PORTUGAL AT A CROSSROADS

Portugal 2019 | ECONOMY | VIP INTERVIEW

TBY talks to Irene Mia, Global Editorial Director, Thought Leadership, Economist Group, on competitiveness, four years of growth, and the so-called “cool factor."

Following its much-reported four years of successive economic growth, how do you assess the country's national competitiveness?

Portugal has made important strides in terms of reinforcing its competitive fundamentals while also putting the house in order from a macroeconomic point of view. The economy's return to growth has boosted market opportunities while structural reforms have improved the efficiencies of its factors markets, including the labour. Red tape has also been eased and basic drivers of competitiveness such as infrastructure and primary education are in good shape. On the negative side, political stability and effectiveness could still be improved. The current political setting, with a minority administration, is more prone to disruptive policy changes. What is more, despite a stronger fiscal position (with a lessening of the sovereign debt load) and better GDP growth, the country remains vulnerable to market turbulences and the banking sector continues to be affected by numerous weaknesses. Finally, for Portugal to be able to sustain growth over time, generating innovation is going to become increasingly important. Reinforcing the ecosystem for that will be key, including putting in place a conducive education and training system, generating synergies between the academia and the industry, investing in R&D, and further improving market efficiencies at all levels.

Following Standards & Poor's increase of Portugal's rating to investment grade, are we seeing a corresponding increase in interest in private sector investment in the country?

in our Business Environment Ranking, which assesses countries' attractiveness for investors. Within our European sample, Portugal ranks 15 out of 18, which underlines some further progress to be made in terms of relative competitiveness compared to its regional peers. The country's performance is rather even in terms of attractiveness factors. It benefits from a stable political environment, although polls show that any shift away from austerity could generate concerns amid investors. Still, the country retains business friendly policies for private enterprises, competition, and foreign investment. The macroeconomic environment needs to remain a focus, as does the labour market and foreign trade and exchange control. On top of this, the size of the market is relatively small. A focus on reinforcing these elements and ensuring that the fundamentals for long-term growth are in place will be crucial for attracting and sustaining FDI.

What do you expect to see in terms of Portuguese contribution to the EU—economically or otherwise—over the next few years?

With the appointment of Mário Centeno as head of the Eurogroup, Portugal is upping its influence within the EU. Hopefully it will continue to reinforce the EU's institutional underpinning, and play a key role in the current push for further integration of the economic and monetary union in a bid to shelter the region from external shocks. A decision on reform proposals will be made at the EU summit in June 2018. Some suggestions include the transformation of the European Stability Mechanism (ESM)—the euro zone's bail-out fund—into a European Monetary Fund (EMF), which would provide a backstop for the banking union; setting up a fiscal capacity with a stabilisation function for the euro area; or appointing a euro zone economy and finance minister who would serve as vice-president of the Commission, and potentially oversee the EMF. More generally, Portugal's economic success coupled with its diverse culture and current success in attracting tourists will hopefully further boost its soft power in the years to come.

The Lisbon Summit 2018 sees Portugal “at a crossroads." Which debates do you foresee coming to the fore at the conference, and what is the best recipe for public and private sector actors to transform this kind of debate into action?

We are hoping for an insightful debate on the challenges and opportunities Portugal faces in the current international conjuncture dominated by uncertainty and disruption. How can the country create and leverage disruption in its business and production models to create sustainable growth going forward? How can the country further improve the business environment and leverage new technologies to become an international hub for entrepreneurship? What are the challenges ahead, and how can the country leverage his strengths further, including its “cool factor?" We hope the summit will facilitate a fruitful discussion on the concrete steps that need to be taken, offering the space for creation of innovative solutions from all relevant stakeholders from the public and private sectors.

Which sectors will play a key role in allowing Portugal to consolidate and stabilize its economy's growth up to 2030?

Portugal's economy is dominated by service sectors, which account for over 75% of its economy. Financial services and tourism are among the most important sectors for the country's growth. The outlook for financial services, currently in the middle of a period of fragility, will partially improve on the back of moves toward shared regulatory structures in the euro zone. The boom currently experienced by the tourism sector, boosted by price competitiveness and security concerns in some competing destinations, could continue provided investment is made to improve tourism infrastructure in the country and supply income from key source countries doesn't become too much of an issue and/or can be mitigated by further diversifying these with strides into new markets. The industrial sector has been struggling in recent times amid low competitiveness and low domestic demand; however, the resulting shift from traditional low-cost activities to medium technology sectors, such as vehicles and automotive parts, and pharmaceuticals, among others, is positive in that it has upped the country's competitiveness fundamentals. This now needs to be sustained by a further focus on innovation and technology readiness.