Monday, 28 Oct 2013
Overseas Business Risk - Portugal
Political and Economic
With a population of 10.6 million and a GDP of €165.4bn (2012) 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 then Socialist Government was forced to negotiate a €78bn financial assistance package (‘bail-out’) with the EU, ECB and IMF in May 2011. This was backed by the two other mainstream parties – PSD (Social Democrats) and CDS (Christian Democrats) - who were in opposition but who were subsequently voted into office in June 2011.
In 2013, Portugal will register its third consecutive year of recession (by the end of this year, GDP will be some 7% lower in real terms than its 2010 pre-crisis level). Exports, particularly to non-EU markets, continue to perform strongly and better than expected. But domestic demand has plunged, on the back of the unprecedented fiscal adjustment (through both public spending restraints and a significant tax rise this year) prescribed under the economic adjustment programme.
The economy seems to be bottoming out of recession and mild growth is forecast for 2014. But the outlook remains cloudy. It is difficult to measure the impact of the ongoing structural reforms (see below) on Portugal’s competitiveness position and to judge whether an export-led recovery is feasible. On the domestic front, public finances will remain under significant strain, as Portugal’s fiscal consolidation commitments remain to be delivered. The recovery is unlikely to be buoyant.
Low productivity is one of Portugal’s key economic problems. The centrist coalition Government is fully committed to implementing the bail-out programme, which contains a comprehensive set of structural measures, including enhanced flexibility – and lower costs – 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 produce effects.
Under the current fiscal environment, public investment will play less of a role. Some of the largest infrastructure projects have been put on hold, (eg the new Lisbon international airport and the high-speed TGV link with Spain). And the Government is refocusing EU funds under the next multiannual financial framework, away from ‘hardware’ into competitiveness-enhancing measures targeted more closely at businesses’ needs.
The Government is committed to an active commercial diplomacy agenda that enables Portugal to “export its way out of the crisis”. While continuing to strengthen commercial links with its current trade partners in Europe, the Government is also proactively seeking new export market opportunities in non-EU emerging economies, mainly within the Portuguese-speaking world, eg Angola, Brazil, Mozambique, but also in China, Latin America, North Africa.
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-Rright Coalition formed by the Social Democratic (PSD) and the Christian Democratic (CDS) Parties. The PSD leader, Pedro Passos Coelho, is Prime Minister, and CDS leader, Paulo Portas, is Deputy Prime Minister, after 2 years as Foreign Minister. The two parties 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 next general election is due in Autumn 2015. After a political crisis triggered by the resignations of the then Finance and Foreign Ministers in July 2013, the reshuffled Government now looks to be on a more secure footing.
Completing implementation of the bail-out programme, which involves severe austerity measures and tight adjustment deadlines, remains the key challenge. The impact of austerity and adjustment have caused major social problems in Portugal, with unemployment soaring above 17% and above 40% among young people), rising taxes and decreasing benefits. Adverse economic conditions in other EU countries (mainly Spain) have affected the country’s growth expectations, and the popularity of the Government has been waning as the results of austerity policies take longer than expected to emerge. The PSD fared worse than expected in local elections on 29 September 2013, with the Socialists the big winners.
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 right of assembly, membership of trade union organisations and the right to strike is 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 framework 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 onset of the current economic crisis there have been concerns relating 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 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.
Reports of suspicious transactions are investigated by the financial intelligence unit, a department of the Judicial Police.
Portugal is a member of the Group of States Against Corruption (GRECO), part of the Council of Europe.
Transparency International’s 2012Corruption Perception Index (CPI) ranked Portugal in 33rd place. 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 out of 549 convictions for corruption where custodial sentences were handed down.
There is an underlying threat from terrorism. Attacks, although unlikely, could be indiscriminate, including in places frequented by expatriates and foreign travelers.
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 National Institute of Industrial Property (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.
Information on registering Trademarks, Patents and Industrial Property is available through the INPI website.
The Cultural Activities General Office, (IGAC), is the Ministry of Culture department responsible for Copyright and Intellectual Property in Portugal.
For additional information, you may also check the Portugal country profile information on the World Intellectual Property Organisation (WIPO) website.
Owing 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.