INVESTING IN Portugal by nig11470

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									INVESTING IN
Portugal
FINANCIAL TIMES SPECIAL REPORT | Tuesday April 8 2008
                                                                                                                                                                                                                                www.ft.com/investportugal2008




On the
tipping
point of
transition
The government’s                 accountants are replacing
                                 unskilled, low-cost factory
structural                       hands as an attraction for
reforms are                      foreign investors. “The skills
                                 offered by bright university
beginning                        graduates at relatively low
to pay off, writes               levels of remuneration place
                                 Portugal in a competitive
Peter Wise                       position in this area,” says
                                 José Gonzaga Rosa, a Lis-



F
         or the first time in    bon-based partner with
         its history, Portugal   Ernst & Young.
         is exporting more         A growing number of high-
         technology than it      tech Portuguese companies        Teacher tensions: José Sócrates faced one of the biggest and most heated demonstrations against his reforms in March when tens of thousands of teachers protested                           Reuters
imports. Business services       such as Chipidea, Critical
have overtaken cheap tex-        Software, Outsytems, Siscog,     implementing many of the         renewable sources and is         2008 will be the first year in    drive to bring the country’s
tiles and footwear, the coun-    Skysoft, YDreams and oth-        long-postponed reforms Por-      well placed to reap the bene-    which public spending on          spiralling budget deficit         Inside this issue
try’s traditional industrial     ers, are tapping into the        tugal needs to accelerate this   fits of a coming “industrial     science and technology            under control.                    The economy Reforms            Tourism Plans are afoot
breadwinners, as export          same pool of young talent to     transition. But, as Martin       revolution” geared to the use    reaches more than 1 per cent         In this sphere too, the gov-   start to address some          to build 18 golf courses
earners. More money is           develop successful interna-      Wolf points out on Page 2 of     of clean energy.                 of gross domestic product,        ernment has achieved a first.     chronic fiscal misbehaviour,   in Algarve to add to
being invested in science        tional businesses, often built   this report, there is a long        Mr Sócrates, who trained      up from 0.47 per cent in 2003.    In March, Mr Sócrates             says Martin Wolf (below)       the existing 32, writes
and research than ever           on innovative software solu-     way to go. The country, he       as an environmental engi-        From one of the lowest lev-       announced that the 2007           Page 2                         Jill James Page 4
before.                          tions to complex problems.       says, still needs to achieve     neer, is also keen to move a     els in the European Union,        budget deficit had fallen to
   Other trends, including a       For José Sócrates, the         “a massive upgrade of its        much bigger share of invest-     the number of researchers         2.6 per cent of gross domes-      Renewable                        Science Portuguese
shift in investment away         Socialist prime minister who     productive base, a more flex-    ment into R&D and high-          and patents is also growing       tic product, the lowest level     energy                            institutions produce
from labour-intensive indus-     has just completed three         ible economy, far higher         tech production. His Techno-     fast, he says.                    since Portugal returned to        Last year,                         more than 4,000
try to more technologically-     years in office, these tenden-   national savings and a more      logical Plan, a central pillar     Mr Sócrates has under-          democracy following the           renewable                           scientific papers a
advanced sectors, suggest        cies are evidence of a “para-    efficient public sector”.        of government policy, is         lined his commitment to           overthrow of the Salazar-Ca-      sources                             year Page 4
Portugal has reached the tip-    digm shift” in the structure       In the energy sector,          designed to lift public and      innovation by increasing the      etano regime 34 years ago.        accounted for
ping point in a gradual tran-    of the economy. “The coun-       investment is moving away        private      spending       on   budget of the ministry for           When it came to office         40.7 per cent                         MIT Partnership
sition from a low-cost manu-     try is evolving fast and we      from fossil fuels into wind,     research, expand training in     science, technology and           three years ago, it inherited     of electricity                        offers long­term
facturing economy to a pro-      are now on the radar of mul-     solar and wave power.            advanced technologies and        higher education by more          a 2004 deficit of 6.8 per cent    production, writes                          benefits
vider of knowledge-based         tinational companies making      Manuel Pinho, economy            increase the scientific output   than 60 per cent at the same      of GDP, by far the highest in     Peter Wise                                       Page 4
services.                        big technological invest-        minister, says Portugal is       of universities.                 time as he imposed tough          the EU, and was forced take       Page 3
   Qualified software engi-      ments,” he said recently.        among Europe’s top five pro-        Partly as a result of this    spending cuts on other min-
neers,     consultants    and      His government has begun       ducers of energy from            plan, he has announced that      istries as part of an austerity           Continued on Page 2
2                                                                                                    ★                                                                                                                                 FINANCIAL TIMES TUESDAY APRIL 8 2008




Investing in Portugal

Island reaps the benefits of tight EU regulation                                                                                                                                                                                                      On the
                                                                                                                                                                                                                                                      tipping
                                                                                                                                                                                                                                                      point of
MADEIRA’S IBC                    Business Centre (IBC) has        zone, but a well-regulated         IBC that sends an important           man of the Madeira Develop-       per cent are from OECD               and to employ at least one
                                 adopted this approach since      business centre operating          signal to international mar-          ment     Company       (SDM),     countries. “We have always           person.
Peter Wise on a                  it began offering investors      within the EU under EU rules       kets     and     highlights           which runs the centre.            focused on investors from               However, since 2003, the
scheme aimed at                  substantial tax benefits 20      is crucial to our success.”        Madeira’s credibility as a              The IBC comprises an            developed countries as a             Commission has imposed

diversification
                                 years ago as a means of
                                 helping the semi-tropical
                                 Portuguese island overcome
                                                                     Madeira gained a further
                                                                  seal of approval from the
                                                                  European Commission in             ‘We have always
                                                                                                                                           international services cen-
                                                                                                                                           tre, an industrial free trade
                                                                                                                                           zone and an international
                                                                                                                                                                             means of ensuring the long-
                                                                                                                                                                             term stability of jobs and
                                                                                                                                                                             investment,” says Mr Costa.
                                                                                                                                                                                                                  limits on the amount of com-
                                                                                                                                                                                                                  pany earnings that can bene-
                                                                                                                                                                                                                  fit from these low corporate
                                                                                                                                                                                                                                                      transition
Germany’s recent tax-eva-        its disadvantages as a small,    June last year when, after a                                             shipping register.                  Under the new regime,              tax rates. Above these limits,
sion quarrel with Lichten-       peripheral economy lacking       long period of evaluation, it      insisted on total                       Designed     to    diversify    companies newly licensed by          the standard 20 per cent rate       Continued from Page 1
stein, which has been            in natural resources.            approved the extension of          compliance with                       Madeira’s economy, which          the IBC will enjoy a corpo-          of Madeira corporate tax
labelled an “unco-operative         “We have always insisted      the IBC’s preferential tax                                               depends mainly on tourism,        rate tax rate of 3 per cent up       applies. The ceilings range         emergency measures to
tax haven” by the Organisa-      on total compliance with         regime until 2020. It had pre-     European Union                        it accounts for about 3,000       to 2009, 4 per cent to 2012          from €2m a year for a com-          avoid disciplinary measures
tion for Economic Co-opera-
tion and Development, has
                                 European Union and OECD
                                 rules on transparency, the
                                                                  viously been due to expire in
                                                                  2011. Under the agreement,
                                                                                                     and OECD rules on                     jobs in close to 4,000 compa-
                                                                                                                                           nies, including 54 manufac-
                                                                                                                                                                             and 5 per cent to 2020.
                                                                                                                                                                               They will also be exempt
                                                                                                                                                                                                                  pany employing up to two
                                                                                                                                                                                                                  people to €150m for compa-
                                                                                                                                                                                                                                                      for breaching the growth
                                                                                                                                                                                                                                                      and stability pact, the rules
highlighted how tight regu-      exchange of information and      Madeira can continue to            transparency’                         turing plants. The total          from capital duty and from           nies with more than 100             underpinning the euro,
lation of tax jurisdictions      supervision,” says Francisco     licence companies to operate                                             share capital of these compa-     withholding taxes on divi-           workers. “To keep Madeira           which require governments
can be used as a competitive     Costa, the IBC’s founder and     in the IBC until 2013.                                                   nies is more than €11.3bn.        dends and royalty payments.          competitive,” says Mr Costa,        to keep budget deficits below
advantage to attract legiti-     chief architect.                    “The        Commission’s        properly supervised and effi-           More than 70 per cent of        To enjoy these benefits, com-        “we will continue to press          3 per cent of GDP.
mate investors.                     “The fact that we are not a   approval of a large extension      ciently run jurisdiction,”            them originate in other EU        panies are required to have a        for a substantial increase in          Mr Sócrates, a market-
  Madeira’s International        tax haven or an offshore         is a vote of confidence in the     says Mr Costa, who is chair-          countries and more than 90        physical presence in Madeira         these ceilings.”                    friendly Socialist inspired by
                                                                                                                                                                                                                                                      what he calls “Nordic social
                                                                                                                                                                                                                                                      democracy”, has had to face
                                                                                                                                                                                                                                                      down strikes and protests
                                                                                                                                                                                                                                                      from almost every sector of




Struggling
                                                                                                   Savings and Investment          Current account                              Real GDP                                    Competitiveness           the public administration,
                                                                                                                                   balance                                        growth                                                              including judges, the police,
                                                                                                Gross national savings and gross                                                                       Relative unit labour costs in manufacturing
                                                                                                                                                                                                                                                      the armed forces and doc-
                                                                                                 fixed investment as a % of GDP    As a % of GDP                            Annual % change                             In dollar terms, 1998=100
                                                                                                                                                                                                                                                      tors, as he imposed stringent
                                                                                                                              30       5                                                 10                                                     130   spending cuts, held down
                                                                                                                                                                                                                                        Italy         pay, reduced sick leave and




to tackle
                                                                                                                                                                                           8                                                    120   raised the minimum retire-
                                                                                                                                       0
                                                                                                                              25                                                                                                                      ment age for state employees
                                                                                                                                                                                           6                                           Spain
                                                                                        Investment                                                                                                                                                    from 60 to 65.
                                                                                                                                    -5                                                                                                          110      The reduction of the defi-
                                                                                                                              20                                                           4                                       Eurozone           cit by more than 3 percent-
                                                                                                                                   -10                                                                                                          100   age points in three years




bad fiscal
                                                                                                                                                                                           2                                                          was achieved partly by
                                                                                                                                                                                                                                    Portugal
                                                                               1995                                           15                                                                                                                      severe cuts in public spend-
                                                                                   96                                              -15                                                                                                           90   ing and investment, and
                                                                                                                                                                                           0
                                                                                                         Savings                                                                                                                   Germany            partly by a sharp increase in
                                                                                          98                                                                                                                                                          tax revenue after the govern-
                                                                                                                              10   -20                                               * * -2                                                      80
                                                                                                2000     02    04     06 07                                                                                                                           ment recruited a private-sec-



behaviour
                                                                                                                                       1980       85     90      95   2000            08       1995   97     99    2001    03     05     07
                                                                                                                                                                                                                                                      tor banker to spearhead a
                                                                                                                                   * Forecast                                                                                                         crackdown on tax fraud and
                                                                                                                                                                                                                                        FT Graphic
                                                                                                                                                                                                                                                      evasion.
                                                                                                                                                                                                                                     Photo: Alamy        But the disciplining of Por-
                                                                                                                                                                                                                      Sources: Eurostat; IMF; OECD    tugal’s public finances also
                                                                                                                                                                                                                                                      reflects the impact of impor-
                                                                                                                                                                                                                                                      tant structural reforms, par-
THE ECONOMY                            modest 3 per cent and 4.3 per cent                                                                                                                                                                             ticularly a social security
                                       of GDP, respectively.                                                                                                                                                                                          reform that Mr Sócrates
Martin Wolf explains                     In all, then, Portugal has shown                                                                                                                                                                             describes as the “most ambi-
why growth is still far                chronic fiscal misbehaviour.
                                         To its credit, the present social-
                                                                                                                                                                                                                                                      tious and comprehensive” in
                                                                                                                                                                                                                                                      Europe.
too slow to achieve a                  ist government has struggled to                                                                                                                                                                                   Fernando Teixeira dos
sustained catch­up                     tackle the fiscal irresponsibility,
                                       cutting the deficit to just 2.6 per
                                                                                                                                                                                                                                                      Santos, finance minister,
                                                                                                                                                                                                                                                      says that an extensive
                                       cent in 2007 and a forecast of 2.2                                                                                                                                                                             restructuring of Portugal’s



I
      t was not always like this. In   per cent this year.                                                                                                                                                                                            state bureaucracy, which
      the late 1980s and again in        It has restricted public sector                                                                                                                                                                              begins to take practical
      the late 1990s, Portugal had     wages and numbers of public                                                                                                                                                                                    effect this year, will also
      a dynamic economy. But it        servants, as well as putting in                                                                                                                                                                                improve performance and
set itself upon the path towards       place substantial reforms of a                                                                                                                                                                                 cut costs.
the euro and, partly in conse-         public administration largely                                                                                                                                                                                     “From now on, govern-
quence, suffered a cycle of boom       formed by the Salazar dictator-                                                                                                                                                                                ments will be able to run the
and bust.                              ship.                                                                                                                                                                                                          public administration in
  Instead of converging upon the         The ratio of public spending to                                                                                                                                                                              accordance        with      the
standards of living of other Euro-     GDP has fallen quite sharply,                                                                                                                                                                                  demands of budget manage-
pean countries, it has been falling    from the excessive level of 47.7                                                                                                                                                                               ment and not, as it has been
further behind.                        per cent of GDP in 2005 to a fore-                                                                                                                                                                             in the past, the other way
  This is a disturbing tale. Is it,    cast of 45.0 per cent this year.                                                                                                                                                                               round,” he says.
under the present reforming gov-         Yet important though reform of                                                                                                                                                                                  Mr Sócrates faced one of
ernment of José Sócrates, coming       the public service and control                                                                                                                                                                                 the biggest and most heated
to an end? The answer is that a        over public spending and deficits                                                                                                                                                                              demonstrations against his
start has been made on necessary       unquestionably are, this is not the                                                                                                                                                                            reforms in March when tens
reforms, but the country has a         heart of Portugal’s problem.                                                                                                                                                                                   of thousands of teachers
long way to go.                          That is, rather, the combination                                                                                                                                                                             staged a one-day strike and
  Long-run performance has been        of feeble growth with large cur-                                                                                                                                                                               organised marches to protest
depressing. Gross domestic prod-       rent account deficits (see chart).                                                                                                                                                                             against the way the coun-
uct per head has fallen from just      Thus, from 2001 to 2007, inclusive,                                                                                                                                                                            try’s first system of teacher
over 80 per cent of the average of     the current account deficit aver-                                                                                                                                                                              evaluation is being intro-
the European Union of 25 (with-        aged 8.6 per cent of GDP and the                                                                                                                                                                               duced.
out Bulgaria and Romania) in           economic growth rate 1 per cent.                                                                                                                                                                                  Tensions caused by the
1999, to just over 70 per cent in        Moreover, this large current                                                                                                                                                                                 transition society is under-
2006.                                  account deficit does not coincide                                                                                                                                                                              going are felt most keenly in
  It has fallen far behind its Span-   with a high rate of investment,                                                                                                                                                                                education. The most impor-
ish neighbour. Moreover, since         but rather with a low rate of sav-     Ramshackle: instead of converging upon the standards of living of other European countries, Portugal has been lagging behind                                            tant area for the country’s
2000, the Czech Republic, Greece,      ing.                                                                                                                                                                                                           future is also where some of
Malta and Slovenia have all sur-         Portugal’s investment rate fell      demand. That would have simul-                                                    manufactures, Portugal was vul-            higher productivity and a more             its biggest failings lie.
passed Portugal’s average income       from a peak of 28.1 per cent of        taneously reduced the current                                                     nerable to the two big changes in          efficient public sector.                      The same system that is
per head.                              GDP in the first quarter of 2000 to    account deficit and increased eco-                                                the global environment of the                The government recognises the            producing a growing cohort
  Fiscal policy has been at best a     just 20.9 per cent in the fourth       nomic growth.                                                                     1990s and early 2000s: the Euro-           challenge. A recent meeting with           of highly-qualified graduates
struggle. The general government       quarter of 2006, before making a         Yet export performance has not                                                  pean Union’s eastern enlargement           Manuel Pinho, minister of the              to lead the scientific leap for-
financial deficit peaked at 6.1 per    modest recovery (see chart).           been bad: the volume of exports of                                                and China’s entry into world mar-          economy, in Lisbon, made this              ward that Mr Sócrates envis-
cent of GDP in 2005.                   Meanwhile, the gross savings rate      goods and services rose by 31 per                                                 kets.                                      quite clear.                               ages also ranks among the
  Even on a cyclically-adjusted        fell from 17 per cent in 2000 to a     cent between 2000 and 2007, a                                                        Thus, even quite a good record            Growth performance has also              worst performers in the
basis, as measured by the Organi-      mere 12.3 per cent in 2006, before     compound rate of 3.9 per cent.                                                    on relative labour costs was insuf-        improved somewhat. But it is still         western world.
sation for Economic Co-operation       bouncing back to 15.1, partly          Moreover, there is little sign of                                                 ficient to generate the growth of          far too slow to achieve a sus-                Over the past decade,
and Development, the deficit was       because of the fiscal improve-         any substantial loss of competi-                                                  exports that the country needed            tained catch-up on the standards           about half the country’s
as high as 4.4 per cent of GDP in      ment, in 2007.                         tiveness.                                                                         to offset the weakness of domestic         of living of its richer neighbours.        young people left school at
that year.                               The combination of low eco-            According to the OECD, Portu-                                                   demand.                                      Moreover, the economic envi-             15 before they had completed
  Indeed, Portugal was the first       nomic growth with a huge cur-          gal’s relative unit labour costs, in                                                 Portugal has no control over its        ronment is becoming much                   a full secondary education.
member of the eurozone to be           rent account deficit and declining     dollars, were much the same in          Portugal will have to                     monetary policy and will have to           tougher: the soaring external              The drop-out rate has since
threatened with sanctions by the       rates of investment suggests a         2007 as in 1998, just before the                                                  pursue a tight fiscal policy for           value of the euro; the global              fallen below 40 per cent, but
European Commission under the          chronic lack of external competi-      euro was launched (see chart).          work hard to achieve                      many years. If the country is to           credit crunch; and the deteriora-          is still more than double the
stability and growth pact.             tiveness – that is, an overvalued      This was a considerably better          the sustained                             cease being a “new sick man of             tion in the economic performance           EU average of about 16 per
  Yet the cyclically-adjusted defi-    real exchange rate.                    performance than Spain or Italy,                                                  Europe”, as the Economist                  of Spain, as the latter’s construc-        cent.
cit had been even higher in the          The question, after all, is why      though worse than Germany’s.            improvement in                            recently called it, it will have to        tion boom comes to an end.                    Given that almost all stu-
early 2000s, at 4.6 per cent of GDP
in 2000 and 5.4 per cent in 2001.
                                       such a small open economy was
                                       unable to generate stronger exter-
                                                                                The explanation lies with Portu-
                                                                              gal’s comparative advantage.
                                                                                                                      performance that it                       achieve a massive upgrade of its
                                                                                                                                                                productive base, a more flexible
                                                                                                                                                                                                             Portugal will have to work hard
                                                                                                                                                                                                           to achieve the sustained improve-
                                                                                                                                                                                                                                                      dents who leave school at 18
                                                                                                                                                                                                                                                      now apply for higher educa-
  This was a time of overheating,      nal demand, thereby compensat-           As an exporter of relatively          desperately needs                         economy, a better educated work            ment in its economic performance           tion, Portugal will not be
when actual deficits were a more       ing for the weakness in domestic       unsophisticated labour-intensive                                                  force, far higher national savings,        that it desperately needs.                 able to lift the percentage of
                                                                                                                                                                                                                                                      the population with a uni-
                                                                                                                                                                                                                                                      versity education from the
                                                                                                                                                                                                                                                      current level of 12 per cent –
                                                                                                                                                                                                                                                      compared with an EU aver-
                                                                                                                                                                                                                                                      age of 24 per cent – until


                                 Tough cuts to strengthen confidence
                                                                                                                                                                                                                                                      more young people are
    Contributors                                                                                                                                                                                                                                      encouraged to stay at school
                                                                                                                                                                                                                                                      longer.
Peter Wise                                                                                                                                                                                                                                               Until the educational level
Lisbon Correspondent                                                                                                                                                                                                                                  of the workforce reflects the
                                 INTERVIEW                        low, achieved through tough        per cent of GDP by 2011.              cess in defusing the deficit      is the potential to undermine        2002. The government fore-          shift from low-cost, unskilled
Martin Wolf                                                       spending cuts, structural             Media commentators and             crisis as a bulwark against       confidence.                          cast for this year has been         manufacturing to more
FT Chief Economic
Commentator
                                 Fernando Teixeira                reforms and a sharp increase       opposition leaders depict the         the turbulence of interna-           “The fundamentals of              revised upwards to 2.2 per          sophisticated sectors, the
                                 dos Santos, the                  in tax revenue, will “restore
                                                                  Portugal’s credibility in
                                                                                                     VAT cut as the first of a
                                                                                                     series of vote-seeking meas-
                                                                                                                                           tional financial markets and
                                                                                                                                           the consequences of eco-
                                                                                                                                                                             European economies, includ-
                                                                                                                                                                             ing Portugal’s, are strong,”
                                                                                                                                                                                                                  cent, with growth poised to
                                                                                                                                                                                                                  rise above the EU average
                                                                                                                                                                                                                                                      country also faces the threat
                                                                                                                                                                                                                                                      of growing unemployment.
Jill James
FT Tourism & Travel              finance minister                 international markets and          ures they expect ahead of             nomic slowdowns in Portu-         he says. “But confidence, the        for the first time since 2001.      Despite the creation of more
Contributor                      talks to Peter Wise              strengthen confidence in the
                                                                  economy”, he says.
                                                                                                     the next general election in
                                                                                                     2009. But the minister firmly
                                                                                                                                           gal’s main export markets.
                                                                                                                                             “Because of the fiscal con-
                                                                                                                                                                             central issue in the situation
                                                                                                                                                                             unfolding in international
                                                                                                                                                                                                                    Mr Teixeira de Santos says
                                                                                                                                                                                                                  this relative buoyancy rests
                                                                                                                                                                                                                                                      than 100,000 jobs since 2005,
                                                                                                                                                                                                                                                      the unemployment rate has
Stephanie Gray                                                      As a consequence, he has         rules out any question of             solidation we have achieved       markets, could be affected           largely on the vitality of Por-     almost doubled over the past
Commissioning Editor             When Fernando Teixeira dos       announced a cut in value           reducing taxes or relaxing            over the past two years, and      by what is happening in the          tugal’s     private     sector.     six years to 8 per cent.
                                 Santos joined the Socialist      added tax from 21 to 20 per        fiscal rigour as a result of          as a result of the structural     US. It’s an important matter         “Despite a difficult economic          Tourism,      forecast     to
Steven Bird
Designer                         government as finance min-       cent from July, attenuating        media pressure or for elec-           reforms that underlie that        of concern that requires             environment, Portuguese             account for almost 23 per
                                 ister in July 2005, Portugal     the 2 percentage point             toral advantage. “There can           correction, the Portuguese        careful monitoring.”                 companies have succeeded            cent of employment within
Katie Carnie                     was mired in pessimism, eco-     increase that José Sócrates,       be no relaxation. We have to          economy has grown more               He is confident the resil-        in diversifying their export        10 years, is growing at a
Picture Editor                   nomic growth was close to        the      prime     minister,       keep working to reduce the            robust and is now in a better     ience shown by the Portu-            markets, increasing the tech-       healthy pace and attracting
                                 zero and the threat of Euro-     announced immediately on           budget deficit and public             condition to face the uncer-      guese economy through the            nological content of their          inward investment in five-
                                 pean Union sanctions hung        taking office in March 2005 –      debt,” he says.                       tainties and challenges of        recent period of stringent           exports and gaining export          star developments.
For advertising details,         over a country that had          breaking an election pledge           Public debt fell to 63.6 per       the international situation.”     budget cuts will be strong           market share in some                   But investment in con-
contact: Roberto Alves           allowed its budget deficit to    not to increase taxes – as an      cent of GDP in 2007, the                Portugal, like the rest of      enough to counteract the             regions.”                           struction, Portugal’s other
Phone +351 21 84 08 284          soar out of control.             emergency measure to help          third-weakest ratio in the            Europe, does not suffer from      potential negative effects of          “Recent announcements of          big job-creating sector, has
Fax +351 21 84 04 579              Less than three years on,      cope with the deficit crisis.      eurozone, but almost 6 per-           the same “economic imbal-         the international liquidity          important investments in            fallen 20 per cent over the
E­mail: robertoalves@mail.       he was able to announce in         But Mr Teixeira dos San-         centage points lower than             ances” now troubling the          crisis. “Despite increased oil       areas such as energy, tour-         past five years and is not
telepac.pt                       March a record cut in the        tos is cautious about any          initial government forecasts.         US, he says.                      and commodity prices, the            ism and oil refining are a          likely to pick up until sev-
Or contact your usual FT         deficit – from 6.1 per cent of   further relaxation of fiscal       By 2011, Portugal is commit-            But as a small, open econ-      appreciation of the euro             signal of long-term confi-          eral big projects, including a
representative                   gross domestic product in        policy: “We cannot afford to       ted to bringing public debt           omy with sparse natural           against the dollar and a             dence in our economy,” he           new Lisbon airport and high-
                                 2005 to 2.6 per cent in 2007 –   jeopardise the results we          below 57 per cent of GDP,             resources, the country is         restrictive fiscal policy, Por-      says. “I believe the spirit of      speed rail links, begin in the
This and other Special           bringing Portugal below the      have achieved so far or the        but will not be able to count         particularly vulnerable to        tugal achieved growth of             struggle     and    resilience      next few years.
Reports, some with video         3 per cent maximum allowed       targets we are committed to        so much on privatisation              global economic trends.           almost 2 per cent last year.”        shown by the private sector            “Capital-intensive indus-
content, can be found            under the EU’s stability and     in the future.”                    revenue to achieve the                  The most serious threat to         In 2007, GDP growth of 1.9        in Portugal will stand the          tries are leading the trans-
online at:                       growth pact a year ahead of        Under a growth and stabil-       improvement.                          Portugal, and to Europe as a      per cent exceeded interna-           country in good stead and           formation of the Portuguese
www.ft.com/reports               schedule.                        ity programme agreed with             Rather than a cause for            whole, arising from the US        tional and government fore-          enable us to respond posi-          economy, but we need to
                                   This momentous reduction       the EU, Portugal will seek to      loosening fiscal policy, Mr           subprime crisis and interna-      casts and represents Portu-          tively, even when circum-           accelerate the pace of
                                 in the deficit to a 30-year      cut its budget deficit to 0.2      Teixeira dos Santos sees suc-         tional credit crunch, he says,    gal’s strongest upturn since         stances are difficult.”             change,” says Mr Pinho.
FINANCIAL TIMES TUESDAY APRIL 8 2008                                                               ★                                                                                                                                                               3




                                                                                                                                                                                               Investing in Portugal

Ahead of the sun, sea and breeze game
RENEWABLE ENERGY                                                                                                                                                                                                                  dominant power utility, has won
                                                                                                                                                                                                                                  government and EU approval
Peter Wise looks at                                                                                                                                                                                                               and, during the 75-year life of the
how the nation is                                                                                                                                                                                                                 dam, will place €750,000 a year –
                                                                                                                                                                                                                                  3 per cent of estimated revenue –
meeting its electricity                                                                                                                                                                                                           into an independently-managed
requirements                                                                                                                                                                                                                      fund to be used to protect the
                                                                                                                                                                                                                                  local environment.
                                                                                                                                                                                                                                    As suitable locations for dams



O
            utside the white-walled                                                                                                                                                                                               and onshore winds farms become
            town of Moura in the                                                                                                                                                                                                  harder to find, interest in the
            rolling plans of south-                                                                                                                                                                                               wave power potential of Portu-
            ern Portugal, more                                                                                                                                                                                                    gal’s 832 kilometres of coastline
than 240,000 solar panels cover-                                                                                                                                                                                                  is expected to increase.
ing an area equivalent to 150                                                                                                                                                                                                       Potential investors include
football pitches are slowly being                                                                                                                                                                                                 EdP, the former state power
manoeuvred into position in                                                                                                                                                                                                       monopoly, which has begun to
what will be the world’s biggest                                                                                                                                                                                                  focus strongly on renewables.
photovoltaic power plant.                                                                                                                                                                                                         Last year it paid $2.2bn for Hori-
  A few kilometres away, at                                                                                                                                                                                                       zon, a leading US wind energy
Alqueva, the Guadiana river has                                                                                                                                                                                                   company, making the Portuguese
been dammed to create the larg-
est reservoir in western Europe
and one of 18 hydroelectric power                                                                                                                                                                                                 ‘The global energy
projects under way in Portugal’s
river valleys.                                                                                                                                                                                                                    market is changing
  In the north-west Alto Minho                                                                                                                                                                                                    and the trend towards
region, one of the world’s biggest
wind farms is under construc-                                                                                                                                                                                                     renewables is
tion.
  Off the coast, south of Porto,
                                                                                                                                                                                                                                  unstoppable’
wave energy converters are being
moored to the seabed in readi-
ness for the start-up of the                                                                                                                                                                                                      group the world’s fourth largest
world’s first commercial wave-                                                                                                                                                                                                    wind energy producer.
driven power plant                                                                                                                                                                                                                   Later this year, EdP hopes to
  These projects reflect an ambi-                                                                                                                                                                                                 follow the lead of Spain’s Iber-
tious government policy to pro-                                                                                                                                                                                                   drola with a stock market flota-
duce up to 60 per cent of the                                                                                                                                                                                                     tion of its renewables division,
country’s electricity from wind,                                                                                                                                                                                                  selling up to 25 per cent of a
sun, wave and other renewable                                                                                                                                                                                                     company with an estimated
sources by 2020.                                                                                                                                                                                                                  value of between €8bn and
  Success will make Portugal a                                                                                                                                                                                                    €10bn.
world leader in the move to                                                                                                                                                                                                          “The global energy market is
replace oil, gas and coal with                                                                                                                                                                                                    changing and the trend towards
clean energy.                                                                                                                                                                                                                     renewables is unstoppable,” says
  “The cost of doing nothing is                                                                                                                                                                                                   António Mexia, EdP’s chief exec-
very high,” says Manuel Pinho,                                                                                                                                                                                                    utive. “Wind and hydro will be
the economy minister.                                                                                                                                                                                                             EdP’s key drivers over the next
  “We have to turn the challenge                                                                                                                                                                                                  five years.”
of higher fuel prices and climate                                                                                                                                                                                                    Mr Mexia has acknowledged
change into an opportunity to                                                                                                                                                                                                     that the group also has alterna-
create jobs, promote new indus-                                                                                                                                                                                                   tive plans should financial mar-
tries and encourage innovation.”      Sunbathing: the world’s largest photovoltaic plant, consisting of more than 240,000 solar panels, is under construction in southern Portugal                                          AP    kets prove too volatile for the
  Portugal is already well ahead                                                                                                                                                                                                  planned initial public offer of
of the field.                         Pinho believes 55 to 60 per cent      projects with a total capacity of       Portugal’s geographic location,   ing total hydro capacity to              However, hydro plants are fac-     EdP Renováveis.
  Last year, renewable sources        by 2020 is “perfectly feasible”.      2,830 MW.                            climate, long coastline and abun-    7,000MW by 2020, representing 70       ing increasing opposition from          The alternatives under consid-
accounted for 40.7 per cent of          In 2005 and 2006, Portugal’s          Portugal is embracing renewa-      dance of rivers help provide ideal   per cent of the country’s total        environmentalists. They say a        eration are understood to include
total electricity production. This    wind power capacity increased         ble energy partly because it has     conditions for wind, solar and       estimated hydro potential, up          controversial project in northern    an issue of convertible bonds or
compares with about 5 per cent        fourfold, faster than in any other    no fossil fuel resources of its      wave energy. Big investments in      from a current level of about 46       Portugal, the €354m Baixo Sabor      the sale of non-core assets to
in the UK, for example.               EU country, to more than 2,000        own.                                 hydro power plants will also tap     per cent.                              dam, could cause irreparable         fund investment in clean energy.
  Having already passed the 39        megawatts, making it one of the         It depends on imports for up to    unused potential.                      More hydro capacity is needed        damage to the ecology of the            “The planned IPO is a clear
per cent target that the European     world’s top 10 producers of wind      85 per cent of its primary energy       “We have enormous hydro           partly to realise the full potential   Sabor river valley, described as     sign that renewables are a core
Union has set for Portugal for        energy in absolute terms.             needs. A doubling in oil prices      capacity that was not being uti-     of wind farms. Excess wind             the last remaining “wild river” in   option for EdP,” says Mr Mexia.
2010, the government has volun-         Three of the world’s biggest        since the government took office     lised,” says Mr Pinho. “It was as    energy generated at night will be      Europe and a habitat for rare        “It will help fund investments
tarily lifted its clean energy goal   solar power stations are being        three years ago has underlined       if Venezuela was not using its       used to pump water to the top of       Bonelli’s eagles.                    that will keep the group at the
to 45 per cent of total power gen-    built in Portugal and €2.6bn is       the country’s exposure to volatile   oil.”                                dams, ready to produce power             But the project’s owner, Ener-     forefront of the global renewa-
eration by that year, and Mr          being invested in 18 hydro-power      international energy markets.           The new plan is aimed at lift-    when the wind drops.                   gias de Portugal, the country’s      bles market.”




Making waves with new
power generation technology
CASE STUDY                                                                                            Enersis’s interest in wave
                                                                                                   energy began several years
Harnessing the                                                                                     before 2005, when Babcock &
sea’s energy is                                                                                    Brown acquired 100 per cent
                                                                                                   of the company from Sem-
making the country                                                                                 apa, a Portuguese cement
a leader in the field,                                                                             group, for an enterprise
                                                                                                   value of €1.3bn. It had
writes Peter Wise                                                                                  already built a seabed cable
                                                                                                   in preparation for transmit-
                                                                                                   ting wave farm energy to the
A string of three red steel                                                                        national grid.
tubes, each the size of a rail-                                                                       After early trials with
way carriage, lies low in the                                                                      other prototypes, Enersis
water off the northern coast                                                                       established a partnership
of Portugal.                                                                                       with Pelamis Wave Power,
   As the snub-nosed appara-                                                                       whose technology is widely
tus rises and dips in the                                                                          acknowledged to be most
Atlantic waves, it becomes                                                                         advanced in terms of com-
immediately clear why this                                                                         mercial energy production.
pioneering energy technol-                                                                         Enersis owns 70 per cent of
ogy is called Pelamis after a                                                                      its Portuguese joint venture
mythical giant sea snake.                                                                          with the Scottish company.
   Later this year, these wave                                                                        In addition to its ground-
energy converters, developed                                                                       breaking      wave     energy
over many years of testing                                                                         project, Enersis’s wind farm
by Edinburgh-based Pelamis                                                                         portfolio in Portugal and
Wave Power, will be pump-                                                                          France is expected to reach a
ing electricity into Portugal’s                                                                    capacity of 1,000MW next
national grid, making it the                                                                       year, up from 170MW when
first country in the world to                                                                      it was acquired by Babcock
harness wave energy on a                                                                           & Brown.
commercial basis.                                                                                     Although Pelamis Wave
   “Portugal has the opportu-     Surfing the wave: power from the Atlantic                        Power engineers have tested
nity to do for wave power                                                                          their wave converter system
what Denmark has done for         ating an industry “cluster”,     potential of the waves that     off the Orkneys, Scotland
wind energy,” says Ian            including a manufacturing        crash into Europe’s western-    does not yet have the trans-
Sharpe of Australia’s Bab-        base for wave energy con-        most shore, all Portugal’s      mission capacity in the
cock & Brown, the leading         verters and related equip-       big population centres are      required locations to make a
partner in the project            ment. In this way, it hopes      located along the coast,        commercial project viable.
through Enersis, its Portu-       to gain first mover’s advan-     reducing the cost of trans-        But Portugal is committed
guese renewable energy            tage in establishing the         mitting electricity from off-   to investing in this transmis-
company.                          country as an international      shore wave farms to end         sion capacity and, in four to
   In two years, 23 of these      centre of know-how for an        users. Officials estimate       five years, should be benefit-
converters, moored to the         emerging technology.             wave power could eventually     ing from large-scale commer-
seabed about seven kilome-           Part of Portugal’s attrac-    supply 20 per cent of the       cial wave energy production.
tres off the coast south of       tion for Babcock & Brown is      country’s electricity needs.       In the Pelamis system,
Porto, should be in opera-        its policy of paying renewa-                                     energy is created as waves
tion, with a total capacity of    ble energy producers feed-in                                     cause the hinged joints of
22.5MW. But Enersis has its       tariffs, an incentive that       Portugal has the                the semi-submerged steel
sights on a more ambitious        guarantees the sale of all the                                   cylinders to move, pumping
project involving an invest-      power they produce at stable     opportunity to do               high-pressure oil through
ment of up to €1.5bn in Por-      prices above the rates paid      for wave power                  hydraulic motors that drive
tuguese wave energy farms         for electricity produced from                                    electricity generators.
with a total capacity of          fossil fuels.                    what Denmark has                   Power from these joints is
500MW, enough to power
450,000 homes.
                                     “This is a much better
                                  approach that the systems
                                                                   done for wind                   fed down a single “umbilical
                                                                                                   cord” to a junction on the
   “Scale is essential to         used in many other coun-         energy                          seabed. Several devices can
reduce manufacturing and          tries, including the US and                                      be linked together and con-
operational costs,” says Mr       the UK,” says Mr Sharpe.                                         nected to the shore through
Sharpe, a member of Bab-             Portugal has also desig-        “This is a real opportunity   a single cable.
cock & Brown’s European           nated a special maritime         for Portugal and the govern-       “Wave as an energy
infrastructure team. “At          zone for pilot wave power        ment is clearly committed to    resource is similar to wind,
500MW, we envisage wave           projects and will ensure         making it happen,” says Mr      but we think it will be more
energy will begin to con-         transmission capacity on the     Sharpe.                         stable,” says Mr Sharpe.
verge with wind power in          national grid. The measures        “Denmark became a man-        Some renewable energy spe-
terms of cost per kilowatt-       are designed as extra incen-     ufacturing hub for wind tur-    cialists believe wave farms
hour.”                            tives in addition to the coun-   bines by promoting wind         in Portugal could yield up to
   The Lisbon government’s        try’s natural advantages for     energy more than any other      three times as much power
decision to embrace wave          tapping wave energy.             country. Portugal can do the    as wind farms for the same
power is partly aimed at cre-     Besides the huge energy          same for wave power.”           investment cost.
4                                                                                                     ★                                                                                                                      FINANCIAL TIMES TUESDAY APRIL 8 2008




Investing in Portugal

New system reduces red tape tangles
BUSINESS PROCEDURES                     in only a few months, the govern-     as possible. In 2007, more than 86     beginning to transform the tradi-    red tape and our survey shows         had more favourable tax regimes       in 2005 and €800m in 2004. Basílio
                                        ment cut this to seven proce-         of the 235 initiatives taken under     tional image of Portugal as a        this has helped increase...foreign    and lower labour costs.               Horta, the agency’s chairman,
Efforts to streamline                   dures and seven days, making          the Simplex programme were             slow-moving bureaucracy.             investor satisfaction,” says José       He said foreign investors saw       says these investments secured
bureaucracy are                         Portugal one of the easiest coun-
                                        tries in which to start a business.
                                                                              suggested by private-sector busi-
                                                                              nesses or members of the public.
                                                                                                                       In a 2007 survey by consultants
                                                                                                                     Ernst & Young**, 81 per cent of
                                                                                                                                                          Gonzaga Rosa, an Ernst & Young
                                                                                                                                                          partner in Portugal.
                                                                                                                                                                                                Portugal as offering positive fac-
                                                                                                                                                                                                tors, including rapid reform, sta-
                                                                                                                                                                                                                                      30,000 existing jobs and created
                                                                                                                                                                                                                                      6,000.
yielding results,                         Incorporating a new company           “Portugal wants to be at the         204 international business execu-      In common with many Euro-           bility and predictability, which         Mr Gonzaga Rosa says the two
says Peter Wise                         through an innovative one-stop
                                        shop system called Empresa Na
                                                                              forefront of the electronic era,
                                                                              offering the public easy access to
                                                                                                                     tives said they had noted an         pean countries, however, inves-
                                                                                                                                                          tors continue to face bureau-
                                                                                                                                                                                                offset the country being less com-
                                                                                                                                                                                                petitive on labour costs, taxation
                                                                                                                                                                                                                                      sectors that attracted the highest
                                                                                                                                                                                                                                      number of FDI projects in 2006
                                        Hora (On-the-Spot Companies)          information and services,” says                                             cratic hurdles and delays in deal-    or civil service efficiency.          were business services (15.8 per



M
             aria         Manuel        now takes an average of only 46       Ms Marques. “We are working to         Incorporating a new                  ing with local authorities and          According to the investors sur-     cent of the total) and transportat
             Marques, secretary         minutes. The cost of start-up pro-    make sure every procedure                                                   some public agencies.                 veyed by Ernst & Young, Portu-        and logistics (10.5 per cent).
             of state for adminis-      cedures has also been reduced to      related to the business life cycle     company through                        “The basic process of licensing     gal’s most attractive points are a       “Still industrial in many
             trative modernisa-         a quarter of the previous level.      can be carried out online.”            ‘Empresa Na Hora’                    is still quite fraught with obsta-    stable social environment, qual-      aspects, Portugal is also relying
tion, describes the tangle of red         At least 70 per cent of busi-         In a related initiative last year,                                        cles,” says John Duggan, a Lis-       ity of life and telecommunication     on its strengths in the knowledge
tape facing investors in Portugal       nesses are now started using the      the government approved a new          takes an average of                  bon-based partner with PwC.           infrastructure. They listed its       economy, attracting technology-
before the current government
took office three years ago.
                                        new system – more than 37,000
                                        since it was launched – and a
                                                                              regime for inward investment,
                                                                              known as PIN+, that guarantees
                                                                                                                     only 46 minutes                        In a study published in Febru-
                                                                                                                                                          ary by AT Kearney, Portugal
                                                                                                                                                                                                main weaknesses as the level of
                                                                                                                                                                                                corporate taxation (25 per cent of
                                                                                                                                                                                                                                      intensive investments and estab-
                                                                                                                                                                                                                                      lishing new services and opera-
  “In 2005, it took 11 procedures       long list of countries has shown      a decision within two to four                                               ranked as the 15th most pre-          earnings), the relative inflexibil-   tions,” he says. “In 2006, invest-
and 78 days to start a business in      interest in emulating a system        months on proposed projects val-                                            ferred European destination for       ity of labour legislation and the     ment in headquarters, R&D oper-
Portugal, making it slower than         that has won international plau-      ued between €60m and €200m.            improvement in Portugal’s public     foreign investment, ahead of          potential for productivity gains.     ations and call centres repre-
the Democratic Republic of              dits.                                   Under the new legislation, all       administration, particularly in      Austria, Denmark, Norway and            The Invest in Portugal Agency       sented almost a quarter of total
Congo,” she says. “An entrepre-           Streamlining business start-        the different agencies and depart-     the flexibility of administrative    Switzerland, among others. Mar-       (API), which handles big foreign      FDI.”
neur would need 20 forms and            ups, as well as car registration,     ments involved in the decision-        procedures and in the qualifica-     tin Walker, a senior director with    direct investment (FDI) projects,     * One-Stop Shopping in Portugal
documents, more than for any            are the headline projects of a        making process will attend meet-       tions of staff handling foreign      the consultants, said the fact that   says the investment contacts it       www.doingbusiness.org/features/
other European Union country.”          broader reform package called         ings designed to speed the             investment.                          Portugal also came out ahead of       signed in 2006 tripled in value       PortugalShopping.aspx
  In a paper written for the            Simplex, designed to simplify as      approval of large-scale projects.        “The government has made a         Slovakia and Slovenia was signif-     compared with the previous year       ** Ernst & Young Portuguese
World Bank*, she recounts how,          many administrative procedures          Reforms such as these are            good job...in terms of eliminating   icant given that both countries       to €2.18bn, up from about €700m       Attractiveness Survey 2007




Five­star                                                                                                                                                                                                 Strategic step
charge led                                                                                                                                                                                                with lasting
by Algarve                                                                                                                                                                                                impact
                                                                                                                                                                                                          PARTNERSHIP                      ment faculties at seven Por-
                                                                                                                                                                                                                                           tuguese          universities,
TOURISM                          which continues to be popu-                                                                                                                                              Academia gains                   together with a large

Twenty­seven new
                                 lar with north European hol-
                                 idaymakers.
                                                                                                                                                                                                          much from MIT                    number       of    associated
                                                                                                                                                                                                                                           research centres and labora-
hotels are planned                  The region received a                                                                                                                                                 agreement, reports               tories. More than 40 faculty

for the region,
                                 record number of visitors
                                 last summer with a 9 per
                                                                                                                                                                                                          Peter Wise                       members from five MIT
                                                                                                                                                                                                                                           schools will also teach and
writes Jill James                cent increase from January
                                 to November compared with                                                                                                                                                The Massachusetts Institute
                                                                                                                                                                                                                                           take part in research as part
                                                                                                                                                                                                                                           of the programme.
                                 the same period in 2006.                                                                                                                                                 of Technology, one of the           Bringing seven Portuguese
Set in national park land           Carlos Leal, general man-                                                                                                                                             world’s most prestigious uni-    universities together in joint
just outside Lisbon, the         ager of United Investments                                                                                                                                               versities, is approached by      administration of advanced
swish golf venue of Penha        Portugal, which owns the                                                                                                                                                 numerous countries, many         training courses is unprece-
Longha has plans to become       highly-rated Pine Cliffs                                                                                                                                                 far richer than Portugal, in     dented and already a “beau-
one of Europe’s top resorts.     resort near Albufeira, points                                                                                                                                            search of partnership agree-     tiful result”, says Paulo Fer-
  Oriol Montal, resort gen-      to the growth of residential                                                                                                                                             ments.                           rão, the project’s national
eral manager, says that own-     tourism. “Ten years ago the                                                                                                                                                 Why then did MIT agree to     director.
ers RREEF, a subsidiary of       concept barely existed,” he                                                                                                                                              a proposal from Portugal’s          “We are using this pro-
Deutsche      Bank,     have     says. “Today everyone is                                                                                                                                                 Socialist government for an      gramme as a tool to acceler-
invested €30m, with a fur-       developing with a residential                                                                                                                                            international collaboration      ate university reform,” says
ther €50m-€60m planned.          element.”                                                                                                                                                                that aims to demonstrate         José Mariano Gago, minister
Luxury villas and a hotel           About €100m has been                                                                                                                                                  that a focus on science, tech-   for science, technology and
with apartments will be          invested in UIP’s Pine Cliffs                                                                                                                                            nology and higher education      higher education. “Bringing
added to the existing spa,       resort, says Mr Leal, since it                                                                                                                                           can have a “positive, lasting    in a powerful international
golf course and clubhouse.       it started 17 years ago. A fur-    Luxurious Lisbon: in the upscale segment, the city has more international brands than competing cities                        Getty   impact on the economy”?          partner like MIT acts as a
  In many ways, the Ritz-        ther €60m to €80m of invest-                                                                                                                                                The answer, says Daniel       catalyst to speed up the
Carlton-managed resort typi-     ment is still to come.             rad Hilton in Quinta do             “Prices have continued to      as Amsterdam, Vienna and         and expansions. In addition       Roos, a director of the MIT-     process of capacity-building
fies Portugal’s drive for           The resort is a prime           Lago, scheduled to open in        be capped by tight consumer      Athens. If we don’t take the     there are around 20 boutique      Portugal Programme, is the       in terms of specific skills,
investment in five-star tour-    example of the mixed devel-        2009. Conrad’s first Euro-        budgets,” it adds. “Independ-    Spanish brands into account,     hotel projects.                   commitment shown by sen-         collaboration between com-
ism. Tourism’s contribution      opment becoming popular            pean venture will include         ent hotels have grown            Lisbon has even more inter-        In Portugal as a whole, the     ior government officials led     panies and universities, co-
to gross domestic product        throughout Algarve. Pine           villas, apartments, gardens       slowly, as in previous years,    national hotel brands than       EU remains the main foreign       by José Sócrates, the prime      operation between academic
(GDP) is expected to rise        Cliffs includes a hotel, a holi-   and a spa.                        following the application of     Madrid and Barcelona...By        capital source with Ger-          minister, to investing in sci-   institutions and extending
from 15.7 per cent (€26.6bn      day club and fractional own-         Eighteen other five-star        new legislation and very         2017, and to meet our goals,     many, Spain, France, the          ence, technology, research       the transatlantic dimension
or $38.7bn) this year to 18.2    ership product, plus buy and       hotels and nine four-stars        strict regulations. The neces-   we will need another 17,000      Netherlands, the UK, Bel-         and advanced training.           of Portugal’s research net-
per cent (€48.1bn or $59bn)      let property estate options.       are also planned for the          sary investment in hotel         hotel beds.”                     gium/Luxembourg and Fin-             “Historically a low-cost      works.”
by 2018, according to the           One of Algarve’s most           region, along with 20 spas.       security and safety has had        The WTTC says that in          land all investing heavily.       manufacturer that has been          Four similar programmes
World Travel and Tourism         ambitious plans is a grand         And the area is preparing to      a negative impact on smaller     Lisbon visitor spending is         Improvements in transport       losing its markets to east       focused on other specialised
Council.                         prix motor racing circuit.         embrace 18 golf courses to        independent hotels and           expected to grow by 6.3 per      infrastructure has boosted        European and Chinese com-        areas are being developed
  Employment in the sector       Algarve is bidding for a           add to the existing 32.           may...lead to the sale of        cent annually whereas in the     investment. In addition to        petitors, Portugal is going      with three other US univer-
is expected to rise from         place on the Formula 1 cal-          However, according to this      operations or the merger of      whole of Portugal it will        three international hubs          through an economic transi-      sities, Carnegie Mellon, the
989,000 jobs – 19 per cent of    endar and a €200m track in         year’s Euromonitor Interna-       brands.”                         grow 4.5 per cent and the        (Lisbon, Oporto and Faro)         tion in which it needs to        University of Texas at Aus-
total employment – this          Portimao is set for comple-        tional report, fierce competi-      Paula Oliveira, executive      European Union by 3.4 per        Portugal has 11 airports.         move up the value chain,”
year, to 1.2m by 2018. Real      tion in October. The new cir-      tion among hotels is curbing      director of Turismo de Lis-      cent. Last year Lisbon             Studies for construction of     says Mr Roos.
GDP growth for the sector is     cuit is already due to host        prices. The report says           boa, says 37 per cent of Lis-    hosted 2.5m foreign tourists     the new Lisbon Airport have          “From MIT’s point of view,
expected to be 0.4 per cent      the final round of the Super-      investment in outlets at          bon’s current hotels belong      and expects 3.8m by 2017.        just been completed as Por-       Portugal offers us interest-
this year and to average 4.1     bike world championship in         national and international        to international chains: “In       Lisbon city council is         tela, the existing airport, is    ing projects, partners of a
per cent a year over the com-    November.                          level by leading chained          the upscale and luxury seg-      assessing about 80 hotel-re-     upgraded and extended.            comparable        intellectual
ing 10 years.                       Other developments in           hotels, such as Sonae SGPS        ments, Lisbon has more           lated projects, half of which    Work is also due on adapting      capability and, above all, a
  Nowhere is growth more         Algarve include a first six-       SA and Pestana Turismo, did       international brands than        are for new units and the        the former Beja military          rare level of dedication to
emphatic than in Algarve,        star hotel, the 620-bed Con-       not pay off in 2006.              some competing cities such       others involving renovations     base for civil air transport.     scientific research and uni-
                                                                                                                                                                                                          versities. Is there another      ‘We are using this
                                                                                                                                                                                                          country that has increased
                                                                                                                                                                                                          the budget of its ministry for
                                                                                                                                                                                                                                           programme as a
                                                                                                                                                                                                          science, technology and          tool to accelerate

Bar raised for home­trained talent
                                                                                                                                                                                                          higher education by more
                                                                                                                                                                                                          than 60 per cent at a time       university reform’
                                                                                                                                                                                                          when it was cutting back
                                                                                                                                                                                                          spending by every other                   José Mariano Gago
                                                                                                                                                                                                          ministry?”                                 Minister for science,
                                                                                                                                                                                                             The agreement with MIT                technology and higher
                                           The number of PhDs awarded              The growth in the size and com-                                                                                        provides for long-term col-
                                                                                                                                                                                                                                                                education
SCIENCE
                                         has also risen exponentially, from      petence of Portugal’s scientific                                                                                         laboration      to    expand
The country has never                    fewer than 100 a year in the 1970s      community is becoming increas-                                                                                           research and education in        tin and Harvard Medical
suffered from a                          to more than 1,000. Portuguese
                                         institutions now produce more
                                                                                 ingly attractive to foreign inves-
                                                                                 tors. In a recent example, Malay-
                                                                                                                                                                                                          Portugal in the emerging
                                                                                                                                                                                                          field of engineering systems,
                                                                                                                                                                                                                                           School, and with Germany’s
                                                                                                                                                                                                                                           Fraunhofer Society.
brain drain, says                        than 4,000 scientific papers a year     sian-based Agni has opted to invest                                                                                      which aims to integrate             The Lisbon government is
Peter Wise                               compared with only a couple of
                                         hundred in 1981.
                                                                                 €65m in a hydrogen fuel cell plant
                                                                                 and research centre, choosing Por-
                                                                                                                                                                                                          large-scale, complex net-
                                                                                                                                                                                                          works with a strong social
                                                                                                                                                                                                                                           investing €80m in the first
                                                                                                                                                                                                                                           five years of the MIT pro-
                                           In 2001, Portugal joined the          tugal after a two-year search for                                                                                        and economic impact in           gramme – half of which will
Cristiano Ronaldo, Manchester            restricted group of “countries of       the best location for its first Euro-                                                                                    areas such as energy, trans-     go to MIT and half to the
United football club’s star striker,     excellence” that contribute to the      pean operation.                                                                                                          port, information systems        Portuguese       universities
and José Mourinho, the manager           top 1 per cent of the world’s most        Citing the availability of quali-                                                                                      and telecommunications.          involved. The government is
whose successful run at Chelsea          highly cited scientific publications.   fied scientists and technicians,                                                                                            MIT’s Engineering Sys-        then expected to extend the
made him a household name in               Figures like these attest to the      including future graduates of the                                                                                        tems Division, of which Mr       project for five years, by
Britain, personify world-class tal-      exceptional growth in advanced          MIT-Portugal programme, as one of                                                                                        Roos is a founding director,     which time it should be self-
ent produced in Portugal.                training in science and technology      the deciding factors for its invest-                                                                                     is an interdisciplinary unit     supporting.
  But their careers overseas make        that Portugal has achieved in           ment, Agni has also raised the pos-                                                                                      that involves engineering,          “MIT faculty members will
them the exception rather than the       recent decades.                         sibility of setting up a Portuguese                                                                                      management and social sci-       gradually fade out of the
rule. Portugal, unlike Ireland and         “The best and brightest Portu-        plant to supply Europe and the US                                                                                        ence faculty members.            educational side of the pro-
Greece and other European coun-          guese scientists are of a world-class   with hydrogen-powered cars.                                                                                                 “In the 21st century, peo-    gramme and industry-based
tries of a comparable size, has                                                    Despite the strong expansion of        Blast off: gifted scientists usually bring their talents home                   ple in leadership roles need     research will play an
never suffered a significant “brain                                              recent years, however, the coun-                                                                                         to understand more than the      increasingly important role,”
drain”.                                  ‘By law, every research                 try’s scientific community remains       ing public investment in research        The government has also                technology,” says Mr Roos.       says Mr Ferrão. “Most of our
  In science and technology, in par-                                             small and is still at a relatively       from 0.47 per cent of GDP in 2003      extended international assessment        “They also require knowl-        initial efforts went into
ticular, gifted researchers often        project and institution in              early stage of development.              to 1 per cent by 2010 and encourag-    and accreditation to higher              edge of global supply chains,    developing curricula for
work and study abroad, but gener-        Portugal that receives                    In the words of a recent govern-       ing the private sector to increase     education as whole, commissioning        management, policy and reg-      seven new educational pro-
ally opt to bring their talents home.                                            ment report, the freedom of              its low level of R&D spending – 0.26   the Organisation for Economic            ulation. Portugal is taking      grammes, mostly at PhD and
  “The return rate of our young          public funding has                      thought required for scientific          per cent of GDP in 2003 against an     Co-operation and Development             an important strategic step      Masters level. Now they are
scientists has been extremely high
over the past 30 years,” says José
                                         to be evaluated by an                   development was largely denied
                                                                                 the country during the 48 years of
                                                                                                                          EU average of 1.23 per cent – to
                                                                                                                          0.75 per cent by the end of the
                                                                                                                                                                 and the European Network for
                                                                                                                                                                 Quality Assurance in Higher Edu-
                                                                                                                                                                                                          by saying ‘this is an area
                                                                                                                                                                                                          where we can establish a
                                                                                                                                                                                                                                           up and running, we can con-
                                                                                                                                                                                                                                           centrate more on developing
Mariano Gago, minister for sci-          international panel’                    the Salazar-Caetano regime.              decade.                                cation to examine the performance        lead by working with MIT’.”      ties between industry and
ence, technology and higher educa-                                                 When democracy was restored in            Mr Mariano Gago sees a strong       of Portuguese universities and              Last September, more than     research centres.”
tion. “Our scientific development                                                1974, only about 2 per cent of the       international dimension as funda-      make      recommendations        for     160 students began PhD and          The MIT name has stimu-
began at the right time for young        standard,” says Daniel Roos, an         population had completed a univer-       mental to the credibility of Portu-    improvement.                             other advanced courses           lated strong interest from
people to find good jobs.”               engineering systems professor at        sity education, compared with 11         guese research and the growing           Mr Mariano Gago says interna-          through        the       MIT-    leading companies based in
  Between 1976 and 2001, the             the Massachusetts Institute of          per cent in 2001.                        collaboration between companies        tional monitoring not only lifts         programme, which has tar-        Portugal, with more than 20
number of students enrolling in          Technology.                               Portugal has been catching up at       and universities.                      standards and ensures the credibil-      geted bio-engineering sys-       already signing up to the
Portuguese universities grew faster        “In bio-engineering, for example,     a considerable pace, but scale              “By law, every research project     ity of the system, but also              tems, engineering design         project’s industrial affiliates
than in any other European Union         every one of the top people at MIT,     remains a challenge. For every           and institution in Portugal that       strengthens the already extensive        and advanced manufactur-         programme. “Our collabora-
country, increasing by an annual         including a Nobel Prize winner, is      1,000 workers, it has only about 3.6     receives public funding has to be      international dimension of Portu-        ing, sustainable energy and      tion with MIT’s industrial
average of almost 6 per cent com-        collaborating with Portuguese col-      researchers, against an EU average       evaluated by an international          guese universities, whose courses        transport systems.               liaison programme, which
pared with an average of just over       leagues.                                of 5.4 and eight in the US.              panel,” he says.                       are open to foreigners on a free            The wide-ranging initia-      has a superlative reputation
3 per cent for the pre-enlargement         “In the field of wave energy, MIT       Under the government’s Techno-            “Portugal is too small a country    competition basis.                       tive involves professors,        in this area, will be of
EU of 15 countries.                      colleagues readily acknowledge          logical Plan, Portugal aims to lift      and the scientific community is          “Hundreds of foreign academics         researchers and students         immense value to Portugal
  The growth rate for science and        that they are learning from Portu-      the number of researchers to six         growing too fast to allow the com-     visit Portugal every year,” he says.     from a consortium of engi-       in building bridges between
technology students has been even        guese researchers who are more          per 1,000 workers by 2010.               placency that national evaluation      “They arrive as evaluators and go        neering, science and technol-    companies and universities,”
stronger at 7 to 10 per cent a year.     advanced than they are.”                  The plan also envisages increas-       might tolerate.”                       back as collaborators.”                  ogy, economics and manage-       says Mr Ferrão.

								
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