Porto and Northern Portugal a Magnet for Investment

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Porto and Northern Portugal A magnet for investment

EY Attractiveness Survey 2019 Portugal Regional

Contents

Editorial 4

Executive summary 6

Why Porto and 8 1 Northern Portugal 2 Region’s FDI 18 3 Attractiveness perception 26

Methodology: how EY researched this report 36

About the Attractiveness Program 37

How can EY help? 38 Porto’s momentum persists as the value drivers are still in place

Ricardo Valente Porto’s momentum continues to public and private buses, urban and City Councillor for Economy, persist as the value drivers attracting long-haul trains, metro, and taxis, taking Tourism and Commerce foreign investors to set up business advantage of its location with easy road Porto City Hall in the city are still intact. These value access. New access roads and parking drivers include quality of life, fantastic lots will be built as well. Through such availability of talent, first-class multi-modal integration, the terminal will infrastructure and a governance system, offer urban, inter-city, inter-regional and which are focused on ensuring that the international connections (with direct attractiveness of Porto stays strong. metro connection to the Francisco Sá Currently, Porto’s reputation as an Carneiro Airport). It will become one of innovative city is primarily because of the main transportation hubs in Porto its cultural features which are among and potentially a leading hub in the those attributes essential to improving Northern Portugal. the urban quality of life. They are also 2. Reconversion of former Porto one way of making the city known to slaughterhouse: The objective the world. Porto is, in fact, an open city of this project is to transform the with a vibrant cultural life, a resurgent slaughterhouse into a center or cluster entrepreneurial scene, a world–class for creative and high-tech companies, university and a unique city center which and start the construction by the middle carries a culture of diversity in its genes. of 2019. It includes offices, cultural This unusual capacity of combining our facilities, such as the Museum of cultural heritage with innovation gave Industry, galleries, a food laboratory, as origin to a set of unique projects for well as social areas with equipment, and the city, aiming to make Porto a port activities for the visitors and the local of talent and skills for the 21st century community. economy. 3. Renovation of Bolhão market: The So Porto has, in fact, emerged as an project, started in 2018 and expected outstanding example of growth, founded to be completed by 2021, intends to on factors, such as property assets, restore and renovate one of the main tourism, entrepreneurship dynamic and markets in the city center. Besides the new cultural life. All these factors have traditional food stands, the new market contributed to placing Porto at the top will have restaurants, cafés, space for of the list for the most fascinating and exhibitions and concerts, elevators, and sought–for cities worldwide. direct access to metro station. At the Municipality, we are investing Porto City Council continues to promote a lot to make Porto a new economic efforts to build a competitive business center in the region and in the country. environment capable of attracting high We are developing a new area of the added value investment and fostering city (Campanhã, on the east side), and the creation of qualified jobs. We have making relevant investments to prepare a specialized team at InvestPorto the city to be more competitive and dedicated to supporting strategic sustainable. investments in the city by providing tailor-made information and assistance. 1. Campanhã Intermodal Transport Terminal: The tender for the project It is essential to maintain this design was launched in 2016 and the momentum, and therefore we will construction is expected to be completed continue our commitment to supporting by 2021. The new terminal will integrate investors throughout the different different mobility solutions, including phases of the investment process.

4 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Porto and Northern Portugal are drivers of FDI diversification across Portugal

First of all, we would like to thank all These perceptions have been decisive to Florbela Lima who contributed to this survey. This is Porto’s and Northern Portugal’s ongoing Partner, Strategy leader the first edition ofEY Portugal Regional dynamism and investment intentions, Ernst & Young S.A. Attractiveness Survey. We hope that this which are on the rise. survey proves valuable in showing how As can be seen in this year’s EY and why Porto and Northern Portugal are Attractiveness Survey Portugal, FDI attracting global investors. dynamics for Portugal, as a whole, over This survey emerges in a context in which the past few years have been similar to investor’s confidence in Europe hit a the ones in Porto and Northern Portugal. six-year low in 2019, amid geopolitical However, Porto and Northern Portugal concerns from Brexit as well as rising are closing in on the lead spot for trade tensions and an increasing investment intentions in Portugal, while protectionist drive from key players in the the country itself is one among the top global economy. choices for short-term investment plans However, Porto and Northern Portugal, in Europe. have been showing continued resilience, These results reflect Porto’s and Northern first from the financial crisis and now Portugal’s potential as well as the from the decreasing pace of growth in the investment that has been done over the Eurozone, and are becoming increasingly past years, on national, regional and attractive for global investors. municipal levels. Recent developments After a tremendous surge in 2017, such as regulatory changes (e.g., overhaul foreign direct investment (FDI) in Porto of the rent control laws or reduction of and Northern Portugal is now realigning red tape), investment in infrastructure and with the long-term trend, but continuing education, and growing attention to local to grow at a faster pace than Portugal or governance and investor support have the EU as a whole. been instrumental for Northern Portugal's This year’s EY Investment Monitor reveals FDI performance. that, in 2018, Northern Portugal was As for the future, surveyed business able to secure 24 FDI projects, which leaders’ priorities are clear on what must corresponded to at least 2,754 new jobs be done if the region is to continue on created. In fact, according to the data this path: invest in skills and innovative gathered, Northern Portugal was the industries, as well as reduce taxation leading Portuguese region when it comes and increase small- and medium-sized to FDI job creation, contributing to 45% of enterprises (SMEs) support. the total jobs created. In fact, innovation and high–quality skills Investor perceptions on Porto’s and are widely regarded as decisive factors Northern Portugal’s attractiveness reflect for the future of the region, especially a high standing on key structural factors, considering the increasing prominence of such as quality of life, social stability, Porto in these areas, which led to the city infrastructure and labor (both for skills being considered the third fastest-growing and cost). European tech hub and the “best start-up friendly city of Europe”. To this effect, investors are also clear on naming talent, incentives, infrastructure In 2018, Porto and and a culture of innovation as the key- Northern Portugal were factors for leadership in these fields. leading Portugal when it came to FDI job creation.

Porto and Northern Portugal: a magnet for investment 5 Executive summary

Chapter 1: Why Porto and Northern Portugal

Porto and Northern Portugal economies have been on the upswing, and these places have been successfully making a case as a magnet for FDI. Page 8

More % % % than 4.1 131 39 Gross domestic product (GDP) compound Coverage rate of imports by exports in 2018 In 2018, Northern Portugal’s share in the annual growth rate between 2014 and Although the region is economically diverse, total Portuguese goods exports was 39% 2017 its qualified manufacturing industry makes it Northern Portugal leads Portuguese goods Northern Portugal has been growing at an a net exporter of goods exports accelerated pace over the past few years

Porto and Northern Portugal economies Best Startup-Friendly have been steadily growing and attracting City of Europe World Excellence Award 2018 increasing levels of investment. World Business Angels Investment Forum Porto GDP has been growing twice as fast as the country as a whole and available data indicates FDI Strategy that investor’s confidence remains high. Awards 2018 Project Wins and Incentives fDi Intelligence (2018) Porto

Porto's and Northern Portugal’s pillars of development and attractiveness:

Economy Quality of life Infrastructure Talent

•Competitive and business- • Safe, open, tolerant •Strategic location • Highly qualified -friendly environment and welcoming place •World-class infrastructure and flexible workforce •Openness to innovation • Excellent climate •Good public transportation • High–quality universities, •Thriving start-up ecosystem • Low cost of living network and research facilities and centers •Highly qualified clusters • Vibrant and diverse culture •Low office rental costs • High language skills (fashion and services centers) • Renown gastronomy and high quality • Competitive labor costs

6 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Chapter 2: FDI in Porto and Northern Portugal After a particularly intense growth in 2017, FDI growth in Porto and Northern Portugal is realigning with the long-term trend, but growing faster than Portugal and the EU as a whole. Page 18

Key sectors: Geographical origin 4% of projects: 1 Transportation FR % manufacturing 11.4 % and supply 46 Average yearly growth rate of FDI in Northern Portugal 2013-2018 7 projects ES DE

13% 8%

2 Digital Non–European AT 4% 6 projects US CH 4% 2,754 % 8

FDI jobs were created in 2018 JP 12% IT

3 Agri-food % 45% of total assessed for Portugal 4 % (6,100) 4 4 projects CN 4%

Chapter 3: Attractiveness perception Investor’s perception on Porto’s and Northern Portugal’s attractiveness reflect a high standing on key structural factors and investment intentions are on the rise. Page 26

Top five attractiveness factors: Top three areas of focus to remain competitive: (Percentage of respondents who find it attractive) (Measured by number of respondents who mention each topic)

91% 79% 77% 75% 1 2 3 72% Develop education Support high-tech Reduce taxation and skills industries and innovation

Quality Stability Telecom Labor Potential for of life of social infrastructure costs productivity climate increase Top three areas of reform to become a leader in innovation: (Measured by number of respondents who mention each topic) With the investment in skills and 1 2 3 infrastructure paying off, Porto and Improve education Increase tax Develop a culture Northern Portugal are in a privileged and training in new incentives for of innovation and technologies innovative creativity position to have an increased appeal companies for international investors, especially in highly qualified and innovative activities.

Porto and Northern Portugal: a magnet for investment 7 Why Porto and 1Northern Portugal ey.com/attractiveness

The national framework of Porto and the Northern Portugal region

Portugal factsheet

92.2sq.km 10.3million Lisbon € Area Population Capital Currency 45 33 9 UTC/GMT years of parliamentary years of centuries Time zone democracy EU Membership of history

33rd 6th 4th 32nd

Global Competitiveness Index Best place for expats Most peaceful country Global Innovation Index 2018 4.0 2018 Expat Insider 2018 Global Peace Index 2018 Cornell University, INSEAD and World Economic Forum InterNations Vision of Humanity World Intellectual Property 140 countries 68 countries 163 countries Organization 125 countries

27th 30th 11th 22nd

Democracy Index 2018 Corruption Perceptions Freedom of the Press 2017 Rule of Law Index 2019 Economist Intelligence Unit Index 2018 Freedom House World Justice Project 167 countries Transparency International 100 countries 126 countries 180 countries

Length of national roads

15 9 14,313km 2,540km airports main ports in the mainland Motorways of railroad being (four main airports in the (seven of them with explored, of which 1,640km mainland) passenger transportation) km are electrified Portugal ranks 30th Portugal ranks 26th 3,065 Portugal ranks 29th out of 140 out of 140 concerning out of 140 in efficiency Portugal ranks 5th out of 140 concerning railroad density. airport connectivity. of port services. concerning quality of road infrastructures.

Source: INE, Expat insider 2018, Internations; Global Peace Index 2018 – Vision of Humanity; Democracy Index 2018, The Economist; Corruption Perceptions Index 2018, Transparency International; Freedom of the Press 2017, Freedom House; Rule of Law index 2019, World Justice Project; The Global Competitiveness Index 4.0 2018, World Economic Forum; Global Innovation Index 2018 - Cornell University, INSEAD and World Intellectual Property Organization; APP (Associação Portos de Portugal); ANA – Aeroportos de Portugal; Estatísticas dos Transportes e Comunicações 2017 – Edição 2018, INE.

Porto and Northern Portugal: a magnet for investment 9 Porto and Northern Portugal overview

Northern Portugal is an economically diverse but Northern Portugal Porto Metropolitan Area very industry-driven region 2015 2016 2017 2018 2015 2016 2017 2018 GDP (annual growth rate) 3.9 4.7 4.4 - 3.7 4.4 4.5 - that leads Portuguese goods GDP (billion €) 52.7 55.0 57.2 - 28.2 29.4 30.7 - exports, and has been steadily GDP per capita (EU28=100) 64.5 65.5 64.8 - 72.0 73.0 72.5 - Gross fixed capital formation (annual growth rate) 12.8 11.3 21.6 - 12.4 8.1 25.3 - converging, both internally and Goods Exports (annual growth rate) 6.1 6.0 7.9 2.6 4.9 6.4 7.5 1.0 externally (with the EU 28). Unemployment rate (in percentage) 13.7 12.0 9.8 7.3 - - - - Source: INE.

The region is showing signs of having fully A diverse but industry-driven Exports are a major economic recovered from the difficult years of the region driver for the region international crisis, and the economic and Northern Portugal represents 44% of Northern Portugal leads Portuguese financial adjustment program that took the country’s industrial gross value goods exports, responding for place in Portugal. added (GVA), while having 35% of the approximately 39% of them. Gross Domestic Product (GDP) has been population. Thirty-eight percent of the In fact, in contrast with the country growing at annual rates of approximately workforce in the region is employed in as a whole, Northern Portugal is a net 4% to 5% for the past few years, averaging the secondary sector, a value that is exporter of goods, with a coverage at around twice those for the country as a relatively uncommon, given the ongoing rate of 131% for imports by exports in whole, which shows the region’s resilience. trend in service-based economies. 2018. This value is naturally lower in Although available data for 2017 and However, there are substantially more service-based areas (e.g., Porto), 2018 shows some signs of slowdown in different specialization profiles within but offset by some highly industrialized the intensity of growth, especially foreign the region itself. Some sub-regions subregions, such as Tâmega e Sousa demand for the region’s goods, GDP specialize in the primary sector (e.g., (with a rate of 243%). growth remained higher than EU 28 and in Douro, approximately 40% of the As far as services are concerned, Portugal (2.8% and 1.5%, respectively). workforce is employed in this sector) Northern Portugal and especially Porto Indicators such as gross fixed capital and in the secondary sector (e.g., have been benefiting from a major tech formation also indicate that the Northern the Ave area has more than half of and tourism services boom, with Porto Portugal region and the Porto Metropolitan its workforce employed in industrial going as far as showing the largest Area still show dynamism, and investor’s activities). The Porto Metropolitan Area revenue per available room (RevPar) confidence appears to remain high. is the most service-based, with Porto growth in Europe in 2018, at 10.3%. being a core part of these services.

Recent performance of companies’ GVA (2012=100)

140

Economic specialization (2018e) 26.8b 130 Northern Portugal 5% (2017) Northern 120 Portugal 38% 56% 15.4b 2% 110 Porto Metropolitan Porto Metropolitan 31% 67% Area (2017) Area 100

1% 3.5b 90 Porto (2017) Porto 11% 88% 2012 2013 2014 2015 2016 2017

Primary Secondary Tertiary Northern Portugal Porto Metropolitan Area Porto

Source: EY, based on data from INE. Source: INE.

10 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Northern Portugal Porto Metropolitan Area Porto

North main cities

City Population V. N. de Gaia 299,820 Porto 214,587 Braga 181,382 Matosinhos 173,753 Gondomar 165,626 Guimarães 153,294 S. M. da Feira 138,613 Maia 136,769 Famalicão 131,909

Source: INE.

Porto’s and Northern Portugal’s pillars of development and attractiveness

Economy Quality of life Infrastructure Talent

•Competitive and business- • Safe, open, tolerant •Strategic location • Highly qualified -friendly environment and welcoming place •World-class infrastructure and flexible workforce •Openness to innovation • Excellent climate •Good public transportation • High quality universities, •Thriving start-up ecosystem • Low cost of living network research facilities and centers •Highly qualified clusters • Vibrant and diverse culture •Low office rental costs • High language skills (fashion and services centers) • Renown gastronomy and high quality • Competitive labor costs

Porto and Northern Portugal: a magnet for investment 11 1 Economy % The Northern Portugal region benefits Some of the oldest and most prominent 131 from the fact that Porto has always been a Portuguese clusters are located in the city full of merchant activities. region (e.g., agri–food and fashion). The region, in particular the city of Although many of these main clusters are Coverage rate of imports by exports Porto, has been experiencing significant based around more traditional activities, Northern Portugal (2018) investment and growth in the service Northern Portugal sets itself apart by INE economy. being at the forefront of qualification, Besides the major ongoing boom in technology and innovation, having some tourism and real estate, an increasing of the world’s most advanced and highest number of international companies are value–added products in the previously rd choosing Porto and the surrounding region discussed clusters. 3 as a place to set up some of their offices The fashion cluster, formed by the (e.g., information and communication textile, apparel and footwear companies, technology (ICT), R&D, engineering or represents 11% of the GVA generated in nearshore services). Recent examples are the region. These sectors consist mainly Best city to invest in Southern Europe fDi Intelligence (2014/2015) Natixis, Vestas, Euronext or BMW. of SMEs that manufacture products for Porto Porto has also been gaining prominence the international brands of fast fashion in the creative industries because of and luxury markets. its strong potential based on its highly Portuguese footwear, manufactured qualified talent, high–quality universities, mainly in the North, is currently the R&D facilities (and increasing partnerships second–most expensive and highly th with local businesses) and a growing valued in the world, after Italy. Another 8 entrepreneurial spirit. example of innovation would be Petratex, Additionally, Porto has been benefiting a company from Paços de Ferreira, from an increasingly competitive and which researched, developed and Medium-sized European city business–friendly environment (common manufactured Olympic–grade swimsuits in FDI strategy to Portugal as a whole), and good city hall that were worn by Michael Phelps. fDi Intelligence (2018/2019) governance aiming to make Porto a global The plastic and rubber products industry Porto city that attracts investors, businesses and in this region is dominated by the innovators. Continental Mabor tire factories, with Porto was chosen These factors — talent, quality infrastructure a turnover of over €1b and several as the “Best Startup-Friendly plastic manufacturing companies with a and R&D, business–friendly environment and City of Europe” in 2018 governance, and growing dynamism — are turnover of over €100m. leading to the growth and consolidation of a The automotive industry and engineering-related activities have grown thriving start-up ecosystem in Porto. FDI Strategy Awards Additionally, Northern Portugal as a whole is strongly in recent years. Bosch Car Multimedia, located in Braga, is one of Project Wins & Incentives an industry-driven region and the economic fDi Intelligence (2018) motor of Portuguese goods exports (39%). the biggest Portuguese exporters and a major R&D unit of the company. Porto

TMG Riopele Fashion Salsa Petratex We chose Porto among 99 cities due to the Shared services Sitel Adidas centers Euronext Natixis perfect combination between access to the right Food and Nestle Super Bock “talent, proximity to universities and R&D centers agriculture Lactogal Symington of excellence, business-friendly environment, Home Ikea Molaﬂex and furniture Novibelo Preggo and local support. Douro Azul Sheraton Porto Jorge Magalhães, Senior Vice-President, Global Engineering Design Tourism The Yeatman InterContinental Centres of Vestas

12 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness 2 Quality of life

According to the major quality of life 5ºC in january and average maximum 220 surveys directed at cities and regions, 26ºC in july). Porto and Northern Portugal are a These and other factors have been good place to live and work, both for resulting in a growing population of Sunny days Portuguese and foreigners alike. foreign residents, which is currently close Yearly average The region is widely considered to be to 50,000 in the Northern region as a Porto safe and stable, and its people are whole. friendly, welcoming, open, diverse and This quality of life and, consequently, tolerant. the attractiveness of the city makes Cities such as Porto and Braga have it particularly easy for Porto and the nd a vibrant daily and nightlife, with an surrounding region to import talent. This 2 ever-increasing range of venues and has been continuously on the rise and major cultural events at their disposal, is additionally bolstered by a friendly complemented by a wide range of immigration regulatory framework. Best city life different locations to enjoy (from the TimeOut City Life Index 2018 historical city centers to parks and the Porto (out of 32 cities) seaside areas). In addition, they have one of the lowest costs of living among major western European cities. Although the local th purchasing power is also low when Quality of life was a factor 6 compared with western European that differentiated Porto standards, it has been steadily rising over “from other European cities, the past few years. Porto, in particular, is a good place to raise a family not only due to the important weight Lowest cost of living because of its aforementioned stable Expatistan 2019 environment, but also because of its it has nowadays in choosing Porto (out of Major cities internationally well-placed national a job by the new generation in Western Europe) health system and the existing schools. of people. Porto offers a The city has several international schools, such as Oporto British school, balanced combination of Lycée Français International de Porto, these factors and has proven Deutsche Schule zu Porto and CLIP — The Oporto International School. to be the ideal location Furthermore, the weather tends to be to develop our new project. highly appreciated in the city, with an average of 220 sunny days per year and Nathalie Risacher, Senior Country Manager mild temperatures (average minimum of Natixis in Portugal

Porto and Northern Portugal: a magnet for investment 13 3 Infrastructure

Connectivity Moreover, the region benefits from an Office infrastructure Northern Portugal is a strategically extensive network of roads and high-quality Porto and Northern Portugal benefit located and well-connected region. It highways, easily connecting major cities from high-quality office infrastructure offers different options to quickly travel and all the important infrastructures to at one of the lowest rental costs in across its cities and to various important the rest of the country as well as Spain. Western Europe. Although the price has locations in the world. ICT connectivity is also a plus, with the been growing over the past few years, Porto Airport is an award-winning and city benefiting from widespread fiber operating costs are still noticeably lower highly connected hub, and international optics and 4G mobile internet at an and supply has also been on the rise. entryway to Europe, serving over a 100 affordable cost. Additionally, Porto has destinations and located close to the city. the largest network of buses in the world Support structures that have Wi-Fi. The region has two international ports, The region, with a particular emphasis Leixões and Viana do Castelo, with the on Porto, hosts a multitude of former being just outside Porto, and infrastructures and entities aimed at serving as a logistics platform to the supporting entrepreneurs, for example: city and the airport. Leixões is also Francisco Sá Carneiro Airport ►InvestPorto: an investment division of responsible for 20% of Portuguese One of the best airports in Europe the Porto City Council whose mission is international trade and has recently (5 to 15 million passengers per year) to create a favorable environment for inaugurated a new cruise terminal. competitiveness, business promotion and Almost 12 million passengers (2018) Public transport in Porto is reliable and investment attraction to the city of Porto good value for money, featuring an Is at a distance of 15km from Porto's UPTEC: Science and Technology Park extended and diverse network of metro city center (less than 30 mins by of the University of Porto, which has and tram system, and various funiculars metro) supported the development of 550 and urban buses, managed by a state-of- Over 110 destinations innovative projects since 2007 the-art contactless ticketing system. Travel time of approximately 3 hours ►Porto Tech Hub: Private business This system connects the city to multiple on an average from major EU cities association promoted by three leading parts of the Porto Metropolitan Area (e.g., London, Paris, Frankfurt or Portuguese ICT companies and as well, all accessible using the same Rome) supported by City Hall monthly pass, which is available at an ►Tecminho: Private non-profit affordable price. association whose mission is to be an interface of the University of Minho

st 1 67km €12 class

One of the best airports in Europe Porto’s metro network Average office rents in Porto Medium monthly wage Airports Council International 2018 rail length 2018 monthly price per sq.m in 2018 Northern Portugal (2017) Category: 5—15 million INE passengers per year

20% 6th 5th

of Portuguese international trade Communications technology Quality of roads Researchers Porto Harbor — Leixões IMD World Competitiveness Global Competitiveness Report 2018 Porto Metropolitan Ranking 2018 140 countries Area (2017) 63 countries DGEEC 14 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness 4 Talent

Infrastructures and education do Porto (i3S), Institute of Science The active population in this region has Over one-third of Portuguese higher and Innovation in Mechanical and been decreasing over the past few years, education institutions are located in Industrial Engineering (INEGI), Centro but has registered an upturn in 2017. In Northern Portugal, accounting for 34% of Interdisciplinar de Investigação Marinha e the same period, the unemployment rate the national number of graduates in 2017. Ambiental (CIIMAR), International Iberian started to recover after the economic Nanotechnology Laboratory (INL), The downturn and has been decreasing Porto, in particular, is home to a large Discoveries Centre and Fraunhofer Portugal. steadily, reaching 6.7% in Q4 2018. number of higher education and R&D institutions, with a significant part of These R&D units, along with the universities Porto’s talent pool, and prestigious these clustered in what will soon be and polytechnic institutes, transform Porto universities and R&D centers have been known as the “Porto Innovation District.” and Northern Portugal into highly prolific instrumental in turning the city into a scientific producers. This is reflected, knowledge hub with a flourishing tech scene. The University of Porto is the top for example, by the fact that Porto is the placed portuguese university in multiple In fact, according to Atomico’s The State of leading city in Portugal in patent filling at European Tech report from 2018, Porto is rankings, making it a renowned institution the European Patent Office. in Europe, while Porto Business School is Europe’s third fastest-growing tech hub. the 62nd best school in Europe according Labor talent to Eduniversal. The labor force in Porto and Northern The Porto Polytechnic is also the largest Portugal is frequently seen as high and most prestigious in the country, quality, flexible and well prepared by the hosting multiple R&D units. international companies present in science, Porto is a great destination Additionally, many R&D units operating technology, engineering and mathematics for Talent and IT Businesses in the Porto area have established formal (STEM) fields, as well as in other fields. in Europe. I believe that programs with renowned organizations, In addition, workers tend to display high “ such as the MIT, UT Austin, Carnegie Mellon language skills, and the ability to fully the combination of the University and Harvard Medical School. and easily integrate with international entrepreneurship support Out of the many prestigious R&D centers teams. Labor costs in Portugal are still present in Northern Portugal, we can noticeably lower than those of most of system in place with an active highlight Institute for Systems and Western Europe. Also, these costs are ecosystem that includes Computer Engineering, Technology approximately €118 per month lower in and Science (INESC TEC), Instituto de the Northern region than when compared public authorities, private Investigação e Inovação da Universidade to the national average. enterprises, and, especially, very good talented people, make this European city a great choice to setting up €1k 62 200 technology companies, such as Euronext. Two years into this story and Medium monthly wage Higher Education Institutions Institutions with R&D Northern Portugal (2017) Porto Metropolitan Area Porto Metropolitan Area (2017) starting from scratch we have INE (2017—2018) 120 IT specialist providing INE added value services and running critical part of our Approximately Approximately eco system. 10,000 16,000 % 72 Alain Courbebaisse, Chief Information & Technology Officer of Euronext

Researchers Graduates People who speak a foreign language Porto Metropolitan Porto Metropolitan Portugal (2016) Area (2017) Area (2017) In the age group: 18—64 DGEEC Porto and Northern Portugal: a magnet for investment 15 Porto: a city on the move

In the context of Northern Portugal, International tourism is booming the city of Porto has been experiencing Another major element of Porto’s a particularly intense period of major upswing is the fast-growing inflows dynamism and renewal, bringing further of international tourists over the past 1million vitality and strength to the region. years, including during the traditional off-season. Real estate and urban Driven by its history, culture and vibrant sq.m of area licensed rehabilitation atmosphere, among other factors, Porto Greater Porto Area One of the main elements of this period has become a hot spot for international (2014 to Q1 2018) is the ongoing wave of major urban tourism, benefiting from continuously development and rehabilitation, both growing inflows of tourists and receiving from private entrepreneurs and from the European Best Destination award in ambitious projects emanating from City 2012, 2014 and 2017. One of the driving factors for this more % Hall. than 60 Private investors, a majority of growth (which amounted to an increase them from outside the country, are of 45% in guests in hotel establishments spearheading this wave. As an example, between 2014 and 2018), besides between 2014 and Q1 2018, a million the overall growing international Foreign investment share in real estate sq.m worth of real estate projects were recognition and attractiveness of Porto, Porto district (2017) licensed in the Greater Porto Area. has been the Francisco Sá Carneiro Furthermore, as of Q1 2018, another Airport. 900,000sq.m worth of projects were Passenger traffic at the airport has waiting approval. been growing steadily, showing a CAGR City Hall has also been taking an of 15% between 2014 and 2018, % active role via initiatives, such as: with increasing numbers of routes 13.2 The rehabilitation of key public and companies present, both for flag areas and streets; The “Rua Direita” carriers and low-cost airliners (which is program which aims to rehabilitate especially important for destinations where city breaks are prevalent, such as Guests in hotel establishments 88 streets, covering 15km, by 2021; CAGR Porto (2014-2017) The designation of further urban Porto). rehabilitation areas (ARU’s), which enjoy This boom in tourism led to increased municipal tax benefits; The Strategic investment and entrepreneurial activity Masterplan of the Eastern Area of Porto. in the sector making it, along with other factors (e.g., regulatory changes), one of the main drivers for the recent % dynamism and performance of the real 10.3 estate market. Strategic master plan of the eastern area of Porto RevPar growth Porto (2018) City Hall’s major urban regeneration program which is directed at the eastern area of Porto. Includes projects such as the reconversion of the former Slaughterhouse, the Campanhã Intermodal Transport Terminal, Tax incentives on urban a new bridge over the Douro river, regeneration in Porto have new roads in the Corujeira area, “ led to an attractive new business areas in Freixo and Porto chosen as European Campanhã and the rehabilitation environment for local and Best Destination in 2012, of existing housing complexes international investors. 2014 and 2017 as well as the development of affordable housing units. Peter Holden, Group Development Director of Round Hill Capital

16 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Main development projects in the city of Porto

% % 9.7sq.km 23 9 34 Total area covered by the of the city’s territory urban rehabilitation of the city’s territory strategic master plan of the is covered by the master plan areas is considered an urban eastern area of Porto rehabilitation area

8 4 3 1 2

1 Campanhã Intermodal Transport Terminal 5 Porto Innovation District Construction of a bus terminal and Transformation of the existing campus area corresponding interface with the existing train into an integrated innovation district dedicated and metro stations to academia and research Major component of the strategic master plan Includes 53 R&D centers, multiple university for the eastern area buildings and a hospital in a 1sq.km space

Rosa Mota Pavilion 2 6 Matadouro (former Slaughterhouse) Rehabilitation and reconversion of the existing Reconversion of the former slaughterhouse into a pavilion into a multi-functional center cluster of creative and high-tech companies in IT software services, digital media and gaming Bolhão Market Expected area of 20,000sq.m, including offices, 3 cultural facilities, food laboratories and social areas Rehabilitation of an iconic fresh food market in the historical center of the city Quartel de Monte Pedral 7 affordable housing project Monte da Bela affordable housing project 4 Rehabilitation of a former barrack to house Affordable housing project with over 230 more than 1,100 people with up to 400 apartments and capacity to accommodate apartments and a separate student residence around 700 people 8 Lordelo do Ouro affordable housing project Affordable housing project with over 170 apartments

Porto and Northern Portugal: a magnet for investment 17 2Region’s FDI ey.com/attractiveness

Following a year of unusual growth, FDI activity in Portugal is stabilizing

In 2017, Portugal was starting to reap While these figures fall short of last Porto and Northern Portugal are not the benefits of added international year’s, they must be construed in oblivious to this wider setting, with the exposure, with foreign investors light of the stabilization of FDI activity number of inward FDI projects in the launching a record-breaking number of in Portugal, following a tremendous region declining. Still, signs of these projects and creating thousands of new surge in 2017 and the slowdown of region’s typical tenacity remain clear. jobs. FDI in Europe as a whole. At the same For the past 10 years, FDI in Northern This year's EY European Investment time, investors are concerned about Portugal grew at a faster pace than Monitor reveals an inflection in the slowing European growth and a fraught in Portugal as a whole and even the pace of FDI inflows to Portugal — 74 FDI geopolitical environment, which impact EU28, and this regions’ attractiveness projects were secured (down from 95 in investment dynamism. for business leaders around the world 2017), corresponding to at least 6,100 continues to improve. new jobs created.

FDI performance across selected European countries (number of projects)

9% 5%

6% 4% DE

ES 10% 7%

7% 4% FR

PT 7% 15%

14% 7% IT

1% 14% 5-year CAGR (2013–18) 10-year CAGR (2008–18)

Source: EY European Investment Monitor (EIM), 2019.

Porto and Northern Portugal: a magnet for investment 19 FDI in Porto and Northern Portugal

Recent performance of FDI in Northern Portugal (number of projects) After a particularly intense growth in 2017, FDI growth in Northern Portugal is realigning 71% with the long-term trend. 36 Although subject to some fluctuations, FDI in Northern Portugal has been 28 steadily growing at an yearly average 24 21 rate of 9.1% over the past 10 years 17 (11.4% during the past 5 years). 14 11 This average 10–year growth rate is higher than the one observed for Portugal as a whole (6.6%) as well as for the EU28 (5.3%). 2008−12 2013 2014 2015 2016 2017 2018 After a particularly intense year of average 2017, marked by FDI growth rates of 61% in Portugal and 71% in Northern Portugal, the number of projects in Source: EY European Investment Monitor (EIM), 2019. 2018 decreased by 33% in Northern Portugal. However, given the particular case of 2017, it is important to notice How Northern Portugal’s FDI compares with other regions (2018) that the average yearly growth rate between 2016 and 2018 sits at 6.9%. A similar situation occurred in 2014. 32% 24 projects Northern Portugal is one of the main destinations for FDI in 7% Northern 5 projects Portugal Portugal and has the highest average job creation per project. Central A very large percentage of FDI in Portugal Portugal is concentrated in the Lisbon Area and in Northern Portugal (73%). The region had the second highest 41% amount of FDI projects in 2018. 30 projects However, these are the largest when Azores 14% measured by average job creation. 0 Lisbon 10 projects Also, according to the available No projects area estimates, Northern Portugal had Alentejo the highest number of total FDI jobs created in Portugal, at least 2,754 new jobs were created (45% of the 6,100 0 jobs assessed for Portugal). No projects Some examples of projects in Northern Portugal in 2018 include Faurecia’s 0 Algarve No projects new business services center in Santa Maria da Feira, Nestlé’s new Madeira manufacturing plants or Mercadona’s logistics center in Póvoa do Varzim. Average jobs 115 24 47 71 created per project Northern Central Lisbon Alentejo Portugal Portugal Area

Note: The figures above are missing five projects from multiple regions or for which no geographical information was specified. Source: EY European Investment Monitor (EIM), 2019.

20 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Two-third of FDI projects in FDI projects in Northern Portugal by type (2018) Northern Portugal were new. Sixty-seven percent of FDI projects in Northern Portugal in 2018 were brand new. When compared with 2017, this 33% 67% represents a small shift toward a higher 8 projects 16 projects proportion of expansion projects (33% vs. 28%).

Manufacturing represented almost half of all FDI projects in New Northern Portugal during 2018. In accordance with the important Expansion role of industry in Northern Portugal, manufacturing projects accounted for 46% of FDI in the region. 20% 40% 60% 80% 100%

Although this is an already very Source: EY European Investment Monitor (EIM), 2019. significant percentage, it is worth noting that in 2017, manufacturing activities accounted for 61% of FDI in Northern Portugal. As a matter of fact, during 2018, there was some diversification and increased balance on the type of activities subject to FDI projects in FDI projects in Northern Portugal by activity (2018) the region. In 2017, the two biggest categories (manufacturing and R&D activities) together represented 86% of all projects. Conversely, in 2018, this Manufacturing Sales and marketing value dropped to 63%. % 11 90 % 4 163 R&D activities, which represented 46 projects Average jobs 17 projects Average jobs vs. 61% in per project vs. 8% in per project 25% of FDI in 2017, are now tied for 2017 2017 second place with sales and marketing activities, both representing 17% each. When it comes to the biggest growths in 2018, sales and marketing, Shared services and shared service center projects R&D center standout. % % 17 4 84 13 vs. 25% in vs. 3% in 3 233 projects Average jobs projects Average jobs 2017 per project 2017 per project

Internet data center Logistics % 1 no data % 1 no data 4 project Average jobs 4 project Average jobs vs. 0% in per project vs. 0% in per project 2017 2017

Note: Because of methodological and data availability issues, it is not advised to estimate total job counts by multiplying the number of projects and the average job per project (not all projects considered had job creation data available). Source: Analysis based on OCO database, 2018 – Analysis based on IBM database, 2017.

Porto and Northern Portugal: a magnet for investment 21 FDI in Porto and Northern Portugal

The transportation These figures showcase Northern Still, Portugal’s burgeoning digital manufacturing and supply Portugal’s industry-driven tradition. sector is also spurring growth in the sector leads in attracting FDI to While nationally digital remains the Northern region. Six out of the 24 Northern Portugal, followed by most popular business sector for inward FDI projects committed by digital and agri-food businesses. foreign investors, in Northern Portugal foreign investors in 2018 were targeted traditional sectors such as this one are at the digital business sector, providing Transportation manufacturing and setting themselves apart by being at the nearly one-fifth of the FDI jobs included supply has historically been the sector forefront of qualification, technology in the database. responsible for attracting the most and innovation. At the same time, foreign investment in FDI projects to the Northern region of agri-food businesses doubled, making Portugal. This sector’s share on total Faurecia has a new business services it the third-largest sector in terms of inward FDI projects in this region has center in Santa Maria da Feira and number of projects. On the basis of ranged between 15% to 30% over the Bontaz has set up an R&D center in the available data, notably agri-food past five years. Viana do Castelo. This emergence of businesses proves that the industry became the leading job creator, with at is refocusing on higher-value-added least 700 new jobs created in 2018 as a activities, intended to capitalize on result of foreign investment activity. the potential of local talent and an innovation-friendly environment.

FDI projects in Northern Portugal by sector (2018)

2018 vs. 2017

–1 project 7 Transportation manufacturing and supply 629

6 Digital 560

+2 projects 4 Agri-food 700

–1 project 2 Business services 450

+1 project 2 Machinery and equipment 45

–2 projects 1 Chemicals and plastics 100

–1 project 1 Textile, clothing and leather 150

1 Utilities supply 120

–2 projects Metals

–2 projects Wholesale, retail and distribution

–4 projects Other

Number of projects Jobs created

Note: Jobs created must be interpreted as an estimate as it was not possible to find this value for every project entry in the FDI database, but only for those projects that were announced. Additionally, please note that this indicator is not comparable with last year’s since FDI jobs created in the IBM Database 2017 referred to job projections. Source: EY European Investment Monitor (EIM), 2019.

22 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

The majority of FDI projects in Additionally, in 2017, non-European This result is partially explained by the 2018 originated from European countries accounted for 33% of projects, sharp drop in investments originating countries. as opposed to the 12% observed in from the US, which accounted for 22% 2018. (8 projects) in 2017, as opposed to 4% FDI projects in Northern Portugal in (1 project) in 2018. 2018 were concentrated in a relatively small number of origin countries (10). France, by itself, was responsible for almost half of all FDI projects (46%). The remaining European nations — Germany, Spain, Switzerland, UK, Austria and Italy — accounted for another 42%. Did you know? As a comparison, in 2017, FDI projects in Northern Portugal originated from 13 Farfetch, the online luxury fashion retail platform different countries, with France being and first Portuguese unicorn company, was founded the most significant contributor, with 25% of projects. by a businessman from Porto.

Geographical origin of FDI projects in Northern Portugal (2018) UK

46%

ES DE

13% 8% Non-European countries AT

% US CH 4 4% 8% JP IT 4% 4% CN

Source: EY European Investment Monitor (EIM), 2019.

Porto and Northern Portugal: a magnet for investment 23 Success cases

The availability of highly skilled talent with strong language skills and an international mindset, as well as well-reputed universities have been key factors of attractiveness for multiple international companies.

Critical Software IT center Techworks development Natixis of expertise

Critical Techworks is a JV software company formed Natixis is a French multinational financial services by the BMW Group and Critical Software, combining firm specialized in asset & wealth management, their expertise in premium mobility and automotive corporate & investment banking, insurance and software engineering. payments. A subsidiary of Groupe BPCE, the second- The company has offices in Porto (headquarters) and largest banking group in France counts nearly 16,000 Lisbon. It currently employs over 400 people and is employees across 38 countries. planning to reach 600 employees by the end of 2019. In 2016, Natixis chose Porto to open its first IT Center Its line of work includes development of high-end of Expertise, internalizing some services that were software solutions in areas, such as in-car infotainment previously outsourced, as a part of the company’s solutions and digital services, autonomous transport drive to develop expertise on core activities. Natixis in systems for production, digital sales and after-sales Portugal employs over 600 people and aims to reach platforms, and highly integrated solutions for product 700 by the end of 2019. data management. The choice of Porto is particularly significant given The creation of this JV is an important part of BMW’s that the bank had no previous presence in Portugal. strategy to embrace the ongoing digital shift in the According to Laurent Mignon, currently Chairman automotive industry and will help further leverage of Groupe BPCE and CEO of Natixis at the time of Critical Software’s know-how and expertise. opening, the main reason for this choice was the human capital profile: within a deep talent pool, Besides the BMW Group's partnership with Critical highly qualified in science and technology, graduated Software, some of the attractiveness factors cited a from top universities; multilingual and with an leading to the choice of Porto were: international mindset. Dynamic environment with leading talent Additionally, cultural and geographical proximity Lively, creative and innovative start-up scene were also a factor, given the need to work in total Excellent transport and telecoms infrastructure alignment with the French teams (Natixis in Portugal is an integrated captive entity, included in the global Investment incentives organization). Finally, the attractiveness of Portugal Political, legal, economic and social stability as an ecosystem of entrepreneurship and innovation was also determinant.

24 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Bosch Car Automotive R&D and production unit Multimedia Bosch Car Multimedia Portugal, in Braga, is the largest Bosch unit in Portugal, one of the top national exporters and one of largest electronics manufacturers in Europe, contributing with a 99% export share to the European market. It was originally started as a Blaupunkt car radio manufacturing plant; however, over time, it has evolved into a development and production hub for car multimedia and sensors. The unit has been steadily growing and has now over 3,500 employees, being the largest private employer in Braga. Moving beyond manufacturing, Bosch has installed a R&D center in Braga, which is growing, with over 330 engineers working on developing solutions for autonomous and connected mobility. In order to further boost innovation, Bosch has also established a proficuous partnership with the nearby University of Minho, resulting in multiple successful and innovative R&D projects, talent development and continuous knowledge creation, and subsequent economic valorization.

R&D unit Software Vestas Talkdesk development and shared

Vestas is the world’s leading wind turbine company, both in manufacturing as well as R&D activities. services In 2018, the company opened the Vestas Porto Design Center at the Lionesa Business Hub, in Matosinhos (on center the outskirts of Porto). The center currently employs over 200 people and is expected to reach 350 in the Talkdesk is a unicorn company of Portuguese origin near future. that develops cloud-based software solutions for This R&D unit works in collaboration with other design contact centers. The company currently has offices in centers in Denmark, Germany, India and the UK. It is San Francisco (headquarters), Salt Lake City, Lisbon, tasked with developing the company’s capabilities in Porto, Coimbra and London. disciplines, such as mechanical engineering, electrical Talkdesk has over 1,500 clients in more than 60 engineering, controls, data analytics, materials, among countries, including companies, such as IBM, TAP others. or Sonae. While this is the first Vestas’ R&D unit in Portugal, in The company has over 350 employees in Portugal, 2011, the company participated in the deployment of and as part of its efforts to grow and focus its software WIndFloat, an innovative floating wind turbine installed development activities in the country, plans to reach offshore of Aguçadoura, not far from Porto. 1,000 engineers by the end of 2020. According to company officials, the engineering and IT As part of these ongoing efforts, Talkdesk recently skills available, as well as the proximity to well-reputed moved to a new, larger office in Porto. Also, it plans on universities were decisive factors in the choice of hiring 100 people, especially computer engineers and location. data scientists, by the end of the year. This office, with a capacity for 250 people, will also host the company’s newest customer support center, which is especially geared towards start-ups.

Porto and Northern Portugal: a magnet for investment 25 Attractiveness 3perception ey.com/attractiveness

Portugal’s attractiveness remains ahead of its peers with Porto standing strong

Regional attractiveness perception Portugal’s attractiveness is influenced by the uncertainty that hovers over Europe, but the country remains 8% 27% ahead of its peers. 8% in 2018 26% in 2018 The optimism in Europe stopped because of the outbreak of geopolitical concerns related to Brexit, slowing Central Northern Eurozone growth (from 50% in 2018 Portugal Portugal to 37% in 2019), rising trade tensions and decreasing short-term investment plans (from 35% in 2018 to 27% in 2019). Despite a decrease, Europe still is the world's most attractive region to establish business operations. Investor’s perception of Portugal follows the same pattern as Europe. In any case, Portugal has once more outpaced its fellow European countries. Attractiveness remains strong (52%) and the proportion of investors planning 52% to invest in Portugal (25%) is among the 56% in 2018 1% highest in Europe. Less than 1% in 2018 Internally, Northern Portugal holds Lisbon steady, while Lisbon loses ground. area Alentejo A closer look into Portugal shows that the perception of the country’s attractiveness at the regional level is also changing. Azores While the Lisbon area continues to dominate in terms of regional no data <1% in 2018 attractiveness, investor sentiment % toward “peripheral” regions is gradually 4 shifting. In 2019, approximately 7% of 2% in 2018 investors perceive the Algarve, Madeira, Azores or Alentejo as the most attractive regions in Portugal (vs. 4% in 2018). Algarve Madeira Nonetheless, investors’ perceptions of Northern Portugal’s attractiveness remained fairly unchanged, providing 2% further evidence of this region’s intrinsic 1% in 2018 appeal. Over one-fourth of the investors Attractiveness 2019 surveyed view this region as the most Attractiveness 2018 attractive to establish operations in Portugal.

Source: EY Attractiveness Survey 2019 (205 respondents;117 established in Portugal; 88 not established in Portugal).

Porto and Northern Portugal: a magnet for investment 27 Investment intention

Investment intentions grow in Still, 3 in 10 investors can’t say Mobility and connectivity Northern Portugal. where to invest in Portugal — this is Transport and logistics infrastructure The Lisbon area retains the lead as the an untapped opportunity for Northern ranks as a strong contributor for the region where most investors choose Portugal to seize. region’s attractiveness, with 24% to locate their projects. The Northern The survey results show that 30% of of respondents classifying them as region is closing in on Lisbon, with 26% respondents who intend to invest in differentiating factors. of intentions to invest. Portugal over the next year cannot Reliable public transport, an extensive Focusing on investors’ preferences decide about the location yet. And a network of roads and high-quality within the Northern region of Portugal, closer look at the survey data reveals highways, a first-class airport and Porto takes the lead. The city of that non-established investors find it two international ports are trusted to Porto coupled with the wider Porto even more difficult to pinpoint a location provide high standards of mobility and Metropolitan Area accounted for 15% for their intended investment plans. connectivity, within the region and of short-term investment intentions, Fifty-four percent of those who do not yet across borders. operate in Portugal cannot say in which which is approximately the same as the Surprisingly, 12% of those respondents region they would prefer to invest in. Azores, Alentejo, Algarve and Central who would prefer to establish regions combined. These results present an opportunity for operations in a region other than The city of Braga follows, with 5% businesses, policymakers and advisors Northern Portugal also cite this aspect of investors planning to establish or to revisit the region’s promotion as a factor that led them not to consider expand operations there over the next strategy, adapt policies and attract Porto and Northern Portugal for future year. the currently undecisive investors to investments. Northern Portugal. The factors that lead foreign investors to consider Porto and Northern Portugal for future investments are manifold.

28 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Talent availability Short-term investment plans in Northern Portugal According to the European Commission’s Regional Innovation 29% Monitor, there is a critical mass and 30% Lisbon area significant cost benefit in manpower Can’t say with high qualification standards in Northern Portugal, laying the foundations for the attraction of FDI. In fact, one in five investors mentions either the local labor costs or the skills level as factors that led them to consider this region for future investment. 2% Azores Growing local market 4% 8% The relevance of the local market is Alentejo also cited by 15% of those surveyed. 5% As the economic recovery broadens Algarve 7% domestically, rising employment, higher 5% confidence levels and a continued 2% % Central Portugal 2% 5 increase in household disposable % income drive private consumption, 26 making this region more enticing for Northern Portugal foreign investors. Porto metropolitan area Viana do Castelo Can’t say (Northern Portugal) Porto city Guimarães Braga Aveiro

Source: EY Attractiveness Survey 2019 (205 respondents;117 established in Portugal; 88 not established in Portugal).

Porto and Northern Portugal: a magnet for investment 29 Attractiveness factors

Investor perceptions on Porto's This factor is followed by other Also, none of the surveyed factors had and Northern Portugal’s structural elements, such as social an attractiveness score equal to or attractiveness reflect a high stability, infrastructure, and labor skills below 50%. standing on key structural and costs. On the flip side, the factors that were factors, such as quality of life, These perceptions are in line with considered as little attractive or not- social stability, infrastructure, the previous analysis on the pillars of at-all attractive included the stability labor and others. attractiveness of the region, and this and transparency of political, legal and reflects the recognition of those factors regulatory environment (26%), the Out of the 16 factors surveyed, quality by investors. proximity to government entities and of life emerged as the main source of other relevant stakeholders (25%), and attractiveness of the region, with 91% Porto's and Northern Portugal’s international appeal and, especially, the availability of information about the of investors considering it at least fairly region (22%). attractive and over half (52%) placing it resilience over the past years are largely as very attractive. related with these structural assets.

Porto's and Northern Portugal’s attractiveness for FDI across factors

Attractive Porto and Northern 2% Portugal vs. Portugal Quality of life 52% 39% 3% 4% 91% 90% 96% 83%

Stability of social climate 42% 36% 10% 4% 7% 79% 86% 91% 62%

Telecommunication infrastructure 37% 41% 11% 2% 10% 77% 73% 91% 59%

Labor costs 36% 38% 9% 6% 11% 75% 71% 84% 62%

Potential for increase in productivity 31% 41% 11% 7% 10% 72% 70% 86% 54%

Transport and logistic infrastructure 30% 41% 15% 4% 10% 72% 70% 85% 54%

Local labor skills level 25% 44% 16% 2% 13% 69% 72% 84% 49% Availability of information 23% 46% 15% 7% 10% 68% - 82% 51% about Northern Portugal

The relevant market is in the region 20% 45% 15% 7% 13% 65% - 82% 42%

Quality of the start-up ecosystem 24% 40% 13% 3% 20% 64% - 80% 43%

Availability of quality ofﬁce spaces 23% 41% 9% 4% 23% 64% 64% 78% 45% Stability and transparency of political, legal and regulatory environment 19% 44% 19% 6% 11% 63% 56% 69% 55% Level of collaboration between academia and R&D 23% 40% 11% 4% 22% centers, and businesses in Portugal 63% - 74% 49%

Cost of ofﬁce spaces 23% 39% 9% 5% 25% 62% - 74% 46% Proximity to government entities and other relevant stakeholders 10% 42% 19% 6% 23% 52% - 68% 31% Speciﬁc support and incentives offered 14% 38% 17% 4% 27% by regional and municipal entities 51% 43% 65% 33%

Very attractive Fairly attractive Can’t say Established Non- established investors Little attractive Not-at-all attractive investors

Source: EY Attractiveness Survey 2019 (205 respondents; 117 established in Portugal; 88 not established in Portugal).

30 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

There is a significant perception This situation is also reflected when gap between established and non- investors are asked their perception established investors in Porto and on availability of information about the Porto was chosen as the Northern Portugal. region, with 22% considering this factor When asked about the region’s as not attractive. location of our new center attractiveness across the 16 selected The perception gap also prevails in “for the excellent quality factors, on average 81% of established some specific factors previously of life it provides, the investors consider all factors attractive. mentioned as highlights for the For non-established companies, this region. great accessibility to main indicator decreases to 51%. In fact, when considering individual European capitals, and the When comparing Porto and Northern factors of attractiveness, the largest Portugal with the remaining regions in gaps occur for quality of start-up easiness to attract highly the country, only 17% of non-established ecosystem (80% vs. 43%), proximity to qualified human resources. investors consider Northern Portugal government entities and other relevant It is an attractive city and it to be the most attractive region in stakeholders (68% vs. 31%), local labor the country, compared with 61% for skills level (84% vs. 49%) and availability will be easy to attract other Lisbon. In case of established investors, of quality office spaces (78% vs. 45%). people of the company this gap shrinks considerably, with Therefore, while the region has been the preference for the Lisbon area noted for its attraction owing to these to live here. dropping to 45%, while the preference factors, the lack of awareness by for Northern Portugal doubles, reaching potential investors could prevent a Benedita Miranda, 34%. stronger dissemination of information Country Manager Portugal of Sitel among all potential investors.

How the region compares with Portugal as a whole

The factors that according to established investors in Porto 1. The region scores higher than the average and Northern Portugal standout the most include the following of the country in most surveyed attractiveness (comparison to the average of the country): factors, with the exception of stability of social climate or local labor skill levels. Stability and transparency of political, Specific support and incentives offered legal and regulatory environment by regional and municipal authorities 2. When considering investors already established in Portugal, and usually better informed about the country, the two specific factors highlighted on the right standout for Porto and Northern Portugal. This reflects the ongoing efforts by local authorities toward 69% 65% having a good governance that helps Porto and 52% 51% Northern Portugal to be more attractive for investors and businesses.

Attractive

Porto and Northern Portugal: a magnet for investment 31 1. Tourism Northern Portugal growth engines 58% of investors believe this sector will drive Porto's and Northern Portugal’s growth in the coming years.

Respondents selected tourism, ICT, and real estate and Respondents’ views also diverge considerably depending on construction as growth engines for the region. whether they are already established in the country. A comparison with the national outlook puts respondents’ Established investors are more optimistic about the tourism impressions regarding regional prospects in stark perspective. industry than those who are yet to invest (63% vs. 51%) and While the top three sectors expected to drive growth are the B2B services, excluding finance (12% vs. 5%). Conversely, same for Portugal and Northern Portugal, the percentage of prospective investors seem more confident than established investors citing each one of them varies. investors about the potential of ICT (30% vs. 25%) and clean Tourism, for instance, is expected to drive growth in Northern tech (13% vs. 4%) to drive growth in Porto and Northern Portugal by 58% of those surveyed. Turning to the survey Portugal. findings for Portugal as a whole, only 33% of respondents Still, both established and non-established investors agree share this view. The opposite is true for real estate and that tourism, ICT, and real estate and construction will be the construction — 15% expect it to drive growth in Porto and key growth engines of the Northern region’s economy. Northern Portugal, while 26% believe it will drive growth in Portugal as a whole.

Business sectors driving growth in Northern Portugal in the coming years (Percentage of investors who mention each sector)

Tourism

Information and communication technology (ICT) 27% 58% Real estate and construction 15%

Transport and automotive 14%

Consumer goods 13%

Logistics 13%

Energy and utilities 10%

Business-to-business (B2B) services excluding ﬁnance 9%

Pharmaceuticals and biotech 8% Northern Portugal Clean tech 8% Percentage of investors in Northern Portugal Other 14% Portugal

Source: EY Attractiveness Survey 2019 (205 respondents; 117 established in Portugal; 88 not established in Portugal).

32 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

2. ICT 3. Real estate and construction 27% 15% of investors believe this sector of investors believe this sector will drive Porto's and Northern will drive Porto's and Northern Portugal’s Portugal’s growth in the coming years. growth in the coming years.

Tourism goes from blooming to ICT gains momentum, as investment Urban regeneration fuels booming. in skills and infrastructure pays off. real estate and construction Porto and Northern Portugal are In recent years, Porto and Northern investment. gaining prominence as excellent tourism Portugal have witnessed the rise of The growth in tourism, investment and destinations in Europe and throughout the a strong, entrepreneurial tech-based entrepreneurial activities in Northern world. Porto was elected European Best ecosystem. Portugal has also boosted property Destination in 2017 and Braga was voted According to ScaleUp Porto, 40% of demand and urban regeneration 2nd European Best Destination in 2019. Portuguese start-ups are located in Porto, projects, particularly in Porto, with the Rising international visibility has been and there are close to over 20 incubators, number of building rehabilitation projects fueling inbound arrivals. Both the more than 30 co-working spaces and skyrocketing in recent years. number of overnight stays and the over 65 R&D centers settled in the Porto In fact, urban regeneration is now turnover of hotel establishments in Metropolitan Area. the main force behind the property, Northern Portugal are growing above In terms of R&D and innovation resources, construction and tourist accommodation the national average, at CAGR of 10% Northern Portugal hosts approximately 35% markets. According to the Portuguese and 17% over the past five years, of the total number of research, technology Hoteliers Association (AHP), most new respectively. Porto, in particular, had and development units in the country. hotels in Porto are in recently restored the highest RevPar growth in Europe in Examples of leading institutions present in buildings located in the city's historic 2018, at 10.3%. the region include INESC-TEC, the Institute center, where rehabilitation projects The European structural and investment of Telecommunications, and the Fraunhofer qualify for more enticing incentives. funds (ESIF) – Competitiveness and Center for Assistive Information and Regeneration is encouraged by incentives International Operationalization Program Communication Solutions. such as value-added tax (VAT) reductions, (COMPETE 2020) and NORTE 2020 – have It is also worth mentioning the Porto Tech which effectively lower building costs, been instrumental in the development Hub, a not-for-profit association created and by plans to ease rent controls. The and capitalization of tourism resources by three well-established tech companies applicable legal framework also provides in the region. These focus strongly on with strong connections with Porto – expedited planning permission procedures, the "cultural", "city breaks", "health and blip, Critical Software and Farfetch. This simplified eviction of long-term tenants, wellness" and "nature" axes of the tourism association was launched with an intention who could otherwise extend their tenancy activity. As of 31 March 2019, nearly to promote and grow Porto as a global rights indefinitely, various tax breaks and €180m of EU funds were approved to technological center of excellence. special financing schemes. support tourism-related projects within the The existence of a sizable and skilled Foreign investment has been the key scope of ESIF. talent pool leaving the local universities driver of urban rehabilitation over Turismo de Portugal (the national tourism contributes to upholding Northern the past five years, with the foreign board) also sponsors financing lines for Portugal's value proposition to foreign investment share in real estate technological projects in tourism as part of investors in ICT businesses. A multitude investment in Porto surpassing 60%. its Valorizar Program. Funding is targeted of infrastructure and entities aimed at The most recent effort to attract new at particularly innovative solutions in supporting entrepreneurship, and the foreign investors was the establishment the areas of digitalization of tourist broad-based interoperability among of a regime for Sociedades de experiences, and artificial intelligence, employers, social partners, academia, Investimento e Gestão Imobiliária (SIGI) virtual and augmented reality projects. R&D centers, and local government bodies – the Portuguese version of real estate also contribute to upholding the value investment trusts – which came into proposition. force in the first quarter of 2019.

Porto and Northern Portugal: a magnet for investment 33 Areas of focus and reform

Porto's and Northern Portugal’s In accordance with these dynamics, Taxation levels and SME support are continued competitiveness surveyed investors selected developing other leading areas of focus, both relies on investing in skills education and skills, and supporting for their standard relevance for daily and innovative industries, and high-tech industries and innovation as business as well as the potential impact addressing some pressing issues, two main areas of focus to maintain they could have on newer companies Porto's and Northern Portugal’s (e.g., start-ups). such as taxation or SME support. competitiveness. As global value chains are being deeply However, the perception gap between reshaped by disruption, so are industries established and non-established and countries, with the need for the investors is worth noting when it comes right skills becoming an ever-increasing to education and skills. Companies priority for companies. already present in Northern Portugal As an example, according to Eurostat place this factor in the fifth place in the data, the software industry has been priority list, instead of placing it in the growing five times faster than the rest first place. of the European economy, with tech firms at the forefront of job creation.

Main areas of focus to maintain Porto's and Northern Portugal’s competitiveness

Portugal

Develop education and skills 34% 36% 26% 43%

Support high-tech industries and 33% 41% 34% 32% innovation

Reduce taxation 33% 35% 42% 22%

Support SMEs 31% 24% 32% 28%

Invest in major infrastructure and urban 24% projects 30% 28% 19%

Improve information available about the 19% - 16% 24% region

Reduce labor costs 14% 12% 12% 16%

Improve the quality of their products and 12% 19% 12% 13% adding value to their services

Facilitate access to credit 11% 8% 13% 8%

Encourage environmental policies and 10% 11% 7% 14% attitudes

Support struggling industries 9% 8% 8% 10%

Others 4% - 7% 1%

Can’t say 5% 1% 3% 7%

Established Non- established investors investors

Source: EY Attractiveness Survey 2019 (205 respondents; 117 established in Portugal; 88 not established in Portugal).

34 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Talent, incentives, infrastructure With the investment in skills and Almost half (45%) of the investors and a culture of innovation are infrastructure paying off, Porto and selected improving education and the key for leadership in this Northern Portugal are in a privileged training in new technologies as the field. position to have an increased appeal main area of reform. Developing and for international investors, especially nurturing a culture of innovation and With Porto being considered the in highly qualified and innovative creativity, and entrepreneurship were third fastest-growing fastest growing activities. other highlights. European tech hub (according to Atomico) and the “Best Startup-Friendly Nevertheless, investors are clear in Finally, incentives (particularly tax City of Europe” (by the World Business what some of the priorities should be in incentives) and investment in digital Angels Investment Forum), the city is order to ensure that Northern Portugal infrastructure were also named by gaining prominence in the international remains on this path, and it is able to surveyed investors as important areas scene. achieve and solidify its desired place as of focus. an innovation leader.

Main areas of reform to make Porto and Northern Portugal leaders in innovation

Portugal

Improve education and training in new 45% 51% 41% 49% technologies

Increase tax incentives for innovative 28% 31% 29% 26% companies

Develop a culture of innovation and 27% 21% 27% 28% creativity

Invest in digital infrastructure 23% 32% 23% 22%

Develop entrepreneurship 20% 18% 22% 18%

Develop a culture in green and social 18% 12% 14% 22% innovation

Develop joint research programs at the 18% 18% 19% 16% European level

Develop VC and other ﬁnancial tools 13% 12% 12% 14%

Others 1% - 2% 0

Don’t know 6% 5% 8% 4%

Established Non-established investors investors

Source: EY Attractiveness Survey 2019 (205 respondents; 117 established in Portugal; 88 not established in Portugal).

Porto and Northern Portugal: a magnet for investment 35 Methodology

Interviewed companies Country of origin 71%

3% 8% Northern Europe

Northern America 2% Western Europe Central and Eastern Europe 11%

Asia

1% 2% Angola Brazil

Australia Size of the company Sales’ turnover

24% more than €1.5 billion Job titles of the interviewees 28% from €150 million to €1.5 billion C-suite: 37% Managing director, senior vice president and COO 17% 48% less than Director of investments 6% €150 million Director of strategy 5% Director of development 5% Chairman, president and CEO 4% Financial director 39% Marketing and commercial director 18% Detailed activity sector Human resources director 2% Others 4%

36% 30% 24%

7% 3%

High-tech and telecommunication Chemical and Industry, automotive Private and infrastructure and pharmaceutical and energy business services Consumer equipments industries

Heavy industry: 12% B2B services: 10% Consumer goods High-tech Chemical industries: 2% Car industry: 7% Private services: 5% manufacturer, food and textile equipments: 6% Pharmaceutical Energy and environment: 5% Tourism and leisure: 5% industry: 17% Telecommunication industries: 1% Real estate and construction: 5% Banking, insurance, and Retail distribution: 7% infrastructure and equipments: 1% Transport: 5% wealth and asset management: 4% Eco-activities: 2% Media and publishing: 3% High-tech services: 2% Fintech 1%

Source: EY Attractiveness Survey 2019.

36 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

The “real” attractiveness of Europe The following categories of investment projects are excluded for foreign investors from the EIM: • M&A and JVs (unless these result in new facilities Our evaluation of the reality of FDI in Europe is based on the EY or new jobs being created) European Investment Monitor (EIM), EY’s proprietary database, • License agreements produced in collaboration with OCO. This database tracks those FDI projects that have resulted in the creation of new facilities • Retail and leisure facilities, hotels, and real estate* and new jobs. By excluding portfolio investments and M&A, it • Utilities (including telecommunications networks, airports, shows the reality of investment in manufacturing and services ports and other fixed infrastructure)* by foreign companies across the continent. • Extraction activities (ores, minerals and fuels)* Data is widely available on FDI. An investment in a company is • Portfolio investments (pensions, insurance and financial funds) normally included in FDI data if the foreign investor acquires • Factory and other production replacement investments (e.g., more than 10% of the company’s equity and takes up a role replacing old machinery without creating new employment) in its management. FDI includes equity capital, reinvested earnings and intracompany loans. • Not-for-profit organizations (charitable foundations, trade associations and government bodies) But our figures also include investments in physical assets, such as plant and equipment. And this data provides valuable with insights into the following questions: The “perceived” attractiveness of Europe and • How are the FDI projects undertaken? its competitors by foreign investors • Where are the investments made? We define the attractiveness of a location as a combination of image, investors’ confidence and the perception of a country • Where are these projects located? or area’s ability to provide the most competitive benefits for • Who is carrying out these projects? FDI. The field research was conducted by the CSA Institute in January and February 2019, via telephone interviews, based The EIM is a leading online information provider that tracks on a representative panel of 205 international decision-makers. inward investment across Europe. This flagship business This panel was made up of decision-makers of all origins, with information tool from EY is the most detailed source of data clear views and experience of Europe: on cross-border investment projects and trends throughout Europe. The EIM is frequently used by government bodies, • Western Europe: 71% private sector organizations and corporations looking to • Asia: 11% identify significant trends in employment, industry, business and investment. • Northern America: 8% The EIM database focuses on investment announcements, • Northern Europe: 3% the number of new jobs created and, where identifiable, the • Brazil: 2% associated capital investment. Projects are identified through • Central and Eastern Europe: 2% the daily monitoring of more than 10,000 news sources. To confirm the accuracy of the data collected, the research team • Australia: 2% aims to directly contact more than 70% of the companies • Angola: 1% undertaking these investments. Overall, 57% of the 205 investors surveyed have presence in Portugal.

About the EY Attractiveness program

EY Attractiveness Surveys are widely recognized by EY The program has a legacy of 17 years, and has produced clients, media, governments and major public stakeholders in-depth studies for Europe, Africa, the Mediterranean as a key source of insight into FDI. Examining the region, India, Japan, South America, Turkey and attractiveness of a particular region or country, as an Kazakhstan. investment destination, removes barriers to growth. A two- step methodology analyzes both the reality and perception For more information, please visit: of FDI in the country or region. Findings are based on the ey.com/attractiveness. #EYAttract views of representative panels of international and local opinion leaders and decision-makers.

*Investment projects by companies in these categories are included in certain instances. For example, 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.

Porto and Northern Portugal: a magnet for investment 37 How can EY help?

Services for investors and multipliers

With offices in Lisbon and Porto, EY Identification of acquisition Acquisition and integration support offers a broad scope of EY services opportunities Supporting the development of across service lines: Assurance, Tax, Support on the decision-making growth and business diversification Advisory and Transaction Advisory process concerning new investments strategies, through the identification Services. either related to new geographies, and negotiation of acquisition EY teams work closely with the products or markets opportunities, and finding additional financial system, private equities, Identification of potential targets, funding (assisted funding or new venture capitalists and privately owned based on the investor’s requirements investors) and analyzing business businesses. Alongside private and 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 in line with local regulations Portugal and overseas. and the investor’s own policies An in-depth knowledge of the local market enables teams to offer a set of services that covers all stages of the investment process.

Services for the public sector

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

38 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

Assessment of greenfield opportunities Financial, tax, commercial, Initial business model preparation 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 Assessment of operations and opportunities, including tax and EU- identification of performance funded financial incentives improvement opportunities Preparation and assistance to on- site visits, and formal contacts with national and local stakeholders Identification and selection of local suppliers, based on sourcing requirements

Investment promotion: Assessment of investment intentions: 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 Assessment of the economic and specific investment brochures commercial viability of investments — Strategic plans for public goods and Initial setup and definition of investment sustainability 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 road shows, and one-to-one meetings with potential investors, government authorities and business partners

Porto and Northern Portugal: a magnet for investment 39 How can InvestPorto help?

InvestPorto, established by Porto City Council in 2015, acts as a one-stop shop for investors which provides support to relevant and strategic investments that take place in the Porto area during all the stages of the investment process. InvestPorto assumes a facilitating and coordinating role among different stakeholders, focusing on: • Promotion of Porto as a competitive, innovative and talented city • Attraction of qualified investments that value talent • Promotion of company reinvestment and growth

We are the pivot point in the municipality for all the investments that bring strategic interest and innovative character, enhancing the creation of qualified jobs and strengthen local economic structure in the city and the region. InvestPorto articulates its activity with all relevant departments in the municipality, as well as with a wide range of external, public and private, national and international organizations. The main areas of activity of InvestPorto include: • Investment attraction - focusing on pre-investment, negotiation and attraction, through support to decision-making and promotion of the city/region and its competitive advantages • Aftercare - focusing on post-investment and support to established companies, through investment consolidation and support to growth and reinvestment • Talent - focusing on talent attraction and management, through promotion of initiatives for talent attraction and retention, aiming at attracting investment and retaining companies

Personalized services for investors and companies • Information and business intelligence • Personalized and tailor-made assistance • Support to inter-institutional cooperation • Business location search • Talent attraction • Aftercare service

InvestPorto contacts +351 222 097 027 [email protected] investporto.pt

40 Porto and Northern Portugal: a magnet for investment ey.com/attractiveness

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