Hellinikon project involves 7.2-bln-euro investment in a 25-year period

The share of investment in GDP should approach 18 pct, from approximately 11 pct in 2015, in order to achieve GDP growth rates in excess of 2.5 pct from 2017 onwards, IOBE said, adding that the implementation of such an investment programme presupposes that there are sufficient savings to support it. Given the currently low level of domestic savings, it follows in turn that Greece needs resources from abroad in order to achieve its economic objectives.
The implementation of the programme to develop the area of the old Hellinikon airport will contribute significantly in this direction. The programme has clear economic development objectives, while it is also expected to have a significant positive contribution to the fiscal consolidation of the Greek economy. Furthermore, its contribution in attracting direct foreign investment could be decisive for the overall growth prospects of the country.
The Hellinikon development programme is a multifaceted project, designed to host a variety of uses (residences, tourism, recreation, commerce, offices, healthcare, social welfare, education, sports, culture, state-of-the-art urban infrastructure and utilities). According to the terms of the agreement for the sale of the shares of Hellinikon S.A. to Hellinikon Global I S.A.1 the preferred investor will deposit 915 million in instalments according to an explicit time plan that spans from 2016 to 2026. In addition, the execution of the development plan involves an investment of 7.2 billion euros over a 25-year reference period.
This study examines the economic impact from the renovation of the old Hellinikon airport and the seaside front of Agios Kosmas for the whole duration of the investment programme, based on the contract terms for the sale of the shares of Hellinikon S.A. to Hellinikon Global I S.A.3 The analysis is performed at two levels – impact in the wider renovation area (microeconomic impact) and impact on the Greek economy overall (macroeconomic impact).
In the wider renovation area, the construction and operation of the planned installations will boost the demand for products and services, generating fiscal revenues and jobs. The income and know-how created by the project will also have an impact on the economy overall, given the exceptionally high budget foreseen for the project. In addition, the funds that the Hellenic republic receives for the shares of Hellinikon S.A. will have a notable fiscal impact.
-Hellinikon Global I S.A., incorporated in Luxembourg, a subsidiary of Lamda Development S.A. signed a contract with the Hellenic Republic Asset Development Fund (HRADF) S.A. on 14 November 2014 for the acquisition of 100% of the equity capital of the company Hellinikon S.A.
-Initial investment of 6.8 billion euros, with further 449 million expected for the finalisation of the installations by their future owners or tenants, depending on their specific requirements.
-The sales contract was amended after the completion of the analysis for this study. Some major changes include amendments (in favour of the Hellenic Republic) of the investment and payment time plans.
-The economic impact of the development of the Hellinikon area
The investment in renovating the Hellinikon area will generate significant economic activity. According to the estimates in the study, the operating revenue (turnover) that the use of the Hellinikon facilities is expected to generate, reaches 2.4 billion euros towards the end of the 25-year period (i.e. in 2041) or 1.4 billion euros per year on average for that period. Most of the revenue over the 25-year period under examination in the study is expected to come from the operation of shopping centres and offices (76%), while the recreation activities and the operation of hotels are also expected to represent a significant revenue share (12% and 7% respectively).
The fiscal revenues of the project are not limited to the proceeds from the acquisition of the shares of Hellinikon S.A. but extend to inflows from the direct and indirect taxation of the economic activity and the wealth that is expected to be generated by the project. The tax revenues from the construction activity and the operation of the various facilities are expected to total 14.1 billion euros overall in the 25-year period (563 million per year on average).
The largest source of fiscal revenue is the Value Added Tax (VAT), with 57% of the total expected fiscal inflows, followed by social security contributions (16%), property transfer tax (14%) and corporate income taxes (11%). The proceeds from personal income taxation and property ownership taxes are estimated to contribute about 1% of the total fiscal revenues.
The extent to which the microeconomic benefits from the operation of the facilities will contribute fully to the overall economy, or substitute in part existing activity elsewhere, will ultimately depend on whether the facilities will attract visitors who would have otherwise preferred to go to other destinations abroad. It is not feasible to determine in advance the ability of the planned facilities to generate new demand, but installations such as a modern conference centre, healthcare and education services, casino and marina, have the capacity to activate part of the unutilised potential of the country and of Athens in particular in the development of alternative forms of tourism, such as MICE (Meetings, Incentives, Conferences and Events), health and city break tourism. This can generate the new demand that is required in order to consider the above microeconomic impact as a net benefit for the national economy in its entirety.
At the macroeconomic level, the investment activity and the synergies from the utilisation of the area of the old Hellinikon airport strengthen the infrastructure, construction activity and production capacity of the economy, boost output with both an autonomous and an endogenous permanent increase of private consumption and, lastly, improve the balance of payments with the corresponding inflow of private capital. In order to assess the macroeconomic impact of the project, we have applied the approach of a comparative evaluation of alternative scenarios, which were built using the econometric model of the Greek economy maintained at IOBE. The IOBE model is a standard medium-sized macroeconomic model of aggregate supply and demand, which describes the basic interconnections of the Greek economy. It is used for making projections and for the empirical analysis of economic policy issues.