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Portugal Foreign Direct Investment
Foreign direct investment increased at an extraordinary
pace
after Portugal's accession to the EC. From a modest
commitment of
around US$166 million in 1986, the annual inflow of
investment
controlled and managed by foreigners rose sharply in the
following years, reaching US$2.7 billion in 1991. At the
end of
that year, the accumulated stock of direct foreign
investment
exceeded US$8 billion, or eight times its value at the end
of
1986.
From the perspective of multinational firms, Portugal
was a
strong export base to the emerging single market of 327
million
high-income consumers, and since the mid-1980s the country
had
become especially competitive in attracting foreign
investment.
These attractions included political stability and a
hospitable
investment climate that included EC investment subsidies,
the
lowest wage scale among the EC-12, and programs of
economic
deregulation and privatization, as well as robust national
economic and export growth.
The participation of EC-based investors in the annual
investment flow to Portugal increased from less than half
of the
total in 1985-86 to about 70 percent from 1987 to 1990,
Britain
being the principal country source. Interesting trends in
the
composition of this investment could be discerned. Britain
was
the leading country of origin throughout this period, but
the
United States share fell sharply from 18 percent of the
total
investment in 1985-86 to less than 3 percent in 1989-90.
Within
the recently enlarged EC, Spain emerged as a significant
direct
investor, increasing its share from only 3 percent of
Portuguese
new investment in 1985-1986 to over 13 percent in 1989-90.
Brazilian investors, whose share was negligible in
1985-86,
increased their participation to around 7 percent in
1989-90.
Manufacturing, the destination of just under half of
foreign
investment inflow in 1985-86, received only 27 percent of
the
total in 1988-89; by contrast, the services sector's share
in
total investment flow rose from 45 percent in 1985-86 to
over 60
percent in 1988-89. Within that sector, banking and
insurance
increased their participation, although investment in
wholesale
and retail trade and in hotels and restaurants continued
to be
significant, reflecting foreign investor participation in
Portugal's booming tourism industry. Several new
investment
projects in the automotive industry were being considered
in the
spring of 1991, including participation by Japanese and
South
Korean firms. None, however, approached in scale the
Ford-Volkswagen commitment to organize an automotive
complex at
Sines. This joint venture capitalized at US$3.2 billion
was to
manufacture a new European minivan.
Portugal, unlike many other middle-income countries,
was
remarkably hospitable to foreign investment (foreign-owned
enterprises were legally exempted from nationalization
during
1975-76). The growing pace of privatization since 1988,
however,
gave rise to debate regarding the ultimate ownership and
control
of major state firms being divested. One school of thought
anticipated that privatization would "de-Portugalize"
vital
sectors of the economy. To some degree, Prime Minister
Cavaco
Silva shared this anxiety: "At the same time, we shall
have to
foster economic groups in Portugal. These were destroyed
at the
time of the revolution with nationalization. We need them,
as
otherwise foreigners will come in and take over our
enterprises
and economic strategy will be determined from abroad. Thus
we are
supporting the new entrepreneurs in industry and
agriculture."
Despite the formation of new Portuguese groups able to
compete against foreign-based multinational companies, it
was
doubtful that these national firms were sufficient in
number,
risk capital, and managerial-technical know-how to absorb
most of
the large enterprises scheduled for divestiture.
Although the government had succeeded in limiting
foreign
participation in a number of key enterprises, including
the
withholding of a temporary "golden share" for the state,
such
limits on foreign direct investment were to become illegal
in
1995, when Portugal's capital movement regulations would
come
fully into compliance with those of the rest of the EC
members.
Consequently, the prospect of losing national control
over
large branches of the economy appeared to be the
inevitable price
of securing Portugal's economic future and closing the
income gap
between the Portuguese and their more prosperous
neighbors.
Data as of January 1993
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