Portugal's impressive turnaround

These are heady times in Lisbon, the capital city of Portugal. Tourists roam through the winding streets of the Alfama district in search of fado music and the country's distinctive vinho verde wine, and pack out the bars and restaurants of the nearby Barrio Alto district as well. A humming multicultural mix of European, African, South American and Asian influences and a population of just under 3 million, a more pleasant European capital is hard to imagine for anyone looking down on Lisbon’s red tile roofs on a sunny day.

Portugal has come a long way since the shock of the worldwide economic collapse a decade ago, when, in economic freefall, it was forced to seek an emergency loan from the European Commission-guaranteed European Financial Stabilisation Mechanism and the European Financial Stability Facility and enact draconian austerity measures. Under the leadership of socialist prime minister António Costa, in office since 2015, Portugal has succeeded in easing the post-crisis austerity while maintaining a sober fiscal discipline.

Though the economy is growing at a steady (if modest) rate of between 2% and 3% per year, a breakdown of its indicators suggests rapid activity. While the tourism sector has grown by double digits in recent years – Portugal was always viewed as having a strong sun and beach product compared with much of the rest of Europe – the number of foreign companies partnering with Portugal’s universities has increased threefold.

High in the rankings

Portugal is now ranked 29th out of 190 countries in the World Bank’s Doing Business index and rated the world's third most peaceful nation (after Iceland and New Zealand) by the Institute for Economics and Peace’s global peace index.

“The clouds of the crisis are really over,” says Luís Castro Henriques, president of the Agência para o Investimento e Comércio Externo de Portugal (Aicep), the government’s entity tasked with attracting foreign investment into the country. “Our companies understand that our real internal market is the EU, which represents about 75% of our exports, and our companies have diversified with great success.”

Portugal’s tech sector is booming. In January 2018, Google announced that it was opening a new support centre for Europe, the Middle East and Africa in the Lisbon suburb of Oeiras, providing 500 jobs. In April, Volkswagen chose Lisbon as the location for its new software development centre, creating jobs for 300 web developers, software engineers and others. In November 2017, tens of thousands of tech mavens attended Lisbon’s Web Summit, the second year the city has hosted the event.

“The type of investment coming to Portugal has changed, and a lot is now highly trained, highly technological and very advanced,” says Mr Castro Henriques. “We have a competitive university system and a highly skilled pool of talent. Not only are our young people trained as well as at any good university in Europe, but they have skills that are highly valued by foreign companies. Most of them speak at least two foreign languages, and if you can have someone covering three markets that’s better than covering one market.”

Achieving stability

For a geographically small country with a population of just over 10 million, Portugal has had an outsized impact on the world during its dramatic history. At various points its empire stretched all the way from Ceuta (located in present-day Morocco) to Brazil in South America, the region of Goa in India, Angola, Mozambique and Macau in China.

Portugal was ruled with great brutality by the dictator António de Oliveira Salazar – who created what he dubbed the Estado Novo (New State) – from 1932 to 1968, until he became incapacitated, and then by Marcelo Caetano until the so-called Carnation Revolution in April 1974. Though the revolution began as a military coup, the revolt took place in the context of Portugal's grinding colonial war in Angola and soon encompassed a widespread popular (and peaceful) uprising against the regime. The war in Angola ended the following year.

Since then, Portugal has seen admirable political stability. The left-wing Partido Socialista and the right-wing Partido Social Democrata dominate the political scene, although smaller parties, such as the Greens and the Communists, also have some influence and electoral success. This stability, in a Europe riven with mercurial nationalism, has been one of the country’s strongest selling points.

“The political situation has benefited from a return to economic growth, which, albeit modest, is relatively bright comparing to Portugal’s recent decade of stagnation,” says Pedro Magalhães, a political scientist at the Universidade de Lisboa.

“The minority government, centre-left but supported in parliament by the extreme left, has also defied expectations,” says Mr Magalhães. “This has been achieved by careful compromise. Past austerity measures such as wage and benefit cuts have been mostly reversed, thus satisfying the policy goals and constituencies of the extreme-left parties, but public investment has been cut and state expenditures put into strict control, which, together with growth, has allowed a reduction of the budget deficit.”

Diversity of business sectors

Portugal’s economy continues to diversify at a rapid pace. In 2017, Vestas Wind Systems, the Danish manufacturer, seller, installer and servicer of wind turbines, opened an R&D centre in Porto, Portugal’s second largest city. The centre, opened in collaboration with the Universidade do Porto, is expected to employ hundreds of people by the time it is fully functional in 2020. 

German multinational engineering and electronics company Bosch recently made a €38m investment to create a new industrial unit in the northern city of Braga, which currently has about 3300 employees – a substantial number for a city of just under 193,000 people.

Prior to 2010, Portugal’s exports accounted for less than 30% of GDP, whereas in 2018 the number is about 43%. Meanwhile, the country’s so-called 'golden visa' allows investors who buy properties worth €500,000 or more to reside there.

Portugal’s auto, metal-mechanic and component, aeronautical, pharmaceutical and pulp and paper sectors are all expected to experience significant growth in the near term. In the last three years, private equity investments in Portugal have more than tripled to reach €7bn. Earlier in 2018, Spain’s Magnum Industrial Partners and Alantra Private Equity purchased the shirt-printing machine manufacturer ROQ from Portuguese private equity firm Explorer for €150m.

In a Europe where nationalism and illiberal political and economic rhetoric frequently abounds, this small country serves as testimony that another way is possible. “This is a paradigm change,” says Aicep’s Mr Castro Henriques. “And the country is eager to go further.”