Portugal pursues diversification

The Portugal of popular European imagination, a land of agriculture and cheap goods, is no more. Like its neighbours, the country has developed its overall economy over the last decades. Services now represent 73.6% of gross added value (GAV) and 59.3% of jobs, whilst the agriculture, forestry and fishing sectors only represent 2.4% according to a study published last November by the Portuguese Agency for investment and foreign trade (AICEP). 50 years ago, the rural community contributed 24%. Industry is gradually abandoning its traditional sectors. Competition from Asia means that the shoe and textile industries which used to attract foreign investment and were the centre of foreign trade now only represent 4.1% and 4.4% of exports, 11th and 12th in the list drawn up by the Portuguese Institute of Statistics (INE) for the first half of 2009. First place goes to machines and equipment (16.5%), vehicles and other means of transport (12.3%).
Portugal is diversifying its export markets, turning in particular toward African countries whose official language is Portuguese (PALOP). Although 73.7% of Portuguese exports are to the European Union, its market share has decreased as a result of a “saturation of the offer,“ according to António Saraiva, the new President of the Confederation of Portuguese Industry (CPI). Spain (26.7% of exports), Germany (137%) and France (12.7%) remain the principal buyers, but Angola absorbed 7.5% of Portuguese exports in the first half of last year according to the INE. Like Mozambique, Cape Verde and Brazil, Angola in south west Africa is linked to Portugal partly through its culture and history, but also, and above all, through its language.
All four benefit from “political stability, despite a certain level of corruption, and mature and growing markets,” says António Saraiva. The Portuguese industrial fabric is above all made up of SMEs, including “27% of micro-companies with only four employees.” Within this “micro-reality,” it has proved simpler for entrepreneurs to do business in countries where they understand the language and are familiar with the culture. Moreover, there are almost 5 million Portuguese and Luso-descendents scattered around the world. In France, Germany, Australia and South Africa, Portuguese company directors are active in every sector. The development of Portuguese exports is in part due to direct foreign investments (DFI): since the year 2000, gross DFI has amounted to between 20 and 30 billion euros. It reached a peak of 32.82 billion euros in 2006, with a slight drop to 31.98 billion in 2008. But last year, DFI was stricken by the economic crisis.
In the first half, scarcely 14.79 billion foreign euros were invested in the country. According to the latest data from the Bank of Portugal, the countries of the European Union represent 87% of DFI, more than half of which comes from the four biggest investors, only one of whom is outside the euro zone: France(19.4%), United Kingdom (16.8%), Spain (14.2%), and Germany (13.6%).
The industrial players now want to go further. “Companies are obliged to change their development model through technology, information and knowledge,” explains António Saraiva. Portugal finds itself “caught between the low prices of China, India and Pakistan on the one hand and the design image of Italy and German quality on the other. Portuguese products are not recognised. We must change these ideas because, in truth, when a client buys, he then repeats his purchase.”
Government, companies and employees have to combine their efforts to “show that Portuguese products are on a par with the world’s best whether it be technologies, taps or saucepans,” insists Saraiva. This can be achieved in particular through a new form of economic diplomacy. From a tradition of protocol ambassadors the country must produce another generation of diplomats, capable of “selling Portugal throughout the world,” and be more active in international trade fairs, exhibitions and in the embassies.