Economy of Portugal

Economy of Portugal

The Economy of Portugal is a high income market economy. The Global Competitiveness Report for 2005, published by the World Economic Forum, places Portugal's competitiveness on the 22nd position, ahead of countries and territories like Spain, Ireland, France, Belgium, Hong Kong and Turkey. On the Technology index, Portugal was ranked 20th and on the Public Institutions index Portugal is the 15th best. However, the Global Competitiveness Index 2007-2008 placed Portugal on the 40th position out of 131 countries and territories. [ [http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/gcr_2007/gcr2007_rankings.pdf Global Competitiveness Index 2007-2008] ]

The major industries include: oil, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork (world's largest producer). Manufacturing accounts for 33% of exports. Portugal is the world's fifth-largest producer of tungsten, and the world's eighth-largest producer of wine.

The tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications. Financial tertiary have benefited from privatisation, also gaining in terms of efficiency. Tourism has developed significantly and generates approximately 5% of the wealth produced in Portugal.

Most imports come from the European Union countries of Spain, Germany, France, Italy, and the United Kingdom. Most exports also go to other European Union member states.

Although being very high by world's average standards, Portugal's GDP per capita is among the lowest in Western Europe. However, research about standard of living by the Economist Intelligence Unit's (EIU) [http://www.economist.com/media/pdf/QUALITY_OF_LIFE.pdf Quality-of-life Survey] placed Portugal as the country with the 19th-best quality of life in the world for 2005, ahead of other economically and technologically advanced countries like France, Germany, the United Kingdom and South Korea.

History

Portuguese Colonial Empire

During the Portuguese Empire period, started in the 15th century, until the Carnation Revolution of 1974, the economy of Portugal was centered in trade and raw materials related activities within its vast colonial possessions, mainly in Asia (spices, silk, dyes, porcelain and gems), Africa (ivory, timber, oil and diamonds) and South America (sugar cane, dyes, woods and gold). The country, with a transcontinental empire with plenty of natural resources and vast unexploited areas, was among the most powerful nations in the world. In 1822, the Portuguese colony of Brazil became an independent country, however, until 1974, Portugal managed to preserve its colonies in Africa, which included Angola and Mozambique, territories that would experience high rates of economic growth and unmatched levels of development until the departure of the Portuguese in 1975.

After a long period of economic divergence before 1914, the Portuguese economy recovered slightly until 1950, entering thereafter on a path of strong economic convergence. Portuguese economic growth in the period 1950-1973 created an opportunity for real integration with the developed economies of Western Europe. Through emigration, trade, tourism and foreign investment, individuals and firms changed their patterns of production and consumption, bringing about a structural transformation. Simultaneously, the increasing complexity of a growing economy raised new technical and organizational challenges, stimulating the formation of modern professional and management teams. [ [http://ideas.repec.org/p/ave/wpaper/382006.html] , Joaquim da Costa Leite (Aveiro University) - Instituições, Gestão e Crescimento Económico: Portugal, 1950-1973]

The military coup of 1974

The post Carnation Revolution period was characterized by chaos and negative economic growth as industries were nationalised and the negative effects of the decoupling of Portugal from its former territories were felt. Heavy industry came to an abrubt halt. All sectors of the economy from manufacturing, mining, chemical, defence, finance, agriculture and fishing went into free fall. Portugal found itself overnight going from the country in Western Europe with the highest growth rate to the lowest - in fact it experienced several years of negative growth. This was amplified by the mass emigration of skilled workers and enterpreneurs due to political intimidation, and the costs of accommodating in Portugal thousands of refugees from the former overseas provinces in Africa - the "retornados".

After the Carnation Revolution's turmoil of 1974, the Portuguese economic basis changed deeply. The Portuguese economy had changed significantly by 1973 prior to the leftist military coup, compared with its position in 1961 - total output (GDP at factor cost) had grown by 120 percent in real terms. Clearly, the pre-revolutionary period was characterized by robust annual growth rates for GDP (6.9 percent), industrial production (9 percent), private consumption (6.5 percent), and gross fixed capital formation (7.8 percent). The growth rate of Portuguese merchandise exports during the period 1959 to 1973 was notable - 11 percent per annum. In 1960 the bulk of exports was accounted for by a few products - canned fish, raw and manufactured cork, cotton textiles, and wine. By contrast, in the early 1970s (before the 1974 military coup), Portugal's export list reflected significant product diversification, including both consumer and capital goods. Several branches of Portuguese industry became export-oriented, and in 1973 over one-fifth of Portuguese manufactured output was exported.

There was a 16-percentage-point increase in the participation of the services sector from 39 percent of GDP in 1973 to 55.5 percent in 1990. Most of this growth reflected the exacerbated proliferation of civil service employment and the associated cost of public administration, together with the contribution of tourism services during the 1980s to the detriment of more sustainable and reproductive activities like manufacturing, exporting and technology/capital-intensive industries.

EU membership

Membership in the European Union (EU), achieved in 1986, contributed to stable economic growth and development, largely through increased trade ties and an inflow of funds allocated by the European Union to improve the country's infrastructure. After a recession in 1993, the economy grew at an average annual rate of 3.3%, well above EU averages but well behind the growth of the Portuguese economy before the military coup of 1974. In order to qualify for the Economic and Monetary Union (EMU), Portugal agreed to cut its fiscal deficit and undertake structural reforms. The EMU brought to Portugal exchange rate stability, falling inflation, and falling interest rates. Falling interest rates, in turn, lowered the cost of public debt and helped the country achieve its fiscal targets.

In 1999, it continued to enjoy sturdy economic growth, falling interest rates, and low unemployment. The country qualified for the Economic and Monetary Union of the European Union (EMU) in 1998 and joined with 10 other European countries in launching the euro on January 1, 1999. The three different designs chosen for the national side of the Portuguese euro coins were drawn by the artist Vitor Manuel Fernandes dos Santos. The ispiration came from the three seals of the first king, Dom Afonso Henriques. Portugal's inflation rate for 1999, 2.4%, was comfortably low.

Household debt has expanded rapidly. The European Commission, OECD, and others have advised the Portuguese Government to exercise more fiscal restraint. Portugal's public deficit exceeded 3% of GNP in 2001, the EU's self-imposed limit, and left the country open to either EU sanctions or tighter financial supervision. The overall rate of growth slowed in late 2001 and into 2002, making fiscal austerity that much more painful to implement.

Portugal has made significant progress in raising its standard of living to that of its EU partners. GDP per capita on a purchasing power parity basis rose from 51% of the EU average in 1985 to 78% in early 2002. By 2005 this had dropped to 72% (of the average across all of now 25 EU members, including seven with GDP per capita lower than Portugal) as GDP per capita rose in other EU countries. Unemployment stood at 4.1% at the end of 2001, which was low compared to the EU average.

GDP growth in 2006, at 1.3%, was the lowest not just in the European Union but in all of Europe. Since 2000 the Czech Republic, Greece, Malta and Slovenia have all overtaken Portugal in terms of GDP per head. And Portuguese GDP per head has fallen from just over 80% of the EU 25 average in 1999 to just over 70% last year. This poor performance of the Portuguese economy was explored in April 2007 by The Economist which described Portugal as "a new sick man of Europe"."A new sick man of Europe", The Economist, 2007-04-14. http://www.economist.com/world/europe/displaystory.cfm?story_id=9009032] From 2002 to 2007, the unemployment rate increased 65% (270,500 unemployed citizens in 2002, 448,600 unemployed citizens in 2007). [Luis Miguel Mota, [http://www.destak.pt/artigos.php?art=11796 População desempregada aumentou 65% em cinco anos] , Destak.pt (6th June 2008)]

However, the Portuguese subsidiaries of large multinational companies, such as Siemens Portugal, Volkswagen Autoeuropa, Qimonda Portugal, IKEA, Nestlé Portugal, Microsoft Portugal, [ [http://www.microsoft.com/portugal/presspass/press/2008/jul08/07-22msftmelhorsub.mspx Microsoft Portugal novamente eleita melhor Subsidiária mundial da Microsoft International em 2008] ] Unilever/Jerónimo Martins and Danone Portugal, are still ranked among its most productive in the world for its continued high productivity records. [ A Siemens executive, Carlos de Melo Ribeiro, pointed to labor costs and productivity as major reasons why shipping semiconductors to Portugal for final production is more advantageous than retaining the work in Germany or Britain - Siemens Builds on Long History in Portugal, to the Benefit of Both, By Karen E. Thuermer, October, 1997, in Keller Publishing [http://www.glscs.com/archives/10.97.Siemens.htm?adcode=90] ] [ [http://www.investinportugal.pt/MCMSAPI/HomePage/PortugalToday/PortugalAdvantages/CostCompetitiveQualifiedAndFlexibleWorkforce/ "The investment made in Portugal by the VW group has enabled “this plant to become one of the best in the VW Group and indeed in the whole automotive industry in terms of quality, productivity, absenteeism, safety, and many other decisive criteria”, Gerd Heuss upon the manufacturing of car nº 1 million in Palmela", June 2003.] , AICEP - Business Development Agency] Many Portuguese companies have grown and expanded internationally since after 1986. Among the most notable Portugal-based global companies are SONAE, Amorim, Sogrape, EFACEC, Portugal Telecom, Jerónimo Martins, Cimpor, Unicer, Millennium bcp, Lactogal, Sumolis, Critical Software, Galp Energia, EDP, Renova, Teixeira Duarte, Soares da Costa, Portucel Soporcel, Simoldes, Iberomoldes and Logoplaste.

Employment and wages

Although unemployment is just over 7% today, the number of unemployed people is increased since 2000 and has only started to decrease since 2007.

As of May 2006, over 420,000 people were unemployed in Portugal. The unemployment rate in the country was 7.7%. In 2007 the unemployment rate reached 8.4%, the highest unemployment rate in Portugal since 1987. The average European Union unemployment rate decreased to a record low of 7.3% in 2007. In the Portuguese sub-region of Vale do Ave, the unemployment rate has reached 15%, and in the Península de Setúbal sub-region 12.5%.

Since 2007 unemployment has slowly decreased reaching 7.3% in the secod quarter of 2008.pt icon [http://economia.publico.clix.pt/noticia.aspx?id=1338969 Taxa de desemprego desce para 7,3 por cento no segundo trimestre] , Público (14th August 2008)]

Wages

The average wage in Portugal is 804.22€ per month, and the minimum wage, which is regulated by law, is 426€ per month.

Graduate unemployment

In 2008, about 8%pt icon [http://diariodigital.sapo.pt/news.asp?id_news=319351 Licenciados desempregados mais do que duplicaram desde 2002] , Diário Digital (19th February 2008)] of the people with a degree were unemployed, and a much larger proportion were underemployed. This directly was correlated with a general lack of employability and student preparation for the workplace seen among many courses in a number of fields offered by certain higher education institutions or departments. The implementation of the Bologna process and other educational reforms, such as the compulsory closing of a number of courses, departments, colleges and private universities after 2005 due to a lack of academic rigour and low teaching standards, tried a totally new approach in order to tackle the problem. In 2007 alone, some major private universities were investigated by State agencies and two were immediately closed. In addition, a number of degrees of the public system were also discontinued due to lack of quality, low demand by potential students or scarce interest showed by potential employers in fresh graduates on these fields. Secondary and post-secondary non-higher education (intermediate education - "ensino médio"), involving technical and vocational education, has been redeveloped since 2007, through the government's policies of the "XVII Governo Constitucional" (headed by Prime-Minister José Sócrates).

Nearly 60,000 people with an academic degree are unemployed in Portugal. This group includes a large proportion of young adults.

Economy by sector

Fisheries and agriculture now account for about 4% of the GDP, down from approximately 25% in 1960, while still employing 13% of the labour force. On the other hand, the tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The remaining 30% of the GDP is mainly produced by the building and energy sectors.

Natural resources

Natural resources such as forests cover about 34% of the country, namely pine trees (13,500 km²), Cork Oak (6800 km²), Holm Oak (5,340 km²), and Eucalyptus (2,430 km²). Cork is a major production, Portugal produces half of the world's cork. Significant mining resources are tungsten, tin, and uranium.

Agriculture and fisheries

A considerable part of continental Portugal is dedicated to agriculture, although it does not represent most of the economy. The south has developed an extensive monoculture of cereals and olive trees and the Douro Valley in vineyards. Olive trees (4,000 km²; 1,545 sq mi), vineyards (3,750 km²; 1,450 sq mi), wheat (3,000 km²; 1,160 sq mi) and maize (2,680 km²; 1,035 sq mi) are produced in vast areas. Portuguese wine and olive oil are especially praised by nationals for their quality, thus external competition (even at much lower prices) has had little effect on consumer demand. Portugal is a traditional wine grower, and has exported its wines since the dawn of western civilization; Port Wine, "Vinho Verde" and Madeira Wine are the leading wine exporters. Portugal is also a quality producer of fruits, namely the Algarve oranges, and Oeste region's "pêra rocha" (a type of pear). Other exports include horticulture and floriculture products, beet sugar, sunflower oil, cork, and tobacco.

The Portuguese fishing industry is fairly large and diversified. Fishing vessels classified according to the area in which they operate, can be divided into local fishing vessels, coastal fishing vessels and long-distance fishing vessels. The local fleet is mainly composed of small traditional vessels (less than 5 GRT), comprising, in 2004, 87% of the total fishing fleet and accounting for 8% of the total tonnage. These vessels are usually equipped to use more than one fishing method, such as hooks, gill nets and traps, and constitute the so-called polyvalent segment of the fleet. Their physical output is low but reasonable levels of income are attained by virtue of the high commercial value of the species they capture: octopus, black scabbardfish, conger, pouting, hake and anglerfish. Purse seine fishing is also part of the local fleet and has, on the mainland, only one target species: the sardine. This fishery represents 37% of total landings. Portugal's Exclusive Economic Zone has 1,727,408 km². The coastal fishing fleet accounted for only 13% of vessels but had the largest GRT (93%). These vessels operate in areas farther from the coast, and even outside the Portugal's Exclusive Economic Zone. The coastal fishing fleet comprises polyvalent, purse seine and trawl fishing vessels. The trawlers operate only on the mainland shelf and target demersal species such as horse mackerel, blue whiting, octopus and crustaceans. The crustacean trawling fishery targets Norway lobster, red shrimp and deepwater rose shrimp. The most important fish species landed in Portugal in 2004 were sardine, mackerel and horse mackerel, representing 37%, 9% and 8% of total landings by weight, and 13%, 1% and 8% of total value, respectively. Molluscs accounted for only 12% of total landings in weight, but 22% of total landings in value. Crustaceans were 0.6% of the total landings by weight and 5% by value.

Industry

The major industries include: oil refineries, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, plastic products, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork (leader producer). Automotive and other mechanical industries are primarily located in and around Setúbal, Porto, Lisbon, Aveiro, Braga, and Santarém. Coimbra and Oeiras have growing technological-based industries, including pharmaceuticals and software. Sines is a major petrochemical centre. Maia has one of the largest industrial parks of the country, including noted wood processing and food industries. Figueira da Foz is a major centre of pulp and paper industry. Marinha Grande is the most reputed glass making centre of Portugal. Leiria, Oliveira de Azeméis, Vale de Cambra and Viseu, have important light industries, including injection moulding and plastics. Évora [pt icon [http://diariodigital.sapo.pt/dinheiro_digital/news.asp?section_id=6&id_news=103403 Évora aprova isenções fiscais aos projectos da Embraer] , Diário Digital (22nd August 2008)] and Covilhã [pt icon [http://noticias.sapo.pt/lusa/artigo/3010ee885ea3612ea6bfc1.html Covilhã: Aleia vai montar avião até agora vendido em kit e jactos portugueses em 2011] , 14th April 2008] (an important textiles centre) have tried to develop the national aerospace industry.

ervices

The tertiary sector has grown, producing 66% of the GDP and providing jobs for 52% of the working population. The most significant growth rates are found in the trade sector, due to the introduction of modern means of distribution, transport and telecommunications. Financial tertiary have benefited from privatisation, also gaining in terms of efficiency. Tourism has developed significantly and generates approximately 5% of the wealth produced in Portugal.

Competitiveness

Portugal's competitiveness in the world

The Global Competitiveness Report for 2005, published by the World Economic Forum, places Portugal on the 22nd position, ahead of countries and territories like Spain, Ireland, France, Belgium and Hong Kong. This table shows that Portugal has stepped two places regarding the 2004 ranking. On the Technology index, Portugal was ranked 20th, on the Public Institutions index Portugal is the 15th best and on the Macroeconomic index, Portugal is placed on the 37th position. [http://www.investinportugal.pt/MCMSAPI/HomePage/NewsRoom/PORTUGAL+IMPROVES+ITS+POSITION+IN+THE+WEF+COMPETITIVENESS+RANKING.htm]

Competitiveness by city

A study concerning competitiveness of the 18 Portuguese district capitals, complying with World Economic Forum methodology, was made by Minho University economics researchers. It was published in Público newspaper on 30th September 2006. The best-ranked cities in the study were Évora, Lisbon and Coimbra. [http://jornal.publico.clix.pt/default.asp?a=2006&m=09&d=30&uid={456842A6-9631-4CC3-9C5F-E84A6AEEB13C}&sid=11039] , [http://www.publico.clix.pt/shownews.asp?id=1271886&idCanal=63] , [http://diariodigital.sapo.pt/dinheiro_digital/news.asp?section_id=2&id_news=72198]

Ranking:

*1.Évora: 7,293
*2.Lisbon: 6,454
*3.Coimbra: 6,042
*4.Beja: 5,660
*5.Leiria: 5,609
*6.Castelo Branco: 5,608
*7.Aveiro: 5,452
*8.Guarda: 5,178
*9.Santarém: 5,037
*10.Portalegre: 4,711
*11.Viseu: 4,628
*12.Vila Real: 5,514
*13.Bragança: 4,271
*14.Setúbal: 4,070
*15.Braga: 4,055
*16.Faro: 3,971
*17.Viana do Castelo: 3,859
*18.Porto: 3,577

Domestic problems

*Forest Fires: Like in other countries with very hot summers and seasonal drying of soils and vegetation, every year large areas of the Portuguese forest is destroyed. This has an important impact on the economy because many people and industries depend on forestry related activities. It is also a very dramatic ecological problem and a safety issue for the populations.
*Portugal's Public Debt: The public debt exceeds 60% of GDP. This problem is a threat to the Portuguese economy and the State's financial sustainability.
*Over-dimensioned Public Sector: The public sector has been generally considered a very large, expensive and inefficient part of the economy. An excess of public employees and useless bureaucracy results in the loss of millions of euros every year. Since the "XVI Governo Constitucional" government, headed by Prime Minister José Durão Barroso, to the "XVII Governo Constitucional" government, headed by Prime Minister José Sócrates (which created new rules and implemented reforms aiming at better efficiency, rationalized resource allocation, fight civil servant excedentary overcapacity ("excedentários") and less bureaucracy for both citizens and companies - eg: "empresa na hora" [http://www.empresanahora.pt/] , "PRACE - Programa de Reestruturação da Administração Central do Estado" [http://www.portugal.gov.pt/NR/rdonlyres/0A6DEBBD-BE35-4C4C-91CA-27BCF76E142A/0/Modelo_PRACE.pdf] , and SIMPLEX - Programa de Simplificação Administrativa e Legislativa [http://www.ucma.gov.pt/simplex/] , among others), the "public expenditure problem" has been a major concern in Portugal.
*Corruption: Although being generally considered an honest hard-working people, corruption has become an issue of major political and economic significance for the Portuguese. The responsible authorities are trying to combat corruption before it increases further. Many abusive lobbies and corruption schemes are related to concessions, unclear approvals to contractors and economic groups, or job creation for and commercial agreements with friends and family members, mainly involving the huge public sector and companies. Some cases are well known and were widely reported in the media, such as the affairs in several municipalities involving town hall officials and businesspersons.

ee also

* [http://www.oecd.org/portugal/ OECD's Portugal country Web site] and [http://www.oecd.org/eco/surveys/portugal/ OECD Economic Survey of Portugal]
* Economy of Europe
* Portugal
* Economic history of Portugal

References


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