New agenda is focused on business
BACK ON TRACK PORTUGAL’s REFORMIST GOVERNMENT HAS MADE HELPING BUSINESS THE CORE OF ITS ECONOMIC STRATEGY. PUBLIC SPENDING IS BEING REINED IN AND STATE FIRMS SOLD OFF TO INCREASE COMPETITIVENESS AND ATTRACT INVESTMENT

BRIDGE OF SIZE The longest bridge in the world, the 11-mile Vasco da Gama Bridge symbolizes modern Portugal’s commitment to enterprise

A STABLE democracy on the south west part of the Iberian Peninsula, Portugal is well placed to be a gateway to Europe for U.S. companies. Its recent history is that of a European success story, with GDP growth between 1995 and 2001 well above that of Germany, the UK, France and Spain—and even the United States.

A telling indicator of the nation’s far-reaching economic transformation is that Portugal is now a net exporter of investment, targeting markets in Africa, the United States and Latin America. At least $10 billion has been invested by Portuguese companies in Brazil alone, as modern corporate strategies are built on historical ties.

During the last two years, as elsewhere in Europe, growth has moderated, due partly to the effect of a less favorable global trading environment. Under a new, reformist government, however, the Portuguese economy is moving back on track.
Agradual export-led recovery is projected for 2003 and according to the Organization for Economic Cooperation and Development (OECD), with private investment reviving, GDP growth could rise to around 2.5 percent by 2004. An Economic Operation Plan (2000-2006) aimed at reinforcing productivity and competitiveness is underway.

José Durão Barroso became Portugal’s Prime Minister following elections last March, promising a combination of public sector prudence on the one hand and business incentives to promote trade and growth on the other.
Barroso’s center-right Social Democratic Party (PSD) formed a coalition government with the conservative Popular Party (PP) after the Portuguese electorate voted out the previous socialist administration, which had been facing increasing criticism for its management of the economy.
Mr. Barroso is committed to firm control of public finances. Austerity measures are being introduced and the 2003 budget cuts current government spending by 10 percent in an effort to reduce the deficit to 2.8 percent of GDP.

Mr. Barroso describes Portugal as “well anchored” in the European Union and strongly committed to the conditions Europe has enshrined in its Growth and Stability Pact. “The government will deliver the necessary government budget results both in the short as well as in the medium terms,” he pledges.

The government has made boosting the economy the cornerstone of its economic policy. The Prime Minister says, “We are enacting policies focused on increasing the efficiency of the Portuguese economy. In some instances, we will deregulate; in others, we will create independent authorities to supervise competition and business
practices.”

A new privatization process has been launched to sell off public companies, and further measures are being brought in to modernize industry and boost the country's competitiveness.
Foreign investment is seen as the key to regaining high growth rates. Portugal is modernizing quickly, with well-developed infrastructure for transport and communication.

Mr. Barroso’s emphatic message is that investors will find a business-friendly environment “The people and government understand that an economy open to outside investors is the right way to growth and prosperity, raising our standards of living to the European Union average and beyond,” he says.
Portugal is already among the countries with the lowest corporate tax in the EU—at just 30 percent—and the government has been working on further incentives.
Reforms are being made in labor legislation to raise the productivity and competitiveness of Portuguese companies.

“To reinforce this positive path, we are conducting a major overhaul of labor laws in Portugal to make our labor market even more flexible so that companies can better adapt their strategies to the speed of change in the global markets,” Mr. Barroso says.
He argues that the country’s most important asset is the quality of its people, with their willingness to innovate and experiment. “Portugal has a
flexible, productive and well-educated labor force increasingly able and willing to use English as a working language,” he says.

The government is committed to structural reforms and the free market. “We want to make our economy less dependent on the state, more flexible, so that capital and labor can adjust to changing market conditions,” Mr. Barroso says.
Revenue from privatization deals is expected to total $1.47 billion this year. On the list is the state airline TAP—the government aims to transfer a 39 percent share to a strategic partner by the end of 2003.
Other state enterprises being put up for offer include energy company Galp Energia, national electricity grid operator Rede Electrica Nacional (REN), water utility company Aguas de Portugal (AdP), paper company Portucel and companies in the portfolio of state investment holding Investimentos e Participações Empresariais (IPE).

The privatization process has already had a positive effect on capital markets. Mr. Barroso says, “Capitalization has increased significantly with the presence of the newly privatized companies, which are today among the most traded stocks and represent, altogether, almost 68 percent of market capitalization of the main index of the Lisbon Stock Exchange.”
He concludes, “We are part of a new generation that believes that Portugal will be among the most developed countries in Europe. I know of not a single reason that would prevent us from achieving this goal.”