U.S. Markets

Investment in Portugal's export sector hits record, accelerating

LISBON (Reuters) - Investment in Portugal’s export-oriented sectors doubled last year to hit a record high, underlining the country’s fast shift up the economic value chain, the head of the state agency for promotion of exports and investment said.

The record money flowing into Portugal’s export-oriented industrial, services and technology sectors represents a big shift for the economy by diversifying its growth drivers after a 2011-14 debt crisis and lagging behind Europe for years.

Portugal’s economy grew 2.7 percent last year, its fastest rate in 17 years.

Luis Castro Henriques, who heads the AICEP agency, said investment reached 1.9 billion euros in 2017 and will grow further this year, with a pipeline of projects worth another 2.4 billion euros under negotiation. The numbers include the fast-growing technology sector, which saw 325 million euros of new cash inflows, up from just 42 million euros in 2016.

About 55 percent of the money came from foreign investors, and AICEP expects that share to grow to 70 percent in new projects. Core European Union nations account for just over half of investment plans under negotiation, followed by the United States with 37 percent.

“Between 2007 and 2014 we raised the same amount of investment that we have been able to raise between 2015 and 2018, so this means the agency was able to double the rate of investment, which is, all in all, extremely good news,” he said.

The investments overseen by Castro are considered by the government as strategic in boosting exports and creating jobs. Overall foreign direct investment in Portugal, which also includes financial flows and real estate, reached 6.164 billion euros last year, an increase of 459 million euros.

AICEP provides incentives, including tax breaks and loans from EU cohesion funds to investors only in export-oriented businesses. Exports of goods jumped 10 percent last year after a rise of just 1 percent in 2016, while exports of services, including booming tourism, rose over 13 percent.

AICEP says its investment projects accounted for almost half of Portugal’s total export growth over the past decade.

The share of exports in gross domestic product last year reached 42 percent, up from less than 30 percent in 2009, and AICEP hopes to increase that to 50 percent in coming years.

Projects already supported under AICEP’s five-year incentives plan through 2020, without taking into account those still being negotiated, should add more than 7.5 billion euros worth of exports and thousands of jobs.

“What we see is that investors are considering Portugal for the location of some hi-tech, technology-intensive industries,” such as automaking, machinery, as well as the rapidly developing aeronautical sector.

New projects in 2017 included investment by the German engineering giant Bosch, tyre-maker Continental and U.S.-headquartered Portuguese software developer OutSystems.

Castro Henriques said that unlike 10 years ago, investors no longer bet on Portugal because of low costs, but put their cash in high-added value manufacturing and services, from automobiles to shoes and textiles produced for luxury brands.

Portugal’s growth and fiscal improvements have caused two of the three major credit ratings agencies to lift it back to investment grade from “junk” last year, which AICEP said was a big help in attracting investment.

Writing by Andrei Khalip, editing by Axel Bugge