Greece’s Supplier Payment Caps Fuel The Struggle

Greece’s banks and markets are open once again after weeks of shuttered doors amid an ongoing debt crisis, but that doesn’t mean things are back to normal for the nation’s businesses. Amid ongoing economic insecurity, one ongoing problem is permeating out of Greece’s national borders and weighing down on foreign firms.

According to reports published last week, any business in Greece that wants to pay its foreign supplier – even if it has the money to do so – must first seek approval of financial officials who fear too much money flowing out of the country.

“Good and healthy companies that survived the crisis have been rendered helpless because they can’t import raw materials,” said Athens Chamber of Commerce and Industry President Constantine Michalos, according to reports in the Financial Times.

Officials recently raised payment caps to foreign suppliers from €50,000 to €100,000 (about $55,000 to $110,000), but anything above this limit must still be approved, and daily imports from foreign suppliers remain capped at €20 million (about $22 million).

Reports said the restrictions have created a bottleneck as the nation’s finance ministry becomes flooded with payment requests, meaning suppliers will have a lengthy wait before they see their invoices settled.

For the businesses at home, reports said, these restrictions have cut the business done by Greek SMEs by about half, as they can no longer submit new orders from their foreign suppliers and obtain the goods and supplies they need to operate. Recent data from national trading association GSEVEE found that 30 percent of small- and medium-sized businesses in the country have seen their businesses drop by more than 70 percent.

In an interesting twist, businesses – especially across northern Greece – are looking to relocate into Bulgaria not only to take advantage of lower tax rates, but also to avoid the restrictions on foreign payments altogether. Reports said more than 2,500 companies have left Greece and resettled in Bulgaria in the last two years. Following the debt crisis and June’s bank closure, that figure is likely to spike. About 60,000 businesses have reportedly applied to operate out of Bulgaria, though reports note that many of these businesses are looking to set up subsidiaries in the country and not leave Greece altogether.

But the SMEs that are staying have seen particularly harsh times thanks to Greece’s economic woes. Bank closures forced small businesses without access to their funds to pay upfront for their imported supplies. Consumer spending limits added to the stress as spending plummeted.

According to expert data, more than 99 percent of Greek companies are SMEs, and they employ about 86 percent of the workforce – much higher ratios than the EU as a whole. That means Greece is particularly dependent on its small- and medium-sized enterprises for economic success, and SMEs will be key to the nation’s recovery.

But supplier payment restrictions are adding a new layer of difficulty for businesses looking to get back on their feet, reports said.

With businesses unable to pay suppliers and procure more supplies, the economy has largely stagnated. According to the nation’s Purchasing Managers Index, manufacturing activity plummeted from 46.9 to 30.2 – or, as the The Washington Post put it in reports last week, from a “sickly” state to a “deathly” one. A score lower than 50 means the manufacturing industry is shrinking.

It’s a dangerous catalyst, reports said, as companies that were once able to repay their foreign suppliers will no longer be able to because they don’t have profits coming in. In turn, it means Greek banks will have to loan these businesses more money to cover losses, meaning the financial institutions are in line for more losses themselves.

The Financial Times reports that in order to remove the controls that restrict payments to foreign suppliers – the controls that are acting as a catalyst for many of these issues – the country must first agree on a bailout deal with international lenders. Experts said that the deal, which will allow a recapitalization of the nation’s major banks, is not likely to occur before the year ends. Until then, businesses are forced to struggle with what they have.