4. The institutional and governance framework for FDI diffusion on Portuguese SMEs
This chapter focuses on several core issues that underpin the institutional and governance framework for foreign direct investment (FDI) promotion and small and medium-sized enterprises (SMEs) development in Portugal. It provides an overview of the institutions that are currently in place to design and implement FDI, SME, innovation and regional development policies, and explores the multi-level policy coordination mechanisms to ensure coherence across policy domains, institutions and tiers of government. This chapter gives also special attention to the monitoring and evaluation framework of the policy system in Portugal, and efforts to enhance stakeholder engagement.
Strengthening FDI spillovers on Portuguese SMEs requires public action to be taken in different policy domains related to investment promotion and facilitation, SME internationalisation, innovation and regional development. The institutional framework that governs these policy areas differs from country to country. Different governance structures are feasible as long as appropriate coordination mechanisms are in place to ensure policy alignment across Ministries, implementing agencies and advisory bodies. Effective multi-level governance also plays a crucial role in ensuring consistency between policy interventions taking place at national and local levels. This chapter aims to identify the institutional arrangements and possible governance challenges in Portugal’s policy mix for FDI diffusion on domestic SMEs (Table 4.1). It provides an overview of the main Portuguese institutions that operate at the intersection of FDI, SME, innovation and regional development policy and explores their organisational structures as well as the scope and diversity of their mandates. It also sheds light on their internal capabilities for inter-institutional coordination, policy evaluation and stakeholder engagement, which are all important elements of a conducive institutional environment.
The formulation and implementation of FDI-SME diffusion policies is fragmented along several line ministries and implementing agencies
The governance framework for investment, SME, innovation and regional development policy in Portugal is represented by many public institutions. FDI-SME diffusion policies are designed and implemented through several ministries, task forces, advisory bodies and autonomous government agencies that operate at the intersection of investment promotion, SME development, innovation and regional development policy (Figure 4.1). At the highest level, the Portuguese government (Council of Ministers) has collective responsibility for investment, business and economic policy and for setting strategic directions. It is also responsible for implementing EU Structural and Investment Funds in Portugal within guidelines set by and agreed at EU level.
The primary responsibility for SME and business innovation policy lies with the Ministry of Economy and Digital Transition (Ministério da Economia e Transição Digital), which is also in charge of formulating and executing economic growth policies with the aim to foster the competitiveness of the Portuguese economy, promote business innovation, and facilitate the digital transition (Government of Portugal, 2014[1]). The Ministry of Science, Technology and Higher Education (Ministério de Ciência, Tecnologia e Ensino Superior, MCTES) is responsible for promoting science, technology and education. As in many countries, support to knowledge and technology transfer to the business sector, including collaborative applied research, is shared between these two ministries (OECD, 2019[2]). The Ministry of Foreign Affairs (Ministério dos Negócios Estrangeiros, MNE) coordinates national investment promotion and trade policies in collaboration with other ministries with competences in these policy areas. It is responsible for Portugal’s economic diplomacy, supporting the internationalisation of the Portuguese economy and promoting the interests of Portuguese companies abroad on matters related to trade and investment (Government of Portugal, 2011[3]).
Important prerogatives are also in the hands of the Ministry of Planning, which is responsible for the management of the EU Structural and Investment Funds, and the Ministry of Territorial Cohesion, which formulates and implements regional development policies (OECD, 2019[2]). Through its decentralised ministry branches, the Regional Coordination and Development Commissions (CCDRs), the Ministry of Territorial Cohesion plays a significant role in territorial approaches, and is responsible for the formulation and implementation of regional smart specialisation strategies together with the Ministry of Planning, the Ministry of Economy and Digital Transition, the Ministry of Science, Technology and Higher Education.
The implementation of policy initiatives that enable FDI spillovers on Portuguese SMEs is entrusted to four main implementing agencies, which all report to different line Ministries (Table 4.2). Portugal Global - Trade and Investment Agency (Agência para o Investimento e Comércio Externo de Portugal, AICEP) was created in 2007 as an autonomous agency under the Ministry of Foreign Affairs to promote FDI towards Portugal and support the internationalisation of Portuguese companies in coordination with the Ministry of Economy and Digital Transition. AICEP is the one-stop-shop for facilitation and aftercare services to foreign investors and operates an industrial parks management entity, AICEP Global Parques, which manages the Portugal Site Selection platform – a search engine that allows users to find the best locations in Portugal that match their business requirements. A clear distinction is made between the types of companies and investment projects that can be supported by AICEP and the other Portuguese government agencies. AICEP’s clients are solely large companies with an annual turnover of EUR 75 million or companies that implement investment projects of over EUR 25 million. As part of its mandate, AICEP is responsible for the screening, administration and management of investment support and incentive schemes for its clients and also supports Portuguese companies regardless of their size and legal form in promoting their brands, products and commercial activities in foreign markets.
The SME Competitiveness and Innovation Agency (Agência para a Competitividade e Inovação, IAPMEI) was established in 1975 as an autonomous agency that supports domestic SMEs and reports to the Ministry of Economy and Digital Transition. The agency targets all sectors except for tourism, which is under the sole responsibility of the National Tourism Authority, Turismo de Portugal. In contrast to AICEP, IAPMEI is responsible for supporting Portuguese companies with an annual turnover of less than EUR 75 million and investment projects whose value is less than EUR 25 million. It aims to foster innovation and boost the competitiveness of Portuguese SMEs through financial support schemes, business consulting services and training programmes. IAPMEI places particular emphasis on supporting R&D investment, innovation and technology upgrading as well as the promotion of linkages between companies and entities of the Portuguese scientific, research and innovation ecosystem.
The National Innovation Agency (Agência Nacional de Inovação, ANI), which was created in 1993 and re-established in 2014, aims to foster technology transfer and knowledge promotion through joint projects between businesses and scientific and research institutions. The agency reports to the Ministry of Economy and Digital Transition and the Ministry of Science, Technology and Higher Education, through a “hybrid” governance structure that is meant to bring together scientific innovation and business development and foster collaboration between the corporate and applied research sectors.1 The agency coordinates several research infrastructure networks (e.g. Interface Centres, Collaborative Laboratories) and provides funding for collaborative R&D. It is also responsible for administering the tax incentive scheme “System of Fiscal Incentive for Business Research and Innovation” (Sistema de Incentivos Fiscais à I&D Empresarial, SIFIDE), which has been the main instrument used by government to support business R&D since its establishment in 1997.
Finally, the Agency for Development and Cohesion (Agência para o Desenvolvimento e Coesão, AD&C) was established in 2013 to ensure the programming, implementation and evaluation of regional development policies, and the overall coordination of EU funds, including the flagship Portugal 2020 national strategy. AD&C operates as a Department within the Ministry of Planning. In addition, the EU’s cohesion policy is administered through seven regional and four thematic operational programmes, which have their own national managing authorities (e.g. COMPETE 2020), consisting of a steering committee and a technical secretariat (OECD, 2020[4]).
When compared to other EU countries, it becomes clear that Portugal’s FDI-SME diffusion governance system is segmented along lines reflecting different policy domains. Governance systems within the EU vary, ranging from deeply centralised frameworks where FDI-SME diffusion policies are the responsibility of a single line Ministry; to balanced institutional set-ups where policy formulation in the areas of FDI, SMEs, innovation and regional development is shared among a small number of institutions; and to segmented governance systems where several line ministries and implementing agencies are involved in policy formulation and implementation.
For instance, Slovenia’s Ministry of Economic Development and Technology is responsible for all FDI-SME diffusion policy areas (Figure 4.2). Policy implementation is entrusted to one single implementing agency, SPIRIT Slovenia, which is responsible for FDI, SMEs, innovation and tourism promotion, while regional development policy is coordinated through the Ministry’s Regional Development Directorate. In Ireland, recent institutional reforms have led to a rather balanced governance framework. FDI-SME diffusion policy areas are split across three Ministries, with the Department of Enterprise, Trade and Employment bearing responsibility for FDI and SME policy, while innovation policy sits with the newly established Department of Further and Higher Education, Research, Innovation and Science.
Institutional settings like Portugal’s are not necessarily less effective in the implementation of FDI-SME diffusion policies as long as inter-institutional coordination mechanisms are in place to overcome policy silos. Given the high transaction costs associated with the segmentation of governance systems, the cost effectiveness of Portugal’s institutional setting should be ultimately weighed against the quality of coordination and the potential benefits of a more centralised approach. For instance, an assessment of policy coordination mechanisms is conducted in the next section, pointing towards weaknesses in inter-ministerial collaboration across the areas of investment promotion, innovation, entrepreneurship and regional development.
Source: OECD elaboration based on EU/OECD Survey on Policies enabling FDI spillovers to domestic SMEs (2021).
The regional footprint of national implementing agencies varies with the Norte and Centro regions receiving increased policy attention
Proximity could be a strong enabling factor of efficient policy delivery. Recent findings from EU countries show that FDI responds better to the activity of Investment Promotion Agencies (IPAs) operating in closer proximity to investors’ operations (Crescenzi, Di Cataldo and Giua, 2019[5]). Similarly, the availability of appropriate business development services is a local issue because SMEs and entrepreneurs generally access the services within a narrow local area (e.g. approximately 50 kilometres) and are therefore dependent on the quality of local supply (OECD, 2019[6]). In addition, a local presence is often necessary to ensure programmes and policies are aligned with each region’s economic and market characteristics.
There are, however, wide cross-country disparities in the way national agencies operate at the subnational level. In some countries where inter-institutional coordination is limited, local presence in the form of secondary offices may be crucial to ensure that businesses in all regions can benefit from tailored support. In other cases, national agencies coordinate activities with regional actors such as local governments and regional development agencies, who possess knowledge of the local context. For instance, Belgium, Denmark, Latvia, and Poland largely deliver business development services through subnational governments and actors (OECD, 2019[6]). Likewise, in France, the national IPA collaborates with local autonomous agencies that provide aftercare services to foreign firms while they set up their operations in specific regions (OECD, 2018[7]).
Given their economic and political importance, the Lisbon and Porto metropolitan areas host the primary offices of the main implementing agencies. AICEP, IAPMEI and ANI have their headquarters in Porto while they also maintain offices in Lisbon, the country’s administrative capital. In contrast, AD&C has a single office in Lisbon only, reflecting its legal status as a department within the Ministry of Planning.
Beyond the two metropolitan areas, the regions of Centro and Norte host the largest number of subnational offices, reflecting the increased policy attention that they receive due to their status as two of Portugal’s least developed regions (Figure 4.3). In fact, the two regions accounted for around 80% of the total direct financial support for business investment that was allocated to domestic firms under the Portugal 2020 Incentive Schemes (IS), which are financed by the European Regional Development Fund (EDRF) and the European Social Fund (ESF) (AD&C, 2019[8]). The regional footprint of national agencies is very limited in the regions of Algarve and Alentejo, and completely absent in the two autonomous regions of Madeira and Azores due to their special political and administrative status.
Source: EU/OECD Survey on Policies enabling FDI spillovers to domestic SMEs (2021), Financial Times fDi Markets database and Refinitiv, Pordata database, and OECD Regional Statistics.
The increased policy attention that the Norte and Centro regions receive compared to Algarve and Alentejo is also explained by their business demographic characteristics. The large majority of SMEs is located in Centro, Norte and the Lisbon area, while a similar picture emerges when looking at the geographic distribution of FDI flows, with Centro and Norte attracting a fair share of foreign firms compared to the rest of Portugal, excluding the Lisbon area (see Chapter 2). The increased presence of both domestic and foreign firms in these regions means that the demand for business support services is high and therefore requires government agencies to allocate significant human and financial resources for the implementation of their policies and the dissemination of their activities to wider target audiences.
Portuguese institutions follow various approaches with regard to implementing their policies and programmes at the local level. IAPMEI has the largest network of local offices and a decentralised governance structure, which aims to ensure, on the one hand, that SMEs will have access to tailored technical support in the region they operate; and on the other hand that valuable information about market conditions and the actual needs of local businesses will reach the agency’s headquarters. A dedicated Regional Proximity Directorate ensures IAPMEI’s regional presence and coordination with local governments, while subnational offices in twelve cities across all regions of Portugal (Lisbon, Porto, Faro, Evora, Leiria, Coimbra, Aveiro, Covilha, Viseu, Guarda, Braga, and Braganca) provide information and business consulting services to local SMEs.
AICEP’s governance structure favours the establishment of overseas investment promotion offices (currently in 52 countries), rather than subnational offices. AICEP has a limited regional footprint with a small number of representatives based in six cities (Aveiro, Braga, Faro, Coimbra, Leiria, and Viseu) across continental Portugal. The agency has also partnered with the Azores Business Development Society, to ensure local presence in the Azores autonomous region (Ponta Delgada, Angra do Heroismo). This is in line with recent OECD findings that show that only 38% of OECD IPAs have subnational offices while 75% of them have their own offices abroad with dedicated personnel working on investment promotion (OECD, 2018[7]). AICEP’s subnational representatives are administratively located in the same offices with other public agencies, including IAPMEI, and provide mostly services aimed at the internationalisation of local firms, including their integration in the supplier networks of foreign investors. FDI facilitation and aftercare services are generally coordinated at central level by staff based in AICEP’s offices in Lisbon and Porto, and provided in collaboration with the agency’s subnational representatives, municipalities and local IPAs (e.g. Invest Porto, Invest Lisbon, Invest Braga).
Historical estimates (Riccardo Crescenzi, 2019[9]) modelled for Europe suggest that in the right combinations, regional IPAs could increase investment and jobs by up to 25%. For FDI spillovers to occur, IPAs have to strike the right balance between headquarter vs. local presence. This means that they often have to supplement the mandate of subnational institutions by engaging themselves in investment facilitation locally, providing aftercare services, and helping foreign firms navigate local administrative procedures. AICEP’s presence at the subnational level helps improve the interconnection between national, regional and local delivery of investment facilitation services. Moving forward, further policy consideration should be given to balancing national and local priorities and strengthening collaboration with subnational governments, which have been given enhanced responsibilities in the area of investment attraction following recent territorial government reforms (see next section). Although such collaboration already exists in large cities and regions where FDI is concentrated, more efficiencies could likely be found through enhanced cooperation with economically weaker regions that may face challenges in mobilising public and private actors in support of local FDI-SME ecosystems. Such an approach would also support ongoing efforts by the Portuguese government to tailor national programmes to the particular needs of local areas, including less developed regions (see chapter 5). Chapter 6 provides further insights into the regional aspects of FDI-SME diffusion policymaking, focusing on the regions of Norte and Alentejo.
Portugal’s multilevel governance system appears centralised compared to other EU and OECD countries
While regulations are set at a national level, policies that strengthen FDI diffusion on domestic SMEs can be introduced by various levels of government; many of these policies are designed and executed at the subnational level. Effective multilevel governance reduces the burden on foreign and domestic firms to understand and coordinate across different layers of administration (OECD, 2019[10]).
Portugal is one of the least decentralised countries among EU and OECD countries (OECD, 2020[4]). Portuguese municipalities, parishes (freguesias) and inter-municipal councils that currently form the subnational government in the country have much less spending and revenue powers than most of their peers in other EU countries. Another characteristic of Portugal is the absence of a regional government level, which is instead a frequent feature of EU countries of similar population size (OECD, 2020[4]). Although the 1976 Constitution introduced a legal framework to establish administrative regions with elected councils and own budget, regional level problems have been tackled mainly through five regional planning and coordination entities, the Commissions for Coordination and Regional Development (CCDRs). The CCDRs are responsible for the territorial coordination of central government services in each region, and their presidents have been appointed directly by the government until recently. In addition, Portugal has established 21 Inter-municipal Communities and 2 Metropolitan Areas (CIMs and MAs in Portuguese, which correspond to the NUTS 3 level2) that aim to reinforce inter-municipal cooperation and fulfil tasks beyond the borders of single municipalities. Portugal also has two autonomous regions that include the Azores and Madeira islands. In these two regions, regional governments have general administrative, political and legislative powers, except for the functions of sovereignty and national representation, including responsibilities for regional development. The regional governments participate in national strategic exercises (e.g. the National Tourism Strategy and the National Strategy for the Sea), but also develop their own regional strategies determined by regional political priorities.
Most regional policy approaches undertaken by subnational governments are related to the use of cohesion policy funding from the EU Structural and Investment Funds (OECD, 2019[11]). The scope for fiscal action is also uneven across regions. Municipalities differ considerably in their capacity to generate own revenues (OECD, 2020[4]). Lisbon and Porto have the highest levels of own revenues per inhabitant, followed by municipalities in the coastal area. Inland municipalities are instead very dependent on intergovernmental transfers. Inter-municipal cooperation remains limited, as only a fraction of local spending has been assigned to the CIMs and metropolitan areas so far. The role of CIMs in the design and implementation of FDI-SME diffusion policies varies but overall has remained limited due to the lack of inter-municipal cooperation over matters related to investment attraction and their reliance on the priorities of the municipalities that make up their membership. In most cases, CIMs contribute to ad hoc collaborative programmes that are implemented by multiple regional and local actors.
Since 2019, a new decentralisation programme is being gradually implemented (OECD, 2019[12]). Within the scope of the territorial governance reforms, the Portuguese government passed a new framework act for the transfer of public competences to the municipalities and CIMs. It involves an extensive delegation of competences to the municipalities and parishes in several policy areas, such as education, welfare, health, transport, civil protection, cultural heritage and housing. It also aims to increase the share of resources spent at local level and includes the possibility of municipal delegation to the CIMs, which can now be also responsible for investment attraction. The transfer of new powers to the CIMs is still ongoing, and not all of them have incorporated these additional mandates into their work programmes. The transfer of mandates to the CIMs should be further encouraged, in particular in the areas of investment attraction and SME development. Getting the CIMs more involved in the formulation and implementation of inter-municipal investment promotion and SME development initiatives could help complement policy efforts undertaken at the local level by AICEP and IAPMEI and contribute to further tailoring national programmes and policies to local needs.
Moreover, strengthening the capacities and operational autonomy of regional administrations has been a key priority for the Portuguese government (OECD, 2020[4]). In 2020, the presidents and vice-presidents of the CCDRs were elected for the first time by an electoral college made up of mayors, municipal councillors, and presidents of municipal assemblies. Given the crucial role of regional administrations in the management of EU funds and the implementation of smart specialisation strategies, these reforms go in the right direction and could help CCDRs improve their legitimacy, clarify their mission and responsibilities, create a culture of collaboration with other local government actors, and devise comprehensive regional development strategies that take into account FDI and SME policy issues.
Actions to improve the impact of FDI on the productivity and innovation of domestic SMEs need to be aligned with the objectives and priorities set by government across different sectors and policy areas. This often entails cooperating with a number of government institutions dealing with FDI attraction, promotion and facilitation as well as SME innovation and internationalisation, and maintaining very strong ties with institutions operating at national and subnational levels.
Although coordination is a fundamental and longstanding problem for public administrations, there is still no standardised method for approaching coordination issues, and much of the success or failure of attempts to coordinate appear to depend upon context. Instruments of coordination can be formal or informal; based on regulation, incentives, norms and information sharing; top-down relying on the authority of a lead actor, or bottom-up and emergent. (Box 4.1). Overall, coordination approaches and instruments may vary depending on the context, country and policy area.
High-level advisory councils lack a clear mandate and resources to facilitate inter-ministerial collaboration and policy coordination
Mechanisms that ensure horizontal policy coordination between Ministry departments dealing with SME and innovation policies and those responsible for investment promotion and broader economic and regional development policies are not sufficiently developed in Portugal. The divide between these policy domains becomes clear from the co-existence of distinct high-level councils for different policy areas. These councils bring together the Centre of Government (i.e. Prime Minister’s office), line Ministries, implementing agencies as well as representatives from the private sector and the Portuguese innovation ecosystem to identify priority areas where cross-ministerial planning and decision-making is required.
The National Council on Entrepreneurship and Innovation (Conselho Nacional de Empreendedorismo e Inovação, CNEI) is chaired by the Prime Minister and composed of representatives from government, academia and the private sector. Its mission is to ensure inter-ministerial coordination and define priority areas and sectors for the implementation of Portugal’s innovation and entrepreneurship policy (Government of Portugal, 2012[13]). Together with the National Council for Science and Technology (Conselho Nacional de Ciência e Tecnologia, CNCT), which focuses on science and applied research policy issues, the CNEI is part of the governance structure of the Portuguese Smart Specialisation Strategy (S3) (Government of Portugal, 2014[14]).
The Strategic Council for the Internationalisation of the Economy (Conselho Estratégico de Internacionalização da Economia, CEIE) is chaired by the Prime Minister and composed of the ministers responsible for finance, foreign affairs and the economy, as well as representatives of Portuguese business associations (Government of Portugal, 2011[15]). Its mission is to provide advice to government on foreign investment and international trade issues and contribute to the development of national strategies on the internationalisation of the Portuguese economy in collaboration with AICEP and the Ministry of Foreign Affairs.
The Inter-ministerial Coordination Commission for Portugal 2020 (Comissão Interministerial de Coordenação, CIC), consists of several government members and is headed by the Minister responsible for regional development. It is in charge of political coordination for the Portugal 2020 Partnership Agreement, Portugal’s strategic framework for the implementation of the 2014-2020 EU Structural and Investment Funds (Government of Portugal, 2014[16]).
Coordination occurs when decisions made in one programme or organisation consider those made in others and attempt to avoid conflict (negative coordination) or seek to cooperate on solutions that can benefit all the organisations and their clients (positive coordination) (Scharpf, 1994[17]). Strategic coordination involve the coordination of programmes around broad strategic goals of government, such as the Sustainable Development Goals (SDGs) (Peters, 2018[18]). Co-ordination relies upon a mix of interactions, with both vertical and horizontal aspects, the former ones referring to co-ordination between a ministry and its delivery agencies, and the latter covering for instance inter-ministry relations (OECD, 2012[19]). Co-ordination can be fostered at different points in the policy cycle, from policy design to implementation to evaluation.
(Metcalfe, 1994[20]) proposes a policy coordination scale as a method for comparing coordination capacities in governments. The components of policy coordination capacity are cumulative in the sense that higher-level coordination functions depend on the existence and reliability of the lower ones. From almost total independence of programmes (1) to very close policy integration (9): (1) Independent Decision-Making by Ministers; (2) Communication with other Ministers (Information Exchange); (3) Consultation with other Ministers (Feedback); (4) Avoiding Divergences Among Ministers; (5) Search for Agreement Among Ministers; (6) Arbitration of Policy Differences; (7) Setting Limits on Ministerial Action; (8) Establishing Central Priorities; and (9) Government Strategy.
Instruments of co-ordination can be based on regulation, incentives, norms and information sharing. They can be top-down and rely upon the authority of a lead actor or bottom-up and emergent (Peters, 2018[18]). They include (OECD, 2012[19]):
National strategies and action plans typically involve wide consultation and deliberation, provide diagnostic overviews of what the strengths-weaknesses-opportunities-threats of an SME/innovation/local ecosystem could be, and set a shared vision of the goals pursued.
Closely related, policy evaluations and reviews are a source of strategic intelligence, and a means for promoting greater co-ordination.
Dedicated agencies or ministries assume the leadership of the national policy agenda in some policy domains (e.g. FDI/SME/innovation/regional) and often responsibility of coordination. At the same time, inter-agency joint programming can facilitate co-ordination and other aspects of governance as agencies share agenda and action.
The Centre of government (CoG), e.g. the President's or Prime Minister's Office, can bridge interests and bureaucratic boundaries. High-level policy councils, can also deal with aspects of policy coordination although they often have variable roles and composition across countries.
Finally, informal channels of communication between officials or job circulation (of civil servants, but also experts and stakeholders) can play a role and suggest a relatively well-developed culture of inter-agency trust and communication.
Although coordination is a fundamental and longstanding problem for public administration and policy, there is still no standardised method for approaching related issues, and much of the success or failure of attempts to coordinate appears to depend upon context (Peters, 2018[18]). Coordination approaches and instruments need to be matched to circumstances, so does the need to coordinate across countries and policy areas. Some policy domains may work well with minimal attempts to coordinate with others, but others may require substantial policy integration and coordination. Likewise, some political systems may emphasise coordination and government more strongly than others (Hayward and Wright, 2002[21]).
Although horizontal policy coordination in the areas of innovation and entrepreneurship could theoretically be driven by the CNEI, in practice, over the past few years, the council has rarely held any meetings, and lacks a clear mandate, sufficient financial resources and dedicated staff to support its work. Its activities often depend on ad hoc requests from government and does not have a permanent function that would allow it to establish its legitimacy as an independent advisory and coordination body (OECD, 2019[2]). The CEIE, on the other hand, has been actively involved in the formulation of national strategies on the internationalisation of the Portuguese economy, and is responsible for monitoring the execution of the recently launched 2030 Economic Internationalisation Programme.
Institutional silos are less prominent in the management of the EU Structural and Investment Funds, which require a higher degree of collaboration between ministries, agencies, national and subnational operational bodies for their disbursement and allocation towards policy priorities identified by the government. While political coordination is ensured by the CIC, coordination at the technical level is entrusted to AD&C, which cooperates with the managing authorities of the four thematic and seven regional operational programmes. AD&C ensures coordination by issuing technical guidance notes on the implementation of the EU funds, by participating in working groups dealing with policy design and implementation, and by leading or participating in functional networks in areas such as the Portugal 2020 incentive schemes, regional dynamics, smart specialisation and science, technology and innovation support, where various agencies share their experiences and ensure operational alignment.
Overall, Portugal appears to lack an overarching high-level coordination body with a broad remit to ensure cross-ministerial planning and decision-making across the FDI, SME, innovation and broader economic and regional development policy agendas. While policy silos are common in many countries, the rise of multi-dimensional issues which require whole-of-government responses has led the Centres of Government to take a more active role in aligning multi-department workplans to government actions. In Latvia, for instance, a collegial advisory authority chaired by the Prime Minister was established in 2014 to facilitate planning and evaluation of the country’s long-term development objectives, initiate structural reforms and ensure coherence of national and local government policy (OECD, 2019[22]). This was complemented by a Cross-sectoral Coordination Centre that reports directly to the Prime Minister and aims to foster collaboration and joint actions between ministries. Portugal could consider strengthening the role that the Centre of Government plays in coordinating multi-dimensional issues throughout the policy cycle, including across FDI-SME diffusion policy areas.
The implementation of national strategies and action plans is often driven by EU programming and funding conditionalities
National strategies and action plans can be important instruments for policy coordination as they are cross-cutting in nature and often require whole-of-government responses to ensure their effective implementation. Portugal has adopted a number of strategic documents to articulate priorities in FDI-SME diffusion policy areas (Table 4.3). For instance, the Technological and Business Innovation Strategy sets out national priorities for the consolidation of the Portuguese research and innovation ecosystem, while the Action Plan for the Digital Transition involves several Ministries and agencies in the implementation of targeted measures to improve digital skills and promote the digitalisation of SMEs (Government of Portugal, 2018[23]). A national Economic Internationalisation Programme (Programa Internacionalizar 2030) was also launched in 2020, outlining areas where inter-institutional action is needed to increase FDI flows to Portugal and enable more Portuguese companies to export and invest abroad.
Although Portugal does not have a dedicated SME strategy, workstreams targeting SMEs have been integrated into several national strategies and action plans, making SME policymaking a cross-cutting issue that brings together various Ministries and implementing agencies (OECD, 2021[24]). This is a common practice in EU and OECD countries. SME policy considerations are increasingly mainstreamed in other policy agendas and are often combined with place-based or sector-wide approaches. The national internationalisation strategies of Norway, Spain, Slovenia and the UK include specific measures aimed at encouraging SMEs to consider exporting, while the Czech Republic’s National Research, Development and Innovation Policy Strategy (2016-20) foresees new services to help SMEs become more involved in R&D (OECD, 2019[25]).
The establishment of government task forces to coordinate the implementation of national strategies and ensure inter-institutional collaboration is also common in Portugal. Startup Portugal, a public-private entity in which IAPMEI and ANI participate as partners, was established to coordinate the implementation of the National Strategy for Entrepreneurship. Another example is the Digital Transition Action Plan, whose implementation is coordinated by the Digital Portugal Task Force, while the Capitalise programme, which aims to improve access to finance conditions for Portuguese SMEs, is managed by the Task Force for the Capitalisation of Companies (EMCE).
A key finding from both survey data and in-person meetings with Portuguese officials is that Portugal’s national strategy setting and priorities for several key policy areas have been driven by the conditionality associated with obtaining external funding sources, namely EU funds. The Portugal 2020 Partnership Agreement between the Government of Portugal and the European Commission, which was adopted in 2014, outlines the national policy priorities across key thematic domains, including competitiveness and internationalisation, employment, human capital and sustainability, and how they can contribute to regional, urban and rural development
The implementation of Portugal 2020 relies upon both horizontal coordination between different ministries, agencies and thematic Operational Programmes; as well as vertical coordination between AD&C, the CCDRs and seven regional Operational Programmes, one for each NUTS 2 region. The most important strategic documents guiding the allocation of the EU funds in policy areas related to FDI-SME diffusion are the national and regional Smart Specialisation Strategies, which are a prerequisite for Portugal to access EU funding. The alignment with these strategies is mandatory in the implementation of Portugal 2020 investments in research and innovation and is a priority in other areas, such as the support to SME competitiveness. A comprehensive framework for inter-institutional coordination has been also set out in Portugal’s 2020-2030 Recovery and Resilience Plan, which lays out the country’s national priorities for the use of the Next Generation EU fund, the EU’s landmark financial instrument for recovery from the Covid-19 pandemic. The governance model of the strategy includes the establishment of an inter-ministerial commission and a national monitoring committee while technical coordination is ensured by the Recover Portugal Task Force, AD&C and the Office for Economic Policy and International Affairs (GPEARI) of the Ministry of Finance. The policy priorities and measures set out in the Portugal 2030 Strategy will be mainly supported by the EU funds.
As Portugal enters a new policy cycle, the large number of thematic and cross-cutting national strategies and actions plans means that FDI-SME diffusion policy objectives are addressed across several strategic documents. This increases the risk of policy overlaps and contradictions and could lead to ambiguity about the pursued policy objectives and the responsibilities of various institutions. Their implementation will therefore require increased attention on the issues of policy alignment and coordination as well as the use of robust monitoring tools to identify policy inefficiencies and take corrective action.
Inter-agency policy coordination takes place through both formal and informal channels
At the agency level, inter-institutional coordination is frequent, although the extent of it varies from one agency to another. Horizontal coordination mechanisms are primarily formalised by laws and regulations, which often describe the role and responsibilities of each institution, their internal management processes, and the policy areas where inter-institutional collaboration is required (Figure 4.4). For instance, the 2012 Law, which approved AICEP’s latest by-laws (amended in 2015 and 2020 but still in force) requires that AICEP collaborates with IAPMEI and the national tourism authority, Turismo de Portugal, to support the internationalisation of Portuguese firms and the promotion of their brands abroad. Similarly, the participation of FCT and IAPMEI in the joint board overseeing ANI under a “hybrid” governance structure entrenched in legislation aims to remove policy silos in the areas of innovation and entrepreneurship and allow for some coordination between the Ministry of Science, Technology and Higher Education and the Ministry of Economy and Digital Transition.
Joint programming, whether for entire workstreams or targeted actions, is also used to foster greater collaboration between Portuguese implementing agencies. For instance, coordination on SME and entrepreneurship policy issues takes place across the board between AICEP, IAPMEI and ANI, with AICEP focusing on projects strengthening the internationalisation of Portuguese companies, and IAPMEI and ANI on their innovation and technological capabilities. For joint programming to work a clear distribution of roles and responsibilities, shared monitoring tools and a code of conduct are often needed to ensure the effective implementation of joint actions. Findings from the OECD-IDB survey confirm the large number of formal and informal relationships that public agencies develop with their broader institutional framework. 74% of IPAs’ strategic relationships in the OECD area are relationships with public and semi-public institutions (OECD, 2018[7]).
Note: The following national and subnational institutions are included in this figure: AICEP, IAPMEI, ANI, AD&C, CCDR Norte, CCDR Alentejo, Porto Metropolitan Area, CIM Alentejo Litoral, CIM Central Alentejo, CIM Alto Minho, CIM Cavado, CIM Alto Alentejo.
Source: EU/OECD Survey on Policies enabling FDI spillovers to domestic SMEs (2021).
Inter-institutional committees have been also set up for the implementation of specific policy workstreams that require a whole-of-government approach. Inter-agency coordination on investment matters takes place through the Permanent Commission for Investor Support (Comissão Permanente de Apoio ao Investidor, CPAI), which is managed by AICEP and gathers representatives from different public institutions, including IAPMEI, Turismo de Portugal, the Portuguese Environment Agency, the Tax and Customs Authority, the Ministry of Economy and Digital Transition and the CCDRs. The CPAI is responsible for ensuring a close follow-up of investment projects of potential national interest by monitoring administrative procedures applicable to the issuance of licenses, permits and other approvals, thus ensuring faster responses.
Many FDI-SME diffusion policies (52%) involve an element of collaboration in their formulation and implementation (Figure 4.5). This includes initiatives and programmes that are designed and implemented jointly by multiple agencies or strategies and action plans that require a whole-of-government approach to be executed. Among the institutions that are most cited in the implementation of joint programmes, the main implementing agencies (AICEP, IAPMEI, ANI), the Ministry of Economy and Digital Transition and the Ministry of Foreign Affairs stand out given the crucial role they play in supporting FDI and SME policies. The Operational Programme for Competitiveness and Internationalisation (COMPETE 2020) as well as the Regional Operational Programmes of the EU Structural and Investment Funds are also involved in many policy initiatives that are funded through the Portugal 2020 Partnership Agreement.
Source: EU/OECD Survey on Policies enabling FDI spillovers to domestic SMEs (2021).
At the subnational level, coordination can take various forms and involve both formal and informal channels of communication. AICEP collaborates with regional IPAs such as Invest Lisbon, Invest Porto and Invest Braga, to accompany investors on the ground and provide aftercare services. The value that these collaborations bring to investor support services can however be limited due to the competition arising among subnational IPAs in attracting FDI projects to their regions. Regarding the role of regional and local governments, Portugal’s regional administrative authorities (CCDRs) do not have competences for attracting investment, and therefore any collaboration with them is limited to the provision of SME support services. In contrast, policy coordination between AICEP, inter-municipal councils (CIMs) and municipalities is more frequent, although this is done informally and on a case-by-case basis. Interviews conducted among agency staff tend to show that in most cases CIMs and municipalities know better the local context but do not have experience dealing with foreign investors. Portugal could consider further strengthening the mandate and capacities of the CIMs in order to enable them to be more involved in investment promotion in collaboration with AICEP.
Contractual partnership agreements are also used at the agency level to put forward joint policy actions. For instance, AICEP has signed cooperation protocols with the Azores Business Development Society (Sociedade para o Desenvolvimento Empresarial dos Açores, SDEA), which is responsible for supporting business development and attracting foreign investment in the autonomous region of Azores. The protocols have fostered collaboration between the two entities on issues relating to the internationalisation of Azorean companies, and facilitated the inclusion of Azores in AICEP’s site selection platform, which helps investors identify the best location within Portugal to set up their business.
Policy learning and adaptation are hindered by limited evaluation capacities at the agency level
Policy evaluation aims to inform about the appropriateness and effectiveness of public policy interventions. Evaluations take place at different stages of the policy cycle (ex ante, mid-term, ex post); target specific projects, organisations, programmes, policies or the overall policy system; are implemented as part of a contract or enforced by law; are process- or impact-oriented; and serve learning or accountability purposes. Assessment methods and criteria vary accordingly. A comprehensive monitoring and evaluation (M&E) framework for assessing FDI-SME diffusion policies could play a crucial role as an “early warning mechanism” to identify potential system failures and take corrective action.
In Portugal, the use of comprehensive M&E frameworks is limited to government institutions involved in the implementation of policies supported by the EU Structural and Investment Funds. With the exception of AD&C and the managing authorities of the operational programmes of the EU funds, none of the other implementing agencies, whose role is crucial in enabling FDI-SME diffusion, have a dedicated unit or internal capacity to systematically evaluate the impact of their policy initiatives. The OECD/EC survey findings show that only half of the FDI-SME diffusion policies implemented in Portugal have been evaluated, of which 68% are policies implemented under the EU-funded Portugal 2020 Partnership Agreement (Figure 4.6).
Although Portugal 2020 incentive schemes are managed by various government agencies (including AICEP, IAPMEI and ANI), their evaluations are coordinated by AD&C and the managing authorities of the EU-funded operational programmes. A set of programme, financial and operational indicators is used to assess progress on the execution of Portugal 2020 actions and measure their impact on beneficiaries. A Monitoring and Evaluation Network (Rede M&A) has been also established between the technical coordination bodies of the EU Structural and Investment Funds and the management authorities of the operational programmes. The network promotes M&E activities and the exchange of good practices among members. Practically, it prepares an evaluation plan for review by the Inter-ministerial Coordination Commission (CIC), creates instruments to monitor the implementation of recommendations, and ensures organisational learning and training on M&E practices.
Source: EU/OECD Survey on Policies enabling FDI spillovers to domestic SMEs (2021).
The evaluation of policies that are not backed by EU funding instruments is less systematic and does not allow for strategic foresight and planning. The main criticism relates to the skills and internal capacities of implementing agencies and to the scope of evaluations, which is often procedural and centred on implementation issues rather than on results and impact (OECD, 2019[2]). This is in line with evidence from other government institutions in EU Member States that implement policies linked to the EU’s smart specialisation strategy. In a 2020 survey conducted by the EU’s Joint Research Centre (JRC), half of the national and regional implementing authorities considered their capacity to collect and analyse data inadequate, with potential negative consequences on the process of policy learning and adaptation (Hegyi et al., 2021[29]).
The M&E capacities of the main Portuguese implementing agencies vary. AICEP does not have a dedicated evaluation unit and relies on ad hoc meetings and consultations with its clients and other stakeholders to collect feedback after a project is implemented. Although stakeholder consultations can be more or less formal, frequent and standardised, they are a common evaluation instrument that IPAs use to assess their performance and impact in attracting inward FDI. Recent OECD findings show that OECD IPAs favour qualitative evaluation methodologies – such as benchmark comparisons (78% of IPAs), client surveys (75%), and stakeholder consultations (69%) – over quantitative ones (e.g. quality control assessments, cost benefit analyses, and econometric assessments) (OECD, 2018[7]). The main challenge that AICEP and other OECD IPAs have to overcome is the partial information and incomplete or ambiguous results that qualitative evaluations often provide. Qualitative tools should ideally be complemented by more quantitative and systematic approaches, whenever possible.
A similar picture emerges when looking at the M&E capacities of IAPMEI. Monitoring frameworks and requirements for frequent policy evaluations have been introduced in the implementation cycle of recent policy initiatives. For instance, two annual monitoring exercises have been conducted for IAPMEI’s sectoral clustering programme (the 2017 Competitiveness Clusters initiative) while a triennial evaluation is currently underway to assess the performance of clusters. A monitoring committee has been also established to collect information on the implementation of the Startup Visa programme, which allows entrepreneurs from outside the EU to set up their startup in Portugal.
ANI has a dedicated innovation policy monitoring unit, which compiles and makes available indicators to measure Portugal’s innovation performance. Granular data are also collected on the implementation of several innovation support programmes in which ANI is involved. However, fewer resources are dedicated to the evaluation of policy impact. The SIFIDE R&D tax incentive scheme is the only policy instrument under ANI’s remit for which a comprehensive evaluation exercise has been carried out so far (Government of Portugal, 2019[30]). This became possible with the establishment of an external Working Group of experts, which carried out a systematic survey of tax incentive schemes in Portugal and developed an impact assessment methodology for future evaluations of tax incentive schemes.
Although the practice of policy impact assessments is rather limited, the evaluation of overall institutional performance is more systematised. Since 2007, all Portuguese public institutions are obliged to use the Evaluation and Accountability Framework (QUAR), which is the public administration’s main management tool to evaluate the performance of public bodies and to raise the accountability of their top managers. The framework looks at the institution’s mission, strategic and operational objectives, performance indicators, as well as at how human and financial resources are allocated to the pursuit of their objectives. The annual QUAR assessment can influence the budget allocated or the policy priorities pursued. For instance, consecutive insufficient performance can lead to services being discontinued and priorities adjusted. However, these evaluation exercises do not assess the impact and effectiveness of specific policy interventions.
Overall, Portugal could benefit from the establishment of a comprehensive horizontal M&E framework that covers all major policy fields and goes beyond satisfying the monitoring requirements of the EU Structural and Investment Funds. This would involve mapping various sources of indicators and placing emphasis on measuring results and impacts rather than implementation issues. The recently launched Action Plan for the Digital transition includes a comprehensive M&E framework, which relies upon approximately 100 indicators from various sources including the EU’s Digital Economy and Society Index (DESI). In the selection of monitoring tools priority was given to indicators covering areas where Portugal’s performance gap is wider compared to other EU countries (Government of Portugal, 2020[31]). Efforts to identify appropriate monitoring frameworks and systematically collect and analyse data in other policy areas should continue.
Apart from the use of quantifiable outcome-based performance indicators, reliable evaluations of individual policy actions will require strong internal capacity to plan, prepare and execute ex ante and ex post evaluations. The experience that AD&C has acquired through the management of EU funds could help draw lessons on good practices and how they could be adopted by other policy delivery actors. Setting up dedicated evaluation units within each implementing agency and involving specialised staff with technical knowledge of M&E principles and implementation tools could also strengthen internal competences and improve the effectiveness of their programmes. Capacities for analysis could be supported through the provision of specialised training to raise education and awareness of public servants on the process of monitoring and evaluating policy impacts
Deliberative processes for the implementation of new policy workstreams have improved but efforts for greater stakeholder engagement should continue
Active engagement and consultation with foreign investors and local SMEs is necessary for the implementation of effective FDI-SME diffusion policies. Through their interactions with the private sector, public bodies are able to understand the challenges and expectations of foreign and domestic firms, receive feedback on the relevance of their policy programmes, and enrich policy-making processes with insights from various stakeholders. Mechanisms for regular public-private dialogue within specific sectors and supply chains are often combined with bottom-up communication processes to ensure that local level market needs and perspectives are fed into higher level policy processes.
Although public consultations are not conducted in a systematic manner by all government institutions, Portugal has recently made significant progress in the use of deliberative processes to receive feedback on prospective laws, decrees and other regulatory initiatives. In 2019, the government launched the CONSULTALEX Portal, which allows citizens and companies to participate in the legislative and regulatory procedures by consulting the draft version of laws and submitting their comments and suggestions through an online interface.
Several public consultations have been organised since 2018 on the government’s strategic action plans and multi-annual work programmes for the next EU programming period (2021-27). Thematic debates took place in 2018 to inform the National Investment Programme 2030, which lays out the priorities on infrastructure investment for the next decade. In the case of the 2030 Economic Internationalisation programme, the consultation of the private sector took place in a more structured way through the CEIE. Similarly, online public consultations and stakeholder meetings were organised for the formulation of the Portugal 2030 Strategy (Estratégia Portugal 2030) and the 2020-2030 Recovery and Resilience Plan (Plano de Recuperação e Resiliência), which have both been presented to the European Commission to secure EU funding.
At the agency level, engaging with business stakeholders takes place through formal and informal channels. AICEP and ANI have advisory bodies that allow for a regular consultation of relevant communities on regulatory changes and policy programmes. AICEP’s Advisory Council for Investment and Foreign Trade (Conselho Consultivo para o Investimento e Comércio Externo) is composed of representatives of leading investment companies and companies with significant international activities, whose role is to advise the agency on activities and programmes that contribute to strengthening Portugal’s attractiveness to foreign investment. Similarly, ANI’s Advisory Council is composed of independent personalities coming from the scientific and business communities, who meet at least twice a year and have the right to issue non-binding opinions on the agency’s annual activity plans and reports.
The government of Lithuania has engaged in an in-depth process to define its national strategy “Lithuania 2030”. The State Progress Council, led by the centre of government, was responsible for the drafting process of the strategy: government authorities, business leaders, community groups and prominent public figures participated in its development.
Three working groups were set up on smart economy, smart governance and smart society. The consultation involved the national level and Lithuanians living abroad. The council also went on a road trip to discuss with mayors, municipality representatives, young people and non-governmental organisations. Innovative approaches were developed to involve harder to reach groups. Since the elderly were seen not to believe in the strategy, the council reached out to school children, who were trained to interact with the elderly. The outcome is a national strategy which is guiding the policies of the whole country and whose implementation is monitored in an inclusive process.
Source: (OECD, 2015[32])
Less systematic engagement with targeted audiences takes place through the organisation of stakeholder events, where sectoral representatives are invited, or through the organisation of ad hoc public consultations on specific workstreams. IAPMEI launched a public consultation on the simplification of the Portuguese Incentives System in 2019 in order to identify potential challenges that companies face in accessing and using financial incentive schemes. The consultation consisted of addressing a questionnaire to relevant companies and organising thematic focus groups with entrepreneurs to discuss concrete measures. The CEIE, in collaboration with AICEP, also launched a survey addressed to business stakeholders to identify barriers to the internationalisation of Portuguese companies.
Despite improvements in deliberative processes in recent years, the Portuguese government could consider re-activating the advisory role of high-level ministerial bodies, such as the CNEI, CNCT, and CEIE, and strengthening their capacity to convene stakeholders and provide input to strategy development and policymaking. Beyond their coordinating role, their mandate could be broadened to include the systematic issuing of non-binding opinions on policy initiatives that the relevant ministries bring forward, the review of consultation reports, and the outlining of proposals and options for consideration by the government.
A public dialogue culture could be also mainstreamed into the Portuguese public administration through the establishment of a comprehensive horizontal framework that would make stakeholder engagement processes part of the policy cycle across all tiers of government. In this framework, the CONSULTALEX Portal could be further consolidated as the main public online tool for citizen consultation by broadening its scope to also include strategic priority documents, action plans and multi-annual work programmes alongside laws and regulations.
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