Greek infrastructure spending sees shortfall of €67 billion in past decade

27 June 2018 Authored by

Greek infrastructure spending has fallen to 1.1% of GDP, well below the EU average of 1.9% and the country’s pre-recession average of 2.6%, according to recent analysis. Greece currently has an infrastructure project backlog of €18.7 billion slated for completion by 2023.

Infrastructure investments are vital to the economic health of nations, creating power sources and tying areas together with roads, airports, and rail – facilitating trade and commerce while directly creating jobs and stimulating the economy. The critical sector is projected to hit $6.6 trillion per year globally by 2030 (6.3% of GDP).

Infrastructure spending, however, is tied to the healthy budgets of prosperous states that can plow surplus funds into roads, rail, and ports. The infrastructure budgets of Middle Eastern states have shrunk in the last five years as lower oil prices have pushed down public spending. Likewise, the heavy recession sustained by Greece over the past decade has cut into its infrastructure spending, leading to a shortfall of €67 billion, according to a new report from accounting and consulting firm PwC.

Currently, PwC ranks Greece’s infrastructure quality at 24th among EU countries, revealing a significant quality gap for its current GDP per capita. In contrast, Portugal has a remarkable well-developed infrastructure network for its GDP per capita, which is not far off from Greece’s. At the top of the list is the Netherlands, with its excellent system of well-maintained roads, railways, and airports. Bottoming out in terms of infrastructure is Romania, which has markedly poorer infrastructure quality than Bulgaria, while having a higher GDP per capita.Quality of infrastructure in EU countriesThe researchers relate that the deep recession that hit Greece has severely affected infrastructure. The total value of projects decline by about three-quarters between 2006 and 2017, while infrastructure’s share of GDP fell by 2.6% from 2006. The current infrastructure investment rate is at 1.1% of GDP, well below the European average of 1.9%, and much lower than Greece’s pre-crisis average of 2.6%.

According to the report, infrastructure investments in Greece have an economic multiplier of around 1.8x, which also boosts demand in other sectors. As such, Greek infrastructure dollars, though less effective in creating quality infrastructure dollar-for-dollar as in Western Europe, are still a good investment for the health of the larger economy.

The shortfall in Greek infrastructure investment between 2006-2017 is pegged at €67 billion, and has cost hundreds of thousands of Greek jobs. According to the Greek national statistics service (ELSTAT), the number of employees directly linked to infrastructure in 2017 was 580,000 – a decrease of 37% since 2009.

Projects in the pipeline

There are currently 75 infrastructure projects in the pipeline slated for completion in 2023. The projects total €18.7 billion, or €3.1 billion annually. Projects include, rail, energy, waste management, and tourism infrastructure.Greek infrastructure projects in pipeline for 2023Between 2014 and 2017, PwC reports that 25 infrastructure projects were completed, with a total budget of €7.7 billion. The overwhelming majority of the money spent on completed projects went to motorways, which accounted for 90.6% of the €7.7 billion. Water and sewage projects accounted for 5.8%, energy was 1.7%, tourist product upgrading accounted for 1.5%, and rail projects were a mere 0.5%. The Olympia Odos Motorway from Athens to Patras was the largest project completed in the time period, costing €1.5 billion.

Of the 75 projects slated for completion in 2023, 37 (accounting for 41% of €18.7 billion budget) are in the planning stage, while 38 (59% of budget) are already underway. 27 of the projects are roads and ports-related (Transit Transport), 17 are rail, 16 are energy-related, and 10 are in waste management. Additionally, there are four airports-related projects, and one water supply project.

38% of the budget (€7 billion) has been allocated to energy projects, including oil & gas and hydroelectricity. 26% (€4.9 billion) is slated for urban rail, while 10% is (€1.8 billion) is going to intercity rail projects. A further 14% (€3.1 billion) is being spent on motorways and ports.Public Investment Program, 2000-2018

Future challenges

The report finds that Greek funding through the budget for infrastructure has fallen from 30-45% in 2008 to 15% in 2017. Indeed, the report concludes that available state funding for infrastructure (Public Investment Program) has fallen to 2002 levels.

About 40% of funding for Greek infrastructure comes from public sources, with Greece historically funding 15-20% while the EU funds the remaining 20-25%. A further 40-45% comes from the European Investment Bank and other banks, while 10-15% comes from private funding.

With a limited capacity for state funding due to heavy recession, as well as the balance sheet constraints of Greek banks, infrastructure projects require new sources of financing, according to PwC. Private funding seems like an attractive option, but its expansion currently remains doubtful due to the poor infrastructure business environment in Greece – whose hallmarks include poor planning, legal delays, and disputes between the state and contractors. A further deterrent to the inflow of private capital is the notably uncertain political and economic environment in Greece.