Digitalization under the Greek RRP: last big opportunity to narrow the economy’s substantial gap in digital investment and relevant reforms?

Following a joint paper release from the PromethEUs network, in this note we further discuss on the opportunities of such a plan for a country like Greece. The Greek Recovery and Resilience Plan (RRP) “Greece 2.0” includes a total financing envelope of €30.5 bn which represents almost 17% of the country’s GDP, the largest percentage in the EU. Grants represent 58% of the total financial envelope, while 42% is envisaged to be channeled through loans. The authorities expect a significant economic impact during 2021-2026 stemming from the RRP. Related investments are expected to exceed €60 bn over six years, creating almost 180,000 new jobs and enhancing exports. Taking into consideration the significant investment gap which has been created after three consecutive crises (sovereign debt, pandemic, energy crisis), the RRP is expected to offer an opportunity to increase private investments financed by the loan portfolio by 20%, combined with an increase of public investments through the grants branch.

The Greek RRP is divided into 18 components, around the four main pillars: (1) green transition, (2) digital transformation, (3) employment-skills-social cohesion, and (4) private investment and economic transformation. The second pillar and three out of the 18 components focus entirely on digitisation reforms and investments. However, 11 additional components partially or indirectly affect digitization, i.e. through the third pillar and digital skill policies. From the list of 175 measures, a 38% is labeled as reforms, while 62% relate to investments. Given the binding target of at least 20% of the Plan’s total resource allocation to contribute to digital transformation, this corresponds to at least €6.1 bn of Greek RRP funding for digital investments. Spending under the current digital targets corresponds to 23.3% of total Greek RRP budget.

This is an important inflow of financial resources for a country that is suffering from fiscal constraints. And the real question is whether this generous envelope will help in achieving a better ranking in the Digital Economy and Society Index. Results show that Greece’s digital performance lags significantly EU peers, despite improvements during the last years, as in 2021 Greece was ranked 25th out of the 27 EU Member States in overall digitalisation. Thus, the RRP brings an essential opportunity to contribute to the economy’s digitalization convergence with the rest of the EU.

In terms of implementation progress, Greece already received the first disbursement in April 2022 (€3.6 bn), in addition to the pre-financing instalment received in August 2021 (€4.0 bn). The budget of forty digital investment projects that have been already activated for implementation until May 2022, corresponds to 18.2% of total approved investments, which is slightly below the 20% target for digital. Almost 40% of the budget of activated digital investments concern the public sector, 25% the digitalization of the private sector and 14% the improvement of healthcare services. By end-June 2022, a digital platform was activated (https://digitalsme.gov.gr ) for businesses to participate in the “Digital Transformation of SMEs” RRP action, with a budget of €445 million. National coordination is undertaken by a special Public Agency supervised by the Ministry of Finance, while a public website (https://greece20.gov.gr/ ) provides systematic updates on implementation progress.

Although many projects of the Greek RRP had been activated up to June 2022, the number of open calls can be considered as rather small. Given Greece’s lagging digital performance, policy makers and stakeholders should accelerate and facilitate the implementation of the RRP digital components, across the two dimensions these mainly concern: further development of digital infrastructure and upgrading of digital skills, in both the public and private sectors. So far, the Greek RRP seems to more focus on improving infrastructure, which is a rather low hanging fruit.

The main challenges for the Greek RRP enforcement are to strike an appropriate balance between the degree of ambition and realism of targets set and their degree of granularity. It is necessary to balance investments to improve infrastructure and measures to enhance digital skills. Also, it is crucial to set up and implement a systematic impact assessment mechanism for the grants branch of the RRP and take into account both short-term and long-term effects. Smooth coordination between local and central administrations has to be pursued through accountability and transparency principles so as not to impede grants’ absorption rates.

Implementing the loans branch of the Greek RRP remains challenging given the poor quality of Greek commercial banks’ assets side and the scarce demand for loans. Hence, SMEs financing through the banks is rather uncertain, because the banking system may face credit supply constraints, not the least of which stemming from the high -yet decreasing- stock of Non-Performing Loans, a legacy of the sovereign debt crisis.

The Greek RRP could offer a vital opportunity to significantly enhance investment financing for SMEs in general, in order to pursue specific policy targets, such as those represented by the six pillars of the Recovery and Resilience Facility (green transition, digital transformation, smart, sustainable and inclusive growth, social and territorial cohesion, policies for next generation). The recently opened for submitting investment plans “Digital Transformation of SMEs” action, is an example of such measures and priorities. However, the amount of funding allocated to SMEs in Greece through the RRP is likely insufficient to put SMEs on the cloud and IoT platforms, but also to help them adequately achieve the rest of the RRF main policy targets. Perhaps some changes to the scope and targeting of the actions of the RRP, even those focusing on the public sector, could provide greater assistance to SMEs for tackling the implications of the pandemic crisis. Such a review could also help them face some of the recent, previously unforeseen challenges, because of the Russian war in Ukraine (e.g. new international partnerships – networking, through public services, domestically and abroad, speeding-up of creating green infrastructure, with access to businesses).

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