Foreign investments fall by 50% in the first half

The Portuguese economy attracted almost 2.6 billion euros in foreign direct investment (FDI) in the first half of the year, but this figure reflects a decrease of more than 50% compared to the same period last year, according to calculations by Dinheiro Vivo) on the basis of data released by the Bank of Portugal yesterday.

This breakdown takes place because direct foreign sales transactions are still heavily dependent on the banking and financial business.

Since 2014, Portugal was in the last year of the adjustment program, that there was no first half as weak in terms of foreign direct investment. The highest value of the now-built series goes back to 2012, when the then government decided to privatize the rest of EDP (sold to Chinese CTG) and airports (sale of ANA to the French of the Vinci group). These were the two most important privatizations of the time of the ransom.

Moreover, the value of the FD is now much reduced because a year ago there were at least two major deals that increased the amounts drawn: the Spanish CaixaBank bought BPI; and Santander Totta stayed with Banco Popular Portugal operations.

In the latter case, the deal was closed for one euro, but Santander will have remained with debt instruments and this also applies as FD, according to the criteria set by the central bank.

Leading banks and consulting firms

As mentioned above, Portugal raised around EUR 2.6 billion in foreign investments in the first half of the year. Consulting activities contributed the most, with 897 million euros. Then the financial and insurance activities, with 683 million euros, provide the DV accounts with the help of the BOP databases.

By contrast, foreign investors derived value from the industrial sector (minus 139 million in foreign direct investment in the first half) and trade (-177 million euros).

When the balance of foreign direct investment is negative, this means that there was divestment, a kind of value draw by the foreign shareholders. This can happen, for example, by phenomena with the repatriation of profit.

But in comparative terms (compared to the first half of last year) the largest erosion occurred even in the financial sector. The decrease was 2.3 billion euros and explains the decline in the total investment.

The real estate sector, which managed to anchor 322 million euros in foreign interests in the first half of last year, is now discharged by these shareholders or partners for an amount of 130 million euros. It is a difference of minus 452 million euros.

A similar phenomenon occurs in trading activities. In the first half of last year they were able to raise 313 million euros, but now the balance of foreign direct investment in this sector is negative (-177 million). The cut is the highest in all sectors: minus 490 million euros invested.

High-tech consultants and technicians

But there are winners. The sector that emerged most in the interest of foreigners was advisory and scientific activities: it had raised 605 million euros net in the period from January to June 2017 and now it is already 897 million. This is a significant increase of 48%. Unlike this, the photo is relatively poor.

According to the consultant AT Kearney, this year Portugal is for the first time among the top 25 most attractive countries in the world for foreign direct investment (FDI). The country is in 22nd place, for Norway, Austria and Brazil, in a ranking led by the United States.

The consultant emphasizes the work of promoting "partnerships" between public entities and private companies to use the money from Portugal 2020 (European funds) "in a number of areas that focus on innovation."

And it is surprised by the explosive growth of the technology sector. This "recorded a remarkable 673% growth in domestic and foreign investment in 2017 compared to the previous year," consultants say.

"Lisbon will be a center for technological start-ups, thanks in part to the relocation of the annual Web Summit conference in Dublin."

AT Kearney also gives examples of Google's plan to open a new center in Lisbon "that will create 500 jobs" and partnerships with Cisco and Out Systems in the field of digitization of countries and artificial intelligence, respectively.

Luxembourg was the most invested in Portugal until June

Return to the Bank of Portugal data. The very financial dimension of foreign direct investment in Portugal – coupled with the fact that many companies (some established abroad in Portuguese) opt for more advantageous or favorable areas in the field of taxation or access to finance – explains why Luxembourg is the most important source of foreign investment.

According to DV accounts, Luxembourg was the country of origin of EUR 939 million of foreign direct investment, effectively taken up by the Portuguese economy in the first six months of this year. But it is also experienced that one of the biggest reductions in this balance is caused by the Luxembourg activities. The value of transactions from this country where the tax remains very favorable has dropped by nearly 779 million euros.

The United Kingdom appears to be the second most important source of investment (EUR 515 million). The Netherlands is the third (414 million) – is another area with several Portuguese business groups, mainly for tax reasons and access to finance.

On the other hand, the countries that have the most value of the economy are out of their investments here. Spain, which is a major investor in historical terms, has emptied 484 million euros; Ireland can absorb 230 million.

France, another major investor, repatriated 48 million. Germany has increased its position in Portugal by 93 million.

In historical terms, the Netherlands

Historically (analyzing FDI shares, the accumulated value over time) we conclude that the Netherlands is in charge, with almost 28 billion euros to Portugal. This value does not reflect the money that was ultimately won from the Portuguese economy.

The second most valuable region of origin is Luxembourg (€ 24.5 billion). Spain is in third place with 22.3 billion euros applied in Portugal.

The United Kingdom, France, Brazil and China are, in this order, the other more relevant sources in foreign direct investment that countries in Portugal.