Preface
Portugal has long recognised the importance of international investment for its economy and worked towards lowering barriers to foreign direct investment (FDI) over time. The accession to the European Community in 1986 marked an important historical milestone in this regard, helping to foster support for leveraging FDI to modernise Portugal’s industrial and services sectors, integrate its economy into regional and international markets and promote convergence with the other European Union Member States.
Portugal has been committed to maintaining an open and enabling environment for foreign investment ever since, being today one of the most open economies to FDI among OECD member countries. Over the last decade, Portugal has also demonstrated a strong commitment towards creating a favourable business environment, as evidenced by its successful administrative and regulatory simplification programme Simplex and strides taken in the digitalisation of public services, among other initiatives.
Foreign investors continue to perceive Portugal’s skilled workforce and the quality of its higher education institutes as highly attractive. They have also shown increasing interest in Portugal’s renewable energy commitment in recent years, resonating with the country’s leadership in green transition efforts, as one of the first countries in the world to set 2050 carbon neutrality goals, and its strong policy emphasis on the expansion of renewable electricity generation and increased energy efficiency.
These achievements, alongside the extensive reforms implemented after the economic crisis of 2011, have paved the ground for a recent increase in foreign investment projects. Portugal now enjoys one of the highest levels of inward FDI stocks among OECD countries after a decade of impressive growth, standing at 71% of GDP in 2021. As demonstrated in this report, foreign-owned firms in Portugal are bringing about many benefits to the Portuguese economy, contributing to sustainable development goals in areas such as productivity and innovation, job quality and skills, gender equality and low-carbon transition. By developing local sourcing and selling to international markets, foreign firms also help to deepen Portugal’s integration into global value chains. They equally contribute to advance Portugal’s digital transformation by investing in information and communication technologies (ICT) and infrastructure, promoting greater technology uptake by domestic firms, too.
Mobilising increasing levels of international investment remains, nonetheless, a strategic priority for Portugal for the next decade, as it can help address long-lasting structural challenges weighing on productivity growth. Particularly, more investment is needed in productivity-enhancing assets, such as machinery, equipment and intellectual property assets. Increased investment in ICT assets more broadly across industries and firms could also enable further productivity improvements and help to consolidate Portugal’s reputation as an emerging technology and innovation hub. The timing for Portugal to further strengthen its appeal to foreign investment may be particularly important, as businesses reconfigure their supply chains in the light of the economic uncertainty surrounding the COVID-19 recovery and Russia’s war of aggression against Ukraine. Amidst intensifying global competition for FDI, Portugal may also be able to leverage its recent track record in attracting increasing amounts of foreign investment.
This report supports these efforts by assessing the impact of regulation on foreign investment in Portugal. It proposes policy actions to further improve general aspects of the country’s investment climate, affecting a wide range of firms economy-wide, as well as some targeted reforms to facilitate market entry and boost competitiveness in areas providing strategic support to Portugal’s priority sectors for investment.
We believe that the assessment and policy considerations that this study puts forward will help key reform efforts in various domains, including some that are currently being scoped by the government. More broadly, it will support Portugal in the pursuit and implementation of its strategic priorities reflected in the Acordo de Parceria Portugal 2030 and Portugal’s Recovery and Resilience Plan. Ultimately, we hope that the suggested investment climate reforms will help Portugal advance on its path towards the twin green and digital transition.
The Government of Portugal and the OECD are very pleased to have joined forces in the preparation of this study. We thank the European Union for funding the work leading to this publication and for the support provided throughout the project development. We are also grateful to all Portuguese agencies, consulted companies and other stakeholders who contributed to this report.
