Greece Infrastructure Report Q4 2008

Infrastructure development in Greece has gone from being solely a government responsibility to the greater involvement of the private sector. This has taken place slowly, but steadily, although it should be noted that resistance remains strong, especially regarding privatisations of traditionally state-run monopolies. The downside of this however, is that the greater involvement of the private sector makes Greece more susceptible to the tighter credit conditions that are adversely affecting project finance, and therefore we believe that the credit crunch will have an effect on Greece's planned infrastructure projects.

We have revised our construction sector forecasts for 2008 onwards. Primarily, this comes as a result of new methodology being introduced in our forecasting method, a change that has been introduced across the spectrum of BMI's Infrastructure Reports, in an effort to increase the relevance and reliability of our data. In BMI's Q408 Greece Infrastructure Report, we forecast that construction sector real growth will continue to go through an abrupt boom and bust period in the coming years, but see some stability as of 2009 onwards. In 2008 the construction sector will contact by 1.6%, especially as there is a surplus in the supply of commercial and residential units, leaving very little incentives for new developments.

Notwithstanding challenges, we are optimistic regarding the strides the ministry of transport is taking in reforming the National Railways Organisation (OSE) and looking to the private sector for the partial privatisation of regional airports. We are optimistic that growth will return to the construction industry in 2009 onwards, boosted by new developments in infrastructure, and especially large transport projects.

The private sector involvement becomes more important when one looks at the macroeconomic indicators. The budget will come under strain from falling revenues and according to BMI forecasts, the ballooning external debt of the government will slow short-to-medium term growth, as the government has to revise its debt obligations and fiscal responsibilities, potentially slowing the developments in the infrastructure sector. This will further be accentuated with liquidity drying up rapidly in the financial system, and therefore raising capital will be extremely difficult in 2009 and 2010.

Major players in the Greek infrastructure industry include locals Elliniki Technodomiki-Aktor-TEB Group, J&P-AVAX, Terna, Mytilineos, Aegek and Athena, some of which also have significant operations abroad, mainly the Balkans and Middle East.

The infrastructure sector suffers from certain drawbacks that have hindered its long-term growth potential. Since the majority of the Greek projects are financed by the EU, any reduction in fund allocation can have a significant impact on the industry. Moreover, the nation is plagued by widespread delays in project completion and inadequate private investment. Further, bureaucracy hinders the pace of developmental work.