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As the winds change, is just flying or soaring?

EY Attractiveness Survey Portugal June 2021 gratitude to ... to extend our We would like Contents 1 3 2 and GuyVillax, Chief Executive Officer of Hovione. Symington,Rupert CEOof Symington Family Estates of Business andEconomics (Nova SBE), Dean andProfessor of Economics atNova School Onshore COOof SiemensGamesa, DanielTraça, of Champalimaud Foundation, Andreas Hening, João Silveira Botelho, Vice- President Agency, & Portuguese AICEP of Luís Henriques, Chairman&CEO contains views andinsights from EY professionals andother stakeholders. by Euromoney inMarch 2021,based onarepresentative panel of 203international decision-makers. Inaddition,thisreport creation of new facilities andjobs. The perception of foreign investment inEurope isassessed by anonlinesurvey conducted an EY proprietary database produced incollaboration withOCO. This database tracks FDIprojects thathave resulted inthe Investment (FDI)inEurope. The reality of investment in isbased ontheEY European Investment Monitor (EIM), The findingsinthis arereport based ona two-step methodology thatanalyze the reality andperception of ForeignDirect How EY teams can help? Methodology Executive summary Foreword attractiveness? How to sustain Portugal’s Key assets inFDIlandscape activities andregions A deepdive into sectors, Understanding FDItrends factors butfalling behindonnew ones Leveraging onexisting attractiveness FDI today andtomorrow in thecoming years. the possibilities that await usinPortugal their thoughts andinsights withusabout professionals whohave taken timeto share the hundreds of business leaders andEY Furthermore, we would like to thank 20 6 4 3 54 52 32 ey.com/attractiveness Foreword

Last year, the suffered Looking to its main attractiveness factors, an unprecedented hit caused by Portugal has a solid positive perception COVID-19 outbreak, and Portugal was regarding quality of life and stability of no exception. Nevertheless, it was an social climate, followed by the reliability historical year in investment attraction. and coverage of infrastructure (transport, With 154 registered projects, Portugal telecoms, energy) and the skills and entered the top 10 of investment availability of workforce. destinations in Europe, proving Nonetheless, Portugal shouldn’t afford Portugal’s resilience when comparing to rely solely on this more traditional with other European countries. assets. Innovation, transparency and Portugal has positioned itself as one qualifications should be engines for long- of the main destinations for foreign term strategy but investors are starting to direct investment (FDI). Looking show some concerns on whether Portugal forward, considering resilience-seeking is consistently developing these areas. Miguel Farinha and nearshoring investment trends, It is, therefore important that Portugal’s Strategy and the country needs to accelerate public policies focus on improving public Transactions Leader the improvement of the business administration efficiency, legal system Portugal environment. agility, the continued development of Ernst & Young, S.A. talent and in the pursuit of innovation and This trend is supported by the investors’ support of entrepreneurs. This should be growing optimism, even higher than in done with the development of the right 2017, since 90% of them are confident partnerships between the public the pandemic impact in the Portuguese and private sectors. attractiveness will not last more than three years, 50% consider that Portugal’s In Europe, investors urge policymakers attractiveness will improve in the next to stand by cleantech environments and three years and 37% are planning foster measures to promote sustainability, to establish or expand operations which will capture more FDI. Additionally, in Portugal over the next year. the simplification of the system is Miguel Cardoso needed so that it can become Simultaneously, results in Europe show EY-Parthenon Leader a competitive advantage instead Portugal a great opportunity for Portugal to of a bottleneck. Ernst & Young, S.A. consolidate investment pipeline and attract investment, as 80% of investors Taking all these topics into consideration, think that will be the we explore five key lines of action most attractive world for FDI in a for Portugal’s strategy to retain FDI: post-COVID scenario. Increase technological leadership and develop the right set of talent, reinforce This year’s results indicate that cleantech strategy and its potential to COVID-19 was an accelerator become a market leader in sustainability, for technological growth and focus on social and economic recovery implementation. In fact, 37% of the to foster future growth, simplify the 154 attracted projects are in Software Portuguese tax system so that it can & IT Services. become a competitive advantage instead For investors, Digital and technology of a bottleneck, and continue to improve are not only the present, but also the selective communication of Portugal as future for Portugal. Forty-five percent the right FDI location. of investors consider Digital Economy Finally, we hope that these conclusions the main sector to drive Portugal’s and recommendations fuel conversations growth in the coming years, and it’s about FDI and Portugal. As part of our imperative that Portugal can leverage its commitment to building a better working main attractiveness factors to increase world, EY teams are dedicated to investment in those areas. reshape the future for all organizations and foreign investment has a key role to play in this objective.

EY Portugal Attractiveness Survey June 2021 3 Executive summary

FDI today and tomorrow Understanding FDI numbers Leveraging on existing A deep dive into sectors, 1 assets but falling behind 2 activities and on new ones

Aligned with economic projections, investors Manufacturing, (R&D) are confident in the Portuguese recovery, with and Shared Service Centers (SSC) represent Portugal’s present and the future

of the investors, being confident that 90% the pandemic impact in the Portuguese of the 154 attracted projects are in attractiveness will not last more than 67% manufacturing (24%), R&D (21%) and SSC (21%) three years

Once again, Portugal retains high investment of the respondents intend to invest numbers, with 63% in manufacturing (26%) and R&D (37%)

registered FDI projects in 2020, of which 154 Digital economy and technology play an important role 70% from Europe in Portugal’s investment attraction 30% from the rest of the world of the 154 attracted projects are 37% in software & IT Services sector This is a trend in line with past years, and Portugal entered to Europe’s top 10 in FDI projects

The new of in Portugal And is one of the main sectors that will drive Portugal’s be here to stay – investors remain optimistic, as growth in the coming years

of investors of investors consider are planning that Portugal’s 45% 44% 36% to establish or attractiveness will % % % 37% expand operations 50% improve in the next 45 45% 39 29% 36 34% in Portugal over three years. next year, and Digital economy Real estate and Cleantech (IT, telecoms and media) and renewables

Portugal’s key traditional structural attractiveness Northern Portugal factors are recognized by investors’ perceptions and Area 55 consolidate FDI projects their position % % % 91 77 76 in FDI attraction 90% in 2020 78% in 2020 75% in 2020 24 FDI projects Quality of %life Stability of social% Telecommunication% 91 77climate infrastructure76 90% in 2020 78% in 2020 75% in 2020 However, Portugal is falling behind on others such as Quality of life Stability of social Telecommunication innovation, transparencyclimate and availabilityinfrastructure of resources 68 66% 59% 57% FDI projects 4 67% in 2020 72% in 2020 70% in 2020 FDI projects 1 Local labor skills% level Labor costs% Availability of% office FDI project 66 59 57space 67% in 2020 72% in 2020 70% in 2020 2 FDI projects

Local labor skills level Labor costs Availability of office space

4 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

Key assets in FDI landscape 3 How can Portugal sustain its attractiveness

Technology, environmental sustainability, easier tax system and talent are in the top of mind of the investors. These trends are aligned with what’s being asked for Europe as a region and, as similarly to what is stated in EY Europe Attractiveness Survey 2021, it is recommended that Portugal focus its efforts on the following:

Increase technological leadership and develop Reinforce cleantech strategy and 1 the right set of talent 2 its potential to become a market leader Most of the investors consider technology-related in sustainability factors a great influence in deciding where to Countries that stand by cleantech environments locate their operations, and that gives Portugal a clue and foster measures to promote sustainability, will that digital is the way. To ensure that the country has capture more FDI. As regulators around the world the right set of skills, it has to continue training their are strategically setting ambitious targets for a shift national talent pool with digital literacy and investing from fossil to renewable energy to encourage the in innovation and cooperation between R&D centers adoption of greener alternatives, Portugal should and businesses. Additionally, communicating its world be in line with Europe’s sustainable goals. In fact, class quality of life and economic freedom can attract if decision makers focus on sustainable approaches international talent, such as digital nomads. in their investment decisions, will generate new investment opportunities. Access to cleaner energy sources, promoting environmental awareness and Focus on social and economic recovery air/ water/ soil pollution reduction are the main areas 3 to foster future growth to reform to reform to make Portugal a leader Each country has a different approach regarding in environmental sustainability their national recovery plans, as they have different economic and social background and objectives. As recovery should be supported by environmental Simplify Portuguese tax system so that change, innovation and talent, Portugal recovery 4 it can become a competitive advantage plan should be fully aligned with those goals. In fact, instead of a bottleneck the Recovery and Resilience Plan (RRP) rely on the Corporate taxation is one of the main concerns expansion and digitalization of the health care system, for investors. To that, the Portuguese incentives for qualification of the Portuguese talent Government should implement some measures pool, digital transformation, public administration to simplify the Portuguese tax system, bearing in mind capacitation, digitalization and interoperability and the underlying objective of not only simplification but sustainable mobility and decarbonization of the also optimization: industry. Investors can leverage these investments 1. Create a council between the tax authorities to enhance their goals. and taxpayers, which could decrease the number of case courts Continue to improve selective communication of Portugal as the right FDI location 2. Reduce the deadline for the Portuguese tax 5 authorities to respond on the technical queries It is imperative to ensure that valuable information is transmitted to investors quickly and successfully, 3. Include continuous access to tax for R&D with focus on non-established investors. This activities and create incentives aiming to promote communication can be a valuable tool to fuel the the creation and/or maintenance of jobs country’s longer term FDI prospects and positioning in global value chains.

EY Portugal Attractiveness Survey June 2021 5 FDI today and tomorrow

Leveraging on existing attractiveness factors but falling behind on new ones

Aligned with economic projections, investors are confident in the Portuguese recovery

In 2020, Portugal was able to attract 154 investment projects, maintaining its strong position on FDI attraction

Investors expect Portugal to remain an attractive FDI destination

1EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

After suffering with the pandemic, Portugal expects a brighter future

The pandemic crisis severely Sectors were impacted It has been 27 years since such a low affected the world’s economy at different paces number was reached. and the Portuguese one was This crisis affected companies at And, after the initial impact, no exception. a different level according to the industry manufacturing performed positively, Portugal’s in which they operate. Reinforcing this recovering close to pre-crisis levels, (GDP) was severely impacted by trend, COVID-19 restrictions were lifted according to the . COVID-19 pandemic crisis and at different paces for different sectors decreased 7.6% in 2020, which was in order to monitor the public health Vaccination plans are key a steeper decrease than the European response. to support a return to pre Union (EU) average (6.8%)1. However, Indeed, a robust and increasing COVID-19 numbers the Portuguese economy proved to be commercial real estate market in All countries are going ahead with more resilient than expected, as first Portugal in the period preceding the their vaccination programs, all stating estimates for 2020 showed a more dire pandemic crisis limited the sector that not as fast as they would like, scenario that in the one that actually vulnerabilities. but as fast as possible. The goal occurred. Tourism and hospitality were the most of group immunity is something that Portugal faced two lockdowns, the first affected sectors with the closing of is vital to allow a further loosening one from 18th March to 2 May 2020, borders and circulation restrictions, of restriction measures and, hopefully and the second one from 15th January with only 40% of accommodations and more circulation between countries. to 15th March 2021, with several restaurants open in the first lockdown. The European Commission is confident restrictions to the circulation of people Sixty-two percent of these worked in the in 70% inoculation of the EU’s adult and goods. There was a severe loss second lockdown, which shows a positive population by mid-, and Portugal in the and private consumption trend. However, it is still early to quantify is expected to reach group immunity of goods and services. the full impact COVID-19 pandemic had (70% immunization) in the Summer The recovery of economic activity in on these sectors as there are still many of 2021 according to Portuguese the third quarter of 2020 was mainly businesses that are likely to not reopen vaccination plan. Once this is achieved, boosted by the domestic demand. they’re given that opportunity. an important milestone will be reached According to the National Institute of in terms of confidence and will allow Statistics, in 2020, there was a 61% loss a strengthening of multi-borders in guests and a 63% loss in overnight transactions (either through stays comparing with the previous year. or investments).

Table 1: Main macroeconomic indicators

2017 2018 2019Po 2020Pe 2021Pe 2022Pe 2023Pe GDP (annual growth rate) 3.5 2.8 2.5 -7.6 4.8 5.6 2.4 GDP (billion ) 193.0 198.5 203.5 188.0 197.1 208.1 213.1 GDP per capita (EU28=100) 17.7 18.2 18.6 17.2 - - - Private consumption (annual growth rate) 2.1 2.6 2.6 -5.9 3.3 4.9 2.3 Public consumption (annual growth rate) 0.2 0.6 0.7 0.4 4.9 0.4 -0.2 Gross fixed capital formation (annual growth rate) 11.5 6.2 5.4 -1.9 7.6 8.2 5.8 Exports (annual growth rate) 8.4 4.1 3.9 -18.6 14.5 13.1 4.8 Public debt (against GDP %) 126.1 121.5 116.8 133.6 128.0 123.0 120.7 Inflation (annual rate) 1.6 1.2 0.3 -0.1 0.7 0.9 1.0 Unemployment rate (%) 8.9 7.0 6.5 7.0 7.2 7.1 6.8

Sources: Bank of Portugal, Economic Bulletin, June 2021; European Commission – ; Strategy and Studies Bureau (GEE) of the Portuguese Ministry of Economy Po - Provisional Pe - Preliminary

1 , Eurosystem staff macroeconomic projections for the , June 2021

EY Portugal Attractiveness Survey June 2021 7 Aligned with economic projections, investors are confident in the Portuguese recovery

Investors perceive Portuguese to liquidity, with an additional partial conducted by the Bank of Portugal, government measures to deal government guarantee, and the 35% of the companies surveyed affirmed with the pandemic impacts as provision of lines to secure liquidity that without these policy measures they less effective than those of other for the short term. It also secured the would have closed or would be operating European countries postponement of tax payments and with low profitability . One of the key priorities for governments the application of lay-off program, worldwide was the implementation to financially support employability Nevertheless, investors feel of measures to mitigate the impact of and avoid the increase of permanent confident that the Portuguese COVID-19. Portugal followed this trend, unemployment. attractiveness will recover and the government defined a series Government made available funding in a short-term period of restrictions and measures to mitigate to severely impacted sectors, such as, Almost 90% of the investors, are the economic impact of the pandemic. events, tourism, exporting industries, confident the pandemic impact in the However, investors’ perceptions indicate social economy and other small and Portuguese attractiveness will not last that those were seen as less effective medium-sized enterprises (SME) allocating more than three years. This positive than other countries’. A majority (51%) more than €3.0 billion to this effort. perception is key for investment plans believes that government support to Additionally, it also provided financial that were previously canceled or companies was below EU average. In aid to self-employed people with postponed. relation to support to citizens, investors children with ages up to 12 years old, Given the turbulence of economic consider Portuguese measures were enforced prophylactic isolation and impacts of the pandemic, it is remarkable better but still, 42% of respondents felt provided appropriate and physical that this positive outlook takes the lead they were still below average. resources in health services. in the investors perspective for the Portuguese government implemented Finally, it made a significant investment European economy and recovery. both immediate responses to control in the health system (through acquisition Strengthening this positive perception the health crisis, as circulation of equipment’s, increase of workforce in the Portuguese economy, in the EY restrictions, but also aimed to mitigate and monetary compensation for health Europe Attractiveness Survey 2021, economic effects with long-term actions professionals). we can see that investors are therefore implementing a broader pack These measures provided an important proceeding with their investment plans, of measures1. support to the Portuguese economy and, with 41% saying their 2021 investment On one hand, introduced moratoria according to the “Fast and Exceptional plans have not changed since last year on loan facilities and provided access Enterprise Survey (COVID-IREE)”, and 17% having actually increased their investment plans.

Figure 1: Regarding Portugal’s level of success in addressing the COVID-19 crisis, what is your perception on

6% 12% 16%

39% 44% 36% Above EU average As EU average Below EU average Can't say 51% 42% 47%

3% 2% 1% Government support to companies’ Government support to citizens Government response economic context economic context to the pandemic crisis

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal) 1 República Portuguesa, Apoios ao emprego e economia, June 2021

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Investing during turbulent times “is critical to build resilience, and resilience is key for companies to navigate uncertainty and to deliver future growth expectations.

Miguel Cardoso Pinto EY-Parthenon Leader Portugal

Figure 2: For how long do you believe that COVID-19 will affect Portugal’s attractiveness?

90% of the investors, are confident the pandemic impact in the Portuguese attractiveness will not last more than three years

Portugal 7% 17% 66% 10%

It has no impact Up to one year For 2-3 years For 4-5 years For 6-10 years

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

Figure 3: To what extent have you changed your 2021 investment plans because of the COVID-19 outbreak?

58% of the investors, state they will increase or maintain investment plans Substantial increase in 2021 investment plans (>20%) 7%

Minor increase in 2021 investment plans (>20%) 10%

No change in 2021 investment plans 41%

Delay of 2021 investment plans until 2022 or after 11%

Minor decrease in 2021 investment plans (>20%) 26%

Substantial decrease in 2021 investment plans (>20%) 3%

Complete cutback on 2021 investment plans 1%

Source: EY Europe Attractiveness Survey 2021

EY Portugal Attractiveness Survey June 2021 9 Once again, Portugal receives a large number of investment projects

Despite the pandemic crisis, Figure 4: FDI projects in Portugal investment numbers remain 158 high 154 In 2020, Portugal was able to attract 154 investment projects, a 3% decrease when compared to an all-time Expansion record 2019 with 158 projects. projects 41 (27%) When compared to a 13% decrease 95 in investment projects in Europe, 74 this result highlights Portugal’s 59 New attractiveness resilience. projects 47 113 (73%) Portugal is consolidating its position as an investment destination in Europe, as investments are being decided at a 27% CAGR over the past five years, with a large majority being of new 2015 2016 2017 2018 2019 2020 projects instead of expansions (73% vs 27%). Source: EY European Investment Monitor, 2000-2020 This year’s projects resulted in the creation of more than 8,947 jobs, of which 57% associated with new projects. These are positive results to Portugal, Figure 5: FDI projects in Portugal by main countries of origin (2020) even more, in a pandemic context with global impact in the world’s economy. Europe Rest of the World 70% 30% FDI origin: The right balance (from 68% in 2019) (from 32% in 2019) between the New and the Old continent US The (US) were, once SE 25 again, Portugal’s largest source (16%) 4 (3%) of FDI projects (25). Nevertheless, investments from BE UK European countries continue to BR DE 6 (4%) increase in number and in share, 5 (3%) 15 with 108 projects coming from Europe 12 (8%) (10%) (70% of total FDI in 2020). FR is second in number of CH investments, with 23 FDI projects 22 followed by with 22. (14%) 9 (6%) IT and the (UK) followed with 16 and 13 projects, respectively. ES 4 (3%) Emerging with a significant increase comes with 4 projects 23 (15%) (2 projects in 2019). Number of FDI projects

Source: EY European Investment Monitor, 2020

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Portugal entered Europe’s Table 2: Top 10 European countries for foreign investment top 10 in FDI project number In 2020, the uncertainty climate Rank Country Share in 2019 Share in 2020 Project growth rate impacted FDI in Europe. There was 1 France 19% 18% -18% a decrease of 13% in FDI projects compared to last year’s numbers. 2 United Kingdom 17% 17% -12% Portugal, however, was able to 3 Germany 15% 17% -4% reinforce its position within the 4 Spain 8% 6% -27% European landscape, entering into the top 10 European countries for foreign 5 Belgium 3% 4% -15% investment, for the first time in many 6 4% 4% +10% years, retaining 3% of the FDI projects in Europe. 7 3% 4% +18% Portugal’s neighbor Spain was also 8 4% 4% -23% strongly affected by the crisis and has 9 one of the highest decreases in the Ireland 3% 3% -14% number FDI projects. Ireland looses 10 Portugal 3% 3% -3% one position in the rank, although Other countries 22% 21% -17% maintaining its European market share. Total 100% 100% -13%

Source: EY European Investment Monitor, 2019-2020 Note: The arrows and equal signs in the ranks column is referring to last year’s rank

Companies are clearly “acting in response to their experience and proactively preparing for a different market landscape.

Andrea Guerzoni EY Global Vice Chair Strategy and Transactions Global Capital Confidence Barometer Feb. 2021

EY Portugal Attractiveness Survey June 2021 11 Viewpoints

EY viewpoint

Miguel Farinha Strategy and Transactions Leader Portugal Ernst & Young, S.A.

Portugal is now in a better situation than the one faced“ during the 2011 crisis, both because of the progress made before the pandemic and Europe’s massive support through the Recovery and Resilience Facility (RRF) funding.

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EY viewpoint

Portugal, laying the foundations of a better future

2020, the unthinkable year Portugal is now in a better situation than the one faced The last decade was, as I called it in the last edition, during the 2011 crisis, both because of the progress a turning point for Portugal. After being affected made before the pandemic and Europe’s massive support by the European sovereign , the country through the RRF funding. The pace of recovery will has managed to recover and improve its economic be highly dependent on the effectiveness of how that indicators. GDP was growing faster than it had for funding will be applied, on the quality of the selection most of the past two decades, the country paid back process of the investments to be supported and, its International Monetay Fund (IMF) loan earlier than especially, on the spillover effects of those projects. initially planned and 2019 marked the first year with a government surplus in over four decades. Also, after Mergers and acquisitions (M&A): a tool to decades of deficits close to 10% of GDP, trade balance attract investment, protect value and sustain was consistently positive, benefiting from record the recovery breaking goods exports as well as a boom in tourism. The economic impact of the pandemic was different Then COVID-19 happened. 2020 was a year across segments and some of its consequences are still to remember, there is no doubt about it, as the world hidden by public measures such as moratoria on leases was forced to press the pause button. After seven years and debt. As such measures are lifted, and considering of consecutive growth, the Portuguese GDP dropped the reduced pace of recovery of international tourism, 7.6%, slightly more than Europe (6.8%). it seems inevitable that continued liquidity problems will As most European countries, the government threaten the continuity of a large number of businesses. implemented lockdown periods to protect public health As a consequence, we expect to see an increase and support measures to try to sustain companies in the number of opportunities for M&A operations and citizens through troubled times. Even though in Portugal. For the economy, with a large number the massive impact of the crisis, the year’s performance of under-capitalized small-scale companies, M&A was better than anticipated. operations will be a key instrument to promote business consolidation, to accelerate growth and to avoid the Calm after the storm, Portugal ensures the destruction of value, assets and jobs. This will continue right conditions for economic growth to attract investment funds and private equities, a trend that EY teams were already observing since before the Although the economic outlook is still highly influenced pandemic. by the pandemic, Portugal is back to business. The vaccination campaign is expected to go faster than initially anticipated and the country is expected to reach group immunity (70% immunization) in the Summer of 2021. The positive effects are significant, mainly to sectors that suffered the most with the pandemic, as tourism and hospitality.

EY Portugal Attractiveness Survey June 2021 13 Viewpoints

External viewpoint

Luís Castro Henriques Chairman & CEO of AICEP Portuguese Trade & Investment Agency

We work as a single point of contact in all phases of the investment,“ providing key market information and liaising with all relevant local stakeholders, with a tailored support in the setup phase and after the kick-off of operations.

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External viewpoint

Innovating in Portugal

Portugal, today, is widely recognized as a competitive, or . On top of that, and due to our historical innovative, and attractive destination for business and and cultural connections with other Portuguese speaking investment, throughout the different economic sectors. countries such as , , , or Macao During past years, Portugal has showcased to the world we are also a gateway to , America, and Asia. its capabilities not only in the areas of Industry, Trade Portugal has the 3rd highest rate of Engineering and Tourism, but also in the Services Industry, with graduates in the EU, ranks 7th in the English Proficiency increasing exports in volume and value and attracting Index 2020 and has one of the highest levels of peace systematically further high value-added investment. and stability - 3rd in 2020 and 7th in Despite the pandemic effects on the , Political Stability according to the World Bank. Investors over the last years Portugal has had the capability recognize the importance of these factors, namely the to position itself as a preferred destination for Foreign very low presented by our country in different areas Direct investment projects, due to our unique and such as Governance or socio-economic vulnerability. The valuable set of skills, namely and above all due to our absence of these is increasingly gaining importance Talent pool. We have witnessed that Foreign Direct in the decision-making process by companies as the trend investment in Portugal has risen not only in number for secure locations is becoming the norm. but in value. AICEP, as the Portuguese Trade and Investment Agency, Furthermore, Portugal is showing a strong business case plays an important role for investors looking for a new as a leading innovation hub. The Portuguese Academia location or, if already based in Portugal, seeking to and the Knowledge developed by all the Research expand their operations. We work as a single point of and Development Centres must be mentioned as an contact in all phases of the investment, providing key important source of talent and for developing products market information and liaising with all relevant local for a highly competitive and demanding market. The stakeholders, with a tailored support in the setup phase Digital transition that the country is experiencing, and after the kick-off of operations. out of the pandemic, with more and more services During these past 12 months, and taking in and products being developed to allow for a more secure consideration the difficult times that our country and usage on our daily life, shows the local capability to the world are going through – it is with great pleasure adjust and create knowledge with a global footprint. that we welcomed to Portugal newcomers from different Also, it is worth mentioning the role of the “Start-up” nationalities, with a common feature to them all, all being environment, as some of these companies have high added value projects. We are happy these investors been receiving significant investment from international chose of other world destinations and investors and as a key source for partnerships. With I am honored to say that Portugal, nowadays, more than 2.000 Start-ups created in 2020, they is increasingly recognized as an important destination represent an increasing tool for the development for the establishment of Innovative projects. of local innovation with a global impact. We are aware of the challenges that lay ahead, Portugal has a highly skilled talent pool, a multilingual but believe Portugal and the are and cosmopolitan working environment, strong training showing their unique talent and speed to overcome them, and knowledge networks and a very low operational presenting a competitive location for some of the most risk. Our strategic location and transport infrastructures innovative and challenging projects that these great make Portugal a gateway for Europe and ensure full and companies are developing. easy integration in the European market for companies from other geographies, such as the United States

EY Portugal Attractiveness Survey June 2021 15 The new level of investments in Portugal may be here to stay – investors remain optimistic

Investors’ willingness to invest in Portugal in the Global trends in FDI perceived by investors short-term is accelerating favor Portugal Investment intentions in Portugal for 2021 have seen When asked which regions globally, will be most attractive to a substantial increase (37% in 2021 vs 26% in 2020). This establish operations when the COVID-19 pandemic is behind is especially important, considering the global turbulent us, Western Europe ranks first with Central and Eastern economic outlook and how investors rank the government’s Europe and tied in second place. response to COVID-19. Despite this context, investors are In parallel, 63% of investors believe Europe’s attractiveness increasing their plans to invest in Portugal to levels even will improve during the next three years. Only 5% think it will higher than the historical levels of 2017. decrease. European countries may be benefiting from the companies that are pulling out of countries with higher perceived risk, especially in the manufacturing sector.

Figure 6: Are you planning to establish or expand operations in Portugal over next year? Answer = Yes Figure 7: Which of the following regions do you believe will be the most attractive to establish operations once the COVID-19 pandemic is behind us? 37% Europe 40% 2021 PT

Central &

2020 26% Western Europe

64%

80% 2019 25%

63%

2018 31%

North America

2017 32%

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal); EY Europe Attractiveness Survey 2021 Source: EY Europe Attractiveness Survey 2021

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Yet, a key question in everyone’s mind is: are these numbers sustainable? What future is reserved for Portuguese foreign investment? The perception about the Portuguese attractiveness shows a positive increase compared with 2020 and a return to historical levels. Despite the pandemic crisis, Portugal attractiveness remained solid, with a 3 p.p. increase over last year’s results. The country’s attractiveness improvement is even clearer when analyzing the investor’s perceptions of attractiveness for European cities, where 7% of respondents see Lisbon as one of the most attractive cities in Europe (vs 2% in 2020), ranking 13th (vs 23rd in 2020) over 40 options. Investors that are already established in Portugal are more optimistic regarding the country’s future attractiveness, a trend that remains constant over the years.

Figure 8: To what degree do you think Portugal’s attractiveness will evolve over the next three years?

Established 58% (from 58% in 2020) 47% 47% 52% 50% 62% 65% Non-established 30% (from 34% in 2020)

36% 36% 32% 36% 26% 28%

9% 10% 16% 5% 3% 10% 8% 7% 7% 4% 2% 4% 2016 2017 2018 2019 2020 2021

Improve Stay the same Decrease Can't say

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 17 Portugal’s key traditional attractiveness factors are recognized in investors’ perceptions and by international independent rankings

An exceptional quality of life World class infrastructure where safety prevails Portugal has world class infrastructures, Portugal ranks 3rd place among ranking 21st in this pillar of the World 59 countries regarding quality of Competitiveness Index. Within this pillar, 3rd life, according to InterNation. Expats it ranks 8th place in quality of roads, an The best countries for Expats – particularly appreciate the local leisure important factor for logistic activities. Quality of life ranking 2021 options and sunny climate weather Regarding telecommunication, Portugal 59 countries and sense of safety. ranks in 25th place when comparing Moreover, expats consider Portugal 79 countries in the Global Connectivity as the country where they most feel Index, showing a large broadband 3rd at home demonstrating the country’s implementation and a strong investment Global Peace Index 2020 capability of integration and in technology penetration. 163 countries non-discrimination. Additionally, the Global Peace Index Diverse and talented profiles ranks Portugal as the 3rd safest country Portugal ranks 28th in the Global nd (within 163 countries). Portugal has low 32 Talent Competitiveness index, levels of crime ensuring societal safety Readiness for Frontier highlighting world-class availability Technologies Index and security, low levels of domestic and of a skilled and educated workforce. 158 countries international conflict and degree Portugal ranks seventh in English of militarization, which are clear signs proficiency in First’s of peacefulness within the country classification, an added advantage and with neighbors. 25th for international companies scouting Global Connectivity Index 2020 new investment locations. 79 countries A technology driven environment Portugal is ranked in the 32nd position An ecosystem for companies among 158 countries in the Readiness to invest in for Frontier Technologies Index 21st The Heritage Foundation ranks Portugal according to Conference Global Competitiveness Index 2019 52nd out of 184 countries in economic of Trade and Development. Portugal Infrastructure pillar freedom. While there is room to 141 countries nests innovation with investments improve, the regulatory and business in infrastructure, and environment are compatible technology to enable technological with international investment. development. 28th Global Talent Competitiveness Index 2020 132 countries

52nd Index of Economic Freedom 2021 180 countries

Note: The arrows and equal signs in the ranks is referring to the previous edition’s rank

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However, Portugal is falling behind on key assets such as resilience to external shocks, with 91%, 77%, 76%/74% innovation, transparency and availability of right resources and 66% of positive perception, respectively. (talent and office spaces) However, this year’s survey reflects a general decrease in the perception of key attractiveness factors. The level of local Global investors’ key factors that influence labor and its cost, together with availability of office spaces investments decisions favor Portuguese most show a decrease from last year’s results. Also, innovation appreciated attractiveness factors system and stability and transparency of political, legal and In the EY Europe Attractiveness Survey 2021, when asked regulatory environment, are less attractive in Portugal, this about the key factors that can influence investment decision year. The survey results also reflect the rising difficulty in hiring to select a particular country, 53% of the investors select the right talent, motivated by the global strain in finding the stability of the political and regulatory regime, followed by the right set of skills. reliability and coverage of infrastructure (transport, telecoms, Following the same pattern as in previous years, non-established energy) and the skills and availability of the workforce. These investors seem to have a more fragile perception of Portugal’s are considered as a key investment enablers. key assets, even though we will be able to see in this document an improvement in the communication reach. Portugal shouldn’t afford to rely solely on its Overall, it is critical that Portugal has a clear, consistent strategy traditional assets. Innovation, transparency to foster and promote an innovative, transparent environment, and workforce skills should be engines of long- with availability of the right resources. This can only be done with term strategy a continuous investment in the traditional attractiveness factors High valued ratings on crucial attractiveness factors (infrastructures, stability, quality of life) but also the development such as quality of life, stability of social climate, infrastructures of the right partnerships between government and corporates and the skilled local employees have been fueling to promote an innovative environment, with the creation of the Portugal’s appeals to investors, underpinning the Portuguese right skills in the country and with a transparent and lean legal and regulatory environment.

Figure 9: For each of the following criteria, how would you rate Portugal as an FDI destination from your company’s point of view? Attractive 2021 vs. 2020

Quality of life 57% 34% 6% 3%0% 91% 90% 91% 86%

Stability of social climate 35% 42% 20% 3%0% 77% 78% 87% 59%

Telecommunication infrastructure 54% 23% 14% 9% 0% 76% 75% 72% 77%

Transport and logistic infrastructure 41% 33% 17% 9% 0% 74% 72% 72% 75%

Local labor skills level 36% 30% 24% 10% 0% 66% 67% 72% 63%

Portugal’s domestic market 17% 48% 26% 8% 1% 65% 55% 68% 63%

Labor costs 13% 46% 31% 10% 0% 59% 72% 70% 55% Very attractive Fairly attractive Availability of quality office space 16% 40% 34% 9% 1% 57% 70% 62% 48% Little attractive Not at all attractive Potential for productivity increase 14% 42% 29% 14% 1% 56% 73% 66% 50% Can’t say Policy approach to climate change 12% 42% 35% 11% 0% 55% [new] 60% 45% and sustainability Established Non- established investors investors Stability and transparency of political, 2% 46% 36% 15% 0% 49% 68% 64% 45% legal and regulatory environment

Innovation ecosystem 14% 33% 40% 13% 0% 47% 65% 66% 32% Overall incentives offered 8% 38% 38% 14% 2% 46% 52% 62% 36% by central government

Specific support and incentives offered 10% 34% 42% 12% 2% 44% 59% 47% 38% by regional/municipal authorities Flexibility of labor legislation 8% 34% 43% 12% 2% 43% 58% 47% 34%

Corporate taxation 5% 37% 44% 13% 0% 42% 47% 47% 36%

Liquidity of financial markets 7% 35% 42% 14% 2% 42% [new] 49% 32% and availability of capital

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 19 Understanding FDI numbers

A deep dive into sectors, activities and regions

2 ey.com/attractiveness

Manufacturing, R&D and SSC attracted 67% of the number of investment projects and are expected to be the drivers of future investments by 62% of investors

Digital Economy, Real Estate and Construction and Clean tech and renewables are perceived as the three sectors that will drive growth in Portugal

Northern Portugal and Lisbon area consolidate their position in FDI attraction

EY Portugal Attractiveness Survey June 2021 21 Manufacturing, R&D and SSC represent Portugal’s present and the future

Manufacturing projects keep SSC activity shares the second extending its operations in a larger taking FDI’s lead in Portugal place with equal number Lisbon office; Talkdesk, Bolt and Unilabs chose Portugal because of Manufacturing is ranked in the first of projects the country’s talent pool in areas position in number of projects and SSC activity is unique in the sense that such as software or cloud computing; represents 24% of FDI projects it requires diverse profiles to complete Emma – The Sleep Company, opened a in Portugal (mainly related with its labor force. Indeed, companies such hub in Lisbon focusing on talent with ). Nevertheless, as BNP Paribas, HCL Tech or Cisco seek business, marketing, operations it was the activity that registered the very skilled profiles. and design skills. highest decrease from the previous FDI projects announced this year year, with a total of 37 projects include: invested in in 2020 vs. 60 in 2019.

R&D is “the” growing activity in number of projects ex aequo Figure 10: FDI projects in Portugal by main activities with SSC R&D appears in second place with 21% 2019 2020 of the number of FDI projects, a trend observed since 2018 (17% share in 2019 and 12% in 2018). This year,

Portugal attracted 33 R&D projects, Manufacturing mainly linked to investments in Digital 60 37 & IT Services. As an example, Microsoft established, 26 R&D 33 in Lisbon, an algorithm development center to support the company worldwide, creating 55 jobs, 20 6 SSC 33 of them having different native languages. Another relevant 25 investment was the Altice Labs Açores, 37 Sales & Marketing a project integrated in Terceira Tech that is a part of ’s 14 Logistics economic recovery and revitalization 6 plan. Internet Data Center 8 5

Headquarters 2 4

Testing & Servicing 8 3

4 Contact Centre 0

Education & Training 1 0

Source: EY European Investment Monitor (EIM), 2020

22 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

And those same activities are This positive trend is aligned with pool, but also because of the vibrant mentioned by investors that will the increase of expenditure in R&D tech and innovative ecosystem, that is invest in Portugal in the coming activities by the public and private strengthened by hosting international year sector. Since 2015, Portugal has events as the Web Summit in Lisbon. increased investment in R&D activities This particular initiative placed Lisbon From those investors that intend by 13%. to invest in Portugal in the next and Portugal in the map as a startup year, manufacturing and R&D represent Moreover, the international reputation and tech hub and allowing it to be 37% and 26% of investment intentions, of Portugal as a center of technological recognized by The Guardian as “the respectively. innovation seems to be playing a new Silicon Valley”. crucial role in the R&D projects planned These results show that the Portuguese This is a trend that has been observed to be undertaken in the country. in the last 3 years, as investment efforts toward a more knowledge- intentions on those two sectors Portugal has a strong position in intensive economy is driving increased 46 p.p. this matter, not only because of the investments with higher value added. existing qualified and dynamic talent

Figure 11: What type of investment project does your company want to establish or expand in Portugal?

2018 2% 15% 32% 14% 4% 10% 15% 9%

2019 12% 29% 32% 6% 3% 2% 7% 9%

2020 6% 18% 33% 22% 3% 3% 7% 2% 6%

2021 37% 26% 19% 11% 5% 1% <1% 0%

R&D Training center Manufacturing Back office Sales and marketing offices Headquarters Business support offices Technical management Supply chain and logistics Can’t say

Source: EY Attractiveness Survey 2021 (74 respondents that want to establish or expand operations in Portugal)

EY Portugal Attractiveness Survey June 2021 23 Viewpoints

External Viewpoint

João Silveira Botelho Vice-President of Champalimaud Foundation

The Champalimaud Foundation has invested heavily“ in artificial intelligence, robotics and other technologies which allow remote patient diagnosis, treatment, and monitoring.

24 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

External Viewpoint

Science and technology hand in hand

In the last few years Portugal has been rich in growing The continued investment in new technologies, competitive advantages that make it a great place to the use of AI, the adoption of collaborative policies, invest. The actual economic and start-up ecosystem and the strength of an international multidisciplinary work in Portugal has created great potential in the fields environment, are essential factors for maintaining the of Health Care, Science Research, or Information and highest levels of development and scientific production. Communications Technology. Portugal has been the Thanks to its focus on these areas the Champalimaud nest for some high-tech worldwide innovations such as Foundation has been able to continue its leadership the Multibanco network, one of the more sophisticated of international projects, often partnering with prestigious banking networks in the world; Via Verde, the first institutions in Europe, and the USA. closed system of automatic tolls in the world; The potential of AI is vast, and robotics, new data and the Pre-Paid Mobile Phones. generating paradigms, and other cutting--edge At the Champalimaud Foundation cutting-edge research technologies developed in close collaboration between and new technologies go hand-in-hand to promote new basic and clinical research are essential for the levels of knowledge. In particular, international research advancement of science. As such, the Champalimaud groups employ a translational approach in order Foundation is always open to lead projects, develop to make breakthroughs in cancer and neuroscience. programs and explore new opportunities. This methodology has led to a highly effective scientific Due to the Champalimaud Foundation’s unique conditions workflow in a range of crucial areas. and infrastructure, there has been a great interest from The Covid-19 pandemic has strained national healthcare organizations and institutions, both from academia and systems and emphasized their shortcomings. This reality industry, in the joint development of scientific projects, has highlighted investment needs in R&D, as well as in There is also a growing interest from young researchers clinical infrastructure and services, and has accelerated in associating with the Foundation for the creation the adoption of technological solutions that have of tech-based startups, thus placing the Champalimaud the potential to transform healthcare. Foundation as a true incubator of talent. The Champalimaud Foundation has invested heavily The paths for FDI are enormous and at the Champalimaud in artificial intelligence, robotics and other technologies Foundation we are open to innovation, creativity and which allow remote patient diagnosis, treatment, and the interests of organizations that share this vision. This monitoring. This investment has been fundamental effort is an endless story, and the sense of its urgency in allowing us to care for, and welcome, patients during cannot be lost. the worst periods of the pandemic.

EY Portugal Attractiveness Survey June 2021 25 Viewpoints

External Viewpoint

Andreas Hening Onshore COO of Siemens Gamesa

The blade manufacturing plant of Siemens Gamesa“ will soon become the largest Onshore blade plant in Europe, with more than 1,300 employees.

26 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

External Viewpoint

Blade plant in acquired by Siemens Gamesa

Siemens Gamesa acquired in May 2020 the blade The existing skilled workforce and the great capacity manufacturing plant located in the of the plant has made possible to accommodate in of Vagos, North of Portugal. The factory offers many record time the production of the newest and largest advantages for Siemens Gamesa, like the fact that it blade models of Siemens Gamesa, including the SG is very well connected, an important element for the 5.0-145, the SG 5.8-155 and the SG 5.8-170. Vagos transportation of large blades. Vagos factory is close is manufacturing the longest Onshore blade, with to the highway between and Lisbon and 25 kms a 170 meters rotor diameter. In fact, the start of away from Aveiro , which facilitates exports to production is especially relevant if we consider this has different markets outside Portugal. In fact, the blades happen when the COVID-19 pandemic broke out and produced in Vagos plant have different destinations, the different limitations were stablished. This has not including Europe and the East Cost of America. been an impediment for the factory employees to start Vagos’ skilled and experienced employees is another production of all these new models. significant advantage. The factory was established The blade manufacturing plant of Siemens Gamesa back in 2007 as a blade facility, so Siemens Gamesa will soon become the largest Onshore blade plant in inherited a well-trained workforce that has been Europe, with more than 1,300 employees - almost twice capable to start production of the company’s blades the number the plant had when it was acquired in May from the first day. 2020. It will also be one of the most competitive, thanks to the innovations introduced to produce the newest company blades. It is a good example of Portugal’s capacity to attract investment.

EY Portugal Attractiveness Survey June 2021 27 The digital economy play an important role in Portugal’s path to success

Software & IT Services strengthened their position Portugal attracted companies such as Greenyard Logistics, and increased the gap to other sectors opening logistic centers in and Nacex inaugurating a distribution center in . The Digital ecosystem thrived and continued to be a leading source of FDI in Portugal. Multinational investors found their way to Portugal with new projects. For instance, Miniclip Finance strengthens its position and is a sector budgeted €11 million for a new headquarter in Oeiras and to keep an eye on Edreams, the biggest travel agency in Europe, launched Banks, insurance companies and financial advisors are a technology hub in Porto. establishing themselves in Portugal. In fact, BNP Paribas expanded its operations in Portugal, creating 2,000 jobs. Transportation Manufacturers & Suppliers secured Also, Lydia, a direct competitor to N26 and Revolut has the second place in number of FDI projects, even expanded their operations in Portugal. Lovys, on the other though the sector had the sharpest decrease hand, has created 30 jobs in Central Portugal to set up a technological hub. Additionally, there are multinationals from With 13 new projects in 2020, the sector reversed to its 2018 other regions that intend to enter this new market, such position (14 projects), registering a 58% decrease from the as Abaco or BTG Pactual. 31 projects recorded in 2019. Multinationals keep investing in Portugal. For example, Autoeuropa invested in its production plant, ZF established a Business Services & Professional Services, new logistics center and Ushiyama expanded its manufacturing losing ground on FDI attraction site in . Business Services experienced a boom on last year’s results, with 20 new investments. In 2020, this sector attracted eight projects, losing ground to other sectors on FDI attraction. Transportation and logistics increased the number of FDI projects With the online business booming, transportation and logistics attracted 10 projects in FDI in 2020, 43% more than in 2019.

Table 3: FDI projects in Portugal by sector

Rank Sector Number in 2019 Number in 2020 Sector growth

1 Software & IT Services 42 50 8 2 Transportation Manufacturers & Suppliers 31 13 18- 3 Transportation & Logistics 7 10 3 4 Finance 6 8 2 5 Business Services & Professional Services 20 8 12- 6 Machinery & equipment 5 7 2 7 Pharmaceuticals 4 7 3 8 Metals & 2 6 4 9 Health & Social Work (1) n.a. 6 n.a. 10 Agri-food 14 5 9- Other Sectors 27 34

(1) Health & Social Work is a new entry in 2020, for that reason there is no comparable data Source: EY European Investment Monitor (EIM), 2019-2020

28 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

Investors are confident that Real Estate strengthen Non established investors have technology and digital will its position as being one different perception of the continue to lead Portugal’s of Portugal’s growth drivers future and lack information competitiveness, in line with Real Estate and Construction is to form an opinion investments in 2020 considered the second largest growth The perception on the growth drivers For 45% of respondents, the Digital driver in the short-term, with 39% of is less positive in sectors such Economy will drive Portugal’s growth positive answers. as Real Estate (29% vs 44%), energy in the coming years. The pandemic This sector, revealed to be resilient and utilities (4% vs 14%) and healthcare pushed companies to adopt new ways during the crisis, being one of the least and wellbeing (4% vs 8%). of working, with a significant push impacted last year. Both residential However, the perception regarding the on work from home. As it is becoming and commercial trends seems to be the future is unanimous, as 45% of non clear, the “new normal” will not go positive. established investors consider Digital back to historical patterns and will A new trend also seem to support this Economy as the main growth driver evolve for a combination of pre and sector as employees are expected for the coming years. post COVID-19 habits. Digital and to work from home, real estate In addition, 13% of the investors do technology will be a critical facilitator investment in residential is expected not have enough confidence to select of this change. to have an increase in areas any of these sectors as growth drivers. According to the Kaizen Institute, surrounding large cities. Portuguese This may be caused by the lack of 68% of Portuguese Human Resources residential prices are more competitive information they have of the country. directors consider that they will adopt when compared with other European a mixed regimen when telework countries. is considered. These results are possible as Portuguese companies are innovative, driving the increase in international recognition of their infrastructure, talent and tech ecosystem.

Figure 12: In your opinion, which main business sector will drive Portugal’s growth in the coming years?

45% 44% 36% 22% 12% % % % % % 45 45% 39 29% 36 34% 23 25% 13 16%

Digital economy Real estate and Cleantech Automotive Consumer industry (IT, telecoms and media) construction and renewables and mobility – including agri-food

12% 14% 9% 8% 0% % % % % % 11 9% 11 4% 9 11% 6 4% 3 13%

Business Services Energy (including nuclear) Financial services (banking, Healthcare Can’t say and utilities (waste, water treatment) finance, insurance, wealth and wellbeing and asset management) Established Non- established investors investors

Note: Since in this survey the sectors analyzed are different from last year’s, there is no comparable data between 2021 and 2020 Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 29 Discover regional attractiveness

Northern Portugal and Lisbon Figure 14: FDI projects in Portugal by region area consolidate their position in FDI attraction Lisbon and Northern Portugal Northern Portugal remained the largest FDI receivers, with a combined share of 80% in 2020. Northern Portugal, Lisbon Top investors: Key sectors: Area, and increased #1 France #1 Digital & IT Services in number of projects, whereas #2 USA #2 Transportation Central Portugal and #3 Spain Manufacturers & Suppliers 55 decreased. #3 Metals & Minerals FDI projects Main activities: Digital & IT Services, as well Central Portugal as R&D, have increased in number #1 Manufacturing of investments in multiple regions, #2 R&D #3 Business Services highlighting increasing regional Top investors: Key sectors: attractiveness. #1 France #1 Digital & IT Services Alentejo continued consolidating #2 Spain #2 Consumer products its position in the agri-food sector. 24 #3 , FDI projects #3 Machinery and equipment, Lisbon area United Kingdom, Transportation Manufacturers Germany (ex aequo) & Suppliers (ex aequo) Top investors: Key sectors: Main activities: #1 United States #1 Digital & IT Services #1 Manufacturing #2 Spain #2 Business & Professional #2 R&D #3 Germany Services, Finance (ex aequo) 4 #3 Sales & Marketing #3 Transportation & Logistics FDI projects Main activities: #1 Sales and marketing, 68 Business Services (ex aequo) FDI projects Alentejo #2 R&D #3 Logistics, SSC, Manufacturing (ex aequo) Top investors: Key sectors: #1 #1 Agri-food, Chemicals, #2 Spain, Switzerland Plastics & Rubber, and USA (ex aequo) Pharmaceuticals Figure 13: Evolution of FDI projects in Portugal by Region 1 and Transportation Azores FDI project Main activities: & Logistics (ex aequo) 100% #1 Manufacturing Top investors: Key sectors: 2 #2 Logistics, Sales FDI projects and Marketing (ex aequo) #1 France #1 Communcations and Media Main activities: 50% #1 R&D Algarve Top investors: Key sectors: #1 Spain, USA #1 Digital & IT Services and Health Main activities: & Social Work (ex aequo) 0% #1 R&D and Sales 2017 2018 2019 2020 and Marketing (ex aequo)

Central Portugal Lisbon area Northern Portugal Alentejo Algarve Azores

Source: EY European Investment Monitor (EIM), 2017-2020

30 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

Figure 14: FDI projects in Portugal by region

Northern Portugal

Top investors: Key sectors: #1 France #1 Digital & IT Services #2 USA #2 Transportation #3 Spain Manufacturers & Suppliers 55 #3 Metals & Minerals FDI projects Main activities: #1 Manufacturing Central Portugal #2 R&D #3 Business Services Top investors: Key sectors: #1 France #1 Digital & IT Services #2 Spain #2 Consumer products 24 #3 Switzerland, FDI projects #3 Machinery and equipment, Lisbon area United Kingdom, Transportation Manufacturers Germany (ex aequo) & Suppliers (ex aequo) Top investors: Key sectors: Main activities: #1 United States #1 Digital & IT Services #1 Manufacturing #2 Spain #2 Business & Professional #2 R&D #3 Germany Services, Finance (ex aequo) 4 #3 Sales & Marketing #3 Transportation & Logistics FDI projects Main activities: #1 Sales and marketing, 68 Business Services (ex aequo) FDI projects Alentejo #2 R&D #3 Logistics, SSC, Manufacturing (ex aequo) Top investors: Key sectors: #1 China #1 Agri-food, Chemicals, #2 Spain, Switzerland Plastics & Rubber, and USA (ex aequo) Pharmaceuticals 1 and Transportation Azores FDI project Main activities: & Logistics (ex aequo) #1 Manufacturing Top investors: Key sectors: 2 #2 Logistics, Sales FDI projects and Marketing (ex aequo) #1 France #1 Communcations and Media Main activities: #1 R&D Algarve Top investors: Key sectors: #1 Spain, USA #1 Digital & IT Services and Health Main activities: & Social Work (ex aequo) #1 R&D and Sales and Marketing (ex aequo)

Source: EY European Investment Monitor (EIM), 2020

EY Portugal Attractiveness Survey June 2021 31 Key assets in FDI landscape

How can Portugal sustain its attractiveness

Increase technological leadership and develop the right set of talent

Reinforce its cleantech strategy and its potential to become a market leader in sustainability

Focus on social and economic recovery to foster future growth

Simplify Portuguese tax system so that it can become a competitive advantage instead of a bottleneck

Continue to improve selective communication of Portugal as the 3 right FDI location ey.com/attractiveness

Lean and flexible environment: key to embrace rapid changes in megatrends

Technology, environmental creation of the right talent. In fact, Increase technological leadership sustainability, easier tax investors reinforce the need to have and develop the right set of talent; system and talent are in the top a flexible regulation environment that Reinforce its cleantech strategy of mind of the investors. can facilitate technological and other and its potential to become a market disruptions (35%), and to have green leader in sustainability; Portugal increased its competitiveness, policies and attitudes in place (35%). Focus on social and economic but investors reinforce the need to Also, the reduction/simplification of the recovery to foster future growth; strengthen pillars associated with tax system is mentioned as a crucial highly skilled industries. point (29%). Simplify Portuguese tax system so that it can become a competitive We’re witnessing a rapid change of the Investors say yes to Portugal but advantage instead of a bottleneck; skills and context required to win in ask for a leaner environment and today’s business environment and this to continue to develop the right skills Continue to improve selective is reflected in investors’ picks of areas (29%). communication of Portugal of focus for Portugal. as the right FDI location. These trends are aligned with what’s This years’ results reinforce the being asked for Europe as a region and, need to focus on megatrends, such as such, we recommend that Portugal as digitalization, sustainability and focus its efforts on the following:

Figure 15: In your view, where should Portugal concentrate its efforts in order to maintain its competitive position in the global economy?

2020 Allow regulation to keep pace with technological 35% 9% 33% 41% and other disruptions

Encourage environmental policies and attitudes 33% 23% 33% 32%

Develop education and skills 29% 35% 30% 25%

Reduce taxation 29% 33% 29% 27% Improve the quality of its products and the value-added of its services 28% 21% 29% 23%

Facilitate access to credit 26% 12% 24% 30%

Reduce labor costs 25% 13% 28% 18%

Relax competition rules 21% 5% 22% 20%

Support small and medium sized enterprises 21% 27% 22% 18% Support high-tech industries and innovation (cleantech, technology, logistics, healthcare,…) 18% 35% 20% 13%

Support struggling industries 18% 12% 20% 14%

Invest in major infrastructure and urban projects 12% 18% 10% 18%

Can’t say 2% 3% 0% 7%

Established Non- established investors investors

Source: EY Attractiveness Survey 2021 (15 March 2021 – 13 April 2021, 203 respondents: 114 established in Portugal, 86 not established in Portugal)

EY Portugal Attractiveness Survey June 2021 33 Increase technological leadership and develop talent pool to continue attracting investment

Digital, digital, digital. No word is repeated more Whether it’s cloud computing, data analytics, remote sensors among companies and governments or artificial intelligence, these are skills necessary to boost Although it is no news that investors are driven by innovation economy and will naturally be supported by the available and technological opportunities, COVID-19 crisis has labor force. accelerated this trend. In the EY Europe Attractiveness Survey 2021, investors rank digital customer access to services and According to the EY Europe Attractiveness Survey 2021, 60% the adoption of technology that automates manual human of employees are being allowed to work at least 40% of their processes as key, as they expect these to accelerate most time remotely, creating a new “phygital” workplace. in the next three years as a result of COVID-19.

Figure 16: Which of the following trends do you expect to Digital skills in location decisions are accelerate most in the next three years as a result of COVID-19? at the forefront of economic decisions This new “phygital” workplace raises awareness to the fact that location is not going to be that important when hiring, Focus os sustainability Digital customer however many businesses want to preserve some presence and climate change access to services in the office to foster a collaborative culture. 29% Therefore, Portugal can be attractive to FDI in two ways: fostering a quality of life recognized by 91% of investors 17% where, for instance, digital nomads might be interested to live in; and benefitting from its local highly differentiated talent pool, as mentioned by more than the 66% of investors. 14% Adoption of techology Recovery stimulus packages: 20% of the national recovery that automates manual human processes programs under the EU Next Generation Recovery Fund need to be spent on digitalization projects. This compares to Source: EY Europe Attractiveness Survey 2021 ’s 21%, Germany’s 54%, Spain’s 23% and France’s 24%. Technology-related factors influence where When it comes to Portugal, €2.5 billion will be spent in businesses locate their operations Digital Transition with a particular investment in digital An accelerated digitalization shifted the way people consume. school. This reinforces the idea that there is a focus on Both B2C and B2B solutions had to serve the new demand digital literacy that should be capitalized by the private and supply chains had to be quick to adapt and Portugal is sector. well positioned in those areas. As already mentioned in this survey, telecommunications infrastructures and transport and logistics infrastructures in Portugal, are considered attractive by 76% and 74% of investors. Figure 17: How important are the following technology-related factors in determining which countries you invest 91% in across Europe? Answers = “critical” or “important.” of investors consider quality of life in Portugal attractive

Rate of innovation, Availability 89% digital adoption and of workforce with update by the general technology skills population 83% 66% 82% of investors consider the local labor skills level in Portugal attractive Intellectual property rights protection Source: EY Attractiveness Survey 2021 (15 March 2021 – 13 April 2021, 203 respondents: Source: EY Europe Attractiveness Survey 2021 114 established in Portugal, 86 not established in Portugal)

34 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

However, Portugal is lagging behind other New initiatives implemented are necessary European countries in critical factors for the shift of perception to attract technological investment Portugal is acting to mobilize selected stakeholders, as it is Investors (whether being established or not in Portugal) the case of the Digital With a Purpose movement. In fact, are less optimistic regarding technology-related this aims to achieve Sustainable Development Goals 2030 attractiveness factors. creating the conditions that lead to new digital growth As far as talent availability is concerned, almost the opportunities. same number of investors consider Portugal to be above Additionally, COTEC Portugal, a leading Portuguese and below EU average (33% vs 32%). However, the business association for the promotion of innovation and perception improved by 8 p.p. compared to 2020. technological business cooperation, launched the COTEC In fact, according to IMD World Talent Ranking, Portugal Innovative Status, a rating whose purpose is to improve ranked 26th within 63 countries when analyzing cost information about the companies’ willingness and readiness of living and remuneration and highlighted Portugal’s to innovate. Another example is related to Universidade top strengths as having a labor force equitable, do Porto, that fostered a series of meetings, promoting language skills proficiency and a top performer management partnerships between research groups and companies. education. These sessions “A2B” are meant to strengthen ties between researchers and companies creating ideal conditions for The Startup ecosystem and the collaboration between research applied to the challenges that companies face R&D centers and businesses, alongside the innovative in an increasingly competitive world. environment, suffered in this years’ perception (with 15%, 14% and 18% of investors considering it to be above These initiatives highlight the Portuguese associations’ EU average, respectively). culture and national stimulus to promote a more transparent business environment. This demonstrates an effort to act In the long-run, Portugal should reverse the trend, on these pillars and reinforce the country’s competitiveness. to strengthen its performance on the factors analyzed while simultaneously preparing its positioning in a post-COVID landscape.

Figure 18: What is your perception...

4% % 3% % 3% % 8% % 9% 14 11% 15 18 33 (27% in 2020) (27% in 2020) 15% (29% in 2020) (25% in 2020)

26%

40% 35% 38% One of the most competitive in Europe Above average, within the EU 33% Similar to most European countries Lagging behind most European countries Can't say 47% 44% 42% 32%

1% 3% 2% 2% of the collaboration between of the startup ecosystem about Portugal of the overall talent Academia/R&D centers as a source of innovation availability and quality and Businesses (innovative products/companies)

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 35 Viewpoints

EY viewpoint

Miguel Cardoso Pinto EY-Parthenon Leader Portugal Ernst & Young, S.A.

To nurture a digital hub in Portugal we will need to continuously“ invest in this innovation ecosystem to attract, develop and retain companies and talent.

36 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

EY viewpoint

Digital and technology, the core of it all

Digital is the way! Similarly, the success of recent years in attracting R&D Digital revolution is reshaping the world as we know it and and technology-driven investments is increasing the Portugal can play a relevant role in this new ecosystem. competition for talent. As a cost-effective location whose Not only digital and technological areas represent already human resources are known to thrive in international one third of FDI projects attracted last year, but also environments, Portugal should position itself to leverage Portugal seems to be in the right path to attract future turn the global phenomenon of scarcity in some skills to investments in this arena, since 45% of the investors a local competitive advantage in attracting investment. consider Digital economy the main sector that will drive This opportunity must be addressed not only by Portugal’s growth in the coming years. our educational system but also (and mainly) by our companies and public institutions. For this reason, we will In fact, Portugal has a very good position to leverage. need to be capable to readapt and train our talent pool Being positioned in the 10th place for FDI attraction to respond to a reshaped digital reality. in Europe, the country reinforced its position as one of the main FDI destinations. The country may be riding the FDI wave, but how to sustain it, is a key question. Beyond Technology It is important to notice that this digital revolution is not Building the digital path only about Technology. The big challenge is to create new business models in a new digital world instead Although Portugal is already well perceived in of digitizing the existing ones. Talking to executives attractiveness factors such as quality of life, pool from different industries, we understand that the main of talent and infrastructure, it will be key to build bottlenecks are not around technology, but are attached digital capabilities to support future developments, to culture and mindset that need to be challenged. by reinforcing the right infrastructures and developing and adapting the right competencies and talent that will Initiatives such as the Web Summit and a strong support be needed in this field of play. to startups have positioned Portugal favorably to attract young entrepreneurs. To nurture a digital hub in Portugal Since communication infrastructures are a core pillar of we will need to continuously invest in this innovation the digital world, and this has been a key attractiveness ecosystem to attract, develop and retain companies and factor of Portugal since the early implementation of talent. This goes much beyond technology, as , a fully digital network, it’s important to sustain the education, regulation and several other aspects need pace. In this respect, since 5G will be critical to enable to be coordinated to succeed. the delivery of new services and solutions, this is a key investment to continue to drive the attraction of digitally EY-Parthenon teams can help you shape your future enabled businesses to Portugal. organization, to create the best, more sustainable and adapted version of itself. We are committed to ride the digital wave hand in hand with you and to build a better working world, in the future and beyond.

EY Portugal Attractiveness Survey June 2021 37 Viewpoints

External Viewpoint

Daniel Traça Dean and Professor of Economics at Nova School of Business and Economics (Nova SBE)

The critical factors of attraction have been highlighted before:“ the charm and cost of living of the country and the School´s internationalization and business links.

38 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

External Viewpoint

Portugal´s Hidden Talent Treasure

Portugal has enhanced its international visibility to meet the needs of the business community. Today, following the success of its macroeconomic adjustment those business schools compete for highly placed in the first half of the last decade, and the explosion positions in international rankings by providing top talent of its tourism and hospitality sector, including the rise to Europe´s leading companies. Portuguese students are in foreign residents, in the second. This visibility has being lured by the best international companies, for lack brought about the interest of foreign companies of exciting opportunities at home. to invest in Portugal´s service sector. Portugal currently Moreover, Portuguese business schools are attracting presents an extraordinary value proposition for foreign students from all over Europe and the world. At Nova investment in the digital service space: a charming, School of Business Economics, for example, 54 out safe, low-cost lifestyle for expatriates; a state-of-the-art of every 100 of its over 1,500 yearly MSc cohort infrastructure; and an extensive, highly trained, comes from abroad. Remarkably, 30 of those 54 come low-priced and internationally exposed talent pool. from Germany. The critical factors of attraction have been Thus the unique charm of its and lifestyle for expats highlighted before: the charm and cost of living has been reinforced by the revelation of the potential of its of the country and the School´s internationalization educated talent, from the nation´s 20-year effort to boost and business links. Beyond creating an international enrollment and the quality of higher education institutions. exposure that makes our graduates apt for the needs The percentage of the population between 30 and 34 of foreign companies operating in Portugal, many years-old with a degree has quadrupled in the of these international students represent an additional last two decades, from 9.8% in 1998 to 39.6% in 2020. source of talent for them. They add to a large number Higher education institutions have followed through of talented European youth willing to move to Portugal with an increase in quality, specifically in their academic to accelerate their start-ups, which has made Lisbon credentials, internationalization and relevance for the one of Europe´s entrepreneurship capitals. business community. In the context of the rise in remote work brought about Portugal´s business schools, in particular, have by the COVID-19 pandemic, Portugal lifestyle factors engaged in ambitious internationalization strategies will become even more prominent to attract the new after the Bologna reform and have created innovative digital nomads, creating a talent goldrush for global partnerships with domestic and international companies. companies. Portugal´s destiny is to become a hub for In the 2020 World Talent ranking, by IMD´s World the extraordinary graduates produced by its education Competitiveness Centre, Portugal ranked 7 among system at very competitive prices and the international 63 nations worldwide in the language skills of its labor talent attracted by the country´s unique lifestyle and force and 12 in the ability of its management education opportunities to study, work or become an entrepreneur.

EY Portugal Attractiveness Survey June 2021 39 Countries that stand by cleantech policies and foster measures to promote sustainability will capture more FDI

Cleantech policies remain Portugal has to be in line with The green industry generates a crucial factor in investment Europe’s sustainable goals new investment opportunities decisions The survey’s results shows that the COVID-19 is proving to be a major Cleantech policies importance is quickly majority of business leaders recognize turning point for sustainable investing. escalating and climate emergency the importance of sustainability and The pandemic has renewed is driving companies and governments cleantech. Approximately 56% of the focus on climate change, to adapt. Therefore, governments them recognize it as important and in encouraging decision makers are implementing incentives that particular, for established companies, to focus on sustainable approaches aim to reduce environmental impacts the percentage increases for 62%. in their investment decisions. There and investors consider those factors In Europe, some steps are being is an established parallel between important when deciding whether to taken to improve environmental pandemics and environmental risks invest in a particular country. In fact, sustainability. In fact, the EU wants that are perceived as similar in for 33% of the investors, having strong to achieve the bloc’s collective 2030 terms of impact, increasing the cleantech policies is very important target of cutting harmful greenhouse awareness for the topic. Therefore, it is or even critical in investment decisions. emissions by at least 55% compared shaping people’s behaviors toward best In that sense, regulators around to 1990 levels. environmental and social practices, the world are strategically setting increasing demand for businesses that ambitious targets for a shift from fossil actively address some of these major to renewable energy to encourage the societal challenges of climate change adoption of greener alternatives. Due and human impact. to expanding investments in this area, The green industry is growing and according to JPMorgan, renewable requires foreign investment. Indeed, production costs have dropped to the EY Europe Attractiveness Survey the same level as natural gas or even 2021 identified 1,000 shovel- coal, strengthening the potential of ready green projects that could reach economically viable options in clean financial close within the next 24 energies. months and have the potential to create significant social, environmental and economic value.

40 EY Portugal Attractiveness Survey June 2021 ey.com/attractiveness

Figure 19: How important are strong sustainable cleantech policies in determining whether you invest in Portugal?

11% 9% 56% 20% 24% Important

If established in Portugal: 62% If not established in Portugal: 52% 14% 23%

Critical to our expansion plans Very important Important Moderately important Slightly important Unimportant Can’t say

Source: Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 41 Viewpoints

External Viewpoint

Rupert Symington CEO of Symington Family Estates

People want to buy from companies that are demonstrably“ having a positive impact on people and planet, but we cannot rely on market forces alone.

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External Viewpoint

Pioneering that responds to the challenges of our time

I am proud that Symington Family Estates has a long severity of the climate emergency by taking immediate track-record of supporting social and environmental action to reduce their carbon emissions. We believe initiatives in the north of Portugal. It is in the DNA of our that this rigorous framework can lead the sector’s family business to care for people and the land where we response to this existential threat. We encourage other grow our vines. Over the years we have demonstrated wine companies to join us in making concrete public our willingness to back this commitment up with action, commitments with measurable goals to respond to the going above and beyond our obligations as a business to challenge of the climate crisis. ensure we are contributing to the health and economic We have established ambitious, science-based targets security of our employees and the wider community. for reducing the carbon emissions per bottle of wine We have long advocated for measures that protect we produce. We are currently implementing a wide range and support the livelihood of the 21,000 of initiatives aimed at reducing the emissions under our farmers. We have been conducting R&D into the impacts direct control and working with our partners in the supply of climate change in our vineyards for almost 20 years. chain to reduce our upstream and downstream emissions. Over the past 12 years we have donated 14 ambulances It is clear that we will not achieve our reduction goals to volunteer fire brigades in different and villages unless the broader system within which we are operating in the Douro. We are long-term supporters of the also transitions to a low (and eventually zero) carbon University of ’s Wildlife Recovery Unit, which economy. rehabilitates injured birds of prey. We are committed As a family wine company that relies on a stable climate to minimum-intervention viticulture and we farm the and viable local communities, the threats we face largest area of certified organic vineyard in the north are existential. People want to buy from companies of Portugal. that are demonstrably having a positive impact on As the first wine company in Portugal to become people and planet, but we cannot rely on market forces a certified B , we have committed ourselves alone. We urge the EU to adopt a broader definition to the highest standards of social and environmental of business success that responds to the pressing social responsibility, and we are collaborating with other wine and environmental challenges of our time. companies around the world, to ensure that the wine The Symington family has been investing in Portugal, trade is at the forefront of the way business responds particularly in the Douro since the XIXth century. to the challenges we all face. Our history illustrates the potential to create value In January 2020 we joined International Wineries and promote sustainability in Portugal, building a global for Climate Action (IWCA), a new association of wine business that relies heavily on the natural assets and companies who have committed to respond to the people, the infrastructure and the talent of the country.

EY Portugal Attractiveness Survey June 2021 43 Portugal is seen as a green country and cleantech is one of its key drivers for growth

Portugal can capitalize Europe’s perception Figure 20: What is your perception about Portugal as a ”green leader” to attract investment as an example in environmental sustainability? There is a positive mindset when perceiving European measures for sustainability. In fact, 85% of European investors believe that Europe is a “green leader” and the same number of investors say that this affects positively their investment decisions. On top of that, 2% 7% 92% of investors consider it is important for investment 13% strategy. Whether it be from customers, employees or 61% investors, all stakeholders involved in a project view 37% In line or above EU average environmental issues as crucial. Established in Portugal: 64% Not established Portugal shall protect and strengthen in Portugal: 54% cleantech policies 41% Cleantech and renewables are expected to be the second largest growth driver in the country in the coming years, and the first driver in Europe (for 33% and 17% of investors, respectively). One of the most competitive in Europe Above average, within the EU Portugal has the potential to capitalize on its availability Similar to most European countries of natural resources, such as an annual average of 300 Lagging behind most European countries Can’t say days of sun and a cozy mild environment. According to the International Energy Association, Portugal is a leader for integration of wind generation, as this has been an area of Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal continuous investment in inshore and offshore wind farms. and 56 non established in Portugal) Renewable energies are, once again, the main source of electricity production in Portugal in 2020, generating 62% of the total electricity produced in the country. Also, according to Eurostat, Portugal ranks 7th in countries with the highest share of renewable sources used to produce . To reinforce this position, the Portuguese Government set the objective of achieving in 2030 a 40% reduction in CO2 emissions, when comparing to 2005 values.

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To ensure its position and become a leader Portugal stands out in Europe with green in environmental sustainability, Portugal has initiatives to reform some areas The increasing recognition of Portugal’s sustainable Despite the growth of cleantech and renewables policies and ecosystem must be constantly fueled by effective actions the favorable prospects for their growth in the Portuguese and initiatives in order to position the country as a context, the survey highlights the importance of focusing sustainability role model. Indeed, a Portuguese leading in areas directly related to environmental sustainability. company in the energy sector, EDP, launched the Energy Access to cleaner energy sources, promoting environmental Access Fund Program, aimed to decrease energy poverty awareness and air/water/soil pollution reduction are the by supporting sustainable and clean energy projects in main areas to reform, to 42%, 37% and 36% of investors, developing countries, enhancing the Portuguese companies’ respectively. These areas are set to rise in relevance for environmental awareness. investment decisions as a direct consequence of the ongoing Furthermore, Portugal is a pioneer in the demonstration pandemic and the global focus toward sustainability. of a deep-water technology, with Despite non established and established companies agreeing a steel platform stabilized by a hydraulic system. It benefits in the top 2 reform areas, for non established companies, from its privileged location and vast coast, reaching a better valuation of natural capital and ecosystem services an important step for wind farms in Europe. is pointed out as being in the top 3. The need to invest in clean-techs and support the transition to a more green and sustainable environment is also a priority for the Portuguese government. Specifically, the Portuguese RRP, with focus on the climate transition, translates into a true sustainability, decarbonization and energy efficiency agenda.

Figure 21: What are the main areas to reform to make Portugal a leader in environmental sustainability?

Access to cleaner energy sources (low carbon and/ or non-fossil) 42% 43% 39%

Promote environmental awareness and education 37% 38% 36%

Air/ water/ soil pollution reduction 36% 37% 34%

Optimize environmental licensing procedures 35% 36% 32%

Better valuation of natural capital and ecosystem services 31% 30% 34%

Increase knowledge on climate risk exposure 31% 31% 29%

Biodiversity protection 30% 30% 29%

Promote nature-based solutions and carbon offsetting 29% 31% 23%

Better sustainable supply chain management 29% 30% (including preference for local sourcing) 29% Improve product eco design and use of less-polluting 27% 29% 31% and non-toxic inputs and materials Promote non-energy related decarbonization actions 25% 24% 25%

Increase circular economy and resource efficiency practices 24% 23% 27%

Improve energy efficiency (/ buildings/ industrial) 21% 19% 27%

Can’t say 1% 0% 4%

Top 3 for established investors Top 3 for non established investors

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 45 Viewpoints

External viewpoint

Guy Villax Chief Executive Officer of Hovione

Our investment decisions are not based on what exists today“ in a specific location, but on what we anticipate will be, and on the perception of the attractiveness factors that will exist, in the medium term, in competing locations.

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External viewpoint

Portugal for Business

Portugal is a great place to live, to work and to invest A key condition for investment is an effective justice in. It is a small European country with stable borders for system, where rulings are timely and major crimes are over 800 years and a proud history that gives it a stable not allowed to expire its statute of limitations. Portugal personality without any of the separatism that plagues cannot appear complacent, impunity cannot be allowed other countries. The weather is superb, people are to prevail in a modern . Regulators should welcoming and friendly to foreigners. This is a safe place, stimulate growth and their mandates must include the no terrorism or manifestations of organized crime here. commitment to work with the businesses they regulate If the local workforce is provided with good leadership to build up their competitive advantages. Decisive steps and made proud of its work, you will find they are must be taken to streamline and accelerate licensing as good as the best in the world. Tertiary education procedures. – especially in engineering and technical fields – is As a CEO, I believe my role is to look five years into the excellent. Labor laws, and the courts, lean toward future and define my strategy accordingly. However, protecting employees. However, a well-managed in an increasingly competitive and uncertain world, company that treats the workforce with respect and businessmen and entrepreneurs like myself require pays market rates needs never face a strike or have that governments listen to business and set a clear, labor issues. growth-driving, forward-looking agenda. Our investment Despite these fundamental core advantages Portugal is decisions are not based on what exists today in a specific losing ground, as illustrated by the rankings of the World location, but on what we anticipate will be, and on the Economic Forum or the World Bank. To change this, the perception of the attractiveness factors that will exist, government should focus more on increasing the pie in the medium term, in competing locations. than on discussing how to divide it. The government My company is a family business and we have invested in should also go out of its way to explicitly recognize Portugal for over 60 years. We are a global player in the that the engine of growth, the provider of jobs and the Contract Development and Manufacturing business, we creation of wealth is to be found in the private sector, supply critical components to leading pharma companies. in the companies and their businesses. Ours is a strategy of profitable growth built on serving the is another growth killer: The top most demanding clients in the most regulated markets. income should not be reached at an annual We will be investing to be close to our clients and to income of €84,000 and stock options should not be the regulators that matter. In addition we will invest in taxed as highly as income. If the government wants alignment with the pace of implementation of effective economic growth it needs to nurture companies and public policies that meet business requirements and motivate entrepreneurs. Innovation takes risk, risk are aligned with our vision for the future. needs reward. One does not win marathons by wearing lead shoes.

EY Portugal Attractiveness Survey June 2021 47 Focus on social and economic recovery to foster future growth

Recovery supported by A national recovery plan The RRP is divided in three main pillars: environmental change, with EU funds to lead future Resilience, Climate and Technological innovation and talent attractiveness transaction with assigned budgets and reforming objectives. The new normal is ready to be behind Each country has a different approach us and all countries must begin to regarding their national recovery plans, Resilience will cover the expansion and drive its policies toward the European as they have different economic and digitalization of the health care system, Commission’s priorities: drive a social background and objectives. social responses as affordable housing and incentives for qualification of the sustainable and inclusive recovery that Government’s response to the Portuguese talent pool. promotes green and digital transitions. pandemic crisis has caused a negative In Europe, foreign investment impact in the investors’ perception The digital transition will invest opportunities related to large-scale of Portugal’s attractiveness. in not only companies and their digital transformation, but also the infrastructure programs are meant to To fight that, Portugal is setting public public administration capacitation, drive reforms. Indeed, Europe’s RRF policies to reform the country’s outlook digitalization and interoperability. will use 37% of the total expenditure and improve long-term commitments to climate investments and 20% for a more innovative society. The climate transition pillar relies to foster digital transformation. The Portuguese government RRP, on sustainable mobility and integrated in the Next Generation EU, decarbonization of the industry. will ascend to €17 billion where €14 However, it is consensual in Europe billion are in subventions and €3 billion that, as much as companies applaud are in loans to be fully implemented the opportunities that these plans until 2026 (see figure 22 below). create, they often complain about the additional administrative burden and regulation that accompanies them and this might affect future country’s attractiveness.

Figure 22: Main Pillars of the RRP and relevant components

Resilience Public health care - €1,383 million Social response - €833 million Climate Transition Business capitalization Industry decarbonization - €715 million and innovation - €2,914 million Sustainable bioeconomy - €145 million Qualifications and competencies - Energy efficiency of buildings - €610 million €1,324 million €10.9 Hydrogen and renewables - €370 million billion Sustainable mobility - €967 million €3.2 billion

€2.5 billion Digital Transition Companies 4.0 - €650 million Public Finances quality - €406 million Economic justice and business environment - €267 million Public administration - €578 million Digital school - €559 million

Source: Plano de recuperação e resiliência, 15th February 2021

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Portuguese tax system: need for reduction and simplification

Tax policies: an area of context, the respondents have identified Portugal are also perceived improvement for investors measures that should be implemented as measures that could increase by the Government, bearing in mind the the country’s attractiveness. underlying objective of simplification Notwithstanding the current pressure but also optimization, which we in some circles of the political highlight as follows: landscape to cease the application a) The creation of a council between of those special tax regimes, these 29% the tax authorities and taxpayers, measures reinforce Portugal’s of investors want a tax which could decrease the number attractiveness for foreigners. of case courts will reduce significantly reduction / simplification and therefore, the level of security for, both tax authorities and taxpayers, will be higher; When comparing to previous year, b) To reduce the deadline for the The Portuguese tax there is a decrease in 4 p.p., revealing Portuguese tax authorities responding a positive trend for the Portuguese tax to the technical queries raised by the system – is there environment. However, Portugal has taxpayers to 90 days, and this way a long way to go. contributing for a better tax framework a way to simplify? The financial stimulus provided within the business community; by governments around the world c) Last, but not the least, and because We believe the issues identified to mitigate the crisis must be we are living in unprecedent times above in the survey our team paid somehow. According to a in the Covid-19 outbreak, there is performs on an annual basis, survey of EY tax professionals, in 68 a real need to create more tangible and that we also must deal when jurisdictions, increasing enforcement measures to positively respond supporting our clients, are critical of existing taxes and shifting resources to the challenges that the pandemic to be addressed and these should from other government priorities are situation has created. These could be seen as just examples, since the the most likely ways that governments include continuous access to tax simplification of a tax system is a will cover the entire cost. credits for R&D activities (although continuous journey that never ends On top of that, according to the EY with a better time of response in and needs a lot of flexibility, which Europe Attractiveness Survey 2021 relation to each application); creation is linked to the economic moment standardizing taxes in the EU could of incentives aiming to promote the that the country is facing each harmonize the way investors perceive creation and/or maintenance of jobs. time. Now is the time to engage in Europe’s overall attractiveness Considering the current economic recover the economy of the country and could boost Portugal’s tax scenario, these are viewed as positive and for that reason the tax system system perception. measures that need to be considered has a role to play and off course in any future tax amendments. However, Portugal needs to do its such type of measures will work homework and simplify its tax system. Another aspect of the utmost as a positive contribution to that Ernst & Young, S.A. conducts an importance, is the new funding objective. annual technical analysis of the State programs that Portugal is entitled 1 to receive from the EU, under the Budget . This includes a survey of local Luís Marques scope of the RRF. Therefore, it companies to assess, among other Tax leader, Ernst & Young, S.A. aspects, what are the areas in the tax is also expected that some additional field that the business community feels incentives/grants will be granted that should be addressed, as a matter of for eligible applicants. This will also priority, by the Portuguese Government. contribute to leverage the level of attractiveness of the country. The respondents of the 2021 State Budget Survey believe the The current scenario of attributing simplification of the tax system should some tax advantages for individuals be a key driver of public policies. In this that are willing to work or reside in

1 EY, Survey Orçamento do Estado para 2020, 2019

EY Portugal Attractiveness Survey June 2021 49 Communication with investors is key

Even though there has been an improvement, Non-established companies in Portugal might communication falls short of expectations be losing information on the country An effective communication is crucial to convey a country’s When considering non-established companies, the results message. Indeed, foreign investment has been affected point to a communication gap. Despite the improvement by this phenomenon where competitive advantages of 23 p.p. compared to 2020, there are 57% of the are not highlighted. respondents stating they never receive information However, there is a positive trend regarding information about the country’s attractiveness. dissemination, with 75% of the respondents mentioning that Looking into the future, there are opportunities for they received information about Portugal’s attractiveness, improvements. It is imperative to ensure that valuable a 30 p.p. increase comparing with 2020. Moreover, only 22% information is transmitted to investors quickly and indicated that never received information, representing successfully, with focus on the non-established investors. a 24 p.p. decrease compared to the homologous year. This communication can be a valuable tool to fuel the country’s longer term FDI prospects and positioning in global value chains.

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Figure 23: Does your company regularly receive information on Portugal’s attractiveness to FDI?

2021 3% 12% 60% 22% 3% 2021 2% 32% 57% 9%

2020 13% 7% 25% 46% 8% 2020 4%3% 17% 70% 5%

All companies Non-established companies

Regularly from multiple sources Regularly from single source Occasionally Never Can’t say

Source: EY Attractiveness Survey 2021 (203 respondents; 147 established in Portugal and 56 non established in Portugal)

EY Portugal Attractiveness Survey June 2021 51 Methodology

The “real” attractiveness for foreign investors

Our evaluation of the reality of FDI in Europe is based on the However, our figures also include investments in physical EY European Investment Monitor, the EY proprietary database assets, such as plant and equipment. And this data provides produced in collaboration with OCO. valuable insights into:

This database tracks the FDI projects that have resulted in • How FDI projects are undertaken the creation of new facilities and jobs. By excluding portfolio • What activities are invested in investments and M&A, it shows the reality of investment in • Where projects are located manufacturing and services by foreign companies across the continent. Data on FDI is widely available. • Who is carrying out these projects The EY European Investment Monitor is a leading online An investment in a company is normally included in FDI data if information provider that tracks inward investment across the foreign investor acquires more than 10% of the company’s Europe. This flagship business information tool is the most equity and takes a role in its management. FDI includes equity detailed source of data on cross-border investment projects capital, reinvested earnings and intracompany loans. and trends throughout Europe. The EY EIM is frequently To confirm the accuracy of the data collected, the research used by government bodies, private sector organizations teams aims to directly contact more than 70% of the and looking to identify significant trends in companies undertaking these investments. The following employment, industry, business and investment. categories of investment projects are excluded from the EY The EY EIM database focuses on investment announcements, EIM: the number of new jobs created and, where identifiable, the associated capital investment. Projects are identified through • M&A and joint ventures (unless these result in new facilities the daily monitoring of more than 10,000 news sources. or new jobs being created) • License agreements • and leisure facilities, hotels and real estate* • Utilities (including telecommunications networks, airports, and other fixed infrastructure)* • Extraction activities (ores, minerals and fuels)* • Portfolio investments (, insurance and financial funds) • Factory and other production replacement investments (e.g., replacing old machinery without creating new employment) • Nonprofit organizations (charitable foundations, trade associations and government bodies) *Investment projects by companies in these categories are included in certain instances: e.g., details of a specific new hotel investment or retail outlet would not be recorded, but if the hotel or retail company were to establish a headquarters facility or a distribution center, this project would qualify for inclusion in the database.

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About the EY Attractiveness program

EY Attractiveness Surveys are widely recognized by clients, media, governments and major public stakeholders as a key source of insight into FDI. The perceived Examining the attractiveness of a particular region or country as an investment destination, the surveys attractiveness of Portugal are designed to help businesses make investment decisions and governments remove barriers to growth. A two-step methodology analyzes both the reality and its competitors and perception of FDI in the country or region. Findings are based on the views of representative by foreign investors panels of international and local opinion leaders and decision-makers.

We define the attractiveness of a location as combination The program has a 20-year legacy and has produced of image, investors’ confidence and the perception of a in-depth studies for Europe, a large number of country’s or area’s ability to provide the most competitive European countries, Africa, the Mediterranean region, benefits for FDI. The field research was conducted by India, , , Turkey and . EuroMoney in March 2021 via online surveys, based on For more information, please visit: a representative panel of 203 international decision- makers, 147 of them established in Portugal and 56 non ey.com/attractiveness #EYAttract established in Portugal. For the question “In your opinion, which main business sector will drive Portugal’s growth in the coming years?” there is no comparable data, as this year’s question is not the same comparing to last year’s.

EY Portugal Attractiveness Survey June 2021 53 How EY teams can help?

Services for investors and multipliers

With offices in Lisbon, Porto, Identification of acquisition Acquisition and integration support and , EY teams offer a broad opportunities Support in the development of growth scope of EY services across its service Support on the decision-making and business diversification strategies, lines: Assurance, Tax, Advisory and process concerning new investments through both the identification Transaction Advisory Services. either related to new geographies, and negotiation of acquisition Our teams work closely with the products or markets opportunities and / or in finding financial system, private equities, Identification of potential targets, additional funding (assisted funding venture capitalists and privately owned based on the investor’s requirements or new investors), and the analysis of businesses. Alongside private and business restructuring strategies Preliminary contact (respecting non- public clients, we provide support to disclosure agreements) leading to Assessment of existing compensation the development of economic and in-depth negotiations with selected policies and design of compensation commercial promotional strategies in targets packages matching compliance with Portugal and overseas. local regulations and the investor’s An in-depth knowledge of the local own policies market enables us to offer a set of services that covers all stages of the investment process:

Services for the public sector

EY, building on EY global’s legacy, Assessments of attractiveness Reinforcement of regions and cities’ has been developing a significant Identification of existing attractiveness attractiveness rapport with governments, investment factors and areas of intervention to Analysis of regional and local promotion agencies, regions, increase FDI and promote exports development factors and of creation of , and public companies Creation of investment attractiveness touristic value in the completion of market screening dashboards to measure results Assessment of attractiveness, and economic impact assessments. refunctionalization and impact of Efforts have also been undertaken equipment and heritage to improve attractiveness, reinforce competitiveness, attract, support and Development of local and regional accompany FDI leads. development strategies Conceptualization of governance models and partnerships

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Assessment of greenfield opportunities Financial, tax, commercial, operational, Initial business model preparation IT, environmental and regulatory due reflecting investment, financial and diligence operational costs based on local Asset valuation and business model conditions validation Site selection based on location Assessment of tax implications requirements for investment and business expansion Technical support to acquisition negotiations Intermediation with local stakeholders and identification of funding Operations assessment and opportunities, including tax and EU- identification of performance funded financial incentives improvement opportunities Preparation and assistance to on- Definition and support on buy & site visits and formal contacts with integrate and sell & separate strategies national and local stakeholders Identification and selection of local suppliers, based on sourcing requirements

Investment promotion Investment intention’s assessment Efficiency of policies and public Identification and validation of targets Validation of business models investments for FDI promotion Investor due diligence Macroeconomic analyses Compilation of the Doing Business Assessment of regional impacts Evaluation and impact analysis of report series with regional sector- programs, public and sectorial policy Investment economic and commercial specific investment brochures viability – Investment sustainability Strategic plans for public goods and Initial setup and definition of services procedures for the update of data sets Technical assistance and support to typically required by investors public management Preparation of regional business model templates for specific sectors Setting up and facilitation of roadshows and one-to-one meetings with potential investors, government authorities and business partners

EY Portugal Attractiveness Survey June 2021 55

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