A skilled workforce and a welcome lack of red tape are attracting multinationals and savvy British SMEs alike to Portugal. Business leaders who have established a presence in Lisbon, which is thriving both economically and socially after years in the doldrums, extol the capital’s virtues as an enterprise hub
That which does not kill us”, wrote Friedrich Nietzsche, “makes us stronger.” It’s debatable whether this principle held true for businesses in Portugal after a brutal debt crisis in 2010-14 forced its government to seek a €78bn (then £69bn) bailout from the EU and the International Monetary Fund. By certain measures, the aftershocks were profound and prolonged. In September 2016 a Daily Express article entitled “Catastrophic Portuguese economy hits new low as toxic combination to bring down eurozone [sic]” revealed that nearly 2,500 Portuguese firms had been declared insolvent in the first eight months of that year – a 50 per cent increase on the equivalent period in 2015.
Despite this, Portugal has just registered its 13th consecutive quarter of economic growth. Last year its deficit was at the lowest level since democracy was restored 43 years ago: 2.1 per cent of GDP – down from 4.4 per cent in 2015. According to a Ministry of Finance estimate in October 2016, unemployment fell to 10.3 per cent from a peak of 16.2 per cent in 2013 – a situation that had prompted Portugal’s then PM, Pedro Passos Coelho, to urge young jobless people to “show more effort” and “leave their comfort zone” by seeking work abroad. The European Commission expects the rate to fall to 9.4 per cent next year. Moreover, Portugal’s exports hit a monthly high of €5.26bn this March – nearly 24 per cent better than the figure it recorded in March 2016, according to research by Trading Economics.
So is Portugal reeling on the ropes or ready to rumble? The balanced view is that, while it’s still shaken from its knock-down, the nation is definitely back on its feet and coming out swinging. Later in that same article in the Express – a particularly pro-Leave newspaper reporting at the height of Brexit fever – there was the somewhat sheepish disclosure that nearly 25,500 enterprises had been created in Portugal in the first eight months of 2016. Make no mistake: the country is one of the world’s new start-up hotspots and Lisbon is in the thick of the action.
The government’s robust response to the financial crisis has helped to create a more conducive environment for business, according to Rui Boavista Marques, director of AICEP Portugal Global, an independent state agency working to attract foreign trade and investment.
“A strong reform package concerning labour and competition laws has made Portugal much more attractive for investment, as well as a more creative space to work in,” he says, adding that this persuaded many bright young graduates to ignore Coelho’s emigration call and instead set up businesses in their home country.
“We’ve always had a very strong innovation ecosystem in Lisbon, but now we have more than 40 accelerators and 70 incubators,” Boavista Marques says. “Venture capital is being poured into start-ups – and not only Portuguese ones.”
Acceleration programmes run by Beta-I, an incubator that has helped more than 500 start-ups from its nine-storey HQ in the city centre, have attracted applications from more than 60 nations. Overseas entrepreneurs have been lured by the offer of generous subsidies, including tax credits of up to 25 per cent on their investments.
Seedrs, a British crowdfunding platform, established a presence in Lisbon in 2009. “We were here before it was cool,” recalls its co-founder and CEO, Jeff Lynn. “We set up in Lisbon because my co-founder, Carlos Silva, is Portuguese and knew some great software engineers in the city. We thought we could hire them at a relatively low cost. It’s since become a really exciting place.”
Employment costs remain remarkably low: the average monthly salary in Portugal last year was £866, compared with an EU mean of £1,306. Such figures are unusual in a nation with such a well-educated workforce. More than three-quarters of students here learn at least two foreign languages, while 91 per cent of Portuguese aged 16 to 24 have at least basic digital skills, compared with an EU average of 81 per cent.
Noting that a comparatively high proportion (46 per cent) of Portugal’s graduates have studied Stem subjects, Boavista Marques stresses that the capital doesn’t have the monopoly on skilled people. “Braga and Porto are also getting a lot of international attention because of the talent pools they have,” he notes.
One foreign plc that looked beyond Lisbon when seeking to move part of its R&D function to Portugal is Paddy Power Betfair, which acquired Porto-based web engineer Blip in 2012.
“We chose the company to help us with our mobile app development because it had some great skills and was willing to collaborate with us,” says Paul Cutter, chief technology officer at the FTSE 100 bookmaker. “Eventually we decided to acquire Blip and integrate it into our technology team. We were one of the first foreign companies to tap into Porto’s strong pool of technical talent.”
The attractiveness of the burgeoning Portuguese start-up scene to the hi-tech sector was highlighted last year when Irish company Web Summit chose Lisbon to host its annual conference – “Davos for geeks”, as it’s become known – from 2016 to 2018. Last November well over 50,000 delegates descended on the capital for four days, moving Nasdaq to describe the gathering as “a quarter of a trillion dollars’ worth of private internet companies” in one room.
“Our start-up boom has been led by IT businesses, but we also have a strong industrial base here and we’re launching Industry 4.0. This term means IT, but with different applications in different industries,” Boavista Marques explains. “For instance, the FT chose Lisbon to host its ‘Business of luxury’ summit in May, partly because many supposedly traditional crafts used in making high-end goods are becoming more tech-orientated. Also, Mercedes-Benz has just announced that it will be opening an advanced R&D centre here.”
And Vodafone, having already established an “internet of things competence centre” in Lisbon to develop smart technology to improve the efficiency of urban infrastructure, chose the same city late last year for a new facility focusing on its next-generation broadband TV service. The telecoms giant now employs about 500 people in the capital.
A bright future
Portugal, which enjoys 270 days of sunshine a year, has much else to recommend it to British firms seeking a new foothold in the EU as Brexit looms. Ranked fifth on the latest global peace index compiled by the Institute for Economics and Peace, the country is culturally diverse and has no extremist political parties.
According to research conducted for the European Commission, Portugal “has among the most sophisticated online public services in the EU”. It’s also relatively unbureaucratic: AICEP Portugal Global estimates that setting up a business is a five-step process that should take no more than a working week, while registering a property can be done in a day. It’s eminently affordable too. A desk and access to a shared retail space at Oficina Colectiva, in the once decrepit but now fashionable Lisbon neighbourhood of Santos, can cost as little as £147 a month.
Are there any caveats for British firms considering Portugal as a base? Lynn says that the task of attracting skilled recruits is already getting more difficult. “This is a good thing, as it creates a good ecosystem, but hiring does now involve extra work and extra cost. There’s also a little less awareness here about how things are done in the rest of the world and a little less in the way of best practice, although that’s changing quickly,” he adds.
Andrew Thomis, chief executive of Cohort (see panel, below), agrees. “Portugal has a relationship with the UK going back many years in both politics and trade. Travelling between the countries is easy too: it’s possible to get there and back in a day with a full schedule of meetings,” he says. “But its legal system has developed in a different way from the UK’s. In some areas, such as employment, it is markedly divergent. It’s not hard to find good sources of advice in Portugal, but there can still be challenges for UK entrepreneurs.”
Exhaustive preparation, Thomis stresses, is crucial in this area. “Research the regulatory environment that’s relevant to your market and ensure that you have confidence in the local management team,” he advises.
Lynn recommends recruiting a senior manager who can easily “straddle the headquarters and the local culture. At Seedrs it was invaluable having Carlos as a co-founder. He was very involved in the strategy side, but was also able to work with everyone in the UK and Portugal, smoothing over some of the cultural differences.”
Talking of cultural differences, Boavista Marques warns newcomers to Portugal to expect some surprises. “We don’t do siestas,” he laughs. “People think of us as southern European, but we aren’t really. With respect to our entrepreneurial culture, we’re very much an Atlantic nation.”
Cohort advances on Portugal
When Basingstoke-based IT consultancy Cohort paid £16.5m in June 2016 to acquire Empresa de Investigação e Desenvolvimento de Electrónica (EID), a Portuguese firm supplying control systems to the defence industry, it had its eye on global, as well as local, markets.
“Owning a business in Portugal gives Cohort direct access to the EU and the eurozone, which is more important than ever in light of the Brexit vote, but it also provides improved access to a number of export markets that see Portugal as a more natural trade partner than the UK,” says Cohort’s chief executive, Andrew Thomis (pictured above). “We were aware of EID as a very capable business serving naval customers worldwide. When we discovered that a new owner was being sought, we were naturally interested, since its activities fit well with ours.”
The fact that the global lusophone population is about 250 million (80 per cent of whom are Brazilian) was surely a factor behind the takeover, as was Portugal’s relatively business-friendly environment.
“It offers a low cost base compared with much of the rest of Europe and it has a very good technical education system,” he says. “That’s a powerful combination.”
The company’s performance since its acquisition has not disappointed Thomis. “We’ve realised just how good and successful a business it is across all of its areas of operation,” he reports, noting that it’s not only about the subsidiary’s global reach: the Portuguese army awarded EID a contract to supply radio systems earlier this year. That deal alone is worth £6.5m.