Portugal: a mature EC partner - Portugal: Gateway to Europe - European Community

Business America, May 20, 1991 by Miguel Pardo de Zela

When the European Community (EC) becomes "borderless" in January 1993, growing markets in Portugal will be quite dissimilar to the political borders that once contained them. It will be a particularly poignant event for Portugal since its borders have stood unchanged for nearly 900 years--longer than any other European nation. Nevertheless, due to careful planning that began when it joined the EC in 1986, Portugal will calmly adapt to the market-driven economic environment of the 90s--and prosper. As it does it will create unprecedented business opportunities for its trading and investment partners, especially the United States, whose presence in the market is presently disproportionately small.

Portugal's entry into the EC in 1986 returned Portugal to economic growth rates, including trade and investment, that had existed in the 1960s but were interrupted by the 1974 revolution, when a series of nationalizations took place in the financial, transport, telecommunications, chemical, steel, cement, brewing, and other heavy industry sectors. Though foreign companies were largely left alone, the government at that time did little to encourage further foreign participation in the economy. Eventually, the economic costs of over-ambitious social programs and poorly-managed nationalized industries compelled the government to place itself under International Monetary Fund disciplines in the early 1980s, which induced a mild recession.

Since then, and certainly since joining the EC, Portugal has grown rapidly. By 1990 it had exceeded EC averages for GNP real growth of over 4 percent per year, surpassing those of Spain and Germany. Foreign direct investment doubled every year for the three years up to 1989, when it reached $2 billion. The figure for 1990 was $3.2 billion.

The economic boom cascaded down to the wage earners of the country, who more than doubled their income in the same time period. Unemployment dropped from 9.1 percent of the workforce in 1985 to 4.3 percent in 1990--when 250,000 new jobs were added to the economy. The workforce came to increasingly exhibit the characteristics of an advanced, industrialized country: the majority of workers (47.6 percent) are in service, mostly in commerce, public administration, and tourism; a large number (34.9 percent) are in manufacturing, mostly in textile and footwear, followed by metal products, machinery, and transportation; and agriculture and fishing constitute the remainder (17.4 percent), most on very small, unproductive family plots.

As the economy continues to grow, labor skills will be upgraded to higher-skilled (and paying) jobs through training programs. But the economy is ahead of the workforce. Already, at the level of skilled technicians and middle-level managers, there are increasingly fewer candidates driving the wage scale for those occupations into EC averages. Portugal is still a "low-wage" country, but this is quickly changing.

Portugal's strong and sustained economic growth is directly related to the EC integration process. The EC has taught Portugal to look to the marketplace, the larger and more competitive EC marketplace, for its future growth. By January 1993, in the Single Internal Market of the EC, al ltariff and non-tariff barriers will be removed among members, capital will have free entry and exit, and there will be free circulation of labor.

To prepare for the more open and competitive Single Internal Market, Portugal has had to undergo deep industrial restructuring while learning all about production and management efficiencies. In support of these objectives, the EC has provided massive infusions of funds to create an adequate infrastructure to make Portugal's industry, agriculture, and services competitive in the EC marketplace. As these funds have taken effect, more confident foreign investors have poured into those sectors and sub-sectors they see as most promising in the EC. Portuguese government policy has complemented EC policy by creating a favorable investment climate. The government cannot itself, however, provide much funding, since it is still burdened by domestic debt-servicing, which, when combined with the costs of maintaining an over-large bureaucracy, uses up a majority of the state's annual revenue--leaving little else for infrastructure supports and social programs. The role of the EC as a source of vitally needed development funds cannot be overestimated.

Market Opportunities for American Firms

As Portugal adjusts to the EC Single Internal Market, it presents an extraordinary array of market opportunities for American exporters and investors. To survey these market opportunities it is best to start where EC policies and funds will have the most immediate impact--infrastructure projects. Then the industrial and agricultural sectors, where the impact is less direct but still significant, offer their own market opportunities. Finally, that ultimate measure of economic policy success, the consumer product market, invites close scrutiny by the American exporter.