Portugal: Portugal’s minister of economy, Álvaro Santos Pereira

Portugal started 2013 in a relatively hopeful mood. The country returned to the long-term deficit market for the prime time since being bailed out in 2011 with an offer that increased the size of an existing €6bn bond maturing in 2017. The additional money raised was €2.5bn, following request that was reportedly in excess of €12bn, mainly coming from foreign investors. Even additional hopeful was the cost of borrowing for the new funds, which was less than 5%.

“For us, getting back to the market was very significant, not only internally but as well externally,” says Álvaro Santos Pereira, Portugal’s minister of economy. “At the same time as a country is able to get back to the market this helps the financing of our banks and of our [small and medium-sized enterprises]. We are focusing our attention on the financing of the economy. We are following amount the necessary steps to get back to normality and to get back to increase, so that we can create jobs and get investments.”

Positive spin

Speaking at a London event aimed at attracting investment into Portugal’s tourism real-estate sector, Mr Pereira is not short of positive messages. The government is keen to return to increase, he says, attract new investment and create jobs. Plans to reignite the economy and reduce the country’s dire unemployment rate – which is expected to rise to 17.3% this time– include a focus on Portugal’s industries, its natural resources and the tourism sector, inclunding measures to attract new investments.

“It is significant that nations such as Portugal go back to increase, pursuing a re-industrialisation policy, a natural resources policy in terms of mining, oil and gas, but as well cutting back on red tape,” says Mr Pereira.

In addition to reducing bureaucracy, the Portuguese government plans to attract investment by reducing taxation, something that would need the approval of the troika of the European Commission, International Monetary Fund and European Central Bank, which is monitoring the country's evolution under its €78bn bailout programme. In a country still struggling to meet its deficit targets, tax reduction may be confined to specific areas. Corporate gain tax on new investments, for example, could be cut from 25% currently to 10%, making it one of the lowest in Europe alongside nations such as Cyprus and Bulgaria. This may well appeal to investors, but is as well likely to alienate existing tax-payers, who have loudly protested austerity measures in the completed.

Nevertheless, Mr Pereira highlights the importance of tax reform, inclunding other structural reforms, for the next of Portugal. “We are preparing a tax reform for our corporate tax law [and] we’ll talk with the troika any minute at this time,” he says. “We are trying to become additional competitive, as a package. There are a lot of pieces that need to be put in place [to do so, inclunding]: a privatisation programme, launching new concessions, and the tax reform that we’re trying to implement.”

Export promise

Mr Pereira is as well hopeful about Portugal’s export prospects. Exports have indeed grown of late thanks to Portugal’s larger exposure to markets such as China, Brazil and Portuguese-speaking African nations. Mr Pereira says that traditional and higher price-added sectors, such as car manufacturing, will lead Portugal's exports charge.

“In the completed 15 years, Portugal and a lot of nations in Europe invested a lot in infrastructure rather than providing good incentives for our companies to prosper in terms of industry and agriculture,” he says. “The agriculture and industry [sectors] are undertaking a process of reform and restructuring. But we think that in Portugal we [by presently] have excellent industries; not only traditional ones such as textiles and shoe making, but as well medium to high price-added industry.”

However, lower increase in some emerging markets and a largely stagnant eurozone recession – despite encouraging economic data in some European nations – will not help Portugal’s manufacturing sector. Recent data from Portugal's statistics agency shows that gross domestic product (GDP) decreased 3.2% in 2012, next a 1.6% reduction registered in 2011. The sharper decline was driven by the reduction of net external request, which was 4.7% of GDP in 2011, compared with 3.9% in 2012, and is as well explained by lower domestic request, says the agency. Portugal’s government projects that the economy will shrink 1.9% this year. Economic reforms are indeed needed, and fast.