Market Overview
Mainland Portugal, along with its semi-autonomous island regions of the Azores and Madeira, offers American exporters a market of approximately 10.6 million people in a country roughly the size of the State of Indiana. As a member of the European Union (EU), it is fully integrated with the EU, uses the euro currency, and follows directives from the European Commission in Brussels. As with all EU countries, Portugal’s borders and ports are completely open to the free flow of trade with other EU member countries. It has a politically stable environment with a democratically elected parliamentary government and is welcoming of foreign business and investment.
Portugal’s GDP per capita is $22,000 (2008), and its language is the 6th most widely spoken in the world. The country retains close political and economic relations with it former colonies, which are spread throughout Africa, Asia, and South America. Internal reforms have been underway since 2005 to address chronic budget deficits and economic stagnation. These (mostly structural) reforms have borne fruit, as the economy grew by 1.2% in 2006, 1.8% in 2007, and is projected to post a 0.3% gain for 2008. Portugal succeeded in bringing its budget deficit down from a high of 6% in 2005 to 2.6% in 2007 – well under the EU’s limit of 3% - and is expected to post a deficit of only 2.4% for 2008.
For 2009, against the backdrop of a severe global economic downturn, Portugal faces a recession which may see the economy contract by up to 2% (Economist Intelligence Unit forecast). Negative growth and a concurrent rise in unemployment will undoubtedly hinder the government’s ability to implement further public-sector reforms, as will an impending general election planned for the second half of 2009. Instead, there is increasing pressure for greater public spending to avoid a deeper economic crisis. That said, the government has stated it will prioritize large project investments such as a high-speed train link to Spain and a new international airport in Lisbon, which are anticipated to create diverse opportunities for technology imports and international service contracts.
The government also remains committed to attracting FDI, expanding trade with Spain, the U.S., and Africa, and focusing on niche sectors of the economy such as tourism, renewable energy, high quality industrial components, and technology services.
U.S. Census data indicates that Portuguese consumers bought approximately $2.4 billion dollars worth of U.S. goods and services in 2007. That same year, U.S. imports of Portuguese goods and services totaled over $3 billion. The U.S. states exporting the most to Portugal were Virginia, Texas, Louisiana, Kansas, Indiana and Arkansas. Top U.S. exports in 2007 included electrical machinery, aircraft parts and components, machinery, grains and oilseeds, optical/medical equipment, and wood products.
Although the Unites States ranks 5th among Portugal’s top export trading partners (1st place for non-EU countries), Portugal only ranks 53rd among U.S. export markets. All the same, the total amount of U.S. goods sold into Portugal is undoubtedly larger than the statistics reflect, as census data does not account for U.S. products imported into other EU countries and subsequently transported into Portugal for sale. It is common throughout the European Union for goods to be shipped to one EU location – often to take advantage of lower value added tax rates - and then to be distributed by ground transport to neighboring member state markets.
The United States continues to work closely with Portugal to find ways to expand and deepen two-way trade and investment to better reflect historically strong political, geo-strategic, and security ties between the two countries. Portugal’s drive to modernize and diversify its economy will offer possibilities for growth in U.S. trade and investment over the medium and long-term. Demand for high-quality, price competitive U.S. products in Portugal is strong and, as mentioned above,,several large-scale infrastructure development projects planned for the coming years will offer contract opportunities regardless of global economic growth patterns.
Market Challenges
Elected in 2005 with a strong reform mandate, Prime Minister Jose Socrates has undertaken ambitious measures to lower Portugal’s deficit and strengthen other facets of the Portuguese economy. Budget tightening has targeted the large public sector and is generating positive results, but has limited the rate of economic growth. As stated above, the economy grew by just 1.2% in 2006 and 1.8% in 2007. The Economist Intelligence Unit estimates real GDP growth in 2008 at 0.3%. In addition, Portugal still has one of the highest Value Added Tax (VAT) rates in Europe at 20%.
American exporters face competition in Portugal from savvy European competitors. European companies are already familiar with aspects of the business culture, financing, regulations, standards, etc. In addition, they do not face import tariffs that U.S. companies have to pay to get their products into Portugal. Some U.S. companies have also reported that they are now encountering Chinese competitors in Portugal.
Market Opportunities
The current dollar/euro exchange rate continues to present an advantage for U.S. exporters to Portugal and all euro-zone countries. A commonly held belief in Portugal is that U.S. products are high quality, but not competitive on price. All U.S. firms are advised to press their price advantage to break into the market and/or increase their market share.
The U.S. Commercial Service in Portugal is seeing renewed interest by Portuguese industry looking for material and component suppliers from the U.S. The market for U.S. architectural, construction and engineering company services is set to expand in Portugal in the near future. Public works construction is expected to grow at a rate of 5 to 7% over the next several years. From now through 2012, there are four major project areas that are being developed by the Government as “priority” initiatives. They are the new Lisbon Airport, a high-speed rail line to Madrid, expansion of renewable energy parks, and new ports infrastructure and development. These projects, as well as other infrastructural investments resulting from Portugal’s continued receipt of EU structural and cohesion funds, will present supply and service opportunities for U.S. firms.
The Portuguese market is larger than it may initially appear. There may only be 10.6 million people in Portugal, but there are well over 200 million people who speak Portuguese worldwide. Former Portuguese colonies, including Macau, Mozambique, Angola and Brazil, have close business ties with Portugal. U.S. companies can often find avenues to these other markets through Portugal.
Portugal is an excellent entry point or test-market for U.S. firms looking to establish access into the EU. English is widely spoken and the population is generally very friendly toward Americans. Both physical and IT Infrastructure are well developed and Portugal is still one of the lower commercial cost business environments in Western Europe.
Market Entry Strategy
First time exporters are urged to contact the nearest of over 100 U.S. Export Assistance Centers (USEAC). These USEACs are part of the worldwide network of U.S. Department of Commerce offices to support U.S. exporters. The U.S. Commercial Service in Portugal recommends that U.S. firms get acquainted with the Portuguese market through the standard market research reports we publish, and which are available through the USEACs and the Internet. Companies that have already penetrated one EU country will have met the requirements for Portugal, as well.
The quickest and best way to enter the Portuguese market is to work with a local partner. Both small and large U.S. exporters can benefit from finding the right person or group in Portugal who can provide advice and contacts. The U.S. Commercial Service office in Portugal, located in the U.S. Embassy in Lisbon, offers a variety of services to help U.S. firms find the information they need about the market and identify an agent, distributor or representative for their products or services.
