The Portuguese economy bounced back from the pandemic, expanding by 4.9 percent in 2021 after an 8.4 percent contraction the prior year, benefitting from EU fiscal and monetary stimulus and a very high vaccination rate. The labor market has shown remarkable resiliency, with unemployment at 6 percent in January 2022, down from 7 percent a year before. GDP is expected to grow again by an estimated 5 percent in 2022, despite the economic shocks from the Russian war against Ukraine
The country will have a chance to boost its economic recovery, deploying more than €16 billion in EU grants and credit expected to fund state coffers between 2021 and 2026. It is expected these funds will be allocated in support of energy and digital transitions.
Increased flows of fossil fuels contributed to a 40 percent jump in trade in goods and services between Portugal and the United States to a record $10 billion in 2021. However, bilateral trade remains lop-sided with a large U.S. trade deficit of around $2.2 billion. Many U.S. companies nvest in business/service delivery centers in Portugal, taking advantage of Portugal’s relatively low-cost, talented, and multilingual labor force.
The country continues to push to improve market attractiveness. Portugal’s export and FDI promotion agency (AICEP) celebrated a record €2.7 billion of contracted FDI in 2021, double that locked-in during the last (2019) high mark. Portugal’s metalworking, auto component, and machinery industries predominate the recent FDI trends, accounting for about 30 percent of the contracted flows, according to the .
Portugal’s tech startup scene is thriving, featuring at least six fast-growing firms with ‘Portuguese-U.S. DNA’ that achieved ‘unicorn’ status with valuations above $1 billion– Outsystems, Talkdesk, Feedzai, Remote, SwordHealth and Anchorage. These high-tempo firms are flourishing after tapping into opportunities in the U.S. startup ecosystem that provides not only funding but also knowhow, networks, and customers, ultimately producing jobs on both sides of the Atlantic.
Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors who meet certain conditions, such as making substantial capital transfers or certain real estate acquisitions. Between 2012 and February 2022, Portugal issued 10,442 ‘Golden Visas’, representing €6.2 billion of investment, of which more than €5.6 billion went to real estate. Chinese nationals have been the main beneficiaries of the special program for residence permits, accounting for almost 50 percent (5,066) of the 10,442 total, followed by Brazilians with 1,072. Russian citizens were assigned 431 Golden visas since 2012. As of January 2022, Portugal modified the “Golden Visa” program to restrict the purchase of real estate to regions outside urban hotspots such as Lisbon, Porto, and overbuilt areas of the popular Algarve with the aim of boosting rural investment. Loopholes in the program appear to be enabling urban purchases in any event. On March 28, the European Commission urged member states to immediately repeal existing investor citizenship schemes, which the Commission claimed pose inherent risks.
In terms of risks, the independent Portuguese data protection agency (CNPD) has targeted U.S. companies by issuing a succession of judicial opinions warning against the use of U.S. technology firms – including Cloudflare, Respondus, and Amazon Web Services (AWS), arguing that as they are headquartered in the United States and therefore subject to U.S. law, by definition, they have inadequate data privacy standards. CNPD has not found any specific wrongdoing by any U.S. technology firm but bases its rulings on the grounds that a target company is headquartered in the United States. On March 25, President Biden and EU Commission President von der Leyen announced a deal in principle on the Trans-Atlantic Data Privacy Framework, which will supplement the U.S.-EU Privacy Shield Framework (Privacy Shield). However, it remains to be seen how this new Trans-Atlantic Data Privacy Framework will affect EU-U.S. data flows in Portugal.
Portugal ranks second highest in terms of PRC investments in Europe (in relation to GDP). These investments are predominantly in the premier Portuguese companies, which the PRC leverages to reach other markets in Europe, Latin America, and Africa. Portugal’s investment screening regime was established in 2014, but the Government of Portugal has never strictly enforced it.
Despite the security risks, the Government continues to allow investments by and collaboration with untrusted vendors in 5G and Artificial Intelligence (AI). Huawei is using its educational and gender-equity programs to increase influence with high achieving students and access to key technology policymakers in the Government and private sector. The PRC is also attempting to gain a foothold in Portuguese 5G, AI, solar, and related infrastructure industries.
Portugal’s public debt, estimated at 127percent of GDP at the end of 2021, remains an issue, particularly if there is a shift in the benign monetary and sovereign risk sentiment that enabled Lisbon to enjoy issuing debt at record low prices in the last few years. The pace of corporate and household indebtedness has also increased.
Portugal’s primary trading partners are Spain, France, Germany, the United Kingdom, and the United States. Portugal suffers an acute brain drain, with high emigration rates among professionals leaving for higher paying careers in Switzerland, France, the UK, and elsewhere.
Beyond Europe, Portugal maintains significant links with Portuguese-speaking countries including Brazil, Angola, Mozambique, Cape Verde, and Guinea-Bissau. Portugal has one of the lowest fertility rates in Europe and net immigration (from Ukraine, Brazil, and other Portuguese-speaking countries) has prevented a fall in population.
Russia’s invasion of Ukraine will impact the Portuguese growth curve. Except for grain imports from Ukraine, energy intermediate goods, and liquified natural gas (LNG) imports from Russia, the country’s trade and investment relationship with both countries is limited. In LNG specifically, Russia accounted for 15 percent of imports, well below the 45 percent EU average. However, Portugal is a net importer of energy products, fully dependent on outside supply of crude and refined fossil fuels. It also imports natural gas for energy and generation, which acts as a key complement to the fast-growing renewable energy footprint of its solar, wind and hydro power assets. The country’s commercial balance will be negatively impacted by a long period of high global energy prices.
Portugal’s low installed solar capacity of about 7 percent of the energy mix is expected to reach 8 GW of solar capacity, or 27 percent of the mix by 2030. The Government is promoting significant investments in wind and solar energy development to meet its target of 47 percent energy from renewables by 2030. By 2021 the country reduced its external energy dependence by 9 percentage points (from 2005), seeking greater supply security by increasing domestic energy generation and reducing the consumption of primary energy by 17 percent. The Government has also talked about plans to launch a 2-5 GW offshore wind auction this summer (without providing details), in hopes of speeding up the deployment of large-scale offshore wind capacity to reduce energy dependence on Russia.
Portugal’s path to a carbon neutral economy includes incentives for energy efficiency; promoting diversification of energy sources; increasing electrification; reinforcing and modernizing infrastructure; developing more interconnections; market stability for investors; reconfiguring and digitalizing the market; incentives for research and innovation, promoting low-carbon processes, products and services; and improving energy services and information for consumers.
|TI Corruption Perceptions Index||2021||32 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||31 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||USD 2.54 billion||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD 21,790||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
There are currently over 40 major state-owned enterprises (SOEs) operating in Portugal in the banking, health care, transportation, water, and agriculture sectors. Caixa Geral de Depositos (CGD) has revenues greater than one percent of GDP. The bank has the largest market share in customer deposits, commercial loans, mortgages, and many other banking services in the Portuguese market.
Parpublica is a government holding company for several smaller SOEs, providing audits and reports on these. More information can be found at: . The activities and accounts of Parpublica are fully disclosed in budget documents and audited annual reports. In addition, the Ministry of Finance publishes an annual report on SOEs through a specialized monitoring unit (UTAM) that presents annual performance data by company and sector: In 2020, managed assets totaling €11 billion, employs 4,400 workers and the net income of the holding was €80 million.
When SOEs are wholly owned, the government appoints the board, although when SOEs are majority-owned the board of executives and non-executives’ nomination depends on the negotiations between government and the remaining shareholders, and in some cases on negotiations with EU authorities as well.
According to Law No. 133/2013, SOEs must compete under the same terms and conditions as private enterprises, subject to Portuguese and EU competition laws. Still, SOEs often receive preferential financing terms from private banks.
In 2008 Portugal’s Council of Ministers approved resolution no. 49/2007, which defined the Principles of Good Governance for SOEs according to OECD guidelines. The resolution requires SOEs to have a governance model that ensures the segregation of executive management and supervisory roles, to have their accounts audited by independent entities, to observe the same standards as those for companies publicly listed on stock markets, and to establish an ethics code for employees, customers, suppliers, and the public. The resolution also requires the Ministry of Finance’s Directorate General of the Treasury and Finances to publish annual reports on SOEs’ compliance with the Principles of Good Governance. Credit and equity analysts generally tend to criticize SOEs’ over-indebtedness and inefficiency, rather than any poor governance or ties to government.
8. Responsible Business Conduct
There is strong awareness of responsible business conduct in Portugal and broad acceptance of the need to consider the community among the key stakeholders of any company. The Group of Reflection and Support for Business Citizenship (GRACE) was founded in 2000 by a group of companies, primarily multinational enterprises, to expand the role of the Portuguese business community in social development.
The Ministry of Economy and AICEP encourage foreign and local enterprises to observe the due diligence approach of the OECD Guidelines for Multinational Enterprises, and both agencies jointly comprise the National Contact Point (NCP) to provide support for mediating disputes that may arise regarding the Guidelines. The Portuguese Business Ethics Association (APEE) is dedicated to promoting corporate social responsibility and works in collaboration with the Ministry of Economy’s Directorate-General of Economic Activities. It promotes events like Social Responsibility Week and celebrates protocols and agreements with companies to ensure they follow responsible business conduct principles incorporated into the labor code.
Portugal’s Competition Authority both encourages and enforces competition rules, including ethical business practices. The Competition Authority operates a leniency program for companies that self-identify lapses. There have not been any high profile, controversial instances of private sector impact on human rights. The Portuguese government enforces domestic laws effectively and fairly through the domestic courts system, and through the supra-national European Court of Human Rights. Within its constitution, Portugal states that constitutional precepts concerning fundamental rights must be interpreted and observed in harmony with the Universal Declaration of Human Rights.
The Portuguese legal and regulatory framework on corporate governance includes not only regulations and recommendations from the Portuguese Securities Market Commission (CMVM), but also specific legal provisions from the Portuguese Companies Code and the Portuguese Securities Code. CMVM promotes sound corporate governance for listed companies by setting out a group of recommendations and regulations on the standards of corporate governance. CMVM regulations are binding for listed companies.
Non-governmental organizations also promote awareness of environmental and good governance issues in business. These include Quercus Portugal, which publishes guidelines and organizes events to promote environmental responsibility in business practices, and Transparencia e Integridade Associacao Civica (TIAC), which produces reports on corruption on everything from soccer match-fixing to conflicts of interest in public and private enterprise. TIAC also allows whistle-blowers to anonymously submit reports of corruption through their website.
Portugal represents a success story in fighting child labor from its supply chain, as the public and private sector came together decisively to eradicate child labor issues from the 1990’s. However, Portugal remains a source, transit, and destination country for men, women, and children subjected to forced labor trafficking. In 2019, a series of large COVID-19 outbreaks unveiled how groups of migrant workers at berry farms were subject to poor housing and sanitary conditions.
Portugal does not participate in the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The country’s two main umbrella unions, CGTP-Confederação Geral dos Trabalhadores Portugueses and UGT-União Geral dos Trabalhadores, also regularly denounce and combat non-compliant business practices, particularly related to labor rights violations.
Portugal potentially holds some of the largest lithium reserves in Europe and is preparing to advance with battery-grade ore mining. While some recognize the role of lithium for energy transition, several NGOs issued negative opinions of planned mine projects, warning about open-pit methods that will provoke dust, noise, and detonations around the clock, damaging the lifestyle and health of local population. Environmentalists also warn about the risks to local species such as water moles, the Iberian wolf and river mussels. In January 2020, 14 civil society and environmental associations signed a national manifest against Portugal’s mining plans
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
- Xinjiang Supply Chain Business Advisory
Department of the Treasury
Department of Labor
Portugal’s national climate strategy aims to reach net zero emissions by 2050. In its 2021-2030 National Energy and Climate plan, Portugal sets out goals for decarbonization, energy efficiency, energy security, internal energy markets and research, innovation, and competitiveness. Portugal’s installed solar capacity is now about 7 percent of the energy mix and is expected to reach 8 GW of solar capacity, or 27 percent of the energy mix by 2030. The Government is promoting significant investments in wind and solar energy development to meet its target of 47 percent energy from renewables by 2030. Portugal reduced its external energy dependence by 9.1 percentage points in 2021 versus 2005, increasing domestic energy generation and reducing the consumption of primary energy by 17 percent, ensuring greater supply security. Portugal’s path to a carbon neutral economy includes: incentives for energy efficiency; promoting diversification of energy sources; increasing electrification; reinforcement and modernization of infrastructure; development of interconnections; market stability for investors; reconfiguration and digitalization of the market; incentives for research and innovation, promotion of low-carbon processes, products and services; and improved energy services and information for consumers.
When it comes to public procurement and instruments for the State to accelerate the climate transition, Portugal has a ‘once-in-a-generation chance’ to boost its efforts. The country can use around €16.6 billion in European Union (EU) pandemic response funds expected to flow to state coffers between 2021 and 2026 to support its Recovery and Resilience Plan (RRP), of which the government will allocate 47 percent to efforts that help climate objectives. Public procurement and investment policies dictate that large infrastructure, industrial, mining, and other environmentally sensitive initiatives require the approval of impact assessment studies, supervised and assessed by the Portuguese Agency for the Environment (APA), before moving forward.
U.S. firms do not identify corruption as an obstacle to foreign direct investment. Portugal has made legislative strides toward further criminalizing corruption. The government’s Council for the Prevention of Corruption, formed in 2008, is an independent administrative body that works closely with the Court of Auditors to prevent corruption in public and private organizations that use public funds. Transparencia e Integridade Associacao Civica, the local affiliate of Transparency International, also actively publishes reports on corruption and supports would-be whistleblowers in Portugal.
In 2010, the country adopted a law criminalizing violation of urban planning rules and increasing transparency in political party funding. In 2015, Parliament unanimously approved a revision to existing anti-corruption laws that extended the statute of limitations for the crime of trading in influence to 15 years, and criminalized embezzlement by employees of state-owned enterprises with a prison term of up to eight years. The laws extend to family members of officials and to political parties.
Despite being seen as generally aligned with the best international practices in terms of preventing and combating corruption, a June 2019 interim report by the Council of Europe’s Group of States against Corruption (GRECO) concluded that only one of the fifteen recommendations contained in GRECO´s Fourth Round Evaluation Report had been implemented satisfactorily or dealt in a satisfactory manner by Portugal at end-2019 in terms of compliance with GRECO anti-corruption recommendations addressed to lawmakers, judges and prosecutors.
Portugal ranked 32nd out of 180 countries in Transparency International (TI)’s 2021 Corruption Perception Index (CPI), an improvement of one position from the previous year.
Portugal approved a national anti-corruption strategy in December 2021. This legislative package includes a working group that prepares a national report, revises the whistle-blower protection framework, fraud-proofs legislation, improves public procurement processes, reinforces the transparency of political party financing, and ensures that companies have corruption prevention plans in place.
Portugal has laws and regulations to counter conflict-of-interest in awarding contracts or government procurement. Parliamentarians are required to declare their income, assets, and interests to the Authority for Transparency attached the Constitutional Court.
The Portuguese government encourages (and in some cases requires) private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. As described above, the Competition Authority operates a leniency program for companies that self-identify infringements of competition rules, including ethical lapses.
Portugal has ratified and complies with both the UN Convention against Corruption and the OECD Anti-Bribery Convention.
10. Political and Security Environment
Since the 1974 Carnation Revolution, Portugal has had a long history of peaceful social protest. Portugal experienced its largest political rally since its revolution in response to proposed budgetary measures in 2012. Public workers, including nurses, doctors, teachers, aviation professionals, and public transportation workers organized peaceful demonstrations periodically in protest of insufficient economic support, low salary levels, and other measures.
11. Labor Policies and Practices
Numerous labor reform packages aimed at improving productivity were implemented after the 2011 bailout, but overall labor productivity remains a challenge. The annualized monthly minimum wage increased stands at €823.
After the difficulties of the eurozone debt crisis, when many Portuguese migrated out of the country along with some resident migrants, net-migration became positive again in 2017 and has strengthened since. The largest communities of workers come from Brazil, Cape Verde, Romania, Ukraine, UK, China, France, Italy, Angola, Guinea-Bissau, Nepal and India. In the Southern Algarve region, the tourism sector employs most of the migrant workers. Alentejo and the coastal regions of central Portugal, with their intensive agriculture sectors, host substantial Asian workers’ communities, especially from Bangladesh.
Employers are allowed to conduct collective dismissals linked to adverse market or economic conditions, or due to technological advancement, but must provide advance notice and severance pay. Depending on the seniority of each employee, an employer must provide between 15 to 75 days of advance notice, and pay severance ranging from 12 days’ to one month’s salary per year worked. Employees may challenge termination decisions before a Labor Court. Labor laws are uniformly applicable and enforced, including in Portugal’s foreign trade zone/free port in the Autonomous Region of Madeira.
Collective bargaining is common in Portugal’s banking, insurance, and public administration sectors. More information is available at the Directorate General for Labor Relations site.
Portugal has labor dispute resolution mechanisms in place through Labor Courts and Arbitration Centers. Labor strikes are not violent and of short duration. Labor laws are not waived in order to attract or retain investment.
Portugal is a member of the International Labor Organization (ILO), and has ratified all eight Fundamental Conventions as well as all four Governance (Priority) Conventions.
The Labor Code caps the work schedule at eight hours per day, and 40 hours per week. The public sector employee workweek, with certain exclusions, was capped at 35 hours in July 2016. Employees are entitled to at least 22 days of annual leave per year. Employers must pay employees a Christmas and vacation bonus, both equivalent to one month’s salary.
Gender pay gap inequality in Portugal worsened from 10.9 percent in 2019 to 11.4 percent in 2020, which is still better than the average EU difference (13 percent), according to Eurostat . Portugal has shown progress in developing gender equality and gender mainstreaming policies, according to European Institute for Gender Equality (EIGE). The 2030 National Strategy on Gender Equality, aligned with the UN Sustainable Development Goals, established a plan to: promote gender equality; tackle violence against women and domestic violence; and, combat discrimination on the grounds of sexual orientation, gender identity and sexual characteristics.
Portugal’s Fraud Management and Economics Observatory estimates that the informal economy is worth about 27 percent of GDP, according to its last available analysis in 2015. The President of the Observatory in 2020 that the weight of the informal economy has likely “increased significantly” with the onset of the pandemic.