Country Risk: Portugal

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Location and Size

Portugal is part of the Iberian Peninsula which is located in southwestern Europe. It borders the North Atlantic Ocean on the west and Spain to its east. Its territory covers a total of 92,090 sq. km., which includes the Azores and Madeira Islands, making it slightly smaller than the U.S. state of Indiana. The capital, Lisbon, is a port city located in western Portugal on the Atlantic Ocean and the Tagus River.

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Government

Portugal is a republic governed as a parliamentary democracy comprised of 18 districts.

Branches of Government:

• Executive: Chief of State – President Marcelo REBELO DE SOUSA (since 2016); Head of Government – Prime Minister Antonio Luis Santos da COSTA (since 2015); Cabinet – Council of Ministers appointed by the president on the recommendation of the prime minister.
• Legislative: Unicameral Assembly of the Republic (230 seats; members elected by popular vote to serve four-year terms).
• Judicial: Constitutional Court; Supreme Court; Audit Court; Supreme Administrative Court.

Legal System

Portugal has a civil law system.  Legislative acts are subject to the review of a Constitutional Tribunal.

Portugal has accepted compulsory International Court of Justice (ICJ) jurisdiction. (What does this mean?) Portugal accepts International Criminal Court (ICCt) jurisdiction.

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Nine Interesting Facts About Portugal

1. Lisbon is the oldest city in Western Europe.
2. Portugal’s Vasco de Gama Bridge is the longest bridge in Europe, spanning 10.7 miles.
3. Portugal has been part of the EU for almost 20 years.
4. Portuguese explorer Bartholomew Dias was the first to sail around the tip of Africa, which he named the Cape of Good Hope; Ferdinand Magellan was the first to circumnavigate the globe; Vasco de Gama discovered a sea route to India in the 1490s; and Pedro Alvarez Cabral discovered Brazil.
5. It has been illegal to kill a bull in Portuguese bullfighting since the 18th century.
6. Estoril Casino, near Lisbon, opened its doors in 1920 and is one of the largest gambling centers in Europe.
7. Portugal is home to the first commercial wave farm, which creates and sells electricity. The farm was constructed in 2006.
8. During the time of the Roman Empire present day Portugal was known as Lusitania.
9. Portugal is most famous for its Port Wine and Salted Cod.

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Economy

Since it joined the European Community (predecessor of the EU) in 1986, Portugal’s economy has become increasingly service-based and diversified. Successive governments have privatized many state-controlled firms and liberalized key areas of the economy.

Nevertheless, precipitated by the collapse of foreign demand and restrictive financial conditions affecting all the sectors of the economy, Portugal has been suffering from a deep recession since 2009. While a 2012 IMF review detected progress in implementing necessary reforms, the economy’s main danger appears to be external and is linked to the ongoing crisis in the Eurozone.

The economy grew by more than the EU average for much of the 1990s, but the rate of growth slowed in 2001-08. After the global financial crisis in 2008, Portugal’s economy contracted in 2009 and fell into recession from 2011 to 2013, as the government implemented spending cuts and tax increases to comply with conditions of an EU-IMF financial rescue package, signed in May 2011.

Portugal successfully exited its EU-IMF program in May 2014, and its economic recovery gained traction in 2015 because of strong exports and a rebound in private consumption. GDP growth accelerated in 2016, and probably reached 2.5 % in 2017. Unemployment remained high, at 9.7% in 2017, but has improved steadily since peaking at 18% in 2013.

Leading Markets (2019): Spain 23%, France 13%, Germany 12%, UK 6%, US 5%

Leading Exports – Commodities: Cars and vehicle parts, refined petroleum, leather footwear, paper products, tires

Leading Suppliers (2019): Spain 29%, Germany 13%, France 9%, Italy 5%, Netherlands 5%

Leading Imports – Commodities: Cars and vehicle parts, crude petroleum, aircraft, packaged medicines, refined petroleum, natural gas

Top Industries: Textiles, clothing, footwear, wood and cork, paper and pulp, chemicals, fuels and lubricants, automobiles and auto parts, base metals, minerals, porcelain and ceramics, glassware, technology, telecommunications; dairy products, wine, other foodstuffs; ship construction and refurbishment; tourism, plastics, financial services, optics

Top Agricultural Products: Milk, tomatoes, olives, grapes, maize, potatoes, pork, apples, oranges, poultry

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Comparative Economic Indicators – 2021

** PPP – Purchasing Power Parity
Economic Data from CIA World Factbook

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Credit and Collections

Collecting in Portugal

Portuguese Statutes of Limitations:

• Open Account: 3 – 15 years
• Promissory Notes: 5 – 20 years
• Written Contracts: 5 – 20 years
• Oral Agreements: 5 – 20 years (if it’s considered valid)

Dispute Resolution

The government promotes non-judicial dispute resolution through the Ministry of Justice’s Office for Alternative Dispute Resolution (GRAL), including conciliation, mediation, or arbitration. Portugal has no bilateral investment or free trade agreements containing investor-state dispute settlement provisions with the United States. The World Bank’s International Center for Settlement of Investment Disputes (ICSID) database shows no cases of investment disputes, pending or concluded, between foreign investors and Portugal. Portuguese courts recognize and enforce foreign arbitral awards issued against the government. There have been no recent extrajudicial actions against foreign investors.

Risk Assessment

Coface Country Rating: A3 — Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.

Coface Business Climate Rating: A2 — The political and economic situation is good. A basically stable and efficient business environment nonetheless leaves room for improvement. Corporate default probability is low on average.

Credendo Political Risk Rating: 1 — Extremely Low
Credendo Commercial Risk Rating: E — Medium-High

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Business Climate

Per the US Department of State’s 2020 Investment Climate Statement, Portugal attracted €9.2 billion in FDI inflows in 2019, including €122 million from the United States. Unemployment dropped to 6.5 percent and GDP growth was 2.2 percent, falling from 2.6 percent in 2018. Despite slowing growth, Portugal has continued to reduce its public debt, which fell to 117.7 percent of GDP in 2019, compared to 121.5 percent the year before. Nonetheless, the country’s high debt-to-GDP ratio remains a weak point.

The services sector, particularly Portugal’s tourism industry, served as an engine of economic recovery, while textiles, footwear, and agriculture moved up the value chain and became more export-oriented over the last decade. The auto sector, together with heavy industry, technology, agriculture, construction and energy remain influential clusters. In 2019, Portugal also unveiled a package of urban mobility and transport infrastructure tenders, privileging railway, as it attempts to ramp up public investment.

The banking sector faced considerable challenges in recent years, including the costly central bank-led resolution of Banco Espírito Santo in 2014 and Banif in 2015. Even so, banks regained momentum during 2019, restructuring and strengthening capital structures to address the lingering stock of non-performing loans. They will now be in the frontline of the Covid-19 economic shock, with a likely rise in foreclosures, bad loans and bankruptcies.

Economic Freedom: Based on the 2021 Index of Economic Freedom, Portugal’s economic freedom score is 67.5, making its economy the 52nd freest in the 2021 Index. Portugal is ranked 29th out of 45 countries in the Europe region, and its overall score is above the world average.

Market Access: In accordance with its membership, Portugal applies European Union rules regarding trade. While the EU has a rather liberal foreign trade policy, there are a number of restrictions, especially on farm products. Following the implementation of the CAP (Common Agricultural Policy) aimed at favoring the development of agriculture within the EU and the application of compensations on import and export of farm products, there are a number of control and regulation systems applicable to these goods entering EU territory.

Portugal maintains a free zone/free port in the autonomous region of Madeira 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 to conduct business in the zone. Companies established in the free zones enjoy import/export-related benefits and tax incentives.

Regulatory System: In the past few years, Portugal’s Ministry of Economy has promoted various initiatives to improve government efficiency. Working with the Ministry of Justice in 2007, it launched the “Cutting Red Tape” website, a resource containing information on 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.

Intellectual Property Rights: In 2003, 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). Portuguese legislation for the protection of intellectual property rights has been consistent with WTO rules and EU directives since 2004.

Exchange Control: Portugal does not maintain any currency or capital account restrictions. It joined with nine other European countries to form the European Monetary Union in 1999. And followed in 2002, by introducing  the euro as its official currency, replacing the Portuguese escudo.

Corruption: Corruption plays a limited role in Portugal’s business culture. Transparency International’s 2020 Corruption Perceptions Index gives Portugal a score of 61 out of 100, ranking as the 33rd least-corrupt country in the index. 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.

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.

For more detailed information on these topics, visit the 2020 Investment Climate Statement – Portugal, U.S. Department of State

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Business Protocol in Portugal

• Be aware, business relationships are built with people not companies. So if you change representatives or people on a negotiating team once negotiations have started, the relationship-building process will have to begin again.
• The Portuguese prefer face-to-face meetings to written or telephonic communication, which are seen as too impersonal.
• If your Portuguese business colleagues have questions or want clarification during a presentation, they will wait until you have finished speaking and not interrupt.
• Although honest, the Portuguese do not volunteer information unless solicited, especially if remaining silent is in their best interest.
• Agendas serve as starting points for discussions; they do not serve as schedules.
• Presentations should be well thought-out, thorough, and backed up with charts and figures.
• Have printed material available in both English and Portuguese.
• Portuguese business is hierarchical. The highest-ranking person makes decisions.
• Women (and often men), are clothes brand conscious and will usually dress well. Conservative dress is usually the best choice. This can include pants for women if part of a suit. Long sleeved shirts are important, especially for men. Only the stylishly unaware would consider wearing a short sleeved shirt with a tie.
• Punctuality is not an important cultural trait. It is courteous to arrive five minutes late and definitely bad news to arrive before the agreed time.

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Sources for further information on doing business in Portugal

AmCham Portugal

Doing Business in Portugal, World Bank Group

Embassy of Portugal to the United States

United States Embassy in Lisbon, Portugal

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Portugal. For further information, contact [email protected].

This report represents a compilation of information from a wide variety of reputable sources.

Comparative Economic Indicators: CIA World Factbook

Risk Assessment information: Coface Country Rating and Credendo Country Risk 

Exchange Rates: OANDA.com The Currency Site.