Focus: Ease of Doing Business

The Right Goals

Feb. 14, 2019

Portugal has come far since the darker days of economic crisis, and recent reforms are making it a more appetizing investment proposition.

In 2018 Lisbon hosted the inaugural Socca6 World Cup in a new purpose-built stadium sponsored by local government and businesspeople. The event shined a favorable light on the country's competitive spirit and commercial drive. Portugal has no monopolistic economic sectors, although as commonly found, private ownership in certain businesses, including basic sanitation (excepting waste treatment), international air transport, railways, ports, and airports is capped at 49%. Significantly, the government has recently introduced diverse regulatory reforms to grease the wheels of commerce and investment.

OECD observations

Healthy competition invites fresh business initiatives and can ultimately reduce the cost of goods and services for the consumer. It follows, then, that protectionist structures tend to repel would-be FDI flows. To determine the remedial work required to hone its competitive edge, the Portuguese Competition Authority (PCA) in October 2016 turned to the Organization for Economic Co-operation and Development (OECD) for a comprehensive and impartial Competition Assessment Review. These identify regulatory, transport, and other infrastructural realities deemed restrictive to efficient market operation. As such, they provide governments with a roadmap of effective public spending and policy. The OECD's recommendations highlighted key economic sectors requiring legal reform to broaden competitiveness, including construction, gas, media, the liberal professions, pharmaceuticals, retail, tourism, and transport. To take transport as but one example, ranging from road haulage to taxi fares, 485 restrictions were identified for potential reform. Supporting this were calculations of vital statistics such as output, employment, and price trends.

The reform club

The World Bank notes that over the past year, regulatory reforms to ease business conditions peaked worldwide. Indeed, from June 2017 to May 2018, 128 countries implemented a record 314 reforms to enhance their commercial environment. Portugal's regulatory initiatives since 2018 have been overwhelmingly positive. Among competitive regulatory improvements to establishing a business is the 'Empresa na Hora' initiative that allows companies be incorporated in under an hour. To this is added swifter connection of utilities; a reduced corporate income tax rate and more favorable taxable profit ratio for SMEs; streamlined legal enforcement of contracts thanks to a new code of civil procedure, and a scrapping of the need to report to the Ministry of Labor. Where labor market regulation is concerned, severance pay per year of service has been reduced, while the maximum cumulative duration of fixed-term contracts has been raised. Construction permits are easier to obtain due to time limits imposed on the processing of urban projects with simplified attendant procedures. Meanwhile, cross-border trade has been facilitated by the operation of a single window in port procedures. And should the unfortunate occur, insolvency is now a simpler process to navigate under a new law that expedites liquidation procedures through fast-track processes both in and out of court. Portugal has also established a "Cutting Red Tape" website, pooling all steps taken since 2005 to curb bureaucracy. The Agency for Investment in Portugal (API) also systematically publishes investment opportunities.

FDI at a glance

With a vibrant tech industry in play, Portugal has recently also ramped up renewable energy initiatives and already operates the world's second-largest solar power plant. Indeed, the entire spectrum of green energy is seen as a juicy enticement for foreign investment. The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2018 reported that FDI to Portugal in 2017 saw modest YoY growth to USD6.95 billion from USD6.3 billion in 2016. Incidentally, Germany beat Poland 1-0 in the Socca6 World Cup final. To its credit, Portugal made it to the Plate Final, where Russia beat it 2-1. Yet, its national economy might be a longer-term winner.