Home > News > World
Tuesday January 28, 2014 MYT 10:15:02 PM
Tuesday January 28, 2014 MYT 10:15:55 PM
by andrei khalip AND sergio goncalves
LISBON (Reuters) - From the rattle of weaving looms and footwear stitching machines in northern Portugal to the rumble of trucks shipping high-quality paper across the eastern frontier, the nation's export firms are buzzing with activity despite three years of economic crisis at home.
Relying on innovation, diversification and wages that are lower even than in Greece, small and medium-sized manufacturers have turned to markets stretching from China to Portugal's booming former colony of Angola to survive - and often thrive.
Their home market of 10 million people, bedevilled by high unemployment and falling living standards even for those in work, offers little growth for the foreseeable future even though Portugal is finally emerging from recession.
"It's a one-way trip. If we stop growing exports, we dig our own grave," said footwear designer Luis Onofre. During the depths of Portugal's crisis in 2012, his firm raised its foreign sales by 40 percent to about 11 million euros (9 million pounds).
Exporters in Western Europe's poorest country have been largely starved of bank loans and shut out of bond markets due to the debt crisis, which forced the government to take a 78 billion euro bailout from the European Union and IMF in 2011.
Nevertheless, manufacturers have expanded their output for sale abroad with existing factory capacity that has been underused due to a collapse of demand at home.
Their efforts have helped Portugal to start recovering since last year from its worst downturn since the 1970s, and may be allowing the economy to overcome some long-standing problems such as on its international balance of payments.
In 2013, Portugal had its first current account surplus in two decades as exports rose an estimated 5.9 percent to a record high. The central bank expects exports to increase about 5.5 percent both this year and next, driving projected economic growth of 0.8 percent this year that should accelerate in 2015.
Analysts point to a diversification of exports by industry and destination. Portugal has long produced textiles and cork - its cork oak trees account for about half of global production - but now exporters are expanding in electrical and optical equipment, plastics, paper and fuel.
Likewise they are moving beyond traditional European markets, many of which remain weak after the crisis which hit much of the euro zone, competing better internationally and moving upmarket to boost their revenue.
Portugal is preparing to leave its bailout deal in May and its banks have been building up their reserves to meet EU solvency criteria, meaning they can now gradually step up lending. With financing starting to flow slowly back into the economy, manufacturers should be able to expand their capacity to export too.
TOO GOOD TO BE TRUE?
Pedro Galhardas, a partner at the Roland Berger global strategy consultancy which coaches Portuguese exporters, said companies now realise the domestic market is "too small and they no longer count on the expected economic recovery as something that will allow them to grow".
The value of Portuguese exports jumped last year to 41 percent of gross domestic product from 28 percent at the start of the global crisis in 2008, outpacing such growth in neighbouring Spain and most of the rest of Europe. The government wants to raise that share to 52 percent, the level achieved by Europe's export powerhouse, Germany.
Economy Minister Antonio Pires de Lima says reforms already imposed under Portugal's bailout deal, along with cuts in the corporate tax rate to be made gradually from this year, will help the target to be reached. He also cited action on "context costs" - licensing and other red tape expenses that are still hindering business in Portugal.
"Structural reforms of the last few years will bear fruit in the medium and long run, cutting investment barriers and context costs, so by the end of the decade exports could exceed 52 percent of GDP," he said.
Others, however, question how far exports can continue to drive economic growth. German-based economist Ansgar Belke, who has researched Portugal's case, forecast a further export spurt due to improving sentiment at home and in the wider euro zone.
But Belke, who is director of the Institute of Business and Economics at the University of Duisburg-Essen, was unsure whether this would last once firms had used up their spare capacity and their factories were working flat out.
"It will be the moment of truth for Portuguese exports," said Belke, recalling that firms also made breakthroughs in exports during downturns in the 1970s and 1980s, only to fall back to the comfort of the domestic market as soon as the economy recovered.
In this respect, knitwear maker Inarbel is not typical; its plant near the northern city of Porto has worked at full capacity for the past two years and yet the company has still managed to raise the value of its sales by 10 percent. It has achieved this by moving up market, selling higher value products mainly to new destinations such as Mexico.
Inside the modern rectangle of Inarbel's plant that dominates a landscape of old vineyards, computerised looms easily switch between materials from acrylic to cashmere, tailoring to clients' immediate needs and specific contracts.
"You need to be versatile and seek new export deals non-stop to stay alive," said Inarbel chief Jose Armindo.
Inarbel's exports have risen to 90 percent of output from 60-65 percent in the past two years and the firm is ready to expand its capacity - as long as affordable bank financing becomes available again following the debt crisis.
"If the situation with the loans indeed starts getting better as the economy improves, this will seriously increase our chances of expanding production capacity for exports," Armindo told Reuters.
Shoe designer Luis Onofre has already reached that stage. He said banks were already offering loans to top footwear exporters, reflected in an almost 50 percent jump in the sector's sales outside the EU last year.
Onofre expects further growth in his company's sales this year after a small drop in 2013 and plans to invest in distribution abroad, including shops under his brand name, with the help of foreign investors.
The company exports practically all its output to France, China, Russia, and to Africa. These markets include Angola, which is riding an oil boom, and fellow former Portuguese colony Mozambique, plus South Africa, Ghana and Nigeria.
The wealthy and new middle classes of these countries have sucked in goods, including from Portugal, during an emerging market boom in the past few years.
But Argentina and Turkey are now suffering currency crises in a selloff that risks spreading to similar economies, raising new uncertainties for exporters to emerging markets.
Still, changes to the structure of the Portuguese economy under the bailout deal are also helping exports, although workers are paying a high price in the short term at least.
Painful reforms demanded by the EU and IMF have improved competitiveness mainly by cutting labour costs. Employers can now hire fire and hire more easily, and pay less for overtime hours. Portuguese also have to work more days per year.
Pay is low and falling. The average annual wage dropped in 2012 to 16,047 euros (now $21,700) from 16,760 in 2010, according to the OECD, and is expected to have continued sliding last year.
That level is lower even than in Greece, which has endured a far more serious economic depression, and leaves Portugal firmly as the poorest of the countries that formed the EU before ex-communist countries began joining in 2004.
By contrast, the average wage rose in Spain to 26,911 euros and kept climbing in 2013 even though it had to accept EU help in rescuing its banks, and came close to a full bailout.
Helped by such low costs, Portugal has outpaced Spain, France, Ireland, Italy and even Germany in expanding overseas market share since 2010. This "supports the conclusion that Portugal is gaining competitiveness," the European Commission said in a recent paper on Portugal.
The Bank of Portugal expects only "very reduced" rise in labour costs "consistent with projected productivity growth" at least until 2015.
With unemployment at 15.6 percent in the third quarter last year, employers still have a ready supply of workers for when they expand. This will help to keep their costs down even as the economy recovers, although staff can look forward to little improvement in their low pay.
Hundreds of thousands of Portuguese lost their jobs when the economy shrank by about 6 percent from its peak in 2010 to last year's trough. Those who remain unemployed are impatient.
"I hear the recent news that exports are up, that the economy is improving, but then I ask myself - how long will it really take for that good news to trickle down to me? There are no jobs, period," said Joao Bentes, 28, an unemployed architect who has been doing deliveries by bicycle to make ends meet.
Although frustrated and seeing many of his highly-skilled engineer and architect friends leave to look for jobs abroad - the only "export" that makes Portugal poorer - Bentes still says he wants to live and have a career at home.
THE NEED TO BE DIFFERENT
The global reach of Portugal's exporters makes them stand out against similar-sized Spanish rivals which mainly stick to Europe and the Spanish-speaking markets of Latin America.
But while Spain has global big-hitters such as Inditex, which owns the Zara fashion chain, Portugal relies much more on its small and medium-sized firms, notably in manufacturing.
"Portuguese firms are much more flexible and adapt better to the realities of the foreign markets as they address particular market needs, integrate locals into management teams and partner with local companies," said Roland Berger's Galhardas.
Paulo Pereira da Silva, CEO of Renova paper company that exports to 60 countries, says even larger Portuguese firms are usually dwarfed by foreign rivals, meaning they have to innovate radically to get noticed.
His answer is to move Renova's toilet paper range beyond the traditional white and pastel colours. Now rolls are available in red and even black. "If I do what multinationals do, I'll be dead - I need to be different," he said.
(Editing by Axel Bugge and David Stamp)
Bahrain says national dialogue parties find common ground
Russia critical of MH17 inquiry, wants bigger U.N. role
Back on centre-stage with a flourish, France's Sarkozy still divides
Third term beckons for New Zealand government as polls open
U.S. won't stand in way of Venezuela's U.N. Security Council bid
Kurdish leader urges world to protect Syrian town from Islamic State
Some consumers say Apple is losing its "cool" factor
The magic of Harry Potter lives on in Osaka
Operator to add 120 new buses to better serve the public
Copyright © 1995-2014 Star Publications (M) Bhd (Co No 10894-D)