IV

LENGTH: 1036 words

HEADLINE: Appetite for all things Greek - The Balkans

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Greek food products fill many of the kiosks and street stalls that set the pace in retailing in the ex-communist Balkan countries. Local traders say Greek goods are more expensive than those from Turkey, the main competitor, but their quality is better.

Fruit juices, pasta, chocolate and packaged biscuits are prominent among Greek exports to the Balkans. Much of the trade in food, estimated to be worth more than Dollars 400m yearly, operates on a cash basis, because few of the big Greek wholesalers, which handle distribution for the food processing industry, have ventured into the ex-communist countries.

Mr Drago Kallemi, an Albanian trader in Gjirokaster, close to the Greek border, says: 'You pay a lot more for Greek goods and often have to put down US dollars in cash. But part of that is cancelled out by the higher costs of transporting goods from Turkey, and you can nearly always be sure of selling Greek food.'

Yet, in spite of the strong demand for Greek products, only a handful of Greek food processors have started manufacturing in Bulgaria and Romania since the collapse of communism re-opened the Balkan market to Greek businesses after a 50-year gap.

The first was Hellenic Bottling Company, the Coca-Cola franchise-holder for Greece, which invested Dollars 20m in five joint ventures with local co-operative bottling plants around Bulgaria to produce Coca-Cola and other soft drinks.

Next came Delta Dairy, the largest Greek food processor, which adopted a similar strategy, establishing a Dollars 7m joint venture with a Bulgarian state-owned ice-cream manufacturer in Varna, a Black Sea resort.

Bulgaria offered the advantages of being a similar-sized market to Greece while being free of the bilateral political disputes that have hampered the growth of Greek business activity in other Balkan countries.

The mistrust created by Greece's two-year dispute with Albania over the status of the ethnic Greek minority there slowed down investment, while the trade blockade imposed against Macedonia last year is frustrating Greek companies' plans to participate in the former Yugoslav republic's privatisation programme, launched early this year.

However, several big Greek food and drink companies have quietly prepared detailed plans for investing in Serbia, to be launched as soon as UN sanctions against the rump Yugoslavia are lifted.

HBC and Delta say their entry to the Bulgarian market was made easier by opting for a joint venture with a state-owned partner rather than trying to acquire a Bulgarian company or start up a plant on a greenfield site.

HBC's Bulgarian venture moved into profit in its first year of operations, capturing 40 per cent of the local soft drinks market by mid-1994. A company spokesman said that a 50 per cent fall in the value of the lev, the Bulgarian currency, against the dollar, 'hasn't had much effect as we appear able to go on adjusting prices upwards'.

HBC is now firmly committed to Bulgaria, investing Dollars 20m in a new plant outside Sofia to produce Coca-Cola and other soft drinks in cans. It has set up a countrywide distribution network and is gradually launching other products in its drinks portfolio in the Bulgarian market.

Another joint venture, this time with Athenian Breweries, the Heineken affiliate in Greece and the country's most profitable brewery, will enable HBC to diversify into beer-making in Bulgaria.

The joint venture, Brewinvest, paid Dollars 21.7m to take control of Zagorka, the largest Bulgarian brewery. The terms of the acquisition, made under Bulgaria's privatisation programme, require Brewinvest to keep on the brewery's workforce for at least three years and invest Dollars 41m in modernisation.

Brewinvest plans to start producing the Heineken brand at the brewery's plant in Stara Zagora, but is also committed to retaining Zagorka's present beer brand.

An Athens-based analyst said: 'The deal enables two of Greece's most profitable companies to expand faster than either could alone. HBC benefits from Athenian's expertise in brewing and contributes its know-how in a difficult market for newcomers, along with its distribution network.'

HBC also holds a small equity stake in its parent group's Coca-Cola bottling venture in Romania.

In addition to building two bottling plants on greenfield sites in Romania, the Cypriot-owned Leventis group has acquired the Coca-Cola franchise for Moldova and parts of Russia.

For Delta Dairy, the Varna plant has become a platform for selling ice-cream throughout the Balkans, while the know-how gained in Bulgaria will assist in planning other ice-cream ventures in eastern Europe and the former Soviet Union.

Vitalact, the joint venture, has expanded ice-cream production with the help of a Dollars 3.5m loan from the European Bank for Reconstruction and Development, to meet growing demand in Albania and Romania. In 1994, the company posted profits of Dr460m on turnover of Dr2.3bn.

But other Greek food processors say they are discouraged by the difficulties of investing in Bulgaria. Apart from currency risk and bureaucratic delays, there are problems in acquiring offices or factories, finding skilled managers and coping with an uncertain legal framework for foreign investment.

However, attitudes are starting to change as more Bulgarian companies are sold to foreign investors under the privatisation scheme and ways of circumventing restrictive legislation become established, according to Mr Angelos Plakopittas, managing director of Global Finance, an Athens-based venture capital company which last year launched a venture capital fund to invest in the Balkans.

Euromerchant Balkan Fund, which is 50 per cent funded by the IFC, the World Bank arm for private sector lending and the EBRD, plans to invest some Dollars 27m over the next five years. Several food processing ventures in Bulgaria, where the fund is based, are already under discussion.

Mr Plakopittas says: 'The investment climate in Bulgaria is improving and Greek companies have started to research the much bigger Romanian market. But until Serbia rejoins the international economy, things will move slowly.'