Why Portugal can still be a case study of success?

In the last decade, Portugal was one of the European Countries that most benefited from the tourism growth in Europe. Between 2014 and 2019, tourism accommodations increased consistently around 5% per year, and their average revenue growth rate was around 13,5%.

Restaurants and local accommodations became the “golden egg chickens” of the years following the crisis of 2011. Despite these trends and all the vulnerabilities associated to these industries such as low demand for skilled workers and low wages, in 2016, the government felt the need to incentivize even more the investment in restaurants by reducing the VAT from 23% to 13%, which directly increased their gross margins.

Unfortunately, these industries are strongly affected by COVID-19 pandemic. In 2020, Portuguese GDP decreased by 7.6%, 1.2p.p. above the average of the European Union. On the other hand, the high levels of government debt prior to this crisis, is preventing the government from supporting the affected companies and citizens as effectively as the richer European Countries.

In a country where small companies represent around 98% of all businesses, Bank moratoriums and credit lines with grace periods are believed to be decisive on sustaining the levels of employment and preventing the mass bankruptcy of SMEs, particularly those most affected by COVID-19. The renewal of these moratoriums and extension of grace periods might be decisive for what will come after this crisis.

However, there are some good reasons to be optimistic. Portugal has one of most skilled work forces in the world, with much lower wages than their European counterparts. Many multinational companies are already taking advantage as they are opening new offices in Lisbon, Porto and Braga, employing thousands that were forgotten by an economy too much focused on the Real Estate and Tourism related industries.

There are also many Portuguese companies that are thriving during this pandemic. Agriculture is an industry with many growth opportunities, particularly in the south, where the climate and low land occupation is an opportunity to get excellent rates of return. Not to mention health services, medical supplies, and high-tech companies.  

Acknowledging the need to rethink the economic growth model, the government is opening new financing programs, funded by the European Union, to promote investment in the primary and secondary sector, particularly those that produce tradable goods. Tax benefits are being reviewed to incentivize a greater balance in the capital structure of companies, and investment in the modernization of production and digitalization of services. It also has one of the best internet infrastructure in the world. Optical fiber is the default option, not the exception.

With one of most skilled work forces in the world, a climate that makes our Northern European counterparts envious, an extremely peaceful population, low wages in comparison with European standards and many financing instruments to support investment, Portugal is still capable of overcoming this crisis and finally resume the growth rates of the 90s.

At EWP, we help foreign entrepreneurs who want to invest and/or expand their activities to Portugal take advantage of the funding and tax benefits that are available, identify good acquisition targets, establish new businesses, or find the right partnerships.

Miguel Torre

Senior Management Consultant at EWP Business Consulting

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Contributing Advisors