[Economics] Low wages and little added value: the economy that Portugal wants to forget

[#Wittels-]

After the pandemic collapse, the country tries to overcome its contradictions and accelerate the transformation of its business model

Portugal is the country where the online luxury fashion store listed on the New York Stock Exchange emerged and which became the first Portuguese unicorn in 2015. That year the minimum wage was 589 euros, below what each customer spent on average on a purchase at Farfetch, the author clothing and accessories platform for checking accounts without complexes created in Matosinhos by Jose Neves, today one of the largest Portuguese fortunes. Since then unicorns have ceased to be an extravagance. There are seven Portuguese companies in the digital world now valued at more than a billion dollars (12 in Spain and 321 in Europe, according to Atomico's 2021 State of European Tech report).

 

 

But Portugal, which has added an unexpected political crisis to the pandemic and is trying to resolve it with early elections on January 30, is also the country where poverty threatens more than a fifth of the po[CENSORED]tion and where the economy is among Europe's laggards. The fashionable country among European retirees and foreign investors who enter through the front door of the gold visa is also the place of inaccessible housing for the Portuguese middle class (1,209 euros of average monthly salary in 2019, 1,982 euros in Spain). Between these paradoxes of capitalism moves the Iberian country, small, peripheral and with the most stable borders in Europe. Knowing what the territory has been for centuries helps to have a long experience to look outside for what cannot be found inside, whether they are seas and continents in the Modern Age or businesses and jobs in the 21st century.

 

As for the unicorns, they lead the fascinating and uncertain life of ancient navigators. Among the latest additions to the Portuguese list are Feedzai and Remote, whose stories are told in the book Portuguese Unicorns, by Ana Pimentel, a journalist specializing in technology and start-ups. The first was founded in Coimbra and has nearly a thousand clients around the world, including Santander and Citibank. It produces technology to make digital transfers in banking and online commerce more secure based on artificial intelligence. Remote is a telecommuting human resources management platform that was created in 2019. It would be difficult to find a company with a more opportune timing to go to market, fifteen minutes after the world began the era of mass teleworking. One of those businesses that benefited from the virus, that enriched a few and impoverished many. In 2020, Portuguese millionaires increased by 19,430 to reach the figure of 136,430 (1.31% of the po[CENSORED]tion). "The country was poorer, but there was no doubt that it had richer ones," writes Pimentel.

 

Inequality, which had been slowly falling in the last three years, grew again in 2021 to 22.4% in a country of 10.34 million inhabitants. A certain pessimism from the days of the European bailout returns, although the formulas for dealing with the pandemic are the opposite of the philosophy of the Great Recession. “The way economies have handled this crisis has been very different from what happened in the past. It was understood that it was a circumstance external to the functioning of governments and economies, with which it was possible to organize a package of aid to companies and families that allowed the country's productive capacity not to be destroyed, "says the Minister of Economy and Digital Transition, Pedro Siza Vieira, during an interview in his office in Lisbon.

 

Support to the company
The liquidation of companies was mitigated in part with these supports. "They constituted a safety net, so it is important that they be maintained while the negative impacts of the pandemic last to avoid insolvencies and the destruction of productive capacity, which would limit the rapid recovery," says Luís Miguel Ribeiro, in an email. president of the Portuguese Business Association (AEP), which encompasses 1,500 companies.

The government strategy does not equally convince Susana Peralta, professor at the Nova School of Business and Economics and author of the book Portugal and the crisis of the century. "The government was timid," he writes. The economist cites that of the International Monetary Fund which, without counting the health reinforcement study items, shows that Portugal spent the equivalent of 2.4% of GDP on artillery against the economic effects of the pandemic. Only Slovakia and Greece were behind. Insufficient support influences the difficulties for families to repay their credits. "A bomb that can explode," warns Peralta, who highlights that the country is the third with the most bank moratoriums granted to companies and families with the support of the State.

 

Public weight is often identified as a burden. “The Portuguese economy has been stagnant for too many years, it is not only the effect of the crisis, but also the effect of an economy extremely dependent on the State and, in many cases, even worse, dependent on power”, he observes by email. the professor of Political Science at the University of Aveiro, Filipe Teles. One of the reasons for the stagnation lies, in his opinion, in excessive political centralization. “Nearly two-thirds of the value of the total purchases of public administrations are concentrated in the Lisbon metropolitan area, which generates an economy in the capital that is highly dependent on the public sector, while in the rest of the country it is more industrial and export-oriented” , indicates Teles, who defends the regionalization of the country to revitalize the economy, win democracy and address structural problems such as demographic decline. The debate on territorial reform, resumed a few months ago, could culminate in a referendum in 2024.

 

The health crisis especially punished an economy with great prominence of tourism and restaurants, the fourth non-financial activity with more business life after commerce, construction and real estate activity and agriculture. Especially thanks to the figures of Spaniards, French, British, Germans and Brazilians, the number of tourists since 2009 grew at a galloping rate and quadrupled in a decade to exceed 24 million in 2019. The sudden stop of the Great Confinement exceptional a collapse of 73.7% in 2020. That year the Portuguese GDP fell by 8.4%, two points more than the euro zone, but the forecasts of the Bank of Portugal for this year are of economic joy: a growth of 5, 8% (4.2% in the euro zone), favored by the reactivation of tourism, hotels and restaurants, and the continuing decline in unemployment, which closed 2021 with a rate of 6.1%. Spain continues to be the first client of Portuguese exports, which began to recover last year.

"Portugal is recovering from the pandemic faster than Spain," says Ricardo Reis, professor of economics at the London School of Economics. “If we look at the disposable income of families in relation to what they had in 2019, it is in one of the last places in Europe (Spain is in the last). In a way, this was unavoidable in a country that relied heavily on tourism and had no budgetary space to respond aggressively to the crisis due to the enormous burden of public debt. The policies adopted were not very different from those followed in other European countries, but they were smaller”.

 

Public debt
The Portuguese public debt skyrocketed between 2009 and 2014 to reach 132.90% of GDP, its peak until the coronavirus arrived (135.2% in 2020). Public accounts have dragged their feet since the previous crisis, when part of the Portuguese financial system went bankrupt. Banks, however, have stopped worrying. "It's more solid and less likely to be at the center of a crisis," says Reis. “The restructuring of that time was good enough for the financial sector to be managing this crisis well and give confidence to the system,” says Carlos Martínez Mongay, who was head of the European Commission mission in Portugal between 2014 and 2019. An important part of the financial system is now in the hands of foreign groups such as the Spanish Santander, Caixabank and BBVA or the US fund Lone Star, which in 2017 took over Novo Banco, created to manage the good assets of Banco Espiritu Santo, in a opaque operation that has been censored in a parliamentary investigation commission.

More significant is Chinese investment, which was deployed in Portugal when the country was being paid off in times of the troika. The Asians took over a good part of the assets of the Economic Adjustment Program between 2011 and 2014 and landed in strategic companies such as Energías de Portugal (EDP), Redes Energéticas Nacionais (REN), and the insurer of the Caixa Geral de Depósitos, the public bank. During President Xi Jinping's visit to Lisbon in 2018, agreements were made on infrastructure, water, 5G technology, space research and agriculture, among others. The following year Portugal became the first country in the euro zone to issue debt in yuan.

 

Link: https://elpais.com/economia/negocios/2022-01-16/bajos-salarios-y-poco-valor-anadido-la-economia-que-portugal-quiere-olvidar.html