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