Foreign Direct Investment into Portugal falls by 30%.jpg

Foreign Direct Investment into Portugal falls by 30%


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FOREIGN DIRECT Investment (FDI) into Portugal plummeted an estimated 30 per cent in 2007 thanks to the credit crunch and crisis in the sub prime market.

The figures, which saw investment down by 18 billion euros up until September, calls into question the future of Minister of the Economy and Innovation, Manuel Pinho, whose ministry is responsible for attracting inward investment.

Economists say it is bad news for Portugal’s hopes of economic recovery, which is stagnating at between 1.4 and 1.8 per cent growth per annum depending on which set of figures are to be believed.

The country desperately needs cash from foreign investors to modernise its small and medium sized businesses and industries, create employment and make up for poor internal performance in getting major projects off the ground.

By September, Portugal managed to hold onto only 3.5 billion euros, the difference between the money that flowed in from abroad and the cash that flowed out as well as deals that fell through.

The amount represents a fall of 30 per cent on the same period last year and represents the lowest amount of FDI in the past five years.

Other reasons for the lack of FDI into Portugal is that many Portuguese companies and foreign companies prefer to invest in the heart of Europe, keeping distribution and production costs down. Countries like Estonia, Lithuania, Latvia, Poland, the Czech Republic and Hungary all enjoy lower production costs and a highly qualified and educated workforce relative to Portugal.

Even more surprising was the news last week through ‘diplomatic sources’ that some Portuguese companies in manufacturing prefer to relocate to the UK, despite higher wages and the cost of living in that country.

According to information released by the Bank of Portugal, the country would have needed to retain an extra 2.4 billion euros to maintain the same position it had by the end of the third quarter in 2006.

Business leaders, managers and economists all confirm the situation is getting worse because of the country’s continued lack of competitiveness despite government reforms which simply haven’t gone far enough.

Many analysts don’t understand why new shopping centres continue opening all over Portugal when both the public and the economy are doing so badly, but say that these projects and the financing for them had been secured long ago and that retailers and investors in the sector were likely to try and ride out the storm and await better times.

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