View
218
Download
4
Category
Preview:
Citation preview
Isn’t that Enough? What Comes After Austerity? A handful of actions to stimulate the economy in the next 18-24 months
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
New York, December 12, 2016
CAPITAL LINK CONFERENCE
2McKinsey & Company
Economy-wide Tourism Other
A quick reminder of McKinsey’s work for the benefit of Greece –80% pro bono
▪ Greece 10 Years Ahead.Analyzed barriers to competitiveness and growth; deep-dived into 14 sectors (5 largest & 9 Rising Stars) and determined all reforms
▪ Greece’s Growth Roadmap. Prioritized 6 major investment & growth opportunities, and detailed action lists per Ministry for execution of reforms
▪ Strategic allocation of the 2014-2020 EU structural funds. Quantified investment needs per sector to allocate €21b of structural EU funds to critical investments
▪ Sector restructuring. Assessed sectors’ viability and developed strategy to restore sustainable profitability
▪ Pension reform. Supported the domestic and international authorities, in assessing important trade-offs re: pensions; developed plan for Pillar II
▪ Public debt. Worked with the Public Debt Management Agency to prepare content for international investor roadshows, paving the way for Greece to return to the primary capital markets (in 2H.2014) after five years
▪ Tourism Sector Strategic Plan for 2013-2020 & Operational Plan for 2013-2014. Developed plan for the six core tourism ‘products’ and for all major source markets
▪ Design, setup and launch of “Marketing Greece”.Developed not-for-profit entity with private sector know-how and talent and State endorsement, to take over the marketing strategy development and implementation of promotion activities. Entity financed with €2m from the private sector (www.discovergreece.com)
3McKinsey & Company
Agenda
Consumption
Investments
Exports
Economic context
Actions going forward
4McKinsey & Company
The decrease in investments (~€39b) and private consumption(~€43b) are the major drivers of the output drop
SOURCE: Eurostat; AMECO database
Change in Greece’s real GDP, 2008–15EUR billion, reference year 2010
1 Applied government/household/corporate split from AMECO database to Eurostat total investment levels
-68 -74-25 -52-22
Change from 2008 level, %
+91
ESTIMATES
InvestmentConsumption Exports
0.328.9
7.0
19.4
13.2
11.4
42.5
-26%
Statistical discrepancy
185.1
Real GDP 2015
Net exports
Governmentinvestment1
Household investment1
Corporate investment1
GovernmentConsump-tion
PrivateConsump-tion
Real GDP 2008
249.9
5McKinsey & Company
During the crisis, our economy diverted further away from its target economic model and aspiration
GDP composition Percent
ProductivityUSD PPP/hour worked1
GDP per capitaUSD thousand PPP1
88Consumption (Private & public)
Net exports
Investments(Private & public)
-13
25
90
~0
10
2008 2015 Target model
70-75
0-5
25-30
36 27 39
4538 35
1 Converted to 2015 price level with updated 2011 PPPs
SOURCE: Eurostat; Total Economy Database by The Conference Board; McKinsey analysis
ESTIMATES
6McKinsey & CompanySOURCE: AMECO; EL.STAT.; Ministry of Finance; Press
Greece primary balance surplus vs. significant increase of State arrears; €1.4b in tax returns and €4.8b in expenditures
-6.0
-2.6
0.6
13 15
-6.3
2016E
-6.3 -4.1
-6.9
14
0.4
-5.8
1.5
-7.3
-5.9
12
1.9
-12.3
-9.7
-20.1
-5.1
-15.0
11
Interest expense Primary deficit
1 MoU definition, e.g., excluding Bank recapitalization costs
Primary surplus
Primary balance1
% GDP
+62%3.8
Sep2016
14
0.8
13
4.8
4.33.1
122011
0.9
8.7
7.8
0.7
8.8
9.6
4.8
-60%
June 2016
7.2
1.4
5.9
6.21.3
0.5
Expenditures
Tax returns
Key fiscal metrics evolutionEUR billion
Total balance1
% GDP
-2.5 0.3 0.3 1.1-1.4 0.8
-6.4 -3.2 -3.6 -3.3-9.7 -2.4
Evolution of State arrears to private sectorEUR billion
~80% are owed by State hospitals & social security funds (incl. EOPYY)
7McKinsey & Company
Consecutive tax increases have taken us to a 55% personal tax burden excluding the rise in indirect / consumption taxes…
SOURCE: KPMG
Tax surchargesMax %
10
16
32
35
35
40
40
43
45
45
45
48
52
Greece 2008
Netherlands
Ireland
Portugal
Spain
Germany
Cyprus
Italy
Bulgaria
Poland
Romania
Turkey
Greece 2016
Personal Income Tax Top marginal tax rate %
1 Μax levy 3.5% >EUR 7,420 plus solidarity surcharge 2.5%-5%; 2 Plus USC top rate (other income tax of 8%) and 3% on those who have non-PAYE income >€100k.; 3 2.2-10% solidarity tax; 4 5.5% solidarity tax; 5 1.6-4.2% regional/municipal taxes
Top taxable income threshold, in EUR 000
66
80
254
60
75
33
60
20
flat
flat
40
11
n.a.
n.a.
n.a.
n.a.
n.a.
91
103
n.a.
45
n.a.
64
n.a
10
16
32
35
35
51
40
47
45
51
55
57
52
Estimated tax burdenMax %
Social security contribution% of average wage
13
17
14
8
15
4
16
10
6
21
16
11
28
75
34
PRELIMINARY
8McKinsey & Company
Tax revenuesEUR billion
SOURCE: Bank of Greece – Governor’s Annual Report; Budget 2017; Team analysis
…without the expected outcome despite also higher property and consumption taxes
6 5
8 9 12 10 10 9 9 9
16 1516
1514 13 12 12
6 78
99 10 10 9
4 43 3
3 3
11 119
810
8 8 8
3 33344
2015
Other direct1
Corporate
44Personal
Otherindirect3
Other consumptiontaxes2
-2% p.a.
11
2
09
5150
10
4951
2008
VAT
14
44
13
45
2
12
47
Dire
ct ta
xIn
dire
ct ta
x
-2.9-2.9
-1.3-1.3
+3.4+3.4
-3.7-3.7
+0.8+0.8
-3.5-3.5
Absolute change2008-15
1 Property taxes, previous years taxes and n.e.c. ; 2 Fuel, tobacco, car taxation, n.e.c. ; 3 Trade taxes, import taxes, transaction taxes, previous years taxes
Increases in property and other direct
taxes as well as consumption
taxes (i.e., hikes in tobacco, fuels
etc.) have held back a further
decline but have not increased tax revenues
11McKinsey & Company
0.7
0.6
0.4
4-1 0 2 51 3 108 976
0
-0.3
-0.4
-0.1
-0.5
0.3
-0.2
0.5
-0.6
0.2
0.1
Sweden
Cyprus
Greece (10.9% gap)
Italy
Malta
Portugal
United Kingdom
Spain
Ireland
NorwayFrance
Romania
Latvia
Poland
Finland
GermanyBelgium
Slovakia
Denmark
Austria
Slovenia
Switzerland
Luxembourg
Hungary
Netherlands
Czech Republic
Croatia
Bulgaria
Lithuania
Estonia
Structural reform imperativeInverse average country score for competitiveness and growth drivers (European average=0)
Lowerneed
Higherneed
Investment and job creation imperativeOutput gap (inverse) as % of GDP1
Greece has the largest output gap among EU-30 countries confirming the imperative need for investment boost and job creation
SOURCE: European Commission; McKinsey Global Institute
Higherneed
Lower need
UK & Ireland
Baltic Southern
Central & Eastern Nordic
Continental
1 Positive values indicate an economy running below potential
Structural reform need vs. output gap in EU-30
14McKinsey & Company
Agenda
Economic context
Consumption
Investments
Exports
Actions going forward
15McKinsey & Company
Austria8.3
Netherlands 9.09.4
Luxembourg
Ireland 11.3
8.2
Denmark
UK
Belgium17.6
Slovakia
12.0
Poland
18.2
12.3
Italy
Finland13.2
Portugal
Sweden
Czech Rep. 15.1
Hungary
12.4France
GreeceSlovenia 23.3
12.2
14.1
16.2
Spain20.6
21.922.4
30.6
Malta
Estonia
Germany
Lithuania
23.6
Romania
Cyprus25.8
Croatia28.0
27.7
24.324.8
26.2
23.3
Bulgaria
Latvia
Shadow Economy% of GDP
SOURCE: Schneider F. (2015), Size and Development of the Shadow Economy of 31 European and 5 other OECD Countries from 2003 to 2015
Among WEU Greece remains a champion in shadow economy with tax evasion estimated to ~€10-15b of annual state revenues
While shadow economy in
Greece is estimated at
~22%, tax evasion is
estimated at ~6-9% of GDP
(~€10-15b)
ESTIMATES
16McKinsey & CompanySOURCE: European Commission
Greece has ‘lost’ potential VAT revenues of ~€32b or 18% of GDP in 2010-14VAT Gap benchmarking 2014% of expected VAT revenues
1
4
7
9
9
10
12
14
20
24
28
28
35
37
38
Luxemburg
Sweden
Finland
Spain
Ireland
Bulgaria
Greece
Malta
Romania
Italy
Lithuania
Poland
Germany
Portugal
France
Wor
st 3
Bes
t 3
VAT Gap Greece evolution% of expected VAT revenues
8.5 8.5 6.1 6.1 6.3 6.3 4.9 4.9
xxxx VAT Gap, EUR b
6.4 6.4
Gre
ece’
s pe
er c
ount
ries
28
3431
36
29
13 20142010 1211
ESTIMATES
17McKinsey & Company
VS3
VS2
VS1Higher
Lower
Lower Higher
Likely amount of tax evasion
Probability of tax evasion/fraud
PC3
PC2
PC1Higher
Lower
Lower Higher
Willing-ness to pay
Ability to pay
Higher
Lower
Value at stake
Lower Higher
Probability of collection/ rehabilitation
▪ Combining VS1, VS2 with PC1, PC2, PC3
▪ Segment-specific strategies developed with clear implications to the collection strategy
▪ Centralized collections
▪ Limited direct collector involvement (seek to automate)
▪ De-prioritise
▪ Primarily centralized collections
▪ Moderate intensity direct collection and potential escalation to regional collectors
▪ Cross functional teams
▪ Intense collections efforts (e.g., fast track to legal)
Application of proven Advanced Analytics know-how
▪ 25–30 indicators, e.g.,– Own/family assets– Transaction patterns– Past and current tax
reporting– Profession– Residence
▪ Applied only to VS1 and VS2 cases which are most relevant
▪ ‘Ability to pay’ assessed through analysis of tax payers financials/assets
▪ ‘Willingness to pay’ assessed based on analysis of past behavior and direct contact with tax payer
Determine value at stake Determine probability of collection/rehabilitation Segment and prioritize cases
II IIII
SOURCE: McKinsey analysis
SIMPLIFIED
18McKinsey & CompanySOURCE: ECB; F. Schneider, “Size and Development of the Shadow Economy of 31 European and 5 other OECD Countries from 2003 to 2015” (2015)
1 Friedrich Schneider
Direct link between tax evasion and cash based transactions
0.5
3.0
2.5
0
2.0
1.0
0312826222120 302724 2923 25
1.5
1413 1916151211109 1817
2015 payment cards per capitaUnits
2015 shadow economy% of GDP
Cyprus
Poland
Malta
Italy Latvia
Greece
Slovenia
UK
Sweden
Slovakia
Spain
Portugal
Romania
Netherlands
LithuaniaIreland
Hungary
France
Estonia
CroatiaBelgium
Bulgaria
GermanyDenmark Finland
Austria
Czech Rep.
EU average:18.3%
EU Average: 1.5
Research has shown
that increasing electronic
payments by ~10% p.a. for at
least 4 years in a row can shrink
the shadow economy by
up to ~5%
Payment cards penetration vs. shadow economy
19McKinsey & Company
144
88787475
+64%
20152011 201420132012
9.2
2012
+61%
2014
4.4
2015
5.7
20132011
4.54.0
SOURCE: ECB payments statistics 2015
# of payments made through cardsMillions of transactions
# of e-money payment transactions1
Millions of transactions
1 A transaction whereby a holder of e-money transfers e-money value from his/her own balance to the balance of the beneficiary, either with a card on which e-money can be stored directly or with e-money accounts.
Despite the major uplift in plastic money transactions resulting from the 2015 capital controls…
Lift of capital controls not expected to
reverse payment trends. However, the penetration of POS in retailers/
freelancers and its evolution is a key factor for Greeks’
payments practices
20McKinsey & CompanySOURCE: ECB payments statistics 2015
Number of Card payments1 per capita yearNumber of transactions per capita
…Greece remains very low relative to other European countries…
8
11
13
37
44
45
52
64
87
133
154
224
290
300Denmark
UK
Sweden
Portugal
France
Euro area
Italy
Greece post capitalcontrols (2014)
Cyprus
Hungary
Bulgaria
Greece post capitalcontrols (2015)
Germany
Spain
1 Payment transactions performed using cards with a debit, credit or delayed debit function at a terminal or via other channels
22McKinsey & Company
Agenda
Consumption
Investments
Exports
Economic context
Actions going forward
23McKinsey & Company
Over the next 8-10 years Greece has an annual GVA upside >€50b(~€55b GDP) and >640 thousand new jobs
Tourism
TBD
>51.5
8.0
1.5
R&D & innovation
Other (e.g., Industry& manufacturing, basic materials)
Retail
Upside quantified
Crops Agriculture 4.5
Rising stars 6.5
Food processing
Energy
2.0
9.0
20.0
122
122
140
225
-10
>640
TBD
51
-7
SOURCE: McKinsey “Greece 10 Years Ahead” & “Growth Roadmap”
Incremental GVAEUR billion
Incremental EmploymentThousand jobs
1 Including energy efficiency measures, economy-wide 2 Rising Stars: Aquaculture, Medical Tourism, Generics Pharma., Cargo Hub, Long term & Elderly Care, Waste Mgmt, Classical Greece, Specialty Foods
ESTIMATE
24McKinsey & Company
~€150b of total additional
investments needed in
the next 8 years
Capturing the upside would require an additional (vs. the 2013-2014 all-time low) annual investment of ~€19b
SOURCE: AMECO; McKinsey analysis
Average annual investmentsEUR billion, 2010 prices
Average annual incremental investments by sector EUR billion above the 2014-2015 all-time low, 2010 prices
1.7
1.8
11.0
Tourism
By sector where the investment occurs
Energy
2.8
0.91.1
Other
Retail
0.6
By sectorgenerating the demand
FoodManufacturing
Rising Stars
0.9Agriculture
~19 ~19
4.4
1.8
1.6
7.1
0.71.52121
24
53
45
20122000-04
2004-08
~40
2014 Target2015
26McKinsey & Company
Net new private investment capacity
Multiplying effect of Structural Funds
Multiplying effect from privatizations
Privatization receipts
Structural Funds (GR)
Structural Funds (EU)
Total 2016-23 incremental investment needs
Private investments
2016-23 incremental investment needs above 2014-15 (all time low)EUR billion
Incremental investments to come ~25% from public and ~75% from private funds, beyond Privatizations and Structural Funds
SOURCE: Eurostat; IMF; McKinsey analysis
~150
~30-35
~5 ~110-115~5-10
~8-15~7-10 ~75-95
ESTIMATES
27McKinsey & Company
40% of a sizeable sample of major companies are in need of imminent corporate restructuring; ~460 Groups and ~1,400 companies
692
1,153
461
Groups identified in need for imminent restructuring (financial and /or operational)
‘Healthy’1 (641) or in progressed liquidation2 (51)
Total sample of Groups analyzed (>€20m turnover and >€10m exposure)
19.9
36.2
2.2
14.7
17.7
21.5Total exposureEUR billion
NPE exposureEUR billion1 <20 % NPE or <50% NPE and Debt/EBITDA <4.52 Groups with at least 1 company (consisting of >20% of Group exposure) under bankruptcy, denounced & >2 years dpd in at least one bank
~€15-20b in GVA, ~1,400 companies and ~85,000-110,000 employees
SOURCE: McKinsey analysis
Analysis of Greek corporates with >€20m turnover and >€10m exposureNumber of Groups
ESTIMATES
28McKinsey & Company
Significant impediments identified for restructuring Corporates across 3 dimensions; new legislation under way addressing some
Tax & Accounting
▪ Tax and accounting disincentives for creditors and debtors pose constrains in the restructuring process:
– Very high real estate taxes negatively affecting the liquidity of the real estate market and made foreclosures more difficult and less attractive for creditors; creditors also approach repossessions with caution due to the high liability they will inherit from past and future real estate taxes
– There could be significant tax impact for debtors, as the benefit from write-offs / write-downs is considered taxable income, creating disincentives or unnecessary burden
Market
▪ Lack of a formalized coordination mechanism between the various creditors (incl., bank, state, commercial / suppliers) prolongs and sometimes blocks the restructuring process due to the absence of a uniform approach / process and a coordinated decision making process and due to the gaps in capabilities with regards to sophisticated restructuring
Legal & Regulatory
▪ Based on the current context, significant legal and regulatory impediments hinder the effective and fast restructuring of large corporates. Some of the most important ones include: – Limitations in the empowerment of creditors’ rights (e.g., shareholders’ consent required for debt-to-
equity swap, limited ability to effect restructuring plan / change in management) create bottlenecks in the process and disincentives for cooperation of involved parties
– Potential liability of banks’ personnel for proposing, assessing or approving restructuring solutions (e.g., new financing in distressed company) penalize business judgement and make liquidation a “safer” option
– Potential liability of interim management appointed by creditors or new shareholders (under debt-to-equity swaps) for past liabilities of the company, limit the attractiveness of the position
– Constraints / omissions in the regulatory framework for servicing and selling NPLs result in disincentives for potential private players that could play an active role in large corporate restructuring
– Limited incentives for out-of-court settlements (e.g., time to allow restructuring) do not allow for negotiations / time for alignment between various stakeholders and drive many companies to liquidation
SOURCE: McKinsey analysis
NOT EXHAUSTIVE
Addressed by upcoming legislationIn progressImpediments for restructuring Corporates in Greece
29McKinsey & Company
Agenda
Consumption
Investments
Exports
Economic context
Actions going forward
30McKinsey & CompanySOURCE : Bank of Greece; PanHellenic Exporters Association; McKinsey analysis
Trade balance evolution 2008-15EUR billion
The improvement in trade balance between 2008-2015 was driven ~90% by drop in imports and especially by industrial products
Trade balance of goods 2008
1.4
Delta exports fuel
3.4-44.4
Delta exports other goods
0.9
Delta exports ships
-17.2
-41.5
Trade balance of goods 2015
16.4
Delta imports other goods
5.6
Delta imports fuel
2.3
Delta imports ships
Increase of exports:11% of improvement in balance
Drop in imports:89% of improvement in balance
Import drop excl. fuel was mainly driven by industrial products and esp. machinery & transport equipment
ESTIMATES
31McKinsey & Company
Strong growth on arrivals but receipts still far away from the €19-20b target due to declining per visit / arrival yield
SOURCE: Bank of Greece; UNWTO
Number of arrivals, incl. cruisesMillions
Receipts, incl. cruisesEUR billion
Spend per visit,incl. cruisesEUR
3.6 3.5 3.1 3.1 2.8 3.3 3.5European market share1
Percent
1 Based on international tourism receiptsNote: Data includes cruises
13.4 14.10.40.4
12.210.40.4 0.410.510.4 9.611.6
Cruises
2.516.414.9 1.415.0
20.1 2.224.3
2.215.9 16.9-6.4% p.a. 26.1
+9.8% p.a.
541552604616639640697730
-4.5% p.a. -4.1% p.a.
3.5
2008 2009 2010 2011 2012 2013 2014 2015
Key metrics for tourism in Greece
33McKinsey & Company
Overview of the “Greek Foods Company”Objectives Description of major activities
▪ Define the network of primary production/processing units per category▪ Pool the production of primary units (primarily small & medium) and
establish/negotiate the terms of cooperation with them▪ Undertake productivity and know-how support programs for primary units
Secure high quality sourcing at scale
▪ Plan and coordinate trade marketing and promotion initiatives▪ Set-up and operate a limited retail store network (“Greek Corners”) in
selected high traffic locations (starting with priority 1 markets only)▪ Provide input and contribute to the “Greek Diet” international campaign
Pursue focused commercial initiatives
▪ Design the logistics and product flows network▪ Manage the domestic logistics chain including distribution and storage▪ Execute exports (or facilitate in case of direct exports) to priority markets
Effectively manage logistics
▪ Define the suitable market coverage model per country (and category)▪ Define wholesaler and retailer network candidates per country and
understand consumer preferences via extensive market analysis and research▪ Establish and manage wholesale and retailer networks per country/region
Establish strong international access
▪ “Greek Foods Company” scope covering both agriculture & processed priority categories▪ Private sector ownership or PPP with majority private sector participation▪ Greek primary production/processing companies and cooperatives taking a stake
SOURCE: McKinsey “Greece 10 Years Ahead”
NOT EXHAUSTIVE
34McKinsey & Company
1 Domestic consumption of oranges, peaches, nectarines, grapes, cotton, apples, potatoes and kiwis2 Share of Greece in total imports of oranges, peaches, nectarines, grapes, cotton, apples, potatoes and kiwis
SOURCE: UN Comtrade; FAO; EL.STAT.; McKinsey analysis
Priority 1▪ Germany &
Austria▪ Balkans (e.g.,
Romania, Bulgaria)
▪ UK▪ Scandinavia▪ Netherlands▪ North America
Priority 2▪ France &
Belgium▪ Italy▪ Turkey▪ Russia▪ Australia
Greece should focus efforts in primary markets to increaseshare and try to further penetrate high growth markets
Focus/target markets
Primary markets Secondary markets
ESTIMATES
4.0
3.0
4.5
2.5
1.5
0.5
3.5
0.010
10.10 10010
1.0
2.0
Turkey
Scandinavia& Netherlands
China & Japan
Germany & Austria
Russia
France & BelgiumUK
Greek Diaspora & tourist arrivalsMillions
IberiaAustralia
Share of Greece in total imports of selected foods2
Percent
Italy
N. America
Balkans
Prioritization matrix for food exports
35McKinsey & Company
Agenda
Consumption
Investments
Exports
Economic context
Actions going forward
36McKinsey & Company
A handful of actions to stimulate the economy in the next 18-24 months
SOURCE: McKinsey analysis
ActionsObjectives
Consumption Stop eroding incomes and rejuvenate consumption
Inject liquidity reducing state arrears
▪ Prioritize arrears payments based on market impact; offset tax payables with tax receivables
1
Seriously tackle tax evasion across segments
▪ Apply proven Advanced Analytics know how; aggressively boost non-cash transactions
2
Execute tax reform in line with the anti-tax-evasion impact
▪ Gradually reduce personal, corporate and VAT tax rates to pre-crisis levels
3
Cautiously rejuvenate lending to corporates and households
▪ ‘Cherry-pick’ new risks and pursue sector-wide project to address ‘strategic defaulters’
4
ExportsCapture low hanging fruit (i.e., tourism, foods)
Start recovering tourism affluence mix (spent per visit)
▪ Materially invest in campaigns focused on high value target markets (e.g., N. America, Middle East, China)
8
Capture readily available food export opportunities
▪ Launch a “Greek Foods Company” (incl. consolidating existing platforms) and focus on identified target markets
9
InvestmentsGet serious with corporate restructuring and new projects
Remove barriers and accelerate corporate restructurings
▪ Complete necessary adjustments and execute new restructuring legislation; push operational turnarounds
5
Direct funds to identified high GVA projects
▪ Mobilize EU funds and attract equity/debt from private funds towards value-generating sectors & large projects
6
Free up barriers to investments in high priority sectors
▪ Effectively re-launch the ‘one-stop shop’ for barrier removal backed by legislation
7
37McKinsey & Company
Recommended