Doing Business in Portugal

Market Overview

Mainland Portugal, along with the 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 $23,000 (2010), and its language is the 7th most widely spoken in the world. The country retains close political and economic relations with its former colonies, which are spread throughout Africa, Asia, and South America. Against a backdrop of slow recovery from the global recession, Portugal’s economy grew 1.4% in 2010 after contracting 2.5% in 2009. The Bank of Portugal forecasts a contraction of 1.3 percent in 2011.

Portugal’s budget deficit, which had been in excess of the EU’s limit of 3% of GDP for much of the early part of this decade, was brought down to 2.6% in 2007, but a weak economy and concurrent steep decline in revenues caused it to balloon to 12.1% in 2008. The government has been implementing austerity measures to reduce the budget deficit with the aim of lowering it to 4.6% of GDP this year. As the government continues to focus on deficit control, public infrastructure projects will be impacted. At the same time, a push to stimulate economic growth and job creation should help maintain momentum on some of the country’s proposed large-scale projects over the coming years – most notably a high-speed rail line to Spain and a new international airport in Lisbon, both of which are anticipated to create diverse opportunities for technology imports and international service contracts over the medium term.

The government 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 $1 billion dollars worth of U.S. goods and services in 2010. During that same period, U.S. imports of Portuguese goods and services totaled over $2.1 billion. The U.S. states exporting the most to Portugal were Texas, New Hampshire, California, Ohio, New Jersey, Wisconsin, Indiana, and New York. Top U.S. exports included computer and electronic products, industrial machinery, agricultural products, chemicals, and electrical equipment.

Although the Unites States ranks 8th among Portugal’s top export trading partners (2nd among non-EU countries), Portugal only ranks 66th among U.S. export markets. All the same, the total amount of U.S. goods and services sold to Portugal is undoubtedly larger than the statistics reflect, as census data does not account for U.S. products exported to other EU countries and subsequently transported to 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 continued 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 may offer contract opportunities regardless of global economic growth patterns.

Market Challenges

Prime Minister Jose Socrates was reelected in 2009, but his party (the Socialist Party, or PS) did not secure an absolute majority in Parliament and, therefore, formed a minority government. Battling low economic growth, high fiscal deficits, and high unemployment, there is little room for public spending as a means of alleviating the impact of the current economic slowdown. As was the case in 2005, budget tightening has targeted the public sector which, in turn, has limited economic growth. Portugal still has one of the highest value-added tax (VAT) rates in Europe at 23%.

American exporters face strong 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 other eurozone 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 from Portuguese businesses looking for material and component suppliers from the U.S. The market for U.S. architectural, construction and engineering services is expected to expand in Portugal in the near future. As detailed in Chapter 4 of this guide, there are also a host of opportunities for U.S. exports in e-mobility (electric vehicle parts and systems), medical equipment, renewable energy equipment, safety and security equipment, and travel/toursim services.

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 and, indeed, the Portuguese Business Promotion Agency (AICEP) is actively marketing the country as a “gateway” economy into third markets.

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 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.