Tuesday, 15 Jan 2013
Overseas Business Risk - Portugal
Political and Economic
With a population of 10.6 million and a GDP of €171.112 million (2011) Portugal saw its economy expand rapidly since its accession to the EU in 1986 and until the late 90s. A decade of economic stagnation and eroding competitiveness then followed.
The Portuguese economy is currently under pressure. Still suffering the impacts of the global economic downturn, which brought to light structural weaknesses which hinder competitiveness, and a large external imbalance, Portugal was dragged into the eurozone sovereign debt crisis. In the face of rising liquidity constraints to the sovereign and banks, the Portuguese Government was forced to negotiate a €78bn financial assistance package (‘bail-out’) with the EU and IMF in May 2011.
Despite better-than-expected growth in 2010 and a not as-bad-as expected -1.4% recession in 2011, economic prospects are gloomy. Exports, particularly to non-EU markets, are performing strongly. But domestic demand is plunging, on the back of an unprecedented fiscal adjustment (mainly through public spending restraints) arising from the economic adjustment programme (MoU) agreed with the European Commission/ECB/IMF ‘troika’. Hence the economy is forecast to contract around 3% in 2012 and return to mild only growth afterwards.
Low productivity is one of the key economic problems. The new Government is fully committed to implementing the MoU, which contains a comprehensive set of structural measures, including enhanced flexibility in the labour market; greater competition in products and services; a more efficient justice system; a smaller role for the State (including through a vast privatisation programme). Although the measures are going in the right direction, they will take time to prodece effects.
Under the current fiscal environment, public investment will play less of a role. Some of the largest infrastructure projects have been or are likely to be put on hold (the new Lisbon airport, the high-profile TGV link with Spain, etc.). And the Government is renegotiating the use of EU funds under the current multiannual financial framework.
The Government is committed to an active commercial diplomacy agenda that enables Portugal to “export its way out of the crisis”. While continuing to look into strengthening commercial links with its current trade partners in Europe, the Govt is proactively seeking new export market opportunities in non-EU emerging economies, mainly within the Portuguese speaking e.g. Angola, Brazil, Mozambique, but also in China.
Businessman reading newspaper
The political system in Portugal is a semi-presidential parliamentary democracy, where the President is the Head of State with only limited powers, and the Government holds the key executive role. The Government is accountable to the President and to Parliament. The Prime Minister is appointed by the President and is usually the leader of party that wins more votes in the general election. The President serves a 5 year term, while a parliamentary term lasts for 4 years. The last general election was held in June 2011, and the next one is due in the Autumn of 2015. President Cavaco Silva was re-elected in 2011 and is serving his 2nd and last mandate. He is an economics professor, former leader of the ruling PSD, and Prime Minister from 1985-95.
Portugal is currently ruled by a centre right coalition government formed by the Social Democratic Party (PSD) and the Christian Democratic Party (CDS). The PSD leader Pedro Passos Coelho is Prime Minister, and the CDS leader Paulo Portas is Foreign Minister. The two parties together hold an overall majority in Parliament where the 230 seats are distributed as follows: PSD 108; Socialists 74; CDS 24; Communists 16; and Leftwing Block 8. The implementation of the IMF/EU bail-out programme, which involves severe austerity measures and tight deadlines remains the key challenge for the Portuguese Government over the next few years. The impact of austerity and adjustment is causing major social problems in Portugal, with unemployment soaring above 15% (30% among young people); while the adverse economic conditions in other European countries (mainly Spain) are affecting the country’s economic growth expectations. Despite this, the coalition Government has hitherto remained at the top of opinion polls, reflecting the general perception among the electorate that the opposition offers no credible alternative to the current adjustment process.
Business and Human Rights
Portugal reiterates its firm commitment to the respect for human rights, which are embodied in the Portuguese Constitution. The country has ratified most of the universal human rights treaties, as well as the main ILO and UNESCO conventions and protocols relating to fundamental rights and it is part of all the core UN HR instruments. Rules from international conventions which have been duly ratified or approved, automatically apply in domestic law following their official publication.
The rights of assembly, membership of trade union organisations and the right to strike are legally guaranteed to employees. There are two union federations (CGTP-IN - General Confederation of Portuguese Workers and UGT - General Union of Workers), and a number of other union organizations in different sectors.
There is also a legal frame to safeguard the rights of children and adults who may be especially vulnerable because of race, sexual preference, gender, age or illness, although there are still challenges faced by the Portuguese society in these areas. In particular, since the breakout of the current economic crisis there have been concerns related to the living conditions and discrimination towards minority groups as well as citizens living in poverty. The Portuguese Government has stated its commitment to find and implement measures to solve this problem, namely by reinforcing social security instruments and tackling the rising unemployment.
Bribery and Corruption
Businessman working at a computer
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Acts of bribery and corruption are illegal and subject to Portuguese law, under the Criminal Procedure Code and the Administrative Procedure Code (articles referring to transparency in public administration).
Reports of suspicious transactions are investigated by the financial intelligence unit, a department of the Judicial Police.
According to the NGO (CPI), Portugal ranked in 33rd place in 2012. According to a poll carried out by the same organization, 80% of people questioned argued that the problem of corruption has got worse in Portugal during the last decade (2000-2009). These results on the perception of impunity for corruption crimes are in line with the latest figures released by the Justice Ministry, which show that over the period of the last decade there were only 50 cases of effective imprisonment for corruption in a range of 549 convictions for corruption.
There is an underlying threat from terrorism. Attacks could be indiscriminate, including in places frequented by expatriates and foreign travellers.
Portugal is not perceived to be a major terrorist target, although the Portuguese authorities remain vigilant, and advise visitors to be aware and follow the instructions of the local police and other authorities in case of disruption.
Protective Security Advice
The crime rate in Portugal remains comparatively low, but visitors are advised to be alert to the risk of petty theft, namely: pickpocketing, handbag snatching and theft from cars, which are increasingly common in urban centres (namely Lisbon and Oporto) and major tourist areas.
Visitors are advised to remain alert and guard valuable personal items, passports, credit cards, travel tickets and money in a safe place. Likewise, it is important not to leave any valuables in an unattended car.
Portuguese police recommend car windows and doors are closed and locked while driving in urban centres. Pedestrians are advised not to wear valuable jewellery or watches in public areas.
There is a legal requirement for foreign nationals to show some form of identification if requested by the police or judicial authorities. For UK nationals this means a passport.
The (INPI) is the Portuguese entity responsible for “the grant and protection of Industrial Property rights on a national and international level, in collaboration with the international organisations of which Portugal is a member, and also, processing and publication of patented technical and scientific information.”
The INPI is under the supervision and guidance of the Minister of Justice.
Due to its geographical position and international relations with some Latin American and African countries, Portugal is subject to international organised criminal activity. Illegal activities identified by the authorities are linked to narcotics and people trafficking, money-laundering, identity fraud and counterfeit currency. There has been government action to tackle these issues, working together with international organisations.