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Evaluation of Portugal Global Trade and Business

Evaluationof Portugal Global Trade and Business

Evaluationof Portugal Global Trade and Business

Portugal has a dynamic and diversified economy with the industry andservice sectors contributing greatly to the economy. In fact, “Sincejoining the EU in 1986, Portugal has become increasingly aservice-based economy” (Schütz &amp Palan, 2015). The nation hasa GDP of 290 billion in terms of purchasing power ranking position 54in the world (CIA, 2016). Thus, the high GDP value makes the nation amajor player in international trade and economy. According to CIA(2016), the country has experienced numerous privatization ofstate-owned companies and the liberalization of fundamental economicareas, which have enhanced its competitiveness in world matters.Portugal is placed on position 36 in the economic index of the mostcompetitive countries in the world (World Economic Forum, 2015). Itsmembership to EU helped the country achieve notable economic growthsand development particularly through enhanced inflow of funds andtrade ties. Moreover, the country’s qualification to join EMU(Economic and Monetary Union of the EU), saw it stabilize inflation,exchange rate, interest rates, and public debt. However, the countryrealized decreased growth between 2001 and 2009 and between 2011 and2014 when it reduced government spending and increased tax.

The country’s main trade partners are in the EU community andinclude the UK, Spain, Italy, Germany, and France (Schütz &ampPalan, 2015). From late 2014, Portugal’s growth rate is growing ata rate of 1.5 yearly with the unemployment rate also fallinggradually to 12.4% (CIA, 2016). Data from OECD shows that the countrywill experience a moderate growth and increased private consumptionreinforced by a declining unemployment rate (OECD, 2016). Governmentpolicies aimed at decreasing labor market rigidities and sustainedmonetary elements will make the nation more attractive to FDI.Portugal has also experienced a reduced budget deficit of 3.5% of theDGP, which is well below the IMF-EU target of 4% (CIA, 2016).Estimates of 2015 shows that the public debt represents 129% of theGDP, inflation stands at 0.5%, current account balance is US$901,with exports representing US$54.33 billion and imports US$64.49billion (CIA, 2016). The high debt puts Portugal at a decreasingpath thus, the need for additional monetary or fiscal consolidationstrategies. The stock of its FDI abroad stands at US$87.44 billionwhile that of home stands at US$138 billion (CIA, 2016). Low-costmanufacturers in Asia and Central Europe as a target for FDIovershadow the country’s development. Thus, the report provides adiscussion on the country’s terms of trade, major tradeorganizations and agreements, trading partners, and the analysis ofits FDI.

WhatPortugal does in terms of trade

The country’sreal GDP growth rate is growing at 1.5% and will continue togradually increase (CIA, 2016). Portugal’s main exports includecork and wood, wine, footwear, paper and wood pulp, and leather whileimports include technology parts, machineries, agricultural products,and transport materials. Today, Portugal enjoys an increased economicdevelopment and trade. The nation has a representative VAT fee ofimported goods charged at 23%, except for reading materials andbooks, which attract a fee of 6% (Department for International Trade,2015). However, cheap goods especially those below €150 do notattract VAT charges. Portugal applies a tariff rate on produced goodsand import duties and taxes on goods imported outside the EUcommunity. The duties are assessed on the cost of importation and thevalue of the goods. However, some goods particularly technologyproducts do not attract import duties. Prior to 2008, the countryusually had a deficit trade balance, but the deficit has been in adownward trend ever since. The country saw exports increase between2008 and 2015 at a yearly rate of 3.5% with imports rising at ayearly rate of roughly 1.9%. Figure 1 shows that total exports for2015 stood at US$55.241 billion while imports stood at US$66.658(World Bank, 2016a). Between 2011 and 2015, the country realized anexport market penetration of 10.74 while the market concentrationindex stood at 0.1. During the same period, Portugal had 228 and 206trading partners for imports and exports respectively. The countrywas ranked position 1 for trading across borders (World Bank, 2016a).

Figure 1:

Trade summaryfor Portugal 2015

Source: WorldBank, 2016a

The country’sBoP (Balance of Payments) in terms of service imports stood atUS$14.187 billion while those of exports stood at US$27.798. In 2015,Portugal’s total trade represented 80% of the GDP with exportscontributing 40% and imports 39.56% (World Bank, 2016a).

Figure 2:

Portugal’strade as a percentage of GDP

Source: WorldBank, 2016b

Majortrade agreements and international organizations

Portugal is a founding member of OECD (Organization for EconomicCo-operation and Development), WTO (World Trade Organization), andthe EU (World Trade Organization, 2016). OECD and WTO offer stableengagements for Portugal, as member nations engage in matters ofeconomic development and international trade. The EU is the mostsignificant international organization for Portugal, as it alsoengages on behalf of its members in other agreements, for exampleWTO. According to WTO (2016), the EU negotiates economic and tradeagreements for its members. For example, it has negotiated tradeagreements with African and Asian countries (European Commission,2016). Since Portugal joined the EU, she has experienced freemovement of services, products, labor, and capital with other membersas the community has removed barriers. The EU has numerous bilateralagreements, for example, the Agreement on Textiles and Clothing,which allow member nations to exempt duties and reduce tariffs forsome products. The tariffs are based on insurance costs, cost ofproduction, and CIF (cost in freight). Moreover, all EU members placea VAT of 23% on non-EU products, although some necessities do notattract the duty. The union has abolished tolls and charges withinmembers’ borders, which has enhanced economic activities. Throughthe overall reduction in trade duties and tariffs, as well as, thefree trade within the EU community, Portugal has experienced anincreased volume of trade. However, trade statistics show thatPortugal is still a net importer, as she imports more products fromEU countries than she exports.

Portugal’strading partners

The EUnations account for a significant share of Portugal’s trade, whichamounts to roughly 73% and 74% for imports and exports (Amador &ampCabral, 2015). The main exporters include Spain, France, Italy, andGermany while importers include Spain, the UK, France and Germany.Spain, Germany, and France account for approximately 55% ofPortugal’s total exports. Figure 3 shows that Spain is the majortrading partner with export flows including basic food, manufacturessuch as cork, paper, and wood pulp, and textiles. Manufacturedproducts, transport equipment, fuels, road vehicles, wine, and woodaccount for 40% of all exports. According to Amador and Cabral(2015), the country’s exports will grow rapidly to 9.4% yearlyreaching US$100 billion in 2017 increasing its position to 46globally. Trading partners and the quantity exported will not changein the coming year.

Figure 3:

Portugal’stotal exports

Source: Amador &amp Cabral, 2015

In both the nominal and real values, Spain is Portugal’s majortrading partner. Imports from Spain account for 33% of all imports(US$21.9 billion), imports from Germany represent 23.4% (US$8.5billion) while those from France account for 12.9% (US$4.9 billion(Michigan State University, 2016). The three countries will continueto be the main import partners and will account for 54% of allimports in 2017 (Amador &amp Cabral, 2015). Fuels from Nigeria andbasic and manufactured goods from Spain account for the largest shareof all imports.

Figure 4:

Portugal’stotal exports

Source: Amador &amp Cabral, 2015

Servicesor products exported or imported

Portugal’smain exports include footwear, clothing, machinery, paper products,chemicals, and hides. Her top 10 exports account for approximately55% of the real value of global shipments. According to Amador andCabral (2015), most of these exports (74%) are shipped to the EUcommunity. Figure 5 shows that petroleum and fuels accounted forUS$3 billion, paper excluding mechanical fibres accounted for US$1.3billion, textiles US$5 billion, and automobiles and motor vehicleparts accounted for US$2.2 billion. Figure 6 shows that petroleumoils and other fuels accounted for US$7 billion, automobiles US$1.8billion, and basic and food products accounted for US$11 billion.

Figure 5:

Portugal’stop exports

Source: Amador &amp Cabral, 2015

Figure 6:

Portugal’s main imports

Source: Amador &amp Cabral, 2015

Figure 7 shows that Portugal is a net importer, as it buys more goodsthan it ships. The figure illustrates the products that cause a tradebalance deficit in the country’s balance account. The country isusually dependent in raw materials, which contribute 18% of allimports or US$12.1 billion against the raw materials exported whichaccount for US$3.7 billion or 6.7% of total exports. Intermediategoods are also major imports at US$16 billion followed by consumergoods at US$23.9 billion or 35.86%. Nigeria and Saudi Arabia accountfor 3% and 1.5% of the country’s imports in the form of fuels,which shows that Portugal still depends on fuels despite the highproduction of wind energy in the country. However, the level ofdependency is not high since the nation only imports roughly 5% ofall its energy needs. The high level of consumer and manufacturedgoods shows that the country’s industry sector is not welldeveloped.

Figure 7:

Portugal&nbspExports and Imports of ProductGroups

Source: WorldBank, 2016a

Sectorsand firms involved in international business

Portugal is one of the least developed countries in Western Europethus, she is not heavily involved in the global matters. In fact,apart from tourism and food-based exports, Portugal does not havemany reputable firms involved in international trade. The serviceindustry is the most significant sector in international trade. Thecountry is a gateway market to many people and tourists because ofthe ties with EU members and former colonies. In Portugal, tourismhas advanced extensively and generating roughly 5% of the DGP (AICEPPortugal Global, 2016 Department for International Trade, 2015). Forexample, in 2014 the country had roughly 9 million visitors from theUK, Spain, Germany, Angola, and France. Moreover, the country is hometo&nbspSonae Indústria, the world’s major maker of wood-basedpanes, Conservas Ramirez, the world’s oldest canned foodmanufacturer, and Amorim, one of the largest cork producersinternationally. These industries are the major exporter of goods toother countries especially wood and paper pulp, canned food, andcork. Sonae Indústria is a producer of wood products, such as,boards, materials for construction and furniture, and wood-basedmaterials. The firm has subsidiaries in Canada, the UK, Germany,France, South Africa, and Spain. Conservas Ramirez export sardines,tuna, and other canned foods especially salads while Amorim sellscork and cork-based products to wine, construction, and aeronauticalindustries.

FDIand sectors involved

Despite aslow economic growth and the 2008 financial crisis, the country hasexperienced increased investment inflows and outflows. AlthoughPortugal has diversified her economic systems to attract investmentsfrom Brazil and USA, Spain, Germany, and France remain her maininvestors (Leitão &amp Faustino, 2010). International firms, suchas, Embraer, Microsoft, Sonangol, and Cisco have investedsignificantly in Portugal. Today, the country has a conduciveenvironment for high levels of investments and productivity. Thecountry’s flow of FDI stood at €5.4 billion in 2015 in realterms, which was a decrease of 5.1% from 2014 (AICEP Portugal Global,2016)

The stock ofPortugal’s FDI at home stands at US$138.1 billion while that ofabroad stands at US$87.44 billion (CIA, 2016). This shows that thecountry attracts investment and invests abroad especially in herformer colonies. Between 2009 and 2011, FDI accounted for US$30 andUS$40 billion. Between 2013 and 2014, the nation’s FDI increased to€11.9 billion, which was a 3.1% rise. The increase was a good signof Portugal’s capacity to attract investors. Portugal hasestablished major developments in the energy sector, which haveoffered new opportunities to investors, as well as, enhanced thecountry’s ease of doing business (Leitão &amp Faustino, 2010).According to Banco Santander (2016), Portugal is the fourth largestfavorite destination for Chinese investment among EU members. Spainaccounts for the largest share of FDI (24.7%), followed by theNetherlands (24%), and the UK (7.1%). These flows have gone to trade(33.1%), manufacturing industry (22.5%), and finance sector (16.4%).

Figure 8:Portugal’s FDI

Source: BancoSantander, 2016

Figure 9:

Inflows bycountries and sectors

Source: BancoSantander, 2016

References

AICEP Portugal Global. (2016). Portugal basic data: September 2016.Retrieved 23 November 2016 fromww.portugalglobal.pt/EN/Biblioteca/Documents/PortugalFichaPaisIngles.pdf

Amador, J., &amp Cabral, S. (2015). Developments in global trade:from 1995 to 2017: Portugal. ING International Trade Study.Retrieved 22 November 2016 fromhttps://www.ingwb.com/media/231178/portugal.pdf.

Banco Santander. (2016). Portugal: Foreign investment. Retrieved 23November 2016 fromhttps://en.portal.santandertrade.com/establish-overseas/portugal/foreign-investment?&ampactualiser_id_banque=oui&ampid_banque=41&ampmemoriser_choix=memoriser.

CIA. (2016). The world factbook: Portugal. CentralIntelligence Agency. Retrieved 22 November 2016 fromhttps://www.cia.gov/library/publications/the-world-factbook/geos/po.html.

Department for International Trade. (2015). Doing business inPortugal: Portugal trade and export guide. Retrieved 22 November 2016fromhttps://www.gov.uk/government/publications/exporting-to-portugal/doing-business-in-portugal-portugal-trade-and-export-guide#portugal-export-overview.

Leitão, N. C., &amp Faustino, H. C. (2010). Determinants of ForeignDirect Investment in Portugal.&nbspThe Journal of AppliedBusiness and Economics,&nbsp11(3), 19.

Michigan State University. (2016). Portugal: Trade statistics.Retrieved 23 November 2016 fromhttp://globaledge.msu.edu/countries/portugal/tradestats.

Schütz, M., &amp Palan, N. (2015).&nbspRestructuring theInternational Textile Production and Trade Network. The Role of Italyand Portugal&nbsp(No. 156). FIW.

World Bank. (2016a). Portugal trade at a glance: Most recentvalues. The World Bank. Retrieved 23 November 2016 fromhttp://wits.worldbank.org/CountrySnapshot/en/PRT.

World Bank. (2016b). Trade (% of DGP): Portugal. World Bank.Retrieved 23 November 2016 fromhttp://data.worldbank.org/indicator/NE.TRD.GNFS.ZS?locations=PT.

World Economic Forum. (2015). The Global Competitiveness Index2013–2014 rankings and 2012–2013 comparisons. World EconomicForum. Retrieved 22 November 2016 fromhttp://www3.weforum.org/docs/GCR2013-14/GCR_Rankings_2013-14.pdf.

World Trade Organization. Portugal and the WTO. World TradeOrganization. Retrieved 21 November 2016 fromhttps://www.wto.org/english/thewto_e/countries_e/portugal_e.htm.