Portugal

MAIN FEATURES OF ECONOMY

 

The Portuguese economy emerged from recession in 2004, driven by exports and private domestic demand. Real GDP growth is expected to pick up further and reach 2 ¾ per cent in 2006. By any measure, the economy would still not be operating at its potential  at the end of the projection period. As a result the inflation differential vis-à-vis the euro area should remain small.

 

Fiscal consolidation remains a challenge for policymakers. Reliance on large one-off measures to keep the deficit below 3 per cent of GDP has become the norm since 2002. These should be replaced by strict controls on spending and the implementation of already-approved reforms should be accelerated. A radical reform of the pension system is also needed to ensure the long-term sustainability of public finances.

 

Portugal is highly centralized, with local government accounting for just 10% of public spending. There are large differences in the regional distribution of wealth. Income per capita in the region around Lisbon and Tagus valley, which accounts for one-third of the population, is 33% higher than the national average. The region around Porto, which has a strong industrial tradition, accounts for almost 30% of the country’s GDP, although GDP per capita is 18% below the national average. The poorer regions in the country will continue to benefit from infrastructure developments funds from EU.

 

Over the period 2000 - 2006, the Portuguese government will invest some 49 billion Euros in regional development projects in virtually every sector of the economy. About 50% of the total investment will come from the EU in the form of structural and cohesion funds and special EU initiatives. Some of these projects will include: construction of main roads, modernization of railroads and ports, improving environmental quality for 90-100% of the population (including the supply of water, solid waste and industrial waste disposal), aid to industry and agriculture, and plans for intensive promotion of regional integration. Portugal has increased its standard of living closer to that of its EU partners. GDP per capita on a purchasing power parity basis has risen to over 70 percent of the EU average from just over half of the EU average in 1986.

 

The Portuguese economic structure, driven by the EU structural funds and by the joint efforts on the quality, design and diversify promotion, had, in the last years a similar development to the other EU countries, being more oriented to the services sector.

 

CHARACTERISTICS OF MARKET

The combination of Portugal’s economic openness, strong ties with the EU and unique geo-strategic location, make it a natural gateway between the EU and world markets. The country’s ties with the African continent, Brazil and transatlantic link with the USA, provide a cost-effective internationalisation base.

This advantage point is supported by a modern infrastructure, in permanent upkeep and extension.

Portugal is a market often used by multinational companies to test new products, for specific market segments. Household  and business consumers are proactive in regards to new products and keen early adopters of breakthrough technologies.

Agriculture has reduced its weight in the country’s economy, though new technologies have been adopted to improve production, which modernised this sector in many aspects of its activity.

 

Industry has changed its traditional structure from a high dependence in the textile industries, footwear, ceramics, cork, ship repairing, food and beverages, to a situation in which new sectors have achieved a growth dynamic such as automotive components, electronics and pharmaceutical products, among others, becoming more and more important in the country’s economy.

 

Construction is responsible for more than 50% of the gross fixed capital formation, for 13% of the gross domestic product and for 11% of the employment rate. The government has announced huge investments in infrastructures for the period 2000-2006, partially financed by the structural funds and the cohesion fund within the EU scope.

 

Services became the most dynamic sector of the Portuguese economy with commerce, transports, communications, tourism and financial services. Portugal has followed the European standards in commercial activities such as the proliferation of shopping centers. This distribution sector replaced the traditional retail market. The information technologies have developed e-commerce activities. The remarkable investments in the telecommunications have contributed for the improvement of these services quality.

Major structural improvements
A business-friendly country, with a successful track record of foreign investment inflow, Portugal has been undertaking competitiveness-enhancing reforms in a wide range of areas. Among them are the following:

 

Labour Law

A new Labour Law, aiming to make the labour market more flexible, has been approved in Parliament.

 

Tax system and incentives

Large scale productive investment benefits from a reduction of up to 20% of the fiscal burden. Corporate tax rates are reduced to 25% in 2004 and to 20% from 2006 onwards.

 

Administrative reform

Company licensing requirements are being alleviated and the length of time to incorporate a company significantly reduced.

 

Market regulation

A Competition Authority was created with a mandate to prevent anticompetitive practices and promote market transparency.

 

Cost  Competitive, skilled & flexible workforce
Portuguese employees are known for their versatility and commitment to work, with a positive attitude towards the adoption of new technologies and practices.

 

 “The Portuguese workforce is excellent. It is one of the most flexible, productive and eager anywhere in the world. I cannot say enough about the workforce I find here.” Mark VerschuerenManaging Director, Opel 

 

“Our products require complex manual work with the same quality as those made in Germany (…) the mental agility of the Portuguese is very important. They are very willing, hard-working and motivated.”Ulrich EhmesManaging Director, Leica

Supporting infrastructure

Portugal has actively promoted the liberalization of the energy market, setting out the necessary steps towards an integrated Iberian Electricity Market.
In another front, public investment efforts are being directed to complete and upgrade existing infrastructures.

 

During the past decade, Portugal has invested heavily in modernizing its communications infrastructure: the result is an extensive network of land, air and maritime route facilities.

Roads and railways

Portugal has a network of modern roads and highways, linking all major cities in the country, and rapid access to Spain. Portugal’s’ rail network covers the extent of the country, with a high speed rail link between Lisbon and Madrid decided on and underway to be functioning by 2006.

 

Sea Ports

With a coastline on the Atlantic Ocean, Portugal’s ports represent an important advantage for companies shipping products throughout the world.

- Leixões - Aveiro - Lisbon - Setúbal - Sines - Funchal (in Madeira island)

 

Airports
Most major international airlines serve Lisbon, Porto, Faro and the islands of Madeira and the Azores. TAP is the national airline,  Portugalia is a smaller award winning airline and Air Luxor an increasingly important private airline company.

Lisbon - 10 minutes from city centre  Porto - 15 km from city centre  Faro - 4 km from city centre  Funchal, Madeira Island - 20 km from city centre  Ponta Delgada – S.Miguel island in Azores

Utilities infrastructure

To enhance the country's cost competitiveness, Portugal has    implemented an extensive natural gas grid and is set on offering attractive energy rates for investors. In April, 2003, the  Portuguese government approved the restructuring of the energy sector by splitting the state-controlled oil and gas holding company Galp Energia into three sectors and by anticipating the full energy market liberalization from 2008 to July 2004. This will boost the attractiveness of the national energy companies before the creation of the Iberian electricity market,  and the European market liberalization.

 

SPECIAL AREAS OF GROWTH

Defence
The Portuguese Parliament has, in May 2003, approved the new Law on Military Programming, which includes a necessary cost-effective modernisation of the armed forces through the application of investment programmes on equipment, weapons and infrastructures. The scope of these programmes is to re-equip the armed forces according to the established strategic military concept and to the missions developed by the Portuguese armed forces abroad. This new law will be in force for a period of 18 years and the investment programmes will be divided in 3 periods of 6 years each, having started in 2003.

 

The investment programmes were prepared by the Ministry of Defence and the three branches of the armed forces (Navy, Army, Air Force) and include the timing, description and costs, as well as the financial plan for acquisition to be included ineach year’s state budget. There are 50 programmes, including sub-programmes, totalising an investment of approximately 5 billion Euros.

 

Environment

One of the government’s priority is the sustainable development of the country focusing on the waste management policies, namely the waste reduction, waste recycling, waste recover and incineration, reducing as much as possible the waste to be sent to the landfills. To fulfil these objectives the country needs to invest in collection, treatment and recycling plants for the urban waste; waste and sludge treatment for the polluting industries; identification systems of hazardous waste and environmental-friend alternatives to landfills.

 

Pollution control and monitoring of the rivers and the sea are also areas in which the government shall invest in the near future, as well as the recover of the accidental discharges of oil in the long Portuguese coast.

 

Both these areas are eligible for EU and EFTA funds allocated to Portugal for the next 6 years.

 

Renewable energies

Portugal has no fossil fuel energy sources, importing more than 85% of its primary energy consumption. Moreover, the GDP energy intensity is the highest among the EU countries, reflecting the poor efficiency of the country’s energy system. In 2001, the government launched a new energy instrument – the E4 Programme (Energy Efficiency and Endogenous Energies), consisting of a set of multiple and diversified measures aimed at promoting a consistent and integrated approach to energy supply and demand.

 

The Portuguese strategy for the promotion of renewable energies introduced by that Porgramme, will likely contribute to meet the targets agreed under the EU Directive on the promotion of electricity from RES in the internal market. The opportunity exists for such a market development – favorable legal framework, tariffs and incentive schemes. Wind, small hydropower and solar and photovoltaic energy are experiencing a significant growth and becoming more and more competitive business.

 

Telecom

The Portuguese telecommunications market is liberalized and highly competitive, counting on a modern infrastructure with cutting edge products available throughout the country (ADSL, MMS and Data on Cable network - Portugal accompanied the first batch of countries in EU to launch these services). Prices are in line with EU average, and companies can negotiate special conditions.

 

Market differentiation has been based on price competitiveness, innovation and quality, in addition to the development customer care structures. Telecom infrastructure continues to evolve into a Next Generation Networks, enabling more efficient and cost effective convergence - voice, data and video - services.

 

Portugal offers specific advantages for the location of Call Centers and Shared Service Centers (SSC). The country has a diversity of qualified, multilingual workforce and a cost competitive modern telecom network. Among the companies that have chosen to set up SSCs in Portugal are some of the major foreign players in the field. Alcatel, Vodafone, Sitel, Siemens, and IBM are just some examples.

 

 

PROSPECTS FOR NORWEGIAN TRADE

• Local Representative - one needs a local representative who must have good contacts in order to be aware of future contracts and to participate in tenders. Portugal is a small country and knowing people in your industry is important.
• Exclusive Distributor - one distributor that is appointed on an exclusive basis is the ideal.
• The Iberian Peninsula - Portugal and Spain is not one homogeneous marketing area. Normally your Spanish distributor should not be asked to cover Portugal unless the Spanish company is willing to set up a separate Portuguese entity to handle this. The Portuguese may resent the assumption that the Spanish know the Portuguese market. If Spanish distributors consider Portugal an extension of the Spanish market, they are largely ineffective in Portugal.
• Impact of the EU - if homework has been done for other EU markets it is basically done for Portugal. Many projects are EU-funded so a EU partner is desirable and is fundamental when bidding on these.
• Slow Down - business takes longer as compared to northern Europe because personal contacts are important. Your customers want to get to know you before they will trust you
• English is common - although Portugal is a European country it looks to the Atlantic and to trade with others. Norway is well respected in the market and companies can usually do business in English.

TRADE STATISTICS NORWAY-PORTUGAL

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Mer informasjon om norsk handel med Portugal kan du få ved å sende en e-post til sjefsøkonom i Innovasjon Norge John Rogne, eller ved å ringe ham på (+47) 22 00 27 17.