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Following a tumultuous year of political and economic uncertainty, Greece’s planned bailout by the European Union is ushering in a new reality for many entrepreneurs and growing companies doing business in the country. Endeavor Greece released a report that includes a survey of 300 companies and analyzes the impact of capital controls on the country’s entrepreneurs. According to the findings, more than half of the companies reported experiencing a significant effect on their businesses as a result of the government limitations on cross-border transactions, preventing many from accessing foreign services and infrastructure.
Significant impediments were also created by the cap imposed on daily cash withdrawals but to a smaller scale. Due to the capital controls, 69% of the sample companies have suffered a significant drop in turnover, while 18% report a drop in turnover larger than 50%. Only 4% of the sample companies reported an increase in their turnover and 27% reported no impact on sales. The businesses have taken drastic measures to mitigate the risks in their operations caused by the reduced bank operations. A large number has postponed payments to suppliers (45%) and in fewer cases they delay payments of salaries. Many companies (46%) use their current accounts opened with foreign banks to settle their trade transactions. Few companies (15%) performed sales in cash only, while 11% of the companies had to decrease or suspend production due to raw material shortages.
A large part of the sample companies are anticipating a possible “haircut” applied on Greek deposits and, hence, they have proceeded with settlement of all outstanding payments to suppliers (40%) and provided advance payments of salaries (46%), in order to reduce their cash positions. Fewer respondents report salary cuts and personnel layoffs as measures taken to address their liquidity constraints and approximately 1/3 of the sample companies has cut non-payroll expenses, such as marketing. Lastly, 23% of the sample Greek companies plan to transfer their headquarters abroad for security, cash flow and stability reasons.
Those surveyed agreed that the government’s short-term priorities should be to lift capital controls and increase access to liquidity for businesses and households. The long run efforts should include cracking down on tax evasion, and reforming the pension system and labor market. In an interview with the Wall Street Journal, Endeavor Greece Managing Director Haris Makryniotis said, “The majority of the companies are in bootstrapping mode, struggling to protect operations and working capital. It is critical to keep going even with losses to reserve the right to play when the economy stabilizes or rebounds.”
Philipp Brinkmann, a chief executive of Travelplanet24 and Endeavor Entrepreneur, says he paid for another company’s Facebook advertisement, while Qrator, a social-networking platform for creative professionals that raised $830,000 from investors in December, could not pay the bills to keep its servers running. It is a tough situation for SMEs, which represent the bulk of the Greek economy. In an interview with Bloomberg, Haris went on to say that the companies are unable to produce, for lack of raw materials; sell, for lack of demand; and finance because the banks have limited services. He explained it is easier for large companies to prepare and make changes to their models in order to avoid the brunt of austerity measures, but SMEs are in the most vulnerable situation. The need for job creation and employment opportunities are at a critical level, as outlined by The Huffington Post in a piece that cites Endeavor Greece research. Haris also noted that it is time for new companies to step up, but understands that the majority of the young generation has left the country. He advised small businesses to come together to create a voice loud enough to be heard.
Learn more about the research by clicking here and view an infographic summary below.
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