- Economy is in a slow expansion following a recession in 1993.
- Trend is toward increasing privatization and internationalization of the economy.
- High level of EU aid to major projects, specific economic sectors and less-developed
- regions under the European Union Support Framework (1994 to 1999).
- Tax system is straightforward, but there are limited incentives.
- Local finance is expensive.
- Bureaucracy is cumbersome.
INDUSTRIAL CLIMATE
The business environment reflects the social and political changes that have taken place since 1974. Although the resulting trend is toward liberalization and freedom of enterprise, there remains a legacy of law and bureaucratic procedure that can slowly progress.
At present, unemployment is rising because of the economic crisis in those sectors of the economy that require modernization and are not able to cope with increased competition, and also because of the restructuring of several sectors previously nationalized that are preparing to become more competitive. The education system has been restructured with the objective of satisfying growing demand for skilled employees.
The increasing openness of the economy means that the opportunities that exist in virtually every sector are available to the foreign investor. While shared participation with local partners is not insisted upon, it may be of practical advantage in many cases.
FRAMEWORK OF INDUSTRY
The pattern of ownership of business is characterized by numerous family concerns, mostly small to medium-size; state ownership of the largest industries, subject to an active program of reprivatization; and relatively small stock exchanges, in Lisbon and Oporto, on which some 200 companies are listed, one-third of which are involved in the financial sector.
The strongest influence for change is the current program for Full implementation of EU policies on free movement of capital and labor will also have a major effect in coming years.
AIMS OF GOVERNMENT POLICY
The main objectives of government policy are to achieve growth throughout the economy, to reach EU average levels of inflation and budgetary deficit to enable Portugal to join the European Monetary Union (EMU) by 1999, and, until then, to keep the Portuguese currency within the European Monetary System (EMS).
There has been relative success in lowering the inflation rate (5.2 percent for 1994); the public deficit was 5.8 percent of GDP in 1994.
Economic Development Plans
The process of modernizing the economy is proving to be a great stimulus to growth, and, accordingly, the Portuguese economy will continue to grow in real terms at a rate higher than the EU average until at least 1992. However, as described debt down to the EU criteria defined in Maastricht in order to enable the country to enter the European Economic and Monetary Union (EMU) at the end of the decade.
Trend Toward Privatization
The government began to reprivatize companies in 1989. By end-1993 the privatization program had already effected the total or partial privatization of 30 companies, worth a total of some US$3.5 billion. Further privatizations are scheduled to take place from 1995 onward, covering the following economic sectors.
- Banks (BFE, BPA, BPSM, UBP).
- Insurance (Bonan‡a).
- Cement (Cimpor/Secil).
- Agriculture (Companhia das Lez¡rias).
- Railway (CP).
- Electricity (EDP).
- Aircraft maintenance (OGMA).
- Telecommunications (Portugal Telecom).
- Pulp (Portucel).
- Fertilizer (Quimigal).
- Transport (RNIP).
- Iron and steel (Siderurgia Nacional).
- Tobaccos (Tabaqueira).
- Airlines (TAP).
- Regional/special industry development
In addition to the support received from the European Union, encouragement of regional development and development of specific industries is based on several incentive systems. Until now, none of the programs under the new Regional Development Plan for 1994-1999 has been fully published, and applications are not yet available. However, some general comments are given in Chapter 4.
Free-Trade Zones
Free-trade zones have been established on Madeira and in the Azores. Incentives available in the zones include import- and export-related benefits, financial incentives, and tax incentives for both investors and companies. (See "Free-trade zones" in Chapter 4 for details.)
Financial Services
The banking sector has undergone considerable change because of the privatization process and internationalization. Most services for international investment and for private banking are now fully available. See Chapter 7.
PUBLIC/PRIVATE SECTOR COOPERATION
The public sector and local authorities encourage local industries at all levels when placing orders.
Labor/Management Relations
Educational standards are reasonable, and knowledge of foreign languages, especially English and French, is increasingly widespread among younger people. There is a shortage of professionally skilled persons, and demand for many services exceeds supply.
Membership in trade unions is declining, and evidence of militancy is to be seen generally only in certain traditionally sensitive areas such as public transport and civil services.
IMPLICATIONS OF EUROPEAN UNION MEMBERSHIP
Portugal is a committed member of the European Union and is making reasonable progress in complying with Directives to facilitate business.
For further information, please refer to the Price Waterhouse Information Guide Doing Business in the European Community.
OVERSEAS TRADE RELATIONS
Portugal is convinced of the necessity of international cooperation and has a fairly open economy. This accounts for the unconditional support of the Portuguese government for European integration.
Membership In Trade Blocs
Portugal has been a member of the European Union since January 1986.
Portugal is also a member of a number of other organizations, including the United Nations, NATO, GATT, the OECD, and the Council of Europe, evidence of its involvement in the international community.
Exports
Incentives are available for exporters in the form of finance for the preparation and execution of firm export orders in addition to bridging finance and three-year loans to cover qualifying company expenditure of an extraordinary nature involving exceptional financial effort in exporting. Other incentives take the form of technical assistance to exporters, promotional campaigns within and outside Portugal, support for groups that combine to export and for bilateral chambers of commerce. Export credit insurance is also available.
Trade Barriers
There are no trade barriers apart from those applied by the EU and trade with Indonesia.
The Content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information, please contact John Duggan Tel: 351 1 311 3300, E-mail: John_Duggan@europe.notes.pw.com, or enter a text search 'Price Waterhouse' and 'Business Monitor'.
