The Recovery of Portugal

Government of Portugal | Ministry of Economy

25 August 2015

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The Portuguese adjustment

Economic recovery

Investment: Now is the Time

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• EC, ECB and the IMF Mission has been successfully concluded.

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115

53

4442

38

35

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1311Public Enterprises and

Sector Reform, Public and Fiscal Administration

Health

Energy

Product MarketRegulation and Licensing

Supervision and Regulation of

Financial Sector

LabourMarket

JudicialSystem

Transport, Telecommunicationand Postal Services

Competition, Regulation, and Public procurement

Privatizations and PPPs

Housing and Rental marketsEducation

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Outcome: More sustainable, competitive and investment friendly economy

• Extensive reforms have resulted in the adoption of 450 policy measures across all areas.

• 70% of the borrowing needs for 2015 have been covered. By the end of this year, it is expected that 90% of the needs for 2016 shall be assured.

The Portuguese adjustment

Economic recovery leads

towards sustainable growth and job creation

Confidence and credibility

Improved efficiency and monitoring of the

public sector

Open and competitive economy

Solid foundations for investment opportunities

Government budget on upward path

• Competition framework• Labour market• Judicial system• Tax reform

Reforms

• Orderly deleveraging• Improve capitalization• Better financing capacity• Re-open access to

interbank and bond markets

Objectives

Outcome

The Portuguese adjustment

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Fiscal consolidation

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The Portuguese adjustment

Source: Ministry of Finance.

Forecast Forecast

• Portugal moved from an external deficit (Current and Capital Account) of -8.8% of GDP in 2010 to a surplus of +3.1% of GDP in 2013.

• In 2014, Portugal maintained a positive external account (+2.1% of GDP).

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The Portuguese adjustment

Better than expected external adjustment

• In 2014, GDP recorded a real growth rate of 0.9%, following a decrease of 1.6% in 2013, as a result of the upturn of Domestic Demand.

• GDP increased 1.5% both in Q1 and Q2 2015 (yoy). GDP expanded 0.4% both in Q1 and Q2 2015 (growth rate).

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More favourable macroeconomic scenario for 2015

Source: Statistics Portugal / 2015-2019 Stability Program - April 2015.

Economic Recovery

• Unemployment fell substantially in the last quarters, from 17.5% in Q1 2013 to 11.9% in Q2 2015.

Economic Recovery

Source: Statistics Portugal; 2015-2019 Stability Program - April 2015.F = Forecast.

Main indicators for the Portuguese economy…

… and a growth cycle based on private consumption, investments and exports

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real growth rate

2012 2013 2014 2015F 2016F

Real GDP -4,0 -1,6 0,9 1,6 2,0

Private consumption

-5,5 -1,5 2,2 1,9 1,9

Public consumption

-3,3 -2,4 -0,3 -0,7 0,1

GFCF -16,6 -6,7 2,5 3,8 4,4

Exports 3,4 6,4 3,3 4,8 5,5

Imports -6,3 3,9 6,4 4,6 5,3

Strong export growthreaching 40% of GDP in 2014

Consistent market diversificationshare to outside EU, grew from 17,8% in 2000

to 29,1% in 2014

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Portugal had the third highest export growth within the EU15 since 2010, ahead of countries like Germany, France, Spain and Italy.

Total exports and importsof goods and services Extra-EU exports

(% share in total exports)

Source: Statistics Portugal Source: Statistics Portugal

Economic Recovery

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Growth of Portuguese exports and world imports

Economic Recovery

• Up until June 2015, Tourism revenues grew 12.2% (yoy), and the Tourism External Account 14.7% (yoy). In 2014, 12.4% and 15.4%, respectively.

• Up until June 2015, hotel industry registered two digits growth (as in 2014):

→ 20.7 million overnight stays (7.3% yoy comparing with +12.1% in 2014);

→ 7.7 million guests (8.5% yoy comparing with +13.9% in 2014).

• Industrial production index rose 1.6% in 2014 and 2.0% in Q2 2015 (yoy).

• The retail trade index has been improving and already increased 1.2% in 2014 and 2.6% in Q2 2015 (yoy).

Different sectors are showing signs of upturn…

… as well as improving confidence and economic climate indicators

• Confidence Indicators started to improve in the end of 2012.

• Consumer confidence indicator increased in July 2015, returning to the upward trend started in January 2013 and recording its highest level since April 2002.

• Economic climate indicator recovered again in July, reaching its highest level since May 2008.

• Private consumption coincident indicator increased 2.1% in July 2015 (yoy), as in 2014.

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Economic Recovery

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So why Portugal?

Investment: Now is the Time

Attractive Consumer Market

• Nearest European country to the U.S.

• 3-hour time difference from Brazil and Russia.

• Same time as UK and Ireland.

• Daily flights to major European cities.

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Strategic location

• Great and privileged economic relations between Portugal, Brazil, Angola and Mozambique.

• South/Central America potential

Million people

761

3 Reformed and simplified investment processes

4 Track-record in innovation and qualified human capital

5 Fiscal attractiveness

Portugal 10,5

Iberian Market 57

European Market 496

Portuguese Speaking Countries 254

• Ahead of countries like Italy, Czech Republic, Poland, Malta and Turkey

Ease to do Business• Ranked 5th in terms of N.º of days to Start a Business;• improved 28 positions (44th) in terms of Goods Market Efficiency.

Labour Market• improved 43 positions (83rd) in terms of Labour Market Efficiency;• Ranked 4th in terms of the “Quality of management schools” and 8th regarding

the “Availability of Scientists and Engineers”

Access to Finance• In terms of Financial Market Development, Portugal improved 10 positions,

namely regarding the ease of access to loans (+13), financing through equity market (+15) and Venture Capital Availability (+25)

Infrastructures and Basic Requirements• Portugal ranked 17th regarding the quality of infrastructures and 24th relating

to Health and Primary Education, as well as on Higher Education and Training, which have a major impact on business performance.

Global Competitiveness Report 2014

Investment: Now is the Time

Ranked

36 in 2014

+15positions in 2014

79.6% of Swiss score

(ranked 1st)

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Doing Business 2015

• Portugal is currently the 11th best country to do business in UE28

• Ahead of the Netherlands, Belgium, Spain, France, Italy and even Japan.

Entrepreneurship • Improvement of the business regulatory environment and distance

reduction as regards to reference indicators of the ranking, allowing to reduce both time and cost of business registrations, leading to a rise of 17% in the number of start-ups;

• 10th position in terms of starting a business.

Competitiveness • Corporate income tax rate reduction and creation of a simplified tax system

for SMEs;

• 27th position in terms of the reduction of commercial disputes, an essential element for promotion of a friendlier environment to enterprises.

• 25th position on the indicator concerning to property registration procedures, consequence of the implementation of quicker procedures, a fact highlighted on the DB 2013 report, where Portugal was 1st among the countries that had facilitated property registration procedures the most.

• 10th position in terms of procedures for insolvency resolutions.

25th among 189

countries, the best positioned country

in Southern Europe

Investment: Now is the Time

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OECD Overall Product Market Regulation Score 2013Measures the product markets reforms – Scale from 0 to 6 (from less to more restrictive)

• Portugal was the OECD country with the highest evolution in PMR ranking, between 2008 and 2013;

• Portugal occupies at the moment the 11th position (the 9th among the EU countries).

One of best countries to do businessPortugal is at present the 20th (among 145 countries) of “Forbes Ranking of the Best Countries for Business 2013”.

Overall PMR score for OECD countries in 2013 Scale from 0 to 6 (from less to more restrictive)

Source: OCDE (2013), Product Market Regulation Database

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Investment: Now is the Time

… and in addition:

• Portugal holds leading position among EU countries Portugal in terms of the provision of online public services to citizens and businesses (“European e-Government Benchmark”, European Commission);

• Portugal has world renowned logistics and infrastructure in rail, airways and sea, both for passengers and cargo;• New Competition Law and new Competition Court, new Bankruptcy Law and a new Industrial Licensing Regime

(98% of cases with no licensing requirements);• New legal framework for the Single Environmental Licensing (“LUA - Licenciamento Único Ambiental”), aiming at

simplifying procedures for environmental licensing regimes; • Amendment of the Programme of Responsible Industry (“PIR - Programa da Indústria Responsável”), having

simplification, speed and cost savings for businesses as the main goal.

• Portugal had the biggest overall improvement in education among the OECD European countries (Pisa 2012, OECD)

• Foreign languages: Portugal has the 7th highest score in English tests (TOEFL, 2011) • The highest share of Science and Engineering degrees in EU (NSF 2012, USA) • Between 2008 and 2013, Portugal had the second largest hourly labour cost decrease (-5.1%) within the EU

(average 10.4% increase in the euro area).

Human Capital

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• Portugal occupies the 17th position among the countries of the EU28 in the Innovation Union Scoreboard 2015 ranking

• Portugal was the country with the highest annual growth rate in innovation performance, in the group of countries Moderate Innovators - Innovation Growth Leader.

Innovation

Investment: Now is the Time

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• TAP and CP Carga (freight subsidiary of CP) privatizations have been completed; • Others will be carried out as soon as further steps have been taken to increase market value.

Concession of Lisbon Public

Transport Services

Concession of Oporto Public

Transport Services

MaritimeOperations

Rail Concession

Portuguese Government has still an ambitious privatization program with its highlight in the transport concessions

Transport

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Ongoing

Investment: Now is the Time

Main Export/Investment Clusters across the 3 economic sectors

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Secondary

Business Service Sector

Tourism

Information and Communication

Technologies

Primary Terti

ary

Agriculture, Fishing and Food Industry

Forest, Pulp and Paper

Mining

Textile, Clothes and Fashion

Petrochemical and Chemical

Automotive

Aeronautic

Renewable energy

Health, Pharma and Life Sciences

Building Materials

Metal Working

Industries identified with existing competencies and strategic opportunities

Investment: Now is the Time

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The Government remains committed to fully support companies and entrepreneurs on a better access to financing, investment in technology and innovation, and on their internationalization

1. Partnership Agreement 2014-2020, 9,500 million euros for competitiveness and internationalization of SMEs, besides the Development Bank (IFD), responsible for the future management of European Funds, in order to capitalize and support viable SMEs and to address potential market failures.

2. Continuity of the Corporate tax reform, in 2015, there will be a new reduction in the corporate tax rate to 21% – a very important measure which provides companies the fiscal predictability they deserve, and which will continue to benefit Portugal as a destination market for foreign investment.

3. New Tax Code for Investment, through which a new upper limit on the tax credit, up to 25%, is established, as well as several bonus associated with the geographical localization, technological value added and the number of jobs created:

• Creation of a new upper limit on the tax credit (25%)• Increased up to 6%, as regards for technological innovation • Increased up to 8%, in function of the number of jobs created• Corporate tax of 0% for start-ups, at least in their first 3 years of activity.

“Triple” Investment Package

Investment: Now is the Time

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Reform of Corporate tax starting in 2014

2018

2016

2014 • Statutory Corporate tax rate reduction by 4 p.p. (from 25% to 21%)• Reduction of the tax rate for small companies by 8 p.p. (from 25% to 17%)• Tax exemption system for shareholders whose shareholding exceeds 5%

Other Tax initiatives

Compares with corporate tax of 30% in Spain and 26.5% in the Euro AreaFramework that provides stability of firms’ income taxation

• Simplification of the taxation system for smaller businesses

• Tax Regime for Investment Support: Automatic tax credit of 20% of the investment in the tradable sector;

• Creation of a dedicated Tax Cabinet for international investors

In the last 3 years, investments with specific fiscal incentives totaled over 1.6 billion euros, and created 2,300 new jobs

Low

er c

orpo

rate

tax

Investment: Now is the Time

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Source: AICEP – Portugal Global

Other examples

Investment: Now is the Time

Company Origin M€ Industry

Germany 727,1 Automotive OEM

Canada 130,8 Mining

Portugal 65,4 Pulp & Paper

Spain 44,2 Ceramic and glass

Brazil 29,4 Medical Devices

Top 5 investments between 2013 and 2Q 2014

Manufacturing and processing

2Q2014 3Q2014

More than 1.1 billion euros ofindustrial and shared services investments

between 2013 and 2Q 2014

Highlight4Q2014

+8.6%+3.6% + 3.9% + 2.5%

1Q2015

Investment (GFCF)(yoy)

10 year Bond Yields – Sovereign Debt Main Indicator

• Portuguese 10-year sovereign bond yields have been falling markedly since mid-2013 until now, from 7.5% to 2.6% (dropping 4.9 percentage points).

Investment: Now is the TimeYi

eld

Bond

– 1

0yr

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Now is the time to invest in Portugal!

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