Investing in Portugal

FT SPECIAL REPORT Investing in Portugal

Tuesday December 1 2015 www.ft.com/reports | @ftreports

Inside

Political relations A country divided by austerity For the first time in 40 years Socialists and Communists have After four years of cuts “We’ve made a hell of an effort to get wherewearenow,”saysPedroFerrazda joined forces and tough reforms the Costa, who runs a family pharmaceuti- Page 2 Portuguese are growing cals business and is president of the Forum for Competitiveness, a business China invests weary, writes Peter Wise association. “What worries me most is a Billions have been governmentwillingtoliftdomesticcon- sumption.”This would trigger a big rise pumped into he real-life repercussions of in imports. “If we get back on the wrong Portuguese companies the austerity debate that side of the current account, we’ll be Page 2 has gripped the west in the ready for external support again.” By wake of the global financial whichhemeansasecondbailout. T crisis are experienced daily António Costa, the PS leader Vicious circle saps the inPortuguesehomes,hospitals,schools, appointed prime minister last week, strength of companies job centres, companies and cafés, with dismisses any notion of a PS govern- The stifling weight of almost every aspect of people’s lives ment bringing Portugal into conflict having been affected by severe cuts and with its creditors over budgetary disci- debt is slowing down toughreforms. pline. He wants to lift the country “out the pace of recovery For the past four years the country of its cycle of impoverishment in a Page 3 has been held up by EU commissioners responsible way”,he says, based on “an and international creditors as a model intelligent and flexible reading” of the of how to behave in the face of a sover- EU’sfiscalcompact. eign debt crisis: by reining back public In effect, he sees the country joining spending, increasing taxes and intro- France, Spain, Italy and Greece in push- ducing far-reaching reforms to improve ing for a more pliable approach to EU productivity, international competi- budgetrules.ThisswitchwillseeAngela tivenessandpublicsectorefficiency. Merkel, the German chancellor, lose Thestoicismofthepeopleinenduring Portugal as an ally in the battle for fiscal painful measures was recognised rectitudeaswellasbeingdeprivedofMr Banking sector abroad this autumn with the presenta- Passos Coelho as a fellow flag waver for tion of the Europeans of the Year award balancedbudgets. reinvigorated by the German Magazine Publishers Mário Centeno, the new finance min- Profits beckon after Association for the “courage, determi- ister, wants to continue cutting the years in the financial nation and spirit of sacrifice” they had budget deficit, but at a slower pace. “It’s shown during the gruelling three-year not the direction we challenge,”he says, doldrums €78bn bailout from which Portugal “but the speed of travel”.This will “cre- Page 3 emergedlastyear. Polarised: a man carrying a sign saying ‘nothing but thieves’ joins a protest march against austerity — Hugo Correia/Reuters ate more space” for growth. But it will InOctober’sgeneralelectionhowever, not be achieved, he insists, by putting Entrepreneurship the weariness of hard-pressed voters andunitedbytheiroppositiontoauster- secretary of state for European affairs prospect of a coalition of moderate thecountry’smembershipoftheeuroat saw the centre-right coalition led by ity, emerged unexpectedly to take its and a PS party member. “One side socialists,populistradicalsandhardline risk or compromising commitments Start-ups are securing PedroPassosCoelho,theprimeminister place. “The experience of the last four wanted to keep the Passos Coelho coali- communists supporting a government agreed with the EU and the Interna- funds and other support who steered Portugal through that bail- yearshascreatedahugedivideinPortu- tion in power and the other wanted to determined to move Portugal, once the tional Monetary Fund, which in 2011 from businesses at out, lose its parliamentary majority. An guese society and the political centre getridofitatanyprice.” exemplary protégé of fiscally-conserva- rescued Portugal from the brink of allianceofdisparateleftwingparties,led has more or less disappeared,” says Business associations and credit tive eurozone leaders, to the opposite financialcollapse. home and abroad by the centre-left Socialist party (PS) Francisco Seixas da Costa, a former rating agencies are concerned by the sideintheausteritydebate. Continuedonpage2 Page 4 2 ★ FINANCIALTIMES Tuesday 1 December 2015 Investing in Portugal ‘It is important to shift capital into stronger hands’ A country divided by

China report. In Portugal, China Three Gorges pledged €2bn to EDP-led renewables relationship”. Portugal, he added at a €350,000 in the field makes possible a paid €2.7bn for 21 per cent of Energias ventures. Last June, they unveiled their recent Lisbon conference, offers “a plat- residenceapplication,against€500,000 austerity Private and state enterprises dePortugal(EDP)andStateGridCorpo- latest, Hydroglobal, targeting South formforthePortuguese-speakingworld forpropertypurchases. ration of China spent €1.4bn on 25 per America and Africa. State Grid created andits250mconsumers”. Golden visas were already a hit with and reforms have pumped billions into cent of Redes Energéticas Nacionais similar ventures with REN in Angola More diverse investments are also on citizens of China, who received 2,087 of Portuguese companies, (REN). Both buyers are state enter- and Mozambique (and in 2013 helped it the cards. “Areas such as tourism, food the2,621issuedtotheendofOctober. prises, but last year private conglomer- secure a €1bn finance line from China’s processing and ports have immense In three years the programme has reports Alison Roberts ate Fosun International bought 80 per Development Bank). Fidelidade contin- potential,” says João Marques da Cruz, attracted almost €1.6bn, almost all in Continuedfrompage1 cent of state-controlled Caixa Seguros ued its drive into Africa, setting up in president of the Portuguese-Chinese property. Despite its brief suspension The PS’s judicious approach to relax- Portugal accounts for just 1.3 per cent of Saúde, Portugal’s largest insurance Mozambique. ChamberofCommerceandIndustry. this year, estate agents say demand is ing fiscal restraints is not shared by its the EU economy yet has in recent years group, for €1bn — and then used it to “They are already showing a pattern Bilateral trade volumes have also strong. “Chinese investors are rich in coalition partners, the Bloco de received more Chinese investment than buy the hospital business Espírito Santo of growing these companies,”says Beat- increased fourfold in six years. “It’s not money and experience,”says Hao Shen, Esquerda (BE), a radical forerunner of any member state except the UK, Ger- Saúdefor€460.5m. riz Araújo, an M&A Partner with Baker only automobiles and minerals, but chief executive of Noble Fortune, which Greece’sSyrizafoundedin1999,andthe manyandFrance. Elsewhere, Huawei invested €10m in food products and footwear,” says Mr has offices in Lisbon, Rome, Barcelona Communist party (PCP), which has Before2011,ninecountries—Austria, a technology centre and Beijing Enter- Correia of Portugal’s exports. “China’s and Athens. “Many have a clear view tenaciously resisted the moderating Belgium, Denmark, France, Germany, prisesWaterGroupboughtVeoliaÁgua. big middle class is paying more atten- on southern Europe: there is a lot of influences of Eurocommunism. Luxembourg, the Netherlands, Sweden While little capital went into greenfield ‘[Portugal offers] a platform tiontoconsumption.” potential.” Denounced as “anti-European” by and the UK — attracted 77 per cent of projects, takeovers tend to mark a start, for the Portuguese- According to Xu Weili, economic Given China’simportance, some won- Aníbal Cavaco Silva, Portugal’sconserv- Chinese investment in the EU. Since notafinish. counsellor at the Chinese embassy in derabouttheeffectofasharpslowdown ative president, the BE and PCP support then there has been a sea change, “The important thing in a country in speaking world and its Lisbon, trade last year totalled $4.8bn, initseconomy.Othersdismisssuchcon- debt restructuring, oppose the fiscal according to a recent report by law firm crisis is to shift capital from weak hands 250m consumers’ up23percenton2013.“Evermorecom- cerns,citingthenowsignificantinterna- compact and would like to see Portugal Baker & McKenzie, using data compiled — of owners with solvency and debt panies are working together,” he says, tionalisation of its economy, vast cen- outofNato. byresearcherstheRhodiumGroup. problems — into stronger hands with & McKenzie. “So those investments are pledging “to support all initiatives to tral bank reserves, and the fact that it In the name of overturning austerity “Chinese investors increasingly the capacity to invest and open up mar- thebeginningofgrowth.” deepenrelations”. can still expect 6.9 per cent growth this and ousting Mr Passos Coelho, they deployedcapitalineconomiesthatwere kets,” says José Brandão de Brito, chief According to Pedro Ortigão Correia, Portugal’s “golden visa’” programme year and 6.7 per cent next, according to agreed in November to put such severely affected by the financial crisis economist at Portuguese bank Millen- executive director at AICEP, Portugal’s — Residence Authorisation for Invest- theWorldBank. demandsasideandsupportaPSgovern- [and] seized opportunities arising from nium BCP. “The Chinese are in a very investment and trade agency, the ment Activity (ARI) — was recently “How is there talk of a hard or soft ment. In the eyes of its opponents, the privatisation of . . . utilities and goodpositiontodothis.” inflow proves “not only the quality amended to foster urban rehabilitation, landing?” muses Mr da Cruz. “There’s including some moderate Socialists, the transportation infrastructure,”says the As part of its 2011 deal, Three Gorges of our assets but the closeness of the much of it tourism related. Investing nolandingatall.” three parties which have been political enemies for many years are now united in an “unholy alliance” that could easily breakapart. “The political backdrop is likely to remain volatile,” says Antonio Barroso, an analyst with Teneo Intelligence, risk Backlash against consultants. “The PS will have to strike the difficult balance of delivering cen- trist policies while being accountable to political allies with a sceptical stance towardsthemarketeconomy.” austerity bridges Mr Centeno’splans to ease the pace of fiscal consolidation will have to be agreed with the European Commission. However, Commerzbank of Germany ideological predicted in a recent note to investors that any tensions with Brussels would not be on the same level as they have beenwithGreece. “We’re certain to face massive pres- divisions sure from ‘austerity Europe’ and the big economic and financial groups that have done so much to destroy working conditions and living standards in

€78bn 20%-30% The cost of the The income it is Politics For the first time in 40 years Socialists and rescue package said public sector put together by workers lost from Communists have joined forces, writes Peter Wise the EU and IMF 2011 to 2014

n Portugal’s biggest political returnforpolicyconcessions.ButthePS Power play: democracy.Hisalliancewiththefarleft, change” and against austerity. Mr Pas- Portugal,”says Catarina Martins, leader upheaval for a generation, moder- leader surprised the country — and the Aníbal Cavaco showed Mr Costa to be motivated “only sos Coelho had moved away from the of the BE, a party whose nimble-witted ateSocialistsandhardlineCommu- rest of Europe — by tearing up the pre- Silva, president, by an appetite for power”, said the centre-right’s social democratic roots, women activists have earned praise for nists agreed this autumn to bridge paredscriptandforgingan“anti-auster- right, with defeatedprimeminister. the PS leader argues, in favour of “bru- introducing new verve into a staid polit- I an ideological divide that had kept ity” alliance with the far left. This move António Costa, The gulf separating the PS and the tal” neoliberal policies. His “historic ical culture traditionally dominated by themapartformorethan40years. had not been suggested to voters before Socialist party Portuguese Communist Party (PCP) agreement” to unite the left, Mr Costa middle-aged men in suits. The agree- Accompanied by the radical Bloco de theelection. leader was at its deepest in the turbulent after- says, will enable Portugal to “turn the mentwiththePS,shesays,isa“concrete Esquerda(BE),thethawinrelationshas Acclaiming the new pact, Mr Costa Patricia de Melo Moreira/AFP math of the 1974 coup that overthrew page on austerity” without putting alternative to rightwing policies [and] broughtthelefttogetherasneverbefore told parliament: “a taboo has ended, a Portugal’s rightwing dictatorship. As PS membershipoftheeuroatrisk. willimprovelives”. inapactdesignedtooverturnausterity. wall has been knocked down, another leader at the time, Mário Soares, now However, his opponents see the pact The extent to which public spending More than a quarter of a century after prejudice has been overcome”. Shortly the country’s leading elder statesman, ontheleft,hammeredoutinthreesepa- cuts and other measures have affected the fall of Europe’s most potent symbol afterwards, the once divided left, which ledastruggleagainstthepro-SovietPCP rate accords between the PS, the BE, people’slives is reflected in calculations of the divide between Soviet commu- wonamajorityofparliamentaryseatsin to bring Portugal firmly into the fold of PCP and pro-Communist Greens, as an made by the communist-leaning CGTP- nism and free-market democracy, the election, united to bring down Mr western parliamentary democracies. opportunist grab for power after Mr Intersindical, Portugal’s main trade António Costa, the Socialist party (PS) PassosCoelho’snewgovernment11days Thisbecamethemainreason,MrSoares Costa lost the election, with the PS poll- union confederation. Arménio Carlos, leader and broker of the new alliance, afterittookofficeonOctober30. says, for Portugal’s application for EU ing 32.3 per cent to the centre-right’s its leader, says public sector workers compares the agreement to “tearing Constitutional precedent required, membershipin1977. 38.6 per cent. A broad left government lost between 20 and 30 per cent of their downthelastremainsofaBerlinWall”. the president ruled, that Mr Passos Coe- Unlike its counterparts in Spain, Italy ‘A taboo has had become “mathematically possible”, overall income between 2011 and 2014 The surprise detente between former lho be reappointed prime minister as and France, the PCP has scarcely ended, a said Paulo Portas, deputy prime minis- through a combination of wage cuts, tax foes was triggered by the inconclusive leader of the group that had won most changed since the Soviet era, remaining ter in the PAF administration, but was increases, longer working hours, reduc- outcomeofthecountry’sOctober4gen- votes in the election. Dismissing warn- staunchly Marxist-Leninist. It is wall has “politicallyillegitimate”. tions in overtime pay, abolished bank eral election. The centre-right Forward ings from the left that this would be “a respected in local government, where it been Mr Costa’s unexpected deal with the holidaysandafreezeonpromotions. Portugal (PAF) coalition led by Pedro waste of time”, given their majority of isthethirdlargestforce,andwon8.3per BE and PCP has split his party.“It seems “In total, public and private sector PassosCoelho,electedprimeministerin seats,MrCavacoSilvaobliquelyencour- cent of the vote in the general election. knocked obvious . . . the centre-left and the cen- workershavelostabout€17bn,”saysMr 2011, emerged as the largest force, but aged moderate PS deputies to disobey The BE, or Left Bloc, founded in 1999, is down, tre-righthavefarmoreincommonthan Carlos. That is, the equivalent of almost lost more than 700,000 votes, 25 seats the party whip and keep the centre- a populist forerunner to Greece’s Syriza the centre-left and extreme-left,”Fran- 10 per cent of annual GDP in four years. anditsoutrightmajorityinthe230-seat rightinpower. and Podemos in Spain. It doubled its another ciscoAssis,apotentialchallengerforthe The leftwing alliance plans to restore parliament. Party discipline held and Mr Passos voteto10.2percent,becomingthethird prejudice PS leadership, wrote recently. “The many of these losses by reinstating cuts Aníbal Cavaco Silva, the conservative Coelho, whose coalition had been the largestgroupinparliament. agreement is the visible tip of the ice- topublicsectorsalaries,liftingthemini- president, urged Mr Costa to ensure firsttosurviveafullfour-yearterm,saw Mr Costa, appointed prime minister has been berg,”he said. “But it’swhat’sbelow the mum wage and ending a freeze on state government stability by supporting a his second government fall at the first last week, interprets the 50.8 per cent overcome’ surface that is more important and that pensions. It also intends to re-instate minority centre-right administration in hurdle, the shortest-lived in 41 years of won by the combined left as a “vote for usuallycausesthebiggestdisasters.” four bank holidays, adjust tax rates to the benefit of lower earners and remove extraordinary tax levies and pension contributions imposed during the bail- Contributors out. Mr Passos Coelho condemns this as a reckless agenda that will “ruin Portu- Peter Wise Techies find a new place to do business gal”. Portugal correspondent At the height of the country’s recession in 2013, unemployment soared to a Alison Roberts Web Summit political will to underpin the event’s 1998 Expo, he cited good public trans- “It’s maybe for academics to figure record 17.5 per cent but it has since Paul Ames expansion. port links, the option of traffic calming out why in certain cities at a certain fallen to just below 12 per cent. Youth Freelance writers based in Lisbon But the decision, he insisted in an measures, and excellent WiFi facilities moment there’s just a great community unemployment, though, remains above Lisbon has ousted Dublin interview after the Lisbon ceremony, provided by MEO, Portugal’s largest spirit and real optimism about a better 30 per cent. Jobless figures have been Stephan Morais as the venue for wasnotprimarilyanegativeone. telecoms company and the venue’s tomorrow,”hesays.“Isawitintheincu- mitigated by a surge in emigration, with Executive board member, Caixa Capital entrepreneurial excellence, As well as the proximity of Lisbon’s sponsor. bators I visited and in the bars where I about 395,000 people, close to 4 per airport to the conference venue at Even more important was what he went for drinks with young entrepre- cent of the population, leaving in the Aban Contractor says Alison Roberts Parque das Nações, former site of the described as an “incredible” grass roots neursandinvestors.” four years to December 2014, according Commissioning editor campaign to lure Web Summit to Lis- Thatisnottosaythatthegovernment totheEmigrationObservatory. When thousands of entrepreneurs, bon, after it became known that his and city — represented at September’s For advocates of fiscal rigour,emigra- Steven Bird investors and technology specialists team were looking at alternatives to ceremony by officials whose suits and tion,recordlevelsofcorporateandfam- Designer gathered in Dublin early last month for Dublin. ties were in stark contrast to Mr Cos- ily bankruptcies, lost jobs and earnings the 2015 Web Summit, many already “Out of nowhere someone created a grave’s T-shirt and jeans — were not are the bitter but inevitable conse- Emily Lewis knew that it would be the last to be held Facebook page, and within days over a eagertohelp. quences of a crisis in which Portugal, Picture editor intheIrishcapital. thousand people had joined the cam- “I think when any country goes sinking under the weight of unsustain- WebSummit’sIrishfounderandchief paign and then two and then through a very challenging moment it ablelevelsofdebt,hastoadjusttoliving Chris Campbell executive, Paddy Cosgrave, had in Sep- three . . . and then over 5,000,”he says. tends to create some sort of unity: peo- withinitsmeans. Graphic artist temberannouncedataceremonyinLis- “On Twitter I couldn’t wake up any pleovercomebaggagethatmaybesepa- They see it as a process of creative bon that the Portuguese capital would morningwithoutsomebodysaying‘hey, rating different stakeholders,” Mr Cos- destruction in which skills and Valentina Romei be hosting the event from next year, in youshouldcometoLisbon,letmeknow gravesays. resourcesaretransferredfromactivities Statistics journalist principleforthreeyears. ifyou’dliketolearnmore’.” “The spirit is just let’s work together that are no longer viable to what is pro- This was a coup for Portugal. Since A Lisbon-based company, Codacy, andsetasidepastmistakes.” ductive. “Growth is a painful business,” For advertising details, contact 2010 the Web Summit has emerged as also won the 2014 Web Summit Pitch While he found the upbeat mood in says Pedro Santa-Clara, a Lisbon-based Maria Gonzalez on +34 91 56 41 810 or animportantdateinthetechcalendar, competitionforstart-upsseekinginves- Lisbon tech “overwhelming”, many in professoroffinance. [email protected], or Rodrigo addressed by chief executives from tors, while Portugal’s embassy in Dub- Portugal have suffered greatly in the Low growth, the perennial weakness Correia on [email protected] companies such as Twitter, Netflix, lin was overrun by Portuguese young- economic crisis. “There are people that ofthePortugueseeconomy,isaproblem or +35 12 18 40 82 84. Skype, Tesla Motors and PayPal; it sters when it held a reception during have been left behind all over the west- the new government will need urgently will be the biggest global tech event thatyear’sevent. ern world over the past eight years,” he toaddress,accordingtoeconomists. All editorial content in this report is Lisbonhashosted. For whatever reason, Mr Cosgrave says. Sustained and robust growth is vital produced by the FT. Our advertisers have Ireland’s government has since asserts,Lisbonhashitasweetspot. “But I hope that the optimism for tackling other problems looming on no influence over or prior sight of the defended its handling of the matter, of entrepreneurs building new compa- the horizon, including an underfunded articles. after Mr Cosgrave released correspond- Pitch perfect: Paddy Cosgrave, Web nies will help lift them out of their securitysystem,afragilebankingsector ence that he felt showed a lack of Summit’s Irish founder situation.” andanimpendingdemographiccrisis. Tuesday 1 December 2015 ★ FINANCIALTIMES 3 Investing in Portugal Profits beckon after years in financial doldrums From a seafaring to a start-up nation Banking restructuring and recapitalisation, a fallofBESstillripplesthroughthefinan- Portugal’s financial sector, suffered a financial sector battered by the euro- cial sector,bankers are beginning to fret setback in September with the failure of Paul Ames finds a sector zonedebtcrisisisclamberingbacktoits about how the uncertainty of Portugal’s the central bank’sefforts to find a buyer feet. Among other leading listed banks, political outlook could undermine for Novo Banco — the so-called good OPINION reinvigorated, with Moody’s, BancoBPIreporteda€151mthird-quar- growth. bankcreatedfromtheremnantsofBES. the rating agency, raising its ter profit, bouncing back from a €114m “Political stability and, equally Portugal’s other banks contributed to a Stephan outlook to stable for the loss over the same period last year. important, financial stability are funda- €4.9bn resolution fund used to bail out Santander Totta declared a 49 per cent mentalforthedevelopmentofthecoun- Novo Banco, and they stand to pick up Morais first time since 2008 increaseinnetprofit. tryrightnow,”saysMrFariadeOliveira. the tab if the lossmaking lender is sold In October, Moody’s, the rating “It’sessentialthatPortugalcontinueson forless. agency, raised its outlook on the Portu- the path of economic recovery, consoli- Bank leaders have been vocal in Nuno Amado, chief executive of Millen- guese banking sector from negative to dates the efforts made since 2011 and opposing any suggestion that the fund Wandering through the charming streets of Lisbon, enjoying niumBCP,Portugal’slargestlistedbank, stableforthefirsttimesince2008. respectsEUrules.” be used to further recapitalise Novo a delicious pastel de nata, or sipping a glass of full-bodied red had a noticeable spring in his step when “Therecoveryoftheeconomyishelp- Some bankers are concerned about a Banco, which needs to fill a €1.4bn wine by the Douro river in Porto, are some of the long-lasting he strode out to deliver the lender’s lat- ing to stabilise the credit base of Portu- prolonged period of political uncer- capital shortfall. Chinese investors led memories that tourists take home from Portugal. est results in November. After posting guese banks and contribute to a gradual taintyandtheimpactontheeconomyof the race to acquire Novo Banco but Tourism is booming and the history, cuisine, good weather, four consecutive full-year losses, he improvement in asset quality,” says a Socialist-led government supported their offers fell low, prompting the great nightlife and easy-going nature of the people attract announced the bank’s third straight Fernando Faria de Oliveira, president of by the far left. This could potentially ‘Efforts [are] Portuguese authorities to postpone the attention from international media. But the sun and quarterlygain. thePortugueseBankingAssociation. increase the influence of the Portuguese focused on sale. sand country, Europe’s west coast, is much more than BCP registered a €264.5m net profit The banking system is focussing its Communist Party and the radical Left Cooling economies in China and just that. for the first nine months of 2015, com- efforts on increasing income, reducing Bloc, which advocate nationalising the increasing Angola — which have also been an Tourism and real estate are safe investment bets. pared with a €109.5m loss for the same operating costs and adjusting business bankingsector. income, important source of investment in Por- Airbnb and low-cost airlines are one of the main reasons period last year. Domestic operations models,hesays. Socialist Party officials have sought to tugal’s financial sector — mean Spain is why hundreds of glasses of wine are served each day to were no longer cancelling out the per- Despite the hopeful signs, however, provide reassurance, insisting their reducing more likely to provide suitors for Portu- tourists by trendy start-up Wine With a View, next to the formance of more dynamic overseas Portuguese banks still face considerable moderatelinewillprevail,guaranteeing operating guesebanks. Torre de Belém. A generous tax regime for foreigners and a marketssuchasoil-richAngola. challenges. Last year, just as lenders that fiscal discipline will be maintained Analysts believe Spain’s Santander competitive Golden Visa programme have also brought in a “Portuguese operations that have werebeginningtorecoverfromtheeuro and ruling out new taxes or overly bur- costs and could renew an initial interest in Novo much-needed capital injection into the local real estate made losses for years have moved into crisis, the sector was hit by the collapse densome regulation that would affect adjusting Banco, and Barcelona-based Caixabank market, particularly at the high end. Hardly any other profit,” Mr Amado told reporters gath- of Banco Espírito Santo, a family-run lenders. isagainreportedlylookingatexpanding capital cities in Europe have such low prices per square ered in one of BCP’s elegant blocks of pillar of the financial establishment Politicsisnottheonlyworry.Expecta- business its Portuguese interests, despite failing metre. 18th-centuryLisbonrealestate. whoseassetsoncetopped€80bn. tions of increased foreign investment, models’ in a bid earlier this year to increase its But the country has undergone a deeper transformation BCPisnotalone.Afteryearsofpainful Today, as the fallout from the down- seen as a sign of restored confidence in 44percentstakeinBPI. over the past few years. Enduring a tough adjustment programme, with family income plummeting, unemployment rising to precipitous levels and much-needed structural reforms pushed through at a faster pace than Portuguese society was used to, left a bitter taste with many. For those who were part of a young and highly qualified generation with no immediate employment prospects there were two options: leave the country A vicious circle or start a business. Many left, but others stayed and the recent announcements about the relocation of Web Summit, a global tech event, from Dublin to Lisbon and the launch of accelerator Startup Next by Techstars in Lisbon suggests that the country might be on the path to fundamental that saps the transformation. While labour costs are some of the lowest within the euro area and the country currently boasts a positive trade balance based on higher exports of manufactured tradeable goods, the shift towards foreign direct investment looks like strength of it may be under way. High tech companies such as Rocket Internet, Google, Microsoft and many others have significant offices in the country and up-and-coming foreign tech companies frequently consider opening a local office to take advantage of the available tech and engineering companies talent. Portuguese start-ups are also beginning to raise significant rounds of international capital. Even when headquarters legally move abroad, the bulk of operations and even senior management tend to stay in the country. Fashion “unicorn” Economy The stifling weight of debt is slowing Farfetch, cloud-based call- centre software Talkdesk, Thecountryhas down the pace of recovery, writes Peter Wise student accommodation booking platform Uniplaces, changed,notby ore than four years after deleveraging and restructuring. It’s a or big data and machine designbutby the EU and IMF rescued long process that can take up to a learning anti-fraud software Portugal from imminent decade.” company Feedzai are all education,througha bankruptcy, debt contin- Pedro Ferraz da Costa, president of examples of Portuguese- newgenerationof M ues to gnaw at the econ- Portugal’s Forum for Competitiveness, based companies that are omy. The combined total of public, cor- believes the economy might not be conquering global markets highlyambitious, porate and household debt represents growing at all if not for a favourable and raising hundreds of more than 370 per cent of GDP, one of external climate. “It’s only because millions of euros and dollars globallyminded theheaviestdebtburdensinEurope. interest rates, the euro exchange rate in international rounds of The weight of debt is slowing down andoilpricesarelowthatwearenotina funding. Just three or four entrepreneurs the pace of recovery and threatens to worsepositiontoday,”hesays. years ago this was virtually remain a long-term drag on the econ- Despite this favourable environment, On the up: shoe bonds worth an estimated €1.2bn in time but require a stronger economic impossible. Coupled with the existence of several leading life omy, restricting the growth needed to the economy is expanding at a signifi- exports have November. growth, higher exports, and more sciences research centres, such as the Champalimaud lift the country out of debt. This vicious cantly slower rate than would be risen 54 per cent Public debt rose during the bailout, attractiveness for foreign direct invest- Foundation, that are attracting global talent, this creates a circle saps the strength out of compa- requiredtooutgrowPortugal’sdebtbur- over the past peaking at just over 130 per cent of GDP ment.” recipe for future success. nies and ties up resources that could den, of which the amount held by for- five years lastyear.Effortstocutthebudgetdeficit Mário Centeno, the new finance min- A new Portugal may be emerging, not of local protected otherwisebeproductivelyinvested. eign creditors exceeds 220 per cent of Paulo Duarte/Bloomberg saw it fall from 9.8 per cent of GDP in ister,advocateskeepingthebudgetdefi- champions, but of global up-and-coming, rapidly growing “Companies have been focused GDP. Investment, according to the 2010 to an OECD estimate of 3 per cent cit and public debt on a “downward tra- new companies. This will not solve all the country’s issues almost exclusively on paying down debt OECD, fell by almost 35 per cent this year. The current account has jectory”, but believes the pace of fiscal and certainly not its falling — though still high — for the past five years,” says Pedro Siza between2007and2014,morethandou- moved from a deficit of 12.1 per cent of contraction should be relaxed. This unemployment, but it is a favourable development that has Vieira, head of the Lisbon office of bletheaveragedropintheEU. GDP in 2008 to a projected surplus of would ease the financial pressure on spillover effects into the country’s general competitiveness. Linklaters, the law firm. “Every The €78bn bailout Portugal secured 0.4percentthisyear. companies and families, creating the Regardless of political direction, the country has changed, increase in revenue and cost-cutting from the EU and IMF in 2011 averted a Mr Ferraz de Costa sees this as a posi- “economic space” needed for stronger not by design but by education, through a new generation gain has been used to pay off loans, not looming sovereign debt crisis. After tive outcome of Portugal’s adjustment growth. of highly ambitious, globally minded entrepreneurs to invest. The same holds true for fami- completing a tough three-year adjust- programme — and its potential reversal He rejects criticism that his “new way and the ecosystem that has quickly evolved around lies, who have cut their spending, and ment programme, Lisbon was able to as the biggest risk. “If you have a nega- of approaching the economy” would them. thegovernment.” resume financing its debt in the market tive current account, you need addi- destabilisepublicaccountsandtriggera As a member of the euro area, with geographical Shouldering this deadweight of debt in May 2014 and has since built up cash tionalfinancingeverymonthandIdon’t surge in imports by fuelling domestic and geopolitical proximity, both physical and historical, hinders recovery. After three years of reservesofabout€8bn. thinkthemarketswouldacceptthat.” demand. Instead, he argues for a bigger to relevant emerging markets in Africa and South recession, the economy grew by 1 per Yields on 10-year debt, which had Improved efficiency and product role for Portuguese companies in meet- America, Portugal looks well placed to attract more cent in 2014 and is forecast by the EU to soared to about 18 per cent before the quality has helped push up goods and ingthatdemand.Localcompaniesserv- investment, particularly the kind that uses its highly expand by 1.7 per cent this year and bailout, have fallen to about 2.5 per service exports by 10 percentage points ing the domestic economy were deci- qualified and flexible young workforce and world-class next. Greece, Spain and Ireland are all cent. The European Central Bank’s over the past five years to just over 40 mated during the recession, he says, infrastructure. growingatconsiderablyfasterrates. quantitative easing programme has percentofGDP.Shoeexports,forexam- leaving the door open for imports as Portugal is emerging as a start-up nation, one based on a “A recession caused by debt always helped keep government borrowing ple, have risen 54 per cent over the past demandpicksup. global mindset and ambition that would make the country’s takes more time to recover from,” says costs in check, even after a rise in politi- five years. But as the commission points “We cannot expect exports alone to original 15th century seafarers proud of their 21st century Mr Siza Vieira. “You have to wipe out cal risk following the general election in out in a recent report: “[further] rebal- carry the economy forward,” Mr Cen- descendants. the excessive debt, which means com- October. Analysts estimated that the ancing through sustained current teno says. “We have to have a more panies will have to continue focusing on ECB bought Portuguese government account surpluses will not only take balancedview.” The writer is an executive board member of Caixa Capital ‘Graduates work abroad — but careers bring them back home’

Interview ProfSanta-Clara.“Emigrationisnota theircareersoftenbringthembackto HebelievesPortugalhasundergonea whenitcomestoredressingfiscal resistance”,hesays.“There’salwaysa finaldecisionforthecurrent Portugal.” bigculturalchangeoverthepastfour imbalances.“Peopleforgettheimpact struggle.Judgesandlawyersresist generation,”hesays. Effortstorebalancetheeconomy years.“Peoplehaverealisedthatthey thataprotractedadjustmentcanhave reformtothejusticesystem;unions Pedro Santa-Clara tells “Peopleleavingtodaymoveback awayfromdebt-fuelleddomestic cannotwaitaroundforeasyjobs, oninvestmentandfuturegrowth.Who’s opposelabourreformsandincumbents Peter Wise how a generation andforthlookingforbetter consumptiontoexport-ledgrowth,one governmentcontractsorEUfundsto goingtoinvestwhentheyexpectthat objecttochangesinenergyand is confronting change opportunitiesandsalaries.That’spartly ofthemainaimsoftheadjustment appearlikemannafromheaven.You theeconomyisgoingtobeslowingfor productmarkets.ButIthink whywejoinedtheEUandit’s programmethatLisbonnegotiatedwith havetogetupandgoingunderyourown thenext10years?” mostpeoplerecognisethecourage fundamentaltoopeningupour theEUandtheIMF,hasproved“ahuge steam.I’veseenalotofcompaniesthat Whetheritscalledausterityorrigour, withwhichthe[2011-2015]government Inthelate1960s,beforethe1974coup economyandouroutlook.” success”,hesays.“Infouryears,exports havestartedexportingand ProfSanta-Claraisacutelyawareofthe tookonsomeverystronglobbies thatrestoreddemocracytoPortugal ThePortugalhegrewupin,saysProf haverisenfromlessthan30percentof internationalisingtheirbusinesses.” hardshipsPortugalissuffering. thathadneverpreviouslybeen after48yearsofdictatorship,wavesof Santa-Clara,49,was“closedofftoideas GDPtomorethan40percent.That’s Hedislikestheterm“austerity”.“It “Increasinggrowthandproductivityisa challenged.” unskilledlabourerswereleavingthe fromtheoutsideworld”.Therewas“no remarkable.” suggestsasortofpainthatcountries painfulbusiness.Adjustmentsare Itisanendorsementofthecountry’s country“toescapehunger”,saysPedro freedomoftravelanditwasn’teasyto TheprofessorgivesPortugala“B”for masochisticallyinflictonthemselves.I tough,butwe’velearnedthattheyhave attractions—lowrealestateandrental Santa-Clara,professoroffinanceat comebyaforeignnewspaperor itsperformanceondiscipliningpublic prefertocallit‘rigour’,theproper tobemade.Theforceofeconomic costs,goodhealthcare,educationand Lisbon’sNovaSchoolofBusinessand magazine”.Therecentsurgein finances,anotherpriorityofthebailout rigourthatshouldbeusedtomanage growthisoverwhelming.Itbenefits transportinfrastructure—saysProf Economics emigration,hebelieves,ispartofa programme.“Ithinkwe’vemadealotof publicfinances.” everybody.” Santa-Clara,thatmanyoftheNova “Theyhadtoleavewithnothingand wider,oftenpainfultransformationin progress,butthere’sstillalottobe Healsofavoursashort,sharpshock Unemployment,the“mainindexof businessschool’sforeignstudents, travelclandestinelybecauseemigration whichPortugalisturningitsenergies done.”Debtstillremains“ahuge Portugal’spain”,hasfallenfromarecord about40percentofthetotalstudent wasillegal,”saystheprofessor,whowas outwards. burdenontheshouldersofthe 17.5percentin2013tojustbelow12per body,remaininPortugalafter asmallboyatthetime.SincePortugal’s Amajorityofthoseleaving,hesays, economy”,ProfSanta-Clarasays,but 12% 1.7% cent.Labourcostsadjustedquickly,he graduatingtostarttheirown 2011sovereigndebtcrisisandensuing willreturn,bringingnewskillsanda notesthat“we’restartingtoseealittle The figure The percentage adds.“That’swhywedidn’tsee businesses.“Thedreamofmanyyoung bailout,emigrationhasclimbedto moreglobaloutlook. fireintheengines”,withGDPgrowth unemployment GDP growth is unemploymentashighasinGreece.” peopleisnolongertogetajobin levelscomparablewiththatexodus.But “About55percentofNovagraduates expectedtoreachabout1.7percentthis has fallen to, expected to Reformsmadeaspartofthebailout governmentorabank,buttobecome anycomparisonshouldstopthere,says goabroadfortheirfirstjob.But year. down from 17.5% reach this year programmehavemetwith“huge entrepreneurs.” 4 ★ FINANCIALTIMES Tuesday 1 December 2015 Investing in Portugal

Portugal in numbers Hub of invention fights Forecasts for Portugal (as of Nov 5 2015) GDP growth Inflation Unemployment Per cent (year-on-year) Per cent (year-on-year) Per cent 2.0 1.5 16 1.0 1.5 14 off recessionary blues 0.5 1.0 0.0 12 0.5 -0.5 10 where the distinctive Vinho Verde, or Portuguese”; its best engineers and pro- 2014 15 16 17 2014 15 16 17 2014 15 16 17 Entrepreneurship “green wine”, is made, and also Portu- grammers are also less likely to be gal’sindustrialheartland. poached here than in London or Silicon Public balance deficit Gross public debt Current account balance Innovative start-ups are Another start-up offers online serv- Valley. % of GDP % of GDP % of GDP securing funds and other ices for the textile industry, a leading ButitisPortugal’scapitalthathasgar- 0 150 0.6 employer hurt by recession and the nered most attention for its thriving -2 support from businesses at 100 0.4 competitionwithAsia. start-upcommunity. -4 home and abroad, reports “The last five years have seen a big Last year Lisbon became the first city 50 0.2 Alison Roberts change,” Carlos Oliveira, president of to be named a European Entrepreneur- -6 Start-up Braga, told a recent conference ial Region — a model of translating EU -8 0 0.0 in Lisbon. “Much of that is due to this strategy “into concrete actions, tailored 2014 15 16 17 2014 15 16 17 2014 15 16 17 t a start-up incubator in crisis.” tolocalneeds”. Braga, northern Portugal, a Mr Oliveira, a former secretary of Its Lisbon Incubators Network, trio of self-described geeks state for innovation, called the deep started in 2013, offers entrepreneurs a Portugal sectoral debt Portugal’s parliament work on the latest version recession “the war we didn’t have”,not- support ecosystem. Other initiatives As a % of GDP Number of seats won in 2015 gener al election (2011) A of medical software that ing Japan’s and Germany’s postwar suc- include “Empresa na hora” (company Forward Portugal Socialist Bloco de uses digital images to help orthopaedic cessinrebuilding. inanhour)tosimplifypaperwork,busi- 160 surgeons plan operations — reducing Affordable IT talent (and low rents) ness education and training for young- coalition (PAF) Party (PS) Esquerda (BE) operatingtimes,costsandinfections. arenotonlyavailableinBraga.Farfetch, sters, and Lisbon Challenge, which 140 Centre-right Centre-left 19 (8) “We talked with surgeons and found an online luxury fashion retailer offers mentoring and support to hun- Radical left Businesses they needed to visualise the extent of founded in 2008 by Portuguese dredsofstart-ups. 120 traumasthree-dimensionally,”explains entrepreneur José Neves, is one “The crisis lowers the opportunity 100 86 João Pedro Ribeiro, chief executive of of a handful of European “unicorns” — cost,” says Pedro Rocha Vieira, presi- 107 (74) PeekMed, founded in early 2014 and private companies worth more than dent of Beta-i, the non-profit company Households 80 (132) alreadysellingitsproductworldwide. $1bn. Though registered in London, it behind Lisbon Challenge. “In Latin or 230 “We start with the patient’s CT scan, has almost half its workforce at Leça do Catholic cultures it may be more diffi- Government 60 Total number import it, then create a three-dimen- Balio, near the founder’s home town of cult to go against family traditions. But of seats 40 sional model of the bone tissue. Porto, and Guimarães, another manu- we are a small country with a history of People-Animals-Nature The software has access to a database facturing hub. Mr Neves has described looking abroad, so we easily think at a 2000 02 04 06 08 10 12 15 Party (PAN) Communist Party (PCP) and with osteosynthesis material, and can its technology as “one hundred per cent globallevel.” 1 (0) Animal rights Greens 17 (16) Communist easily do the planning in a 3D environ- The EU’s Erasmus student exchanges ment.” and Portuguese universities’ partner- PeekMed is one of 40 or so tenants at ships with MIT and Harvard also help Start-upBraga,an“innovationhub”ina make benchmarks international. Lis- Chinese M&A transactions in the EU-28 Aggregate Chinese investment former police station backed by Micro- bon Challenge has hosted sessions on $bn Top five EU countries (2000- 14) soft and other leading companies that threecontinents.Codacy,aLisboncom- providesinvaluablesupport. pany,wonthe2014Pitchcompetitionat Deals of $0-$100m 15 $16.1bn “Sincewewerenew,itwaskindofdif- Web Summit, helping pique interest in Deals of $100m-$1bn ficulttomakepeoplebelieveinus,”says thecity(seepage2). Deals of $1bn-$3bn Mr Ribeiro. “With Start-up Braga it was Where finance was once out of reach 10 very easy to get access to Braga hospital for all but the few who caught the eye of Deals of $3bn and mor e for pilot tests. The surgeons loved the business angels, many now seek risk $8.4bn $8.0bn $6.7bn software.” capital abroad, or are taken over by for- $5.6bn Braga, Portugal’s most youthful city eign companies. A recent example is 5 thankstoitslargestudentpopulation, AnubisNetworks, a cyber security spe- is home to an advanced medical fac- cialist bought by Bitsight of ulty and the Iberian Nanotechnology theUS. 0 Institute — itself now incubating Growing numbers of for- start-ups. It is in Minho, the region eignentrepreneursalsoseeit 2000 05 10 14 UK GermanyFrance Portugal Italy asagoodplacetowork,withits Surgical precision: João Pedro low costs and high standard of Ribeiro, chief executive of PeekMed living. FT graphic Sources: European Commission; Haver Analytics; ‘Reaching New Heights - An Update on Chinese Investment in Europe’ (Baker & McKenzie 2015)