Campaign to speed up slow growth Only

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PORTUGAL
Designers
are promoting
a passion
for fashion
Page 4
FINANCIAL TIMES SPECIAL REPORT | Wednesday July 14 2010
www.ft.com/portugal­2010 | twitter.com/ftreports
Campaign to speed up slow growth
The nation is
addressing its lack of
export competitiveness
on several fronts,
writes Peter Wise
O
Child’s play: large­scale investment in education includes the issuing of a laptop to every primary school pupil
Reuters
nly 19 children attend
the primary school in
Várzea de Abrunhais,
a village perched on a
forested hillside in northern
Portugal, whose ageing population, depleted by emigration and
rural flight, cultivate orchards
and vineyards.
In September, a bus will ferry
the children eight kilometres to
a new school for 200 in the town
of Lamego, leaving behind their
whitewashed classrooms under
a modernisation programme
that has already seen 2,500
schools with fewer than 20
pupils closed. A further 900 closures are planned.
In villages like this, the divide
between the poor rural interior
and more affluent coast is usually most evident. According to
Organisation for Economic Cooperation and Development figures for the mid-2000s, Portugal
is the European country where
income is most unevenly distributed.
Before its imminent closure,
however, the school in Várzea
de Abrunhais has achieved
international recognition, having been selected last year by
Microsoft to join the company’s
Pathfinder network, an elite
group of 31 schools chosen from
across the world for their innovative use of new technologies.
The achievement reflects Portugal’s large-scale investments
in education technology, including the issue of laptop computers to every primary pupil – part
of a wider effort to address what
economists identify as the country’s biggest challenge: overcoming low economic growth
caused by a loss of international
competitiveness.
Since 2000, gross domestic
product growth has been the
second lowest in the eurozone
after Italy at an annual average
of less than 1 per cent. In June,
the government forecast the
economy, which contracted 2.6
per cent last year, would gradually expand to growth of 1.7 per
cent in 2013.
Low growth has seen living
standards stagnate in terms of
the European average. According to figures from Eurostat,
GDP per head was the same in
2005 as in 1998 at 79 per cent of
the European Union average,
whereas in Slovenia, for example, it had increased from 79 to
88 per cent.
In 2009, investment in education, including a €2.45bn school
rebuilding programme, was also
part of government policy to
increase public expenditure to
help offset the impact of the global recession on jobs and
growth.
However, the combined effect
of increased spending and fall-
Inside this issue
The economy Once,
membership of the eurozone
was about benefits. Now, it is
tough love, writes Ralph Atkins
Page 2
Social trends A tendency
to back away from radical
solutions can leave problems
only partly resolved, writes
Peter Wise Page 2
Interview José Sócrates, the
prime minister, explains how
difficult it is to instil confidence
Page 3
Renewable energy Lisbon is
embracing a green revolution,
writes Mark Mulligan Page 5
Tourism The country is
promoting historic towns and
other non­golf attractions, says
Jill James Page 6
ing tax revenue saw the budget
deficit soar from 2.8 per cent of
GDP in 2008 to a record 9.3 per
cent last year.
When fears that Greece might
have to default on its debt compelled the EU to put together a
€750bn stabilisation plan in
May, international financial
markets were already questioning whether Portugal and Spain
would be the next dominoes to
fall in a sovereign debt crisis
that threatened to sweep southern Europe.
Portugal’s Socialist government was forced to push
through a series of increasingly
severe packages of austerity
measures, reversing plans to
delay tough deficit-reduction
measures until a recovery was
firmly established.
“Our deficit increased in 2009
because we were responding to
the global crisis and that had a
positive effect,” says José
Sócrates, Portugal’s centre-left
prime minister. The economy,
he says, contracted less last
year than in most other EU
countries and expanded more
strongly in the first quarter of
2010, with growth of 1.1 per
cent, because of government
support.
“The crisis of market confidence that began with Greece
forced Europe to change direction,” says Mr Sócrates. “Portugal, like other countries, was
obliged to make an additional
effort to reduce its deficit.”
Additional austerity measures
included a 1 percentage point
increase in value added tax to 21
per cent and increases of up to
1.5 per cent in income tax.
The country’s growth and stability plan, presented in February, had already frozen civil
service wages for four years,
reduced social spending and cut
military investment by 40 per
cent.
Markets wanted to be reassured that Mr Sócrates had not
only tabled the right measures,
but also had the power to see
them through. However, after
winning the first-ever absolute
Continued on Page 2
2
FINANCIAL TIMES WEDNESDAY JULY 14 2010
★
Portugal
The gain, then the pain, of life in euroland
The economy
Eurozone membership
was about benefits.
Now it is tough love,
writes Ralph Atkins
P
ortugal is not Greece
has been a popular
refrain among European
policymakers during the
tumultuous past few months.
Public debt as a share of gross
domestic product is not as high
as in Greece. Nobody has questioned the functioning of its tax
collection system or statistical
service. Lisbon knows it must
develop export businesses; the
larger number of golf courses
that a visitor notices suggests it
may be better at attracting
affluent tourists to its Atlantic
coasts than its Aegean rival.
But as the crisis over Euro-
Contributors
Peter Wise
Lisbon Correspondent
Ralph Atkins
Frankfurt Bureau Chief
Victor Mallet
Madrid Bureau Chief
Mark Mulligan
Madrid Correspondent
Richard Milne
European Business
Correspondent
Jill James
FT Contributor
Stephanie Gray
Commissioning Editor
Steven Bird
Designer
Jamie Han
Picture Editor
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contact:
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or your usual
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pean public finances escalated,
Portugal had to learn the hard
way that membership of the
continent’s 11-year old monetary
union involves pain as well as
gain. As with Greece, Portugal
shows eurozone membership
entailed a hidden danger that
was only exposed when it was
too late to avert a financial market crisis.
In the run-up to the launch of
the euro in January 1999, and
for some time afterwards, the
benefits of membership were
clear, especially in the region’s
less affluent countries. Low
interest rates and low inflation
encouraged growth. Businesses
benefited, too, from lower transaction costs for cross-border
trade and from using a stable,
global currency. In the early
years of the eurozone, Portugal’s economy grew strongly.
During the initial phases of
the global financial crisis that
erupted in August 2007, euro-
zone
membership
offered
another benefit: a defence
against foreign exchange crises.
The problem – as has now
become apparent – was that
eurozone membership offered
too much protection. Financial
markets failed to distinguish
between eurozone countries. As
a result, governments could
allow public finances and
growth prospects to deteriorate
with few repercussions.
Late last year, everything
changed. Greece shocked other
eurozone countries – and financial markets – by revealing its
public finances were even worse
than feared. International investors began to question whether
Greece would have to default,
and
started
scrutinising
whether other countries could
face similar difficulties. It was
not long before Portugal came
into the spotlight.
Although its fiscal position
was not as bad as in Greece, the
government deficit came close
to 10 per cent of GDP last year.
Government debt as a share of
GDP was close to 80 per cent.
It was also clear that Portugal
could easily fall prey to a
change of mood in international
capital markets. Its net international investment position –
Vitor
Constâncio
(left), former
central bank
governor, is
vice­president
of the ECB
domestic ownership of foreign
assets less the foreign ownership of domestic assets – showed
a deficit of more than 100 per
cent of GDP. Nor was it clear
whether Portugal would be able
to create the growth needed to
put its finances back on a sustainable path.
Since the launch of the euro,
Portugal had seen its competitiveness deteriorate almost as
much as in Greece. Between
2000 and 2007, unit labour costs
rose 19 per cent – compared
with 22 per cent in Greece.
Events took a turn in early
May. Ironically, the European
Central Bank had long arranged
for its governing council’s regular interest rate setting meeting
that month to be held in Lisbon.
Even as Jean-Claude Trichet, its
president, held a press conference afterwards in the Centro
Cultural de Belém arts complex,
financial market pressures were
intensifying.
“Greece and Portugal are not
in the same boat, and this is
very clear when you look at the
facts and figures,” Mr Trichet
said. But the next day, the ECB
president was in Brussels lobbying eurozone leaders to act
against a crisis that had spread
far beyond Greece.
After a frantic weekend of
meetings, the European Union
announced a €750bn stabilisation plan, and the ECB said it
would intervene in government
bond markets. Crucially, the
Portuguese government had
agreed bolder steps to bring its
finances under control. Within a
few days, José Sócrates, prime
minister, was announcing additional
austerity
measures,
including a “crisis tax” on
wages and big companies.
Portugal undoubtedly faces
tough times. Austerity measures
will act as a severe brake on
growth. The country’s small
export sector will have to grow
rapidly to make a big difference.
Some commentators argue
that Portugal could leave the
eurozone. An orderly withdrawal might make sense for
countries that “are fundamentally different from the others”,
Ansgar Belke, economics professor at the University of Duisburg-Essen in Germany, told the
FT this year. “Portugal has little
to export. It competes with
emerging markets, so to turn
the economy round it would
have to cut wages so far that
there would be a deep recession.”
But exiting the eurozone is
not a realistic option. Economically, the costs would be catastrophic. As importantly, Portugal is an integral part of the EU
and the eurozone. Portuguese
nationals hold two of the most
important EU jobs. José Manuel
Barosso, a former prime minister, is European Commission
president. In Frankfurt, Vítor
Constâncio, a former governor
of Portugal’s central bank, has
just become the ECB’s vice-president with the crucial beat
responsible for financial stability issues.
But Portugal’s contract with
the eurozone will be different.
Once membership was about its
benefits, now it is tough love.
Aversion to social unrest
is a double­edged sword
Social trends
Peter Wise on a
tendency to avoid
radical solutions
to problems
In May, tens of thousands
attended open-air masses in
Lisbon, Porto and Fátima
when Pope Benedict XVI
made a four-day visit to
Portugal, a country in
which more than 80 per
cent of people identify
themselves as Catholics.
In June, thousands of
mourners lined the streets
of Lisbon to pay their last
respects to José Saramago,
the Nobel prize-winning
novelist, who months before
his death at the age of 87
described the Bible as “a
catalogue of cruelties and of
the
worst
of
human
nature”.
Between
these
two
events, Teresa Pires and
Helena Paixão, divorced
mothers in their 30s, married at a Lisbon registry
office, becoming the first
couple to take advantage of
a new law making Portugal
the sixth country in Europe
to legalise same-sex marriages.
The crowds which held
up books by the Communist
writer during two days of
national mourning when
his body lay in Lisbon’s city
hall
almost
certainly
included people who had
prayed with the Pontiff at
Praça do Comércio, a
nearby riverfront square, or
at Fátima, where the Virgin
Mary is said to have
appeared in 1917.
Overlapping allegiances
like this are not uncommon
in
Portugal,
which
describes itself as a country
of brandos costumes, or mild
ways, a vexed phrase that
alludes partly to an understanding tolerance and
partly to the kind of acquiescence that saw the country endure 41 years of
repressive rule under the
Salazar-Caetano regime.
Portugal’s aversion to
polarisation is a doubleedged sword. Social unrest
of the kind that has swept
Greece is not a pressing
concern in a country where
strikes and protests are relatively infrequent and lowkey. According to the interior ministry, Portugal also
has the lowest crime rate
among the 15 pre-expansion
members of the European
Union – at 38 crimes a year
per 1,000 inhabitants compared with an average for
those countries of 69.
Conversely, a tendency to
back away from radical
solutions can leave problems only partly resolved.
“Portugal has performed
well in the past in bringing
excessive budget deficits
under control,” says a
London-based analyst with
a credit rating agency. “But
it has never gone the full
distance and sought to
achieve a zero deficit.”
Many employers would
argue that a conciliatory
approach has prevented
governments from liberalising excessively rigid labour
legislation, in spite of
reforms in 2008 that made
the labour market more
flexible.
Public
sector
employees are virtually
guaranteed a job for life,
regardless of performance,
making it harder for young
people to find employment
or gain promotion.
Brandos Costumes was
used as the title for a 1975
film in which the female
characters live trapped in a
decaying mansion under
the sway of a dictatorial
father figure. Directed by
Alberto Seixas Santos, the
film is admired as a classic
depiction of the stifling
atmosphere of Portuguese
society during the SalazarCaetano regime and the
colonial wars in Africa.
While brandos costumes
remain a distinctive trait,
the country has changed
radically from the pre-1974
order, when women were
barred
from
becoming
judges or diplomats and a
licence was required to own
a cigarette lighter. More
women now graduate from
university than men and a
majority of new judges are
female.
The country is one of a
small number that grant
paternity
leave.
José
Sócrates,
the
prime
minister, described the
legalisation of same-sex
marriages in January as
“an historic victory for
Portugal in the struggle
Masses: thousands turn out for the Pope but big crowds also honour Bible­averse novelist
against discrimination and
injustice”.
In contrast with Spain,
where hundreds of thousands protested in the
streets before gay marriage
was legalised in 2005, opposition in Portugal was relatively muted, although
opinion polls show that
only about 30 per cent of
people support same-sex
marriage.
In 2007, Portugal legalised
abortion on request during
the first 10 weeks of pregnancy. Although 84.5 per
cent of Portuguese describe
themselves as Catholics,
only 18.7 per cent say they
practise the religion and
only 10.3 per cent are regular churchgoers.
One of the apparent paradoxes of brandos costumes is
that tolerance itself can
lead to what many would
see as radical solutions.
This certainly applies to
drugs. In 2001, the government decriminalised the
personal use and possession
of all drugs, including heroin and cocaine, in a measure that some British newspapers said would set
“alarm bells ringing across
Europe”.
However, in 2008, the
Cato Institute, a US thinktank,
concluded
that
“decriminalisation has had
no adverse effect on drug
usage rates in Portugal”,
which “in numerous categories are now among the lowest in the EU”. It added that
several drug-related problems, including sexuallytransmitted diseases and
deaths from overdoses, had
“decreased dramatically”.
Officials point out that
drug use remains illegal in
Portugal and anyone in possession can have the drugs
confiscated and be sent
before drug commissions,
which can include psychiatrists and social workers,
and seek to encourage
addicts into treatment and
prevent recreational users
from falling into addiction.
After the revolution, fado,
Lisbon’s raw traditional
music, was seen as backward-looking and fell out of
favour before enjoying a
renaissance that is now in
full flower.
After the death of Amália
Rodrigues, the great fado
diva, in 1999, José Saramago revealed that the star
fêted by the Salazar regime
had made secret donations
to the Communist party.
“Life is always more complex than it appears,” he
said.
Campaign to speed up growth
Continued from Page 1
majority for the Socialists
in 2005, he had been reelected in September 2009 at
the head of a minority government that needed opposition support to approve
legislation.
To ensure international
credibility, Pedro Passos
Coelho, the new leader of
the centre-right Social Democrats (PSD), the main
opposition party, agreed to
support Mr Sócrates’s austerity measures in return
for some small concessions,
including a 5 per cent cut in
politicians’ pay.
The pact has earned Mr
Passos Coelho political
kudos and helped his party
move ahead of the Socialists in opinion polls.
He has sought to unite a
party riven by leadership
disputes since José Manuel
Barroso quit as prime minister and PSD leader to
become president of the
European Commission in
2004.
A believer in a smaller
public sector who wants to
privatise public transport,
water utilities and state
broadcasting, Mr Passos
Coelho is sternly critical of
official “complacency” over
foreign borrowing. This, he
wrote recently, has seen
Portugal’s net external debt
rise “above 100 per cent of
GDP from only 33 per cent a
decade ago”.
Unless there is a prior
political crisis, his first
opportunity to challenge Mr
Sócrates in a general election is not due until 2013.
Voters are unlikely to be in
a buoyant mood.
Plans to cut the budget
deficit by more than threequarters to 2 per cent of
GDP by 2013 will restrain
growth over the medium
term.
Unemployment,
which
reached almost 11 per cent
in May, is not forecast to
fall much below 10 per cent.
Dealing with the lack of
export competitiveness that
is the underlying cause of
low growth is a longer term
problem that Portugal is
engaging with on several
fronts. An important issue
is unit labour costs, which
rose 19 per cent between
2000 and 2007.
“We need to guarantee
a combination of wage
moderation and productivity gains in both the public
and private sectors,” says
Fernando Teixeira dos Santos, the finance minister.
The government, he says,
had been “strongly reformist” since taking office in
2005, but international markets were sometimes unaware of the important
structural changes that had
been made. This was the
case with a sweeping social
security reform in 2007.
A plan to make the country a European pioneer in
green energy aims to lower
a €4.4bn trade deficit by
reducing dependence on
imported oil.
Investments
in
wind
energy
and
favourable
weather conditions saw
70 per cent of the country’s
electricity
consumption
generated from renewable
sources early this year, says
Mr Sócrates.
The launch of a national
recharging network for electric cars is among a number
of projects aimed at developing export clusters for
green energy technology.
Similar efforts are being
made to move the country’s
traditional industries up the
value chain into design,
branding and high-tech production.
In education, a large proportion of investment is
focused on preparing children for the age of information and knowledge-based
industries, in parallel with
an ambitious government
Technology Plan designed
to achieve a sustained
increase in productivity.
That is why in the school
bus to Lamego in September, the children of Várzea
de Abrunhais will be carrying their laptops along with
their lunch packs.
FINANCIAL TIMES WEDNESDAY JULY 14 2010
3
★
Portugal
Severe test of inveterate optimist
Interview
José Sócrates
Peter Wise finds
the prime minister
in buoyant form
I
José Sócrates: he feels he is on his own in bid to rouse energies
AFP
n his five years as prime
minister, José Sócrates’s
inveterate optimism has
never been so severely
tested as during the past six
months.
While Europe’s sovereign
debt crisis has forced him to
adopt successive packages of
austerity measures, he has
been buffeted by press coverage
of unproven allegations of
attempting to meddle in a local
media group.
International financial
markets have compelled him,
like other European leaders, to
make radical changes in his
economic policy and the
emergence of a young new
opposition leader on the centreright has seen his Socialist
party fall behind in the polls.
He also considers himself
unsupported in trying to instil
confidence in a country facing
several more years of low
economic growth, confessing to
journalists in June that “I
often feel I’m trying to rouse
the nation’s energies on my
own”.
Despite all this, he remains
determinedly buoyant,
believing it is the job of
politicians to dispel negativism.
“Portugal is making progress,”
he says. “We’re tackling the
difficulties facing our economy
and I have every confidence
in the reforms we’re
undertaking.”
His sanguine outlook has
been strengthened by
encouraging economic data. In
the first quarter of this year,
growth of 1.1 per cent was
among the highest in the
European Union. In the five
months to May, he says, fiscal
revenue was substantially
above target and state spending
lower than forecast.
He would have liked to have
cut the budget deficit by only
1 percentage point to 8.3 per
cent of gross domestic product
this year, he says, to avoid the
risk of choking off economic
recovery, but was put under
pressure by the sovereign debt
crisis to target a reduction of
2 percentage points.
“The alternative of not
making additional cuts would
have been far worse,” he says.
“The financing difficulties we’d
have faced would have had a
much more negative impact on
the economy than the austerity
measures we have
implemented.”
Portugal will do “whatever it
takes” to meets its
commitment to cut the deficit
to 2 per cent of GDP in four
years, he says. “But
performance over the past six
months has exceeded
expectations and I’m confident
the plan we have set out will
deliver the intended results.”
Optimism for Mr Sócrates
means “tackling difficulties
with courage”. Portugal may
not yet be above the European
average in terms of living
standards or competitiveness,
he says, “but I challenge
Portugal was the only
country to revise its
labour laws at the
height of the
recession, introducing
more flexibility
anyone to show me a country
that has been more reformist
over the past five years”.
His government’s reform of
pensions in 2007, he says, has
taken Portugal off the list of
countries with social security
systems at risk.
Public sector workers who
retired at 60 now retire at 65,
in common with private sector
workers. A sustainability factor
was also introduced, giving
employees the option of
working longer or receiving
slightly lower pensions, as life
expectancy forecasts increase.
No other EU country, he
says, has cut back its public
administration as much as
Portugal in recent years,
reducing the number of civil
servants by 73,000, or 10 per
cent, between 2005 and 2009
and cutting the public sector
wage bill from 14.8 per cent to
below 12 per cent of GDP.
Mr Sócrates says his was the
only country to revise its
labour laws at the height of
the recession in 2008, facing
down trade union protests to
introduce more flexibility.
“According to the OECD,
Portugal had one of the most
rigid labour markets in the
developed world. Now, we are
close to Germany and better
than France,” he says. The
challenge for the future is to
apply the legislation more
effectively.
In education, he says, his
reforms have seen every child
at primary school taught
English as a second language
and given a laptop computer. A
€2.45bn programme to rebuild,
modernise and re-equip 205
secondary schools by 2011 has
passed the half-way stage. More
than 35 per cent of 20-year-olds
are at university.
An American recently stood
as a candidate for rector of the
country’s biggest university
under new regulations that
have opened up the system.
“Our progress in science has
been absolutely extraordinary,”
he says. Between 2005 and 2008,
Portugal increased public
investment in research from 0.7
to 1.55 per cent of GDP,
overtaking Ireland and Spain.
The country now has 7.6
researchers for every 1,000
workers, one of the highest
levels in Europe.
Investments in green energy
saw 70 per cent of the
country’s electricity produced
from renewable sources in the
first five months of this year,
he says. Creating Europe’s first
national recharging network
for electric cars aims to bring
renewable energy to the
transport sector.
Support for the “digital
economy” has seen Portugal
move from 16th to first place in
the World Bank rankings for
“e-government” in five years.
In February this year, Mr
Sócrates says, 32 companies a
day were being created online
in a process that takes about
half an hour.
“Have these reforms solved
all Portugal’s problems,” the
prime minister asks.
“Of course not. But I answer
for the past five years. We are
dealing head-on with the
difficulties facing the economy
and I’m very confident of the
benefits these reforms will
bring.”
Must do better to catch up with European peers
Education
Peter Wise reports
on low levels
of attainment
Rui breaks a chocolate bar
into eight equal pieces and
eats a quarter of it. How
many pieces does he eat?
According to the Portuguese Mathematics Society
(SPM), this question from
the national exam that 12year-olds sat in June is evidence that the arithmetical
demands being made on the
country’s
schoolchildren
are often undemanding.
The fact that 20 per cent
of children in this age
group failed a similar
maths exam last year highlights one of Portugal’s
most pressing challenges:
despite
investment
in
schooling on a par with
most western countries,
educational outcomes are
significantly below average
for the developed world.
“There is no doubt that
Portugal has to achieve better educational standards
than we have attained in
the past,” says Isabel
Alçada, the education min-
ister. “We are working in
every sphere to increase
levels of qualification and
improve the quality of
schooling.”
If slow growth and a lack
of international competitiveness
are
widely
acknowledged as the principal weaknesses of the economy, the low level of educational attainment among
workers and small company
managers is seen as one of
the chief causes.
In a 2006 report, the
Organisation for Economic
Co-operation and Development said the achievements
of 15-year-old Portuguese
students in reading, maths
and science were among the
poorest of the 31 OECD
member nations.
Portuguese schools, the
OECD said, had not been
able “to limit the repetition
of low education from one
generation to the next”,
noting that “below average
outcomes do not result from
a lack of spending on education, but from the low efficiency of the system”.
Photographs of the dozens of education ministers
who have sought to reform
the
system
line
the
entrance hall of the main
ministry building in Lisbon
– the short tenure of many
who served after the overthrow of Portugal’s authoritarian regime in 1974 testimony to the political instability that has often undermined progress.
Big advances have been
made. Over the past 50
years, the percentage of the
population with a secondary education has increased
from just 1.3 per cent to 63.2
per cent.
About 80 per cent of children receive pre-school education, compared with less
than 1 per cent in 1960.
More than 35 per cent of
young people obtain a university education, once the
prerogative of a small elite.
But a wide gulf still separates Portugal from its
European peers. According
to the OECD, fewer than
half of 25- to 34-year-olds
have been educated beyond
the ages of 15 or 16, compared with an OECD average of 80 per cent. For 55- to
64-year-olds, the percentage
drops to below 15 per cent,
the lowest level among
developed countries.
“We have to make a leap
forward in both the quantity and quality of our education,” says Ms Alçada,
who took office last Octo-
ber. “We need to ensure
that everybody of school
age remains inside the system and provide an opportunity for adults to achieve
the education they missed
out on as children.”
In one of Portugal’s biggest educational reforms to
date, compulsory schooling
was increased last year
from nine to 12 years,
roughly the equivalent of
raising
the
minimum
school-leaving age from 15
to 18. The Socialist government has also made English
as a second language compulsory from the age of six.
A technological plan for
education has seen every
primary school pupil issued
with a laptop computer –
more than 400,000 have
been distributed to date.
Almost every school has
been equipped with highspeed fibre-optic internet
connections, with one PC
for every five students.
Every classroom has a
video projector and one in
three an interactive whiteboard with computer and
internet links.
Some reforms have met
strong resistance. A plan to
introduce teacher assessments brought tens of thousands of demonstrators on
Effort to exploit ties with
former colonies pays dividends
New markets
Portuguese groups
are looking beyond
Europe for growth,
says Peter Wise
At the height of the civil
war that ravaged Angola
for 25 years after its independence from Portugal in
1975, grades de cerveja
(crates of beer), became
a popular medium of
exchange in the absence of
a stable local currency.
More than 30 years on,
Unicer, Portugal’s largest
drinks group, is building a
€100m brewery in Luanda,
the Angolan capital, in a
project that highlights the
former colonial power’s
position as the biggest foreign investor in Angola outside the oil industry.
Portuguese wine is also
widely drunk in Luanda,
the world’s most expensive
city, according to the consultants ECA International,
with Angola becoming the
biggest overseas market for
Portuguese winemakers last
year, accounting for €57m
of exports of €246m.
As demand falters in Portugal’s main export markets, led by Spain, Germany
and France, local companies are building on common ties with Portuguesespeaking Africa and Brazil
to expand outside Europe in
some of the world’s fastestgrowing economies.
“Portugal maintains a
close and productive relationship with lusophone
Africa through its common
language, direct transport
links, shared legal framework and long-standing business ties,” Alan J Katz, the
US ambassador to Portugal,
told a recent conference in
Lisbon. “It’s uniquely positioned to serve as an effective ‘gateway’ for companies
seeking greater levels of
business in these markets.”
He points out that in 2008,
when, the world economy
grew by only 2.9 per cent,
economies in Portuguesespeaking Africa expanded
by as much as 13.2 per cent
in Angola, 5.9 per cent in
Cape Verde and 6.8 per cent
in Mozambique. “As these
economies
continue
to
grow, so does the demand
for quality goods and services from infrastructure and
energy equipment to medical technology and legal
services,” says Mr Katz.
Portuguese
companies
aim to be in the front line
of groups supplying those
needs.
The
country’s
exports to non-EU countries
have risen from 15 per cent
of the total to more than 27
per cent over the past decade, with up to 10,000 Portuguese companies estimated
to be doing business with
lusophone Africa.
These
groups
have
invested more than $1bn in
Angola over the past three
years and helped to lift Portugal past China to become
the country’s biggest foreign supplier, accounting
for 17 per cent of imports of
almost $16bn last year. As a
result, Angola has become
Portugal’s fourth biggest
export market, ahead of the
US, with sales to its former
colony growing 35 per cent
in 2008.
People have followed
trade. After 700,000 settlers
fled the country’s Africa
colonies ahead of independence in 1975, the number of
Portuguese living in Angola
is estimated to have doubled over the past three
years to about 100,000.
Portugal is also the main
foreign supplier for Cape
Verde and one of the top
ON FT.COM
Sharper shoes,
cork oak
exports and
a specialist
in apps
www.ft.com/
portugal­2010
five for Mozambique. Every
week, TAP-Air Portugal, the
national airline, runs 20
direct flights from Lisbon to
Luanda and 14 to Cape
Verde.
Leading Portuguese companies, including Sonae
(manufacturing and services), Pestana (tourism),
Millennium BCP (banking),
Mota Engil (construction)
and Galp (oil), are rapidly
expanding their operations
in African markets, says Mr
Katz. About 84 per cent of
Portugal Telecom’s 70m
customers live in Africa or
Brazil, where gross domes-
tic product was up 5.1 per
cent in 2008. “Market diversification is one of the tools
we have to use to reduce
our foreign deficit,” says
José Vieira da Silva, the
economy minister.
Seeing little prospect of
domestic consumption or
public investment growth
at home or in European
markets, Portuguese companies are increasingly looking further afield for opportunities, helped by a weaker
euro.
An acrimonious battle
between Portugal Telecom
(PT) and Spain’s Telefónica
over control of Vivo, Brazil’s largest mobile phone
operator, reflects the importance of the Brazilian market, home to most of the
world’s 223m Portuguese
speakers.
Brazil, like lusophone
Africa, is also proving a
strong growth market for
Portuguese banks. Banco
Espírito Santo, has a 7 per
cent shareholding in Brazil’s Bradesco bank and
operates its own investment
bank there. State-owned
Caixa Geral de Depóstos,
Portugal’s biggest bank by
deposits, last year launched
Caixa Geral-Brasil.
Diversifying into new
overseas markets is also
seen as an important driver
of technological innovation
and marketing flair. Unicer,
for example, has developed
a non-alcoholic version of
its best-selling Super Bock
beer targeted at markets in
the Middle East and north
Africa.
to the streets before a compromise was agreed last
year. Ms Alçada is facing
protests over plans to close
900 primary schools with
fewer than 21 pupils each.
Entrepreneurship
has
recently been introduced
into the school curriculum.
But a measure expected to
have a far greater impact
on the economy is the provision of vocational training in secondary schools.
“After the 1974 revolution, there was an ideological bias in Portugal against
technical teaching,” says
Ms Alçada. “Secondary education came to be seen as
an academic preparation for
university and vocational
training at school was often
considered discriminatory.”
Today, 180,000 of Portugal’s
351,000
secondary
students are enrolled in
courses aimed at equipping
them with specific skills for
the job market.
Ms Alçada believes this
will have an important
impact on one of the country’s biggest educational
problems: school drop-outs.
Last year, 31 per cent of
students abandoned secondary school early. This is one
of the highest rates in
Europe, but already represents a significant reduction from almost 40 per cent
in 2004. Part of the solution,
Ms Alçada believes, is adult
education.
Launched in 2005, the
Novas Oportunidades (New
Opportunities) programme
offers adults and young
drop-outs the possibility of
completing the secondary
education that they would
normally have finished at
18. The scheme has proved
a runaway success, with
almost 1m people registering for courses over the
past five years.
“Parents need to have
positive expectations of the
education system,” says Ms
Alçada.
“In giving adults a chance
to achieve the education
they lacked, we increase
their appreciation of its
value and raise their hopes
for their children.”
4
FINANCIAL TIMES WEDNESDAY JULY 14 2010
★
Portugal
Small size hides uncomfortable truth
Portugal has more small­ and
medium­sized companies (SMEs)
than any other western
European country, which
explains many of the country’s
difficulties. It also highlights
some of the problems in all of
Europe, particularly those
underlying its sluggish growth
compared with the US and Asia.
Portugal has 848,000 SMEs
providing the country with 82
per cent of its employment and
68 per cent of its value added,
according to the latest pan­
European figures from 2005.
That means it has 80 SMEs –
classed as companies employing
fewer than 250 people – for
every 1,000 inhabitants.
Some European policymakers
pride themselves on the
strength of the SME sector, as
many of the companies are
world leaders in their niches.
However, this hides an
uncomfortable truth. “Nobody
wants to talk down small
companies. But the ugly fact for
Europe is that we don’t make
enough big companies – not
enough of our small companies
go on to become big
companies,” says a leading
industrialist.
Research from Bruegel, the
Brussels­based think­tank, backs
this up. A recent policy brief
finds that having bigger
companies “could generate a
considerable increase in the
value of European exports”. It
urges consolidation and policies
to foster growth, especially
among the smallest of
companies.
The authors argue that not all
companies need to become
large, but they need to be of a
sufficient size. “They must be
large enough to carry out
complex global operations,
including global production,” the
report says.
This is a particular issue in
Portugal where more than 40
per cent of employees work at
so­called micro­enterprises,
which employ fewer than 10
people.
The problem of size is not just
about growth, but also about
the availability of finance. In
common with many SMEs
across the world, Portuguese
companies complain about the
price of credit.
Although banks say that the
increase in credit costs merely
reflects lower risk­taking on their
behalf as well as lower demand
from cautious companies, there
is a wider worry across Europe.
That is that the current rules on
bank capital – known as Basel II
– and the new version being
negotiated, catchily entitled
Basel III, will hit SMEs hard.
The updated rules will cause
banks to hold more capital in a
way that many business groups
believe will lead to them
discriminating against small
companies when they lend,
because of the latter’s poor
credit ratings.
Big Portuguese companies,
like their European counterparts,
are increasingly thinking about
replacing their bank finance with
money from the capital markets
through bonds and private
placements, which is much
cheaper.
The problem for SMEs is that
that avenue is not open to
them. Instead, they are forced
to turn to the banks.
One doing that is JJ Teixeira,
a wood company in the north of
the country. When the FT first
visited it in February, its order
books were full as never before.
It made a record €25m in sales
last year with its 250 workers.
But since then, it has been in
an endless series of talks and
begging discussions with banks
to try to stave off bankruptcy. It
has been forced to push back
the payment of its bills in a
desperate scramble for cash.
Pedro Azevedo, the company’s
finance director, says: “My
biggest worry is that we get into
a spiral with SMEs, where one
doesn’t pay another so they go
bankrupt one after another.”
JJ Teixeira’s fate is common
across Europe. Business is
starting to boom again. Many
companies are seeing their
highest sales ever. But their
financial cushion is painfully thin
after a tricky crisis.
Late payment of bills is still a
huge issue – JJ Teixeira gets
paid in 187 days now against
120 days before the crisis (itself
a high figure). Even without a
double­dip recession, many
SMEs will not survive.
The question for Portugal, and
bigger companies across Europe
that depend upon dozens of
SMEs, is how much those
struggles will weigh on growth.
The last thing either Portugal or
Europe wants is for growth to
become more sluggish.
Richard Milne
On parade: ModaLisboa organises Lisbon’s twice­yearly fashion week, helps promote local designers abroad and takes talent on the road
AFP
Local talent raises its game
Fashion
Mark Mulligan
considers the
prospects for Lisbon’s
clothes designers
P
edro
Noronha-Feio’s
story is fairly typical of
a new breed of designers
trying to put Portugal –
and the capital Lisbon – on the
European map of fashion centres. As a youngster interested
in industrial design and clothes,
he headed to London, washing
dishes and flipping hamburgers
to put himself through the prestigious London School of Fashion.
After graduating, he stayed in
the UK capital, where he eventually teamed with Evgenia
Tabakova, his business partner,
to form White Tent, an innovative, upmarket label that is
starting to make waves around
Europe and further afield.
While many young designers
start out thinking of their
domestic market first, Pedro
had no doubts about his focus.
“We decided from the outset
that the brand had to be international,” he says.
This global vision, however,
did not stop him returning to
Portugal for a good old-fashioned industrial apprenticeship.
He worked at first with Ana
Salazar, Portugal’s best known
fashion designer, before heading
to the country’s industrial north
to learn the more practical
aspects of his craft in the cutting rooms and sewing lines of
the clothing workshops.
Although Lisbon will never
have the fashion cachet of Paris,
Milan, or London, Portugal has
long been known for its textile
design and confection.
Production has declined since
the country joined the eurozone.
However, while membership has
resulted in the loss of business
to lower-cost manufacturing
centres in Asia, eastern Europe
and northern Africa, it has also
forced the industry to raise its
standards.
Textile and clothing manufacturers, and shoemakers, use
more efficient production techniques these days and turn out
more sophisticated designs and
higher quality products than
during the low-cost decades.
This has allowed them to reposition themselves upmarket.
Portuguese shoes, long considered cheap and of poor quality,
are now the most expensive in
the world, after Italy. The same
is happening with clothing
designers, manufacturers and
retailers, says José Vieira da
Silva, the economy minister,
although he admits “it is a lot
more difficult”. He says: “There
is a more competition [than in
shoes], and the market is
increasingly global.”
Nonetheless, apparel makers
are rising to these challenges.
Factories in Portugal form an
important part of the production
base of Inditex of Spain, the
world’s largest integrated clothing group.
Salsa, the jeans manufacturer
founded in Portugal 16 years
ago, has begun to make a mark
on one of the sector’s most competitive segments. Natural fashion clusters, though shrunken
by global competition, are
becoming better organised.
Overseas promotion and contact-making is part of a six-point
strategy drawn up by the Portuguese Association of Textiles
and Clothing to breathe new life
into the industry. A local fashion institute, a focused MBA
programme and more intelligence-gathering for the sector
are also needed to develop the
industry, it says.
Paula Feferbaum, a Brazilian
designer and promoter based in
Barcelona, agrees that more
infrastructure and marketing is
needed to nurture talent.
Although cosmopolitan and
increasingly popular with students and young travellers, Lisbon is a long way from becoming a creative hub like her
adopted city. “Lisbon is an artsy
city, beautiful and inspiring,”
she says. “There is also a lot of
talent, but it is difficult to
develop inhouse, as it were,
because of the lack of quality
fashion schools.”
Her advice to young designers
is “get inspired and go abroad
for a career”. Indeed, some of
the country’s most highly
regarded fashion designers are
based abroad: Felipe Oliviera
Baptista lives in Paris, while
Louis de Gama has called London home since 1992.
Still, Portugal has come a long
way since the 1970s, when pio-
neer Ana Salazar launched her
career. “When I started out,
there was absolutely no fashion
market in Portugal,” she says.
Portuguese women are still,
for the most part, conservative
dressers, says Felipe Faísca, a
noted “demi-couture” designer
and retailer with a well-heeled
clientele.
Big international names such
as Prada and Ralph Lauren
remain favourites among the
dames of Lisbon’s wealthier districts, although the economic
crisis has stoked nationalist loyalty. “Women are starting to
look more at local fashion,” he
says. “They feel they should do
something to help out the
domestic economy.”
ModaLisboa organises the
city’s twice-yearly fashion week,
helps promote local designers
abroad and takes talent on the
road. Eduarda Abbondanza, its
director, sees the crisis as positive for the local fashion scene.
“Jobs are hard to come by at
the moment – young people are
having to be creative and inventive,” she says. “Lisbon is a
good city in which to be a struggling artist because you can still
live relatively cheaply.”
FINANCIAL TIMES WEDNESDAY JULY 14 2010
5
★
Portugal
Green technology at heart of state policy
Renewable energy
Government aims to set
an example in efficiency,
writes Mark Mulligan
Electric car In the vanguard of mobility
T
o the thousands of holidaymakers who visit Viana do
Castelo each year, the Portuguese city is a treasure trove
of medieval architecture fringed by
wild Atlantic beaches. Situated at the
mouth of the Lima River, close to the
country’s north-western border with
Spain, the port is also renowned for
its vital role in the centuries-long
campaign against Spanish occupation.
Away from the gothic spires and
ancient battlements, however, modern
Portugal is hard at work.
Along with a smattering of other
towns and cities, Viana do Castelo is
the centre of Portugal’s most important industrial cluster since textile
and footwear manufacturers began
grouping around the northern towns
of Felguiras, Santa Maria de Feira and
the Vale do Ave area.
Like neighbouring Spain and more
distant European economies such as
Denmark and Germany, Portugal has
placed renewable technologies at the
heart of both its national energy policy and industrial reconversion plan.
Viana do Castelo is the site of its first
wind energy cluster.
Developed in stages after a public
tender in 2005, the main complex comprises five new factories built between
the port city and Lanheses, further
upriver. In this cluster, a consortium
made up of Energias de Portugal
(EDP), the former state utility, Endesa
of Spain, the domestic conglomerate
Sonae and Enercon, the German wind
turbine manufacturer, make the rotor
blades, cement towers, generators and
electrical components that form winddriven electricity generators of the
type found all over the country.
A further two new factories, and 11
refitted production and service centres complete the central cluster.
According to government figures,
€220.3m in direct investment has
helped create nearly 2,000 jobs. Some
of these positions, and those created
by the project at about 30 ancillary
service and parts suppliers, are filled
by retrained workers from the textile
and footwear factories in the same
region.
As well as adding to the 3,500MW of
installed wind power in Portugal, the
cluster exports the final product –
state-of-the-art gearless turbine and
tower set-ups – around the world.
“Portuguese exports in the first
quarter of 2010 rose 8 per cent,” says
Carlos Zorrinho, state secretary for
energy. “But exports in the energy
sector increased 100 per cent.”
The development of production
expertise in alternative technologies
such as wind power – and more
recently solar and wave generation –
is also part of a broader move towards
higher value-added exports.
According to Jose Vieira da Silva,
the economy minister, in 2007 the
country for the first time ever
exported more technology-based goods
and services than it imported. “We
are using the energy sector to reinforce industrial clusters and change
Power project: clean energy and emissions targets are more ambitious than the European Union’s
the production model of Portugal,” he
says.
In the process, the country’s targets
on clean energy production and cuts
in carbon dioxide emissions have
become far more ambitious than those
set by the European Union.
Under the plan, the country hopes
to produce 31 per cent of its energy
needs, including transport, from
renewable sources, compared with
just over 20 per cent today. About 60
per cent of electricity demand will be
met through zero-emission generation, compared with an average of
more than 40 per cent today. Central
to the first target will be the roll-out
of an electric car project being developed by local consortium Mobi.E,
which will involve generous tax
breaks and direct subsidies.
“Countries that want to be leaders
have to pay a market premium,” says
Mr Zorrinho. “But when these new
energy technologies are competitive,
we will have an advantage.”
This is especially true of electricity
generation for homes and energy.
Like many other countries, Portugal
has had to offer subsidies – in the
form of premium feed-in tariffs, or
guaranteed wholesale prices – to
encourage investment in renewable
energy generation. Although margins
over average wholesale prices remain
large in the case of solar and wave
energy, the more developed wind segment is running close to grid parity,
or at market prices.
All new renewable energy concessions are awarded through an auction
process, which allows the government
to set feed-in tariffs according to the
most competitive bids.
The next stage in Portugal’s green
revolution, says Carlos Pimenta,
chairman of the wind cluster’s board,
is the raising of consciousness among
the country’s 10m inhabitants. A pilot
smart grid project in the city of
Évora, about 100km east of Lisbon,
could eventually be replicated around
the country, he says. He is also
encouraged by the spread of energysaving light-emitting diode (LED) illumination throughout industry and
local government, as well as energyefficient buildings.
That fact that EDP Renováveis, an
offshoot of the utility, is now the
world’s third-largest renewable energy
group by installed capacity attests to
the effectiveness of national energy
policy, he says.
Web is yet to displace system
of paperwork and licensing
E­government
Online service is quick to
receive, slow to disburse.
Victor Mallet reports
Small countries are often enthusiastic
about adopting new technology – Singapore is a well-known example – and
Portugal is eager to take the lead in
southern Europe in the area of government services.
“The Portuguese are addicted to
technology. It’s something to do with
the size of the country, like the
Dutch,” says Francisco Contreras,
secretary-general of the PortugueseSpanish Chamber of Commerce and
Industry in Lisbon.
Over the past five years, Portugal
has sought to supersede its creaking,
paper-based bureaucracy with online
and face-to-face services to citizens
and businesses grouped under the
name Simplex – the Programme for
Administrative and Legislative Simplification.
The initiative was once described by
the Organisation for Economic Co-operation and Development, the group
of developed nations, as “unique
among OECD countries”.
The aims are to cut red tape, making bureaucratic tasks simpler for
ordinary Portuguese and for investors
both domestic and foreign, and to do
as much as possible through online
“e-government”. Among the outcomes
should be greater efficiency, an easier
life for the Portuguese, and a reduction in the size of the civil service.
Simplex has done everything from
eliminating oddities such as the certificates once required to prove the nonexistence of debts to the tax authorities, to providing a “one-stop” service
to deal with the procedure of buying a
house, and to offering would-be entrepreneurs the chance to establish a
company in less than an hour.
A separate more recent initiative
has been the establishment of a central state procurement agency – again
a programme that operates largely
over the internet for the sake of
speed, transparency and efficiency –
to cut the costs incurred by a plethora
of government and quasi-government
institutions making their own purchases.
“This system has done much to
improve efficiency in terms of public
procurement,” says Paolo Magina,
chief executive of ANCP, the National
Public Procurement Agency, who has
just moved to the organisation from
his previous post as chief financial
officer of the railways.
“Our challenge is to find better
prices for goods and services – but
still with high quality,” he says. “Portugal is the only country where all
tenders, all procurement, are done
online.”
‘The old regime of
the public sector cannot
be easily changed. It
depends on processes
that are deeply rooted’
Mr Magina and his 40 staff are
responsible first for the entire state
fleet of 29,000 vehicles, from cars to
rubbish trucks, and secondly for procuring supplies such as fuel, computer
software and cleaning services for the
public sector.
So far, the ANCP has adopted control of contracts for 12 types of goods
and services, covering 90 per cent of
the value of purchases, but aspires to
reach the level of Denmark, another
small country in which Mr Magina
says about 30 categories of goods are
included in the procurement system.
“Next year, we are going for the consultancy contracts,” he says.
The ANCP, he adds, has already
saved €110m (the annual procurement
budget is €1.2bn) and expects to have
saved €150m by the end of this year.
About 300 public bodies, including
the metros of Lisbon and Porto and
dozens of municipalities, have voluntarily joined the scheme. More may be
included of their own free will or be
obliged to participate under government austerity plans.
Businesses in Portugal seem
broadly satisfied with the new procurement system, but the verdict on
Simplex is more nuanced: the problem
is not that it does not work, rather
that it has not yet succeeded in displacing the older, entrenched system
of paperwork and licensing.
“It’s working too well in some
places,” says one tax expert, who complains that the system allows the government rapidly to seize assets in tax
disputes but does not make it easy to
stop or reverse the process if an injustice has been committed.
The view that e-government is
quick to receive and slow to disburse
was echoed by Miguel Ribeiro, who
was using a one-stop “citizens’ shop”
in a shopping mall in Odivelas outside
Lisbon one Tuesday morning to set up
a new beauty care business.
“It’s easy to operate on the pay side,
to pay taxes or incorporate your company,” he said. “The rest, we don’t
know. If you need money from public
entities for developing the business,
it’s very difficult, it’s a nightmare.
You have some [official] credit lines
where the bureaucracy is so complex,
and it takes so long, that you give
up.”
Other investors agree that while
Simplex is good as far as it goes,
licensing procedures for businesses
are still too complex.
More time, it seems, will be needed
before the Portuguese government is
fully online. “The old bureaucratic
regime of the public sector cannot be
easily changed,” says José Gonzaga
Rosa, partner at Ernst & Young. “This
depends on processes that are deeply
rooted in the public administration.”
Rachel Torres
“This is a country that has gone
from having 100MW of wind energy 10
years ago to 4,000MW now.
“It is also noteworthy that municipal governments which once thought
nothing about wasting energy are
now commissioning zero-emission
buildings,” says Mr Pimenta.
“Energy efficiency is not yet part of
popular culture, but the broader population is being led by example from
government and industry.”
José Sócrates, the prime minister, is a
passionate supporter of the electric
car and plans to switch to one as
soon as they become available in
Portugal at the end of this year.
That should be considerably earlier
than in most European countries as a
result of plans to make the country
both a pioneer in the use of electric
vehicles and an exporter of the related
technology.
The programme is a part of a wider
strategy to reduce dependence on
imported oil by replacing fossil fuels
with renewable resources and building
an industrial cluster around green
energy.
“We want Portugal to be in the
frontline of the technological change
under way in the area of energy and
electric vehicles,” says Mr Sócrates.
He set the strategy in motion in
June, when he inaugurated the first
post in a pilot network of 1,350
charging points due to be installed at
car parks, shopping centres, petrol
stations, airports and roadsides in
25 towns and cities by mid­2011.
For the occasion, he drove an
electric car produced by Renault­
Nissan, which has signed an
agreement to supply the Portuguese
market with the Nissan Leaf, its
electric runabout, from December,
making the country its first partner in
a “direct programme” to encourage
the widespread commercialisation of
zero­emission cars.
Carmakers and international analysts
estimate that 10 per cent of vehicles
in developed countries could run on
electricity by 2020. “That would mean
700,000 electric vehicles in Portugal
and annual savings of about €300m a
year in oil imports”, says João Dias, an
economic adviser to the prime
minister.
Legislation regulating the system has
already been approved, including a
requirement that 20 per cent of new
vehicles purchased by the public
administration from 2011 are electric.
Tax breaks, direct subsidies and
generous trade­in deals to encourage
drivers into electric cars will include a
€5,000 grant for the first 5,000
buyers.
“Portugal is in the vanguard of
electric mobility, because we have
made the necessary investments in
renewable energy,” says Mr Dias.
“We already produce more than 40
per cent of our electricity from green
sources. The surplus energy produced
at night by wind turbines, which
cannot be stored, can be used
efficiently to recharge car batteries.”
The charging network, run by a local
consortium of technology and energy
companies known as Mobi.E, draws on
Portuguese technology first developed
for bank cards and prepaid mobile
phone systems.
In the 1980s, the country made a
conceptual leap forward by creating a
single network of automatic teller
machines, known as Multibanco, which
is owned and shared by all the banks.
This has resulted in one of the most
advanced ATM networks in the world,
enabling users to do anything from
pay taxes or book train tickets from
any bank machine.
The system has been adopted for
the battery charging infrastructure,
meaning that rival power companies
will use a single network, but charge
competing rates to motorists, who will
pay with their monthly utility bills.
Exporting systems and technology is
a crucial aspect of Portugal’s strategy.
Renault­Nissan is investing €66m in a
plant to manufacture lithium­ion
batteries for electric cars in Portugal,
producing 50,000 units a year for
export and creating 200 jobs.
Technology companies are involved
in talks on the transfer of network
technology to Japan and other
countries. A company in northern
Portugal plans to produce electric
buses and another is developing a
three­seat electric city car.
“As soon they start rolling off the
production line,” says Mr Dias, “that
will be my official car.”
Peter Wise
Green philosophy: Sócrates gets
behind the electric Nissan Leaf
6
FINANCIAL TIMES WEDNESDAY JULY 14 2010
★
Portugal
There’s more than just golf
Tourism
Jill James considers efforts
to promote the country’s
historic towns and
reminders of Moorish past
T
rees are heavy with orange
blossom. A gorgeous scent
hangs on the air. When, eventually, you reach the attractive town of Tavira, it is easy to feel
that you are in an older Portugal.
This historic Algarve gem is one of
a number linked by walking, bicycle
and horseback trails that snake the
length of the region through
Alcoutim, Castro Marim, Loulé, Silves,
Monchique, Lagos and Villa do Bispo.
Portugal is realising that it has
much more to offer visitors than sun,
sea and sand and, as it considers the
parlous state of Europe’s travel industry, it has an added incentive to find
new recipes to attract tourists.
Reminders of a rich and industrious
Moorish past are everywhere. The
country is promoting its wealth of historic towns, nature trails, cultural and
sporting events and traditional gastronomic pleasures. Cheaper to live in
and visit than large parts of western
Europe – in spite of being in the eurozone – Portugal has nevertheless been
hit by a downturn in visitors.
Globally, travel and tourism have
been hit hard by credit and housing
market collapses. Households are cutting back on leisure travel and corporations reducing business travel budgets. The impact on tourism investment has also been significant.
Yet, depressed though travel and
tourism activity is, it still employed
more than 235m people internationally
last year, generating 9.4 per cent of
global gross domestic product, according to figures from the World Travel
and Tourism Council.
Small economies, it is argued, suffer
disproportionately when global economic storms strike and Portugal has
certainly felt more than a stiff breeze.
However, the country’s longer term
indicators for the sector are more
promising. The WTTC expects its contribution to GDP to rise from 14.4 per
cent (€24.2bn or $35.8bn) in 2010 to 16.9
per cent (€43.7bn) by 2020.
Real GDP growth for the travel and
tourism economy is expected to be 1.9
per cent in 2010 and to average 4 per
cent a year over the coming 10 years.
Investment is estimated at €5.1bn or
13.8 per cent of total investment this
Tavira: the historic Algarve gem is one of a number linked by walking, bicycle and horseback trails
year. By 2020, this should reach
€8.8bn, or 14.3 per cent.
Diversity has become crucial to the
future of tourism within Portugal and
a wider range of products will certainly help it weather future economic
whirlwinds. The Algarve, for example,
launched a €300,000 campaign at the
year’s start. Entitled “Algarve:
Europe’s most famous secret”, it is
aimed at drawing attention to the
region’s natural landscapes, local gastronomy, historic sites and, of course,
some of Europe’s finest golf links.
Golf is still a mainstay of the industry in the region with wonderful
championship and resort courses suitable for all abilities. However, hefty
airline charges for golf equipment – as
much as £60 for a single set of clubs
for a return journey, say from London
to Faro – have prompted promotional
strategies aimed at easing the drain
on golfers’ pockets.
Medical tourism is another area to
which Portugal is turning its attention. A Longevity Wellness resort,
with its own medical spa and antiageing treatments, has opened in Monchique, Algarve.
In Lisbon, Fly2doc is not only offering cosmetic surgery but medical and
dental treatment including orthopaedic and eye surgery.
Since Portugal thinks it has certain
built-in advantages in this sector –
including proximity to main European
markets, up-to-date facilities and a
good climate and hotel sector suitable
for recuperation – the country will
doubtless be eyeing that market
increasingly.
Nuno Aires, president of the
Algarve tourism board, says its
regional strategy is not only to promote its core offering but to highlight
and market products such as wellness,
nature, sports and culture.
He says: “This market diversification strategy was put into place to
withstand the recession and welcome
visitors who may not have thought
Algarve offered these niche markets.
It has allowed for further visitor dis-
Dreamstime
persion throughout the region, while
also aiming for a year-round appeal to
visitors. An increase in flights from
several European routes in 2009-10 has
also opened up the region to new visitors.”
Mr Aires says: “A number of key
investments has also been made in the
Algarve, further increasing the standard and options offered to tourists.
These include new hotels, infrastructure for nature tourism, new wellness
centres and sports facilities such as
the new Motorpark.”
He adds that there are plans for new
spas, new five- and four-star hotels
and new golf courses.
Mr Aires says: “2010 has already
seen an increase in visitors compared
to 2009 with a 5 per cent increase in
UK guests staying in hotel accommodation in the first quarter. We are
positive for 2010, but are hoping the
volcanic ash [a dust cloud that has
has disrupted travel in parts of
Europe] does not return to affect
arrival figures further.”
Business Frustration and obstacles remain
In their attempts to attract foreign
direct investment, Portuguese officials
once talked about textiles, shoes and
automotive parts. Nowadays, they
speak of big projects in alternative
energy and information technology.
Yet Craig Sharp, a 33­year­old Briton,
has chosen an entirely different sector
– surfing holidays – and he could be
just the kind of energetic
entrepreneur needed by countries
such as Portugal to help revitalise
their struggling economies on
Europe’s periphery.
Mr Sharp made his $1m of
investments almost by accident.
Brought up on the Isle of Wight, he
spent several years surfing in
Australia before returning to Europe
to work for the family clothing
business, which moved production to
Hungary and then Morocco.
By 2007, it was clear that
competition from China was too
intense for the company to continue,
even in low­cost Morocco. Mr Sharp
had visited Portugal on holiday, and
he decided to embark the following
year on a new venture that he calls
Pocean (motto: “liquid magic
Portugal”).
“Golf is the big thing here, but
surfing is getting more popular. You
get a lot of families coming and
learning to surf,” he says.
“The first year we set it up, we did
really well,” he adds, “and during that
year we found a lot of demand for
self­catering.”
As a result, the business has been
transformed from a provider of surf
holidays into a broader enterprise that
owns or manages holiday flats and
villas. It now has 34 properties on its
books.
Despite his focus on the esoteric
art of surfing, many of the attractions
and disadvantages of Portugal are
much the same for Mr Sharp as they
are for the big industrial investors
such as Volkswagen, Cisco or Abertis.
The climate is an obvious benefit for
tourism and for attracting
international staff to big companies.
Good transport and communications
infrastructure is another plus, as is
Portugal’s membership of the
European Union – although, as John
Duggan of PwC points out, that can
also work to Portugal’s disadvantage
if companies decide to serve their
Portuguese clients from the larger
economy of neighbouring Spain.
Portuguese officials also boast of
the importance of the “lusophone
triangle”, which links Portugal to the
expanding economies of its former
colonies in South America and Africa.
“We are the border between Europe
and Africa and Brazil,” says Basilio
Horta, chairman of Aicep, Portugal’s
investment and foreign trade agency.
Such links, which have boosted
Portuguese exports and encouraged
inward investment from increasingly
prosperous developing countries, have
helped alleviate some of the pain
caused by the global financial and
economic crisis.
Yet many of the obstacles to doing
business in Portugal remain as
frustrating as ever. A particular
concern at present – exacerbated by
successive rounds of budgetary
austerity and tax rises – is what
accountants and tax specialists call
the “instability” and lack of clarity in
the tax system, a problem that has
prompted some investors, including
Mr Sharp, to move their corporate
domiciles to easier EU jurisdictions
such as the UK.
The unpredictability and slowness of
the judicial system is another
unresolved issue. Mr Duggan gives
the example of a judgment on a VAT
dispute that was handed down a few
weeks ago – 16 years after the events
in question occurred.
As in Spain, employers criticise the
country’s labour laws as being so
protective of workers that they
discourage hiring and worsen
unemployment. Government officials,
on the other hand, say that low
productivity is mostly confined to
smaller companies and that big
foreign investors have achieved high
levels of productivity under existing
labour regulations.
Perhaps the most common
complaints of entrepreneurs are about
bureaucracy and the intangible matter
of Portuguese attitudes to work,
where delays, languor and unreliability
are remarkable even by the
undemanding standards of southern
Europe and north Africa.
Slow progress towards greater
competitiveness is particularly risky at
a time when investors in old
industries have been abandoning
Portugal and many of the new ones
in communications technology and
other modern sectors have yet to
arrive. The crisis, and the resulting
squeeze on government budgets, only
makes the situation worse.
“We’re in a very delicate period,”
says José Gonzaga Rosa, partner at
Ernst & Young in Lisbon, who believes
there is too much emphasis on
knowledge­based industries and not
enough on niche sectors, where
Portugal could excel in traditional
sectors such as clothing and
ceramics.
“This is bad timing for doing the
transition of our economy. But the
transition had to be done.”
Victor Mallet