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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