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

Portugal is the country where the

luxury fashion store listed on the New York Stock Exchange emerged and which became the first

Portuguese

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

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 population 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 well-

it 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

, they lead the fascinating and uncertain lives of ancient navigators. Among the latest additions to the Portuguese list are Feedzai and Remote, whose stories are told in the book

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

commerce more secure based on artificial intelligence. Remote is a remote work human resources management platform that was created in 2019. Difficult to find a company with a

more opportune to go on the market, fifteen minutes before 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 population).

"The country was poorer, but there was no doubt that it had richer ones," writes Pimentel.

TAP planes at Lisbon airport in January 2021. Pedro Fiuza (NurPhoto via Getty Images)

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

. "The government was timid," she writes. The economist cites the study by the International Monetary Fund which, without counting the health reinforcement 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 crises, 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 arrivals 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 caused 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 continuity of the 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 inevitable in a country that relies heavily on tourism and that had no budgetary space to respond aggressively to the crisis due to the huge 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 been dragging their feet since the previous crisis, when part of the Portuguese financial system went bankrupt. Banking, however, has ceased to worry. "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,that in 2017 it took over Novo Banco, created to manage the good assets of Banco Espiritu Santo, in an opaque operation that has been censored in a parliamentary investigation commission.

More significant is the Chinese investment, which was deployed in Portugal when the country was being paid off in times of the

. 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.

If 2021 was not as good as expected but not as bad as it seems, by 2022 the Portuguese economy is expected to make a leap with the consolidation of the economic recovery and the arrival of funds from the Recovery and Resilience Plan, which will contribute 16,600 million euros to the country until 2026. "They will not be enough by themselves but they can accelerate positive trends," considers Minister Pedro Siza Vieira, who highlights the growth of exports and the attraction of investments in technology and

.

technology fever

The fever of technological entrepreneurship intensified in the country with the acquisition of the Web Summit, moved from Dublin to Lisbon in 2016 thanks to 3.9 million euros of public money, which increased to 11 million per year from 2018. contributions began with a conservative government and continued with another socialist. A sign that everyone agrees that the country needs another model other than the low-cost model that 20 years ago produced unsophisticated goods with poorly trained workers. Too much rivalry in this segment in Asia and Eastern Europe. “On the one hand, we have international competition, with lower costs than ours, and on the other, we now have a much more educated population than before thanks to the investment we have made in the last 40 years in the educational system.We have to create the conditions so that our companies can retain this most qualified talent that we have. We need to change our economic model in exports, innovation, knowledge... that needs better wages. It is not paying more to do the same thing, it is paying more to have other people who allow us to do something different, ”says the Minister of Economy and Digital Transition.

The Portuguese have made the educational revolution, but wages have not accompanied it.

A problem recognized even by businessmen.

"The Portuguese economy has to grow much more, not only to reduce the level of indebtedness of the country, aggravated by the pandemic, but also to provide higher levels of remuneration, attracting and retaining talent in an adverse demographic scenario", states the President of the Portuguese Business Association, Luís Miguel Ribeiro.

"The average salary is getting closer to the minimum wage, it is something completely unacceptable," criticizes Isabel Camarinha, the general secretary of the General Confederation of Portuguese Workers (CGTP), the largest Portuguese union, at the organization's headquarters.

minimum salary

The minimum wage is 741 euros per month (Eurostat). “It is a salary to be poor, it does not guarantee the dignity of the worker. In Portugal, more than half of the workers earn less than a thousand euros a month. Young people go abroad again because they cannot start their lives here with a brutal housing cost”, says Camarinha, the first woman to head the union.

Living in the center of its main cities is beyond the reach of any Portuguese with an average payroll. The voracity of tourist flats before the virus and the luxury promotions, which are acquired mainly by foreigners, have triggered the prices of the real estate sector, overheated by the policy of tax advantages and gold visas (“

”), approved in 2012, which allow access to residence with the purchase of homes, among other options.

Some 7,655 non-EU foreigners had achieved it until 2019, according to Transparency International, which fears that this will open the door to financial crime in Europe. More than half were Chinese citizens, followed by Brazilians, Turks, South Africans and Russians. Since January 1, the Government has limited the granting of gold visas to real estate purchases in the interior of the country and the regions of Azores and Madeira, areas with the greatest demographic decline.

Apart from these controversial residences, the economist João Farias, who between 2014 and 2021 was responsible for the political area of ​​the Representation of the European Commission in Portugal, considers that the growth of the country depends on two factors: the attraction of foreign industrial investment and opening to new businesses.

“The problem”, he reflects in Lisbon, “is whether we will be able to find differentiated activities between emerging and Eastern Europe and whether they will have macroeconomic weight”.

If there will be more

and less cheap textiles.

TAP: round trip nationalization

A few days after last Christmas, the TAP airline received as a gift the decision of the European Commission to approve the restructuring plan presented by the Portuguese Government in December 2020. In exchange for some compensation in salary cuts, renunciations of subsidiary activities and transfers of

at Lisbon airport, Brussels gave the green light to a public injection of 3,200 million euros from the Executive, which assumed 100% control of the company. For a time it will be the Portuguese flag carrier again. 

This nationalization will be transitory, since the intention of the current socialist government is to sell half of the airline. It will be a new shareholder phase in the life of TAP, where all the comfort it experienced in the 20th century as a public company became unstable as of 2005, when the acting government of the conservative Pedro Passos Coelho decided to privatize it and leave it in the hands of of the Atlantic Getaway consortium, led by the Brazilian businessman David Neeleman and the Portuguese Humberto Pedrosa. The coming to power of the Socialist Party shortly after frustrated the total privatization and left 50% in the hands of the State (another 45% for the consortium and the remaining 5% for the staff). With the emergence of the covid and the collapse of the airlines, the Government decided to increase its participation in the TAP up to 72,5% in July 2020 to avoid your insolvency. After the approval of the restructuring plan, the public presence will be total by absorbing the shares that Pedrosa and the employees still had. 

The rescue of the TAP is one of the decisions in economic policy that generates more discrepancy between the Socialist Prime Minister, António Costa, and the leader of the Social Democratic Party (PSD, center-right) who aspires to succeed him, Rui Rio, as noted in the televised debate that both held on Thursday.

Rio wishes to privatize it as soon as possible, while Costa defends a mixed and balanced presence in the shareholding between the State and some private airline.