Portugal: Macroeconomics Project

PORTUGAL
MACROECONOMICS PROJECT
CHALLENGES IN PRIVATE SECTOR
R&D AND INNOVATION HAS SUFFERED
• Public and business investments in R&D and innovation have suffered since 2009
• It is a major challenge for portugal
• Public support is mostly indirect although through loans and guarantees the investment in R&D has
gained in importance
• There are administrative burdens on start ups
WEAK COMPETITION IN PRODUCT MARKETS
• Portugal product markets have traditionally been characterized by weak competition

• This is due to excessive regulation shielding incumbents, although it has improved in recent years
• Portugal still remains more restrictive than the OECD average in professional services and transport
• It is still lagging behind other OECD countries, and these include legal barriers (22/29) and control
regulation (24/29)
CHALLENGES IN PUBLIC SECTOR
THE DEBT TRAP
• The major challenge faced is the national debt burden
• Portugal has taken huge sums of debt, majorly from the EU and has used the new debts to pay off old
debts, pushing them into a debt trap.
• Due to this expenditure on the major sectors has reduced causing various challenges coming up in
those sectors
• This led to:
o The transport sector has been plagued with obsolete locomotives and has led major accidents.
o There is a reduction in innovation and R&D due to low investment and lesser incentives given to such
industries
o Stringent labour laws have led to increasing burden on the workers
o Joblessness among youth is high and is leading waste of human resource
o The lack of incentives given to manufacturing and production firms has reduced competitiveness
CHALLENGES IN EXTERNAL SECTOR
• Despite Portugal having successfully exited all bailout programs, credit rating agencies have ranked
Portugal dangerous for investment.
• American exporters face competition in Portugal from savvy European competitors. European
companies are already familiar with aspects of the business culture, financing, regulations, standards,
etc. In addition, they do not face import tariffs that U.S. companies have to pay to get their products
into Portugal.
• Some U.S. companies have also reported that they are now encountering Chinese competitors in
Portugal.
• Current Account recorded a deficit of 250.6 USD mn in Aug 2018.
• Balance of Trade remains negative with it falling constantly and showing a 5 year low in 2018.
• 80% of all of Portugal’s Net Foreign Liabilities comprise of “Other investments” or cross-border loans
mainly which tend to be more volatile and prone to reversals than FDI and Portfolio Equity Flows.
• The European Commission’s work towards a Capital Market Union will diversify the financial markets
but Portugal’s Small and Medium Enterprises will not reap the benefits as their share is much bigger
compared to the rest of Eurozone. Hence, the impact of developing an integrated capital market would
be much smaller for Portugal.
• Despite bailout programs coming to end in 2018,t he country's External Debt reached 490,670.6 in Jun
2018. The country's Nominal GDP was reported at 59.2 USD bn in Jun 2018. Portugal's External Debt
accounted for 209.4 % of the country's Nominal GDP in 2017, compared with the ratio of 214.1 % in the
previous year
•
OPPORTUNITIES
DOMESTIC CREDIT TO PRIVATE SECTOR (% OF GDP) IN
PORTUGAL WAS 112.03 AS OF 2016.
• Domestic credit to private sector refers to financial resources provided to the private sector by
financial corporations, such as through loans, purchases of nonequity securities, and trade credits and
other accounts receivable, that establish a claim for repayment. For some countries these claims
include credit to public enterprises.
• Private sector development and investment - tapping private sector initiative and investment for socially
useful purposes - are critical for poverty reduction. In parallel with public sector efforts, private
investment, has tremendous potential to contribute to growth. Private markets are the engine of
productivity growth, creating productive jobs and higher incomes. And with government playing a
complementary role of regulation, funding, and service provision, private initiative and investment can
help provide the basic services and conditions that empower poor people - by improving health,
education, and infrastructure.
REAL ESTATE AND CONSTRUCTION, AND TOURISM
• Real estate and construction, and tourism, have been selected by 32% of the investors as key driving
sectors of Portugal’s growth. They have replaced the information and communication technologies
sector in 2017, which comes in third this year with 29%.
FDI FLOWS HAVE INCREASED
• According to Bank of Portugal (BoP), FDI flows have also increased to a cumulative stock just under
€10b, representing 61% of the GDP in 2017 (versus 52% in 2012).
• Portugal’s FDI stock weight in GDP is one of the highest in Europe, above Spain (47%), France (29%) and
Germany (26%), according to GEE.
• Additionally, in the Doing Business Index, Portugal has been ranked number one in international trade
out of 190 countries. Between 2008 and 2017, sectors claiming larger amounts of foreign investment
were electricity, gas, water and construction. ICT activities have also experienced a substantial increase
]growing from €2b to €6b during the same period (GEE).
• The government recently announced its intention to improve its shipping market, making it more
competitive by introducing a more attractive taxation system.
• Investment is growing and is the main driver of labour productivity in Portugal. Increase in labour
efficiency leads to increase in investor’s interest in the country. Manufacturing activities are the most
relevant source of investment in Portugal.
INCREASED INVESTMENT AND INNOVATION
• Investment was the main driver of labour productivity in Portugal. Increased labor efficiency leads to
increase in investor’s interest in the country, specifically for manufacturers . As per previous years,
manufacturing activities remain the most relevant source of investment in Portugal. These investments
represent 48% of FDI projects and 41% of the total jobs created. In general terms, Portugal’s growth in
FDI is greater than the growth of Europe itself. Attractiveness factors are improving and so are investors’
confidence and optimism.
• There is also an increase in innovation, since according to Bloomberg innovative index, Portugal is
ranked as 13th most innovative country in the world. This leads to more investment in research and
development and future opportunities for increased projects from foreign investors since Portugal is
also ranked as first in international trade and also is the most peaceful country in Europe.
ENLARGEMENT OF THE MARKET AND EXPORTS
• Its historical ties with African, Asian and Latin American countries, the fact that Portuguese is the fifth
most spoken language in the world and that Portugal has been a part of the EU for more than 30 years
maximises the size of markets that investors can reach through Portugal.
• In the past two decades, exports increased more than GDP and became one of the most important
engines of the Portuguese economy. In 2017, exports registered an average growth rate of 7.9% with
new gains in market share.
THE EUROPEAN UNION BUDGET
• EU budget contributes to the development of the potential of Portuguese regions, for example by
providing the Centro region with state of the art waste treatment and the Porto area with better public
transport.
PORTUGUESE GOVERNMENT
• Portugal’s long-term educational policies are paying dividends, with a high proportion of young people speaking more
than one language and even sporting a master's degree. This in turn is attracting international companies and creating
conditions that could lure many overseas Portuguese back. Improvements made to the educational system over the past
few decades are now bearing fruit, with a resultant influx of skills-seeking foreign investment, which in turn is helping chip
away at the unemployment rate.
• Recently, the Government announced its intention to improve the shipping market, making it more competitive by
introducing a more attractive taxation system. This would help bring more ships to the merchant navy.
• Portugal is one the most important and internationally recognized centres of knowledge and experience in the health
area. Apart from the great hospital centres in the country, every year several international medical congresses are conducted
which contribute to on-going medical education and to share specialized knowledge. Doctors, specialist and delegations all
over the world come to the Centre of Portugal looking for training and education in health. There is important knowledge
and research networks in the area which decisively help consolidating medical practice and assure that new scientific
findings are quickly put into practice and they have decisively help to put this area in the international medical map. And
students from all over the world come to get education in healthcare. Portugal spends 9%of its gdp on healthcare.

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PORTUGAL

• Portugal product markets have traditionally been characterized by weak competition

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