2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

Overview of Foreign Investment Climate

Portugal offers a favorable investment environment with low political risk and no political violence, reasonable labor costs, a year-round temperate climate, a highly skilled and English-fluent labor force in the areas of finance and information technology, and a low level of corruption. However, Portugal has long struggled with low growth, productivity, and competitiveness, and in the past year has been beset by added pressures stemming from the wider eurozone financial crisis. In May 2011, amid unsustainably high borrowing costs, Portugal signed an MOU with the European Central Bank, European Commission, and the International Monetary Fund for a €78 billion bailout, becoming the third eurozone member to request financial assistance. The terms of the agreement, to be implemented over a period of three years, include implementation of austerity measures and structural reforms, including privatization of state-owned enterprises, aimed at reducing Portugal’s budget deficit to 3 percent by 2013 and strengthening the economy.

Wages remain among the lowest in the EU with a minimum wage of €485 per month. In competitiveness, Portugal ranks 45 out of 142 countries in the 2011-2012 World Economic Forum’s Global Competitiveness Report, with Switzerland ranked highest and Chad lowest. In 2010, the OECD ranked Portugal lowest among the southern periphery eurozone countries in worker efficiency, with a GDP generation level of $32.00 per hour worked compared to an average of $49.70 for OECD eurozone countries.

Portugal faces high levels of public and private indebtedness and challenging long-term growth prospects. OECD estimates for 2011 indicate GDP contraction of 1.6 percent, and forecasts for 2012 indicate a contraction of up to 3.2 percent. As one of the smaller economies in the eurozone, Portugal, despite notable progress in implementing the EU/IMF bailout program, remains highly vulnerable to external events, particularly to risk contagion and market perception. Nevertheless, Portugal continues to attract foreign investors (although less in 2011 than in the previous year), and the government has launched an economic diplomacy strategy focused on boosting exports and foreign direct investment through its diplomatic missions overseas. Between January and June 2011, gross foreign direct investment totaled €16.94 billion, down from €18.29 billion over the same period of 2010, and net foreign direct investment totaled €1.58 billion, down from €1.64 billion over the same period of 2010.

Openness to Foreign Investment

Portugal offers a favorable investment climate for foreign capital, both in the near and long term. Its economy has become increasingly diversified and service-based since the country joined the European Union in 1986. On January 1, 2002, Portugal introduced the euro as its official currency, further integrating itself with the European Union's financial and economic policies. Prime Minister Pedro Passos Coelho, who was elected in June 2011, has focused on expanding Portuguese exports and attracting more foreign investment under a new economic diplomacy strategy.

Government Promotion Agencies: The lead agency for Portuguese economic development policy is AICEP (Portuguese Agency for Foreign Investment and Commerce). AICEP is responsible for the promotion of global Portuguese trademarks, the export of goods and services, and the attraction of foreign direct investment (FDI). It serves as the point of contact for investors with projects over €25 million or companies with a consolidated turnover of more than €75 million. For foreign investments not meeting these requirements, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as IAPMEI, the Institute of Support to Small and Medium-sized Enterprises (SMEs) and Innovation, a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs and venture capital support.

Government Policies: The Bank of Portugal (Portugal’s central bank) defines foreign direct investment as "an act or contract that obtains or increases enduring economic links with an existing Portuguese institution or one to be formed." A non-resident who invests in at least 10 percent of a resident company’s equity and participates in the company’s decision-making is considered a foreign direct investor. The Portuguese legal system is based on non-discrimination with regard to the national origin of investment, and foreigners are permitted to invest in all economic sectors open to private enterprise. However, there are limitations on both foreign and domestic investments with regard to certain economic activities. Portuguese government approval is required in the following sectors: defense, water management, public telecommunications operators, railways, maritime transportation and air transport. Any economic activity that involves the exercise of public authority also requires government approval. Private sector companies can operate in these areas only through a concession contract.

Finance/Insurance: Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms). In both cases, the authorities carefully consider the proposed transaction, but in the case of non-EU firms, the Ministry of Finance especially considers the impact on the efficiency of the financial system and the internationalization of the economy. Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.

Foreign Workers: Non-Portuguese EU workers are not required to have work permits. Non-EU workers are required to have both legal residency and a work permit. Authorization for permanent residence is granted when an employee has a labor contract, rent contract, or a permanent resident document and is registered with Social Security Services. Requests are processed at the Serviços de Estrangeiros e Fronteiras (SEF) Branch and regulated by Decree-Law 23/2007 dd 4/07 and Decree-Law 84/2007 dd 05/11. For more information, visit http://www.sef.pt

Structural and Cohesion Funds: For the 2007-2013 programming period, Portugal has been allocated €21.4 billion under the European Union's Convergence, Regional Competitiveness and Employment, and Territorial Cooperation program to promote sustainable growth and competitiveness, increase investment in human capital, facilitate innovation, ensure territorial development, and improve government efficiency. One of the most important public policy priorities for Portuguese economic growth is the Technological Plan, an action agenda launched in 2005 with public and private Portuguese funds and EU funds to invest in knowledge, technology, and innovation to increase Portugal’s competitiveness in the global market. As a result of the Plan, Portugal has strengthened its innovation performance and registered a positive trade balance in technological goods and services. The 2008 Community Innovation Survey (the next edition is scheduled for publication in June 2012) ranked Portugal fourth among all EU countries in the total number of SMEs between 2006 and 2008. (According to a 2008 National Statistics Institute report [latest available], more than 85 percent of SMEs in Portugal are micro-enterprises with fewer than 10 employees.) Since 2005, total spending on R&D in Portugal has more than doubled as a percentage of GDP. According to the Survey on National Technological and Scientific Potential (IPCTN), total spending on R&D in 2009 exceeded €2.8 billion (1.7 percent of GDP), a 10 percent increase over 2008 and more than double the €1.2 billion investment (0.8 percent of GDP) in 2005. In September 2010, the Technological Plan launched Digital Agenda 2015, a €2.5 billion (largely private investment), five-year initiative aimed at promoting value-added services and e-solutions in health care, education, e-government, and Smart grids, with a focus on five priority areas – Next Generation Networks, Better Governance, Excellence in Education, Proximity Health Care, and Smart Mobility. For more information, visit: http://www.planotecnologico.pt

Following are Portugal's rankings on five widely accepted measures of the business and investment environment:

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2011

32 of 183

Heritage Economic Freedom

2011

69 of 179

World Bank Doing Business

2012

30 of 183

World Economic Forum Global Competitiveness Report

2011-2012

45 of 142

Innovation Union Scoreboard

2010*

15 of 27

*latest available

For more information about these measures visit:

http://cpi.transparency.org/cpi2011/results

http://www.heritage.org/index/Ranking

http://www.doingbusiness.org/reports/global-reports/doing-business-2012

http://www.weforum.org/issues/global-competitiveness

http://www.proinno-europe.eu/inno-metrics/page/innovation-union-scoreboard-2010

Conversion and Transfer Policies

Portugal does not maintain any current or capital account restrictions. On January 1, 1999, Portugal and ten other European countries formed the European Monetary Union. On January 1, 2002, Portugal introduced the euro as its official currency, replacing the Portuguese escudo. Currently, there are 17 member states in the eurozone.

Expropriation and Compensation

There have been no cases of expropriation of foreign assets or companies in Portugal in recent history, and there have been no policy shifts or other actions that would suggest any expropriatory actions in the near future.

Banco Portugues de Negocios (BPN) was nationalized in November 2008, the first bank nationalization in Portugal since 1975. At the time of nationalization, BPN had lost an estimated €700 million from declining investment values from the global financial crisis and had negative capital of approximately €1.9 billion. The Ministry of Finance stressed that BPN was taken over as a result of internal mismanagement and malfeasance. A case against the bank’s former president and other defendants, who allegedly engaged in embezzlement, fraud, tax evasion, falsification of documents, and other offenses, is pending in court.

Dispute Settlement

The Portuguese legal system is slow and deliberate, with many cases taking years to resolve. In an effort to address this problem, the previous government introduced reforms in litigation procedures and public administration in 2007. These reforms were intended to reduce delays in the justice system and improve efficiency by reorganizing the court system and redefining court jurisdictions. The system, however, remains hampered by a bloated judiciary, inexperienced personnel, and an appointment system based on patronage. The new government is implementing further judicial sector reform, as mandated by the EU/IMF bailout agreement, to improve efficiency, provide arbitration and mediation mechanisms, and simplify the bankruptcy law.

Performance Requirements and Incentives

National and foreign companies, resident entities, or branches of non-resident entities whose main activity is of a commercial, industrial, or agricultural nature are subject to a corporate income tax (IRC) of 25 percent (previously 12.5 percent for the first €12,500 of income and 25 percent for income exceeding €12,500) and a set municipal surcharge of up to 1.5 percent (depending on the municipality) of total taxable profit subject to the IRC. Rates vary from municipality to municipality. Other tax regimes are in place for the country's two autonomous island regions. In the Azores, the corporate income tax rate is 8.75 percent for the first €12,500 and 17.5 percent for income above €12,500, and there is a municipal surcharge of up to 1.5 percent. In Madeira, the rates are presently 10 and 20 percent respectively, with no municipal surcharge. As a condition of a financial bailout from the national government, the regional government of Madeira raised the maximum VAT tax rate from 16 percent to 22 percent and has announced plans to increase personal income and corporate taxes. The regional government of the Azores has indicated that it will review tax rates and consider increases in the second quarter of 2012.

The Portuguese Government also offers several incentive packages tailored to investors’ needs and capital based on industry, proposed size of investment, and project sustainability. For example, under Portugal's investment incentive regime, AICEP is empowered to negotiate a tailored incentive package for large investment projects on a case-by-case basis, including tax cuts and subsidized or interest-free loans, as well as cash grants. Large-scale investment projects are projects exceeding €25 million within a period of three years, or promoted by a company or group of companies with a total turnover greater than €75 million. The goal of the program is to attract investments for proposed projects that support the government's economic development goals. AICEP has designed the program to address Portugal's long-term competitiveness, including human resources, and to promote Portugal's brands and patents in the industrial, energy, construction, transport, tourism, commerce, and service sectors. For more information, visit AICEP’s website: http://www.portugalglobal.pt

The 2007-2013 National Strategic Reference Framework (NSRF), a strategy developed for the use of EU Structural and Cohesion Funds and other EU funds, seeks to improve the quality of Portugal’s workforce and encourage economic and socio-cultural development through expanded human resource development opportunities, support for entrepreneurship and innovation, streamlined public administration, and other measures. In November 2010, the European Investment Bank provided a €450 million loan, the first tranche of a total approved loan of €1.5 billion, to the Portuguese government to co-finance, jointly with EU funds, key investments in the areas of research and development, information and communications technology, transport, water, solid waste, energy efficiency, renewable energy, urban regeneration, health, education, and culture. The loan will primarily fund small and medium-sized investment schemes of less than €50 million. In 2011, Portugal received €2.024 billion in financial transfers from the European Union through the European Regional Development Fund and the Cohesion Fund. The funds were used in the productive business sectors and for regional economic competitiveness. For more information, visit http://www.qren.pt or http://www.incentivos.qren.pt/

The government also seeks to improve access to health care, particularly in the rural areas, through primary health care reform. In 2009 (latest published data), according to the National Medical Board, Portugal had 40,664 doctors, most practicing in the major urban areas, for a population of 10.6 million. Since January 2010, the Health Ministry has been providing additional incentives to attract young doctors to rural areas, including scholarships to recent graduates to intern in those areas. The government has also recruited more than 100 doctors from Cuba, Costa Rica, and Colombia under temporary contract to work in rural areas. A university in northern Portugal launched a new four-year post-graduate program in the 2011-2012 school year for recent college graduates in health-related fields.

The previous government undertook efforts to improve the quality of Portugal’s public education system, and the current government is continuing those efforts. Lagging behind other EU countries in education, Portugal has made progress in recent years with education reform. In 2010, according to Eurostat, 31.9 percent of the population aged 25-64 had completed upper secondary education, compared to the EU-27 average of 72.7 percent. Among the 27 EU member states assessed by the Innovation Union Scoreboard in 2010 (the latest available), Portugal registered the third highest number (after Switzerland and Sweden and tied with Finland) of new doctorate graduates per 1,000 aged 25-34 (3 percent), with annual average growth of 5.7 percent. Portugal also showed improvement in education attainment level. In 2010, more than half (58.7 percent) of youth aged 20-24 had completed upper secondary level education, compared to the EU-27 average of 79.0 percent, and 23.5 percent of the population aged 30-34 had completed tertiary education, compared to the EU-27 average of 33.6 percent.

Results of the OECD 2009 Program for International Student Assessment (PISA) (the latest available) showed that Portuguese students had higher achievement in 2009 than in the 2006 assessment, scoring for the first time close to the OECD average in reading, and bypassing Spain. Portugal improved its score in mathematics considerably, with the largest increase – 4 percentage points – in top performers and ranking alongside Sweden, Iceland, and Latvia. In science, Portugal, along with Chile, the U.S., Norway, Korea, and Italy, reduced the share of lowest performers by five percentage points or more.

Right to Private Ownership and Establishment

Private Ownership/Enterprise: Private ownership is limited to 49 percent in the following sectors: basic sanitation (except waste treatment), international air transport, railways, ports, arms and weapons manufacture, and airports. The government requires private firms to obtain concessions, contracts, and licenses to operate in a number of sectors (public television, waste distribution, waste treatment), but grants these on a non-discriminatory basis. Foreign firms have the right to establish themselves in all economic sectors open to private enterprise. Foreign investments affecting public health, public order or security, or relating to the arms industry require approval of the competent authorities.

Competitive Equality: Law No. 18/2003 (June 6, 2003) governs protection and promotion of competition in Portugal. It specifically prohibits collusion among companies to fix prices, limit supplies, share markets or sources of supply, discriminate in transactions, or force unrelated obligations on other parties. Similar prohibitions apply to any company or group with a dominant market position. The law also requires prior government notification of mergers or acquisitions that would give a company more than a 30 percent market share in a sector, or mergers or acquisitions among entities that had total sales in excess of €150 million in the preceding financial year. The Competition Authority has 60 days to determine if the merger or acquisition can proceed. The European Commission may claim authority on cross-border competition issues or those involving entities large enough to have a significant EU market share. For more information, visit: http://www.concorrencia.pt/en/index.asp

Privatization Program: Privatization involves the sale of government shares in state-owned companies, typically in a series of share offerings. These share offerings often include private transactions, usually to attract a "strategic partner" as an equity holder, and public offerings. Major privatizations in recent years included sales of interest in Portugal Telecom (telecommunications), EDP (electricity), REN (electricity transmission system) and GALP Energia (petroleum refining and marketing, natural gas distribution). Between 1996 and 2006, Portugal engaged in a wide-ranging privatization program that sold 100 enterprises and generated approximately $14 billion in revenue. Most recently, as required by the Memorandum of Understanding Portugal signed in May 2011 for a €78 billion EU/IMF bailout, the government eliminated in July 2011 special class “A” shares, commonly known as “golden shares,” in partially state-owned companies; Energias de Portugal (EDP), Galp Energia, and Portugal Telecom. It also committed to move forward with privatization of all state-owned enterprises. In December 2011, it sold its 21 percent stake in electricity company EDP and is presently accepting offers for its 50 percent stake in Redes Energéticas Nacionais (REN).

Protection of Property Rights

The government adopted the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and provisions of the General Agreement on Tariffs and Trade (GATT) in 2003. Portuguese legislation for the protection of intellectual property rights has been consistent with WTO rules and EU directives since 2004.

Portugal is a participant in the eMAGE and eMARKS projects, which provide multilingual access to databases of trademarks and industrial designs. These international efforts assist participating customs authorities in combating sales of counterfeit goods. Other participating countries include France, Austria, Hungary, and Spain.

Trademark Protection: Portugal is a member of the World Intellectual Property Organization (WIPO), an international union for the protection of industrial property, and a party to the Madrid Agreement Concerning the International Registration of Marks and the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods. Portugal's trademark law, the Industrial Property Code, was codified by Decree-Law 143/2008 and went into effect on July 25, 2008. The law is consistent with TRIPS.

Copyright Protection: Portugal has implemented directives on the EU information society and protection of databases through national legislation (Decree-Law 50/2004 and 112/2000, respectively). The software piracy rate in Portugal is slightly higher than the average software piracy rate in the EU. According to a 2010 report of the Business Software Alliance (the latest available), the software piracy rate in Portugal in 2009 was 40 percent, compared to the EU average of 35 percent and the Western Europe average of 34 percent.

Patent Protection: Patent protection in Portugal is governed by the Code of Industrial Property, which was enacted in June 1995 and revised in July 2008 to bring Portugal into full conformity with EU and international norms. Patent dispute cases are processed in the regular court system and can take months or years to resolve. To expedite resolution of these cases, the government committed in the EU/IMF bailout agreement to create a specialized intellectual property court by the end of March 2012. However, the government has reportedly not yet selected a site for the court or begun training of judges and court staff.

Portugal grants FDA-equivalent approval to market new drug products without cross-checking against patent-protected products already in the market. This forces companies to protect their rights and pursue redress through the court system, an expensive and time-consuming process. Several U.S. pharmaceutical companies have brought cases in Portuguese courts for violation of patent rights by Portuguese companies. One U.S.-owned pharmaceutical company has won five cases and has additional cases pending. In November 2011, the Portuguese government passed a law mandating arbitration of all pharmaceutical patent disputes without prior consultation with the pharmaceutical industry.

Transparency of the Regulatory System

In the past, businesses frequently complained about red tape with regard to registering companies, filing taxes, receiving value-added tax refunds, and importing materials. Decision-making tended to be decentralized, and obtaining government approvals/permits was often time-consuming and costly. In the past few years, Portugal has undertaken efforts to improve government efficiency.

The Ministry of Economy has promoted various initiatives. In 2007, it worked with the Ministry of Justice to launch the "Cutting Red Tape" website, a repository of information for all measures taken since 2005 to reduce bureaucracy in the incorporation, registration, certification, liquidation, dissolution, and merging of businesses in Portugal. Other initiatives include the "Empresa na Hora" (On-the-Spot Company), which allows for the incorporation of companies in less than one hour at Corporate Formalities Centers and Business Registration Offices. Other services provide online company incorporation, labor mediation, bilingual commercial registration, patents, and trademarks. More than 21,000 companies were incorporated under the "Empresa na Hora" program in 2011. Since July 2005, a total of 123,458 companies have been incorporated under this program. Additional information can be found at the "Cutting Red Tape" website: http://www.cuttingredtape.mj.pt

In an effort to promote small and medium-sized businesses, on December 30, 2010, the Portuguese Council of Ministers approved new measures to simplify further company formation procedures. It eliminated the €5,000 minimum share capital to establish limited liability companies, individual shareholder limited companies, and limited liability sole proprietorships, giving entrepreneurs the flexibility to determine the share capital of their companies without any restrictions and to deposit the share capital, as little as €1, by the end of the first year of operations rather than prior to initiation of economic activity. The minimum share capital for public limited companies remains €50,000.

Efficient Capital Markets and Portfolio Investment

One result of Portugal's participation in the European Monetary Union is the country's increasing integration into a European-wide financial market. As a member of the eurozone, Portugal offers low exchange rate risk for foreign investors; however, with Portuguese banks increasingly resorting to the European Central Bank (ECB) for liquidity as the eurozone financial crisis worsens, the Bank of Portugal anticipates increased bank spreads and more limited access to credit for individuals and companies. In January 2011, the average minimum spread offered by Portuguese banks was 1.52 percent, compared to 0.65 percent offered by foreign banks, while the maximum spread for high-risk clients at Portuguese banks was 4.02 percent, compared to 3.18 percent at foreign banks. Bank spreads in Portugal ranged from 0.4 percent for low-risk clients up to 5 percent for high-risk clients. The Bank of Portugal regulates the effective annual interest rate (TAEG) on loans in accordance with Decree-Law No. 133/2009 (June 2009), which established the maximum TAEG. According to the National Statistics Institute, in May 2011, the average mortgage interest rate was 2.26 percent. In addition to bank lending, the private sector has access to a variety of credit instruments, including bonds. Legal, regulatory, and accounting systems are consistent with international norms.

The Portuguese capital markets code (the CVM) went into effect on March 1, 2000, and has clarified and streamlined Portuguese capital markets legislation. The Lisbon stock market is part of Euronext, which also includes the Paris, Brussels and Amsterdam markets.

Portugal has 45 banking institutions, with the four largest bank groups accounting for over 70 percent of the sector’s total assets, which stood at €477 billion as of October 2010. Debt redemptions for the four banks in 2011 totaled €16 billion. The country's largest bank, Caixa Geral de Depositos (CGD), is 100 percent state-owned. As a result of the eurozone financial crisis, Portuguese banks have had to resort increasingly to the ECB for liquidity; borrowing a total of €46.0 billion in December 2011 (€45.7 billion in November 2011). Nevertheless, Portugal’s four largest banks--reviewed by the European Banking Authority as part of its eurozone-wide July 2011 stress test-- demonstrated Core Tier 1 capital ratios above the minimum 5 percent threshold in the adverse scenario and are on track to meet the Bank of Portugal’s requirement of Core Tier 1 capital ratio of 10 percent by the end of this year. The EU/IMF bailout agreement allocated €12 billion (of the €78 billion rescue package) for bank recapitalization. According to the European Banking Authority, Portuguese banks will need approximately €7 billion to achieve Core Tier 1 capital ratios above 9 percent by June 2012.

In addition to banks and stock markets, Portugal has taken specific steps to ensure that the financial needs of SMEs are met. IAPMEI has a program of mutual guarantees so that SMEs do not have to use their assets or those of their shareholders to collateralize debt. The companies pay an initial evaluation fee and an annual fee equal to 0.75 - 3.00 percent of the guarantee. IAPMEI has also supported the creation of venture capital funds and venture capital firms to channel capital to SMEs. In 2008, the European Investment Fund, together with private financial institutions, public bodies, and select foundations, launched the Portugal Venture Capital Initiative (PVCi), a €111 million private equity/venture capital fund of funds, to invest in Portuguese and international funds focused primarily on Portugal and to accelerate growth of Portugal’s SME sector. PVCi investors include the Portuguese government, state-owned Caixa Geral de Depositos, the Gulbenkian Foundation, and major private banks. On January 4, 2012, the GOP announced the launch of a new €1.5 billion line of credit for SMEs. The credit line, which will be made available beginning January 16, seeks to improve the economic health and competitiveness of SMEs. Of the €1.5 billion, €250 million will be reserved for micro and small businesses and €500 million for export companies.

Competition from State-Owned Enterprises (SOEs)

The Portuguese system is based on non-discrimination regarding national origin of investment. Foreign and domestic private companies are limited in certain economic activities, such as water utilities, postal services, rail transport, and maritime ports. Private sector companies, regardless of national origin, can operate in these restricted fields only through a concession contract.

There is no sovereign wealth fund in Portugal.

Corporate Social Responsibility (CSR)

There is strong awareness of corporate social responsibility in Portugal and broad acceptance of the need to consider the community among the key stakeholders of any company. GRACE (Group of Reflection and Support for Business Citizenship) Association was founded in 2000 by a group of companies, primarily multinational corporations, to expand the role of the Portuguese business community in social development. It was the first non-profit organization in Portugal dedicated to corporate social responsibility. Since its founding, GRACE has engaged in various community projects, participating in the International Day of Volunteers and partnering with local civic groups to rehabilitate public spaces and facilities, create community gardens, and improve the environment. In 2011, its GIRO project, the largest corporate volunteer project in Portugal, organized hundreds of volunteers to help improve the quality of life of groups at risk through rehabilitation of public and private spaces. GRACE also developed a guide to environmental construction practices which it plans to publish in 2012. Its membership in 2011 grew to 91 companies, up from 74 in 2010 and 27 in 2006. For more information on the GRACE Association, visit: http://www.grace.pt/homepage.php

Political Violence

There have been no incidents involving politically motivated physical damage to projects and/or installations, and potentially destructive civil disturbances are not likely. The November 2010 and 2011 general strikes; organized by Portugal’s two largest labor unions to protest government austerity measures, economic policies, and high unemployment, were nonviolent and of limited duration, as is typical of protests and strikes in Portugal. Public workers, including nurses, teachers, police officers, and public transport workers, have staged smaller, nonviolent demonstrations to protest public salary cuts and other government measures. Port workers held a week-long nationwide strike (January 9-13), which reportedly affected 80-100 cargo ships and caused millions in losses. Pilots from Portugal’s state-owned airline TAP had announced two strikes in December 2011 and January 2012 to protest lack of representation in the company’s upcoming privatization, but the strikes were canceled just hours before they were scheduled to begin after an agreement was reached with management. More demonstrations and strikes are anticipated as austerity measures begin to take effect and Portugal slides deeper into recession.

Corruption

Corruption plays a limited role in Portugal's business culture. Although U.S. firms occasionally encounter limited degrees of corruption in the course of doing business in Portugal, they do not cite corruption as an obstacle to foreign direct investment. In Transparency International's 2011 Corruption Perceptions Index, Portugal registered 6.1 on a 10-point scale (10 being the least corrupt) and ranked 32 (tied with Botswana and Taiwan) out of 183 countries (listed from least to most corrupt), behind Spain (31) and ahead of Slovenia (35). Portugal has ratified the OECD Anti-bribery Convention and has passed legislation to bring its criminal code in compliance with the Convention. Tax evasion remains a problem for the government, which has implemented several initiatives to improve collection rates. In July 2010, Portugal passed a series of new laws to combat corruption that included increased penalties for bribery (both active and passive) and extended statutes of limitations for certain corruption-related crimes, such as bribery and abuse of official function. Although high-profile officials, including the current mayor of a Lisbon suburb (who served as Environment Minister) and an ex-mayor of a district in northern Portugal, have been convicted on corruption charges, they have not served any prison time.

Bilateral Investment Agreements

http://www.portugalglobal.pt

Listing of International Treaties:

http://www.gddc.pt/siii/paises-organizacoes.asp

OPIC and Other Investment Insurance Programs

As Portugal is a country with low political risk, the potential for significant OPIC insurance programs is limited. Portugal is a member of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank.

Labor

Numerous labor reform packages aimed at improving the productivity of Portugal’s workforce have been implemented in recent years. A package of labor reform laws took effect in 2003; permitting greater geographic and functional mobility for employees. The labor code limits the role of unions and makes it more difficult for workers to strike. It also addresses absenteeism and fraudulent leave. Additional changes were implemented in 2009, clarifying rules concerning intermittent and seasonal employment, specifying leave flexibility regarding parenthood and family support, and other issues. However, low productivity and difficulty firing workers continue to hamper Portugal's ability to attract foreign investment. Among southern periphery eurozone countries, Portugal ranks lowest in labor productivity. As called for by the EU/IMF bailout agreement, the current center-right government has committed to implementing measures to introduce greater flexibility in the labor market and to reduce costs to employers. Proposed measures include a decrease in severance pay required to be paid by employers and establishment of more effective mechanisms to facilitate the dismissal of individual workers, whether based on performance or business need.

Labor strikes and work stoppages in Portugal, as in much of Europe, are more common than in the United States. Most strikes, however, are nonviolent and of short duration. In recent years, work stoppages have been more common among public sector workers, including transport sector workers, teachers, and nurses, than in the private sector. In November 2010 and again in November 2011, Portugal’s two largest labor unions joined forces to stage a general strike to protest government austerity measures and economic policies. The one-day strikes were generally peaceful and nonviolent, as is typical of protests and strikes in Portugal. Additional strikes and protests are anticipated as workers react to increasing austerity in 2012.

Portugal is a member of the International Labor Organization (ILO) and adheres to ILO conventions protecting labor rights. Portugal ratified ILO Convention 138, which establishes a minimum employment age of 15 for all economic sectors. As of January 1, 1997, the minimum age for employment in Portugal is 16.

Unemployment: According to Eurostat, Portugal’s unemployment rate reached 13.2 percent (4th highest in the EU) in November 2011, up 0.9 percent over November 2010 (12.3 percent) and 0.2 percent over October 2011 (13 percent). Youth unemployment (less than 25 years old) reached 30.7 percent (4th highest in the EU) in November 2011, up 3.5 percent over November 2010 (27.2 percent) and 0.3 percent over October 2011 (30.4 percent). The total number of unemployed was estimated at 720,000 individuals; the highest figure in 30 years.

Free Zones/Free Ports

In response to EU legislation eliminating some tax benefits for free zones/free ports, the Azorean regional government closed Portugal’s free zone/free port on the island of Santa Maria on December 31, 2011. Portugal’s free zone/free port (in the autonomous region of Madeira) remains operational, although it has been the subject of recent debate. The free zone/free port was authorized in accordance with EU rules or incentives granted to member states. Industrial and commercial activities, international service activities, trust and trust management companies, and offshore financial branches are all eligible. Companies established in the free zones enjoy import/export-related benefits and tax incentives for the company and its investors.

As of December 31, 2009 (the latest available figure), the Madeira free zone/free port had 3,221 active registered companies, including 240 ships registered in the International Shipping Register. The Madeiran government announced in December, when tax incentives were scheduled to begin to be phased out, that it had not made a decision about the future of the free zone/free port, which employs almost 3,000 workers and is expected to generate €150 million in 2012 and €200 million in 2013. For more information, visit: http://www.madeira-management.com

Foreign Direct Investment Statistics

Foreign direct investment flows into Portugal
http://www.portugalglobal.pt

Portuguese trade with the U.S.
http://www.census.gov/foreign-trade

Major foreign investors in Portugal
http://www.portugalglobal.pt

Web Resources

Bank of Portugal
http://www.bportugal.pt

Portuguese Agency for Foreign Investment and Commerce
http://www.portugalglobal.pt

Empresa na Hora (On-the-Spot Company)
http://www.empresanahora.pt

QREN (National Strategic Reference Framework 2007-2013)
http://www.qren/pt

EUROSTAT (Statistical Office of the European Union)
http://ec.europa.eu/eurostat

U.S. Census Bureau
http://www.census.gov

Technological Plan
http://www.planotecnologico.pt

"Cutting Red Tape" Investment Incentive Program
www.cuttingredtape.mj.pt

Portuguese Government
http://www.portugal.gov.pt

American Chamber of Commerce in Lisbon
http://www-cca.cliente.imediata.pt

IAPMEI (Institute for SME Support and Innovation)
http://www.iapmei.pt

INPI (Portuguese Patent and Trademark Office)
http://www.inpi.pt

Portuguese Directorate General for Economic Activities
http://www.dgae.min-economia.pt

U.S. Commercial Service in Portugal
http://www.export.gov/portugal

[This is a mobile copy of Portugal]