Regional development policy as an engine for local industrial development

Early in March 2007 we presented the second annual report produced by the Documentation and Studies section of the Federation of Industries of Northern Greece (FING) on the “Financial Profile and Performance of the Industrial Sector in the Northern Greek Arc”. Since the report is presented extensively in this bulletin, in the pages immediately following this article, I shall confine myself here to a review of its principal findings. It should be noted that the balance sheet data used refer to the period 2002-2005, a span of four years, which is long enough to support reliable conclusions about the condition of the local industrial sector.

The overall picture that emerges is extremely worrying for the future of industry in the four regions that compose the Northern Greek Arc. For reasons of space I will touch only on profit margins, which in my view constitute the single clearest indicator of the crisis affecting the local production system. Subtracting inflation from profit margins for the four years studied yields the “real net profit margin”, and it is less than 1%. Internationally, investor risk is also subtracted from profit margins to find real net profit margins. Assuming an investor risk factor of around 2%, which would be considered conservative in international practice, the final real net profit margin in this region is clearly negative. And that is before deducting the income tax our companies pay.

What does this grim picture tell us? That the regional industrial sector has been hard hit by a variety of factors in the domestic and international business environment and that if the proper measures are not taken the crisis will worsen and the consequences on both the social and the business level in Northern Greece will be extremely painful.

As everyone knows, FING is demanding stringent and stable regional development measures to help the local production system work its way out of the crisis.

Let us not forget that we are now operating in conditions of total economic freedom. This being the case, the Greek provinces, and particularly the four regions that form the Northern Greek Arc, which share land borders with the neighbouring Balkan states, are called upon to take action in conditions characterised by:
• relocation of production from areas where production costs are considered high to areas where it is possible to produce the same products more cheaply,
• intense competition with other countries and regions for direct foreign investment,
• redistribution of production forces worldwide, and therefore on the regional level as well,
• adoption of innovations and incorporation of new production technologies,
• globalisation of economic activities and increasing reliance on outsourcing, and,
• an investment duality, dictated by the dilemma of choosing between productive investment and investment in securities.
What is urgently required, therefore, is the development of integrated regional interventions, and not fragmentary measures to reinforce certain “situations”, which lead only to passing improvements in the regional economy.

As we at FING see the situation, strengthening regional competitiveness requires:
1. ensuring that the regional development actions planned will have long-term, and not ephemeral, benefits for the region,
2. pouring as much as possible in the way of resources into the local production system,
3. avoiding any delay either in planning the actions or, and even more importantly, in the absorption of resources for the implementation of the specific actions, and finally,
4. it must be remembered that regional development is not possible without social cohesion, which must be sought and established as a factor of global development.
Only with the realisation of the above interventions will it be possible for local businesses to survive the crisis, restructure themselves, develop an international dimension and, finally, contribute positively to regional development and regional cohesion.